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 June 30, 2011
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
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(I.R.S. Employer Identification No.) |
or organization) |
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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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ | |
Accelerated filer o | |
Non-accelerated filer o | |
Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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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, $.01 par value 316,016,099 shares as of July 25, 2011
D.R. HORTON, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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June 30, |
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September 30, |
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2011 |
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2010 |
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(In millions) |
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(Unaudited) |
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ASSETS |
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Homebuilding: |
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Cash and cash equivalents |
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$ |
824.2 |
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$ |
1,282.6 |
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Marketable securities, available-for-sale |
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297.1 |
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297.7 |
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Restricted cash |
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50.4 |
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53.7 |
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Inventories: |
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Construction in progress and finished homes |
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1,427.6 |
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1,286.0 |
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Residential land and lots developed and under development |
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1,336.3 |
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1,406.1 |
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Land held for development |
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736.9 |
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749.3 |
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Land inventory not owned |
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7.6 |
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3,500.8 |
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3,449.0 |
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Income taxes receivable |
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14.0 |
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16.0 |
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Deferred income taxes, net of valuation allowance of $849.0 million
and $902.6 million at June 30, 2011 and September 30, 2010, respectively |
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Property and equipment, net |
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58.9 |
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60.5 |
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Other assets |
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391.2 |
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434.8 |
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Goodwill |
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15.9 |
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15.9 |
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5,152.5 |
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5,610.2 |
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Financial Services: |
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Cash and cash equivalents |
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16.8 |
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26.7 |
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Mortgage loans held for sale |
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286.2 |
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253.8 |
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Other assets |
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49.3 |
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47.9 |
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352.3 |
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328.4 |
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Total assets |
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$ |
5,504.8 |
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$ |
5,938.6 |
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LIABILITIES |
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Homebuilding: |
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Accounts payable |
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$ |
181.7 |
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$ |
135.1 |
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Accrued expenses and other liabilities |
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812.4 |
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957.2 |
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Notes payable |
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1,764.1 |
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2,085.3 |
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2,758.2 |
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3,177.6 |
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Financial Services: |
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Accounts payable and other liabilities |
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36.7 |
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51.6 |
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Mortgage repurchase facility |
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116.3 |
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86.5 |
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153.0 |
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138.1 |
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Total liabilities |
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2,911.2 |
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3,315.7 |
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Commitments and contingencies (Note M) |
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EQUITY |
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Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued |
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Common stock, $.01 par value, 1,000,000,000 shares authorized, 323,166,103
shares
issued and 315,966,032 shares outstanding at June 30, 2011 and
322,478,467 shares
issued and 318,823,234 shares outstanding at September 30,
2010 |
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3.2 |
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3.2 |
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Additional paid-in capital |
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1,911.6 |
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1,894.8 |
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Retained earnings |
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810.7 |
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810.6 |
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Treasury stock, 7,200,071 shares at June 30, 2011
and 3,655,233 shares at September 30, 2010, at cost |
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(134.3 |
) |
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(95.7 |
) |
Accumulated other comprehensive income |
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0.3 |
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0.3 |
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Total stockholders equity |
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2,591.5 |
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2,613.2 |
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Noncontrolling interests |
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2.1 |
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9.7 |
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Total equity |
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2,593.6 |
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2,622.9 |
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Total liabilities and equity |
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$ |
5,504.8 |
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$ |
5,938.6 |
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See accompanying notes to consolidated financial statements.
-3-
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months Ended |
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Nine Months Ended |
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June 30, |
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June 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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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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$ |
974.5 |
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$ |
1,378.2 |
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$ |
2,468.6 |
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$ |
3,381.1 |
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Land/lot sales |
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0.9 |
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0.1 |
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6.9 |
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2.9 |
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975.4 |
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1,378.3 |
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2,475.5 |
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3,384.0 |
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Cost of sales: |
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Home sales |
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813.5 |
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1,141.1 |
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2,069.9 |
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2,793.5 |
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Land/lot sales |
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0.7 |
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0.1 |
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6.7 |
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2.2 |
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Inventory impairments and land option cost
write-offs |
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9.9 |
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30.3 |
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32.6 |
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33.9 |
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824.1 |
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1,171.5 |
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2,109.2 |
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2,829.6 |
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Gross profit: |
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Home sales |
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161.0 |
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237.1 |
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398.7 |
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587.6 |
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Land/lot sales |
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0.2 |
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0.2 |
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0.7 |
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Inventory impairments and land option cost
write-offs |
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(9.9 |
) |
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(30.3 |
) |
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(32.6 |
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(33.9 |
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151.3 |
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206.8 |
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366.3 |
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554.4 |
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Selling, general and administrative expense |
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113.7 |
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143.5 |
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355.8 |
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401.2 |
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Interest expense |
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10.1 |
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19.6 |
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41.0 |
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69.3 |
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Loss on early retirement of debt, net |
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6.5 |
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8.3 |
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10.7 |
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6.7 |
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Other (income) |
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(1.2 |
) |
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(2.0 |
) |
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(6.8 |
) |
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(7.4 |
) |
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22.2 |
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37.4 |
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(34.4 |
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84.6 |
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Financial Services: |
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Revenues, net of recourse and reinsurance expense |
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23.8 |
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27.8 |
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63.0 |
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67.7 |
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General and administrative expense |
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19.3 |
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21.2 |
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56.4 |
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57.2 |
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Interest expense |
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0.3 |
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0.7 |
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0.7 |
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1.4 |
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Interest and other (income) |
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(2.5 |
) |
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(3.0 |
) |
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(6.7 |
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(7.5 |
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6.7 |
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8.9 |
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12.6 |
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16.6 |
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Income (loss) before income taxes |
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28.9 |
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46.3 |
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(21.8 |
) |
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101.2 |
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Provision for (benefit from) income taxes |
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0.2 |
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(4.2 |
) |
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(57.8 |
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(152.7 |
) |
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Net income |
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$ |
28.7 |
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$ |
50.5 |
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$ |
36.0 |
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$ |
253.9 |
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Basic net income per common share |
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$ |
0.09 |
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$ |
0.16 |
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$ |
0.11 |
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$ |
0.80 |
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Net income per common share assuming dilution |
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$ |
0.09 |
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$ |
0.16 |
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$ |
0.11 |
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$ |
0.78 |
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Cash dividends declared per common share |
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$ |
0.0375 |
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$ |
0.0375 |
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$ |
0.1125 |
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$ |
0.1125 |
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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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Nine Months Ended |
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June 30, |
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2011 |
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2010 |
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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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$ |
36.0 |
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$ |
253.9 |
|
Adjustments to reconcile net income to net cash
(used in) provided by operating activities: |
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Depreciation |
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14.9 |
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13.6 |
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Amortization of discounts and fees |
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27.6 |
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22.2 |
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Stock based compensation expense |
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9.9 |
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9.7 |
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Income tax benefit from stock option exercises |
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(2.9 |
) |
Loss on early retirement of debt, net |
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10.7 |
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6.7 |
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Gain on sale of marketable securities |
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(0.1 |
) |
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Inventory impairments and land option cost write-offs |
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32.6 |
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33.9 |
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Changes in operating assets and liabilities: |
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(Increase) decrease in construction in progress and finished homes |
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(148.2 |
) |
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26.6 |
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Decrease in residential land and lots developed,
under development, and held for development |
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34.7 |
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35.9 |
|
Decrease in other assets |
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39.3 |
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15.3 |
|
Decrease in income taxes receivable |
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2.0 |
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260.5 |
|
Increase in mortgage loans held for sale |
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(32.4 |
) |
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(95.3 |
) |
(Decrease) increase in accounts payable, accrued expenses and other liabilities |
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(102.3 |
) |
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7.0 |
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Net cash (used in) provided by operating activities |
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(75.3 |
) |
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587.1 |
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INVESTING ACTIVITIES |
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Purchases of property and equipment |
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(12.8 |
) |
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(15.6 |
) |
Purchases of marketable securities |
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(259.7 |
) |
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(299.4 |
) |
Proceeds from the sale or maturity of marketable securities |
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254.7 |
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Decrease (increase) in restricted cash |
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3.3 |
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(3.6 |
) |
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Net cash used in investing activities |
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(14.5 |
) |
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(318.6 |
) |
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FINANCING ACTIVITIES |
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Proceeds from notes payable |
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29.8 |
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|
83.8 |
|
Repayment of notes payable |
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(336.5 |
) |
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(888.8 |
) |
Proceeds from stock associated with certain employee benefit plans |
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2.7 |
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4.6 |
|
Income tax benefit from stock option exercises |
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2.9 |
|
Cash dividends paid |
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(35.9 |
) |
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(35.8 |
) |
Purchase of treasury stock |
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(38.6 |
) |
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Net cash used in financing activities |
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(378.5 |
) |
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(833.3 |
) |
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DECREASE IN CASH AND CASH EQUIVALENTS |
|
|
(468.3 |
) |
|
|
(564.8 |
) |
Cash and cash equivalents at beginning of period |
|
|
1,309.3 |
|
|
|
1,957.3 |
|
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|
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|
Cash and cash equivalents at end of period |
|
$ |
841.0 |
|
|
$ |
1,392.5 |
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|
|
|
|
See accompanying notes to consolidated financial statements.
-5-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2011
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). 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 and
the asset impairment charges, loss reserves and deferred tax asset valuation allowance discussed
below) 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, 2010.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from those estimates.
Reclassifications
Certain reclassifications have been made in the prior years financial statements to conform
to classifications used in the current year. The statement of operations for the three and nine
months ended June 30, 2010 has been revised to reflect the reclassification of depreciation expense
related to rental properties of $0.3 million and $0.9 million, respectively, from homebuilding
other income to selling, general and administrative expense. Additionally, the statement of cash
flows for the nine months ended June 30, 2010 has been revised to reflect this reclassification.
Business
The Company is a national homebuilder that is engaged in the construction and sale of
single-family housing in 71 markets and 26 states in the United States as of June 30, 2011. The
Company designs, builds and sells single-family detached homes on lots it develops and on finished
lots purchased 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. The
Company also provides title agency and mortgage financing services, primarily to its homebuyers.
The Company generally does not retain or service the mortgages that it originates; rather, it seeks
to sell the mortgages and related servicing rights to third-party purchasers.
Seasonality
Historically, the homebuilding industry has experienced seasonal fluctuations; therefore, the
operating results for the three and nine-month periods ended June 30, 2011 are not necessarily
indicative of the results that may be expected for the fiscal year ending September 30, 2011 or
subsequent periods.
-6-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
NOTE B COMPREHENSIVE INCOME
The following table provides a reconciliation of net income reported in the consolidated
statements of operations to comprehensive income for the three and nine-month periods ended June
30, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
(In millions) |
|
Net income |
|
$ |
28.7 |
|
|
$ |
50.5 |
|
|
$ |
36.0 |
|
|
$ |
253.9 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain related
to available-for-sale
securities (see Note C) |
|
|
0.3 |
|
|
|
0.2 |
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
29.0 |
|
|
$ |
50.7 |
|
|
$ |
36.0 |
|
|
$ |
254.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE C MARKETABLE SECURITIES
The Company invests a portion of its cash on hand by purchasing marketable securities with
maturities in excess of three months. These securities are held in the custody of a single
financial institution. The Company considers its investment portfolio to be available-for-sale. The
Companys marketable securities at June 30, 2011 and September 30, 2010 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
|
|
(In millions) |
|
Type of security: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
9.1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9.1 |
|
Obligations of U.S. government agencies |
|
|
73.2 |
|
|
|
0.1 |
|
|
|
|
|
|
|
73.3 |
|
Corporate debt securities issued under the
FDIC Temporary Liquidity Guarantee Program |
|
|
114.0 |
|
|
|
0.1 |
|
|
|
|
|
|
|
114.1 |
|
Corporate debt securities |
|
|
95.5 |
|
|
|
0.1 |
|
|
|
|
|
|
|
95.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
291.8 |
|
|
|
0.3 |
|
|
|
|
|
|
|
292.1 |
|
Certificates of deposit |
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities, available-for-sale |
|
$ |
296.8 |
|
|
$ |
0.3 |
|
|
$ |
|
|
|
$ |
297.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
|
|
(In millions) |
|
Type of security: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
1.0 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1.0 |
|
Obligations of U.S. government agencies |
|
|
131.0 |
|
|
|
0.2 |
|
|
|
|
|
|
|
131.2 |
|
Corporate debt securities issued under the
FDIC Temporary Liquidity Guarantee Program |
|
|
100.9 |
|
|
|
0.1 |
|
|
|
|
|
|
|
101.0 |
|
Corporate debt securities |
|
|
39.9 |
|
|
|
|
|
|
|
|
|
|
|
39.9 |
|
Foreign government securities |
|
|
14.6 |
|
|
|
|
|
|
|
|
|
|
|
14.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
287.4 |
|
|
|
0.3 |
|
|
|
|
|
|
|
287.7 |
|
Certificates of deposit |
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities, available-for-sale |
|
$ |
297.4 |
|
|
$ |
0.3 |
|
|
$ |
|
|
|
$ |
297.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-7-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
Of the $297.1 million in marketable securities at June 30, 2011, $172.1 million mature in the
next twelve months and $125.0 million mature between twelve and twenty-four months. Gains and
losses realized upon the sale of marketable securities are determined by specific identification
and are included in homebuilding other income. The Companys realized gains related to these sales
during the three and nine months ended June 30, 2011 were $0 and $0.1 million, respectively.
NOTE D INVENTORY IMPAIRMENTS AND LAND OPTION COST WRITE-OFFS
At June 30, 2011, when the Company performed its quarterly inventory impairment analysis, the
assumptions utilized reflected the Companys expectation of continued challenging conditions and
uncertainties in the homebuilding industry and in its markets. The impairment evaluation indicated
communities with a combined carrying value of $405.4 million had indicators of potential
impairment, and these communities were evaluated for impairment. The analysis of the large majority
of these communities assumed that sales prices in future periods will be equal to or lower than
current sales order prices in each community, or in comparable communities, in order to generate an
acceptable absorption rate. For a minority of communities that the Company does not intend to
develop or operate in current market conditions, slight increases over current sales prices were
assumed. While it is difficult to determine a timeframe for a given community in the current market
conditions, the remaining lives of these communities were estimated to be in a range from six
months to in excess of ten years. In performing this analysis, the Company utilized a range of
discount rates for communities of 14% to 20%. Through this evaluation process, it was determined
that communities with a carrying value of $28.1 million as of June 30, 2011 were impaired. As a
result, during the three months ended June 30, 2011, impairment charges of $7.8 million were
recorded to reduce the carrying value of the impaired communities to their estimated fair value, as
compared to $29.1 million of impairment charges in the same period of 2010. During the nine months
ended June 30, 2011 and 2010, impairment charges totaled $27.2 million and $33.2 million,
respectively. In the three months ended June 30, 2011, approximately 83% of the impairment charges
were recorded to residential land and lots and land held for development, and approximately 17% of
the charges were recorded to construction in progress and finished homes inventory, compared to 93%
and 7%, respectively, in the same period of 2010. In the nine months ended June 30, 2011,
approximately 76% of the impairment charges were recorded to residential land and lots and land
held for development, and approximately 24% of the charges were recorded to construction in
progress and finished homes inventory, compared to 91% and 9%, respectively, in the same period of
2010.
The Companys estimate of undiscounted cash flows from communities analyzed may change and
could result in a future need to record impairment charges to adjust the carrying value of these
assets to their estimated fair value. There are several factors which could lead to changes in the
estimates of undiscounted future cash flows for a given community. The most significant of these
include pricing and incentive levels actually realized by the community, the rate at which the
homes are sold and the costs incurred to develop the lots and construct the homes. The pricing and
incentive levels are often inter-related with sales pace within a community, such that a price
reduction can typically be expected to increase the sales pace. Further, both of these factors are
heavily influenced by the competitive pressures facing a given community from both new homes and
existing homes, some of which may result from foreclosures. If conditions in the broader economy,
homebuilding industry or specific markets in which the Company operates worsen, and as the Company
re-evaluates specific community pricing and incentives, construction and development plans, and its
overall land sale strategies, it may be required to evaluate additional communities or re-evaluate
previously impaired communities for potential impairment. These evaluations may result in
additional impairment charges.
At June 30, 2011 and September 30, 2010, the Company had $27.5 million and $3.3 million,
respectively, of land held for sale, consisting of land held for development and land under
development that met the criteria of land held for sale.
During the three-month periods ended June 30, 2011 and 2010, the Company wrote off $2.1
million and $1.2 million, respectively, of earnest money deposits and pre-acquisition costs related
to land option contracts which are not expected to be acquired. During the nine-month periods ended
June 30, 2011 and 2010, the Company wrote off $5.4 million and $0.7 million, respectively, of these
deposits and costs.
-8-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
NOTE E LAND INVENTORY NOT OWNED
The Company enters into land and lot option purchase contracts to procure land or lots for the
construction of homes. Under these contracts, the Company will fund a stated deposit in
consideration for the right, but not the obligation, to purchase land or lots at a future point 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.
Certain option purchase contracts result in the creation of a variable interest in the entity
holding the land parcel under option. The current guidance for determining which entity is the
primary beneficiary is based on the ability of an entity to control both (1) the activities of a
variable interest entity that most significantly impact the entitys economic performance and (2)
the obligation to absorb losses of the entity or the right to receive benefits from the entity.
Upon adoption of this guidance on October 1, 2010, all of the variable interest entities that were
reported as land inventory not owned in the consolidated balance sheet at September 30, 2010 were
deconsolidated because the Company determined it did not control the activities that most
significantly impact the variable interest entitys economic performance.
NOTE F NOTES PAYABLE
The Companys notes payable at their principal amounts, net of any unamortized discounts,
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
September 30, |
|
|
2011 |
|
2010 |
|
|
(In millions) |
|
Homebuilding: |
|
|
|
|
|
|
|
|
Unsecured: |
|
|
|
|
|
|
|
|
6% senior notes due 2011, net |
|
$ |
|
|
|
$ |
70.1 |
|
7.875% senior notes due 2011, net |
|
|
106.0 |
|
|
|
118.8 |
|
5.375% senior notes due 2012 |
|
|
|
|
|
|
146.6 |
|
6.875% senior notes due 2013 |
|
|
171.7 |
|
|
|
174.3 |
|
6.125% senior notes due 2014, net |
|
|
145.2 |
|
|
|
146.0 |
|
2% convertible senior notes due 2014, net |
|
|
411.3 |
|
|
|
391.9 |
|
5.625% senior notes due 2014, net |
|
|
137.5 |
|
|
|
147.1 |
|
5.25% senior notes due 2015, net |
|
|
189.1 |
|
|
|
199.7 |
|
5.625% senior notes due 2016, net |
|
|
204.8 |
|
|
|
225.5 |
|
6.5% senior notes due 2016, net |
|
|
392.7 |
|
|
|
430.1 |
|
Other secured |
|
|
5.8 |
|
|
|
35.2 |
|
|
|
|
|
|
|
|
|
|
$ |
1,764.1 |
|
|
$ |
2,085.3 |
|
|
|
|
|
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
Mortgage repurchase facility, maturing 2012 |
|
$ |
116.3 |
|
|
$ |
86.5 |
|
|
|
|
|
|
|
|
Homebuilding:
In July 2010, the Board of Directors authorized the early repurchase of up to $500 million of
the Companys debt securities effective through July 31, 2011. At June 30, 2011, $241.7 million of
the authorization was remaining. On August 1, 2011, the Board of Directors authorized the
repurchase of up to $500 million of the Companys debt securities effective through July 31, 2012.
-9-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
Following is a summary of the retirement activity related to the Companys senior notes for
the three and nine months ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
Principal Amount |
|
|
Three Months |
|
Nine Months |
|
|
Ended |
|
Ended |
|
|
June 30, 2011 |
|
June 30, 2011 |
|
|
(In millions) |
|
Maturities: |
|
|
|
|
|
|
|
|
6% senior notes, matured April 2011 |
|
$ |
70.1 |
|
|
$ |
70.1 |
|
|
Early Redemptions: |
|
|
|
|
|
|
|
|
5.375% senior notes due 2012, redeemed April 2011 |
|
|
112.3 |
|
|
|
112.3 |
|
|
Repurchases: |
|
|
|
|
|
|
|
|
7.875% senior notes due 2011 |
|
|
|
|
|
|
12.9 |
|
5.375% senior notes due 2012 |
|
|
|
|
|
|
34.3 |
|
6.875% senior notes due 2013 |
|
|
2.6 |
|
|
|
2.6 |
|
6.125% senior notes due 2014 |
|
|
|
|
|
|
1.0 |
|
5.625% senior notes due 2014 |
|
|
|
|
|
|
9.7 |
|
5.25% senior notes due 2015 |
|
|
|
|
|
|
10.8 |
|
5.625% senior notes due 2016 |
|
|
|
|
|
|
21.0 |
|
6.5% senior notes due 2016 |
|
|
|
|
|
|
37.5 |
|
|
|
|
|
|
|
|
Total repurchases |
|
|
2.6 |
|
|
|
129.8 |
|
|
|
|
|
|
|
|
|
|
Total retirements |
|
$ |
185.0 |
|
|
$ |
312.2 |
|
|
|
|
|
|
|
|
These senior notes were redeemed or repurchased for an aggregate purchase price of $191.4
million and $322.4 million, respectively, plus accrued interest. The transactions resulted in a net
loss on early retirement of debt of $6.5 million and $10.7 million for the three and nine months
ended June 30, 2011, respectively, which included the write off of unamortized discounts and fees.
During the quarter, the Company provided a deed in lieu of foreclosure on a parcel of
undeveloped land, which secured a non-recourse note payable, in exchange for a return of the note
payable. The Companys basis in the inventory parcel and the balance of the note were both $17.5
million. There was no gain or loss on the transaction.
The indentures governing the Companys senior notes impose restrictions on the creation of
secured debt and liens. At June 30, 2011, the Company was in compliance with all of the limitations
and restrictions that form a part of the public debt obligations.
