e10vq
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2007
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 |
For the Transition Period From To
Commission file number 1-14122
D.R. Horton, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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75-2386963 |
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(State or other jurisdiction of incorporation
or organization)
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(I.R.S. Employer Identification No.) |
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301 Commerce Street, Suite 500, Fort Worth, Texas
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76102 |
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(Address of principal executive offices)
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(Zip Code) |
(817) 390-8200
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer o
Non-accelerated filer o
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
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
Common stock, $.01 par value 314,106,236 shares as of April 27, 2007
D.R. HORTON, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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March 31, |
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September 30, |
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2007 |
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2006 |
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(In millions) |
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(Unaudited) |
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ASSETS |
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Homebuilding: |
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Cash and cash equivalents |
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$ |
68.2 |
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$ |
457.8 |
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Inventories: |
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Construction in progress and finished homes |
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4,182.7 |
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4,322.8 |
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Residential land and lots developed and under development |
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6,725.3 |
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6,737.0 |
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Land held for development |
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204.3 |
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182.9 |
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Consolidated land inventory not owned |
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96.9 |
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100.4 |
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11,209.2 |
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11,343.1 |
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Property and equipment, net |
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125.1 |
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131.4 |
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Earnest money deposits and other assets |
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760.8 |
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816.4 |
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Goodwill |
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578.9 |
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578.9 |
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12,742.2 |
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13,327.6 |
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Financial Services: |
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Cash and cash equivalents |
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150.4 |
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129.8 |
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Restricted cash |
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248.3 |
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Mortgage loans held for sale |
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568.6 |
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1,022.9 |
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Other assets |
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49.3 |
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92.1 |
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768.3 |
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1,493.1 |
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Total assets |
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$ |
13,510.5 |
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$ |
14,820.7 |
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LIABILITIES |
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Homebuilding: |
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Accounts payable |
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$ |
777.5 |
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$ |
982.3 |
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Accrued expenses and other liabilities |
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960.5 |
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1,143.0 |
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Notes payable |
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4,592.4 |
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4,886.9 |
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6,330.4 |
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7,012.2 |
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Financial Services: |
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Accounts payable and other liabilities |
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29.2 |
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58.8 |
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Notes payable to financial institutions |
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508.1 |
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1,191.7 |
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537.3 |
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1,250.5 |
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6,867.7 |
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8,262.7 |
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Minority interests |
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103.3 |
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105.1 |
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STOCKHOLDERS EQUITY |
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Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued |
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Common stock, $.01 par value, 1,000,000,000 shares authorized, 317,745,581
shares
issued and 314,092,781 shares outstanding at March 31, 2007 and 316,899,545
shares issued and 313,246,745 shares outstanding at September 30, 2006 |
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3.2 |
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3.2 |
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Additional capital |
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1,677.7 |
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1,658.4 |
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Retained earnings |
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4,954.3 |
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4,887.0 |
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Treasury stock, 3,652,800 shares at March 31, 2007 and
September 30, 2006, at cost |
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(95.7 |
) |
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(95.7 |
) |
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6,539.5 |
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6,452.9 |
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Total liabilities and stockholders equity |
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$ |
13,510.5 |
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$ |
14,820.7 |
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See accompanying notes to consolidated financial statements.
-3-
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
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Three Months Ended |
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Six Months Ended |
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March 31, |
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March 31, |
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2007 |
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2006 |
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2007 |
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2006 |
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(In millions, except per share data) |
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(Unaudited) |
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Homebuilding: |
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Revenues: |
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Home sales |
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$ |
2,521.5 |
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$ |
3,472.3 |
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$ |
5,282.6 |
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$ |
6,261.4 |
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Land/lot sales |
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94.7 |
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54.2 |
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135.1 |
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106.9 |
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2,616.2 |
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3,526.5 |
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5,417.7 |
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6,368.3 |
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Cost of sales: |
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Home sales |
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2,074.4 |
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2,587.7 |
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4,321.3 |
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4,601.1 |
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Land/lot sales |
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89.1 |
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20.1 |
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122.1 |
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39.4 |
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Inventory impairments and land option cost
write-offs |
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81.2 |
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7.1 |
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158.8 |
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10.9 |
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2,244.7 |
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2,614.9 |
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4,602.2 |
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4,651.4 |
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Gross profit: |
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Home sales |
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447.1 |
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884.6 |
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961.3 |
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1,660.3 |
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Land/lot sales |
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5.6 |
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34.1 |
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13.0 |
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67.5 |
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Inventory impairments and land option cost
write-offs |
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(81.2 |
) |
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(7.1 |
) |
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(158.8 |
) |
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(10.9 |
) |
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371.5 |
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911.6 |
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815.5 |
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1,716.9 |
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Selling, general and administrative expense |
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296.0 |
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364.9 |
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591.3 |
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690.5 |
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Loss on early retirement of debt |
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10.6 |
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15.0 |
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Other (income) |
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(0.6 |
) |
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(5.6 |
) |
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(1.7 |
) |
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(10.5 |
) |
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76.1 |
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541.7 |
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225.9 |
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1,021.9 |
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Financial Services: |
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Revenues |
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41.9 |
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71.1 |
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108.4 |
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132.4 |
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General and administrative expense |
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38.4 |
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49.4 |
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83.4 |
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96.8 |
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Interest expense |
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6.8 |
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7.8 |
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16.4 |
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15.9 |
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Other (income) |
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(10.6 |
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(13.4 |
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(25.9 |
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(27.6 |
) |
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7.3 |
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27.3 |
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34.5 |
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47.3 |
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Income before income taxes |
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83.4 |
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569.0 |
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260.4 |
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1,069.2 |
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Provision for income taxes |
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31.7 |
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216.2 |
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99.0 |
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406.3 |
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Net income |
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$ |
51.7 |
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$ |
352.8 |
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$ |
161.4 |
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$ |
662.9 |
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Basic net income per common share |
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$ |
0.16 |
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$ |
1.13 |
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$ |
0.51 |
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$ |
2.12 |
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Net income per common share assuming dilution |
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$ |
0.16 |
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$ |
1.11 |
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$ |
0.51 |
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$ |
2.09 |
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Cash dividends declared per common share |
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$ |
0.15 |
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$ |
0.10 |
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$ |
0.30 |
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$ |
0.19 |
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See accompanying notes to consolidated financial statements.
-4-
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Six Months |
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Ended March 31, |
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2007 |
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2006 |
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(In millions) |
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(Unaudited) |
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OPERATING ACTIVITIES |
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Net income |
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$ |
161.4 |
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$ |
662.9 |
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Adjustments to reconcile net income to net cash provided by (used in)
operating activities: |
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Depreciation and amortization |
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32.0 |
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26.4 |
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Amortization of debt discounts and fees |
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3.4 |
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2.3 |
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Stock option compensation expense |
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6.1 |
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4.9 |
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Income tax benefit from stock option exercises |
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(4.6 |
) |
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(5.1 |
) |
Loss on redemption of 9.375% senior notes |
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10.6 |
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Inventory impairments and land option cost write-offs |
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158.8 |
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10.9 |
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Changes in operating assets and liabilities: |
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Decrease (increase) in construction in progress and finished homes |
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127.3 |
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(1,316.1 |
) |
Increase in residential land and lots developed, under development,
and held for development |
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(131.5 |
) |
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(1,047.7 |
) |
Decrease (increase) in earnest money deposits and other assets |
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75.8 |
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(116.1 |
) |
Decrease in mortgage loans held for sale |
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454.3 |
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641.5 |
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Decrease in accounts payable, accrued expenses and other liabilities |
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(409.2 |
) |
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(190.2 |
) |
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Net Cash Provided By (Used In) Operating Activities |
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473.8 |
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(1,315.7 |
) |
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INVESTING ACTIVITIES |
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Purchases of property and equipment |
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(24.3 |
) |
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(35.1 |
) |
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Cash Used In Investing Activities |
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(24.3 |
) |
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(35.1 |
) |
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FINANCING ACTIVITIES |
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Proceeds from notes payable |
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1,660.0 |
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|
2,583.9 |
|
Repayment of notes payable |
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(2,645.0 |
) |
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(2,020.0 |
) |
Decrease in restricted cash |
|
|
248.3 |
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Purchase of treasury stock |
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(36.8 |
) |
Proceeds from stock associated with certain employee benefit plans |
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|
7.7 |
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6.4 |
|
Income tax benefit from stock option exercises |
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|
4.6 |
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|
5.1 |
|
Cash dividends paid |
|
|
(94.1 |
) |
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|
(59.4 |
) |
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Net Cash (Used In) Provided By Financing Activities |
|
|
(818.5 |
) |
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|
479.2 |
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DECREASE IN CASH AND CASH EQUIVALENTS |
|
|
(369.0 |
) |
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|
(871.6 |
) |
Cash and cash equivalents at beginning of period |
|
|
587.6 |
|
|
|
1,149.8 |
|
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|
Cash and cash equivalents at end of period |
|
$ |
218.6 |
|
|
$ |
278.2 |
|
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Supplemental disclosures of noncash activities: |
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Notes payable issued for inventory |
|
$ |
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|
$ |
35.3 |
|
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|
See accompanying notes to consolidated financial statements.
-5-
D.R.
HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2007
NOTE A BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements 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 required to be consolidated pursuant to Interpretation No. 46, Consolidation of
Variable Interest Entities an interpretation of ARB No. 51, as amended (FIN 46), issued by the
Financial Accounting Standards Board (FASB). All significant intercompany accounts, transactions
and balances have been eliminated in consolidation. The financial statements have been prepared in
accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion
of management, all adjustments (consisting of normal, recurring accruals) considered necessary for
a fair presentation have been included. These financial statements do not include all of the
information and notes required by GAAP for complete financial statements and should be read in
conjunction with the consolidated financial statements and accompanying notes included in the
Companys annual report on Form 10-K for the fiscal year ended September 30, 2006. Certain
reclassifications have been made in the prior years financial statements to conform to
classifications used in the current year.
Seasonality
Historically, the homebuilding industry has experienced seasonal fluctuations; therefore, the
operating results for the three and six-month periods ended March 31, 2007 are not necessarily
indicative of the results that may be expected for the fiscal year ending September 30, 2007.
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.
Business
The Company is a national homebuilder that is engaged primarily in the construction and sale
of single-family housing in 85 markets and 27 states in the United States at March 31, 2007. The
Company designs, builds and sells single-family detached houses on lots developed by the Company
and on finished lots which it purchases, ready for home construction. To a lesser extent, the
Company also builds and sells attached homes, such as town homes, duplexes, triplexes and
condominiums (including some mid-rise buildings), which share common walls and roofs. Periodically,
the Company sells land and lots it has developed or bought. The Company also provides title agency
and mortgage brokerage services, principally to its homebuyers. The
Company generally does not retain or
service the mortgages that it originates but, rather, sells the mortgages and related servicing
rights to investors.
Inventories and Cost of Sales
In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, land inventory and related communities under
development are reviewed for potential write-downs when impairment indicators are present. SFAS No.
144 requires that in the event the undiscounted cash flows estimated to be generated by those
assets are less than their carrying amounts, 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 estimates of revenues, costs, and other factors. Due to uncertainties in
the estimation process, actual results could differ from such estimates. 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
-6-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2007
estimated cash flows at a rate commensurate with the inherent risks associated with the assets
and related estimated cash flow streams.
In accordance with SFAS No. 144, valuation adjustments are recorded on finished homes when
events or circumstances indicate that the carrying values are greater than the fair value less
costs to sell these homes.
During the three months ended March 31, 2007, several communities under development that
demonstrated potential impairment indicators were evaluated for potential impairment. It was
determined that projects with a carrying value of $255.5 million, the majority of which were in
California, were impaired. Consequently, an impairment charge of $67.3 million was recorded to
reduce the carrying value of the impaired projects to their estimated fair value. For the six-month
period ended March 31, 2007, impairment charges totaled $108.2 million. If conditions in the
homebuilding industry or specific markets in which the Company operates worsen in the future, the
Company may be required to evaluate additional projects for potential impairment which may result
in additional impairment charges, and such charges could be significant.
From time to time, the Company writes off earnest money deposits and pre-acquisition costs
related to land and lot option contracts which it no longer plans to pursue. During the three-month
periods ended March 31, 2007 and 2006, the Company wrote off $13.9 million and $6.7 million,
respectively, of earnest money deposits and pre-acquisition costs related to land option contracts.
During the six-month periods ended March 31, 2007 and 2006, the Company wrote off $50.6 million and
$10.5 million of such deposits and costs, respectively.
NOTE B EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share is based on the weighted average number
of shares of common stock and dilutive securities outstanding during the period.
The following table sets forth the denominators used in the computation of basic and diluted
earnings per share for the three and six months ended March 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
Denominator for basic
earnings per share weighted
average common shares |
|
|
313.9 |
|
|
|
312.4 |
|
|
|
313.7 |
|
|
|
312.7 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options |
|
|
2.2 |
|
|
|
4.3 |
|
|
|
2.1 |
|
|
|
4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted
earnings per share adjusted
weighted average common
shares |
|
|
316.1 |
|
|
|
316.7 |
|
|
|
315.8 |
|
|
|
317.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended March 31, 2007, options to purchase 2.7 million shares of
common stock at various prices were not included in 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. For the three and six months ended March 31, 2006,
options to purchase 30,000 shares of common stock at $36.92 were not included in the computation of
diluted earnings per share because their effect would have been antidilutive.
NOTE C CONSOLIDATED LAND INVENTORY NOT OWNED
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 such option
purchase 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 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. Under the requirements of FIN 46, certain of the
-7-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2007
Companys option purchase contracts result in the creation of a variable interest in the
entity holding the land parcel under option.
In applying the provisions of FIN 46, 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.
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.
The consolidation of these variable interest entities and other inventory obligations added
$96.9 million in land inventory not owned and minority interests related to entities not owned to
the Companys balance sheet at March 31, 2007. The Companys obligations related to these land or
lot option contracts are guaranteed by cash deposits totaling $15.1 million and performance letters
of credit, promissory notes and surety bonds totaling $0.8 million. 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, which totaled $98.2 million at March 31, 2007.
NOTE D NOTES PAYABLE
The Companys notes payable at their principal amounts, net of unamortized discount, as
applicable, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In millions) |
|
Homebuilding: |
|
|
|
|
|
|
|
|
Unsecured: |
|
|
|
|
|
|
|
|
Revolving credit facility |
|
$ |
500.0 |
|
|
$ |
800.0 |
|
7.5% senior notes due 2007 |
|
|
215.0 |
|
|
|
215.0 |
|
5% senior notes due 2009, net |
|
|
199.8 |
|
|
|
199.7 |
|
8% senior notes due 2009, net |
|
|
384.5 |
|
|
|
384.3 |
|
4.875% senior notes due 2010, net |
|
|
249.1 |
|
|
|
249.0 |
|
9.75% senior subordinated notes due 2010, net |
|
|
149.5 |
|
|
|
149.4 |
|
7.875% senior notes due 2011, net |
|
|
199.1 |
|
|
|
199.0 |
|
6% senior notes due 2011, net |
|
|
249.5 |
|
|
|
249.4 |
|
8.5% senior notes due 2012, net |
|
|
248.7 |
|
|
|
248.6 |
|
5.375% senior notes due 2012 |
|
|
300.0 |
|
|
|
300.0 |
|
6.875% senior notes due 2013 |
|
|
200.0 |
|
|
|
200.0 |
|
5.875% senior notes due 2013 |
|
|
100.0 |
|
|
|
100.0 |
|
6.125% senior notes due 2014, net |
|
|
197.8 |
|
|
|
197.7 |
|
5.625% senior notes due 2014, net |
|
|
248.3 |
|
|
|
248.3 |
|
5.25% senior notes due 2015, net |
|
|
298.0 |
|
|
|
297.9 |
|
5.625% senior notes due 2016, net |
|
|
297.8 |
|
|
|
297.7 |
|
6.5% senior notes due 2016, net |
|
|
499.0 |
|
|
|
499.0 |
|
Secured and other |
|
|
56.3 |
|
|
|
51.9 |
|
|
|
|
|
|
|
|
|
|
$ |
4,592.4 |
|
|
$ |
4,886.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
Mortgage warehouse facility |
|
$ |
138.1 |
|
|
$ |
371.7 |
|
Commercial paper conduit facility |
|
|
370.0 |
|
|
|
820.0 |
|
|
|
|
|
|
|
|
|
|
$ |
508.1 |
|
|
$ |
1,191.7 |
|
|
|
|
|
|
|
|
-8-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2007
The Company has an automatically effective universal shelf registration statement filed with
the Securities and Exchange Commission, registering debt and equity securities that the Company may
issue from time to time in amounts to be determined.
Homebuilding:
In November 2006, the Company increased the size of its $2.15 billion unsecured revolving
credit facility, which includes a $1.0 billion letter of credit sub-facility, to $2.5 billion and
extended its maturity by one year to December 16, 2011. The revolving credit facility has an
uncommitted $400 million accordion provision which could be used to increase the facility to $2.9
billion. The Companys borrowing capacity under this facility is reduced by the amount of letters
of credit outstanding. At March 31, 2007, the Companys borrowing capacity under the facility was
$1.9 billion. The facility is guaranteed by substantially all of the Companys wholly-owned
subsidiaries other than its financial services subsidiaries. Borrowings bear interest at rates
based upon the London Interbank Offered Rate (LIBOR) plus a spread based upon the Companys ratio
of homebuilding debt to total capitalization and its senior unsecured debt rating. The interest
rate of the unsecured bank debt at March 31, 2007 was 6.1% per annum. In addition to the stated
interest rates, the revolving credit facility requires the Company to pay certain fees.
In November 2006, the Board of Directors authorized the repurchase of up to $500 million of
the Companys outstanding debt securities, replacing the previous debt securities repurchase
authorization of $200 million, and extending its term to November 30, 2007. All of the $500 million
authorization was remaining at March 31, 2007.
In March 2007, the Company called for redemption its 8.5% senior notes due 2012. The notes
were redeemed on April 15, 2007 at an aggregate price of approximately $260.6 million, plus accrued
interest. Concurrent with the redemption, the Company recorded a loss related to the early
retirement of debt of approximately $12.1 million in April 2007, representing the call premium and
the unamortized discount and fees related to the redeemed notes.
