e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2009
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 o 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.
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
Common stock, $.01 par value 316,915,559 shares as of April 28, 2009
D.R. HORTON, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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March 31, |
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September 30, |
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2009 |
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2008 |
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(In millions) |
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(Unaudited) |
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ASSETS |
Homebuilding: |
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Cash and cash equivalents |
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$ |
1,485.6 |
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$ |
1,355.6 |
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Inventories: |
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Construction in progress and finished homes |
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1,473.1 |
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1,681.6 |
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Residential land and lots developed and under development |
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2,066.9 |
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2,409.6 |
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Land held for development |
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599.8 |
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531.7 |
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Land inventory not owned |
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28.2 |
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60.3 |
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4,168.0 |
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4,683.2 |
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Property and equipment, net |
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66.6 |
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65.9 |
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Income taxes receivable |
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54.5 |
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676.2 |
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Deferred income taxes, net of valuation allowance of $1,019.2 million and
$961.3 million at March 31, 2009 and September 30, 2008, respectively |
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213.5 |
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213.5 |
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Earnest money deposits and other assets |
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201.1 |
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247.5 |
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Goodwill |
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15.9 |
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15.9 |
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6,205.2 |
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7,257.8 |
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Financial Services: |
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Cash and cash equivalents |
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29.6 |
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31.7 |
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Mortgage loans held for sale |
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187.6 |
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352.1 |
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Other assets |
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55.3 |
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68.0 |
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272.5 |
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451.8 |
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Total assets |
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$ |
6,477.7 |
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$ |
7,709.6 |
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LIABILITIES |
Homebuilding: |
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Accounts payable |
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$ |
150.9 |
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$ |
254.0 |
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Accrued expenses and other liabilities |
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709.5 |
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814.9 |
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Notes payable |
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2,867.6 |
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3,544.9 |
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3,728.0 |
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4,613.8 |
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Financial Services: |
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Accounts payable and other liabilities |
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43.2 |
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27.5 |
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Mortgage repurchase facility |
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44.4 |
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203.5 |
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87.6 |
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231.0 |
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3,815.6 |
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4,844.8 |
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Commitments and contingencies (Note L) |
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Minority interests |
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14.8 |
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30.5 |
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STOCKHOLDERS EQUITY |
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Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued |
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Common stock, $.01 par value, 1,000,000,000 shares authorized, 320,532,017
shares
issued and 316,876,784 shares outstanding at March 31, 2009 and 320,315,508
shares issued and 316,660,275 shares outstanding at September 30, 2008 |
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3.2 |
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3.2 |
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Additional capital |
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1,724.2 |
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1,716.3 |
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Retained earnings |
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1,015.6 |
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1,210.5 |
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Treasury stock, 3,655,233 shares at March 31, 2009 and
September 30, 2008, at cost |
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(95.7 |
) |
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(95.7 |
) |
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2,647.3 |
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2,834.3 |
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Total liabilities and stockholders equity |
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$ |
6,477.7 |
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$ |
7,709.6 |
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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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Six Months Ended |
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March 31, |
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March 31, |
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2009 |
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2008 |
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2009 |
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2008 |
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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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$ |
770.7 |
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$ |
1,597.8 |
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$ |
1,656.4 |
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$ |
3,204.8 |
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Land/lot sales |
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4.6 |
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26.2 |
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19.2 |
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126.8 |
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775.3 |
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1,624.0 |
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1,675.6 |
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3,331.6 |
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Cost of sales: |
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Home sales |
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667.9 |
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1,447.5 |
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1,416.4 |
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2,825.4 |
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Land/lot sales |
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4.3 |
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21.2 |
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16.0 |
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103.9 |
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Inventory impairments and land option cost
write-offs |
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48.1 |
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834.1 |
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104.4 |
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1,079.5 |
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720.3 |
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2,302.8 |
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1,536.8 |
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4,008.8 |
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Gross profit (loss): |
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Home sales |
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102.8 |
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150.3 |
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240.0 |
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379.4 |
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Land/lot sales |
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0.3 |
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5.0 |
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3.2 |
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22.9 |
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Inventory impairments and land option cost
write-offs |
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(48.1 |
) |
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(834.1 |
) |
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(104.4 |
) |
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(1,079.5 |
) |
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55.0 |
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(678.8 |
) |
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138.8 |
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(677.2 |
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Selling, general and administrative expense |
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126.9 |
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208.3 |
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253.9 |
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421.4 |
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Interest expense |
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23.1 |
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11.2 |
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48.7 |
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11.2 |
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(Gain) on early retirement of debt |
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(2.2 |
) |
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(8.4 |
) |
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Other (income) |
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(2.2 |
) |
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(1.8 |
) |
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(6.4 |
) |
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(3.5 |
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(90.6 |
) |
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(896.5 |
) |
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(149.0 |
) |
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(1,106.3 |
) |
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Financial Services: |
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Revenues, net of recourse expense (Note G) |
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2.7 |
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32.9 |
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20.4 |
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67.9 |
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General and administrative expense |
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17.2 |
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22.8 |
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40.4 |
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53.3 |
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Interest expense |
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0.3 |
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0.8 |
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1.0 |
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2.1 |
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Interest and other (income) |
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(2.4 |
) |
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(2.6 |
) |
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(5.7 |
) |
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(6.3 |
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(12.4 |
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11.9 |
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(15.3 |
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18.8 |
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Loss before income taxes |
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(103.0 |
) |
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(884.6 |
) |
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(164.3 |
) |
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(1,087.5 |
) |
Provision for income taxes |
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5.6 |
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421.0 |
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6.8 |
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347.0 |
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Net loss |
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$ |
(108.6 |
) |
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$ |
(1,305.6 |
) |
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$ |
(171.1 |
) |
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$ |
(1,434.5 |
) |
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Basic and diluted net loss per
common share |
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$ |
(0.34 |
) |
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$ |
(4.14 |
) |
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$ |
(0.54 |
) |
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$ |
(4.55 |
) |
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Cash dividends declared per common share |
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$ |
0.0375 |
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$ |
0.15 |
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$ |
0.075 |
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$ |
0.30 |
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See accompanying notes to consolidated financial statements.
-4-
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Six Months |
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Ended March 31, |
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2009 |
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2008 |
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(In millions) |
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(Unaudited) |
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OPERATING ACTIVITIES |
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Net loss |
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$ |
(171.1 |
) |
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$ |
(1,434.5 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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14.7 |
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29.1 |
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Amortization of debt discounts and fees |
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3.6 |
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3.5 |
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Stock option compensation expense |
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6.4 |
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5.7 |
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Income tax benefit from stock option exercises |
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(0.2 |
) |
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(2.0 |
) |
Deferred income taxes |
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|
318.3 |
|
Gain on early retirement of debt |
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(8.4 |
) |
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Inventory impairments and land option cost write-offs |
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104.4 |
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|
1,079.5 |
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Changes in operating assets and liabilities: |
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Decrease in construction in progress and finished homes |
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176.6 |
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|
923.9 |
|
Decrease in residential land and lots developed, under development,
and held for development |
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|
199.6 |
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253.8 |
|
Decrease in earnest money deposits and other assets |
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|
42.9 |
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44.1 |
|
Decrease in income taxes receivable |
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621.7 |
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Decrease in mortgage loans held for sale |
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164.5 |
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|
216.4 |
|
Decrease in accounts payable, accrued expenses and other liabilities |
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(176.1 |
) |
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(427.8 |
) |
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Net cash provided by operating activities |
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|
978.6 |
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|
1,010.0 |
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INVESTING ACTIVITIES |
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Purchases of property and equipment |
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(4.5 |
) |
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(6.8 |
) |
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Cash used in investing activities |
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(4.5 |
) |
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(6.8 |
) |
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FINANCING ACTIVITIES |
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Proceeds from notes payable |
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|
282.0 |
|
Repayment of notes payable |
|
|
(823.9 |
) |
|
|
(907.8 |
) |
Proceeds from stock associated with certain employee benefit plans |
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|
1.3 |
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|
6.4 |
|
Income tax benefit from stock option exercises |
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|
0.2 |
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|
2.0 |
|
Cash dividends paid |
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(23.8 |
) |
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|
(94.5 |
) |
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Net cash used in financing activities |
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|
(846.2 |
) |
|
|
(711.9 |
) |
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INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
127.9 |
|
|
|
291.3 |
|
Cash and cash equivalents at beginning of period |
|
|
1,387.3 |
|
|
|
269.6 |
|
|
|
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|
|
Cash and cash equivalents at end of period |
|
$ |
1,515.2 |
|
|
$ |
560.9 |
|
|
|
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|
See accompanying notes to consolidated financial statements.
-5-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
NOTE A BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements include the accounts of D.R.
Horton, Inc. and all of its wholly-owned, majority-owned and controlled subsidiaries (which are
referred to as the Company, unless the context otherwise requires), as well as certain variable
interest entities required to be consolidated pursuant to Interpretation No. 46, Consolidation of
Variable Interest Entities an interpretation of ARB No. 51, as amended (FIN 46R), issued by the
Financial Accounting Standards Board (FASB). All significant intercompany accounts, transactions
and balances have been eliminated in consolidation. The financial statements have been prepared in
accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion
of management, all adjustments (consisting of normal, recurring accruals 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, 2008.
Seasonality
Historically, the homebuilding industry has experienced seasonal fluctuations; therefore, the
operating results for the three and six-month periods ended March 31, 2009 are not necessarily
indicative of the results that may be expected for the fiscal year ending September 30, 2009.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from those estimates.
Business
The Company is a national homebuilder that is engaged primarily in the construction and sale
of single-family housing in 77 markets and 27 states in the United States at March 31, 2009. The
Company designs, builds and sells single-family detached homes on lots it developed 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, principally to its homebuyers.
The Company generally does not retain or service the mortgages that it originates but, rather,
seeks to sell the mortgages and related servicing rights to purchasers.
NOTE B INVENTORY IMPAIRMENTS AND LAND OPTION COST WRITE-OFFS
The factors hurting demand for new homes that prevailed during fiscal 2008 continued in the
first half of fiscal 2009. High inventory levels of both new and existing homes, elevated
cancellation rates, low sales absorption rates and overall weak consumer confidence have persisted.
The effects of these factors have been further magnified by credit tightening in the mortgage
markets, high levels of home foreclosures and severe shortages of liquidity in the financial
markets. The overall economy has weakened significantly and is now in a recession marked by high
unemployment levels, further deterioration in consumer confidence and reduced consumer spending.
These factors caused the Companys outlook for the homebuilding industry and the impact on its
business to remain cautious.
-6-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
During the second quarter of fiscal 2009, when the Company performed its quarterly inventory
impairment analysis in accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, the assumptions utilized
reflected its cautious outlook for the broader homebuilding industry and the Companys markets,
both of which impact its business. This outlook incorporates the Companys belief that housing
market conditions may continue to deteriorate, and that challenging conditions will persist for
some time. Accordingly, the Companys impairment evaluation as of March 31, 2009 again indicated a
significant number of communities with impairment indicators. Communities with a combined carrying
value of $1,409.4 million as of March 31, 2009, had indicators of potential impairment and 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. Through this evaluation process, it was determined that communities with a carrying
value of $143.0 million as of March 31, 2009, the largest portion of which was in the West region,
were impaired. As a result, during the three months ended March 31, 2009, impairment charges of
$45.0 million were recorded to reduce the carrying value of the impaired communities to their
estimated fair value, as compared to $817.1 million in the same period of the prior year. During
the six months ended March 31, 2009 and 2008, impairment charges totaled $100.1 million and
$1,060.5 million, respectively. In performing its quarterly inventory impairment analyses during
fiscal 2009, the Company utilized a range of discount rates for communities of 14% to 20% which
reflects an increase from the range of 12% to 18% it would have used for these communities in
fiscal 2008. The increased discount rates reflect the Companys estimate of the increasing level of
market risk present in the homebuilding and related mortgage lending industries. The increase in
the discount rates reduced the estimated fair value of these communities, increasing the current
quarter inventory impairment charge by $1.6 million. In the three months ended March 31, 2009,
approximately 75% of the impairment charges were recorded to residential land and lots and land
held for development, and approximately 25% of the charges were recorded to construction in
progress and finished homes inventory, compared to 85% and 15%, respectively, in the same period of
2008. In the six months ended March 31, 2009, approximately 68% of the impairment charges were
recorded to residential land and lots and land held for development, and approximately 32% of the
charges were recorded to construction in progress and finished homes inventory, compared to 79% and
21%, respectively, in the same period of 2008.
The Companys estimate of undiscounted cash flows from communities analyzed may change and
could result in a future need to record impairment charges to adjust the carrying value of these
assets to their estimated fair value. There are several factors which could lead to changes in the
estimates of undiscounted future cash flows for a given community. The most significant of these
include pricing and incentive levels actually realized by the community, the rate at which the
homes are sold and the costs incurred to construct the homes. The pricing and incentive levels are
often inter-related with sales pace within a community such that a price reduction can be expected
to increase the sales pace. Further, both of these factors are heavily influenced by the
competitive pressures facing a given community from both new homes and existing homes which may
result from foreclosures. If conditions in the broader economy, homebuilding industry or specific
markets in which the Company operates worsen beyond current expectations, 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, which could be significantly higher than the current quarter
charges.
At March 31, 2009, the Company had $31.8 million of land held for sale, consisting of land
held for development and land under development that has met the criteria of available for sale in
accordance with SFAS No. 144.
-7-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
Based on a quarterly review of land and lot option contracts, the Company has written off
earnest money deposits and pre-acquisition costs related to contracts which it no longer plans to
pursue. During the three-month periods ended March 31, 2009 and 2008, the Company wrote off $3.1
million and $17.0 million, respectively, of earnest money deposits and pre-acquisition costs
related to land option contracts. During the six-month periods ended March 31, 2009 and 2008, the
Company wrote off $4.3 million and $19.0 million, respectively, of such deposits and costs. Should
the current weak homebuilding market conditions persist and the Company is unable to successfully
renegotiate certain land purchase contracts, it may write off additional earnest money deposits and
pre-acquisition costs.
NOTE C LAND INVENTORY NOT OWNED
In the ordinary course of its homebuilding business, the Company enters into land and lot
option purchase contracts to procure land or lots for the construction of homes. Under 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.
Under the requirements of FIN 46R, certain of the Companys option purchase contracts result
in the creation of a variable interest in the entity holding the land parcel under option. In
applying the provisions of FIN 46R, the Company evaluates those land and lot option purchase
contracts with variable interest entities to determine whether the Company is the primary
beneficiary based upon analysis of the variability of the expected gains and losses of the entity.
The expected gains and losses are primarily determined by the amount of deposit required by the
contract, the time period or term of the contract, and by analyzing the volatility in home sales
prices as well as development and entitlement risk in each specific market. Based on this
evaluation, if the Company is the primary beneficiary of an entity with which the Company has
entered into a land or lot option purchase contract, the variable interest entity is consolidated.
The consolidation of these variable interest entities added $8.4 million in land inventory not
owned and minority interests related to entities not owned to the Companys balance sheet at March
31, 2009. The Companys obligations related to these land or lot option contracts are guaranteed by
cash deposits totaling $0.5 million and promissory notes and surety bonds totaling $0.3 million.
Creditors, if any, of these variable interest entities have no recourse against the Company.
For the variable interest entities which are unconsolidated because the Company is not subject
to a majority of the risk of loss or entitled to receive a majority of the entities residual
returns, the maximum exposure to loss is generally limited to the amounts of the Companys option
deposits. At March 31, 2009, such exposure totaled $15.7 million.
Additionally, the Company evaluated land and lot option purchase contracts in accordance with
SFAS No. 49, Accounting for Product Financing Arrangements, and added $8.1 million in land
inventory not owned, with a corresponding increase to accrued expenses and other liabilities, to
the Companys balance sheet at March 31, 2009 as a result of this evaluation.
Included in land inventory not owned at March 31, 2009, was $11.7 million of land for which
the Company does not have title because the land was sold during the fourth quarter of fiscal 2008.
The recognition of these sales has been deferred because their terms, primarily related to the
Companys continuing involvement with the properties, did not meet the full accrual method criteria
of SFAS No. 66, Accounting for Sales of Real Estate.
-8-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
NOTE D NOTES PAYABLE
The Companys notes payable at their principal amounts, net of any unamortized discounts,
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In millions) |
|
Homebuilding: |
|
|
|
|
|
|
|
|
Unsecured: |
|
|
|
|
|
|
|
|
Revolving credit facility, maturing 2011 |
|
$ |
|
|
|
$ |
|
|
5% senior notes due 2009, net |
|
|
|
|
|
|
200.0 |
|
8% senior notes due 2009, net |
|
|
|
|
|
|
349.6 |
|
4.875% senior notes due 2010, net |
|
|
173.7 |
|
|
|
249.6 |
|
9.75% senior notes due 2010 |
|
|
70.5 |
|
|
|
96.8 |
|
9.75% senior subordinated notes due 2010, net |
|
|
15.3 |
|
|
|
15.3 |
|
6% senior notes due 2011, net |
|
|
242.0 |
|
|
|
249.6 |
|
7.875% senior notes due 2011, net |
|
|
188.3 |
|
|
|
199.4 |
|
5.375% senior notes due 2012 |
|
|
300.0 |
|
|
|
300.0 |
|
6.875% senior notes due 2013 |
|
|
200.0 |
|
|
|
200.0 |
|
5.875% senior notes due 2013 |
|
|
100.0 |
|
|
|
100.0 |
|
6.125% senior notes due 2014, net |
|
|
198.3 |
|
|
|
198.2 |
|
5.625% senior notes due 2014, net |
|
|
248.7 |
|
|
|
248.6 |
|
5.25% senior notes due 2015, net |
|
|
298.5 |
|
|
|
298.3 |
|
5.625% senior notes due 2016, net |
|
|
298.2 |
|
|
|
298.1 |
|
6.5% senior notes due 2016, net |
|
|
496.9 |
|
|
|
499.2 |
|
Secured and other |
|
|
37.2 |
|
|
|
42.2 |
|
|
|
|
|
|
|
|
|
|
$ |
2,867.6 |
|
|
$ |
3,544.9 |
|
|
|
|
|
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
Mortgage repurchase facility, maturing 2010 |
|
$ |
44.4 |
|
|
$ |
203.5 |
|
|
|
|
|
|
|
|
The Company has an automatically effective universal shelf registration statement filed with
the Securities and Exchange Commission (SEC), registering debt and equity securities that the
Company may issue from time to time in amounts to be determined. Under SEC rules, this shelf
registration statement expires in June 2009.
