FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
---ACT OF 1934
For the Quarterly Period Ended June 30, 2002
--------------------
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
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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 Identification No.)
incorporation or organization)
1901 Ascension Blvd., Suite 100, Arlington, Texas 76006
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(Address of principal executive offices) (Zip Code)
(817) 856-8200
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(Registrant's telephone number, including area code)
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(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 -- 146,490,625 shares as of August 8, 2002
-------------
This report contains 30 pages.
INDEX
D.R. HORTON, INC.
PART I. FINANCIAL INFORMATION. Page
- ------- ---------------------- ----
ITEM 1. Financial Statements.
Consolidated Balance Sheets-- June 30, 2002 and September 30, 2001. 3
Consolidated Statements of Income-- Three Months and Nine Months Ended
June 30, 2002 and 2001. 4
Consolidated Statements of Cash Flows-- Nine Months Ended June 30,
2002 and 2001. 5
Notes to Consolidated Financial Statements. 6-18
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition. 19-27
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk. 28
PART II. OTHER INFORMATION.
- -------- -----------------
ITEM 6 Exhibits and Reports on Form 8-K. 29
SIGNATURES. 30
- ----------
ITEM 1. FINANCIAL STATEMENTS
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
2002 2001
-------------- --------------
(In thousands)
(Unaudited)
ASSETS
Homebuilding:
Cash ................................................................. $ 42,758 $ 232,305
Inventories:
Finished homes and construction in progress ........................ 2,069,731 1,424,101
Residential lots - developed and under development ................. 2,301,671 1,377,452
Land held for development .......................................... 10,251 2,824
---------- ----------
4,381,653 2,804,377
Property and equipment (net) ......................................... 73,338 53,096
Earnest money deposits and other assets .............................. 347,331 181,659
Excess of cost over net assets acquired .............................. 586,390 136,223
---------- ----------
5,431,470 3,407,660
---------- ----------
Financial Services:
Cash ................................................................. 13,169 6,975
Mortgage loans held for sale ......................................... 288,478 222,818
Other assets ......................................................... 17,611 14,737
---------- ----------
319,258 244,530
---------- ----------
$5,750,728 $3,652,190
========== ==========
LIABILITIES
Homebuilding:
Accounts payable and other liabilities ............................... $ 625,225 $ 498,576
Notes payable ........................................................ 2,750,333 1,701,689
---------- ----------
3,375,558 2,200,265
---------- ----------
Financial Services:
Accounts payable and other liabilities ............................... 10,847 10,173
Notes payable to financial institutions .............................. 204,630 182,641
---------- ----------
215,477 192,814
---------- ----------
3,591,035 2,393,079
---------- ----------
Minority interests ................................................... 20,370 8,864
---------- ----------
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,
146,445,994 shares at June 30, 2002 and 76,901,511 shares at
September 30, 2001, issued and outstanding ......................... 1,464 769
Additional capital ................................................... 1,349,142 704,842
Unearned compensation ................................................ (6,963) --
Retained earnings .................................................... 795,680 544,636
---------- ----------
2,139,323 1,250,247
---------- ----------
$5,750,728 $3,652,190
========== ==========
See accompanying notes to consolidated financial statements.
-3-
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Nine Months
Ended June 30, Ended June 30,
------------------------ -----------------------
2002 2001 2002 2001
------------ ----------- ----------- -----------
(In thousands, except per share data)
-----------------------------------
(Unaudited)
-----------
Homebuilding:
Revenues
Home sales ..................................... $1,750,189 $1,090,242 $4,410,284 $2,799,894
Land/lot sales ................................. 29,426 11,724 80,499 68,033
---------- ---------- ---------- ----------
1,779,615 1,101,966 4,490,783 2,867,927
---------- ---------- ---------- ----------
Cost of sales
Home sales ..................................... 1,416,050 872,095 3,573,790 2,244,754
Land/lot sales ................................. 25,938 10,712 70,048 54,791
---------- ---------- ---------- ----------
1,441,988 882,807 3,643,838 2,299,545
---------- ---------- ---------- ----------
Gross profit
Home sales ..................................... 334,139 218,147 836,494 555,140
Land/lot sales ................................. 3,488 1,012 10,451 13,242
---------- ---------- ---------- ----------
337,627 219,159 846,945 568,382
Selling, general and administrative expense ...... 177,020 109,085 444,931 295,084
Interest expense ................................. 1,465 2,089 5,224 6,618
Other expense .................................... 3,842 5,040 3,988 14,038
---------- ---------- ---------- ----------
155,300 102,945 392,802 252,642
---------- ---------- ---------- ----------
Financial Services:
Revenues ......................................... 28,864 19,015 77,651 47,553
Selling, general and administrative expense ...... 18,220 12,540 48,261 32,507
Interest expense ................................. 1,155 1,575 3,490 3,582
Other (income) ................................... (4,714) (2,240) (10,576) (4,869)
---------- ---------- ---------- ----------
14,203 7,140 36,476 16,333
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES ..................... 169,503 110,085 429,278 268,975
Provision for income taxes ....................... 63,563 41,282 160,979 100,866
---------- ---------- ---------- ----------
Income before cumulative effect of change in
accounting principle ........................... 105,940 68,803 268,299 168,109
Cumulative effect of change in accounting
principle, net of income taxes of $1,282 ....... -- -- -- 2,136
---------- ---------- ---------- ----------
NET INCOME ..................................... $ 105,940 $ 68,803 $ 268,299 $ 170,245
========== ========== ========== ==========
Basic earnings per common share:
Income before cumulative effect of change
in accounting principle ...................... $ 0.72 $ 0.61 $ 2.06 $ 1.49
Cumulative effect of change in accounting
principle, net of income taxes ............... -- -- -- 0.02
---------- ---------- ---------- ----------
Net income ..................................... $ 0.72 $ 0.61 $ 2.06 $ 1.51
========== ========== ========== ==========
Diluted earnings per common share:
Income before cumulative effect of change in
in accounting principle ...................... $ 0.67 $ 0.60 $ 1.94 $ 1.46
Cumulative effect of change in accounting
principle, net of income taxes ............... -- -- -- 0.02
---------- ---------- ---------- ----------
Net income ..................................... $ 0.67 $ 0.60 $ 1.94 $ 1.48
========== ========== ========== ==========
Cash dividends per share ......................... $ 0.06 $ 0.05 $ 0.17 $ 0.14
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
-4-
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months
Ended June 30,
-------------------
2002 2001
------ ------
(In thousands)
(Unaudited)
OPERATING ACTIVITIES
Net income .............................................................. $ 268,299 $ 170,245
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization ........................................... 18,621 18,463
Amortization of debt premiums and fees .................................. 5,991 2,645
Changes in operating assets and liabilities:
Increase in inventories ............................................... (311,773) (416,639)
Increase in earnest money deposits and other assets ................... (38,274) (33,649)
Increase in mortgage loans held for sale .............................. (65,660) (50,616)
(Decrease) increase in accounts payable and other liabilities ......... (110,590) 26,608
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES ..................................... (233,386) (282,943)
---------- ----------
INVESTING ACTIVITIES
Net purchases of property and equipment ................................. (28,155) (21,807)
Distributions from (investments in) venture capital entities ............ 250 (1,970)
Net cash paid for acquisitions .......................................... (152,662) (49,009)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES ..................................... (180,567) (72,786)
---------- ----------
FINANCING ACTIVITIES
Proceeds from notes payable ............................................. 2,439,106 891,420
Repayment of notes payable .............................................. (2,451,496) (920,630)
Issuance of senior and senior subordinated notes payable ................ 247,928 393,904
Proceeds from issuance of common stock associated with certain
employee benefit plans ................................................ 12,380 9,798
Payment of cash dividends ............................................... (17,318) (9,885)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................................. 230,600 364,607
---------- ----------
(DECREASE) INCREASE IN CASH ............................................... (183,353) 8,878
Cash at beginning of period ............................................. 239,280 72,525
---------- ----------
Cash at end of period ................................................... $ 55,927 $ 81,403
========== ==========
See accompanying notes to consolidated financial statements.
-5-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2002
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. Operating results for the
three-month and nine-month periods ended June 30, 2002 are not necessarily
indicative of the results that may be expected for the year ending September 30,
2002.
Business - The Company is a national builder that is engaged primarily in the
construction and sale of single housing in the United States. The Company
designs, builds and sells single-family houses on lots developed by the Company
and on finished lots which it purchases, ready for home construction.
Periodically, the Company sells land or lots it has developed. The Company also
provides title agency and mortgage brokerage services to its home buyers.
NOTE B - CHANGES IN ACCOUNTING PRINCIPLES
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities", was issued in June 1998, and was
later amended by SFAS 137 and 138, which were issued in June 1999 and June 2000,
respectively. Pursuant to the implementation requirements of SFAS No. 133, the
Company adopted it on October 1, 2000, the first day of the Company's fiscal
year ending September 30, 2001. The Company's interest rate swaps, the terms of
which are more fully described in Item 3, were not designated as hedges under
the provisions of SFAS No. 133. The Statement requires such swaps to be recorded
in the consolidated balance sheet at fair value. Changes in their fair value
must be recorded in the consolidated statements of income. Accordingly, the
Company recorded a cumulative effect of a change in accounting principle
amounting to $2.1 million, net of income taxes of $1.3 million, as an adjustment
to net income in the nine months ended June 30, 2001. The fair value of the
Company's interest rate swaps at June 30, 2002 and September 30, 2001 is
recorded in homebuilding other assets, and the changes in their fair value
during the three months and nine months ended June 30, 2002 and 2001 are
recorded in homebuilding other income.