The revolving credit facility and the indenture governing the senior subordinated notes impose
restrictions on the Companys operations and activities. The most significant restrictions relate
to limits on investments, cash dividends, stock repurchases and other restricted payments,
incurrence of indebtedness, creation of liens and asset dispositions, and require maintenance of
certain levels of leverage, interest coverage and tangible net worth. In addition, the indentures
governing the senior notes impose restrictions on the creation of liens.
At March 31, 2007, under the most restrictive covenants in effect, cash dividend payments for
the remainder of fiscal 2007 are limited to $489.4 million, and approximately $3.2 billion was
available for all restricted payments in the future.
Financial Services:
The Companys mortgage subsidiary has a $540 million mortgage warehouse loan facility, which
was renewed on March 30, 2007 to extend its maturity from April 6, 2007 to March 28, 2008. Under
the accordion provision of the credit agreement, the total capacity may be increased to $750
million upon consent of the lenders. The mortgage warehouse facility is secured by certain mortgage
loans held for sale and is not guaranteed by D.R. Horton, Inc. or any of the guarantors of its
homebuilding debt. The borrowing capacity under this facility is limited to the lesser of the
unused portion of the facility or an amount determined under a borrowing base arrangement. Under
the borrowing base limitation, the amount drawn on the facility may not exceed 98% of all eligible
mortgage loans held for sale and made available to the lenders to secure any borrowings under the
facility. Borrowings bear daily interest at the 30-day LIBOR rate plus a fixed premium. The
interest rate of the mortgage warehouse line payable at March 31, 2007 was 6.1% per annum.
The Companys mortgage subsidiary also has an $800 million commercial paper conduit facility
(the CP conduit facility), that matures June 27, 2009, subject to the annual renewal of the 364-day
backup liquidity feature. This credit facility, which previously had a capacity of $1.2 billion,
was amended in December 2006 to reduce the capacity to $800 million, adjusting its size to seasonal
volume levels. The CP conduit facility is secured by certain
-9-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2007
mortgage loans held for sale and is not guaranteed by D.R. Horton, Inc. or any of the
guarantors of its homebuilding debt. Additionally, at September 30, 2006, borrowings under the CP
conduit facility were secured by cash arising from borrowings under the facility made prior to the
assignment of mortgage loans held for sale as collateral. At March 31, 2007, there were no
borrowings under the facility prior to the assignment of mortgage loans held for sale, and
therefore, no cash was restricted under this facility. The mortgage loans assigned to secure the CP
conduit facility are used as collateral for asset-backed commercial paper issued by multi-seller
conduits in the commercial paper market. The interest rate of the CP conduit line payable at March
31, 2007 was 5.6% per annum.
NOTE E HOMEBUILDING INTEREST
The Company capitalizes homebuilding interest costs to inventory during development and
construction. Capitalized interest is charged to cost of sales as the related inventory is
delivered to the buyer. The following table summarizes the Companys homebuilding interest costs
incurred (which does not include losses on early retirement of debt), capitalized and charged to cost of sales during the three and six-month periods ended
March 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
Capitalized interest, beginning of period |
|
$ |
312.7 |
|
|
$ |
226.0 |
|
|
$ |
288.9 |
|
|
$ |
200.6 |
|
Interest incurred |
|
|
78.4 |
|
|
|
81.4 |
|
|
|
156.5 |
|
|
|
150.6 |
|
Interest amortized to cost of sales |
|
|
(56.4 |
) |
|
|
(60.6 |
) |
|
|
(110.7 |
) |
|
|
(104.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest, end of period |
|
$ |
334.7 |
|
|
$ |
246.8 |
|
|
$ |
334.7 |
|
|
$ |
246.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE F WARRANTY COSTS
The Company typically provides its homebuyers a one-year comprehensive limited warranty for
all parts and labor and a ten-year limited warranty for major construction defects. 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.
Changes in the Companys warranty liability were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
Warranty liability, beginning of period |
|
$ |
126.1 |
|
|
$ |
121.5 |
|
|
$ |
130.4 |
|
|
$ |
121.6 |
|
Warranties issued |
|
|
12.0 |
|
|
|
18.3 |
|
|
|
25.2 |
|
|
|
33.0 |
|
Changes in liability for pre-existing warranties |
|
|
(3.5 |
) |
|
|
(2.9 |
) |
|
|
(8.6 |
) |
|
|
(6.0 |
) |
Settlements made |
|
|
(13.8 |
) |
|
|
(12.2 |
) |
|
|
(26.2 |
) |
|
|
(23.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty liability, end of period |
|
$ |
120.8 |
|
|
$ |
124.7 |
|
|
$ |
120.8 |
|
|
$ |
124.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE G MORTGAGE LOANS
Mortgage Loans - Mortgage loans held for sale consist primarily of single-family residential
loans collateralized by the underlying property. Loans that have been closed but not committed to a
third-party investor are matched primarily with either forward sales of mortgage-backed securities
(FMBS) or Eurodollar Futures Contracts (EDFC) that are designated as fair value hedges. Hedged
loans are either committed to third-party investors within three days of origination or pooled and
committed in bulk to third-party investors typically within 30 days of origination. The notional
amounts of the FMBS and the EDFC used to hedge mortgage loans held for sale can vary in
relationship to the underlying loan amounts, depending on the typical movements in the value of
each hedging instrument relative to the value of the underlying mortgage loans. The effectiveness
of the fair value hedges is continuously monitored
-10-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2007
and any ineffectiveness, which for the three and six months ended March 31, 2007 and 2006 was
not significant, is recognized in current earnings. As of March 31, 2007, the Company had $70.6
million in loans not committed to third-party investors which were hedged with $117.8 million of
FMBS, EDFC and put options on both EDFC and mortgage-backed securities (MBS).
Mortgage loans held for sale are stated at the lower of aggregate cost or fair market value.
Some of the loans sold by DHI Mortgage are sold with limited recourse provisions and may be
required to be repurchased under certain conditions including if certain specified payment(s),
generally initial payment(s), are not made by the borrowers. The Company records loss allowances
for loans held in portfolio and loans held for sale, and reserves for losses related to loans sold
with recourse, utilizing estimates based on historical experience and current market conditions.
The Company has recorded total loss allowances and reserves for loans held in portfolio, loans held
for sale and loans sold with recourse of $31.2 million and $15.6 million at March 31, 2007 and
September 30, 2006, respectively.
Loan Commitments - To meet the financing needs of its customers, the Company is party to
interest rate lock commitments (IRLCs) which are extended to borrowers who have applied for loan
funding and meet certain defined credit and underwriting criteria. In accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, and related Derivatives
Implementation Group conclusions, the Company classifies and accounts for IRLCs as non-designated
derivative instruments at fair value. At March 31, 2007, the Companys IRLCs totaled $285.7
million.
The Company manages interest rate risk related to its IRLCs through the use of best-efforts
whole loan delivery commitments, FMBS and the purchase of EDFC. These instruments are considered
non-designated derivatives and are accounted for at fair value with gains and losses recognized in
current earnings. As of March 31, 2007, the Company had approximately $77.8 million of best-efforts
whole loan delivery commitments and $272.0 million outstanding of FMBS, EDFC and put options on
both EDFC and MBS related to its uncommitted IRLCs.
In an effort to stimulate home sales by potentially offering homebuyers a below market
interest rate on their home financing, the Company began a program during the third quarter of
fiscal 2006 which protects it from future increases in interest rates related to potential mortgage
originations. To accomplish this, the Company purchases forward rate agreements (FRAs) and economic
interest rate hedges in the form of FMBS and put options on both EDFC and MBS. Additionally, during
the second quarter of fiscal 2007, in response to heightened volatility in the secondary mortgage
markets, the Company entered into FRAs to secure the delivery and sale of certain potential
non-traditional mortgage originations, characterized by high combined loan-to-value ratios in
combination with less required documentation. These FRAs generally related to loan commitments for
borrowers with sales contracts in the Companys homebuilding backlog. At March 31, 2007, these
potential mortgage loan originations totaled approximately $132.5 million. The notional amount of
the FRAs was $105.7 million, while the remaining $26.8 million in mortgage loan commitments was
hedged with economic interest rate hedges of $398.8 million in EDFC put options and $6.4 million in
MBS put options. Both the FRAs and economic interest rate hedges have various maturities not
exceeding twelve months. These instruments are considered non-designated derivatives and are
accounted for at fair value with gains and losses recognized in current earnings. The gains and
losses for the three and six months ended March 31, 2007 were not significant.
NOTE H STOCKHOLDERS EQUITY
During the three months ended March 31, 2007, the Board of Directors declared a quarterly cash
dividend of $0.15 per common share, which was paid on February 9, 2007 to stockholders of record on
January 26, 2007. A quarterly cash dividend of $0.10 per common share was declared during the three
months ended March 31, 2006.
In April 2007, the Board of Directors declared a quarterly cash dividend of $0.15 per common
share, payable on May 18, 2007 to stockholders of record on May 4, 2007. A quarterly cash dividend
of $0.10 per common share was declared in the comparable quarter of fiscal 2006.
-11-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2007
The Company has an automatically effective universal shelf registration statement registering
debt and equity securities that it may issue from time to time in amounts to be determined. Also,
at March 31, 2007, the Company had the capacity to issue approximately 22.5 million shares of
common stock under its acquisition shelf registration statement, to effect, in whole or in part,
possible future business acquisitions.
In November 2006, the Board of Directors authorized the repurchase of up to $463.2 million of
the Companys common stock, representing the remaining amount of the previous common stock
repurchase authorization of $500 million, and extended its term to November 30, 2007. All of the
$463.2 million authorization was remaining at March 31, 2007.
NOTE I RECENT ACCOUNTING PRONOUNCEMENTS
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities Including an amendment of FASB Statement No. 115. The statement
permits entities to choose to measure certain financial assets and liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been elected are reported
in earnings. SFAS No. 159 is effective as of the beginning of an entitys fiscal year that begins
after November 15, 2007. The Company is currently evaluating the impact of the adoption of SFAS No.
159; however, it is not expected to have a material impact on the Companys consolidated financial
position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. The statement
defines fair value, establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurements. SFAS No. 157 is effective as of the beginning of an
entitys fiscal year that begins after November 15, 2007. The Company is currently evaluating the
impact of the adoption of SFAS No. 157; however, it is not expected to have a material impact on
the Companys consolidated financial position, results of operations or cash flows.
In July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty
in Income Taxes an interpretation of FASB Statement 109. FIN 48 prescribes a comprehensive model
for recognizing, measuring, presenting and disclosing in the financial statements tax positions
taken or expected to be taken on a tax return, including a decision whether to file or not to file
in a particular jurisdiction. FIN 48 is effective for fiscal years beginning after December 15,
2006. The Company is currently evaluating the impact of the adoption of FIN 48; however, it is not
expected to have a material impact on the Companys consolidated financial position, results of
operations or cash flows.
NOTE J COMMITMENTS AND CONTINGENCIES
The Company has been named as defendant in various claims, complaints and other legal actions
arising in the ordinary course of business, including warranty and construction defect claims on
closed homes. The Company has established reserves for such contingencies, based on the expected
costs of the self-insured portion of such claims. The Companys estimates of such reserves are
based on the facts and circumstances of individual pending claims and historical data and trends,
including estimates of the costs of unreported claims related to past operations. 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.
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 financial position, results of operations or cash flows. However, to the
extent the liability arising from the ultimate resolution of any matter exceeds managements
estimates reflected in the reserves relating to such matter, the Company could incur additional
charges that could be significant.
-12-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2007
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 March 31, 2007, the
Company had total deposits of $163.8 million, comprised of cash deposits of $148.5 million,
promissory notes of $7.8 million, and letters of credit and surety bonds of $7.5 million to
purchase land and lots with a total remaining purchase price of $2.6 billion. Included in the total
deposits were $26.8 million of deposits related to land option purchase contracts for which the Company does
not expect to exercise its option to purchase the land or lots, but the contract has not yet been
terminated. The remaining purchase price of those contracts was $609 million. Consequently, the
deposits relating to these contracts have been written off, resulting in a net deposit balance of
$137.0 million at March 31, 2007. Only $39.7 million of the $2.6 billion in land and lot option
purchase contracts contain specific performance clauses which may require the Company to purchase
the land or lots upon the land seller meeting certain obligations. The majority of land and lots
under contract are expected to be purchased within three years, to the extent the Company chooses
to exercise its options to purchase such land and lots.
Additionally, 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 March 31, 2007, outstanding standby letters of credit were $124.8 million and surety
bonds were $2.4 billion. The Company has additional capacity of $884.8 million for standby letters
of credit under its revolving credit facility.
NOTE K REPORTABLE SEGMENT INFORMATION
The Companys seven homebuilding operating regions and its financial services operation are
its operating segments under SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. The homebuilding operating regions have historically been aggregated into a single
reportable homebuilding segment. During the fourth quarter of fiscal 2006, the Company reassessed
the aggregation of its operating segments, and as a result, restated its disclosure to include six
separate reportable homebuilding segments and one financial services segment. Two of the
homebuilding operating regions were aggregated into one reporting segment based on their economic
similarities. Under this revised presentation, the Companys reportable homebuilding segments and
the states in which they have homebuilding operations are as follows:
|
|
|
|
|
|
|
Northeast:
|
|
Delaware, Georgia (Savannah only), Illinois, Maryland, Minnesota, New Jersey,
North Carolina, Pennsylvania, South Carolina, Virginia and Wisconsin |
|
|
|
|
|
|
|
Southeast:
|
|
Alabama, Florida and Georgia |
|
|
|
|
|
|
|
South Central:
|
|
Louisiana, Mississippi, Oklahoma and Texas |
|
|
|
|
|
|
|
Southwest:
|
|
Arizona, Colorado, New Mexico, Texas (Lubbock only) and Utah |
|
|
|
|
|
|
|
California:
|
|
California and Nevada (Reno only) |
|
|
|
|
|
|
|
West:
|
|
Hawaii, Idaho, Nevada, Oregon and Washington |
Consequently, the Company has restated the prior period segment information provided in this
note to conform to the current period presentation.
The Companys homebuilding operations generated 98% of consolidated revenues during the six
months ended March 31, 2007 and 2006, and 87% and 96% of consolidated income before income taxes
during the six-month periods ended March 31, 2007 and 2006, respectively. The Companys
homebuilding segments are primarily engaged in the acquisition and development of land for
residential purposes and the construction and sale of residential homes on such land, in 27 states
and 85 markets in the United States. The homebuilding segments generate most of their revenues from
the sale of completed homes, with a lesser amount from the sale of land and lots.
-13-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2007
The Companys financial services segment provides mortgage banking 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, but, rather, sells the mortgages and related
servicing rights to investors. The financial services segment generates its revenues from
originating and selling mortgages and collecting fees for title insurance agency and closing
services.
The accounting policies of the reporting segments are described throughout Note A in the
Companys annual report on Form 10-K for the fiscal year ended September 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
|
|
|
|
Restated |
|
|
|
|
|
|
Restated |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
(In millions) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
$ |
419.3 |
|
|
$ |
517.3 |
|
|
$ |
815.2 |
|
|
$ |
918.5 |
|
Southeast |
|
|
343.1 |
|
|
|
531.6 |
|
|
|
714.4 |
|
|
|
925.2 |
|
South Central |
|
|
478.4 |
|
|
|
536.2 |
|
|
|
929.0 |
|
|
|
933.3 |
|
Southwest |
|
|
617.0 |
|
|
|
666.2 |
|
|
|
1,219.4 |
|
|
|
1,239.3 |
|
California |
|
|
498.7 |
|
|
|
912.8 |
|
|
|
1,198.0 |
|
|
|
1,639.8 |
|
West |
|
|
259.7 |
|
|
|
362.4 |
|
|
|
541.7 |
|
|
|
712.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding revenues |
|
$ |
2,616.2 |
|
|
$ |
3,526.5 |
|
|
$ |
5,417.7 |
|
|
$ |
6,368.3 |
|
Financial services revenues |
|
$ |
41.9 |
|
|
$ |
71.1 |
|
|
$ |
108.4 |
|
|
$ |
132.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues |
|
$ |
2,658.1 |
|
|
$ |
3,597.6 |
|
|
$ |
5,526.1 |
|
|
$ |
6,500.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory Impairments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
$ |
8.8 |
|
|
$ |
|
|
|
$ |
9.5 |
|
|
$ |
|
|
Southeast |
|
|
2.4 |
|
|
|
|
|
|
|
2.4 |
|
|
|
|
|
South Central |
|
|
0.3 |
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
Southwest |
|
|
|
|
|
|
|
|
|
|
27.1 |
|
|
|
|
|
California |
|
|
55.8 |
|
|
|
0.4 |
|
|
|
68.9 |
|
|
|
0.4 |
|
West |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory impairments |
|
$ |
67.3 |
|
|
$ |
0.4 |
|
|
$ |
108.2 |
|
|
$ |
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding income before
income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast |
|
$ |
4.8 |
|
|
$ |
48.3 |
|
|
$ |
28.8 |
|
|
$ |
80.3 |
|
Southeast |
|
|
18.9 |
|
|
|
116.9 |
|
|
|
46.6 |
|
|
|
194.9 |
|
South Central |
|
|
30.7 |
|
|
|
37.9 |
|
|
|
63.2 |
|
|
|
64.8 |
|
Southwest |
|
|
36.4 |
|
|
|
113.0 |
|
|
|
49.9 |
|
|
|
223.5 |
|
California |
|
|
(36.0 |
) |
|
|
141.8 |
|
|
|
(13.3 |
) |
|
|
265.7 |
|
West |
|
|
21.3 |
|
|
|
83.8 |
|
|
|
50.7 |
|
|
|
192.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding income
before income taxes |
|
$ |
76.1 |
|
|
$ |
541.7 |
|
|
$ |
225.9 |
|
|
$ |
1,021.9 |
|
Financial services income
before income taxes |
|
$ |
7.3 |
|
|
$ |
27.3 |
|
|
$ |
34.5 |
|
|
$ |
47.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before
income taxes |
|
$ |
83.4 |
|
|
$ |
569.0 |
|
|
$ |
260.4 |
|
|
$ |
1,069.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-14-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In millions) |
|
Homebuilding Inventories (2): |
|
|
|
|
|
|
|
|
Northeast |
|
$ |
1,646.2 |
|
|
$ |
1,698.3 |
|
Southeast |
|
|
1,947.5 |
|
|
|
1,808.4 |
|
South Central |
|
|
1,423.1 |
|
|
|
1,405.3 |
|
Southwest |
|
|
1,712.8 |
|
|
|
1,883.5 |
|
California |
|
|
2,302.7 |
|
|
|
2,535.7 |
|
West |
|
|
1,788.5 |
|
|
|
1,684.8 |
|
Corporate and unallocated (3) |
|
|
388.4 |
|
|
|
327.1 |
|
|
|
|
|
|
|
|
Total homebuilding inventory |
|
$ |
11,209.2 |
|
|
$ |
11,343.1 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Expenses maintained at the corporate level are allocated to each region based on the
regions average inventory. These expenses consist primarily of capitalized interest and
property taxes, which are amortized to cost of sales, and the expenses related to the
operations of the Companys corporate office. |
|
(2) |
|
Homebuilding inventories are the only assets included in the measure of segment assets
used by the Companys chief operating decision maker, its CEO. |
|
(3) |
|
Primarily consists of capitalized interest and property taxes. |
In accordance with SFAS No. 142, the Company has allocated its goodwill to its reporting
segments as of March 31, 2007 and September 30, 2006 as follows: Northeast $74.4 million, Southeast
$11.5 million, South Central $15.9 million, Southwest $102.4 million, California $300.3 million and
West $74.4 million.