Financial Services:
The Companys mortgage subsidiary, DHI Mortgage, has a mortgage repurchase facility that is
accounted for as a secured financing. The mortgage repurchase facility provides financing and
liquidity to DHI Mortgage by facilitating purchase transactions in which DHI Mortgage transfers
eligible loans to the counterparties against the transfer of funds by the counterparties, thereby
becoming purchased loans. DHI Mortgage then has the right and obligation to repurchase the
purchased loans upon their sale to third-party purchasers in the secondary market or within
specified time frames from 45 to 120 days in accordance with the terms of the mortgage repurchase
facility. The total capacity of the facility is $100 million; however, through a recent amendment
to the repurchase agreement,
the capacity was increased to $150 million for the period from June 29, 2011 through October
20, 2011, after which time it will return to $100 million. The maturity date of the facility is
March 4, 2012.
As of June 30, 2011, $258.1 million of mortgage loans held for sale were pledged under the
mortgage repurchase facility. These mortgage loans had a collateral value of $242.1 million. DHI
Mortgage has the option to fund a
-10-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
portion of its repurchase obligations in advance. As a result of
advance paydowns totaling $125.8 million, DHI Mortgage had an obligation of $116.3 million
outstanding under the mortgage repurchase facility at June 30, 2011 at a 3.8% annual interest rate.
The mortgage repurchase facility is not guaranteed by either D.R. Horton, Inc. or any of the
subsidiaries that guarantee the Companys homebuilding debt. The facility contains financial
covenants as to the mortgage subsidiarys minimum required tangible net worth, its maximum
allowable ratio of debt to tangible net worth and its minimum required liquidity. At June 30, 2011,
DHI Mortgage was in compliance with all of the conditions and covenants of the mortgage repurchase
facility.
NOTE G HOMEBUILDING INTEREST
The Company capitalizes homebuilding interest costs to inventory during active development and
construction. Capitalized interest is charged to cost of sales as the related inventory is
delivered to the buyer. Additionally, the Company writes off a portion of the capitalized interest
related to communities for which inventory impairments are recorded. The Companys inventory under
active development and construction was lower than its debt level at June 30, 2011 and 2010;
therefore, a portion of the interest incurred is reflected as interest expense.
The following table summarizes the Companys homebuilding interest costs incurred,
capitalized, expensed as interest expense, charged to cost of sales and written off during the
three and nine-month periods ended June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest, beginning of period |
|
$ |
88.6 |
|
|
$ |
117.2 |
|
|
$ |
91.5 |
|
|
$ |
128.8 |
|
Interest incurred |
|
|
31.4 |
|
|
|
41.3 |
|
|
|
100.5 |
|
|
|
136.9 |
|
Interest expensed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directly to interest expense |
|
|
(10.1 |
) |
|
|
(19.6 |
) |
|
|
(41.0 |
) |
|
|
(69.3 |
) |
Amortized to cost of sales |
|
|
(25.3 |
) |
|
|
(38.3 |
) |
|
|
(65.7 |
) |
|
|
(95.6 |
) |
Written off with inventory impairments |
|
|
(0.2 |
) |
|
|
(0.9 |
) |
|
|
(0.9 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest, end of period |
|
$ |
84.4 |
|
|
$ |
99.7 |
|
|
$ |
84.4 |
|
|
$ |
99.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE H MORTGAGE LOANS
To manage the interest rate risk inherent in its mortgage operations, the Company hedges its
risk using various derivative instruments, which include forward sales of mortgage-backed
securities (MBS), Eurodollar Futures Contracts (EDFC) and put options on both MBS and EDFC. Use of
the term hedging instruments in the following discussion refers to these securities collectively,
or in any combination. The Company does not enter into or hold derivatives for trading or
speculative purposes.
Mortgage Loans Held for Sale
Mortgage loans held for sale consist primarily of single-family residential loans
collateralized by the underlying property. Newly originated loans that have been closed but not
committed to third-party purchasers are hedged to mitigate the risk of changes in their fair value.
Hedged loans are committed to third-party purchasers typically
within three days after origination. Approximately 87% of the mortgage loans sold by DHI
Mortgage during the nine months ended June 30, 2011 were sold to two major financial institutions
pursuant to their loan purchase agreements. At June 30, 2011, mortgage loans held for sale had an
aggregate fair value of $286.2 million and an aggregate outstanding principal balance of $281.7
million. During the three months ended June 30, 2011 and 2010, the Company had net gains on sales
of loans of $11.1 million and $13.9 million, respectively. During the nine
-11-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
months ended June 30,
2011 and 2010, the Company had net gains on sales of loans of $30.9 million and $32.9 million,
respectively, which includes the effect of recording recourse expense, as discussed below in Other
Mortgage Loans and Loss Reserves, of $7.7 million and $11.7 million, respectively.
The notional amounts of the hedging instruments used to hedge mortgage loans held for sale
vary in relationship to the underlying loan amounts, depending on the movements in the value of
each hedging instrument relative to the value of the underlying mortgage loans. The fair value
change related to the hedging instruments generally offsets the fair value change in the mortgage
loans held for sale, which for the three and nine months ended June 30, 2011 and 2010 was not
significant, and is recognized in current earnings. As of June 30, 2011, the Company had $79.4
million in mortgage loans held for sale not committed to third-party purchasers and the notional
amounts of the hedging instruments related to those loans totaled $79.7 million.
Other Mortgage Loans and Loss Reserves
Mortgage loans are sold with limited recourse provisions which include industry-standard
representations and warranties, primarily involving the absence of misrepresentations by the
borrower or other parties and, depending on the agreement, may include requiring a minimum number
of payments to be made by the borrower. The Company generally does not retain any other continuing
interest related to mortgage loans sold in the secondary market. Other mortgage loans generally
consist of loans repurchased due to these limited recourse obligations. Typically, these loans are
impaired and often become real estate owned through the foreclosure process. At June 30, 2011 and
September 30, 2010, the Companys total other mortgage loans and real estate owned, before loss
reserves were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
September 30, |
|
|
2011 |
|
2010 |
|
|
(In millions) |
|
Other mortgage loans |
|
$ |
42.6 |
|
|
$ |
43.0 |
|
Real estate owned |
|
|
1.3 |
|
|
|
4.9 |
|
|
|
|
|
|
|
|
|
|
$ |
43.9 |
|
|
$ |
47.9 |
|
|
|
|
|
|
|
|
Based on historical performance and current housing and credit market conditions, the Company
has recorded reserves for estimated losses on other mortgage loans, real estate owned and future
loan repurchase obligations due to the limited recourse provisions, all of which are recorded as
reductions of financial services revenue. The reserve balances at
June 30, 2011 and September 30, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
September 30, |
|
|
2011 |
|
2010 |
|
|
(In millions) |
|
Loss reserves related to: |
|
|
|
|
|
|
|
|
Other mortgage loans |
|
$ |
5.8 |
|
|
$ |
9.0 |
|
Real estate owned |
|
|
0.7 |
|
|
|
1.8 |
|
Loan repurchase obligations known and expected |
|
|
24.1 |
|
|
|
28.2 |
|
|
|
|
|
|
|
|
|
|
$ |
30.6 |
|
|
$ |
39.0 |
|
|
|
|
|
|
|
|
Other mortgage loans and real estate owned and the related loss reserves are included in
financial services other assets, while loan repurchase obligations are included in financial
services accounts payable and other liabilities in the accompanying consolidated balance sheets.
A subsidiary of the Company reinsured a portion of the private mortgage insurance written on
loans originated by DHI Mortgage in prior years. At June 30, 2011 and September 30, 2010, reserves
for expected future losses under the reinsurance program totaled $0.8 million and $9.7 million,
respectively, and are included in financial services accounts payable and other liabilities in the
accompanying consolidated balance sheets. It is possible that future losses may exceed the amount
of reserves and, if so, additional charges will be required.
-12-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
Loan Commitments and Related Derivatives
The Company is party to interest rate lock commitments (IRLCs) which are extended to borrowers
who have applied for loan funding and meet defined credit and underwriting criteria. The expected
net future cash flows related to the associated servicing of a loan are included in the measurement
of all written loan commitments that are accounted for at fair value through earnings at the time
of commitment. At June 30, 2011, IRLCs, which are accounted for as derivative instruments recorded
at fair value, totaled $228.7 million.
The Company manages interest rate risk related to its IRLCs through the use of best-efforts
whole loan delivery commitments and hedging instruments. These instruments are considered
derivatives in an economic hedge and are accounted for at fair value with gains and losses
recognized in current earnings. As of June 30, 2011, the Company had approximately $22.4 million of
best-efforts whole loan delivery commitments and $185.0 million of hedging instruments related to
IRLCs not yet committed to purchasers.
NOTE I FAIR VALUE MEASUREMENTS
Fair value measurements are used for the Companys marketable securities, mortgage loans held
for sale, IRLCs and other derivative instruments on a recurring basis, and are used for
inventories, other mortgage loans and real estate owned on a nonrecurring basis, when events and
circumstances indicate that the carrying value may not be recoverable. The fair value hierarchy and
its application to the Companys assets and liabilities, is as follows:
|
|
|
Level 1 Valuation is based on quoted prices in active markets for identical assets
and liabilities. The Companys U.S. Treasury securities are measured at fair value using
Level 1 inputs. |
|
|
|
|
Level 2 Valuation is determined from quoted prices for similar assets or liabilities
in active markets, quoted prices for identical or similar instruments in markets that are
not active, or by model-based techniques in which all significant inputs are observable in
the market. The Companys assets/liabilities measured at fair value using Level 2 inputs
are as follows: |
|
§ |
|
government agency securities, corporate debt securities, foreign government
securities and certificates of deposit; |
|
|
§ |
|
mortgage loans held for sale; |
|
|
§ |
|
over-the-counter derivatives such as forward sales of MBS, put options on MBS
and best-efforts and mandatory commitments; and |
|
|
§ |
|
IRLCs. |
|
|
|
Level 3 Valuation is derived from model-based techniques in which at least one
significant input is unobservable and based on the Companys own estimates about the
assumptions that market participants would use to value the asset or liability. The
Companys assets measured at fair value using Level 3 inputs, which are typically reported
at the lower of carrying value or fair value on a nonrecurring basis, are as follows: |
|
§ |
|
inventory held and used; |
|
|
§ |
|
other mortgage loans; and |
|
|
§ |
|
real estate owned. |
-13-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
The following tables summarize the Companys assets and liabilities at June 30, 2011 and
September 30, 2010 measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at June 30, 2011 |
|
|
Balance Sheet Location |
|
Level 1 |
|
|
Level 2 |
|
|
Total |
|
|
|
|
|
(In millions) |
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, available-for-sale |
|
Marketable securities |
|
$ |
9.1 |
|
|
$ |
288.0 |
|
|
$ |
297.1 |
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale (a) |
|
Mortgage loans held for sale |
|
|
|
|
|
|
286.2 |
|
|
|
286.2 |
|
Derivatives (b): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
Other assets |
|
|
|
|
|
|
0.3 |
|
|
|
0.3 |
|
Forward sales of MBS |
|
Other liabilities |
|
|
|
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Best-efforts and mandatory commitments |
|
Other assets |
|
|
|
|
|
|
1.5 |
|
|
|
1.5 |
|
|
|
|
|
|
Fair Value at September 30, 2010 |
|
|
Balance Sheet Location |
|
Level 1 |
|
|
Level 2 |
|
|
Total |
|
|
|
|
|
(In millions) |
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, available-for-sale |
|
Marketable securities |
|
$ |
1.0 |
|
|
$ |
296.7 |
|
|
$ |
297.7 |
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale (a) |
|
Mortgage loans held for sale |
|
|
|
|
|
|
253.8 |
|
|
|
253.8 |
|
Derivatives (b): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments |
|
Other assets |
|
|
|
|
|
|
1.8 |
|
|
|
1.8 |
|
Forward sales of MBS |
|
Other liabilities |
|
|
|
|
|
|
(1.8 |
) |
|
|
(1.8 |
) |
Best-efforts and mandatory commitments |
|
Other assets |
|
|
|
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
(a) |
|
Mortgage loans held for sale are reflected at fair value. Interest income earned on
mortgage loans held for sale is based on contractual interest rates and included in
financial services interest and other income. |
|
(b) |
|
Fair value measurements of these derivatives represent changes in fair value since
inception. These changes are reflected in the balance sheet and included in financial
services revenues on the consolidated statement of operations. |
The following table summarizes the Companys assets at June 30, 2011 and September 30, 2010
measured at fair value on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at |
|
Fair Value at |
|
|
|
|
June 30, 2011 |
|
September 30, 2010 |
|
|
Balance Sheet Location |
|
Level 3 |
|
Level 3 |
|
|
|
|
(In millions) |
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
Inventory held and used (a) |
|
Inventories |
|
$ |
20.3 |
|
|
$ |
34.0 |
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
Other mortgage loans (a) |
|
Other assets |
|
|
30.8 |
|
|
|
27.5 |
|
Real estate owned (a) |
|
Other assets |
|
|
0.6 |
|
|
|
3.1 |
|
|
|
|
(a) |
|
The fair values included in the table above represent only those assets whose carrying
values were adjusted to fair value in the current quarter. |
-14-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
The fair values of cash and cash equivalents approximate their carrying amounts due to their
short-term nature. The Company determines the fair values of its senior and convertible senior
notes based on quoted market prices. The aggregate fair value of these notes at June 30, 2011 and
September 30, 2010 was $1,956.2 million and $2,244.0 million, respectively, compared to an
aggregate carrying value of $1,758.3 million and $2,050.1 million, respectively. The aggregate fair
value of the Companys senior notes includes fair values for the 2% convertible senior notes of
$556.6 million and $553.8 million at June 30, 2011 and September 30, 2010, respectively, compared
to their carrying values of $411.3 million and $391.9 million, respectively. The carrying value of
the equity component of the 2% convertible senior notes was $136.7 million at June 30, 2011 and
September 30, 2010. For other secured notes and balances due under the mortgage repurchase
facility, the fair values approximate their carrying amounts due to their short maturity or
floating interest rate terms, as applicable.
NOTE J INCOME TAXES
In the three and nine months ended June 30, 2011, respectively, the Companys provision for
income taxes attributable to continuing operations was $0.2 million and its benefit from income
taxes was $57.8 million, compared to benefits from income taxes of $4.2 million and $152.7 million
in the comparable periods of the prior year. The benefit from income taxes in the nine months ended
June 30, 2011 was due to the Company receiving a favorable result from the Internal Revenue Service
(IRS) on a ruling request concerning the capitalization of inventory costs, allowing the Company to
reduce its unrecognized tax benefits and corresponding interest by $59.2 million. The benefit from
income taxes in the nine months ended June 30, 2010 resulted from net operating loss (NOL)
carrybacks. The Company does not have meaningful effective tax rates for these periods because its
net deferred tax assets are offset fully by a valuation allowance.
The Company had income taxes receivable of $14.0 million and $16.0 million at June 30, 2011
and September 30, 2010, respectively. The income taxes receivable at June 30, 2011 relates to
federal and state income tax refunds the Company expects to receive.
At June 30, 2011 and September 30, 2010, the Companys net deferred tax assets, which are
fully offset by a valuation allowance, were $849.0 million and $902.6 million, respectively. The
realization of the Companys deferred tax assets ultimately depends upon the existence of
sufficient taxable income in future periods. The Company continues to analyze the positive and
negative evidence in determining the need for a valuation allowance with respect to its deferred
tax assets. The valuation allowance could be reduced in future periods if there is sufficient
evidence indicating it is more likely than not that a portion or all of the Companys deferred tax
assets will be realized. The accounting for deferred taxes is based upon estimates of future
results. Differences between the anticipated and actual outcomes of these future results could have
a material impact on the Companys deferred tax assets and consolidated results of operations or
financial position.
The Company classifies interest and penalties on income taxes as income tax expense. At June
30, 2011, the amount of the Companys unrecognized tax benefits was $18.5 million, with a related
accrual for interest of $5.6 million. A reduction of $3.3 million in the amount of unrecognized tax
benefits and accrued interest with respect to state issues is reasonably possible within the next
12 months and would result in a benefit from income taxes in the consolidated statement of
operations.
The Company is subject to federal income tax and to income tax in multiple states. The statute
of limitations for the Companys major tax jurisdictions remains open for examination for fiscal
years 2004 through 2010. The Company is currently being audited by the IRS for fiscal years 2006
and 2007, and by various states. Its federal NOL refunds from losses in fiscal 2008 and 2009 are
subject to Congressional Joint Committee review.
-15-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
NOTE K EARNINGS PER SHARE
The following table sets forth the numerators and denominators used in the computation of
basic and diluted earnings per share for the three and nine months ended June 30, 2011 and 2010.
Due to their antidilutive effect, the computation of diluted earnings per share excluded options to
purchase 9.6 million and 9.5 million shares of common stock for the three and nine months ended
June 30, 2011, respectively, and options to purchase 9.5 million and 9.7 million shares of common
stock for the same periods of 2010. Additionally, for all periods except the nine-month period
ended June 30, 2010, the convertible senior notes were excluded from the computation because their
effect would have been antidilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
28.7 |
|
|
$ |
50.5 |
|
|
$ |
36.0 |
|
|
$ |
253.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and amortization of
issuance costs associated with
convertible senior notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted earnings per share
after assumed conversions |
|
$ |
28.7 |
|
|
$ |
50.5 |
|
|
$ |
36.0 |
|
|
$ |
277.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per
share weighted average common shares |
|
|
318.7 |
|
|
|
318.2 |
|
|
|
319.0 |
|
|
|
318.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock awards |
|
|
0.3 |
|
|
|
0.9 |
|
|
|
0.3 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible senior notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share adjusted weighted average
common shares |
|
|
319.0 |
|
|
|
319.1 |
|
|
|
319.3 |
|
|
|
356.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE L STOCKHOLDERS EQUITY
The Company has an automatically effective universal shelf registration statement filed with
the SEC in September 2009, registering debt and equity securities that it may issue from time to
time in amounts to be determined.
In July 2010, the Board of Directors renewed the authorization to repurchase up to $100
million of the Companys common stock effective through July 31, 2011. During the three months
ended June 30, 2011, the Company repurchased 3,544,838 shares of its common stock at a total cost
of $38.6 million, resulting in a remaining authorization of $61.4 million at June 30, 2011. On
August 1, 2011, the Board of Directors authorized the repurchase of up to $100 million of the
Companys common stock effective through July 31, 2012.
During the three months ended June 30, 2011, the Board of Directors approved a quarterly cash
dividend of $0.0375 per common share, which was paid on May 24, 2011 to stockholders of record on
May 12, 2011. In July 2011, the Board of Directors approved a quarterly cash dividend of $0.0375
per common share, payable on August 24, 2011 to stockholders of record on August 12, 2011.
Quarterly cash dividends of $0.0375 per common share were declared in the comparable quarters of
fiscal 2010.
-16-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
NOTE M COMMITMENTS AND CONTINGENCIES
Warranty Claims
The Company typically provides its homebuyers with a ten-year limited warranty for major
defects in structural elements such as framing components and foundation systems, a two-year
limited warranty on major mechanical systems, and a one-year limited warranty on other construction
components. 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.
At June 30, 2011, the Company had liabilities of $1.5 million for the remaining repair costs
of homes in its Florida and Louisiana markets constructed during 2005 through 2007 which contain or
are suspected to contain allegedly defective drywall manufactured in China (Chinese Drywall) that
may be responsible for accelerated corrosion of certain metals in the home. Through June 30, 2011,
the Company has spent approximately $6.0 million to remediate these homes. While the Company will
seek reimbursement for these remediation costs from various sources, it has not recorded a
receivable for potential recoveries as of June 30, 2011. If additional homes in these or other
markets are found to contain Chinese Drywall, the Company would likely be required to further
increase its warranty reserve for this matter in the future. The Company has been named as a
defendant in several lawsuits in Louisiana and Florida pertaining to Chinese Drywall. As these
actions are still in their early stages, the Company is unable to express an opinion as to the
amount of damages, if any, beyond what has been reserved for repair as discussed above.
Changes in the Companys warranty liability during the three and nine-month periods ended June
30, 2011 and 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty liability, beginning of period |
|
$ |
43.8 |
|
|
$ |
49.6 |
|
|
$ |
46.2 |
|
|
$ |
59.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranties issued |
|
|
4.3 |
|
|
|
6.3 |
|
|
|
10.9 |
|
|
|
15.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in liability for pre-existing warranties |
|
|
0.7 |
|
|
|
0.6 |
|
|
|
3.7 |
|
|
|
(6.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements made |
|
|
(7.8 |
) |
|
|
(7.3 |
) |
|
|
(19.8 |
) |
|
|
(19.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty liability, end of period |
|
$ |
41.0 |
|
|
$ |
49.2 |
|
|
$ |
41.0 |
|
|
$ |
49.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance and Legal Claims
The Company has been named as a defendant in various claims, complaints and other legal
actions including construction defect claims on closed homes and other claims and lawsuits incurred
in the ordinary course of business, including employment matters, personal injury claims, land
development issues, contract disputes and claims related to its mortgage activities. The Company
has established reserves for these contingencies, based on the expected costs of the claims. The
Companys estimate of the required reserve is based on the facts and circumstances of individual
pending claims and historical data and trends, including costs relative to revenues, home closings
and product types, and include estimates of the costs of construction defect claims incurred but
not yet reported. These reserve estimates are subject to ongoing revision as the circumstances of
individual pending claims and historical data and trends change. Adjustments to estimated reserves
are recorded in the accounting period in which the change in estimate occurs. The Companys
liabilities for these items were $523.2 million and $571.3 million at June 30, 2011 and September
30, 2010, respectively, and are included in homebuilding accrued expenses and other liabilities in
the consolidated balance sheets. Related to the contingencies for construction defect claims and
estimates of construction defect claims incurred but not yet reported, and other legal claims and
lawsuits incurred in the ordinary course of business, the Company estimates and records insurance
receivables for these matters under applicable insurance policies when recovery is probable.
