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 March 31, 2001 ---------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the Transition Period From To ------------------- ------------------- Commission file number 1-14122 ----------- D.R. HORTON, INC. ------------------- (Exact name of registrant as specified in its charter) DELAWARE 75-2386963 ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006 ------------------------------------------------------- (Address of principal executive offices) (Zip Code) (817) 856-8200 ---------------- (Registrant's telephone number, including area code) --------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, $.01 par value -- 75,602,771 shares as of May 11, 2001 --------------- This Report contains 28 pages.
2 INDEX D.R. HORTON, INC. <TABLE> <CAPTION> PART I. FINANCIAL INFORMATION. Page ---- <S> <C> ITEM 1. Financial Statements. Consolidated Balance Sheets-March 31, 2001 and September 30, 2000................................... 3 Consolidated Statements of Income--Three Months and Six Months Ended March 31, 2001 and 2000. .................................................................... 4 Consolidated Statement of Stockholders' Equity-Six Months Ended March 31, 2001................................................................................ 5 Consolidated Statements of Cash Flows-Six Months Ended March 31, 2001 and 2000....................................................................... 6 Notes to Consolidated Financial Statements........................................................ 7-16 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition ......................................................................... 17-23 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.......................................... 24 PART II. OTHER INFORMATION. ITEM 2. Changes in Securities......................................................................... 25 ITEM 4. Submission of Matters to a Vote of Security Holders........................................... 25 ITEM 6. Exhibits and Reports on Form 8-K........................................................... 26-27 SIGNATURES..................................................................................................... 28 </TABLE>
3 D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> MARCH 31, SEPTEMBER 30, 2001 2000 ------------- -------------- (IN THOUSANDS) (UNAUDITED) <S> <C> <C> ASSETS HOMEBUILDING: Cash ............................................................................... $ 118,276 $ 61,798 Inventories: Finished homes and construction in progress ................................... 1,321,174 1,095,636 Residential lots - developed and under development ........................... 1,209,044 1,092,571 Land held for development ..................................................... 2,824 2,824 ------------- ------------- 2,533,042 2,191,031 Property and equipment (net) ....................................................... 40,846 38,960 Earnest money deposits and other assets ............................................ 174,500 148,983 Excess of cost over net assets acquired (net) ...................................... 113,265 115,966 ------------- ------------- 2,979,929 2,556,738 ------------- ------------- FINANCIAL SERVICES: Cash ............................................................................... 7,871 10,727 Mortgage loans held for sale ....................................................... 129,108 119,581 Other assets ....................................................................... 10,066 7,531 ------------- ------------- 147,045 137,839 ------------- ------------- $ 3,126,974 $ 2,694,577 ============= ============= LIABILITIES HOMEBUILDING: Accounts payable and other liabilities ............................................. $ 350,252 $ 370,389 Notes payable: Unsecured: Revolving credit facility due 2002 ....................................... 314,000 192,000 8 3/8% senior notes due 2004, net ........................................ 148,745 148,547 10 1/2% senior notes due 2005, net ....................................... 199,386 199,343 10% senior notes due 2006, net ........................................... 147,499 147,398 8% senior notes due 2009, net ............................................ 383,172 383,089 9 3/4% senior subordinated notes due 2010, net ........................... 148,883 148,821 9 3/8% senior subordinated notes due 2011, net ........................... 199,678 -- Other secured ................................................................. 47,550 26,388 ------------- ------------- 1,588,913 1,245,586 ------------- ------------- 1,939,165 1,615,975 ------------- ------------- FINANCIAL SERVICES: Accounts payable and other liabilities ............................................. 4,477 4,958 Notes payable to financial institutions ............................................ 102,810 98,817 ------------- ------------- 107,287 103,775 ------------- ------------- 2,046,452 1,719,750 ------------- ------------- Minority interests ................................................................. 8,299 5,264 ------------- ------------- STOCKHOLDERS' EQUITY Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued ............................................................................ -- -- Common stock, $.01 par value, 200,000,000 shares authorized, 75,522,310 at March 31, 2001 and 70,074,110 at September 30, 2000, issued and outstanding ........................................................ 755 701 Additional capital ................................................................. 674,776 537,145 Retained earnings .................................................................. 396,692 468,664 Treasury stock, no shares at March 31, 2001 and 2,589,200 shares at September 30, 2000, at cost ................................................... -- (36,947) ------------- ------------- 1,072,223 969,563 ------------- ------------- $ 3,126,974 $ 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 SIX MONTHS ENDED MARCH 31, ENDED MARCH 31, ----------------------------- ----------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) ----------------------------------- (UNAUDITED) <S> <C> <C> <C> <C> HOMEBUILDING: Revenues Home sales ........................................... $ 853,575 $ 780,156 $ 1,709,652 $ 1,562,528 Land/lot sales ....................................... 38,832 7,958 56,309 23,150 ------------ ------------ ------------ ------------ 892,407 788,114 1,765,961 1,585,678 ------------ ------------ ------------ ------------ Cost of sales Home sales ........................................... 682,760 636,990 1,372,659 1,272,822 Land/lot sales ....................................... 30,647 7,332 44,079 18,137 ------------ ------------ ------------ ------------ 713,407 644,322 1,416,738 1,290,959 ------------ ------------ ------------ ------------ Gross profit Home sales ........................................... 170,815 143,166 336,993 289,706 Land/lot sales ....................................... 8,185 626 12,230 5,013 ------------ ------------ ------------ ------------ 179,000 143,792 349,223 294,719 Selling, general and administrative expense ............. 94,101 82,133 185,999 164,830 Interest expense ........................................ 1,623 1,561 4,529 4,856 Other expense (income) .................................. 5,684 (644) 8,998 (725) ------------ ------------ ------------ ------------ 77,592 60,742 149,697 125,758 ------------ ------------ ------------ ------------ FINANCIAL SERVICES: Revenues ................................................ 14,429 10,750 28,538 22,126 Selling, general and administrative expense ............. 9,830 8,022 19,967 15,997 Interest expense ........................................ 875 1,157 2,007 2,706 Other (income) .......................................... (1,213) (1,290) (2,629) (3,023) ------------ ------------ ------------ ------------ 4,937 2,861 9,193 6,446 ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES ........................... 82,529 63,603 158,890 132,204 Provision for income taxes .............................. 30,948 24,169 59,584 50,238 ------------ ------------ ------------ ------------ Income before cumulative effect of change in accounting principle ............................... 51,581 39,434 99,306 81,966 Cumulative effect of change in accounting principle, net of income taxes ............................... -- -- 2,136 -- ------------ ------------ ------------ ------------ NET INCOME ........................................... $ 51,581 $ 39,434 $ 101,442 $ 81,966 ============ ============ ============ ============ Basic earnings per common share: Income before cumulative effect of change in accounting principle ............................... $ 0.68 $ 0.53 $ 1.32 $ 1.09 Cumulative effect of change in accounting principle, net of income taxes ............................... -- -- 0.03 -- ------------ ------------ ------------ ------------ Net income ........................................... $ 0.68 $ 0.53 $ 1.35 $ 1.09 ============ ============ ============ ============ Diluted earnings per common share: Income before cumulative effect of change in accounting principle ............................... $ 0.67 $ 0.52 $ 1.30 $ 1.08 Cumulative effect of change in accounting principle, net of income taxes ............................... -- -- 0.03 -- ------------ ------------ ------------ ------------ Net income ........................................... $ 0.67 $ 0.52 $ 1.33 $ 1.08 ============ ============ ============ ============ Cash dividends per share ................................ $ 0.05 $ 0.04 $ 0.09 $ 0.07 ============ ============ ============ ============ </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 ................................... -- -- 101,442 -- 101,442 Issuances under D.R. Horton, Inc. employee benefit plans (4,720 shares) ...... -- 73 -- -- 73 Exercise of stock options (536,833 shares) ... 5 7,246 -- -- 7,251 Cash dividends paid .......................... -- -- (6,106) -- (6,106) Stock dividend paid .......................... 49 130,312 (167,308) 36,947 -- ------------ ------------ ------------ ------------ ------------ Balances at March 31, 2001 ................... $ 755 $ 674,776 $ 396,692 $ -- $ 1,072,223 ============ ============ ============ ============ ============ </TABLE> See accompanying notes to consolidated financial statements. -5-