SFAS No. 133 was also implemented on October 1, 2000 for the hedging activities
of the Company's financial services segment. The effects of doing so were not
significant.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". Under Statement No. 142, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject to annual
impairment tests. Other intangible assets will continue to be amortized over
their useful lives. The Company early-adopted the new rules on accounting for
goodwill and other intangible assets beginning October 1, 2001. The Company
performed the required impairment tests at October 31, 2001 and determined that
no goodwill or other intangible asset impairments exist. The following
summarizes the pro forma impact of the non-amortization approach for the three
months and nine months ended June 30, 2001 as if these Statements had been
adopted on October 1, 2000:
Three Months Ended Nine Months Ended
June 30, 2001 June 30, 2001
----------------- ------------------
(In thousands, except per share data)
Net income, as previously reported ............... $ 68,803 $ 170,245
Amortization of goodwill, net of income taxes
of $789 and $2,328, respectively ............... 1,316 3,880
--------------- ---------------
Net income, as adjusted .......................... $ 70,119 $ 174,125
=============== ===============
Net income per share, as adjusted:
Basic ........................................ $ 0.62 $ 1.54
=============== ===============
Diluted ...................................... $ 0.61 $ 1.52
=============== ===============
-6-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2002
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 approximately 98% of consolidated revenues for the
three months and nine months ended June 30, 2002 and 2001. The homebuilding
segment generates the majority of its revenues from the sale of completed homes,
with a lesser amount from the sale of land and lots. The financial services
segment generates its revenues from originating and selling mortgages and
collecting fees for title insurance agency and closing services.
NOTE D - EARNINGS PER SHARE
Basic earnings per share for the three months and nine months ended June 30,
2002 and 2001 is based on the weighted average number of shares of common stock
outstanding. Diluted earnings per share is based on the weighted average number
of shares of common stock and dilutive securities outstanding.
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ---------------------
2002 2001 2002 2001
--------- -------- --------- -------
(In thousands)
Numerator:
Net income............................................... $105,940 $68,803 $268,299 $170,245
Effect of dilutive securities:
Interest expense and amortization of issuance costs
associated with zero coupon convertible senior
notes, net of applicable income taxes................. 1,054 -- 2,096 --
-------- ------- -------- --------
Numerator for diluted earnings per share after
assumed conversions................................... $106,994 $68,803 $270,395 $170,245
======== ======= ======== ========
Denominator:
Denominator for basic earnings per share--
weighted average shares............................... 146,331 113,390 130,174 112,994
Effect of dilutive securities:
Zero coupon convertible senior notes..................... 10,000 -- 6,667 --
Employee stock options................................... 2,626 1,958 2,422 1,874
-------- ------- --------- --------
Denominator for diluted earnings per share--
adjusted weighted average shares and
assumed conversions................................... 158,957 115,348 139,263 114,868
======== ======= ========= ========
In March 2002, the Company's Board of Directors declared a three-for-two stock
split (effected as a 50% stock dividend), payable on April 9, 2002 to common
stockholders of record on March 26, 2002. All average share amounts presented
above have been restated to reflect the effects of the three-for-two stock
split.
On February 5, 2002, each of the Company's 381,113 zero coupon convertible
senior notes outstanding first became eligible for conversion into 26.2391
shares of the Company's common stock. These convertible senior notes are
convertible on any date as of which the average closing price of the Company's
common stock for the twenty preceding trading days exceeds the specified
threshold of 110% of the accreted value of each note, divided by the conversion
rate. The twenty-day average closing price of the Company's common stock
exceeded the specified threshold on June 30, 2002, which had the effect of
increasing the denominator for diluted earnings per share by 10 million shares
for the three months ended June 30, 2002 and 6.67 million shares for the nine
-7-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2002
months ended June 30, 2002. Also, the numerator for diluted earnings per share
was increased by tax-effected interest expense and amortization of issuance
costs associated with the convertible senior notes for the three months and
nine months ended June 30, 2002.
NOTE E - DEBT
The Company's homebuilding notes payable consist of the following:
June 30, September 30,
2002 2001
----------- -----------
(In thousands)
Unsecured:
Revolving credit facility due 2006............................... $ 255,000 $ --
8.375% Senior notes due 2004, net................................ 149,240 148,943
10.5% Senior notes due 2005, net................................. 199,528 199,439
10% Senior notes due 2006, net................................... 147,752 147,600
9% Senior notes due 2008, net.................................... 102,565 --
8% Senior notes due 2009, net.................................... 383,392 383,257
9.375% Senior notes due 2009, net................................ 246,609 --
9.75% Senior subordinated notes due 2010, net.................... 148,974 148,917
9.375% Senior subordinated notes due 2011, net................... 199,704 199,688
7.875% Senior notes due 2011, net................................ 198,406 198,319
10.5% Senior subordinated notes due 2011, net.................... 153,672 --
8.5% Senior notes due 2012, net.................................. 247,961 --
Zero coupon convertible senior notes due 2021, net............... 207,465 202,509
Other secured.......................................................... 110,065 73,017
---------- ----------
$2,750,333 $1,701,689
========== ==========
On January 31, 2002, the Company refinanced its existing unsecured revolving
credit facility with a new, replacement facility. The new $805 million facility
includes $125 million which may be used for letters of credit. The new facility
matures in January 2006, and is guaranteed by substantially all of the Company's
wholly-owned subsidiaries other than its financial services subsidiaries.
Borrowings bear daily interest at rates based upon the London Interbank Offered
Rate (LIBOR) plus a spread based upon the Company's ratio of debt to tangible
net worth. In addition to stated interest rates, the revolving credit facility
requires the Company to pay certain fees. The new credit facility contains
covenants which are essentially the same as those that existed under the old
facility.
The revolving credit facility and the indentures related to the Company's Senior
and Senior Subordinated Notes contain covenants which, taken together, limit
amounts of debt that may be incurred, investments in inventory, stock
repurchases, cash dividends and other restricted payments, asset dispositions
and creation of liens, and require certain levels of tangible net worth. At June
30, 2002, these covenants limit the additional homebuilding debt the Company
could incur to $1,251.3 million, which included $464.9 million available under
the revolving credit facility.
On February 21, 2002, the Company assumed the outstanding debt of Schuler
Homes, Inc. ("Schuler") as part of Schuler's merger into the Company. The debt
assumed included the 9% senior notes due 2008, the 9.375% senior notes due 2009
and the 10.5% senior subordinated notes due 2011, all of which were recorded by
the Company at their market values as of February 21, 2002. The Company repaid
$20.2 million, in principal amount, of the Schuler senior and senior
subordinated notes as part of the Company's change of control offer in
connection with the merger.
On April 11, 2002, the Company issued $250 million of 8.5% Senior notes due
2012. The net proceeds from this offering were used to repay borrowings under
the unsecured revolving credit facility. These notes are guaranteed by
substantially all of the Company's wholly-owned subsidiaries other than its
financial services subsidiaries.
-8-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2002
NOTE F - INTEREST
The Company capitalizes interest during development and construction.
Capitalized interest is charged to cost of sales as the related inventory is
delivered to the home buyer. Homebuilding interest costs are:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- -------------------------
2002 2001 2002 2001
--------- ------------ ---------- -----------
(In thousands)
Capitalized interest, beginning of period........ $ 124,652 $ 85,579 $ 96,910 $ 66,092
Interest incurred - homebuilding................. 58,349 34,133 141,596 94,861
Interest expensed:
Directly - homebuilding.................... (1,465) (2,089) (5,224) (6,618)
Amortized to cost of sales................. (37,811) (24,012) (89,557) (60,724)
--------- ----------- --------- -----------
Capitalized interest, end of period.............. $ 143,725 $ 93,611 $ 143,725 $ 93,611
========= =========== ========= ===========
NOTE G - ACQUISITIONS
On February 21, 2002, Schuler Homes, Inc. merged with and into D.R. Horton,
Inc., with D.R. Horton the surviving corporation. At the time of the merger,
Schuler's assets amounted to $1,364.4 million, mostly inventory. The total
merger consideration consisted of the issuance of 20,079,532 shares of D.R.
Horton, Inc. common stock, valued at $30.93 per share (the average closing price
of D.R. Horton common stock for a period of ten trading days from December 4,
2001 to December 17, 2001); the payment of $168.7 million in cash; the
assumption of $802.2 million of Schuler's debt, $238.2 million of which was paid
at closing; the assumption of trade payables and other liabilities amounting to
$209.1 million; and the assumption of $10.8 million of obligations to the
Schuler entities' minority interest holders. Also, D.R. Horton issued options to
purchase approximately 527,000 shares of D.R. Horton common stock to Schuler
employees to replace outstanding Schuler stock options. The fair value of the
options issued was $10.4 million and was recorded as additional capital. The
fair value of the unvested options issued was $7.8 million and was recorded as
unearned compensation The unearned compensation is being amortized over the
remaining vesting period of the stock options.
The merger was treated as a purchase of Schuler by D.R. Horton for accounting
purposes. Under this method, Schuler assets acquired and liabilities assumed
were recorded on the Company's balance sheet at their fair market values as of
February 21, 2002.
Schuler's results of operations for the three months ended June 30, 2002 and
from February 22, 2002 to June 30, 2002, are included in the Company's results
of operations for the three months and nine months ended June 30, 2002,
respectively.