-15-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2007
NOTE L SUMMARIZED FINANCIAL INFORMATION
All of the Companys senior and senior subordinated notes and the $2.5 billion unsecured
revolving credit facility 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 other inconsequential subsidiaries
(collectively, Non-Guarantor Subsidiaries). Each of the Guarantor Subsidiaries is wholly-owned. In
lieu of providing separate audited financial statements for the Guarantor Subsidiaries,
consolidated condensed financial statements are presented below. Separate financial statements and
other disclosures concerning the Guarantor Subsidiaries are not presented because management has
determined that they are not material to investors.
Consolidating Balance Sheet
March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Horton, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
94.6 |
|
|
$ |
154.8 |
|
|
$ |
(30.8 |
) |
|
$ |
218.6 |
|
Investments in subsidiaries |
|
|
3,560.5 |
|
|
|
|
|
|
|
|
|
|
|
(3,560.5 |
) |
|
|
|
|
Inventories |
|
|
3,398.0 |
|
|
|
7,678.1 |
|
|
|
133.1 |
|
|
|
|
|
|
|
11,209.2 |
|
Property and equipment, net |
|
|
38.5 |
|
|
|
69.3 |
|
|
|
17.3 |
|
|
|
|
|
|
|
125.1 |
|
Earnest money deposits and other assets |
|
|
471.0 |
|
|
|
257.5 |
|
|
|
84.8 |
|
|
|
(3.2 |
) |
|
|
810.1 |
|
Mortgage loans held for sale |
|
|
|
|
|
|
|
|
|
|
568.6 |
|
|
|
|
|
|
|
568.6 |
|
Goodwill |
|
|
|
|
|
|
578.9 |
|
|
|
|
|
|
|
|
|
|
|
578.9 |
|
Intercompany receivables |
|
|
4,294.8 |
|
|
|
|
|
|
|
|
|
|
|
(4,294.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
11,762.8 |
|
|
$ |
8,678.4 |
|
|
$ |
958.6 |
|
|
$ |
(7,889.3 |
) |
|
$ |
13,510.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities |
|
$ |
636.8 |
|
|
$ |
1,063.3 |
|
|
$ |
101.1 |
|
|
$ |
(34.0 |
) |
|
$ |
1,767.2 |
|
Intercompany payables |
|
|
|
|
|
|
4,255.3 |
|
|
|
39.5 |
|
|
|
(4,294.8 |
) |
|
|
|
|
Notes payable |
|
|
4,586.5 |
|
|
|
5.9 |
|
|
|
508.1 |
|
|
|
|
|
|
|
5,100.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
5,223.3 |
|
|
|
5,324.5 |
|
|
|
648.7 |
|
|
|
(4,328.8 |
) |
|
|
6,867.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests |
|
|
|
|
|
|
|
|
|
|
103.3 |
|
|
|
|
|
|
|
103.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity |
|
|
6,539.5 |
|
|
|
3,353.9 |
|
|
|
206.6 |
|
|
|
(3,560.5 |
) |
|
|
6,539.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Equity |
|
$ |
11,762.8 |
|
|
$ |
8,678.4 |
|
|
$ |
958.6 |
|
|
$ |
(7,889.3 |
) |
|
$ |
13,510.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-16-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2007
NOTE L SUMMARIZED FINANCIAL INFORMATION (Continued)
Consolidating Balance Sheet
September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Horton, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
73.5 |
|
|
$ |
379.8 |
|
|
$ |
134.3 |
|
|
$ |
|
|
|
$ |
587.6 |
|
Restricted cash |
|
|
|
|
|
|
|
|
|
|
248.3 |
|
|
|
|
|
|
|
248.3 |
|
Investments in subsidiaries |
|
|
3,428.5 |
|
|
|
|
|
|
|
|
|
|
|
(3,428.5 |
) |
|
|
|
|
Inventories |
|
|
3,249.8 |
|
|
|
7,964.1 |
|
|
|
129.2 |
|
|
|
|
|
|
|
11,343.1 |
|
Property and equipment, net |
|
|
40.5 |
|
|
|
73.2 |
|
|
|
17.7 |
|
|
|
|
|
|
|
131.4 |
|
Earnest money deposits and other assets |
|
|
500.1 |
|
|
|
299.0 |
|
|
|
122.9 |
|
|
|
(13.5 |
) |
|
|
908.5 |
|
Mortgage loans held for sale |
|
|
|
|
|
|
|
|
|
|
1,022.9 |
|
|
|
|
|
|
|
1,022.9 |
|
Goodwill |
|
|
|
|
|
|
578.9 |
|
|
|
|
|
|
|
|
|
|
|
578.9 |
|
Intercompany receivables |
|
|
4,814.7 |
|
|
|
|
|
|
|
|
|
|
|
(4,814.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
12,107.1 |
|
|
$ |
9,295.0 |
|
|
$ |
1,675.3 |
|
|
$ |
(8,256.7 |
) |
|
$ |
14,820.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities |
|
$ |
776.3 |
|
|
$ |
1,288.6 |
|
|
$ |
132.7 |
|
|
$ |
(13.5 |
) |
|
$ |
2,184.1 |
|
Intercompany payables |
|
|
|
|
|
|
4,748.5 |
|
|
|
66.2 |
|
|
|
(4,814.7 |
) |
|
|
|
|
Notes payable |
|
|
4,877.9 |
|
|
|
9.0 |
|
|
|
1,191.7 |
|
|
|
|
|
|
|
6,078.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
5,654.2 |
|
|
|
6,046.1 |
|
|
|
1,390.6 |
|
|
|
(4,828.2 |
) |
|
|
8,262.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests |
|
|
|
|
|
|
|
|
|
|
105.1 |
|
|
|
|
|
|
|
105.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity |
|
|
6,452.9 |
|
|
|
3,248.9 |
|
|
|
179.6 |
|
|
|
(3,428.5 |
) |
|
|
6,452.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Equity |
|
$ |
12,107.1 |
|
|
$ |
9,295.0 |
|
|
$ |
1,675.3 |
|
|
$ |
(8,256.7 |
) |
|
$ |
14,820.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-17-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2007
NOTE L SUMMARIZED FINANCIAL INFORMATION (Continued)
Consolidating Statement of Income
Three Months Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Horton, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
520.5 |
|
|
$ |
2,091.5 |
|
|
$ |
4.2 |
|
|
$ |
|
|
|
$ |
2,616.2 |
|
Cost of sales |
|
|
382.7 |
|
|
|
1,859.0 |
|
|
|
3.0 |
|
|
|
|
|
|
|
2,244.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
137.8 |
|
|
|
232.5 |
|
|
|
1.2 |
|
|
|
|
|
|
|
371.5 |
|
Selling, general and administrative expense |
|
|
105.0 |
|
|
|
189.2 |
|
|
|
1.8 |
|
|
|
|
|
|
|
296.0 |
|
Equity in income of subsidiaries |
|
|
(50.7 |
) |
|
|
|
|
|
|
|
|
|
|
50.7 |
|
|
|
|
|
Other (income) expense |
|
|
0.1 |
|
|
|
(0.6 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83.4 |
|
|
|
43.9 |
|
|
|
(0.5 |
) |
|
|
(50.7 |
) |
|
|
76.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
41.9 |
|
|
|
|
|
|
|
41.9 |
|
General and administrative expense |
|
|
|
|
|
|
|
|
|
|
38.4 |
|
|
|
|
|
|
|
38.4 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
6.8 |
|
|
|
|
|
|
|
6.8 |
|
Other (income) |
|
|
|
|
|
|
|
|
|
|
(10.6 |
) |
|
|
|
|
|
|
(10.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.3 |
|
|
|
|
|
|
|
7.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
83.4 |
|
|
|
43.9 |
|
|
|
6.8 |
|
|
|
(50.7 |
) |
|
|
83.4 |
|
Provision for income taxes |
|
|
31.7 |
|
|
|
16.7 |
|
|
|
2.6 |
|
|
|
(19.3 |
) |
|
|
31.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
51.7 |
|
|
$ |
27.2 |
|
|
$ |
4.2 |
|
|
$ |
(31.4 |
) |
|
$ |
51.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-18-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2007
NOTE L SUMMARIZED FINANCIAL INFORMATION (Continued)
Consolidating Statement of Income
Six Months Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Horton, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
1,096.1 |
|
|
$ |
4,309.6 |
|
|
$ |
12.0 |
|
|
$ |
|
|
|
$ |
5,417.7 |
|
Cost of sales |
|
|
824.4 |
|
|
|
3,770.0 |
|
|
|
7.8 |
|
|
|
|
|
|
|
4,602.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
271.7 |
|
|
|
539.6 |
|
|
|
4.2 |
|
|
|
|
|
|
|
815.5 |
|
Selling, general and administrative expense |
|
|
216.0 |
|
|
|
370.9 |
|
|
|
4.4 |
|
|
|
|
|
|
|
591.3 |
|
Equity in income of subsidiaries |
|
|
(203.9 |
) |
|
|
|
|
|
|
|
|
|
|
203.9 |
|
|
|
|
|
Other (income) expense |
|
|
(0.8 |
) |
|
|
(1.5 |
) |
|
|
0.6 |
|
|
|
|
|
|
|
(1.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260.4 |
|
|
|
170.2 |
|
|
|
(0.8 |
) |
|
|
(203.9 |
) |
|
|
225.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
108.4 |
|
|
|
|
|
|
|
108.4 |
|
General and administrative expense |
|
|
|
|
|
|
|
|
|
|
83.4 |
|
|
|
|
|
|
|
83.4 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
16.4 |
|
|
|
|
|
|
|
16.4 |
|
Other (income) |
|
|
|
|
|
|
|
|
|
|
(25.9 |
) |
|
|
|
|
|
|
(25.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34.5 |
|
|
|
|
|
|
|
34.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
260.4 |
|
|
|
170.2 |
|
|
|
33.7 |
|
|
|
(203.9 |
) |
|
|
260.4 |
|
Provision for income taxes |
|
|
99.0 |
|
|
|
64.7 |
|
|
|
12.8 |
|
|
|
(77.5 |
) |
|
|
99.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
161.4 |
|
|
$ |
105.5 |
|
|
$ |
20.9 |
|
|
$ |
(126.4 |
) |
|
$ |
161.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-19-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2007
NOTE L SUMMARIZED FINANCIAL INFORMATION (Continued)
Consolidating Statement of Income
Three Months Ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Horton, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
803.3 |
|
|
$ |
2,721.2 |
|
|
$ |
2.0 |
|
|
$ |
|
|
|
$ |
3,526.5 |
|
Cost of sales |
|
|
527.2 |
|
|
|
2,086.5 |
|
|
|
1.2 |
|
|
|
|
|
|
|
2,614.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
276.1 |
|
|
|
634.7 |
|
|
|
0.8 |
|
|
|
|
|
|
|
911.6 |
|
Selling, general and administrative expense |
|
|
128.1 |
|
|
|
234.3 |
|
|
|
2.5 |
|
|
|
|
|
|
|
364.9 |
|
Equity in income of subsidiaries |
|
|
(427.9 |
) |
|
|
|
|
|
|
|
|
|
|
427.9 |
|
|
|
|
|
Loss on early retirement of debt |
|
|
10.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.6 |
|
Other (income) |
|
|
(3.7 |
) |
|
|
(0.3 |
) |
|
|
(1.6 |
) |
|
|
|
|
|
|
(5.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
569.0 |
|
|
|
400.7 |
|
|
|
(0.1 |
) |
|
|
(427.9 |
) |
|
|
541.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
71.1 |
|
|
|
|
|
|
|
71.1 |
|
General and administrative expense |
|
|
|
|
|
|
|
|
|
|
49.4 |
|
|
|
|
|
|
|
49.4 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
7.8 |
|
|
|
|
|
|
|
7.8 |
|
Other (income) |
|
|
|
|
|
|
|
|
|
|
(13.4 |
) |
|
|
|
|
|
|
(13.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27.3 |
|
|
|
|
|
|
|
27.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
569.0 |
|
|
|
400.7 |
|
|
|
27.2 |
|
|
|
(427.9 |
) |
|
|
569.0 |
|
Provision for income taxes |
|
|
216.2 |
|
|
|
152.2 |
|
|
|
10.4 |
|
|
|
(162.6 |
) |
|
|
216.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
352.8 |
|
|
$ |
248.5 |
|
|
$ |
16.8 |
|
|
$ |
(265.3 |
) |
|
$ |
352.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-20-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2007
NOTE L SUMMARIZED FINANCIAL INFORMATION (Continued)
Consolidating Statement of Income
Six Months Ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Horton, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
1,491.6 |
|
|
$ |
4,872.4 |
|
|
$ |
4.3 |
|
|
$ |
|
|
|
$ |
6,368.3 |
|
Cost of sales |
|
|
963.0 |
|
|
|
3,686.0 |
|
|
|
2.4 |
|
|
|
|
|
|
|
4,651.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
528.6 |
|
|
|
1,186.4 |
|
|
|
1.9 |
|
|
|
|
|
|
|
1,716.9 |
|
Selling, general and administrative expense |
|
|
205.1 |
|
|
|
480.8 |
|
|
|
4.6 |
|
|
|
|
|
|
|
690.5 |
|
Equity in income of subsidiaries |
|
|
(753.7 |
) |
|
|
|
|
|
|
|
|
|
|
753.7 |
|
|
|
|
|
Loss on early retirement of debt |
|
|
15.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.0 |
|
Other (income) |
|
|
(7.0 |
) |
|
|
(1.3 |
) |
|
|
(2.2 |
) |
|
|
|
|
|
|
(10.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,069.2 |
|
|
|
706.9 |
|
|
|
(0.5 |
) |
|
|
(753.7 |
) |
|
|
1,021.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
132.4 |
|
|
|
|
|
|
|
132.4 |
|
General and administrative expense |
|
|
|
|
|
|
|
|
|
|
96.8 |
|
|
|
|
|
|
|
96.8 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
15.9 |
|
|
|
|
|
|
|
15.9 |
|
Other (income) |
|
|
|
|
|
|
|
|
|
|
(27.6 |
) |
|
|
|
|
|
|
(27.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47.3 |
|
|
|
|
|
|
|
47.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
1,069.2 |
|
|
|
706.9 |
|
|
|
46.8 |
|
|
|
(753.7 |
) |
|
|
1,069.2 |
|
Provision for income taxes |
|
|
406.3 |
|
|
|
268.6 |
|
|
|
17.8 |
|
|
|
(286.4 |
) |
|
|
406.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
662.9 |
|
|
$ |
438.3 |
|
|
$ |
29.0 |
|
|
$ |
(467.3 |
) |
|
$ |
662.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-21-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2007
NOTE L SUMMARIZED FINANCIAL INFORMATION (Continued)
Consolidating Statement of Cash Flows
Six Months Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Horton, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating
activities |
|
$ |
(195.4 |
) |
|
$ |
223.2 |
|
|
$ |
476.8 |
|
|
$ |
(30.8 |
) |
|
$ |
473.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(9.2 |
) |
|
|
(14.7 |
) |
|
|
(0.4 |
) |
|
|
|
|
|
|
(24.3 |
) |
Investment in subsidiary |
|
|
(5.5 |
) |
|
|
|
|
|
|
|
|
|
|
5.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(14.7 |
) |
|
|
(14.7 |
) |
|
|
(0.4 |
) |
|
|
5.5 |
|
|
|
(24.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in notes payable |
|
|
(301.4 |
) |
|
|
|
|
|
|
(683.6 |
) |
|
|
|
|
|
|
(985.0 |
) |
Decrease in restricted cash |
|
|
|
|
|
|
|
|
|
|
248.3 |
|
|
|
|
|
|
|
248.3 |
|
Net change in intercompany
receivables/payables |
|
|
519.8 |
|
|
|
(493.7 |
) |
|
|
(26.1 |
) |
|
|
|
|
|
|
|
|
Proceeds from stock associated with certain
employee benefit plans |
|
|
7.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.7 |
|
Income tax benefit from stock option exercises |
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.6 |
|
Capital contribution from parent |
|
|
|
|
|
|
|
|
|
|
5.5 |
|
|
|
(5.5 |
) |
|
|
|
|
Cash dividends paid |
|
|
(94.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities |
|
|
136.6 |
|
|
|
(493.7 |
) |
|
|
(455.9 |
) |
|
|
(5.5 |
) |
|
|
(818.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents |
|
|
(73.5 |
) |
|
|
(285.2 |
) |
|
|
20.5 |
|
|
|
(30.8 |
) |
|
|
(369.0 |
) |
Cash and cash equivalents at beginning of period |
|
|
73.5 |
|
|
|
379.8 |
|
|
|
134.3 |
|
|
|
|
|
|
|
587.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
94.6 |
|
|
$ |
154.8 |
|
|
$ |
(30.8 |
) |
|
$ |
218.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-22-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2007
NOTE L SUMMARIZED FINANCIAL INFORMATION (Continued)
Consolidating Statement of Cash Flows
Six Months Ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Horton, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating
activities |
|
$ |
(478.6 |
) |
|
$ |
(1,456.7 |
) |
|
$ |
619.6 |
|
|
$ |
|
|
|
$ |
(1,315.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(9.6 |
) |
|
|
(23.5 |
) |
|
|
(2.0 |
) |
|
|
|
|
|
|
(35.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(9.6 |
) |
|
|
(23.5 |
) |
|
|
(2.0 |
) |
|
|
|
|
|
|
(35.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in notes payable |
|
|
1,138.7 |
|
|
|
(0.2 |
) |
|
|
(574.6 |
) |
|
|
|
|
|
|
563.9 |
|
Net change in intercompany
receivables/payables |
|
|
(1,248.3 |
) |
|
|
1,256.5 |
|
|
|
(8.2 |
) |
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
(36.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36.8 |
) |
Proceeds from stock associated with certain
employee benefit plans |
|
|
6.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.4 |
|
Income tax benefit from stock option exercises |
|
|
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.1 |
|
Cash dividends paid |
|
|
(59.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing
activities |
|
|
(194.3 |
) |
|
|
1,256.3 |
|
|
|
(582.8 |
) |
|
|
|
|
|
|
479.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents |
|
|
(682.5 |
) |
|
|
(223.9 |
) |
|
|
34.8 |
|
|
|
|
|
|
|
(871.6 |
) |
Cash and cash equivalents at beginning of period |
|
|
726.6 |
|
|
|
381.0 |
|
|
|
42.2 |
|
|
|
|
|
|
|
1,149.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
44.1 |
|
|
$ |
157.1 |
|
|
$ |
77.0 |
|
|
$ |
|
|
|
$ |
278.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-23-
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
We are the largest homebuilding company in the United States based on domestic homes closed
during the twelve months ended March 31, 2007. We construct and sell high quality homes through our
operating divisions in 27 states and 85 metropolitan markets of the United States as of March 31,
2007, primarily under the name of D.R. Horton, Americas Builder. Our homebuilding operations
primarily include the construction and sale of single-family homes with sales prices generally
ranging from $90,000 to $900,000, with an average closing price of $264,200 during the six months
ended March 31, 2007. Approximately 81% of home sales revenues were generated from the sale of
single-family detached homes in the six months ended March 31, 2007 and 2006. The remainder of home
sales revenues were generated from the sale of attached homes, such as town homes, duplexes,
triplexes and condominiums (including some mid-rise buildings), which share common walls and roofs.