6 D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> SIX MONTHS ENDED MARCH 31, ------------------------------ 2001 2000 ------------ ------------ (IN THOUSANDS) (UNAUDITED) <S> <C> <C> OPERATING ACTIVITIES Net income ............................................................. $ 101,442 $ 81,966 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization .......................................... 11,972 10,176 Amortization of debt premiums and fees ................................. 1,165 1,106 Changes in operating assets and liabilities: Increase in inventories .......................................... (289,052) (280,602) Increase in earnest money deposits and other assets .............. (24,905) (25,528) (Increase)/decrease in mortgage loans held for sale .............. (9,527) 22,353 Decrease in accounts payable and other liabilities ............... (17,584) (24,082) ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES .................................... (226,489) (214,611) ------------ ------------ INVESTING ACTIVITIES Net purchase of property and equipment ................................. (10,356) (9,353) Net investment in venture capital entities ............................. (2,022) (15,071) Net cash paid for acquisitions ......................................... (1,318) (4,800) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES .................................... (13,696) (29.224) ------------ ------------ FINANCING ACTIVITIES Proceeds from notes payable ............................................ 538,993 355,000 Repayment of notes payable ............................................. (444,808) (285,302) Issuance of senior subordinated notes payable .......................... 198,404 148,464 Purchase of treasury stock ............................................. -- (14,543) Proceeds from issuance of common stock associated with certain employee benefit plans ....................................... 73 329 Proceeds from exercise of stock options ................................ 7,251 1,056 Payment of cash dividends .............................................. (6,106) (4,340) ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES ................................ 293,807 200,664 ------------ ------------ INCREASE / (DECREASE) IN CASH ........................................... 53,622 (43,171) Cash at beginning of period ...................................... 72,525 128,568 ------------ ------------ Cash at end of period ............................................ $ 126,147 $ 85,397 ============ ============ </TABLE> SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. -6-
7 D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2001 NOTE A - BASIS OF PRESENTATION The accompanying unaudited, consolidated financial statements include the accounts of D.R. Horton, Inc. and its subsidiaries (the "Company"). Intercompany accounts and transactions have been eliminated in consolidation. The statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Certain reclassifications have been made in prior years' financial statements to conform to classifications used in the current year. Operating results for the three-month and six-month periods ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending September 30, 2001. Business - The Company is a national builder that is engaged primarily in the construction and sale of single-family housing in the United States. The Company designs, builds and sells single-family houses on lots developed by the Company and on finished lots which it purchases, ready for home construction. Periodically, the Company sells land or lots it has developed. The Company also provides title agency and mortgage brokerage services to its home buyers. NOTE B - 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, were not designated as hedges under the provisions of SFAS No. 133. The Statement requires such swaps to be recorded in the consolidated balance sheet at fair value. Changes in their fair value must be recorded in the consolidated statements of income. Accordingly, the Company recorded a cumulative effect of a change in accounting principle amounting to $2.1 million, net of income taxes of $1.3 million, as an adjustment to net income in the six months ended March 31, 2001. The fair value of the Company's interest rate swaps at March 31, 2001 is recorded in homebuilding other assets, and the change in their fair value during the three and six months ended March 31, 2001 is recorded in homebuilding other expense. SFAS No. 133 was also implemented on October 1, 2000 for the hedging activities of the Company's financial services segment. The effects of doing so were not significant. NOTE C - SEGMENT INFORMATION The Company's financial reporting segments consist of homebuilding and financial services. The Company's homebuilding operations comprise the most substantial part of its business, with more than 98% of consolidated revenues for the three months and six months ended March 31, 2001 and 2000. The homebuilding operations segment generates the majority of its revenues from the sale of completed homes, with a lesser amount from the sale of land and lots. The financial services segment generates its revenues from originating and selling mortgages and collecting fees for title insurance agency and closing services. -7-
8 D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) MARCH 31, 2001 NOTE D - NET INCOME PER SHARE Basic net income per share for the three and six months ended March 31, 2001 and 2000 is based on the weighted average number of shares of common stock outstanding. Diluted net income per share is based on the weighted average number of shares of common stock and dilutive securities outstanding. The following table sets forth the weighted average number of shares of common stock and dilutive securities outstanding used in the computation of basic and diluted earnings per share (in thousands): <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, --------------------------- --------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Denominator for basic earnings per share--weighted average shares ................................... 75,433 74,819 75,197 75,312 Employee stock options ................................ 1,294 516 1,222 561 ----------- ----------- ----------- ----------- Denominator for diluted earnings per share--adjusted weighted average shares .......................... 76,727 75,335 76,419 75,873 =========== =========== =========== =========== </TABLE> In February, 2001, the Company's Board of Directors declared an 11% stock dividend, payable on March 23, 2001 to stockholders of record on March 9, 2001. All average share amounts presented above for the three and six month periods ended March 31, 2000 have been restated to reflect the effects of the 11% stock dividend. 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 SIX MONTHS ENDED MARCH 31, MARCH 31, ---------------------------- ---------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Capitalized interest, beginning of period .... $ 74,557 $ 46,463 $ 66,092 $ 41,525 Interest incurred - homebuilding ............. 31,185 24,971 60,728 47,072 Interest expensed: Directly - homebuilding ................. (1,623) (1,561) (4,529) (4,856) Amortized to cost of sales .............. (18,540) (14,725) (36,712) (28,593) ----------- ----------- ----------- ----------- Capitalized interest, end of period .......... $ 85,579 $ 55,148 $ 85,579 $ 55,148 =========== =========== =========== =========== </TABLE> -8-
9 D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) MARCH 31, 2001 NOTE F - SUMMARIZED FINANCIAL INFORMATION The 8%, 8 3/8%, 10% and 10 1/2% Senior Notes, and the 9 3/8% and 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 MARCH 31, 2001 <TABLE> <CAPTION> NON-GUARANTOR SUBSIDIARIES ----------------------- D.R. GUARANTOR FINANCIAL INTERCOMPANY HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL ------------ ------------ ----------- ---------- ------------ ---------- (IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> ASSETS HOMEBUILDING: Cash and cash equivalents ...................... $ 40,612 $ 77,121 $ -- $ 543 $ -- $ 118,276 Advances to/investments in subsidiaries ........ 2,165,816 -- -- -- (2,165,816) -- Inventories .................................... 511,685 1,997,722 -- 23,944 (309) 2,533,042 Property and equipment (net) ................... 3,400 31,965 -- 5,481 -- 40,846 Earnest money deposits and other assets ........ 46,379 109,516 -- 29,170 (10,565) 174,500 Excess of cost over net assets acquired (net) .. -- 113,265 -- -- -- 113,265 ---------- ---------- ----------- ---------- ----------- ---------- 2,767,892 2,329,589 -- 59,138 (2,176,690) 2,979,929 ---------- ---------- ----------- ---------- ----------- ---------- FINANCIAL SERVICES: Cash and cash equivalents ...................... -- -- 7,871 -- -- 7,871 Mortgage loans held for sale ................... -- -- 129,108 -- -- 129,108 Other assets ................................... -- -- 10,066 -- -- 10,066 ---------- ---------- ----------- ---------- ----------- ---------- -- -- 147,045 -- -- 147,045 ---------- ---------- ----------- ---------- ----------- ---------- TOTAL ASSETS ................................... $2,767,892 $2,329,589 $ 147,045 $ 59,138 $(2,176,690) $3,126,974 ========== ========== =========== ========== =========== ========== LIABILITIES & EQUITY HOMEBUILDING: Accounts payable and other liabilities ......... $ 121,911 $ 283,621 $ -- $ 1,839 $ (57,119) $ 350,252 Advances from parent/subsidiaries .............. -- 1,525,223 -- 33,089 (1,558,312) -- Notes payable .................................. 1,573,758 15,155 -- 8,391 (8,391) 1,588,913 ---------- ---------- ----------- ---------- ----------- ---------- 1,695,669 1,823,999 -- 43,319 (1,623,822) 1,939,165 ---------- ---------- ----------- ---------- ----------- ---------- FINANCIAL SERVICES: Accounts payable and other liabilities ......... -- -- 7,268 -- (2,791) 4,477 Advances from parent/subsidiaries .............. -- -- 5,893 -- (5,893) -- Notes payable .................................. -- -- 102,810 -- -- 102,810 ---------- ---------- ----------- ---------- ----------- ---------- -- -- 115,971 -- (8,684) 107,287 ---------- ---------- ----------- ---------- ----------- ---------- TOTAL LIABILITIES .............................. 1,695,669 1,823,999 115,971 43,319 (1,632,506) 2,046,452 ---------- ---------- ----------- ---------- ----------- ---------- Minority interest .............................. -- -- 12 8,287 -- 8,299 ---------- ---------- ----------- ---------- ----------- ---------- Common stock ................................... 755 1 6 6,155 (6,162) 755 Additional capital ............................. 674,776 84,796 2,299 10,129 (97,224) 674,776 Retained earnings .............................. 396,692 420,793 28,757 (8,752) (440,798) 396,692 ---------- ---------- ----------- ---------- ----------- ---------- 1,072,223 505,590 31,062 7,532 (544,184) 1,072,223 ---------- ---------- ----------- ---------- ----------- ---------- TOTAL LIABILITIES & EQUITY ..................... $2,767,892 $2,329,589 $ 147,045 $ 59,138 $(2,176,690) $3,126,974 ========== ========== =========== ========== =========== ========== </TABLE> -9-