Homebuilding:
As of March 31, 2009, the Company had a $1.65 billion unsecured revolving credit facility,
which included a $1.0 billion letter of credit sub-facility. The revolving credit facility, which
provides for a maturity of December 16, 2011, has an uncommitted accordion provision of $400 million which can be used
to increase the size of the facility to $2.05 billion upon obtaining additional commitments from
lenders. The Companys borrowing capacity, including the issuance of additional letters of credit,
under this facility is reduced by the amount of letters of credit outstanding, and is further
reduced by the limitations in effect under the borrowing base arrangement described below. The
facility is guaranteed by substantially all of the Companys wholly-owned subsidiaries other than
its financial services subsidiaries. Borrowings bear interest at rates based upon the London
Interbank Offered Rate (LIBOR) plus a spread based upon the Companys ratio of homebuilding debt to
total capitalization, its ratio of adjusted EBITDA to adjusted interest incurred and its senior
unsecured debt rating. At March 31, 2009, the Company had no cash borrowings and $61.7 million of
standby letters of credit outstanding on the homebuilding revolving credit facility. The interest
rate of this facility at March 31, 2009 was 3.3%. In addition to the stated interest rates, the
revolving credit facility requires the Company to pay certain fees.
-9-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
Under the debt covenants associated with the revolving credit facility, if the Company has
fewer than two investment grade senior unsecured debt ratings from Moodys Investors Service,
Standard & Poors Ratings Services and Fitch Ratings, it is subject to a borrowing base limitation
and restrictions on unsold homes and residential land and lots. The Companys senior debt ratings,
which are currently below investment grade, are as follows: Moodys (Ba3); Standard & Poors (BB-);
and Fitch (BB). Consequently, these additional limitations are currently in effect.
Under the borrowing base limitation, the sum of the Companys senior debt and the amount drawn
on the revolving credit facility may not exceed the lesser of (a) certain percentages of the
acquisition cost of various categories of unencumbered inventory or (b) certain percentages of the
book value of various categories of unencumbered inventory, cash and cash equivalents. At March 31,
2009, the borrowing base arrangement limited the Companys additional borrowing capacity under the
credit facility, including the issuance of additional letters of credit to $275
million. In the event the Companys senior debt (including amounts drawn on the revolving credit
facility) exceeds the
borrowing base limitation
the Company would be required
to cash collateralize letters of credit issued under the credit
facility and could be prohibited thereafter
from issuing new letters of credit or borrowing under the facility.
The revolving credit facility imposes restrictions on the Companys operations and activities
by requiring the Company to maintain certain levels of leverage, tangible net worth and components
of inventory. If the Company does not maintain the requisite levels, it may not be able to pay
dividends or available financing could be reduced or terminated. In addition, the indentures
governing the Companys senior notes and senior subordinated notes impose restrictions on the
creation of secured debt and liens.
At March 31, 2009, the Company was in compliance with all of
the covenants, limitations and restrictions that form a part of the bank revolving credit facility
and the public debt obligations.
The Companys continued borrowing availability thereafter depends on its ability to remain in
compliance with these covenants, limitations and restrictions.
On May 4, 2009, the Company notified the lenders participating in the revolving credit
facility of its intention to voluntarily terminate the facility. In accordance with the provisions
of the agreement governing the revolving credit facility, it will terminate effective May 11, 2009.
As a result of the termination of the revolving credit facility, the Company will recognize $7.6
million of loss on early retirement of debt related to the write-off of unamortized fees in the
three months ended June 30, 2009. There were no penalties incurred in connection with the early
termination of the revolving credit facility. Also, on May 4, 2009, the Company entered into
secured letter of credit agreements with the three banks which have issued outstanding letters of
credit under the revolving credit facility. The effect of these agreements is to remove the
outstanding letters of credit from the revolving credit facility and require the Company to deposit
cash, in an amount approximating the balance of letters of credit outstanding, as collateral with
the issuing banks.
On January 15, 2009, the Company repaid the remaining $155.2 million principal amount of its
5% senior notes which were due on that date. On February 1, 2009, the Company repaid the remaining
$297.7 million principal amount of its 8% senior notes which were due on that date.
In November 2008, upon expiration of the previous authorization, the Board of Directors
authorized the early repurchase of up to $500 million of the Companys debt securities. The new
authorization is effective from December 1, 2008 to November 30, 2009. At March 31, 2009, $382.4
million of the authorization was remaining.
-10-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
During the six months ended March 31, 2009, primarily through unsolicited transactions, the
Company repurchased the following senior notes prior to their maturity dates:
|
|
|
|
|
|
|
Principal |
|
|
|
Amount |
|
|
|
(In millions) |
|
5% senior notes due 2009 |
|
$ |
44.8 |
|
8% senior notes due 2009 |
|
|
52.0 |
|
4.875% senior notes due 2010 |
|
|
76.2 |
|
9.75% senior notes due 2010 |
|
|
26.3 |
|
6% senior notes due 2011 |
|
|
7.7 |
|
7.875% senior notes due 2011 |
|
|
11.2 |
|
6.5% senior notes due 2016 |
|
|
2.3 |
|
|
|
|
|
|
|
$ |
220.5 |
|
|
|
|
|
These senior notes were repurchased for an aggregate purchase price of $211.6 million, plus
accrued interest. The repurchases resulted in a gain of $8.4 million, which is net of unamortized
discounts and fees written off, and is included in the consolidated statement of operations for the
six months ended March 31, 2009.
Financial Services:
The Companys mortgage subsidiary entered into a mortgage sale and repurchase agreement (the
mortgage repurchase facility) on March 28, 2008. The mortgage repurchase facility, which is
accounted for as a secured financing, provides financing and liquidity to DHI Mortgage by
facilitating purchase transactions in which DHI Mortgage transfers eligible loans to the
counterparties against the transfer of funds by the counterparties, thereby becoming purchased
loans. DHI Mortgage then has the right and obligation to repurchase the purchased loans upon their
sale to third-party purchasers in the secondary market or within specified time frames from 45 to
120 days in accordance with the terms of the mortgage repurchase facility. On March 5, 2009,
through an amendment to the repurchase agreement, the capacity of the facility was reduced from
$275 million to $75 million, with a provision allowing an increase in the capacity to $100 million
during the last five business days of a fiscal quarter and the first seven business days of the
following fiscal quarter. Additionally, the amendment extended the maturity date of the facility to
March 4, 2010.
As of March 31, 2009, $174.7 million of mortgage loans held for sale were pledged under the
repurchase arrangement, with a carrying value of $176.2 million. DHI Mortgage has the option to
fund a portion of its repurchase obligations in advance. As a result of advance fundings totaling
$123.7 million, DHI Mortgage had an obligation of $44.4 million outstanding under the mortgage
repurchase facility at March 31, 2009 at a 3.8% interest rate.
The mortgage repurchase facility is not guaranteed by either D.R. Horton, Inc. or any of the
subsidiaries that guarantee the Companys homebuilding debt. The facility contains financial
covenants as to the mortgage subsidiarys minimum required tangible net worth, its maximum
allowable ratio of debt to tangible net worth and its minimum required liquidity. At March 31,
2009, the mortgage subsidiary was in compliance with all of the conditions and covenants of the
mortgage repurchase facility.
NOTE E 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. Due to the Companys inventory
reduction strategies, slowing or suspending land development in certain communities and limiting
the construction of unsold homes, the Companys inventory under active development and construction
was lower than its debt level at March 31, 2009 and 2008. Therefore, a portion of the interest
incurred was expensed directly to interest expense in the three and six-month periods ended March
31, 2009 and 2008 as reflected below.
-11-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
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 six-month periods ended March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest, beginning of period |
|
$ |
157.8 |
|
|
$ |
327.5 |
|
|
$ |
160.6 |
|
|
$ |
338.7 |
|
Interest incurred |
|
|
50.3 |
|
|
|
57.9 |
|
|
|
106.9 |
|
|
|
119.4 |
|
Interest expensed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directly to interest expense |
|
|
(23.1 |
) |
|
|
(11.2 |
) |
|
|
(48.7 |
) |
|
|
(11.2 |
) |
Amortized to cost of sales |
|
|
(27.6 |
) |
|
|
(75.2 |
) |
|
|
(58.7 |
) |
|
|
(133.2 |
) |
Written off with inventory impairments |
|
|
(1.6 |
) |
|
|
(45.7 |
) |
|
|
(4.3 |
) |
|
|
(60.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest, end of period |
|
$ |
155.8 |
|
|
$ |
253.3 |
|
|
$ |
155.8 |
|
|
$ |
253.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE F WARRANTY COSTS
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.
Changes in the Companys warranty liability during the three and six-month periods ended March
31, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
Warranty liability, beginning of period |
|
$ |
73.4 |
|
|
$ |
106.7 |
|
|
$ |
83.4 |
|
|
$ |
116.0 |
|
Warranties issued |
|
|
3.7 |
|
|
|
7.6 |
|
|
|
7.9 |
|
|
|
15.2 |
|
Changes in liability for pre-existing warranties |
|
|
(4.5 |
) |
|
|
(5.7 |
) |
|
|
(11.5 |
) |
|
|
(11.3 |
) |
Settlements made |
|
|
(5.6 |
) |
|
|
(9.9 |
) |
|
|
(12.8 |
) |
|
|
(21.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty liability, end of period |
|
$ |
67.0 |
|
|
$ |
98.7 |
|
|
$ |
67.0 |
|
|
$ |
98.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE G MORTGAGE LOANS
To manage the interest rate risk inherent in its mortgage operations, the Company hedges its
risk using various derivative instruments, which include forward sales of mortgage-backed
securities (MBS), Eurodollar Futures Contracts (EDFC) and put options on both MBS and EDFC. Use of
the term hedging instruments in the following discussion refers to these securities collectively,
or in any combination. The Company does not enter into or hold derivatives for trading or
speculative purposes.
Mortgage Loans Held for Sale
Mortgage loans held for sale consist primarily of single-family residential loans
collateralized by the underlying property. Newly originated loans that have been closed but not
committed to third-party purchasers are hedged to mitigate the risk of changes in their fair value. Hedged loans are committed to third-party
purchasers typically within three days after origination. Effective October 1, 2008, the Company
adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities
Including an amendment of FASB Statement No. 115, for all loans originated on or after October 1,
2008. These mortgage loans held for sale are initially recorded at
-12-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
fair value based on either sale commitments or current market quotes and are adjusted for
subsequent changes in fair value until the loan is sold. While the Companys risk management
policies with respect to interest rate risk and fair value changes in mortgage loans held for sale
have not changed, the effect of this standard alleviated the complex documentation requirements to
account for these instruments as designated fair value accounting hedges under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. Additionally, the recognition of
net origination costs and fees associated with mortgage loans originated on or after October 1,
2008 are no longer deferred until the time of sale. There were no required cumulative adjustments
to retained earnings because the Company chose to continue to account for mortgage loans held for
sale originated prior to October 1, 2008 at the lower of cost or market. The implementation of this
standard did not have a material impact on the Companys consolidated financial position, results
of operations or cash flows.
At March 31, 2009, mortgage loans held for sale accounted for under SFAS No. 159 had an
aggregate fair value of $186.8 million and an aggregate outstanding principal balance of $184.7
million. During the six months ended March 31, 2009 and 2008, the Company had net gains on sales of
loans of $3.4 million and $36.0 million, respectively, which includes the effect of recording
recourse expense, as discussed below in Other Mortgage Loans, of $19.7 million and $13.8 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 six months ended March 31, 2009 was not significant,
and is recognized in current earnings. As of March 31, 2009, the Company had $33.6 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 $34.9 million. Prior to October 1, 2008, in
accordance with SFAS No. 133, the effectiveness of the fair value hedge in the prior year was
monitored and any ineffectiveness, which for the three and six months ended March 31, 2008 was not
significant, was recognized in current earnings.
Other Mortgage Loans
Generally, mortgage loans are sold by the Company with limited recourse provisions which
include industry-standard representations and warranties, primarily involving a minimum number of
payments to be made by the borrower and/or misrepresentation by the borrower. The Company 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.
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, future loan
repurchase obligations due to the limited recourse provisions and losses for mortgage reinsurance
activities, all of which are recorded as reductions of financial services revenue. Other mortgage
loans, subject to nonrecurring fair value measurement, totaled $52.5 million and $58.6 million at
March 31, 2009 and September 30, 2008, respectively, and had corresponding loss reserves of $18.0
million and $20.1 million, respectively. The Company has established loss reserves for real estate
owned of $3.9 million and $4.7 million at March 31, 2009 and September 30, 2008, respectively. The
Companys other mortgage loans and real estate owned are included in financial services other
assets in the accompanying consolidated balance sheet. Additional loss reserves at March 31, 2009
and September 30, 2008 included liabilities of
$21.3 million and $5.7 million, respectively, for
expected losses on future loan repurchase obligations due to the limited recourse provisions. The
increase in this loss reserve from September 30, 2008 to March 31, 2009 was primarily due to the
Company receiving additional repurchase requests arising under the limited recourse provisions
leading to increased expectations for loan repurchases and losses. Additionally, a subsidiary of
the Company reinsured a portion of the private mortgage insurance written on loans originated by
DHI Mortgage in prior years. At March 31, 2009 and September 30, 2008, reserves for expected future
losses under the reinsurance program totaled $11.5 million and $5.8 million, respectively. The mortgage
repurchase and reinsurance loss reserves are included in financial services accounts payable and
other liabilities in the accompanying
-13-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
consolidated balance sheet. It is possible that future losses may exceed the amount of
reserves and, if so, additional charges will be required.
Loan Commitments
To meet the financing needs of its customers, the Company is party to interest rate lock
commitments (IRLCs) which are extended to borrowers who have applied for loan funding and meet
certain defined credit and underwriting criteria. At March 31, 2009, the Companys IRLCs totaled
$237.9 million. In accordance with SFAS No. 133 and related Derivatives Implementation Group
conclusions, the Company classifies and accounts for IRLCs as derivative instruments recorded at
fair value.
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 March 31, 2009, the Company had approximately $38.1 million
of best-efforts whole loan delivery commitments and $223.8 million of hedging instruments related
to its IRLCs not yet committed to investors.
At March 31, 2009, the Company had $256.0 million in EDFC options and MBS which were acquired
as part of a program to potentially offer homebuyers a below market interest rate on their home
financing. These hedging instruments and the related commitments are accounted for at fair value
with gains and losses recognized in current earnings. These gains and losses for the three and six
months ended March 31, 2009 and 2008 were not significant.
NOTE H FAIR VALUE MEASUREMENTS
Effective October 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements, for
fair value measurements of certain financial instruments. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about fair value
measurements. Fair value is defined under SFAS No. 157 as the exchange (exit) price that would be
received for an asset or paid to transfer a liability in the principal or most advantageous market
for the asset or liability in an orderly transaction between market participants on the measurement
date. This standard establishes a three-level hierarchy for fair value measurements based upon the
inputs to the valuation of an asset or liability. Observable inputs are those which can be easily
seen by market participants while unobservable inputs are generally developed internally, utilizing
managements estimates and assumptions.
|
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Level 1 Valuation is based on quoted prices in active markets for identical
assets and liabilities. |
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|
Level 2 Valuation is determined from quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or similar instruments in
markets that are not active, or by model-based techniques in which all significant
inputs are observable in the market. |
|
|
|
|
Level 3 Valuation is derived from model-based techniques in which at least one
significant input is unobservable and based on the Companys own estimates about the
assumptions that market participants would use to value the asset or liability. |
When available, the Company uses quoted market prices in active markets to determine fair
value. The Company considers the principal market and nonperformance risk associated with the
Companys counterparties when determining the fair value measurements. Fair value measurements
under SFAS No. 157 are used for IRLCs, mortgage loans held for sale, other mortgage loans and
hedging instruments.
The value of mortgage loans held for sale includes changes in estimated fair value from the
date the loan is closed until the date the loan is sold. The fair value of mortgage loans held for
sale is generally calculated by reference to quoted prices in secondary markets for commitments to
sell mortgage loans with similar characteristics; therefore, they have been classified as a Level 2
valuation. After consideration of nonperformance risk, no additional adjustments have been made by
the Company to the fair value measurement of mortgage loans held for sale. Closed
-14-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
mortgage loans are typically sold within 30 days of origination, limiting any nonperformance
exposure period. In addition, the Company actively monitors the financial strength of its
counterparties and has limited the number of counterparties utilized in loan sale transactions due
to the current market volatility in the mortgage and bank environment.
The hedging instruments utilized by the Company to manage its interest rate risk and hedge the
changes in the fair value of mortgage loans held for sale are publicly traded derivatives with fair
value measurements based on quoted market prices. Exchange-traded derivatives are considered Level
1 valuations because quoted prices for identical assets are used for fair value measurements.
Over-the-counter derivatives, such as MBS, are classified as Level 2 valuations because quoted
prices for similar assets are used for fair value measurements. The Company mitigates exposure to
nonperformance risk associated with over-the-counter derivatives by limiting the number of
counterparties and actively monitoring their financial strength and creditworthiness while
requiring them to be well-known institutions with credit ratings equal to or better than AA- or
equivalent. Further, the Companys derivative contracts typically have short-term durations with
maturities from one to four months. Accordingly, the Companys risk of nonperformance relative to
its derivative positions is also not significant. Nonperformance risk associated with
exchange-traded derivatives is considered minimal as these items are traded on the Chicago
Mercantile Exchange. After consideration of nonperformance risk, no additional adjustments have
been made to the fair value measurement of hedging instruments.