Through our financial services operations, we provide mortgage banking and title agency
services to homebuyers in many of our homebuilding markets. DHI Mortgage, our wholly-owned
subsidiary, provides mortgage financing services principally to purchasers of homes we build and
sell. We originate mortgage loans, then package and sell them and their servicing rights to
third-party investors shortly after origination on a non-recourse or limited recourse basis. Our
subsidiary title companies serve as title insurance agents by providing title insurance policies,
examination and closing services primarily to purchasers of homes we build and sell.
-24-
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. The names
of the regions and the markets comprising each region reflect the aggregation of our homebuilding
operating segments into six separate reportable regions.
|
|
|
|
|
|
|
State |
|
Reporting Region/Market |
|
State |
|
Reporting Region/Market |
|
|
|
|
|
|
|
|
|
Northeast Region
|
|
|
|
Southwest Region |
Delaware
|
|
Central Delaware
|
|
Arizona
|
|
Casa Grande |
|
|
Delaware Shore
|
|
|
|
Phoenix |
Georgia
|
|
Savannah
|
|
|
|
Tucson |
Illinois
|
|
Chicago
|
|
Colorado
|
|
Colorado Springs |
Maryland
|
|
Baltimore
|
|
|
|
Denver |
|
|
Suburban Washington, D.C.
|
|
|
|
Ft. Collins |
Minnesota
|
|
Minneapolis/St. Paul
|
|
New Mexico
|
|
Albuquerque |
New Jersey
|
|
North New Jersey
|
|
|
|
Las Cruces |
|
|
South New Jersey
|
|
Texas
|
|
Lubbock |
North Carolina
|
|
Brunswick County
|
|
Utah
|
|
Salt Lake City |
|
|
Charlotte |
|
|
|
|
|
|
Greensboro/Winston-Salem
|
|
|
|
California Region |
|
|
Raleigh/Durham
|
|
California
|
|
Bay Area |
Pennsylvania
|
|
Philadelphia
|
|
|
|
Central Valley |
|
|
Lancaster
|
|
|
|
Lancaster/Palmdale |
South Carolina
|
|
Charleston
|
|
|
|
Imperial Valley |
|
|
Columbia
|
|
|
|
Los Angeles County |
|
|
Hilton Head
|
|
|
|
Orange County |
|
|
Myrtle Beach
|
|
|
|
Riverside/San Bernardino |
Virginia
|
|
Northern Virginia
|
|
|
|
Sacramento |
Wisconsin
|
|
Kenosha
|
|
|
|
San Diego County |
|
|
|
|
|
|
Ventura County |
|
|
Southeast Region
|
|
Nevada
|
|
Reno |
Alabama
|
|
Birmingham |
|
|
|
|
|
|
Huntsville
|
|
|
|
West Region |
|
|
Mobile
|
|
Hawaii
|
|
Hawaii |
Florida
|
|
Daytona Beach
|
|
|
|
Kauai |
|
|
Fort Myers/Naples
|
|
|
|
Maui |
|
|
Jacksonville
|
|
|
|
Oahu |
|
|
Melbourne
|
|
Idaho
|
|
Boise |
|
|
Miami/West Palm Beach
|
|
Nevada
|
|
Las Vegas |
|
|
Ocala
|
|
|
|
Laughlin |
|
|
Orlando
|
|
Oregon
|
|
Albany |
|
|
Pensacola
|
|
|
|
Bend |
|
|
Tampa
|
|
|
|
Eugene |
Georgia
|
|
Atlanta
|
|
|
|
Portland |
|
|
Macon
|
|
Washington
|
|
Bellingham |
|
|
|
|
|
|
Eastern Washington |
|
|
South Central Region
|
|
|
|
Olympia |
Louisiana
|
|
Baton Rouge
|
|
|
|
Seattle/Tacoma |
Mississippi
|
|
Mississippi Gulf Coast
|
|
|
|
Vancouver |
Oklahoma
|
|
Oklahoma City |
|
|
|
|
Texas
|
|
Austin |
|
|
|
|
|
|
Bryan/College Station |
|
|
|
|
|
|
Dallas |
|
|
|
|
|
|
Fort Worth |
|
|
|
|
|
|
Houston |
|
|
|
|
|
|
Killeen/Temple |
|
|
|
|
|
|
Laredo |
|
|
|
|
|
|
Rio Grande Valley |
|
|
|
|
|
|
San Antonio |
|
|
|
|
|
|
Waco |
|
|
|
|
-25-
The industry-wide softening of demand for new homes which began in fiscal 2006 has
continued into the first six months of fiscal 2007. In many markets, home price appreciation over
the past several years attracted real estate investors and speculators to the new and existing home
markets, which contributed to further increases in home price appreciation extending into the first
half of fiscal 2006. This increased home price appreciation made it more difficult for some
potential homebuyers to afford a home. Therefore, many homebuyers began utilizing non-traditional
financing such as adjustable rate, interest only, or other mortgage products that initially had
lower monthly payments than traditional fixed rate, amortizing products. More recently, mortgage
lenders are offering less non-traditional financing and have increased their underwriting standards
to require higher qualifications in order to obtain a mortgage. This tightening in mortgage lending
has resulted in fewer potential homebuyers able to qualify for mortgage financing.
As price appreciation slowed during fiscal 2006, the demand from investors and speculators for
new homes also slowed, resulting in an increase in new homes available for sale. At the same time,
existing homes offered for sale by investors and speculators increased, and in response to higher
inventories of both new and existing homes, homebuilders have increased the use of price
concessions and sales incentives to continue to sell new homes. The general uncertainty surrounding
the housing market has led to a decline in homebuyer consumer confidence and a reduced ability of
some prospective homebuyers to sell their existing homes, both of which have caused an increase in
sales contract cancellations.
All of these factors have contributed significantly to the decrease in our net sales orders
and to the decrease in gross margins on the homes we closed during the first six months of fiscal
2007. Although we believe the long-term fundamentals which support housing demand remain solid and
the current negative conditions in many of our markets will moderate over time, we cannot predict
the duration or severity of the current market conditions.
Our operating strategy to meet the current homebuilding business environment includes:
|
|
|
Decreasing our SG&A infrastructure to be in line with our reduced expectations of
production levels. |
|
|
|
|
Decreasing our cost of goods purchased from both vendors and subcontractors. |
|
|
|
|
Reducing our land and lot inventory from current levels by significantly restricting
our spending for land and lot purchases and renegotiating or canceling land purchase
contracts. |
|
|
|
|
Reducing our inventory of homes under construction by limiting the construction of
unsold homes. |
|
|
|
|
Continuing to offer incentives and price reductions to increase sales as necessary
to maximize returns and cash flows. |
|
|
|
|
Continuing to modify our product offerings to provide more affordable homes. |
|
|
|
|
Reducing our level of debt, by utilizing cash flows from operations. |
We expect that our operating strategy will generate positive cash flows in fiscal 2007 and
allow us to maintain a strong balance sheet and liquidity position, providing us with flexibility
to take advantage of opportunities as they become available in the future.
-26-
Key financial results as of and for the three months ended March 31, 2007, as compared to the
same period of 2006, were as follows:
|
|
|
Diluted earnings per share decreased 86% to $0.16 per share. |
|
|
|
|
Net income decreased 85% to $51.7 million. |
|
|
|
|
Before pre-tax charges for inventory impairments and write-offs of deposits and
pre-acquisition costs related to land option contracts of $81.2 million, homebuilding
pre-tax income declined 71% to $157.3 million. |
|
|
|
|
Homebuilding revenues decreased 26% to $2.6 billion. |
|
|
|
|
Homes closed decreased 22% to 9,792 homes and the average selling price of those
homes decreased 7% to $257,500. |
|
|
|
|
Net sales orders decreased 37% to 9,983 homes. |
|
|
|
|
Sales order backlog decreased 33% to $4.8 billion. |
|
|
|
|
Home sales gross margins before inventory impairments and land option cost
write-offs decreased 780 basis points to 17.7%. |
|
|
|
|
Homebuilding SG&A expenses as a percentage of homebuilding revenues increased 100
basis points to 11.3%. |
|
|
|
|
Homebuilding debt decreased by $256.3 million to $4,592.4 million at March 31, 2007,
from $4,848.7 million at March 31, 2006. |
|
|
|
|
Stockholders equity increased 10% to $6.5 billion at March 31, 2007, from $5.9
billion at March 31, 2006. |
|
|
|
|
Net homebuilding debt to total capital declined 300 basis points to 40.9%, while
gross homebuilding debt to total capital declined 360 basis points to 41.3%. |
|
|
|
|
Net cash provided by operations was $178.3 million during the quarter ended March
31, 2007. |
Key financial highlights for the six months ended March 31, 2007, as compared to the same
period of 2006, were as follows:
|
|
|
Diluted earnings per share decreased 76% to $0.51 per share. |
|
|
|
|
Net income decreased 76% to $161.4 million. |
|
|
|
|
Homebuilding revenues decreased 15% to $5.4 billion. |
|
|
|
|
Homes closed decreased 11% to 19,994 homes and the average selling price of those
homes decreased 5% to $264,200. |
|
|
|
|
Net sales orders decreased 31% to 18,754 homes. |
|
|
|
|
Home sales gross margins before inventory impairments and land option cost
write-offs decreased 830 basis points to 18.2%. |
|
|
|
|
Homebuilding SG&A expenses as a percentage of homebuilding revenues increased 10
basis points to 10.9%. |
|
|
|
|
Net cash provided by operations was $473.8 million during the six months ended March
31, 2007. |
-27-
RESULTS OF OPERATIONS HOMEBUILDING
The following tables set forth key operating and financial data for our homebuilding
operations by reporting region as of and for the three and six months ended March 31, 2007 and
2006. Based on our revised aggregation of operating segments, we have restated the 2006 amounts
between regions to conform to the 2007 presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales Orders |
|
|
|
Three Months Ended March 31, |
|
|
|
Homes Sold |
|
|
Value (In millions) |
|
|
Average Selling Price |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
Northeast |
|
|
1,564 |
|
|
|
1,990 |
|
|
|
(21 |
)% |
|
$ |
409.2 |
|
|
$ |
510.8 |
|
|
|
(20 |
)% |
|
$ |
261,600 |
|
|
$ |
256,700 |
|
|
|
2 |
% |
Southeast |
|
|
1,429 |
|
|
|
2,040 |
|
|
|
(30 |
)% |
|
|
315.7 |
|
|
|
523.5 |
|
|
|
(40 |
)% |
|
|
220,900 |
|
|
|
256,600 |
|
|
|
(14 |
)% |
South Central |
|
|
2,734 |
|
|
|
4,151 |
|
|
|
(34 |
)% |
|
|
490.2 |
|
|
|
704.0 |
|
|
|
(30 |
)% |
|
|
179,300 |
|
|
|
169,600 |
|
|
|
6 |
% |
Southwest |
|
|
2,171 |
|
|
|
3,537 |
|
|
|
(39 |
)% |
|
|
499.8 |
|
|
|
918.0 |
|
|
|
(46 |
)% |
|
|
230,200 |
|
|
|
259,500 |
|
|
|
(11 |
)% |
California |
|
|
1,107 |
|
|
|
2,697 |
|
|
|
(59 |
)% |
|
|
533.5 |
|
|
|
1,236.1 |
|
|
|
(57 |
)% |
|
|
481,900 |
|
|
|
458,300 |
|
|
|
5 |
% |
West |
|
|
978 |
|
|
|
1,356 |
|
|
|
(28 |
)% |
|
|
350.9 |
|
|
|
470.8 |
|
|
|
(25 |
)% |
|
|
358,800 |
|
|
|
347,200 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,983 |
|
|
|
15,771 |
|
|
|
(37 |
)% |
|
$ |
2,599.3 |
|
|
$ |
4,363.2 |
|
|
|
(40 |
)% |
|
$ |
260,400 |
|
|
$ |
276,700 |
|
|
|
(6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, |
|
|
|
Homes Sold |
|
|
Value (In millions) |
|
|
Average Selling Price |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
Northeast |
|
|
2,719 |
|
|
|
3,684 |
|
|
|
(26 |
)% |
|
$ |
722.3 |
|
|
$ |
967.7 |
|
|
|
(25 |
)% |
|
$ |
265,600 |
|
|
$ |
262,700 |
|
|
|
1 |
% |
Southeast |
|
|
2,801 |
|
|
|
3,835 |
|
|
|
(27 |
)% |
|
|
637.3 |
|
|
|
992.0 |
|
|
|
(36 |
)% |
|
|
227,500 |
|
|
|
258,700 |
|
|
|
(12 |
)% |
South Central |
|
|
4,657 |
|
|
|
6,888 |
|
|
|
(32 |
)% |
|
|
838.7 |
|
|
|
1,176.6 |
|
|
|
(29 |
)% |
|
|
180,100 |
|
|
|
170,800 |
|
|
|
5 |
% |
Southwest |
|
|
4,470 |
|
|
|
6,250 |
|
|
|
(28 |
)% |
|
|
985.8 |
|
|
|
1,654.6 |
|
|
|
(40 |
)% |
|
|
220,500 |
|
|
|
264,700 |
|
|
|
(17 |
)% |
California |
|
|
2,443 |
|
|
|
4,329 |
|
|
|
(44 |
)% |
|
|
1,106.2 |
|
|
|
1,949.0 |
|
|
|
(43 |
)% |
|
|
452,800 |
|
|
|
450,200 |
|
|
|
1 |
% |
West |
|
|
1,664 |
|
|
|
2,248 |
|
|
|
(26 |
)% |
|
|
601.9 |
|
|
|
790.1 |
|
|
|
(24 |
)% |
|
|
361,700 |
|
|
|
351,500 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,754 |
|
|
|
27,234 |
|
|
|
(31 |
)% |
|
$ |
4,892.2 |
|
|
$ |
7,530.0 |
|
|
|
(35 |
)% |
|
$ |
260,900 |
|
|
$ |
276,500 |
|
|
|
(6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Order Backlog |
|
|
|
As of March 31, |
|
|
|
Homes in Backlog |
|
|
Value (In millions) |
|
|
Average Selling Price |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
Northeast |
|
|
2,787 |
|
|
|
4,151 |
|
|
|
(33 |
)% |
|
$ |
772.2 |
|
|
$ |
1,200.1 |
|
|
|
(36 |
)% |
|
$ |
277,100 |
|
|
$ |
289,100 |
|
|
|
(4 |
)% |
Southeast |
|
|
2,027 |
|
|
|
3,331 |
|
|
|
(39 |
)% |
|
|
562.5 |
|
|
|
979.8 |
|
|
|
(43 |
)% |
|
|
277,500 |
|
|
|
294,100 |
|
|
|
(6 |
)% |
South Central |
|
|
3,680 |
|
|
|
4,327 |
|
|
|
(15 |
)% |
|
|
688.6 |
|
|
|
772.5 |
|
|
|
(11 |
)% |
|
|
187,100 |
|
|
|
178,500 |
|
|
|
5 |
% |
Southwest |
|
|
5,341 |
|
|
|
6,767 |
|
|
|
(21 |
)% |
|
|
1,350.4 |
|
|
|
1,821.0 |
|
|
|
(26 |
)% |
|
|
252,800 |
|
|
|
269,100 |
|
|
|
(6 |
)% |
California |
|
|
1,910 |
|
|
|
3,800 |
|
|
|
(50 |
)% |
|
|
975.5 |
|
|
|
1,748.0 |
|
|
|
(44 |
)% |
|
|
510,700 |
|
|
|
460,000 |
|
|
|
11 |
% |
West |
|
|
1,140 |
|
|
|
1,641 |
|
|
|
(31 |
)% |
|
|
445.5 |
|
|
|
582.5 |
|
|
|
(24 |
)% |
|
|
390,800 |
|
|
|
355,000 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,885 |
|
|
|
24,017 |
|
|
|
(30 |
)% |
|
$ |
4,794.7 |
|
|
$ |
7,103.9 |
|
|
|
(33 |
)% |
|
$ |
284,000 |
|
|
$ |
295,800 |
|
|
|
(4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-28-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes Closed |
|
|
|
Three Months Ended March 31, |
|
|
|
Homes Closed |
|
|
Value (In millions) |
|
|
Average Selling Price |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
Northeast |
|
|
1,413 |
|