10 D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE F - SUMMARIZED FINANCIAL INFORMATION - (CONTINUED) CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 2000 <TABLE> <CAPTION> NON-GUARANTOR SUBSIDIARIES ---------------------- D.R. GUARANTOR FINANCIAL INTERCOMPANY HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL ------------ ------------ --------- ---------- ------------ ---------- (IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> ASSETS HOMEBUILDING: Cash and cash equivalents ...................... $ 20,397 $ 40,349 $ -- $ 1,052 $ -- $ 61,798 Advances to/investments in subsidiaries ........ 1,862,988 14,653 -- -- (1,877,641) -- Inventories .................................... 395,848 1,768,934 -- 26,538 (289) 2,191,031 Property and equipment (net) ................... 3,031 30,645 -- 5,284 -- 38,960 Earnest money deposits and other assets ........ 44,463 86,134 -- 28,773 (10,387) 148,983 Excess of cost over net assets acquired (net) .. -- 115,966 -- -- -- 115,966 ---------- ---------- --------- ---------- ----------- ---------- 2,326,727 2,056,681 -- 61,647 (1,888,317) 2,556,738 ---------- ---------- --------- ---------- ----------- ---------- FINANCIAL SERVICES: Cash and cash equivalents ...................... -- -- 10,727 -- -- 10,727 Mortgage loans held for sale ................... -- -- 119,581 -- -- 119,581 Other assets ................................... -- -- 7,531 -- -- 7,531 ---------- ---------- --------- ---------- ----------- ---------- -- -- 137,839 -- -- 137,839 ---------- ---------- --------- ---------- ----------- ---------- TOTAL ASSETS ................................... $2,326,727 $2,056,681 $ 137,839 $ 61,647 $(1,888,317) $2,694,577 ========== ========== ========= ========== =========== ========== LIABILITIES & EQUITY HOMEBUILDING: Accounts payable and other liabilities ......... $ 124,823 $ 358,895 $ -- $ 2,355 $ (115,684) $ 370,389 Advances from parent/subsidiaries .............. 11,617 1,263,038 -- 32,775 (1,307,430) -- Notes payable .................................. 1,220,724 24,861 -- 10,222 (10,221) 1,245,586 ---------- ---------- --------- ---------- ----------- ---------- 1,357,164 1,646,794 -- 45,352 (1,433,335) 1,615,975 ---------- ---------- --------- ---------- ----------- ---------- FINANCIAL SERVICES: Accounts payable and other liabilities ......... -- -- 9,388 -- (4,430) 4,958 Advances from parent/subsidiaries .............. -- -- 5,653 -- (5,653) -- Notes payable .................................. -- -- 98,817 -- -- 98,817 ---------- ---------- --------- ---------- ----------- ---------- -- -- 113,858 -- (10,083) 103,775 ---------- ---------- --------- ---------- ----------- ---------- TOTAL LIABILITIES .............................. 1,357,164 1,646,794 113,858 45,352 (1,443,418) 1,719,750 ---------- ---------- --------- ---------- ----------- ---------- Minority interest .............................. -- -- 10 5,254 -- 5,264 ---------- ---------- --------- ---------- ----------- ---------- Common stock ................................... 701 1 6 6,155 (6,162) 701 Additional capital ............................. 537,145 84,794 2,299 10,129 (97,222) 537,145 Retained earnings .............................. 468,664 325,092 21,666 (5,243) (341,515) 468,664 Treasury stock ................................. (36,947) -- -- -- -- (36,947) ---------- ---------- --------- ---------- ----------- ---------- 969,563 409,887 23,971 11,041 (444,899) 969,563 ---------- ---------- --------- ---------- ----------- ---------- TOTAL LIABILITIES & EQUITY ..................... $2,326,727 $2,056,681 $ 137,839 $ 61,647 $(1,888,317) $2,694,577 ========== ========== ========= ========== =========== ========== </TABLE> -10-
11 D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE F - SUMMARIZED FINANCIAL INFORMATION - (CONTINUED) CONSOLIDATING STATEMENT OF INCOME THREE MONTHS ENDED MARCH 31, 2001 <TABLE> <CAPTION> NON-GUARANTOR SUBSIDIARIES ------------------------ D.R. GUARANTOR FINANCIAL INTERCOMPANY HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL ------------ ------------ ---------- ---------- ------------ ---------- (IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> HOMEBUILDING: Revenues: Home sales ................................. $ 156,304 $ 693,224 $ -- $ 4,047 $ -- $ 853,575 Land/lot sales ............................. 10,371 28,461 -- -- -- 38,832 ---------- ---------- ---------- ---------- ---------- ---------- 166,675 721,685 -- 4,047 -- 892,407 ---------- ---------- ---------- ---------- ---------- ---------- Cost of Sales: Home sales ................................. 125,753 554,278 -- 2,840 (111) 682,760 Land/lot sales ............................. 7,486 23,161 -- -- -- 30,647 ---------- ---------- ---------- ---------- ---------- ---------- 133,239 577,439 -- 2,840 (111) 713,407 ---------- ---------- ---------- ---------- ---------- ---------- Gross profit: Home sales ................................. 30,551 138,946 -- 1,207 111 170,815 Land/lot sales ............................. 2,885 5,300 -- -- -- 8,185 ---------- ---------- ---------- ---------- ---------- ---------- 33,436 144,246 -- 1,207 111 179,000 Selling, general and administrative expense .. 21,939 69,075 -- 2,200 887 94,101 Interest expense ............................. 1,579 42 -- 74 (72) 1,623 Other expense (income) ....................... (72,611) (413) -- 2,479 76,229 5,684 ---------- ---------- ---------- ---------- ---------- ---------- 82,529 75,542 -- (3,546) (76,933) 77,592 ---------- ---------- ---------- ---------- ---------- ---------- FINANCIAL SERVICES: Revenues ..................................... -- -- 14,429 -- -- 14,429 Selling, general and administrative expense .. -- -- 10,717 -- (887) 9,830 Interest expense ............................. -- -- 875 -- -- 875 Other (income) ............................... -- -- (1,213) -- -- (1,213) ---------- ---------- ---------- ---------- ---------- ---------- -- -- 4,050 -- 887 4,937 ---------- ---------- ---------- ---------- ---------- ---------- Income before income taxes ................... 82,529 75,542 4,050 (3,546) (76,046) 82,529 Provision for income taxes ................... 30,948 28,328 1,519 (1,330) (28,517) 30,948 ---------- ---------- ---------- ---------- ---------- ---------- Net income ................................... $ 51,581 $ 47,214 $ 2,531 $ (2,216) $ (47,529) $ 51,581 ========== ========== ========== ========== ========== ========== </TABLE> -11-
12 D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE F - SUMMARIZED FINANCIAL INFORMATION - (CONTINUED) CONSOLIDATING STATEMENT OF INCOME SIX MONTHS ENDED MARCH 31, 2001 <TABLE> <CAPTION> NON-GUARANTOR SUBSIDIARIES ------------------------ D.R. GUARANTOR FINANCIAL INTERCOMPANY HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL ------------ ------------ ---------- ---------- ------------ ---------- (IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> HOMEBUILDING: Revenues: Home sales ................................. $ 275,503 $1,421,997 $ -- $ 12,152 $ -- $1,709,652 Land/lot sales ............................. 16,609 39,700 -- -- -- 56,309 ---------- ---------- ---------- ---------- ---------- ---------- 292,112 1,461,697 -- 12,152 -- 1,765,961 ---------- ---------- ---------- ---------- ---------- ---------- Cost of Sales: Home sales ................................. 222,314 1,141,634 -- 8,968 (257) 1,372,659 Land/lot sales ............................. 12,274 31,805 -- -- -- 44,079 ---------- ---------- ---------- ---------- ---------- ---------- 234,588 1,173,439 -- 8,968 (257) 1,416,738 ---------- ---------- ---------- ---------- ---------- ---------- Gross profit: Home sales ................................. 53,189 280,363 -- 3,184 257 336,993 Land/lot sales ............................. 4,335 7,895 -- -- -- 12,230 ---------- ---------- ---------- ---------- ---------- ---------- 57,524 288,258 -- 3,184 257 349,223 Selling, general and administrative expense .. 42,155 137,772 -- 4,321 1,751 185,999 Interest expense ............................. 4,435 90 -- 182 (178) 4,529 Other expense (income) ....................... (147,956) (1,212) -- 3,561 154,605 8,998 ---------- ---------- ---------- ---------- ---------- ---------- 158,890 151,608 -- (4,880) (155,921) 149,697 ---------- ---------- ---------- ---------- ---------- ---------- FINANCIAL SERVICES: Revenues ..................................... -- -- 28,538 -- -- 28,538 Selling, general and administrative expense .. -- -- 21,718 -- (1,751) 19,967 Interest expense ............................. -- -- 2,007 -- -- 2,007 Other (income) ............................... -- -- (2,629) -- -- (2,629) ---------- ---------- ---------- ---------- ---------- ---------- -- -- 7,442 -- 1,751 9,193 ---------- ---------- ---------- ---------- ---------- ---------- Income before income taxes ................... 158,890 151,608 7,442 (4,880) (154,170) 158,890 Provision for income taxes ................... 59,584 56,853 2,791 (1,830) (57,814) 59,584 ---------- ---------- ---------- ---------- ---------- ---------- Income before cumulative effect of change in accounting principle .................... 99,306 94,755 4,651 (3,050) (96,356) 99,306 Cumulative effect of change in accounting principle, net of income taxes .......... 2,136 -- -- -- -- 2,136 ---------- ---------- ---------- ---------- ---------- ---------- Net income ................................... $ 101,442 $ 94,755 $ 4,651 $ (3,050) $ (96,356) $ 101,442 ========== ========== ========== ========== ========== ========== </TABLE> -12-
13 D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE F - SUMMARIZED FINANCIAL INFORMATION - (CONTINUED) CONSOLIDATING STATEMENT OF INCOME THREE MONTHS ENDED MARCH 31, 2000 <TABLE> <CAPTION> NON-GUARANTOR SUBSIDIARIES ------------------------ D.R. GUARANTOR FINANCIAL INTERCOMPANY HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL ------------ ------------ ---------- ---------- ------------ --------- (IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> HOMEBUILDING: Revenues: ...................................... $ 122,941 $ 650,941 $ -- $ 6,274 $ -- $ 780,156 Home sales ................................... 26 7,932 -- -- -- 7,958 --------- ---------- ---------- ---------- ---------- --------- Land/lot sales ............................... 122,967 658,873 -- 6,274 -- 788,114 --------- ---------- ---------- ---------- ---------- --------- Cost of Sales: ................................. 103,752 528,768 -- 4,726 (256) 636,990 Home sales ................................... (49) 7,381 -- -- -- 7,332 --------- ---------- ---------- ---------- ---------- --------- Land/lot sales ............................... 103,703 536,149 -- 4,726 (256) 644,322 --------- ---------- ---------- ---------- ---------- --------- Gross profit: .................................. 19,189 122,173 -- 1,548 256 143,166 Home sales ................................... 75 551 -- -- -- 626 --------- ---------- ---------- ---------- ---------- --------- Land/lot sales ............................... 19,264 122,724 -- 1,548 256 143,792 Selling, general and administrative expense ... 18,959 61,886 -- 1,292 (4) 82,133 Interest expense ............................... 1,534 25 -- 138 (136) 1,561 Other expense (income) ......................... (64,832) (1,170) -- 270 65,088 (644) --------- ---------- ---------- ---------- ---------- --------- 63,603 61,983 -- (152) (64,692) 60,742 --------- ---------- ---------- ---------- ---------- --------- FINANCIAL SERVICES: Revenues ....................................... -- -- 10,750 -- -- 10,750 Selling, general and administrative expense .... -- -- 8,018 -- 4 8,022 Interest expense ............................... -- -- 1,157 -- -- 1,157 Other (income) ................................. -- -- (1,290) -- -- (1,290) --------- ---------- ---------- ---------- ---------- --------- -- -- 2,865 -- (4) 2,861 --------- ---------- ---------- ---------- ---------- --------- Income before income taxes ..................... 63,603 61,983 2,865 (152) (64,696) 63,603 Provision for income taxes ..................... 24,169 23,553 1,089 (58) (24,584) 24,169 --------- ---------- ---------- ---------- ---------- --------- Net income ..................................... $ 39,434 $ 38,430 $ 1,776 $ (94) $ (40,112) $ 39,434 ========= ========== ========== ========== ========== ========= </TABLE> -13-
