e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended September 30,
2010
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number 1-14122
D.R. Horton, Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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75-2386963
(I.R.S. Employer
Identification No.)
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301 Commerce Street, Suite 500
Fort Worth, Texas
(Address of principal
executive offices)
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76102
(Zip
Code)
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(817)
390-8200
Registrants telephone number, including area code
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $.01 per share
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The New York Stock Exchange
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7.875% Senior Notes due 2011
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The New York Stock Exchange
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2.00% Convertible Senior Notes due 2014
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The New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting company
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of March 31, 2010, the aggregate market value of the
registrants common stock held by non-affiliates of the
registrant was approximately $3,656,034,000 based on the closing
price as reported on the New York Stock Exchange.
As of November 10, 2010, there were 322,533,842 shares
of the registrants common stock, par value $.01 per share,
issued and 318,878,609 shares outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive Proxy Statement for
the 2011 Annual Meeting of Stockholders are incorporated herein
by reference in Part III.
D.R.
HORTON, INC. AND SUBSIDIARIES
2010 ANNUAL REPORT ON
FORM 10-K
TABLE OF CONTENTS
PART I
D.R. Horton, Inc. is one of the largest homebuilding companies
in the United States. We construct and sell homes through our
operating divisions in 26 states and 72 metropolitan
markets of the United States, primarily under the name of D.R.
Horton, Americas Builder. Our common stock is
included in the S&P 500 Index and listed on the New York
Stock Exchange under the ticker symbol DHI. Unless
the context otherwise requires, the terms D.R.
Horton, the Company, we and
our used herein refer to D.R. Horton, Inc., a
Delaware corporation, and its predecessors and subsidiaries.
Donald R. Horton began our homebuilding business in 1978. In
1991, we were incorporated in Delaware to acquire the assets and
businesses of our predecessor companies, which were residential
home construction and development companies owned or controlled
by Mr. Horton. In 1992, we completed our initial public
offering of our common stock. The growth of our company over the
years was achieved by investing available capital into our
existing homebuilding markets and into
start-up
operations in new markets. Additionally, we acquired other
homebuilding companies, which strengthened our position in
existing markets and expanded our geographic presence and
product offerings in other markets. Our homes generally range in
size from 1,000 to 4,000 square feet and in price from
$90,000 to $700,000. The current downturn in our industry has
resulted in a substantial decrease in the size of our operations
during the last four fiscal years as we have reacted to the
significantly weakened market for new homes. For the year ended
September 30, 2010, we closed 20,875 homes with an average
closing sales price of approximately $206,100.
Through our financial services operations, we provide mortgage
financing and title agency services to homebuyers in many of our
homebuilding markets. DHI Mortgage, our wholly-owned subsidiary,
provides mortgage financing services principally to the
purchasers of homes we build. We generally do not retain or
service the mortgages we originate but, rather, seek to sell the
mortgages and related servicing rights to third-party
purchasers. DHI Mortgage originates loans in accordance with
purchaser guidelines and historically has sold substantially all
of its mortgage production within 30 days of origination.
Our subsidiary title companies serve as title insurance agents
by providing title insurance policies, examination and closing
services, primarily to the purchasers of our homes.
Our financial reporting segments consist of six homebuilding
segments and a financial services segment. Our homebuilding
operations are the most substantial part of our business,
comprising approximately 98% of consolidated revenues, which
totaled $4.4 billion in fiscal 2010. Our homebuilding
operations generate most of their revenues from the sale of
completed homes, with a lesser amount from the sale of land and
lots. In addition to building traditional single-family detached
homes, we also build attached homes, such as town homes,
duplexes, triplexes and condominiums (including some mid-rise
buildings), which share common walls and roofs. The sale of
detached homes generated approximately 86%, 81%, and 77% of home
sales revenues in fiscal 2010, 2009 and 2008, respectively. Our
financial services segment generates its revenues from
originating and selling mortgages and collecting fees for title
insurance agency and closing services.
We make available, as soon as reasonably practicable, on our
Internet website all of our reports required to be filed with
the Securities and Exchange Commission (SEC). These reports
include our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
beneficial ownership reports on Forms 3, 4, and 5, proxy
statements and amendments to such reports. These reports are
available in the Investors section of our Internet
website. We will also provide these reports in electronic or
paper format to our stockholders free of charge upon request
made to our Investor Relations department. Our SEC filings are
also available to the public on the SECs website at
www.sec.gov, and the public may read and copy any document we
file at the SECs public reference room located at
100 F Street NE, Washington, D.C. 20549.
Please call the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
room.
Our principal executive offices are located at 301 Commerce
Street, Suite 500, Fort Worth, Texas 76102. Our
telephone number is
(817) 390-8200,
and our Internet website address is www.drhorton.com.
Information on our Internet website is not part of this annual
report on
Form 10-K.
1
Operating
Strategy and Structure
For a substantial part of our companys existence, we
maintained significant
year-over-year
growth and profitability. We achieved this growth through an
operating strategy focused on capturing greater market share,
while also maintaining a strong balance sheet. To execute our
strategy, we invested available capital in our existing
homebuilding markets and opportunistically entered new markets.
We also actively evaluated homebuilding acquisition
opportunities as they arose, some of which resulted in
acquisitions and contributed to our growth.
During the past four years, conditions in the homebuilding
industry have been challenging. Although we believe the
long-term fundamental factors that support housing demand remain
positive, it is not possible to predict when current conditions
will improve or if they will deteriorate from current levels.
During the current downturn we have increased our cash balances
by generating substantial cash flow from operations, primarily
through reductions in inventory and mortgage loans held for
sale, the receipt of tax refunds and by accessing the capital
markets. While we will continue to conservatively manage our
business, our increased liquidity provides us with flexibility
in determining the appropriate operating strategy for each of
our communities and markets to strike the best balance between
cash flow generation and potential profit.
Geographic
Diversity
From 1978 to late 1987, our homebuilding activities were
conducted in the Dallas/Fort Worth area. We then began
diversifying geographically by entering additional markets, both
through
start-up
operations and acquisitions. We now operate in 26 states
and 72 markets. This provides us with geographic diversification
in our homebuilding inventory investments and our sources of
revenues and earnings. We believe our diversification strategy
helps to mitigate the effects of local and regional economic
cycles and enhances our long-term potential.
Economies
of Scale
We are the largest homebuilding company in the United States in
terms of number of homes closed in fiscal 2010. By the same
measure, we are also one of the five largest builders in many of
our markets in fiscal 2010. We believe that our national,
regional and local scale of operations has provided us with
benefits that may not be available in the same degree to some
other smaller homebuilders, such as:
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Negotiation of volume discounts and rebates from national,
regional and local materials suppliers and lower labor rates
from certain subcontractors;
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Enhanced leverage of our general and administrative activities,
which allows us greater flexibility to compete for greater
market share in each of our markets; and
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Greater access to and lower cost of capital, due to our strong
balance sheet and our lending and capital markets relationships.
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Decentralized
Operations
We decentralize our homebuilding activities to give operating
flexibility to our local division presidents on certain key
operating decisions. At September 30, 2010, we had 33
separate homebuilding operating divisions, many of which operate
in more than one market area. Generally, each operating division
consists of a division president; land entitlement, acquisition
and development personnel; a sales manager and sales personnel;
a construction manager and construction superintendents;
customer service personnel; a controller; a purchasing manager
and office staff. We believe that division presidents and their
management teams, who are familiar with local conditions,
generally have better information on which to base decisions
regarding their operations. Our division presidents receive
performance bonuses based upon achieving targeted financial and
operational measures in their operating divisions.
2
Operating
Division Responsibilities
Each operating division is responsible for:
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Site selection, which involves
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A feasibility study;
Soil and environmental reviews;
Review of existing zoning and other governmental
requirements; and
Review of the need for and extent of offsite work
required to meet local building codes;
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Negotiating lot option or similar contracts;
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Obtaining all necessary land development and home construction
approvals;
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Overseeing land development;
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Selecting building plans and architectural schemes;
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Selecting and managing construction subcontractors and suppliers;
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Planning and managing homebuilding schedules;
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Developing and implementing local marketing plans; and
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Coordinating post closing customer service and warranty repairs.
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Centralized
Controls
We centralize the key risk elements of our homebuilding business
through our regional and corporate offices. We have four
separate homebuilding regional offices. Generally, each regional
office consists of a region president, legal counsel, a chief
financial officer, a purchasing manager and limited office
support staff. Each of our region presidents and their
management teams are responsible for oversight of the operations
of up to eleven homebuilding operating divisions, including:
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Review and approval of division business plans and budgets;
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Review of all land and lot acquisition contracts;
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Oversight of land and home inventory levels; and
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Review of major personnel decisions and division president
compensation plans.
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Our corporate executives and corporate office departments are
responsible for establishing our operational policies and
internal control standards and for monitoring compliance with
established policies and controls throughout our operations. The
corporate office also has primary responsibility for direct
management of certain key risk elements and initiatives through
the following centralized functions:
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Financing;
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Cash management;
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Risk and litigation management;
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Allocation of capital;
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Issuance and monitoring of inventory investment guidelines to
our operating divisions;
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Environmental assessments of land and lot acquisitions;
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Approval and funding of land and lot acquisitions;
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Accounting and management reporting;
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Internal audit;
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Information technology systems;
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Administration of payroll and employee benefits;
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Negotiation of national purchasing contracts;
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Management of major national or regional supply chain
initiatives;
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Monitoring and analysis of margins, returns and
expenses; and
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Administration of customer satisfaction surveys and reporting of
results.
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Cost
Management
We control overhead costs by centralizing certain administrative
and accounting functions and by closely monitoring the number of
administrative personnel and management positions in our
operating divisions, as well as in our regional and corporate
offices. We also seek to efficiently manage our advertising
costs by directing many of our promotional activities toward
local real estate brokers.
We control construction costs by striving to design our homes
efficiently and by obtaining competitive bids for construction
materials and labor. We also seek to negotiate favorable pricing
from our primary subcontractors and suppliers based on the
volume of services and products we purchase from them on a
local, regional and national basis. We monitor our construction
costs on each house as well as our inventory levels, margins,
returns and expenses through our management information systems.
Acquisitions
As negative market conditions in the housing industry persist,
we remain committed to maintaining our strong balance sheet and
liquidity position. However, we will continue to evaluate
opportunities for strategic acquisitions or expansions of our
operations. We believe that the current housing industry
downturn may provide us selected opportunities to enhance our
operations through the acquisition of existing homebuilding
companies or distressed real estate properties at attractive
valuations. In certain instances, such acquisitions can provide
us benefits not found in
start-up
operations, such as: established land positions and inventories;
and existing relationships with municipalities, land owners,
developers, subcontractors and suppliers. We seek to limit the
risks associated with acquiring other companies and distressed
real estate properties by conducting extensive operational,
financial and legal due diligence on each acquisition and by
performing financial analysis to determine that each acquisition
will have a positive impact on our earnings within an acceptable
period of time.
4
Markets
We conduct our homebuilding operations in all of the geographic
regions, states and markets listed below, and we conduct our
mortgage and title operations in many of these markets. Our
homebuilding operating divisions are aggregated into six
reporting segments, also referred to as reporting regions, which
comprise the markets below. Our financial statements contain
additional information regarding segment performance.
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State
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Reporting Region/Market
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East Region
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Delaware
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Central Delaware
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Georgia
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Savannah
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Maryland
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Baltimore
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Suburban Washington, D.C.
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New Jersey
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North New Jersey
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South New Jersey
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North Carolina
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Brunswick County
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Charlotte
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Greensboro/Winston-Salem
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Raleigh/Durham
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Pennsylvania
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Lancaster
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Philadelphia
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South Carolina
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Charleston
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Columbia
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Greenville
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Hilton Head
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Myrtle Beach
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Virginia
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Northern Virginia
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Midwest Region
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Colorado
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Colorado Springs
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Denver
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Fort Collins
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Illinois
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Chicago
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Minnesota
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Minneapolis/St. Paul
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Wisconsin
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Kenosha
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Southeast Region
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Alabama
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Birmingham
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Mobile
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Florida
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Daytona Beach
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Fort Myers/Naples
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Jacksonville
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Melbourne
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Miami/West Palm Beach
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Orlando
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Pensacola
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Sarasota County
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Tampa
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Georgia
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Atlanta
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Macon
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State
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Reporting Region/Market
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South Central Region
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Louisiana
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Baton Rouge
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Lafayette
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New Mexico
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Las Cruces
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Oklahoma
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Oklahoma City
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Texas
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Austin
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Dallas
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Fort Worth
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Houston
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Killeen/Temple/Waco
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Rio Grande Valley
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San Antonio
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Southwest Region
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Arizona
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Phoenix
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Tucson
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New Mexico
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Albuquerque
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West Region
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California
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Bay Area
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Central Valley
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Imperial Valley
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Los Angeles County
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Riverside County
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Sacramento
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San Bernardino County
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San Diego County
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Ventura County
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Hawaii
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Hawaii
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Maui
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Oahu
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Idaho
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Boise
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Nevada
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Las Vegas
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Reno
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Oregon
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Albany
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Central Oregon
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Portland
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Utah
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Salt Lake City
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Washington
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Seattle/Tacoma
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Vancouver
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5
When evaluating new or existing homebuilding markets for
purposes of capital allocation, we consider local,
market-specific factors, including among others:
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Economic conditions;
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Employment levels and job growth;
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Median income level of potential homebuyers;
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Local housing affordability and typical mortgage products
utilized;
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Market for homes at entry-level price point;
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Availability of land and lots on acceptable terms;
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Land entitlement and development processes;
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New and secondary home sales activity;
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Competition; and
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Prevailing housing products, features, cost and pricing.
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Land
Policies
We acquire land after we have completed due diligence and
generally after we have obtained the rights (known as
entitlements) to begin development or construction work
resulting in an acceptable number of residential lots. Before we
acquire lots or tracts of land, we will, among other things,
complete a feasibility study, which includes soil tests,
independent environmental studies and other engineering work,
and evaluate the status of necessary zoning and other
governmental entitlements required to develop and use the
property for home construction. Although we purchase and develop
land primarily to support our homebuilding activities, we also
sell land and lots to other developers and homebuilders where we
have excess land and lot positions.
We also enter into land/lot option contracts, in which we obtain
the right, but generally not the obligation, to buy land or lots
at predetermined prices on a defined schedule commensurate with
anticipated home closings or planned land development. Our
option contracts generally are non-recourse, which limits our
financial exposure to our earnest money deposited with land and
lot sellers and any preacquisition due diligence costs incurred
by us. This enables us to control land and lot positions with
limited capital investment, which substantially reduces the
risks associated with land ownership and development.
Almost all of our land and lot positions are acquired directly
by us. We have avoided entering into joint venture arrangements
due to their increased costs and complexity, as well as the loss
of operational control inherent in such arrangements. We are a
party to a very small number of joint ventures that were
acquired through acquisitions of other homebuilders. All of
these joint ventures are consolidated in our financial
statements.
We attempt to mitigate our exposure to real estate inventory
risks by:
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Managing our supply of land/lots controlled (owned and optioned)
in each market based on anticipated future home closing levels;
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Monitoring local market and demographic trends, housing
preferences and related economic developments, such as new job
opportunities, local growth initiatives and personal income
trends;
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Utilizing land/lot option contracts, where possible;
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Seeking to acquire developed lots which are substantially ready
for home construction;
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Limiting the size of acquired land parcels to smaller tracts,
where possible;
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Generally commencing construction of custom features or optional
upgrades on homes under contract only after the buyers
receipt of mortgage approval and receipt of satisfactory
deposits from the buyer; and
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Monitoring and managing the number of speculative homes (homes
under construction without an executed sales contract) built in
each subdivision.
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The benefits of this strategy have been limited by the sustained
weak conditions in the homebuilding industry over the past four
fiscal years.
Construction
Our home designs are selected or prepared in each of our markets
to appeal to local tastes and preferences of homebuyers in each
community. We also offer optional interior and exterior features
to allow homebuyers to enhance the basic home design and to
allow us to generate additional revenues from each home sold. We
have adjusted our product offerings to address affordability
issues, which have become increasingly important in the current
weak market conditions.
Substantially all of our construction work is performed by
subcontractors. Subcontractors typically are retained for a
specific subdivision pursuant to a contract that obligates the
subcontractor to complete construction at an
agreed-upon
price. Agreements with the subcontractors and suppliers we use
generally are negotiated for each subdivision. We compete with
other homebuilders for qualified subcontractors, raw materials
and lots in the markets where we operate. We employ construction
superintendents to monitor homes under construction, participate
in major design and building decisions, coordinate the
activities of subcontractors and suppliers, review the work of
subcontractors for quality and cost controls and monitor
compliance with zoning and building codes. In addition, our
construction superintendents play a significant role in working
with our homebuyers by assisting with option selection and home
modification decisions, educating buyers on the construction
process and instructing buyers on post-closing home maintenance.
Construction time for our homes depends on the weather,
availability of labor, materials and supplies, size of the home,
and other factors. We typically complete the construction of a
home within three to six months.
We typically do not maintain significant inventories of
construction materials, except for work in progress materials
for homes under construction. Generally, the construction
materials used in our operations are readily available from
numerous sources. We have contracts exceeding one year with
certain suppliers of our building materials that are cancelable
at our option with a 30 day notice. In recent years, we
have not experienced delays in construction due to shortages of
materials or labor that have materially affected our
consolidated operating results.
Marketing
and Sales
We market and sell our homes through commissioned employees and
independent real estate brokers. We typically conduct home sales
from sales offices located in furnished model homes in each
subdivision, and we typically do not offer our model homes for
sale until the completion of a subdivision. Our sales personnel
assist prospective homebuyers by providing them with floor
plans, price information, tours of model homes and assisting
them with the selection of options and other custom features. We
train and inform our sales personnel as to the availability of
financing, construction schedules, and marketing and advertising
plans. As our customers are typically first-time or
move-up
homebuyers, we attempt to adjust our product mix and pricing
within our homebuilding markets to keep our homes affordable. As
market conditions warrant, we may provide potential homebuyers
with one or more of a variety of incentives, including discounts
and free upgrades, to be competitive in a particular market. Due
to the weak industry conditions of the past four fiscal years,
we have offered an increased level of incentives to homebuyers.
We advertise in our local markets as necessary through
newspapers, marketing brochures, newsletters and email or other
electronic means to prospective homebuyers and real estate
brokers. We also use billboards, radio and television
advertising and our Internet website to market the location,
price range and availability of
7
our homes. To minimize advertising costs, we attempt to operate
in subdivisions in conspicuous locations that permit us to take
advantage of local traffic patterns. We also believe that model
homes play a substantial role in our marketing efforts, so we
expend significant effort to create an attractive atmosphere in
our model homes.
In addition to using model homes, we build a limited number of
speculative homes in each subdivision. These homes enhance our
marketing and sales efforts to prospective homebuyers who are
relocating to these markets, as well as to independent brokers,
who often represent homebuyers requiring a completed home within
a short time frame. We determine our speculative homes strategy
in each market based on local market factors, such as new job
growth, the number of job relocations, housing demand and
supply, seasonality, current sales contract cancellation trends
and our past experience in the market. We determine the number
of speculative homes to build in each subdivision based on our
current and planned sales pace, and we monitor and adjust
speculative home inventory on an ongoing basis as conditions
warrant. The significant weakness in our housing markets and
related high cancellation rates during recent years had caused
our speculative home inventory to remain higher than our target
levels. During fiscal 2010, we were able to reduce both total
and speculative homes in inventory from the prior year levels.
We expect to maintain a level of speculative home inventory in
our markets that will be based on our expectations of future
sales and closings volume. We believe these speculative homes
help to provide us with opportunities to sell additional homes
at a profit, reduce our inventory of owned lots and generate
positive cash flows.
Our sales contracts require an earnest money deposit of at least
$500. The amount of earnest money required varies between
markets and subdivisions, and may significantly exceed $500.
Additionally, customers are generally required to pay additional
deposits when they select options or upgrade features for their
homes. Most of our sales contracts stipulate that when customers
cancel their contracts with us, we have the right to retain
their earnest money and option deposits; however, our operating
divisions occasionally choose to refund such deposits. Our sales
contracts also include a financing contingency which permits
customers to cancel and receive a refund of their deposits if
they cannot obtain mortgage financing at prevailing or specified
interest rates within a specified period. Our contracts may
include other contingencies, such as the sale of an existing
home. As a percentage of gross sales orders, cancellations of
sales contracts in fiscal 2010 were 26%, compared to 30% in
fiscal 2009. While this reflects an improvement from the prior
year, our cancellation rate continues to be significantly higher
than our historical rate before the current downturn in the
homebuilding industry, reflecting the continuing weak housing
market conditions. The length of time between the signing of a
sales contract for a home and delivery of the home to the buyer
(closing) is generally from two to six months.
Customer
Service and Quality Control
Our operating divisions are responsible for pre-closing quality
control inspections and responding to customers
post-closing needs. We believe that a prompt and courteous
response to homebuyers needs during and after construction
reduces post-closing repair costs, enhances our reputation for
quality and service and ultimately leads to significant repeat
and referral business from the real estate community and
homebuyers. We typically provide our homebuyers with a ten-year
limited warranty for major defects in structural elements such
as framing components and foundation systems, a two-year limited
warranty on major mechanical systems, and a one-year limited
warranty on other construction components. The subcontractors
who perform the actual construction also provide us with
warranties on workmanship and are generally prepared to respond
to us and the homeowner promptly upon request. In addition, some
of our suppliers provide manufacturers warranties on
specified products installed in the home.
Sales
Order Backlog
At September 30, 2010, the value of our backlog of sales
orders was $850.8 million (4,128 homes), a decrease of 25%
from $1,142.0 million (5,628 homes) at September 30,
2009. The average sales price of homes in backlog was $206,100
at September 30, 2010, up 2% from the $202,900 average at
September 30, 2009. Sales order backlog represents homes
under contract but not yet closed at the end of the period. Many
of the contracts in our sales order backlog are subject to
contingencies, including mortgage loan approval and
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buyers selling their existing homes, which can result in
cancellations. A portion of the contracts in backlog will not
result in closings due to cancellations. Substantially all of
the homes in our sales backlog at September 30, 2010 are
scheduled to close in fiscal year 2011. Further discussion of
our backlog is provided in Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations under Part II of this annual report on
Form 10-K.
Customer
Mortgage Financing
We provide mortgage financing services principally to purchasers
of our homes in the majority of our homebuilding markets through
our wholly-owned subsidiary, DHI Mortgage. DHI Mortgage
coordinates and expedites the sales transaction by ensuring that
mortgage commitments are received and that closings take place
in a timely and efficient manner. DHI Mortgage originates
mortgage loans for a substantial portion of our homebuyers and,
when necessary to fulfill the needs of some homebuyers, also
brokers loans to third-party lenders who directly originate the
mortgage loans. During the year ended September 30, 2010,
approximately 90% of DHI Mortgages loan volume related to
homes closed by our homebuilding operations, and DHI Mortgage
provided mortgage financing services for approximately 61% of
our total homes closed.
To limit the risks associated with our mortgage operations, DHI
Mortgage only originates loan products that it believes may be
sold to third-party purchasers. DHI Mortgage generally sells the
loans and their servicing rights to third-party purchasers
shortly after origination with limited recourse provisions. In
markets where we currently do not provide mortgage financing, we
work with a variety of mortgage lenders that make available to
homebuyers a range of mortgage financing programs.
Title Services
Through our subsidiary title companies, we serve as a title
insurance agent in selected markets by providing title insurance
policies, examination and closing services to the purchasers of
homes we build and sell. We currently assume little or no
underwriting risk associated with these title policies.
Employees
At September 30, 2010, we employed 3,214 persons, of
whom 860 were sales and marketing personnel, 1,001 were
executive, administrative and clerical personnel, 678 were
involved in construction and 675 worked in mortgage and title
operations. We had fewer than 10 employees covered by
collective bargaining agreements. Employees of some of the
subcontractors that we use are represented by labor unions or
are subject to collective bargaining agreements. We believe that
our relations with our employees and subcontractors are good.
Competition
The homebuilding industry is highly competitive. We compete in
each of our markets with numerous other national, regional and
local homebuilders for homebuyers, desirable properties, raw
materials, skilled labor and financing. We also compete with
resales of existing homes and with the rental housing market.
Our homes compete on the basis of quality, price, design,
mortgage financing terms and location. In the current weak
housing market, competition among homebuilders has greatly
intensified, especially as to pricing and incentives, as
builders attempt to maximize sales volume despite the weak
housing demand. The current market conditions have also led to a
large number of foreclosed homes being offered for sale, which
has increased competition for homebuyers and affected pricing.
Our financial services business competes with other mortgage
lenders, including national, regional and local mortgage bankers
and other financial institutions, some of which have greater
access to capital, different lending criteria and potentially
broader product offerings.
Governmental
Regulation and Environmental Matters
The homebuilding industry is subject to extensive and complex
regulations. We and the subcontractors we use must comply with
various federal, state and local laws and regulations, including
zoning, density and
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development requirements, building, environmental, advertising
and real estate sales rules and regulations. These regulations
and requirements affect the development process, as well as
building materials to be used, building designs and minimum
elevation of properties. Our homes are inspected by local
authorities where required, and homes eligible for insurance or
guarantees provided by the Federal Housing Administration (FHA)
and the Veterans Administration (VA) are subject to inspection
by them. These regulations often provide broad discretion to the
administering governmental authorities. In addition, our new
housing developments may be subject to various assessments for
schools, parks, streets and other public improvements.
Our homebuilding operations are also subject to a variety of
local, state and federal statutes, ordinances, rules and
regulations concerning protection of health, safety and the
environment. The particular environmental laws for each site
vary greatly according to location, environmental condition and
the present and former uses of the site and adjoining properties.
Our mortgage company and title insurance agencies must also
comply with various federal and state laws and regulations.
These include eligibility and other requirements for
participation in the programs offered by the FHA, VA, Government
National Mortgage Association (GNMA), Federal National Mortgage
Association (Fannie Mae) and Federal Home Loan Mortgage
Corporation (Freddie Mac). These also include required
compliance with consumer lending and other laws and regulations
such as disclosure requirements, prohibitions against
discrimination and real estate settlement procedures. All of
these laws and regulations may subject our operations to
examination by the applicable agencies.
Seasonality
We have typically experienced seasonal variations in our
quarterly operating results and capital requirements. Prior to
the current downturn in the homebuilding industry, we generally
had more homes under construction, closed more homes and had
greater revenues and operating income in the third and fourth
quarters of our fiscal year. This seasonal activity increased
our working capital requirements for our homebuilding operations
during the third and fourth fiscal quarters and increased our
funding requirements for the mortgages we originated in our
financial services segment at the end of these quarters. As a
result of seasonal activity, our quarterly results of operations
and financial position at the end of a particular fiscal quarter
are not necessarily representative of the balance of our fiscal
year.
In contrast to our typical seasonal results, the weakness in
homebuilding market conditions during the past four years has
mitigated our historical seasonal variations. Also, in fiscal
2010 the expiration of the federal homebuyer tax credit impacted
the timing of our construction activities, home sales and
closing volumes. Although we may experience our typical
historical seasonal pattern in the future, given the current
market conditions, we can make no assurances as to when or
whether this pattern will recur.
Discussion of our business and operations included in this
annual report on
Form 10-K
should be read together with the risk factors set forth below.
They describe various risks and uncertainties we are or may
become subject to, many of which are difficult to predict or
beyond our control. These risks and uncertainties, together with
other factors described elsewhere in this report, have the
potential to affect our business, financial condition, results
of operations, cash flows, strategies or prospects in a material
and adverse manner.
The
homebuilding industry is undergoing a significant downturn, and
its duration and ultimate severity are uncertain. Continued
weakness or further deterioration in industry conditions or in
the broader economic conditions could have additional adverse
effects on our business and financial results.
The downturn in the homebuilding industry is in its fourth year,
and it has become one of the most severe housing downturns in
U.S. history. The significant declines in the demand for
new homes, oversupply of homes on the market and reductions in
the availability of financing for homebuyers that have marked
the downturn are continuing. During the downturn, we have
experienced material reductions in our home sales and
homebuilding revenues, and we have incurred material inventory
and goodwill impairments and other write-offs.
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Our ability to respond to the downturn has been limited by
adverse industry and economic conditions. The significant number
of home mortgage foreclosures has increased supply and driven
down prices, making the purchase of a foreclosed home an
attractive alternative to purchasing a new home. Homebuilders
have responded to declining sales and increased cancellation
rates with significant concessions, further adding to the price
declines. With the decline in the values of homes and the
inability of some homeowners to make their mortgage payments,
the credit markets have been significantly disrupted, putting
strains on many households and businesses. In the face of these
conditions, the overall economy has remained very weak, with
high unemployment levels and substantially reduced consumer
spending and confidence. As a result, demand for new homes
remains at historically low levels.
These challenging conditions are complex and interrelated. We
cannot predict their duration or ultimate severity. Nor can we
provide assurance that our responses to the homebuilding
downturn or the governments attempts to address the
troubles in the overall economy will be successful.
Constriction
of the credit markets could limit our ability to access capital
and increase our costs of capital.
During the downturn in the homebuilding industry, we have relied
principally on our positive operating cash flow to meet our
working capital needs and repay outstanding indebtedness. We
generated substantial operating cash flow during this time.
However, the downturn and the constriction of the credit markets
have reduced the other sources of liquidity available to us.
While the public debt markets are currently accessible today at
historically favorable rates, there were periods during the
downturn where accessing the public debt markets would have
increased our cost of capital.
In May 2009, we voluntarily terminated our $1.65 billion
unsecured revolving credit facility. We have since relied on
short-term arrangements with some of the former lenders under
the terminated facility for the letters of credit we require in
our business. A new line of credit, should we decide to pursue
one, may be difficult to obtain on favorable terms in the
current circumstances of our business and the overall economy.
It would also likely involve additional financing costs and
restrictions on our business. Our not having a line in place
could reduce our flexibility in responding to or taking
advantage of changing conditions in the homebuilding industry or
require us to use our own cash resources in doing so.
Our mortgage subsidiary, DHI Mortgage, uses a $100 million
mortgage repurchase facility to finance many of the loans it
originates. The facility must be renewed annually, and the
current facility expires in March 2011. A continuation of
current market conditions could make the renewal more difficult
or could result in an increase in the cost of the facility or a
decrease in its committed availability. Such conditions may also
make it more difficult or costly to sell the mortgages that we
originate.
As of September 30, 2010, we had $296.4 million of
debt maturing in the next 12 months. We believe we can meet
these and our other capital requirements with our existing cash
resources and future cash flows and, if required, other sources
of financing that we anticipate will be available to us.
However, we can provide no assurance that we will continue to be
able to do so, particularly if current industry or economic
conditions continue or deteriorate further. The future effects
on our business, liquidity and financial results of these
conditions could be material and adverse, both in ways described
above and in other ways that we do not currently foresee.
We use letters of credit and surety bonds to secure our
performance under various construction and land development
agreements, escrow agreements, financial guarantees and other
arrangements. Should our future performance or economic
conditions make these more difficult to obtain or more costly,
our business or financial results could be adversely affected.
The
reduction in availability of mortgage financing has adversely
affected our business, and the duration and ultimate severity of
the effects are uncertain.
Over the last four fiscal years, the mortgage lending industry
has experienced significant change and contraction. Credit
requirements have tightened and investor demand for mortgage
loans and mortgage-backed securities has been limited to
securities backed by Fannie Mae, Freddie Mac or Ginnie Mae. This
has made it
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more difficult for many buyers to finance the purchase of our
homes, thus reducing the pool of qualified homebuyers. These
reductions in demand have adversely affected our business and
financial results, and the duration and severity of these
effects remain uncertain.
We believe that the liquidity provided by Fannie Mae, Freddie
Mac and Ginnie Mae to the mortgage industry has been very
important to the housing market. Fannie Mae and Freddie Mac have
required substantial injections of capital from the federal
government and may require additional government support in the
future. In addition, increased lending volume and losses insured
by the FHA have resulted in a reduction of its cash reserves.
Any reduction in the availability of the financing provided by
these institutions could adversely affect interest rates,
mortgage availability and sales of new homes and mortgage loans.
The FHA insures mortgage loans that generally have lower loan
payment requirements and as a result, continue to be a
particularly important source for financing the sale of our
homes. In the last two years, more restrictive guidelines have
been placed on FHA insured loans, affecting minimum down payment
and availability for condominium financing. In the near future,
further restrictions are expected on FHA insured loans,
including but not limited to limitations on seller-paid closing
costs and concessions. This or any other restriction may
negatively affect the availability or affordability of FHA
financing, which could adversely affect our ability to sell
homes.
While the use of down payment assistance programs by our
homebuyers has decreased significantly, some of our customers
still utilize 100% financing through programs offered by the VA
and United States Department of Agriculture (USDA). There can be
no assurance that these programs or other programs will continue
to be available or will be as attractive to our customers as the
programs currently offered, which could negatively affect our
sales.
Even if potential customers do not need financing, changes in
the availability of mortgage products may make it more difficult
for them to sell their current homes to potential buyers who
need financing.
Mortgage rates are currently at historically low levels. If
interest rates increase, the costs of owning a home will be
affected and could result in further reductions in the demand
for our homes.
Our
strategies in responding to the adverse conditions in the
homebuilding industry have had limited success, and the
continued implementation of these and other strategies may not
be successful.
While we have been successful in generating positive operating
cash flow and reducing our inventories in the last four fiscal
years, we have done so at reduced revenue and gross profit
levels and have incurred significant asset impairment charges,
resulting in pre-tax losses. Also, during this time,
notwithstanding our sales strategies, we continued to experience
an elevated rate of sales contract cancellations. We believe
that the increase in the cancellation rate is largely due to
reduced homebuyer confidence, due principally to the weak
economy and the continuing high level of unemployment. A more
restrictive mortgage lending environment and the inability of
some buyers to sell their existing homes have also impacted
cancellations. Many of these factors, which affect new sales and
cancellation rates, are beyond our control. It is uncertain how
long the reduction in sales and the increased level of
cancellations will continue. If these conditions continue for a
protracted period, it is not clear whether our strategies will
succeed in maintaining or increasing our sales volume or our
current margins.
Our
business and financial results could be adversely affected by
significant inflation or deflation.
Inflation can adversely affect us by increasing costs of land,
materials and labor. In the event of a return of inflation, we
may seek to increase the sales prices of homes in order to
maintain satisfactory margins. However, a continuation of the
oversupply of homes relative to demand may make this difficult.
In addition, significant inflation is often accompanied by
higher interest rates, which have a negative impact on housing
demand. In such an environment, we may not be able to raise home
prices sufficiently to keep up with the rate of inflation and
our margins could decrease. Moreover, with inflation, the costs
of capital increase and the purchasing power of our cash
resources can decline. Current or future efforts by the
government to stimulate
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the economy may increase the risk of significant inflation and
its adverse impact on our business or financial results.
Alternatively, a significant period of deflation could cause a
decrease in overall spending and borrowing levels. This could
lead to a further deterioration in economic conditions,
including an increase in the rate of unemployment. Deflation
could also cause the value of our inventories to decline or
reduce the value of existing homes below the related mortgage
loan balance, which could potentially increase the supply of
existing homes and have a negative impact on our results of
operations.
The
homebuilding industry is cyclical and affected by changes in
general economic, real estate or other business conditions that
could adversely affect our business or financial
results.
The homebuilding industry is cyclical and is significantly
affected by changes in industry conditions, as well as changes
in general and local economic conditions, such as:
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employment levels;
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availability of financing for homebuyers;
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interest rates;
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consumer confidence;
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levels of new and existing homes for sale;
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demographic trends; and
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housing demand.
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These may occur on a national scale, like the current downturn,
or may affect some of our regions or markets more than others.
When adverse conditions affect any of our larger markets, they
could have a proportionately greater impact on us than on some
other homebuilding companies. Our operations in previously
strong markets, particularly California, Florida, Nevada and
Arizona, have more adversely affected our financial results than
our other markets in the current downturn.
An oversupply of alternatives to new homes, including foreclosed
homes, homes held for sale by investors and speculators, other
existing homes and rental properties, can also reduce our
ability to sell new homes, depress new home prices and reduce
our margins on the sales of new homes. High levels of
foreclosures not only contribute to additional inventory
available for sale, but also reduce appraisal valuations for new
homes and the amount that can be financed, potentially resulting
in lower sales prices.
Weather conditions and natural disasters, such as hurricanes,
tornadoes, earthquakes, wildfires, volcanic activity, droughts,
and floods, can harm our homebuilding business. These can delay
home closings, adversely affect the cost or availability of
materials or labor, or damage homes under construction. The
climates and geology of many of the states in which we operate,
including California, Florida and Texas, where we have some of
our larger operations, present increased risks of adverse
weather or natural disasters.
Continued military deployments in the Middle East and other
overseas regions, terrorist attacks, other acts of violence or
threats to national security and any corresponding response by
the United States or others, or related domestic or
international instability may adversely affect general economic
conditions or cause a slowdown of the economy.
As a result of the foregoing matters, potential customers may be
less willing or able to buy our homes. Because of current
industry and economic conditions, we have not been able to
increase the sale prices of our homes. In the future, our
pricing strategies may also be limited by market conditions. We
may be unable to further change the mix of our home offerings,
reduce the costs of the homes we build or offer more affordable
homes to maintain our margins or satisfactorily address changing
market conditions in other ways. In addition, cancellations of
home sales contracts in backlog may increase as homebuyers
choose to not honor their contracts due to any of the factors
discussed above.
13
Our financial services business is closely related to our
homebuilding business, as it originates mortgage loans
principally to purchasers of the homes we build. A decrease in
the demand for our homes because of the foregoing matters may
also adversely affect the financial results of this segment of
our business. An increase in the default rate on the mortgages
we originate may adversely affect our ability to sell the
mortgages or the pricing we receive upon the sale of mortgages
or may increase our repurchase or other obligations for previous
originations. We establish reserves related to mortgages we have
sold; however, actual future obligations related to these
mortgages could differ significantly from our currently
estimated amounts.
The
risks associated with our land and lot inventory could adversely
affect our business or financial results.
Inventory risks are substantial for our homebuilding business.
The risks inherent in controlling or purchasing and developing
land increase as consumer demand for housing decreases. Thus, we
may have acquired options on or bought and developed land or
lots at a cost we will not be able to recover fully, or on which
we cannot build and sell homes profitably. As a result, our
deposits for building lots controlled under option or similar
contracts may be put at risk. The value of our owned undeveloped
land, building lots and housing inventories can also fluctuate
significantly as a result of changing market conditions. In
addition, inventory carrying costs can be significant and can
result in reduced margins or losses in a poorly performing
community or market. During the current economic downturn, we
have sold homes and land for lower margins or at a loss and we
have recorded significant inventory impairment charges.
Our goals for years of supply for ownership and control of land
and building lots are based on managements expectations
for future volume growth. In light of the much weaker market
conditions encountered since fiscal 2006, we have significantly
slowed our purchases of undeveloped land and our development
spending on land we own. We made substantial land and lot sales
in fiscal 2008. Throughout the downturn, we also terminated
numerous land option contracts and wrote off earnest money
deposits and pre-acquisition costs related to these option
contracts. Because future market conditions are uncertain, we
cannot provide assurance that these measures will be successful
in managing our future inventory risks.
Supply
shortages and other risks related to demand for building
materials and skilled labor could increase our costs and delay
deliveries.
The homebuilding industry has from time to time experienced
significant difficulties that can affect the cost or timing of
construction, including:
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difficulty in acquiring land suitable for residential building
at affordable prices in locations where our potential customers
want to live;
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shortages of qualified trades people;
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reliance on local subcontractors, manufacturers and distributors
who may be inadequately capitalized;
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shortages of materials; and
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volatile increases in the cost of materials, particularly
increases in the price of lumber, drywall and cement, which are
significant components of home construction costs.
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These factors may cause us to take longer or incur more costs to
build our homes and adversely affect our revenues and margins.
Increases
in the costs of owning a home could prevent potential customers
from buying our homes and adversely affect our business or
financial results.
Significant expenses of owning a home, including mortgage
interest and real estate taxes, generally are deductible
expenses for an individuals federal, and in some cases
state, income taxes, subject to various limitations under
current tax law and policy. If the federal government or a state
government changes its income tax laws, as has been discussed
from time to time, to eliminate or substantially modify these
income tax deductions, the after-tax cost of owning a new home
would increase for many of our potential customers.
14
The loss or reduction of homeowner tax deductions, if such tax
law changes were enacted without offsetting provisions, would
adversely impact demand for and sales prices of new homes.
In addition, increases in property tax rates by local
governmental authorities, as experienced in response to reduced
federal and state funding, can adversely affect the ability of
potential customers to obtain financing or their desire to
purchase new homes.
Governmental
regulations could increase the cost and limit the availability
of our development and homebuilding projects and adversely
affect our business or financial results.
We are subject to extensive and complex regulations that affect
land development and home construction, including zoning,
density restrictions, building design and building standards.
These regulations often provide broad discretion to the
administering governmental authorities as to the conditions we
must meet prior to development or construction being approved,
if approved at all. We are subject to determinations by these
authorities as to the adequacy of water or sewage facilities,
roads or other local services. New housing developments may also
be subject to various assessments for schools, parks, streets
and other public improvements. In addition, in many markets
government authorities have implemented no growth or growth
control initiatives. Any of these can limit, delay or increase
the costs of development or home construction.
We are also subject to a variety of local, state and federal
laws and regulations concerning protection of health, safety and
the environment. The impact of environmental laws varies
depending upon the prior uses of the building site or adjoining
properties and may be greater in areas with less supply where
undeveloped land or desirable alternatives are less available.
These matters may result in delays, may cause us to incur
substantial compliance, remediation, mitigation and other costs,
and can prohibit or severely restrict development and
homebuilding activity in environmentally sensitive regions or
areas.
Governmental
regulation of our financial services operations could adversely
affect our business or financial results.
Our financial services operations are subject to numerous
federal, state and local laws and regulations. These include
eligibility requirements for participation in federal loan
programs, compliance with consumer lending and similar
requirements such as disclosure requirements, prohibitions
against discrimination and real estate settlement procedures.
They may also subject our operations to examination by the
applicable agencies. These factors may limit our ability to
provide mortgage financing or title services to potential
purchasers of our homes.
In July 2010, the Dodd-Frank Wall Street Reform and Consumer
Protection Act (H.R.4173) was signed into law. This legislation
provides for a number of new requirements relating to
residential mortgage lending practices, many of which are to be
developed further by implementing rules. These include, among
others, minimum standards for mortgages and lender practices in
making mortgages, limitations on certain fees, retention of
credit risk, prohibition of certain tying arrangements and
remedies for borrowers in foreclosure proceedings. The effect of
such provisions on our financial services business will depend
on the rules that are ultimately enacted.
The turmoil caused by the increasing number of defaults and
resulting foreclosures has encouraged consumer lawsuits and the
investigation of financial services industry practices by
governmental authorities. These investigations could include the
examination of consumer lending practices, sales of mortgages to
financial institutions and other investors, and current
foreclosure processes or other practices in the financial
services segments of homebuilding companies. We are unable to
assess whether these governmental inquiries will result in
changes in regulations, homebuilding industry practices or
adversely affect the costs and potential profitability of
homebuilding companies.
15
Homebuilding
is subject to home warranty and construction defect claims in
the ordinary course of business that can be
significant.
As a homebuilder, we are subject to home warranty and
construction defect claims arising in the ordinary course of
business. As a consequence, we maintain product liability
insurance, obtain indemnities and certificates of insurance from
subcontractors generally covering claims related to workmanship
and materials. We establish warranty and other reserves for the
homes we sell based on historical experience in our markets and
our judgment of the qualitative risks associated with the types
of homes built. Because of the uncertainties inherent to these
matters, we cannot provide assurance that our insurance
coverage, our subcontractor arrangements and our reserves will
be adequate to address all of our warranty and construction
defect claims in the future. Contractual indemnities can be
difficult to enforce, we may be responsible for applicable
self-insured retentions and some types of claims may not be
covered by insurance or may exceed applicable coverage limits.
Additionally, the coverage offered by and the availability of
product liability insurance for construction defects is
currently limited and costly. We have responded to increases in
insurance costs and coverage limitations in recent years by
increasing our self-insured retentions and claim reserves. There
can be no assurance that coverage will not be further restricted
or become more costly.
Our
substantial debt could adversely affect our financial
condition.
We have a significant amount of debt. As of September 30,
2010, our consolidated debt was $2,171.8 million. As of
September 30, 2010, the scheduled maturities of principal
on our outstanding debt for the subsequent 12 months
totaled $296.4 million. The indentures governing our senior
and convertible senior notes do not restrict the incurrence of
future unsecured debt, and they permit significant amounts of
secured debt. We do not currently have a revolving credit
facility for our homebuilding operations. If we choose to enter
into a new line of credit agreement, it may limit the amount of
debt we could incur.
Possible Consequences. The amount and the
maturities of our debt could have important consequences. For
example, they could:
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require us to dedicate a substantial portion of our cash flow
from operations to payment of our debt and reduce our ability to
use our cash flow for other operating or investing purposes;
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limit our flexibility in planning for, or reacting to, the
changes in our business;
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limit our ability to obtain future financing for working
capital, capital expenditures, acquisitions, debt service
requirements or other requirements;
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place us at a competitive disadvantage because we have more debt
than some of our competitors; and
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make us more vulnerable to downturns in our business or general
economic conditions.
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In addition, the magnitude of our debt and the restrictions
imposed by the instruments governing these obligations expose us
to additional risks, including:
Dependence on Future Performance. Our ability
to meet our debt service and other obligations will depend, in
part, upon our future financial performance. Our future results
are subject to the risks and uncertainties described in this
report. These have been compounded by the current industry and
economic conditions. Our revenues and earnings vary with the
level of general economic activity in the markets we serve. Our
businesses are also affected by financial, political, business
and other factors, many of which are beyond our control. The
factors that affect our ability to generate cash can also affect
our ability to raise additional funds for these purposes through
the sale of debt or equity, the refinancing of debt, or the sale
of assets.
Mortgage Repurchase Facility and Other
Restrictions. The mortgage repurchase facility
for our financial services subsidiaries requires the maintenance
of a minimum level of tangible net worth, a maximum allowable
ratio of debt to tangible net worth and a minimum level of
liquidity by our financial services subsidiaries. A failure to
comply with these requirements could allow the lending bank to
terminate the availability of funds to the financial services
subsidiaries or cause their debt to become due and payable prior
16
to maturity. Any difficulty experienced in complying with these
covenants could make the renewal of the facility more difficult
or costly.