The following unaudited pro forma combined condensed financial data for the
nine-month periods ending June 30, 2002 and 2001 are derived from the
historical financial statements of D.R. Horton, Inc., Schuler, Fortress-Florida
(acquired in May 2001), and Emerald Builders (acquired in July 2001). The
unaudited pro forma combined condensed financial data give effect to the merger
with Schuler and the acquisitions of Fortress-Florida and Emerald as if they
had occurred at the beginning of each period presented. Pro forma adjustments
to the historical financial data reflect those that we deem appropriate and are
factually supported based upon currently available information. The only pro
forma adjustment that significantly affected the combined historical financial
data for the nine-month periods ended June 30, 2001 and 2002 was the pro forma
effect of recording Schuler's inventories at fair value at the beginning of the
nine months ended June 30, 2001. Such pro forma adjustment would have reduced
net income for that period by $15.8 million.
-9-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2002
NOTE G - ACQUISITIONS - (Continued)
The unaudited pro forma combined condensed financial data have been included
for comparative purposes only and do not purport to show what the operating
results would have been if the merger had been consummated as of the dates
indicated and should not be construed as representative of future operating
results.
Nine Months
Ended June 30,
--------------------------------
2002 2001
--------------- ---------------
Revenues........................................................... $ 5,143,436 $ 4,312,414
-------------- --------------
Income before cumulative effect of change in accounting
principle..................................................... 300,592 234,339
Cumulative effect of change in accounting principle,
net of income taxes........................................... -- 2,136
-------------- --------------
Net income.................................................... $ 300,592 $ 236,475
============== ==============
Basic earnings per common share:
Income before cumulative effect of change in
accounting principle..................................... $ 2.01 $ 1.62
Cumulative effect of change in accounting principle,
net of income taxes...................................... -- 0.02
-------------- --------------
Net income.................................................... $ 2.01 $ 1.64
============== ==============
Diluted earnings per common share:
Income before cumulative effect of change in
accounting principle.................................... $ 1.91 $ 1.61
Cumulative effect of change in accounting principle,
net of income taxes..................................... -- 0.01
-------------- --------------
Net income.................................................... $ 1.91 $ 1.62
============== ==============
-10-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2002
NOTE H - SUMMARIZED FINANCIAL INFORMATION
The 7.875%, 8%, 8.375%, 8.5%, 9%, 9.375%, 10% and 10.5% Senior Notes, the
9.375%, 9.75% and 10.5% Senior Subordinated Notes, and the Zero Coupon
Convertible Senior Notes are fully and unconditionally guaranteed, on a joint
and several basis, by all of the Company's direct and indirect subsidiaries
(Guarantor Subsidiaries), other than financial services subsidiaries and
certain other inconsequential subsidiaries (collectively, Non-Guarantor
Subsidiaries). Each of the Guarantor Subsidiaries is wholly-owned. In lieu of
providing separate financial statements for the Guarantor Subsidiaries,
consolidated condensed financial statements are presented below. Separate
financial statements and other disclosures concerning the Guarantor
Subsidiaries are not presented because management has determined that they are
not material to investors.
Consolidating Balance Sheet
June 30, 2002
Non-Guarantor
Subsidiaries
-----------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
--------------- -------------- ---------- ------------ -------------- ------------
(In thousands)
ASSETS
Homebuilding:
Cash and cash equivalents..................... $ -- $ 32,208 $ -- $ 10,550 $ -- $ 42,758
Advances to/investments in affiliates......... 4,238,009 217,422 -- 615 (4,456,046) --
Inventories................................... 676,894 3,617,996 -- 87,136 (373) 4,381,653
Property and equipment (net).................. 9,932 57,710 -- 5,696 -- 73,338
Earnest money deposits and other assets....... 88,113 250,352 -- 12,824 (3,958) 347,331
Excess of cost over net assets acquired (net). -- 586,390 -- -- -- 586,390
----------- ----------- --------- ----------- ------------ -----------
5,012,948 4,762,078 -- 116,821 (4,460,377) 5,431,470
----------- ----------- --------- ----------- ------------ -----------
Financial services:
Cash and cash equivalents..................... -- -- 13,169 -- -- 13,169
Mortgage loans held for sale.................. -- -- 288,478 -- -- 288,478
Other assets.................................. -- -- 17,611 -- -- 17,611
----------- ----------- --------- ----------- ------------ -----------
-- -- 319,258 -- -- 319,258
----------- ----------- --------- ----------- ------------ -----------
Total Assets $ 5,012,948 $ 4,762,078 $ 319,258 $ 116,821 $ (4,460,377) $ 5,750,728
=========== =========== ========= =========== ============ ===========
LIABILITIES & EQUITY
Homebuilding:
Accounts payable and other liabilities........ $ 190,379 $ 427,614 $ -- $ 7,252 $ (20) $ 625,225
Advances from parent/affiliates............... -- 3,103,400 -- 50,424 (3,153,824) --
Notes payable................................. 2,683,246 30,199 -- 40,826 (3,938) 2,750,333
----------- ----------- --------- ----------- ------------ -----------
2,873,625 3,561,213 -- 98,502 (3,157,782) 3,375,558
----------- ----------- --------- ----------- ------------ -----------
Financial services:
Accounts payable and other liabilities........ -- -- 10,847 -- -- 10,847
Advances from parent/affiliates............... -- -- 36,760 -- (36,760) --
Notes payable................................. -- -- 204,630 -- -- 204,630
----------- ----------- --------- ---------- ------------ -----------
-- -- 252,237 -- (36,760) 215,477
----------- ----------- --------- ---------- ------------ -----------
Total Liabilities 2,873,625 3,561,213 252,237 98,502 (3,194,542) 3,591,035
----------- ----------- --------- ---------- ------------ -----------
Minority interests............................ -- -- 18 20,352 -- 20,370
----------- ----------- --------- ---------- ------------ -----------
Common stock.................................. 1,464 45 6 6,155 (6,206) 1,464
Additional capital............................ 1,349,142 352,295 2,885 28,434 (383,614) 1,349,142
Retained earnings............................. 795,680 848,525 64,112 (36,622) (876,015) 795,680
Unearned compensation......................... (6,963) -- -- -- -- (6,963)
----------- ----------- --------- ---------- ------------ -----------
2,139,323 1,200,865 67,003 (2,033) (1,265,835) 2,139,323
----------- ----------- --------- ---------- ------------ -----------
Total Liabilities & Equity $ 5,012,948 $ 4,762,078 $ 319,258 $ 116,821 $ (4,460,377) $ 5,750,728
=========== =========== ========= ========== ============ ===========
-11-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
NOTE H - SUMMARIZED FINANCIAL INFORMATION (Continued)
Consolidating Balance Sheet
September 30, 2001
Non-Guarantor
Subsidiaries
--------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
-------------- ------------- ----------- -------- -------------- ------------
(In thousands)
ASSETS
Homebuilding:
Cash and cash equivalents...................... $ -- $ 230,481 $ -- $ 1,824 $ -- $ 232,305
Advances to/investments in affiliates.......... 2,493,783 74,241 -- -- (2,568,024) --
Inventories.................................... 564,593 2,212,933 -- 27,230 (379) 2,804,377
Property and equipment (net)................... 8,114 39,823 -- 5,159 -- 53,096
Earnest money deposits and other assets........ 39,978 140,436 -- 10,793 (9,548) 181,659
Excess of cost over net assets acquired (net).. -- 136,223 -- -- -- 136,223
------------ ----------- --------- -------- ------------ -----------
3,106,468 2,834,137 -- 45,006 (2,577,951) 3,407,660
------------ ----------- --------- -------- ------------ -----------
Financial services:
Cash and cash equivalents...................... -- -- 6,975 -- -- 6,975
Mortgage loans held for sale................... -- -- 222,818 -- -- 222,818
Other assets................................... -- -- 14,737 -- -- 14,737
------------ ----------- --------- -------- ------------ -----------
-- -- 244,530 -- -- 244,530
------------ ----------- --------- -------- ------------ -----------
Total Assets $ 3,106,468 $ 2,834,137 $ 244,530 $ 45,006 $ (2,577,951) $ 3,652,190
============ =========== ========= ======== ============ ===========
LIABILITIES & EQUITY
Homebuilding:
Accounts payable and other liabilities......... $ 191,596 $ 304,486 $ -- $ 2,552 $ (58) $ 498,576
Advances from parent/affiliates................ -- 1,944,796 -- 28,367 (1,973,163) --
Notes payable.................................. 1,664,625 37,064 -- 9,489 (9,489) 1,701,689
------------ ----------- --------- -------- ------------ -----------
1,856,221 2,286,346 -- 40,408 (1,982,710) 2,200,265
------------ ----------- --------- -------- ------------ -----------
Financial services:
Accounts payable and other liabilities......... -- -- 10,173 -- -- 10,173
Advances from parent/affiliates................ -- -- 13,748 -- (13,748) --
Notes payable.................................. -- -- 182,641 -- -- 182,641
------------ ----------- --------- -------- ------------ -----------
-- -- 206,562 -- (13,748) 192,814
------------ ----------- --------- -------- ------------ -----------
Total Liabilities 1,856,221 2,286,346 206,562 40,408 (1,996,458) 2,393,079
------------ ----------- --------- -------- ------------ -----------
Minority interests............................. -- -- 10 8,854 -- 8,864