14 D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE F - SUMMARIZED FINANCIAL INFORMATION - (CONTINUED) CONSOLIDATING STATEMENT OF INCOME SIX MONTHS ENDED MARCH 31, 2000 <TABLE> <CAPTION> NON-GUARANTOR SUBSIDIARIES ----------------------- D.R. GUARANTOR FINANCIAL INTERCOMPANY HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL ------------ ------------ --------- ---------- ------------ ---------- (IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> HOMEBUILDING: Revenues: Home sales .................................. $ 236,030 $1,312,523 $ -- $ 13,975 $ -- $1,562,528 Land/lot sales .............................. 976 22,174 -- -- -- 23,150 ---------- ---------- --------- ---------- ---------- ---------- 237,006 1,334,697 -- 13,975 -- 1,585,678 ---------- ---------- --------- ---------- ---------- ---------- Cost of Sales: Home sales .................................. 197,484 1,065,306 -- 10,379 (347) 1,272,822 Land/lot sales .............................. 940 17,197 -- -- -- 18,137 ---------- ---------- --------- ---------- ---------- ---------- 198,424 1,082,503 -- 10,379 (347) 1,290,959 ---------- ---------- --------- ---------- ---------- ---------- Gross profit: Home sales .................................. 38,546 247,217 -- 3,596 347 289,706 Land/lot sales .............................. 36 4,977 -- -- -- 5,013 ---------- ---------- --------- ---------- ---------- ---------- 38,582 252,194 -- 3,596 347 294,719 Selling, general and administrative expense .. 35,511 126,704 -- 2,619 (4) 164,830 Interest expense .............................. 4,791 65 -- 310 (310) 4,856 Other expense (income) ........................ (133,924) (1,696) -- 437 134,458 (725) ---------- ---------- --------- ---------- ---------- ---------- 132,204 127,121 -- 230 (133,797) 125,758 ---------- ---------- --------- ---------- ---------- ---------- FINANCIAL SERVICES: Revenues ...................................... -- -- 22,126 -- -- 22,126 Selling, general and administrative expense ... -- -- 15,993 -- 4 15,997 Interest expense .............................. -- -- 2,706 -- -- 2,706 Other (income) ................................ -- -- (3,023) -- -- (3,023) ---------- ---------- --------- ---------- ---------- ---------- -- -- 6,450 -- (4) 6,446 ---------- ---------- --------- ---------- ---------- ---------- Income before income taxes .................... 132,204 127,121 6,450 230 (133,801) 132,204 Provision for income taxes .................... 50,238 48,306 2,451 87 (50,844) 50,238 ---------- ---------- --------- ---------- ---------- ---------- Net income .................................... $ 81,966 $ 78,815 $ 3,999 $ 143 $ (82,957) $ 81,966 ========== ========== ========= ========== ========== ========== </TABLE> -14-
15 D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE F - SUMMARIZED FINANCIAL INFORMATION - (CONTINUED) CONSOLIDATING STATEMENT OF CASH FLOWS SIX MONTHS ENDED MARCH 31, 2001 <TABLE> <CAPTION> NON-GUARANTOR SUBSIDIARIES ------------------- D.R. GUARANTOR FINANCIAL INTERCOMPANY HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL ------------ ------------ --------- -------- ------------ -------- (IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> OPERATING ACTIVITIES Net income ........................................... $ 101,442 $ 94,755 $ 4,651 $ (3,050) $ (96,356) $101,442 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ...................... 899 10,222 608 243 -- 11,972 Amortization of debt premiums and fees ............. 1,165 -- -- -- -- 1,165 Changes in operating assets and liabilities: (Increase)/decrease in inventories ................ (74,649) (217,017) -- 2,594 20 (289,052) (Increase)/decrease in earnest money deposits and other assets ....................... (1,497) (23,194) (2,014) 1,621 179 (24,905) Increase in mortgage loans held for sale .......... -- -- (9,527) -- -- (9,527) Increase/(decrease) in accounts payable and other liabilities ............................... (2,911) (75,599) (1,794) 2,518 60,202 (17,584) --------- --------- -------- -------- --------- -------- Net cash provided by (used in) operating activities ........................................... 24,449 (210,833) (8,076) 3,926 (35,955) (226,489) --------- --------- -------- -------- --------- -------- INVESTING ACTIVITIES Net purchases of property and equipment .............. (1,268) (7,477) (1,175) (436) -- (10,356) Net investments in venture capital entities .......... -- -- -- (2,022) -- (2,022) Net cash paid for acquisitions ....................... -- (1,318) -- -- -- (1,318) --------- --------- -------- -------- --------- -------- Net cash used in investing activities ................... (1,268) (8,795) (1,175) (2,458) -- (13,696) --------- --------- -------- -------- --------- -------- FINANCING ACTIVITIES Net change in notes payable .......................... 310,262 (21,665) 3,993 (1,831) 1,830 292,589 Increase/(decrease) in intercompany payables ......... (314,446) 392,565 4,402 (146) (82,375) -- Proceeds from stock associated with certain employee benefit plans ............................. 73 -- -- -- -- 73 Proceeds from exercise of stock options .............. 7,251 -- -- -- -- 7,251 Cash dividends/distributions paid .................... (6,106) (114,500) (2,000) -- 116,500 (6,106) --------- --------- -------- -------- --------- -------- Net cash (used in) provided by financing activities ........................................... (2,966) 256,400 6,395 (1,977) 35,955 293,807 --------- --------- -------- -------- --------- -------- Increase/(decrease) in cash ............................. 20,215 36,772 (2,856) (509) -- 53,622 Cash at beginning of period ............................. 20,397 40,349 10,727 1,052 -- 72,525 --------- --------- -------- -------- --------- -------- Cash at end of period ................................... $ 40,612 $ 77,121 $ 7,871 $ 543 $ -- $126,147 ========= ========= ======== ======== ========= ======== </TABLE> -15-
16 D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) NOTE F - SUMMARIZED FINANCIAL INFORMATION - (CONTINUED) CONSOLIDATING STATEMENT OF CASH FLOWS SIX MONTHS ENDED MARCH 31, 2000 <TABLE> <CAPTION> NON-GUARANTOR SUBSIDIARIES ---------------------- D.R. GUARANTOR FINANCIAL INTERCOMPANY HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL ------------ ------------ --------- --------- ------------ ---------- (IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> OPERATING ACTIVITIES Net income ..................................... $ 81,966 $ 78,815 $ 3,999 $ 143 $ (82,957) $ 81,966 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ................ 730 8,528 556 362 -- 10,176 Amortization of debt premiums and fees ....... 1,106 -- -- -- -- 1,106 Changes in operating assets and liabilities: (Increase)/decrease in inventories ......... (86,117) (196,687) -- 363 1,839 (280,602) (Increase)/decrease in earnest money deposits and other assets ............... (265) (23,446) 22 (1,930) 91 (25,528) Decrease in mortgage loans held for sale ... -- -- 22,353 -- -- 22,353 Increase/(decrease) in accounts payable and other liabilities ........................ (15,259) (53,584) (3,222) 349 47,634 (24,082) ---------- ---------- --------- --------- ---------- --------- Net cash provided by (used in) operating activities ..................................... (17,839) (186,374) 23,708 (713) (33,393) (214,611) ---------- ---------- --------- --------- ---------- --------- INVESTING ACTIVITIES Net purchases of property and equipment ........ (854) (8,194) (507) 202 -- (9,353) Net investments in venture capital entities .... -- -- -- (15,071) -- (15,071) Net cash paid for acquisitions ................. -- (4,800) -- -- -- (4,800) ---------- ---------- --------- --------- ---------- --------- Net cash used in investing activities ............. (854) (12,994) (507) (14,869) -- (29,224) ---------- ---------- --------- --------- ---------- --------- FINANCING ACTIVITIES Net change in notes payable .................... 253,860 (8,149) (27,550) 82 (81) 218,162 Increase/(decrease) in intercompany payables ... (206,223) 255,643 4,468 14,932 (68,820) -- Repurchase of treasury stock ................... (14,543) -- -- -- -- (14,543) Proceeds from stock associated with certain employee benefit plans ........................ 329 -- -- -- -- 329 Proceeds from exercise of stock options ........ 1,056 -- -- -- -- 1,056 Cash dividends/distributions paid .............. (4,340) (101,594) (700) -- 102,294 (4,340) ---------- ---------- --------- --------- ---------- --------- Net cash (used in) provided by financing activities ..................................... 30,139 145,900 (23,782) 15,014 33,393 200,664 ---------- ---------- --------- --------- ---------- --------- Increase/(decrease) in cash ....................... 11,446 (53,468) (581) (568) -- (43,171) Cash at beginning of period ....................... 66,777 53,468 6,360 1,963 -- 128,568 ---------- ---------- --------- --------- ---------- --------- Cash at end of period ............................. $ 78,223 $ -- $ 5,779 $ 1,395 $ -- $ 85,397 ========== ========== ========= ========= ========== ========= </TABLE> -16-
17 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 MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 Consolidated revenues for the three months ended March 31, 2001, increased 13.5%, to $906.8 million, from $798.9 million for the comparable period of 2000, primarily due to increases in home sales revenues. Income before income taxes for the three months ended March 31, 2001, increased 29.8%, to $82.5 million, from $63.6 million for the comparable period of 2000. As a percentage of revenues, income before income taxes for the three months ended March 31, 2001, increased 1.1%, to 9.1%, from 8.0% for the comparable period of 2000, primarily due to an increase in the gross profit percentage achieved by the homebuilding segment. The consolidated provision for income taxes increased 28.0%, to $30.9 million for the three months ended March 31, 2001, from $24.2 million for the same period of 2000, due to the corresponding increase in income before income taxes. The effective income tax rate decreased 0.5%, to 37.5%, from 38.0% for the comparable period of 2000, primarily due to changes in the estimated overall effective state income tax rate. SIX MONTHS ENDED MARCH 31, 2001 COMPARED TO SIX MONTHS ENDED MARCH 31, 2000 Consolidated revenues for the six months ended March 31, 2001, increased 11.6%, to $1,794.5 million, from $1,607.8 million for the comparable period of 2000, primarily due to increases in home sales revenues. Income before income taxes for the six months ended March 31, 2001, increased 20.2%, to $158.9 million, from $132.2 million for the comparable period of 2000. As a percentage of revenues, income before income taxes for the six months ended March 31, 2001, increased 0.7%, to 8.9%, from 8.2% for the comparable period of 2000, primarily due to an increase in the gross profit percentage achieved by the homebuilding segment. The consolidated provision for income taxes increased 18.6%, to $59.6 million for the six months ended March 31, 2001, from $50.2 million for the same period of 2000, due to the corresponding increase in income before income taxes. The effective income tax rate decreased 0.5%, to 37.5%, from 38.0% for the comparable period of 2000, primarily due to changes in the estimated overall effective state income tax rate. The cumulative effect of a change in accounting principle was an increase in income of $2.1 million, net of income taxes, for the six months ended March 31, 2001. This accounting change is the result of the Company's October 1, 2000 adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires the Company to recognize its interest rate swap agreements in the consolidated balance sheet at fair value. -17-