In addition, although our financial services business is
conducted through subsidiaries that are not restricted by our
indentures, the ability of our financial services subsidiaries
to provide funds to our homebuilding operations is subject to
restrictions in their mortgage repurchase facility. These funds
would not be available to us upon the occurrence and during the
continuance of defaults under this facility. Moreover, our right
to receive assets from these subsidiaries upon their liquidation
or recapitalization will be subject to the prior claims of the
creditors of these subsidiaries. Any claims we may have to funds
from this segment would be subordinate to subsidiary
indebtedness to the extent of any security for such indebtedness
and to any indebtedness otherwise recognized as senior to our
claims.
The indentures governing our senior notes impose restrictions on
the creation of secured debt and liens.
Changes in Debt Ratings. In fiscal 2008, all
three of the agencies that rate our senior unsecured debt
lowered our ratings to a level below investment grade, and these
agencies have since lowered our ratings further. Any additional
lowering of our debt ratings could make entering into a new line
of credit agreement or accessing the public capital markets more
difficult
and/or more
expensive.
Change of Control Purchase Options. If a
change of control occurs as defined in the indentures governing
$587.8 million principal amount of our senior notes as of
September 30, 2010, we would be required to offer to
purchase these notes at 101% of their principal amount, together
with all accrued and unpaid interest, if any. If a fundamental
change, including a change of control, occurs as defined in the
indenture governing our convertible senior notes, which
constituted $500 million principal amount as of
September 30, 2010, we would be required to offer to
purchase these notes at par, together with all accrued and
unpaid interest, if any. If purchase offers were required under
the indentures for these notes, we can give no assurance that we
would have sufficient funds to pay the amounts that we would be
required to purchase.
Potential Future Restrictions. As a result of
terminating our revolving credit facility, we are no longer
subject to the restrictions on our operations and activities
that it imposed on us. However, if we decide to enter into
another revolving credit agreement, it is likely that we will
again become subject to these types of provisions, which may be
more restrictive than those found in our previous facility.
Homebuilding
and financial services are very competitive industries, and
competitive conditions could adversely affect our business or
financial results.
The homebuilding industry is highly competitive. Homebuilders
compete not only for homebuyers, but also for desirable
properties, financing, raw materials and skilled labor. We
compete with other local, regional and national homebuilders,
often within larger subdivisions designed, planned and developed
by such homebuilders. We also compete with existing home sales,
foreclosures and rental properties. The competitive conditions
in the homebuilding industry can result in:
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lower sales;
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lower selling prices;
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increased selling incentives;
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lower profit margins;
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impairments in the value of inventory, goodwill and other assets;
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|
difficulty in acquiring suitable land, raw materials, and
skilled labor at acceptable prices or terms; or
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delays in construction of our homes.
|
Our financial services business competes with other mortgage
lenders, including national, regional and local mortgage banks
and other financial institutions. Mortgage lenders with greater
access to capital or different lending criteria may be able to
offer more attractive financing to potential customers.
17
These competitive conditions could adversely affect our business
and financial results. In the current downturn in the
homebuilding industry, the reactions of our competitors may have
reduced the effectiveness of our efforts to achieve pricing
stability and reduce our inventory levels.
We
cannot make any assurances that any future growth strategies
will be successful or not expose us to additional
risks.
Although we focused on internal growth for several years before
the downturn in the homebuilding industry, we may in the future
make strategic acquisitions of homebuilding companies or their
assets. Successful strategic acquisitions require the
integration of operations and management. Although we believe
that we have been successful in the past, we can give no
assurance that we would be able to successfully identify,
acquire and integrate strategic acquisitions in the future.
Acquisitions can result in the dilution of existing stockholders
if we issue our common stock as consideration, or reduce our
liquidity or increase our debt if we fund them with cash. The
impact on liquidity may be increased because we do not currently
have a revolving credit facility. In addition, acquisitions can
expose us to valuation risks, including the risk of writing off
goodwill or impairing inventory and other assets related to such
acquisitions. The risk of goodwill and other asset impairments
increases during a cyclical housing downturn when our
profitability may decline, as evidenced by the goodwill and
other asset impairment charges we recognized in recent years. In
addition, we may not be able to successfully implement our
operating or internal growth strategies within our existing
markets. In the uncertain current market conditions, asset
acquisitions involve a risk that the markets involved may
subsequently deteriorate. Conversely, if we delay an acquisition
until we believe the market uncertainties are resolved, the
potential competitive advantages of the acquisition may be
limited.
We may
not realize our deferred income tax asset.
As of September 30, 2010, we have a net deferred income tax
asset of $902.6 million, against which we have provided a
valuation allowance of $902.6 million. The realization of
our deferred income tax asset is dependent upon the generation
of future taxable income during the statutory carryforward
periods in which the related temporary differences become
deductible.
The accounting for deferred income taxes is based upon estimates
of future results. Differences between the anticipated and
actual outcomes of these future tax consequences could have a
material impact on our consolidated results of operations or
financial position. Changes in tax laws also affect actual tax
results and the valuation of deferred income tax assets over
time.
The
utilization of our tax losses could be substantially limited if
we experienced an ownership change as defined in the Internal
Revenue Code.
We have experienced continuing tax net operating losses through
fiscal 2010 and have potential unrealized built-in losses. These
tax net operating losses have the potential to reduce future
income tax obligations if we realize taxable income in the
future. However, Section 382 of the Internal Revenue Code
contains rules that limit the ability of a company that
undergoes an ownership change to utilize its net operating loss
carryforwards and certain built-in losses recognized in years
after the ownership change. Under the rules, such an ownership
change is generally any change in ownership of more than 50% of
its stock within a rolling three-year period, as calculated in
accordance with the rules. The rules generally operate by
focusing on changes in ownership among stockholders considered
by the rules as owning directly or indirectly 5% or more of the
stock of the company and any change in ownership arising from
new issuances of stock by the company.
If we undergo an ownership change for purposes of
Section 382 as a result of future transactions involving
our common stock, both the amount of and our ability to use any
of our net operating loss carryforwards, tax credit
carryforwards or net unrealized built-in losses at the time of
ownership change would be subject to the limitations of
Section 382. In addition, these limitations may affect the
expiration date of a portion of our built-in losses, any net
operating loss carryforwards or tax credit carryforwards, and we
may not
18
be able to use them before they expire. This could adversely
affect our financial position, results of operations and cash
flow.
We do not believe we have experienced such an ownership change
as of September 30, 2010; however, the amount by which our
ownership may change in the future is affected by purchases and
sales of stock by 5% stockholders; the potential conversion of
our outstanding convertible senior notes and our decision as to
whether to settle any such conversions completely or partially
in stock; and new issuances of stock by us.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
|
None.
In addition to our inventories of land, lots and homes, we own
several office buildings totaling approximately
250,000 square feet, and we lease approximately
915,000 square feet of office space under leases expiring
through October 2015. These properties are located in our
various operating markets to house our homebuilding and
financial services operating divisions and our regional and
corporate offices.
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ITEM 3.
|
LEGAL
PROCEEDINGS
|
We are involved in lawsuits and other contingencies in the
ordinary course of business. While the outcome of such
contingencies cannot be predicted with certainty, we believe
that the liabilities arising from these matters will not have a
material adverse effect on our consolidated financial position,
results of operations or cash flows. However, to the extent the
liability arising from the ultimate resolution of any matter
exceeds our estimates reflected in the recorded reserves
relating to such matter, we could incur additional charges that
could be significant.
19
PART II
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our common stock is listed on the New York Stock Exchange (NYSE)
under the symbol DHI. The following table sets
forth, for the periods indicated, the range of high and low
sales prices for our common stock, as reported by the NYSE, and
the quarterly cash dividends declared per common share.
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Year Ended September 30, 2010
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Year Ended September 30, 2009
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Declared
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Declared
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High
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Low
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Dividends
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High
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Low
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Dividends
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1st Quarter
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$
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13.00
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$
|
9.69
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$
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0.0375
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$
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13.40
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$
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3.79
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$
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0.0375
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2nd Quarter
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13.53
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10.87
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0.0375
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11.35
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5.72
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0.0375
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3rd Quarter
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15.44
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9.82
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0.0375
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13.74
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8.53
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0.0375
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4th Quarter
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11.38
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9.41
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0.0375
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13.90
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8.26
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0.0375
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As of November 10, 2010, the closing price of our common
stock on the NYSE was $12.05, and there were approximately 549
holders of record.
The declaration of future cash dividends is at the discretion of
our Board of Directors and will depend upon, among other things,
future earnings, cash flows, capital requirements, our financial
condition and general business conditions.
The information required by this item with respect to equity
compensation plans is set forth under Item 12 of this
annual report on
Form 10-K
and is incorporated herein by reference.
During fiscal years 2010, 2009 and 2008, we did not sell any
equity securities that were not registered under the Securities
Act of 1933, as amended.
In November 2009, our Board of Directors authorized the
repurchase of up to $100 million of our common stock. The
authorization was renewed in July 2010 and is effective through
July 31, 2011. We made no repurchases of common stock under
the share repurchase program during fiscal 2010; therefore, all
of the $100 million authorization was remaining at
September 30, 2010.
20
Stock
Performance Graph
The following graph illustrates the cumulative total stockholder
return on D.R. Horton common stock for the last five fiscal
years through September 30, 2010, compared to the S&P
500 Index and the S&P 500 Homebuilding Index. The
comparison assumes a hypothetical investment in D.R. Horton
common stock and in each of the foregoing indices of $100 at
September 30, 2005, and assumes that all dividends were
reinvested. Shareholder returns over the indicated period are
based on historical data and should not be considered indicative
of future shareholder returns. The graph and related disclosure
in no way reflect our forecast of future financial performance.
Comparison
of Five-Year Cumulative Total Return
Among D.R. Horton, Inc., S&P 500 Index and S&P 500
Homebuilding Index
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Year Ended September 30,
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2005
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2006
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2007
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2008
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2009
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2010
|
D.R. Horton, Inc.
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$
|
100.00
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$
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67.20
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$
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36.96
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$
|
38.90
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$
|
34.66
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|
$
|
34.23
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S&P 500 Index
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$
|
100.00
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|
$
|
110.79
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|
$
|
129.00
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|
|
$
|
100.65
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|
|
$
|
93.70
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|
|
$
|
103.22
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|
|
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S&P 500 Homebuilding Index
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$
|
100.00
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|
$
|
72.43
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$
|
36.81
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|
$
|
31.15
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|
$
|
26.09
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|
$
|
24.20
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This performance graph shall not be deemed to be incorporated by
reference into our SEC filings and should not constitute
soliciting material or otherwise be considered filed under the
Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended.
21
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ITEM 6.
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SELECTED
FINANCIAL DATA
|
The following selected consolidated financial data are derived
from our Consolidated Financial Statements. The data should be
read in conjunction with Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, Item 1A, Risk Factors,
Item 8, Financial Statements and Supplementary
Data, and all other financial data contained in this
annual report on
Form 10-K.
These historical results are not necessarily indicative of the
results to be expected in the future.
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Year Ended September 30,
|
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2010
|
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2009
|
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2008
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2007
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2006
|
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(In millions, except per share data)
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Operating Data:
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Revenues:
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Homebuilding
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$
|
4,309.7
|
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|
$
|
3,603.9
|
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|
$
|
6,518.6
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$
|
11,088.8
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$
|
14,760.5
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Financial Services
|
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90.5
|
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53.7
|
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|
|
127.5
|
|
|
|
207.7
|
|
|
|
290.8
|
|
Gross profit (loss) Homebuilding
|
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|
682.1
|
|
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|
65.2
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|
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|
(1,763.2
|
)
|
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|
603.7
|
|
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|
3,342.2
|
|
Income (loss) before income taxes:
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|
|
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|
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Homebuilding
|
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|
78.1
|
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(541.3
|
)
|
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(2,666.9
|
)
|
|
|
(1,020.0
|
)
|
|
|
1,878.7
|
|
Financial Services
|
|
|
21.4
|
|
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|
(15.5
|
)
|
|
|
35.1
|
|
|
|
68.8
|
|
|
|
108.4
|
|
Provision for (benefit from) income taxes
|
|
|
(145.6
|
)
|
|
|
(7.0
|
)
|
|
|
1.8
|
|
|
|
(238.7
|
)
|
|
|
753.8
|
|
Net income (loss)
|
|
|
245.1
|
|
|
|
(549.8
|
)
|
|
|
(2,633.6
|
)
|
|
|
(712.5
|
)
|
|
|
1,233.3
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.77
|
|
|
|
(1.73
|
)
|
|
|
(8.34
|
)
|
|
|
(2.27
|
)
|
|
|
3.94
|
|
Diluted
|
|
|
0.77
|
|
|
|
(1.73
|
)
|
|
|
(8.34
|
)
|
|
|
(2.27
|
)
|
|
|
3.90
|
|
Cash dividends declared per common share
|
|
|
0.15
|
|
|
|
0.15
|
|
|
|
0.45
|
|
|
|
0.60
|
|
|
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In millions)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
3,449.0
|
|
|
$
|
3,666.7
|
|
|
$
|
4,683.2
|
|
|
$
|
9,343.5
|
|
|
$
|
11,343.1
|
|
Total assets
|
|
|
5,938.6
|
|
|
|
6,756.8
|
|
|
|
7,950.6
|
|
|
|
11,556.3
|
|
|
|
14,820.7
|
|
Notes payable (1)
|
|
|
2,171.8
|
|
|
|
3,145.3
|
|
|
|
3,748.4
|
|
|
|
4,376.8
|
|
|
|
6,078.6
|
|
Total equity (2)
|
|
|
2,622.9
|
|
|
|
2,400.6
|
|
|
|
2,864.8
|
|
|
|
5,655.3
|
|
|
|
6,558.0
|
|
|
|
|
(1)
|
|
Includes both homebuilding notes
payable and the amount outstanding on our mortgage repurchase
facility.
|
|
(2)
|
|
In accordance with the Financial
Accounting Standards Boards authoritative guidance for
noncontrolling interests, which was adopted at the beginning of
fiscal 2010, noncontrolling interests are now presented as a
component of equity rather than as a liability. All prior period
total equity amounts have been revised to include noncontrolling
interests.
|
22
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Results
of Operations Fiscal Year 2010 Overview
In fiscal 2010, conditions within the homebuilding industry
remained challenging, primarily due to weak overall economic
conditions, high unemployment and low consumer confidence.
Demand for new homes improved while the federal homebuyer tax
credit was in effect, but decreased sharply once the tax credit
expired. Our net sales orders for fiscal 2010 were 14% higher
than in fiscal 2009; however, much of the
year-over-year
increase was attributable to our results in the first half of
the year before the federal homebuyer tax credit expired.
Subsequent to its expiration, our net sales orders in the third
and fourth quarters of fiscal 2010 were 3% and 21% lower,
respectively, than in the comparable prior year periods. These
results suggest that efforts to improve our net sales order
volume will be challenging and that overall demand for new homes
is likely to remain at very low levels for some time.
During the ongoing slowdown in the homebuilding industry that
began in 2006, numerous factors have hurt demand for new homes
on a pervasive and persistent basis across the United States.
These factors include high inventory levels of available homes,
elevated sales order cancellation rates, low sales absorption
rates and overall weak consumer confidence. The effects of these
factors have been magnified by reduced availability of credit in
the mortgage markets and high levels of home foreclosures. High
levels of foreclosures not only contribute to additional
inventory available for sale, but also reduce appraisal
valuations for new homes, potentially resulting in lower sales
prices. The overall economy remains weak, with a high level of
unemployment, substantially reduced consumer spending and low
levels of consumer confidence. The turmoil in the housing market
has resulted in substantial price reductions in our homes during
the course of the slowdown.
In the first half of fiscal 2010 there were indications of some
stabilization of housing market conditions. The factors
supporting the improved conditions included increased levels of
affordability resulting from lower home sales prices; declines
in the number of new homes available for sale; a low mortgage
interest rate environment; and the federal governments
monetary and fiscal policies and programs, including the federal
homebuyer tax credit, which encouraged home ownership and home
purchases. These market conditions supported our strategy of
opening new communities via lot option contracts and starting
construction on more unsold homes to provide affordable housing
and capture demand from first-time and
move-up
homebuyers. Having additional housing inventory available to
close before the expiration of the federal tax credit resulted
in significant increases in our net sales orders during the
first half of fiscal 2010 from the comparable prior year period.
During fiscal 2010, our homes closed and our gross profit as a
percentage of home sales revenues increased from fiscal 2009,
which resulted in pre-tax income of $99.5 million in 2010
compared to a pre-tax loss of $556.8 million in 2009.
The decline in demand subsequent to the expiration of the tax
credit indicates that market conditions in the homebuilding
industry are weak and the timing of a sustainable recovery
remains uncertain. We are maintaining our cautious outlook for
the homebuilding industry, and will adjust our operating
strategy as necessary as we continually assess the level of
underlying demand for new homes in our communities. However, we
presently expect that our level of home sales, closings and
profitability will be lower in fiscal 2011 than fiscal 2010.
Our future results could be negatively impacted by prolonged
weakness in the economy, continued high levels of unemployment,
a significant increase in mortgage interest rates or further
tightening of mortgage lending standards.
Due to these uncertain market conditions, we have continued to
evaluate our homebuilding and financial services assets for
recoverability. Our assets whose recoverability is most impacted
by market conditions include inventory, earnest money deposits
and pre-acquisition costs related to land and lot option
contracts, tax assets and owned mortgage loans. These assets
collectively represented approximately 89% of our total assets,
excluding cash and marketable securities, at September 30,
2010. Our evaluations reflected our expectation of continued
challenges in the homebuilding industry. Based on our
evaluations, during fiscal 2010 we recorded
23
inventory impairment charges of $62.3 million, wrote-off
earnest money deposits and pre-acquisition costs related to land
and lot option contracts we no longer plan to pursue of
$2.4 million, recorded additional reserves for losses of
$13.7 million associated with mortgage loans held in
portfolio and the limited recourse provisions on previously sold
mortgage loans and increased the reserve related to mortgage
reinsurance activities by $1.9 million. Inventory
impairment charges and write-offs of earnest money deposits and
pre-acquisition costs declined in fiscal 2010 from prior years,
reflecting an improvement in gross profit from home closings
during fiscal 2010 compared to prior years. We will evaluate
whether further impairment charges, valuation adjustments or
write-offs are necessary on these assets in the coming quarters.
Additional discussion of these evaluations and charges is
presented below.
Strategy
We believe the long-term fundamental factors which support
housing demand, namely population growth and household
formation, remain positive. In the near term, however, it is not
possible to predict if current homebuilding industry conditions
will improve or if they will deteriorate from current levels.
During the downturn we have increased our cash balances by
generating cash flow from operations, primarily through
reductions in inventory and mortgage loans held for sale, the
receipt of tax refunds and by accessing the capital markets.
While we will continue to conservatively manage our business,
our increased liquidity provides us with flexibility in
determining the appropriate operating strategy for each of our
communities and markets to strike the best balance between cash
flow generation and potential profit. With this flexibility, we
are committed to continuing the following initiatives related to
our operating strategy in the current homebuilding business
environment:
|
|
|
|
|
Maintaining a strong cash balance and overall liquidity position.
|
|
|
|
Managing the sales prices and level of sales incentives on our
homes as necessary to optimize the balance of sales volumes,
profits, returns on inventory investments and cash flows.
|
|
|
|
Entering into new lot option contracts to purchase finished lots
to potentially increase sales volumes and profitability.
|
|
|
|
Renegotiating existing lot option contracts to reduce our lot
costs and better match the scheduled lot purchases with new home
demand in each community.
|
|
|
|
Limiting land development spending, especially in communities
that require substantial investments of time or capital
resources.
|
|
|
|
Managing our inventory of homes under construction by
selectively starting construction on unsold homes to capture new
home demand, while monitoring the number and aging of unsold
homes and aggressively marketing unsold, completed homes in
inventory.
|
|
|
|
Decreasing the cost of goods purchased from both vendors and
subcontractors.
|
|
|
|
Modifying product offerings to provide more affordable homes.
|
|
|
|
Controlling our SG&A infrastructure to match production
levels.
|
These initiatives allowed us to generate significant cash flows
from operations during the downturn and to achieve improved
operating results during fiscal 2010. Although we cannot provide
any assurances that these initiatives will be successful in the
future, we expect that our operating strategy will allow us to
continue to maintain a strong balance sheet and liquidity
position in fiscal 2011.
24
Key
Results
Key financial results as of and for our fiscal year ended
September 30, 2010, as compared to fiscal 2009, were as
follows:
Homebuilding
Operations:
|
|
|
|
|
Homebuilding revenues increased 20% to $4.3 billion.
|
|
|
|
Homes closed increased 25% to 20,875 homes while the average
selling price of those homes decreased 3% to $206,100.
|
|
|
|
Net sales orders increased 14% to 19,375 homes.
|
|
|
|
Sales order backlog decreased 25% to $850.8 million.
|
|
|
|
Home sales gross margins increased 420 basis points to
17.3%.
|
|
|
|
Inventory impairments and land option cost write-offs were
$64.7 million, compared to $407.7 million.
|
|
|
|
Homebuilding SG&A expense decreased slightly to
$522.0 million, and as a percentage of homebuilding
revenues decreased by 240 basis points to 12.1%.
|
|
|
|
Homebuilding pre-tax income was $78.1 million, compared to
a pre-tax loss of $541.3 million.
|
|
|
|
Homes in inventory declined by 2,100 to 9,500.
|
|
|
|
Total owned and optioned lot position increased by 10,700 to
119,400.
|
|
|
|
Homebuilding debt decreased by $1.0 billion to
$2.1 billion through maturities, early redemptions and open
market purchases.
|
|
|
|
Net homebuilding debt to total capital decreased
1,640 basis points to 16.1%, and gross homebuilding debt to
total capital decreased 1,190 basis points to 44.3%.
|
|
|
|
Homebuilding cash and marketable securities totaled
$1.6 billion, compared to $1.9 billion.
|
Financial
Services Operations:
|
|
|
|
|
Total financial services revenues, net of recourse and
reinsurance expenses, increased to $90.5 million from
$53.7 million.
|
|
|
|
Financial services pre-tax income was $21.4 million,
compared to a pre-tax loss of $15.5 million.
|
Consolidated
Results:
|
|
|
|
|
Diluted earnings per share was $0.77, compared to net loss per
share of $1.73.
|
|
|
|
Net income was $245.1 million, compared to net loss of
$549.8 million.
|
|
|
|
Total equity increased to $2.6 billion, from
$2.4 billion.
|
|
|
|
Net cash provided by operations was $709.4 million,
compared to $1.1 billion.
|
25
Results
of Operations Homebuilding
Our operating segments are our 33 homebuilding operating
divisions, which we aggregate into six reporting segments. These
reporting segments, which we also refer to as reporting regions,
have homebuilding operations located in the following states:
|
|
|
East:
|
|
Delaware, Georgia (Savannah only), Maryland, New Jersey, North
Carolina, Pennsylvania, South Carolina and Virginia
|
|
|
|
Midwest:
|
|
Colorado, Illinois, Minnesota and Wisconsin
|
|
|
|
Southeast:
|
|
Alabama, Florida and Georgia
|
|
|
|
South Central:
|
|
Louisiana, New Mexico (Las Cruces only), Oklahoma and Texas
|
|
|
|
Southwest:
|
|
Arizona and New Mexico
|
|
|
|
West:
|
|
California, Hawaii, Idaho, Nevada, Oregon, Utah and Washington
|
During the fourth quarter of fiscal 2010, a change in the
composition of our operating divisions required that the Las
Cruces, New Mexico market, previously included in our Southwest
reporting segment, now be included in our South Central
reporting segment. Consequently, throughout this discussion, we
have restated the prior year amounts between segments to conform
to the current year presentation.
Fiscal
Year Ended September 30, 2010 Compared to Fiscal Year Ended
September 30, 2009
The following tables and related discussion set forth key
operating and financial data for our homebuilding operations by
reporting segment as of and for the fiscal years ended
September 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales Orders (1)
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
|
Net Homes Sold
|
|
|
|
Value (In millions)
|
|
|
|
Average Selling Price
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
East
|
|
|
2,027
|
|
|
|
1,519
|
|
|
|
33
|
|
%
|
|
$
|
469.0
|
|
|
$
|
353.7
|
|
|
|
33
|
|
%
|
|
$
|
231,400
|
|
|
$
|
232,900
|
|
|
|
(1
|
)
|
%
|
Midwest
|
|
|
1,045
|
|
|
|
1,198
|
|
|
|
(13
|
)
|
%
|
|
|
296.0
|
|
|
|
323.5
|
|
|
|
(9
|
)
|
%
|
|
|
283,300
|
|
|
|
270,000
|
|
|
|
5
|
|
%
|
Southeast
|
|
|
3,892
|
|
|
|
3,107
|
|
|
|
25
|
|
%
|
|
|
728.7
|
|
|
|
560.8
|
|
|
|
30
|
|
%
|
|
|
187,200
|
|
|
|
180,500
|
|
|
|
4
|
|
%
|
South Central
|
|
|
7,375
|
|
|
|
6,172
|
|
|
|
19
|
|
%
|
|
|
1,273.4
|
|
|
|
1,060.6
|
|
|
|
20
|
|
%
|
|
|
172,700
|
|
|
|
171,800
|
|
|
|
1
|
|
%
|
Southwest
|
|
|
1,785
|
|
|
|
1,751
|
|
|
|
2
|
|
%
|
|
|
315.3
|
|
|
|
300.2
|
|
|
|
5
|
|
%
|
|
|
176,600
|
|
|
|
171,400
|
|
|
|
3
|
|
%
|
West
|
|
|
3,251
|
|
|
|
3,287
|
|
|
|
(1
|
)
|
%
|
|
|
928.6
|
|
|
|
899.6
|
|
|
|
3
|
|
%
|
|
|
285,600
|
|
|
|
273,700
|
|
|
|
4
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,375
|
|
|
|
17,034
|
|
|
|
14
|
|
%
|
|
$
|
4,011.0
|
|
|
$
|
3,498.4
|
|
|
|
15
|
|
%
|
|
$
|
207,000
|
|
|
$
|
205,400
|
|
|
|
1
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Order Cancellations
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
Sales Orders
|
|
|
Value (In millions)
|
|
|
Cancellation Rate (2)
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
East
|
|
|
581
|
|
|
|
478
|
|
|
$
|
127.2
|
|
|
$
|
113.0
|
|
|
|
22
|
%
|
|
|
24
|
%
|
Midwest
|
|
|
250
|
|
|
|
240
|
|
|
|
68.7
|
|
|
|
64.8
|
|
|
|
19
|
%
|
|
|
17
|
%
|
Southeast
|
|
|
1,409
|
|
|
|
1,321
|
|
|
|
250.0
|
|
|
|
244.5
|
|
|
|
27
|
%
|
|
|
30
|
%
|
South Central
|
|
|
3,076
|
|
|
|
3,029
|
|
|
|
514.1
|
|
|
|
509.0
|
|
|
|
29
|
%
|
|
|
33
|
%
|
Southwest
|
|
|
677
|
|
|
|
913
|
|
|
|
115.1
|
|
|
|
167.2
|
|
|
|
27
|
%
|
|
|
34
|
%
|
West
|
|
|
789
|
|
|
|
1,207
|
|
|
|
227.3
|
|
|
|
357.3
|
|
|
|
20
|
%
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,782
|
|
|
|
7,188
|
|
|
$
|
1,302.4
|
|
|
$
|
1,455.8
|
|
|
|
26
|
%
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Net sales orders represent the
number and dollar value of new sales contracts executed with
customers (gross sales orders), net of cancelled sales orders.
|
|
(2)
|
|
Cancellation rate represents the
number of cancelled sales orders divided by gross sales orders.
|
26
Net
Sales Orders
The value of net sales orders increased 15%, to
$4,011.0 million (19,375 homes) in 2010 from
$3,498.4 million (17,034 homes) in 2009. The number of net
sales orders increased 14% in fiscal 2010 compared to fiscal
2009. These results were impacted by increased levels of
affordability resulting from lower home sales prices, recent
declines in the number of new homes available for sale, a low
mortgage interest rate environment, and the federal
governments monetary and fiscal policies and programs,
including the federal homebuyer tax credit, which accelerated
sales demand during the first half of the year. Although these
results reflect improvement over the prior year and suggest the
severe declines in our net sales orders experienced in recent
years may be moderating, the significant decline in demand
subsequent to the expiration of the federal tax credit indicates
that market conditions are weak and the timing of a sustainable
housing recovery remains uncertain.
In comparing fiscal 2010 to fiscal 2009, the value of net sales
orders increased in most of our market regions, with the largest
percentage increases occurring in our East, Southeast and South
Central regions resulting from new communities in the Carolinas,
Florida and Texas, as well as lower cancellation rates achieved
in these regions. Conversely, our Midwest region experienced a
13% decline in net sales orders, due to continued weak demand in
our Chicago market. Fluctuations in the value of net sales
orders were primarily due to the change in the number of homes
sold in each respective region, and to a much lesser extent,
small fluctuations in the average selling price of those homes.
Our sales volumes in the future will depend on the strength of
the overall economy, employment levels and our ability to
successfully implement our operating strategies in each of our
markets.
The average price of our net sales orders in 2010 was $207,000,
an increase of 1% from the $205,400 average in 2009. We will
continue our efforts to offer affordable product offerings to
our target customer base and will seek to adjust our product
mix, geographic mix and pricing within our homebuilding markets
to meet market conditions.
Our annual sales order cancellation rate (cancelled sales orders
divided by gross sales orders for the period) was 26% in fiscal
2010, compared to 30% in fiscal 2009. This cancellation rate
continues to be above historical levels. Our ability to reduce
it to historical levels depends largely on the strength of the
overall economy and our ability to successfully implement our
operating strategies in each of our markets. We anticipate that
cancellation rates will continue to fluctuate significantly
until there is sustained stability in market conditions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Order Backlog
|
|
|
|
|
As of September 30,
|
|
|
|
|
Homes in Backlog
|
|
|
|
Value (In millions)
|
|
|
|
Average Selling Price
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
East
|
|
|
472
|
|
|
|
559
|
|
|
|
(16
|
)
|
%
|
|
$
|
103.4
|
|
|
$
|
126.6
|
|
|
|
(18
|
)
|
%
|
|
$
|
219,100
|
|
|
$
|
226,500
|
|
|
|
(3
|
)
|
%
|
Midwest
|
|
|
247
|
|
|
|
389
|
|
|
|
(37
|
)
|
%
|
|
|
70.1
|
|
|
|
105.0
|
|
|
|
(33
|
)
|
%
|
|
|
283,800
|
|
|
|
269,900
|
|
|
|
5
|
|
%
|
Southeast
|
|
|
812
|
|
|
|
969
|
|
|
|
(16
|
)
|
%
|
|
|
162.5
|
|
|
|
179.0
|
|
|
|
(9
|
)
|
%
|
|
|
200,100
|
|
|
|
184,700
|
|
|
|
8
|
|
%
|
South Central
|
|
|
1,691
|
|
|
|
2,362
|
|
|
|
(28
|
)
|
%
|
|
|
297.3
|
|
|
|
402.6
|
|
|
|
(26
|
)
|
%
|
|
|
175,800
|
|
|
|
170,400
|
|
|
|
3
|
|
%
|
Southwest
|
|
|
405
|
|
|
|
492
|
|
|
|
(18
|
)
|
%
|
|
|
71.9
|
|
|
|
86.3
|
|
|
|
(17
|
)
|
%
|
|
|
177,500
|
|
|
|
175,400
|
|
|
|
1
|
|
%
|
West
|
|
|
501
|
|
|
|
857
|
|
|
|
(42
|
)
|
%
|
|
|
145.6
|
|
|
|
242.5
|
|
|
|
(40
|
)
|
%
|
|
|
290,600
|
|
|
|
283,000
|
|
|
|
3
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,128
|
|
|
|
5,628
|
|
|
|
(27
|
)
|
%
|
|
$
|
850.8
|
|
|
$
|
1,142.0
|
|
|
|
(25
|
)
|
%
|
|
$
|
206,100
|
|
|
$
|
202,900
|
|
|
|
2
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Sales
Order Backlog
Sales order backlog represents homes under contract but not yet
closed at the end of the period. Many of the contracts in our
sales order backlog are subject to contingencies, including
mortgage loan approval and buyers selling their existing homes,
which can result in cancellations. A portion of the contracts in
backlog will not result in closings due to cancellations, which
during the recent housing downturn have been substantial.
Our homes in backlog at September 30, 2010 declined 27%
from the prior year as a result of closing homes at a greater
rate than our sales pace during the latter half of the year and
the effects of the federal homebuyer tax credit that was in
effect at September 30, 2009. Given our lower level of
backlog at the beginning of fiscal 2011 as compared to the level
at the beginning of fiscal 2010, we expect that our 2011 first
quarter closings and revenues will be lower than in the prior
year. Additionally, should the sales trends of the second half
of fiscal 2010 continue into the first half of fiscal 2011, our
full year closings and revenues will likely be lower in 2011
than 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes Closed and Home Sales
Revenue
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
|
Homes Closed
|
|
|
|
Value (In millions)
|
|
|
|
Average Selling Price
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
East
|
|
|
2,114
|
|
|
|
1,447
|
|
|
|
46
|
|
%
|
|
$
|
492.2
|
|
|
$
|
345.3
|
|
|
|
43
|
|
%
|
|
$
|
232,800
|
|
|
$
|
238,600
|
|
|
|
(2
|
)
|
%
|
Midwest
|
|
|
1,187
|
|
|
|
1,137
|
|
|
|
4
|
|
%
|
|
|
330.9
|
|
|
|
310.0
|
|
|
|
7
|
|
%
|
|
|
278,800
|
|
|
|
272,600
|
|
|
|
2
|
|
%
|
Southeast
|
|
|
4,049
|
|
|
|
2,921
|
|
|
|
39
|
|
%
|
|
|
745.2
|
|
|
|
547.5
|
|
|
|
36
|
|
%
|
|
|
184,000
|
|
|
|
187,400
|
|
|
|
(2
|
)
|
%
|
South Central
|
|
|
8,046
|
|
|
|
5,835
|
|
|
|
38
|
|
%
|
|
|
1,378.8
|
|
|
|
1,022.1
|
|
|
|
35
|
|
%
|
|
|
171,400
|
|
|
|
175,200
|
|
|
|
(2
|
)
|
%
|
Southwest
|
|
|
1,872
|
|
|
|
2,045
|
|
|
|
(8
|
)
|
%
|
|
|
329.7
|
|
|
|
379.8
|
|
|
|
(13
|
)
|
%
|
|
|
176,100
|
|
|
|
185,700
|
|
|
|
(5
|
)
|
%
|
West
|
|
|
3,607
|
|
|
|
3,318
|
|
|
|
9
|
|
%
|
|
|
1,025.5
|
|
|
|
958.9
|
|
|
|
7
|
|
%
|
|
|
284,300
|
|
|
|
289,000
|
|
|
|
(2
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,875
|
|
|
|
16,703
|
|
|
|
25
|
|
%
|
|
$
|
4,302.3
|
|
|
$
|
3,563.6
|
|
|
|
21
|
|
%
|
|
$
|
206,100
|
|
|
$
|
213,400
|
|
|
|
(3
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
Sales Revenue
Revenues from home sales increased 21%, to $4,302.3 million
(20,875 homes closed) in 2010 from $3,563.6 million (16,703
homes closed) in 2009. The average selling price of homes closed
during 2010 was $206,100, down 3% from the $213,400 average in
2009. During fiscal 2010, home sales revenues increased in most
of our market regions, with significant increases in our East,
Southeast and South Central markets. These increases resulted
from increases in the number of homes closed.
The number of homes closed in 2010 increased 25% due to
increases in five of our six market regions. The increase in
home closings reflects the impact of the first-time
homebuyers federal tax credit, which initially required
buyers to close on their home purchase transaction by
June 30, 2010. We believe this helped stimulate demand for
homes that could close during the first nine months of fiscal
2010. We also believe that our operating strategy of selectively
starting construction on unsold homes, which made additional
housing inventory available to close by June 30, 2010, led
to increased home closings volume by better capturing this
demand. The Southwest region had an 8% decrease in homes closed
due to both weak demand in the Phoenix market and our prior year
efforts to reduce completed home inventories in that market. As
conditions change in the housing markets in which we operate,
our ongoing level of net sales orders will determine the number
of home closings and amount of revenue we will generate.
28
Homebuilding
Operating Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentages of Related Revenues
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
Gross profit Home sales
|
|
|
17.3
|
|
%
|
|
|
13.1
|
|
%
|
Gross profit Land/lot sales
|
|
|
37.8
|
|
%
|
|
|
13.4
|
|
%
|
Effect of inventory impairments and land option cost write-offs
on
total homebuilding gross profit
|
|
|
(1.5
|
)
|
%
|
|
|
(11.3
|
)
|
%
|
Gross profit Total homebuilding
|
|
|
15.8
|
|
%
|
|
|
1.8
|
|
%
|
Selling, general and administrative expense
|
|
|
12.1
|
|
%
|
|
|
14.5
|
|
%
|
Interest expense
|
|
|
2.0
|
|
%
|
|
|
2.8
|
|
%
|
Loss (gain) on early retirement of debt, net
|
|
|
0.1
|
|
%
|
|
|
(0.1
|
)
|
%
|
Other (income)
|
|
|
(0.2
|
)
|
%
|
|
|
(0.4
|
)
|
%
|
Income (loss) before income taxes
|
|
|
1.8
|
|
%
|
|
|
(15.0
|
)
|
%
|
Home
Sales Gross Profit
Gross profit from home sales increased by 59%, to
$744.0 million in 2010, from $467.5 million in 2009,
and, as a percentage of home sales revenues, increased
420 basis points, to 17.3%. Approximately 350 basis
points of the increase in the home sales gross profit percentage
was a result of the average cost of our homes declining by more
than our average selling prices, caused largely by a reduction
in our construction costs on homes closed during the current
year. The reduction in construction costs primarily results from
changes in product design, as well as cost reductions obtained
from our suppliers and
sub-contractors
in prior periods. In addition, the increase in home sales gross
profit is partially due to our efforts beginning in fiscal 2009
to acquire lot positions in new communities and construct and
close houses from these new projects. Homes closed on these
recently acquired finished lots yielded higher gross profits
than those on land and lots acquired in prior years.
Approximately 70 basis points of the increase was due to a
decrease in the amortization of capitalized interest and
property taxes as a percentage of homes sales revenues,
resulting from reductions in our interest and property taxes
incurred over the past year, as well as more closings occurring
on acquired finished lots, rather than internally developed lots.
Future changes in gross profit percentages are impacted by the
use of sales incentives and price adjustments to generate an
adequate volume of home closings. We expect our gross profit
percentage to decline in the first half of fiscal 2011 due to
current weak housing market conditions.
Land
Sales Revenue
Land sales revenues decreased 82% to $7.4 million in 2010,
from $40.3 million in 2009. Of the $40.3 million of
revenues in fiscal 2009, $26.9 million related to land sale
transactions in the fourth quarter of fiscal 2008 for which
recognition of the revenue had been deferred due to the terms of
the sale. Fluctuations in revenues from land sales are a
function of how we manage our inventory levels in various
markets. We generally purchase land and lots with the intent to
build and sell homes on them; however, we occasionally purchase
land that includes commercially zoned parcels which we typically
sell to commercial developers, and we also sell residential lots
or land parcels to manage our land and lot supply. Land and lot
sales occur at unpredictable intervals and varying degrees of
profitability. Therefore, the revenues and gross profit from
land sales fluctuate from period to period. As of
September 30, 2010, we had $3.3 million of land held
for sale that we expect to sell in the next twelve months.
29
Inventory
Impairments and Land Option Cost Write-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Land Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
|
|
Land Option
|
|
|
|
|
|
|
Inventory
|
|
|
Write-Offs
|
|
|
|
|
|
Inventory
|
|
|
Cost
|
|
|
|
|
|
|
Impairments
|
|
|
(Recoveries)
|
|
|
Total
|
|
|
Impairments
|
|
|
Write-Offs
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
East
|
|
$
|
9.0
|
|
|
$
|
(0.4
|
)
|
|
$
|
8.6
|
|
|
$
|
54.3
|
|
|
$
|
10.6
|
|
|
$
|
64.9
|
|
Midwest
|
|
|
21.9
|
|
|
|
0.1
|
|
|
|
22.0
|
|
|
|
46.3
|
|
|
|
8.4
|
|
|
|
54.7
|
|
Southeast
|
|
|
17.0
|
|
|
|
0.5
|
|
|
|
17.5
|
|
|
|
36.7
|
|
|
|
1.3
|
|
|
|
38.0
|
|
South Central
|
|
|
13.3
|
|
|
|
0.7
|
|
|
|
14.0
|
|
|
|
17.0
|
|
|
|
3.0
|
|
|
|
20.0
|
|
Southwest
|
|
|
0.6
|
|
|
|
|
|
|
|
0.6
|
|
|
|
36.5
|
|
|
|
2.9
|
|
|
|
39.4
|
|
West
|
|
|
0.5
|
|
|
|
1.5
|
|
|
|
2.0
|
|
|
|
187.0
|
|
|
|
3.7
|
|
|
|
190.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62.3
|
|
|
$
|
2.4
|
|
|
$
|
64.7
|
|
|
$
|
377.8
|
|
|
$
|
29.9
|
|
|
$
|
407.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Values of Potentially Impaired and Impaired
Communities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of Communities with Impairment Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded at September 30, 2010
|
|
|
|
|
|
|
Inventory with
|
|
|
|
|
|
Inventory
|
|
|
|
|
|
|
Total
|
|
|
Impairment Indicators
|
|
|
|
|
|
Carrying Value
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Carrying
|
|
|
Number of
|
|
|
Prior to
|
|
|
|
|
|
|
Communities (1)
|
|
|
Communities (1)
|
|
|
Value
|
|
|
Communities (1)
|
|
|
Impairment
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
(Values in millions)
|
|
|
|
|
|
|
|
|
East
|
|
|
181
|
|
|
|
7
|
|
|
$
|
69.9
|
|
|
|
1
|
|
|
$
|
4.4
|
|
|
$
|
2.8
|
|
Midwest
|
|
|
60
|
|
|
|
13
|
|
|
|
94.1
|
|
|
|
3
|
|
|
|
11.3
|
|
|
|
6.4
|
|
Southeast
|
|
|
308
|
|
|
|
12
|
|
|
|
42.7
|
|
|
|
2
|
|
|
|
11.8
|
|
|
|
2.8
|
|
South Central
|
|
|
324
|
|
|
|
19
|
|
|
|
64.1
|
|
|
|
6
|
|
|
|
31.0
|
|
|
|
18.0
|
|
Southwest
|
|
|
89
|
|
|
|
8
|
|
|
|
36.5
|
|
|
|
1
|
|
|
|
1.2
|
|
|
|
0.9
|
|
West
|
|
|
181
|
|
|
|
13
|
|
|
|
102.5
|
|
|
|
1
|
|
|
|
3.4
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,143
|
|
|
|
72
|
|
|
$
|
409.8
|
|
|
|
14
|
|
|
$
|
63.1
|
|
|
$
|
34.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Values of Potentially Impaired and Impaired
Communities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of Communities with Impairment Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded at September 30, 2009
|
|
|
|
|
|
|
Inventory with
|
|
|
|
|
|
Inventory
|
|
|
|
|
|
|
Total
|
|
|
Impairment Indicators
|
|
|
|
|
|
Carrying Value
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Carrying
|
|
|
Number of
|
|
|
Prior to
|
|
|
|
|
|
|
Communities (1)
|
|
|
Communities (1)
|
|
|
Value
|
|
|
Communities (1)
|
|
|
Impairment
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
(Values in millions)
|
|
|
|
|
|
|
|
|
East
|
|
|
129
|
|
|
|
17
|
|
|
$
|
157.8
|
|
|
|
4
|
|
|
$
|
85.1
|
|
|
$
|
45.9
|
|
Midwest
|
|
|
50
|
|
|
|
19
|
|
|
|
143.0
|
|
|
|
7
|
|
|
|
47.8
|
|
|
|
32.8
|
|
Southeast
|
|
|
205
|
|
|
|
27
|
|
|
|
97.5
|
|
|
|
15
|
|
|
|
40.9
|
|
|
|
29.8
|
|
South Central
|
|
|
288
|
|
|
|
34
|
|
|
|
110.8
|
|
|
|
4
|
|
|
|
17.7
|
|
|
|
14.2
|
|
Southwest
|
|
|
75
|
|
|
|
18
|
|
|
|
99.7
|
|
|
|
8
|
|
|
|
53.0
|
|
|
|
36.2
|
|
West
|
|
|
152
|
|
|
|
46
|
|
|
|
354.3
|
|
|
|
20
|
|
|
|
176.8
|
|
|
|
87.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
899
|
|
|
|
161
|
|
|
$
|
963.1
|
|
|
|
58
|
|
|
$
|
421.3
|
|
|
$
|
246.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
A community may consist of land
held for development, residential land and lots developed and
under development, and construction in progress and finished
homes. A particular community often includes inventory in more
than one category. Further, a community may contain multiple
parcels with varying product types (e.g. entry level and
move-up
single family detached, as well as attached product types). Some
communities have no homes under construction, finished homes, or
current home sales efforts or activity.
|
30
Inventory
Impairments and Land Option Cost Write-offs
During fiscal 2010, when we performed our quarterly inventory
impairment analyses, the assumptions utilized reflected our
expectation of continued challenging conditions and
uncertainties in the homebuilding industry and in our markets.
As we continue to evaluate the strength of the economy (measured
largely in terms of job growth), the level of underlying demand
for new homes and our operating performance, the level of
impairments in future quarters will likely fluctuate and may
increase. Our impairment evaluation as of September 30,
2010 indicated communities with a combined carrying value of
$409.8 million had indicators of potential impairment, and
these communities were evaluated for impairment. The analysis of
the large majority of these communities assumed that sales
prices in future periods will be equal to or lower than current
sales order prices in each community, or in comparable
communities, in order to generate an acceptable absorption rate.