------------ ----------- --------- -------- ------------ -----------
Common stock................................... 769 1 6 6,155 (6,162) 769
Additional capital............................. 704,842 84,612 2,299 10,129 (97,040) 704,842
Retained earnings.............................. 544,636 463,178 35,653 (20,540) (478,291) 544,636
------------ ----------- --------- -------- ------------ -----------
1,250,247 547,791 37,958 ( 4,256) (581,493) 1,250,247
------------ ----------- --------- -------- ------------ -----------
Total Liabilities & Equity $ 3,106,468 $ 2,834,137 $ 244,530 $ 45,006 $ (2,577,951) $ 3,652,190
============ =========== ========= ======== ============ ===========
-12-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (Unaudited) - (Continued)
NOTE H - SUMMARIZED FINANCIAL INFORMATION (Continued)
Consolidating Statement of Income
Three Months Ended June 30, 2002
Non-Guarantor
Subsidiaries
----------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------- -------------- --------- ----------- -------------- ------------
(In thousands)
Homebuilding:
Revenues:
Home sales............................... $ 239,827 $ 1,498,052 $ -- $ 12,310 $ -- $ 1,750,189
Land/lot sales........................... 2,106 27,320 -- -- -- 29,426
--------- ----------- -------- --------- ----------- -----------
241,933 1,525,372 -- 12,310 -- 1,779,615
--------- ----------- -------- --------- ----------- -----------
Cost of sales:
Home sales............................... 184,347 1,221,525 -- 10,237 (59) 1,416,050
Land/lot sales........................... 2,129 23,809 -- -- -- 25,938
--------- ----------- -------- --------- ----------- -----------
186,476 1,245,334 -- 10,237 (59) 1,441,988
--------- ----------- -------- --------- ----------- -----------
Gross profit:
Home sales............................... 55,480 276,527 -- 2,073 59 334,139
Land/lot sales........................... (23) 3,511 -- -- -- 3,488
--------- ----------- -------- --------- ----------- -----------
55,457 280,038 -- 2,073 59 337,627
Selling, general and administrative expense... 43,885 129,788 -- 1,465 1,882 177,020
Interest expense.............................. 1,018 446 -- 1 -- 1,465
Other expense (income)........................ (158,949) (2,035) -- (132) 164,958 3,842
--------- ----------- -------- --------- ----------- -----------
169,503 151,839 -- 739 (166,781) 155,300
--------- ----------- -------- --------- ----------- -----------
Financial services:
Revenues...................................... -- -- 28,864 -- -- 28,864
Selling, general and administrative expense... -- -- 20,102 -- (1,882) 18,220
Interest expense.............................. -- -- 1,155 -- -- 1,155
Other (income)................................ -- -- (4,714) -- -- (4,714)
--------- ----------- -------- --------- ----------- -----------
-- -- 12,321 -- 1,882 14,203
--------- ----------- -------- --------- ----------- -----------
Income before income taxes.................... 169,503 151,839 12,321 739 (164,899) 169,503
Provision for income taxes.................... 63,563 56,939 4,621 276 (61,836) 63,563
--------- ----------- -------- --------- ----------- -----------
Net income.................................... $ 105,940 $ 94,900 $ 7,700 $ 463 $ (103,063) $ 105,940
========= =========== ======== ========= =========== ===========
-13-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (Unaudited) - (Continued)
NOTE H - SUMMARIZED FINANCIAL INFORMATION (Continued)
Consolidating Statement of Income
Nine Months Ended June 30, 2002
Non-Guarantor
Subsidiaries
--------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ --------- --------- ------------ -----------
(In thousands)
Homebuilding:
Revenues:
Home sales ....................................... $ 641,378 $3,720,591 $ -- $ 48,315 $ -- $ 4,410,284
Land/lot sales ................................... 3,566 76,933 -- -- -- 80,499
---------- ---------- --------- --------- ---------- -----------
644,944 3,797,524 -- 48,315 -- 4,490,783
---------- ---------- --------- --------- ---------- -----------
Cost of sales:
Home sales ....................................... 502,674 3,031,487 -- 39,903 (274) 3,573,790
Land/lot sales ................................... 2,634 67,414 -- -- -- 70,048
---------- ---------- --------- --------- ---------- -----------
505,308 3,098,901 -- 39,903 (247) 3,643,838
---------- ---------- --------- --------- ---------- -----------
Gross profit:
Home sales ....................................... 138,704 689,104 -- 8,412 274 836,494
Land/lot sales ................................... 932 9,519 -- -- -- 10,451
---------- ---------- --------- --------- ---------- -----------
139,636 698,623 -- 8,412 274 846,945
Selling, general and administrative expense ........ 116,930 318,241 -- 4,772 4,988 444,931
Interest expense ................................... 3,929 1,292 -- 13 (10) 5,224
Other expense (income) ............................. (410,501) (3,909) -- 6,257 412,141 3,988
---------- ---------- --------- ---------- --------- -----------
429,278 382,999 -- (2,630) (416,845) 392,802
---------- ---------- --------- ---------- --------- -----------
Financial services:
Revenues ........................................... -- -- 77,651 -- -- 77,651
Selling, general and administrative expense ........ -- -- 53,249 -- (4,988) 48,261
Interest expense ................................... -- -- 3,490 -- -- 3,490
Other (income) ..................................... -- -- (10,576) -- -- (10,576)
---------- ---------- --------- ---------- ---------- -----------
-- -- 31,488 -- 4,988 36,476
---------- ---------- --------- ---------- ---------- -----------
Income before income taxes ......................... 429,278 382,999 31,488 (2,630) (411,857) 429,278
Provision for income taxes ......................... 160,979 143,624 11,809 (987) (154,446) 160,979
---------- ---------- --------- ---------- ---------- -----------
Net income ......................................... $ 268,299 $ 239,375 $ 19,679 $ (1,643) $ (257,411) $ 268,299
========== ========== ========= ========== ========== ===========
-14-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (Unaudited) - (Continued)
NOTE H - SUMMARIZED FINANCIAL INFORMATION (Continued)
Consolidating Statement of Income
Three Months Ended June 30, 2001
Non-Guarantor
Subsidiaries
---------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ --------- ---------- ------------ -----------
(In thousands)
Homebuilding:
Revenues:
Home sales ..................................... $ 199,313 $ 887,058 $ -- $ 3,871 $ -- $ 1,090,242
Land/lot sales ................................. 6,267 5,457 -- -- -- 11,724
---------- ---------- --------- --------- ---------- -----------
205,580 892,515 -- 3,871 -- 1,101,966
---------- ---------- --------- --------- ---------- -----------
Cost of sales:
Home sales ..................................... 154,876 714,376 -- 2,985 (142) 872,095
Land/lot sales ................................. 5,502 5,210 -- -- -- 10,712
---------- ---------- --------- --------- ---------- -----------
160,378 719,586 -- 2,985 (142) 882,807
---------- ---------- --------- --------- ---------- -----------
Gross profit:
Home sales ..................................... 44,437 172,682 -- 886 142 218,147
Land/lot sales ................................. 765 247 -- -- -- 1,012
---------- ---------- --------- --------- ---------- -----------
45,202 172,929 -- 886 142 219,159
Selling, general and administrative expense ...... 28,294 77,838 -- 1,779 1,174 109,085
Interest expense ................................. 2,043 44 -- 14 (12) 2,089
Other expense (income) ........................... (95,220) (305) -- 6,895 93,670 5,040
---------- ---------- --------- --------- ---------- -----------
110,085 95,352 -- (7,802) (94,690) 102,945
---------- ---------- --------- --------- ---------- -----------
Financial services:
Revenues ......................................... -- -- 19,015 -- -- 19,015
Selling, general and administrative expense ...... -- -- 13,714 -- (1,174) 12,540
Interest expense ................................. -- -- 1,575 -- -- 1,575
Other (income) ................................... -- -- (2,240) -- -- (2,240)
---------- ---------- --------- --------- ---------- -----------
-- -- 5,966 -- 1,174 7,140
---------- ---------- --------- --------- ---------- -----------
Income before income taxes ....................... 110,085 95,352 5,966 (7,802) (93,516) 110,085
Provision for income taxes ....................... 41,282 35,757 2,237 (2,925) (35,069) 41,282
---------- ---------- --------- --------- ---------- -----------
Net income ....................................... $ 68,803 $ 59,595 $ 3,729 $ (4,877) $ (58,447) $ 68,803
========== ========== ========= ========= ========== ===========
-15-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (Unaudited) - (Continued)
NOTE H - SUMMARIZED FINANCIAL INFORMATION (Continued)
Consolidating Statement of Income
Nine Months Ended June 30, 2001
Non-Guarantor
Subsidiaries
--------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ ---------- --------- ------------ -----------
(In thousands)
Homebuilding:
Revenues:
Home sales ..................................... $ 474,816 $2,309,055 $ -- $ 16,023 $ -- $ 2,799,894
Land/lot sales ................................. 22,876 45,157 -- -- -- 68,033
---------- ---------- --------- --------- ---------- -----------
497,692 2,354,212 -- 16,023 -- 2,867,927
---------- ---------- --------- --------- ---------- -----------
Cost of sales:
Home sales ..................................... 377,190 1,856,010 -- 11,953 (399) 2,244,754
Land/lot sales ................................. 17,776 37,015 -- -- -- 54,791
---------- ---------- --------- --------- ---------- -----------
394,966 1,893,025 -- 11,953 (399) 2,299,545
---------- ---------- --------- --------- ---------- -----------
Gross profit:
Home sales ..................................... 97,626 453,045 -- 4,070 399 555,140
Land/lot sales ................................. 5,100 8,142 -- -- -- 13,242