18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - HOMEBUILDING The following tables set forth certain operating and financial data for the Company's homebuilding activities: <TABLE> <CAPTION> PERCENTAGES OF HOMEBUILDING REVENUES --------------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, -------------------- -------------------- 2001 2000 2001 2000 -------- -------- -------- -------- <S> <C> <C> <C> <C> Cost and expenses: Cost of sales .................................. 79.9% 81.8% 80.2% 81.4% Selling, general and administrative expense .... 10.6 10.4 10.5 10.4 Interest expense ............................... 0.2 0.2 0.3 0.3 -------- -------- -------- -------- Total costs and expenses ......................... 90.7 92.4 91.0 92.1 Other expense (income) ........................... 0.6 (0.1) 0.5 -- -------- -------- -------- -------- Income before income taxes ....................... 8.7% 7.7% 8.5% 7.9% ======== ======== ======== ======== </TABLE> <TABLE> <CAPTION> HOMES CLOSED THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31, --------------------------------------------- --------------------------------------------- 2001 2000 2001 2000 --------------------- --------------------- --------------------- --------------------- HOMES HOMES HOMES HOMES CLOSED REVENUES CLOSED REVENUES CLOSED REVENUES CLOSED REVENUES --------- --------- --------- --------- --------- --------- --------- --------- ($'S IN MILLIONS) ($'S IN MILLIONS) <S> <C> <C> <C> <C> <C> <C> <C> <C> Mid-Atlantic ...... 630 $ 139.5 680 $ 133.7 1,225 $ 273.5 1,327 $ 257.6 Midwest ........... 386 89.7 443 95.9 874 208.4 954 200.9 Southeast ......... 593 104.5 656 109.4 1,158 204.7 1,248 207.5 Southwest ......... 1,886 314.3 1,825 270.1 3,678 602.8 3,715 545.2 West .............. 835 205.6 760 171.1 1,685 420.3 1,612 351.3 --------- --------- --------- --------- --------- --------- --------- --------- 4,330 $ 853.6 4,364 $ 780.2 8,620 $ 1,709.7 8,856 $ 1,562.5 ========= ========= ========= ========= ========= ========= ========= ========= </TABLE> <TABLE> <CAPTION> NEW NET SALES THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31, CONTRACTS ---------------------------------------------------- ---------------------------------------------------- 2001 2000 2001 2000 ------------------------ ------------------------ ------------------------ ------------------------ HOMES HOMES HOMES HOMES SOLD $ SOLD $ SOLD $ SOLD $ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ($'S IN MILLIONS) ($'S IN MILLIONS) <S> <C> <C> <C> <C> <C> <C> <C> <C> Mid-Atlantic .. 860 $ 184.3 761 $ 153.2 1,410 $ 312.7 1,330 $ 275.3 Midwest ....... 595 155.6 476 110.0 921 235.6 841 208.0 Southeast ..... 850 154.0 824 142.5 1,398 252.0 1,442 243.3 Southwest ..... 2,795 453.4 2,360 363.2 4,474 731.1 3,994 616.4 West .......... 1,612 408.6 1,013 226.1 2,738 724.7 1,678 374.4 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 6,712 $ 1,355.9 5,434 $ 995.0 10,941 $ 2,256.1 9,285 $ 1,717.4 ========== ========== ========== ========== ========== ========== ========== ========== </TABLE> <TABLE> <CAPTION> SALES CONTRACT BACKLOG MARCH 31, 2001 MARCH 31, 2000 ------------------------ ------------------------ HOMES $ HOMES $ ---------- ---------- ---------- ---------- ($'S IN MILLIONS) <S> <C> <C> <C> <C> Mid-Atlantic ....... 1,008 $ 246.8 1,094 $ 260.5 Midwest ............ 947 252.7 1,021 254.3 Southeast .......... 1,227 225.0 1,030 176.4 Southwest .......... 3,985 679.8 3,360 544.1 West ............... 2,542 679.0 1,233 276.1 ---------- ---------- ---------- ---------- 9,709 $ 2,083.3 7,738 $ 1,511.4 ========== ========== ========== ========== </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 -18-
19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 Revenues from homebuilding activities increased 13.2%, to $892.4 million (4,330 homes closed) for the three months ended March 31, 2001, from $788.1 million (4,364 homes closed) for the comparable period of 2000. Revenues from home sales increased in three of the Company's five market regions, with percentage increases ranging from 4.4% in the Mid-Atlantic region to 20.1% in the West region. Revenues from homebuilding activities declined 4.5% and 6.5% in the Southeast and Midwest regions, respectively. The increases in total homebuilding revenues and revenues from home sales were due to strong housing demand throughout the majority of the Company's markets, and an increase in the average selling price of homes closed. The average selling price of homes closed during the three months ended March 31, 2001 was $197,100, up 10.2% from $178,800 for the same period in 2000. The increase in average selling price was due to changes in the mix of homes closed and, with the strong housing demand, the Company's ability to sell more custom features with its homes and to raise prices in some of its markets. The value of new net sales contracts increased 36.3%, to $1,355.9 million (6,712 homes) for the three months ended March 31, 2001, from $995.0 million (5,434 homes) for the same period of 2000. The value of new net sales contracts increased in all of the Company's five market regions, with percentage increases ranging from 8.1% in the Southeast region to 80.7% in the West region. The average price of a new net sales contract in the three months ended March 31, 2001 was $202,000, up 10.3% over the $183,100 average in the three months ended March 31, 2000. The increase in average selling price was due to changes in the mix of homes sold and, with the strong housing demand, the Company's ability to sell more custom features with its homes and to raise prices in some of its markets. At March 31, 2001, the Company's backlog of sales contracts was $2,083.3 million (9,709 homes), up 37.8% from $1,511.4 million (7,738 homes) at March 31, 2000. The average sales price of homes in sales backlog was $214,600 at March 31, 2001, up 9.9% from the $195,300 average at March 31, 2000. The average sales price of homes in backlog typically is higher than the average sales price of closed homes because it takes longer to construct more expensive homes. Cost of sales increased by 10.7%, to $713.4 million for the three months ended March 31, 2001, from $644.3 million for the comparable quarter of 2000. The increase in cost of sales was primarily attributable to the increase in revenues. Cost of home sales as a percentage of home sales revenues declined 1.6%, to 80.0% for the three months ended March 31, 2001, from 81.6% for the comparable period of 2000, due to the increase in average selling price of homes closed, higher margins obtained from selling more custom features, and reduced material costs. Cost of land/lot sales decreased to 78.9% of land/lot sales revenues for the three months ended March 31, 2001, from 92.1% for the comparable period of 2000. Total homebuilding cost of sales was 79.9% of total homebuilding revenues, down 1.9% from 81.8% for the comparable period of 2000, primarily due to the decline in cost of home sales as a percentage of revenues. Selling, general and administrative (SG&A) expenses from homebuilding activities increased by 14.6%, to $94.1 million in the three months ended March 31, 2001, from $82.1 million in the comparable period of 2000. As a percentage of homebuilding revenues, SG&A expenses increased to 10.6% for the three months ended March 31, 2001, from 10.4% for the comparable period of 2000. Interest expense associated with homebuilding activities was $1.6 million or 0.2% of homebuilding revenues in both three month periods. During both periods, the Company expensed the portion of incurred interest and other financing costs which could not be charged to inventory. The Company follows a policy of capitalizing interest only on inventory under construction or development. Capitalized interest and other financing costs are included in cost of sales at the time of home closings. Other expense associated with homebuilding activities was $5.7 million in the three months ended March 31, 2001, as compared to $0.6 million of other income in the comparable period of 2000. The expense in 2001 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, and an adjustment to the carrying value of the Company's investments in venture capital entities. -19-