For a minority of communities that we do not intend to develop
or operate in current market conditions, slight increases over
current sales prices were assumed. While it is difficult to
determine a timeframe for a given community in the current
market conditions, we estimated the remaining lives of these
communities to range from six months to in excess of ten years.
In performing this analysis, we utilized a range of discount
rates for communities of 14% to 20%. Through this evaluation
process, we determined that communities with a carrying value of
$63.1 million as of September 30, 2010, were impaired.
As a result, during the fourth quarter of fiscal 2010, we
recorded impairment charges of $29.1 million to reduce the
carrying value of the impaired communities to their estimated
fair value, as compared to $174.9 million in the same
period of the prior year. The fourth quarter charges combined
with impairment charges recorded earlier in the year resulted in
total inventory impairment charges of $62.3 million and
$377.8 million during fiscal 2010 and 2009, respectively.
We perform our impairment analysis based on total inventory at
the community level. When an impairment charge for a community
is determined, the charge is then allocated to each lot in the
community in the same manner as land and development costs are
allocated to each lot. The inventory within each community is
categorized as construction in progress and finished homes,
residential land and lots developed and under development, and
land held for development, based on the stage of production or
plans for future development. During fiscal 2010, approximately
93% of the impairment charges were recorded to residential land
and lots and land held for development, and approximately 7% of
the charges were recorded to construction in progress and
finished homes inventory, compared to 85% and 15%, respectively,
in fiscal 2009.
Of the remaining $346.7 million carrying value of
communities with impairment indicators which were determined not
to be impaired at September 30, 2010, the largest
concentrations were in California (22%), Illinois (17%), Arizona
(10%), Texas (9%), Florida (9%) and New Jersey (8%). It is
possible that our estimate of undiscounted cash flows from these
communities may change and could result in a future need to
record impairment charges to adjust the carrying value of these
assets to their estimated fair value. There are several factors
which could lead to changes in the estimates of undiscounted
future cash flows for a given community. The most significant of
these include pricing and incentive levels actually realized by
the community, the rate at which the homes are sold and the
costs incurred to develop the lots and construct the homes. The
pricing and incentive levels are often inter-related with sales
pace within a community, such that a price reduction can be
expected to increase the sales pace. Further, both of these
factors are heavily influenced by the competitive pressures
facing a given community from both new homes and existing homes,
some of which may result from foreclosures. If conditions worsen
in the broader economy, homebuilding industry or specific
markets in which we operate, and as we re-evaluate specific
community pricing and incentives, construction and development
plans, and our overall land sale strategies, we may be required
to evaluate additional communities or re-evaluate previously
impaired communities for potential impairment. These evaluations
may result in additional impairment charges.
Based on our quarterly reviews of land and lot option contracts,
we have written off earnest money deposits and pre-acquisition
costs related to contracts for land or lots which are not
expected to be acquired. During fiscal 2010 and 2009, we wrote
off $2.4 million and $29.9 million, respectively, of
earnest money deposits and pre-acquisition costs related to land
option contracts. At September 30, 2010, outstanding
earnest money deposits and pre-acquisition costs associated with
our portfolio of land and lot option purchase contracts totaled
$13.3 million and $11.0 million, respectively.
31
The inventory impairment charges and write-offs of earnest money
deposits and pre-acquisition costs reduced total homebuilding
gross profit as a percentage of homebuilding revenues by
approximately 150 basis points in fiscal 2010, compared to
1,130 basis points in fiscal 2009.
Selling,
General and Administrative (SG&A) Expense
SG&A expense from homebuilding activities decreased
slightly to $522.0 million in 2010 from $523.0 million
in 2009. As a percentage of homebuilding revenues, SG&A
expense decreased 240 basis points, to 12.1% in 2010 from
14.5% in 2009. The largest component of our homebuilding
SG&A expense is employee compensation and related costs,
which represented 58% and 55% of SG&A costs in 2010 and
2009, respectively. These costs increased by 6%, to
$304.0 million in 2010 from $287.2 million in 2009.
Our homebuilding operations employed approximately 2,500 and
2,300 employees at September 30, 2010 and 2009,
respectively.
A portion of compensation expense relates to our long-term
incentive bonus program, which provides for the Compensation
Committee of our Board of Directors to award performance units
to our Chairman of the Board and our Chief Executive Officer.
The actual number of performance units earned is based upon our
level of achievement on defined performance metrics as compared
to our peer group. The earned award will have a value equal to
the number of earned units multiplied by the closing price of
our common stock at the end of the performance period and may be
paid in cash, equity or a combination of both. The Compensation
Committee has the discretion to reduce the final payout on the
performance units from the amount earned. Performance units were
granted in 2008 and 2009 with
33-month
performance periods ending on September 30, 2010 and 2011,
respectively. Our liability for these awards has been based on
our performance against the peer group, the elapsed portion of
the performance period and our stock price as of each reporting
date, and previously assumed no future reduction of the earned
value of the performance units by the Compensation Committee.
Because the values of the earned performance units are dependent
on our performance and our common stock price, and because the
final amount can be reduced at the discretion of the
Compensation Committee, this liability has been subject to a
high degree of volatility.
Subsequent to September 30, 2010, the Compensation
Committee exercised its discretion and reduced the amount earned
under the 2008 performance unit grant to $4.9 million and
expects to limit the amount which may be earned under the 2009
performance unit grant to approximately $4.1 million. The
liability related to the 2008 and 2009 performance unit grants
was $9.0 million and $11.3 million at
September 30, 2010 and September 30, 2009,
respectively. Compensation expense (benefit) related to these
grants were ($2.3) million and $7.7 million for fiscal
2010 and 2009, respectively.
We continually attempt to adjust our SG&A infrastructure to
support our expected closings volume; however, we cannot make
assurances that our actions will permit us to maintain or
improve upon the current SG&A expense as a percentage of
revenues. It has become more difficult to reduce SG&A
expense as the size of our operations has decreased. If revenues
decrease and we are unable to sufficiently adjust our SG&A,
future SG&A expense as a percentage of revenues will
increase.
Interest
Incurred
We capitalize homebuilding interest costs to inventory during
active development and construction. Due to the decrease in the
size of our operations, our inventory under active development
and construction has been lower than our debt level; therefore,
a portion of our interest incurred must be expensed. We expensed
$86.3 million of homebuilding interest during fiscal 2010,
compared to $100.2 million of interest during fiscal 2009.
Interest amortized to cost of sales, excluding interest written
off with inventory impairment charges, was 3.4% of total home
and land/lot cost of sales in 2010, compared to 3.9% in 2009.
Interest incurred is related to the average level of our
homebuilding debt outstanding during the period. Comparing
fiscal 2010 with fiscal 2009, interest incurred related to
homebuilding debt decreased 16% to $173.2 million,
primarily due to a 19% decrease in our average homebuilding debt.
32
Gain/Loss
on Early Retirement of Debt
We retired $822.2 million principal amount of our senior
and senior subordinated notes prior to their maturity during
fiscal 2010, compared to $380.3 million in fiscal 2009.
Related to the early retirement of these notes, we recognized a
net loss of $4.9 million in fiscal 2010 and a net gain of
$11.5 million in fiscal 2009, which represents the
difference between the principal amount of the notes and the
aggregate purchase price, less any unamortized discounts and
fees. The loss in fiscal 2010 includes a loss of
$2.0 million for the call premium related to the early
redemption of our 5.875% senior notes due 2013. The gain in
fiscal 2009 was partially offset by a $7.6 million loss
related to the early termination of our revolving credit
facility in May 2009.
Other
Income
Other income, net of other expenses, associated with
homebuilding activities was $9.2 million in 2010, compared
to $12.8 million in 2009. The largest component of other
income in both years was interest income.
Goodwill
In performing our annual goodwill impairment analysis, we
estimate the fair value of our operating segments utilizing the
present values of expected future cash flows. As a result of the
analysis performed as of September 30, 2010 and 2009, we
determined that the fair value of our operating segments was
greater than their carrying value and therefore, no impairment
of goodwill existed. As of September 30, 2010 and 2009, our
goodwill balance was $15.9 million, all of which related to
our South Central reporting segment. The goodwill assessment
procedures require management to make comprehensive estimates of
future revenues and costs. Due to the uncertainties associated
with such estimates, actual results could differ from these
estimates.
Homebuilding
Results by Reporting Region
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|
|
|
|
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|
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|
|
Fiscal Year Ended September 30,
|
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
|
|
|
|
Homebuilding
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
|
|
|
|
|
|
|
|
|
Income (Loss)
|
|
|
% of
|
|
|
|
|
|
|
Income (Loss)
|
|
|
% of
|
|
|
|
|
Homebuilding
|
|
|
Before
|
|
|
Region
|
|
|
|
Homebuilding
|
|
|
Before
|
|
|
Region
|
|
|
|
|
Revenues
|
|
|
Income Taxes (1)
|
|
|
Revenues
|
|
|
|
Revenues
|
|
|
Income Taxes (1)
|
|
|
Revenues
|
|
|
|
|
(In millions)
|
|
|
|
East
|
|
$
|
492.3
|
|
|
$
|
(6.3
|
)
|
|
|
(1.3
|
)
|
%
|
|
$
|
347.1
|
|
|
$
|
(95.9
|
)
|
|
|
(27.6
|
)
|
%
|
Midwest
|
|
|
331.0
|
|
|
|
(31.3
|
)
|
|
|
(9.5
|
)
|
%
|
|
|
314.5
|
|
|
|
(104.9
|
)
|
|
|
(33.4
|
)
|
%
|
Southeast
|
|
|
747.6
|
|
|
|
(7.5
|
)
|
|
|
(1.0
|
)
|
%
|
|
|
570.8
|
|
|
|
(73.2
|
)
|
|
|
(12.8
|
)
|
%
|
South Central
|
|
|
1,383.5
|
|
|
|
83.4
|
|
|
|
6.0
|
|
%
|
|
|
1,024.6
|
|
|
|
4.9
|
|
|
|
0.5
|
|
%
|
Southwest
|
|
|
329.7
|
|
|
|
12.0
|
|
|
|
3.6
|
|
%
|
|
|
382.4
|
|
|
|
(45.8
|
)
|
|
|
(12.0
|
)
|
%
|
West
|
|
|
1,025.6
|
|
|
|
27.8
|
|
|
|
2.7
|
|
%
|
|
|
964.5
|
|
|
|
(226.4
|
)
|
|
|
(23.5
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,309.7
|
|
|
$
|
78.1
|
|
|
|
1.8
|
|
%
|
|
$
|
3,603.9
|
|
|
$
|
(541.3
|
)
|
|
|
(15.0
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Expenses maintained at the
corporate level consist primarily of interest and property
taxes, which are capitalized and amortized to cost of sales or
expensed directly, and the expenses related to operating our
corporate office. The amortization of capitalized interest and
property taxes is allocated to each segment based on the
segments revenue, while the interest expensed directly and
those expenses associated with the corporate office are
allocated to each segment based on the segments average
inventory.
|
East Region Homebuilding revenues increased
42% in 2010 compared to 2009, primarily due to an increase in
the number of homes closed, with the largest increases occurring
in our New Jersey and Carolina markets. The region reported a
loss before income taxes of $6.3 million in 2010, compared
to a loss of $95.9 million in 2009. The results were due in
part to inventory impairment charges and earnest money and
pre-acquisition cost write-offs totaling $8.6 million and
$64.9 million in fiscal 2010 and 2009, respectively. The
regions gross profit from home sales as a percentage of
home sales revenue (home sales gross profit percentage)
increased 390 basis points in fiscal 2010 compared to
fiscal 2009. The increase was a result of a
33
reduction in the construction costs of our homes closed during
fiscal 2010. Also, a reduction in the regions SG&A
expenses as a percentage of homebuilding revenues contributed
420 basis points to the regions improvement in loss
before income taxes as a percentage of homebuilding revenues, as
the regions additional closing volume helped leverage
these SG&A expenses.
Midwest Region Homebuilding revenues
increased 5% in 2010 compared to 2009, primarily due to
increases in the number of homes closed in all of the
regions markets. The region reported a loss before income
taxes of $31.3 million in 2010, compared to a loss of
$104.9 million in 2009. The results were due in part to
inventory impairment charges and earnest money and
pre-acquisition cost write-offs totaling $22.0 million and
$54.7 million in fiscal 2010 and 2009, respectively. The
regions home sales gross profit percentage increased
920 basis points in fiscal 2010 compared to fiscal 2009.
The increase was a result of higher margins primarily in our
Chicago and Denver markets. The Denver market also benefitted
from lower warranty costs on previously closed homes. In fiscal
2010, a reduction in the regions SG&A expenses as a
percentage of homebuilding revenues contributed 280 basis
points to the regions improvement in loss before income
taxes as a percentage of homebuilding revenues. Although these
results reflect improvement over the prior year, we experienced
a significant decline in net sales orders in this region during
recent quarters. This decline was due to continued weak demand
in our Chicago market, and we expect conditions in this market
to remain challenging in the near-term. Substantially all of our
fiscal 2010 impairments for this region related to projects in
our Chicago market.
Southeast Region Homebuilding revenues
increased 31% in 2010 compared to 2009, primarily due to an
increase in the number of homes closed, with the largest
increases occurring in our central Florida and Atlanta markets.
The region reported a loss before income taxes of
$7.5 million in fiscal 2010 compared to a loss of
$73.2 million in fiscal 2009. The results were due in part
to inventory impairment charges and earnest money and
pre-acquisition cost write-offs totaling $17.5 million and
$38.0 million in fiscal 2010 and 2009, respectively. The
regions home sales gross profit percentage increased
460 basis points in fiscal 2010 compared to fiscal 2009.
The increase was a result of higher margins on homes closed in
the majority of the regions markets, led by our south and
central Florida markets. The increase in homes sales gross
profit percentage was a result of construction costs declining
at a faster rate than the decline in average selling price on
homes closed during fiscal 2010. Also contributing to the
increase in home sales gross profit are our efforts since the
beginning of fiscal 2009 to acquire lot positions in new
communities and construct and close houses from these new
projects. Homes closed on these recently acquired finished lots
are generally yielding higher gross profits than those on land
and lots acquired in prior years. In fiscal 2010, a reduction in
the regions SG&A expenses as a percentage of
homebuilding revenues contributed 250 basis points to the
regions improvement in income before income taxes as a
percentage of homebuilding revenues as the regions
additional closing volume helped leverage these SG&A
expenses.
South Central Region Homebuilding revenues
increased 35% in 2010 compared to 2009, primarily due to an
increase in the number of homes closed, with the largest
increases occurring in our Central Texas, Houston and
Dallas/Fort Worth markets. The region reported income
before income taxes of $83.4 million in fiscal 2010,
compared to income of $4.9 million in fiscal 2009. The
improvement was due in large part to the increase in revenue,
combined with the regions home sales gross profit
percentage increasing 290 basis points in fiscal 2010
compared to fiscal 2009 due to higher margins on homes closed in
the majority of the regions markets. These higher margins
were primarily attributable to reductions in construction costs
of our homes. Additionally, a decrease in inventory impairment
charges and earnest money and pre-acquisition cost write-offs,
which were $14.0 million in fiscal 2010 compared to
$20.0 million in fiscal 2009, contributed to the
regions increase in income before income taxes.
Southwest Region Homebuilding revenues
decreased 14% in 2010 compared to 2009, due to a decrease in the
number of homes closed and in the average selling price of those
homes. The decreases in revenues and homes closed were due to
continuing weakness in the Phoenix market. The region reported
income before income taxes of $12.0 million in 2010,
compared to a loss before income taxes of $45.8 million in
2009. The loss in 2009 was due in large part to inventory
impairment charges and earnest money and pre-acquisition cost
write-offs totaling $39.4 million. The regions home
sales gross profit percentage increased 330 basis points in
fiscal 2010 compared to fiscal 2009. The increase was a result
of the average cost of the regions homes
34
declining by more than the average selling prices, driven in
large part by reductions in home construction costs. In
addition, the increase in home sales gross profit is partially
due to our recent efforts to acquire lot positions in new
communities and construct and close houses from these projects.
In fiscal 2010, a reduction in the regions SG&A
expenses, both in absolute terms and as a percentage of
homebuilding revenues, also contributed to the improvement in
income before income taxes.
West Region Homebuilding revenues increased
6% in 2010 compared to 2009, due to an increase in the number of
homes closed, which was partially offset by a decrease in the
average selling price of those homes. The largest increases in
homes closed occurred in our Seattle and Southern California
markets. The region reported income before income taxes of
$27.8 million in 2010, compared to a loss before income
taxes of $226.4 million in 2009. The loss in 2009 was due
in large part to inventory impairment charges and earnest money
and pre-acquisition cost write-offs totaling
$190.7 million, compared to $2.0 million in 2010. The
regions home sales gross profit percentage increased
400 basis points in fiscal 2010 compared to fiscal 2009.
The increase was a result of higher margins on homes closed in
the majority of the regions markets, driven in large part
by reductions in home construction costs. In fiscal 2010, a
reduction in the regions SG&A expenses as a
percentage of homebuilding revenues contributed 260 basis
points to the regions improvement in income before income
taxes as a percentage of homebuilding revenues, as a result of
absolute reductions in SG&A expenses, as well as the
additional revenue providing more leverage against these costs.
Land and
Lot Position and Homes in Inventory
The following is a summary of our land and lot position and
homes in inventory at September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Lots
|
|
|
|
|
|
|
|
|
|
|
|
Lots
|
|
|
|
|
|
|
|
|
|
|
|
|
Controlled
|
|
|
|
|
|
|
|
|
|
|
|
Controlled
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Lot
|
|
|
Total
|
|
|
|
|
|
|
|
|
Under Lot
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Option and
|
|
|
Land/Lots
|
|
|
Homes
|
|
|
|
|
|
Option and
|
|
|
Land/Lots
|
|
|
Homes
|
|
|
|
Land/Lots
|
|
|
Similar
|
|
|
Owned and
|
|
|
in
|
|
|
Land/Lots
|
|
|
Similar
|
|
|
Owned and
|
|
|
in
|
|
|
|
Owned
|
|
|
Contracts (1)
|
|
|
Controlled
|
|
|
Inventory
|
|
|
Owned
|
|
|
Contracts (1)
|
|
|
Controlled
|
|
|
Inventory
|
|
|
East
|
|
|
10,600
|
|
|
|
4,900
|
|
|
|
15,500
|
|
|
|
1,300
|
|
|
|
10,800
|
|
|
|
2,200
|
|
|
|
13,000
|
|
|
|
1,400
|
|
Midwest
|
|
|
6,000
|
|
|
|
600
|
|
|
|
6,600
|
|
|
|
700
|
|
|
|
6,700
|
|
|
|
200
|
|
|
|
6,900
|
|
|
|
800
|
|
Southeast
|
|
|
24,000
|
|
|
|
11,300
|
|
|
|
35,300
|
|
|
|
1,900
|
|
|
|
21,000
|
|
|
|
5,200
|
|
|
|
26,200
|
|
|
|
2,200
|
|
South Central
|
|
|
21,300
|
|
|
|
9,300
|
|
|
|
30,600
|
|
|
|
3,100
|
|
|
|
22,600
|
|
|
|
8,900
|
|
|
|
31,500
|
|
|
|
4,500
|
|
Southwest
|
|
|
5,700
|
|
|
|
1,300
|
|
|
|
7,000
|
|
|
|
900
|
|
|
|
5,700
|
|
|
|
1,000
|
|
|
|
6,700
|
|
|
|
1,000
|
|
West
|
|
|
22,100
|
|
|
|
2,300
|
|
|
|
24,400
|
|
|
|
1,600
|
|
|
|
22,400
|
|
|
|
2,000
|
|
|
|
24,400
|
|
|
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,700
|
|
|
|
29,700
|
|
|
|
119,400
|
|
|
|
9,500
|
|
|
|
89,200
|
|
|
|
19,500
|
|
|
|
108,700
|
|
|
|
11,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75%
|
|
|
|
25%
|
|
|
|
100%
|
|
|
|
|
|
|
|
82%
|
|
|
|
18%
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Excludes approximately 7,300 and
7,000 lots at September 30, 2010 and 2009, respectively,
representing lots controlled under lot option contracts for
which we do not expect to exercise our option to purchase the
land or lots, and have reserved the deposits related to these
contracts but the underlying contract has not yet been
terminated.
|
At September 30, 2010, we owned or controlled approximately
119,400 lots, compared to approximately 108,700 lots at
September 30, 2009. Of the 119,400 total lots, we
controlled approximately 29,700 lots (25%), which have a total
remaining purchase price of approximately $963.9 million,
through land and lot option purchase contracts with a total of
$13.3 million in earnest money deposits. At
September 30, 2010, approximately 22,800 of our owned lots
were finished.
We had a total of approximately 9,500 homes in inventory,
including approximately 1,200 model homes at September 30,
2010, compared to approximately 11,600 homes in inventory,
including approximately 1,100 model homes at September 30,
2009. Of our total homes in inventory, approximately 5,200 and
5,800 were unsold at September 30, 2010 and 2009,
respectively. At September 30, 2010, approximately 3,200 of
our unsold homes were completed, of which approximately 800
homes had been completed for more than six
35
months. At September 30, 2009, approximately 2,200 of our
unsold homes were completed, of which approximately 800 homes
had been completed for more than six months.
Our current strategy is to take advantage of market
opportunities by entering into new lot option contracts to
purchase finished lots in selected communities to potentially
increase sales volumes and profitability. We will attempt to
renegotiate existing lot option contracts as necessary to reduce
our lot costs and better match the scheduled lot purchases with
new home demand in each community. We also manage our inventory
of homes under construction by selectively starting construction
on unsold homes to capture new home demand, while monitoring the
number and aging of unsold homes and aggressively marketing our
unsold, completed homes in inventory.
Fiscal
Year Ended September 30, 2009 Compared to Fiscal Year Ended
September 30, 2008
The following tables set forth key operating and financial data
for our homebuilding operations by reporting segment as of and
for the fiscal years ended September 30, 2009 and 2008. We
have restated the 2009 and 2008 amounts between reporting
segments to conform to the current year presentation, reflecting
the change in our reporting segments that occurred in fiscal
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales Orders (1)
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
|
Net Homes Sold
|
|
|
|
Value (In millions)
|
|
|
|
Average Selling Price
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
East
|
|
|
1,519
|
|
|
|
1,602
|
|
|
|
(5
|
)
|
%
|
|
$
|
353.7
|
|
|
$
|
396.3
|
|
|
|
(11
|
)
|
%
|
|
$
|
232,900
|
|
|
$
|
247,400
|
|
|
|
(6
|
)
|
%
|
Midwest
|
|
|
1,198
|
|
|
|
1,633
|
|
|
|
(27
|
)
|
%
|
|
|
323.5
|
|
|
|
425.3
|
|
|
|
(24
|
)
|
%
|
|
|
270,000
|
|
|
|
260,400
|
|
|
|
4
|
|
%
|
Southeast
|
|
|
3,107
|
|
|
|
3,235
|
|
|
|
(4
|
)
|
%
|
|
|
560.8
|
|
|
|
637.6
|
|
|
|
(12
|
)
|
%
|
|
|
180,500
|
|
|
|
197,100
|
|
|
|
(8
|
)
|
%
|
South Central
|
|
|
6,172
|
|
|
|
7,357
|
|
|
|
(16
|
)
|
%
|
|
|
1,060.6
|
|
|
|
1,308.8
|
|
|
|
(19
|
)
|
%
|
|
|
171,800
|
|
|
|
177,900
|
|
|
|
(3
|
)
|
%
|
Southwest
|
|
|
1,751
|
|
|
|
2,891
|
|
|
|
(39
|
)
|
%
|
|
|
300.2
|
|
|
|
536.1
|
|
|
|
(44
|
)
|
%
|
|
|
171,400
|
|
|
|
185,400
|
|
|
|
(8
|
)
|
%
|
West
|
|
|
3,287
|
|
|
|
4,533
|
|
|
|
(27
|
)
|
%
|
|
|
899.6
|
|
|
|
1,373.1
|
|
|
|
(34
|
)
|
%
|
|
|
273,700
|
|
|
|
302,900
|
|
|
|
(10
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,034
|
|
|
|
21,251
|
|
|
|
(20
|
)
|
%
|
|
$
|
3,498.4
|
|
|
$
|
4,677.2
|
|
|
|
(25
|
)
|
%
|
|
$
|
205,400
|
|
|
$
|
220,100
|
|
|
|
(7
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Order Cancellations
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
Cancelled
|
|
|
|
|
|
Cancellation
|
|
|
|
Sales Orders
|
|
|
Value (In millions)
|
|
|
Rate (2)
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
East
|
|
|
478
|
|
|
|
1,138
|
|
|
$
|
113.0
|
|
|
$
|
269.6
|
|
|
|
24
|
%
|
|
|
42
|
%
|
Midwest
|
|
|
240
|
|
|
|
464
|
|
|
|
64.8
|
|
|
|
140.3
|
|
|
|
17
|
%
|
|
|
22
|
%
|
Southeast
|
|
|
1,321
|
|
|
|
2,069
|
|
|
|
244.5
|
|
|
|
469.0
|
|
|
|
30
|
%
|
|
|
39
|
%
|
South Central
|
|
|
3,029
|
|
|
|
4,443
|
|
|
|
509.0
|
|
|
|
763.0
|
|
|
|
33
|
%
|
|
|
38
|
%
|
Southwest
|
|
|
913
|
|
|
|
3,680
|
|
|
|
167.2
|
|
|
|
755.5
|
|
|
|
34
|
%
|
|
|
56
|
%
|
West
|
|
|
1,207
|
|
|
|
2,378
|
|
|
|
357.3
|
|
|
|
851.3
|
|
|
|
27
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,188
|
|
|
|
14,172
|
|
|
$
|
1,455.8
|
|
|
$
|
3,248.7
|
|
|
|
30
|
%
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Net sales orders represent the
number and dollar value of new sales contracts executed with
customers (gross sales orders), net of cancelled sales orders.
|
|
(2)
|
|
Cancellation rate represents the
number of cancelled sales orders divided by gross sales orders.
|
Net
Sales Orders
The value of net sales orders decreased 25%, to
$3,498.4 million (17,034 homes) in 2009 from
$4,677.2 million (21,251 homes) in 2008. The number of net
sales orders decreased 20% in fiscal 2009 compared to fiscal
2008. Factors that contributed to the slowing of demand for new
homes in most of our
36
markets included a high level of homes for sale, which included
foreclosed homes for sale; a decrease in the availability of
mortgage financing for many potential homebuyers; the continued
uncertainty in the financial markets and a decline in homebuyer
consumer confidence. However, these factors led to lower home
prices and improved affordability, which combined with various
homebuyer tax incentives and low mortgage interest rates, served
to partially offset some of the market softness.
In comparing fiscal 2009 to fiscal 2008, the value of net sales
orders decreased in all of our market regions. In most market
regions, these decreases were due to a decrease in the number of
homes sold in the respective regions, and to a lesser extent, to
a decline in the average selling price of those homes. In the
East and Southeast regions where decreases in the number of
homes sold were not as large as other regions, the decline in
average selling price was a greater contributor to the decrease
in the value of net sales orders.
The average price of our net sales orders decreased 7%, to
$205,400 in 2009 from $220,100 in 2008. The average price of our
net sales orders decreased in five of our six market regions,
due primarily to price reductions and increased incentives
implemented to attempt to achieve an appropriate sales
absorption pace. As the inventory of existing homes for sale,
which included a substantial number of foreclosed homes,
continued to be high, we adjusted our pricing to remain
competitive with comparable existing home sales prices. We also
adjusted our product mix, geographic mix and pricing within our
homebuilding markets in an effort to keep our core product
offerings affordable for our target customer base, typically
first-time and
move-up
homebuyers, which also contributed to the decrease in average
selling price.
Our annual sales order cancellation rate was 30% in fiscal 2009,
compared to 40% in fiscal 2008. While an improvement from the
prior year, this elevated cancellation rate reflects the
challenges in most of our homebuilding markets, including the
inability of many prospective homebuyers to sell their existing
homes, the erosion of buyer confidence and the tight credit
conditions in the mortgage markets.
In July 2008, the American Housing Rescue and Foreclosure
Prevention Act of 2008 was enacted into law. Among other
provisions, this law eliminated seller-funded down payment
assistance on FHA insured loans approved on or after
October 1, 2008. Of our total home closings in fiscal 2008,
approximately 25% were funded with mortgage loans whereby the
homebuyer used a seller-financed down payment assistance
program. While we sought other down payment assistance and
mortgage financing alternatives for our buyers, the elimination
of the seller-financed down payment assistance programs had a
negative impact on our sales and revenues in fiscal 2009
relative to fiscal 2008.
In February 2009, the American Recovery and Reinvestment Act of
2009 was enacted into law. This legislation included a federal
tax credit for qualified first-time homebuyers purchasing a
principal residence on or after January 1, 2009 and before
December 1, 2009. In November 2009, this credit was
expanded to be available to more homebuyers and extended until
June 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Order Backlog
|
|
|
|
|
As of September 30,
|
|
|
|
|
Homes in Backlog
|
|
|
|
Value (In millions)
|
|
|
|
Average Selling Price
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
East
|
|
|
559
|
|
|
|
487
|
|
|
|
15
|
|
%
|
|
$
|
126.6
|
|
|
$
|
118.2
|
|
|
|
7
|
|
%
|
|
$
|
226,500
|
|
|
$
|
242,700
|
|
|
|
(7
|
)
|
%
|
Midwest
|
|
|
389
|
|
|
|
328
|
|
|
|
19
|
|
%
|
|
|
105.0
|
|
|
|
91.6
|
|
|
|
15
|
|
%
|
|
|
269,900
|
|
|
|
279,300
|
|
|
|
(3
|
)
|
%
|
Southeast
|
|
|
969
|
|
|
|
783
|
|
|
|
24
|
|
%
|
|
|
179.0
|
|
|
|
165.7
|
|
|
|
8
|
|
%
|
|
|
184,700
|
|
|
|
211,600
|
|
|
|
(13
|
)
|
%
|
South Central
|
|
|
2,362
|
|
|
|
2,025
|
|
|
|
17
|
|
%
|
|
|
402.6
|
|
|
|
364.0
|
|
|
|
11
|
|
%
|
|
|
170,400
|
|
|
|
179,800
|
|
|
|
(5
|
)
|
%
|
Southwest
|
|
|
492
|
|
|
|
786
|
|
|
|
(37
|
)
|
%
|
|
|
86.3
|
|
|
|
166.0
|
|
|
|
(48
|
)
|
%
|
|
|
175,400
|
|
|
|
211,200
|
|
|
|
(17
|
)
|
%
|
West
|
|
|
857
|
|
|
|
888
|
|
|
|
(3
|
)
|
%
|
|
|
242.5
|
|
|
|
301.9
|
|
|
|
(20
|
)
|
%
|
|
|
283,000
|
|
|
|
340,000
|
|
|
|
(17
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,628
|
|
|
|
5,297
|
|
|
|
6
|
|
%
|
|
$
|
1,142.0
|
|
|
$
|
1,207.4
|
|
|
|
(5
|
)
|
%
|
|
$
|
202,900
|
|
|
$
|
227,900
|
|
|
|
(11
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
Order Backlog
At September 30, 2009, the value of our backlog of sales
orders was $1,142.0 million (5,628 homes), a decrease of 5%
from $1,207.4 million (5,297 homes) at September 30,
2008. The average sales price of homes
37
in backlog was $202,900 at September 30, 2009, down 11%
from the $227,900 average at September 30, 2008. The
year-over-year
increase in home sales activity in the fourth quarter
contributed to modest increases in the value of our sales order
backlog in four of our six market regions. However, the value of
our backlog decreased significantly in our Southwest region,
particularly in our Phoenix market, and in our West region,
particularly in our Northern California market.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes Closed and Home Sales
Revenue
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
|
Homes Closed
|
|
|
|
Value (In millions)
|
|
|
Average Selling Price
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
East
|
|
|
1,447
|
|
|
|
2,309
|
|
|
|
(37
|
)
|
%
|
|
$
|
345.3
|
|
|
$
|
584.8
|
|
|
|
(41
|
)%
|
|
$
|
238,600
|
|
|
$
|
253,300
|
|
|
|
(6
|
)
|
%
|
Midwest
|
|
|
1,137
|
|
|
|
1,905
|
|
|
|
(40
|
)
|
%
|
|
|
310.0
|
|
|
|
525.8
|
|
|
|
(41
|
)%
|
|
|
272,600
|
|
|
|
276,000
|
|
|
|
(1
|
)
|
%
|
Southeast
|
|
|
2,921
|
|
|
|
3,650
|
|
|
|
(20
|
)
|
%
|
|
|
547.5
|
|
|
|
781.6
|
|
|
|
(30
|
)%
|
|
|
187,400
|
|
|
|
214,100
|
|
|
|
(12
|
)
|
%
|
South Central
|
|
|
5,835
|
|
|
|
8,061
|
|
|
|
(28
|
)
|
%
|
|
|
1,022.1
|
|
|
|
1,447.6
|
|
|
|
(29
|
)%
|
|
|
175,200
|
|
|
|
179,600
|
|
|
|
(2
|
)
|
%
|
Southwest
|
|
|
2,045
|
|
|
|
5,208
|
|
|
|
(61
|
)
|
%
|
|
|
379.8
|
|
|
|
1,049.0
|
|
|
|
(64
|
)%
|
|
|
185,700
|
|
|
|
201,400
|
|
|
|
(8
|
)
|
%
|
West
|
|
|
3,318
|
|
|
|
5,263
|
|
|
|
(37
|
)
|
%
|
|
|
958.9
|
|
|
|
1,775.5
|
|
|
|
(46
|
)%
|
|
|
289,000
|
|
|
|
337,400
|
|
|
|
(14
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,703
|
|
|
|
26,396
|
|
|
|
(37
|
)
|
%
|
|
$
|
3,563.6
|
|
|
$
|
6,164.3
|
|
|
|
(42
|
)%
|
|
$
|
213,400
|
|
|
$
|
233,500
|
|
|
|
(9
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
Sales Revenue
Revenues from home sales decreased 42%, to $3,563.6 million
(16,703 homes closed) in 2009 from $6,164.3 million (26,396
homes closed) in 2008. The average selling price of homes closed
during 2009 was $213,400, down 9% from the $233,500 average in
2008. In fiscal 2009, home sales revenues decreased
significantly in all of our market regions, reflecting the
continued weak demand and resulting decline in net sales order
volume and pricing experienced during the year. The number of
homes closed in 2009 decreased 37% due to decreases in all of
our market regions.
Revenues from home sales in fiscal 2009 and 2008 were increased
by $3.1 million and $26.8 million, respectively, from
changes in deferred profit. As of September 30, 2009, the
balance of deferred profit was $2.7 million, compared to
$5.8 million at September 30, 2008.
Homebuilding
Operating Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentages of
|
|
|
Related Revenues
|
|
|
Fiscal Year Ended September 30,
|
|
|
2009
|
|
2008
|
|
Gross profit Home sales
|
|
|
13.1
|
|
%
|
|
|
11.2
|
|
%
|
Gross profit Land/lot sales
|
|
|
13.4
|
|
%
|
|
|
8.5
|
|
%
|
Effect of inventory impairments and land option cost write-offs
on total homebuilding gross profit
|
|
|
(11.3
|
)
|
%
|
|
|
(38.1
|
)
|
%
|
Gross profit (loss) Total homebuilding
|
|
|
1.8
|
|
%
|
|
|
(27.0
|
)
|
%
|
Selling, general and administrative expense
|
|
|
14.5
|
|
%
|
|
|
12.1
|
|
%
|
Goodwill impairment
|
|
|
|
|
%
|
|
|
1.2
|
|
%
|
Interest expense
|
|
|
2.8
|
|
%
|
|
|
0.6
|
|
%
|
(Gain) on early retirement of debt
|
|
|
(0.1
|
)
|
%
|
|
|
|
|
%
|
Other (income)
|
|
|
(0.4
|
)
|
%
|
|
|
(0.1
|
)
|
%
|
Loss before income taxes
|
|
|
(15.0
|
)
|
%
|
|
|
(40.9
|
)
|
%
|
38
Home
Sales Gross Profit
Gross profit from home sales decreased by 32%, to
$467.5 million in 2009, from $691.2 million in 2008,
and, as a percentage of home sales revenues, increased
190 basis points, to 13.1%. Approximately 230 basis
points of the increase in the home sales gross profit percentage
was a result of the average cost of our homes declining by more
than our average selling prices, caused by a greater portion of
our closings occurring in our South Central region, which had
experienced more stable housing conditions than our other
regions, and the effects of prior inventory impairments on homes
closed during fiscal 2009. Approximately 50 basis points of
the increase was due to a decrease in the amortization of
capitalized interest and property taxes as a percentage of homes
sales revenues resulting from reductions in our interest and
property taxes incurred over fiscal 2009. These increases were
partially offset by a decrease of 30 basis points due to
the recognition of a lesser amount of previously deferred gross
profit during fiscal 2009 compared to fiscal 2008 and by
60 basis points due to an increase in actual and estimated
warranty and construction defect costs. The increase in
estimated warranty costs was due in part to a fiscal 2009
adjustment to our estimated warranty liability related to
estimated costs to remedy homes which we had found to or
suspected might contain allegedly defective drywall manufactured
in China (Chinese Drywall) in two of our markets. Also, we
experienced increases in our construction defect claims
self-insured retentions, resulting in additional reserves for
estimated claims.
Land
Sales Revenue
Land sales revenues decreased 89% to $40.3 million in 2009,
from $354.3 million in 2008. Of the $40.3 million of
revenues in fiscal 2009, $26.9 million related to land sale
transactions in the fourth quarter of fiscal 2008 for which
recognition of the revenue had been deferred due to the terms of
the sale. During the fourth quarter of fiscal 2008, we sold a
significant amount of land and lots through numerous
transactions to generate cash flows, reduce our future carrying
costs and land development obligations, and lower our inventory
supply in certain markets. Consummating these transactions
during fiscal 2008 allowed us to monetize a large portion of our
deferred tax assets through a loss carryback to fiscal 2006
resulting in a substantial tax refund.
39
Inventory
Impairments and Land Option Cost Write-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Option
|
|
|
|
|
|
|
|
|
|
Land Option
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
Inventory
|
|
|
Cost
|
|
|
|
|
|
|
Inventory
|
|
|
Write-Offs
|
|
|
|
|
|
|
Impairments
|
|
|
Write-Offs
|
|
|
Total
|
|
|
|
Impairments
|
|
|
(Recoveries)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
East
|
|
$
|
54.3
|
|
|
$
|
10.6
|
|
|
$
|
64.9
|
|
|
|
$
|
256.2
|
|
|
$
|
32.2
|
|
|
$
|
288.4
|
|
Midwest
|
|
|
46.3
|
|
|
|
8.4
|
|
|
|
54.7
|
|
|
|
|
161.8
|
|
|
|
1.5
|
|
|
|
163.3
|
|
Southeast
|
|
|
36.7
|
|
|
|
1.3
|
|
|
|
38.0
|
|
|
|
|
448.4
|
|
|
|
9.1
|
|
|
|
457.5
|
|
South Central
|
|
|
17.0
|
|
|
|
3.0
|
|
|
|
20.0
|
|
|
|
|
67.2
|
|
|
|
5.2
|
|
|
|
72.4
|
|
Southwest
|
|
|
36.5
|
|
|
|
2.9
|
|
|
|
39.4
|
|
|
|
|
264.9
|
|
|
|
65.8
|
|
|
|
330.7
|
|
West
|
|
|
187.0
|
|
|
|
3.7
|
|
|
|
190.7
|
|
|
|
|
1,174.1
|
|
|
|
(1.9
|
)
|
|
|
1,172.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
377.8
|
|
|
$
|
29.9
|
|
|
$
|
407.7
|
|
|
|
$
|
2,372.6
|
|
|
$
|
111.9
|
|
|
$
|
2,484.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Values of Potentially Impaired and Impaired
Communities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of Communities with Impairment Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded at September 30, 2009
|
|
|
|
|
|
|
Inventory with
|
|
|
|
|
|
Inventory
|
|
|
|
|
|
|
Total
|
|
|
Impairment Indicators
|
|
|
|
|
|
Carrying Value
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Carrying
|
|
|
Number of
|
|
|
Prior to
|
|
|
|
|
|
|
Communities (1)
|
|
|
Communities (1)
|
|
|
Value
|
|
|
Communities (1)
|
|
|
Impairment
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
(Values in millions)
|
|
|
|
|
|
|
|
|
East
|
|
|
129
|
|
|
|
17
|
|
|
$
|
157.8
|
|
|
|
4
|
|
|
$
|
85.1
|
|
|
$
|
45.9
|
|
Midwest
|
|
|
50
|
|
|
|
19
|
|
|
|
143.0
|
|
|
|
7
|
|
|
|
47.8
|
|
|
|
32.8
|
|
Southeast
|
|
|
205
|
|
|
|
27
|
|
|
|
97.5
|
|
|
|
15
|
|
|
|
40.9
|
|
|
|
29.8
|
|
South Central
|
|
|
288
|
|
|
|
34
|
|
|
|
110.8
|
|
|
|
4
|
|
|
|
17.7
|
|
|
|
14.2
|
|
Southwest
|
|
|
75
|
|
|
|
18
|
|
|
|
99.7
|
|
|
|
8
|
|
|
|
53.0
|
|
|
|
36.2
|
|
West
|
|
|
152
|
|
|
|
46
|
|
|
|
354.3
|
|
|
|
20
|
|
|
|
176.8
|
|
|
|
87.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
899
|
|
|
|
161
|
|
|
$
|
963.1
|
|
|
|
58
|
|
|
$
|
421.3
|
|
|
$
|
246.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Values of Potentially Impaired and Impaired
Communities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of Communities with Impairment Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded at September 30, 2008
|
|
|
|
|
|
|
Inventory with
|
|
|
|
|
|
Inventory
|
|
|
|
|
|
|
Total
|
|
|
Impairment Indicators
|
|
|
|
|
|
Carrying Value
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Carrying
|
|
|
Number of
|
|
|
Prior to
|
|
|
|
|
|
|
Communities (1)
|
|
|
Communities (1)
|
|
|
Value
|
|
|
Communities (1)
|
|
|
Impairment
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
(Values in millions)
|
|
|
|
|
|
|
|
|
East
|
|
|
105
|
|
|
|
46
|
|
|
$
|
436.9
|
|
|
|
19
|
|
|
$
|
163.8
|
|
|
$
|
79.0
|
|
Midwest
|
|
|
62
|
|
|
|
20
|
|
|
|
204.8
|
|
|
|
9
|
|
|
|
93.6
|
|
|
|
58.4
|
|
Southeast
|
|
|
176
|
|
|
|
78
|
|
|
|
485.5
|
|
|
|
37
|
|
|
|
241.7
|
|
|
|
153.7
|
|
South Central
|
|
|
248
|
|
|
|
58
|
|
|
|
208.7
|
|
|
|
15
|
|
|
|
38.1
|
|
|
|
30.5
|
|
Southwest
|
|
|
72
|
|
|
|
24
|
|
|
|
235.5
|
|
|
|
15
|
|
|
|
158.7
|
|
|
|
105.7
|
|
West
|
|
|
178
|
|
|
|
80
|
|
|
|
614.8
|
|
|
|
32
|
|
|
|
271.9
|
|
|
|
175.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
841
|
|
|
|
306
|
|
|
$
|
2,186.2
|
|
|
|
127
|
|
|
$
|
967.8
|
|
|
$
|
603.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
A community may consist of land
held for development, residential land and lots developed and
under development, and construction in progress and finished
homes. A particular community often includes inventory in more
than one category. Further, a community may contain multiple
parcels with varying product types (e.g. entry level and
move-up
single family detached, as well as attached product types). Some
communities have no homes under construction, finished homes, or
current home sales efforts or activity.
|
40
Inventory
Impairments and Land Option Cost Write-offs
During fiscal 2009, when we performed our quarterly inventory
impairment analyses, the assumptions utilized reflected our
cautious outlook for the broader homebuilding industry and our
markets, both of which impact our business. This outlook
incorporated our belief that housing market conditions might
continue to deteriorate, and that challenging conditions would
persist. Our impairment evaluation as of September 30, 2009
occurred after the end of the spring/summer selling season and
was based on our latest operating plans for our projects into
fiscal 2010, and reflected the anticipated expiration of
government support efforts for the homebuilding industry, such
as the tax credit and Fed purchases of mortgage-backed
securities, in the subsequent year. Accordingly, our impairment
evaluation as of September 30, 2009 again indicated a
significant number of communities with impairment indicators.
Communities with a combined carrying value of
$963.1 million as of September 30, 2009, had
indicators of potential impairment and were evaluated for
impairment. Through this evaluation process, we determined that
communities with a carrying value of $421.3 million as of
September 30, 2009, the largest portion of which was in the
West region, were impaired. As a result, during the fourth
quarter of fiscal 2009, we recorded impairment charges of
$174.9 million to reduce the carrying value of the impaired
communities to their estimated fair value, as compared to
$988.9 million in the same period of the prior year. The
fourth quarter charges combined with impairment charges recorded
earlier in the year resulted in total inventory impairment
charges of $377.8 million and $2,372.6 million during
fiscal 2009 and 2008, respectively. In performing our quarterly
inventory impairment analyses during fiscal 2009, we utilized a
range of discount rates for communities of 14% to 20% which was
increased from the range of 12% to 18% we would have used for
these communities in fiscal 2008. The increased discount rates
reflected our estimate of the increased level of market risk
present in the homebuilding and related mortgage lending
industries. The impact of the increase in the discount rates on
the fourth quarter and fiscal 2009 inventory impairment charges
was an increase of $9.9 million and $18.9 million,
respectively. During fiscal 2009, approximately 85% of the
impairment charges were recorded to residential land and lots
and land held for development, and approximately 15% of the
charges were recorded to construction in progress and finished
homes inventory, compared to 79% and 21%, respectively, in
fiscal 2008.
During fiscal 2009 and 2008, we wrote off $29.9 million and
$111.9 million, respectively, of earnest money deposits and
pre-acquisition costs related to option contracts for land or
lots which are not expected to be acquired. The inventory
impairment charges and write-offs of earnest money deposits and
pre-acquisition costs reduced total homebuilding gross profit as
a percentage of homebuilding revenues by approximately
1,130 basis points in fiscal 2009, compared to
3,810 basis points in the fiscal 2008.