|
|
1,951 |
|
|
|
(28 |
)% |
|
$ |
366.2 |
|
|
$ |
517.1 |
|
|
|
(29 |
)% |
|
$ |
259,200 |
|
|
$ |
265,000 |
|
|
|
(2 |
)% |
Southeast |
|
|
1,433 |
|
|
|
2,051 |
|
|
|
(30 |
)% |
|
|
343.3 |
|
|
|
531.6 |
|
|
|
(35 |
)% |
|
|
239,600 |
|
|
|
259,200 |
|
|
|
(8 |
)% |
South Central |
|
|
2,668 |
|
|
|
3,202 |
|
|
|
(17 |
)% |
|
|
477.4 |
|
|
|
532.8 |
|
|
|
(10 |
)% |
|
|
178,900 |
|
|
|
166,400 |
|
|
|
8 |
% |
Southwest |
|
|
2,505 |
|
|
|
2,446 |
|
|
|
2 |
% |
|
|
598.8 |
|
|
|
649.9 |
|
|
|
(8 |
)% |
|
|
239,000 |
|
|
|
265,700 |
|
|
|
(10 |
)% |
California |
|
|
1,038 |
|
|
|
1,919 |
|
|
|
(46 |
)% |
|
|
476.7 |
|
|
|
878.5 |
|
|
|
(46 |
)% |
|
|
459,200 |
|
|
|
457,800 |
|
|
|
|
% |
West |
|
|
735 |
|
|
|
1,001 |
|
|
|
(27 |
)% |
|
|
259.1 |
|
|
|
362.4 |
|
|
|
(29 |
)% |
|
|
352,500 |
|
|
|
362,000 |
|
|
|
(3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,792 |
|
|
|
12,570 |
|
|
|
(22 |
)% |
|
$ |
2,521.5 |
|
|
$ |
3,472.3 |
|
|
|
(27 |
)% |
|
$ |
257,500 |
|
|
$ |
276,200 |
|
|
|
(7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, |
|
|
|
Homes Closed |
|
|
Value (In millions) |
|
|
Average Selling Price |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
Northeast |
|
|
2,834 |
|
|
|
3,427 |
|
|
|
(17 |
)% |
|
$ |
747.0 |
|
|
$ |
916.5 |
|
|
|
(18 |
)% |
|
$ |
263,600 |
|
|
$ |
267,400 |
|
|
|
(1 |
)% |
Southeast |
|
|
2,922 |
|
|
|
3,623 |
|
|
|
(19 |
)% |
|
|
708.7 |
|
|
|
921.7 |
|
|
|
(23 |
)% |
|
|
242,500 |
|
|
|
254,400 |
|
|
|
(5 |
)% |
South Central |
|
|
5,190 |
|
|
|
5,536 |
|
|
|
(6 |
)% |
|
|
927.9 |
|
|
|
928.3 |
|
|
|
|
% |
|
|
178,800 |
|
|
|
167,700 |
|
|
|
7 |
% |
Southwest |
|
|
4,883 |
|
|
|
4,551 |
|
|
|
7 |
% |
|
|
1,185.6 |
|
|
|
1,216.4 |
|
|
|
(3 |
)% |
|
|
242,800 |
|
|
|
267,300 |
|
|
|
(9 |
)% |
California |
|
|
2,621 |
|
|
|
3,451 |
|
|
|
(24 |
)% |
|
|
1,172.3 |
|
|
|
1,604.8 |
|
|
|
(27 |
)% |
|
|
447,300 |
|
|
|
465,000 |
|
|
|
(4 |
)% |
West |
|
|
1,544 |
|
|
|
1,873 |
|
|
|
(18 |
)% |
|
|
541.1 |
|
|
|
673.7 |
|
|
|
(20 |
)% |
|
|
350,500 |
|
|
|
359,700 |
|
|
|
(3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,994 |
|
|
|
22,461 |
|
|
|
(11 |
)% |
|
$ |
5,282.6 |
|
|
$ |
6,261.4 |
|
|
|
(16 |
)% |
|
$ |
264,200 |
|
|
$ |
278,800 |
|
|
|
(5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Homebuilding Revenues |
|
|
|
($ in millions) |
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
% Change |
|
|
2007 |
|
|
2006 |
|
|
% Change |
|
Northeast |
|
$ |
419.3 |
|
|
$ |
517.3 |
|
|
|
(19 |
)% |
|
$ |
815.2 |
|
|
$ |
918.5 |
|
|
|
(11 |
)% |
Southeast |
|
|
343.1 |
|
|
|
531.6 |
|
|
|
(35 |
)% |
|
|
714.4 |
|
|
|
925.2 |
|
|
|
(23 |
)% |
South Central |
|
|
478.4 |
|
|
|
536.2 |
|
|
|
(11 |
)% |
|
|
929.0 |
|
|
|
933.3 |
|
|
|
|
% |
Southwest |
|
|
617.0 |
|
|
|
666.2 |
|
|
|
(7 |
)% |
|
|
1,219.4 |
|
|
|
1,239.3 |
|
|
|
(2 |
)% |
California |
|
|
498.7 |
|
|
|
912.8 |
|
|
|
(45 |
)% |
|
|
1,198.0 |
|
|
|
1,639.8 |
|
|
|
(27 |
)% |
West |
|
|
259.7 |
|
|
|
362.4 |
|
|
|
(28 |
)% |
|
|
541.7 |
|
|
|
712.2 |
|
|
|
(24 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,616.2 |
|
|
$ |
3,526.5 |
|
|
|
(26 |
)% |
|
$ |
5,417.7 |
|
|
$ |
6,368.3 |
|
|
|
(15 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-29-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory Impairments and Land Option Cost Write-offs |
|
|
|
(In millions) |
|
|
|
Three Months Ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
Land |
|
|
|
|
|
|
|
|
|
|
Land |
|
|
|
|
|
|
Inventory |
|
|
Option Cost |
|
|
|
|
|
|
Inventory |
|
|
Option Cost |
|
|
|
|
|
|
Impairments |
|
|
Write-offs |
|
|
Total |
|
|
Impairments |
|
|
Write-offs |
|
|
Total |
|
Northeast |
|
$ |
8.8 |
|
|
$ |
1.8 |
|
|
$ |
10.6 |
|
|
$ |
|
|
|
$ |
1.5 |
|
|
$ |
1.5 |
|
Southeast |
|
|
2.4 |
|
|
|
2.5 |
|
|
|
4.9 |
|
|
|
|
|
|
|
0.5 |
|
|
|
0.5 |
|
South Central |
|
|
0.3 |
|
|
|
1.1 |
|
|
|
1.4 |
|
|
|
|
|
|
|
0.2 |
|
|
|
0.2 |
|
Southwest |
|
|
|
|
|
|
1.4 |
|
|
|
1.4 |
|
|
|
|
|
|
|
1.8 |
|
|
|
1.8 |
|
California |
|
|
55.8 |
|
|
|
5.5 |
|
|
|
61.3 |
|
|
|
0.4 |
|
|
|
2.3 |
|
|
|
2.7 |
|
West |
|
|
|
|
|
|
1.6 |
|
|
|
1.6 |
|
|
|
|
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
67.3 |
|
|
$ |
13.9 |
|
|
$ |
81.2 |
|
|
$ |
0.4 |
|
|
$ |
6.7 |
|
|
$ |
7.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
Land |
|
|
|
|
|
|
|
|
|
|
Land |
|
|
|
|
|
|
Inventory |
|
|
Option Cost |
|
|
|
|
|
|
Inventory |
|
|
Option Cost |
|
|
|
|
|
|
Impairments |
|
|
Write-offs |
|
|
Total |
|
|
Impairments |
|
|
Write-offs |
|
|
Total |
|
Northeast |
|
$ |
9.5 |
|
|
$ |
6.5 |
|
|
$ |
16.0 |
|
|
$ |
|
|
|
$ |
2.0 |
|
|
$ |
2.0 |
|
Southeast |
|
|
2.4 |
|
|
|
8.6 |
|
|
|
11.0 |
|
|
|
|
|
|
|
0.7 |
|
|
|
0.7 |
|
South Central |
|
|
0.3 |
|
|
|
3.9 |
|
|
|
4.2 |
|
|
|
|
|
|
|
0.2 |
|
|
|
0.2 |
|
Southwest |
|
|
27.1 |
|
|
|
5.0 |
|
|
|
32.1 |
|
|
|
|
|
|
|
2.8 |
|
|
|
2.8 |
|
California |
|
|
68.9 |
|
|
|
16.0 |
|
|
|
84.9 |
|
|
|
0.4 |
|
|
|
4.3 |
|
|
|
4.7 |
|
West |
|
|
|
|
|
|
10.6 |
|
|
|
10.6 |
|
|
|
|
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
108.2 |
|
|
$ |
50.6 |
|
|
$ |
158.8 |
|
|
$ |
0.4 |
|
|
$ |
10.5 |
|
|
$ |
10.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding Income Before Income Taxes (1) |
|
|
|
($ in millions) |
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
% of Region |
|
|
|
|
|
|
% of Region |
|
|
|
|
|
|
% of Region |
|
|
|
|
|
|
% of Region |
|
|
|
$s |
|
|
Revenues |
|
|
$s |
|
|
Revenues |
|
|
$s |
|
|
Revenues |
|
|
$s |
|
|
Revenues |
|
Northeast |
|
$ |
4.8 |
|
|
|
1.1 |
% |
|
$ |
48.3 |
|
|
|
9.3 |
% |
|
$ |
28.8 |
|
|
|
3.5 |
% |
|
$ |
80.3 |
|
|
|
8.7 |
% |
Southeast |
|
|
18.9 |
|
|
|
5.5 |
% |
|
|
116.9 |
|
|
|
22.0 |
% |
|
|
46.6 |
|
|
|
6.5 |
% |
|
|
194.9 |
|
|
|
21.1 |
% |
South Central |
|
|
30.7 |
|
|
|
6.4 |
% |
|
|
37.9 |
|
|
|
7.1 |
% |
|
|
63.2 |
|
|
|
6.8 |
% |
|
|
64.8 |
|
|
|
6.9 |
% |
Southwest |
|
|
36.4 |
|
|
|
5.9 |
% |
|
|
113.0 |
|
|
|
17.0 |
% |
|
|
49.9 |
|
|
|
4.1 |
% |
|
|
223.5 |
|
|
|
18.0 |
% |
California |
|
|
(36.0 |
) |
|
|
(7.2 |
)% |
|
|
141.8 |
|
|
|
15.5 |
% |
|
|
(13.3 |
) |
|
|
(1.1 |
)% |
|
|
265.7 |
|
|
|
16.2 |
% |
West |
|
|
21.3 |
|
|
|
8.2 |
% |
|
|
83.8 |
|
|
|
23.1 |
% |
|
|
50.7 |
|
|
|
9.4 |
% |
|
|
192.7 |
|
|
|
27.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
76.1 |
|
|
|
2.9 |
% |
|
$ |
541.7 |
|
|
|
15.4 |
% |
|
$ |
225.9 |
|
|
|
4.2 |
% |
|
$ |
1,021.9 |
|
|
|
16.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Expenses maintained at the corporate level are allocated to each region based on the
regions average inventory. These expenses consist primarily of capitalized interest and
property taxes, which are amortized to cost of sales, and the expenses related to the
operations of our corporate office. |
-30-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding Operating Margin Analysis |
|
|
Percentages of Related Revenues |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
March 31, |
|
March 31, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Gross profit Home sales |
|
|
17.7 |
% |
|
|
25.5 |
% |
|
|
18.2 |
% |
|
|
26.5 |
% |
Gross profit Land/lot sales |
|
|
5.9 |
% |
|
|
62.9 |
% |
|
|
9.6 |
% |
|
|
63.1 |
% |
Effect of inventory impairments and land option cost
write-offs on total homebuilding gross profit |
|
|
(3.1 |
)% |
|
|
(0.2 |
)% |
|
|
(2.9 |
)% |
|
|
(0.2 |
)% |
Gross profit Total homebuilding |
|
|
14.2 |
% |
|
|
25.8 |
% |
|
|
15.1 |
% |
|
|
27.0 |
% |
Selling, general and administrative expense |
|
|
11.3 |
% |
|
|
10.3 |
% |
|
|
10.9 |
% |
|
|
10.8 |
% |
Loss on early retirement of debt |
|
|
|
% |
|
|
0.3 |
% |
|
|
|
% |
|
|
0.2 |
% |
Other (income) |
|
|
|
% |
|
|
(0.2 |
)% |
|
|
|
% |
|
|
(0.2 |
)% |
Income before income taxes |
|
|
2.9 |
% |
|
|
15.4 |
% |
|
|
4.2 |
% |
|
|
16.0 |
% |
Net Sales Orders and Backlog
Net sales orders represent the number and dollar value of new sales contracts executed with
customers, net of sales contract cancellations. The value of net sales orders decreased 40%, to
$2,599.3 million (9,983 homes) for the three months ended March 31, 2007, from $4,363.2 million
(15,771 homes) for the same period of 2006. The value of net sales orders decreased 35%, to
$4,892.2 million (18,754 homes) for the six months ended March 31, 2007, from $7,530.0 million
(27,234 homes) for the same period of 2006. The number of net sales orders decreased 37% and 31%
for the three and six-month periods ended March 31, 2007, respectively, reflecting the continued
softening of demand for new homes in most homebuilding markets. We believe the most significant
factors contributing to the slowing of demand for new homes in most of our markets include an
increase in the supply of existing homes for sale, a reduction in investor purchases, a decrease in
the availability of mortgage financing for some potential homebuyers and a decline in homebuyer
consumer confidence. Additionally, we believe that the rapid price appreciation of new and existing
homes in many markets over the past several years has reduced the number of potential homebuyers
able to afford a home. Many prospective homebuyers continue to approach the purchase decision more
tentatively due to continued increases in price concessions and sales incentives offered on both
new and existing homes, concern over their ability to sell an existing home or obtain mortgage
financing and the general uncertainty surrounding the housing market.
In comparing the three and six-month periods ended March 31, 2007 to the same periods of 2006,
the value of net sales orders decreased by 20% or more in all six of our market regions. These
decreases were primarily due to similar decreases in the number of homes sold in each region. Our
Southeast and Southwest regions also experienced decreases in their average selling prices in the
three and six-month periods due to increased use of price concessions and sales incentives and a
shift to more affordable products in those regions.
The most significant decline in net sales orders in the second quarter of fiscal 2007 occurred
in our California region, with 59% fewer homes sold than in the same period of fiscal 2006. Home
sales in our California markets were negatively impacted by a reduction in the pool of qualified
buyers due to a lack of housing affordability and the decline of mortgage availability, as well as
a pricing strategy that did not result in acceptable home sales levels. This second quarter pricing
strategy was implemented primarily because our home inventory had been reduced to a level in our
first quarter that was more in line with our inventory target levels. As a result, in our second
quarter, we implemented the pricing strategy of providing lower discounts and incentives in many of
our California projects. This pricing strategy generated fewer sales than we expected, and as a
result we are modifying or closely monitoring, on a project by project basis, that pricing strategy
for the remainder of the fiscal year.
Our sales order cancellation rates (sales orders cancelled divided by gross sales orders)
during the three and six months ended March 31, 2007 were 32% and 33%, respectively, which exceeded
our typical historical range of 16% to 20%, but improved from our cancellation rate of 40% in the
fourth quarter of fiscal 2006. A significant portion of the increase in cancellations above
historical levels was due to our prospective homebuyers being unable to sell their existing homes.
In light of the current market conditions, we do not expect our cancellation rate to decline in the
remainder of fiscal 2007.
-31-
In the three and six months ended March 31, 2007, the average price of our net sales orders
decreased 6% to $260,400 and $260,900, respectively, from $276,700 and $276,500, respectively, in
the comparable periods of 2006. The average price of our net sales orders decreased in our
Southwest and Southeast regions, due primarily to price reductions and increased incentives in our
Arizona and Florida markets. In general, our pricing is dependent on the demand for our homes, and
declines in our average selling prices during the three and six-month periods were due in large
part to increases in the use of price reductions and sales incentives. We also continually monitor
and may adjust our product and 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. This can also contribute to decreases in the average selling
price.
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.
In the past, our backlog has been a reliable indicator of the level of closings in our two
subsequent fiscal quarters, although this relationship may change if our cancellation rates or
unsold homes in inventory remain above normal levels.
At March 31, 2007, the value of our backlog of sales orders was $4,794.7 million (16,885
homes), a decrease of 33% from $7,103.9 million (24,017 homes) at March 31, 2006. The average sales
price of homes in backlog was $284,000 at March 31, 2007, down 4% from the $295,800 average at
March 31, 2006. The value of our sales order backlog decreased in all of our market regions, with
the largest percentage decreases occurring in our California and Southeast regions. We continue to
operate in difficult sales environments with higher than normal cancellation rates in most of our
markets.