20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SIX MONTHS ENDED MARCH 31, 2001 COMPARED TO SIX MONTHS ENDED MARCH 31, 2000 Revenues from homebuilding activities increased 11.4%, to $1,766.0 million (8,620 homes closed) for the six months ended March 31, 2001, from $1,585.7 million (8,856 homes closed) for the comparable period of 2000. Revenues from home sales increased in four of the Company's five market regions, with percentage increases ranging from 3.7% in the Midwest region to 19.6% in the West region. Revenues from homebuilding activities declined 1.3% in the Southeast region. The increases in total homebuilding revenues and revenues from home sales were due to strong housing demand throughout the majority of the Company's markets, and an increase in the average selling price of homes closed. The average selling price of homes closed during the six months ended March 31, 2001 was $198,300, up 12.4% from $176,400 for the same period in 2000. The increase in average selling price was due to changes in the mix of homes closed and, with the strong housing demand, the Company's ability to sell more custom features with its homes and to raise prices in some of its markets. The value of new net sales contracts increased 31.4%, to $2,256.1 million (10,941 homes) for the six months ended March 31, 2001, from $1,717.4 million (9,285 homes) for the same period of 2000. The value of new net sales contracts increased in all of the Company's five market regions, with percentage increases ranging from 3.6% in the Southeast region to 93.5% in the West region. The average price of a new net sales contract in the six months ended March 31, 2001 was $206,200, up 11.5% over the $185,000 average in the six months ended March 31, 2000. The increase in average selling price was due to changes in the mix of homes sold and, with the strong housing demand, the Company's ability to sell more custom features with its homes and to raise prices in some of its markets. Cost of sales increased by 9.7%, to $1,416.7 million for the six months ended March 31, 2001, from $1,291.0 million for the comparable period of 2000. The increase in cost of sales was primarily attributable to the increase in revenues. Cost of home sales as a percentage of home sales revenues declined 1.2%, to 80.3% for the six months ended March 31, 2001, from 81.5% for the comparable period of 2000, due to the increase in average selling price of homes closed, higher margins obtained from selling more custom features, and reduced material costs. Cost of land/lot sales was 78.3% of land/lot sales revenues for the six months ended March 31, 2001 and 2000. Total homebuilding cost of sales was 80.2% of total homebuilding revenues, down 1.2% from 81.4% for the comparable period of 2000, due to the decline in cost of home sales as a percentage of revenues. Selling, general and administrative (SG&A) expenses from homebuilding activities increased by 12.8%, to $186.0 million in the six months ended March 31, 2001, from $164.8 million in the comparable period of 2000. As a percentage of homebuilding revenues, SG&A expenses increased to 10.5% for the six months ended March 31, 2001, from 10.4% for the comparable period of 2000. Interest expense associated with homebuilding activities decreased to $4.5 million in the six months ended March 31, 2001, from $4.9 million in the comparable period of 2000. As a percentage of homebuilding revenues, homebuilding interest expense was 0.3% for both six month periods. During both periods, the Company expensed the portion of incurred interest and other financing costs which could not be charged to inventory. The Company follows a policy of capitalizing interest only on inventory under construction or development. Capitalized interest and other financing costs are included in cost of sales at the time of home closings. Other expense associated with homebuilding activities was $9.0 million in the six months ended March 31, 2001, as compared to $0.7 million of other income in the comparable period of 2000. The expense in 2001 is primarily due to the change in fair value of the Company's interest rate swap agreements during the period, resulting from the Company's adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," on October 1, 2000, and an adjustment to the carrying value of the Company's investments in venture capital entities. -20-
21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - FINANCIAL SERVICES The following table summarizes financial and other information for the Company's financial services operations: <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, ----------------------------- ----------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ ($ IN THOUSANDS) ($ IN THOUSANDS) <S> <C> <C> <C> <C> Number of loans originated .......................... 2,738 1,987 5,075 4,085 ------------ ------------ ------------ ------------ Loan origination fees ............................... $ 3,080 $ 2,146 $ 5,726 $ 4,345 Sale of servicing rights and gains from sale of mortgages ........................................... 6,160 4,514 12,987 9,267 Other revenues ...................................... 1,750 994 3,021 2,202 ------------ ------------ ------------ ------------ Total mortgage banking revenues ..................... 10,990 7,654 21,734 15,814 Title policy premiums, net .......................... 3,439 3,096 6,804 6,312 ------------ ------------ ------------ ------------ Total revenues ...................................... 14,429 10,750 28,538 22,126 General and administrative expense .................. 9,830 8,022 19,967 15,997 Interest expense .................................... 875 1,157 2,007 2,706 Interest/other (income) ............................. (1,213) (1,290) (2,629) (3,023) ------------ ------------ ------------ ------------ Income before income taxes .......................... $ 4,937 $ 2,861 $ 9,193 $ 6,446 ============ ============ ============ ============ </TABLE> THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 Revenues from the financial services segment increased 34.2%, to $14.4 million in the three months ended March 31, 2001, from $10.8 million in the comparable period of 2000. The increase in financial services revenues was due to the rapid expansion of the Company's mortgage loan and title services provided to customers of the Company's homebuilding segment. General and administrative expenses associated with financial services increased 22.5%, to $9.8 million in the three months ended March 31, 2001, from $8.0 million in the comparable period of 2000. As a percentage of financial services revenues, general and administrative expenses decreased by 6.5%, to 68.1% in the three months ended March 31, 2001, from 74.6% in the comparable period in 2000, due primarily to fiscal year 2000 startup expenses in new markets with limited revenues. SIX MONTHS ENDED MARCH 31, 2001 COMPARED TO SIX MONTHS ENDED MARCH 31, 2000 Revenues from the financial services segment increased 29.0%, to $28.5 million in the six months ended March 31, 2001, from $22.1 million in the comparable period of 2000. The increase in financial services revenues was due to the rapid expansion of the Company's mortgage loan and title services provided to customers of the Company's homebuilding segment. General and administrative expenses associated with financial services increased 24.8%, to $20.0 million in the six months ended March 31, 2001, from $16.0 million in the comparable period of 2000. As a percentage of financial services revenues, general and administrative expenses decreased by 2.3%, to 70.0% in the six months ended March 31, 2001, from 72.3% in the comparable period in 2000, due primarily to fiscal year 2000 startup expenses in new markets with limited revenues. -21-
22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001, the Company had available cash and cash equivalents of $126.1 million. Inventories (including finished homes, construction in progress, and developed residential lots and other land) at March 31, 2001, had increased by $342.0 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 $122 million under the revolving credit facility, issuing $200 million of senior subordinated notes and by retaining earnings. As a result, the Company's ratio of homebuilding notes payable to total capital at March 31, 2001, increased 3.5% to 59.7%, from 56.2% at September 30, 2000. The stockholders' equity to total assets ratio decreased 1.7%, to 34.3% at March 31, 2001, from 36.0% at September 30, 2000. The Company has an $825 million, unsecured revolving credit facility, consisting of a $775 million four-year revolving loan and a $50 million four-year letter of credit facility, that matures in 2002. Additionally, the Company has another $45 million standby letter of credit agreement maturing in 2003 and a $1.7 million non-renewable letter of credit facility. At March 31, 2001, the Company had outstanding homebuilding debt of $1,588.9 million, of which $314.0 million represented advances under the revolving credit facility. Under the debt covenants associated with the revolving credit facility, at March 31, 2001, the Company had additional homebuilding borrowing capacity of $461.0 million. The Company has entered into multi-year interest rate swap agreements aggregating $200 million that serve to fix the interest rate on a portion of the variable rate revolving credit facility. An additional interest rate swap agreement, with a notional amount of $148.5 million, was entered into in December 1999. It exchanged one of the Company's fixed rate obligations for a variable rate one. In accordance with its terms, it was canceled by the counterparty in April 2001. At March 31, 2001, the Company had $50 million remaining on its universal shelf registration. In April, 2001, a new universal shelf registration statement for an aggregate amount of $750 million was filed, which included the $50 million remaining on the prior registration. It was declared effective by the Securities and Exchange Commission on April 20, 2001. Under the new shelf registration statement, on May 11, 2001, the Company issued $381.1 million (at maturity) in zero coupon convertible senior notes due May 11, 2021. Each $1,000 note was sold for $524.78, providing a yield-to-maturity of 3.25% per year. Each note is convertible into 17.4927 shares of the Company's common stock. The holders of the notes may put them to the Company at their accreted value on May 11, 2003, May 11, 2008 or May 11, 2013. The Company may call the notes at any time after May 11, 2003. Beginning on May 11, 2003, the Company is obligated to pay contingent interest on the notes should their market price rise to more than 120% of their accreted value. At March 31, 2001, the financial services segment has mortgage loans held for sale of $129.1 million and loan commitments for $82.5 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 March 31, 2001, $102.8 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 continue to maintain effective shelf registration statements that would facilitate access to the capital markets. During the three months ended March 31, 2001, the Company's Board of Directors declared a quarterly cash dividend of $0.05 per common share, which was paid on February 15, 2001 to stockholders of record on February 5, 2001. Additionally, the Company's Board of Directors declared an 11% stock dividend on February 27, 2001, paid on March 23, 2001 to stockholders of record on March 9, 2001. Cash was paid in lieu of fractional shares. 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 March 31, 2001, the Company had repurchased $36.9 million of its common stock, or 2,589,200 shares. No shares were repurchased during the six months ended March 31, 2001. In March 2001, all treasury shares were distributed to shareholders as part of the 11% stock dividend. -22-