Selling,
General and Administrative (SG&A) Expense
SG&A expense from homebuilding activities decreased by
$268.8 million, or 34%, to $523.0 million in 2009 from
$791.8 million in 2008. As homebuilding revenues declined
at a faster pace than SG&A expense, when expressed as a
percentage of homebuilding revenues, SG&A expense increased
240 basis points, to 14.5% in 2009 from 12.1% in 2008. The
largest component of our homebuilding SG&A expense is
employee compensation and related costs, which represented 55%
and 52% of SG&A costs in 2009 and 2008, respectively. These
costs decreased $125.7 million, or 30%, to
$287.2 million in 2009 from $412.9 million in 2008.
This decrease was largely due to our efforts to align the number
of employees to match our home closing levels, as well as a
decrease in incentive compensation. Our homebuilding operations
employed approximately 2,300 and 3,100 employees at
September 30, 2009 and 2008, respectively. Most other
SG&A cost components also decreased in fiscal 2009 as
compared to fiscal 2008, as a result of our efforts to reduce
all costs throughout the company. The most substantial decreases
occurred in advertising and depreciation.
Interest
Incurred
We capitalize homebuilding interest costs to inventory during
active development and construction. Due to our inventory
reduction strategies and slowing or suspending land development
in certain communities, our active inventory during fiscal 2009
and 2008 was lower than our debt level; therefore, a portion of
our interest incurred was expensed. We expensed
$100.2 million of homebuilding interest during fiscal 2009,
compared to $39.0 million of interest during fiscal 2008
since the ratio of our active inventory to debt declined during
that period.
41
Interest amortized to cost of sales, excluding interest written
off with inventory impairment charges, was 3.9% of total home
and land/lot cost of sales in both 2009 and 2008. Interest
incurred is related to the average level of our homebuilding
debt outstanding during the period. Comparing fiscal 2009 with
fiscal 2008, interest incurred related to homebuilding debt
decreased 13% to $205.0 million, primarily due to a 13%
decrease in our average homebuilding debt.
Gain/Loss
on Early Retirement of Debt
During fiscal 2009, in addition to repaying maturing senior
notes, we repurchased a total of $380.3 million principal
amount of various issues of our senior notes prior to their
maturity for an aggregate purchase price of $368.0 million,
plus accrued interest. We recognized a gain of
$11.5 million related to these repurchases, which was
partially offset by a loss of $7.6 million related to the
early termination of our revolving credit facility in May 2009.
These transactions resulted in a net gain of $3.9 million
during fiscal 2009.
The loss on early retirement of debt of $2.6 million during
fiscal 2008 was primarily due to the write-off of unamortized
fees associated with reducing the size of our revolving credit
facility in June 2008.
Other
Income
Other income, net of other expenses, associated with
homebuilding activities was $12.8 million in 2009, compared
to $9.1 million in 2008. The largest component of other
income in both years was interest income.
Goodwill
In performing our annual goodwill impairment analysis as of
September 30, 2009, we determined that our goodwill balance
of $15.9 million, all of which relates to our South Central
reporting segment, was not impaired. As a result of the analysis
performed as of September 30, 2008, we recorded a goodwill
impairment charge of $79.4 million, all of which related to
our Southwest reporting segment.
Homebuilding
Results by Reporting Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
|
|
|
Homebuilding
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
|
|
|
|
|
|
|
|
|
Income (Loss)
|
|
|
% of
|
|
|
|
|
|
|
Income (Loss)
|
|
|
% of
|
|
|
|
|
Homebuilding
|
|
|
Before
|
|
|
Region
|
|
|
|
Homebuilding
|
|
|
Before
|
|
|
Region
|
|
|
|
|
Revenues
|
|
|
Income Taxes (1)
|
|
|
Revenues
|
|
|
|
Revenues
|
|
|
Income Taxes (1)
|
|
|
Revenues
|
|
|
|
|
(In millions)
|
|
|
|
East
|
|
$
|
347.1
|
|
|
$
|
(95.9
|
)
|
|
|
(27.6
|
)
|
%
|
|
$
|
589.9
|
|
|
$
|
(332.5
|
)
|
|
|
(56.4
|
)
|
%
|
Midwest
|
|
|
314.5
|
|
|
|
(104.9
|
)
|
|
|
(33.4
|
)
|
%
|
|
|
546.7
|
|
|
|
(184.3
|
)
|
|
|
(33.7
|
)
|
%
|
Southeast
|
|
|
570.8
|
|
|
|
(73.2
|
)
|
|
|
(12.8
|
)
|
%
|
|
|
820.8
|
|
|
|
(507.7
|
)
|
|
|
(61.9
|
)
|
%
|
South Central
|
|
|
1,024.6
|
|
|
|
4.9
|
|
|
|
0.5
|
|
%
|
|
|
1,469.7
|
|
|
|
(6.1
|
)
|
|
|
(0.4
|
)
|
%
|
Southwest
|
|
|
382.4
|
|
|
|
(45.8
|
)
|
|
|
(12.0
|
)
|
%
|
|
|
1,153.4
|
|
|
|
(369.6
|
)
|
|
|
(32.0
|
)
|
%
|
West
|
|
|
964.5
|
|
|
|
(226.4
|
)
|
|
|
(23.5
|
)
|
%
|
|
|
1,938.1
|
|
|
|
(1,266.7
|
)
|
|
|
(65.4
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,603.9
|
|
|
$
|
(541.3
|
)
|
|
|
(15.0
|
)
|
%
|
|
$
|
6,518.6
|
|
|
$
|
(2,666.9
|
)
|
|
|
(40.9
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Expenses maintained at the
corporate level consist primarily of interest and property
taxes, which are capitalized and amortized to cost of sales or
expensed directly, and the expenses related to operating our
corporate office. The amortization of capitalized interest and
property taxes is allocated to each segment based on the
segments revenue, while the interest expensed directly and
those expenses associated with the corporate office are
allocated to each segment based on the segments average
inventory.
|
East Region Homebuilding revenues decreased
41% in 2009 compared to 2008, primarily due to a 37% decrease in
the number of homes closed, with the largest decreases in our
New Jersey and Carolina markets. The region reported a loss
before income taxes of $95.9 million in 2009, compared to a
loss of $332.5 million in 2008. The losses were due in part
to inventory impairment charges and earnest money and
42
pre-acquisition cost write-offs totaling $64.9 million and
$288.4 million in fiscal 2009 and 2008, respectively. The
regions home sales gross profit percentage increased
390 basis points in fiscal 2009 compared to fiscal 2008.
The increase was a result of the average cost of our homes
declining by more than the average selling prices due to the
effects of prior inventory impairments on homes closed during
2009.
Midwest Region Homebuilding revenues
decreased 42% in 2009 compared to 2008, primarily due to a 40%
decrease in the number of homes closed, with the largest
decreases in our Denver market. The region reported a loss
before income taxes of $104.9 million in 2009, compared to
a loss of $184.3 million in 2008. The losses were due in
part to inventory impairment charges and earnest money and
pre-acquisition cost
write-offs
totaling $54.7 million and $163.3 million in fiscal
2009 and 2008, respectively. The regions home sales gross
profit percentage decreased 540 basis points in fiscal 2009
compared to fiscal 2008. The decrease was a result of lower
margins in our Chicago and Denver markets, as well as higher
warranty costs on previously closed homes in our Denver market.
Additionally, our revenues declined at a greater rate than our
SG&A expenses, which also contributed to the loss before
income taxes in 2009.
Southeast Region Homebuilding revenues
decreased 30% in 2009 compared to 2008, primarily due to a 20%
decrease in the number of homes closed, as well as a 12%
decrease in the average selling price of those homes. The region
reported a loss before income taxes of $73.2 million in
2009, compared to a loss of $507.7 million in 2008. The
losses were due in part to inventory impairment charges and
earnest money and pre-acquisition cost write-offs totaling
$38.0 million and $457.5 million in fiscal 2009 and
2008, respectively. The regions home sales gross profit
percentage increased 340 basis points in fiscal 2009
compared to fiscal 2008. The increase was a result of the
average cost of our homes declining by more than the average
selling prices due to the effects of prior inventory impairments
on homes closed during 2009, and was partially offset by
estimated warranty costs related to homes in one market in
Florida which we had found to or suspected may contain Chinese
Drywall.
South Central Region Homebuilding revenues
decreased 30% in 2009 compared to 2008, due to a 28% decrease in
the number of homes closed. The region reported income before
income taxes of $4.9 million in fiscal 2009, compared to a
loss before income taxes of $6.1 million in fiscal 2008.
The improvement was due in part to a decrease in inventory
impairment charges and earnest money and pre-acquisition cost
write-offs, which were $20.0 million and $72.4 million
in fiscal 2009 and 2008, respectively. The regions home
sales gross profit percentage increased 40 basis points in
fiscal 2009 compared to fiscal 2008 due to the effects of prior
inventory impairments on homes closed during 2009. These
improvements were partially offset by our SG&A expenses
decreasing at a slower rate, 22%, than our homebuilding revenues.
Southwest Region Homebuilding revenues
decreased 67% in 2009 compared to 2008, due to a 61% decrease in
the number of homes closed, primarily in our Phoenix market, as
well as decreases in the average selling price of homes in the
region. The region reported a loss before income taxes of
$45.8 million in 2009, compared to a loss of
$369.6 million in 2008. The losses were due in part to
inventory impairment charges and earnest money and
pre-acquisition cost write-offs totaling $39.4 million and
$330.7 million in fiscal 2009 and 2008, respectively. In
fiscal 2008, goodwill impairment charges of $79.4 million
also contributed to the loss. The regions revenues
declined at a greater rate than its SG&A expenses, which
also contributed to the loss before income taxes in 2009. The
regions home sales gross profit percentage increased
110 basis points in fiscal 2009 compared to fiscal 2008 due
to the effects of prior inventory impairments on homes closed
during 2009.
West Region Homebuilding revenues decreased
50% in 2009 compared to 2008, due to a 37% decrease in the
number of homes closed, as well as a 14% decrease in the average
selling price of those homes. The largest decreases in homes
closed occurred in our Northern California markets. The region
reported a loss before income taxes of $226.4 million in
2009, compared to a loss of $1.3 billion in 2008. The
losses were due in part to inventory impairment charges and
earnest money and pre-acquisition cost write-offs totaling
$190.7 million and $1.2 billion in fiscal 2009 and
2008, respectively. The regions home sales gross profit
percentage increased 450 basis points in fiscal 2009
compared to fiscal 2008. The increase was a result of the
average cost of our homes declining by more than the average
selling prices due to the effects of prior inventory impairments
on homes closed during 2009.
43
Results
of Operations Financial Services
Fiscal
Year Ended September 30, 2010 Compared to Fiscal Year Ended
September 30, 2009
The following tables set forth key operating and financial data
for our financial services operations, comprising DHI Mortgage
and our subsidiary title companies, for the fiscal years ended
September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
2010
|
|
2009
|
|
% Change
|
|
Number of first-lien loans originated or brokered by
DHI Mortgage for D.R. Horton homebuyers
|
|
|
12,679
|
|
|
|
11,147
|
|
|
|
14
|
%
|
Number of homes closed by D.R. Horton
|
|
|
20,875
|
|
|
|
16,703
|
|
|
|
25
|
%
|
DHI Mortgage capture rate
|
|
|
61%
|
|
|
|
67%
|
|
|
|
|
|
Number of total loans originated or brokered by
DHI Mortgage for D.R. Horton homebuyers
|
|
|
12,754
|
|
|
|
11,245
|
|
|
|
13
|
%
|
Total number of loans originated or brokered by DHI Mortgage
|
|
|
14,146
|
|
|
|
13,481
|
|
|
|
5
|
%
|
Captive business percentage
|
|
|
90%
|
|
|
|
83%
|
|
|
|
|
|
Loans sold by DHI Mortgage to third parties
|
|
|
14,001
|
|
|
|
13,991
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
Loan origination fees
|
|
$
|
17.7
|
|
|
$
|
18.6
|
|
|
|
(5
|
)%
|
Sale of servicing rights and gains from sale of mortgages
|
|
|
59.6
|
|
|
|
56.8
|
|
|
|
5
|
%
|
Recourse expense
|
|
|
(13.7
|
)
|
|
|
(33.2
|
)
|
|
|
(59
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of servicing rights and gains from sale of mortgages, net
|
|
|
45.9
|
|
|
|
23.6
|
|
|
|
94
|
%
|
Other revenues
|
|
|
6.8
|
|
|
|
8.3
|
|
|
|
(18
|
)%
|
Reinsurance expense
|
|
|
(1.9
|
)
|
|
|
(14.9
|
)
|
|
|
(87
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues, net
|
|
|
4.9
|
|
|
|
(6.6
|
)
|
|
|
174
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage operations revenues
|
|
|
68.5
|
|
|
|
35.6
|
|
|
|
92
|
%
|
Title policy premiums, net
|
|
|
22.0
|
|
|
|
18.1
|
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
90.5
|
|
|
|
53.7
|
|
|
|
69
|
%
|
General and administrative expense
|
|
|
77.2
|
|
|
|
78.1
|
|
|
|
(1
|
)%
|
Interest expense
|
|
|
1.9
|
|
|
|
1.5
|
|
|
|
27
|
%
|
Interest and other (income)
|
|
|
(10.0
|
)
|
|
|
(10.4
|
)
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
21.4
|
|
|
$
|
(15.5
|
)
|
|
|
238
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Operating Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentages of
|
|
|
Financial Services Revenues (1)
|
|
|
Fiscal Year Ended
|
|
|
September 30,
|
|
|
2010
|
|
2009
|
|
Recourse and reinsurance expense
|
|
|
14.7
|
|
%
|
|
|
47.2
|
|
%
|
General and administrative expense
|
|
|
72.8
|
|
%
|
|
|
76.7
|
|
%
|
Interest expense
|
|
|
1.8
|
|
%
|
|
|
1.5
|
|
%
|
Interest and other (income)
|
|
|
(9.4
|
)
|
%
|
|
|
(10.2
|
)
|
%
|
Income (loss) before income taxes
|
|
|
20.2
|
|
%
|
|
|
(15.2
|
)
|
%
|
|
|
|
(1)
|
|
Excludes the effects of recourse
and reinsurance charges on financial services revenues
|
44
Mortgage
Loan Activity
The volume of loans originated and brokered by our mortgage
operations is directly related to the number of homes closed by
our homebuilding operations. Total first-lien loans originated
or brokered by DHI Mortgage for our homebuyers increased by 14%
in fiscal 2010 compared to fiscal 2009, corresponding to the 25%
increase in the number of homes closed. The percentage increase
in loans originated was lower than the percentage increase in
the number of homes closed by our homebuilding operations due to
a decrease in our mortgage capture rate (the percentage of total
home closings by our homebuilding operations for which DHI
Mortgage handled the homebuyers financing), to 61% in
2010, from 67% in 2009.
Home closings from our homebuilding operations constituted 90%
of DHI Mortgage loan originations in 2010, compared to 83% in
2009, reflecting DHI Mortgages continued focus on
supporting the captive business provided by our homebuilding
operations. The relatively higher captive percentage in the
current year reflects a lower level of refinancing activity than
in the prior year.
The number of loans sold to third-party purchasers was virtually
the same in 2010 as compared to 2009, while the number of loans
originated increased by 5%. Loans are typically sold within
30 days of origination. Fluctuations in the volume of loans
sold for a given period may not correspond to the change in loan
origination volume because of the timing of loan sales, which
for any quarter generally represents the loans originated in the
last month of the prior quarter plus the first two months of the
current quarter. Virtually all of the mortgage loans originated
during fiscal 2010 and mortgage loans held for sale on
September 30, 2010 were eligible for sale to Fannie Mae,
Freddie Mac or GNMA (Agency-eligible). Approximately
86% of the mortgage loans sold by DHI Mortgage during fiscal
2010 were sold to two major financial institutions pursuant to
their loan purchase agreements with DHI Mortgage. If we are
unable to sell our mortgages to these or other purchasers, our
ability to originate and sell mortgage loans could be
significantly reduced and the profitability of our financial
services operations would be negatively impacted.
Financial
Services Revenues and Expenses
Revenues from the financial services segment increased 69%, to
$90.5 million in 2010 from $53.7 million in 2009. Loan
origination fees decreased 5%, to $17.7 million in 2010
from $18.6 million in 2009, while the number of loans
originated increased 5% during the same period. The decrease in
loan origination fees during 2010 relates to the adoption of the
Financial Accounting Standards Boards (FASB) authoritative
guidance for fair value measurements of certain financial
instruments on October 1, 2008. The authoritative guidance
requires net origination costs and fees associated with mortgage
loans to be recognized at origination and no longer deferred
until the time of sale. Therefore, during fiscal 2009, we
recognized $2.4 million of loan origination fees and
$5.0 million of general and administrative (G&A) costs
related to prior period loan originations. Revenues from the
sale of servicing rights and gains from sale of mortgages
increased 5%, to $59.6 million in 2010, from
$56.8 million in 2009. Charges related to recourse
obligations were $13.7 million in fiscal 2010, compared to
$33.2 million in fiscal 2009. The calculation of our
required repurchase loss reserve is based upon an analysis of
repurchase requests received, our actual repurchases and losses
through the disposition of such loans, discussions with our
mortgage purchasers and analysis of the mortgages we originated.
While we believe that we have adequately reserved for losses on
known and projected repurchase requests, if either actual
repurchases or the losses incurred resolving those repurchases
exceed our expectations, additional recourse expense may be
incurred. Also, a subsidiary of ours reinsured a portion of
private mortgage insurance written on loans originated by DHI
Mortgage in prior years. Charges to increase reserves for
expected losses on the reinsured loans were $1.9 million
and $14.9 million during fiscal 2010 and 2009, respectively.
Financial services G&A expense decreased 1%, to
$77.2 million in 2010 from $78.1 million in 2009, but
increased 6% when excluding $5.0 million of compensation
costs recognized in fiscal 2009 upon the adoption of the
FASBs authoritative guidance for fair value measurements
as discussed above. The largest component of our financial
services G&A expense is employee compensation and related
costs, which represented 78% and 75% of G&A costs in 2010
and 2009, respectively. Excluding the $5.0 million
adjustment discussed
45
above, these costs increased 14%, to $60.5 million in 2010
from $53.3 million in 2009. The increase in the current
year relates to an increase in the number of financial services
employees to approximately 700 at September 30, 2010, from
600 at September 30, 2009 to support our increased volume
and more stringent mortgage purchaser underwriting guidelines.
As a percentage of financial services revenues, excluding the
effects of recourse and reinsurance expense, G&A expense
decreased to 72.8% in 2010, from 76.7% in 2009. The decrease was
primarily due to the adoption in 2009 of the FASBs
authoritative guidance for fair value measurements of certain
financial instruments as discussed above, partially offset by
additional costs incurred to support more stringent mortgage
purchaser underwriting guidelines. Fluctuations in financial
services G&A expense as a percentage of revenues can be
expected to occur as some expenses are not directly related to
mortgage loan volume or to changes in the amount of revenue
earned.
46
Fiscal
Year Ended September 30, 2009 Compared to Fiscal Year Ended
September 30, 2008
The following tables set forth key operating and financial data
for our financial services operations, comprising DHI Mortgage
and our subsidiary title companies, for the fiscal years ended
September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
Number of first-lien loans originated or brokered by
DHI Mortgage for D.R. Horton homebuyers
|
|
|
11,147
|
|
|
|
16,134
|
|
|
|
(31
|
)%
|
Number of homes closed by D.R. Horton
|
|
|
16,703
|
|
|
|
26,396
|
|
|
|
(37
|
)%
|
DHI Mortgage capture rate
|
|
|
67%
|
|
|
|
61%
|
|
|
|
|
|
Number of total loans originated or brokered by
DHI Mortgage for D.R. Horton homebuyers
|
|
|
11,245
|
|
|
|
16,458
|
|
|
|
(32
|
)%
|
Total number of loans originated or brokered by DHI Mortgage
|
|
|
13,481
|
|
|
|
17,797
|
|
|
|
(24
|
)%
|
Captive business percentage
|
|
|
83%
|
|
|
|
92%
|
|
|
|
|
|
Loans sold by DHI Mortgage to third parties
|
|
|
13,991
|
|
|
|
17,928
|
|
|
|
(22
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
|
|
(In millions)
|
|
|
|
Loan origination fees
|
|
$
|
18.6
|
|
|
$
|
24.9
|
|
|
|
(25
|
)
|
%
|
Sale of servicing rights and gains from sale of mortgages
|
|
|
56.8
|
|
|
|
91.0
|
|
|
|
(38
|
)
|
%
|
Recourse expense
|
|
|
(33.2
|
)
|
|
|
(21.9
|
)
|
|
|
52
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of servicing rights and gains from sale of mortgages, net
|
|
|
23.6
|
|
|
|
69.1
|
|
|
|
(66
|
)
|
%
|
Other revenues
|
|
|
8.3
|
|
|
|
12.1
|
|
|
|
(31
|
)
|
%
|
Reinsurance expense
|
|
|
(14.9
|
)
|
|
|
(4.9
|
)
|
|
|
204
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues, net
|
|
|
(6.6
|
)
|
|
|
7.2
|
|
|
|
(192
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage operations revenues
|
|
|
35.6
|
|
|
|
101.2
|
|
|
|
(65
|
)
|
%
|
Title policy premiums, net
|
|
|
18.1
|
|
|
|
26.3
|
|
|
|
(31
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
53.7
|
|
|
|
127.5
|
|
|
|
(58
|
)
|
%
|
General and administrative expense
|
|
|
78.1
|
|
|
|
100.1
|
|
|
|
(22
|
)
|
%
|
Interest expense
|
|
|
1.5
|
|
|
|
3.7
|
|
|
|
(59
|
)
|
%
|
Interest and other (income)
|
|
|
(10.4
|
)
|
|
|
(11.4
|
)
|
|
|
(9
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
(15.5
|
)
|
|
$
|
35.1
|
|
|
|
(144
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Operating Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentages of
|
|
|
Financial Services Revenues (1)
|
|
|
Fiscal Year Ended
|
|
|
September 30,
|
|
|
2009
|
|
2008
|
|
Recourse and reinsurance expense
|
|
|
47.2
|
|
%
|
|
|
17.4
|
|
%
|
General and administrative expense
|
|
|
76.7
|
|
%
|
|
|
64.9
|
|
%
|
Interest expense
|
|
|
1.5
|
|
%
|
|
|
2.4
|
|
%
|
Interest and other (income)
|
|
|
(10.2
|
)
|
%
|
|
|
(7.4
|
)
|
%
|
Income (loss) before income taxes
|
|
|
(15.2
|
)
|
%
|
|
|
22.7
|
|
%
|
|
|
|
(1)
|
|
Excludes the effects of recourse
and reinsurance charges on financial services revenues
|
47
Mortgage
Loan Activity
Total first-lien loans originated or brokered by DHI Mortgage
for our homebuyers decreased by 31% in fiscal 2009 compared to
fiscal 2008, corresponding to the 37% decrease in the number of
homes closed. The percentage decrease in loans originated was
lower than the percentage decrease in homes closed due to an
increase in our mortgage capture rate to 67% in 2009, from 61%
in 2008.
Home closings from our homebuilding operations constituted 83%
of DHI Mortgage loan originations in 2009, compared to 92% in
2008, reflecting DHI Mortgages continued focus on
supporting the captive business provided by our homebuilding
operations. The relatively lower captive percentage in 2009
reflects an increase in refinancing activity as existing
homeowners took advantage of the decline in mortgage interest
rates.
The number of loans sold to third-party purchasers decreased by
22% in 2009 as compared to 2008. The decrease was primarily due
to the decrease in the number of mortgage loans originated.
Consistent with fiscal 2008, originations during fiscal 2009
continued to predominantly be Agency-eligible. In fiscal 2009,
approximately 99% of DHI Mortgage production and 98% of mortgage
loans held for sale on September 30, 2009 were
Agency-eligible.
Financial
Services Revenues and Expenses
Revenues from the financial services segment decreased 58%, to
$53.7 million in 2009 from $127.5 million in 2008. The
decrease was primarily due to the decrease in the number of
mortgage loans originated and sold, as well as an increase in
recourse expense related to future loan repurchase obligations
and increases in the loss reserves for reinsured loans. Charges
related to recourse obligations were $33.2 million in
fiscal 2009, compared to $21.9 million in fiscal 2008. The
increase in recourse expense is a result of increasing our loan
loss reserves during fiscal 2009 due to increased expectations
for loan repurchases and related losses caused by additional
repurchase requests arising under the limited recourse
provisions. Also, a subsidiary of ours reinsured a portion of
private mortgage insurance written on loans originated by DHI
Mortgage in prior years. Charges to increase reserves for
expected losses on the reinsured loans were $14.9 million
and $4.9 million during fiscal 2009 and 2008, respectively.
Additionally, revenues during fiscal 2008 included the
recognition of an additional $8.8 million of revenues
related to the adoption of the FASBs authoritative
guidance for written loan commitments which was adopted on
January 1, 2008. The guidance requires that the expected
net future cash flows related to the associated servicing of a
loan are included in the measurement of all written loan
commitments that are accounted for at fair value through
earnings at the time of commitment. The effect of this guidance
in fiscal 2009 was a $4.3 million decrease in revenues.
Financial services G&A expense decreased 22%, to
$78.1 million in 2009 from $100.1 million in 2008. The
largest component of our financial services G&A expense is
employee compensation and related costs, which represented 75%
and 71% of G&A costs in 2009 and 2008, respectively. These
costs decreased 18%, to $58.3 million in 2009 from
$70.8 million in 2008, as we have continued to align the
number of employees with current and anticipated loan
origination and title service levels. Our financial services
operations employed approximately 600 and 700 employees at
September 30, 2009 and 2008, respectively.
As a percentage of financial services revenues, excluding the
effects of recourse and reinsurance expense, G&A expense
increased to 76.7% in 2009, from 64.9% in 2008. The increase was
primarily due to the reduction in revenue resulting from the
decrease in mortgage loan volume during fiscal 2009, as well as
higher revenues in the prior year due to the adoption of the
authoritative guidance for written loan commitments.
48
Results
of Operations Consolidated
Fiscal
Year Ended September 30, 2010 Compared to Fiscal Year Ended
September 30, 2009
Income
(Loss) before Income Taxes
Income before income taxes for fiscal 2010 was
$99.5 million, compared to a loss before income taxes of
$556.8 million for fiscal 2009. The difference in our
operating results for 2010 compared to a year ago is primarily
due to increased revenue from the higher volume of homes closed,
a higher gross profit from home sales revenues and lower
inventory impairment charges.
Income
Taxes
The benefit from income taxes in fiscal 2010 was
$145.6 million, compared to a benefit of $7.0 million
in 2009. In November 2009, the Worker, Homeownership, and
Business Assistance Act of 2009 was enacted into law and amended
Section 172 of the Internal Revenue Code. This tax law
change allows a net operating loss (NOL) realized in one of our
fiscal 2008, 2009 or 2010 years to be carried back up to
five years (previously limited to a two-year carryback). We
elected to carry back our fiscal 2009 NOL. This resulted in a
benefit from income taxes of $208.3 million during fiscal
2010, which was partially offset by an increase in unrecognized
tax benefits and state income tax expense. We do not have
meaningful effective tax rates in these years because of the
valuation allowances on our deferred tax assets.
We had income taxes receivable of $16.0 million and
$293.1 million at September 30, 2010 and 2009,
respectively. During fiscal 2010, we received income tax refunds
totaling $487.1 million, which resulted from tax losses
generated in fiscal 2008 and 2009. The income taxes receivable
at September 30, 2010 relate to additional federal and
state income tax refunds we expect to receive.
At September 30, 2010, we had a federal NOL carryforward of
$285.8 million that will expire in fiscal 2030 and tax
benefits for state NOL carryforwards of $83.5 million that
expire (beginning at various times depending on the tax
jurisdiction) from fiscal 2013 to fiscal 2030.
At September 30, 2010 and 2009, we had net deferred income
tax assets of $902.6 million and $1,073.9 million,
respectively, offset by valuation allowances of
$902.6 million and $1,073.9 million, respectively. The
future realization of our deferred income tax assets ultimately
depends upon the existence of sufficient taxable income in our
carryforward periods under the tax laws. We continue to analyze
the positive and negative evidence in determining the expected
realization of our deferred income tax assets. The accounting
for deferred taxes is based upon an estimate of future results.
Differences between the anticipated and actual outcomes of these
future tax consequences could have a material impact on our
consolidated results of operations or financial position.
Changes in existing tax laws also affect actual tax results and
the valuation of deferred tax assets over time.
The benefits of our NOL and tax credit carryforwards, as well as
our unrealized built-in losses, would be reduced or potentially
eliminated if we experienced an ownership change as defined by
Internal Revenue Code Section 382. We do not believe we
have experienced such an ownership change as of
September 30, 2010; however, the amount by which our
ownership may change in the future is affected by purchases and
sales of stock by 5% stockholders; the potential conversion of
our outstanding convertible senior notes and our decision as to
whether to settle any such conversions completely or partially
in stock; and new issuances of stock by us.
Unrecognized tax benefits are the differences between a tax
position taken, or expected to be taken in a tax return, and the
benefit recognized for accounting purposes. The total amount of
unrecognized tax benefits (which includes interest, penalties,
and the tax benefit relating to the deductibility of interest
and state income taxes) was $82.8 million and
$24.0 million as of September 30, 2010 and 2009,
respectively. All tax positions, if recognized, would affect our
effective income tax rate. The increase in unrecognized tax
benefits resulted in large part from our election to carryback
our fiscal 2009 NOL to fiscal 2004 and 2005, thereby changing
the reserve needed for all years open to further tax assessment
including 2004 and 2005. It is reasonably possible that, within
the next 12 months, the amount of unrecognized tax benefits
may decrease as much as
49
$59.2 million as a result of a ruling request filed by us
with the Internal Revenue Service (IRS) concerning
capitalization of inventory costs. If the IRS rules favorably on
the ruling request, our unrecognized tax benefits would be
reduced, resulting in a benefit from income taxes in the
consolidated statement of operations.
We classify interest and penalties on income taxes as income tax
expense. During fiscal 2010 and 2009, we recognized interest and
penalties with respect to income taxes of $11.7 million and
$3.0 million, respectively, in our consolidated statements
of operations, and at September 30, 2010 and 2009, our
total accrued interest and penalties relating to unrecognized
income tax benefits was $17.8 million and
$6.2 million, respectively.
We are subject to federal income tax and to income tax in
multiple states. The statute of limitations for our major tax
jurisdictions remains open for examination for fiscal years 2004
through 2010. We are currently being audited by various states
and our federal NOL refunds from fiscal 2008 and 2009 are
subject to Congressional Joint Committee review.
Fiscal
Year Ended September 30, 2009 Compared to Fiscal Year Ended
September 30, 2008
Loss
before Income Taxes
Loss before income taxes for fiscal 2009 was
$556.8 million, compared to $2,631.8 million for
fiscal 2008. The decrease in our consolidated loss was primarily
due to significantly lower inventory impairment charges during
fiscal 2009, as well as a decrease in our SG&A expense.
These improvements were slightly offset by a decrease in the
amount of our home sales gross profit due to a reduction in
revenues.
Income
Taxes
In fiscal 2009, we recorded a benefit from income taxes of
$7.0 million, which relates primarily to adjustments to the
tax provision recorded for fiscal year 2008 resulting from the
finalization and filing of the tax return for that year. In
fiscal 2008, we recorded a provision for income taxes of
$1.8 million. We do not have meaningful effective tax rates
in these years because of losses from operations before taxes,
the impact of valuation allowances on our net deferred tax
assets and impairment of nondeductible goodwill.
We had income tax receivables of $293.1 million and
$676.2 million at September 30, 2009 and 2008,
respectively. In December 2008, we received a federal income tax
refund of $621.7 million with respect to our
2008 year. We received $113.0 million of the
$293.1 million receivable in the form of a tax refund
during October 2009. A substantial portion of the remaining tax
receivable at September 30, 2009 was due to the carryback
of federal tax losses generated in fiscal 2009 that can be
carried back against fiscal 2007 taxable income. We also had
$11.1 million of income tax receivables for state operating
loss carrybacks at September 30, 2009. At
September 30, 2009 and 2008, we had net deferred tax assets
of $1,073.9 million and $1,174.8 million,
respectively, offset by valuation allowances of
$1,073.9 million and $961.3 million, respectively.
During fiscal 2009 and 2008, we recognized interest and
penalties with respect to income taxes of $3.0 million and
$4.0 million, respectively, in our consolidated statements
of operations, and at September 30, 2009 and 2008, our
total accrued interest and penalties relating to unrecognized
income tax benefits was $6.2 million and $4.9 million,
respectively. As of September 30, 2009 and 2008, our total
unrecognized income tax benefits were $24.0 million and
$18.7 million, respectively.
Overview
of Capital Resources and Liquidity
We have historically funded our homebuilding and financial
services operations with cash flows from operating activities,
borrowings under our bank credit facilities and the issuance of
new debt securities. During the challenging homebuilding market
conditions experienced over the past few years, we have been
operating with a primary focus to generate cash flows through
reductions in assets, as well as through profitable operations.
Our cash generation has also benefitted from income tax refunds.
The generation of cash flow has allowed us to increase our
liquidity and strengthen our balance sheet, and has placed us in
a position to be able to invest in market opportunities as they
arise. We do not expect to generate as much cash from asset
50
reductions in fiscal 2011 as we have in any of the past four
fiscal years. Depending upon future homebuilding market
conditions and our expectations for these conditions, we may use
a portion of our cash balances to increase our operating assets.
We intend to maintain adequate liquidity and balance sheet
strength, and we will continue to evaluate opportunities to
access the capital markets as they become available.
At September 30, 2010, our ratio of net homebuilding debt
to total capital was 16.1%, a decrease of 1,640 basis
points from 32.5% at September 30, 2009. Net homebuilding
debt to total capital consists of homebuilding notes payable net
of cash and marketable securities divided by total capital net
of cash and marketable securities (homebuilding notes payable
net of cash and marketable securities plus total equity). The
decrease in our ratio of net homebuilding debt to total capital
at September 30, 2010 as compared to the ratio a year
earlier was primarily due to our lower debt balance resulting
from redemptions and repurchases of senior and senior
subordinated notes, income tax refunds and net income for the
year. Our ratio of net homebuilding debt to total capital
remains well within our target operating range of below 45%. We
believe that our strong balance sheet and liquidity position
will allow us to be flexible in reacting to changing market
conditions. However, future period-end net homebuilding debt to
total capital ratios may be higher than the 16.1% ratio achieved
at September 30, 2010.
We believe that the ratio of net homebuilding debt to total
capital is useful in understanding the leverage employed in our
homebuilding operations and comparing us with other
homebuilders. We exclude the debt of our financial services
business because it is separately capitalized and its obligation
under its repurchase agreement is substantially collateralized
and not guaranteed by our parent company or any of our
homebuilding entities. Because of its capital function, we
include our homebuilding cash and marketable securities as a
reduction of our homebuilding debt and total capital. For
comparison to our ratios of net homebuilding debt to capital
above, our ratios of homebuilding debt to total capital, without
netting cash and marketable securities balances, were 44.3% and
56.2% at September 30, 2010 and 2009, respectively.
We believe that we will be able to fund our near-term working
capital needs and debt obligations from existing cash resources
and our mortgage repurchase facility. For our longer-term
capital requirements, we will evaluate the need to issue new
debt or equity securities through the public capital markets or
obtain additional bank financing as market conditions may permit.
Homebuilding
Capital Resources
Cash and Cash Equivalents At
September 30, 2010, we had available homebuilding cash and
cash equivalents of $1.3 billion.
Marketable Securities At September 30,
2010, we had marketable securities of $297.7 million. Our
marketable securities consist of U.S. Treasury securities,
government agency securities, foreign government securities,
corporate debt securities, and certificates of deposit.
Secured Letter of Credit Agreements
Concurrent with the termination of our revolving credit facility
in May 2009, we entered into secured letter of credit agreements
with the three banks that had issued letters of credit under the
facility. The effect of these agreements was to remove the
outstanding letters of credit from the facility, which required
us to deposit cash, in an amount approximating the balance of
letters of credit outstanding, as collateral with the issuing
banks. During fiscal 2010, we entered into secured letter of
credit agreements with two additional banks, which also require
the deposit of cash as collateral. At September 30, 2010
and 2009, the amount of cash restricted for this purpose totaled
$52.6 million and $53.3 million, respectively, and is
included in homebuilding restricted cash on our consolidated
balance sheets.
Public Unsecured Debt The indentures
governing our senior notes impose restrictions on the creation
of secured debt and liens. At September 30, 2010, we were
in compliance with all of the limitations and restrictions that
form a part of the public debt obligations.
Shelf Registration Statement We have an
effective universal shelf registration statement filed with the
SEC in September 2009, registering debt and equity securities
which we may issue from time to time in amounts to be determined.
51
Financial
Services Capital Resources
Cash and Cash Equivalents At
September 30, 2010, the amount of financial services cash
and cash equivalents was $26.7 million.
Mortgage Repurchase Facility Our mortgage
subsidiary entered into a mortgage sale and repurchase agreement
(the mortgage repurchase facility) on March 28,
2008. The mortgage repurchase facility, which is accounted for
as a secured financing, provides financing and liquidity to DHI
Mortgage by facilitating purchase transactions in which DHI
Mortgage transfers eligible loans to the counterparties against
the transfer of funds by the counterparties, thereby becoming
purchased loans. DHI Mortgage then has the right and obligation
to repurchase the purchased loans upon their sale to third-party
purchasers in the secondary market or within specified time
frames from 45 to 120 days in accordance with the terms of
the mortgage repurchase facility. The capacity of the facility
is $100 million, with a provision allowing an increase in
the capacity to $125 million during the last five business
days of any fiscal quarter and the first seven business days of
the following fiscal quarter. The maturity date of the facility
is March 4, 2011.
As of September 30, 2010, $236.9 million of mortgage
loans held for sale were pledged under the repurchase agreement.
These mortgage loans had a collateral value of
$222.7 million. DHI Mortgage has the option to fund a
portion of its repurchase obligations in advance. As a result of
advance paydowns totaling $136.2 million, DHI Mortgage had
an obligation of $86.5 million outstanding under the
mortgage repurchase facility at September 30, 2010 at a
3.8% interest rate.
The mortgage repurchase facility is not guaranteed by either
D.R. Horton, Inc. or any of the subsidiaries that guarantee our
homebuilding debt. The facility contains financial covenants as
to the mortgage subsidiarys minimum required tangible net
worth, its maximum allowable ratio of debt to tangible net worth
and its minimum required liquidity. These covenants are measured
and reported monthly. At September 30, 2010, our mortgage
subsidiary was in compliance with all of the conditions and
covenants of the mortgage repurchase facility.
In the past, we have been able to renew or extend our mortgage
credit facilities on satisfactory terms prior to their
maturities, and obtain temporary additional commitments through
amendments to the credit agreements during periods of higher
than normal volumes of mortgages held for sale. The liquidity of
our financial services business depends upon its continued
ability to renew and extend the mortgage repurchase facility or
to obtain other additional financing in sufficient capacities.
Operating
Cash Flow Activities
During fiscal 2010, net cash provided by our operating
activities was $709.4 million, compared to
$1.1 billion during fiscal 2009. A significant portion of
the net cash provided by our operating activities during these
years was due to federal income tax refunds. In fiscal 2010, the
profit we generated also contributed to operating cash flows. In
addition, during fiscal 2009 and particularly during fiscal
2008, a significant portion of the net cash provided by our
operating activities was due to the generation of cash flows
through the reduction of our inventories. The net cash provided
by our operating activities during the past three fiscal years
has resulted in substantial liquidity. This liquidity gives us
the flexibility to determine the appropriate operating strategy
for each of our communities and to take advantage of
opportunities in the market. While we have limited our purchases
of undeveloped land and our development spending on land we own,
we are purchasing or contracting to purchase finished lots in
many markets to potentially increase sales and home closing
volumes and return to sustainable profitability. We plan to
continue to manage our inventories by monitoring the number and
aging of unsold homes and aggressively marketing our unsold,
completed homes in inventory. As we work toward these goals, we
expect to generate less cash flow from asset reductions than we
have over the past three fiscal years. Depending upon future
homebuilding market conditions and our expectations for these
conditions, we may use a portion of our cash balances to
increase our inventories.
52
Investing
Cash Flow Activities
During fiscal 2010 and 2009, net cash used in our investing
activities was $318.0 million and $59.4 million,
respectively. In fiscal 2010, we began to invest a portion of
our cash on hand in marketable securities and we used
$328.0 million for this purpose. Proceeds from the sale of
these marketable securities during the year totaled
$27.7 million. Additionally, in fiscal 2010 and 2009 we
used $19.2 million and $6.2 million, respectively, to
invest in purchases of property and equipment, primarily model
home furniture and office equipment. In fiscal 2009, the
increase in restricted cash was due to the initial cash
collateralization of our outstanding letters of credit under the
terms of our secured letter of credit agreements. Subsequent
changes in restricted cash are primarily due to fluctuations in
the balance of our outstanding letters of credit.
Financing
Cash Flow Activities
During the last two years, the majority of our short-term
financing needs have been funded with cash generated from
operations and borrowings available under our financial services
credit facility. Long-term financing needs of our homebuilding
operations have historically been funded with the issuance of
senior unsecured debt securities through the public capital
markets. During fiscal 2010, we repaid a total of
$1,016.3 million principal amount of various issues of
senior and senior subordinated notes through maturities,
redemptions and repurchases for an aggregate purchase price of
$1,018.2 million, plus accrued interest. During fiscal
2009, we repaid a total of $833.2 million principal amount
of various issues of senior notes through maturities and
repurchases for an aggregate purchase price of
$821.0 million, plus accrued interest. Also, during fiscal
2009, we issued $500 million principal amount of 2%
convertible senior notes due 2014. Our homebuilding senior and
convertible senior notes are guaranteed by substantially all of
our wholly-owned subsidiaries other than our financial services
subsidiaries and certain insignificant subsidiaries.
Consistent with dividends paid in fiscal 2009, our Board of
Directors approved four quarterly cash dividends of $0.0375 per
common share during fiscal 2010. The last of these was paid on
August 26, 2010 to stockholders of record on
August 16, 2010. On November 11, 2010, our Board of
Directors approved a cash dividend of $0.0375 per common share,
payable on December 8, 2010, to stockholders of record on
November 24, 2010. The declaration of future cash dividends
is at the discretion of our Board of Directors and will depend
upon, among other things, future earnings, cash flows, capital
requirements, our financial condition and general business
conditions.
Changes
in Capital Structure
In November 2009, our Board of Directors authorized the
repurchase of up to $100 million of our common stock and
the repurchase of up to $500 million of our debt
securities. Following significant repurchase activity, the debt
repurchase authorization was renewed in April 2010 and again in
July 2010. The current authorization is effective through
July 31, 2011. At September 30, 2010,
$483.8 million of the authorization was remaining.
On January 15, 2010, we repaid the remaining
$130.9 million principal amount of our 4.875% senior
notes which were due on that date. On February 24, 2010, we
redeemed the remaining $95.0 million principal amount of
our 5.875% senior notes due 2013. On September 15,
2010, we repaid the remaining $51.9 million principal
amount of our 9.75% senior notes and $11.3 million
principal amount of our 9.75% senior subordinated notes due
on that date. Additionally, during fiscal 2010, we repurchased a
total of $727.2 million principal amount of various issues
of senior notes through unsolicited transactions. These
repayments of public unsecured debt were made from our cash
balance.
In October 2010, through an unsolicited transaction, we
repurchased $8.3 million principal amount of our
5.375% senior notes due 2012.
Recently, our primary non-operating use of available capital has
been to repay debt. We continue to evaluate our alternatives for
future non-operating sources and uses of our available capital,
including debt repayments, dividend payments or common stock
repurchases, while considering the overall level of our cash
balances within the constraints of our balance sheet leverage
targets and our liquidity targets.
53
Contractual
Cash Obligations, Commercial Commitments and Off-Balance Sheet
Arrangements
Our primary contractual cash obligations for our homebuilding
and financial services segments are payments under our debt
agreements and lease payments under operating leases. Purchase
obligations of our homebuilding segment represent specific
performance requirements under lot option purchase agreements
that may require us to purchase land contingent upon the land
seller meeting certain obligations. We expect to fund our
contractual obligations in the ordinary course of business
through a combination of our existing cash resources, cash flows
generated from operations, renewed or amended mortgage
repurchase facilities and, if needed or believed advantageous,
the issuance of new debt or equity securities through the public
capital markets as market conditions may permit.
Our future cash requirements for contractual obligations as of
September 30, 2010 are presented below:
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Payments Due by Period
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Less Than
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More Than
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Total
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1 Year
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1 - 3 Years
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3 - 5 Years
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5 Years
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(In millions)
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Homebuilding:
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Notes Payable Principal (1)
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$
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2,197.4
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$
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209.9
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|
$
|
335.2
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|
|
$
|
995.0
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|
|
$
|
657.3
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Notes Payable Interest (1)
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|
|
424.7
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|
|
|
111.3
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181.7
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112.8
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18.9
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Operating Leases
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38.7
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15.0
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|
15.8
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7.9
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Purchase Obligations
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5.7
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5.7
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Totals
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$
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2,666.5
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|
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$
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341.9
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|
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$
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532.7
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$
|
1,115.7
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|
$
|
676.2
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Financial Services:
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Notes Payable Principal (2)
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$
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86.5
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|
|
$
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86.5
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|
|
$
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|
|
|
$
|
|
|
|
$
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Notes Payable Interest (2)
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|
|
3.2
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|
|
|
3.2
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|
|
|
|
|
|
|
|
|
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Operating Leases
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2.2
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|
|
1.1
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|
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0.9
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|
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0.2
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|
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|
|
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Totals
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$
|
91.9
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|
|
$
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90.8
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|
|
$
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0.9
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|
$
|
0.2
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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(1)
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Homebuilding notes payable
represent principal and interest payments due on our senior,
convertible senior and secured notes.
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(2)
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Financial services notes payable
represent principal and interest payments due on our mortgage
subsidiarys repurchase facility. The interest obligation
associated with this variable rate facility is based on its
effective rate of 3.8% and principal balance outstanding at
September 30, 2010.