Home Sales Revenue and Gross Profit
Revenues from home sales decreased 27%, to $2,521.5 million (9,792 homes closed) for the three
months ended March 31, 2007, from $3,472.3 million (12,570 homes closed) for the comparable period
of 2006. Revenues from home sales decreased 16%, to $5,282.6 million (19,994 homes closed) for the
six months ended March 31, 2007, from $6,261.4 million (22,461 homes closed) for the comparable
period of 2006. The average selling price of homes closed during the three months ended March 31,
2007 was $257,500, down 7% from the $276,200 average for the same period of 2006. The average
selling price of homes closed during the six months ended March 31, 2007 was $264,200, down 5% from
the $278,800 average for the same period of 2006. Home sales revenues decreased in all six of our
market regions during the three-month period, led by decreases of 46% and 35% in our California and
Southeast regions, respectively. The decreases in our current period home sales revenues were the
result of slowing demand and the resulting decline in net sales order volume that has occurred in
recent quarters.
The number of homes closed in the three and six months ended March 31, 2007 decreased 22% and
11%, respectively, due to decreases in five of our six market regions. As a result of the decline
in net sales orders in recent quarters, we expect to close fewer homes in the third and fourth
quarters of the current year than we did in the same periods of fiscal 2006. 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.
Total homebuilding gross profit decreased by 59%, to $371.5 million for the three months ended
March 31, 2007, from $911.6 million for the comparable period of 2006. For the six months ended
March 31, 2007, total homebuilding gross profit decreased by 53%, to $815.5 million, from $1,716.9
million for the comparable period of 2006. Including sales of both homes and land/lots, as well as
impairment charges and land option cost write-offs, total homebuilding gross profit as a percentage
of homebuilding revenues decreased 1,160 basis points, to 14.2% in the three months ended March 31,
2007, from 25.8% in the comparable period of 2006. Including sales of both homes and land/lots, as
well as impairment charges and land option cost write-offs, total homebuilding gross profit as a
percentage of homebuilding revenues decreased 1,190 basis points, to 15.1% in the six months ended
March 31, 2007, from 27.0% in the comparable period of 2006.
Gross profit from home sales decreased by 49%, to $447.1 million for the three months ended
March 31, 2007, from $884.6 million for the comparable period of 2006, and, as a percentage of home
sales revenues decreased 780 basis points, to 17.7%. The primary factor reducing our home sales
gross profit margin was the difficult market conditions discussed above, which narrowed the range
between our selling prices and costs of our homes in most of our markets, causing a decline of
approximately 850 basis points in home sales gross profit as a percentage of home
-32-
sales revenues. Due to the current sales environment in many of our markets, we have offered a
variety of incentives and price concessions, which affect our gross profit margin by reducing the
selling price of the home, or by increasing the cost of the home without a proportional increase in
the selling price. As a result of the current market conditions and compounded by our high
cancellation rate, we have a larger than normal supply of unsold homes. In order to reduce our
inventory of unsold homes, we are offering greater discounts and incentives to sell these homes.
This strategy helped reduce our unsold homes in inventory by approximately 2,100 units from
September 30, 2006, but also contributed to a decline in our home sales gross profit. The 850 basis
point home sales gross margin decline caused by the difficult market conditions was partially
offset by an improvement of 100 basis points due primarily to an increase in the relative number of
home closings in our more profitable Arizona markets. The remaining portion of the decrease in home
sales gross margin was primarily the result of an increase in the amortization of capitalized
interest as a percentage of home sales revenues.
Gross profit from home sales decreased by 42%, to $961.3 million for the six months ended
March 31, 2007, from $1,660.3 million for the comparable period of 2006, and, as a percentage of
home sales revenues decreased 830 basis points, to 18.2%. Generally, the factors impacting gross
margin for the six-month period ended March 31, 2007 were similar to those discussed for the
three-month period. Specifically, the weaker market conditions contributed 860 basis points to the
decline, while the relative increase in closings from the higher margin markets offset the decline
by 50 basis points. The remaining decrease was primarily the result of an increase in the
amortization of capitalized interest as a percentage of home sales revenues.
In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, land inventory and related development costs are
reviewed for potential write-downs when impairment indicators are present. SFAS No. 144 requires
that in the event the undiscounted cash flows estimated to be generated by those assets are less
than their carrying amounts, 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 estimates of revenues, costs, and other factors. Due to uncertainties in the estimation
process, actual results could differ from such estimates. 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.
In accordance with SFAS No. 144, valuation adjustments are recorded on finished homes when
events or circumstances indicate that the carrying values are greater than the fair value less
costs to sell these homes.
During the second quarter of fiscal 2007, communities under development with a combined
carrying value of $1,149.3 million at March 31, 2007, had indicators of potential impairment and
were evaluated for impairment. Our analyses of these projects generally assumed flat to reduced
revenues as compared with current sales orders for the particular project or revenues realized from
comparable projects. On a limited number of projects in unique circumstances, we may have assumed
slight increases in revenues over the remaining expected life of the project. We determined that
projects with a carrying value of $255.5 million, the majority of which were in California, were
impaired. Consequently, we recorded impairment charges of $67.3 million to reduce the carrying
value of the impaired projects to their estimated fair value during the three months ended March
31, 2007. Of the remaining $893.8 million of such projects with impairment indicators, 35% are in
California, 25% are in Florida and 21% are in Colorado. During the six months ended March 31, 2007
and 2006, we recorded impairment charges of $108.2 million and $0.4 million, respectively. It is
possible that our estimate of undiscounted cash flows from these projects may change and could
result in a future need to record impairment charges to write these assets down to fair value.
Additionally, if conditions in the homebuilding industry worsen in the future and as we re-evaluate
specific project pricing and incentive strategies, we may be required to evaluate additional
projects for potential impairment which may result in additional impairment charges and such
charges could be significant.
We periodically write off earnest money deposits and pre-acquisition costs related to land and
lot option contracts which we no longer plan to pursue. During the three months ended March 31,
2007 and 2006, we wrote off $13.9 million and $6.7 million, respectively, of earnest money deposits
and pre-acquisition costs related to land purchase option contracts which we determined we would
not pursue. During the six months ended March 31, 2007 and 2006, we wrote off $50.6 million and
$10.5 million, respectively, of earnest money deposits and pre-acquisition costs related to land
purchase option contracts which we determined we would not pursue. Should the current weak
-33-
homebuilding market conditions persist and we are unable to successfully renegotiate certain
land purchase contracts, we may write off additional earnest money deposits and pre-acquisition
costs.
In the three and six-month periods ended March 31, 2007, 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 310 basis points and 290 basis points,
respectively.
Land Sales Revenue and Gross Profit
Land sales revenues increased 75%, to $94.7 million for the three months ended March 31, 2007,
and 26% to $135.1 million for the six months ended March 31, 2007, from $54.2 million and $106.9
million, respectively, in the comparable periods of 2006. The gross profit percentage from land
sales decreased to 5.9% for the three months ended March 31, 2007, from 62.9% in the comparable
period of the prior year, and to 9.6% for the six months ended March 31, 2007 from 63.1% in the
prior year. The fluctuations in revenues and gross profit percentages 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. When we have
the opportunity or need to sell land or lots, the resulting land sales occur at unpredictable
intervals and varying degrees of profitability. Therefore, the revenues and gross profit from land
sales can fluctuate significantly from period to period.
Selling, General and Administrative Expense
Selling, general and administrative (SG&A) expenses from homebuilding activities decreased by
19% to $296.0 million in the three months ended March 31, 2007, and decreased 14%, to $591.3
million, in the six months ended March 31, 2007, from the comparable periods of 2006. As a
percentage of homebuilding revenues, SG&A expenses increased 100 basis points, to 11.3% in the
three-month period ended March 31, 2007, and increased 10 basis points, to 10.9%, in the six-month
period ended March 31, 2007. The largest component of our homebuilding SG&A is employee
compensation and related costs, which represented approximately 58% of SG&A costs in the three and
six-month periods of fiscal 2007, and approximately 64% of SG&A costs in the comparable periods of
fiscal 2006. Those costs decreased by 29% and 22%, to $169.0 million and $344.1 million,
respectively, in the three and six months ended March 31, 2007, from the comparable periods of
2006. These decreases were largely due to decreases in incentive compensation, which is primarily
based on profitability, and reductions in the number of employees to match our current and
anticipated home closing levels. Our homebuilding operations employed approximately 6,100 and 8,100
employees at March 31, 2007 and 2006, respectively.
Our homebuilding SG&A expense as a percentage of revenues can vary significantly between
quarters, depending largely on the fluctuations in quarterly revenue levels. We will continually
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. If future home closings are lower than our expectations, our future SG&A
percentage may continue to increase.
Interest Incurred
We capitalize interest costs only to inventory under construction or development. During the
three and six-month periods in both years, our inventory under construction or development exceeded
our debt; therefore, we capitalized all interest from homebuilding debt. Interest amortized to cost
of sales was 2.5% of total cost of sales in the three months ended March 31, 2007, compared to 2.3%
in the same period of 2006. Interest amortized to cost of sales was 2.4% of total cost of sales in
the six months ended March 31, 2007, compared to 2.2% in the same period of 2006.
During the three months ended March 31, 2007, interest incurred related to homebuilding debt
decreased by 4%, to $78.4 million, while our average homebuilding debt decreased by 1%. During the
six months ended March 31, 2007, interest incurred related to homebuilding debt increased by 4%, to
$156.5 million, while our average homebuilding debt increased by 9%. Interest incurred is directly
related to the average level of our homebuilding debt outstanding during the period; however, the
improvement in interest costs relative to our debt is attributable to our ongoing efforts to
replace our older higher interest rate notes with notes bearing lower interest rates.
-34-
Loss on Early Retirement of Debt
During the six months ended March 31, 2006, we recorded a loss of $15.0 million related to the
early retirement of debt. The loss was comprised of a $4.4 million charge for the unamortized fees
associated with the early renewal of our revolving credit facility in the first quarter of fiscal
2006, and a $10.6 million charge for the call premium and the unamortized discount and issuance
costs related to the early redemption of our 9.375% senior notes in the second quarter of fiscal
2006.
Other Income
Other income, net of other expenses, associated with homebuilding activities was $0.6 million
in the three months ended March 31, 2007, compared to $5.6 million in the comparable period of
2006. Other income, net of other expenses, associated with homebuilding activities was $1.7 million
in the six months ended March 31, 2007, compared to $10.5 million in the comparable period of 2006.
A major component of other income in all four periods was interest income, while an increase in the
fair value of our interest rate swaps was also a significant component in the 2006 periods.
Homebuilding Income Before Income Taxes
Income before income taxes from homebuilding activities decreased 86%, to $76.1 million for
the three months ended March 31, 2007, and decreased 78%, to $225.9 million for the six months
ended March 31, 2007, as compared to the same periods of 2006. As a percentage of homebuilding
revenues, income before income taxes decreased 1,250 basis points, to 2.9% in the three-month
period, and 1,180 basis points, to 4.2% in the six-month period, from the comparable periods of
2006. The decreases in income before income taxes as a percentage of revenues are due to decreases
in gross profit and increases in SG&A expenses as percentages of homebuilding revenues, as
previously described. Continued or additional deterioration of market conditions in the
homebuilding industry and related availability of mortgage financing may further reduce
profitability, and may also result in further asset impairment charges against income in future
periods.
Goodwill
At March 31, 2007, we had $578.9 million in goodwill, which we evaluate for impairment
annually or when circumstances warrant an earlier review. We have allocated our goodwill to our
reporting regions as follows, as of March 31, 2007 and September 30, 2006: Northeast $74.4 million,
Southeast $11.5 million, South Central $15.9 million, Southwest $102.4 million, California $300.3
million and West $74.4 million. Although no goodwill impairment charges were recorded for the six
months ended March 31, 2007, if market conditions continue to deteriorate in our reporting regions,
we may be required to record goodwill impairment charges in the future, and such charges could be
significant.
Homebuilding Results by Reporting Region
Northeast Region Homebuilding revenues decreased 19% and 11% in the three and six months
ended March 31, 2007, respectively, from the comparable periods of 2006, primarily due to decreases
in the number of homes closed, as well as slight decreases in the average selling price of those
homes. Income before income taxes for the region decreased 90% and 64% in the three and six months
ended March 31, 2007, respectively, compared to the same periods of 2006. Income before income
taxes as a percentage of revenues (operating margin) decreased 820 and 520 basis points to 1.1% and
3.5% for the three and six months ended March 31, 2007, respectively, from the comparable periods
of 2006. The decrease in operating margin was primarily due to a decrease in the regions core home
sales gross profit percentage (home sales gross profit percentage excluding impairments and earnest
money and pre-acquisition cost write-offs) of 400 and 280 basis points in the three and six months
ended March 31, 2007, respectively, compared to the same periods of 2006. The gross margin declines
in our New Jersey and South Carolina markets had the greatest impact on the overall decreases. In
addition, the recording of inventory impairment charges and earnest money and pre-acquisition cost
write-offs of $10.6 million and $16.0 million in the three and six months ended March 31, 2007,
respectively, contributed to the decline in the regions gross profit.
-35-
Southeast Region Homebuilding revenues decreased 35% and 23% in the three and six months
ended March 31, 2007, respectively, from the comparable periods of 2006, primarily due to decreases
in the number of homes closed, as well as slight decreases in the average selling price of those
homes. Income before income taxes for the region decreased 84% and 76% in the three and six months
ended March 31, 2007, respectively, compared to the same periods of 2006. Operating margin
decreased 1,650 and 1,460 basis points, to 5.5% and 6.5% for the three and six months ended March
31, 2007, respectively, from the comparable periods of 2006. The decrease in operating margin was
primarily due to a decrease in the regions core home sales gross profit percentage of 1,190 and
1,080 basis points in the three and six months ended March 31, 2007, respectively, compared to the
same periods of 2006. In addition, the recording of inventory impairment charges and earnest money
and pre-acquisition cost write-offs of $4.9 million and $11.0 million in the three and six months
ended March 31, 2007, respectively, contributed to the decline in the regions gross profit. The
gross margin declines in our Florida markets had the greatest impact on the overall decreases due
to the increased use of sales incentives and price reductions. Should the Florida markets continue
to be challenging, we will re-evaluate our pricing strategy, which may further compress gross
margin and lead to additional impairment charges.
South Central Region Homebuilding revenues decreased 11% in the three months ended March 31,
2007, from the comparable period of 2006, primarily due to decreases in the number of homes closed,
partially offset by slight increases in the average selling price of those homes. Homebuilding
revenues were unchanged during the six months ended March 31, 2007. Income before income taxes for
the region decreased 19% and 2% in the three and six months ended March 31, 2007, respectively,
compared to the same periods of 2006. Operating margin decreased 70 and 10 basis points, to 6.4%
and 6.8% for the three and six months ended March 31, 2007, respectively, from the comparable
periods of 2006. The decrease in operating margin was primarily due to a decrease in the regions
core home sales gross profit percentage of 100 basis points in both the three and six months ended
March 31, 2007, respectively, compared to the same periods of 2006, largely due to softening in the
Fort Worth, Dallas and San Antonio markets. The recording of inventory impairment charges and
earnest money and pre-acquisition cost write-offs of $1.4 million and $4.2 million in the three and
six months ended March 31, 2007, respectively, also contributed to the decline in the regions
gross profit.
Southwest Region Homebuilding revenues decreased 7% and 2% in the three and six months ended
March 31, 2007, respectively, from the comparable periods of 2006, primarily due to decreases in
the average selling price of homes closed. Income before income taxes for the region decreased 68%
and 78% in the three and six months ended March 31, 2007, respectively, compared to the same
periods of 2006. Operating margin decreased 1,110 and 1,390 basis points, to 5.9% and 4.1% for the
three and six months ended March 31, 2007, respectively, from the comparable periods of 2006. The
decrease in operating margin was primarily due to a decrease in the regions core home sales gross
profit percentage of 1,000 and 1,080 basis points in the three and six months ended March 31, 2007,
respectively, compared to the same periods of 2006. The gross margin declines in our Phoenix market
had the greatest impact on the overall decreases due to the increased use of incentives and price
reductions. In addition, the recording of inventory impairment charges, mostly in our Denver
markets, and earnest money and pre-acquisition cost write-offs of $1.4 million and $32.1 million in
the three and six months ended March 31, 2007, respectively, contributed to the decline in the
regions gross profit.
California Region Homebuilding revenues decreased 45% and 27% in the three and six months
ended March 31, 2007, respectively, from the comparable periods of 2006, primarily due to decreases
in the number of homes closed, as well as slight decreases in the average selling price of those
homes in the six-month period. During the three and six months ended March 31, 2007, the region had
losses of $36.0 million and $13.3 million, respectively, compared to income before income taxes of
$141.8 million and $265.7 million in the comparable periods of 2006. Operating margin decreased
2,270 and 1,730 basis points to a loss of 7.2% and 1.1% for the three and six months ended March
31, 2007, respectively, from the comparable periods of 2006. The decrease in operating margin was
primarily due to the recording of inventory impairment charges and earnest money and
pre-acquisition cost write-offs of $61.3 million and $84.9 million in the three and six months
ended March 31, 2007, respectively. In addition, decreases in the regions core home sales gross
profit percentage of 710 and 930 basis points occurred in the three and six months ended March 31,
2007, respectively. The gross profit declines in our Northern California markets had the greatest
impact on the overall core gross profit decreases. As we reconsider our project-by-project pricing
strategies in California in response to current market conditions, gross margins may be further
compressed, leading to additional impairment charges.
-36-
West Region Homebuilding revenues decreased 28% and 24% in the three and six months ended
March 31, 2007, respectively, from the comparable periods of 2006, primarily due to decreases in
the number of homes closed, as well as slight decreases in the average selling price of those
homes. Income before income taxes for the region decreased 75% and 74% in the three and six months
ended March 31, 2007, respectively, compared to the same periods of 2006. Operating margin
decreased 1,490 and 1,770 basis points, to 8.2% and 9.4% for the three and six months ended March
31, 2007, respectively, from the comparable periods of 2006. The decrease in operating margin was
primarily due to a decrease in the regions core home sales gross profit percentage of 1,060 and
980 basis points in the three and six months ended March 31, 2007, respectively, compared to the
same periods of 2006. The gross profit declines in our Las Vegas and Hawaii markets had the
greatest impact on the overall decreases. In addition, the recording of earnest money and
pre-acquisition cost write-offs of $1.6 million and $10.6 million in the three and six months ended
March 31, 2007, respectively, contributed to the decline in the regions gross profit.