23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In 1999 and 2000, the Company entered into three separate limited partnership agreements with the purpose of investing in start-up and emerging growth companies whose technology and business plans have the potential of permitting the Company to leverage its size, expertise and customer base in the homebuilding industry. The Company originally authorized investment of up to $125 million in such companies over a four-year period. In January 2001, the original $125 million authorization was reduced to $75 million, of which $31.3 million has been invested in such companies to date. The investments are concentrated in e-commerce businesses that serve the homebuilding, real estate and financial service industries, as well as in businesses whose strategic focus allows for the diversification of the Company's operations. As of March 31, 2001, the carrying value of the Company's investments in such companies, reported in homebuilding other assets, amounted to $27.3 million. Except for ordinary expenditures for the construction of homes, the acquisition of land and lots for development and sale of homes, at March 31, 2001, the Company had no material commitments for capital expenditures. SAFE HARBOR STATEMENT Certain statements contained herein, as well as statements made by the Company in periodic press releases and oral statements made by the Company's officials to analysts and stockholders in the course of presentations about the Company may be construed as "Forward-Looking Statements" as defined in the Private Securities Litigation Reform Act of 1995. Such statements may involve unstated risks, uncertainties and other factors that may cause actual results to differ materially from those initially anticipated. Such risks, uncertainties and other factors include, but are not limited to: - Changes in general economic, real estate and business conditions - Changes in interest rates and the availability of mortgage financing - Governmental regulations and environmental matters - The Company's substantial leverage - Competitive conditions within the homebuilding industry - The availability of capital - The Company's ability to effect its growth strategies successfully Additional information about issues that could lead to material changes in performance is contained in the Company's annual report on Form 10-K, which is filed with the Securities and Exchange Commission. -23-
24 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to interest rate risk on its long term debt. The Company monitors its exposure to changes in interest rates and utilizes both fixed and variable rate debt. For fixed rate debt, changes in interest rates generally affect the value of the debt instrument, but not the Company's earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but may affect the Company's future earnings and cash flows. The Company has mitigated its exposure to changes in interest rates on its variable rate bank debt by entering into interest rate swap agreements to obtain a fixed interest rate for a portion of the variable rate borrowings. The Company does not have an obligation to prepay fixed-rate debt prior to maturity and, as a result, interest rate risk and changes in fair value would not have a significant impact on the Company's fixed-rate debt until such time as the Company is required to refinance or repay such debt. In efforts to decrease the Company's overall cost of funds, favorably priced interest rate swaps that obligate the Company to pay a variable rate debt cost and receive a fixed cost are sometimes considered; however, their favorable impact on the Company's overall cost of funds cannot be assured. At March 31, 2001, the Company had such an interest rate swap agreement in the notional amount of $148.5 million. Under its terms, the agreement was canceled in April 2001 by the counterparty. Over the life of the agreement, the Company received a net amount of $2.3 million, which reduced interest incurred. The Company's interest rate swaps were not designated as hedges under Statement of Financial Accounting Standards No. 133 when it was adopted on October 1, 2001. Since their maturities and other terms did not match the related debt, they were determined to be ineffective hedges (as defined by the Statement). Therefore, the Company is exposed to market risk associated with changes in the fair values of the swaps, since any such changes must be reflected in the Company's income statements. The following table shows, as of March 31, 2001, the Company's long term debt obligations, principal cash flows by scheduled maturity, weighted average interest rates and estimated fair market value. In addition, the table shows the notional amounts and weighted average interest rates of the Company's interest rate swaps. <TABLE> <CAPTION> Six Months Ended Sept. 30, Year ended September 30, --------- --------------------------------------------- ($ in millions) FMV @ 2001 2002 2003 2004 2005 Thereafter Total 03/31/01 ------- ------- ------- -------- -------- ---------- --------- --------- <S> <C> <C> <C> <C> <C> <C> <C> <C> DEBT: Fixed rate .............. $ 10.6 $ 23.5 $ 12.1 $ 150.1 $ 199.4 $ 879.2 $ 1,274.9 $ 1,276.0 Average interest rate ... 8.50% 7.01% 6.36% 8.72% 10.85% 9.18% 9.31% -- Variable rate ........... $ 102.8 $ 314.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 416.8 $ 416.8 Average interest rate ... 6.08% 5.65% -- -- -- -- 5.76% -- INTEREST RATE SWAPS: Variable to fixed ....... $ 200.0 $ 200.0 $ 200.0 $ 200.0 $ 200.0 $ 200.0 -- $ (3.4) 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 -- $ 0.1 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. The fixed to variable interest rate swap agreement was canceled in April 2001. -24-
25 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES. On March 12, 2001, the Company issued $200 million principal amount of its 9.375 % Senior Subordinated Notes, due 2011 (the "Notes"). As part of that issuance, the Company executed a Second Supplemental Indenture, dated as of March 12, 2000, among the Company, the Guarantors named therein and American Stock Transfer & Trust Company, as Trustee, authorizing the Notes. The Supplemental Indenture, and the Indenture to which it relates (dated September 11, 2000, as supplemented), impose limitations on the ability of the Company and its subsidiaries guaranteeing the Notes to, among other things, incur indebtedness, make "Restricted Payments" (as defined, which includes payments of dividends or other distributions on the Common Stock of the Company), effect certain "Asset Dispositions" (as defined), enter into certain transactions with affiliates, merge or consolidate with any person, or transfer all or substantially all of their properties and assets. These limitations are substantially similar to the limitations already existing with respect to the Company's 9.75% Senior Subordinated Notes, due 2010, and related Indentures and Supplemental Indentures. Other information concerning the offering and issuance of the Notes has previously been reported in, and is described in, the Company's Registration Statement on Form S-3 (Registration Number 333-76175) dated April 13, 1999, the Company's Prospectus Supplement, dated March 5, 2001 and filed with the Securities Exchange Commission (the "Commission") on March 8, 2001 pursuant to Rule 424(b), and the Company's current report on Form 8-K, dated March 5, 2001 and filed with the Commission on March 8, 2001, each of which is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) On January 25, 2001, the Company held its Annual Meeting of Stockholders (the "Meeting"). At the Meeting, the stockholders re-elected ten members of the Board of Directors of the Company to serve until the Company's next annual meeting of stockholders and until their respective successors are elected and qualified. The names of the ten directors, the votes cast for and the number of votes withheld were as follows: <TABLE> <CAPTION> NAME VOTES FOR VOTES WITHHELD ---- --------- -------------- <S> <C> <C> DONALD R. HORTON 60,076,921 3,132,816 BRADLEY S. ANDERSON 60,356,792 2,852,945 RICHARD BECKWITT 60,072,793 3,136,944 SAMUEL R. FULLER 60,075,990 3,133,747 RICHARD I. GALLAND 60,049,800 3,159,937 RICHARD L. HORTON 59,810,177 3,399,560 TERRILL J. HORTON 59,810,177 3,399,560 FRANCINE I. NEFF 60,372,074 2,837,663 SCOTT J. STONE 57,373,830 5,835,907 DONALD J. TOMNITZ 60,212,918 2,996,819 </TABLE> (b) At the Meeting, a vote was taken for the approval and adoption of a proposal to amend and restate the D.R. Horton, Inc. 1991 Stock Incentive Plan. The following votes were cast upon this proposal: <TABLE> <S> <C> FOR: 39,718,081 AGAINST: 23,417,722 ABSTAIN: 73,930 </TABLE> -25-
26 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. EXHIBIT NO. DESCRIPTION 4.1 Indenture, dated as of September 11, 2000, among D.R. Horton, Inc., the guarantors named therein and American Stock Transfer and Trust Company, as Trustee, relating to the Senior Subordinated Debt Securities of D.R. Horton, Inc., is incorporated herein by reference from Exhibit 4.1(a) to the Company's Current Report on Form 8-K filed with the Commission on September 7, 2000. 4.2 First Supplemental Indenture, dated as of September 11, 2000, among D.R. Horton, Inc., the guarantors named therein and American Stock Transfer and Trust Company, as Trustee, relating to the 9.75% Senior Subordinated Notes due 2010 of D.R. Horton, Inc., is incorporated herein by reference from Exhibit 4.1(b) to the Company's Current Report on Form 8-K filed with the Commission on September 7, 2000. 4.3 Second Supplemental Indenture, dated as of March 12, 2001, among D.R. Horton, Inc., the guarantors named therein and American Stock Transfer and Trust Company, as Trustee, relating to the 9.375% Senior Subordinated Notes due 2011 of D.R. Horton, Inc., is incorporated herein by reference from Exhibit 4.1(a) to the Company's Current Report on Form 8-K filed with the Commission on March 8, 2001. 4.4 Indenture, dated as of June 9, 1997, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, relating to Senior Debt Securities, is incorporated herein by reference from Exhibit 4.1(a) to the Company's Registration Statement on Form S-3 (Registration No. 333-27521) filed with the Commission on May 21, 1997. 4.5 First Supplemental Indenture, dated as of June 1, 1997, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, relating to the 8 3/8% Senior Notes due 2009, is incorporated by reference from Exhibit 4.1 to the Company's Form 8-K/A dated April 1, 1997, filed with the Commission on June 6, 1997. 4.6 Second Supplemental Indenture, dated as of September 30, 1997, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, is incorporated by reference from Exhibit 4.4 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1997, filed with the Commission on December 8, 1997. 4.7 Third Supplemental Indenture, dated as of April 17, 1998, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, is incorporated by reference form Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, filed with Commission on May 14, 1998. 4.8 Fourth Supplemental Indenture, dated as of April 20, 1998, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, is incorporated by reference from 4.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, filed with Commission on May 14, 1998. 4.9 Fifth Supplemental Indenture, dated as of August 31, 1998, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, is incorporated herein by reference from Exhibit 4.7 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1998, filed with the Commission on December 10, 1998. 4.10 Sixth Supplemental Indenture, dated as of February 4, 1999, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, relating to the 8% Senior Notes due 2009, is incorporated herein by reference from Exhibit 4.1 to the Company's Form 8-K filed with the Commission on February 2, 1999. 4.11 Seventh Supplemental Indenture, dated as of August 31, 1999, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, is incorporated herein by reference from Exhibit 4.9 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999, filed with the Commission on December 10, 1999. -26-