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At September 30, 2010, our homebuilding operations had
outstanding letters of credit of $51.7 million, all of
which were cash collateralized, and surety bonds of
$806.9 million, issued by third parties, to secure
performance under various contracts. We expect that our
performance obligations secured by these letters of credit and
bonds will generally be completed in the ordinary course of
business and in accordance with the applicable contractual
terms. When we complete our performance obligations, the related
letters of credit and bonds are generally released shortly
thereafter, leaving us with no continuing obligations. We have
no material third-party guarantees.
Our mortgage subsidiary enters into various commitments related
to the lending activities of our mortgage operations. Further
discussion of these commitments is provided in Item 7A
Quantitative and Qualitative Disclosures About Market
Risk under Part II of this annual report on
Form 10-K.
In the ordinary course of business, we enter into land and lot
option purchase contracts to procure land or lots for the
construction of homes. Lot option contracts enable us to control
significant lot positions with limited capital investment and
substantially reduce the risks associated with land ownership
and development. Within the land and lot option purchase
contracts at September 30, 2010, there were a limited
number of contracts, representing $5.7 million of remaining
purchase price, subject to specific performance clauses which
may require us to purchase the land or lots upon the land
sellers meeting their obligations. Also, we consolidated certain
variable interest entities for which we are deemed to be the
primary beneficiary, with
54
assets of $7.6 million related to some of our outstanding
land and lot option purchase contracts. Creditors, if any, of
these variable interest entities have no recourse against us.
Further discussion of our land option contracts is provided in
the Land and Lot Position and Homes in Inventory
section included herein.
Seasonality
We have typically experienced seasonal variations in our
quarterly operating results and capital requirements. Prior to
the current downturn in the homebuilding industry, we generally
had more homes under construction, closed more homes and had
greater revenues and operating income in the third and fourth
quarters of our fiscal year. This seasonal activity increased
our working capital requirements for our homebuilding operations
during the third and fourth fiscal quarters and increased our
funding requirements for the mortgages we originated in our
financial services segment at the end of these quarters. As a
result of seasonal activity, our quarterly results of operations
and financial position at the end of a particular fiscal quarter
are not necessarily representative of the balance of our fiscal
year.
In contrast to our typical seasonal results, the weakness in
homebuilding market conditions during the past four years has
mitigated our historical seasonal variations. Also, in fiscal
2010 the expiration of the federal homebuyer tax credit impacted
the timing of our construction activities, home sales and
closing volumes. Although we may experience our typical
historical seasonal pattern in the future, given the current
market conditions, we can make no assurances as to when or
whether this pattern will recur.
Inflation
We and the homebuilding industry in general may be adversely
affected during periods of high inflation, primarily because of
higher land, financing, labor and material construction costs.
In addition, higher mortgage interest rates can significantly
affect the affordability of permanent mortgage financing to
prospective homebuyers. We attempt to pass through to our
customers any increases in our costs through increased sales
prices. However, during periods of soft housing market
conditions, we may not be able to offset our cost increases with
higher selling prices.
Forward-Looking
Statements
Some of the statements contained in this report, as well as in
other materials we have filed or will file with the SEC,
statements made by us in periodic press releases and oral
statements we make to analysts, stockholders and the press in
the course of presentations about us, may be construed as
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, Section 21E
of the Securities Exchange Act of 1934 and the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements are based on managements beliefs as well as
assumptions made by, and information currently available to,
management. These forward-looking statements typically include
the words anticipate, believe,
consider, estimate, expect,
forecast, goal, intend,
objective, plan, predict,
projection, seek, strategy,
target, will or other words of similar
meaning. Any or all of the forward-looking statements included
in this report and in any other of our reports or public
statements may not approximate actual experience, and the
expectations derived from them may not be realized, due to
risks, uncertainties and other factors. As a result, actual
results may differ materially from the expectations or results
we discuss in the forward-looking statements. These risks,
uncertainties and other factors include, but are not limited to:
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the continuing downturn in the homebuilding industry, including
further deterioration in industry or broader economic conditions;
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the continuing constriction of the credit markets, which could
limit our ability to access capital and increase our costs of
capital;
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the reduction in availability of mortgage financing, increases
in mortgage interest rates and the effects of government
programs;
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the limited success of our strategies in responding to adverse
conditions in the industry;
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55
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the impact of an inflationary or deflationary environment;
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changes in general economic, real estate and other business
conditions;
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the risks associated with our inventory ownership position in
changing market conditions;
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supply risks for land, materials and labor;
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changes in the costs of owning a home;
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the effects of governmental regulations and environmental
matters on our homebuilding operations;
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the effects of governmental regulation on our financial services
operations;
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the uncertainties inherent in home warranty and construction
defect claims matters;
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our substantial debt and our ability to comply with related debt
covenants, restrictions and limitations;
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competitive conditions within our industry;
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our ability to effect any future growth strategies successfully;
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our ability to realize our deferred income tax asset; and
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the utilization of our tax losses could be substantially limited
if we experienced an ownership change as defined in the Internal
Revenue Code.
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We undertake no obligation to publicly update or revise 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,
10-Q and
8-K should
be consulted. Additional information about issues that could
lead to material changes in performance and risk factors that
have the potential to affect us is contained in Item 1A,
Risk Factors under Part I of this annual report
on
Form 10-K.
Critical
Accounting Policies
General A comprehensive enumeration of the
significant accounting policies of D.R. Horton, Inc. and
subsidiaries is presented in Note A to the accompanying
financial statements as of September 30, 2010 and 2009, and
for the years ended September 30, 2010, 2009 and 2008. Each
of our accounting policies has been chosen based upon current
authoritative literature that collectively comprises
U.S. Generally Accepted Accounting Principles (GAAP). In
instances where alternative methods of accounting are
permissible under GAAP, we have chosen the method that most
appropriately reflects the nature of our business, the results
of our operations and our financial condition, and have
consistently applied those methods over each of the periods
presented in the financial statements. The Audit Committee of
our Board of Directors has reviewed and approved the accounting
policies selected.
Revenue Recognition We generally recognize
homebuilding revenue and related profit at the time of the
closing of a sale, when title to and possession of the property
are transferred to the buyer. In situations where the
buyers financing is originated by DHI Mortgage, our
wholly-owned mortgage subsidiary, and the buyer has not made an
adequate initial or continuing investment, the profit is
deferred until the sale of the related mortgage loan to a
third-party purchaser has been completed. Any profit on land
sales is deferred until the full accrual method criteria are
met. We include proceeds from home closings held for our benefit
at title companies in homebuilding cash. When we execute sales
contracts with our homebuyers, or when we require advance
payment from homebuyers for custom changes, upgrades or options
related to their homes, we record the cash deposits received as
liabilities until the homes are closed or the contracts are
canceled. We either retain or refund to the homebuyer deposits
on canceled sales contracts, depending upon the applicable
provisions of the contract or other circumstances.
We recognize financial services revenues associated with our
title operations as closing services are rendered and title
insurance policies are issued, both of which generally occur
simultaneously as each home is closed. We transfer substantially
all underwriting risk associated with title insurance policies
to third-party insurers. In accordance with the FASBs
authoritative guidance related to the fair value option for
financial
56
assets, we typically elect the fair value option for our
mortgage loan originations. Mortgage loans held for sale are
initially recorded at fair value based on either sale
commitments or current market quotes and are adjusted for
subsequent changes in fair value until the loan is sold. The
fair value option alleviates the complex documentation required
had these instruments been designated as a fair value hedge. Net
origination costs and fees associated with mortgage loans are
recognized at the time of origination. The expected net future
cash flows related to the associated servicing of a loan are
included in the measurement of all written loan commitments that
are accounted for at fair value through earnings at the time of
commitment. We generally do not retain or service the mortgages
that we originate; rather, we seek to sell the mortgages and
related servicing rights to third-party purchasers. Interest
income is earned from the date a mortgage loan is originated
until the loan is sold.
Some mortgage loans are sold with limited recourse provisions.
Based on historical experience, discussions with our mortgage
purchasers, analysis of the mortgages we originated and current
housing and credit market conditions, we estimate and record a
loss reserve for mortgage loans held in portfolio and mortgage
loans held for sale, as well as known and projected mortgage
loan repurchase requests. A 20% or 40% increase in the amount of
expected mortgage loan repurchases and expected losses on
mortgage loan repurchases would result in an increase of
approximately $4.5 million or $9.7 million,
respectively, in our reserve for expected mortgage loan
repurchases.
Marketable Securities During fiscal 2010, we
began to invest a portion of our cash on hand by purchasing
marketable securities with maturities in excess of three months.
These securities are held in the custody of a single financial
institution. To be considered for investment, securities must
meet certain minimum requirements as to their credit ratings,
time to maturity and other risk-related criteria as prescribed
by our investment policies. The primary objective of these
investments is the preservation of capital, with the secondary
objectives of attaining higher yields than we earn on our cash
and cash equivalents and maintaining a high degree of liquidity.
We consider our investment portfolio to be
available-for-sale.
Accordingly, these investments are recorded at fair value. At
the end of a reporting period, unrealized gains and losses on
these investments, net of tax, are recorded in accumulated other
comprehensive income (loss) on the consolidated balance sheet.
Inventories and Cost of Sales Inventory
includes the costs of direct land acquisition, land development
and home construction, capitalized interest, real estate taxes
and direct overhead costs incurred during development and home
construction. Applicable direct overhead costs that we incur
after development projects or homes are substantially complete,
such as utilities, maintenance, and cleaning, are charged to
SG&A expense as incurred. All indirect overhead costs, such
as compensation of sales personnel, division and region
management, and the costs of advertising and builders risk
insurance are charged to SG&A expense as incurred.
Land and development costs are typically allocated to individual
residential lots on a pro-rata basis, and the costs of
residential lots are transferred to construction in progress
when home construction begins. We use the specific
identification method for the purpose of accumulating home
construction costs. Cost of sales for homes closed includes the
specific construction costs of each home and all applicable land
acquisition, land development and related costs (both incurred
and estimated to be incurred) based upon the total number of
homes expected to be closed in each community. Any changes to
the estimated total development costs subsequent to the initial
home closings in a community are allocated on a pro-rata basis
to the homes in the community benefiting from the relevant
development activity, which generally relates to the remaining
homes in the community.
When a home is closed, we generally have not yet paid and
recorded all incurred costs necessary to complete the home. We
record as a liability and as a charge to cost of sales the
amount we determine will ultimately be paid related to completed
homes that have been closed. We compare our home construction
budgets to actual recorded costs to determine the additional
costs remaining to be paid on each closed home. We monitor the
accuracy of the accrual by comparing actual costs incurred on
closed homes in subsequent months to the amount previously
accrued. Although actual costs to be paid in the future on
previously closed homes could differ from our current accruals,
differences in amounts historically have not been significant.
57
Each quarter, we review our inventory for the purpose of
determining whether recorded costs and any estimated costs
required to complete each home or community are recoverable. If
the review indicates that an impairment loss is required, an
estimate of the loss is made and recorded to cost of sales in
that quarter.
Land inventory and related communities under development are
reviewed for potential write-downs when impairment indicators
are present. We generally review our inventory at the community
level and the inventory within each community may be categorized
as land held for development, residential land and lots
developed and under development, and construction in progress
and finished homes, based on the stage of production or plans
for future development. A particular community often includes
inventory in more than one category. In certain situations,
inventory may be analyzed separately for impairment purposes
based on its product type (e.g. single family homes evaluated
separately from condominium parcels). In reviewing each of our
communities, we determine if impairment indicators exist on
inventory held and used by analyzing a variety of factors
including, but not limited to, the following:
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gross margins on homes closed in recent months;
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projected gross margins on homes sold but not closed;
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projected gross margins based on community budgets;
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trends in gross margins, average selling prices or cost of sales;
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sales absorption rates; and
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performance of other communities in nearby locations.
|
If indicators of impairment are present for a community, we
perform an analysis to determine if the undiscounted cash flows
estimated to be generated by those assets are less than their
carrying amounts, and if so, impairment charges are required to
be recorded if the fair value of such assets is less than their
carrying amounts. These estimates of cash flows are
significantly impacted by community specific factors including
estimates of the amounts and timing of future revenues and
estimates of the amount of land development, materials and labor
costs which, in turn, may be impacted by the following local
market conditions:
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supply and availability of new and existing homes;
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location and desirability of our communities;
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variety of product types offered in the area;
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pricing and use of incentives by us and our competitors;
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alternative uses for our land or communities such as the sale of
land, finished lots or home sites to third parties;
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amount of land and lots we own or control in a particular market
or
sub-market; and
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local economic and demographic trends.
|
For those assets deemed to be impaired, the impairment to be
recognized is measured as the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Our
determination of fair value is primarily based on discounting
the estimated cash flows at a rate commensurate with the
inherent risks associated with the assets and related estimated
cash flow streams. When an impairment charge for a community is
determined, the charge is then allocated to each lot in the
community in the same manner as land and development costs are
allocated to each lot. The inventory within each community is
categorized as construction in progress and finished homes,
residential land and lots developed and under development, and
land held for development, based on the stage of production or
plans for future development.
We typically do not purchase land for resale. However, when we
own land or communities under development that no longer fit
into our development and construction plans and we determine
that the best use of the asset is the sale of the asset, the
project is accounted for as land held for sale, assuming the
land held for sale criteria are met. We record land held for
sale at the lesser of its carrying value or fair value less
58
estimated costs to sell. In performing impairment evaluation for
land held for sale, we consider several factors including, but
not limited to, prices for land in recent comparable sales
transactions, market analysis studies, which include the
estimated price a willing buyer would pay for the land and
recent legitimate offers received. If the estimated fair value
less costs to sell an asset is less than the current carrying
value, the asset is written down to its estimated fair value
less costs to sell.
Impairment charges are also recorded on finished homes in
substantially completed communities when events or circumstances
indicate that the carrying values are greater than the fair
values less estimated costs to sell these homes.
The key assumptions relating to the valuations are impacted by
local market economic conditions and the actions of competitors,
and are inherently uncertain. Due to uncertainties in the
estimation process, actual results could differ from such
estimates. Our quarterly assessments reflect managements
estimates and we continue to monitor the fair value of
held-for-sale
assets through the disposition date.
Land and Lot Option Purchase Contracts In the
ordinary course of our homebuilding business, we enter into land
and lot option purchase contracts to procure land or lots for
the construction of homes. Under these contracts, we will fund a
stated deposit in consideration for the right, but not the
obligation, to purchase land or lots at a future point in time
with predetermined terms. Under the terms of the option purchase
contracts, many of our option deposits are not refundable at our
discretion.
Option deposits and pre-acquisition costs we incur related to
our land and lot option purchase contracts are capitalized if
all of the following conditions have been met: (1) the
costs are directly identifiable with the specific property;
(2) the costs would be capitalized if the property were
already acquired; and (3) acquisition of the property is
probable, meaning we are actively seeking and have the ability
to acquire the property, and there is no indication that the
property is not available for sale. We also consider the
following when determining if the acquisition of the property is
probable: (1) changes in market conditions subsequent to
contracting for the purchase of the land; (2) current
contract terms, including per lot price and required purchase
dates; and (3) our current land position in the given
market or
sub-market.
Option deposits and capitalized pre-acquisition costs are
expensed to cost of sales when we believe it is probable that we
will no longer acquire the land or lots under option and will
not be able to recover these costs through other means.
We evaluate our land and lot option purchase contracts for the
financial accounting and reporting of interests in certain
variable interest entities, which are defined as business
entities that either have equity investors with voting rights
disproportionate to their ownership interests, or have equity
investors that do not provide sufficient financial resources for
the entities to support their activities. Certain of our option
purchase contracts result in the creation of a variable interest
in the entity holding the land parcel under option. We evaluate
those land and lot option purchase contracts with variable
interest entities to determine whether we are the primary
beneficiary based upon analysis of the variability of the
expected gains and losses of the entity. The expected gains and
losses are primarily determined by the amount of deposit
required by the contract, the time period or term of the
contract, and by analyzing the volatility in home sales prices
as well as development and entitlement risk in each specific
market. Based on this evaluation, if we are the primary
beneficiary of an entity with which we have entered into a land
or lot option purchase contract, the variable interest entity is
consolidated. Since we own no equity interest in these
unaffiliated variable interest entities, we generally have
little or no control or influence over the operations of these
entities or their owners. When our requests for financial
information are denied by the land sellers, certain assumptions
about the assets and liabilities of such entities are required.
In most cases, the fair value of the assets of the consolidated
entities has been assumed to be the remaining contractual
purchase price of the land or lots we are purchasing. In these
cases, it is assumed that the entities have no debt obligations
and the only asset recorded is the land or lots we have the
option to buy with a related offset to noncontrolling interest
for the assumed third-party investment in the variable interest
entity. Creditors, if any, of these variable interest entities
have no recourse against us.
Fair Value Measurements We adopted the
FASBs authoritative guidance for fair value measurements
of financial and non-financial instruments on October 1,
2008 and 2009, respectively. The guidance defines fair value,
establishes a framework for measuring fair value and expands
disclosures about fair value
59
measurements. Fair value is defined as the exchange (exit) price
that would be received for an asset or paid to transfer a
liability in the principal or most advantageous market for the
asset or liability in an orderly transaction between market
participants on the measurement date. This standard establishes
a three-level hierarchy for fair value measurements based upon
the inputs to the valuation of an asset or liability. Observable
inputs are those which can be easily seen by market participants
while unobservable inputs are generally developed internally,
utilizing managements estimates and assumptions.
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Level 1 Valuation is based on quoted prices in
active markets for identical assets and liabilities.
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Level 2 Valuation is determined from quoted
prices for similar assets or liabilities in active markets,
quoted prices for identical or similar instruments in markets
that are not active, or by model-based techniques in which all
significant inputs are observable in the market.
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Level 3 Valuation is derived from model-based
techniques in which at least one significant input is
unobservable and based on our own estimates about the
assumptions that market participants would use to value the
asset or liability.
|
When available, we use quoted market prices in active markets to
determine fair value. We consider the principal market and
nonperformance risk associated with our counterparties when
determining the fair value measurements. Fair value measurements
are used for our marketable securities, mortgage loans held for
sale, interest rate lock commitments (IRLCs) and other
derivative instruments on a recurring basis, and are used for
inventories and other mortgage loans on a nonrecurring basis,
when events and circumstances indicate that the carrying value
may not be recoverable.
Goodwill Goodwill represents the excess of
purchase price over net assets acquired. We test goodwill for
potential impairment annually as of September 30, or more
frequently if an event occurs or circumstances change that
indicate the remaining balance of goodwill may not be
recoverable. In analyzing the potential impairment of goodwill,
a two-step process is utilized that begins with the estimation
of the fair value of the operating segments. The fair value is
estimated primarily utilizing the present values of expected
future cash flows. If the results of the first step indicate
that impairment potentially exists, the second step is performed
to measure the amount of the impairment, if any. Impairment is
determined to exist when the estimated fair value of goodwill is
less than its carrying value. The goodwill assessment procedures
require us to make comprehensive estimates of future revenues
and costs. Due to the uncertainties associated with such
estimates, actual results could differ from our estimates.
Warranty Claims We typically provide our
homebuyers with a ten-year limited warranty for major defects in
structural elements such as framing components and foundation
systems, a two-year limited warranty on major mechanical
systems, and a one-year limited warranty on other construction
components. Since we subcontract our homebuilding work to
subcontractors who typically provide us with an indemnity and a
certificate of insurance prior to receiving payments for their
work, claims relating to workmanship and materials are generally
the primary responsibility of the subcontractors. Warranty
liabilities have been established by charging cost of sales for
each home delivered. The amounts charged are based on
managements estimate of expected warranty-related costs
under all unexpired warranty obligation periods. Our warranty
liability is based upon historical warranty cost experience in
each market in which we operate, and is adjusted as appropriate
to reflect qualitative risks associated with the types of homes
we build and the geographic areas in which we build them. Actual
future warranty costs could differ from our currently estimated
amounts. A 10% change in the historical warranty rates used to
estimate our warranty accrual would not result in a material
change in our accrual.
Insurance and Legal Claims We have, and
require the majority of the subcontractors we use to have,
general liability insurance which includes construction defect
coverage. Our general liability insurance policies protect us
against a portion of our risk of loss from construction defect
and other claims and lawsuits, subject to self-insured
retentions and other coverage limits. For policy years ended
June 30, 2004 through 2010, we are self-insured for up to
$22.5 million of the aggregate claims incurred, at which
point our excess loss insurance begins, depending on the policy
year. Once we have satisfied the annual aggregate limits, we are
self-insured for the first $250,000 to $1.0 million for
each claim occurrence, depending on the policy year. For
60
policy years 2010 and 2011, we are self-insured for up to
$20.0 million and $15.0 million, respectively, of the
aggregate claims incurred and for up to $0.5 million of
each claim occurrence thereafter.
In some states where we believe it is too difficult or expensive
for our subcontractors to obtain general liability insurance, we
have waived our traditional subcontractor general liability
insurance requirements to obtain lower costs from
subcontractors. In these states, we purchase insurance policies
from either third-party carriers or our wholly-owned captive
insurance subsidiary, and name certain subcontractors as
additional insureds. The policies issued by our captive
insurance subsidiary represent self insurance of these risks by
us and are considered in the self-insured amounts above. For
policy years after April 2007, the captive insurance subsidiary
has acquired $15.0 million of reinsurance coverage with a
third-party insurer.
We are self-insured for the deductible amounts under our
workers compensation insurance policies. The deductibles
vary by policy year, but in no years exceed $0.5 million
per occurrence. The deductible for the 2010 and 2011 policy
years is $0.5 million per occurrence.
We record expenses and liabilities related to the costs for
exposures related to construction defects and claims and
lawsuits incurred in the ordinary course of business, including
employment matters, personal injury claims, land development
issues and contract disputes. Also, we record expenses and
liabilities for any estimated costs of potential construction
defect claims and lawsuits (including expected legal costs),
based on an analysis of our historical claims, which includes an
estimate of construction defect claims incurred but not yet
reported. Related to the exposures for actual construction
defect claims and estimates of construction defect claims
incurred but not yet reported and other legal claims and
lawsuits incurred in the ordinary course of business, we
estimate and record insurance receivables for these matters
under applicable insurance policies when recovery is probable.
Additionally, we may have the ability to recover a portion of
our legal expenses from our subcontractors when we have been
named as an additional insured on their insurance policies. The
expenses, liabilities and receivables related to these claims
are subject to a high degree of variability due to uncertainties
such as trends in construction defect claims relative to our
markets, the types of products we build, claim settlement
patterns, insurance industry practices and legal
interpretations, among others. A 10% increase in the claim rate
and the average cost per claim used to estimate the self-insured
accruals would result in an increase of approximately
$158.0 million in our accrual and a $91.5 million
increase in our receivable resulting in additional expense of
$66.5 million, while a 10% decrease in the claim rate and
the average cost per claim would result in a decrease of
approximately $109.4 million in our accrual and a
$75.5 million decrease in our receivable resulting in a
reduction in our expense of $33.9 million.
Income Taxes We calculate a provision for, or
benefit from, income taxes using the asset and liability method,
under which deferred tax assets and liabilities are recorded
based on the difference between the financial statement and tax
basis of assets and liabilities, using enacted tax rates in
effect for the year in which the differences are expected to
reverse. In assessing the realizability of deferred tax assets,
we consider whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is primarily
dependent upon the generation of future taxable income during
the periods in which those temporary differences become
deductible. In determining the future tax consequences of events
that have been recognized in our financial statements or tax
returns, judgment is required. The accounting for deferred taxes
is based upon an estimate of future results. Differences between
the anticipated and actual outcomes of these future tax
consequences could have a material impact on our consolidated
results of operations or financial position. Changes in existing
tax laws also affect actual tax results and the valuation of
deferred tax assets over time.
Interest and penalties related to unrecognized tax benefits are
recognized in the financial statements as a component of the
income tax provision. Significant judgment is required to
evaluate uncertain tax positions. We evaluate our uncertain tax
positions on a quarterly basis. Our evaluations are based upon a
number of factors, including changes in facts or circumstances,
changes in tax law, correspondence with tax authorities during
the course of audits and effective settlement of audit issues.
Changes in the recognition or measurement of uncertain tax
positions could result in material increases or decreases in our
income tax expense in the period in which we make the change.
61
Stock-based Compensation From time to time,
the compensation committee of our board of directors authorizes
the issuance of options to purchase our common stock to
employees and directors. The committee approves grants only out
of amounts remaining available for grant from amounts formally
authorized by our common stockholders. Options are granted at
exercise prices which equal the market value of our common stock
at the date of the grant. Generally, the options vest over
periods of 5 to 9.75 years and expire 10 years after
the dates on which they were granted.
We measure and recognize compensation expense at an amount equal
to the fair value of share-based payments granted under
compensation arrangements for all awards granted or modified
after October 1, 2005, using the modified prospective
method. Compensation expense for any unvested stock option
awards outstanding as of October 1, 2005 is recognized on a
straight-line basis over the remaining vesting period. We
calculate the fair value of stock options using the
Black-Scholes option pricing model. Determining the fair value
of share-based awards at the grant date requires judgment in
developing assumptions, which involve a number of variables.
These variables include, but are not limited to, the expected
stock price volatility over the term of the awards, the expected
dividend yield and expected stock option exercise behavior. In
addition, we also use judgment in estimating the number of
share-based awards that are expected to be forfeited.
Recent
Accounting Pronouncements
In June 2009, the FASB revised the authoritative guidance for
accounting for transfers of financial assets, which requires
enhanced disclosures regarding transfers of financial assets,
including securitization transactions, and continuing exposure
to the related risks. The guidance eliminates the concept of a
qualifying special-purpose entity and changes the requirements
for derecognizing financial assets. The guidance is effective
for us beginning October 1, 2010. The adoption of this
guidance will not have a material impact on our consolidated
financial position, results of operations or cash flows.
In June 2009, the FASB revised the authoritative guidance for
consolidating variable interest entities, which changes how a
company determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar
rights) should be consolidated. The determination of whether a
company is required to consolidate an entity is based on, among
other things, an entitys purpose and design and a
companys ability to direct the activities of the entity
that most significantly impact the entitys economic
performance. The guidance is effective for us beginning
October 1, 2010. The adoption of this guidance will not
have a material impact on our consolidated financial position,
results of operations or cash flows.
In January 2010, the FASB issued ASU
2010-06,
Improving Disclosures about Fair Value Measurements,
which requires additional disclosures about transfers between
Levels 1 and 2 of the fair value hierarchy and disclosures
about purchases, sales, issuances and settlements in the roll
forward of activity in Level 3 fair value measurements.
This guidance was effective for us in the third quarter of
fiscal 2010, except for the Level 3 activity disclosures,
which are effective for fiscal years beginning after
December 15, 2010. The adoption of this guidance, which is
related to disclosure only, will not impact our consolidated
financial position, results of operations or cash flows.
62
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We are subject to interest rate risk on our long-term debt. We
monitor our exposure to changes in interest rates and utilize
both fixed and variable rate debt. For fixed rate debt, changes
in interest rates generally affect the value of the debt
instrument, but not our 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 our
future earnings and cash flows. Except in very limited
circumstances, we do 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 our
cash flows related to our fixed-rate debt until such time as we
are required to refinance, repurchase or repay such debt.
We are exposed to interest rate risk associated with our
mortgage loan origination services. We manage interest rate risk
through the use of forward sales of mortgage-backed securities
(MBS), Eurodollar Futures Contracts (EDFC) and put options on
MBS and EDFC. Use of the term hedging instruments in
the following discussion refers to these securities
collectively, or in any combination. We do not enter into or
hold derivatives for trading or speculative purposes.
Interest rate lock commitments (IRLCs) are extended to borrowers
who have applied for loan funding and who meet defined credit
and underwriting criteria. Typically, the IRLCs have a duration
of less than six months. Some IRLCs are committed immediately to
a specific purchaser through the use of best-efforts whole loan
delivery commitments, while other IRLCs are funded prior to
being committed to third-party purchasers. The hedging
instruments related to IRLCs are classified and accounted for as
derivative instruments in an economic hedge, with gains and
losses recognized in current earnings. Hedging instruments
related to funded, uncommitted loans are accounted for at fair
value, with changes recognized in current earnings, along with
changes in the fair value of the funded, uncommitted loans. The
fair value change related to the hedging instruments generally
offsets the fair value change in the uncommitted loans and the
fair value change, which for the years ended September 30,
2010 and 2009 was not significant, is recognized in current
earnings. At September 30, 2010, hedging instruments used
to mitigate interest rate risk related to uncommitted mortgage
loans held for sale and uncommitted IRLCs totaled
$272.3 million. Uncommitted IRLCs, the duration of which
are generally less than six months, totaled approximately
$166.8 million, and uncommitted mortgage loans held for
sale totaled approximately $127.1 million at
September 30, 2010.
At September 30, 2010, we had $3.5 million notional
amount of forward sales of MBS which were acquired as part of a
program to potentially offer homebuyers a below market interest
rate on their home financing. These hedging instruments and the
related commitments are accounted for at fair value with gains
and losses recognized in current earnings. These gains and
losses for the years ended September 30, 2010, 2009 and
2008 were not material.
The following table sets forth principal cash flows by scheduled
maturity, weighted average interest rates and estimated fair
value of our debt obligations as of September 30, 2010. The
interest rate for our variable rate debt represents the interest
rate on our mortgage repurchase facility. Because the mortgage
repurchase facility is effectively secured by certain mortgage
loans held for sale which are typically sold within
60 days, its outstanding balance is included as a variable
rate maturity in the most current period presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value at
|
|
|
Fiscal Year Ending September 30,
|
|
|
|
|
|
September 30,
|
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
Thereafter
|
|
Total
|
|
2010
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
209.9
|
|
|
$
|
160.9
|
|
|
$
|
174.3
|
|
|
$
|
794.5
|
|
|
$
|
200.5
|
|
|
$
|
657.3
|
|
|
$
|
2,197.4
|
|
|
$
|
2,279.1
|
|
Average interest rate
|
|
|
7.4%
|
|
|
|
5.4%
|
|
|
|
7.0%
|
|
|
|
8.2%
|
|
|
|
5.4%
|
|
|
|
6.3%
|
|
|
|
6.9%
|
|
|
|
|
|
Variable rate
|
|
$
|
86.5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
86.5
|
|
|
$
|
86.5
|
|
Average interest rate
|
|
|
3.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.8%
|
|
|
|
|
|
63
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of D.R. Horton, Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, total equity,
and cash flows present fairly, in all material respects, the
financial position of D.R. Horton, Inc. and its
subsidiaries at September 30, 2010 and 2009 and the results
of their operations and their cash flows for each of the three
years in the period ended September 30, 2010 in conformity
with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained,
in all material respects, effective internal control over
financial reporting as of September 30, 2010, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in
Managements Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to
express opinions on these financial statements and on the
Companys internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Fort Worth, Texas
November 17, 2010
64
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
D.R.
HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
ASSETS
|
Homebuilding:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,282.6
|
|
|
$
|
1,922.8
|
|
Marketable securities,
available-for-sale
|
|
|
297.7
|
|
|
|
|
|
Restricted cash
|
|
|
53.7
|
|
|
|
55.2
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Construction in progress and finished homes
|
|
|
1,286.0
|
|
|
|
1,446.6
|
|
Residential land and lots developed and under
development
|
|
|
1,406.1
|
|
|
|
1,643.3
|
|
Land held for development
|
|
|
749.3
|
|
|
|
562.5
|
|
Land inventory not owned
|
|
|
7.6
|
|
|
|
14.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,449.0
|
|
|
|
3,666.7
|
|
Income taxes receivable
|
|
|
16.0
|
|
|
|
293.1
|
|
Deferred income taxes, net of valuation allowance of
$902.6 million
and $1,073.9 million at September 30, 2010 and 2009,
respectively
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
60.5
|
|
|
|
57.8
|
|
Other assets
|
|
|
434.8
|
|
|
|
433.0
|
|
Goodwill
|
|
|
15.9
|
|
|
|
15.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,610.2
|
|
|
|
6,444.5
|
|
|
|
|
|
|
|
|
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
26.7
|
|
|
|
34.5
|
|
Mortgage loans held for sale
|
|
|
253.8
|
|
|
|
220.8
|
|
Other assets
|
|
|
47.9
|
|
|
|
57.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
328.4
|
|
|
|
312.3
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,938.6
|
|
|
$
|
6,756.8
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Homebuilding:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
135.1
|
|
|
$
|
216.8
|
|
Accrued expenses and other liabilities
|
|
|
957.2
|
|
|
|
932.0
|
|
Notes payable
|
|
|
2,085.3
|
|
|
|
3,076.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,177.6
|
|
|
|
4,225.4
|
|
|
|
|
|
|
|
|
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
|
51.6
|
|
|
|
62.1
|
|
Mortgage repurchase facility
|
|
|
86.5
|
|
|
|
68.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138.1
|
|
|
|
130.8
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,315.7
|
|
|
|
4,356.2
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note M)
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.10 par value, 30,000,000 shares
authorized, no shares issued
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 1,000,000,000 shares
authorized, 322,478,467 shares issued
and 318,823,234 shares outstanding at September 30,
2010 and 321,136,119 shares issued
and 317,480,886 shares outstanding at September 30,
2009
|
|
|
3.2
|
|
|
|
3.2
|
|
Additional paid-in capital
|
|
|
1,894.8
|
|
|
|
1,871.1
|
|
Retained earnings
|
|
|
810.6
|
|
|
|
613.2
|
|
Treasury stock, 3,655,233 shares at September 30, 2010
and 2009, at cost
|
|
|
(95.7
|
)
|
|
|
(95.7
|
)
|
Accumulated other comprehensive income
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,613.2
|
|
|
|
2,391.8
|
|
Noncontrolling interests
|
|
|
9.7
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
2,622.9
|
|
|
|
2,400.6
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
5,938.6
|
|
|
$
|
6,756.8
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
65
D.R.
HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions, except per share data)
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales
|
|
$
|
4,302.3
|
|
|
$
|
3,563.6
|
|
|
$
|
6,164.3
|
|
Land/lot sales
|
|
|
7.4
|
|
|
|
40.3
|
|
|
|
354.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,309.7
|
|
|
|
3,603.9
|
|
|
|
6,518.6
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales
|
|
|
3,558.3
|
|
|
|
3,096.1
|
|
|
|
5,473.1
|
|
Land/lot sales
|
|
|
4.6
|
|
|
|
34.9
|
|
|
|
324.2
|
|
Inventory impairments and land option cost write-offs
|
|
|
64.7
|
|
|
|
407.7
|
|
|
|
2,484.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,627.6
|
|
|
|
3,538.7
|
|
|
|
8,281.8
|
|
Gross profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales
|
|
|
744.0
|
|
|
|
467.5
|
|
|
|
691.2
|
|
Land/lot sales
|
|
|
2.8
|
|
|
|
5.4
|
|
|
|
30.1
|
|
Inventory impairments and land option cost write-offs
|
|
|
(64.7
|
)
|
|
|
(407.7
|
)
|
|
|
(2,484.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
682.1
|
|
|
|
65.2
|
|
|
|
(1,763.2
|
)
|
Selling, general and administrative expense
|
|
|
522.0
|
|
|
|
523.0
|
|
|
|
791.8
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
79.4
|
|
Interest expense
|
|
|
86.3
|
|
|
|
100.2
|
|
|
|
39.0
|
|
Loss (gain) on early retirement of debt, net
|
|
|
4.9
|
|
|
|
(3.9
|
)
|
|
|
2.6
|
|
Other (income)
|
|
|
(9.2
|
)
|
|
|
(12.8
|
)
|
|
|
(9.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78.1
|
|
|
|
(541.3
|
)
|
|
|
(2,666.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net of recourse and reinsurance expense
|
|
|
90.5
|
|
|
|
53.7
|
|
|
|
127.5
|
|
General and administrative expense
|
|
|
77.2
|
|
|
|
78.1
|
|
|
|
100.1
|
|
Interest expense
|
|
|
1.9
|
|
|
|
1.5
|
|
|
|
3.7
|
|
Interest and other (income)
|
|
|
(10.0
|
)
|
|
|
(10.4
|
)
|
|
|
(11.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.4
|
|
|
|
(15.5
|
)
|
|
|
35.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
99.5
|
|
|
|
(556.8
|
)
|
|
|
(2,631.8
|
)
|
(Benefit from) provision for income taxes
|
|
|
(145.6
|
)
|
|
|
(7.0
|
)
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
245.1
|
|
|
$
|
(549.8
|
)
|
|
$
|
(2,633.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$
|
0.77
|
|
|
$
|
(1.73
|
)
|
|
$
|
(8.34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share assuming dilution
|
|
$
|
0.77
|
|
|
$
|
(1.73
|
)
|
|
$
|
(8.34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
66
D.R.
HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF TOTAL EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
Non-Controlling
|
|
|
Total
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
Income
|
|
|
Interests
|
|
|
Equity
|
|
|
|
(In millions, except common stock share data)
|
|
|
Balances at September 30, 2007 (314,914,440 shares)
|
|
$
|
3.2
|
|
|
$
|
1,693.3
|
|
|
$
|
3,986.1
|
|
|
$
|
(95.7
|
)
|
|
$
|
|
|
|
$
|
68.4
|
|
|
$
|
5,655.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(2,633.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,633.6
|
)
|
Issuances under employee benefit plans (168,194 shares)
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
Exercise of stock options (1,577,641 shares)
|
|
|
|
|
|
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.5
|
|
Stock option compensation expense
|
|
|
|
|
|
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.5
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(142.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(142.0
|
)
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37.9
|
)
|
|
|
(37.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2008 (316,660,275 shares)
|
|
$
|
3.2
|
|
|
$
|
1,716.3
|
|
|
$
|
1,210.5
|
|
|
$
|
(95.7
|
)
|
|
$
|
|
|
|
$
|
30.5
|
|
|
$
|
2,864.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(549.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(549.8
|
)
|
Issuances under employee benefit plans (155,254 shares)
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
Exercise of stock options (665,357 shares)
|
|
|
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
Stock option compensation expense
|
|
|
|
|
|
|
13.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.7
|
|
Equity component of convertible senior notes
|
|
|
|
|
|
|
136.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136.7
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(47.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47.5
|
)
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21.7
|
)
|
|
|
(21.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2009 (317,480,886 shares)
|
|
$
|
3.2
|
|
|
$
|
1,871.1
|
|
|
$
|
613.2
|
|
|
$
|
(95.7
|
)
|
|
$
|
|
|
|
$
|
8.8
|
|
|
$
|
2,400.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
245.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
245.1
|
|
Issuances under employee benefit plans (107,952 shares)
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
Exercise of stock options (1,234,396 shares)
|
|
|
|
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.3
|
|
Stock option compensation expense
|
|
|
|
|
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.3
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(47.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47.7
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
0.3
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.9
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2010 (318,823,234 shares)
|
|
$
|
3.2
|
|
|
$
|
1,894.8
|
|
|
$
|
810.6
|
|
|
$
|
(95.7
|
)
|
|
$
|
0.3
|
|
|
$
|
9.7
|
|
|
$
|
2,622.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
67
D.R.
HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
245.1
|
|
|
$
|
(549.8
|
)
|
|
$
|
(2,633.6
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
17.2
|
|
|
|
25.7
|
|
|
|
53.2
|
|
Amortization of discounts and fees
|
|
|
30.8
|
|
|
|
10.9
|
|
|
|
7.2
|
|
Stock option compensation expense
|
|
|
13.3
|
|
|
|
13.7
|
|
|
|
13.5
|
|
Income tax benefit from stock option exercises
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
213.5
|
|
|
|
650.3
|
|
Loss (gain) on early retirement of debt, net
|
|
|
4.9
|
|
|
|
(3.9
|
)
|
|
|
2.6
|
|
Inventory impairments and land option cost write-offs
|
|
|
64.7
|
|
|
|
407.7
|
|
|
|
2,484.5
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
79.4
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in construction in progress and finished homes
|
|
|
156.0
|
|
|
|
180.0
|
|
|
|
1,304.6
|
|
(Increase) decrease in residential land and lots
developed, under development, and held for development
|
|
|
(11.2
|
)
|
|
|
397.0
|
|
|
|
835.1
|
|
Decrease (increase) in other assets
|
|
|
3.7
|
|
|
|
34.1
|
|
|
|
(248.8
|
)
|
Decrease (increase) in income taxes receivable
|
|
|
277.1
|
|
|
|
383.1
|
|
|
|
(676.2
|
)
|
(Increase) decrease in mortgage loans held for sale
|
|
|
(33.0
|
)
|
|
|
131.3
|
|
|
|
171.4
|
|
Decrease in accounts payable, accrued expenses and other
liabilities
|
|
|
(56.4
|
)
|
|
|
(102.1
|
)
|
|
|
(166.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
709.4
|
|
|
|
1,141.2
|
|
|
|
1,876.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(19.2
|
)
|
|
|
(6.2
|
)
|
|
|
(6.6
|
)
|
Purchases of marketable securities
|
|
|
(328.0
|
)
|
|
|
|
|
|
|
|
|
Proceeds from the sale of marketable securities
|
|
|
27.7
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in restricted cash
|
|
|
1.5
|
|
|
|
(53.2
|
)
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(318.0
|
)
|
|
|
(59.4
|
)
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
17.8
|
|
|
|
487.5
|
|
|
|
321.5
|
|
Repayment of notes payable
|
|
|
(1,019.9
|
)
|
|
|
(956.2
|
)
|
|
|
(944.6
|
)
|
Proceeds from stock associated with certain employee benefit
plans
|
|
|
7.6
|
|
|
|
4.4
|
|
|
|
9.5
|
|
Income tax benefit from stock option exercises
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
(47.7
|
)
|
|
|
(47.5
|
)
|
|
|
(142.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(1,039.4
|
)
|
|
|
(511.8
|
)
|
|
|
(755.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(648.0
|
)
|
|
|
570.0
|
|
|
|
1,117.7
|
|
Cash and cash equivalents at beginning of year
|
|
|
1,957.3
|
|
|
|
1,387.3
|
|
|
|
269.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,309.3
|
|
|
$
|
1,957.3
|
|
|
$
|
1,387.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized
|
|
$
|
101.8
|
|
|
$
|
103.3
|
|
|
$
|
49.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (refunded) paid, net
|
|
$
|
(485.4
|
)
|
|
$
|
(603.9
|
)
|
|
$
|
23.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable issued for inventory
|
|
$
|
2.8
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
68
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The consolidated financial statements have been prepared in
accordance with U.S. Generally Accepted Accounting
Principles (GAAP) and include the accounts of D.R. Horton, Inc.
and all of its wholly-owned, majority-owned and controlled
subsidiaries (which are referred to as the Company, unless the
context otherwise requires), as well as certain variable
interest entities of which the Company is determined to be the
primary beneficiary. All significant intercompany accounts,
transactions and balances have been eliminated in consolidation.
Use of
Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from
those estimates.
Reclassifications/Revisions
In accordance with the authoritative guidance issued by the
Financial Accounting Standards Board (FASB) for noncontrolling
interests, which was adopted at the beginning of fiscal 2010,
the balance sheet at September 30, 2009 has been revised to
present minority interests (now referred to as noncontrolling
interests) as a component of equity rather than as a liability.
Correspondingly, the statements of total equity for the years
ended September 30, 2009 and 2008 have been revised to
include noncontrolling interests as a component of equity.
Revenue
Recognition
Homebuilding revenue and related profit are generally recognized
at the time of the closing of a sale, when title to and
possession of the property are transferred to the buyer. In
situations where the buyers financing is originated by DHI
Mortgage, the Companys wholly-owned mortgage subsidiary,
and the buyer has not made an adequate initial or continuing
investment, the profit is deferred until the sale of the related
mortgage loan to a third-party purchaser has been completed. At
September 30, 2010 and 2009, the Company had deferred
profit on such sales in the amounts of $2.0 million and
$2.7 million, respectively. Any profit on land sales is
deferred until the full accrual method criteria are met.
Financial services revenues associated with the Companys
title operations are recognized as closing services are rendered
and title insurance policies are issued, both of which generally
occur simultaneously as each home is closed. The Company
transfers substantially all underwriting risk associated with
title insurance policies to third-party insurers. In accordance
with the FASBs authoritative guidance related to the fair
value option for financial assets, the Company typically elects
the fair value option for its mortgage loan originations.
Mortgage loans held for sale are initially recorded at fair
value based on either sale commitments or current market quotes
and are adjusted for subsequent changes in fair value until the
loan is sold. The fair value option alleviates the complex
documentation required had these instruments been designated as
a fair value hedge. Net origination costs and fees associated
with mortgage loans are recognized at the time of origination.
The expected net future cash flows related to the associated
servicing of a loan are included in the measurement of all
written loan commitments that are accounted for at fair value
through earnings at the time of commitment. The Company
generally does not retain or service the mortgages that it
originates; rather, it seeks to sell the mortgages and related
servicing rights to third-party purchasers. Interest income is
earned from the date a mortgage loan is originated until the
loan is sold.
69
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash
and Cash Equivalents
The Company considers all highly liquid investments with an
initial maturity of three months or less when purchased to be
cash equivalents. Proceeds from home closings held for the
Companys benefit at title companies are included in
homebuilding cash on the consolidated balance sheet.
Marketable
Securities
During fiscal 2010, the Company began to invest a portion of its
cash on hand by purchasing marketable securities with maturities
in excess of three months. These securities are held in the
custody of a single financial institution. To be considered for
investment, securities must meet certain minimum requirements as
to their credit ratings, time to maturity and other risk-related
criteria as prescribed by the Companys investment
policies. The primary objective of these investments is the
preservation of capital, with the secondary objectives of
attaining higher yields than the Company earns on its cash and
cash equivalents and maintaining a high degree of liquidity.
The Company considers its investment portfolio to be
available-for-sale.
Accordingly, these investments are recorded at fair value. At
the end of a reporting period, unrealized gains and losses on
these investments, net of tax, are recorded in accumulated other
comprehensive income (loss) on the consolidated balance sheet.
Gains and losses realized upon the sale of marketable securities
are determined by specific identification and are included in
homebuilding other income. See Notes B and C.
Restricted
Cash
The Company has cash that is restricted as to its use.
Restricted cash related to homebuilding operations includes cash
used as collateral for outstanding letters of credit and
customer deposits that are temporarily restricted in accordance
with regulatory requirements. At September 30, 2010 and
2009, the balances of restricted cash were $53.7 million
and $55.2 million, respectively, and are presented as
homebuilding restricted cash on the consolidated balance sheets.