Additionally, the Company may have the ability to recover a portion of its legal expenses from its
subcontractors when the Company has been named as an additional insured on their insurance
policies. Estimates of the Companys insurance receivables related to these
-17-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
matters totaled $214.2 million and $251.5 million at June 30, 2011 and September 30, 2010,
respectively, and are included in homebuilding other assets in the consolidated balance sheets.
Expenses related to these items were approximately $18.7 million and $34.6 million in the nine
months ended June 30, 2011 and 2010, respectively.
Due to the high degree of judgment required in establishing reserves for these contingencies,
it is not possible for the Company to make a reasonable estimate of
the possible loss or range of loss in
excess of its reserves. To the extent the losses arising from the ultimate resolution of any matter
exceeds managements estimates reflected in the recorded reserves relating to these matters, the
Company would incur additional charges that could be significant.
Land and Lot Option Purchase Contracts
The Company enters into land and lot option purchase contracts in order to procure land or
lots for the construction of homes. At June 30, 2011, the Company had total deposits of $14.8
million, consisting of cash deposits of $12.8 million and promissory notes and surety bonds of $2.0
million, to purchase land and lots with a total remaining purchase price of $981.7 million. Within
the land and lot option purchase contracts at June 30, 2011, there were a limited number of
contracts, representing $12.0 million of remaining purchase price, subject to specific performance
clauses which may require the Company to purchase the land or lots upon the land sellers meeting
their obligations. The majority of land and lots under contract are currently expected to be
purchased within three years, based on the Companys assumptions as to the extent it will exercise
its options to purchase such land and lots.
Other Commitments
To secure performance under various contracts, the Company had outstanding letters of credit
of $47.8 million and surety bonds of $741.3 million at June 30, 2011. The Company has secured
letter of credit agreements that require it to deposit cash, in an amount approximating the balance
of letters of credit outstanding, as collateral with the issuing banks. At June 30, 2011 and
September 30, 2010, the amount of cash restricted for this purpose totaled $48.4 million and $52.6
million, respectively, and is included in homebuilding restricted cash on the Companys
consolidated balance sheets.
NOTE N OTHER ASSETS AND ACCRUED EXPENSES AND OTHER LIABILITIES
The Companys homebuilding other assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
September 30, |
|
|
2011 |
|
2010 |
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
Insurance receivables |
|
$ |
214.2 |
|
|
$ |
251.5 |
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable |
|
|
20.5 |
|
|
|
18.5 |
|
|
|
|
|
|
|
|
|
|
Prepaid assets |
|
|
17.9 |
|
|
|
28.9 |
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
138.6 |
|
|
|
135.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
391.2 |
|
|
$ |
434.8 |
|
|
|
|
|
|
|
|
The Companys homebuilding accrued expenses and other liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
September 30, |
|
|
2011 |
|
2010 |
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
Construction defect and other litigation liabilities |
|
$ |
523.2 |
|
|
$ |
571.3 |
|
|
|
|
|
|
|
|
|
|
Employee compensation and related liabilities |
|
|
82.8 |
|
|
|
90.4 |
|
|
|
|
|
|
|
|
|
|
Warranty liability |
|
|
41.0 |
|
|
|
46.2 |
|
|
|
|
|
|
|
|
|
|
Accrued interest |
|
|
27.1 |
|
|
|
39.8 |
|
|
|
|
|
|
|
|
|
|
Federal and state income tax liabilities |
|
|
23.9 |
|
|
|
83.8 |
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
114.4 |
|
|
|
125.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
812.4 |
|
|
$ |
957.2 |
|
|
|
|
|
|
|
|
-18-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
NOTE O RECENT ACCOUNTING PRONOUNCEMENTS
In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value
Measurements, which requires additional disclosures about transfers between Levels 1 and 2 of the
fair value hierarchy and disclosures about purchases, sales, issuances and settlements in the roll
forward of activity in Level 3 fair value measurements. This guidance was effective for the Company
in fiscal 2010, except for the Level 3 activity disclosures, which are effective for fiscal years
beginning after December 15, 2010. The adoption of this guidance, which is related to disclosure
only, did not and will not have a material impact on the Companys consolidated financial position,
results of operations or cash flows.
In April 2011, the FASB issued ASU 2011-02, A Creditors Determination of Whether a
Restructuring Is a Troubled Debt Restructuring, which clarifies when a loan modification or
restructuring is considered a troubled debt restructuring. In determining whether a loan
modification represents a troubled debt restructuring, a creditor must separately conclude that the
restructuring constitutes a concession and that the debtor is experiencing financial difficulties.
The guidance was effective for the Company on July 1, 2011 and is to be applied retrospectively to
the beginning of the annual period of adoption. The adoption of this guidance did not have a
material impact on the Companys consolidated financial position, results of operations or cash
flows.
In April 2011, the FASB issued ASU 2011-03, Reconsideration of Effective Control for
Repurchase Agreements. This guidance amends the sale accounting requirement concerning a
transferors ability to repurchase transferred financial assets even in the event of default by the
transferee, which typically is facilitated in a repurchase agreement by the presence of a
collateral maintenance provision. Specifically, the level of cash collateral received by a
transferor will no longer be relevant in determining whether a repurchase agreement constitutes a
sale. As a result of this amendment, more repurchase agreements will be treated as secured
financings rather than sales. This guidance is effective prospectively for new transfers and
existing transactions that are modified in the first interim or annual period beginning on or after
December 15, 2011. The adoption of this guidance is not expected to have a material impact on the
Companys consolidated financial position, results of operations or cash flows.
In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement
and Disclosure Requirements in U.S. GAAP and IFRSs, which provides a consistent definition of fair
value and ensures that the fair value measurement and disclosure requirements are similar between
U.S. GAAP and International Financial Reporting Standards (IFRS). The guidance changes certain fair
value measurement principles and expands the disclosure requirements particularly for Level 3 fair
value measurements. The guidance is effective for the Company beginning January 1, 2012 and is to
be applied prospectively. The adoption of this guidance, which relates primarily to disclosure, is
not expected to have a material impact on the Companys consolidated financial position, results of
operations or cash flows.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which
eliminates the option to present the components of other comprehensive income as part of the
statement of equity. Instead, an entity must report comprehensive income in either a single
continuous statement of comprehensive income which contains two sections, net income and other
comprehensive income, or in two separate but continuous statements. The guidance is effective for
the Company beginning October 1, 2012 and is to be applied retrospectively. The adoption of this
guidance, which relates to presentation only, is not expected to have a material impact on the
Companys consolidated financial position, results of operations or cash flows.
-19-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
NOTE P SEGMENT INFORMATION
The Companys 31 homebuilding operating divisions and its financial services operation are its
operating segments. The homebuilding operating segments are aggregated into six reporting segments
and the financial services operating segment is its own reporting segment. The Companys reportable
homebuilding segments are: East, Midwest, Southeast, South Central, Southwest and West. These
reporting segments have homebuilding operations located in the following states:
|
|
|
East:
|
|
Delaware, Georgia (Savannah only), Maryland, New Jersey, North Carolina,
Pennsylvania, South Carolina and Virginia |
|
|
|
Midwest:
|
|
Colorado, Illinois, Minnesota and Wisconsin |
|
|
|
Southeast:
|
|
Alabama, Florida and Georgia |
|
|
|
South Central:
|
|
Louisiana, New Mexico (Las Cruces only), Oklahoma and Texas |
|
|
|
Southwest:
|
|
Arizona and New Mexico |
|
|
|
West:
|
|
California, Hawaii, Idaho, Nevada, Oregon, Utah and Washington |
During the three months ended September 30, 2010, a change in the composition of the Companys
operating divisions required that the Las Cruces, New Mexico market, previously included in the
Southwest reporting segment, now be included in the South Central reporting segment. Consequently,
the Company has restated the prior year segment information provided in this note to conform to the
current year presentation.
Homebuilding is the Companys core business, generating 98% of consolidated revenues during
the nine months ended June 30, 2011 and 2010. The Companys homebuilding segments are primarily
engaged in the acquisition and development of land and the construction and sale of residential
homes on the land, in 26 states and 71 markets in the United States. The homebuilding segments
generate most of their revenues from the sale of completed homes, and to a lesser extent from the
sale of land and lots.
The Companys financial services segment provides mortgage financing and title agency services
primarily to customers of the Companys homebuilding segments. The Company generally does not
retain or service the mortgages that it originates; rather, it seeks to sell the mortgages and
related servicing rights to third-party purchasers. The financial services segment generates its
revenues from originating and selling mortgages and collecting fees for title insurance agency and
closing services.
-20-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
The accounting policies of the reporting segments are described throughout Note A included in
the Companys annual report on Form 10-K for the fiscal year ended September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
June 30, |
|
June 30, |
|
|
|
|
|
|
Restated |
|
|
|
|
|
Restated |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East |
|
$ |
114.7 |
|
|
$ |
150.6 |
|
|
$ |
308.9 |
|
|
$ |
381.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midwest |
|
|
74.0 |
|
|
|
99.3 |
|
|
|
186.7 |
|
|
|
259.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast |
|
|
194.2 |
|
|
|
247.9 |
|
|
|
484.8 |
|
|
|
575.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Central |
|
|
294.6 |
|
|
|
462.8 |
|
|
|
752.6 |
|
|
|
1,111.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southwest |
|
|
56.0 |
|
|
|
112.5 |
|
|
|
164.1 |
|
|
|
271.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
|
241.9 |
|
|
|
305.2 |
|
|
|
578.4 |
|
|
|
783.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding revenues |
|
|
975.4 |
|
|
|
1,378.3 |
|
|
|
2,475.5 |
|
|
|
3,384.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services revenues |
|
|
23.8 |
|
|
|
27.8 |
|
|
|
63.0 |
|
|
|
67.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues |
|
$ |
999.2 |
|
|
$ |
1,406.1 |
|
|
$ |
2,538.5 |
|
|
$ |
3,451.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory Impairments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East |
|
$ |
0.1 |
|
|
$ |
5.3 |
|
|
$ |
2.1 |
|
|
$ |
7.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midwest |
|
|
0.1 |
|
|
|
17.0 |
|
|
|
0.1 |
|
|
|
17.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast |
|
|
5.1 |
|
|
|
6.4 |
|
|
|
9.8 |
|
|
|
7.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Central |
|
|
|
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southwest |
|
|
0.1 |
|
|
|
|
|
|
|
2.2 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
|
2.4 |
|
|
|
0.2 |
|
|
|
12.8 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory impairments |
|
$ |
7.8 |
|
|
$ |
29.1 |
|
|
$ |
27.2 |
|
|
$ |
33.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income
Taxes (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding income (loss)
before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East |
|
$ |
(1.0 |
) |
|
$ |
(4.3 |
) |
|
$ |
(13.6 |
) |
|
$ |
(6.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midwest |
|
|
0.1 |
|
|
|
(18.8 |
) |
|
|
(13.1 |
) |
|
|
(23.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast |
|
|
(3.0 |
) |
|
|
4.3 |
|
|
|
(16.8 |
) |
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Central |
|
|
19.0 |
|
|
|
40.4 |
|
|
|
30.1 |
|
|
|
82.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southwest |
|
|
(0.5 |
) |
|
|
7.8 |
|
|
|
(2.5 |
) |
|
|
12.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
|
7.6 |
|
|
|
8.0 |
|
|
|
(18.5 |
) |
|
|
17.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding income (loss)
before income taxes |
|
|
22.2 |
|
|
|
37.4 |
|
|
|
(34.4 |
) |
|
|
84.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services income
before income taxes |
|
|
6.7 |
|
|
|
8.9 |
|
|
|
12.6 |
|
|
|
16.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income (loss) before
income taxes |
|
$ |
28.9 |
|
|
$ |
46.3 |
|
|
$ |
(21.8 |
) |
|
$ |
101.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Expenses maintained at the corporate level consist primarily of
interest and property taxes, which are capitalized and amortized
to cost of sales or expensed directly, and the expenses related
to operating the Companys corporate office. The amortization of
capitalized interest and property taxes is allocated to each
segment based on the segments revenue, while interest expense
and those expenses associated with the corporate office are
allocated to each segment based on the segments average
inventory. |
-21-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
September 30, |
|
|
2011 |
|
2010 |
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
Homebuilding Inventories (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East |
|
$ |
484.4 |
|
|
$ |
511.5 |
|
|
|
|
|
|
|
|
|
|
Midwest |
|
|
272.3 |
|
|
|
297.3 |
|
|
|
|
|
|
|
|
|
|
Southeast |
|
|
691.0 |
|
|
|
656.4 |
|
|
|
|
|
|
|
|
|
|
South Central |
|
|
780.8 |
|
|
|
760.1 |
|
|
|
|
|
|
|
|
|
|
Southwest |
|
|
212.6 |
|
|
|
218.7 |
|
|
|
|
|
|
|
|
|
|
West |
|
|
963.2 |
|
|
|
898.8 |
|
|
|
|
|
|
|
|
|
|
Corporate and unallocated (2) |
|
|
96.5 |
|
|
|
106.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding inventory |
|
$ |
3,500.8 |
|
|
$ |
3,449.0 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Homebuilding inventories are the only assets included in the measure of segment assets
used by the Companys chief operating decision maker, its CEO. |
|
(2) |
|
Corporate and unallocated consists primarily of capitalized interest and property taxes. |
-22-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
NOTE Q SUPPLEMENTAL GUARANTOR INFORMATION
All of the Companys senior and convertible senior notes are fully and unconditionally
guaranteed, on a joint and several basis, by all of the Companys direct and indirect subsidiaries
(collectively, Guarantor Subsidiaries), other than financial services subsidiaries and certain
insignificant subsidiaries (collectively, Non-Guarantor Subsidiaries). Each of the Guarantor
Subsidiaries is wholly-owned. In lieu of providing separate financial statements for the Guarantor
Subsidiaries, consolidating condensed financial statements are presented below. Separate financial
statements and other disclosures concerning the Guarantor Subsidiaries are not presented because
management has determined that they are not material to investors.
Consolidating Balance Sheet
June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
Guarantor |
|
Non-Guarantor |
|
|
|
|
|
|
Horton, Inc. |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Total |
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
793.6 |
|
|
$ |
27.6 |
|
|
$ |
19.8 |
|
|
$ |
|
|
|
$ |
841.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, available-for-sale |
|
|
297.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
297.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
49.6 |
|
|
|
0.6 |
|
|
|
0.2 |
|
|
|
|
|
|
|
50.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries |
|
|
1,411.8 |
|
|
|
|
|
|
|
|
|
|
|
(1,411.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
1,102.6 |
|
|
|
2,378.5 |
|
|
|
19.7 |
|
|
|
|
|
|
|
3,500.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes receivable |
|
|
14.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
19.0 |
|
|
|
21.9 |
|
|
|
18.0 |
|
|
|
|
|
|
|
58.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
95.4 |
|
|
|
256.5 |
|
|
|
88.6 |
|
|
|
|
|
|
|
440.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale |
|
|
|
|
|
|
|
|
|
|
286.2 |
|
|
|
|
|
|
|
286.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
15.9 |
|
|
|
|
|
|
|
|
|
|
|
15.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivables |
|
|
828.1 |
|
|
|
|
|
|
|
|
|
|
|
(828.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
4,611.2 |
|
|
$ |
2,701.0 |
|
|
$ |
432.5 |
|
|
$ |
(2,239.9 |
) |
|
$ |
5,504.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities |
|
$ |
258.6 |
|
|
$ |
665.3 |
|
|
$ |
106.9 |
|
|
$ |
|
|
|
$ |
1,030.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payables |
|
|
|
|
|
|
793.2 |
|
|
|
34.9 |
|
|
|
(828.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable |
|
|
1,761.1 |
|
|
|
3.0 |
|
|
|
116.3 |
|
|
|
|
|
|
|
1,880.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
2,019.7 |
|
|
|
1,461.5 |
|
|
|
258.1 |
|
|
|
(828.1 |
) |
|
|
2,911.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
2,591.5 |
|
|
|
1,239.5 |
|
|
|
172.3 |
|
|
|
(1,411.8 |
) |
|
|
2,591.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
2.1 |
|
|
|
|
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity |
|
|
2,591.5 |
|
|
|
1,239.5 |
|
|
|
174.4 |
|
|
|
(1,411.8 |
) |
|
|
2,593.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Equity |
|
$ |
4,611.2 |
|
|
$ |
2,701.0 |
|
|
$ |
432.5 |
|
|
$ |
(2,239.9 |
) |
|
$ |
5,504.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-23-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
NOTE Q SUPPLEMENTAL GUARANTOR INFORMATION - (Continued)
Consolidating Balance Sheet
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
Guarantor |
|
Non-Guarantor |
|
|
|
|
|
|
Horton, Inc. |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Total |
|
|
(In millions) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,234.9 |
|
|
$ |
45.3 |
|
|
$ |
29.1 |
|
|
$ |
|
|
|
$ |
1,309.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, available-for-sale |
|
|
297.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
297.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
53.3 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
53.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries |
|
|
1,316.7 |
|
|
|
|
|
|
|
|
|
|
|
(1,316.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
1,081.7 |
|
|
|
2,340.1 |
|
|
|
27.2 |
|
|
|
|
|
|
|
3,449.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes receivable |
|
|
16.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
18.5 |
|
|
|
23.3 |
|
|
|
18.7 |
|
|
|
|
|
|
|
60.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
101.1 |
|
|
|
292.8 |
|
|
|
88.8 |
|
|
|
|
|
|
|
482.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale |
|
|
|
|
|
|
|
|
|
|
253.8 |
|
|
|
|
|
|
|
253.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
15.9 |
|
|
|
|
|
|
|
|
|
|
|
15.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivables |
|
|
904.6 |
|
|
|
|
|
|
|
|
|
|
|
(904.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
5,024.5 |
|
|
$ |
2,717.8 |
|
|
$ |
417.6 |
|
|
$ |
(2,221.3 |
) |
|
$ |
5,938.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities |
|
$ |
327.9 |
|
|
$ |
688.3 |
|
|
$ |
127.7 |
|
|
$ |
|
|
|
$ |
1,143.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payables |
|
|
|
|
|
|
871.4 |
|
|
|
33.2 |
|
|
|
(904.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable |
|
|
2,083.4 |
|
|
|
1.9 |
|
|
|
86.5 |
|
|
|
|
|
|
|
2,171.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
2,411.3 |
|
|
|
1,561.6 |
|
|
|
247.4 |
|
|
|
(904.6 |
) |
|
|
3,315.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
2,613.2 |
|
|
|
1,156.2 |
|
|
|
160.5 |
|
|
|
(1,316.7 |
) |
|
|
2,613.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
9.7 |
|
|
|
|
|
|
|
9.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity |
|
|
2,613.2 |
|
|
|
1,156.2 |
|
|
|
170.2 |
|
|
|
(1,316.7 |
) |
|
|
2,622.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Equity |
|
$ |
5,024.5 |
|
|
$ |
2,717.8 |
|
|
$ |
417.6 |
|
|
$ |
(2,221.3 |
) |
|
$ |
5,938.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-24-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
NOTE Q - SUPPLEMENTAL GUARANTOR INFORMATION - (Continued)
Consolidating Statement of Operations
Three Months Ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
Guarantor |
|
Non-Guarantor |
|
|
|
|
|
|
Horton, Inc. |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Total |
|
|
(In millions) |
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
283.5 |
|
|
$ |
687.4 |
|
|
$ |
4.5 |
|
|
$ |
|
|
|
$ |
975.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
235.6 |
|
|
|
583.7 |
|
|
|
4.8 |
|
|
|
|
|
|
|
824.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
47.9 |
|
|
|
103.7 |
|
|
|
(0.3 |
) |
|
|
|
|
|
|
151.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
expense |
|
|
50.5 |
|
|
|
61.5 |
|
|
|
1.7 |
|
|
|
|
|
|
|
113.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in (income) of subsidiaries |
|
|
(47.7 |
) |
|
|
|
|
|
|
|
|
|
|