---------- ---------- --------- --------- ---------- -----------
102,726 461,187 -- 4,070 399 568,382
Selling, general and administrative expense ...... 70,449 215,610 -- 6,100 2,925 295,084
Interest expense ................................. 6,478 134 -- 196 (190) 6,618
Other expense (income) ........................... (243,176) (1,517) -- 10,456 248,275 14,038
---------- ---------- --------- --------- ---------- -----------
268,975 246,960 -- (12,682) (250,611) 252,642
---------- ---------- --------- --------- ---------- -----------
Financial services:
Revenues ......................................... -- -- 47,553 -- -- 47,553
Selling, general and administrative expense ...... -- -- 35,432 -- (2,925) 32,507
Interest expense ................................. -- -- 3,582 -- -- 3,582
Other (income) ................................... -- -- (4,869) -- -- (4,869)
---------- ---------- --------- --------- ---------- -----------
-- -- 13,408 -- 2,925 16,333
---------- ---------- --------- --------- ---------- -----------
Income before income taxes ....................... 268,975 246,960 13,408 (12,682) (247,686) 268,975
Provision for income taxes ....................... 100,866 92,610 5,028 (4,755) (92,883) 100,866
---------- ---------- --------- --------- ---------- -----------
Income before cumulative effect of change
in accounting principle ......................... 168,109 154,350 8,380 (7,927) (154,803) 168,109
Cumulative effect of change in accounting
principle, net of income taxes .................. 2,136 -- -- -- -- 2,136
---------- ---------- --------- --------- ---------- -----------
Net income ....................................... $ 170,245 $ 154,350 $ 8,380 $ (7,927) $ (154,803) $ 170,245
========== ========== ========= ========= ========== ===========
-16-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (Unaudited) - (Continued)
NOTE H - SUMMARIZED FINANCIAL INFORMATION (Continued)
Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2002
Non-Guarantor
Subsidiaries
--------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ ---------- --------- ------------ ---------
(In thousands)
OPERATING ACTIVITIES
Net income ........................................... $ 268,299 $ 239,375 $ 19,679 $ (1,643) $(257,411) $ 268,299
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ....................... 3,065 14,075 1,102 379 -- 18,621
Amortization of debt premiums and fees .............. 5,991 -- -- -- -- 5,991
Changes in operating assets and liabilities:
Increase in inventories ............................ (115,340) (150,207) -- (46,220) (6) (311,773)
Increase in earnest money
deposits and other assets ......................... (19,419) (8,916) (2,068) (2,281) (5,590) (38,274)
Increase in mortgage loans held for sale ........... -- -- (65,660) -- -- (65,660)
Increase (decrease) in accounts payable
and other liabilities ............................. (30,740) (96,768) 682 16,198 38 (110,590)
---------- ---------- --------- -------- --------- ----------
Net cash provided by (used in) operating
activities .......................................... 111,856 (2,441) (46,265) (33,567) (262,969) (233,386)
---------- ---------- --------- -------- --------- ----------
INVESTING ACTIVITIES
Net (purchases) dispositions of property and
equipment ........................................... (4,014) (21,317) (1,908) (916) -- (28,155)
Distributions from venture capital entities .......... -- -- -- 250 -- 250
Net cash paid for acquisitions ....................... -- (152,662) -- -- -- (152,662)
---------- ---------- --------- -------- --------- ----------
Net cash provided by (used in) investing
activities .......................................... (4,014) (173,979) (1,908) (666) -- (180,567)
---------- ---------- --------- -------- --------- ----------
FINANCING ACTIVITIES
Net change in notes payable .......................... 478,331 (266,436) 21,989 (3,897) 5,551 235,538
Increase (decrease) in intercompany payables ......... (581,235) 469,448 32,378 46,856 32,553 --
Proceeds from issuance of common stock
associated with certain employee benefit plans ...... 12,380 -- -- -- -- 12,380
Cash dividends/distributions paid .................... (17,318) (224,865) -- -- 224,865 (17,318)
---------- ---------- --------- -------- --------- ----------
Net cash provided by (used in) financing
activities .......................................... (107,842) (21,853) 54,367 42,959 262,969 230,600
---------- ---------- --------- -------- --------- ----------
Increase (decrease) in cash .......................... -- (198,273) 6,194 8,726 -- (183,353)
Cash at beginning of period .......................... -- 230,481 6,975 1,824 -- 239,280
---------- ---------- --------- -------- --------- ----------
Cash at end of period ................................ $ -- $ 32,208 $ 13,169 $ 10,550 $ -- $ 55,927
========== ========== ========= ======== ========= ==========
-17-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (Unaudited) - (Continued)
NOTE H - SUMMARIZED FINANCIAL INFORMATION (Continued)
Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2001
Non-Guarantor
Subsidiaries
--------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ --------- --------- ------------ ---------
(In thousands)
OPERATING ACTIVITIES
Net income ........................................... $ 170,245 $ 154,350 $ 8,380 $ (7,927) $(154,803) $ 170,245
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ....................... 1,418 15,711 955 379 -- 18,463
Amortization of debt premiums and fees .............. 2,645 -- -- -- -- 2,645
Changes in operating assets and liabilities:
(Increase) decrease in inventories ................. (141,521) (269,505) -- (5,683) 70 (416,639)
(Increase) decrease in earnest money
deposits and other assets ......................... (5,522) (48,394) (5,555) 5,323 20,499 (33,649)
Increase in mortgage loans held for sale ........... -- -- (50,616) -- -- (50,616)
Increase (decrease) in accounts payable
and other liabilities ............................. 15,490 (11,378) 569 (369) 22,296 26,608
---------- ---------- --------- -------- --------- ----------
Net cash provided by (used in) operating
activities ......................................... 42,755 (159,216) (46,267) (8,277) (111,938) (282,943)
---------- ---------- --------- -------- --------- ----------
INVESTING ACTIVITIES
Net purchases of property and equipment .............. (7,213) (12,333) (1,860) (401) -- (21,807)
Net investments in venture capital entities .......... -- -- -- (1,970) -- (1,970)
Net cash paid for acquisitions ....................... -- (49,009) -- -- -- (49,009)
---------- ---------- --------- -------- --------- ----------
Net cash used in investing activities ................ (7,213) (61,342) (1,860) (2,371) -- (72,786)
---------- ---------- --------- -------- --------- ----------
FINANCING ACTIVITIES
Net change in notes payable .......................... 357,174 (48,899) 56,420 356 (357) 364,694
Increase (decrease) in intercompany payables ......... (413,026) 449,761 6,444 10,526 (53,705) --
Proceeds from issuance of common stock
associated with certain employee benefit plans ...... 9,798 -- -- -- -- 9,798
Cash dividends/distributions paid .................... (9,885) (161,500) (4,500) -- 166,000 (9,885)
---------- ---------- --------- -------- --------- ----------
Net cash provided by (used in) financing
activities .......................................... (55,939) 239,362 58,364 10,882 111,938 364,607
---------- ---------- --------- -------- --------- ----------
Increase (decrease) in cash .......................... (20,397) 18,804 10,237 234 -- 8,878
Cash at beginning of period .......................... 20,397 40,349 10,727 1,052 -- 72,525
---------- ---------- --------- -------- --------- ----------
Cash at end of period ................................ $ -- $ 59,153 $ 20,964 $ 1,286 $ -- $ 81,403
========== ========== ========= ======== ========= ==========
-18-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - CONSOLIDATED
D. R. Horton, Inc. and subsidiaries (the "Company") conduct homebuilding
activities in 20 states and 44 markets through its 50 homebuilding divisions.
Through its financial services segment, the Company also provides mortgage
banking and title agency services in many of these same markets.
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
Consolidated revenues for the three months ended June 30, 2002, increased
61.3%, to $1,808.5 million, from $1,121.0 million for the comparable period of
2001, due to increases in both homebuilding and financial services revenues.
Approximately $447 million of the increase in homebuilding revenues was
attributable to revenues generated by Fortress- Florida, acquired in May 2001,
Emerald Builders, acquired in July 2001, and Schuler Homes, acquired in
February 2002.
Income before income taxes for the three months ended June 30, 2002, increased
54.0%, to $169.5 million, from $110.1 million for the comparable period of
2001. As a percentage of revenues, income before income taxes for the three
months ended June 30, 2002, decreased 0.4 percentage points, to 9.4%, from 9.8%
for the comparable period of 2001, primarily due to the effects of purchase
accounting adjustments related to the Schuler acquisition.
The consolidated provision for income taxes increased 54.0%, to $63.6 million
for the three months ended June 30, 2002, from $41.3 million for the same
period of 2001, due to the corresponding increase in income before income
taxes. The effective income tax rate was 37.5% for both periods.
Nine Months Ended June 30, 2002 Compared to Nine Months Ended June 30, 2001
Consolidated revenues for the nine months ended June 30, 2002, increased 56.7%,
to $4,568.4 million, from $2,915.5 million for the comparable period of 2001,
primarily due to increases in home sales revenues. Approximately $1,069 million
of the increase in homebuilding revenues was attributable to revenues generated
by Fortress-Florida, Emerald Builders and Schuler.