The fair values of IRLCs are also calculated by reference to quoted prices in secondary
markets for commitments to sell mortgage loans with similar characteristics; therefore, they have
been classified as Level 2 valuations. These valuations do not contain adjustments for expirations
as any expired commitments are excluded from the fair value measurement. After consideration of
nonperformance risk, no additional adjustments have been made by the Company to the fair value
measurements of IRLCs. The Company generally only issues IRLCs for products that meet specific
investor guidelines. Should any investor become insolvent, the Company would not be required to
close the transaction based on the terms of the commitment. Since not all IRLCs will become closed
loans, the Company adjusts its fair value measurements for the estimated amount of IRLCs that will
not close.
A summary of assets and liabilities at March 31, 2009 measured at fair value on a recurring
basis were as follows:
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Fair Value |
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Fair Value at |
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Hierarchy |
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Balance Sheet Location |
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March 31, 2009 |
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(in millions) |
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Financial Services: |
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Mortgage Loans Held for Sale (a) |
|
Level 2 |
|
Mortgage Loans Held for Sale |
|
$ |
186.8 |
|
Derivatives not Designated as
Hedging Instruments under SFAS
No. 133 (b): |
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Interest Rate Lock Commitments |
|
Level 2 |
|
Other Assets |
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$ |
2.2 |
|
Forward Sales of MBS |
|
Level 2 |
|
Other Liabilities |
|
$ |
(1.4 |
) |
EDFC Options |
|
Level 1 |
|
Other Liabilities |
|
$ |
(0.1 |
) |
Best-Efforts Commitments |
|
Level 2 |
|
Other Liabilities |
|
$ |
(0.7 |
) |
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(a) |
|
Mortgage loans held for sale are reflected at full fair value. |
|
(b) |
|
Fair value measurements represent changes in fair value since inception. Such changes
are reflected in the balance sheet and recorded to gain (loss) from sale of mortgage loans,
which is a component of financial services revenues. |
Additional information regarding the Companys purpose for entering into derivatives not
designated as hedging instruments and its overall risk management strategies is included in Note G
Mortgage Loans and in Item 3 Quantitative and Qualitative Disclosures about Market Risk of this
quarterly report on Form 10-Q.
-15-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
Related interest income for mortgage loans held for sale continues to be measured based on
contractual interest rates and is included in financial services revenues.
Other mortgage loans are measured at fair value on a nonrecurring basis and include performing
and nonperforming mortgage loans. Other mortgage loans are reported in other assets based on the
Companys assessment of the value of the underlying collateral and are classified as Level 3
valuations.
NOTE I INCOME TAXES
The Companys provision for income taxes for the three and six months ended March 31, 2009 was
$5.6 million and $6.8 million, respectively. The provision for income taxes for the three and six
months ended March 31, 2008 was $421.0 million and $347.0 million, respectively. The Companys
effective income tax expense rate for the three and six-month periods ended March 31, 2009 was 5.4%
and 4.1%, respectively. The effective income tax expense rate for the three and six-month periods
ended March 31, 2008 was 47.6% and 31.9%, respectively. The differences in the Companys effective
tax rates are primarily the result of recording a $714.3 million valuation allowance on its
deferred tax assets at March 31, 2008, of which $385.0 million related to deferred tax assets
existing as of the beginning of fiscal year 2008. The provision for income taxes for the three and
six-month periods ending March 31, 2009 relates primarily to state income taxes on business
operations conducted in states where the Company is profitable, adjustments to the previously
recorded valuation allowance against the deferred tax assets and a reduction of the Companys
reserve for unrecognized tax benefits of $2.7 million recorded during the three months ended March
31, 2009.
At March 31, 2009, the Company had a federal income tax receivable of $54.5 million, relating
to a net operating loss carryback from its 2008 year. In December 2008, the Company received a
federal income tax refund of $621.7 million with respect to its 2008 year. The Company expects to
receive the $54.5 million receivable in the form of a refund after it files its final tax return
for fiscal 2008 in June 2009. The refund is expected to be generated from the carryback of a tax
loss generated in fiscal 2008 against taxable income earned in fiscal 2006.
At March 31, 2009 and September 30, 2008, the Company had net deferred tax assets of $1,232.7
million and $1,174.8 million, respectively, offset by valuation allowances of $1,019.2 million and
$961.3 million, respectively. A substantial portion of the remaining net deferred tax asset of
$213.5 million at March 31, 2009 is expected to be recovered through the carryback of federal tax
losses to be generated in fiscal 2009, primarily through the sale of homes which have been impaired
in previous periods. Federal tax losses realized in fiscal 2009 can be carried back to fiscal 2007
when the Company had taxable income of $616.0 million. The remainder of the net deferred tax asset
is expected to be recovered through state income tax loss carrybacks and filing of an amended
federal tax return for fiscal 2007. The accounting for deferred taxes is based upon an estimate of
future results. Differences between the anticipated and actual outcome of these future tax
consequences could have a material impact on the Companys consolidated results of operations or
financial position. The Companys ability to sell and close an adequate amount of previously
impaired homes in fiscal 2009 is a significant assumption required for full recovery of the net
deferred tax asset. Changes in existing tax laws could also affect actual tax results and the
valuation of deferred tax assets over time.
The total amount of unrecognized tax benefits was $16.0 million and $18.7 million as of March
31, 2009 and September 30, 2008, respectively, which includes interest, penalties, and the tax
benefit relating to the deductibility of interest and state income taxes. All tax positions, if
recognized, would affect the Companys effective income tax rate. The Company does not expect the
total amount of unrecognized tax benefits to significantly decrease or increase within twelve
months of the current reporting date.
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 2009. The Company is currently being audited by various states. The IRS
commenced an examination of the Companys tax
returns for 2004 and 2005 in January 2007. Their examination concluded in February 2009,
resulting in the
-16-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
assessment of $5.9 million of additional federal income tax and interest. Also,
the Company recorded a reduction of $2.7 million to the amount of unrecognized tax benefits as a
result of the conclusion of the audit.
NOTE J LOSS PER SHARE
The following table sets forth the numerators and denominators used in the computation of
basic and diluted loss per share for the three and six months ended March 31, 2009 and 2008. In
both periods, all outstanding stock options were excluded from the computation because they were
antidilutive due to the net loss recorded during each period.
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Three Months Ended |
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Six Months Ended |
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March 31, |
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March 31, |
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2009 |
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2008 |
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2009 |
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2008 |
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(In millions) |
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Numerator: |
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Net loss |
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$ |
(108.6 |
) |
|
$ |
(1,305.6 |
) |
|
$ |
(171.1 |
) |
|
$ |
(1,434.5 |
) |
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Denominator: |
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|
Denominator for
basic and diluted
loss per share
adjusted weighted
average common
shares |
|
|
316.8 |
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|
|
315.4 |
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|
316.7 |
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|
|
315.2 |
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NOTE K STOCKHOLDERS EQUITY
The Company has an automatically effective universal shelf registration statement registering
debt and equity securities that it may issue from time to time in amounts to be determined. Under
SEC rules, this shelf registration statement expires in
June 2009. The Company expects to file a new registration statement prior to its expiration. Also, at March 31, 2009, the Company
had the capacity to issue approximately 22.5 million shares of common stock under its acquisition
shelf registration statement, to effect, in whole or in part, possible future business
acquisitions.
In November 2008, upon expiration of the previous authorization, the Board of Directors
authorized the repurchase of up to $100 million of the Companys common stock. The new
authorization is effective from December 1, 2008 to November 30, 2009. All of the $100 million
authorization was remaining at March 31, 2009.
During the three months ended March 31, 2009, the Board of Directors approved a quarterly cash
dividend of $0.0375 per common share, which was paid on February 26, 2009 to stockholders of record
on February 16, 2009. In April 2009, the Board of Directors approved a quarterly cash dividend of
$0.0375 per common share, payable on May 27, 2009 to stockholders of record on May 19, 2009.
Quarterly cash dividends of $0.15 and $0.075 per common share were declared in the comparable
quarters of fiscal 2008.
NOTE L COMMITMENTS AND CONTINGENCIES
The Company has been named as defendant in various claims, complaints and other legal actions
arising in the ordinary course of business, including warranty and construction defect claims on
closed homes and claims related to its mortgage activities. The Company has established reserves
for such contingencies, based on the expected costs of the self-insured portion of such claims. The
Companys estimates of such reserves are based on the facts and circumstances of individual pending
claims and historical data and trends, including costs relative to revenues, home closings and
product types, and include estimates of the costs of unreported claims related to past operations.
These reserve estimates are subject to ongoing revision as the circumstances of individual pending
claims and historical data and trends change. Adjustments to estimated reserves are recorded in the
accounting period in which the change in estimate occurs.
Management believes that, while the outcome of these contingencies cannot be predicted with
certainty, the liabilities arising from these matters will not have a material adverse effect on
the Companys consolidated financial position, results of operations or cash flows. However, to the
extent the liability arising from the ultimate resolution
-17-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
of any matter exceeds managements
estimates reflected in the recorded reserves relating to these matters, the Company could incur
additional charges that could be significant.
On June 15, 2007, a putative class action, John R. Yeatman, et al. v. D.R. Horton, Inc., et
al., was filed by one of the Companys customers against it and its affiliated mortgage company
subsidiary in the United States District Court for the Southern District of Georgia. The complaint
sought certification of a class alleged to include persons who, within the year preceding the
filing of the suit, purchased a home from the Company and obtained a mortgage for such purchase
from its affiliated mortgage company subsidiary. The complaint alleged that the Company violated
Section 8 of the Real Estate Settlement Procedures Act by effectively requiring its homebuyers to
use its affiliated mortgage company to finance their home purchases by offering certain discounts
and incentives. The action sought damages in an unspecified amount and injunctive relief. On April
23, 2008, the Court ruled on the Companys motion to dismiss and dismissed this complaint with
prejudice. The plaintiffs filed a notice of appeal, which is currently pending.
On March 24, 2008, a putative class action, James Wilson, et al. v. D.R. Horton, Inc., et al.,
was filed by five customers of Western Pacific Housing, Inc., one of the Companys wholly-owned
subsidiaries, against the Company, Western Pacific Housing, Inc., and the Companys affiliated
mortgage company subsidiary, in the United States District Court for the Southern District of
California. The complaint seeks certification of a class alleged to include persons who, within the
four years preceding the filing of the suit, purchased a home from the Company, or any of its
subsidiaries, and obtained a mortgage for such purchase from the Companys affiliated mortgage
company subsidiary. The complaint alleges that the Company violated Section 1 of the Sherman
Antitrust Act and Sections 16720, 17200 and 17500 of the California Business and Professions Code
by effectively requiring its homebuyers to apply for a loan through its affiliated mortgage
company. The complaint alleges that the homebuyers were either deceived about loan costs charged by
the Companys affiliated mortgage company or coerced into using its affiliated mortgage company, or
both, and that discounts and incentives offered by the Company or its subsidiaries to buyers who
obtained financing from its affiliated mortgage company were illusory. The action seeks treble
damages in an unspecified amount and injunctive relief. Management believes the claims alleged in
this action are without merit and will defend them vigorously. However, as the action is still in
its early stages, the Company is unable to express an opinion as to the likelihood of an
unfavorable outcome or the amount of damages, if any.
During the three months ended March 31, 2009, the Company accrued $2.0 million for the repair
of a limited number of homes in its South Florida market where certain of its subcontractors had
purchased and installed imported drywall that may be responsible for the accelerated corrosion of
certain metals in the home.
In the ordinary course of business, the Company enters into land and lot option purchase
contracts in order to procure land or lots for the construction of homes. At March 31, 2009, the
Company had total deposits of $36.3 million, comprised of cash deposits of $33.3 million,
promissory notes of $2.1 million, and letters of credit and surety bonds of $0.9 million, to
purchase land and lots with a total remaining purchase price of $634.3 million. Within the land and
lot option purchase contracts in force at March 31, 2009, there were a limited number of contracts,
representing only $25.5 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.
Included in the total deposits of $36.3 million were $17.6 million of deposits related to land
and lot option purchase contracts for which the Company does not expect to exercise its option to
purchase the land or lots, but the contract has not yet been terminated. The remaining purchase
price of land and lots subject to those contracts was $169.5 million. Consequently, the deposits
relating to these contracts have been written off, resulting in a net deposit balance of $18.7
million at March 31, 2009. 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.
Additionally, in the normal course of its business activities, the Company provides standby
letters of credit and surety bonds, issued by third parties, to secure performance under various
contracts. At March 31, 2009, outstanding standby letters of credit were $61.7 million and surety
bonds were $1.38 billion. As described in Notes D and P, in
-18-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
May 2009, the Company voluntarily
terminated its revolving credit facility and entered into new secured letter of credit agreements
with the banks which had issued the outstanding letters of credit.
NOTE M RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. The statement
defines fair value, establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value
measurements. SFAS No. 157 is effective as of the beginning of an entitys fiscal year that
begins after November 15, 2007. In February 2008, the FASB issued FASB Staff Position No. FAS
157-2, which partially deferred the effective date of SFAS No. 157 for nonfinancial assets and
liabilities, except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis, until fiscal years beginning after November 15, 2008. The partial
adoption of SFAS No. 157 did not have a material impact on the Companys consolidated financial
position, results of operations or cash flows (see Note H). The Company is currently evaluating the
impact of adopting the remaining provisions of SFAS No. 157; however, it is not expected to have a
material impact on the Companys consolidated financial position, results of operations or cash
flows.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an amendment of ARB No. 51. The statement clarifies the accounting for
noncontrolling interests and establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary, including classification as a component of equity. SFAS No. 160 is
effective for fiscal years beginning on or after December 15, 2008, and earlier adoption is
prohibited. The Company is currently evaluating the impact of the adoption of SFAS No. 160;
however, it is not expected to have a material impact on the Companys consolidated financial
position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, (SFAS
No. 141(R)). The statement replaces SFAS No. 141, Business Combinations and provides revised
guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities
assumed, and any noncontrolling interest in the acquiree. It also provides disclosure requirements
to enable users of the financial statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141(R) is effective for fiscal years beginning on or after December
15, 2008, and is to be applied prospectively. The Company does not expect the adoption of SFAS No.
141(R) to have a material impact on its consolidated financial position, results of operations or
cash flows.
In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133. The statement amends and expands the
disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. It requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in derivative
agreements. SFAS No. 161 is effective for fiscal years and interim periods beginning after November
15, 2008, and therefore, was effective for the Company this quarter. The adoption of this
pronouncement, which is related to disclosure only, did not have a material impact on the Companys
consolidated financial position, results of operations or cash flows.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles. The statement identifies the sources of accounting principles and the framework for
selecting the principles to be used in the preparation of financial statements for nongovernmental
entities that are presented in conformity with GAAP. SFAS No. 162 will be effective 60 days
following the SECs approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles. The Company does not expect the adoption of SFAS No. 162 to have a material impact on
its consolidated financial position, results of operations or cash flows.
-19-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance
Contracts an interpretation of FASB Statement No. 60. The statement requires that an insurance
entity recognize a claim liability prior to an event of default (insured event) when there is
evidence that credit deterioration has occurred in an insured financial obligation. SFAS No. 163
also clarifies the application of SFAS No. 60 Accounting and Reporting by Insurance Enterprises
to financial guarantee insurance contracts and expands disclosure requirements surrounding such
contracts. SFAS No. 163 is effective for financial statements issued for fiscal years beginning
after December 15, 2008 and interim periods within those fiscal years. The Company is currently
evaluating the impact of the adoption of SFAS No. 163; however, it is not expected to have a
material impact on the Companys consolidated financial position, results of operations or cash
flows.
In December 2008, the FASB issued FASB Staff Position (FSP) No. FAS 140-4 and FIN 46(R)-8,
Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in
Variable Interest Entities. The staff position amends SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, to require public entities to
provide additional disclosures about transfers of financial assets. It also amends FIN 46(R) to
require public enterprises, including sponsors that have a variable interest in a variable interest
entity, to provide additional disclosures about their involvement with variable interest entities.
This position is effective for financial statements issued for interim periods and fiscal years
ending after December 15, 2008. The adoption of this pronouncement, which is related to disclosure
only, did not have a material impact on the Companys consolidated financial position, results of
operations or cash flows.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments (FSP FAS 115-2 and FAS 124-2). FSP FAS 115-2 and FAS 124-2
changes the method for determining whether an other-than-temporary impairment exists for debt
securities and the amount of the impairment to be recorded in earnings. FSP FAS 115-2 and FAS 124-2
is effective for interim and annual periods ending after June 15, 2009. The Company does not expect
the adoption of this pronouncement to have a material impact on its consolidated financial
position, results of operations or cash flows.
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures About Fair
Value of Financial Instruments (FSP FAS 107-1 and APB 28-1). FSP FAS 107-1 and APB 28-1 requires
fair value disclosures in both interim as well as annual financial statements in order to provide
more timely information about the effects of current market conditions on financial instruments.
FSP FAS 107-1 and APB 28-1 is effective for interim and annual periods ending after June 15, 2009.
The Company does not expect the adoption of this pronouncement to have a material impact on its
consolidated financial position, results of operations or cash flows.
In April 2009, the FASB issued FSP FAS 157-4, Determining Whether a Market Is Not Active and
a Transaction Is Not Distressed (FSP 157-4). FSP 157-4 provides additional guidance on factors to
consider in estimating fair value when there has been a significant decrease in market activity for
a financial asset. FSP 157-4 is effective for interim and annual periods ending after June 15,
2009. The Company does not expect the adoption of this pronouncement to have a material impact on
its consolidated financial position, results of operations or cash flows.
-20-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
NOTE N SEGMENT INFORMATION
The Companys 32 homebuilding operating divisions and its financial services operation are its
operating segments under SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. As reflected in the current year presentation, the homebuilding operating segments
are aggregated into six reporting segments and the financial services operating segment is its own
reporting segment. Previously, the Company presented seven homebuilding reporting segments, based
on its seven operating regions which had been determined to be its operating segments. During the
fourth quarter of fiscal 2008, the Company reassessed the level at which the SFAS No. 131 operating
segment criteria is met, and as a result, changed its operating segments from the operating regions
to the operating divisions. This determination was based on changes to the Companys management
structure and decision-making processes, which have evolved primarily due to the difficult market
conditions and the decrease in size of the Companys operations.