47.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on early retirement of debt, net |
|
|
6.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) |
|
|
(0.4 |
) |
|
|
0.2 |
|
|
|
(1.0 |
) |
|
|
|
|
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.9 |
|
|
|
42.0 |
|
|
|
(1.0 |
) |
|
|
(47.7 |
) |
|
|
22.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net of recourse and
reinsurance expense |
|
|
|
|
|
|
|
|
|
|
23.8 |
|
|
|
|
|
|
|
23.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expense |
|
|
|
|
|
|
|
|
|
|
19.3 |
|
|
|
|
|
|
|
19.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other (income) |
|
|
|
|
|
|
|
|
|
|
(2.5 |
) |
|
|
|
|
|
|
(2.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.7 |
|
|
|
|
|
|
|
6.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
28.9 |
|
|
|
42.0 |
|
|
|
5.7 |
|
|
|
(47.7 |
) |
|
|
28.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
0.2 |
|
|
|
0.5 |
|
|
|
0.1 |
|
|
|
(0.6 |
) |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
28.7 |
|
|
$ |
41.5 |
|
|
$ |
5.6 |
|
|
$ |
(47.1 |
) |
|
$ |
28.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-25-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
NOTE Q - SUPPLEMENTAL GUARANTOR INFORMATION - (Continued)
Consolidating Statement of Operations
Nine Months Ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
Guarantor |
|
Non-Guarantor |
|
|
|
|
|
|
Horton, Inc. |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Total |
|
|
(In millions) |
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
693.2 |
|
|
$ |
1,773.3 |
|
|
$ |
9.0 |
|
|
$ |
|
|
|
$ |
2,475.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
561.0 |
|
|
|
1,534.2 |
|
|
|
14.0 |
|
|
|
|
|
|
|
2,109.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
132.2 |
|
|
|
239.1 |
|
|
|
(5.0 |
) |
|
|
|
|
|
|
366.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
expense |
|
|
159.7 |
|
|
|
197.4 |
|
|
|
(1.3 |
) |
|
|
|
|
|
|
355.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in (income) of subsidiaries |
|
|
(54.9 |
) |
|
|
|
|
|
|
|
|
|
|
54.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
41.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on early retirement of debt, net |
|
|
10.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) |
|
|
(2.5 |
) |
|
|
(1.2 |
) |
|
|
(3.1 |
) |
|
|
|
|
|
|
(6.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21.8 |
) |
|
|
42.9 |
|
|
|
(0.6 |
) |
|
|
(54.9 |
) |
|
|
(34.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net of recourse and
reinsurance expense |
|
|
|
|
|
|
|
|
|
|
63.0 |
|
|
|
|
|
|
|
63.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expense |
|
|
|
|
|
|
|
|
|
|
56.4 |
|
|
|
|
|
|
|
56.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other (income) |
|
|
|
|
|
|
|
|
|
|
(6.7 |
) |
|
|
|
|
|
|
(6.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.6 |
|
|
|
|
|
|
|
12.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(21.8 |
) |
|
|
42.9 |
|
|
|
12.0 |
|
|
|
(54.9 |
) |
|
|
(21.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit from income taxes |
|
|
(57.8 |
) |
|
|
(40.5 |
) |
|
|
(1.5 |
) |
|
|
42.0 |
|
|
|
(57.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
36.0 |
|
|
$ |
83.4 |
|
|
$ |
13.5 |
|
|
$ |
(96.9 |
) |
|
$ |
36.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-26-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
NOTE Q - SUPPLEMENTAL GUARANTOR INFORMATION - (Continued)
Consolidating Statement of Operations
Three Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
Guarantor |
|
Non-Guarantor |
|
|
|
|
|
|
Horton, Inc. |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Total |
|
|
(In millions) |
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
370.4 |
|
|
$ |
1,005.7 |
|
|
$ |
2.2 |
|
|
$ |
|
|
|
$ |
1,378.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
295.4 |
|
|
|
875.0 |
|
|
|
1.1 |
|
|
|
|
|
|
|
1,171.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
75.0 |
|
|
|
130.7 |
|
|
|
1.1 |
|
|
|
|
|
|
|
206.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
expense |
|
|
57.8 |
|
|
|
84.2 |
|
|
|
1.5 |
|
|
|
|
|
|
|
143.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in (income) of subsidiaries |
|
|
(56.4 |
) |
|
|
|
|
|
|
|
|
|
|
56.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
19.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on early retirement of debt, net |
|
|
8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) |
|
|
(0.6 |
) |
|
|
(0.6 |
) |
|
|
(0.8 |
) |
|
|
|
|
|
|
(2.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46.3 |
|
|
|
47.1 |
|
|
|
0.4 |
|
|
|
(56.4 |
) |
|
|
37.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net of recourse and
reinsurance expense |
|
|
|
|
|
|
|
|
|
|
27.8 |
|
|
|
|
|
|
|
27.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expense |
|
|
|
|
|
|
|
|
|
|
21.2 |
|
|
|
|
|
|
|
21.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other (income) |
|
|
|
|
|
|
|
|
|
|
(3.0 |
) |
|
|
|
|
|
|
(3.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.9 |
|
|
|
|
|
|
|
8.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
46.3 |
|
|
|
47.1 |
|
|
|
9.3 |
|
|
|
(56.4 |
) |
|
|
46.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit from income taxes |
|
|
(4.2 |
) |
|
|
(3.2 |
) |
|
|
(0.1 |
) |
|
|
3.3 |
|
|
|
(4.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
50.5 |
|
|
$ |
50.3 |
|
|
$ |
9.4 |
|
|
$ |
(59.7 |
) |
|
$ |
50.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-27-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
NOTE Q - SUPPLEMENTAL GUARANTOR INFORMATION - (Continued)
Consolidating Statement of Operations
Nine Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
Guarantor |
|
Non-Guarantor |
|
|
|
|
|
|
Horton, Inc. |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Total |
|
|
(In millions) |
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
860.8 |
|
|
$ |
2,517.7 |
|
|
$ |
5.5 |
|
|
$ |
|
|
|
$ |
3,384.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
688.6 |
|
|
|
2,138.8 |
|
|
|
2.2 |
|
|
|
|
|
|
|
2,829.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
172.2 |
|
|
|
378.9 |
|
|
|
3.3 |
|
|
|
|
|
|
|
554.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
expense |
|
|
163.1 |
|
|
|
232.0 |
|
|
|
6.1 |
|
|
|
|
|
|
|
401.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in (income) of subsidiaries |
|
|
(165.1 |
) |
|
|
|
|
|
|
|
|
|
|
165.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
69.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on early retirement of debt, net |
|
|
6.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) |
|
|
(3.0 |
) |
|
|
(1.7 |
) |
|
|
(2.7 |
) |
|
|
|
|
|
|
(7.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.2 |
|
|
|
148.6 |
|
|
|
(0.1 |
) |
|
|
(165.1 |
) |
|
|
84.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net of recourse and
reinsurance expense |
|
|
|
|
|
|
|
|
|
|
67.7 |
|
|
|
|
|
|
|
67.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expense |
|
|
|
|
|
|
|
|
|
|
57.2 |
|
|
|
|
|
|
|
57.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
1.4 |
|
|
|
|
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other (income) |
|
|
|
|
|
|
|
|
|
|
(7.5 |
) |
|
|
|
|
|
|
(7.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.6 |
|
|
|
|
|
|
|
16.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
101.2 |
|
|
|
148.6 |
|
|
|
16.5 |
|
|
|
(165.1 |
) |
|
|
101.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit from income taxes |
|
|
(152.7 |
) |
|
|
(115.1 |
) |
|
|
(3.1 |
) |
|
|
118.2 |
|
|
|
(152.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
253.9 |
|
|
$ |
263.7 |
|
|
$ |
19.6 |
|
|
$ |
(283.3 |
) |
|
$ |
253.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-28-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
NOTE Q - SUPPLEMENTAL GUARANTOR INFORMATION - (Continued)
Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
Guarantor |
|
Non-Guarantor |
|
|
|
|
|
|
Horton, Inc. |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Total |
|
|
(In millions) |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
operating activities |
|
$ |
(104.1 |
) |
|
$ |
67.6 |
|
|
$ |
(38.8 |
) |
|
$ |
|
|
|
$ |
(75.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(6.0 |
) |
|
|
(6.8 |
) |
|
|
|
|
|
|
|
|
|
|
(12.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of marketable securities |
|
|
(259.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(259.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale or maturity
of marketable securities |
|
|
254.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in restricted cash |
|
|
3.7 |
|
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
3.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(7.3 |
) |
|
|
(7.0 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
(14.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in notes payable |
|
|
(336.5 |
) |
|
|
|
|
|
|
29.8 |
|
|
|
|
|
|
|
(306.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in intercompany
receivables/payables |
|
|
78.4 |
|
|
|
(78.3 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock associated with
certain employee benefit plans |
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid |
|
|
(35.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
(38.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities |
|
|
(329.9 |
) |
|
|
(78.3 |
) |
|
|
29.7 |
|
|
|
|
|
|
|
(378.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
|
(441.3 |
) |
|
|
(17.7 |
) |
|
|
(9.3 |
) |
|
|
|
|
|
|
(468.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
beginning of period |
|
|
1,234.9 |
|
|
|
45.3 |
|
|
|
29.1 |
|
|
|
|
|
|
|
1,309.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
end of period |
|
$ |
793.6 |
|
|
$ |
27.6 |
|
|
$ |
19.8 |
|
|
$ |
|
|
|
$ |
841.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-29-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
June 30, 2011
NOTE Q - SUPPLEMENTAL GUARANTOR INFORMATION - (Continued)
Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
Guarantor |
|
Non-Guarantor |
|
|
|
|
|
|
Horton, Inc. |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Total |
|
|
(In millions) |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities |
|
$ |
344.4 |
|
|
$ |
323.9 |
|
|
$ |
(81.2 |
) |
|
$ |
|
|
|
$ |
587.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(6.7 |
) |
|
|
(8.5 |
) |
|
|
(0.4 |
) |
|
|
|
|
|
|
(15.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of marketable securities |
|
|
(299.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(299.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in restricted cash |
|
|
(3.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(309.7 |
) |
|
|
(8.5 |
) |
|
|
(0.4 |
) |
|
|
|
|
|
|
(318.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in notes payable |
|
|
(888.7 |
) |
|
|
|
|
|
|
83.7 |
|
|
|
|
|
|
|
(805.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in intercompany
receivables/payables |
|
|
314.0 |
|
|
|
(311.6 |
) |
|
|
(2.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock associated with
certain employee
benefit plans |
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit from stock
option exercises |
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid |
|
|
(35.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities |
|
|
(603.0 |
) |
|
|
(311.6 |
) |
|
|
81.3 |
|
|
|
|
|
|
|
(833.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and
cash equivalents |
|
|
(568.3 |
) |
|
|
3.8 |
|
|
|
(0.3 |
) |
|
|
|
|
|
|
(564.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
beginning of period |
|
|
1,871.2 |
|
|
|
48.3 |
|
|
|
37.8 |
|
|
|
|
|
|
|
1,957.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
end of period |
|
$ |
1,302.9 |
|
|
$ |
52.1 |
|
|
$ |
37.5 |
|
|
$ |
|
|
|
$ |
1,392.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-30-
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements and related notes included
in this quarterly report and with our annual report on Form 10-K for the fiscal year ended
September 30, 2010. Some of the information contained in this discussion and analysis constitutes
forward-looking statements that involve risks and uncertainties. Actual results could differ
materially from those discussed in these forward-looking statements. Factors that could cause or
contribute to these differences include, but are not limited to, those described in the
Forward-Looking Statements section following this discussion.
BUSINESS
We are one of the largest homebuilding companies in the United States, constructing and
selling single-family housing through our operating divisions in 26 states and 71 markets as of
June 30, 2011, 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 $700,000, with an average closing price of $210,800 during the
nine months ended June 30, 2011. Approximately 88% and 86% of home sales revenues were generated
from the sale of single-family detached homes in the nine months ended June 30, 2011 and 2010,
respectively. 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 financing and title agency
services to homebuyers in many of our homebuilding markets. DHI Mortgage, our wholly-owned
subsidiary, provides mortgage financing services primarily to the purchasers of homes we build. We
generally do not retain or service the mortgages we originate; rather, we seek to sell the
mortgages and related servicing rights to third-party purchasers. DHI Mortgage originates loans in
accordance with purchaser guidelines and historically has sold substantially all of its mortgage
production within 30 days of origination. Our subsidiary title companies serve as title insurance
agents by providing title insurance policies, examination and closing services, primarily to the
purchasers of our homes.
-31-
We conduct our homebuilding operations in the geographic regions, states and markets listed
below, and we conduct our mortgage and title operations in many of these markets. Our homebuilding
operating divisions are aggregated into six reporting segments, also referred to as reporting
regions, which comprise the markets below. Our financial statements contain additional information
regarding segment performance.
|
|
|
State |
|
Reporting Region/Market |
|
|
|
East Region |
Delaware
|
|
Central Delaware |
Georgia
|
|
Savannah |
Maryland
|
|
Baltimore
Suburban Washington, D.C. |
New Jersey
|
|
North New Jersey
South New Jersey |
North Carolina
|
|
Brunswick County
Charlotte
Greensboro/Winston-Salem
Raleigh/Durham |
Pennsylvania
|
|
Lancaster
Philadelphia |
South Carolina
|
|
Charleston
Columbia
Greenville
Hilton Head
Myrtle Beach |
Virginia
|
|
Northern Virginia |
|
|
|
|
|
Midwest Region |
Colorado
|
|
Colorado Springs
Denver
Fort Collins |
Illinois
|
|
Chicago |
Minnesota
|
|
Minneapolis/St. Paul |
Wisconsin
|
|
Kenosha |
|
|
|
|
|
Southeast Region |
Alabama
|
|
Birmingham
Mobile |
Florida
|
|
Daytona Beach
Fort Myers/Naples
Jacksonville
Melbourne/Vero Beach
Miami/West Palm Beach
Orlando
Pensacola/Panama City
Tampa/Sarasota |
Georgia
|
|
Atlanta
Middle Georgia |
|
|
|
|
|
|
State |
|
Reporting Region/Market |
|
|
|
South Central Region |
Louisiana
|
|
Baton Rouge
Lafayette |
New Mexico
|
|
Las Cruces |
Oklahoma
|
|
Oklahoma City |
Texas
|
|
Austin
Dallas
El Paso
Fort Worth
Houston
Killeen/Temple/Waco
Rio Grande Valley
San Antonio |
|
|
|
|
|
Southwest Region |
Arizona
|
|
Phoenix
Tucson |
New Mexico
|
|
Albuquerque |
|
|
|
|
|
West Region |
California
|
|
Bay Area
Central Valley
Imperial Valley
Los Angeles County
Riverside County
Sacramento
San Bernardino County
San Diego County
Ventura County |
Hawaii
|
|
Hawaii
Maui
Oahu |
Idaho
|
|
Boise |
Nevada
|
|
Las Vegas
Reno |
Oregon
|
|
Albany
Portland |
Utah
|
|
Salt Lake City |
Washington
|
|
Seattle/Tacoma
Vancouver |
-32-
OVERVIEW
In
the third quarter of fiscal 2011, conditions within the homebuilding industry remained
challenging, primarily due to weak overall economic conditions, high unemployment and low consumer
confidence. Although new home demand has declined from the prior year as a result of the expiration
of the federal homebuyer tax credit, our net sales orders in the three months ended June 30, 2011
were down only 1% from both the March 2011 and June 2010 quarters. Further, the value of our net
sales orders in the three months ended June 30, 2011 increased by 4% compared to both the
immediately preceding and prior year quarters. These results suggest that overall demand for new
homes may be stabilizing, but we expect that demand is likely to remain at low levels for some time.
During the ongoing slowdown in the homebuilding industry that began in 2006, numerous factors
have hurt demand for new homes on a pervasive and persistent basis across the United States. These
factors include high inventory levels of available homes, elevated sales order cancellation rates,
low sales absorption rates and overall weak consumer confidence. The effects of these factors have
been magnified by reduced availability of credit in the mortgage markets and high levels of home
foreclosures. High levels of foreclosures not only contribute to additional inventory available for
sale, but also reduce appraisal valuations for new homes, potentially resulting in lower sales
prices. The turmoil in the housing market has resulted in substantial
price reductions of our homes
during the course of the slowdown. The overall economy remains weak, with a high level of
unemployment, substantially reduced consumer spending and low levels of consumer confidence.
The continued low level of demand for our homes indicates that market conditions in the
homebuilding industry remain weak, and the timing of a sustainable housing recovery is uncertain.
However, our strong balance sheet and liquidity will allow us to invest in market opportunities as
they arise. We continue to adjust our business to these lower levels
of demand, and we believe we are well
positioned for an eventual housing recovery. We will continue to maintain our cautious outlook for
the homebuilding industry, and will adjust our operating strategy as necessary as we continually
assess the level of underlying demand for new homes in our communities. We expect that our fiscal
year home sales, closings and income before income taxes will be lower in fiscal 2011 than in
fiscal 2010; however, we expect our home closings and income before income taxes to be higher in
the second half of fiscal 2011 than the first half of the year.
Our future results could be negatively impacted by prolonged weakness in the economy,
continued high levels of unemployment, a significant increase in mortgage interest rates or further
tightening of mortgage lending standards. Additionally, recent inflationary trends, especially in
oil prices and other commodities may further weaken the overall economy as well as consumer
confidence.
Due to these uncertain market conditions, we have evaluated our homebuilding and financial
services assets for recoverability. Our assets whose recoverability is most impacted by market
conditions include inventory, earnest money deposits and pre-acquisition costs related to land and
lot option contracts, tax assets and owned mortgage loans. These assets collectively represented
approximately 90% of our total assets, excluding cash and marketable securities, at June 30, 2011.
Our evaluations incorporated our expectation of continued challenges in the homebuilding industry.
Based on our evaluations, during the three months ended June 30, 2011, we recorded inventory
impairment charges of $7.8 million, wrote-off earnest money deposits and pre-acquisition costs
related to land and lot option contracts we no longer plan to pursue of $2.1 million (net of
recoveries), incurred charges of $3.5 million associated with mortgage loans held in portfolio and
the limited recourse provisions on previously sold mortgage loans and incurred charges of $0.4
million related to mortgage reinsurance activities. We will evaluate whether further impairment
charges, valuation adjustments or write-offs are necessary on these assets in the coming quarters.
Additional discussion of these evaluations and charges is included herein.
-33-
STRATEGY
While population growth, a fundamental factor which supports housing demand, remains positive
it is not possible in the near term to predict if current homebuilding industry conditions will
improve or if they will deteriorate from current levels. During the
downturn, we have generated significant cash flow from operations
which we have primarily used to increase our cash balances and reduce
our outstanding debt. Our
increased liquidity and reduced leverage provide us with flexibility in determining the appropriate
operating strategy for each of our communities and markets to strike the best balance between cash
flow generation and potential profit. We are continuing the following initiatives related to our
operating strategy:
|
|
|
Maintaining a strong cash balance and overall liquidity position. |
|
|
|
|
Managing the sales prices and level of sales incentives on our homes as necessary to
optimize the balance of sales volumes, profits, returns on inventory investments and
cash flows. |
|
|
|
|
Entering into new lot option contracts to purchase finished lots to potentially
increase sales volumes and profitability. |
|
|
|
|
Renegotiating existing lot option contracts to reduce our lot costs and better match
the scheduled lot purchases with new home demand in each community. |
|
|
|
|
Limiting land acquisition and development spending, especially in communities that
require substantial investments of time or capital resources. |
|
|
|
|
Managing our inventory of homes under construction by selectively starting
construction on unsold homes to capture new home demand, while monitoring the number
and aging of unsold homes and aggressively marketing unsold, completed homes in
inventory. |
|
|
|
|
Decreasing the cost of goods purchased from both vendors and subcontractors. |
|
|
|
|
Modifying product offerings and pricing to meet consumer demand in each of our
markets. |
|
|
|
|
Controlling our SG&A infrastructure to match production levels. |
Although we cannot provide any assurances that these initiatives will be successful in the
future, we expect that our operating strategy will allow us to
achieve profitability while maintaining a strong
balance sheet and liquidity position in fiscal 2011.