Income before income taxes for the nine months ended June 30, 2002, increased
59.6%, to $429.3 million, from $269.0 million for the comparable period of
2001. As a percentage of revenues, income before income taxes for the nine
months ended June 30, 2002, increased 0.2 percentage points, to 9.4%, from 9.2%
for the comparable period of 2001, primarily due to the increase in financial
services pre-tax income as a percentage of consolidated revenues.
The consolidated provision for income taxes increased 59.6%, to $161.0 million
for the nine months ended June 30, 2002, from $100.9 million for the same
period of 2001, due to the corresponding increase in income before income
taxes. The effective income tax rate was 37.5% for both periods.
The cumulative effect of a change in accounting principle was an increase in
income of $2.1 million, net of income taxes of $1.3 million, for the nine months
ended June 30, 2001. This accounting change is the result of the Company's
October 1, 2000 adoption of SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which requires the Company to recognize its interest
rate swap agreements in the consolidated balance sheet at fair value.
-19-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - HOMEBUILDING
The following tables set forth certain operating and financial data for the
Company's homebuilding activities:
Percentages of Homebuilding Revenues
-----------------------------------------------------------
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------ ------------------------
2002 2001 2002 2001
------ ------ ------ -----
Costs and expenses:
Cost of sales................................. 81.0% 80.1% 81.2% 80.2%
Selling, general and administrative expense... 9.9 9.9 9.9 10.3
Interest expense.............................. 0.1 0.2 0.1 0.2
------ ------ ------ -----
Total costs and expenses........................... 91.0 90.2 91.2 90.7
Other (income) expense............................. 0.3 0.5 0.1 0.5
------ ------ ------ -----
Income before income taxes......................... 8.7% 9.3% 8.7% 8.8%
====== ====== ====== =====
Homes Closed Three Months Ended June 30, Nine Months Ended June 30,
-------------------------------------- -------------------------------------------
2002 2001 2002 2001
------------------ ------------------ ------------------- ---------------------
Homes Homes Homes Homes
Closed Revenues Closed Revenues Closed Revenues Closed Revenues
------- -------- ------- -------- ------- --------- --------- ---------
($'s in millions) ($'s in millions)
Mid-Atlantic ............... 788 $ 167.3 725 $ 158.8 2,016 $ 431.0 1,950 $ 432.3
Midwest .................... 472 119.4 437 105.2 1,323 333.5 1,311 313.6
Southeast .................. 838 139.1 818 143.6 2,516 429.7 1,976 348.3
Southwest .................. 3,062 516.4 2,277 378.9 7,971 1,352.9 5,955 981.7
West ....................... 2,717 808.0 1,210 303.7 6,381 1,863.2 2,895 724.0
------- -------- ------- -------- ------- --------- --------- ---------
7,877 $1,750.2 5,467 $1,090.2 20,207 $ 4,410.3 14,087 $ 2,799.9
======= ======== ======= ======== ======= ========= ========= =========
Net New Sales Contracts Three Months Ended June 30, Nine Months Ended June 30,
-------------------------------------- -------------------------------------------
2002 2001 2002 2001
------------------ ----------------- ------------------- ---------------------
Homes Homes Homes Homes
Sold $ Sold $ Sold $ Sold $
------- -------- ------- -------- ------- --------- --------- ---------
($'s in millions) ($'s in millions)
Mid-Atlantic ............... 960 $ 201.3 674 $ 146.7 2,471 $ 512.0 2,084 $ 459.4
Midwest .................... 543 126.8 520 139.2 1,394 341.1 1,441 374.8
Southeast .................. 976 161.9 868 152.9 2,680 438.6 2,266 404.8
Southwest .................. 3,520 590.5 2,453 411.0 9,537 1,583.7 6,927 1,142.2
West ....................... 3,066 954.1 1,499 364.7 6,744 2,014.1 4,237 1,089.4
------- -------- ------- -------- ------- --------- --------- ---------
9,065 $2,034.6 6,014 $1,214.5 22,826 $ 4,889.5 16,955 $ 3,470.6
======= ======== ======= ======== ======= ========= ========= =========
Sales Contract Backlog June 30, 2002 June 30, 2001
---------------------- --------------------
Homes $ Homes $
-------- --------- ------- ---------
($'s in millions)
Mid-Atlantic....................................... 1,277 $ 271.3 957 $ 234.7
Midwest............................................ 989 270.4 1,030 286.6
Southeast.......................................... 1,628 262.4 1,629 288.2
Southwest.......................................... 5,868 984.4 4,161 711.9
West............................................... 3,824 1,159.7 2,831 740.0
-------- -------- ------- --------
13,586 $2,948.2 10,608 $2,261.4
======== ======== ======= ========
-20-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's market regions consist of the following markets:
Mid-Atlantic Charleston, Charlotte, Columbia, Greensboro, Greenville,
Hilton Head, Maryland-D.C., Myrtle Beach, New Jersey,
Raleigh/Durham and Virginia-D.C.
Midwest Chicago and Minneapolis/St. Paul
Southeast Atlanta, Birmingham, Fort Myers/Naples, Jacksonville, Miami/
West Palm Beach and Orlando
Southwest Albuquerque, Austin, Dallas, Fort Worth, Houston, Killeen,
Phoenix, San Antonio and Tucson
West Colorado Springs, Denver, Fort Collins, Hawaii, Inland
Empire, Las Vegas, Los Angeles, Oakland, Orange County,
Portland, Sacramento, San Francisco, Salt Lake City, San
Diego, Seattle/Tacoma and Ventura County
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
Revenues from homebuilding activities increased 61.5%, to $1,779.6 million
(7,877 homes closed) for the three months ended June 30, 2002, from $1,102.0
million (5,467 homes closed) for the comparable period of 2001. Revenues from
home sales increased in four of the Company's five market regions, with
percentage increases ranging from 5.4% in the Mid-Atlantic region to 166.1% in
the West. Home sales revenues declined 3.1% 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, the
acquisitions of Fortress-Florida and Emerald Builders during fiscal 2001, and
the merger with Schuler in February 2002. In divisions where the Company
operated throughout both periods, home sales revenues increased 20.6%, to
$1,310.2 million (6,295 homes closed) for the three months ended June 30, 2002,
from $1,086.1 million (5,452 homes closed) for the comparable period of 2001.
The average selling price of homes closed during the three months ended June
30, 2002 was $222,200, up 11.4% from $199,400 for the same period in 2001. The
increase in average selling price was due primarily to the Schuler acquisition.
Schuler's operations are concentrated on the West Coast and in Hawaii, where
average home selling prices are significantly higher than in the rest of the
United States.
The value of net new sales contracts increased 67.5% to $2,034.6 million (9,065
homes) for the three months ended June 30, 2002, from $1,214.5 million (6,014
homes) for the same period of 2001. The number of net new sales contracts
increased in all of the Company's five market regions, with percentage increases
ranging from 4.4% in the Midwest region to 104.5% in the West region. In
divisions where the Company operated throughout both periods, the value of net
new sales contracts increased 22.2%, to $1,481.8 million (7,047 homes) for the
three months ended June 30, 2002, from $1,213.0 million (6,009 homes) for the
comparable period of 2001. The average price of a net new sales contract in the
three months ended June 30, 2002 was $224,500, up 11.2% from the $201,900
average in the comparable period of 2001. The increase in average selling price
was primarily due to the effect of the Schuler acquisition.
At June 30, 2002, the value of the Company's backlog of sales contracts was
$2,948.2 million (13,586 homes), up 30.4% from $2,261.4 million (10,608 homes)
at June 30, 2001. In divisions where the Company operated throughout both
periods, the value of the Company's backlog of sales contracts increased 3.0%,
to $2,328.4 million (11,171 homes), from $2,261.1 million (10,606 homes) at
June 30, 2001. The average sales price of homes in sales backlog was $217,000
at June 30, 2002, up 1.8% from the average price of $213,200 at June 30, 2001.
Cost of sales increased by 63.3%, to $1,442.0 million for the three months ended
June 30, 2002, from $882.8 million for the comparable period of 2001. 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 increased
0.9 percentage points, to 80.9% for the three months ended June 30, 2002, from
80.0% for the comparable period of 2001, due primarily to $14.0 million in
charges related to the Schuler acquisition, the majority of which was a result
of recording Schuler's inventory at fair value on the acquisition date. The
increase in cost of home sales as a percentage of revenues was also the cause of
the 0.9 percentage point increase in total homebuilding cost of sales as a
percentage of total homebuilding revenues, to 81.0% in the three months ended
June 30, 2002, from 80.1% in the comparable period of 2001.
-21-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Selling, general and administrative (SG&A) expenses from homebuilding
activities increased by 62.3%, to $177.0 million in the three months ended June
30, 2002, from $109.1 million in the comparable period of 2001. As a percentage
of homebuilding revenues, SG&A expenses remained unchanged at 9.9% for the
three months ended June 30, 2002 and 2001.
Interest expense associated with homebuilding activities decreased to $1.5
million in the three months ended June 30, 2002, from $2.1 million in the
comparable period of 2001. As a percentage of homebuilding revenues,
homebuilding interest expense was 0.1% for the three months ended June 30, 2002,
a decline of 0.1 percentage points from 0.2% in the comparable period of 2001.
During both periods, the Company expensed the portion of incurred interest and
other financing costs which could not be charged to inventory. The Company
follows a policy of capitalizing interest only on inventory under construction
or development. Capitalized interest and other financing costs are included in
cost of sales at the time of home closings.