As a result of the change in operating segments described above, the composition of the
Companys reporting segments was also revised. The California markets, which were previously
presented as a separate reporting segment are now included in the West reporting segment.
Additionally, the Salt Lake City, Utah market, which was previously included in the Southwest
reporting segment, is now included in the West reporting segment. Furthermore, the name of the
Northeast reporting segment has been changed to the East reporting segment, although the markets
comprising it remain the same.
Under the revised presentation, 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, Mississippi, Oklahoma and Texas |
|
|
|
Southwest:
|
|
Arizona and New Mexico |
|
|
|
West:
|
|
California, Hawaii, Idaho, Nevada, Oregon, Utah and Washington |
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 99% and 98% of consolidated revenues
during the six months ended March 31, 2009 and 2008, respectively. The Companys homebuilding
segments are primarily engaged in the acquisition and development of land for residential purposes
and the construction and sale of residential homes on such land in 27 states and 77 markets in the
United States. The homebuilding segments generate most of their revenues from the sale of completed
homes, with a lesser amount from the sale of land and lots.
The Companys financial services segment provides mortgage financing and title agency services
principally to customers of the Companys homebuilding segments. The Company generally does not
retain or service the mortgages that it originates, but, rather, seeks to sell the mortgages and
related servicing rights to purchasers. The financial services segment generates its revenues from
originating and selling mortgages and collecting fees for title insurance agency and closing
services.
-21-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
The accounting policies of the reporting segments are described throughout Note A in the
Companys annual report on Form 10-K for the fiscal year ended September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
|
|
|
|
Restated |
|
|
|
|
|
|
Restated |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East |
|
$ |
81.0 |
|
|
$ |
153.3 |
|
|
$ |
156.9 |
|
|
$ |
312.0 |
|
Midwest |
|
|
61.7 |
|
|
|
127.5 |
|
|
|
133.4 |
|
|
|
286.4 |
|
Southeast |
|
|
120.6 |
|
|
|
202.4 |
|
|
|
267.7 |
|
|
|
436.8 |
|
South Central |
|
|
221.9 |
|
|
|
364.1 |
|
|
|
476.9 |
|
|
|
713.0 |
|
Southwest |
|
|
82.7 |
|
|
|
261.8 |
|
|
|
220.3 |
|
|
|
653.2 |
|
West |
|
|
207.4 |
|
|
|
514.9 |
|
|
|
420.4 |
|
|
|
930.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding revenues |
|
$ |
775.3 |
|
|
$ |
1,624.0 |
|
|
$ |
1,675.6 |
|
|
$ |
3,331.6 |
|
Financial services revenues |
|
$ |
2.7 |
|
|
$ |
32.9 |
|
|
$ |
20.4 |
|
|
$ |
67.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues |
|
$ |
778.0 |
|
|
$ |
1,656.9 |
|
|
$ |
1,696.0 |
|
|
$ |
3,399.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory Impairments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East |
|
$ |
1.4 |
|
|
$ |
90.3 |
|
|
$ |
5.6 |
|
|
$ |
109.2 |
|
Midwest |
|
|
9.3 |
|
|
|
21.3 |
|
|
|
13.1 |
|
|
|
25.6 |
|
Southeast |
|
|
2.2 |
|
|
|
176.5 |
|
|
|
6.0 |
|
|
|
198.3 |
|
South Central |
|
|
2.3 |
|
|
|
19.4 |
|
|
|
2.2 |
|
|
|
29.5 |
|
Southwest |
|
|
5.8 |
|
|
|
27.0 |
|
|
|
7.8 |
|
|
|
27.0 |
|
West |
|
|
24.0 |
|
|
|
482.6 |
|
|
|
65.4 |
|
|
|
670.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory impairments |
|
$ |
45.0 |
|
|
$ |
817.1 |
|
|
$ |
100.1 |
|
|
$ |
1,060.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding loss before
income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East |
|
$ |
(5.8 |
) |
|
$ |
(116.2 |
) |
|
$ |
(16.7 |
) |
|
$ |
(142.2 |
) |
Midwest |
|
|
(21.2 |
) |
|
|
(33.2 |
) |
|
|
(32.8 |
) |
|
|
(32.6 |
) |
Southeast |
|
|
(12.4 |
) |
|
|
(202.1 |
) |
|
|
(17.5 |
) |
|
|
(223.5 |
) |
South Central |
|
|
1.3 |
|
|
|
(9.7 |
) |
|
|
13.1 |
|
|
|
(6.9 |
) |
Southwest |
|
|
(12.2 |
) |
|
|
(15.5 |
) |
|
|
(9.2 |
) |
|
|
20.7 |
|
West |
|
|
(40.3 |
) |
|
|
(519.8 |
) |
|
|
(85.9 |
) |
|
|
(721.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding loss
before income taxes |
|
$ |
(90.6 |
) |
|
$ |
(896.5 |
) |
|
$ |
(149.0 |
) |
|
$ |
(1,106.3 |
) |
Financial services income (loss)
before income taxes |
|
$ |
(12.4 |
) |
|
$ |
11.9 |
|
|
$ |
(15.3 |
) |
|
$ |
18.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated loss before income taxes |
|
$ |
(103.0 |
) |
|
$ |
(884.6 |
) |
|
$ |
(164.3 |
) |
|
$ |
(1,087.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
-22-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In millions) |
|
Homebuilding Inventories (2): |
|
|
|
|
|
|
|
|
East |
|
$ |
580.7 |
|
|
$ |
594.5 |
|
Midwest |
|
|
443.0 |
|
|
|
473.8 |
|
Southeast |
|
|
720.2 |
|
|
|
799.6 |
|
South Central |
|
|
823.0 |
|
|
|
939.7 |
|
Southwest |
|
|
332.1 |
|
|
|
423.6 |
|
West |
|
|
1,083.0 |
|
|
|
1,258.4 |
|
Corporate and unallocated (3) |
|
|
186.0 |
|
|
|
193.6 |
|
|
|
|
|
|
|
|
Total homebuilding inventory |
|
$ |
4,168.0 |
|
|
$ |
4,683.2 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Expenses maintained at the corporate level are allocated to each segment based on the
segments average inventory. These expenses consist primarily of capitalized interest
and property taxes, which are amortized to cost of sales, and the expenses related to
operating the Companys corporate office. |
|
(2) |
|
Homebuilding inventories are the only assets included in the measure of segment assets
used by the Companys chief operating decision maker, its CEO. |
|
(3) |
|
Corporate and unallocated consists primarily of capitalized interest and property taxes. |
-23-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
NOTE O SUPPLEMENTAL GUARANTOR INFORMATION
All of the Companys senior and senior subordinated notes and the unsecured revolving credit
facility are fully and unconditionally guaranteed, on a joint and several basis, by all of the
Companys direct and indirect subsidiaries (collectively, Guarantor Subsidiaries), other than
financial services subsidiaries and certain other inconsequential subsidiaries (collectively,
Non-Guarantor Subsidiaries). Each of the Guarantor Subsidiaries is wholly-owned. In lieu of
providing separate financial statements for the Guarantor Subsidiaries, consolidated condensed
financial statements are presented below. Separate financial statements and other disclosures
concerning the Guarantor Subsidiaries are not presented because management has determined that they
are not material to investors.
Consolidating Balance Sheet
March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Horton, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
(In millions) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,451.5 |
|
|
$ |
29.7 |
|
|
$ |
34.0 |
|
|
$ |
|
|
|
$ |
1,515.2 |
|
Investments in subsidiaries |
|
|
1,014.3 |
|
|
|
|
|
|
|
|
|
|
|
(1,014.3 |
) |
|
|
|
|
Inventories |
|
|
1,313.8 |
|
|
|
2,812.8 |
|
|
|
41.4 |
|
|
|
|
|
|
|
4,168.0 |
|
Property and equipment, net |
|
|
21.8 |
|
|
|
24.7 |
|
|
|
20.1 |
|
|
|
|
|
|
|
66.6 |
|
Income taxes receivable |
|
|
54.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54.5 |
|
Deferred income taxes, net |
|
|
68.2 |
|
|
|
145.3 |
|
|
|
|
|
|
|
|
|
|
|
213.5 |
|
Earnest money deposits and
other assets |
|
|
56.6 |
|
|
|
107.5 |
|
|
|
92.3 |
|
|
|
|
|
|
|
256.4 |
|
Mortgage loans held for sale |
|
|
|
|
|
|
|
|
|
|
187.6 |
|
|
|
|
|
|
|
187.6 |
|
Goodwill |
|
|
|
|
|
|
15.9 |
|
|
|
|
|
|
|
|
|
|
|
15.9 |
|
Intercompany receivables |
|
|
1,784.8 |
|
|
|
|
|
|
|
|
|
|
|
(1,784.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
5,765.5 |
|
|
$ |
3,135.9 |
|
|
$ |
375.4 |
|
|
$ |
(2,799.1 |
) |
|
$ |
6,477.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities |
|
$ |
251.8 |
|
|
$ |
533.7 |
|
|
$ |
118.1 |
|
|
$ |
|
|
|
$ |
903.6 |
|
Intercompany payables |
|
|
|
|
|
|
1,746.0 |
|
|
|
38.8 |
|
|
|
(1,784.8 |
) |
|
|
|
|
Notes payable |
|
|
2,866.4 |
|
|
|
1.2 |
|
|
|
44.4 |
|
|
|
|
|
|
|
2,912.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
3,118.2 |
|
|
|
2,280.9 |
|
|
|
201.3 |
|
|
|
(1,784.8 |
) |
|
|
3,815.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests |
|
|
|
|
|
|
|
|
|
|
14.8 |
|
|
|
|
|
|
|
14.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity |
|
|
2,647.3 |
|
|
|
855.0 |
|
|
|
159.3 |
|
|
|
(1,014.3 |
) |
|
|
2,647.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Equity |
|
$ |
5,765.5 |
|
|
$ |
3,135.9 |
|
|
$ |
375.4 |
|
|
$ |
(2,799.1 |
) |
|
$ |
6,477.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-24-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
NOTE O SUPPLEMENTAL GUARANTOR INFORMATION (Continued)
Consolidating Balance Sheet
September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Horton, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
(In millions) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,261.5 |
|
|
$ |
90.1 |
|
|
$ |
35.7 |
|
|
$ |
|
|
|
$ |
1,387.3 |
|
Investments in subsidiaries |
|
|
1,073.4 |
|
|
|
|
|
|
|
|
|
|
|
(1,073.4 |
) |
|
|
|
|
Inventories |
|
|
1,443.8 |
|
|
|
3,177.8 |
|
|
|
61.6 |
|
|
|
|
|
|
|
4,683.2 |
|
Property and equipment, net |
|
|
16.1 |
|
|
|
29.1 |
|
|
|
20.7 |
|
|
|
|
|
|
|
65.9 |
|
Income taxes receivable |
|
|
676.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
676.2 |
|
Deferred income taxes, net |
|
|
67.2 |
|
|
|
146.3 |
|
|
|
|
|
|
|
|
|
|
|
213.5 |
|
Earnest money deposits and
other assets |
|
|
91.1 |
|
|
|
118.2 |
|
|
|
109.5 |
|
|
|
(3.3 |
) |
|
|
315.5 |
|
Mortgage loans held for sale |
|
|
|
|
|
|
|
|
|
|
352.1 |
|
|
|
|
|
|
|
352.1 |
|
Goodwill |
|
|
|
|
|
|
15.9 |
|
|
|
|
|
|
|
|
|
|
|
15.9 |
|
Intercompany receivables |
|
|
2,056.4 |
|
|
|
|
|
|
|
|
|
|
|
(2,056.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
6,685.7 |
|
|
$ |
3,577.4 |
|
|
$ |
579.6 |
|
|
$ |
(3,133.1 |
) |
|
$ |
7,709.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities |
|
$ |
307.9 |
|
|
$ |
681.7 |
|
|
$ |
110.1 |
|
|
$ |
(3.3 |
) |
|
$ |
1,096.4 |
|
Intercompany payables |
|
|
|
|
|
|
2,008.1 |
|
|
|
48.3 |
|
|
|
(2,056.4 |
) |
|
|
|
|
Notes payable |
|
|
3,543.5 |
|
|
|
1.4 |
|
|
|
203.5 |
|
|
|
|
|
|
|
3,748.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
3,851.4 |
|
|
|
2,691.2 |
|
|
|
361.9 |
|
|
|
(2,059.7 |
) |
|
|
4,844.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests |
|
|
|
|
|
|
|
|
|
|
30.5 |
|
|
|
|
|
|
|
30.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity |
|
|
2,834.3 |
|
|
|
886.2 |
|
|
|
187.2 |
|
|
|
(1,073.4 |
) |
|
|
2,834.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Equity |
|
$ |
6,685.7 |
|
|
$ |
3,577.4 |
|
|
$ |
579.6 |
|
|
$ |
(3,133.1 |
) |
|
$ |
7,709.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-25-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
NOTE O SUPPLEMENTAL GUARANTOR INFORMATION (Continued)
Consolidating Statement of Operations
Three Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Horton, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
(In millions) |
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
189.9 |
|
|
$ |
581.7 |
|
|
$ |
3.7 |
|
|
$ |
|
|
|
$ |
775.3 |
|
Cost of sales |
|
|
167.8 |
|
|
|
549.3 |
|
|
|
3.2 |
|
|
|
|
|
|
|
720.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
22.1 |
|
|
|
32.4 |
|
|
|
0.5 |
|
|
|
|
|
|
|
55.0 |
|
Selling, general and
administrative expense |
|
|
57.3 |
|
|
|
68.2 |
|
|
|
1.4 |
|
|
|
|
|
|
|
126.9 |
|
Equity in loss of subsidiaries |
|
|
47.7 |
|
|
|
|
|
|
|
|
|
|
|
(47.7 |
) |
|
|
|
|
Interest expense |
|
|
23.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.1 |
|
(Gain) on early retirement of debt |
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.2 |
) |
Other (income) expense |
|
|
(0.8 |
) |
|
|
(0.7 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103.0 |
) |
|
|
(35.1 |
) |
|
|
(0.2 |
) |
|
|
47.7 |
|
|
|
(90.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
2.7 |
|
|
|
|
|
|
|
2.7 |
|
General and administrative expense |
|
|
|
|
|
|
|
|
|
|
17.2 |
|
|
|
|
|
|
|
17.2 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
0.3 |
|
Interest and other (income) |
|
|
|
|
|
|
|
|
|
|
(2.4 |
) |
|
|
|
|
|
|
(2.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12.4 |
) |
|
|
|
|
|
|
(12.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(103.0 |
) |
|
|
(35.1 |
) |
|
|
(12.6 |
) |
|
|
47.7 |
|
|
|
(103.0 |
) |
Provision for income taxes |
|
|
5.6 |
|
|
|
4.2 |
|
|
|
0.1 |
|
|
|
(4.3 |
) |
|
|
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(108.6 |
) |
|
$ |
(39.3 |
) |
|
$ |
(12.7 |
) |
|
$ |
52.0 |
|
|
$ |
(108.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-26-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
NOTE O SUPPLEMENTAL GUARANTOR INFORMATION (Continued)
Consolidating Statement of Operations
Six Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Horton, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
(In millions) |
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
370.2 |
|
|
$ |
1,296.1 |
|
|
$ |
9.3 |
|
|
$ |
|
|
|
$ |
1,675.6 |
|
Cost of sales |
|
|
353.0 |
|
|
|
1,175.2 |
|
|
|
8.6 |
|
|
|
|
|
|
|
1,536.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
17.2 |
|
|
|
120.9 |
|
|
|
0.7 |
|
|
|
|
|
|
|
138.8 |
|
Selling, general and
administrative expense |
|
|
102.1 |
|
|
|
149.0 |
|
|
|
2.8 |
|
|
|
|
|
|
|
253.9 |
|
Equity in loss of subsidiaries |
|
|
43.4 |
|
|
|
|
|
|
|
|
|
|
|
(43.4 |
) |
|
|
|
|
Interest expense |
|
|
48.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48.7 |
|
(Gain) on early retirement of debt |
|
|
(8.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.4 |
) |
Other (income) expense |
|
|
(4.3 |
) |
|
|
0.3 |
|
|
|
(2.4 |
) |
|
|
|
|
|
|
(6.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(164.3 |
) |
|
|
(28.4 |
) |
|
|
0.3 |
|
|
|
43.4 |
|
|
|
(149.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
20.4 |
|
|
|
|
|
|
|
20.4 |
|
General and administrative expense |
|
|
|
|
|
|
|
|
|
|
40.4 |
|
|
|
|
|
|
|
40.4 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
1.0 |
|
|
|
|
|
|
|
1.0 |
|
Interest and other (income) |
|
|
|
|
|
|
|
|
|
|
(5.7 |
) |
|
|
|
|
|
|
(5.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15.3 |
) |
|
|
|
|
|
|
(15.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(164.3 |
) |
|
|
(28.4 |
) |
|
|
(15.0 |
) |
|
|
43.4 |
|
|
|
(164.3 |
) |
Provision for income taxes |
|
|
6.8 |
|
|
|
5.2 |
|
|
|
0.1 |
|
|
|
(5.3 |
) |
|
|
6.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(171.1 |
) |
|
$ |
(33.6 |
) |
|
$ |
(15.1 |
) |
|
$ |
48.7 |
|
|
$ |
(171.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-27-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
NOTE O SUPPLEMENTAL GUARANTOR INFORMATION (Continued)
Consolidating Statement of Operations
Three Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Horton, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
(In millions) |
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
304.3 |
|
|
$ |
1,309.4 |
|
|
$ |
10.3 |
|
|
$ |
|
|
|
$ |
1,624.0 |
|
Cost of sales |
|
|
520.4 |
|
|
|
1,773.7 |
|
|
|
8.7 |
|
|
|
|
|
|
|
2,302.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
(216.1 |
) |
|
|
(464.3 |
) |
|
|
1.6 |
|
|
|
|
|
|
|
(678.8 |
) |
Selling, general and administrative
expense |
|
|
77.7 |
|
|
|
128.8 |
|
|
|
1.8 |
|
|
|
|
|
|
|
208.3 |
|
Equity in loss of subsidiaries |
|
|
579.4 |
|
|
|
|
|
|
|
|
|
|
|
(579.4 |
) |
|
|
|
|
Interest expense |
|
|
11.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.2 |
|
Other (income) expense |
|
|
0.2 |
|
|
|
(0.6 |
) |
|
|
(1.4 |
) |
|
|
|
|
|
|
(1.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(884.6 |
) |
|
|
(592.5 |
) |
|
|
1.2 |
|
|
|
579.4 |
|
|
|
(896.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
32.9 |
|
|
|
|
|
|
|
32.9 |
|
General and administrative expense |
|
|
|
|
|
|
|
|
|
|
22.8 |
|
|
|
|
|
|
|
22.8 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
0.8 |
|
|
|
|
|
|
|
0.8 |
|
Interest and other (income) |
|
|
|
|
|
|
|
|
|
|
(2.6 |
) |
|
|
|
|
|
|
(2.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.9 |
|
|
|
|
|
|
|
11.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(884.6 |
) |
|
|
(592.5 |
) |
|
|
13.1 |
|
|
|
579.4 |
|
|
|
(884.6 |
) |
Provision for income taxes |
|
|
421.0 |
|
|
|
273.6 |
|
|
|
5.0 |
|
|
|
(278.6 |
) |
|
|
421.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(1,305.6 |
) |
|
$ |
(866.1 |
) |
|
$ |
8.1 |
|
|
$ |
858.0 |
|
|
$ |