-34-
KEY RESULTS
Key financial results as of and for the three months ended June 30, 2011, as compared to the
same period of 2010, were as follows:
Homebuilding Operations:
|
|
|
Homebuilding revenues decreased 29% to $975.4 million. |
|
|
|
|
Homes closed decreased 33% to 4,555 homes, while the average selling price of those
homes increased 6% to $213,900. |
|
|
|
|
Net sales orders decreased 1% to 4,874 homes. |
|
|
|
|
Sales order backlog increased 24% to $1.2 billion. |
|
|
|
|
Home sales gross margins decreased 70 basis points to 16.5%. |
|
|
|
|
Inventory impairments and land option cost write-offs were $9.9 million, compared to
$30.3 million. |
|
|
|
|
Homebuilding SG&A expenses decreased 21% to $113.7 million, but increased as a
percentage of homebuilding revenues by 130 basis points to 11.7%. |
|
|
|
|
Homebuilding pre-tax income was $22.2 million, compared
to $37.4
million. |
|
|
|
|
Homes in inventory were 11,400, compared to 9,500 and 10,800 at September 30, 2010
and June 30, 2010, respectively. |
|
|
|
|
Owned and optioned lots totaled 115,000, compared to 119,400 and 116,500 at
September 30, 2010 and June 30, 2010, respectively. |
|
|
|
|
Homebuilding debt was $1.8 billion, decreasing from $2.1 billion and $2.2 billion at
September 30, 2010 and June 30, 2010, respectively. |
|
|
|
|
Net homebuilding debt to total capital was 19.9%, up 380 basis points and 240 basis
points from the ratio at September 30, 2010 and June 30, 2010, respectively. Gross
homebuilding debt to total capital was 40.5%, an improvement of 380 basis points and
510 basis points from the ratio at September 30, 2010 and June 30, 2010, respectively. |
|
|
|
|
Homebuilding cash and marketable securities totaled $1.1 billion, compared to $1.6
billion and $1.7 billion at September 30, 2010 and June 30, 2010, respectively. |
Financial Services Operations:
|
|
|
Total financial services revenues, net of recourse and reinsurance expenses,
decreased 14% to $23.8 million from $27.8 million. |
|
|
|
|
Financial services pre-tax income was $6.7 million, compared to pre-tax income of
$8.9 million. |
Consolidated Results:
|
|
|
Diluted earnings per share was $0.09, compared to diluted earnings per share of
$0.16. |
|
|
|
|
Net income was $28.7 million, compared to net income of $50.5 million. |
|
|
|
|
Total equity was $2.6 billion, essentially unchanged from the balance at September
30, 2010 and June 30, 2010. |
|
|
|
|
Net cash used in operations was $54.2 million, compared to net cash provided by
operations of $159.3 million. |
-35-
Key financial results for the nine months ended June 30, 2011, as compared to the same period
of 2010, were as follows:
Homebuilding Operations:
|
|
|
Homebuilding revenues decreased 27% to $2.5 billion. |
|
|
|
|
Homes closed decreased 29% to 11,708 homes, while the average selling price of those
homes increased 3% to $210,800. |
|
|
|
|
Net sales orders decreased 14% to 13,180 homes. |
|
|
|
|
Home sales gross margins decreased 120 basis points to 16.2%. |
|
|
|
|
Inventory impairments and land option cost write-offs were $32.6 million, compared
to $33.9 million. |
|
|
|
|
Homebuilding SG&A expenses decreased 11% to $355.8 million, but increased as a
percentage of homebuilding revenues by 250 basis points to 14.4%. |
|
|
|
|
Homebuilding pre-tax loss was $34.4 million, compared to pre-tax income of $84.6
million. |
Financial Services Operations:
|
|
|
Total financial services revenues, net of recourse and reinsurance expenses,
decreased 7% to $63.0 million from $67.7 million. |
|
|
|
|
Financial services pre-tax income was $12.6 million, compared to pre-tax income of
$16.6 million. |
Consolidated Results:
|
|
|
Diluted earnings per share was $0.11, compared to diluted earnings per share of
$0.78. |
|
|
|
|
Net income was $36.0 million, compared to net income of $253.9 million. |
|
|
|
|
Net cash used in operations was $75.3 million, compared to net cash provided by
operations of $587.1 million. |
-36-
RESULTS OF OPERATIONS HOMEBUILDING
The following tables and related discussion set forth key operating and financial data for our
homebuilding operations by reporting segment as of and for the three and nine months ended June 30,
2011 and 2010. We have restated the prior year amounts between reporting segments to conform to the
current year presentation, reflecting the change in our reporting segments that occurred in the
three months ended September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales Orders (1) |
|
|
Three Months Ended June 30, |
|
|
Net Homes Sold |
|
Value (In millions) |
|
Average Selling Price |
|
|
2011 |
|
|
2010 |
|
|
% Change |
|
2011 |
|
|
2010 |
|
|
% Change |
|
2011 |
|
|
2010 |
|
|
% Change |
East |
|
|
554 |
|
|
|
512 |
|
|
|
8 |
% |
|
$ |
133.0 |
|
|
$ |
114.5 |
|
|
|
16 |
% |
|
$ |
240,100 |
|
|
$ |
223,600 |
|
|
|
7 |
% |
Midwest |
|
|
303 |
|
|
|
250 |
|
|
|
21 |
% |
|
|
83.0 |
|
|
|
71.5 |
|
|
|
16 |
% |
|
|
273,900 |
|
|
|
286,000 |
|
|
|
(4 |
)% |
Southeast |
|
|
1,109 |
|
|
|
1,044 |
|
|
|
6 |
% |
|
|
215.9 |
|
|
|
196.6 |
|
|
|
10 |
% |
|
|
194,700 |
|
|
|
188,300 |
|
|
|
3 |
% |
South Central |
|
|
1,666 |
|
|
|
1,778 |
|
|
|
(6 |
)% |
|
|
298.8 |
|
|
|
310.4 |
|
|
|
(4 |
)% |
|
|
179,400 |
|
|
|
174,600 |
|
|
|
3 |
% |
Southwest |
|
|
328 |
|
|
|
402 |
|
|
|
(18 |
)% |
|
|
61.7 |
|
|
|
69.9 |
|
|
|
(12 |
)% |
|
|
188,100 |
|
|
|
173,900 |
|
|
|
8 |
% |
West |
|
|
914 |
|
|
|
935 |
|
|
|
(2 |
)% |
|
|
275.0 |
|
|
|
262.8 |
|
|
|
5 |
% |
|
|
300,900 |
|
|
|
281,100 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,874 |
|
|
|
4,921 |
|
|
|
(1 |
)% |
|
$ |
1,067.4 |
|
|
$ |
1,025.7 |
|
|
|
4 |
% |
|
$ |
219,000 |
|
|
$ |
208,400 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, |
|
|
Net Homes Sold |
|
Value (In millions) |
|
Average Selling Price |
|
|
2011 |
|
|
2010 |
|
|
% Change |
|
2011 |
|
|
2010 |
|
|
% Change |
|
2011 |
|
|
2010 |
|
|
% Change |
East |
|
|
1,557 |
|
|
|
1,582 |
|
|
|
(2 |
)% |
|
$ |
356.4 |
|
|
$ |
367.5 |
|
|
|
(3 |
)% |
|
$ |
228,900 |
|
|
$ |
232,300 |
|
|
|
(1 |
)% |
Midwest |
|
|
758 |
|
|
|
821 |
|
|
|
(8 |
)% |
|
|
202.2 |
|
|
|
233.4 |
|
|
|
(13 |
)% |
|
|
266,800 |
|
|
|
284,300 |
|
|
|
(6 |
)% |
Southeast |
|
|
3,021 |
|
|
|
3,159 |
|
|
|
(4 |
)% |
|
|
580.9 |
|
|
|
589.6 |
|
|
|
(1 |
)% |
|
|
192,300 |
|
|
|
186,600 |
|
|
|
3 |
% |
South Central |
|
|
4,671 |
|
|
|
5,829 |
|
|
|
(20 |
)% |
|
|
821.7 |
|
|
|
1,011.7 |
|
|
|
(19 |
)% |
|
|
175,900 |
|
|
|
173,600 |
|
|
|
1 |
% |
Southwest |
|
|
932 |
|
|
|
1,387 |
|
|
|
(33 |
)% |
|
|
173.5 |
|
|
|
242.7 |
|
|
|
(29 |
)% |
|
|
186,200 |
|
|
|
175,000 |
|
|
|
6 |
% |
West |
|
|
2,241 |
|
|
|
2,618 |
|
|
|
(14 |
)% |
|
|
665.3 |
|
|
|
748.6 |
|
|
|
(11 |
)% |
|
|
296,900 |
|
|
|
285,900 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,180 |
|
|
|
15,396 |
|
|
|
(14 |
)% |
|
$ |
2,800.0 |
|
|
$ |
3,193.5 |
|
|
|
(12 |
)% |
|
$ |
212,400 |
|
|
$ |
207,400 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Order Cancellations |
|
|
Three Months Ended June 30, |
|
|
Cancelled Sales Orders |
|
Value (In millions) |
|
Cancellation Rate (2) |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
East |
|
|
192 |
|
|
|
165 |
|
|
$ |
40.7 |
|
|
$ |
34.9 |
|
|
|
26 |
% |
|
|
24 |
% |
Midwest |
|
|
58 |
|
|
|
68 |
|
|
|
14.5 |
|
|
|
18.1 |
|
|
|
16 |
% |
|
|
21 |
% |
Southeast |
|
|
438 |
|
|
|
430 |
|
|
|
77.0 |
|
|
|
76.2 |
|
|
|
28 |
% |
|
|
29 |
% |
South Central |
|
|
750 |
|
|
|
861 |
|
|
|
127.8 |
|
|
|
144.2 |
|
|
|
31 |
% |
|
|
33 |
% |
Southwest |
|
|
162 |
|
|
|
163 |
|
|
|
27.3 |
|
|
|
28.4 |
|
|
|
33 |
% |
|
|
29 |
% |
West |
|
|
231 |
|
|
|
221 |
|
|
|
72.0 |
|
|
|
62.5 |
|
|
|
20 |
% |
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,831 |
|
|
|
1,908 |
|
|
$ |
359.3 |
|
|
$ |
364.3 |
|
|
|
27 |
% |
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, |
|
|
Cancelled Sales Orders |
|
Value (In millions) |
|
Cancellation Rate (2) |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
East |
|
|
496 |
|
|
|
412 |
|
|
$ |
105.4 |
|
|
$ |
92.4 |
|
|
|
24 |
% |
|
|
21 |
% |
Midwest |
|
|
138 |
|
|
|
187 |
|
|
|
35.1 |
|
|
|
51.9 |
|
|
|
15 |
% |
|
|
19 |
% |
Southeast |
|
|
1,122 |
|
|
|
1,030 |
|
|
|
201.5 |
|
|
|
179.9 |
|
|
|
27 |
% |
|
|
25 |
% |
South Central |
|
|
2,021 |
|
|
|
2,239 |
|
|
|
343.7 |
|
|
|
371.7 |
|
|
|
30 |
% |
|
|
28 |
% |
Southwest |
|
|
464 |
|
|
|
525 |
|
|
|
78.9 |
|
|
|
89.5 |
|
|
|
33 |
% |
|
|
27 |
% |
West |
|
|
580 |
|
|
|
589 |
|
|
|
175.0 |
|
|
|
168.5 |
|
|
|
21 |
% |
|
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,821 |
|
|
|
4,982 |
|
|
$ |
939.6 |
|
|
$ |
953.9 |
|
|
|
27 |
% |
|
|
24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net sales orders represent the number and dollar value of new sales contracts
executed with customers (gross sales orders), net of cancelled sales orders. |
|
(2) |
|
Cancellation rate represents the number of cancelled sales orders divided by
gross sales orders. |
-37-
Net Sales Orders
The value of net sales orders increased 4%, to $1,067.4 million (4,874 homes) for the three
months ended June 30, 2011, from $1,025.7 million (4,921 homes) for the same period of 2010. The
value of net sales orders decreased 12%, to $2,800.0 million (13,180 homes) for the nine months
ended June 30, 2011, from $3,193.5 million (15,396 homes) for the same period of 2010. The number
of net sales orders during the current quarter was similar to the volume in the prior year quarter,
while sales orders in the nine-month period were 14% lower than the prior year period. Sales order
volume in the prior year nine-month period benefitted from the federal homebuyer tax credit, while
the current year period did not have a similar benefit. Historically, prior to the onset of the
current downturn in the housing market, our first fiscal quarter has been our weakest quarter in
terms of sales orders, and we typically had more sales orders in the second and third quarters
during spring and into early summer. We experienced this seasonal pattern in our net sales orders
during the current quarter, which were essentially flat with the second quarter and greater than
the first quarter. While we are encouraged by the return of the historical trend of seasonal sales,
demand for new homes remains at a low level.
In comparing the three-month period ended June 30, 2011 to the same period of 2010, the 21%
increase in net sales orders in our Midwest region was primarily due to an increase in sales in our
Denver market and the 18% decrease in net sales orders in our Southwest region was due to decreases
in sales in our Phoenix and Tucson markets. In comparing the nine-month periods, the volume of net
sales orders decreased in all of our regions, but to a lesser degree in our East and Southeast
regions as a result of opening new communities in these regions. Our future sales volumes will
depend on the strength of the overall economy, employment levels and our ability to successfully
implement our operating strategies in each of our markets.
In comparing the three-month period ended June 30, 2011 to the same period of 2010, the value
of net sales orders increased in four of our six market regions. Although the increases were
primarily due to increases in the number of homes sold in those regions, an increase in the average
selling price was also a factor in most regions. In comparing the nine-month period ended June 30,
2011 to the same period of 2010, the value of net sales orders decreased in all of our market
regions, primarily due to decreases in the number of homes sold.
The average price of our net sales orders in the three and nine-month periods ended June 30,
2011 was $219,000 and $212,400, respectively, higher than the averages of $208,400 and $207,400 in
the comparable periods of 2010. In comparing the three-month period ended June 30, 2011 to the same
period of 2010, the average price of our net sales orders increased in five of our six market
regions. The largest increases were in the East, Southwest and West regions and were primarily due
to opening new communities and adjusting our product mix, with higher priced communities
representing more of our sales. We will continue our efforts to adjust our product mix, geographic
mix and pricing within our homebuilding markets to respond to market conditions.
Our sales order cancellation rate (cancelled sales orders divided by gross sales orders for
the period) during the three and nine months ended June 30, 2011 was 27%, compared to 28% and 24%,
respectively, during the same periods of 2010. These cancellation rates continue to be above
historical levels and are reflective of low consumer confidence and tight mortgage lending
standards. The return of our cancellation rate to historical levels depends largely on the strength
of the overall economy and our ability to successfully implement our operating strategies in each
of our markets. We anticipate that cancellation rates may fluctuate significantly
until there is sustained stability in market conditions.
-38-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Order Backlog |
|
|
As of June 30, |
|
|
Homes in Backlog |
|
Value (In millions) |
|
Average Selling Price |
|
|
2011 |
|
|
2010 |
|
|
% Change |
|
2011 |
|
|
2010 |
|
|
% Change |
|
2011 |
|
|
2010 |
|
|
% Change |
East |
|
|
654 |
|
|
|
511 |
|
|
|
28 |
% |
|
$ |
150.9 |
|
|
$ |
112.4 |
|
|
|
34 |
% |
|
$ |
230,700 |
|
|
$ |
220,000 |
|
|
|
5 |
% |
Midwest |
|
|
305 |
|
|
|
270 |
|
|
|
13 |
% |
|
|
85.7 |
|
|
|
79.3 |
|
|
|
8 |
% |
|
|
281,000 |
|
|
|
293,700 |
|
|
|
(4 |
)% |
Southeast |
|
|
1,376 |
|
|
|
980 |
|
|
|
40 |
% |
|
|
263.6 |
|
|
|
195.0 |
|
|
|
35 |
% |
|
|
191,600 |
|
|
|
199,000 |
|
|
|
(4 |
)% |
South Central |
|
|
2,074 |
|
|
|
1,679 |
|
|
|
24 |
% |
|
|
367.5 |
|
|
|
302.8 |
|
|
|
21 |
% |
|
|
177,200 |
|
|
|
180,300 |
|
|
|
(2 |
)% |
Southwest |
|
|
440 |
|
|
|
323 |
|
|
|
36 |
% |
|
|
81.2 |
|
|
|
57.5 |
|
|
|
41 |
% |
|
|
184,500 |
|
|
|
178,000 |
|
|
|
4 |
% |
West |
|
|
751 |
|
|
|
667 |
|
|
|
13 |
% |
|
|
233.3 |
|
|
|
207.4 |
|
|
|
12 |
% |
|
|
310,700 |
|
|
|
310,900 |
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,600 |
|
|
|
4,430 |
|
|
|
26 |
% |
|
$ |
1,182.2 |
|
|
$ |
954.4 |
|
|
|
24 |
% |
|
$ |
211,100 |
|
|
$ |
215,400 |
|
|
|
(2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Order Backlog
Sales order backlog represents homes under contract but not yet closed at the end of the
period. Many of the contracts in our sales order backlog are subject to contingencies, including
mortgage loan approval and buyers selling their existing homes, which can result in cancellations.
A portion of the contracts in backlog will not result in closings due to cancellations, which have
been substantial during the recent housing downturn.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes Closed and Home Sales Revenue |
|
|
Three Months Ended June 30, |
|
|
Homes Closed |
|
Value (In millions) |
|
Average Selling Price |
|
|
2011 |
|
|
2010 |
|
|
% Change |
|
2011 |
|
|
2010 |
|
|
% Change |
|
2011 |
|
|
2010 |
|
|
% Change |
East |
|
|
508 |
|
|
|
652 |
|
|
|
(22 |
)% |
|
$ |
114.7 |
|
|
$ |
150.6 |
|
|
|
(24 |
)% |
|
$ |
225,800 |
|
|
$ |
231,000 |
|
|
|
(2 |
)% |
Midwest |
|
|
276 |
|
|
|
350 |
|
|
|
(21 |
)% |
|
|
74.0 |
|
|
|
99.3 |
|
|
|
(25 |
)% |
|
|
268,100 |
|
|
|
283,700 |
|
|
|
(5 |
)% |
Southeast |
|
|
996 |
|
|
|
1,337 |
|
|
|
(26 |
)% |
|
|
194.2 |
|
|
|
247.8 |
|
|
|
(22 |
)% |
|
|
195,000 |
|
|
|
185,300 |
|
|
|
5 |
% |
South Central |
|
|
1,662 |
|
|
|
2,704 |
|
|
|
(39 |
)% |
|
|
294.5 |
|
|
|
462.8 |
|
|
|
(36 |
)% |
|
|
177,200 |
|
|
|
171,200 |
|
|
|
4 |
% |
Southwest |
|
|
311 |
|
|
|
659 |
|
|
|
(53 |
)% |
|
|
56.0 |
|
|
|
112.5 |
|
|
|
(50 |
)% |
|
|
180,100 |
|
|
|
170,700 |
|
|
|
6 |
% |
West |
|
|
802 |
|
|
|
1,103 |
|
|
|
(27 |
)% |
|
|
241.1 |
|
|
|
305.2 |
|
|
|
(21 |
)% |
|
|
300,600 |
|
|
|
276,700 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,555 |
|
|
|
6,805 |
|
|
|
(33 |
)% |
|
$ |
974.5 |
|
|
$ |
1,378.2 |
|
|
|
(29 |
)% |
|
$ |
213,900 |
|
|
$ |
202,500 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, |
|
|
Homes Closed |
|
Value (In millions) |
|
Average Selling Price |
|
|
2011 |
|
|
2010 |
|
|
% Change |
|
2011 |
|
|
2010 |
|
|
% Change |
|
2011 |
|
|
2010 |
|
|
% Change |
East |
|
|
1,375 |
|
|
|
1,630 |
|
|
|
(16 |
)% |
|
$ |
308.9 |
|
|
$ |
381.7 |
|
|
|
(19 |
)% |
|
$ |
224,700 |
|
|
$ |
234,200 |
|
|
|
(4 |
)% |
Midwest |
|
|
700 |
|
|
|
940 |
|
|
|
(26 |
)% |
|
|
186.7 |
|
|
|
259.1 |
|
|
|
(28 |
)% |
|
|
266,700 |
|
|
|
275,600 |
|
|
|
(3 |
)% |
Southeast |
|
|
2,457 |
|
|
|
3,148 |
|
|
|
(22 |
)% |
|
|
479.8 |
|
|
|
573.6 |
|
|
|
(16 |
)% |
|
|
195,300 |
|
|
|
182,200 |
|
|
|
7 |
% |
South Central |
|
|
4,288 |
|
|
|
6,512 |
|
|
|
(34 |
)% |
|
|
751.5 |
|
|
|
1,111.4 |
|
|
|
(32 |
)% |
|
|
175,300 |
|
|
|
170,700 |
|
|
|
3 |
% |
Southwest |
|
|
897 |
|
|
|
1,556 |
|
|
|
(42 |
)% |
|
|
164.1 |
|
|
|
271.6 |
|
|
|
(40 |
)% |
|
|
182,900 |
|
|
|
174,600 |
|
|
|
5 |
% |
West |
|
|
1,991 |
|
|
|
2,808 |
|
|
|
(29 |
)% |
|
|
577.6 |
|
|
|
783.7 |
|
|
|
(26 |
)% |
|
|
290,100 |
|
|
|
279,100 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,708 |
|
|
|
16,594 |
|
|
|
(29 |
)% |
|
$ |
2,468.6 |
|
|
$ |
3,381.1 |
|
|
|
(27 |
)% |
|
$ |
210,800 |
|
|
$ |
203,800 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Sales Revenue
Revenues from home sales decreased 29%, to $974.5 million (4,555 homes closed) for the three
months ended June 30, 2011, from $1,378.2 million (6,805 homes closed) for the comparable period of
2010. Revenues from home sales decreased 27%, to $2,468.6 million (11,708 homes closed) for the
nine months ended June 30, 2011, from $3,381.1 million (16,594 homes closed) for the comparable
period of 2010. The average selling price of homes closed during the three months ended June 30,
2011 was $213,900, up 6% from the $202,500 average for the same period of 2010, which reflects a
slight shift in product mix toward a higher priced product in our newer
-39-
communities. The average selling price of homes closed during the nine months ended June 30,
2011 was $210,800, up 3% from the $203,800 average for the same period of 2010. During the three
and nine months ended June 30, 2011, home sales revenues decreased in all of our market regions,
resulting from decreases in the number of homes closed.
The number of homes closed in the three and nine months ended June 30, 2011 decreased 33% and
29%, respectively, due to significant decreases in all of our market regions. The federal homebuyer
tax credit helped stimulate demand for new homes during the prior year periods and following its
expiration we experienced a significant decline in demand for our homes as reflected in our
current year results. Due to the decline in net sales orders during the year and the resulting
decline in home closings during recent quarters, we will close fewer homes in fiscal 2011 than we
closed in fiscal 2010. 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.
Homebuilding Operating Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentages of Related Revenues |
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
Gross profit Home sales |
|
|
16.5 |
% |
|
|
17.2 |
% |
|
|
16.2 |
% |
|
|
17.4 |
% |
Gross profit Land/lot sales |
|
|
22.2 |
% |
|
|
|
% |
|
|
2.9 |
% |
|
|
24.1 |
% |
Effect of inventory impairments and land option cost
write-offs on total homebuilding gross profit |
|
|
(1.0 |
)% |
|
|
(2.2 |
)% |
|
|
(1.3 |
)% |
|
|
(1.0 |
)% |
Gross profit Total homebuilding |
|
|
15.5 |
% |
|
|
15.0 |
% |
|
|
14.8 |
% |
|
|
16.4 |
% |
Selling, general and administrative expense |
|
|
11.7 |
% |
|
|
10.4 |
% |
|
|
14.4 |
% |
|
|
11.9 |
% |
Interest expense |
|
|
1.0 |
% |
|
|
1.4 |
% |
|
|
1.7 |
% |
|
|
2.0 |
% |
Loss on early retirement of debt, net |
|
|
0.7 |
% |
|
|
0.6 |
% |
|
|
0.4 |
% |
|
|
0.2 |
% |
Other (income) |
|
|
(0.1 |
)% |
|
|
(0.1 |
)% |
|
|
(0.3 |
)% |
|
|
(0.2 |
)% |
Income (loss) before income taxes |
|
|
2.3 |
% |
|
|
2.7 |
% |
|
|
(1.4 |
)% |
|
|
2.5 |
% |
Home Sales Gross Profit
Gross profit from home sales decreased by 32%, to $161.0 million for the three months ended
June 30, 2011, from $237.1 million for the comparable period of 2010. As a percentage of home sales
revenues, gross profit from home sales decreased 70 basis points, to 16.5%. The reduction in gross
profit from home sales was primarily due to the increased levels of incentives and discounts needed
to sell homes in the current year, which narrowed the range between our selling prices and costs of
our homes in most of our markets, causing approximately 100 basis points of the decline in home
sales gross profit. The prior year period benefitted from the federal homebuyer tax credit, which
created demand for our homes without the need for us to provide as many incentives and discounts.
This decrease was partially offset by a 30 basis point increase in home sales gross profit
resulting from a decrease in the amortization of capitalized interest and property taxes as a
percentage of home sales revenue.
Gross profit from home sales decreased by 32%, to $398.7 million for the nine months ended
June 30, 2011, from $587.6 million for the comparable period of 2010. As a percentage of home sales
revenues, gross profit from home sales decreased 120 basis points, to 16.2%. Generally, the factors
impacting gross margin for the nine-month period ended June 30, 2011 were similar to those
discussed for the three-month period. Specifically, the narrowing of the range between our selling
prices and costs of our homes caused 140 basis points of the decline, which was partially offset by
a 20 basis point increase in home sales gross profit resulting from a decrease in the amortization
of capitalized interest and property taxes as a percentage of home sales revenue.
To the extent we utilize sales incentives and price adjustments to increase the level of home
closings, gross profit percentages will continue to be impacted.