Inventories
and Cost of Sales
Inventory includes the costs of direct land acquisition, land
development and home construction, capitalized interest, real
estate taxes and direct overhead costs incurred during
development and home construction. Applicable direct overhead
costs incurred after development projects or homes are
substantially complete, such as utilities, maintenance, and
cleaning, are charged to selling, general and administrative
(SG&A) expense as incurred. All indirect overhead costs,
such as compensation of sales personnel, division and region
management, and the costs of advertising and builders risk
insurance are charged to SG&A expense as incurred.
Land and development costs are typically allocated to individual
residential lots on a pro-rata basis, and the costs of
residential lots are transferred to construction in progress
when home construction begins. The specific identification
method is used for the purpose of accumulating home construction
costs. Cost of sales for homes closed includes the specific
construction costs of each home and all applicable land
acquisition, land development and related costs (both incurred
and estimated to be incurred) based upon the total number of
homes expected to be closed in each community. Any changes to
the estimated total development costs subsequent to the initial
home closings in a community are allocated on a pro-rata basis
to the homes in the community benefiting from the relevant
development activity, which generally relates to the remaining
homes in the community.
When a home is closed, the Company generally has not yet paid
and recorded all incurred costs necessary to complete the home.
A liability and a charge to cost of sales is recorded for the
amount that is determined will ultimately be paid related to
completed homes that have been closed. The home construction
70
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
budgets are compared to actual recorded costs to determine the
additional costs remaining to be paid on each closed home. The
accuracy of the accrual is monitored by comparing actual costs
incurred on closed homes in subsequent months to the amount
previously accrued.
Each quarter, inventory is reviewed for the purpose of
determining whether recorded costs and any estimated costs
required to complete each home or community are recoverable. If
the review indicates that an impairment loss is required, an
estimate of the loss is made and recorded to cost of sales in
that quarter.
Land inventory and related communities under development are
reviewed for potential write-downs when impairment indicators
are present. The Company generally reviews its inventory at the
community level and the inventory within each community may be
categorized as land held for development, residential land and
lots developed and under development, and construction in
progress and finished homes, based on the stage of production or
plans for future development. A particular community often
includes inventory in more than one category. In certain
situations, inventory may be analyzed separately for impairment
purposes based on its product type (e.g. single family homes
evaluated separately from condominium parcels). In reviewing
each of its communities, the Company determines if impairment
indicators exist on inventory held and used by analyzing a
variety of factors including, but not limited to, the following:
|
|
|
|
|
gross margins on homes closed in recent months;
|
|
|
|
projected gross margins on homes sold but not closed;
|
|
|
|
projected gross margins based on community budgets;
|
|
|
|
trends in gross margins, average selling prices or cost of sales;
|
|
|
|
sales absorption rates; and
|
|
|
|
performance of other communities in nearby locations.
|
If indicators of impairment are present for a community, the
Company performs an analysis to determine if the undiscounted
cash flows estimated to be generated by those assets are less
than their carrying amounts, and if so, impairment charges are
required to be recorded if the fair value of such assets is less
than their carrying amounts. These estimates of cash flows are
significantly impacted by community specific factors including
estimates of the amounts and timing of future revenues and
estimates of the amount of land development, materials and labor
costs which, in turn, may be impacted by the following local
market conditions:
|
|
|
|
|
supply and availability of new and existing homes;
|
|
|
|
location and desirability of the Companys communities;
|
|
|
|
variety of product types offered in the area;
|
|
|
|
pricing and use of incentives by the Company and its competitors;
|
|
|
|
alternative uses for the Companys land or communities such
as the sale of land, finished lots or home sites to third
parties;
|
|
|
|
amount of land and lots the Company owns or controls in a
particular market or
sub-market; and
|
|
|
|
local economic and demographic trends.
|
For those assets deemed to be impaired, the impairment to be
recognized is measured as the amount by which the carrying
amount of the assets exceeds the fair value of the assets. The
Companys determination of fair value is primarily based on
discounting the estimated cash flows at a rate commensurate with
the inherent risks associated with the assets and related
estimated cash flow streams. When an impairment charge for a
community is determined, the charge is then allocated to each
lot in the community in the same manner as
71
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
land and development costs are allocated to each lot. The
inventory within each community is categorized as construction
in progress and finished homes, residential land and lots
developed and under development, and land held for development,
based on the stage of production or plans for future development.
The Company typically does not purchase land for resale.
However, when the Company owns land or communities under
development that no longer fit into its development and
construction plans and it is determined that the best use of the
asset is the sale of the asset, the project is accounted for as
land held for sale, assuming the land held for sale criteria are
met. The Company records land held for sale at the lesser of its
carrying value or fair value less estimated costs to sell. In
performing impairment evaluation for land held for sale, several
factors are considered including, but not limited to, prices for
land in recent comparable sales transactions, market analysis
studies, which include the estimated price a willing buyer would
pay for the land and recent legitimate offers received. If the
estimated fair value less costs to sell an asset is less than
the current carrying value, the asset is written down to its
estimated fair value less costs to sell.
Impairment charges are also recorded on finished homes in
substantially completed communities when events or circumstances
indicate that the carrying values are greater than the fair
values less estimated costs to sell these homes.
The key assumptions relating to the valuations are impacted by
local market economic conditions and the actions of competitors,
and are inherently uncertain. Due to uncertainties in the
estimation process, actual results could differ from such
estimates. The Companys quarterly assessments reflect
managements estimates and it continues to monitor the fair
value of
held-for-sale
assets through the disposition date. See Note D.
Homebuilding
Interest
The Company capitalizes homebuilding interest costs to inventory
during active development and construction. Capitalized interest
is charged to cost of sales as the related inventory is
delivered to the buyer. Additionally, the Company writes off a
portion of the capitalized interest related to communities for
which inventory impairments are recorded. The Companys
inventory under active development and construction was lower
than its debt level during fiscal 2010, 2009 and 2008.
Therefore, a portion of the interest incurred is reflected as
interest expense during those years.
The following table summarizes the Companys homebuilding
interest costs incurred, capitalized, expensed as interest
expense, charged to cost of sales and written off during the
years ended September 30, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Capitalized interest, beginning of year
|
|
$
|
128.8
|
|
|
$
|
160.6
|
|
|
$
|
338.7
|
|
Interest incurred
|
|
|
173.2
|
|
|
|
205.0
|
|
|
|
236.7
|
|
Interest expensed:
|
|
|
|
|
|
|
|
|
|
|
|
|
Directly to interest expense
|
|
|
(86.3
|
)
|
|
|
(100.2
|
)
|
|
|
(39.0
|
)
|
Amortized to cost of sales
|
|
|
(122.1
|
)
|
|
|
(122.8
|
)
|
|
|
(227.9
|
)
|
Written off with inventory impairments
|
|
|
(2.1
|
)
|
|
|
(13.8
|
)
|
|
|
(147.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest, end of year
|
|
$
|
91.5
|
|
|
$
|
128.8
|
|
|
$
|
160.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
and Lot Option Purchase Contracts
In the ordinary course of its homebuilding business, the Company
enters into land and lot option purchase contracts to procure
land or lots for the construction of homes. Under these
contracts, the Company will fund a stated deposit in
consideration for the right, but not the obligation, to purchase
land or lots at a future point
72
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
in time with predetermined terms. Under the terms of the option
purchase contracts, many of the option deposits are not
refundable at the Companys discretion.
Option deposits and pre-acquisition costs incurred related to
the Companys land and lot option purchase contracts are
capitalized if all of the following conditions have been met:
(1) the costs are directly identifiable with the specific
property; (2) the costs would be capitalized if the
property were already acquired; and (3) acquisition of the
property is probable, meaning the Company is actively seeking
and has the ability to acquire the property, and there is no
indication that the property is not available for sale. The
Company also considers the following when determining if the
acquisition of the property is probable: (1) changes in
market conditions subsequent to contracting for the purchase of
the land; (2) current contract terms, including per lot
price and required purchase dates; and (3) the
Companys current land position in the given market or
sub-market.
Option deposits and capitalized pre-acquisition costs are
expensed to cost of sales when the Company believes it is
probable that it will no longer acquire the land or lots under
option and will not be able to recover these costs through other
means.
The Company evaluates its land and lot option purchase contracts
for the financial accounting and reporting of interests in
certain variable interest entities, which are defined as
business entities that either have equity investors with voting
rights disproportionate to their ownership interests, or have
equity investors that do not provide sufficient financial
resources for the entities to support their activities. Certain
option purchase contracts result in the creation of a variable
interest in the entity holding the land parcel under option. The
Company evaluates those land and lot option purchase contracts
with variable interest entities to determine whether the Company
is the primary beneficiary based upon analysis of the
variability of the expected gains and losses of the entity. The
expected gains and losses are primarily determined by the amount
of deposit required by the contract, the time period or term of
the contract, and by analyzing the volatility in home sales
prices as well as development and entitlement risk in each
specific market. Based on this evaluation, if the Company is the
primary beneficiary of an entity with which the Company has
entered into a land or lot option purchase contract, the
variable interest entity is consolidated. Since the Company owns
no equity interest in these unaffiliated variable interest
entities, it generally has little or no control or influence
over the operations of these entities or their owners. When the
Companys requests for financial information are denied by
the land sellers, certain assumptions about the assets and
liabilities of these entities are required. In most cases, the
fair value of the assets of the consolidated entities has been
assumed to be the remaining contractual purchase price of the
land or lots the Company is purchasing. In these cases, it is
assumed that the entities have no debt obligations and the only
asset recorded is the land or lots the Company has the option to
buy with a related offset to noncontrolling interest for the
assumed third-party investment in the variable interest entity.
See Note E.
Property
and Equipment
Property and equipment is stated at cost less accumulated
depreciation. Repairs and maintenance costs are expensed as
incurred. Depreciation generally is recorded using the
straight-line method over the estimated useful life of the
asset. Depreciable lives for model home furniture typically
range from 2 to 3 years, depreciable lives for office
furniture and equipment typically range from 2 to 5 years,
and depreciable lives for buildings and improvements typically
range from 5 to 20 years. Accumulated depreciation was
$150.8 million and $157.4 million as of
September 30, 2010 and 2009, respectively. Depreciation
expense was $17.2 million, $25.7 million and
$53.2 million in fiscal 2010, 2009 and 2008, respectively.
Fair
Value Measurements
The Company adopted the FASBs authoritative guidance for
fair value measurements of financial and non-financial
instruments on October 1, 2008 and 2009, respectively. The
guidance defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value
measurements. Fair
73
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
value is defined as the exchange (exit) price that would be
received for an asset or paid to transfer a liability in the
principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the
measurement date. This standard establishes a three-level
hierarchy for fair value measurements based upon the inputs to
the valuation of an asset or liability. Observable inputs are
those which can be easily seen by market participants while
unobservable inputs are generally developed internally,
utilizing managements estimates and assumptions.
|
|
|
|
|
Level 1 Valuation is based on quoted prices in
active markets for identical assets and liabilities.
|
|
|
|
Level 2 Valuation is determined from quoted
prices for similar assets or liabilities in active markets,
quoted prices for identical or similar instruments in markets
that are not active, or by model-based techniques in which all
significant inputs are observable in the market.
|
|
|
|
Level 3 Valuation is derived from model-based
techniques in which at least one significant input is
unobservable and based on the Companys own estimates about
the assumptions that market participants would use to value the
asset or liability.
|
When available, the Company uses quoted market prices in active
markets to determine fair value. The Company considers the
principal market and nonperformance risk associated with the
Companys counterparties when determining the fair value
measurements, if applicable. Fair value measurements are used
for the Companys marketable securities, mortgage loans
held for sale, interest rate lock commitments (IRLCs) and other
derivative instruments on a recurring basis, and are used for
inventories, other mortgage loans and real estate owned on a
nonrecurring basis, when events and circumstances indicate that
the carrying value may not be recoverable. See Note H.
Goodwill
Goodwill represents the excess of purchase price over net assets
acquired. The Company tests goodwill for potential impairment
annually as of September 30, or more frequently if an event
occurs or circumstances change that indicate the remaining
balance of goodwill may not be recoverable. In analyzing the
potential impairment of goodwill, a two-step process is utilized
that begins with the estimation of the fair value of the
operating segments. If the results of the first step indicate
that impairment potentially exists, the second step is performed
to measure the amount of the impairment, if any. Impairment is
determined to exist when the estimated fair value of goodwill is
less than its carrying value.
In performing its goodwill impairment analysis, the Company
estimates the fair value of its operating segments utilizing the
present values of expected future cash flows. As a result of the
analyses performed as of September 30, 2010 and 2009, it
was determined that the fair value of the operating segments was
greater than their carrying value and therefore, no impairment
of goodwill existed. As a result of the analysis performed as of
September 30, 2008, the Company recorded a goodwill
impairment charge of $79.4 million, all of which related to
its Southwest reporting segment. Combined with previous
impairments, accumulated goodwill impairment losses at
September 30, 2010 and 2009 totaled $553.5 million. As
of September 30, 2010 and 2009, the Companys
remaining goodwill balance was $15.9 million, all of which
related to its South Central reporting segment. The goodwill
assessment procedures require management to make comprehensive
estimates of future revenues and costs.
Warranty
Claims
The Company typically provides its homebuyers with a ten-year
limited warranty for major defects in structural elements such
as framing components and foundation systems, a two-year limited
warranty on major mechanical systems, and a one-year limited
warranty on other construction components. Since the Company
subcontracts its homebuilding work to subcontractors who
typically provide it with an indemnity and a certificate of
insurance prior to receiving payments for their work, claims
relating to workmanship and
74
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
materials are generally the primary responsibility of the
subcontractors. Warranty liabilities have been established by
charging cost of sales for each home delivered. The amounts
charged are based on managements estimate of expected
warranty-related costs under all unexpired warranty obligation
periods. The Companys warranty liability is based upon
historical warranty cost experience in each market in which it
operates, and is adjusted as appropriate to reflect qualitative
risks associated with the types of homes built and the
geographic areas in which they are built. See Note M.
Insurance
and Legal Claims
The Company has, and requires the majority of the subcontractors
it uses to have, general liability insurance which includes
construction defect coverage. The Companys general
liability insurance policies protect it against a portion of its
risk of loss from construction defect and other claims and
lawsuits, subject to self-insured retentions and other coverage
limits. For policy years ended June 30, 2004 through 2010,
the Company is self-insured for up to $22.5 million of the
aggregate claims incurred, at which point the excess loss
insurance begins, depending on the policy year. Once the Company
has satisfied the annual aggregate limits, it is self-insured
for the first $250,000 to $1.0 million for each claim
occurrence, depending on the policy year. For policy years 2010
and 2011, the Company is self-insured for up to
$20.0 million and $15.0 million, respectively, of the
aggregate claims incurred and for up to $0.5 million of
each claim occurrence thereafter.
In some states where the Company believes it is too difficult or
expensive for its subcontractors to obtain general liability
insurance, the Company has waived its traditional subcontractor
general liability insurance requirements to obtain lower costs
from subcontractors. In these states, the Company purchases
insurance policies from either third-party carriers or its
wholly-owned captive insurance subsidiary, and names certain
subcontractors as additional insureds. The policies issued by
the captive insurance subsidiary represent self insurance of
these risks by the Company and are considered in the
self-insured amounts above. For policy years after April 2007,
the captive insurance subsidiary has acquired $15.0 million
of reinsurance coverage with a third-party insurer.
The Company is self-insured for the deductible amounts under its
workers compensation insurance policies. The deductibles
vary by policy year, but in no years exceed $0.5 million
per occurrence. The deductible for the 2010 and 2011 policy
years was $0.5 million per occurrence.
The Company records expenses and liabilities related to the
costs for exposures related to construction defects and claims
and lawsuits incurred in the ordinary course of business,
including employment matters, personal injury claims, land
development issues and contract disputes. Also, the Company
records expenses and liabilities for any estimated costs of
potential construction defect claims and lawsuits (including
expected legal costs), based on an analysis of the
Companys historical claims, which includes an estimate of
construction defect claims incurred but not yet reported.
Related to the exposures for actual construction defect claims
and estimates of construction defect claims incurred but not yet
reported and other legal claims and lawsuits incurred in the
ordinary course of business, the Company estimates and records
insurance receivables for these matters under applicable
insurance policies when recovery is probable. Additionally, the
Company may have the ability to recover a portion of its legal
expenses from its subcontractors when the Company has been named
as an additional insured on their insurance policies. The
expenses, liabilities and receivables related to these claims
are subject to a high degree of variability due to uncertainties
such as trends in construction defect claims relative to the
Companys markets, the types of products it builds, claim
settlement patterns, insurance industry practices and legal
interpretations, among others. See Note M.
Advertising
Costs
The Company expenses advertising costs as incurred. Advertising
expense was approximately $39.3 million, $31.7 million
and $60.9 million in fiscal 2010, 2009 and 2008,
respectively.
75
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income
Taxes
The provision for, or benefit from, income taxes is calculated
using the asset and liability method, under which deferred tax
assets and liabilities are recorded based on the difference
between the financial statement and tax basis of assets and
liabilities, using enacted tax rates in effect for the year in
which the differences are expected to reverse. In assessing the
realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is primarily dependent upon
the generation of future taxable income during the periods in
which those temporary differences become deductible. In
determining the future tax consequences of events that have been
recognized in the Companys financial statements or tax
returns, judgment is required. Differences between the
anticipated and actual outcomes of these future tax consequences
could have a material impact on the Companys consolidated
results of operations or financial position.
Interest and penalties related to unrecognized tax benefits are
recognized in the financial statements as a component of the
income tax provision. Significant judgment is required to
evaluate uncertain tax positions. The Company evaluates its
uncertain tax positions on a quarterly basis. The evaluations
are based upon a number of factors, including changes in facts
or circumstances, changes in tax law, correspondence with tax
authorities during the course of audits and effective settlement
of audit issues. Changes in the recognition or measurement of
uncertain tax positions could result in material increases or
decreases in the Companys income tax expense in the period
in which the change is made. See Note I.
Earnings
(Loss) Per Share
Basic earnings, or loss, per share is based on the weighted
average number of shares of common stock outstanding during each
year. Diluted earnings per share is based on the weighted
average number of shares of common stock and dilutive securities
outstanding during each year. See Note J.
Stock-Based
Compensation
From time to time, the compensation committee of the
Companys board of directors authorizes the issuance of
options to purchase the Companys common stock to employees
and directors. The committee approves grants only out of amounts
remaining available for grant from amounts formally authorized
by the common stockholders.
The Company measures and recognizes compensation expense at an
amount equal to the fair value of share-based payments granted
under compensation arrangements for all awards granted or
modified after October 1, 2005, using the modified
prospective method. Compensation expense for any unvested stock
option awards outstanding as of October 1, 2005 is
recognized on a straight-line basis over the remaining vesting
period. The fair values of the options are calculated on the
date of grant using a Black-Scholes option pricing model. The
benefits of tax deductions in excess of recognized compensation
expense are reported in the Statement of Cash Flows as a
financing cash flow. See Note L.
Recent
Accounting Pronouncements
In June 2009, the FASB revised the authoritative guidance for
accounting for transfers of financial assets, which requires
enhanced disclosures regarding transfers of financial assets,
including securitization transactions, and continuing exposure
to the related risks. The guidance eliminates the concept of a
qualifying special-purpose entity and changes the requirements
for derecognizing financial assets. The guidance is effective
for the Company beginning October 1, 2010. The adoption of
this guidance will not have a material impact on the
Companys consolidated financial position, results of
operations or cash flows.
76
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In June 2009, the FASB revised the authoritative guidance for
consolidating variable interest entities, which changes how a
company determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar
rights) should be consolidated. The determination of whether a
company is required to consolidate an entity is based on, among
other things, an entitys purpose and design and a
companys ability to direct the activities of the entity
that most significantly impact the entitys economic
performance. The guidance is effective for the Company beginning
October 1, 2010. The adoption of this guidance will not
have a material impact on the Companys consolidated
financial position, results of operations or cash flows.
In January 2010, the FASB issued ASU
2010-06,
Improving Disclosures about Fair Value Measurements,
which requires additional disclosures about transfers between
Levels 1 and 2 of the fair value hierarchy and disclosures
about purchases, sales, issuances and settlements in the roll
forward of activity in Level 3 fair value measurements.
This guidance was effective for the Company in the third quarter
of fiscal 2010, except for the Level 3 activity
disclosures, which are effective for fiscal years beginning
after December 15, 2010. The adoption of this guidance,
which is related to disclosure only, will not impact the
Companys consolidated financial position, results of
operations or cash flows.
NOTE B
COMPREHENSIVE INCOME (LOSS)
The following table provides a reconciliation of net income
(loss) reported in the consolidated statements of operations to
comprehensive income (loss) for fiscal 2010, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Net income (loss)
|
|
$
|
245.1
|
|
|
$
|
(549.8
|
)
|
|
$
|
(2,633.6
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain related to
available-for-sale
securities (see Note C)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
245.4
|
|
|
$
|
(549.8
|
)
|
|
$
|
(2,633.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE C
MARKETABLE SECURITIES
The Companys investment portfolio, which is classified as
available-for-sale,
includes U.S. Treasury securities, government agency
securities, foreign government securities, corporate debt
securities, and certificates of deposit. The amortized cost,
unrealized gains and losses and fair values of these investments
as of September 30, 2010, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In millions)
|
|
|
Type of security:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
1.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1.0
|
|
Obligations of U.S. government agencies
|
|
|
131.0
|
|
|
|
0.2
|
|
|
|
|
|
|
|
131.2
|
|
Corporate debt securities issued under the FDIC Temporary
Liquidity Guarantee Program
|
|
|
100.9
|
|
|
|
0.1
|
|
|
|
|
|
|
|
101.0
|
|
Domestic corporate debt securities
|
|
|
39.9
|
|
|
|
|
|
|
|
|
|
|
|
39.9
|
|
Foreign government securities
|
|
|
14.6
|
|
|
|
|
|
|
|
|
|
|
|
14.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
287.4
|
|
|
|
0.3
|
|
|
|
|
|
|
|
287.7
|
|
Certificates of deposit
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities,
available-for-sale
|
|
$
|
297.4
|
|
|
$
|
0.3
|
|
|
$
|
|
|
|
$
|
297.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Of the $297.7 million in marketable securities,
$277.9 million mature in the next twelve months and
$19.8 million mature in one to two years. Proceeds from the
sale of securities during fiscal 2010 were $27.7 million.
The Companys realized gains related to such sales were
insignificant.
NOTE D
INVENTORY IMPAIRMENTS AND LAND OPTION COST WRITE-OFFS
During fiscal 2010, when the Company performed its quarterly
inventory impairment analysis, the assumptions utilized
reflected the Companys expectation of continued
challenging conditions and uncertainties in the homebuilding
industry and in its markets. The impairment evaluation at
September 30, 2010 indicated communities with a combined
carrying value of $409.8 million had indicators of
potential impairment, and these communities were evaluated for
impairment. The analysis of the large majority of these
communities assumed that sales prices in future periods will be
equal to or lower than current sales order prices in each
community, or in comparable communities, in order to generate an
acceptable absorption rate. For a minority of communities that
the Company does not intend to develop or operate in current
market conditions, slight increases over current sales prices
were assumed. While it is difficult to determine a timeframe for
a given community in the current market conditions, the
remaining lives of these communities were estimated to be in a
range from six months to in excess of ten years. In performing
this analysis, the Company utilized a range of discount rates
for communities of 14% to 20%. Through this evaluation process,
it was determined that communities with a carrying value of
$63.1 million as of September 30, 2010 were impaired.
As a result, during the three months ended September 30,
2010, impairment charges of $29.1 million were recorded to
reduce the carrying value of the impaired communities to their
estimated fair value, as compared to $174.9 million in the
same period of the prior year. During fiscal 2010, 2009 and
2008, impairment charges totaled $62.3 million,
$377.8 million and $2,372.6 million, respectively.
The Company performs its impairment analysis based on total
inventory at the community level. When an impairment charge for
a community is determined, the charge is then allocated to each
lot in the community in the same manner as land and development
costs are allocated to each lot. The inventory within each
community is categorized as construction in progress and
finished homes, residential land and lots developed and under
development, and land held for development, based on the stage
of production or plans for future development. During fiscal
2010, approximately 93% of the impairment charges were recorded
to residential land and lots and land held for development, and
approximately 7% of the charges were recorded to residential
construction in progress and finished homes inventory, compared
to 85% and 15%, respectively, in fiscal 2009 and 79% and 21%,
respectively, in fiscal 2008.
The Companys estimate of undiscounted cash flows from
communities analyzed may change and could result in a future
need to record impairment charges to adjust the carrying value
of these assets to their estimated fair value. There are several
factors which could lead to changes in the estimates of
undiscounted future cash flows for a given community. The most
significant of these include pricing and incentive levels
actually realized by the community, the rate at which the homes
are sold and the costs incurred to develop the lots and
construct the homes. The pricing and incentive levels are often
inter-related with sales pace within a community such that a
price reduction can be expected to increase the sales pace.
Further, both of these factors are heavily influenced by the
competitive pressures facing a given community from both new
homes and existing homes, some of which may result from
foreclosures. If conditions in the broader economy, homebuilding
industry or specific markets in which the Company operates
worsen, and as the Company re-evaluates specific community
pricing and incentives, construction and development plans, and
its overall land sale strategies, it may be required to evaluate
additional communities or re-evaluate previously impaired
communities for potential impairment. These evaluations may
result in additional impairment charges.
At September 30, 2010 and 2009, the Company had
$3.3 million and $15.1 million, respectively, of land
held for sale, consisting of land held for development and land
under development that met the criteria of land held for sale.
78
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During fiscal 2010, 2009 and 2008, the Company wrote off
$2.4 million, $29.9 million and $111.9 million,
respectively, of earnest money deposits and pre-acquisition
costs related to land option contracts which are not expected to
be acquired.
NOTE E
LAND INVENTORY NOT OWNED
The Companys land inventory not owned includes its
interests in land and lots controlled under certain option
purchase contracts with variable interest entities, and may also
include the purchase price of certain land and lot option
purchase contracts that have been determined to represent
financing arrangements.
The consolidation of variable interest entities added
$7.6 million and $6.5 million in land inventory not
owned and noncontrolling interests related to entities not owned
to the Companys consolidated balance sheets at
September 30, 2010 and 2009, respectively. The
Companys obligations related to these land or lot option
contracts are guaranteed by deposits, including cash, promissory
notes and surety bonds, totaling $0.6 million as of
September 30, 2010 and 2009. Creditors, if any, of these
variable interest entities have no recourse against the Company.
For the variable interest entities which are unconsolidated
because the Company is not subject to a majority of the risk of
loss or entitled to receive a majority of the entities
residual returns, the maximum exposure to loss is generally
limited to the amounts of the Companys option deposits. At
September 30, 2010 and 2009, the amount of option deposits
related to these contracts totaled $10.2 million and
$8.0 million, respectively, and are included in
homebuilding other assets on the consolidated balance sheets.
Additionally, at September 30, 2009, the Company determined
that certain of its land and lot option purchase contracts
represented financing arrangements. As a result, the Company
added $7.8 million in land inventory not owned, with a
corresponding increase to accrued expenses and other
liabilities, to its balance sheet at September 30, 2009.
79
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE F
NOTES PAYABLE
The Companys notes payable at their principal amounts, net
of any unamortized discounts, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
Unsecured:
|
|
|
|
|
|
|
|
|
4.875% senior notes due 2010, net
|
|
$
|
|
|
|
$
|
130.8
|
|
9.75% senior notes due 2010
|
|
|
|
|
|
|
70.5
|
|
9.75% senior subordinated notes due 2010, net
|
|
|
|
|
|
|
15.3
|
|
6% senior notes due 2011, net
|
|
|
70.1
|
|
|
|
212.8
|
|
7.875% senior notes due 2011, net
|
|
|
118.8
|
|
|
|
163.3
|
|
5.375% senior notes due 2012
|
|
|
146.6
|
|
|
|
242.1
|
|
6.875% senior notes due 2013
|
|
|
174.3
|
|
|
|
199.5
|
|
5.875% senior notes due 2013
|
|
|
|
|
|
|
96.0
|
|
6.125% senior notes due 2014, net
|
|
|
146.0
|
|
|
|
198.5
|
|
2% convertible senior notes due 2014, net
|
|
|
391.9
|
|
|
|
368.0
|
|
5.625% senior notes due 2014, net
|
|
|
147.1
|
|
|
|
248.8
|
|
5.25% senior notes due 2015, net
|
|
|
199.7
|
|
|
|
298.6
|
|
5.625% senior notes due 2016, net
|
|
|
225.5
|
|
|
|
298.3
|
|
6.5% senior notes due 2016, net
|
|
|
430.1
|
|
|
|
497.0
|
|
Other secured
|
|
|
35.2
|
|
|
|
37.1
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,085.3
|
|
|
$
|
3,076.6
|
|
|
|
|
|
|
|
|
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
Mortgage repurchase facility, maturing 2011
|
|
$
|
86.5
|
|
|
$
|
68.7
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010, maturities of consolidated notes
payable, assuming the mortgage repurchase facility is not
extended or renewed, are $296.4 million in fiscal 2011,
$160.9 million in fiscal 2012, $174.3 million in
fiscal 2013, $794.5 million in fiscal 2014,
$200.5 million in fiscal 2015 and $657.3 million
thereafter.
The Company has an automatically effective universal shelf
registration statement filed with the Securities and Exchange
Commission (SEC) in September 2009, registering debt and equity
securities that the Company may issue from time to time in
amounts to be determined.
80
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Homebuilding:
Following is a summary of the key terms of each of the
Companys unsecured homebuilding notes payable outstanding
as of September 30, 2010, including the annual effective
interest rate of each series of notes, after giving effect to
the amortization of discounts and deferred financing costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
|
|
Principal
|
|
|
|
|
|
Prior to
|
|
Effective
|
Note Payable
|
|
Amount
|
|
Date Issued
|
|
Date Due
|
|
Maturity
|
|
Interest Rate (1)
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
6% senior
|
|
$
|
70.1
|
|
|
April 2006
|
|
April 15, 2011
|
|
Yes (2)
|
|
|
6.2
|
%
|
7.875% senior
|
|
$
|
118.9
|
|
|
August 2001
|
|
August 15, 2011
|
|
No
|
|
|
8.0
|
%
|
5.375% senior
|
|
$
|
146.6
|
|
|
July 2005
|
|
June 15, 2012
|
|
Yes (2)
|
|
|
5.4
|
%
|
6.875% senior
|
|
$
|
174.3
|
|
|
April 2003
|
|
May 1, 2013
|
|
No
|
|
|
7.0
|
%
|
6.125% senior
|
|
$
|
146.9
|
|
|
July 2004
|
|
January 15, 2014
|
|
No
|
|
|
6.3
|
%
|
2% convertible senior (3)
|
|
$
|
500.0
|
|
|
May 2009
|
|
May 15, 2014
|
|
No
|
|
|
9.7
|
% (4)
|
5.625% senior
|
|
$
|
147.7
|
|
|
September 2004
|
|
September 15, 2014
|
|
No
|
|
|
5.8
|
%
|
5.25% senior
|
|
$
|
200.5
|
|
|
February 2005
|
|
February 15, 2015
|
|
Yes (2)
|
|
|
5.4
|
%
|
5.625% senior
|
|
$
|
226.6
|
|
|
December 2004
|
|
January 15, 2016
|
|
Yes (2)
|
|
|
5.8
|
%
|
6.5% senior
|
|
$
|
430.7
|
|
|
April 2006
|
|
April 15, 2016
|
|
Yes (2)
|
|
|
6.6
|
%
|
|
|
|
(1)
|
|
Interest is payable semi-annually
on each of the series of senior and convertible senior notes.
|
|
(2)
|
|
The Company may redeem the notes in
whole at any time or in part from time to time, at a redemption
price equal to the greater of 100% of their principal amount or
the present value of the remaining scheduled payments on the
redemption date, plus in each case, accrued interest.
|
|
(3)
|
|
Holders of the 2% convertible
senior notes may convert all or any portion of their notes at
their option at any time prior to maturity. The initial
conversion rate for the notes is 76.5697 shares of the
Companys common stock per $1,000 principal amount of
senior notes, equivalent to an initial conversion price of
approximately $13.06 per share of common stock. The conversion
rate is subject to adjustment in certain events but will not be
adjusted for accrued interest, including any additional
interest. Upon conversion of a 2% senior note, the Company
will pay or deliver, as the case may be, cash, shares of its
common stock or a combination thereof at its election. The
Company may not redeem the notes prior to the maturity date.
|
|
(4)
|
|
Upon the adoption of the
authoritative guidance for accounting for debt with conversion
options, the annual effective interest rate of the convertible
senior notes is 9.7% after giving effect to the amortization of
the discount and deferred financing costs.
|
All series of senior notes are senior obligations of the Company
and rank pari passu in right of payment to all existing
and future unsecured indebtedness of the Company, and senior to
all existing and future indebtedness expressly subordinated to
them. The senior notes are guaranteed by substantially all of
the Companys wholly-owned subsidiaries other than its
financial services subsidiaries. Upon a change of control of the
Company (as defined), holders of all series of notes issued
prior to October 2004, constituting $587.8 million
principal amount in the aggregate as of September 30, 2010,
have the right to require the Company to purchase these notes at
a price of 101% of their principal amount, along with accrued
and unpaid interest. If a fundamental change, including a change
in control (as defined), occurs as defined in the indenture
governing the convertible senior notes, holders of the
convertible senior notes, constituting $500 million
principal amount as of September 30, 2010, have the right
to require the Company to purchase these notes at par, along
with accrued and unpaid interest.
In November 2009, the Board of Directors authorized the
repurchase of up to $500 million of the Companys debt
securities. Following significant repurchase activity, the
authorization was renewed in April 2010 and again in July
2010. The current authorization is effective through
July 31, 2011. At September 30, 2010,
$483.8 million of the authorization was remaining.
81
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On January 15, 2010, the Company repaid the remaining
$130.9 million principal amount of its 4.875% senior
notes which were due on that date. On February 24, 2010,
the Company redeemed the remaining $95.0 million principal
amount of its 5.875% senior notes due 2013. On
September 15, 2010, the Company repaid the remaining
$51.9 million principal amount of its 9.75% senior
notes and $11.3 million principal amount of its
9.75% senior subordinated notes due on that date.
Following is a summary of the redemption and repurchase activity
related to the Companys senior and senior subordinated
notes for the years ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Principal Amount
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Maturities / Early Redemptions:
|
|
|
|
|
|
|
|
|
5% senior notes, matured January 2009
|
|
$
|
|
|
|
$
|
155.2
|
|
8% senior notes, matured February 2009
|
|
|
|
|
|
|
297.7
|
|
4.875% senior notes, matured January 2010
|
|
|
130.9
|
|
|
|
|
|
5.875% senior notes due 2013, redeemed February 2010
|
|
|
95.0
|
|
|
|
|
|
9.75% senior notes, matured September 2010
|
|
|
51.9
|
|
|
|
|
|
9.75% senior subordinated notes, matured September 2010
|
|
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
289.1
|
|
|
|
452.9
|
|
|
|
|
|
|
|
|
|
|
Repurchases:
|
|
|
|
|
|
|
|
|
5% senior notes due 2009
|
|
|
|
|
|
|
44.8
|
|
8% senior notes due 2009
|
|
|
|
|
|
|
52.0
|
|
4.875% senior notes due 2010
|
|
|
|
|
|
|
119.1
|
|
9.75% senior notes due 2010
|
|
|
18.6
|
|
|
|
26.3
|
|
9.75% senior subordinated notes due 2010
|
|
|
4.0
|
|
|
|
|
|
6% senior notes due 2011
|
|
|
142.9
|
|
|
|
37.0
|
|
7.875% senior notes due 2011
|
|
|
44.7
|
|
|
|
36.4
|
|
5.375% senior notes due 2012
|
|
|
95.5
|
|
|
|
57.9
|
|
6.875% senior notes due 2013
|
|
|
25.2
|
|
|
|
0.5
|
|
5.875% senior notes due 2013
|
|
|
1.0
|
|
|
|
4.0
|
|
6.125% senior notes due 2014
|
|
|
53.1
|
|
|
|
|
|
5.625% senior notes due 2014
|
|
|
102.3
|
|
|
|
|
|
5.25% senior notes due 2015
|
|
|
99.5
|
|
|
|
|
|
5.625% senior notes due 2016
|
|
|
73.4
|
|
|
|
|
|
6.5% senior notes due 2016
|
|
|
67.0
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
727.2
|
|
|
|
380.3
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,016.3
|
|
|
$
|
833.2
|
|
|
|
|
|
|
|
|
|
|
These notes were redeemed or repurchased for an aggregate
purchase price of $1,018.2 million and $821.0 million,
respectively, plus accrued interest. The transactions resulted
in a net loss on early retirement of debt of $4.9 million
in fiscal 2010 and a net gain of $11.5 million in fiscal
2009, which included the write off of unamortized discounts and
fees. The loss in fiscal 2010 included a loss of
$2.0 million for the call premium related to the early
redemption of the 5.875% senior notes due 2013. The gain in
fiscal 2009 was partially offset by a $7.6 million loss
related to the early termination of the revolving credit
facility in May 2009.
82
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In October 2010, through an unsolicited transaction, the Company
repurchased $8.3 million principal amount of its
5.375% senior notes due 2012, for a purchase price of
$8.6 million, plus accrued interest.
The indentures governing the Companys senior notes impose
restrictions on the creation of secured debt and liens. At
September 30, 2010, the Company was in compliance with all
of the limitations and restrictions that form a part of the
public debt obligations.
Financial
Services:
The Companys mortgage subsidiary, DHI Mortgage, entered
into a mortgage sale and repurchase agreement (the
mortgage repurchase facility) on March 28,
2008. The mortgage repurchase facility, which is accounted for
as a secured financing, provides financing and liquidity to DHI
Mortgage by facilitating purchase transactions in which DHI
Mortgage transfers eligible loans to the counterparties against
the transfer of funds by the counterparties, thereby becoming
purchased loans. DHI Mortgage then has the right and obligation
to repurchase the purchased loans upon their sale to third-party
purchasers in the secondary market or within specified time
frames from 45 to 120 days in accordance with the terms of
the mortgage repurchase facility. The capacity of the facility
is $100 million, with a provision allowing an increase in
the capacity to $125 million during the last five business
days of any fiscal quarter and the first seven business days of
the following fiscal quarter. The maturity date of the facility
is March 4, 2011.
As of September 30, 2010, $236.9 million of mortgage
loans held for sale were pledged under the repurchase agreement.
These mortgage loans had a collateral value of
$222.7 million. DHI Mortgage has the option to fund a
portion of its repurchase obligations in advance. As a result of
advance paydowns totaling $136.2 million, DHI Mortgage had
an obligation of $86.5 million outstanding under the
mortgage repurchase facility at September 30, 2010 at a
3.8% interest rate.
The mortgage repurchase facility is not guaranteed by either
D.R. Horton, Inc. or any of the subsidiaries that guarantee the
Companys homebuilding debt. The facility contains
financial covenants as to the mortgage subsidiarys minimum
required tangible net worth, its maximum allowable ratio of debt
to tangible net worth and its minimum required liquidity. At
September 30, 2010, the mortgage subsidiary was in
compliance with all of the conditions and covenants of the
mortgage repurchase facility.
NOTE G
MORTGAGE LOANS
To manage the interest rate risk inherent in its mortgage
operations, the Company hedges its risk using various derivative
instruments, which include forward sales of mortgage-backed
securities (MBS), Eurodollar Futures Contracts (EDFC) and put
options on both MBS and EDFC. Use of the term hedging
instruments in the following discussion refers to these
securities collectively, or in any combination. The Company does
not enter into or hold derivatives for trading or speculative
purposes.
Mortgage
Loans Held for Sale
Mortgage loans held for sale consist primarily of single-family
residential loans collateralized by the underlying property.
Newly originated loans that have been closed but not committed
to third-party purchasers are hedged to mitigate the risk of
changes in their fair value. Hedged loans are committed to
third-party purchasers typically within three days after
origination. Consistent with the prior two fiscal years,
approximately 86% of the mortgage loans sold by DHI Mortgage
during fiscal 2010 were sold to two major financial institutions
pursuant to their loan purchase agreements with DHI Mortgage. At
September 30, 2010, mortgage loans held for sale had an
aggregate fair value of $253.8 million and an aggregate
outstanding principal balance of $247.5 million. At
September 30, 2009, mortgage loans held for sale had an
aggregate fair value of $220.8 million and an aggregate
outstanding principal balance of $217.2 million. During the
years ended September 30, 2010, 2009 and 2008, the Company
had net gains on sales of loans of
83
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$45.9 million, $23.6 million and $69.1 million,
respectively, which includes the effect of recording recourse
expense of $13.7 million, $33.2 million and
$21.9 million, respectively, as discussed in the
Other Mortgage Loans and Loss Reserves section below.
The notional amounts of the hedging instruments used to hedge
mortgage loans held for sale vary in relationship to the
underlying loan amounts, depending on the movements in the value
of each hedging instrument relative to the value of the
underlying mortgage loans. The fair value change related to the
hedging instruments generally offsets the fair value change in
the mortgage loans held for sale, which for the years ended
September 30, 2010, 2009 and 2008 was not significant, and
is recognized in current earnings. As of September 30,
2010, the Company had $127.1 million in mortgage loans held
for sale not committed to third-party purchasers and the
notional amounts of the hedging instruments related to those
loans totaled $123.1 million.
Other
Mortgage Loans and Loss Reserves
Generally, mortgage loans are sold with limited recourse
provisions which include industry-standard representations and
warranties, primarily involving the absence of
misrepresentations by the borrower or other parties and,
depending on the agreement, may include requiring a minimum
number of payments to be made by the borrower. The Company
generally does not retain any other continuing interest related
to mortgage loans sold in the secondary market. Other mortgage
loans generally consist of loans repurchased due to these
limited recourse obligations. Typically, these loans are
impaired and often become real estate owned through the
foreclosure process. At September 30, 2010 and 2009, the
Companys total other mortgage loans and real estate owned
were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
2010
|
|
2009
|
|
|
(In millions)
|
|
Other mortgage loans
|
|
$
|
43.0
|
|
|
$
|
50.2
|
|
Real estate owned
|
|
$
|
4.9
|
|
|
$
|
5.7
|
|
Based on historical performance and current housing and credit
market conditions, the Company has recorded reserves for
estimated losses on other mortgage loans, real estate owned and
future loan repurchase obligations due to the limited recourse
provisions, all of which are recorded as reductions of financial
services revenue. These reserves totaled $39.0 million and
$43.6 million at September 30, 2010 and 2009,
respectively, allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Loss reserves related to:
|
|
|
|
|
|
|
|
|
Other mortgage loans
|
|
$
|
9.0
|
|
|
$
|
13.1
|
|
Real estate owned
|
|
|
1.8
|
|
|
|
2.6
|
|
Loan repurchase obligations known and expected
|
|
|
28.2
|
|
|
|
27.9
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39.0
|
|
|
$
|
43.6
|
|
|
|
|
|
|
|
|
|
|
Other mortgage loans and real estate owned and the related loss
reserves are included in financial services other assets in the
accompanying consolidated balance sheets.
A subsidiary of the Company reinsured a portion of private
mortgage insurance written on loans originated by DHI Mortgage
in prior years. At September 30, 2010 and 2009, reserves
for expected future losses under the reinsurance program totaled
$9.7 million and $18.7 million, respectively. The
mortgage repurchase and reinsurance loss reserves are included
in financial services accounts payable and other
84
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
liabilities in the accompanying consolidated balance sheets. It
is possible that future losses may exceed the amount of reserves
and, if so, additional charges will be required.
Loan
Commitments and Related Derivatives
The Company is party to IRLCs which are extended to borrowers
who have applied for loan funding and meet defined credit and
underwriting criteria. The expected net future cash flows
related to the associated servicing of a loan are included in
the measurement of all written loan commitments that are
accounted for at fair value through earnings at the time of
commitment. At September 30, 2010, IRLCs, which are
accounted for as derivative instruments recorded at fair value,
totaled $180.0 million.
The Company manages interest rate risk related to its IRLCs
through the use of best-efforts whole loan delivery commitments
and hedging instruments. These instruments are considered
derivatives in an economic hedge and are accounted for at fair
value with gains and losses recognized in current earnings. As
of September 30, 2010, the Company had approximately
$13.2 million of best-efforts whole loan delivery
commitments and $149.2 million of hedging instruments
related to IRLCs not yet committed to purchasers.
At September 30, 2010, the Company had $3.5 million
notional amount of forward sales of MBS which were acquired as
part of a program to potentially offer homebuyers a below market
interest rate on their home financing. These hedging instruments
and the related commitments are accounted for at fair value with
gains and losses recognized in current earnings. These gains and
losses for the years ended September 30, 2010, 2009 and
2008 were not material.
NOTE H
FAIR VALUE MEASUREMENTS
The Companys marketable securities consist of
U.S. Treasury securities, government agency securities,
corporate debt securities, foreign government securities, and
certificates of deposit. The fair value of U.S. Treasury
securities is based on quoted prices for identical assets and
therefore, they have been classified as a Level 1
valuation. Obligations of government agencies, corporate debt
securities, foreign government securities and certificates of
deposit are valued using quoted market prices of recent
transactions or quoted market prices of transactions in very
similar securities and therefore, are classified as Level 2
valuations.
The value of mortgage loans held for sale includes changes in
estimated fair value from the date the loan is closed until the
date the loan is sold. The fair value of mortgage loans held for
sale is generally calculated by reference to quoted prices in
secondary markets for commitments to sell mortgage loans with
similar characteristics; therefore, they have been classified as
a Level 2 valuation. After consideration of nonperformance
risk, no additional adjustments have been made to the fair value
measurement of mortgage loans held for sale. Closed mortgage
loans are typically sold within 30 days of origination,
limiting any nonperformance exposure period. In addition, the
Company actively monitors the financial strength of its
counterparties and has limited the number of counterparties
utilized in loan sale transactions due to the current market
volatility in the mortgage and bank environment.
The hedging instruments utilized by the Company to manage its
interest rate risk and hedge the changes in the fair value of
mortgage loans held for sale are publicly traded derivatives
with fair value measurements based on quoted market prices.