(1,305.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-28-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
NOTE O SUPPLEMENTAL GUARANTOR INFORMATION (Continued)
Consolidating Statement of Operations
Six Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Horton, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
(In millions) |
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
613.2 |
|
|
$ |
2,694.7 |
|
|
$ |
23.7 |
|
|
$ |
|
|
|
$ |
3,331.6 |
|
Cost of sales |
|
|
861.9 |
|
|
|
3,128.3 |
|
|
|
18.6 |
|
|
|
|
|
|
|
4,008.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
(248.7 |
) |
|
|
(433.6 |
) |
|
|
5.1 |
|
|
|
|
|
|
|
(677.2 |
) |
Selling, general and administrative
expense |
|
|
162.8 |
|
|
|
254.6 |
|
|
|
4.0 |
|
|
|
|
|
|
|
421.4 |
|
Equity in loss of subsidiaries |
|
|
665.0 |
|
|
|
|
|
|
|
|
|
|
|
(665.0 |
) |
|
|
|
|
Interest expense |
|
|
11.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.2 |
|
Other (income) |
|
|
(0.2 |
) |
|
|
(1.9 |
) |
|
|
(1.4 |
) |
|
|
|
|
|
|
(3.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,087.5 |
) |
|
|
(686.3 |
) |
|
|
2.5 |
|
|
|
665.0 |
|
|
|
(1,106.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
67.9 |
|
|
|
|
|
|
|
67.9 |
|
General and administrative expense |
|
|
|
|
|
|
|
|
|
|
53.3 |
|
|
|
|
|
|
|
53.3 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
2.1 |
|
|
|
|
|
|
|
2.1 |
|
Interest and other (income) |
|
|
|
|
|
|
|
|
|
|
(6.3 |
) |
|
|
|
|
|
|
(6.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.8 |
|
|
|
|
|
|
|
18.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(1,087.5 |
) |
|
|
(686.3 |
) |
|
|
21.3 |
|
|
|
665.0 |
|
|
|
(1,087.5 |
) |
Provision for income taxes |
|
|
347.0 |
|
|
|
239.4 |
|
|
|
8.0 |
|
|
|
(247.4 |
) |
|
|
347.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(1,434.5 |
) |
|
$ |
(925.7 |
) |
|
$ |
13.3 |
|
|
$ |
912.4 |
|
|
$ |
(1,434.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-29-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
NOTE O SUPPLEMENTAL GUARANTOR INFORMATION (Continued)
Consolidating Statement of Cash Flows
Six Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Horton, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
(In millions) |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by
operating activities |
|
$ |
598.1 |
|
|
$ |
201.3 |
|
|
$ |
179.2 |
|
|
$ |
|
|
|
$ |
978.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(2.5 |
) |
|
|
(2.0 |
) |
|
|
|
|
|
|
|
|
|
|
(4.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(2.5 |
) |
|
|
(2.0 |
) |
|
|
|
|
|
|
|
|
|
|
(4.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in notes payable |
|
|
(664.8 |
) |
|
|
|
|
|
|
(159.1 |
) |
|
|
|
|
|
|
(823.9 |
) |
Net change in intercompany
receivables/payables |
|
|
281.5 |
|
|
|
(259.7 |
) |
|
|
(21.8 |
) |
|
|
|
|
|
|
|
|
Proceeds from stock associated with
certain employee benefit plans |
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3 |
|
Income tax benefit from stock
option exercises |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
Cash dividends paid |
|
|
(23.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(405.6 |
) |
|
|
(259.7 |
) |
|
|
(180.9 |
) |
|
|
|
|
|
|
(846.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and
cash equivalents |
|
|
190.0 |
|
|
|
(60.4 |
) |
|
|
(1.7 |
) |
|
|
|
|
|
|
127.9 |
|
Cash and cash equivalents at
beginning of period |
|
|
1,261.5 |
|
|
|
90.1 |
|
|
|
35.7 |
|
|
|
|
|
|
|
1,387.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
end of period |
|
$ |
1,451.5 |
|
|
$ |
29.7 |
|
|
$ |
34.0 |
|
|
$ |
|
|
|
$ |
1,515.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-30-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
NOTE O SUPPLEMENTAL GUARANTOR INFORMATION (Continued)
Consolidating Statement of Cash Flows
Six Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Horton, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
|
|
(In millions) |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by
operating activities |
|
$ |
69.1 |
|
|
$ |
700.0 |
|
|
$ |
239.3 |
|
|
$ |
1.6 |
|
|
$ |
1,010.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
0.5 |
|
|
|
(7.2 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
(6.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities |
|
|
0.5 |
|
|
|
(7.2 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
(6.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in notes payable |
|
|
(402.0 |
) |
|
|
|
|
|
|
(223.8 |
) |
|
|
|
|
|
|
(625.8 |
) |
Net change in intercompany
receivables/payables |
|
|
857.1 |
|
|
|
(842.9 |
) |
|
|
(14.2 |
) |
|
|
|
|
|
|
|
|
Proceeds from stock associated with
certain employee benefit plans |
|
|
6.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.4 |
|
Income tax benefit from stock
option exercises |
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0 |
|
Cash dividends paid |
|
|
(94.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used) in
financing activities |
|
|
369.0 |
|
|
|
(842.9 |
) |
|
|
(238.0 |
) |
|
|
|
|
|
|
(711.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and
cash equivalents |
|
|
438.6 |
|
|
|
(150.1 |
) |
|
|
1.2 |
|
|
|
1.6 |
|
|
|
291.3 |
|
Cash and cash equivalents at
beginning of period |
|
|
|
|
|
|
225.3 |
|
|
|
45.9 |
|
|
|
(1.6 |
) |
|
|
269.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
end of period |
|
$ |
438.6 |
|
|
$ |
75.2 |
|
|
$ |
47.1 |
|
|
$ |
|
|
|
$ |
560.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-31-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
March 31, 2009
NOTE P SUBSEQUENT EVENTS
Voluntary Termination of Revolving Credit Facility
On May 4, 2009, the Company notified the lenders participating in the revolving credit
facility of its intention to voluntarily terminate the facility. In accordance with the provisions
of the agreement governing the revolving credit facility, it will
terminate effective May 11, 2009.
As a result of the termination of the revolving credit facility, the
Company will recognize $7.6
million of loss on early retirement of debt related to the write-off of unamortized fees in the
three months ended June 30, 2009. There were no penalties incurred in connection with the early
termination of the revolving credit facility. Also, on May 4, 2009, the Company entered into
secured letter of credit agreements with the three banks which have issued outstanding letters of
credit under the revolving credit facility. The effect of these agreements is to remove the
outstanding letters of credit from the revolving credit facility and require the Company to deposit
cash, in an amount approximating the balance of letters of credit outstanding, as collateral with
the issuing banks.
Repurchase of Public Unsecured Debt
On April 6, 2009, through an unsolicited transaction, the Company repurchased $25.2 million
principal amount of its 7.875% senior notes due 2011 for a purchase price of $23.7 million, plus
accrued interest.
-32-
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, 2008. 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 27 states and 77 markets as of
March 31, 2009, primarily under the name of D.R. Horton, Americas Builder. Our homebuilding
operations primarily include the construction and sale of single-family homes with sales prices
generally ranging from $90,000 to $900,000, with an average closing price of $216,400 during the
six months ended March 31, 2009. Approximately 82% and 78% of home sales revenues were generated
from the sale of single-family detached homes in the six months ended March 31, 2009 and 2008,
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 principally to purchasers of homes we build. We
generally do not seek to retain or service the mortgages we originate but, rather, seek to sell the
mortgages and related servicing rights to purchasers. DHI Mortgage originates loans in accordance
with investor 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.
-33-
We conduct our homebuilding operations in all of the geographic regions, states and markets
listed below, and we conduct our mortgage and title operations in many of these markets. Our
homebuilding operating divisions are aggregated into six reporting segments, which are comprised of
the markets below. Our financial statements contain additional information regarding segment
performance.
|
|
|
|
|
|
|
State |
|
Reporting Region/Market |
|
State |
|
Reporting Region/Market |
|
|
|
|
|
|
|
|
|
East Region |
|
|
|
South Central Region |
Delaware |
|
Central Delaware |
|
Louisiana |
|
Baton Rouge |
|
|
Delaware Shore |
|
Mississippi |
|
Mississippi Gulf Coast |
Georgia |
|
Savannah |
|
Oklahoma |
|
Oklahoma City |
Maryland |
|
Baltimore |
|
Texas |
|
Austin |
|
|
Suburban Washington, D.C. |
|
|
|
Dallas |
New Jersey |
|
North New Jersey |
|
|
|
Fort Worth |
|
|
South New Jersey |
|
|
|
Houston |
North Carolina |
|
Brunswick County |
|
|
|
Killeen/Temple |
|
|
Charlotte |
|
|
|
Laredo |
|
|
Greensboro/Winston-Salem |
|
|
|
Rio Grande Valley |
|
|
Raleigh/Durham |
|
|
|
San Antonio |
Pennsylvania |
|
Lancaster |
|
|
|
Waco |
|
|
Philadelphia |
|
|
|
|
South Carolina |
|
Charleston |
|
|
|
Southwest Region |
|
|
Columbia |
|
Arizona |
|
Phoenix |
|
|
Hilton Head |
|
|
|
Tucson |
|
|
Myrtle Beach |
|
New Mexico |
|
Albuquerque |
Virginia |
|
Northern Virginia |
|
|
|
Las Cruces |
|
|
|
Midwest Region |
|
|
|
West Region |
Colorado |
|
Colorado Springs |
|
California |
|
Bay Area |
|
|
Denver |
|
|
|
Central Valley |
|
|
Fort Collins |
|
|
|
Imperial Valley |
Illinois |
|
Chicago |
|
|
|
Los Angeles County |
Minnesota |
|
Minneapolis/St. Paul |
|
|
|
Riverside/San Bernardino |
Wisconsin |
|
Kenosha |
|
|
|
Sacramento |
|
|
|
|
|
|
San Diego County |
|
|
Southeast Region |
|
|
|
Ventura County |
Alabama |
|
Birmingham |
|
Hawaii |
|
Hawaii |
|
|
Mobile |
|
|
|
Kauai |
Florida |
|
Daytona Beach |
|
|
|
Maui |
|
|
Fort Myers/Naples |
|
|
|
Oahu |
|
|
Jacksonville |
|
Idaho |
|
Boise |
|
|
Melbourne |
|
Nevada |
|
Las Vegas |
|
|
Miami/West Palm Beach |
|
|
|
Laughlin |
|
|
Ocala |
|
|
|
Reno |
|
|
Orlando |
|
Oregon |
|
Albany |
|
|
Pensacola |
|
|
|
Central Oregon |
|
|
Tampa |
|
|
|
Portland |
Georgia |
|
Atlanta |
|
Utah |
|
Salt Lake City |
|
|
Macon |
|
Washington |
|
Bellingham |
|
|
|
|
|
|
Eastern Washington |
|
|
|
|
|
|
Seattle/Tacoma |
|
|
|
|
|
|
Vancouver |
-34-
OVERVIEW
During the second quarter of fiscal 2009, conditions within the homebuilding industry remained
very challenging. The decline in demand for new homes continues to be reflected in the volume of
our net sales orders, which was 45% lower than in the second quarter of fiscal 2008, and the
average selling price of those orders was down 8%. Consequently, the value of our sales order
backlog at March 31, 2009 was 54% lower than a year ago.
The factors hurting demand for new homes are pervasive across the United States. High
inventory levels of both new and existing homes, elevated cancellation rates, low sales absorption
rates and overall weak consumer confidence have persisted. The effects of these factors have been
magnified by reduced availability of credit in the mortgage markets, high levels of home
foreclosures and severe shortages of liquidity in the financial markets. The overall economy has
weakened significantly and is now in a recession marked by high unemployment levels, further
deterioration in consumer confidence and reduced consumer spending. These factors have caused our
sales volume to be significantly reduced from the prior year.
We continue to remain cautious regarding our outlook for the homebuilding industry. We believe
that housing market conditions may continue to deteriorate, that challenging conditions will
persist for some time and that the timing of a recovery in the housing market remains unclear. Our
outlook incorporates several factors, including continued margin pressure from sales price
reductions and incentives; continued high levels of new and existing homes available for sale; weak
demand from new home consumers; continued high sales cancellations; significant restrictions on the
availability of certain mortgage products and an overall increase in the underwriting requirements
for home financing as a result of the credit tightening in the mortgage markets.
Due to the challenging market conditions discussed above, we have continued to evaluate our
homebuilding and financial services assets for recoverability in accordance with the appropriate
accounting standards. Our significant assets, excluding cash, and those whose recoverability are
most impacted by market conditions include inventory, earnest money deposits and pre-acquisition
costs related to land and lot option contracts, tax assets, both on amounts reflected as deferred
and as a receivable, and owned mortgage loans, which collectively comprise 95% of our total
non-cash assets. Our evaluations reflected our expectation of continued and increasing challenges
in the homebuilding industry, and our belief that these challenging conditions will persist for
some time. Based on our evaluations, we recorded inventory impairment charges of $45.0 million,
wrote-off earnest money deposits and pre-acquisition costs related to land and lot option contracts
we no longer plan to pursue of $3.1 million, and recorded additional reserve for losses of $16.1
million associated with limited recourse provisions on previously sold mortgage loans during the
three months ended March 31, 2009. While these impairment charges and write-offs are generally less
than amounts recognized in the prior year periods, they reflect the continued weakness in market
conditions. We will evaluate whether further impairment charges, valuation adjustments or
write-offs are necessary on these assets in the coming quarters. Additional discussion of these
evaluations and charges is presented below.
STRATEGY
We believe the long-term fundamentals which support housing demand, namely population growth
and household formation, remain solid. However, it is not possible to predict how long the negative
effects of the current market conditions will persist or to what extent they will continue to
deteriorate. Consequently, we have aggressively sought to reduce our inventory levels and increase
our cash balances. We have been successful in generating substantial cash flow from operations
primarily through inventory reductions, as well as from the receipt of a tax refund from a loss
carryback, allowing us to increase our cash balances and decrease debt levels. This increase in our
liquidity provides us with flexibility in determining the appropriate operating strategy for each
of our communities and markets to strike the best balance between cash flow generation and
potential profit. With this flexibility, we remain committed to the following initiatives related
to our operating strategy in the current homebuilding business environment:
|
|
|
Maintaining a strong cash balance and overall liquidity position. |
|
|
|
|
Managing the sales prices and level of sales incentives on our homes as necessary to
optimize the balance of sales volumes, returns and cash flows. |
-35-
|
|
|
Reducing our land and lot inventory from current levels by: |
|
|
|
selling and constructing homes; |
|
|
|
|
opportunistically selling excess land and lots; |
|
|
|
|
significantly restricting our spending for land purchases; |
|
|
|
|
decreasing our land development spending or suspending development in
many communities until market conditions improve; |
|
|
|
|
renegotiating or canceling land option purchase contracts; and |
|
|
|
|
limiting purchases of finished lots to those needed to meet immediate
demand for homes in selected markets and submarkets. |
|
|
|
Controlling our inventory of homes under construction by closely monitoring the
construction of unsold homes and aggressively marketing our unsold, completed homes in
inventory. |
|
|
|
|
Decreasing our cost of goods purchased from both vendors and subcontractors. |
|
|
|
|
Modifying our product offerings to provide more affordable homes. |
|
|
|
|
Decreasing our SG&A infrastructure to be in line with our reduced expectations of
production levels. |
These initiatives allowed us to generate cash flows from operations during the six months
ended March 31, 2009, which we utilized to increase our liquidity and reduce our outstanding debt.
Although we cannot provide any assurances that these initiatives will be successful, we expect that
our operating strategy will allow us to continue to maintain a strong balance sheet and liquidity
position.