-40-
Land Sales Revenue
Land sales revenues increased to $0.9 million and $6.9 million in the three and nine months
ended June 30, 2011, respectively, from $0.1 million and $2.9 million in the comparable periods of
2010. Fluctuations in revenues from land sales are a function of how we manage our inventory levels
in various markets. We generally purchase land and lots with the intent to build and sell homes on
them; however, we occasionally purchase land that includes commercially zoned parcels which we
typically sell to commercial developers, and we also sell residential lots or land parcels to
manage our land and lot supply. Land and lot sales occur at unpredictable intervals and varying
degrees of profitability. Therefore, the revenues and gross profit from land sales fluctuate from
period to period. As of June 30, 2011, we had $27.5 million of land held for sale that we expect to
sell in the next twelve months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory Impairments and Land Option Cost Write-offs |
|
|
|
Three Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
|
Inventory |
|
|
Land Option |
|
|
|
|
|
|
Inventory |
|
|
Land Option |
|
|
|
|
|
|
Impairments |
|
|
Cost Write-offs |
|
|
Total |
|
|
Impairments |
|
|
Cost Write-offs |
|
|
Total |
|
|
|
(In millions) |
|
East |
|
$ |
0.1 |
|
|
$ |
0.6 |
|
|
$ |
0.7 |
|
|
$ |
5.3 |
|
|
$ |
0.2 |
|
|
$ |
5.5 |
|
Midwest |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
17.0 |
|
|
|
0.1 |
|
|
|
17.1 |
|
Southeast |
|
|
5.1 |
|
|
|
0.4 |
|
|
|
5.5 |
|
|
|
6.4 |
|
|
|
0.2 |
|
|
|
6.6 |
|
South Central |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.3 |
|
Southwest |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
|
2.4 |
|
|
|
0.9 |
|
|
|
3.3 |
|
|
|
0.2 |
|
|
|
0.6 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7.8 |
|
|
$ |
2.1 |
|
|
$ |
9.9 |
|
|
$ |
29.1 |
|
|
$ |
1.2 |
|
|
$ |
30.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Option |
|
|
|
|
|
|
Inventory |
|
|
Land Option |
|
|
|
|
|
|
Inventory |
|
|
Cost Write-offs |
|
|
|
|
|
|
Impairments |
|
|
Cost Write-offs |
|
|
Total |
|
|
Impairments |
|
|
(Recoveries) |
|
|
Total |
|
|
|
(In millions) |
|
East |
|
$ |
2.1 |
|
|
$ |
0.8 |
|
|
$ |
2.9 |
|
|
$ |
7.4 |
|
|
$ |
(0.2 |
) |
|
$ |
7.2 |
|
Midwest |
|
|
0.1 |
|
|
|
0.6 |
|
|
|
0.7 |
|
|
|
17.0 |
|
|
|
0.1 |
|
|
|
17.1 |
|
Southeast |
|
|
9.8 |
|
|
|
1.0 |
|
|
|
10.8 |
|
|
|
7.9 |
|
|
|
0.2 |
|
|
|
8.1 |
|
South Central |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
0.7 |
|
Southwest |
|
|
2.2 |
|
|
|
0.2 |
|
|
|
2.4 |
|
|
|
0.3 |
|
|
|
|
|
|
|
0.3 |
|
West |
|
|
12.8 |
|
|
|
2.6 |
|
|
|
15.4 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27.2 |
|
|
$ |
5.4 |
|
|
$ |
32.6 |
|
|
$ |
33.2 |
|
|
$ |
0.7 |
|
|
$ |
33.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-41-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Values of Potentially Impaired and Impaired Communities |
|
|
|
at June 30, 2011 |
|
|
|
|
|
|
|
Inventory with |
|
|
Communities with Impairment Charges Recorded |
|
|
|
|
|
|
|
Impairment Indicators |
|
|
at June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
Carrying Value |
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
Carrying |
|
|
Number of |
|
|
Prior to |
|
|
|
|
|
|
Communities (1) |
|
|
Communities (1) |
|
|
Value |
|
|
Communities (1) |
|
|
Impairment |
|
|
Fair Value |
|
|
|
(Values in millions) |
|
East |
|
|
213 |
|
|
|
12 |
|
|
$ |
79.1 |
|
|
|
1 |
|
|
$ |
1.1 |
|
|
$ |
1.0 |
|
Midwest |
|
|
62 |
|
|
|
9 |
|
|
|
69.5 |
|
|
|
1 |
|
|
|
0.5 |
|
|
|
0.4 |
|
Southeast |
|
|
345 |
|
|
|
19 |
|
|
|
61.9 |
|
|
|
5 |
|
|
|
20.2 |
|
|
|
15.1 |
|
South Central |
|
|
306 |
|
|
|
8 |
|
|
|
27.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Southwest |
|
|
70 |
|
|
|
10 |
|
|
|
41.3 |
|
|
|
1 |
|
|
|
0.6 |
|
|
|
0.5 |
|
West |
|
|
185 |
|
|
|
19 |
|
|
|
125.8 |
|
|
|
1 |
|
|
|
5.7 |
|
|
|
3.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,181 |
|
|
|
77 |
|
|
$ |
405.4 |
|
|
|
9 |
|
|
$ |
28.1 |
|
|
$ |
20.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Values of Potentially Impaired and Impaired Communities |
|
|
|
at September 30, 2010 |
|
|
|
|
|
|
|
Inventory with |
|
|
Communities with Impairment Charges Recorded |
|
|
|
|
|
|
|
Impairment Indicators |
|
|
at September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
Carrying Value |
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
Carrying |
|
|
Number of |
|
|
Prior to |
|
|
|
|
|
|
Communities (1) |
|
|
Communities (1) |
|
|
Value |
|
|
Communities (1) |
|
|
Impairment |
|
|
Fair Value |
|
|
|
(Values in millions) |
|
East |
|
|
181 |
|
|
|
7 |
|
|
$ |
69.9 |
|
|
|
1 |
|
|
$ |
4.4 |
|
|
$ |
2.8 |
|
Midwest |
|
|
60 |
|
|
|
13 |
|
|
|
94.1 |
|
|
|
3 |
|
|
|
11.3 |
|
|
|
6.4 |
|
Southeast |
|
|
308 |
|
|
|
12 |
|
|
|
42.7 |
|
|
|
2 |
|
|
|
11.8 |
|
|
|
2.8 |
|
South Central |
|
|
324 |
|
|
|
19 |
|
|
|
64.1 |
|
|
|
6 |
|
|
|
31.0 |
|
|
|
18.0 |
|
Southwest |
|
|
89 |
|
|
|
8 |
|
|
|
36.5 |
|
|
|
1 |
|
|
|
1.2 |
|
|
|
0.9 |
|
West |
|
|
181 |
|
|
|
13 |
|
|
|
102.5 |
|
|
|
1 |
|
|
|
3.4 |
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,143 |
|
|
|
72 |
|
|
$ |
409.8 |
|
|
|
14 |
|
|
$ |
63.1 |
|
|
$ |
34.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A community may consist of land held for development, residential land and lots developed and
under development, and construction in progress and finished homes. A particular community
often includes inventory in more than one category. Further, a community may contain multiple
parcels with varying product types (e.g. entry level and move-up single family detached, as
well as attached product types). Some communities have no homes under construction, finished
homes, or current home sales efforts or activity. |
Inventory Impairments and Land Option Cost Write-offs
At June 30, 2011, the assumptions utilized in our quarterly impairment evaluation reflected
our expectation of continued challenging conditions and uncertainties in the homebuilding industry
and in our markets. As we continue to evaluate the strength of the economy (measured largely in
terms of job growth), the level of underlying demand for new homes and our operating performance,
the level of impairments in future quarters will likely fluctuate and may increase.
Our impairment evaluation indicated communities with a combined carrying value of $405.4
million as of June 30, 2011 had indicators of potential impairment, and these communities were
evaluated for impairment. The analysis of the large majority of these communities assumed that
sales prices in future periods will be equal to or lower than current sales order prices in each
community, or in comparable communities, in order to generate an acceptable absorption rate. For a
minority of communities that we do not intend to develop or operate in current market conditions,
slight increases over current sales prices were assumed. While it is difficult to determine a
timeframe for a given community in the current market conditions, we estimated the remaining lives
of these communities to range from six months to in excess of ten years. In performing this analysis,
we utilized a range of
-42-
discount rates for communities of 14% to 20%. Through this evaluation
process, we determined that communities with a carrying value of $28.1 million as of June 30, 2011,
were impaired. As a result, during the three months ended June 30, 2011, we recorded impairment
charges of $7.8 million to reduce the carrying value of the impaired communities to their estimated
fair value, as compared to $29.1 million of impairment charges in the same period of 2010. During
the nine months ended June 30, 2011 and 2010, impairment charges totaled $27.2 million and $33.2
million, respectively. In the three months ended June 30, 2011, approximately 83% of the impairment
charges were recorded to residential land and lots and land held for development, and approximately
17% of the charges were recorded to construction in progress and finished homes inventory, compared
to 93% and 7%, respectively, in the same period of 2010. In the nine months ended June 30, 2011,
approximately 76% of the impairment charges were recorded to residential land and lots and land
held for development, and approximately 24% of the charges were recorded to construction in
progress and finished homes inventory, compared to 91% and 9%, respectively, in the same period of
2010.
Of the remaining $377.3 million carrying value of communities with impairment indicators which
were determined not to be impaired at June 30, 2011, the largest concentrations were in California
(23%), Illinois (14%), Arizona (10%), Florida (9%), New Jersey (8%) and Texas (7%). It is possible
that our estimate of undiscounted cash flows from these communities may change and could result in
a future need to record impairment charges to adjust the carrying value of these assets to their
estimated fair value. There are several factors which could lead to changes in the estimates of
undiscounted future cash flows for a given community. The most significant of these include pricing
and incentive levels actually realized by the community, the rate at which the homes are sold and
the costs incurred to develop the lots and construct the homes. The pricing and incentive levels
are often inter-related with sales pace within a community, such that a price reduction can
typically be expected to increase the sales pace. Further, both of these factors are heavily
influenced by the competitive pressures facing a given community from both new homes and existing
homes, some of which may result from foreclosures. If conditions in the broader economy,
homebuilding industry or specific markets in which we operate worsen, and as we re-evaluate
specific community pricing and incentives, construction and development plans, and our overall land
sale strategies, we may be required to evaluate additional communities or re-evaluate previously
impaired communities for potential impairment. These evaluations may result in additional
impairment charges.
Based on our quarterly reviews of land and lot option contracts, we have written off earnest
money deposits and pre-acquisition costs related to contracts for land or lots which are not
expected to be acquired. During the three-month periods ended June 30, 2011 and 2010, we wrote off
$2.1 million and $1.2 million, respectively, of earnest money deposits and pre-acquisition costs
related to land option contracts. During the nine-month periods ended June 30, 2011 and 2010, we
wrote off $5.4 million and $0.7 million, respectively, of these deposits and costs. At June 30,
2011, outstanding earnest money deposits and pre-acquisition costs associated with our portfolio of
land and lot option purchase contracts totaled $14.8 million and $8.6 million, respectively.
In the three and nine-month periods ended June 30, 2011, inventory impairment charges and
write-offs of earnest money deposits and pre-acquisition costs reduced total homebuilding gross
profit as a percentage of homebuilding revenues by approximately 100 basis points and 130 basis
points, respectively, compared to 220 basis points and 100 basis points, respectively, in the same
periods of 2010.
Selling, General and Administrative (SG&A) Expense
SG&A expense from homebuilding activities decreased 21% to $113.7 million in the three months
ended June 30, 2011, and 11% to $355.8 million in the nine months ended June 30, 2011, from the
comparable periods of 2010. As a percentage of homebuilding revenues, SG&A expense increased 130
basis points, to 11.7% and 250 basis points, to 14.4% in the three and nine-month periods ended
June 30, 2011, respectively, from 10.4% and 11.9% in the comparable periods of 2010. The largest
component of our homebuilding SG&A expense is employee compensation and related costs, which
represented 63% and 59% of SG&A costs in the three and nine-month periods ended June 30, 2011,
respectively, and 60% and 59% in the comparable periods of fiscal 2010. These costs decreased by
17%, to $71.5 million, and by 11% to $211.5 million in the three and nine months ended June 30,
2011, respectively, primarily due to a decline in the level of incentive compensation and to a
lesser extent, to the decline in the number of employees. Our homebuilding operations employed
approximately 2,475 and 2,565 employees at June 30, 2011 and 2010, respectively. A reduction in
advertising costs also contributed to the decline in SG&A expenses.
-43-
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 continually attempt
to adjust our SG&A infrastructure to support our expected closings volume; however, we cannot make
assurances that our actions will permit us to maintain or improve upon the current SG&A expense as
a percentage of revenues. It has become more difficult to reduce SG&A expense as the size of our
operations has decreased. If revenues decrease and we are unable to sufficiently adjust our SG&A,
future SG&A expense as a percentage of revenues will increase.
Interest Incurred
Homebuilding interest costs are incurred relative to the average level of our homebuilding
debt outstanding during the period. Comparing the three and nine months ended June 30, 2011 with
the same periods of 2010, interest incurred related to homebuilding debt decreased 24% to $31.4
million, and 27% to $100.5 million, respectively, due to decreases of 25% and 28% in our average
homebuilding debt.
We capitalize homebuilding interest costs to inventory during active development and
construction. Due to the decrease in the size of our operations, our inventory under active
development and construction has been lower than our debt level; therefore, a portion of our
interest incurred must be expensed. We expensed $10.1 million and $41.0 million of homebuilding
interest during the three and nine-month periods ended June 30, 2011, respectively, compared to
$19.6 million and $69.3 million of interest in the same periods of 2010. The reduction in interest
expensed in the current year periods is a result of declines in interest incurred in the current
year. Interest amortized to cost of sales, excluding interest written off with inventory impairment
charges, was 3.1% and 3.2% of total home and land/lot cost of sales in the three and nine-month
periods ended June 30, 2011, respectively, compared to 3.4% in the same periods of 2010.
Loss on Early Retirement of Debt
During the three and nine months ended June 30, 2011, in addition to repaying maturing senior
notes, we retired $114.9 million and $242.1 million principal amount of our senior notes prior to
their maturity. As a result of the early retirement of these notes, we recognized a net loss of
$6.5 million and $10.7 million in the respective current year periods, which represents the
difference between the principal amount of the notes and the aggregate purchase price plus any
unamortized discounts and fees. The net loss in both periods included a loss of $6.3 million for
the call premium and write-off of unamortized fees related to the early redemption of the 5.375%
senior notes due 2012.
During the three and nine months ended June 30, 2010, in addition to repaying maturing senior
notes, we retired $345.2 million and $752.7 million principal amount of our senior and senior
subordinated notes prior to their maturity, which resulted in a net loss of $8.3 million and $6.7
million, respectively.
Other Income
Other income, net of other expenses, associated with homebuilding activities was $1.2 million
and $6.8 million in the three and nine months ended June 30, 2011, respectively, compared to $2.0
million and $7.4 million in the same periods of 2010. The largest component of other income in all
four periods was interest income.
-44-
Homebuilding Results by Reporting Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
Homebuilding |
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
|
|
|
|
|
|
|
|
|
Income (Loss) |
|
|
% of |
|
|
|
|
|
Income (Loss) |
|
|
% of |
|
|
Homebuilding |
|
|
Before |
|
|
Region |
|
Homebuilding |
|
|
Before |
|
|
Region |
|
|
Revenues |
|
|
Income Taxes (1) |
|
|
Revenues |
|
Revenues |
|
|
Income Taxes (1) |
|
|
Revenues |
|
|
(In millions) |
|
East |
|
$ |
114.7 |
|
|
$ |
(1.0 |
) |
|
|
(0.9 |
)% |
|
$ |
150.6 |
|
|
$ |
(4.3 |
) |
|
|
(2.9 |
)% |
Midwest |
|
|
74.0 |
|
|
|
0.1 |
|
|
|
0.1 |
% |
|
|
99.3 |
|
|
|
(18.8 |
) |
|
|
(18.9 |
)% |
Southeast |
|
|
194.2 |
|
|
|
(3.0 |
) |
|
|
(1.5 |
)% |
|
|
247.9 |
|
|
|
4.3 |
|
|
|
1.7 |
% |
South Central |
|
|
294.6 |
|
|
|
19.0 |
|
|
|
6.4 |
% |
|
|
462.8 |
|
|
|
40.4 |
|
|
|
8.7 |
% |
Southwest |
|
|
56.0 |
|
|
|
(0.5 |
) |
|
|
(0.9 |
)% |
|
|
112.5 |
|
|
|
7.8 |
|
|
|
6.9 |
% |
West |
|
|
241.9 |
|
|
|
7.6 |
|
|
|
3.1 |
% |
|
|
305.2 |
|
|
|
8.0 |
|
|
|
2.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
975.4 |
|
|
$ |
22.2 |
|
|
|
2.3 |
% |
|
$ |
1,378.3 |
|
|
$ |
37.4 |
|
|
|
2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
Homebuilding |
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
|
|
|
|
|
|
|
|
|
Income (Loss) |
|
|
% of |
|
|
|
|
|
Income (Loss) |
|
|
% of |
|
|
Homebuilding |
|
|
Before |
|
|
Region |
|
Homebuilding |
|
|
Before |
|
|
Region |
|
|
Revenues |
|
|
Income Taxes (1) |
|
|
Revenues |
|
Revenues |
|
|
Income Taxes (1) |
|
|
Revenues |
|
|
(In millions) |
|
East |
|
$ |
308.9 |
|
|
$ |
(13.6 |
) |
|
|
(4.4 |
)% |
|
$ |
381.8 |
|
|
$ |
(6.6 |
) |
|
|
(1.7 |
)% |
Midwest |
|
|
186.7 |
|
|
|
(13.1 |
) |
|
|
(7.0 |
)% |
|
|
259.2 |
|
|
|
(23.7 |
) |
|
|
(9.1 |
)% |
Southeast |
|
|
484.8 |
|
|
|
(16.8 |
) |
|
|
(3.5 |
)% |
|
|
575.8 |
|
|
|
2.5 |
|
|
|
0.4 |
% |
South Central |
|
|
752.6 |
|
|
|
30.1 |
|
|
|
4.0 |
% |
|
|
1,111.9 |
|
|
|
82.1 |
|
|
|
7.4 |
% |
Southwest |
|
|
164.1 |
|
|
|
(2.5 |
) |
|
|
(1.5 |
)% |
|
|
271.6 |
|
|
|
12.8 |
|
|
|
4.7 |
% |
West |
|
|
578.4 |
|
|
|
(18.5 |
) |
|
|
(3.2 |
)% |
|
|
783.7 |
|
|
|
17.5 |
|
|
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,475.5 |
|
|
$ |
(34.4 |
) |
|
|
(1.4 |
)% |
|
$ |
3,384.0 |
|
|
$ |
84.6 |
|
|
|
2.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Expenses maintained at the corporate level consist primarily of
interest and property taxes, which are capitalized and amortized
to cost of sales or expensed directly, and the expenses related
to operating our corporate office. The amortization of
capitalized interest and property taxes is allocated to each
segment based on the segments revenue, while interest expense
and those expenses associated with the corporate office are
allocated to each segment based on the segments average
inventory. |
East Region Homebuilding revenues decreased 24% and 19% in the three and nine months ended
June 30, 2011, respectively, from the comparable periods of 2010. These decreases were primarily
due to decreases in the number of homes closed in the majority of the regions markets. The largest
decrease in closings volume occurred in our New Jersey market. The region reported losses before
income taxes of $1.0 million and $13.6 million in the three and nine months ended June 30, 2011,
respectively, compared to losses of $4.3 million and $6.6 million for the same periods of 2010,
primarily as a result of declines in revenue and gross profit. The improvement in the three-month
period was due in large part to fewer inventory impairment charges and earnest money and
pre-acquisition cost write-offs. Inventory impairment charges and earnest money and pre-acquisition
cost write-offs were $0.7 million and $2.9 million in the three and nine months ended June 30,
2011, respectively, compared to $5.5 million and $7.2 million in the same periods of 2010. Gross
profit from home sales as a percentage of home sales revenue (home sales gross profit percentage)
decreased 60 basis points and 200 basis points in the three and nine months ended June 30, 2011,
respectively, compared to the same periods of 2010 due to the increased use of incentives to sell
homes and weakening market conditions during the current year periods. While total SG&A expenses in
the three and nine-month periods decreased from the prior year periods, they increased as a
percentage of homebuilding revenues by 110 basis points and 230 basis points in the three and
nine-month periods, respectively.
-45-
Midwest Region Homebuilding revenues decreased 25% and 28% in the three and nine months
ended June 30, 2011, respectively, from the comparable periods of 2010. These decreases were
primarily due to decreases in the number of homes closed in all of the regions markets. The region
reported income before income taxes of $0.1 million and a loss before income taxes of $13.1 million
in the three and nine months ended June 30, 2011, respectively, compared to losses of $18.8 million
and $23.7 million for the same periods of 2010. The improvement in the current periods was
primarily a result of fewer inventory impairment charges and earnest money and pre-acquisition cost
write-offs, which were $0.2 million and $0.7 million in the three and nine months ended June 30,
2011, respectively, compared to $17.1 million in both periods of 2010. Home sales gross profit
percentage increased 80 basis points in the three months ended June 30, 2011 and decreased 310
basis points in the nine months ended June 30, 2011, compared to the same periods of 2010 due to
construction defect claims in our Denver market in the first six months of the current year. Total SG&A expenses in both the three and nine-month periods decreased from the prior year
periods. As a percentage of homebuilding revenues, total SG&A decreased 30 basis points in the
three-month period and increased 170 basis points in the nine-month period.
Southeast Region Homebuilding revenues decreased 22% and 16% in the three and nine months
ended June 30, 2011, respectively, from the comparable periods of 2010. These decreases were due to
decreases in the number of homes closed, partially offset by increases in the average selling
prices of those homes. The region reported losses before income taxes of $3.0 million and $16.8
million in the three and nine months ended June 30, 2011, respectively, compared to income of $4.3
million and $2.5 million for the same periods of 2010, primarily as a result of declines in revenue
and gross profit. Home sales gross profit percentage decreased 200 basis points and 110 basis
points in the three and nine months ended June 30, 2011, respectively, compared to the same periods
of 2010 due to lower margins on homes closed. As a percentage of homebuilding revenues, total SG&A
expenses increased 140 and 240 basis points in the three and nine-month periods, respectively.