RESULTS
OF OPERATIONS FINANCIAL SERVICES
The following tables set forth key operating and financial data for our financial services
operations, comprising DHI Mortgage and our subsidiary title companies, for the three and six month
periods ended March 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
Six Months Ended March 31, |
|
|
2007 |
|
2006 |
|
% Change |
|
2007 |
|
2006 |
|
% Change |
Number of first-lien loans originated
or brokered by DHI Mortgage for
D.R. Horton homebuyers |
|
|
6,628 |
|
|
|
8,366 |
|
|
|
(21 |
)% |
|
|
13,721 |
|
|
|
14,712 |
|
|
|
(7 |
)% |
Number of homes closed by D.R. Horton |
|
|
9,792 |
|
|
|
12,570 |
|
|
|
(22 |
)% |
|
|
19,994 |
|
|
|
22,461 |
|
|
|
(11 |
)% |
Mortgage capture rate |
|
|
68 |
% |
|
|
67 |
% |
|
|
|
|
|
|
69 |
% |
|
|
66 |
% |
|
|
|
|
Number of total loans originated or
brokered by DHI Mortgage for
D.R. Horton homebuyers |
|
|
8,845 |
|
|
|
11,692 |
|
|
|
(24 |
)% |
|
|
18,998 |
|
|
|
20,490 |
|
|
|
(7 |
)% |
Total number of loans originated or
brokered by DHI Mortgage |
|
|
9,287 |
|
|
|
12,304 |
|
|
|
(25 |
)% |
|
|
20,056 |
|
|
|
21,780 |
|
|
|
(8 |
)% |
Captive business percentage |
|
|
95 |
% |
|
|
95 |
% |
|
|
|
|
|
|
95 |
% |
|
|
94 |
% |
|
|
|
|
Loans sold by DHI Mortgage to third parties |
|
|
8,777 |
|
|
|
11,798 |
|
|
|
(26 |
)% |
|
|
20,405 |
|
|
|
22,613 |
|
|
|
(10 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
|
% Change |
|
|
2007 |
|
|
2006 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
Loan origination fees |
|
$ |
10.3 |
|
|
$ |
13.8 |
|
|
|
(25 |
)% |
|
$ |
24.0 |
|
|
$ |
25.2 |
|
|
|
(5 |
)% |
Sale of servicing rights and gains from
sale of mortgages |
|
|
14.6 |
|
|
|
37.0 |
|
|
|
(61 |
)% |
|
|
50.6 |
|
|
|
68.9 |
|
|
|
(27 |
)% |
Other revenues |
|
|
6.4 |
|
|
|
7.6 |
|
|
|
(16 |
)% |
|
|
12.7 |
|
|
|
15.0 |
|
|
|
(15 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage banking revenues |
|
|
31.3 |
|
|
|
58.4 |
|
|
|
(46 |
)% |
|
|
87.3 |
|
|
|
109.1 |
|
|
|
(20 |
)% |
Title policy premiums, net |
|
|
10.6 |
|
|
|
12.7 |
|
|
|
(17 |
)% |
|
|
21.1 |
|
|
|
23.3 |
|
|
|
(9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
41.9 |
|
|
|
71.1 |
|
|
|
(41 |
)% |
|
|
108.4 |
|
|
|
132.4 |
|
|
|
(18 |
)% |
General and administrative expense |
|
|
38.4 |
|
|
|
49.4 |
|
|
|
(22 |
)% |
|
|
83.4 |
|
|
|
96.8 |
|
|
|
(14 |
)% |
Interest expense |
|
|
6.8 |
|
|
|
7.8 |
|
|
|
(13 |
)% |
|
|
16.4 |
|
|
|
15.9 |
|
|
|
3 |
% |
Other (income) |
|
|
(10.6 |
) |
|
|
(13.4 |
) |
|
|
(21 |
)% |
|
|
(25.9 |
) |
|
|
(27.6 |
) |
|
|
(6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
7.3 |
|
|
$ |
27.3 |
|
|
|
(73 |
)% |
|
$ |
34.5 |
|
|
$ |
47.3 |
|
|
|
(27 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-37-
Financial Services Operating Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentages of Financial Services Revenues |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
March 31, |
|
March 31, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
General and administrative expense |
|
|
91.6 |
% |
|
|
69.5 |
% |
|
|
76.9 |
% |
|
|
73.1 |
% |
Interest expense |
|
|
16.2 |
% |
|
|
11.0 |
% |
|
|
15.1 |
% |
|
|
12.0 |
% |
Other (income) |
|
|
(25.3 |
)% |
|
|
(18.8 |
)% |
|
|
(23.9 |
)% |
|
|
(20.8 |
)% |
Income before income taxes |
|
|
17.4 |
% |
|
|
38.4 |
% |
|
|
31.8 |
% |
|
|
35.7 |
% |
Mortgage Loan Activity
The volume of loans originated and brokered by our mortgage operations is directly related to
the number and value of homes closed by our homebuilding operations. Total first-lien loans
originated or brokered by DHI Mortgage for our homebuyers decreased 21% and 7% in the three and six
months ended March 31, 2007, respectively, from the comparable periods of 2006. These decreases
were lower than the 22% and 11% decreases in the number of homes closed in the three and six months
ended March 31, 2007, respectively, because of an increase in our mortgage capture rate (the
percentage of total home closings by our homebuilding operations for which DHI Mortgage handled the
homebuyers financing). In the three and six-month current year periods, our mortgage capture rate
increased to 68% and 69%, respectively, from 67% and 66% in the comparable prior year periods.
Home closings from our homebuilding operations constituted 95% of DHI Mortgage loan
originations in both the three and six-month periods ended March 31, 2007, compared to 95% and 94%
in the respective prior year periods. Maintaining this rate reflects DHI Mortgages continued focus
on supporting the captive business provided by our homebuilding operations.
The number of loans sold to third-party investors decreased 26% and 10% in the three and six
months ended March 31, 2007, respectively, from the comparable periods of 2006. The decreases were
primarily due to decreases in the number of mortgage loans originated as compared to the prior year
periods.
During the second quarter of fiscal 2007, the market for certain non-traditional mortgage
loans changed substantially, resulting in the reduced availability of some loan products that had
been available to borrowers. These affected loan products were generally characterized by high
combined loan-to-value ratios in combination with less required documentation than traditional
mortgage loans. Such loans had constituted approximately half of our total originations in the
twelve-month period ended March 31, 2007. While the availability of these particular loan products
declined, originations of traditional conforming, conventional loans, and FHA or VA insured loans
increased by the end of our second quarter.
Financial Services Revenues and Expenses
Revenues from the financial services segment decreased 41% and 18%, to $41.9 million and
$108.4 million in the three and six months ended March 31, 2007, respectively, from the comparable
periods of 2006. During the three and six months ended March 31, 2007, gains from the sale of mortgages
were reduced by $13.9 million and $15.6 million, respectively, due to recording loss allowances for
loans held in portfolio and loans held for sale, and reserves for expected losses related to loans
sold with recourse. These increases in the loss allowances and reserves reflect the current market
conditions on non-traditional products as described above, as well as potential repurchase
obligations that exist on certain loans previously sold. The remaining decreases in the three and
six-month periods were primarily due to decreases in the number of mortgage loans originated and
sold. The majority of the revenues associated with our mortgage operations are recognized when the
mortgage loans and related servicing rights are sold to third-party investors.
General and administrative (G&A) expenses associated with financial services decreased 22% and
14%, to $38.4 million and $83.4 million in the three and six months ended March 31, 2007,
respectively, from the comparable periods of 2006. The largest component of our financial services
G&A expenses is employee compensation and related costs, which represented approximately 75% of G&A
costs in all four periods presented. Those costs
-38-
decreased 25%, to $28.3 million and 16% to $62.8 million in the three and six months ended
March 31, 2007, respectively, compared to the respective prior year periods, primarily due to
reductions in the number of employees to be in line with current and anticipated loan origination
and title service levels. Our financial services operations employed approximately 1,300 and 1,800
employees at March 31, 2007 and 2006, respectively. As a percentage of financial services revenues,
G&A expenses in the three and six-month periods ended March 31, 2007 increased 2,210 basis points,
to 91.6%, and 380 basis points, to 76.9%, respectively, from the comparable periods of 2006. These
increases were primarily due to the reduction in revenue related to the increases in the loss
allowances and reserves discussed above.
RESULTS OF OPERATIONS CONSOLIDATED
Income Before Income Taxes
Income before income taxes for the three months ended March 31, 2007 decreased 85% from the
comparable period of 2006, to $83.4 million. Income before income taxes for the six months ended
March 31, 2007 decreased 76% from the comparable period of 2006, to $260.4 million. As a percentage
of revenues, income before income taxes for the three months ended March 31, 2007 was 3.1%, a
decrease of 1,270 basis points from the comparable period of 2006. As a percentage of revenues,
income before income taxes for the six months ended March 31, 2007 was 4.7%, a decrease of 1,170
basis points from the comparable period of 2006. The primary factor contributing to these changes
was homebuildings pre-tax operating margin, which decreased 1,250 basis points in the three months
ended March 31, 2007, and 1,180 basis points in the six months ended March 31, 2007, from the
comparable periods of 2006.
Provision for Income Taxes
The consolidated provision for income taxes for the three and six months ended March 31, 2007
decreased 85% and 76%, respectively, from the comparable periods of 2006, to $31.7 million and
$99.0 million respectively, due to the corresponding decrease in income before income taxes. The
effective income tax rate was 38.0% in all four periods.
CAPITAL RESOURCES AND LIQUIDITY
We have 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. As we utilize our capital resources and liquidity to fund our operations, we have
focused on maintaining a strong balance sheet.
At March 31, 2007, our ratio of net homebuilding debt to total capital was 40.9%, increasing
slightly from 40.7% at September 30, 2006, but decreasing from 43.9% at March 31, 2006. Net
homebuilding debt to total capital consists of homebuilding notes payable net of cash divided by
total capital net of cash (homebuilding notes payable net of cash plus stockholders equity).
Homebuilding notes payable does not include the balance of liabilities, if any, associated with
consolidated land inventory not owned. Our target operating range for net homebuilding debt to
total capital is below 45%, so the 40.9% at March 31, 2007 is in line with our operating target. We
remain focused on maintaining our liquidity and strengthening our balance sheet so we can be
flexible in reacting to market conditions.
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
debt is substantially collateralized and not guaranteed by our parent company or any of our
homebuilding entities. Because of its capital function, we include homebuilding cash as a reduction
of our homebuilding debt and total capital. For comparison to our ratios of net homebuilding debt
to capital above, at March 31, 2007 and 2006, and at September 30, 2006, our ratios of homebuilding
debt to total capital, without netting cash balances, were 41.3%, 44.9%, and 43.1%, respectively.
We believe that we will be able to continue to fund our homebuilding and financial services
operations and our future cash needs (including debt maturities) through a combination of our
existing cash resources, cash flows from operations, our existing or renewed credit facilities and,
if needed, the issuance of new debt securities through the public capital markets.
-39-
Homebuilding Capital Resources
Cash and Cash Equivalents At March 31, 2007, we had available homebuilding cash and cash
equivalents of $68.2 million.
Bank Credit Facility During November 2006, we increased the size of our $2.15 billion
unsecured revolving credit facility, which includes a $1.0 billion letter of credit sub-facility,
to $2.5 billion and extended its maturity by one year to December 16, 2011. The revolving credit
facility has an uncommitted $400 million accordion provision which could be used to increase the
facility to $2.9 billion. The facility is guaranteed by substantially all of our wholly-owned
subsidiaries other than our financial services subsidiaries. We borrow funds through the revolving
credit facility throughout the year to fund working capital requirements, and we repay such
borrowings with cash generated from our operations and from the issuance of public debt securities.
We had $500.0 million in cash borrowings outstanding on our homebuilding revolving credit
facility at March 31, 2007, and $800.0 million in cash borrowings outstanding at September 30,
2006. Under the debt covenants associated with our revolving credit facility, if we have fewer than
two investment grade senior unsecured debt ratings from Moodys Investors Service, Fitch Ratings
and Standard and Poors Corporation, our additional homebuilding borrowing capacity under the
facility is limited to the lesser of the unused portion of the facility, $1.9 billion at March 31,
2007, or an amount determined under a borrowing base arrangement. Under the borrowing base
limitation, the sum of our senior debt and the amount drawn on our revolving credit facility may
not exceed certain percentages of the various categories of our unencumbered inventory. We
currently hold investment grade ratings from all three rating agencies, so the borrowing base
limitation is not currently in effect.
Our revolving credit facility also imposes restrictions on our operations and activities,
including limits on investments, cash dividends, stock repurchases and incurrence of indebtedness,
and requires maintenance of a maximum leverage ratio, a minimum level of tangible net worth and a
minimum ratio of earnings before income taxes, depreciation,
amortization, asset valuation adjustments and noncash gains and losses to interest incurred. At
March 31, 2007, we were in compliance with all of the covenants, limitations and restrictions that
form a part of our bank revolving credit facility and our public debt obligations. Our continued
borrowing availability depends on our ability to remain in compliance with these covenants,
limitations and restrictions. Additionally, if it appears that we will not be able to comply with
these requirements in the future, the debt rating agencies could issue a negative outlook on, or
downgrade, our debt rating, which could make it more difficult and expensive to obtain additional
financing.
Repayments of Public Unsecured Debt In March 2007, we called for redemption our 8.5% senior
notes due 2012. The notes were redeemed on April 15, 2007 at an aggregate price of approximately
$260.6 million, plus accrued interest. Concurrent with the redemption, we recorded a loss related
to the early retirement of debt of approximately $12.1 million in April 2007, representing the call
premium and the unamortized discount and fees related to the redeemed notes. We used proceeds from
our revolving credit facility for the redemption.
Shelf Registration Statements We have an automatically effective universal shelf
registration statement filed with the Securities and Exchange Commission, registering debt and
equity securities which we may issue from time to time in amounts to be determined. Also, at March
31, 2007, we had the capacity to issue approximately 22.5 million shares of common stock under our
acquisition shelf registration statement, to effect, in whole or in part, possible future business
acquisitions.
Financial Services Capital Resources
Cash and Cash Equivalents At March 31, 2007, we had available financial services cash and
cash equivalents of $150.4 million.
Mortgage Warehouse Loan Facility Our wholly-owned mortgage company has a $540 million
mortgage warehouse loan facility that was renewed on March 30, 2007 to extend its maturity from
April 6, 2007 to March 28, 2008. Under the accordion provision of the credit agreement, the total
capacity may be increased to $750 million upon consent of the lenders. At March 31, 2007, we had
borrowings of $138.1 million outstanding under the mortgage warehouse facility.
-40-
Our borrowing capacity under this facility is limited to the lesser of the unused portion of
the facility or an amount determined under a borrowing base arrangement. Under the borrowing base
limitation, the amount that may be drawn on our mortgage warehouse facility varies based upon the
underlying loan product of each eligible mortgage loan. Substantially all of our mortgage
originations are eligible, with advance rates typically ranging from 95% to 98% of the unpaid
principal balance of each loan.
Commercial Paper Conduit Facility Our wholly-owned mortgage company also has an $800 million
commercial paper conduit facility (the CP conduit facility) that matures June 27, 2009, subject
to the annual renewal of the 364-day backup liquidity feature. This credit facility, which
previously had a capacity of $1.2 billion, was amended in December 2006 to reduce the capacity to
$800 million, adjusting its size to seasonal volume levels. At March 31, 2007, we had borrowings of
$370.0 million outstanding under the CP conduit facility.
In the past, we have been able to renew or extend the mortgage warehouse loan facility and the
CP conduit facility on satisfactory terms prior to their maturities and obtain temporary additional
commitments through amendments of the respective credit agreements during periods of higher than
normal volumes of mortgages held for sale. Although we do not anticipate any problems in renewing
or extending these facilities or obtaining temporary additional commitments in the future, the
liquidity of our financial services business depends upon our continued ability to do so.
The mortgage warehouse loan facility and the CP conduit facility are not guaranteed by either
D.R. Horton, Inc. or any of the subsidiaries that guarantee our homebuilding debt. Borrowings under
both facilities are secured by certain mortgage loans held for sale. Additionally, at September 30,
2006, borrowings under the CP conduit facility were secured by restricted cash arising from
borrowings under the facility prior to the assignment of mortgage loans held for sale as
collateral. At March 31, 2007, there were no borrowings under the facility prior to the assignment
of mortgage loans held for sale, and therefore, no cash was restricted under this facility. The
mortgage loans assigned to secure the CP conduit facility are used as collateral for asset-backed
commercial paper issued by multi-seller conduits in the commercial paper market. At March 31, 2007,
our mortgage loans held for sale totaled $568.6 million. All mortgage company activities are
financed with the mortgage warehouse facility, the CP conduit facility or internally generated
funds. Both of our financial services credit facilities contain financial covenants as to our
mortgage subsidiarys minimum required tangible net worth, its maximum allowable ratio of debt to
tangible net worth and its minimum required net income. At March 31, 2007, our mortgage subsidiary
was in compliance with all of these covenants.
Operating Cash Flow Activities
For the six months ended March 31, 2007, net cash provided by our operating activities was
$473.8 million, as compared to $1.3 billion of cash used in such activities during the comparable
period of the prior year. The net cash provided by operations for the six months ended March 31,
2007 was primarily the result of cash provided from net income and decreases in mortgage loans held
for sale and home inventories, offset by cash used to reduce accounts payable and other liabilities
and to increase residential land and lot inventories.