Exchange-traded derivatives are considered Level 1
valuations because quoted prices for identical assets are used
for fair value measurements.
Over-the-counter
derivatives, such as forward sales of MBS, are classified as
Level 2 valuations because quoted prices for similar assets
are used for fair value measurements. The Company mitigates
exposure to nonperformance risk associated with
over-the-counter
derivatives by limiting the number of counterparties and
actively monitoring their financial strength and
creditworthiness while requiring them to be well-known
institutions with credit ratings equal to or better than AA- or
equivalent. Further, the Companys derivative contracts
typically have short-term durations with maturities from one to
four months. Accordingly, the Companys risk of
nonperformance relative to its
85
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
derivative positions is also not significant. Nonperformance
risk associated with exchange-traded derivatives is considered
minimal as these items are traded on the Chicago Mercantile
Exchange. After consideration of nonperformance risk, no
additional adjustments have been made to the fair value
measurement of hedging instruments.
The fair values of IRLCs are also calculated by reference to
quoted prices in secondary markets for commitments to sell
mortgage loans with similar characteristics; therefore, they
have been classified as Level 2 valuations. These
valuations do not contain adjustments for expirations as any
expired commitments are excluded from the fair value
measurement. After consideration of nonperformance risk, no
additional adjustments have been made to the fair value
measurements of IRLCs. The Company generally only issues IRLCs
for products that meet specific purchaser guidelines. Should any
purchaser become insolvent, the Company would not be required to
close the transaction based on the terms of the commitment.
Since not all IRLCs will become closed loans, the Company
adjusts its fair value measurements for the estimated amount of
IRLCs that will not close.
Inventory held and used is reported at the lower of carrying
value or fair value on a nonrecurring basis. The factors
considered in determining fair values of the Companys
communities are described in the discussion of the
Companys inventory impairment analysis (see Note D),
and are classified as Level 3 valuations. Inventory held
and used measured at fair value represents those communities for
which the Company has recorded impairments during the current
period.
Other mortgage loans and real estate owned are measured at the
lower of carrying value or fair value on a nonrecurring basis.
Other mortgage loans include performing and nonperforming
mortgage loans. The fair values of other mortgage loans and real
estate owned are determined based on the Companys
assessment of the value of the underlying collateral and are
classified as Level 3 valuations.
The following tables summarize the Companys assets and
liabilities at September 30, 2010 and 2009 measured at fair
value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at September 30, 2010
|
|
|
|
Balance Sheet Location
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
|
|
|
|
(In millions)
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities,
available-for-sale
|
|
Marketable securities
|
|
$
|
1.0
|
|
|
$
|
296.7
|
|
|
$
|
297.7
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale (a)
|
|
Mortgage loans held for sale
|
|
$
|
|
|
|
$
|
253.8
|
|
|
$
|
253.8
|
|
Derivatives not designated as hedging instruments (b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments
|
|
Other assets
|
|
$
|
|
|
|
$
|
1.8
|
|
|
$
|
1.8
|
|
Forward sales of MBS
|
|
Other liabilities
|
|
$
|
|
|
|
$
|
(1.8
|
)
|
|
$
|
(1.8
|
)
|
Best-efforts commitments
|
|
Other assets
|
|
$
|
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
86
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at September 30, 2009
|
|
|
|
Balance Sheet Location
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
|
|
|
|
(In millions)
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities,
available-for-sale
|
|
Marketable securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale (a)
|
|
Mortgage loans held for sale
|
|
$
|
|
|
|
$
|
220.8
|
|
|
$
|
220.8
|
|
Derivatives not designated as hedging instruments (b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments
|
|
Other assets
|
|
$
|
|
|
|
$
|
2.6
|
|
|
$
|
2.6
|
|
Forward sales of MBS
|
|
Other liabilities
|
|
$
|
|
|
|
$
|
(2.7
|
)
|
|
$
|
(2.7
|
)
|
Best-efforts commitments
|
|
Other liabilities
|
|
$
|
|
|
|
$
|
(1.1
|
)
|
|
$
|
(1.1
|
)
|
|
|
|
(a)
|
|
Mortgage loans held for sale are
reflected at full fair value. Interest income earned on mortgage
loans held for sale is based on contractual interest rates and
included in financial services interest and other income.
|
|
(b)
|
|
Fair value measurements of these
derivatives represent changes in fair value since inception.
These changes are reflected in the balance sheet and included in
financial services revenues on the consolidated statement of
operations.
|
The following table summarizes the Companys assets at
September 30, 2010 measured at fair value on a nonrecurring
basis:
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
Balance Sheet
|
|
September 30, 2010
|
|
|
Location
|
|
Level 3
|
|
|
|
|
(In millions)
|
|
Homebuilding:
|
|
|
|
|
|
|
Inventory held and used (a)
|
|
Inventories
|
|
$
|
34.0
|
|
Financial Services:
|
|
|
|
|
|
|
Other mortgage loans (a)
|
|
Other assets
|
|
$
|
27.5
|
|
Real estate owned (a)
|
|
Other assets
|
|
$
|
3.1
|
|
|
|
|
(a)
|
|
The fair values included in the
table above represent only those assets whose carrying values
were adjusted to fair value in the current quarter.
|
The fair values of cash and cash equivalents approximate their
carrying amounts due to their short-term nature. The Company
determines fair value of its senior and convertible senior notes
based on quoted market prices. The aggregate fair value of these
notes at September 30, 2010 and September 30, 2009 was
$2,244.0 million and $3,187.6 million, respectively,
compared to carrying values of $2,050.1 million and
$3,039.5 million, respectively. The aggregate fair value of
the Companys senior notes includes fair values for the 2%
convertible senior notes of $553.8 million and
$568.6 million at September 30, 2010 and
September 30, 2009, respectively, compared to their
carrying values of $391.9 million and $368.0 million,
respectively. The carrying value of the equity component of the
2% convertible senior notes was $136.7 million at
September 30, 2010 and 2009. For other secured notes and
balances due under the mortgage repurchase facility, the fair
values approximate their carrying amounts due to their short
maturity or floating interest rate terms, as applicable.
87
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE I
INCOME TAXES
In fiscal 2010 and 2009, the Company recorded a benefit from
income taxes of $145.6 million and $7.0 million,
respectively. In fiscal 2008, the provision for income taxes was
$1.8 million. The provision for (benefit from) income taxes
includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Current (benefit) provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(153.1
|
)
|
|
$
|
(213.9
|
)
|
|
$
|
(655.1
|
)
|
State
|
|
|
7.5
|
|
|
|
(6.6
|
)
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(145.6
|
)
|
|
|
(220.5
|
)
|
|
|
(648.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
200.7
|
|
|
|
576.9
|
|
State
|
|
|
|
|
|
|
12.8
|
|
|
|
73.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213.5
|
|
|
|
650.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (benefit from) provision for income taxes
|
|
$
|
(145.6
|
)
|
|
$
|
(7.0
|
)
|
|
$
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In November 2009, the Worker, Homeownership, and Business
Assistance Act of 2009 was enacted into law and amended
Section 172 of the Internal Revenue Code. This tax law
change allows a net operating loss (NOL) realized in one of the
Companys fiscal 2008, 2009 or 2010 years to be
carried back up to five years (previously limited to a two-year
carryback). The Company elected to carry back its fiscal 2009
NOL. This resulted in a benefit from income taxes of
$208.3 million during fiscal 2010 which was partially
offset by an increase in unrecognized tax benefits and state
income tax expense.
The Company does not have meaningful effective tax rates in
fiscal years 2008, 2009 and 2010 because of the valuation
allowances on its deferred tax assets. In fiscal 2008, the
impairment of nondeductible goodwill was also a factor. The
difference between income tax expense (benefit) and tax computed
by applying the federal statutory income tax rate of 35% to
income (loss) before income taxes during each year is due to the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Income taxes at federal statutory rate
|
|
$
|
34.8
|
|
|
$
|
(194.9
|
)
|
|
$
|
(921.1
|
)
|
Increase (decrease) in tax resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit
|
|
|
9.8
|
|
|
|
(13.0
|
)
|
|
|
(76.2
|
)
|
Domestic production activities deduction
|
|
|
(6.2
|
)
|
|
|
8.1
|
|
|
|
18.6
|
|
Uncertain tax positions, net of deferred tax
|
|
|
13.5
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(170.6
|
)
|
|
|
164.8
|
|
|
|
956.6
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
20.8
|
|
Tax credit carryforwards
|
|
|
(30.0
|
)
|
|
|
30.0
|
|
|
|
|
|
Other
|
|
|
3.1
|
|
|
|
(2.0
|
)
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit from) provision for income taxes
|
|
$
|
(145.6
|
)
|
|
$
|
(7.0
|
)
|
|
$
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. These differences primarily relate
to the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Inventory costs
|
|
$
|
105.6
|
|
|
$
|
80.0
|
|
Inventory impairments
|
|
|
449.2
|
|
|
|
584.3
|
|
Warranty and construction defect costs
|
|
|
107.2
|
|
|
|
111.6
|
|
Net operating loss carryforwards
|
|
|
183.6
|
|
|
|
229.1
|
|
Tax credit carryforwards
|
|
|
1.0
|
|
|
|
17.6
|
|
Incentive compensation plans
|
|
|
45.9
|
|
|
|
48.2
|
|
Deferral of profit on home sales
|
|
|
0.8
|
|
|
|
0.7
|
|
Goodwill impairment
|
|
|
8.9
|
|
|
|
13.1
|
|
Other
|
|
|
48.1
|
|
|
|
53.8
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
950.3
|
|
|
|
1,138.4
|
|
Valuation allowance
|
|
|
(902.6
|
)
|
|
|
(1,073.9
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net of valuation allowance
|
|
|
47.7
|
|
|
|
64.5
|
|
Deferred tax liabilities
|
|
|
47.7
|
|
|
|
64.5
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes, net
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The Company had income taxes receivable of $16.0 million
and $293.1 million at September 30, 2010 and 2009,
respectively. During fiscal 2010, the Company received income
tax refunds totaling $487.1 million, which resulted from
tax losses generated in fiscal 2008 and 2009. The income taxes
receivable at September 30, 2010 relates to additional
federal and state income tax refunds the Company expects to
receive.
At September 30, 2010, the Company had a federal NOL
carryforward of $285.8 million that will expire in fiscal
2030 and tax benefits for state NOL carryforwards of
$83.5 million that expire (beginning at various times
depending on the tax jurisdiction) from fiscal 2013 to fiscal
2030.
Due to the challenging market conditions in the homebuilding
industry during the past several years, the Company has recorded
significant impairment charges for both inventory and goodwill
and was in a three-year cumulative pre-tax loss position at the
end of fiscal 2008. Since the cumulative loss position is
significant negative evidence in assessing the recoverability of
the Companys deferred tax assets, the Company recorded a
valuation allowance during fiscal 2008. At September 30,
2010 and 2009, the Company had net deferred tax assets of
$902.6 million and $1,073.9 million, respectively,
offset by valuation allowances of $902.6 million and
$1,073.9 million, respectively.
The future realization of the Companys deferred income tax
assets ultimately depends upon the existence of sufficient
taxable income in its carryforward periods under the tax laws.
The Company continues to analyze the positive and negative
evidence in determining the expected realization of its deferred
income tax assets. The accounting for deferred taxes is based
upon an estimate of future results. Differences between the
anticipated and actual outcomes of these future tax consequences
could have a material impact on the Companys consolidated
results of operations or financial position. Changes in existing
tax laws also affect actual tax results and the valuation of
deferred tax assets over time.
89
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The benefits of the Companys NOL and tax credit
carryforwards, as well as its unrealized built-in losses, would
be reduced or potentially eliminated if the Company experienced
an ownership change as defined by Internal Revenue Code
Section 382. The Company does not believe it has
experienced such an ownership change as of September 30,
2010; however, the amount by which its ownership may change in
the future is affected by purchases and sales of stock by 5%
stockholders; the potential conversion of the Companys
outstanding convertible senior notes and its decision as to
whether to settle any such conversions completely or partially
in stock; and new issuances of stock by the Company.
Unrecognized tax benefits are the differences between a tax
position taken, or expected to be taken in a tax return, and the
benefit recognized for accounting purposes. The following table
sets forth the changes in unrecognized income tax benefits
during fiscal 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Unrecognized income tax benefits, beginning of year
|
|
$
|
24.0
|
|
|
$
|
18.7
|
|
Additions attributable to tax positions taken in the current year
|
|
|
|
|
|
|
|
|
Additions attributable to tax positions taken in prior years
|
|
|
62.2
|
|
|
|
10.4
|
|
Reductions attributable to tax positions taken in prior years
|
|
|
(3.4
|
)
|
|
|
(5.1
|
)
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized income tax benefits, end of year
|
|
$
|
82.8
|
|
|
$
|
24.0
|
|
|
|
|
|
|
|
|
|
|
The total amount of unrecognized tax benefits includes interest,
penalties, and the tax benefit relating to the deductibility of
interest and state income taxes. All tax positions, if
recognized, would affect the Companys effective income tax
rate. The increase in unrecognized tax benefits to
$82.8 million at September 30, 2010 from
$24.0 million at September 30, 2009 resulted in large
part from the Companys election to carryback its fiscal
2009 NOL to fiscal 2004 and 2005, thereby changing the reserve
needed for all years open to further tax assessment including
2004 and 2005. It is reasonably possible that, within the next
12 months, the amount of unrecognized tax benefits may
decrease as much as $59.2 million as a result of a ruling
request filed by the Company with the Internal Revenue Service
(IRS) concerning capitalization of inventory costs. If the IRS
rules favorably on the ruling request, the Companys
unrecognized tax benefits would be reduced, resulting in a
benefit from income taxes in the consolidated statement of
operations.
The Company classifies interest and penalties on income taxes as
income tax expense. During fiscal 2010, 2009 and 2008, the
Company recognized interest and penalties with respect to income
taxes of $11.7 million, $3.0 million and
$4.0 million, respectively, in its consolidated statements
of operations, and at September 30, 2010 and 2009, the
Companys total accrued interest and penalties relating to
unrecognized income tax benefits was $17.8 million and
$6.2 million, respectively.
The Company is subject to federal income tax and to income tax
in multiple states. The statute of limitations for the
Companys major tax jurisdictions remains open for
examination for fiscal years 2004 through 2010. The Company is
currently being audited by various states and its federal NOL
refunds from fiscal 2008 and 2009 are subject to Congressional
Joint Committee review.
NOTE J
EARNINGS (LOSS) PER SHARE
The following table sets forth the numerators and denominators
used in the computation of basic and diluted earnings (loss) per
share. In fiscal 2010, options to purchase 10.2 million
shares of common stock were excluded from the computation of
diluted earnings per share because the exercise price was
greater than the average market price of the common shares and,
therefore, their effect would have been antidilutive. In fiscal
2010 and 2009, the convertible senior notes were excluded from
the computation of diluted earnings per share
90
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
because they were antidilutive. In fiscal 2009 and 2008, all
outstanding stock options were excluded from the computation of
diluted earnings per share because they were antidilutive due to
the net loss recorded during those years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
245.1
|
|
|
$
|
(549.8
|
)
|
|
$
|
(2,633.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings (loss) per share
weighted average common shares
|
|
|
318.1
|
|
|
|
316.9
|
|
|
|
315.7
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings (loss) per share
adjusted weighted average common shares
|
|
|
318.6
|
|
|
|
316.9
|
|
|
|
315.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE K
STOCKHOLDERS EQUITY
The Company has an automatically effective universal shelf
registration statement filed with the SEC in September 2009,
registering debt and equity securities that it may issue from
time to time in amounts to be determined. At September 30,
2010, the Company had 322,478,467 shares of Common Stock
issued and 318,823,234 shares outstanding. No shares of
Preferred Stock were issued or outstanding. At
September 30, 2010, the Company had 37.2 million and
3.8 million shares of Common Stock reserved for issuance
pursuant to the D.R. Horton, Inc. Stock Incentive Plans and
Employee Stock Purchase Plan, respectively.
In November 2009, the Board of Directors authorized the
repurchase of up to $100 million of the Companys
common stock. The authorization is effective through
July 31, 2011. The Company made no repurchases of its
common stock under the share repurchase program during fiscal
2010; therefore, all of the $100 million authorization was
remaining at September 30, 2010.
During fiscal 2010 and 2009, the Board of Directors approved and
paid four quarterly cash dividends of $0.0375 per common share.
On November 11, 2010, the Board of Directors approved a
cash dividend of $0.0375 per common share, payable on
December 8, 2010, to stockholders of record on
November 24, 2010.
NOTE L
EMPLOYEE BENEFIT PLANS
Deferred
Compensation
The Company has a 401(k) plan for all Company employees who have
been with the Company for a period of six months or more. The
Company matches portions of employees voluntary
contributions. Additional employer contributions in the form of
profit sharing may also be made at the Companys
discretion. Expenses for the plan were $4.8 million,
$3.9 million and $3.5 million in fiscal 2010, 2009 and
2008 respectively.
The Companys Supplemental Executive Retirement Plan (SERP)
is a non-qualified deferred compensation program that provides
benefits payable to certain management employees upon
retirement, death, or termination of employment with the
Company. Under the SERP, the Company accrues an unfunded benefit
based on a percentage of the eligible employees salaries,
as well as an interest factor based upon a predetermined
formula. The Companys liabilities related to the SERP were
$15.2 million and $13.2 million at
91
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2010 and 2009, respectively. The Company
recorded $2.7 million, $2.2 million and
$2.1 million of expense for this plan in fiscal 2010, 2009
and 2008, respectively.
The Company has a deferred compensation plan available to a
select group of employees. The participating employees designate
investments for their contributions; however, the Company is not
required to invest the contributions in the designated
investments. The Companys net liabilities related to the
deferred compensation plan were $24.6 million and
$31.3 million at September 30, 2010 and 2009,
respectively. The Company records as expense the amount that the
employee contributions would have earned had the funds been
invested in the designated investments. In fiscal 2010, the
Company recorded expense of $2.1 million for this plan, and
in fiscal 2009 and 2008, it recorded a reduction in expense of
$1.1 million and $7.1 million, respectively.
Employee
Stock Purchase Plan
The Companys Employee Stock Purchase Plan provides
eligible employees the opportunity to purchase common stock of
the Company at a discounted price of no more than 85% of the
fair market value of the stock on the designated dates of
purchase. The price may be further discounted depending on the
average fair market value of the stock during the period and
certain other criteria. Under the terms of the plan, the total
fair market value of the common stock that an eligible employee
may purchase each year is limited to the lesser of 15% of the
employees annual compensation or $25,000. Under the plan,
employees of the Company purchased 107,952 shares for
$1.1 million in fiscal 2010, 155,254 shares for
$1.2 million in fiscal 2009 and 168,194 shares for
$2.0 million in fiscal 2008.
Stock
Options
The Companys 2006 Stock Incentive Plan provides for the
granting of stock options to certain key employees of the
Company to purchase shares of common stock. Options are granted
at exercise prices which equal the market value of the
Companys common stock at the date of the grant. Generally,
the options vest over periods of 5 to 9.75 years and expire
10 years after the dates on which they were granted.
During fiscal 2009 and 2008, stock options were granted to
purchase a total of 6.1 million shares and 6.5 million
shares, respectively, of the Companys common stock at the
closing market price of the stock on the date of the grant. The
Compensation Committee of the Companys Board of Directors
granted all such stock options to the Companys executive
officers, other officers and certain of its employees, and the
Companys Board of Directors granted all such stock options
to its outside directors. No stock options were granted during
fiscal 2010. At September 30, 2010, there were
19.5 million shares available for future grants under the
Plan.
92
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company measures and recognizes compensation expense at an
amount equal to the fair value of share-based payments granted
under compensation arrangements. The following table provides
additional information related to activity under the
Companys Stock Incentive Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
19,479,417
|
|
|
$
|
14.31
|
|
|
|
15,623,148
|
|
|
$
|
16.19
|
|
|
|
11,838,031
|
|
|
$
|
16.07
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
6,115,000
|
|
|
|
9.03
|
|
|
|
6,547,500
|
|
|
|
14.44
|
|
Exercised
|
|
|
(1,234,396
|
)
|
|
|
5.36
|
|
|
|
(665,357
|
)
|
|
|
4.90
|
|
|
|
(1,577,641
|
)
|
|
|
6.14
|
|
Canceled or expired
|
|
|
(586,149
|
)
|
|
|
16.27
|
|
|
|
(1,593,374
|
)
|
|
|
16.34
|
|
|
|
(1,184,742
|
)
|
|
|
18.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
17,658,872
|
|
|
$
|
14.87
|
|
|
|
19,479,417
|
|
|
$
|
14.31
|
|
|
|
15,623,148
|
|
|
$
|
16.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
6,143,532
|
|
|
$
|
16.76
|
|
|
|
5,410,674
|
|
|
$
|
15.49
|
|
|
|
4,686,798
|
|
|
$
|
14.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during fiscal
2010, 2009 and 2008 was $7.6 million, $4.6 million and
$11.8 million, respectively. The intrinsic value of a stock
option is the amount by which the market value of the underlying
stock exceeds the exercise price of the option.
The aggregate intrinsic value of options outstanding and
exercisable at September 30, 2010 was $12.9 million
and $2.2 million, respectively. Exercise prices for options
outstanding at September 30, 2010, ranged from $4.70 to
$36.92. The weighted average remaining contractual lives of
options outstanding and exercisable at September 30, 2010
were 6.2 years and 4.5 years, respectively.
There were no options granted in fiscal 2010. The weighted
average fair value of grants made in fiscal 2009 and 2008 was
$3.89 and $4.48 per share, respectively. The fair values of the
options granted were estimated on the date of their grant using
the Black-Scholes option pricing model based on the following
weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Risk free interest rate
|
|
|
|
|
|
|
2.50
|
%
|
|
|
3.11
|
%
|
Expected life (in years)
|
|
|
|
|
|
|
7.74
|
|
|
|
7.74
|
|
Expected volatility
|
|
|
|
|
|
|
45.36
|
%
|
|
|
42.70
|
%
|
Expected dividend yield
|
|
|
|
|
|
|
1.66
|
%
|
|
|
4.10
|
%
|
For fiscal 2010, 2009 and 2008, the Companys compensation
expense related to stock option grants was $13.3 million,
$13.7 million and $13.5 million, respectively, and at
September 30, 2010, there was $48.2 million of total
unrecognized compensation expense related to unvested stock
option awards. This expense is expected to be recognized over a
weighted average period of 5.8 years.
Incentive
Bonus Plan
Under the Companys Incentive Bonus Plan, the maximum award
limits are determined by a performance-based formula tied to the
actual performance period established under the plan, combined
with a fixed dollar amount. Performance periods may be based on
one or more months, quarters or years, although no covered
employee may receive both a monthly or quarterly award and an
annual award with respect to the same fiscal year. At
September 30, 2010, the Company had $1.8 million
accrued related to the Incentive Bonus Plan.
93
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Stock Unit Agreement
On September 30, 2010, The Compensation Committee of the
Board of Directors adopted and approved a form of Restricted
Stock Unit Agreement (RSU Agreement) for awards to executive
officers and other key employees of the Company pursuant to the
2006 Stock Incentive Plan. Under the form of RSU Agreement, the
Compensation Committee may award performance or service (time)
based restricted stock units subject to the terms and conditions
of the RSU Agreement and the 2006 Stock Incentive Plan.
On September 30, 2010, the Compensation Committee approved
and granted an award of 200,000 performance based restricted
stock units (Performance RSUs) that will vest at the end of a
two year performance period ending September 30, 2012. The
number of units that ultimately vest depends on the
Companys relative position as compared to its peers at the
end of the two year period in achieving certain performance
criteria and can range from 0% to 200% of the number of units
granted. The performance criteria are total shareholder return,
return on investment, SG&A expense containment and gross
profit. Each Performance RSU represents the contingent right to
receive one share of the Companys common stock if the
vesting conditions are satisfied. The Performance RSUs have no
dividend or voting rights during the performance period. The
fair value of these awards on the date of grant is $11.53 per
unit.
Performance
Unit Plan
The Companys Performance Unit Plan, which was adopted in
fiscal 2008, provides for the Compensation Committee to award
performance units to senior management based upon the level of
achievement of certain criteria. Performance units were granted
in 2008 and 2009 with
33-month
performance periods ending on September 30, 2010 and 2011,
respectively. The actual number of performance units earned is
based upon the Companys level of achievement on defined
performance metrics as compared to its peer group. The earned
award will have a value equal to the number of earned units
multiplied by the closing price of the Companys common
stock at the end of the performance period and may be paid in
cash, equity or a combination of both. The Compensation
Committee has the discretion to reduce the final payout on the
performance units from the amount earned. The liability for
these awards has been based on the Companys performance
against the peer group, the elapsed portion of the performance
period and the Companys stock price as of each reporting
date, and previously assumed no future reduction of the earned
value of the performance units by the Compensation Committee.
Because the values of the earned performance units are dependent
on the Companys performance and the common stock price,
and because the final amount can be reduced at the discretion of
the Compensation Committee, this liability has been subject to a
high degree of volatility.
Subsequent to September 30, 2010, the Compensation
Committee exercised its discretion and reduced the amount earned
under the 2008 performance unit grant to $4.9 million and
expects to limit the amount which may be earned under the 2009
performance unit grant to approximately $4.1 million. The
liability related to the 2008 and 2009 performance unit grants
was $9.0 million and $11.3 million at
September 30, 2010 and September 30, 2009,
respectively. Compensation expense (benefit) related to these
grants were ($2.3) million and $7.7 million for fiscal
2010 and 2009, respectively.
NOTE M
COMMITMENTS AND CONTINGENCIES
Warranty
Claims
At September 30, 2010, the Company had liabilities of
$2.6 million for the remaining repair costs of homes in its
South Florida and Louisiana markets constructed during 2005
through 2007 which contain or are suspected to contain allegedly
defective drywall manufactured in China (Chinese Drywall) that
may be responsible for accelerated corrosion of certain metals
in the home. The Company first learned of this potential issue
during fiscal 2009 through customer inquiries. The Company has
identified approximately 90 homes which contain or are suspected
to contain Chinese Drywall through a review of the supply
channel for
94
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
its homes constructed in these markets and of the warranty
claims received in these markets as well as testing of specific
homes. Through September 30, 2010, the Company has spent
approximately $4.9 million to remediate these homes. While
the Company will seek reimbursement for these remediation costs
from various sources, it has not recorded a receivable for
potential recoveries as of September 30, 2010. The Company
is continuing its investigation to determine if there are
additional homes with the Chinese Drywall in these markets,
which if found, would likely require the Company to further
increase its warranty reserve for this matter in the future. The
remaining costs accrued to complete this remediation are based
on the Companys estimate of remaining repair costs. If the
actual costs to remediate the homes differ from the estimated
costs, the Company may revise its warranty estimate. As of
September 30, 2010, the Company has been named as a
defendant in several lawsuits in Louisiana and Florida
pertaining to Chinese Drywall. As these actions are still in
their early stages, the Company is unable to express an opinion
as to the amount of damages, if any, beyond what has been
reserved for repair as discussed above.
Changes in the Companys warranty liability during fiscal
2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Warranty liability, beginning of year
|
|
$
|
59.6
|
|
|
$
|
83.4
|
|
Warranties issued
|
|
|
19.5
|
|
|
|
16.8
|
|
Changes in liability for pre-existing warranties
|
|
|
(5.0
|
)
|
|
|
(16.0
|
)
|
Settlements made
|
|
|
(27.9
|
)
|
|
|
(24.6
|
)
|
|
|
|
|
|
|
|
|
|
Warranty liability, end of year
|
|
$
|
46.2
|
|
|
$
|
59.6
|
|
|
|
|
|
|
|
|
|
|
Insurance
and Legal Claims
The Company has been named as defendant in various claims,
complaints and other legal actions including construction defect
claims on closed homes and other claims and lawsuits incurred in
the ordinary course of business, including employment matters,
personal injury claims, land development issues, contract
disputes and claims related to its mortgage activities. The
Company has established reserves for these contingencies, based
on the expected costs of the claims. The Companys
estimates of such reserves are based on the facts and
circumstances of individual pending claims and historical data
and trends, including costs relative to revenues, home closings
and product types, and include estimates of the costs of
construction defect claims incurred but not yet reported. These
reserve estimates are subject to ongoing revision as the
circumstances of individual pending claims and historical data
and trends change. Adjustments to estimated reserves are
recorded in the accounting period in which the change in
estimate occurs. The Companys liabilities for these items
were $571.3 million and $534.0 million at
September 30, 2010 and 2009, respectively, and are included
in homebuilding accrued expenses and other liabilities in the
consolidated balance sheets. Related to the contingencies for
construction defect claims and estimates of construction defect
claims incurred but not yet reported, and other legal claims and
lawsuits incurred in the ordinary course of business, the
Company estimates and records insurance receivables for these
matters under applicable insurance policies when recovery is
probable. Additionally, the Company may have the ability to
recover a portion of its legal expenses from its subcontractors
when the Company has been named as an additional insured on
their insurance policies. Estimates of the Companys
insurance receivables related to these matters totaled
$251.5 million and $234.6 million at
September 30, 2010 and 2009, respectively, and are included
in homebuilding other assets in the consolidated balance sheets.
Expenses related to these items were approximately
$43.2 million, $58.3 million and $53.8 million in
fiscal 2010, 2009 and 2008, respectively.
Management believes that, while the outcome of such
contingencies cannot be predicted with certainty, the
liabilities arising from these matters will not have a material
adverse effect on the Companys consolidated
95
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
financial position, results of operations or cash flows. To the
extent the liability arising from the ultimate resolution of any
matter exceeds managements estimates reflected in the
recorded reserves relating to these matters, the Company would
incur additional charges that could be significant.
Land
and Lot Option Purchase Contracts
In the ordinary course of business, the Company enters into land
and lot option purchase contracts in order to procure land or
lots for the construction of homes. At September 30, 2010,
the Company had total deposits of $13.3 million, consisting
of cash deposits of $11.2 million, promissory notes of
$1.9 million, and letters of credit and surety bonds of
$0.2 million, to purchase land and lots with a total
remaining purchase price of $963.9 million. Within the land
and lot option purchase contracts at September 30, 2010,
there were a limited number of contracts, representing
$5.7 million of remaining purchase price, subject to
specific performance clauses which may require the Company to
purchase the land or lots upon the land sellers meeting their
obligations. The majority of land and lots under contract are
currently expected to be purchased within three years, based on
the Companys assumptions as to the extent it will exercise
its options to purchase such land and lots.
Other
Commitments
In the normal course of its business activities, the Company
provides standby letters of credit and surety bonds, issued by
third parties, to secure performance under various contracts. At
September 30, 2010, the Company had outstanding letters of
credit of $51.7 million, all of which were cash
collateralized, and surety bonds of $806.9 million. The
Company has secured letter of credit agreements with five banks
that require it to deposit cash, in an amount approximating the
balance of letters of credit outstanding, as collateral with the
issuing banks. At September 30, 2010 and 2009, the amount
of cash restricted for this purpose totaled $52.6 million
and $53.3 million, respectively, and is included in
homebuilding restricted cash on the Companys consolidated
balance sheets.
The Company leases office space and equipment under
non-cancelable operating leases. Minimum annual lease payments
under these leases at September 30, 2010 approximate (in
millions):
|
|
|
|
|
2011
|
|
$
|
16.1
|
|
2012
|
|
|
10.3
|
|
2013
|
|
|
6.4
|
|
2014
|
|
|
5.6
|
|
2015
|
|
|
2.5
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
40.9
|
|
|
|
|
|
|
Rent expense approximated $24.9 million, $34.3 million
and $55.5 million for fiscal 2010, 2009 and 2008,
respectively.
96
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE N
OTHER ASSETS AND ACCRUED EXPENSES AND OTHER
LIABILITIES
The Companys homebuilding other assets at
September 30, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Insurance receivables
|
|
$
|
251.5
|
|
|
$
|
234.6
|
|
Accounts and notes receivable
|
|
|
18.5
|
|
|
|
50.7
|
|
Prepaid assets
|
|
|
28.9
|
|
|
|
39.0
|
|
Other assets
|
|
|
135.9
|
|
|
|
108.7
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
434.8
|
|
|
$
|
433.0
|
|
|
|
|
|
|
|
|
|
|
The Companys homebuilding accrued expenses and other
liabilities at September 30, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Construction defect and other litigation liabilities
|
|
$
|
571.3
|
|
|
$
|
534.0
|
|
Employee compensation and related liabilities
|
|
|
90.4
|
|
|
|
98.5
|
|
Warranty liability
|
|
|
46.2
|
|
|
|
59.6
|
|
Accrued interest
|
|
|
39.8
|
|
|
|
53.5
|
|
Federal and state income tax liabilities
|
|
|
83.8
|
|
|
|
24.0
|
|
Other liabilities
|
|
|
125.7
|
|
|
|
162.4
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
957.2
|
|
|
$
|
932.0
|
|
|
|
|
|
|
|
|
|
|
97
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE O
SEGMENT INFORMATION
The Companys 33 homebuilding operating divisions and its
financial services operation are its operating segments. The
homebuilding operating segments are aggregated into six
reporting segments and the financial services operating segment
is its own reporting segment. The Companys reportable
homebuilding segments are: East, Midwest, Southeast, South
Central, Southwest and West. These reporting segments have
homebuilding operations located in the following states:
|
|
|
|
|
|
East:
|
|
Delaware, Georgia (Savannah only), Maryland, New Jersey, North
Carolina, Pennsylvania, South Carolina and Virginia
|
|
|
|
Midwest:
|
|
Colorado, Illinois, Minnesota and Wisconsin
|
|
|
|
Southeast:
|
|
Alabama, Florida and Georgia
|
|
|
|
South Central:
|
|
Louisiana, New Mexico (Las Cruces only), Oklahoma and Texas
|
|
|
|
Southwest:
|
|
Arizona and New Mexico
|
|
|
|
West:
|
|
California, Hawaii, Idaho, Nevada, Oregon, Utah and Washington
|
During the fourth quarter of fiscal 2010, a change in the
composition of the Companys operating divisions required
that the Las Cruces, New Mexico market, previously included in
the Southwest reporting segment, now be included in the South
Central reporting segment. Consequently, the Company has
restated the prior year segment information provided in this
note to conform to the current year presentation.
Homebuilding is the Companys core business, generating
approximately 98% of consolidated revenues in fiscal 2010, 2009
and 2008. The Companys homebuilding segments are primarily
engaged in the acquisition and development of land and the
construction and sale of residential homes on the land, in
26 states and 72 markets in the United States. The
homebuilding segments generate most of their revenues from the
sale of completed homes, and to a lesser extent from the sale of
land and lots.
The Companys financial services segment provides mortgage
financing and title agency services principally to customers of
the Companys homebuilding segments. The Company generally
does not retain or service the mortgages that it originates;
rather, it seeks to sell the mortgages and related servicing
rights to third-party purchasers. The financial services segment
generates its revenues from originating and selling mortgages
and collecting fees for title insurance agency and closing
services.
98
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The accounting policies of the reporting segments are described
throughout Note A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
East
|
|
$
|
492.3
|
|
|
$
|
347.1
|
|
|
$
|
589.9
|
|
Midwest
|
|
|
331.0
|
|
|
|
314.5
|
|
|
|
546.7
|
|
Southeast
|
|
|
747.6
|
|
|
|
570.8
|
|
|
|
820.8
|
|
South Central
|
|
|
1,383.5
|
|
|
|
1,024.6
|
|
|
|
1,469.7
|
|
Southwest
|
|
|
329.7
|
|
|
|
382.4
|
|
|
|
1,153.4
|
|
West
|
|
|
1,025.6
|
|
|
|
964.5
|
|
|
|
1,938.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding revenues
|
|
|
4,309.7
|
|
|
|
3,603.9
|
|
|
|
6,518.6
|
|
Financial services revenues
|
|
|
90.5
|
|
|
|
53.7
|
|
|
|
127.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues
|
|
$
|
4,400.2
|
|
|
$
|
3,657.6
|
|
|
$
|
6,646.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory Impairments
|
|
|
|
|
|
|
|
|
|
|
|
|
East
|
|
$
|
9.0
|
|
|
$
|
54.3
|
|
|
$
|
256.2
|
|
Midwest
|
|
|
21.9
|
|
|
|
46.3
|
|
|
|
161.8
|
|
Southeast
|
|
|
17.0
|
|
|
|
36.7
|
|
|
|
448.4
|
|
South Central
|
|
|
13.3
|
|
|
|
17.0
|
|
|
|
67.2
|
|
Southwest
|
|
|
0.6
|
|
|
|
36.5
|
|
|
|
264.9
|
|
West
|
|
|
0.5
|
|
|
|
187.0
|
|
|
|
1,174.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory impairments
|
|
$
|
62.3
|
|
|
$
|
377.8
|
|
|
$
|
2,372.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill Impairments
|
|
|
|
|
|
|
|
|
|
|
|
|
East
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Midwest
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast
|
|
|
|
|
|
|
|
|
|
|
|
|
South Central
|
|
|
|
|
|
|
|
|
|
|
|
|
Southwest
|
|
|
|
|
|
|
|
|
|
|
79.4
|
|
West
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill impairments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
79.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
East
|
|
$
|
(6.3
|
)
|
|
$
|
(95.9
|
)
|
|
$
|
(332.5
|
)
|
Midwest
|
|
|
(31.3
|
)
|
|
|
(104.9
|
)
|
|
|
(184.3
|
)
|
Southeast
|
|
|
(7.5
|
)
|
|
|
(73.2
|
)
|
|
|
(507.7
|
)
|
South Central
|
|
|
83.4
|
|
|
|
4.9
|
|
|
|
(6.1
|
)
|
Southwest
|
|
|
12.0
|
|
|
|
(45.8
|
)
|
|
|
(369.6
|
)
|
West
|
|
|
27.8
|
|
|
|
(226.4
|
)
|
|
|
(1,266.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding income (loss) before income taxes
|
|
|
78.1
|
|
|
|
(541.3
|
)
|
|
|
(2,666.9
|
)
|
Financial services income (loss) before income taxes
|
|
|
21.4
|
|
|
|
(15.5
|
)
|
|
|
35.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income (loss) before income taxes
|
|
$
|
99.5
|
|
|
$
|
(556.8
|
)
|
|
$
|
(2,631.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Expenses maintained at the
corporate level consist primarily of interest and property
taxes, which are capitalized and amortized to cost of sales or
expensed directly, and the expenses related to operating the
Companys corporate office. The amortization of capitalized
interest and property taxes is allocated to each segment based
on the segments revenue, while the interest expensed
directly and those expenses associated with the corporate office
are allocated to each segment based on the segments
average inventory.
|
99
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
Restated
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Homebuilding Inventories (1):
|
|
|
|
|
|
|
|
|
East
|
|
$
|
511.5
|
|
|
$
|
535.4
|
|
Midwest
|
|
|
297.3
|
|
|
|
371.1
|
|
Southeast
|
|
|
656.4
|
|
|
|
656.6
|
|
South Central
|
|
|
760.1
|
|
|
|
864.1
|
|
Southwest
|
|
|
218.7
|
|
|
|
244.4
|
|
West
|
|
|
898.8
|
|
|
|
842.5
|
|
Corporate and unallocated (2)
|
|
|
106.2
|
|
|
|
152.6
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding inventory
|
|
$
|
3,449.0
|
|
|
$
|
3,666.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Homebuilding inventories are the
only assets included in the measure of segment assets used by
the Companys chief operating decision maker, its CEO.
|
|
(2)
|
|
Corporate and unallocated consists
primarily of capitalized interest and property taxes.
|
100
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE P
SUPPLEMENTAL GUARANTOR INFORMATION
All of the Companys senior and convertible senior notes
are fully and unconditionally guaranteed, on a joint and several
basis, by all of the Companys direct and indirect
subsidiaries (collectively, Guarantor Subsidiaries), other than
financial services subsidiaries and certain insignificant
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
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R.
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Horton, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,234.9
|
|
|
$
|
45.3
|
|
|
$
|
29.1
|
|
|
$
|
|
|
|
$
|
1,309.3
|
|
Marketable securities,
available-for-sale
|
|
|
297.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
297.7
|
|
Restricted cash
|
|
|
53.3
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
53.7
|
|
Investments in subsidiaries
|
|
|
1,316.7
|
|
|
|
|
|
|
|
|
|
|
|
(1,316.7
|
)
|
|
|
|
|
Inventories
|
|
|
1,081.7
|
|
|
|
2,340.1
|
|
|
|
27.2
|
|
|
|
|
|
|
|
3,449.0
|
|
Income taxes receivable
|
|
|
16.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.0
|
|
Property and equipment, net
|
|
|
18.5
|
|
|
|
23.3
|
|
|
|
18.7
|
|
|
|
|
|
|
|
60.5
|
|
Other assets
|
|
|
101.1
|
|
|
|
292.8
|
|
|
|
88.8
|
|
|
|
|
|
|
|
482.7
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
|
|
|
|
253.8
|
|
|
|
|
|
|
|
253.8
|
|
Goodwill
|
|
|
|
|
|
|
15.9
|
|
|
|
|
|
|
|
|
|
|
|
15.9
|
|
Intercompany receivables
|
|
|
904.6
|
|
|
|
|
|
|
|
|
|
|
|
(904.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
5,024.5
|
|
|
$
|
2,717.8
|
|
|
$
|
417.6
|
|
|
$
|
(2,221.3
|
)
|
|
$
|
5,938.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
$
|
327.9
|
|
|
$
|
688.3
|
|
|
$
|
127.7
|
|
|
$
|
|
|
|
$
|
1,143.9
|
|
Intercompany payables
|
|
|
|
|
|
|
871.4
|
|
|
|
33.2
|
|
|
|
(904.6
|
)
|
|
|
|
|
Notes payable
|
|
|
2,083.4
|
|
|
|
1.9
|
|
|
|
86.5
|
|
|
|
|
|
|
|
2,171.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
2,411.3
|
|
|
|
1,561.6
|
|
|
|
247.4
|
|
|
|
(904.6
|
)
|
|
|
3,315.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,613.2
|
|
|
|
1,156.2
|
|
|
|
160.5
|
|
|
|
(1,316.7
|
)
|
|
|
2,613.2
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
9.7
|
|
|
|
|
|
|
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
2,613.2
|
|
|
|
1,156.2
|
|
|
|
170.2
|
|
|
|
(1,316.7
|
)
|
|
|
2,622.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Equity
|
|
$
|
5,024.5
|
|
|
$
|
2,717.8
|
|
|
$
|
417.6
|
|
|
$
|
(2,221.3
|
)
|
|
$
|
5,938.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidating
Balance Sheet
September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R.
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Horton, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,871.2
|
|
|
$
|
48.3
|
|
|
$
|
37.8
|
|
|
$
|
|
|
|
$
|
1,957.3
|
|
Restricted cash
|
|
|
54.5
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
55.2
|
|
Investments in subsidiaries
|
|
|
1,033.7
|
|
|
|
|
|
|
|
|
|
|
|
(1,033.7
|
)
|
|
|
|
|
Inventories
|
|
|
1,118.2
|
|
|
|
2,521.7
|
|
|
|
26.8
|
|
|
|
|
|
|
|
3,666.7
|
|
Income taxes receivable
|
|
|
293.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
293.1
|
|
Property and equipment, net
|
|
|
18.1
|
|
|
|
19.7
|
|
|
|
20.0
|
|
|
|
|
|
|
|
57.8
|
|
Other assets
|
|
|
116.6
|
|
|
|
275.3
|
|
|
|
98.1
|
|
|
|
|
|
|
|
490.0
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
|
|
|
|
220.8
|
|
|
|
|
|
|
|
220.8
|
|
Goodwill
|
|
|
|
|
|
|
15.9
|
|
|
|
|
|
|
|
|
|
|
|
15.9
|
|
Intercompany receivables
|
|
|
1,280.0
|
|
|
|
|
|
|
|
|
|
|
|
(1,280.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
5,785.4
|
|
|
$
|
2,881.6
|
|
|
$
|
403.5
|
|
|
$
|
(2,313.7
|
)
|
|
$
|
6,756.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
$
|
318.1
|
|
|
$
|
747.1
|
|
|
$
|
145.7
|
|
|
$
|
|
|
|
$
|
1,210.9
|
|
Intercompany payables
|
|
|
|
|
|
|
1,243.9
|
|
|
|
36.1
|
|
|
|
(1,280.0
|
)
|
|
|
|
|
Notes payable
|
|
|
3,075.5
|
|
|
|
1.1
|
|
|
|
68.7
|
|
|
|
|
|
|
|
3,145.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
3,393.6
|
|
|
|
1,992.1
|
|
|
|
250.5
|
|
|
|
(1,280.0
|
)
|
|
|
4,356.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,391.8
|
|
|
|
889.5
|
|
|
|
144.2
|
|
|
|
(1,033.7
|
)
|
|
|
2,391.8
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
8.8
|
|
|
|
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
2,391.8
|
|
|
|
889.5
|
|
|
|
153.0
|
|
|
|
(1,033.7
|
)
|
|
|
2,400.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Equity
|
|
$
|
5,785.4
|
|
|
$
|
2,881.6
|
|
|
$
|
403.5
|
|
|
$
|
(2,313.7
|
)
|
|
$
|
6,756.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidating
Statement of Operations
Year Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R.