South Central Region Homebuilding revenues decreased 36% and 32% in the three and nine
months ended June 30, 2011, respectively, from the comparable periods of 2010. These decreases were
due to decreases in the number of homes closed in all of the regions markets, partially offset by
increases in the average selling prices of those homes. The region reported income before income
taxes of $19.0 million and $30.1 million in the three and nine months ended June 30, 2011, compared
to income of $40.4 million and $82.1 million for the same periods of 2010, primarily as a result of
declines in revenue and gross profit. Home sales gross profit percentage decreased 60 basis points
and 130 basis points in the three and nine months ended June 30, 2011, respectively, compared to
the same periods of 2010 due to lower margins in the majority of the regions markets. Although
total SG&A expenses in the three and nine-month periods decreased from the prior year periods, as a
percentage of homebuilding revenues, total SG&A expenses increased 200 and 230 basis points in the
three and nine-month periods, respectively.
Southwest Region Homebuilding revenues decreased 50% and 40% in the three and nine months
ended June 30, 2011, respectively, from the comparable periods of 2010. These decreases were due to
decreases in the number of homes closed in all of the regions markets, partially offset by
increases in the average selling prices of those homes. The region reported losses before income
taxes of $0.5 million and $2.5 million in the three and nine months ended June 30, 2011,
respectively, compared to income of $7.8 million and $12.8 million for the same periods of 2010, primarily as a result of declines in revenue and gross profit.
Home sales gross profit percentage decreased 300 basis points and 170 basis points in the three and
nine months ended June 30, 2011, respectively, compared to the same periods of 2010, primarily as a
result of the increased use of incentives to sell homes and weakening market
conditions in all of the regions markets. Also contributing to the decrease in gross profit
percentage in the nine-month period ended June 30, 2011, inventory impairment charges and earnest
money and pre-acquisition cost write-offs increased to $2.4 million, from $0.3 million in the prior
year period. While total SG&A expenses in the three and nine-month periods decreased from the prior
year periods, they increased as a percentage of homebuilding revenues by 440 basis points and 310
basis points in the three and nine-month periods, respectively.
West Region Homebuilding revenues decreased 21% and 26% in the three and nine months ended
June 30, 2011, respectively, from the comparable periods of 2010. These decreases were due to
decreases in the number of homes closed in the majority of the regions markets, partially offset
by increases in the average selling prices of those homes. The region reported income before income
taxes of $7.6 million in the three months ended June 30, 2011, and a loss of $18.5 million in the
nine months ended June 30, 2011, compared to income of $8.0 million and $17.5 million for the same
periods of 2010, primarily as a result of a decline in revenue and increased impairment
charges. Inventory impairment charges and earnest money and pre-acquisition cost write-offs
were $3.3 million and
-46-
$15.4 million in the three and nine months ended June 30, 2011, respectively,
compared to $0.8 million and $0.5 million in the same periods of 2010. The regions home sales
gross profit percentage increased 70 basis points and 20 basis points in the three and nine months
ended June 30, 2011, respectively, compared to the same periods of 2010. Total SG&A expenses in the
three and nine-month periods decreased from the prior year periods. As a percentage of homebuilding
revenues, total SG&A expenses decreased 70 basis points and increased 290 basis points in the three
and nine-month periods, respectively.
LAND AND LOT POSITION AND HOMES IN INVENTORY
The following is a summary of our land and lot position and homes in inventory at June 30,
2011 and September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2011 |
|
As of September 30, 2010 |
|
|
|
|
|
|
Lots |
|
|
|
|
|
|
|
|
|
|
|
|
|
Lots |
|
|
|
|
|
|
|
|
|
|
Controlled |
|
|
|
|
|
|
|
|
|
|
|
|
|
Controlled |
|
|
|
|
|
|
|
|
|
|
Under Lot |
|
Total |
|
|
|
|
|
|
|
|
|
Under Lot |
|
Total |
|
|
|
|
|
|
|
|
Option and |
|
Land/Lots |
|
Homes |
|
|
|
|
|
Option and |
|
Land/Lots |
|
Homes |
|
|
Land/Lots |
|
Similar |
|
Owned and |
|
in |
|
Land/Lots |
|
Similar |
|
Owned and |
|
in |
|
|
Owned |
|
Contracts (1) |
|
Controlled |
|
Inventory |
|
Owned |
|
Contracts (1) |
|
Controlled |
|
Inventory |
East |
|
|
10,000 |
|
|
|
4,400 |
|
|
|
14,400 |
|
|
|
1,400 |
|
|
|
10,600 |
|
|
|
4,900 |
|
|
|
15,500 |
|
|
|
1,300 |
|
Midwest |
|
|
5,300 |
|
|
|
400 |
|
|
|
5,700 |
|
|
|
600 |
|
|
|
6,000 |
|
|
|
600 |
|
|
|
6,600 |
|
|
|
700 |
|
Southeast |
|
|
22,600 |
|
|
|
11,000 |
|
|
|
33,600 |
|
|
|
2,600 |
|
|
|
24,000 |
|
|
|
11,300 |
|
|
|
35,300 |
|
|
|
1,900 |
|
South Central |
|
|
21,400 |
|
|
|
10,600 |
|
|
|
32,000 |
|
|
|
3,900 |
|
|
|
21,300 |
|
|
|
9,300 |
|
|
|
30,600 |
|
|
|
3,100 |
|
Southwest |
|
|
5,500 |
|
|
|
800 |
|
|
|
6,300 |
|
|
|
1,000 |
|
|
|
5,700 |
|
|
|
1,300 |
|
|
|
7,000 |
|
|
|
900 |
|
West |
|
|
21,200 |
|
|
|
1,800 |
|
|
|
23,000 |
|
|
|
1,900 |
|
|
|
22,100 |
|
|
|
2,300 |
|
|
|
24,400 |
|
|
|
1,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,000 |
|
|
|
29,000 |
|
|
|
115,000 |
|
|
|
11,400 |
|
|
|
89,700 |
|
|
|
29,700 |
|
|
|
119,400 |
|
|
|
9,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75% |
|
25% |
|
100% |
|
|
|
|
|
75% |
|
25% |
|
100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes approximately 6,500 and 7,300 lots at June 30, 2011 and
September 30, 2010, respectively, representing lots controlled under
lot option contracts for which we do not expect to exercise our option
to purchase the land or lots, but the underlying contract has yet to
be terminated. We have reserved the deposits related to these
contracts. |
At June 30, 2011, we owned or controlled approximately 115,000 lots, compared to approximately
119,400 lots at September 30, 2010. Of the 115,000 total lots, we controlled approximately 29,000
lots (25%), with a total remaining purchase price of approximately $981.7 million, through land and
lot option purchase contracts with a total of $14.8 million in earnest money deposits. At June 30,
2011, approximately 22,100 of our owned lots were finished.
We had a total of approximately 11,400 homes in inventory, including approximately 1,200 model
homes at June 30, 2011, compared to approximately 9,500 homes in inventory, including approximately
1,200 model homes at September 30, 2010. Of our total homes in inventory, approximately 5,800 and
5,200 were unsold at June 30, 2011 and September 30, 2010, respectively. At June 30, 2011,
approximately 2,500 of our unsold homes were completed, of which approximately 700 homes had been
completed for more than six months. At September 30, 2010, approximately 3,200 of our unsold homes
were completed, of which approximately 800 homes had been completed for more than six months.
Our current strategy is to take advantage of market opportunities by entering into new lot
option contracts to purchase finished lots in selected communities to potentially increase sales
volumes and profitability. We will attempt to renegotiate existing lot option contracts as
necessary to reduce our lot costs and better match the scheduled lot purchases with new home demand
in each community. We also manage our inventory of homes under construction by selectively starting
construction on unsold homes to capture new home demand, while monitoring the number and aging of
unsold homes and aggressively marketing our unsold, completed homes in inventory.
-47-
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
nine-month periods ended June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Nine Months Ended June 30, |
|
|
2011 |
|
2010 |
|
% Change |
|
2011 |
|
2010 |
|
% Change |
Number of first-lien loans originated
or brokered by DHI Mortgage for
D.R. Horton homebuyers |
|
|
2,788 |
|
|
|
4,119 |
|
|
|
(32 |
)% |
|
|
7,198 |
|
|
|
10,106 |
|
|
|
(29 |
)% |
Number of
homes closed by D.R. Horton |
|
|
4,555 |
|
|
|
6,805 |
|
|
|
(33 |
)% |
|
|
11,708 |
|
|
|
16,594 |
|
|
|
(29 |
)% |
DHI Mortgage capture rate |
|
61% |
|
61% |
|
|
|
|
|
61% |
|
61% |
|
|
|
|
Number of total loans originated or
brokered by DHI Mortgage for
D.R. Horton homebuyers |
|
|
2,809 |
|
|
|
4,141 |
|
|
|
(32 |
)% |
|
|
7,259 |
|
|
|
10,166 |
|
|
|
(29 |
)% |
Total number of loans originated or
brokered by DHI Mortgage |
|
|
3,257 |
|
|
|
4,443 |
|
|
|
(27 |
)% |
|
|
8,526 |
|
|
|
11,046 |
|
|
|
(23 |
)% |
Captive business percentage |
|
86% |
|
93% |
|
|
|
|
|
85% |
|
92% |
|
|
|
|
Loans sold by DHI Mortgage to third parties |
|
|
2,890 |
|
|
|
3,984 |
|
|
|
(27 |
)% |
|
|
8,294 |
|
|
|
10,450 |
|
|
|
(21 |
)% |
|
|
|
|
|
Three Months Ended June 30, |
|
Nine Months Ended June 30, |
|
|
2011 |
|
2010 |
|
% Change |
|
2011 |
|
2010 |
|
% Change |
|
|
(In millions) |
|
Loan origination fees |
|
$ |
4.9 |
|
|
$ |
5.2 |
|
|
|
(6 |
)% |
|
$ |
12.7 |
|
|
$ |
13.4 |
|
|
|
(5 |
)% |
Sale of servicing rights and gains
from sale of mortgages |
|
|
14.6 |
|
|
|
17.0 |
|
|
|
(14 |
)% |
|
|
38.6 |
|
|
|
44.6 |
|
|
|
(13 |
)% |
Recourse expense |
|
|
(3.5 |
) |
|
|
(3.1 |
) |
|
|
13 |
% |
|
|
(7.7 |
) |
|
|
(11.7 |
) |
|
|
(34 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of servicing rights and gains
from sale of mortgages, net |
|
|
11.1 |
|
|
|
13.9 |
|
|
|
(20 |
)% |
|
|
30.9 |
|
|
|
32.9 |
|
|
|
(6 |
)% |
Other revenues |
|
|
2.9 |
|
|
|
2.4 |
|
|
|
21 |
% |
|
|
7.1 |
|
|
|
5.6 |
|
|
|
27 |
% |
Reinsurance expense |
|
|
(0.4 |
) |
|
|
(0.6 |
) |
|
|
(33 |
)% |
|
|
(1.6 |
) |
|
|
(1.4 |
) |
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues, net |
|
|
2.5 |
|
|
|
1.8 |
|
|
|
39 |
% |
|
|
5.5 |
|
|
|
4.2 |
|
|
|
31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage operations revenues |
|
|
18.5 |
|
|
|
20.9 |
|
|
|
(11 |
)% |
|
|
49.1 |
|
|
|
50.5 |
|
|
|
(3 |
)% |
Title policy premiums, net |
|
|
5.3 |
|
|
|
6.9 |
|
|
|
(23 |
)% |
|
|
13.9 |
|
|
|
17.2 |
|
|
|
(19 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
23.8 |
|
|
|
27.8 |
|
|
|
(14 |
)% |
|
|
63.0 |
|
|
|
67.7 |
|
|
|
(7 |
)% |
General and administrative expense |
|
|
19.3 |
|
|
|
21.2 |
|
|
|
(9 |
)% |
|
|
56.4 |
|
|
|
57.2 |
|
|
|
(1 |
)% |
Interest expense |
|
|
0.3 |
|
|
|
0.7 |
|
|
|
(57 |
)% |
|
|
0.7 |
|
|
|
1.4 |
|
|
|
(50 |
)% |
Interest and other (income) |
|
|
(2.5 |
) |
|
|
(3.0 |
) |
|
|
(17 |
)% |
|
|
(6.7 |
) |
|
|
(7.5 |
) |
|
|
(11 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
6.7 |
|
|
$ |
8.9 |
|
|
|
(25 |
)% |
|
$ |
12.6 |
|
|
$ |
16.6 |
|
|
|
(24 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services Operating Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentages of Financial Services Revenues (1) |
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
Recourse and reinsurance expense |
|
|
14.1 |
% |
|
|
11.7 |
% |
|
|
12.9 |
% |
|
|
16.2 |
% |
General and administrative expense |
|
|
69.7 |
% |
|
|
67.3 |
% |
|
|
78.0 |
% |
|
|
70.8 |
% |
Interest expense |
|
|
1.1 |
% |
|
|
2.2 |
% |
|
|
1.0 |
% |
|
|
1.7 |
% |
Interest and other (income) |
|
|
(9.0 |
)% |
|
|
(9.5 |
)% |
|
|
(9.3 |
)% |
|
|
(9.3 |
)% |
Income before income taxes |
|
|
24.2 |
% |
|
|
28.3 |
% |
|
|
17.4 |
% |
|
|
20.5 |
% |
|
|
|
(1) |
|
Excludes the effects of recourse and reinsurance charges on financial services revenues |
-48-
Mortgage Loan Activity
In the three and nine-month periods ended June 30, 2011, total first-lien loans originated or
brokered by DHI Mortgage for our homebuyers decreased by 32% and 29%, respectively, corresponding
to the decrease in the number of homes closed by our homebuilding operations of 33% and 29%,
respectively. Our mortgage capture rate (the percentage of total home closings by our homebuilding
operations for which DHI Mortgage handled the homebuyers financing) was 61% in each of the three
and nine-month periods ended June 30, 2011 and 2010.
Home closings from our homebuilding operations constituted 86% and 85% of DHI Mortgage loan
originations in the three and nine-month periods ended June 30, 2011, respectively, compared to 93%
and 92% in the comparable periods of 2010. These consistently high rates reflect DHI Mortgages
continued focus on supporting the captive business provided by our homebuilding operations. The
relatively lower captive percentages in the current year periods reflect a higher level of
refinancing activity than in the prior year periods.
The number of loans sold to third-party purchasers decreased by 27% and 21% in the three and
nine months ended June 30, 2011, respectively, from the comparable periods of 2010, corresponding
to the decrease in the number of loans originated of 27% and 23%, respectively, between such
periods. Virtually all of the mortgage loans originated during the nine months ended June 30, 2011
and mortgage loans held for sale on June 30, 2011 were eligible for sale to the Federal National
Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) or
Government National Mortgage Association (GNMA). Approximately 87% of the mortgage loans sold by
DHI Mortgage during the nine months ended June 30, 2011 were sold to two major financial
institutions pursuant to their loan purchase agreements. If we are unable to sell our mortgages to
these or other purchasers, our ability to originate and sell mortgage loans could be significantly
reduced and the profitability of our financial services operations would be negatively impacted.
Financial Services Revenues and Expenses
Revenues from the financial services segment decreased 14% and 7%, to $23.8 million and $63.0
million in the three and nine months ended June 30, 2011, from $27.8 million and $67.7 million in
the comparable periods of 2010. Although the volume of loan originations decreased 27% and 23% in
the three and nine months ended June 30, 2011, respectively, loan origination fees decreased only
6% and 5% in the same periods due to minor pricing changes during the current year periods.
Compared to the prior year nine-month period, revenues in the current year period benefitted from
decreases in recourse expense. Charges related to recourse obligations were $3.5 million and $7.7
million in the three and nine-month periods ended June 30, 2011, respectively, compared to $3.1
million and $11.7 million in the same periods of 2010. The calculation of our required repurchase
loss reserve is based upon an analysis of repurchase requests received, our actual repurchases and
losses through the disposition of such loans or requests, discussions with our mortgage purchasers
and analysis of the mortgages we originated. While we believe that we have adequately reserved for
losses on known and projected repurchase requests, if either actual repurchases or the losses
incurred resolving those repurchases exceed our expectations, additional recourse expense may be
incurred. Additionally, a subsidiary of ours reinsured a portion of the private mortgage insurance
written on loans originated by DHI Mortgage in prior years. Charges to increase reserves for
expected losses on the reinsured loans were $0.4 million and $1.6 million in the three and
nine-month periods ended June 30, 2011, respectively, compared to $0.6 million and $1.4 million in
the same periods of 2010.
As a percentage of financial services revenues, excluding the effects of recourse and
reinsurance expense, general and administrative (G&A) expense in the three and nine-month periods
ended June 30, 2011 increased to 69.7% and 78.0%, respectively, from 67.3% and 70.8%, in the
comparable periods of 2010. The increases were due to the reduction in revenue (excluding the
effects of recourse and reinsurance expense) resulting from the decreases in mortgage loan volume
compared to the prior year periods. Fluctuations in financial services G&A expense as a percentage
of revenues can be expected to occur as some expenses are not directly related to mortgage loan
volume or to changes in the amount of revenue earned.
-49-
RESULTS OF OPERATIONS CONSOLIDATED
Income (Loss) before Income Taxes
Income before income taxes for the three months ended June 30, 2011 was $28.9 million,
compared to $46.3 million for the same period of 2010. Loss before income taxes for the nine months
ended June 30, 2011 was $21.8 million, compared to income before income taxes of $101.2 million for
the same period of 2010. The difference in our operating results for the current year periods
compared to a year ago is primarily due to a lower volume of homes closed which resulted in lower
revenues.
Income Taxes
In the three and nine months ended June 30, 2011, respectively, the provision for income taxes
attributable to continuing operations was $0.2 million and the benefit from income taxes was $57.8
million, compared to benefits from income taxes of $4.2 million and $152.7 million in the
comparable periods of the prior year. The benefit from income taxes in the nine months ended June
30, 2011 was due to us receiving a favorable result from the Internal Revenue Service (IRS) on a
ruling request concerning the capitalization of inventory costs, allowing us to reduce our
unrecognized tax benefits and corresponding interest by $59.2 million. The benefit from income
taxes in the nine months ended June 30, 2010 resulted from net operating loss (NOL) carrybacks. We
do not have meaningful effective tax rates for these periods because our net deferred tax assets
are offset fully by a valuation allowance.
We had income taxes receivable of $14.0 million and $16.0 million at June 30, 2011 and
September 30, 2010, respectively. The income taxes receivable at June 30, 2011 relates to federal
and state income tax refunds we expect to receive.
At June 30, 2011 and September 30, 2010, our net deferred tax assets, which are fully offset
by a valuation allowance, were $849.0 million and $902.6 million, respectively. The realization of
our deferred tax assets ultimately depends upon the existence of sufficient taxable income in
future periods. We continue to analyze the positive and negative evidence in determining the need
for a valuation allowance with respect to our deferred tax assets. The valuation allowance could be
reduced in future periods if there is sufficient evidence indicating it is more likely than not
that a portion or all of our deferred tax assets will be realized. The accounting for deferred
taxes is based upon estimates of future results. Differences between the anticipated and actual
outcomes of these future results could have a material impact on our deferred tax assets and
consolidated results of operations or financial position.
We classify interest and penalties on income taxes as income tax expense. At June 30, 2011,
the amount of our unrecognized tax benefits was $18.5 million, with a related accrual for interest
of $5.6 million. A reduction of $3.3 million in the amount of unrecognized tax benefits and accrued
interest with respect to state issues is reasonably possible within the next 12 months and would
result in a benefit from income taxes in the consolidated statement of operations.
We are subject to federal income tax and to income tax in multiple states. The statute of
limitations for our major tax jurisdictions remains open for examination for fiscal years 2004
through 2010. We are currently being audited by the IRS for fiscal years 2006 and 2007, and by
various states. Our federal NOL refunds from losses in fiscal 2008 and 2009 are subject to
Congressional Joint Committee review.
-50-
CAPITAL RESOURCES AND LIQUIDITY
We have historically funded our homebuilding and financial services operations with cash flows
from operating activities, borrowings under bank credit facilities and the issuance of new debt
securities. During the challenging homebuilding market conditions experienced over the past few
years, we have been operating with a primary focus to generate cash flows through reductions in
assets, as well as through profitable operations. Our cash generation has also benefitted from
income tax refunds. The generation of cash flow has allowed us to increase our liquidity and
strengthen our balance sheet, and has placed us in a position to be able to invest in market
opportunities as they arise. We do not expect to generate as much cash from operating activities in
fiscal 2011 as we have in any of the past four fiscal years. Depending upon future homebuilding
market conditions and our expectations for these conditions, we may use a portion of our cash
balances to increase our operating assets. We intend to maintain adequate liquidity and balance
sheet strength, and we will continue to evaluate opportunities to access the capital markets as
they become available.
At June 30, 2011, our ratio of net homebuilding debt to total capital was 19.9%, compared to
17.5% at June 30, 2010 and 16.1% at September 30, 2010. Net homebuilding debt to total capital
consists of homebuilding notes payable net of cash and marketable securities divided by total
capital net of cash and marketable securities (homebuilding notes payable net of cash and
marketable securities plus total equity). The increase in our ratio of net homebuilding debt to
total capital at June 30, 2011 as compared to the ratio a year earlier and at September 30, 2010
was due to a decrease in cash, the effect of which was largely offset by a reduction in our debt
balance. Our ratio of net homebuilding debt to total capital remains well under our historical
target operating range of 45% due to the ongoing downturn in the homebuilding market. We believe
that our strong balance sheet and liquidity position will allow us to be flexible in reacting to
changing market conditions. However, future period-end net homebuilding debt to total capital
ratios may be higher than the 19.9% ratio achieved at June 30, 2011.