Other expense associated with homebuilding activities was $3.8 million in the
three months ended June 30, 2002, compared to $5.0 million in the comparable
period of 2001. The expense in the three months ended June 30, 2002 is primarily
due to a decrease in the fair value of the Company's interest rate swap
agreements during the quarter. During the year-ago quarter, the expense was
primarily due to write-downs to estimated fair value of the carrying amounts of
the Company's investments in venture capital entities, offset in part by an
increase in the fair value of the Company's interest rate swap agreements during
the quarter.
Nine Months Ended June 30, 2002 Compared to Nine Months Ended June 30, 2001
Revenues from homebuilding activities increased 56.6%, to $4,490.8 million
(20,207 homes closed) for the nine months ended June 30, 2002, from $2,867.9
million (14,087 homes closed) for the comparable period of 2001. Revenues from
home sales increased in four of the Company's five market regions, with
percentage increases ranging from 6.3% in the Midwest region to 157.3% in the
West region. Revenues from homebuilding activities declined 0.3% in the
Mid-Atlantic 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 the acquisitions of Fortress-Florida, Emerald
Builders and Schuler. In divisions where the Company operated throughout both
periods, home sales revenues increased 21.1% to $3,378.5 million (16,368 homes
closed) for the nine months ended June 30, 2002, from $2,790.0 million (14,048
homes closed) for the comparable period of 2001.
The average selling price of homes closed during the nine months ended June 30,
2002 was $218,300, up 9.8% from $198,800 for the same period in 2001. The
increase in average selling price was primarily due to the Schuler acquisition.
Schuler's operations are concentrated on the West Coast and in Hawaii, where
average home selling prices are significantly higher than in the rest of the
United States.
The value of net new sales contracts increased 40.9%, to $4,889.5 million
(22,826 homes) for the nine months ended June 30, 2002, from $3,470.6 million
(16,955 homes) for the same period of 2001. The value of net new sales
contracts increased in four of the Company's five market regions, with
percentage increases ranging from 8.3% in the Southeast region to 84.9% in the
West region. The value of net new sales contracts declined 9.0% in the Midwest
region. In divisions where the Company operated throughout both periods, the
value of net new sales contracts increased 10.8%, to $3,838.0 million (18,585
homes) for the nine months ended June 30, 2002, from $3,464.3 million (16,928
homes) for the comparable period of 2001. The average price of a net new sales
contract in the nine months ended June 30, 2002 was $214,200, up 4.6% over the
$204,700 average in the nine months ended June 30, 2001.
Cost of sales increased 58.5%, to $3,643.8 million for the nine months ended
June 30, 2002, from $2,299.5 million for the comparable period of 2001. 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 increased
0.8 percentage points, to 81.0% for the nine months ended June 30, 2002, from
80.2% for the comparable period of 2001, due primarily to $47.6 million in
charges related to the Schuler acquisition, the majority of which was a result
of recording Schuler's inventory at fair value on the acquisition date. The
increase in cost of home sales as a percentage of revenues was the primary
-22-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
cause of the 1.0 percentage point increase in total homebuilding cost of sales
as a percentage of total homebuilding revenues, to 81.2% in the nine months
ended June 30, 2002, from 80.2% in the comparable period of 2001.
Selling, general and administrative (SG&A) expenses from homebuilding
activities increased by 50.8%, to $444.9 million in the nine months ended June
30, 2002, from $295.1 million in the comparable period of 2001. As a percentage
of homebuilding revenues, SG&A expenses decreased to 9.9% for the nine months
ended June 30, 2002, from 10.3% for the comparable period of 2001, due
primarily to the fixed costs leverage achieved by the large amount of home
closings revenues generated by the Schuler operating divisions between the
Schuler acquisition date, February 21, 2002, and the end of the quarter ended
March 31, 2002.
Interest expense associated with homebuilding activities decreased to $5.2
million in the nine months ended June 30, 2002, from $6.6 million in the
comparable period of 2001. As a percentage of homebuilding revenues,
homebuilding interest expense decreased 0.1 percentage points to 0.1% for the
nine months ended June 30, 2002, from 0.2% for the comparable period of 2001.
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 $4.0 million in the
nine months ended June 30, 2002, compared to $14.0 million in the comparable
period of 2001. The expense in 2002 is primarily due to the change in fair value
of the Company's interest rate swap agreements during the period. The expense in
2001 is primarily due to write-downs to estimated fair value of the carrying
amounts of the Company's investments in start-up and emerging growth companies
and the decline in the fair value of the Company's interest rate swap agreements
during the period.
-23-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FINANCIAL SERVICES
The following table summarizes financial and other information for the
Company's financial services operations:
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------- ---------------------
2002 2001 2002 2001
-------- -------- -------- --------
($ in thousands)
Number of loans originated.................................... 5,134 3,658 13,581 8,733
-------- -------- -------- --------
Loan origination fees......................................... $ 5,884 $ 3,969 $ 14,702 $ 9,695
Sale of servicing rights and gains from sale of mortgages..... 13,485 8,326 37,785 21,512
Other revenues................................................ 2,144 2,130 6,777 4,952
-------- -------- -------- --------
Total mortgage banking revenues............................... 21,513 14,425 59,264 36,159
Title policy premiums, net.................................... 7,351 4,590 18,387 11,394
-------- -------- -------- --------
Total revenues................................................ 28,864 19,015 77,651 47,553
Selling, general and administrative expense................... 18,220 12,540 48,261 32,507
Interest expense.............................................. 1,155 1,575 3,490 3,582
Interest/other (income)....................................... (4,714) (2,240) (10,576) (4,869)
-------- -------- -------- --------
Income before income taxes.................................... $ 14,203 $ 7,140 $ 36,476 $ 16,333
======== ======== ======== ========
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
Revenues from the financial services segment increased 51.8%, to $28.9 million
in the three months ended June 30, 2002, from $19.0 million in the comparable
period of 2001. 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 and the effects of the Emerald
Builders acquisition. Selling, general and administrative expenses associated
with financial services increased 45.3%, to $18.2 million in the three months
ended June 30, 2002, from $12.5 million in the comparable period of 2001. As a
percentage of financial services revenues, selling, general and administrative
expenses decreased by 2.8 percentage points, to 63.1% in the three months ended
June 30, 2002, from 65.9% in the comparable period in 2001, due primarily to the
increase in revenues absorbing fixed costs.
Nine Months Ended June 30, 2002 Compared to Nine Months Ended June 30, 2001
Revenues from the financial services segment increased 63.3%, to $77.7 million
in the nine months ended June 30, 2002, from $47.6 million in the comparable
period of 2001. 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 and the effects of the
Fortress-Florida and Emerald Builders acquisitions. Selling, general and
administrative expenses associated with financial services increased 48.5%, to
$48.3 million in the nine months ended June 30, 2002, from $32.5 million in the
comparable period of 2001. As a percentage of financial services revenues,
general and administrative expenses decreased by 6.2 percentage points, to 62.2%
in the nine months ended June 30, 2002, from 68.4% in the comparable period in
2001, due primarily to the increase in revenues absorbing fixed costs.
-24-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002, the Company had available cash and cash equivalents of $55.9
million. Inventories (including finished homes, construction in progress, and
developed residential lots and other land) at June 30, 2002, had increased by
$1,577.3 million since September 30, 2001, due to the acquisition of Schuler, a
general increase in business activity and the expansion of operations in the
Company's market areas. Net of homebuilding cash, the Company's ratio of
homebuilding notes payable to total capital at June 30, 2002, increased 1.9
percentage points, to 55.9% from 54.0% at September 30, 2001. The stockholders'
equity to total assets ratio increased 3.0 percentage points, to 37.2% at June
30, 2002, from 34.2% at September 30, 2001.
At June 30, 2002, the Company has an $805 million, unsecured revolving credit
facility, including $125 million which may be used for letters of credit. The
facility matures in January 2006, and is guaranteed by substantially all of the
Company's wholly-owned subsidiaries other than its financial services
subsidiaries. The revolving credit facility and the indentures related to the
Company's Senior and Senior Subordinated Notes contain covenants which, taken
together, limit amounts of debt that may be incurred, investments in inventory,
stock repurchases, cash dividends and other restricted payments, asset
dispositions and creation of liens, and require certain levels of tangible net
worth. At June 30, 2002, these covenants limit the additional homebuilding debt
the Company could incur to $1,251.3 million, which included $464.9 million
available under the revolving credit facility. The Company has entered into
multi-year interest rate swap agreements, aggregating a notional amount of $200
million, that fix the interest rate on a portion of the variable rate revolving
credit facility.
In the normal course of business, the Company provides standby letters of credit
and performance bonds, issued by third parties, to secure performance under
various contracts. At June 30, 2002, outstanding standby letters of credit and
performance bonds, the majority of which mature in less than one year, were
$122.5 million and $632.1 million, respectively.
At June 30, 2002, the financial services segment had mortgage loans held for
sale of $288.5 million and loan commitments for $266.3 million at fixed rates.
The Company hedges the interest rate market risk on these mortgage loans held
for sale and loan commitments through the use of best-efforts whole loan
delivery commitments, mandatory forward commitments to sell mortgage-backed
securities and the purchase of options on financial instruments.