27 4.12 Eighth Supplemental Indenture, dated as of March 21, 2000, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, relating to the 10-1/2% Senior Notes due 2005, is incorporated herein by reference from Exhibit 4.1 to the Company's Current Report on Form 8-K, filed with the Commission on March 17, 2000. 4.13 Ninth Supplemental Indenture, dated as of March 31, 2000, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, is incorporated herein by reference from Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, filed with the Commission on May 12, 2000. 4.14 Tenth Supplemental Indenture, dated as of June 5, 2000, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, relating to the 10-1/2% Senior Notes due 2005, is incorporated herein by reference from Exhibit 4.1 to the Company's Current Report on Form 8-K, filed with the Commission on June 6, 2000. 4.15 Indenture dated as of April 15, 1996 between Continental Homes Holding Corp. ("Continental") and First Union National Bank, as Trustee, relating to the 10% Senior Notes due 2006, is incorporated herein by reference from Exhibit 4.1 to Continental's Annual Report on Form 10-K for the year ended May 31, 1996. The Commission file number for Continental is 1-10700. 4.16 First Supplemental Indenture, dated as of April 20, 1998, among the Company, the guarantors named therein and First Union National Bank, as Trustee, is incorporated by reference from Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, filed with the Commission on May 14, 1998 4.17 Second Supplemental Indenture, dated as of August 31, 1998, among the Company, the guarantors named herein and First Union National Bank, as Trustee, is incorporated by reference from Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended September 301, 1998, filed with the Commission on December 10, 1998. 4.18 Third Supplemental Indenture, dated as of August 31, 1999, among the Company, the guarantors named herein and First Union National Bank, as Trustee, is incorporated by reference from Exhibit 4.13 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999, filed with the Commission on December 10, 1999. 10.1 Amended and Restated Master Loan and Inter-Creditor Agreement dated as of July 1, 1999, among D.R. Horton, Inc., as a Borrower; Nationsbank, N.A., Bank of America National Trust and Savings Association, Fleet National Bank, Bank United, Comerica Bank, Credit Lyonnais New York Branch, Societe Generale, Southwest Agency, The First National Bank of Chicago, PNC Bank, National Association, Amsouth Bank, Bank One, Arizona, NA, First American Bank Texas, SSB, Harris Trust and Savings Bank, Sanwa Bank California, Norwest Bank Arizona, National Association,. Wachovia Mortgage Company and Summit Bank, as Banks; and Nationsbank, N.A., as Administrative Agent, is incorporated by reference from Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999, filed with the Commission on December 10, 1999. 10.2* The D.R. Horton, Inc. 1991 Stock Incentive Plan, as amended and restated. 10.3* Amendment No. 1 to the D.R. Horton, Inc. 1991 Stock Incentive Plan, as amended and restated. 10.4* Indemnification Agreement, dated as of February 1, 2001, for a director and executive officer of the Company, Samuel R. Fuller. (On the same date, an Indemnification Agreement in substantially identical form was executed for Stacey H. Dwyer, an executive officer of the Company. - ---------- * filed herewith (b) Reports on Form 8-K. On March 8, 2001, the Company filed a Current Report on Form 8-K (Items 5 and 7), which filed an underwriting agreement, a supplemental indenture and a statement of computation of ratio of earnings to fixed changes, all relating to the offering and issuance of $200 million principal amount of the Company's 9.375% Senior Subordinated Notes, due 2011. -27-
28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. D.R. HORTON, INC. Date: May 15, 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) -28-
29 EXHIBIT INDEX <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION ------ ----------- <S> <C> 4.1 Indenture, dated as of September 11, 2000, among D.R. Horton, Inc., the guarantors named therein and American Stock Transfer and Trust Company, as Trustee, relating to the Senior Subordinated Debt Securities of D.R. Horton, Inc., is incorporated herein by reference from Exhibit 4.1(a) to the Company's Current Report on Form 8-K filed with the Commission on September 7, 2000. 4.2 First Supplemental Indenture, dated as of September 11, 2000, among D.R. Horton, Inc., the guarantors named therein and American Stock Transfer and Trust Company, as Trustee, relating to the 9.75% Senior Subordinated Notes due 2010 of D.R. Horton, Inc., is incorporated herein by reference from Exhibit 4.1(b) to the Company's Current Report on Form 8-K filed with the Commission on September 7, 2000. 4.3 Second Supplemental Indenture, dated as of March 12, 2001, among D.R. Horton, Inc., the guarantors named therein and American Stock Transfer and Trust Company, as Trustee, relating to the 9.375% Senior Subordinated Notes due 2011 of D.R. Horton, Inc., is incorporated herein by reference from Exhibit 4.1(a) to the Company's Current Report on Form 8-K filed with the Commission on March 8, 2001. 4.4 Indenture, dated as of June 9, 1997, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, relating to Senior Debt Securities, is incorporated herein by reference from Exhibit 4.1(a) to the Company's Registration Statement on Form S-3 (Registration No. 333-27521) filed with the Commission on May 21, 1997. 4.5 First Supplemental Indenture, dated as of June 1, 1997, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, relating to the 8 3/8% Senior Notes due 2009, is incorporated by reference from Exhibit 4.1 to the Company's Form 8-K/A dated April 1, 1997, filed with the Commission on June 6, 1997. 4.6 Second Supplemental Indenture, dated as of September 30, 1997, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, is incorporated by reference from Exhibit 4.4 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1997, filed with the Commission on December 8, 1997. 4.7 Third Supplemental Indenture, dated as of April 17, 1998, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, is incorporated by reference form Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, filed with Commission on May 14, 1998. 4.8 Fourth Supplemental Indenture, dated as of April 20, 1998, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, is incorporated by reference from 4.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, filed with Commission on May 14, 1998. 4.9 Fifth Supplemental Indenture, dated as of August 31, 1998, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, is incorporated herein by reference from Exhibit 4.7 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1998, filed with the Commission on December 10, 1998. 4.10 Sixth Supplemental Indenture, dated as of February 4, 1999, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, relating to the 8% Senior Notes due 2009, is incorporated herein by reference from Exhibit 4.1 to the Company's Form 8-K filed with the Commission on February 2, 1999. 4.11 Seventh Supplemental Indenture, dated as of August 31, 1999, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, is incorporated herein by reference from Exhibit 4.9 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999, filed with the Commission on December 10, 1999. </TABLE>
30 <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION ------ ----------- <S> <C> 4.12 Eighth Supplemental Indenture, dated as of March 21, 2000, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, relating to the 10-1/2% Senior Notes due 2005, is incorporated herein by reference from Exhibit 4.1 to the Company's Current Report on Form 8-K, filed with the Commission on March 17, 2000. 4.13 Ninth Supplemental Indenture, dated as of March 31, 2000, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, is incorporated herein by reference from Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, filed with the Commission on May 12, 2000. 4.14 Tenth Supplemental Indenture, dated as of June 5, 2000, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, relating to the 10-1/2% Senior Notes due 2005, is incorporated herein by reference from Exhibit 4.1 to the Company's Current Report on Form 8-K, filed with the Commission on June 6, 2000. 4.15 Indenture dated as of April 15, 1996 between Continental Homes Holding Corp. ("Continental") and First Union National Bank, as Trustee, relating to the 10% Senior Notes due 2006, is incorporated herein by reference from Exhibit 4.1 to Continental's Annual Report on Form 10-K for the year ended May 31, 1996. The Commission file number for Continental is 1-10700. 4.16 First Supplemental Indenture, dated as of April 20, 1998, among the Company, the guarantors named therein and First Union National Bank, as Trustee, is incorporated by reference from Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, filed with the Commission on May 14, 1998 4.17 Second Supplemental Indenture, dated as of August 31, 1998, among the Company, the guarantors named herein and First Union National Bank, as Trustee, is incorporated by reference from Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended September 301, 1998, filed with the Commission on December 10, 1998. 4.18 Third Supplemental Indenture, dated as of August 31, 1999, among the Company, the guarantors named herein and First Union National Bank, as Trustee, is incorporated by reference from Exhibit 4.13 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999, filed with the Commission on December 10, 1999. 10.1 Amended and Restated Master Loan and Inter-Creditor Agreement dated as of July 1, 1999, among D.R. Horton, Inc., as a Borrower; Nationsbank, N.A., Bank of America National Trust and Savings Association, Fleet National Bank, Bank United, Comerica Bank, Credit Lyonnais New York Branch, Societe Generale, Southwest Agency, The First National Bank of Chicago, PNC Bank, National Association, Amsouth Bank, Bank One, Arizona, NA, First American Bank Texas, SSB, Harris Trust and Savings Bank, Sanwa Bank California, Norwest Bank Arizona, National Association,. Wachovia Mortgage Company and Summit Bank, as Banks; and Nationsbank, N.A., as Administrative Agent, is incorporated by reference from Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999, filed with the Commission on December 10, 1999. 10.2* The D.R. Horton, Inc. 1991 Stock Incentive Plan, as amended and restated. 10.3* Amendment No. 1 to the D.R. Horton, Inc. 1991 Stock Incentive Plan, as amended and restated. 10.4* Indemnification Agreement, dated as of February 1, 2001, for a director and executive officer of the Company, Samuel R. Fuller. (On the same date, an Indemnification Agreement in substantially identical form was executed for Stacey H. Dwyer, an executive officer of the Company. </TABLE> - ---------- * filed herewith