We believe that the ratio of net homebuilding debt to total capital is useful in understanding
the leverage employed in our homebuilding operations and comparing us with other homebuilders. We
exclude the debt of our financial services business because it is separately capitalized and its
obligation under its repurchase agreement is substantially collateralized and not guaranteed by our
parent company or any of our homebuilding entities. Because of its capital function, we include our
homebuilding cash and marketable securities as a reduction of our homebuilding debt and total
capital. For comparison to our ratios of net homebuilding debt to capital above, at June 30, 2011
and 2010, and at September 30, 2010, our ratios of homebuilding debt to total capital, without
netting cash and marketable securities balances, were 40.5%, 45.6% and 44.3%, respectively.
We believe that we will be able to fund our near-term working capital needs and debt
obligations from existing cash resources and our mortgage repurchase facility. For our longer-term
capital requirements, we will evaluate the need to issue new debt or equity securities through the
public capital markets or obtain additional bank financing as market conditions may permit.
Homebuilding Capital Resources
Cash and Cash Equivalents At June 30, 2011, we had available homebuilding cash and cash
equivalents of $824.2 million.
Marketable Securities At June 30, 2011, we had marketable securities of $297.1 million. Our
marketable securities consist of U.S. Treasury securities, government agency securities, corporate
debt securities, and certificates of deposit.
Secured Letter of Credit Agreements We have secured letter of credit agreements which
require us to deposit cash, in an amount approximating the balance of letters of credit
outstanding, as collateral with the issuing banks. At June 30, 2011 and September 30, 2010, the
amount of cash restricted for this purpose totaled $48.4 million and $52.6 million, respectively,
and is included in homebuilding restricted cash on our consolidated balance sheets.
Public Unsecured Debt The indentures governing our senior notes impose restrictions on the
creation of secured debt and liens. At June 30, 2011, we were in compliance with all of the
limitations and restrictions that form a part of the public debt obligations.
-51-
Shelf Registration Statement We have an automatically effective universal shelf registration
statement filed with the SEC in September 2009, registering debt and equity securities which we may
issue from time to time in amounts to be determined.
Financial Services Capital Resources
Cash and Cash Equivalents At June 30, 2011, the amount of financial services cash and cash
equivalents was $16.8 million.
Mortgage Repurchase Facility Our mortgage subsidiary, DHI Mortgage, has a mortgage
repurchase facility that is accounted for as a secured financing. The mortgage repurchase facility
provides financing and liquidity to DHI Mortgage by facilitating purchase transactions in which DHI
Mortgage transfers eligible loans to the counterparties against the transfer of funds by the
counterparties, thereby becoming purchased loans. DHI Mortgage then has the right and obligation to
repurchase the purchased loans upon their sale to third-party purchasers in the secondary market or
within specified time frames from 45 to 120 days in accordance with the terms of the mortgage
repurchase facility. The total capacity of the facility is $150 million for the period from June
29, 2011 through October 20, 2011, after which time it will be reduced to $100 million. The
maturity date of the facility is March 4, 2012.
As of June 30, 2011, $258.1 million of mortgage loans held for sale were pledged under the
mortgage repurchase facility. These mortgage loans had a collateral value of $242.1 million. DHI
Mortgage has the option to fund a portion of its repurchase obligations in advance. As a result of
advance paydowns totaling $125.8 million, DHI Mortgage had an obligation of $116.3 million
outstanding under the mortgage repurchase facility at June 30, 2011 at a 3.8% annual interest rate.
The mortgage repurchase facility is not guaranteed by either D.R. Horton, Inc. or any of the
subsidiaries that guarantee our homebuilding debt. The facility contains financial covenants as to
the mortgage subsidiarys minimum required tangible net worth, its maximum allowable ratio of debt
to tangible net worth and its minimum required liquidity. These covenants are measured and reported
monthly. At June 30, 2011, DHI Mortgage was in compliance with all of the conditions and covenants
of the mortgage repurchase facility.
In the past, we have been able to renew or extend our mortgage credit facilities on
satisfactory terms prior to their maturities, and obtain temporary additional commitments through
amendments to the credit agreements during periods of higher than normal volumes of mortgages held
for sale. The liquidity of our financial services business depends upon its continued ability to
renew and extend the mortgage repurchase facility or to obtain other additional financing in
sufficient capacities.
Operating Cash Flow Activities
For the nine months ended June 30, 2011, we used $75.3 million of cash in our operating
activities, compared to $587.1 million provided by our operating activities in the prior year
period, primarily to support the growth in our inventories. During the prior year period, a
significant portion of the net cash provided by our operating activities was due to federal income
tax refunds and the profit we generated during the period. The net cash provided by our operating
activities during the past three fiscal years has resulted in substantial liquidity. This liquidity
gives us the flexibility to determine the appropriate operating strategy for each of our
communities and to take advantage of opportunities in the market. We have limited our purchases of
undeveloped land and our development spending on land we own. However, we are purchasing or
contracting to purchase finished lots in many markets to potentially increase sales and home
closing volumes and return to sustainable profitability. We plan to continue to manage our
inventories by monitoring the number and aging of unsold homes and aggressively marketing our
unsold, completed homes in inventory. As we work toward these goals, we expect to generate less
cash flow from operations than we have over the past four fiscal years. Depending upon future
homebuilding market conditions and our expectations for these conditions, we may use a portion of
our cash balances to further increase our inventories.
-52-
Investing Cash Flow Activities
For the nine months ended June 30, 2011, net cash used in our investing activities was $14.5
million, compared to $318.6 million in the prior year period. During the current year period,
$259.7 million was used to purchase marketable securities, and proceeds from the sale or maturity
of these securities during the period totaled $254.7 million. In the prior year period, $299.4
million was used to purchase marketable securities. Additionally, in the nine months ended June 30,
2011 and 2010, we used $12.8 million and $15.6 million, respectively, to invest in purchases of
property and equipment, primarily model home furniture and office equipment. These purchases are
generally not significant relative to our total assets or cash flows. Also affecting our investing
cash flows are changes in restricted cash, which decreased $3.3 million in the current year period
and increased $3.6 million in the prior year period. Changes in restricted cash are primarily due
to fluctuations in the balance of our outstanding letters of credit.
Financing Cash Flow Activities
During the last three years, the majority of our short-term financing needs have been funded
with cash generated from operations and borrowings available under our financial services credit
facility. Long-term financing needs of our homebuilding operations have historically been funded
with the issuance of senior unsecured debt securities through the public capital markets. During
the nine months ended June 30, 2011, we repaid, through maturities, redemptions and repurchases, a
total of $312.2 million principal amount of various issues of senior notes for an aggregate
purchase price of $322.4 million, plus accrued interest. During the nine months ended June 30,
2010, we repaid, through maturities, redemptions and repurchases, a total of $883.6 million
principal amount of various issues of senior notes for an aggregate purchase price of $887.6
million, plus accrued interest.
During the three months ended June 30, 2011, our Board of Directors approved a quarterly cash
dividend of $0.0375 per common share, which was paid on May 24, 2011 to stockholders of record on
May 12, 2011. In July 2011, our Board of Directors approved a quarterly cash dividend of $0.0375
per common share, payable on August 24, 2011 to stockholders of record on August 12, 2011.
Quarterly cash dividends of $0.0375 per common share were declared in the comparable quarters of
fiscal 2010. The declaration of future cash dividends is at the discretion of our Board of
Directors and will depend upon, among other things, future earnings, cash flows, capital
requirements, our financial condition and general business conditions.
During the three months ended June 30, 2011, we repurchased 3,544,838 shares of our common
stock at a total cost of $38.6 million.
Changes in Capital Structure
In July 2010, our Board of Directors authorized the repurchase of up to $500 million of debt
securities and $100 million of our common stock effective through July 31, 2011. Repurchases and
early redemptions of senior notes through June 30, 2011 reduced the debt repurchase authorization
to $241.7 million. Repurchases of common stock through June 30, 2011 reduced the stock repurchase
authorization to $61.4 million. On August 1, 2011, our Board of Directors authorized the repurchase
of up to $500 million of debt securities and $100 million of our common stock effective through
July 31, 2012.
Recently, our primary non-operating use of available capital has been to repay debt, and this
quarter we also made limited stock repurchases at prices we believe to be attractive. We continue
to evaluate our alternatives for future non-operating sources and uses of our available capital,
including debt repayments, dividend payments or common stock repurchases, while considering the
overall level of our cash balances within the constraints of our balance sheet leverage targets and
our liquidity targets.
-53-
CONTRACTUAL CASH OBLIGATIONS, COMMERCIAL COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS
Our primary contractual cash obligations for our homebuilding and financial services segments
are payments under our debt agreements and lease payments under operating leases. Purchase
obligations of our homebuilding segment represent specific performance requirements under lot
option purchase agreements that may require us to purchase land contingent upon the land seller
meeting certain obligations. We expect to fund our contractual obligations in the ordinary course
of business through a combination of our existing cash resources, cash flows generated from
operations, renewed or amended mortgage repurchase facilities and, if needed or believed
advantageous, the issuance of new debt or equity securities through the public capital markets as
market conditions may permit.
At June 30, 2011, our homebuilding operations had outstanding letters of credit of $47.8
million, all of which were cash collateralized, and surety bonds of $741.3 million, issued by third
parties, to secure performance under various contracts. We expect that our performance obligations
secured by these letters of credit and bonds will generally be completed in the ordinary course of
business and in accordance with the applicable contractual terms. When we complete our performance
obligations, the related letters of credit and bonds are generally released shortly thereafter,
leaving us with no continuing obligations. We have no material third-party guarantees.
Our mortgage subsidiary enters into various commitments related to the lending activities of
our mortgage operations. Further discussion of these commitments is provided in Item 3
Quantitative and Qualitative Disclosures About Market Risk under Part I of this quarterly report
on Form 10-Q.
We enter into land and lot option purchase contracts to procure land or lots for the
construction of homes. Lot option contracts enable us to control significant lot positions with
limited capital investment and substantially reduce the risks associated with land ownership and
development. Within the land and lot option purchase contracts at June 30, 2011, there were a
limited number of contracts, representing $12.0 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. Further discussion of our land option contracts is provided in
the Land and Lot Position and Homes in Inventory section included herein.
CRITICAL ACCOUNTING POLICIES
As disclosed in our annual report on Form 10-K for the fiscal year ended September 30, 2010,
our most critical accounting policies relate to revenue recognition, inventories and cost of sales,
land and lot option purchase contracts, goodwill, warranty and insurance claim costs and
self-insurance, income taxes and stock-based compensation. Since September 30, 2010, there have
been no significant changes to those critical accounting policies.
SEASONALITY
We have typically experienced seasonal variations in our quarterly operating results and
capital requirements. Prior to the current downturn in the homebuilding industry, we generally had
more homes under construction, closed more homes and had greater revenues and operating income in
the third and fourth quarters of our fiscal year. This seasonal activity increased our working
capital requirements for our homebuilding operations during the third and fourth fiscal quarters
and increased our funding requirements for the mortgages we originated in our financial services
segment at the end of these quarters. As a result of seasonal activity, our quarterly results of
operations and financial position at the end of a particular fiscal quarter are not necessarily
representative of the balance of our fiscal year.
Although the weakness in homebuilding market conditions during the past four years mitigated
our historical seasonal variations, we expect our home closings and income before income taxes to
be higher in the second half of fiscal 2011 than in the first half of the year. However, given the
current market conditions we can make no assurances as to whether this pattern will continue beyond
the current fiscal year.
-54-
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this report, as well as in other materials we have filed
or will file with the 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, will or other words of similar meaning. Any or all of
the forward-looking statements included in this report and in any other of our reports or public
statements may not approximate actual experience, and the expectations derived from them may not be
realized, due to risks, uncertainties and other factors. As a result, actual results may differ
materially from the expectations or results we discuss in the forward-looking statements. These
risks, uncertainties and other factors include, but are not limited to:
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the continuing downturn in the homebuilding industry, including further
deterioration in industry or broader economic conditions; |
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the continuing constriction of the credit markets, which could limit our ability to
access capital and increase our costs of capital; |
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the reduction in availability of mortgage financing, increases in mortgage interest
rates and the effects of government programs; |
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the limited success of our strategies in responding to adverse conditions in the
industry; |
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the impact of an inflationary or deflationary environment; |
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changes in general economic, real estate and other business conditions; |
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the risks associated with our inventory ownership position in changing market
conditions; |
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supply risks for land, materials and labor; |
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changes in the costs of owning a home; |
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the effects of governmental regulations and environmental matters on our
homebuilding operations; |
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the effects of governmental regulation on our financial services operations; |
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the uncertainties inherent in home warranty and construction defect claims matters; |
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our substantial debt and our ability to comply with related debt covenants,
restrictions and limitations; |
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competitive conditions within our industry; |
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our ability to effect any future growth strategies successfully; |
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our ability to realize our deferred income tax asset; and |
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our ability to utilize our tax losses, which could be substantially limited if we
experienced an ownership change as defined in the Internal Revenue Code. |
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 for the fiscal year ended September 30, 2010, including the section entitled Risk Factors,
which is filed with the Securities and Exchange Commission.
-55-
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. Except in
very limited circumstances, we do not have an obligation to prepay fixed-rate debt prior to
maturity and, as a result, interest rate risk and changes in fair value would not have a
significant impact on our cash flows related to our fixed-rate debt until such time as we are
required to refinance, repurchase or repay such debt.
We are exposed to interest rate risk associated with our mortgage loan origination services.
We manage interest rate risk through the use of forward sales of mortgage-backed securities (MBS),
Eurodollar Futures Contracts (EDFC) and put options on MBS and EDFC. Use of the term hedging
instruments in the following discussion refers to these securities collectively, or in any
combination. We do not enter into or hold derivatives for trading or speculative purposes.
Interest rate lock commitments (IRLCs) are extended to borrowers who have applied for loan
funding and who meet defined credit and underwriting criteria. Typically, the IRLCs have a duration
of less than six months. Some IRLCs are committed immediately to a specific purchaser through the
use of best-efforts whole loan delivery commitments, while other IRLCs are funded prior to being
committed to third-party purchasers. The hedging instruments related to IRLCs are classified and
accounted for as derivative instruments in an economic hedge, with gains and losses recognized in
current earnings. Hedging instruments related to funded, uncommitted loans are accounted for at
fair value, with changes recognized in current earnings, along with changes in the fair value of
the funded, uncommitted loans. The fair value change related to the hedging instruments generally
offsets the fair value change in the uncommitted loans and the fair value change, which for the
three and nine months ended June 30, 2011 and 2010 was not significant, is recognized in current
earnings. At June 30, 2011, hedging instruments used to mitigate interest rate risk related to
uncommitted mortgage loans held for sale and uncommitted IRLCs totaled $264.7 million. Uncommitted
IRLCs, the duration of which are generally less than six months, totaled approximately $206.3
million, and uncommitted mortgage loans held for sale totaled approximately $79.4 million at June
30, 2011.
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 June 30, 2011. The interest
rate for our variable rate debt represents the interest rate on our mortgage repurchase facility.
Because the mortgage repurchase facility is effectively secured by certain mortgage loans held for
sale which are typically sold within 60 days, its outstanding balance is included as a variable
rate maturity in the most current period presented.
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Three Months |
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Fair value |
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Ending |
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at |
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September 30, |
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Fiscal Year Ending September 30, |
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June 30, |
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2011 |
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2012 |
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2013 |
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2014 |
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2015 |
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2016 |
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Thereafter |
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Total |
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2011 |
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|
(dollars in millions) |
Debt: |
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Fixed rate |
|
$ |
110.8 |
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$ |
1.1 |
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$ |
171.7 |
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$ |
783.8 |
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$ |
189.7 |
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$ |
598.8 |
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$ |
|
|
|
$ |
1,855.9 |
|
|
$ |
1,962.0 |
|
Average interest rate |
|
|
8.0% |
|
|
|
3.8% |
|
|
|
7.0% |
|
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|
8.2% |
|
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5.4% |
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6.3% |
|
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|
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7.1% |
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|
|
Variable rate |
|
$ |
116.3 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
116.3 |
|
|
$ |
116.3 |
|
Average interest rate |
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|
3.8% |
|
|
|
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|
|
|
|
|
|
|
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|
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3.8% |
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-56-
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) and 15d-15(e) under the Securities Exchange
Act of 1934. Based on that evaluation, the CEO and CFO concluded that the Companys disclosure
controls and procedures were effective in providing reasonable assurance that information required
to be disclosed in the reports the Company files, furnishes, submits or otherwise provides the
Securities and Exchange Commission under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SECs rules and forms, and that information
required to be disclosed in reports filed by the Company under the Exchange Act is accumulated and
communicated to the Companys management, including the CEO and CFO, in such a manner as to allow
timely decisions regarding the required disclosure.
There have been no changes in the Companys internal controls over financial reporting during
the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
-57-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in lawsuits and other contingencies in the ordinary course of business. While
the outcome of such contingencies cannot be predicted with certainty, we believe that the
liabilities arising from these matters will not have a material adverse effect on our consolidated
financial position, results of operations or cash flows. However, to the extent the liability
arising from the ultimate resolution of any matter exceeds our estimates reflected in the recorded
reserves relating to such matter, we could incur additional charges that could be significant.
In October 2010, the California Regional Water Quality Control Board (Control Board), Los
Angeles Region, notified a subsidiary (the Subsidiary) of the Company of its intention to assess
a penalty against the Subsidiary regarding a previously issued notice of violation (NOV). The NOV
related to a National Pollutant Discharge Elimination System permit (the Permit) obtained on the
Subsidiarys behalf in 2003 to develop a project in California. The Permit allowed the Subsidiary
to discharge treated groundwater from the project in connection with dewatering the site during
subsurface grading operations. A third-party environmental consultant and third-party subcontractor
were engaged on the Subsidiarys behalf to design and implement the dewatering operation and to
perform all monitoring and reporting functions under the Permit. The NOV alleges Permit violations
during the 2003 to 2007 time period related to failure to submit monitoring reports, exceeding
effluent limits and failure to comply with monitoring or reporting of permitted pollutant
exceedances. The estimated penalty under the NOV is expected to be approximately $172,500. The
estimated penalty is not final, but we currently expect the final amount will not differ materially
from our estimate. The Subsidiary has not admitted any wrongdoing and is pursuing the
subcontractor, the now defunct third-party environmental consultant and their insurers.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company may repurchase shares of its common stock from time to time pursuant to its
publicly announced share repurchase program. The following table sets forth information concerning
the Companys common stock repurchases during the three months ended June 30, 2011. All share
repurchases were made in accordance with the safe harbor provisions of Rule 10b-18 under the
Securities Exchange Act of 1934 and pursuant to the Companys publicly announced program.
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(c) |
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(d) |
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Total Number of |
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Approximate |
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Dollar Value of |
|
|
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|
|
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|
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Purchased as |
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|
Shares that may |
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(a) |
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|
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|
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Part of Publicly |
|
|
yet be Purchased |
|
|
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Total Number of |
|
|
(b) |
|
|
Announced |
|
|
Under the Plans |
|
|
|
Shares |
|
|
Average Price |
|
|
Plans or |
|
|
or Programs (1) |
|
|
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Purchased |
|
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Paid per Share |
|
|
Programs |
|
|
(In millions) |
|
April 1, 2011 - April 30, 2011 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 1, 2011 - May 31, 2011 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 1, 2011 - June 30, 2011 |
|
|
3,544,838 |
|
|
$ |
10.88 |
|
|
|
3,544,838 |
|
|
$ |
61.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total |
|
|
3,544,838 |
|
|
$ |
10.88 |
|
|
|
3,544,838 |
|
|
$ |
61.4 |
|
|
|
|
|
|
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|
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|
|
|
|
|
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|
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(1) |
|
Shares purchased during the three months ended June 30, 2011 were part of a $100
million common stock repurchase authorization by the Board of Directors in July 2010. These
purchases resulted in a remaining authorization of $61.4 million at June 30, 2011, which
subsequently expired. On August 1, 2011, the Board of Directors authorized the repurchase of up
to $100 million of the Companys stock. The new repurchase authorization will expire on July 31,
2012, unless renewed by the Board of Directors prior to such expiration. |
-58-
ITEM 6. EXHIBITS
(a) Exhibits.
|
3.1 |
|
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) |
|
|
3.2 |
|
Amended and Restated Bylaws of the Company. (2) |
|
|
10.1 |
|
Sixth Amendment to Master Repurchase Agreement, dated June 29,
2011 by and between DHI Mortgage Company, Ltd. and U.S. Bank
National Association, as Administrative Agent, Syndication Agent
and a Buyer. (3) |
|
|
12.1 |
|
Statement of Computation of Ratio of Earnings to Fixed Charges. (*) |
|
|
31.1 |
|
Certificate of Chief Executive Officer provided pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002. (*) |
|
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31.2 |
|
Certificate of Chief Financial Officer provided pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002. (*) |
|
|
32.1 |
|
Certificate provided pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
by the Companys Chief Executive Officer. (*) |
|
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32.2 |
|
Certificate provided pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
by the Companys Chief Financial Officer. (*) |
|
|
101 |
|
The following financial statements from D.R. Horton, Inc.s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2011,
filed on August 2, 2011, formatted in XBRL (Extensible Business
Reporting Language); (i) Consolidated Balance Sheets, (ii)
Consolidated Statements of Operations, (iii) Consolidated
Statements of Cash Flows and (iv) the Notes to Consolidated
Financial Statements. (**) |
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|
* |
|
Filed herewith. |
|
** |
|
In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101
to this Quarterly Report on Form 10-Q shall not be deemed to be filed for purposes of
Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and
shall not be part of any registration or other document filed under the Securities Act or the
Exchange Act, except as shall be expressly set forth by specific reference in such filing. |
|
(1) |
|
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. |
|
(2) |
|
Incorporated by reference from Exhibit 3.1 to the Companys Current Report on Form 8-K dated
July 30, 2009, filed with the SEC on August 5, 2009. |
|
(3) |
|
Incorporated by reference from Exhibit 10.1 to the Companys Current Report on Form 8-K dated
June 29, 2011, filed with the SEC on July 6, 2011. |
-59-
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: August 2, 2011 |
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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|
-60-