The financial services segment has a $205 million, one-year bank warehouse
facility that matures on August 13, 2002, and is secured by mortgage loans held
for sale. The warehouse facility is not guaranteed by the parent company. As of
June 30, 2002, $204.6 million had been drawn under this facility. Substantially
all of the mortgage company activities have been financed under the warehouse
facility. To supplement the warehouse facility, a new $100 million credit
facility for financial services was finalized in July 2002. The new facility
will mature on July 9, 2003, and is also secured by mortgage loans held for
sale.
On February 21, 2002, Schuler Homes, Inc. merged with and into D.R. Horton,
Inc., with D.R. Horton the surviving corporation. At the time of the merger,
Schuler's assets amounted to $1,364.4 million, mostly inventory. The total
merger consideration consisted of the issuance of 20,079,532 shares of D.R.
Horton, Inc. common stock, valued at $30.93 per share (the average closing price
of D.R. Horton common stock for a period of ten trading days from December 4,
2001 to December 17, 2001); the payment of $168.7 million in cash; the
assumption of $802.2 million of Schuler's debt, $238.2 million of which was paid
at closing; the assumption of trade payables and other liabilities amounting to
$209.1 million; and the assumption of $10.8 million of obligations to the
Schuler entities' minority interest holders. Also, D.R. Horton issued options to
purchase approximately 527,000 shares of D.R. Horton common stock to Schuler
employees to replace outstanding Schuler stock options. The fair value of the
options issued was $10.4 million and was recorded as additional capital. The
fair value of the unvested options issued was $7.8 million and was recorded as
unearned compensation. The unearned compensation is being amortized over the
remaining vesting period of the stock options. The fair value of the options was
estimated using the Black-Scholes option pricing model.
The Schuler merger was accounted for as a purchase. Accordingly, Schuler's
assets and liabilities, including identifiable intangibles, were initially
recorded at their fair values as of the date of the merger. The excess of the
total consideration paid over the net assets' fair value (approximately $447.5
million) was recorded as an addition to goodwill.
-25-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, existing and
future credit facilities and the issuance of new debt or equity securities. At
June 30, 2002, under currently effective shelf registration statements, the
Company has approximately 15 million shares issuable to effect, in whole or in
part, possible future acquisitions and the capacity to issue new debt or equity
securities amounting to $1.0 billion. In the future, the Company intends to
continue to maintain effective shelf registration statements that will
facilitate access to the capital markets.
During the three months ended June 30, 2002, the Company's Board of Directors
declared a quarterly cash dividend of $0.06 per common share, which was paid on
May 21, 2002 to stockholders of record on May 14, 2002. On March 4, 2002, the
Company's Board of Directors declared a three-for-two stock split (effected as a
50% stock dividend) which was paid on April 9, 2002, to stockholders of record
on March 26, 2002. Cash was paid in lieu of fractional shares. On July 24, 2002,
the Company's Board of Directors declared a cash dividend of $0.06 per common
share, payable on August 23, 2002 to stockholders of record on August 9, 2002.
On April 11, 2002, the Company issued $250 million of 8.5% Senior notes due
2012. The net proceeds from this offering were used to repay borrowings under
the unsecured revolving credit facility. These notes are guaranteed by
substantially all of the Company's wholly-owned subsidiaries other than its
financial services subsidiaries.
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 the $31.3 million that had
been invested in such companies as of that date. The investments are
concentrated in e-commerce businesses that serve the homebuilding, real estate
and financial service industries, as well as in businesses whose strategic focus
allows for the diversification of the Company's operations. As of June 30, 2002,
the carrying value of the Company's investments in such companies, reported in
homebuilding other assets, amounted to $5.0 million.
Except for ordinary expenditures for the construction of homes and the
acquisition of land and lots for development and sale of homes, at June 30,
2002, the Company had no material commitments for capital expenditures.
-26-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT
Certain statements contained in this report, as well as in other materials we
have filed or will file with the Securities and Exchange Commission, statements
made by us in periodic press releases and oral statements made by Company
officials to analysts, stockholders and the press 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. Any or all of the
forward-looking statements included in this report and in any other reports or
public statements of the Company are subject to risks, uncertainties and other
factors, many of which are outside of the Company's control, that could cause
actual results to differ materially from the results discussed in and
anticipated by the forward-looking statements. The following risks and
uncertainties relevant to our business include factors we believe could
adversely affect us. Other factors beyond those listed could also adversely
affect us.
- Changes in general economic, real estate and other 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
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. However,
any further disclosures made on related subjects in subsequent reports on Forms
10-K, 1 and 8-K should be consulted. 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.
-27-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate risk on its long term debt. The Company
monitors its exposure to changes in interest rates and utilizes both fixed and
variable rate debt. For fixed rate debt, changes in interest rates generally
affect the value of the debt instrument, but not the Company's earnings or cash
flows. Conversely, for variable rate debt, changes in interest rates generally
do not impact the fair value of the debt instrument, but may affect the
Company's future earnings and cash flows. The Company has mitigated its exposure
to changes in interest rates on its variable rate bank debt by entering into
interest rate swap agreements to obtain a fixed interest rate for a portion of
the variable rate borrowings. The Company generally does not have an obligation
to prepay fixed-rate debt prior to maturity and, as a result, interest rate risk
and changes in fair value would not have a significant impact on the Company's
fixed-rate debt until such time as the Company is required to refinance,
repurchase or repay such debt.
The Company's interest rate swaps were not designated as hedges under Statement
of Financial Accounting Standards No. 133 when it was adopted on October 1,
2000. Since their maturities and other terms did not match the related debt,
they were determined to be ineffective hedges (as defined by the Statement).
Therefore, the Company is exposed to market risk associated with changes in the
fair values of the swaps, since any such changes must be reflected in the
Company's income statements.
The Company's financial services segment is exposed to interest rate risk
associated with its mortgage loan production activities. Mortgage loans are
funded at fixed interest rates before they are committed to specific investors
and interest rate lock commitments (IRLC's) are extended to borrowers who have
applied for loan funding and who meet certain defined credit and underwriting
criteria. Forward commitments to sell mortgage-backed securities are designated
as fair value hedges of the risk of changes in the overall fair value of funded
loans. The effectiveness of the fair value hedge is continuously monitored and
any ineffectiveness, which for the three and nine months ended June 30, 2002,
was not significant, is recognized in current earnings. The IRLC's are
classified and accounted for as non-designated derivative instruments with gains
and losses recorded in current earnings. Interest rate risk associated with
IRLCs is managed through the use of best-efforts whole loan delivery
commitments, forward commitments to sell mortgage-backed securities and the
purchase of options on financial instruments. These instruments are considered
non-designated derivatives and are accounted for at fair market value with gains
and losses recorded in current earnings. At June 30, 2002, total forward
commitments to mitigate interest rate risk related to funded loans and IRLC's
were approximately $195.5 million, the duration of which was less than nine
months.
The following table shows, as of June 30, 2002, the Company's long term debt
obligations, principal cash flows by scheduled maturity, weighted average
interest rates and estimated fair market value. In addition, the table shows the
notional amounts, weighted average interest rates and estimated fair market
value of the Company's interest rate swaps.
Three Months Fair
Ended market
Sep. 30, Year ended September 30, value at
--------- -------------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter Total 06/30/02
------ ------ ------ ------- ------- ---------- -------- ---------
($'s in millions)
Debt:
Fixed rate............. $ 19.2 $ 20.0 $166.9 $210.7 $150.0 $2,047.1 $2,613.9 $2,543.9
Average interest rate.. 7.96% 6.62% 8.52% 10.69% 10.19% 8.15% 8.50% --
Variable rate.......... $210.8 $ 19.6 $ 8.7 -- $261.1 -- $500.2 $500.2
Average interest rate.. 2.92% 5.75% 3.83% -- 3.73% -- 3.47% --
Interest Rate Swaps:
Variable to fixed...... $200.0 $200.0 $200.0 $200.0 $200.0 $200.0 -- ($11.2)
Average pay rate....... 5.10% 5.10% 5.10% 5.10% 5.10% 5.07% -- --
Average receive rate... 90-day LIBOR
-28-
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3.1 Amended and Restated Certificate of Incorporation, as
amended, of the Company is incorporated herein by
reference from Exhibit 4.2 to the Company's
registration statement (No. 333-76175) on Form S-3,
filed April 13, 1999.
3.2 Amended and Restated Bylaws of the Company are
incorporated herein by reference from Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1998.
10.1* D.R. Horton Deferred Compensation Plan, effective as
of June 15, 2002.
10.2* 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.
- ------------
*Filed herewith.
(b) Reports on Form 8-K.
1. On April 3, 2002, the Company filed a Current Report
on Form 8-K (Item 5), which included its press
release of that date announcing the Company planned
to sell approximately $250 million of senior notes to
qualified institutional buyers in reliance upon
Rule 144A.
2. On May 30, 2002, the Company filed a Current Report
on Form 8-K (Item 5), which provided unaudited pro
forma combined condensed statements of income of D.R.
Horton, Inc. and Schuler Homes, Inc. for the six
months ended March 31, 2002 and the year ended
September 30, 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
D.R. HORTON, INC.
Date: August 13, 2002 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)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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3.1 Amended and Restated Certificate of Incorporation, as
amended, of the Company is incorporated herein by
reference from Exhibit 4.2 to the Company's
registration statement (No. 333-76175) on Form S-3,
filed April 13, 1999.
3.2 Amended and Restated Bylaws of the Company are
incorporated herein by reference from Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1998.
10.1* D.R. Horton Deferred Compensation Plan, effective as
of June 15, 2002.
10.2* 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.
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*Filed herewith.