KEY RESULTS
Key financial results as of and for the three months ended March 31, 2009, as compared to the
same period of 2008, were as follows:
Homebuilding Operations:
|
|
|
Homebuilding revenues decreased 52% to $775.3 million. |
|
|
|
|
Homes closed decreased 47% to 3,585 homes and the average selling price of those
homes decreased 10% to $215,000. |
|
|
|
|
Net sales orders decreased 45% to 4,160 homes. |
|
|
|
|
Sales order backlog decreased 54% to $963.0 million. |
|
|
|
|
Home sales gross margins increased 390 basis points to 13.3%. |
|
|
|
|
Inventory impairments and land option cost write-offs were $48.1 million, compared
to $834.1 million. |
|
|
|
|
Homebuilding SG&A expenses decreased 39% to $126.9 million, but increased as a
percentage of homebuilding revenues by 360 basis points to 16.4%. |
|
|
|
|
Homebuilding pre-tax loss was $90.6 million, compared to pre-tax loss of $896.5
million. |
|
|
|
|
Homes in inventory declined by 4,800 to 10,300. |
|
|
|
|
Owned lots declined by 46,000 to 95,000. |
|
|
|
|
Homebuilding debt decreased by $713.2 million to $2.9 billion. |
|
|
|
|
Net homebuilding debt to total capital decreased 860 basis points to 34.3%, and
gross homebuilding debt to total capital increased 520 basis points to 52.0%. |
|
|
|
|
Homebuilding cash was $1.5 billion, compared to $518.9 million at March 31, 2008. |
-36-
Financial Services Operations:
|
|
|
Total financial services revenues, net of recourse expense, decreased 92% to $2.7 million, reflecting an
increase in recourse expense. |
|
|
|
|
Financial services pre-tax loss was $12.4 million, compared to pre-tax income of
$11.9 million. |
|
|
|
|
Financial services debt decreased by $119.6 million to $44.4 million. |
Consolidated Results:
|
|
|
Net loss per share was $0.34, compared to net loss per share of $4.14. |
|
|
|
|
Net loss was $108.6 million, compared to net loss of $1.3 billion. |
|
|
|
|
Stockholders equity decreased 35% to $2.65 billion. |
|
|
|
|
Net cash provided by operations was $161.0 million, compared to $452.3 million. |
Key financial results for the six months ended March 31, 2009, as compared to the same period
of 2008, were as follows:
Homebuilding Operations:
|
|
|
Homebuilding revenues decreased 50% to $1,675.6 million. |
|
|
|
|
Homes closed decreased 42% to 7,653 homes and the average selling price of those
homes decreased 10% to $216,400. |
|
|
|
|
Net sales orders decreased 41% to 6,937 homes. |
|
|
|
|
Home sales gross margins increased 270 basis points to 14.5%. |
|
|
|
|
Inventory impairments and land option cost write-offs were $104.4 million, compared
to $1,079.5 million. |
|
|
|
|
Homebuilding SG&A expenses decreased 40% to $253.9 million, but increased as a
percentage of homebuilding revenues by 260 basis points to 15.2%. |
|
|
|
|
Homebuilding pre-tax loss was $149.0 million, compared to pre-tax loss of $1.1
billion. |
Financial Services Operations:
|
|
|
Total financial services revenues, net of recourse expense, decreased 70% to $20.4 million, reflecting an
increase in recourse expense. |
|
|
|
|
Financial services pre-tax loss was $15.3 million, compared to pre-tax income of
$18.8 million. |
Consolidated Results:
|
|
|
Net loss per share was $0.54, compared to net loss per share of $4.55. |
|
|
|
|
Net loss was $171.1 million, compared to net loss of $1.4 billion. |
|
|
|
|
Net cash provided by operations was $978.6 million, compared to $1,010.0 million. |
-37-
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 six months ended March 31,
2009 and 2008. We have restated the 2008 amounts between reporting segments to conform to the 2009
presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales Orders (1) |
|
|
|
Three Months Ended March 31, |
|
|
|
Net Homes Sold |
|
|
Value (In millions) |
|
|
Average Selling Price |
|
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
East |
|
|
289 |
|
|
|
509 |
|
|
|
(43 |
)% |
|
$ |
67.3 |
|
|
$ |
131.5 |
|
|
|
(49 |
)% |
|
$ |
232,900 |
|
|
$ |
258,300 |
|
|
|
(10 |
)% |
Midwest |
|
|
300 |
|
|
|
442 |
|
|
|
(32 |
)% |
|
|
79.7 |
|
|
|
129.8 |
|
|
|
(39 |
)% |
|
|
265,700 |
|
|
|
293,700 |
|
|
|
(10 |
)% |
Southeast |
|
|
716 |
|
|
|
1,164 |
|
|
|
(38 |
)% |
|
|
130.6 |
|
|
|
228.3 |
|
|
|
(43 |
)% |
|
|
182,400 |
|
|
|
196,100 |
|
|
|
(7 |
)% |
South Central |
|
|
1,488 |
|
|
|
2,407 |
|
|
|
(38 |
)% |
|
|
256.8 |
|
|
|
426.3 |
|
|
|
(40 |
)% |
|
|
172,600 |
|
|
|
177,100 |
|
|
|
(3 |
)% |
Southwest |
|
|
520 |
|
|
|
1,288 |
|
|
|
(60 |
)% |
|
|
87.2 |
|
|
|
233.7 |
|
|
|
(63 |
)% |
|
|
167,700 |
|
|
|
181,400 |
|
|
|
(8 |
)% |
West |
|
|
847 |
|
|
|
1,718 |
|
|
|
(51 |
)% |
|
|
222.9 |
|
|
|
512.4 |
|
|
|
(56 |
)% |
|
|
263,200 |
|
|
|
298,300 |
|
|
|
(12 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,160 |
|
|
|
7,528 |
|
|
|
(45 |
)% |
|
$ |
844.5 |
|
|
$ |
1,662.0 |
|
|
|
(49 |
)% |
|
$ |
203,000 |
|
|
$ |
220,800 |
|
|
|
(8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, |
|
|
|
Net Homes Sold |
|
|
Value (In millions) |
|
|
Average Selling Price |
|
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
East |
|
|
542 |
|
|
|
853 |
|
|
|
(36 |
)% |
|
$ |
123.6 |
|
|
$ |
220.3 |
|
|
|
(44 |
)% |
|
$ |
228,000 |
|
|
$ |
258,300 |
|
|
|
(12 |
)% |
Midwest |
|
|
465 |
|
|
|
739 |
|
|
|
(37 |
)% |
|
|
124.5 |
|
|
|
210.5 |
|
|
|
(41 |
)% |
|
|
267,700 |
|
|
|
284,800 |
|
|
|
(6 |
)% |
Southeast |
|
|
1,301 |
|
|
|
1,745 |
|
|
|
(25 |
)% |
|
|
233.6 |
|
|
|
336.1 |
|
|
|
(30 |
)% |
|
|
179,600 |
|
|
|
192,600 |
|
|
|
(7 |
)% |
South Central |
|
|
2,474 |
|
|
|
3,992 |
|
|
|
(38 |
)% |
|
|
430.0 |
|
|
|
703.7 |
|
|
|
(39 |
)% |
|
|
173,800 |
|
|
|
176,300 |
|
|
|
(1 |
)% |
Southwest |
|
|
872 |
|
|
|
2,017 |
|
|
|
(57 |
)% |
|
|
146.4 |
|
|
|
370.1 |
|
|
|
(60 |
)% |
|
|
167,900 |
|
|
|
183,500 |
|
|
|
(9 |
)% |
West |
|
|
1,283 |
|
|
|
2,427 |
|
|
|
(47 |
)% |
|
|
353.9 |
|
|
|
747.4 |
|
|
|
(53 |
)% |
|
|
275,800 |
|
|
|
308,000 |
|
|
|
(10 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,937 |
|
|
|
11,773 |
|
|
|
(41 |
)% |
|
$ |
1,412.0 |
|
|
$ |
2,588.1 |
|
|
|
(45 |
)% |
|
$ |
203,500 |
|
|
$ |
219,800 |
|
|
|
(7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Order Cancellations |
|
|
|
Three Months Ended March 31, |
|
|
|
Cancelled Sales Orders |
|
|
Value (In millions) |
|
|
Cancellation Rate (2) |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
East |
|
|
138 |
|
|
|
373 |
|
|
$ |
32.5 |
|
|
$ |
85.0 |
|
|
|
32 |
% |
|
|
42 |
% |
Midwest |
|
|
53 |
|
|
|
102 |
|
|
|
14.2 |
|
|
|
31.8 |
|
|
|
15 |
% |
|
|
19 |
% |
Southeast |
|
|
307 |
|
|
|
536 |
|
|
|
59.4 |
|
|
|
121.9 |
|
|
|
30 |
% |
|
|
32 |
% |
South Central |
|
|
812 |
|
|
|
1,108 |
|
|
|
136.5 |
|
|
|
191.0 |
|
|
|
35 |
% |
|
|
32 |
% |
Southwest |
|
|
212 |
|
|
|
945 |
|
|
|
39.1 |
|
|
|
195.6 |
|
|
|
29 |
% |
|
|
42 |
% |
West |
|
|
279 |
|
|
|
657 |
|
|
|
82.3 |
|
|
|
242.6 |
|
|
|
25 |
% |
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,801 |
|
|
|
3,721 |
|
|
$ |
364.0 |
|
|
$ |
867.9 |
|
|
|
30 |
% |
|
|
33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, |
|
|
|
Cancelled Sales Orders |
|
|
Value (In millions) |
|
|
Cancellation Rate (2) |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
East |
|
|
247 |
|
|
|
644 |
|
|
$ |
61.1 |
|
|
$ |
152.6 |
|
|
|
31 |
% |
|
|
43 |
% |
Midwest |
|
|
136 |
|
|
|
230 |
|
|
|
37.5 |
|
|
|
73.3 |
|
|
|
23 |
% |
|
|
24 |
% |
Southeast |
|
|
606 |
|
|
|
1,051 |
|
|
|
118.9 |
|
|
|
255.2 |
|
|
|
32 |
% |
|
|
38 |
% |
South Central |
|
|
1,484 |
|
|
|
2,043 |
|
|
|
249.0 |
|
|
|
352.5 |
|
|
|
37 |
% |
|
|
34 |
% |
Southwest |
|
|
439 |
|
|
|
1,944 |
|
|
|
85.1 |
|
|
|
417.6 |
|
|
|
33 |
% |
|
|
49 |
% |
West |
|
|
572 |
|
|
|
1,207 |
|
|
|
176.7 |
|
|
|
453.4 |
|
|
|
31 |
% |
|
|
33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,484 |
|
|
|
7,119 |
|
|
$ |
728.3 |
|
|
$ |
1,704.6 |
|
|
|
33 |
% |
|
|
38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net sales orders represent the number and dollar value of new sales contracts
executed with customers, net of sales contract cancellations. |
|
(2) |
|
Cancellation rate represents the number of cancelled sales orders divided by
gross sales orders. |
-38-
Net Sales Orders
Net sales orders represent the number and dollar value of new sales contracts executed with
customers, net of sales contract cancellations. The value of net sales orders decreased 49%, to
$844.5 million (4,160 homes) for the three months ended March 31, 2009, from $1,662.0 million
(7,528 homes) for the same period of 2008. The value of net sales orders decreased 45%, to $1,412.0
million (6,937 homes) for the six months ended March 31, 2009, from $2,558.1 million (11,773 homes)
for the same period of 2008. The number of net sales orders decreased 45% and 41% for the three and
six-month periods ended March 31, 2009, respectively, reflecting the continued reduction of demand
for new homes in most homebuilding markets. The volume of our net sales orders for the month ended
April 30, 2009 continued to reflect the weak market conditions
and decreased 18% compared to the month ended April 30, 2008. We believe the most significant
factors contributing to the slowing of demand for new homes in most of our markets include a
continued high level of new and existing homes for sale, which includes foreclosed homes for sale,
a decrease in the availability of mortgage financing for many potential homebuyers, the continued
uncertainty in the financial markets and a decline in homebuyer consumer confidence. Many
prospective homebuyers continue to approach the purchase decision more tentatively due to continued
increases in price concessions and sales incentives offered on both new and existing homes, concern
over their ability to sell an existing home or obtain mortgage financing, the general uncertainty
surrounding the housing market, increasing unemployment and weakness in the overall economy. We
continue to manage our sales incentives and pricing on a community by community basis in an attempt
to optimize the balance of sales volumes, profits, returns and cash flows. However, the factors
above, combined with the continued pricing responses of our competitors, have limited the impact of
our pricing efforts on sales. Further contributing to the decline in sales has been the elimination
of seller funded down payment assistance programs for FHA insured loans, as discussed below.
In comparing the three and six-month periods ended March 31, 2009 to the same periods of 2008,
the value of net sales orders decreased in all six of our market regions. These decreases were
primarily due to substantially similar decreases in the number of homes sold in the respective
regions. To a much lesser extent, the decline in average selling price also contributed to the
decline in the value of net sales orders.
The average price of our net sales orders in the three months ended March 31, 2009 was
$203,000, a decrease of 8% from the $220,800 average in the comparable period of 2008. The average
price of our net sales orders in the six months ended March 31, 2009 was $203,500, a decrease of 7%
from the $219,800 average in the comparable period of 2008. The average price of our net sales
orders decreased in all of our market regions, due primarily to price reductions and increased
incentives in our California, Maryland, Nevada, New Jersey and Arizona markets. In general, our
pricing is dependent on the demand for our homes, and declines in our average selling prices are
due in large part to increases in the use of price reductions and sales incentives in order to
attempt to achieve an appropriate sales absorption pace. Further, as the inventory of existing
homes for sale, which includes an increasing number of foreclosed homes, has continued to be high,
it has led to the need to ensure our pricing is competitive with comparable existing home sales
prices. We monitor and may adjust our product mix, geographic mix and pricing within our
homebuilding markets in an effort to keep our core product offerings affordable for our target
customer base, typically first-time and move-up homebuyers. To a lesser extent than the competitive
factors discussed above, this has also contributed to decreases in the average selling price.
Our sales order cancellation rates (cancelled sales orders divided by gross sales orders for
the period) during the three and six months ended March 31, 2009 were 30% and 33%, respectively,
compared to 33% and 38% during the same periods of fiscal 2008. While an improvement from prior
year periods, these elevated cancellation rates reflect the ongoing challenges in most of our
homebuilding markets, including the inability of many prospective homebuyers to sell their existing
homes, the erosion of buyer confidence, the credit tightening in the mortgage markets and the
shortage of liquidity in the financial markets which has further restricted the availability of
credit. We anticipate that cancellation rates will remain elevated and may continue to fluctuate
substantially until market conditions improve.
In July 2008, Congress passed and the President signed into law H.R. 3221, which includes the
American Housing Rescue and Foreclosure Prevention Act of 2008. Among other provisions, this law
eliminated seller-funded down payment assistance on FHA insured loans approved on or after October
1, 2008. Of our total home closings in fiscal 2008, approximately 25% were funded with mortgage
loans whereby the homebuyer used a seller-financed down payment assistance program. While we will
seek other down payment assistance and mortgage financing alternatives for our buyers, we expect
the elimination of the seller-financed down payment assistance programs to continue to have a
negative impact on our sales and revenues.