The principal reason for the increase in operating cash flows for the six months ended March
31, 2007 was our decision to limit our investment in inventory as evidenced by only a $4.2 million
increase in owned inventory in the period, compared to a $2.4 billion cash investment for inventory
growth in the same period of 2006. In light of the challenging market conditions, we have
substantially slowed our purchases of land and lots and restricted the number of homes under
construction to reduce our inventory to better match our current rate of home sales. We do continue
to invest in the development of land that we own in order to provide lots for our expected future
home sales and closings. Our ability to reduce our inventory levels in the near term is, however,
partially dependent upon our ability to close a sufficient number of homes in the next few
quarters. To the extent our inventory levels decrease during the remainder of fiscal 2007, we
expect continued net positive cash flows from operating activities, assuming all other factors
remain constant.
Another significant factor affecting our operating cash flows for the six months ended March
31, 2007 was the decrease in mortgage loans held for sale of $454.3 million during the period. The
decrease in mortgage loans held for sale was due to a decrease in the number of loans originated
during the second quarter of fiscal 2007 compared to the fourth quarter of fiscal 2006. We expect
to continue to use cash to fund an increase in mortgage loans held for sale in quarters when our
homebuilding closings grow. However, in periods when home closings are flat or decline
-41-
as compared to prior periods, or if our mortgage capture rate declines, the amounts of net
cash used may be reduced or we may generate positive cash flows from reductions in the balances of
mortgage loans held for sale.
Investing Cash Flow Activities
For the six months ended March 31, 2007 and 2006, cash used in investing activities
represented net purchases of property and equipment, primarily model home furniture and office
equipment. Such purchases are not significant relative to our total assets or cash flows and
typically do not vary significantly from period to period.
Financing Cash Flow Activities
The majority of our short-term financing needs are funded with cash generated from operations
and borrowings available under our homebuilding and financial services credit facilities. Long-term
financing needs are generally funded with the issuance of new senior unsecured debt securities
through the public capital markets. Our homebuilding senior and senior subordinated notes and
borrowings under our homebuilding revolving credit facility are guaranteed by substantially all of
our wholly-owned subsidiaries other than our financial services subsidiaries.
During the three months ended March 31, 2007, our Board of Directors declared a quarterly cash
dividend of $0.15 per common share, which was paid on February 9, 2007 to stockholders of record on
January 26, 2007. A quarterly cash dividend of $0.10 per common share was declared during the three
months ended March 31, 2006.
In April 2007, our Board of Directors declared a quarterly cash dividend of $0.15 per common
share, payable on May 18, 2007 to stockholders of record on May 4, 2007. A quarterly cash dividend
of $0.10 per common share was declared in the comparable quarter of fiscal 2006.
Changes in Capital Structure
In November 2006, our Board of Directors authorized the repurchase of up to $463.2 million of
the Companys common stock and the repurchase of debt securities of up to $500 million. These
authorizations replaced the previous common stock and debt securities repurchase authorizations.
Additionally, both authorizations were extended to November 30, 2007. As of March 31, 2007, the
full amount of both authorizations remained available for repurchases.
OTHER COMMITMENTS
In the normal course of business, we provide standby letters of credit and surety bonds,
issued by third parties, to secure performance under various contracts. At March 31, 2007,
outstanding standby letters of credit and surety bonds, the majority of which mature in less than
one year, were $124.8 million and $2.4 billion, respectively.
-42-
LAND AND LOT POSITION AND HOMES IN INVENTORY
The following is a summary of our land and lot position and homes in inventory at March 31,
2007 and September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2007 |
|
As of September 30, 2006 |
|
|
|
|
|
|
Lots |
|
|
|
|
|
|
|
|
|
|
|
|
|
Lots |
|
|
|
|
|
|
|
|
|
|
Controlled |
|
|
|
|
|
|
|
|
|
|
|
|
|
Controlled |
|
|
|
|
|
|
Lots Owned |
|
Under Lot |
|
Total |
|
|
|
|
|
Lots Owned |
|
Under Lot |
|
Total |
|
|
|
|
Developed |
|
Option and |
|
Land/Lots |
|
Homes |
|
Developed |
|
Option and |
|
Land/Lots |
|
Homes |
|
|
and Under |
|
Similar |
|
Owned and |
|
in |
|
and Under |
|
Similar |
|
Owned and |
|
in |
|
|
Development |
|
Contracts |
|
Controlled |
|
Inventory |
|
Development |
|
Contracts |
|
Controlled |
|
Inventory |
Northeast |
|
|
21,000 |
|
|
|
23,000 |
|
|
|
44,000 |
|
|
|
3,600 |
|
|
|
22,000 |
|
|
|
31,000 |
|
|
|
53,000 |
|
|
|
4,200 |
|
Southeast |
|
|
30,000 |
|
|
|
20,000 |
|
|
|
50,000 |
|
|
|
4,700 |
|
|
|
32,000 |
|
|
|
33,000 |
|
|
|
65,000 |
|
|
|
5,200 |
|
South Central |
|
|
32,000 |
|
|
|
22,000 |
|
|
|
54,000 |
|
|
|
6,400 |
|
|
|
34,000 |
|
|
|
36,000 |
|
|
|
70,000 |
|
|
|
7,400 |
|
Southwest |
|
|
46,000 |
|
|
|
10,000 |
|
|
|
56,000 |
|
|
|
5,400 |
|
|
|
52,000 |
|
|
|
12,000 |
|
|
|
64,000 |
|
|
|
5,800 |
|
California |
|
|
16,000 |
|
|
|
12,000 |
|
|
|
28,000 |
|
|
|
3,800 |
|
|
|
19,000 |
|
|
|
15,000 |
|
|
|
34,000 |
|
|
|
3,900 |
|
West |
|
|
31,000 |
|
|
|
3,000 |
|
|
|
34,000 |
|
|
|
2,200 |
|
|
|
31,000 |
|
|
|
6,000 |
|
|
|
37,000 |
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,000 |
|
|
|
90,000 |
|
|
|
266,000 |
|
|
|
26,100 |
|
|
|
190,000 |
|
|
|
133,000 |
|
|
|
323,000 |
|
|
|
28,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
% |
|
|
34 |
% |
|
|
100 |
% |
|
|
|
|
|
|
59 |
% |
|
|
41 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 a minimal capital investment and substantially reduce the risks
associated with land ownership and development. At March 31, 2007, we owned or controlled
approximately 266,000 lots, 34% of which were lots under option or similar contracts, compared with
approximately 323,000 lots at September 30, 2006.
At March 31, 2007, we controlled approximately 90,000 lots with a total remaining purchase
price of approximately $2.6 billion under land and lot option purchase contracts, with a total of
$163.8 million in earnest money deposits. Our lots controlled include approximately 19,000 optioned
lots with a remaining purchase price of approximately $609 million for which we do not expect to
exercise our option to purchase the land or lots, but the contract has not yet been terminated.
Therefore, we have written off $26.8 million in earnest money deposits related to these 19,000
lots, resulting in a net earnest money deposit balance of $137.0 million at March 31, 2007.
Within the land and lot option purchase contracts in force at March 31, 2007, there were a
limited number of contracts, representing only $39.7 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. Additionally, pursuant to the provisions of Interpretation No.
46, Consolidation of Variable Interest Entities an interpretation of ARB No. 51 as amended (FIN
46), issued by the Financial Accounting Standards Board (FASB), we consolidated certain variable
interest entities with assets of $96.9 million related to some of our outstanding land and lot
option purchase contracts.
At March 31, 2007, we had a total of approximately 26,100 homes in inventory, including
approximately 2,100 model homes and approximately 1,300 unsold homes that had been completed for
more than six months. At September 30, 2006, we had a total of approximately 28,500 homes in
inventory, including approximately 1,900 model homes and approximately 440 unsold homes that had
been completed for more than six months. Of our total homes in inventory, 46% and 50% were unsold
at March 31, 2007 and September 30, 2006, respectively. Of our unsold homes in inventory,
approximately 4,300 were completed at March 31, 2007 and approximately 5,000 were completed at
September 30, 2006.
CRITICAL ACCOUNTING POLICIES
As disclosed in our annual report on Form 10-K for the fiscal year ended September 30, 2006,
our most critical accounting policies relate to revenue recognition, inventories and cost of sales,
the consolidation of variable interest entities, warranty and insurance claim costs, goodwill,
income taxes and stock-based compensation. Since September 30, 2006, there have been no significant
changes to the assumptions and estimates related to those critical accounting policies.
-43-
SEASONALITY
We have typically experienced seasonal variations in our quarterly operating results and
capital requirements. In prior years, 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, our results of operations and financial position at the end of the second fiscal quarter
were not necessarily representative of the balance of our fiscal year.
In fiscal 2006, 57% of our consolidated revenues was attributable to operations in the third
and fourth fiscal quarters. In contrast to our typical seasonal results, due to softening
homebuilding market conditions during fiscal 2006, only 46% of our consolidated operating income
was attributable to operations in the third and fourth fiscal quarters. This decrease was primarily
due to the increased use of incentives to sell homes and inventory impairment charges and land
option cost write-offs recorded during the third and fourth quarters of fiscal 2006. Given the
current market conditions, we can make no assurances that our typical historical seasonal patterns
of increased revenues and operating income will continue in our third and fourth quarters of fiscal
2007.
SAFE HARBOR STATEMENT AND RISKS
Some of the statements contained in this report, as well as in other materials we have filed
or will file with the Securities and Exchange Commission, statements made by us in periodic press
releases and oral statements 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 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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changes in general economic, real estate construction and other business conditions; |
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changes in interest rates, the availability of mortgage financing or the effective
cost of owning a home; |
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the effects of governmental regulations and environmental matters; |
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our substantial debt; |
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competitive conditions within our industry; |
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the availability of capital; |
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our ability to effect our growth strategies successfully; and |
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the uncertainties inherent in home warranty and construction defect claims matters. |
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 our annual report on Form
10-K, including the section entitled Risk Factors, which is filed with the Securities and
Exchange Commission.
-44-
ITEM 3. 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. We have
mitigated our exposure to changes in interest rates on our variable rate bank debt by entering into
interest rate swap agreements to obtain a fixed interest rate for a portion of the variable rate
borrowings. We generally 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.
Our interest rate swaps are not designated as hedges under SFAS No. 133. We are exposed to
market risk associated with changes in the fair values of the swaps, and such changes must be
reflected in our income statements.
Our mortgage company is exposed to interest rate risk associated with its mortgage loan
origination services. 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
investor through the use of best-efforts whole loan delivery commitments, while other IRLCs are
funded prior to being committed to third-party investors. We manage interest rate risk related to
uncommitted IRLCs through the use of forward sales of mortgage-backed securities (FMBS) and the
purchase of Eurodollar Futures Contracts (EDFC) on certain loan types. FMBS and EDFC related to
IRLCs are classified and accounted for as non-designated derivative instruments, with gains and
losses recognized in current earnings. FMBS and EDFC related to funded, uncommitted loans are
designated as fair value hedges, with changes in the value of the derivative instruments recognized
in current earnings, along with changes in the value of the funded, uncommitted loans. The
effectiveness of the fair value hedges is continuously monitored and any ineffectiveness, which for
the three and six months ended March 31, 2007 and 2006 was not significant, is recognized in
current earnings. At March 31, 2007, FMBS, EDFC and put options on both EDFC and mortgage-backed
securities (MBS) to mitigate interest rate risk related to uncommitted mortgage loans held for sale
and uncommitted IRLCs totaled $389.8 million. Uncommitted IRLCs, the duration of which are
generally less than six months, totaled approximately $207.9 million, and uncommitted mortgage
loans held for sale totaled approximately $70.6 million at March 31, 2007. The fair value of the
FMBS, EDFC and IRLCs at March 31, 2007 was an insignificant amount.
In an effort to stimulate home sales by potentially offering homebuyers a below market
interest rate on their home financing, we began a program during the third quarter of fiscal 2006
which protects us from future increases in interest rates related to potential mortgage
originations. To accomplish this, we purchase forward rate agreements (FRAs) and economic interest
rate hedges in the form of FMBS and put options on both EDFC and MBS. Additionally, during the
second quarter of fiscal 2007, in response to heightened volatility in the secondary mortgage
markets, we entered into FRAs to secure the delivery and sale of potential non-traditional mortgage
originations, characterized by high combined loan-to-value ratios in combination with less required
documentation. These FRAs generally related to loan commitments for borrowers with sales contracts
in our homebuilding backlog. At March 31, 2007, these potential mortgage loan originations totaled
approximately $132.5 million. The notional amount of the FRAs was $105.7 million, while the
remaining $26.8 million in mortgage loan commitments was hedged with economic interest rate hedges
of $398.8 million in EDFC put options and $6.4 million in MBS put options. Both the FRAs and
economic interest rate hedges have various maturities not exceeding twelve months. These
instruments are considered non-designated derivatives and are accounted for at fair value with
gains and losses recognized in current earnings. The gains and losses for the three and six months
ended March 31, 2007 were not significant.
-45-
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 March 31, 2007. The interest
rates for our variable rate debt represent the weighted average interest rates in effect at March
31, 2007. In addition, the table sets forth the notional amounts, weighted average interest rates
and estimated fair value of our interest rate swaps. Because the mortgage warehouse credit facility
and CP conduit facility are secured by certain mortgage loans held for sale which are typically
sold within 60 days, the outstanding balances at March 31, 2007 are included in the variable rate
maturities for the six months ended September 30, 2007.
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Six Months |
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Ending |
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Fair value |
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September 30, |
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Fiscal Year Ending September 30, |
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at |
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2007 |
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2008 |
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2009 |
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2010 |
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2011 |
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2012 |
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Thereafter |
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Total |
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3/31/07 |
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($ in millions) |
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Debt: |
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Fixed rate |
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$ |
278.7 |
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$ |
221.9 |
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$ |
592.8 |
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$ |
409.0 |
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$ |
450.0 |
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$ |
314.6 |
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$ |
1,850.0 |
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$ |
4,117.0 |
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$ |
4,070.7 |
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Average interest rate |
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8.6 |
% |
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7.6 |
% |
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7.3 |
% |
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6.9 |
% |
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7.0 |
% |
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5.4 |
% |
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6.1 |
% |
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6.7 |
% |
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Variable rate |
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$ |
508.1 |
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$ |
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$ |
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$ |
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$ |
500.0 |
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$ |
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$ |
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$ |
1,008.1 |
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$ |
1,008.1 |
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Average interest rate |
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5.7 |
% |
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6.1 |
% |
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5.9 |
% |
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Interest Rate Swaps: |
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Variable to fixed |
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$ |
200.0 |
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$ |
200.0 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Average pay rate |
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5.1 |
% |
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5.0 |
% |
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Average
receive rate |
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90-day
LIBOR |
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ITEM 4. 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) 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.
There have been no changes in the Companys internal controls over financial reporting during
the quarter ended March 31, 2007 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
-46-
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) At the Companys Annual Meeting of Stockholders held on January 25, 2007 (the Annual
Meeting), the stockholders re-elected each of the seven members of the Board of Directors of the
Company to serve until the Companys next annual meeting of stockholders and until their respective
successors are elected and qualified. The names of the seven directors, the number of votes cast
for and the number of votes withheld were as follows:
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Name |
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Votes For |
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Votes Withheld |
Donald R. Horton
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268,101,176 |
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14,085,030 |
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Bradley S. Anderson
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268,825,730 |
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13,360,476 |
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Michael R. Buchanan
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271,805,226 |
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10,380,980 |
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Richard I. Galland
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260,053,224 |
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22,132,982 |
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Michael W. Hewatt
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273,243,132 |
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8,943,074 |
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Donald J. Tomnitz
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269,798,861 |
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12,387,345 |
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Bill W. Wheat
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256,548,585 |
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25,637,621 |
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(b) At the Annual Meeting, the stockholders voted against a stockholder proposal concerning a
majority vote standard for the election of directors. The number of votes cast for and against the
proposal and the number of abstentions and broker non-votes were as follows:
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Votes For |
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Votes Against |
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Abstained |
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Broker Non-Votes |
103,868,714
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143,808,050
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1,783,804
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32,725,638 |
ITEM 5. OTHER INFORMATION
During our second quarter of fiscal 2007, we entered into a Second Amendment to our Revolving Credit
Agreement, which is filed herewith as Exhibit 10.2 and is incorporated by reference into this Item
5. The primary purposes of the Second Amendment were to clarify the definition of EBITDA and to
adjust our interest coverage ratio covenant threshold in line with other investment grade
homebuilding companies.
-47-
ITEM 6. EXHIBITS
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3.1 |
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Certificate of Amendment of the Amended and Restated Certificate
of Incorporation, as amended, of the Company dated January 31,
2006, and the Amended and Restated Certificate of Incorporation,
as amended, of the Company dated March 18, 1992. (1) |
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3.2 |
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Amended and Restated Bylaws of the Company. (2) |
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10.1 |
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First Amendment to Second Amended and Restated Credit Agreement
and to Second Amended and Restated Pledge and Security Agreement
between DHI Mortgage Company, Ltd. and U.S. Bank National
Association, JPMorgan Chase Bank and Lenders dated March 30, 2007.
(3) |
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10.2 |
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Second Amendment to Revolving Credit Agreement, dated March 14,
2007, among the Registrant, and Wachovia Bank, National
Association, as Administrative Agent, and the Guarantors and
Lenders named therein. (*) |
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31.1 |
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Certificate of Chief Executive Officer provided pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002. (*) |
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31.2 |
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Certificate of Chief Financial Officer provided pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002. (*) |
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32.1 |
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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 Companys Chief Executive Officer. (*) |
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32.2 |
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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 Companys Chief Financial Officer. (*) |
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* |
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Filed herewith. |
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(1) |
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Incorporated by reference from Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for
the quarter ended December 31, 2005, filed with the SEC on February 2, 2006. |
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(2) |
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Incorporated by reference from Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for
the quarter ended December 31, 1998, filed with the SEC on February 16, 1999. |
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(3) |
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Incorporated by reference from Exhibit 10.1 to the Companys Current Report on Form 8-K dated
March 30, 2007 and filed with the SEC on April 5, 2007. |
-48-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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D.R. HORTON, INC.
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Date: May 4, 2007 |
By: |
/s/ Bill W. Wheat
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Bill W. Wheat, on behalf of D.R. Horton, Inc., |
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as Executive Vice President and
Chief Financial Officer (Principal Financial and
Principal Accounting Officer) |
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-49-