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Horton, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,103.3
|
|
|
$
|
3,199.8
|
|
|
$
|
6.6
|
|
|
$
|
|
|
|
$
|
4,309.7
|
|
Cost of sales
|
|
|
888.0
|
|
|
|
2,736.5
|
|
|
|
3.1
|
|
|
|
|
|
|
|
3,627.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
215.3
|
|
|
|
463.3
|
|
|
|
3.5
|
|
|
|
|
|
|
|
682.1
|
|
Selling, general and administrative expense
|
|
|
206.4
|
|
|
|
308.0
|
|
|
|
7.6
|
|
|
|
|
|
|
|
522.0
|
|
Equity in (income) of subsidiaries
|
|
|
(177.9
|
)
|
|
|
|
|
|
|
|
|
|
|
177.9
|
|
|
|
|
|
Interest expense
|
|
|
86.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86.3
|
|
Loss on early retirement of debt, net
|
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.9
|
|
Other (income)
|
|
|
(3.9
|
)
|
|
|
(1.5
|
)
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
(9.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99.5
|
|
|
|
156.8
|
|
|
|
(0.3
|
)
|
|
|
(177.9
|
)
|
|
|
78.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
90.5
|
|
|
|
|
|
|
|
90.5
|
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
|
77.2
|
|
|
|
|
|
|
|
77.2
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
1.9
|
|
Interest and other (income)
|
|
|
|
|
|
|
|
|
|
|
(10.0
|
)
|
|
|
|
|
|
|
(10.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.4
|
|
|
|
|
|
|
|
21.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
99.5
|
|
|
|
156.8
|
|
|
|
21.1
|
|
|
|
(177.9
|
)
|
|
|
99.5
|
|
Benefit from income taxes
|
|
|
(145.6
|
)
|
|
|
(109.7
|
)
|
|
|
(2.9
|
)
|
|
|
112.6
|
|
|
|
(145.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
245.1
|
|
|
$
|
266.5
|
|
|
$
|
24.0
|
|
|
$
|
(290.5
|
)
|
|
$
|
245.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidating
Statement of Operations
Year Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R.
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Horton, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
828.7
|
|
|
$
|
2,754.7
|
|
|
$
|
20.5
|
|
|
$
|
|
|
|
$
|
3,603.9
|
|
Cost of sales
|
|
|
889.2
|
|
|
|
2,615.5
|
|
|
|
34.0
|
|
|
|
|
|
|
|
3,538.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
(60.5
|
)
|
|
|
139.2
|
|
|
|
(13.5
|
)
|
|
|
|
|
|
|
65.2
|
|
Selling, general and administrative expense
|
|
|
209.7
|
|
|
|
306.9
|
|
|
|
6.4
|
|
|
|
|
|
|
|
523.0
|
|
Equity in loss of subsidiaries
|
|
|
192.2
|
|
|
|
|
|
|
|
|
|
|
|
(192.2
|
)
|
|
|
|
|
Interest expense
|
|
|
100.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.2
|
|
(Gain) on early retirement of debt, net
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.9
|
)
|
Other (income)
|
|
|
(1.9
|
)
|
|
|
(2.4
|
)
|
|
|
(8.5
|
)
|
|
|
|
|
|
|
(12.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(556.8
|
)
|
|
|
(165.3
|
)
|
|
|
(11.4
|
)
|
|
|
192.2
|
|
|
|
(541.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
53.7
|
|
|
|
|
|
|
|
53.7
|
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
|
78.1
|
|
|
|
|
|
|
|
78.1
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
1.5
|
|
Interest and other (income)
|
|
|
|
|
|
|
|
|
|
|
(10.4
|
)
|
|
|
|
|
|
|
(10.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15.5
|
)
|
|
|
|
|
|
|
(15.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(556.8
|
)
|
|
|
(165.3
|
)
|
|
|
(26.9
|
)
|
|
|
192.2
|
|
|
|
(556.8
|
)
|
Benefit from income taxes
|
|
|
(7.0
|
)
|
|
|
(5.3
|
)
|
|
|
(0.1
|
)
|
|
|
5.4
|
|
|
|
(7.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(549.8
|
)
|
|
$
|
(160.0
|
)
|
|
$
|
(26.8
|
)
|
|
$
|
186.8
|
|
|
$
|
(549.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidating
Statement of Operations
Year Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R.
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Horton, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,245.4
|
|
|
$
|
5,241.2
|
|
|
$
|
32.0
|
|
|
$
|
|
|
|
$
|
6,518.6
|
|
Cost of sales
|
|
|
1,840.4
|
|
|
|
6,404.7
|
|
|
|
36.7
|
|
|
|
|
|
|
|
8,281.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
(595.0
|
)
|
|
|
(1,163.5
|
)
|
|
|
(4.7
|
)
|
|
|
|
|
|
|
(1,763.2
|
)
|
Selling, general and administrative expense
|
|
|
280.9
|
|
|
|
501.7
|
|
|
|
9.2
|
|
|
|
|
|
|
|
791.8
|
|
Goodwill impairment
|
|
|
|
|
|
|
79.4
|
|
|
|
|
|
|
|
|
|
|
|
79.4
|
|
Equity in loss of subsidiaries
|
|
|
1,721.2
|
|
|
|
|
|
|
|
|
|
|
|
(1,721.2
|
)
|
|
|
|
|
Interest expense
|
|
|
39.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39.0
|
|
Loss on early retirement of debt, net
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.6
|
|
Other (income) expense
|
|
|
(6.9
|
)
|
|
|
4.7
|
|
|
|
(6.9
|
)
|
|
|
|
|
|
|
(9.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,631.8
|
)
|
|
|
(1,749.3
|
)
|
|
|
(7.0
|
)
|
|
|
1,721.2
|
|
|
|
(2,666.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
127.5
|
|
|
|
|
|
|
|
127.5
|
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
|
100.1
|
|
|
|
|
|
|
|
100.1
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
3.7
|
|
|
|
|
|
|
|
3.7
|
|
Interest and other (income)
|
|
|
|
|
|
|
|
|
|
|
(11.4
|
)
|
|
|
|
|
|
|
(11.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35.1
|
|
|
|
|
|
|
|
35.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(2,631.8
|
)
|
|
|
(1,749.3
|
)
|
|
|
28.1
|
|
|
|
1,721.2
|
|
|
|
(2,631.8
|
)
|
Provision for (benefit from) income taxes
|
|
|
1.8
|
|
|
|
(5.8
|
)
|
|
|
10.6
|
|
|
|
(4.8
|
)
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,633.6
|
)
|
|
$
|
(1,743.5
|
)
|
|
$
|
17.5
|
|
|
$
|
1,726.0
|
|
|
$
|
(2,633.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidating
Statement of Cash Flows
Year Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R.
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Horton, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
344.9
|
|
|
$
|
380.0
|
|
|
$
|
(15.5
|
)
|
|
$
|
|
|
|
$
|
709.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(7.9
|
)
|
|
|
(11.0
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(19.2
|
)
|
Purchases of marketable securities
|
|
|
(328.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(328.0
|
)
|
Proceeds from the sale of marketable securities
|
|
|
27.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27.7
|
|
Decrease in restricted cash
|
|
|
1.2
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(307.0
|
)
|
|
|
(10.7
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(318.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in notes payable
|
|
|
(1,019.9
|
)
|
|
|
|
|
|
|
17.8
|
|
|
|
|
|
|
|
(1,002.1
|
)
|
Net change in intercompany receivables/payables
|
|
|
383.0
|
|
|
|
(372.3
|
)
|
|
|
(10.7
|
)
|
|
|
|
|
|
|
|
|
Proceeds from stock associated with certain employee benefit
plans
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.6
|
|
Income tax benefit from stock option exercises
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.8
|
|
Cash dividends paid
|
|
|
(47.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(674.2
|
)
|
|
|
(372.3
|
)
|
|
|
7.1
|
|
|
|
|
|
|
|
(1,039.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(636.3
|
)
|
|
|
(3.0
|
)
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
(648.0
|
)
|
Cash and cash equivalents at
beginning of year
|
|
|
1,871.2
|
|
|
|
48.3
|
|
|
|
37.8
|
|
|
|
|
|
|
|
1,957.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,234.9
|
|
|
$
|
45.3
|
|
|
$
|
29.1
|
|
|
$
|
|
|
|
$
|
1,309.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidating
Statement of Cash Flows
Year Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R.
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Horton, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
414.6
|
|
|
$
|
561.0
|
|
|
$
|
165.6
|
|
|
$
|
|
|
|
$
|
1,141.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(4.2
|
)
|
|
|
(1.6
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
(6.2
|
)
|
(Increase) decrease in restricted cash
|
|
|
(53.3
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
(53.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(57.5
|
)
|
|
|
(1.5
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
(59.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in notes payable
|
|
|
(333.8
|
)
|
|
|
|
|
|
|
(134.9
|
)
|
|
|
|
|
|
|
(468.7
|
)
|
Net change in intercompany receivables/payables
|
|
|
629.5
|
|
|
|
(601.3
|
)
|
|
|
(28.2
|
)
|
|
|
|
|
|
|
|
|
Proceeds from stock associated with certain employee benefit
plans
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.4
|
|
Cash dividends paid
|
|
|
(47.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
252.6
|
|
|
|
(601.3
|
)
|
|
|
(163.1
|
)
|
|
|
|
|
|
|
(511.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
609.7
|
|
|
|
(41.8
|
)
|
|
|
2.1
|
|
|
|
|
|
|
|
570.0
|
|
Cash and cash equivalents at beginning of year
|
|
|
1,261.5
|
|
|
|
90.1
|
|
|
|
35.7
|
|
|
|
|
|
|
|
1,387.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,871.2
|
|
|
$
|
48.3
|
|
|
$
|
37.8
|
|
|
$
|
|
|
|
$
|
1,957.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidating
Statement of Cash Flows
Year Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R.
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Horton, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(123.9
|
)
|
|
$
|
1,794.5
|
|
|
$
|
204.3
|
|
|
$
|
1.6
|
|
|
$
|
1,876.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(3.2
|
)
|
|
|
(3.3
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(6.6
|
)
|
Decrease in restricted cash
|
|
|
1.7
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1.5
|
)
|
|
|
(1.6
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in notes payable
|
|
|
(438.8
|
)
|
|
|
|
|
|
|
(184.3
|
)
|
|
|
|
|
|
|
(623.1
|
)
|
Net change in intercompany receivables/payables
|
|
|
1,958.2
|
|
|
|
(1,928.1
|
)
|
|
|
(30.1
|
)
|
|
|
|
|
|
|
|
|
Proceeds from stock associated with certain employee benefit
plans
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.5
|
|
Cash dividends paid
|
|
|
(142.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(142.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
1,386.9
|
|
|
|
(1,928.1
|
)
|
|
|
(214.4
|
)
|
|
|
|
|
|
|
(755.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
1,261.5
|
|
|
|
(135.2
|
)
|
|
|
(10.2
|
)
|
|
|
1.6
|
|
|
|
1,117.7
|
|
Cash and cash equivalents at beginning of year
|
|
|
|
|
|
|
225.3
|
|
|
|
45.9
|
|
|
|
(1.6
|
)
|
|
|
269.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,261.5
|
|
|
$
|
90.1
|
|
|
$
|
35.7
|
|
|
$
|
|
|
|
$
|
1,387.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE Q
QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)
Quarterly results of operations were (in millions, except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010
|
|
|
|
Three Months Ended
|
|
|
|
September 30
|
|
|
June 30
|
|
|
March 31
|
|
|
December 31
|
|
|
Revenues
|
|
$
|
948.4
|
|
|
$
|
1,406.1
|
|
|
$
|
913.5
|
|
|
$
|
1,132.2
|
|
Gross profit
|
|
|
127.8
|
|
|
|
206.8
|
|
|
|
159.2
|
|
|
|
188.3
|
|
Income (loss) before income taxes
|
|
|
(1.7
|
)
|
|
|
46.3
|
|
|
|
12.1
|
|
|
|
42.8
|
|
Provision for (benefit from) income taxes
|
|
|
7.2
|
|
|
|
(4.2
|
)
|
|
|
0.7
|
|
|
|
(149.2
|
)
|
Net income (loss)
|
|
|
(8.9
|
)
|
|
|
50.5
|
|
|
|
11.4
|
|
|
|
192.0
|
|
Basic net income (loss) per common share
|
|
|
(0.03
|
)
|
|
|
0.16
|
|
|
|
0.04
|
|
|
|
0.60
|
|
Diluted net income (loss) per common share
|
|
|
(0.03
|
)
|
|
|
0.16
|
|
|
|
0.04
|
|
|
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009
|
|
|
|
Three Months Ended
|
|
|
|
September 30
|
|
|
June 30
|
|
|
March 31
|
|
|
December 31
|
|
Revenues
|
|
$
|
1,028.9
|
|
|
$
|
932.9
|
|
|
$
|
778.0
|
|
|
$
|
918.0
|
|
Gross profit (loss)
|
|
|
(65.2
|
)
|
|
|
(8.4
|
)
|
|
|
55.0
|
|
|
|
83.7
|
|
Loss before income taxes
|
|
|
(229.1
|
)
|
|
|
(163.3
|
)
|
|
|
(103.0
|
)
|
|
|
(61.3
|
)
|
Provision for (benefit from) income taxes
|
|
|
5.8
|
|
|
|
(19.6
|
)
|
|
|
5.6
|
|
|
|
1.3
|
|
Net loss
|
|
|
(234.9
|
)
|
|
|
(143.7
|
)
|
|
|
(108.6
|
)
|
|
|
(62.6
|
)
|
Basic and diluted net loss per common share
|
|
|
(0.74
|
)
|
|
|
(0.45
|
)
|
|
|
(0.34
|
)
|
|
|
(0.20
|
)
|
In the past, the Company experienced variability in its results
of operations from quarter to quarter due to the seasonal nature
of its homebuilding business. Historically, the Company has
closed a greater number of homes in the third and fourth (June
and September) fiscal quarters than in the first and second
(December and March) fiscal quarters. As a result, revenues and
net income typically have been higher in the third and fourth
quarters of the fiscal year. In contrast to the typical seasonal
results, the weakness in homebuilding market conditions during
the past several years has mitigated these historical seasonal
variations. In fiscal 2009 and 2010, just over half (54%) of
consolidated revenues were attributable to operations in the
third and fourth fiscal quarters, and the Company incurred
operating losses in all quarters of fiscal 2009 and in the
fourth quarter of fiscal 2010. Net income in the first quarter
of fiscal 2010 includes a $149.2 million benefit from
income taxes.
Gross profit during fiscal 2010 was reduced by inventory
impairment charges and write-offs of earnest money deposits and
pre-acquisition costs of $1.2 million, $2.4 million,
$30.3 million and $30.8 million in the first, second,
third and fourth quarters, respectively. Gross profit during
fiscal 2009 was reduced by inventory impairment charges and
write-offs of earnest money deposits and pre-acquisition costs
of $56.2 million, $48.1 million, $110.8 million
and $192.5 million in the first, second, third and fourth
quarters, respectively.
109
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
As of the end of the period covered by this report, an
evaluation was performed under the supervision and with the
participation of the Companys management, including the
Chief Executive Officer (CEO) and Chief Financial Officer (CFO),
of the effectiveness of the Companys disclosure controls
and procedures as defined in
Rule 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934. Based on that
evaluation, the CEO and CFO concluded that the Companys
disclosure controls and procedures were effective in providing
reasonable assurance that information required to be disclosed
in the reports the Company files, furnishes, submits or
otherwise provides the Securities and Exchange Commission under
the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SECs
rules and forms, and that information required to be disclosed
in reports filed by the Company under the Exchange Act is
accumulated and communicated to the Companys management,
including the CEO and CFO, in such a manner as to allow timely
decisions regarding the required disclosure.
Changes
in Internal Control Over Financial Reporting
There have been no changes in the Companys internal
controls over financial reporting during the quarter ended
September 30, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined
in
Rule 13a-15(f)
under the Securities Exchange Act of 1934, as amended. Internal
control over financial reporting is a process to provide
reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements for
external purposes in accordance with U.S. generally
accepted accounting principles. Because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework
in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management
concluded that the Companys internal control over
financial reporting was effective as of September 30, 2010.
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, has audited the effectiveness of our internal
control over financial reporting as of September 30, 2010,
as stated in their report included herein.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
110
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required by this item is set forth under the
captions Proposal One Election of
Directors, Corporate Governance,
Section 16(a) Beneficial Ownership Reporting
Compliance and Requesting Documents from the
Company in the registrants definitive Proxy
Statement for the 2011 Annual Meeting of Stockholders and
incorporated herein by reference.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this item is set forth under the
caption Executive Compensation in the
registrants definitive Proxy Statement for the 2011 Annual
Meeting of Stockholders and incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Securities
Authorized for Issuance under Equity Compensation
Plans
The following table summarizes our equity compensation plans as
of September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
(a)
|
|
|
|
Number of Securities
|
|
|
Number of Shares to
|
|
(b)
|
|
Remaining Available for
|
|
|
be Issued Upon
|
|
Weighted-Average
|
|
Future Issuance Under
|
|
|
Exercise of
|
|
Exercise Price of
|
|
Equity Compensation Plans
|
|
|
Outstanding Options,
|
|
Outstanding Options,
|
|
(Excluding Securities
|
|
|
Warrants and Rights
|
|
Warrants and Rights
|
|
Reflected in Column (a))
|
|
Plan Category
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by stockholders
|
|
|
17,658,872
|
|
|
$
|
14.87
|
|
|
|
23,332,820
|
(1)
|
Equity compensation plans not approved by stockholders
|
|
|
|
|
|
|
n/a
|
|
|
|
|
|
Total
|
|
|
17,658,872
|
|
|
$
|
14.87
|
|
|
|
23,332,820
|
(1)
|
|
|
|
(1)
|
|
Includes 3,809,831 shares
reserved for issuance under the Companys Employee Stock
Purchase Plan. Under this Employee Stock Purchase Plan,
employees of the Company purchased 107,952 shares of common
stock in fiscal 2010.
|
The remaining information required by this item is set forth
under the caption Beneficial Ownership of Common
Stock in the registrants definitive Proxy
Statement for the 2011 Annual Meeting of Stockholders and
incorporated herein by reference.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information required by this item is set forth under the
captions Executive Compensation
Transactions with Management and Corporate
Governance in the registrants definitive Proxy
Statement for the 2011 Annual Meeting of Stockholders and
incorporated herein by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this item is set forth under the
caption Independent Registered Public Accountants
in the registrants definitive Proxy Statement for the
2011 Annual Meeting of Stockholders and incorporated herein by
reference.
111
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) The following documents are filed as part of this
report:
(1). Financial Statements:
See Item 8 above.
(2). Financial Statement Schedules:
Schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are omitted because they are not required under the related
instructions or are not applicable, or because the required
information is shown in the consolidated financial statements or
notes thereto.
(3). and (b) Exhibits:
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated as of December 18, 1997, by
and between the Registrant and Continental Homes Holding Corp.
The Registrant agrees to furnish supplementally a copy of
omitted schedules to the SEC upon request(1)
|
|
2
|
.2
|
|
Agreement and Plan of Merger, dated as of October 22, 2001, as
amended on November 8, 2001, by and between the Registrant and
Schuler Homes, Inc. The Registrant agrees to furnish
supplementally a copy of omitted schedules to the SEC upon
request(2)
|
|
3
|
.1
|
|
Certificate of Amendment of the Amended and Restated Certificate
of Incorporation, as amended, of the Registrant, dated January
31, 2006, and the Amended and Restated Certificate of
Incorporation, as amended, of the Registrant dated March 18,
1992(3)
|
|
3
|
.2
|
|
Certificate of Elimination of Series A Junior Participating
Preferred Stock of Registrant, filed with the Secretary of State
on the State of Delaware on August 20, 2010(66)
|
|
3
|
.3
|
|
Amended and Restated Bylaws(4)
|
|
4
|
.1
|
|
See Exhibits 3.1 and 3.2
|
|
4
|
.2
|
|
Indenture, dated as of June 9, 1997, among the Registrant, the
Guarantors named therein and American Stock Transfer &
Trust Company, as Trustee(5)
|
|
4
|
.3
|
|
Second Supplemental Indenture, dated as of September 30, 1997,
among the Registrant, the Guarantors named therein and American
Stock Transfer & Trust Company, as Trustee(6)
|
|
4
|
.4
|
|
Third Supplemental Indenture, dated as of April 17, 1998, among
the Registrant, the Guarantors named therein and American Stock
Transfer & Trust Company, as Trustee(7)
|
|
4
|
.5
|
|
Fourth Supplemental Indenture, dated as of April 20, 1998, among
the Registrant, the Guarantors named therein and American Stock
Transfer & Trust Company, as Trustee(8)
|
|
4
|
.6
|
|
Fifth Supplemental Indenture, dated as of August 31, 1998, among
the Registrant, the Guarantors named therein and American Stock
Transfer & Trust Company, as Trustee(9)
|
|
4
|
.7
|
|
Seventh Supplemental Indenture, dated as of August 31, 1999,
among the Registrant, the Guarantors named therein and American
Stock Transfer & Trust Company, as Trustee(11)
|
|
4
|
.8
|
|
Ninth Supplemental Indenture, dated as of March 31, 2000, among
the Registrant, the Guarantors named therein and American Stock
Transfer & Trust Company, as Trustee(12)
|
|
4
|
.9
|
|
Twelfth Supplemental Indenture, dated as of May 21, 2001, among
the Registrant, the Guarantors named therein and American Stock
Transfer & Trust Company, as Trustee(13)
|
|
4
|
.10
|
|
Thirteenth Supplemental Indenture, dated as of August 15, 2001,
among the Registrant, the Guarantors named therein and American
Stock Transfer & Trust Company, as Trustee, relating to the
7.875% Senior Notes due 2011 issued by the Registrant(14)
|
|
4
|
.11
|
|
Fourteenth Supplemental Indenture, dated as of February 21,
2002, among the Registrant, the Guarantors named therein and
American Stock Transfer & Trust Company, as Trustee(25)
|
112
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit
|
|
|
4
|
.12
|
|
Indenture, dated as of September 11, 2000, among the Registrant,
the Guarantors named therein and American Stock Transfer &
Trust Company, as Trustee(15)
|
|
4
|
.13
|
|
First Supplemental Indenture, dated as of September 11, 2000,
among the Registrant, the Guarantors named therein and American
Stock Transfer & Trust Company, as Trustee, relating to the
9.75% Senior Subordinated Notes due 2010 issued by the
Registrant(16)
|
|
4
|
.14
|
|
Third Supplemental Indenture, dated as of May 21, 2001, among
the Registrant, the Guarantors named therein and American Stock
Transfer & Trust Company, as Trustee(17)
|
|
4
|
.15
|
|
Fourth Supplemental Indenture, dated as of February 21, 2002,
among the Registrant, the Guarantors named therein and American
Stock Transfer & Trust Company, as Trustee(26)
|
|
4
|
.16
|
|
Fifteenth Supplemental Indenture, dated as of December 3, 2002,
by and among the Registrant, the Guarantors named therein and
American Stock Transfer & Trust Company, as Trustee,
relating to the 7.5% Senior Notes due 2007 issued by the
Registrant(28)
|
|
4
|
.17
|
|
Sixteenth Supplemental Indenture, dated as of April 17, 2003, by
and among the Registrant, the Guarantors named therein and
American Stock Transfer & Trust Company, as Trustee,
relating to the 6.875% Senior Notes due 2013 issued by the
Registrant(29)
|
|
4
|
.18
|
|
Seventeenth Supplemental Indenture, dated as of June 25, 2003,
by and among the Registrant, the Guarantors named therein and
American Stock Transfer & Trust Company, as Trustee,
relating to the 5.875% Senior Notes due 2013 issued by the
Registrant(30)
|
|
4
|
.19
|
|
Nineteenth Supplemental Indenture, dated as of July 12, 2004, by
and among the Registrant, the Guarantors named therein and
American Stock Transfer & Trust Company, as Trustee,
relating to the 6.125% Senior Notes due 2014 issued by the
Registrant(33)
|
|
4
|
.20
|
|
Twentieth Supplemental Indenture, dated as of September 21,
2004, by and among the Registrant, the Guarantors named therein
and American Stock Transfer & Trust Company, as Trustee,
relating to the 5.625% Senior Notes due 2014 issued by the
Registrant(34)
|
|
4
|
.21
|
|
Twenty-First Supplemental Indenture, dated as of October 15,
2004, by and among the Registrant, the Guarantors named therein
and American Stock Transfer & Trust Company, as Trustee,
relating to the 4.875% Senior Notes due 2010 issued by the
Registrant.(35)
|
|
4
|
.22
|
|
Twenty-Second Supplemental Indenture, dated as of December 15,
2004, by and among the Registrant, the Guarantors named therein
and American Stock Transfer & Trust Company, as Trustee,
relating to the 5.625% Senior Notes due 2016 issued by the
Registrant(36)
|
|
4
|
.23
|
|
Twenty-Third Supplemental Indenture, dated as of February 11,
2005, by and among the Registrant, the Guarantors named therein
and American Stock Transfer & Trust Company, as Trustee,
relating to the 5.25% Senior Notes due 2015 issued by the
Registrant(37)
|
|
4
|
.24
|
|
Twenty-Fourth Supplemental Indenture, dated as of July 7, 2005,
by and among the Registrant, the Guarantors named therein and
American Stock Transfer & Trust Company, as Trustee,
relating to the 5.375% Senior Notes due 2012 issued by the
Registrant(38)
|
|
4
|
.25
|
|
Twenty-Fifth Supplemental Indenture, dated as of January 23,
2006, by and among the Registrant, the Guarantors named therein
and American Stock Transfer & Trust Company, as Trustee(42)
|
|
4
|
.26
|
|
Fifth Supplemental Indenture, dated as of January 23, 2006, by
and among the Registrant, the Guarantors named therein and
American Stock Transfer & Trust Company, as Trustee(44)
|
|
4
|
.27
|
|
Twenty-Sixth Supplemental Indenture, dated as of April 17, 2006,
by and among the Registrant, the Guarantors named therein and
American Stock Transfer & Trust Company, as Trustee,
relating to the 6.0% Senior Notes due 2011 issued by the
Registrant(45)
|
|
4
|
.28
|
|
Twenty-Seventh Supplemental Indenture, dated as of April 17,
2006, by and among the Registrant, the Guarantors named therein
and American Stock Transfer & Trust Company, as Trustee,
relating to the 6.5% Senior Notes due 2016 issued by the
Registrant(46)
|
|
4
|
.29
|
|
Twenty-Eighth Supplemental Indenture, dated as of June 13, 2006,
by and among the Registrant, the Guarantors named therein and
American Stock Transfer & Trust Company, as Trustee(49)
|
|
4
|
.30
|
|
Sixth Supplemental Indenture, dated as of June 13, 2006, by and
among the Registrant, the Guarantors named therein and American
Stock Transfer & Trust Company, as Trustee(50)
|
113
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit
|
|
|
4
|
.31
|
|
Seventh Supplemental Indenture, dated as of June 4, 2008, by and
among the Registrant, the Guarantors named therein and American
Stock Transfer & Trust Company, as Trustee, relating to the
9.75% Senior Subordinated Notes due 2010 issued by the
Registrant(63)
|
|
4
|
.32
|
|
Twenty-Ninth Supplemental Indenture, dated as of June 20, 2008,
by and among the Registrant, the Guarantors named therein and
American Stock Transfer & Trust Company, LLC, as Trustee,
relating to the 9.75% Senior Notes due 2010 issued by the
Registrant(10)
|
|
4
|
.33
|
|
Thirtieth Supplemental Indenture, dated as of May 13, 2009, by
and among the Registrant, the Guarantors named therein and
American Stock Transfer & Trust Company, LLC, as Trustee,
relating to the 2.00% Convertible Senior Notes due 2014
issued by the Registrant(31)
|
|
10
|
.1
|
|
Form of Indemnification Agreement between the Registrant and
each of its directors and executive officers and schedules of
substantially identical documents(18)
|
|
10
|
.2
|
|
D.R. Horton, Inc. 1991 Stock Incentive Plan, as amended and
restated(19)
|
|
10
|
.3
|
|
Amendment No. 1 to 1991 Stock Incentive Plan, as amended and
restated(20)
|
|
10
|
.4
|
|
Form of Non-Qualified Stock Option Agreement under the D.R.
Horton, Inc. 1991 Stock Incentive Plan (Term Vesting)(21)
|
|
10
|
.5
|
|
D.R. Horton, Inc. 2006 Stock Incentive Plan(43)
|
|
10
|
.6
|
|
Form of Non-Qualified Stock Option Agreement under the D.R.
Horton, Inc. 2006 Stock Incentive Plan (Employee Term
Vesting 2006 Form)(47)
|
|
10
|
.7
|
|
Form of Non-Qualified Stock Option Agreement under the D.R.
Horton, Inc. 2006 Stock Incentive Plan (Director Term
Vesting 2006 Form)(48)
|
|
10
|
.8
|
|
Form of Non-Qualified Stock Option Agreement (Employee-Term
Vesting 2008 Form) pursuant to the Registrants 2006 Stock
Incentive Plan(51)
|
|
10
|
.9
|
|
Form of Non-Qualified Stock Option Agreement (Outside
Director-Term Vesting 2008 Form) pursuant to the
Registrants 2006 Stock Incentive Plan(53)
|
|
10
|
.10
|
|
Form of Restricted Stock Unit Agreement pursuant to the
Registrants 2006 Stock Incentive Plan(67)
|
|
10
|
.11
|
|
Form of Stock Award Agreement pursuant to the Registrants
2006 Stock Incentive Plan(68)
|
|
10
|
.12
|
|
D.R. Horton, Inc. Supplemental Executive Retirement Plan No.
1(22)
|
|
10
|
.13
|
|
D.R. Horton, Inc. Supplemental Executive Retirement Trust No.
1(23)
|
|
10
|
.14
|
|
D.R. Horton, Inc. Amended and Restated Supplemental Executive
Retirement Plan No. 2(61)
|
|
10
|
.15
|
|
D.R. Horton, Inc. Amended and Restated 2000 Incentive Bonus
Plan(24)
|
|
10
|
.16
|
|
D.R. Horton, Inc. 2008 Performance Unit Plan(55)
|
|
10
|
.17
|
|
Form of Performance Unit Award pursuant to the Registrants
2008 Performance Unit Plan(32)
|
|
10
|
.18
|
|
Executive Compensation Notification (fiscal 2011)
Chairman and CEO(39)
|
|
10
|
.19
|
|
Executive Compensation Notification (fiscal 2010)
Chairman and CEO(54)
|
|
10
|
.20
|
|
Executive Compensation Summary Other Executive Officers
(fiscal 2011)(40)
|
|
10
|
.21
|
|
Executive Compensation Summary Other Executive Officers
(fiscal 2010)(64)
|
|
10
|
.22
|
|
Director Compensation Summary (fiscal 2011)(41)
|
|
10
|
.23
|
|
Director Compensation Summary (fiscal 2010)(65)
|
|
10
|
.24
|
|
D.R. Horton, Inc. Amended and Restated Deferred Compensation
Plan(62)
|
|
10
|
.25
|
|
Grantor Trust Agreement, dated June 21, 2002, by and between the
Registrant and Wachovia Bank, National Association, as
Trustee(27)
|
|
10
|
.26
|
|
Master Repurchase Agreement, dated March 27, 2008, among DHI
Mortgage Company, Ltd., U.S. Bank National Association, as
Administrative Agent and a Buyer, JP Morgan Chase Bank, National
Association, as Syndication Agent, J.P. Morgan Securities,
Inc., as Lead Arranger and Sole Bookrunner, and other parties
named therein(56)
|
114
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit
|
|
|
10
|
.27
|
|
Custody Agreement, dated March 27, 2008, by and between DHI
Mortgage Company, Ltd. and U.S. Bank National Association, as
Administrative Agent and representative of certain Buyers(57)
|
|
10
|
.28
|
|
First Amendment to Master Repurchase Agreement, dated March 5,
2009, among DHI Mortgage Company, Ltd., U.S. Bank National
Association, as Administrative Agent, Syndication Agent and a
buyer, and other parties named therein(58)
|
|
10
|
.29
|
|
Second Amendment to Master Repurchase Agreement, dated September
23, 2009, among DHI Mortgage Company, Ltd., U.S. Bank National
Association, as Administrative Agent, Syndication Agent and a
buyer, and other parties named therein(59)
|
|
10
|
.30
|
|
Third Amendment to Master Repurchase Agreement, dated March 4,
2010, among DHI Mortgage Company, Ltd., U.S. Bank National
Association, as Administrative Agent, Syndication Agent and a
buyer(52)
|
|
10
|
.31
|
|
Fourth Amendment to Master Repurchase Agreement, dated July 30,
2010, among DHI Mortgage Company, Ltd., U.S. Bank National
Association, as Administrative Agent, Syndication Agent and a
buyer(60)
|
|
12
|
.1
|
|
Statement of Computation of Ratio of Earnings to Fixed Charges
(*)
|
|
14
|
.1
|
|
Code of Ethical Conduct for the CEO, CFO and Senior Financial
Officers (**)
|
|
21
|
.1
|
|
Subsidiaries of D.R. Horton, Inc. (*)
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP, Fort Worth, Texas (*)
|
|
31
|
.1
|
|
Certificate of Chief Executive Officer provided pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002 (*)
|
|
31
|
.2
|
|
Certificate of Chief Financial Officer provided pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002 (*)
|
|
32
|
.1
|
|
Certificate provided pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, by the Registrants Chief Executive Officer (*)
|
|
32
|
.2
|
|
Certificate provided pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, by the Registrants Chief Financial Officer (*)
|
|
101
|
|
|
The following financial statements from D.R. Horton, Inc.s
Annual Report on Form 10-K for the year ended September 30,
2010, filed on November 17, 2010, formatted in XBRL (Extensible
Business Reporting Language); (i) Consolidated Balance Sheets,
(ii) Consolidated Statements of Operations, (iii) Consolidated
Statements of Total Equity, (iv) Consolidated Statements of Cash
Flows and (v) the Notes to Consolidated Financial Statements,
tagged as blocks of text. (***)
|
|
|
|
** |
|
Posted to the Registrants website at
www.drhorton.com under the Investor Relations and
Corporate Governance links. |
|
*** |
|
In accordance with Rule 406T of
Regulation S-T,
the XBRL related information in Exhibit 101 to this Annual
Report on
Form 10-K
shall not be deemed to be filed for purposes of
Section 18 of the Exchange Act, or otherwise subject to the
liability of that section, and shall not be part of any
registration or other document filed under the Securities Act or
the Exchange Act, except as shall be expressly set forth by
specific reference in such filing. |
|
|
|
|
|
Management contract or compensatory plan arrangement. |
|
|
|
(1) |
|
Incorporated herein by reference from Exhibit 2.1 to the
Registrants Registration Statement on
Form S-4
(Registration No.
333-44279),
filed with the SEC on January 15, 1998. |
|
(2) |
|
Incorporated herein by reference from Exhibit 2.1 to the
Registrants Current Report on
Form 8-K,
dated October 22, 2001, filed with the SEC on
October 24, 2001; and Exhibit 2.2 to the
Registrants Current Report on
Form 8-K,
dated November 8, 2001, filed with the SEC on
November 8, 2001. |
|
(3) |
|
Incorporated herein by reference from Exhibit 3.1 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended December 31, 2005, filed
with the SEC on February 2, 2006. |
115
|
|
|
(4) |
|
Incorporated herein by reference from Exhibit 3.1 to the
Registrants Current Report of
Form 8-K,
dated July 30, 2009, filed with the SEC on August 5,
2009. |
|
(5) |
|
Incorporated herein by reference from Exhibit 4.1(a) to the
Registrants Registration Statement on
Form S-3
(No. 333-27521),
filed with the SEC on May 21, 1997. |
|
(6) |
|
Incorporated herein by reference from Exhibit 4.4 to the
Registrants Annual Report on
Form 10-K
for the fiscal year ended September 30, 1997, filed with
the SEC on December 8, 1997. |
|
(7) |
|
Incorporated herein by reference from Exhibit 4.3 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 1998, filed with
SEC on May 14, 1998. |
|
(8) |
|
Incorporated herein by reference from Exhibit 4.4 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 1998, filed with
SEC on May 14, 1998. |
|
(9) |
|
Incorporated herein by reference from Exhibit 4.7 to the
Registrants Annual Report on
Form 10-K
for the fiscal year ended September 30, 1998, filed with
the SEC on December 10, 1998. |
|
(10) |
|
Incorporated herein by reference from Exhibit 4.2 to the
Registrants Current Report on
Form 8-K
dated June 20, 2008, filed with the SEC on June 20,
2008. |
|
(11) |
|
Incorporated herein by reference from Exhibit 4.9 to the
Registrants Annual Report on
Form 10-K
for the fiscal year ended September 30, 1999, filed with
the SEC on December 10, 1999. |
|
(12) |
|
Incorporated herein by reference from Exhibit 4.5 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2000, filed with
the SEC on May 12, 2000. |
|
(13) |
|
Incorporated herein by reference from Exhibit 4.5 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2001, filed with
the SEC on August 14, 2001. |
|
(14) |
|
Incorporated herein by reference from Exhibit 4.1(a) to the
Registrants Current Report on
Form 8-K,
dated August 8, 2001, filed with the SEC on August 14,
2001. |
|
(15) |
|
Incorporated herein by reference from Exhibit 4.1(a) to the
Registrants Current Report on
Form 8-K,
dated September 6, 2000, filed with the SEC on
September 11, 2000. |
|
(16) |
|
Incorporated herein by reference from Exhibit 4.1(b) to the
Registrants Current Report on
Form 8-K,
dated September 6, 2000, filed with the SEC on
September 11, 2000. |
|
(17) |
|
Incorporated herein by reference from Exhibit 4.2 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2001, filed with
the SEC on August 14, 2001. |
|
(18) |
|
Incorporated herein by reference from Exhibit 10.1 to the
Registrants Annual Report on
Form 10-K
for the fiscal year ended September 30, 1995, filed with
the SEC on November 22, 1995 (file number 1-14122);
Exhibit 10.2 to the Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 1998, filed with
the SEC on August 6, 1998; and Exhibit 10.4 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2001, filed with
the SEC on May 15, 2001. |
|
(19) |
|
Incorporated herein by reference from Exhibit 10.2 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2002, filed with
the SEC on August 13, 2002. |
|
(20) |
|
Incorporated herein by reference from Exhibit 10.3 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2002, filed with
the SEC on August 13, 2002. |
|
(21) |
|
Incorporated herein by reference from Exhibit 10.3 to the
Registrants Registration Statement on
Form S-1
(Registration No. 3-81856), filed with the SEC on July 22,
1994. |
|
(22) |
|
Incorporated herein by reference from the Registrants
Transitional Report on
Form 10-K
for the period from January 1, 1993 to September 30,
1993, filed with the SEC on December 28, 1993 (file number
1-14122). |
|
(23) |
|
Incorporated herein by reference from the Registrants
Transitional Report on
Form 10-K
for the period from January 1, 1993 to September 30,
1993, filed with the SEC on December 28, 1993 (file number
1-14122). |
|
(24) |
|
Incorporated herein by reference from Exhibit 10.4 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended December 31, 2007, filed
with the SEC on February 7, 2008. |
116
|
|
|
(25) |
|
Incorporated herein by reference from Exhibit 4.13 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2002, filed with
the SEC on May 15, 2002. |
|
(26) |
|
Incorporated herein by reference from Exhibit 4.14 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2002, filed with
the SEC on May 15, 2002. |
|
(27) |
|
Incorporated herein by reference from Exhibit 10.34 to the
Registrants Annual Report on
Form 10-K
for the fiscal year ended September 30, 2002, filed with
the SEC on December 13, 2002. |
|
(28) |
|
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Current Report on
Form 8-K,
dated November 22, 2002, filed with the SEC on
December 2, 2002. |
|
(29) |
|
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Current Report on
Form 8-K,
dated April 11, 2003, filed with the SEC on April 17,
2003. |
|
(30) |
|
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Current Report on
Form 8-K,
dated June 18, 2003, filed with the SEC on June 24,
2003. |
|
(31) |
|
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Current Report on
Form 8-K
dated May 13, 2009, filed with the SEC on May 14, 2009. |
|
(32) |
|
Incorporated herein by reference from Exhibit 10.1 (2008
Form) to the Registrants Current Report on
Form 8-K
dated February 11, 2008, filed with the SEC on
February 15, 2008; and Exhibit 10.4 (2009 Form) to the
Registrants Current Report on
Form 8-K
dated November 20, 2008, filed with the SEC on
November 26, 2008. |
|
(33) |
|
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Current Report on
Form 8-K,
dated July 6, 2004, filed with the SEC on July 9, 2004. |
|
(34) |
|
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Current Report on
Form 8-K,
dated September 14, 2004, filed with the SEC on
September 17, 2004. |
|
(35) |
|
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Current Report on
Form 8-K,
dated October 7, 2004, filed with the SEC on
October 14, 2004. |
|
(36) |
|
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Current Report on
Form 8-K,
dated December 8, 2004, filed with the SEC on
December 14, 2004. |
|
(37) |
|
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Current Report on
Form 8-K,
dated February 4, 2005, filed with the SEC on
February 10, 2005. |
|
(38) |
|
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Current Report on
Form 8-K,
dated June 29, 2005, filed with the SEC on July 6,
2005. |
|
(39) |
|
Incorporated herein by reference from Exhibit 10.1 to the
Registrants Current Report on
Form 8-K,
dated November 10, 2010, filed with the SEC on
November 16, 2010. |
|
(40) |
|
Incorporated herein by reference from Exhibit 10.3 to the
Registrants Current Report on
Form 8-K,
dated November 10, 2010, filed with the SEC on
November 16, 2010. |
|
(41) |
|
Incorporated herein by reference from Exhibit 10.4 to the
Registrants Current Report on
Form 8-K,
dated November 10, 2010, filed with the SEC on
November 16, 2010. |
|
(42) |
|
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended December 31, 2005, filed
with the SEC on February 2, 2006. |
|
(43) |
|
Incorporated herein by reference from Exhibit 10.6 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended December 31, 2005, filed
with the SEC on February 2, 2006. |
|
(44) |
|
Incorporated herein by reference from Exhibit 4.2 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended December 31, 2005, filed
with the SEC on February 2, 2006. |
|
(45) |
|
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Current Report on
Form 8-K,
dated April 11, 2006, filed with the SEC on April 13,
2006. |
|
(46) |
|
Incorporated herein by reference from Exhibit 4.2 to the
Registrants Current Report on
Form 8-K,
dated April 11, 2006, filed with the SEC on April 13,
2006. |
117
|
|
|
(47) |
|
Incorporated herein by reference from Exhibit 10.2 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2006, filed with
the SEC on May 8, 2006. |
|
(48) |
|
Incorporated herein by reference from Exhibit 10.3 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2006, filed with
the SEC on May 8, 2006. |
|
(49) |
|
Incorporated herein by reference from Exhibit 4.2 to the
Registrants Registration Statement on
Form S-3,
filed with the SEC on June 13, 2006. |
|
(50) |
|
Incorporated herein by reference from Exhibit 4.3 to the
Registrants Registration Statement on
Form S-3,
filed with the SEC on June 13, 2006. |
|
(51) |
|
Incorporated herein by reference from Exhibit 10.2 to the
Registrants Current Report on
Form 8-K
dated February 11, 2008, filed with the SEC on
February 15, 2008. |
|
(52) |
|
Incorporated herein by reference from Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
dated March 4, 2010, filed with the SEC on March 5,
2010. |
|
(53) |
|
Incorporated herein by reference from Exhibit 10.3 to the
Registrants Current Report on
Form 8-K
dated February 11, 2008, filed with the SEC on
February 15, 2008. |
|
(54) |
|
Incorporated herein by reference from Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
dated October 23, 2009, filed with the SEC on
October 29, 2009. |
|
(55) |
|
Incorporated herein by reference from Exhibit 10.5 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended December 31, 2007, filed
with the SEC on February 7, 2008. |
|
(56) |
|
Incorporated herein by reference from Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
dated March 28, 2008, filed with the SEC on April 3,
2008. |
|
(57) |
|
Incorporated herein by reference from Exhibit 10.2 to the
Registrants Current Report on
Form 8-K
dated March 28, 2008, filed with the SEC on April 3,
2008. |
|
(58) |
|
Incorporated herein by reference from Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
dated March 5, 2009, filed with the SEC on March 10,
2009. |
|
(59) |
|
Incorporated herein by reference from Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
dated September 23, 2009, filed with the SEC on
September 24, 2009. |
|
(60) |
|
Incorporated herein by reference from Exhibit 10.1 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2010, filed with
the SEC on August 3, 2010. |
|
(61) |
|
Incorporated herein by reference from Exhibit 10.2 to the
Registrants Current Report on
Form 8-K
dated December 10, 2008, filed with the SEC on
December 16, 2008. |
|
(62) |
|
Incorporated herein by reference from Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
dated December 10, 2008, filed with the SEC on
December 16, 2008. |
|
(63) |
|
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Current Report on
Form 8-K
dated June 4, 2008, filed with the SEC on June 5, 2008. |
|
(64) |
|
Incorporated herein by reference from Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
dated November 18, 2009, filed with the SEC on
November 20, 2009. |
|
(65) |
|
Incorporated herein by reference from Exhibit 10.2 to the
Registrants Current Report on
Form 8-K
dated November 18, 2009, filed with the SEC on
November 20, 2009. |
|
(66) |
|
Incorporated herein by reference from Exhibit 3.1 to the
Registrants Report on
Form 8-K
dated August 19, 2010, filed with the SEC on
August 23, 2010. |
|
(67) |
|
Incorporated herein by reference from Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
dated September 30, 2010, filed with the SEC on
October 6, 2010. |
|
(68) |
|
Incorporated herein by reference from Exhibit 10.2 to the
Registrants Current Report on
Form 8-K
dated September 30, 2010, filed with the SEC on
October 6, 2010. |
118
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: November 17, 2010
|
|
By: /s/ Donald
J.
Tomnitz Donald
J. Tomnitz,
Vice Chairman, Chief Executive Officer
and President
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Donald
R. Horton
Donald
R. Horton
|
|
Chairman of the Board
|
|
November 17, 2010
|
|
|
|
|
|
/s/ Donald
J. Tomnitz
Donald
J. Tomnitz
|
|
Vice Chairman, Chief Executive Officer,
President, and Director
(Principal Executive Officer)
|
|
November 17, 2010
|
|
|
|
|
|
/s/ Bill
W. Wheat
Bill
W. Wheat
|
|
Chief Financial Officer, Executive Vice
President and Director (Principal
Financial Officer and Principal
Accounting Officer)
|
|
November 17, 2010
|
|
|
|
|
|
/s/ Bradley
S. Anderson
Bradley
S. Anderson
|
|
Director
|
|
November 17, 2010
|
|
|
|
|
|
/s/ Michael
R. Buchanan
Michael
R. Buchanan
|
|
Director
|
|
November 17, 2010
|
|
|
|
|
|
/s/ Michael
W. Hewatt
Michael
W. Hewatt
|
|
Director
|
|
November 17, 2010
|
|
|
|
|
|
/s/ Bob
G. Scott
Bob
G. Scott
|
|
Director
|
|
November 17, 2010
|
119