-39-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Order Backlog |
|
|
|
March 31, |
|
|
|
Homes in Backlog |
|
|
Value (In millions) |
|
|
Average Selling Price |
|
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
East |
|
|
368 |
|
|
|
850 |
|
|
|
(57 |
)% |
|
$ |
84.9 |
|
|
$ |
215.9 |
|
|
|
(61 |
)% |
|
$ |
230,700 |
|
|
$ |
254,000 |
|
|
|
(9 |
)% |
Midwest |
|
|
324 |
|
|
|
394 |
|
|
|
(18 |
)% |
|
|
86.4 |
|
|
|
118.6 |
|
|
|
(27 |
)% |
|
|
266,700 |
|
|
|
301,000 |
|
|
|
(11 |
)% |
Southeast |
|
|
743 |
|
|
|
1,058 |
|
|
|
(30 |
)% |
|
|
142.3 |
|
|
|
231.4 |
|
|
|
(39 |
)% |
|
|
191,500 |
|
|
|
218,700 |
|
|
|
(12 |
)% |
South Central |
|
|
1,771 |
|
|
|
2,722 |
|
|
|
(35 |
)% |
|
|
313.8 |
|
|
|
492.5 |
|
|
|
(36 |
)% |
|
|
177,200 |
|
|
|
180,900 |
|
|
|
(2 |
)% |
Southwest |
|
|
570 |
|
|
|
2,401 |
|
|
|
(76 |
)% |
|
|
99.3 |
|
|
|
475.7 |
|
|
|
(79 |
)% |
|
|
174,200 |
|
|
|
198,100 |
|
|
|
(12 |
)% |
West |
|
|
805 |
|
|
|
1,522 |
|
|
|
(47 |
)% |
|
|
236.3 |
|
|
|
543.7 |
|
|
|
(57 |
)% |
|
|
293,500 |
|
|
|
357,200 |
|
|
|
(18 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,581 |
|
|
|
8,947 |
|
|
|
(49 |
)% |
|
$ |
963.0 |
|
|
$ |
2,077.8 |
|
|
|
(54 |
)% |
|
$ |
210,200 |
|
|
$ |
232,200 |
|
|
|
(9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 principally due to cancellations,
which in the current market conditions have been substantial. At March 31, 2009, the value of our
backlog of sales orders was $963.0 million (4,581 homes), a decrease of 54% from $2,077.8 million
(8,947 homes) at March 31, 2008. The average sales price of homes in backlog was $210,200 at March
31, 2009, down 9% from the $232,200 average at March 31, 2008. The value of our sales order backlog
decreased significantly across all of our market regions, particularly in our Arizona markets in
our Southwest region, reflecting the severity and pervasiveness of the national housing downturn.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes Closed |
|
|
|
Three Months Ended March 31, |
|
|
|
Homes Closed |
|
|
Value (In millions) |
|
|
Average Selling Price |
|
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East |
|
|
342 |
|
|
|
597 |
|
|
|
(43 |
)% |
|
$ |
81.1 |
|
|
$ |
153.1 |
|
|
|
(47 |
)% |
|
$ |
237,100 |
|
|
$ |
256,400 |
|
|
|
(8 |
)% |
Midwest |
|
|
210 |
|
|
|
422 |
|
|
|
(50 |
)% |
|
|
57.9 |
|
|
|
127.5 |
|
|
|
(55 |
)% |
|
|
275,700 |
|
|
|
302,100 |
|
|
|
(9 |
)% |
Southeast |
|
|
625 |
|
|
|
955 |
|
|
|
(35 |
)% |
|
|
120.6 |
|
|
|
202.4 |
|
|
|
(40 |
)% |
|
|
193,000 |
|
|
|
211,900 |
|
|
|
(9 |
)% |
South Central |
|
|
1,278 |
|
|
|
2,059 |
|
|
|
(38 |
)% |
|
|
221.9 |
|
|
|
362.8 |
|
|
|
(39 |
)% |
|
|
173,600 |
|
|
|
176,200 |
|
|
|
(1 |
)% |
Southwest |
|
|
422 |
|
|
|
1,280 |
|
|
|
(67 |
)% |
|
|
82.2 |
|
|
|
258.7 |
|
|
|
(68 |
)% |
|
|
194,800 |
|
|
|
202,100 |
|
|
|
(4 |
)% |
West |
|
|
708 |
|
|
|
1,406 |
|
|
|
(50 |
)% |
|
|
207.0 |
|
|
|
493.3 |
|
|
|
(58 |
)% |
|
|
292,400 |
|
|
|
350,900 |
|
|
|
(17 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,585 |
|
|
|
6,719 |
|
|
|
(47 |
)% |
|
$ |
770.7 |
|
|
$ |
1,597.8 |
|
|
|
(52 |
)% |
|
$ |
215,000 |
|
|
$ |
237,800 |
|
|
|
(10 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, |
|
|
|
Homes Closed |
|
|
Value (In millions) |
|
|
Average Selling Price |
|
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East |
|
|
661 |
|
|
|
1,197 |
|
|
|
(45 |
)% |
|
$ |
156.8 |
|
|
$ |
311.1 |
|
|
|
(50 |
)% |
|
$ |
237,200 |
|
|
$ |
259,900 |
|
|
|
(9 |
)% |
Midwest |
|
|
469 |
|
|
|
945 |
|
|
|
(50 |
)% |
|
|
129.7 |
|
|
|
284.0 |
|
|
|
(54 |
)% |
|
|
276,500 |
|
|
|
300,500 |
|
|
|
(8 |
)% |
Southeast |
|
|
1,341 |
|
|
|
1,885 |
|
|
|
(29 |
)% |
|
|
257.0 |
|
|
|
414.3 |
|
|
|
(38 |
)% |
|
|
191,600 |
|
|
|
219,800 |
|
|
|
(13 |
)% |
South Central |
|
|
2,702 |
|
|
|
3,963 |
|
|
|
(32 |
)% |
|
|
475.6 |
|
|
|
707.4 |
|
|
|
(33 |
)% |
|
|
176,000 |
|
|
|
178,500 |
|
|
|
(1 |
)% |
Southwest |
|
|
1,114 |
|
|
|
2,755 |
|
|
|
(60 |
)% |
|
|
217.7 |
|
|
|
579.9 |
|
|
|
(62 |
)% |
|
|
195,400 |
|
|
|
210,500 |
|
|
|
(7 |
)% |
West |
|
|
1,366 |
|
|
|
2,523 |
|
|
|
(46 |
)% |
|
|
419.6 |
|
|
|
908.1 |
|
|
|
(54 |
)% |
|
|
307,200 |
|
|
|
359,900 |
|
|
|
(15 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,653 |
|
|
|
13,268 |
|
|
|
(42 |
)% |
|
$ |
1,656.4 |
|
|
$ |
3,204.8 |
|
|
|
(48 |
)% |
|
$ |
216,400 |
|
|
$ |
241,500 |
|
|
|
(10 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-40-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Homebuilding Revenues |
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East |
|
$ |
81.0 |
|
|
$ |
153.3 |
|
|
|
(47 |
)% |
|
$ |
156.9 |
|
|
$ |
312.0 |
|
|
|
(50 |
)% |
Midwest |
|
|
61.7 |
|
|
|
127.5 |
|
|
|
(52 |
)% |
|
|
133.4 |
|
|
|
286.4 |
|
|
|
(53 |
)% |
Southeast |
|
|
120.6 |
|
|
|
202.4 |
|
|
|
(40 |
)% |
|
|
267.7 |
|
|
|
436.8 |
|
|
|
(39 |
)% |
South Central |
|
|
221.9 |
|
|
|
364.1 |
|
|
|
(39 |
)% |
|
|
476.9 |
|
|
|
713.0 |
|
|
|
(33 |
)% |
Southwest |
|
|
82.7 |
|
|
|
261.8 |
|
|
|
(68 |
)% |
|
|
220.3 |
|
|
|
653.2 |
|
|
|
(66 |
)% |
West |
|
|
207.4 |
|
|
|
514.9 |
|
|
|
(60 |
)% |
|
|
420.4 |
|
|
|
930.2 |
|
|
|
(55 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
775.3 |
|
|
$ |
1,624.0 |
|
|
|
(52 |
)% |
|
$ |
1,675.6 |
|
|
$ |
3,331.6 |
|
|
|
(50 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Sales Revenue
Revenues from home sales decreased 52%, to $770.7 million (3,585 homes closed) for the three
months ended March 31, 2009, from $1,597.8 million (6,719 homes closed) for the comparable period
of 2008. Revenues from home sales decreased 48%, to $1,656.4 million (7,653 homes closed) for the
six months ended March 31, 2009, from $3,204.8 million (13,268 homes closed) for the comparable
period of 2008. The average selling price of homes closed during the three months ended March 31,
2009 was $215,000, down 10% from the $237,800 average for the same period of 2008. The average
selling price of homes closed during the six months ended March 31, 2009 was $216,400, down 10%
from the $241,500 average for the same period of 2008. During the three and six months ended March
31, 2009, home sales revenues decreased significantly in all of our market regions, reflecting
continued weak demand and the resulting decline in net sales order volume and pricing in recent
quarters.
The number of homes closed in the three and six months ended March 31, 2009 decreased 47% and
42%, respectively, due to decreases in all of our market regions. As a result of the decline in net
sales orders during recent quarters and the decline in our sales order backlog, we expect to close
fewer homes in fiscal 2009 than we closed in fiscal 2008. 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.
Revenues from home sales in the three and six-month periods ended March 31, 2009 were
increased by $1.2 million and $2.3 million, respectively, from changes in profit deferred pursuant
to Statement of Financial Accounting Standards (SFAS) No. 66, Accounting for Sales of Real
Estate. In the same periods of fiscal 2008, revenues from home sales were increased by $5.6
million and $26.8 million, respectively, from changes in deferred profit. The home sales profit
related to our mortgage loans held for sale is deferred in instances where a buyer finances a home
through our wholly-owned mortgage company and has not made an adequate initial or continuing
investment as prescribed by SFAS No. 66. The declines in the change in revenues from the year ago
periods are mainly due to the reduced availability of the mortgage types whose use generally
resulted in the profit deferral. As of March 31, 2009, the balance of deferred profit related to
such mortgage loans held for sale was $3.5 million, compared to $5.8 million at September 30, 2008.
-41-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding Operating Margin Analysis |
|
|
|
Percentages of Related Revenues |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Gross profit Home sales |
|
|
13.3 |
% |
|
|
9.4 |
% |
|
|
14.5 |
% |
|
|
11.8 |
% |
Gross profit Land/lot sales |
|
|
6.5 |
% |
|
|
19.1 |
% |
|
|
16.7 |
% |
|
|
18.1 |
% |
Effect of inventory impairments and land option cost
write-offs on total homebuilding gross profit |
|
|
(6.2 |
)% |
|
|
(51.4 |
)% |
|
|
(6.2 |
)% |
|
|
(32.4 |
)% |
Gross profit (loss) Total homebuilding |
|
|
7.1 |
% |
|
|
(41.8 |
)% |
|
|
8.3 |
% |
|
|
(20.3 |
)% |
Selling, general and administrative expense |
|
|
16.4 |
% |
|
|
12.8 |
% |
|
|
15.2 |
% |
|
|
12.6 |
% |
Interest expense |
|
|
3.0 |
% |
|
|
0.7 |
% |
|
|
2.9 |
% |
|
|
0.3 |
% |
(Gain) on early retirement of debt |
|
|
(0.3 |
)% |
|
|
|
|
|
|
(0.5 |
)% |
|
|
|
|
Other (income) |
|
|
(0.3 |
)% |
|
|
(0.1 |
)% |
|
|
(0.4 |
)% |
|
|
(0.1 |
)% |
Loss before income taxes |
|
|
(11.7 |
)% |
|
|
(55.2 |
)% |
|
|
(8.9 |
)% |
|
|
(33.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory Impairments and Land Option Cost Write-offs |
|
|
|
Three Months Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Land Option |
|
|
|
|
|
|
|
|
|
|
Land Option |
|
|
|
|
|
|
Inventory |
|
|
Cost Write-offs |
|
|
|
|
|
|
Inventory |
|
|
Cost Write-offs |
|
|
|
|
|
|
Impairments |
|
|
(Recoveries) |
|
|
Total |
|
|
Impairments |
|
|
(Recoveries) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
East |
|
$ |
1.4 |
|
|
$ |
|
|
|
$ |
1.4 |
|
|
$ |
90.3 |
|
|
$ |
10.5 |
|
|
$ |
100.8 |
|
Midwest |
|
|
9.3 |
|
|
|
|
|
|
|
9.3 |
|
|
|
21.3 |
|
|
|
|
|
|
|
21.3 |
|
Southeast |
|
|
2.2 |
|
|
|
0.1 |
|
|
|
2.3 |
|
|
|
176.5 |
|
|
|
2.3 |
|
|
|
178.8 |
|
South Central |
|
|
2.3 |
|
|
|
|
|
|
|
2.3 |
|
|
|
19.4 |
|
|
|
2.4 |
|
|
|
21.8 |
|
Southwest |
|
|
5.8 |
|
|
|
3.0 |
|
|
|
8.8 |
|
|
|
27.0 |
|
|
|
0.2 |
|
|
|
27.2 |
|
West |
|
|
24.0 |
|
|
|
|
|
|
|
24.0 |
|
|
|
482.6 |
|
|
|
1.6 |
|
|
|
484.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
45.0 |
|
|
$ |
3.1 |
|
|
$ |
48.1 |
|
|
$ |
817.1 |
|
|
$ |
17.0 |
|
|
$ |
834.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Land Option |
|
|
|
|
|
|
|
|
|
|
Land Option |
|
|
|
|
|
|
Inventory |
|
|
Cost Write-offs |
|
|
|
|
|
|
Inventory |
|
|
Cost Write-offs |
|
|
|
|
|
|
Impairments |
|
|
(Recoveries) |
|
|
Total |
|
|
Impairments |
|
|
(Recoveries) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
East |
|
$ |
5.6 |
|
|
$ |
(0.1 |
) |
|
$ |
5.5 |
|
|
$ |
109.2 |
|
|
$ |
11.8 |
|
|
$ |
121.0 |
|
Midwest |
|
|
13.1 |
|
|
|
|
|
|
|
13.1 |
|
|
|
25.6 |
|
|
|
(0.1 |
) |
|
|
25.5 |
|
Southeast |
|
|
6.0 |
|
|
|
|
|
|
|
6.0 |
|
|
|
198.3 |
|
|
|
2.6 |
|
|
|
200.9 |
|
South Central |
|
|
2.2 |
|
|
|
1.8 |
|
|
|
4.0 |
|
|
|
29.5 |
|
|
|
2.6 |
|
|
|
32.1 |
|
Southwest |
|
|
7.8 |
|
|
|
3.1 |
|
|
|
10.9 |
|
|
|
27.0 |
|
|
|
(0.1 |
) |
|
|
26.9 |
|
West |
|
|
65.4 |
|
|
|
(0.5 |
) |
|
|
64.9 |
|
|
|
670.9 |
|
|
|
2.2 |
|
|
|
673.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
100.1 |
|
|
$ |
4.3 |
|
|
$ |
104.4 |
|
|
$ |
1,060.5 |
|
|
$ |
19.0 |
|
|
$ |
1,079.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-42-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Values of Potentially Impaired and Impaired Communities |
|
|
|
at March 31, 2009 |
|
|
|
|
|
|
|
Inventory with |
|
|
|
|
|
|
|
|
|
|
Impairment Indicators |
|
|
Communities Impaired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value |
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
Carrying |
|
|
Number of |
|
|
Prior to |
|
|
|
|
|
|
Communities (1) |
|
|
Communities (1) |
|
|
Value |
|
|
Communities (1) |
|
|
Impairment |
|
|
Fair Value |
|
|
|
(Values in millions) |
|
East |
|
|
97 |
|
|
|
25 |
|
|
$ |
222.9 |
|
|
|
2 |
|
|
$ |
12.6 |
|
|
$ |
11.2 |
|
Midwest |
|
|
56 |
|
|
|
23 |
|
|
|
255.3 |
|
|
|
2 |
|
|
|
29.6 |
|
|
|
20.3 |
|
Southeast |
|
|
173 |
|
|
|
38 |
|
|
|
213.8 |
|
|
|
3 |
|
|
|
10.5 |
|
|
|
8.3 |
|
South Central |
|
|
236 |
|
|
|
34 |
|
|
|
150.0 |
|
|
|
2 |
|
|
|
9.6 |
|
|
|
7.3 |
|
Southwest |
|
|
71 |
|
|
|
18 |
|
|
|
97.1 |
|
|
|
6 |
|
|
|
36.5 |
|
|
|
30.7 |
|
West |
|
|
169 |
|
|
|
62 |
|
|
|
470.3 |
|
|
|
9 |
|
|
|
44.2 |
|
|
|
20.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
802 |
|
|
|
200 |
|
|
$ |
1,409.4 |
|
|
|
24 |
|
|
$ |
143.0 |
|
|
$ |
98.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at September 30, 2008 |
|
|
|
|
|
|
|
Inventory with |
|
|
|
|
|
|
|
|
|
|
Impairment Indicators |
|
|
Communities Impaired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value |
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
Carrying |
|
|
Number of |
|
|
Prior to |
|
|
|
|
|
|
Communities (1) |
|
|
Communities (1) |
|
|
Value |
|
|
Communities (1) |
|
|
Impairment |
|
|
Fair Value |
|
|
|
(Values in millions) |
|
East |
|
|
105 |
|
|
|
46 |
|
|
$ |
436.9 |
|
|
|
19 |
|
|
$ |
163.8 |
|
|
$ |
79.0 |
|
Midwest |
|
|
62 |
|
|
|
20 |
|
|
|
204.8 |
|
|
|
9 |
|
|
|
93.6 |
|
|
|
58.4 |
|
Southeast |
|
|
176 |
|
|
|
78 |
|
|
|
485.5 |
|
|
|
37 |
|
|
|
241.7 |
|
|
|
153.7 |
|
South Central |
|
|
241 |
|
|
|
57 |
|
|
|
207.1 |
|
|
|
15 |
|
|
|
38.1 |
|
|
|
30.5 |
|
Southwest |
|
|
79 |
|
|
|
25 |
|
|
|
237.1 |
|
|
|
15 |
|
|
|
158.7 |
|
|
|
105.7 |
|
West |
|
|
178 |
|
|
|
80 |
|
|
|
614.8 |
|
|
|
32 |
|
|
|
271.9 |
|
|
|
175.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
841 |
|
|
|
306 |
|
|
$ |
2,186.2 |
|
|
|
127 |
|
|
$ |
967.8 |
|
|
$ |
603.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A community may consist of land held for development, residential land and lots
developed and under development, and construction in progress and finished homes. A
particular community often includes inventory in more than one category. Further, a
community may contain multiple parcels with varying product types (e.g. entry level and
move-up single family detached, as well as attached product types). |
Home Sales Gross Profit
Gross profit from home sales decreased by 32%, to $102.8 million for the three months ended
March 31, 2009, from $150.3 million for the comparable period of 2008. As a percentage of home
sales revenues, gross profit from home sales increased 390 basis points, to 13.3%. Approximately
240 basis points of the increase in the home sales gross profit percentage was a result of the
average cost of our homes declining by more than our average selling prices, caused by a greater
portion of our closings occurring in our South Central region, which has experienced more stable
housing conditions than our other regions, and the effects of prior inventory impairments on homes
closed during the current quarter. Approximately 30 basis points of the increase was due to
reductions in the estimated costs to complete certain development projects, the effects of which
were magnified by lower homebuilding revenues during the current quarter. An additional 140 basis
points of the increase was due to a decrease in the amortization of capitalized interest and
property taxes as a percentage of homes sales revenues resulting from reductions in our interest
and property taxes incurred and capitalized over the past year. Partially offsetting these
improvements, the recognition of a lesser amount of previously deferred gross profit during the
current quarter compared to the year ago quarter decreased the home sales gross profit percentage
by approximately 20 basis points. Future changes in gross profit percentages are dependent on our
future need for the use of sales incentives and price adjustments to generate an adequate volume of
home closings and cannot be predicted in the current housing market.
-43-
Gross profit from home sales decreased by 37%, to $240.0 million for the six months ended
March 31, 2009, from $379.4 million for the comparable period of 2008. As a percentage of home
sales revenues, gross profit from home sales increased 270 basis points, to 14.5%. Generally, the
factors impacting gross margin for the six-month period ended March 31, 2009 were similar to those
discussed for the three-month period. Specifically, the improvement in our cost of homes as
compared to average selling price contributed 220 basis points to the increase, the decrease in the
amortization of capitalized interest and property taxes contributed 70 basis points, and the
reductions in the estimated costs to complete certain development projects contributed 40 basis
points to the increase in the home sales gross profit percentage. These increases were partially
offset by 60 basis points due to the recognition of a lesser amount of previously deferred gross
profit during the current year period compared to the year ago period.
Land Sales Revenue and Gross Profit
Land sales revenues decreased 82% to $4.6 million for the three months ended March 31, 2009,
and 85% to $19.2 million for the six months ended March 31, 2009, from $26.2 million and $126.8
million, respectively, in the comparable periods of 2008. Of the $19.2 million of revenues in the
first half of fiscal 2009, $10.2 million related to land sale transactions in the fourth quarter of
fiscal 2008 for which recognition of the revenue had been deferred due to the terms of the sale.
The gross profit percentage from land sales decreased to 6.5% for the three months ended March 31,
2009, from 19.1% in the comparable period of the prior year, and to 16.7% for the six months ended
March 31, 2009 from 18.1% in the prior year. The fluctuations in revenues and gross profit
percentages from land sales are a function of how we manage our inventory levels in various
markets. We generally purchase land and lots with the intent to build and sell homes on them;
however, we occasionally purchase land that includes commercially zoned parcels which we typically
sell to commercial developers, and we also sell residential lots or land parcels to manage our land
and lot supply. Due to the significant decline in demand for new homes, we have reduced our
expectations of future home closing volumes, as well as our expected need for land and lots in the
future. In markets where we own more land and lots than our expected needs in the next few years,
we plan to attempt to sell excess lots and land parcels. Land and lot sales occur at unpredictable
intervals and varying degrees of profitability. The challenging market conditions for home sales
also exist for the sale of land and lots; therefore, the revenues and gross profit from land sales
can fluctuate significantly from period to period. As of March 31, 2009, we had $31.8 million of
land held for sale which we expect to sell in the next twelve months.
Inventory Impairments and Land Option Cost Write-offs
During the second quarter of fiscal 2009, when we performed our quarterly inventory impairment
analysis, the assumptions utilized continued to reflect our outlook for the homebuilding industry
and its impact on our business. This outlook incorporates our belief that housing market conditions
may continue to deteriorate, and that these challenging conditions will persist for some time.
Accordingly, our current quarter impairment evaluation again indicated a significant number of
communities with impairment indicators. Communities with a combined carrying value of $1,409.4
million as of March 31, 2009, had indicators of potential impairment and 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. Through
this evaluation process, we determined that communities with a carrying value of $143.0 million as
of March 31, 2009, the largest portion of which was in the West region, were impaired. As a result,
during the three months ended March 31, 2009, we recorded impairment charges of $45.0 million to
reduce the carrying value of the impaired communities to their estimated fair value, as compared to
$817.1 million in the prior year period. During the six months ended March 31, 2009 and 2008,
impairment charges totaled $100.1 million and $1,060.5 million, respectively. In performing our
quarterly inventory impairment analyses during fiscal 2009, we utilized a range of discount rates
for communities of 14% to 20% which reflects an increase from the range of 12% to 18% we would have
used for these communities in fiscal 2008. The increased discount rates reflect our estimate of the
increasing level of market risk present in the homebuilding and related mortgage lending
industries. The increase in the discount rates reduced the estimated fair value of these
communities, increasing the inventory impairment charge by $1.6 million. In the three months ended
March 31, 2009, approximately 75% of the impairment charges were recorded to residential land and
lots and land held for development, and approximately 25% of the charges were recorded to
construction in progress and finished homes inventory, compared to 85% and 15%, respectively, in
the same period of 2008. In the six months ended March 31, 2009, approximately 68% of the
impairment charges were recorded to residential land and lots and land held for development, and
approximately
-44-
32% of the charges were recorded to construction in progress and finished homes inventory,
compared to 79% and 21%, respectively, in the same period of 2008.
Of the remaining $1,266.4 million carrying value of communities with impairment indicators
which were determined not to be impaired at March 31, 2009, the largest concentrations were in
Florida (15%), Illinois (13%), California (13%) and Texas (11%). 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 construct the homes. The pricing and incentive levels are often inter-related
with sales pace within a community such that a price reduction can be expected to increase the
sales pace. Further, both of these factors are heavily influenced by the competitive pressures
facing a given community from both new homes and existing homes which may result from foreclosures.
Additionally, if conditions in the broader economy, homebuilding industry or specific markets in
which we operate worsen beyond current expectations, 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, which could be significantly higher than the current quarter charges.
Based on a quarterly review of land and lot option contracts, we have written off earnest
money deposits and pre-acquisition costs related to land and lot option contracts which we no
longer plan to pursue. During the three-month periods ended March 31, 2009 and 2008, we wrote off
$3.1 million and $17.0 million, respectively, of earnest money deposits and pre-acquisition costs
related to land option contracts. During the six-month periods ended March 31, 2009 and 2008, we
wrote off $4.3 million and $19.0 million, respectively, of such deposits and costs. We have
substantially reduced our portfolio of land and lot option purchase contracts, as well as the
outstanding earnest money deposits and pre-acquisition costs associated with such, which totaled
$18.7 million and $28.8 million, respectively, as of March 31, 2009. The largest concentrations of
these balances were in the South Central (38%) and East (24%) regions. If the current weak
homebuilding market conditions persist and we are unable to successfully renegotiate certain land
purchase contracts, we may write off additional earnest money deposits and pre-acquisition costs.
In the three and six-month periods ended March 31, 2009, 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 620 basis points, compared to
5,140 basis points and 3,240 basis points, respectively, in the same periods of 2008.
Selling, General and Administrative (SG&A) Expense
SG&A expense from homebuilding activities decreased by 39% to $126.9 million in the three
months ended March 31, 2009, and decreased 40% to $253.9 million in the six months ended March 31,
2009, from the comparable periods of 2008. As homebuilding revenues declined at a faster pace than
SG&A expense, when expressed as a percentage of homebuilding revenues, SG&A expense increased 360
basis points, to 16.4% in the three-month period ended March 31, 2009, and increased 260 basis
points, to 15.2%, in the six-month period ended March 31, 2009. The largest component of our
homebuilding SG&A expense is employee compensation and related costs, which represented
approximately 55% of SG&A costs in all four periods. Those costs decreased by 38% and 39%, to $69.7
million and $143.2 million, respectively, in the three and six months ended March 31, 2009, from
the comparable periods of 2008. These decreases were largely due to our continued efforts to align
the number of employees to match our current and anticipated home closing levels, as well as a
decrease in incentive compensation. Our homebuilding operations employed approximately 2,350 and
3,700 employees at March 31, 2009 and 2008, respectively. Most other SG&A cost components also
decreased in the three and six months ended March 31, 2009 as compared to the same period of 2008,
as a result of our efforts to reduce all costs throughout the company. The most substantial
decreases occurred in advertising and depreciation.
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 continue 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 will become more difficult to
-45-
reduce SG&A expense as the size of our operations decreases. If revenues continue to decrease
and we are unable to sufficiently adjust our SG&A, future SG&A expense as a percentage of revenues
may increase further.
Interest Incurred
We capitalize homebuilding interest costs to inventory during active development and
construction in accordance with SFAS No. 34, Capitalization of Interest Cost. Due to our
inventory reduction strategies, slowing or suspending land development in certain communities and
limiting the construction of unsold homes, our inventory under active development and construction
has been lower than our debt level and a portion of our interest incurred must be expensed.
Therefore, we expensed $23.1 million and $48.7 million of interest incurred during the three and
six-month periods ended March 31, 2009, respectively, compared to $11.2 million in the three and
six-month periods ended March 31, 2008.
Interest amortized to cost of sales, excluding interest written off with inventory impairment
charges, was 4.1% of total home and land/lot cost of sales in the three and six-month periods ended
March 31, 2009, compared to 5.1% and 4.5%, respectively in the same periods of 2008. Interest
incurred is related to the average level of our homebuilding debt outstanding during the period.
Comparing the three months ended March 31, 2009 with the same period of 2008, interest incurred
related to homebuilding debt decreased by 13%, to $50.3 million, due to a 15% decrease in our
average homebuilding debt. Comparing the six months ended March 31, 2009 with the same period of
2008, interest incurred related to homebuilding debt decreased by 10%, to $106.9 million, due to an
11% decrease in our average homebuilding debt.
Gain on Early Retirement of Debt
During the six months ended March 31, 2009, in addition to repaying $155.2 million principal
amount of our 5% senior notes and $297.7 million principal amount of our 8% senior notes which
became due during the period, we repurchased a total of $220.5 million principal amount of various
issues of our senior notes due in 2009, 2010, 2011 and 2016. These notes were repurchased primarily
through unsolicited transactions for an aggregate purchase price of $211.6 million, plus accrued
interest. We recognized a gain of $8.4 million related to these repurchases, which represents the
difference between the principal amount of the notes and the aggregate purchase price, less any
unamortized discounts and fees.
Other Income
Other income, net of other expenses, associated with homebuilding activities was $2.2 million
in the three months ended March 31, 2009, compared to $1.8 million in the comparable period of
2008. Other income, net of other expenses, associated with homebuilding activities was $6.4 million
in the six months ended March 31, 2009, compared to $3.5 million in the comparable period of 2008.
The largest component of other income in all four periods was interest income, which increased in
the current year periods due to the increase in cash balances.
-46-
Homebuilding Results by Reporting Region
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|
|
|
|
|
|
|
|
Homebuilding Income (Loss) Before Income Taxes (1) |
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
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|
|
% of |
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% of |
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% of |
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Region |
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Region |
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% of Region |
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Region |
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|
$s |
|
|
Revenues |
|
|
$s |
|
|
Revenues |
|
|
$s |
|
|
Revenues |
|
|
$s |
|
|
Revenues |
|
|
|
(In millions) |
|
East |
|
$ |
(5.8 |
) |
|
|
(7.2 |
)% |
|
$ |
(116.2 |
) |
|
|
(75.8 |
)% |
|
$ |
(16.7 |
) |
|
|
(10.6 |
)% |
|
$ |
(142.2 |
) |
|
|
(45.6 |
)% |
Midwest |
|
|
(21.2 |
) |
|
|
(34.4 |
)% |
|
|
(33.2 |
) |
|
|
(26.0 |
)% |
|
|
(32.8 |
) |
|
|
(24.6 |
)% |
|
|
(32.6 |
) |
|
|
(11.4 |
)% |
Southeast |
|
|
(12.4 |
) |
|
|
(10.3 |
)% |
|
|
(202.1 |
) |
|
|
(99.9 |
)% |
|
|
(17.5 |
) |
|
|
(6.5 |
)% |
|
|
(223.5 |
) |
|
|
(51.2 |
)% |
South Central |
|
|
1.3 |
|
|
|
0.6 |
% |
|
|
(9.7 |
) |
|
|
(2.7 |
)% |
|
|
13.1 |
|
|
|
2.7 |
% |
|
|
(6.9 |
) |
|
|
(1.0 |
)% |
Southwest |
|
|
(12.2 |
) |
|
|
(14.8 |
)% |
|
|
(15.5 |
) |
|
|
(5.9 |
)% |
|
|
(9.2 |
) |
|
|
(4.2 |
)% |
|
|
20.7 |
|
|
|
3.2 |
% |
West |
|
|
(40.3 |
) |
|
|
(19.4 |
)% |
|
|
(519.8 |
) |
|
|
(101.0 |
)% |
|
|
(85.9 |
) |
|
|
(20.4 |
)% |
|
|
(721.8 |
) |
|
|
(77.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(90.6 |
) |
|
|
(11.7 |
)% |
|
$ |
(896.5 |
) |
|
|
(55.2 |
)% |
|
$ |
(149.0 |
) |
|
|
(8.9 |
)% |
|
$ |
(1,106.3 |
) |
|
|
(33.2 |
)% |
|
|
|
|
|
|
|
|
|
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|
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|
|
(1) |
|
Expenses maintained at the corporate level are allocated to each segment based
on the segments average inventory. These expenses consist primarily of capitalized
interest and property taxes, which are amortized to cost of sales, and the expenses
related to operating our corporate office. |
East Region Homebuilding revenues decreased 47% and 50% in the three and six months ended
March 31, 2009, respectively, from the comparable periods of 2008, primarily due to decreases in
the number of homes closed. The region reported losses before income taxes of $5.8 million and
$16.7 million in the three and six months ended March 31, 2009, respectively, compared to losses of
$116.2 million and $142.2 million for the same periods of 2008. The losses were due in part to
inventory impairment charges and earnest money and pre-acquisition cost write-offs totaling $1.4
million and $5.5 million in the three and six months ended March 31, 2009, respectively, compared
to $100.8 million and $121.0 million in the same periods of 2008. The regions gross profit from
home sales as a percentage of home sales revenue (home sales gross profit percentage) increased 940
basis points and 450 basis points in the three and six months ended March 31, 2009, respectively,
compared to the same periods of 2008. These increases were a result of the average cost of our
homes declining by more than the average selling prices and the effects of prior inventory
impairments on homes closed during both periods of 2009.
Midwest Region Homebuilding revenues decreased 52% and 53% in the three and six months
ended March 31, 2009, respectively, from the comparable periods of 2008, primarily due to decreases
in the number of homes closed. The region reported losses before income taxes of $21.2 million and
$32.8 million in the three and six months ended March 31, 2009, respectively, compared to losses of
$33.2 million and $32.6 million for the same periods of 2008. The losses were due in part to
inventory impairment charges and earnest money and pre-acquisition cost write-offs totaling $9.3
million and $13.1 million in the three and six months ended March 31, 2009, respectively, compared
to $21.3 million and $25.5 million in the same periods of 2008. The regions home sales gross
profit percentage decreased 180 basis points and 410 basis points in the three and six months ended
March 31, 2009, respectively, compared to the same periods of 2008. The decreases were a result of
lower margins in our Chicago and Denver markets, as well as an increase in warranty costs on
previously closed homes in our Denver market, combined with the sharp decrease in homebuilding
revenues. Additionally, our revenues declined at a greater rate than our SG&A expense, which also
contributed to the losses before income taxes in both periods of 2009.
Southeast Region Homebuilding revenues decreased 40% and 39% in the three and six months
ended March 31, 2009, respectively, from the comparable periods of 2008, primarily due to decreases
in the number of homes closed, as well as decreases in the average selling price of those homes.
The region reported losses before income taxes of $12.4 million and $17.5 million in the three and
six months ended March 31, 2009, respectively, compared to losses of $202.1 million and $223.5
million for the same periods of 2008. The losses were due in part to inventory impairment charges
and earnest money and pre-acquisition cost write-offs totaling $2.3 million and $6.0 million in the
three and six months ended March 31, 2009, respectively, compared to $178.8 million and $200.9
million in the same periods of 2008. The regions home sales gross profit percentage increased 780
basis points and 480 basis points in the three and six months ended March 31, 2009, respectively,
compared to the same periods of 2008. These increases were a result of the average cost of our homes declining by more than our average
selling prices and the effects of prior inventory impairments on homes closed during both periods
of 2009.
-47-
South Central Region Homebuilding revenues decreased 39% and 33% in the three and six
months ended March 31, 2009, respectively, from the comparable periods of 2008, primarily due to
decreases in the number of homes closed. The region reported income before income taxes of $1.3
million and $13.1 million in the three and six months ended March 31, 2009, respectively, compared
to losses of $9.7 million and $6.9 million for the same periods of 2008. The improvement in income
before income taxes was primarily due to a decrease in inventory impairment charges and earnest
money and pre-acquisition cost write-offs, which were $2.3 million and $4.0 million in the three
and six months ended March 31, 2009, respectively, compared to $21.8 million and $32.1 million in
the same periods of 2008. In addition, the regions home sales gross profit percentage increased
110 basis points and 170 basis points in the three and six months ended March 31, 2009,
respectively, compared to the same periods of 2008, due to the average cost of our homes declining
by more than the average selling prices and the effects of prior inventory impairments on homes
closed during both periods of 2009.
Southwest Region Homebuilding revenues decreased 68% and 66% in the three and six months
ended March 31, 2009, respectively, from the comparable periods of 2008, primarily due to decreases
in the number of homes closed. The region reported losses before income taxes of $12.2 million and
$9.2 million in the three and six months ended March 31, 2009, respectively, compared to a loss of
$15.5 million and income of $20.7 million for the same periods of 2008. The losses were due in part
to inventory impairment charges and earnest money and pre-acquisition cost write-offs totaling $8.8
million and $10.9 million in the three and six months ended March 31, 2009, respectively, compared
to $27.2 million and $26.9 million in the same periods of 2008. Our revenues declined at a greater
rate than our SG&A expense, which also contributed to the losses before income taxes in both
periods of 2009. Additionally, the regions home sales gross profit percentage decreased 20 basis
points and 30 basis points in the three and six months ended March 31, 2009, respectively, compared
to the same periods of 2008.
West Region Homebuilding revenues decreased 60% and 55% in the three and six months ended
March 31, 2009, respectively, from the comparable periods of 2008, primarily due to decreases in
the number of homes closed, as well as decreases in the average selling price of those homes. The
region reported losses before income taxes of $40.3 million and $85.9 million in the three and six
months ended March 31, 2009, respectively, compared to losses of $519.8 million and $721.8 million
for the same periods of 2008. The losses were due in part to inventory impairment charges and
earnest money and pre-acquisition cost write-offs totaling $24.0 million and $64.9 million in the
three and six months ended March 31, 2009, respectively, compared to $484.2 million and $673.1
million in the same periods of 2008. The regions home sales gross profit percentage increased 610
basis points and 570 basis points in the three and six months ended March 31, 2009, respectively,
compared to the same periods of 2008. These increases were a result of the average cost of our
homes declining by more than the average selling prices and the effects of prior inventory
impairments on homes closed during both periods of 2009.
-48-
RESULTS OF OPERATIONS FINANCIAL SERVICES
The following tables set forth key operating and financial data for our financial services
operations, comprising DHI Mortgage and our subsidiary title companies, for the three and six-month
periods ended March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
Number of first-lien loans originated or
brokered by DHI Mortgage for
D.R. Horton homebuyers |
|
|
2,463 |
|
|
|
4,219 |
|
|
|
(42 |
)% |
|
|
5,095 |
|
|
|
8,112 |
|
|
|
(37 |
)% |
Number of homes closed by D.R. Horton |
|
|
3,585 |
|
|
|
6,719 |
|
|
|
(47 |
)% |
|
|
7,653 |
|
|
|
13,268 |
|
|
|
(42 |
)% |
DHI Mortgage capture rate |
|
|
69% |
|
|
|
63% |
|
|
|
|
|
|
|
67% |
|
|
|
61% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of total loans originated or
brokered by DHI Mortgage for
D.R. Horton homebuyers |
|
|
2,485 |
|
|
|
4,309 |
|
|
|
(42 |
)% |
|
|
5,143 |
|
|
|
8,363 |
|
|
|
(39 |
)% |
Total number of loans originated or
brokered by DHI Mortgage |
|
|
3,251 |
|
|
|
4,688 |
|
|
|
(31 |
)% |
|
|
6,244 |
|
|
|
8,979 |
|
|
|
(30 |
)% |
Captive business percentage |
|
|
76% |
|
|
|
92% |
|
|
|
|
|
|
|
82% |
|
|
|
93% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans sold by DHI Mortgage to third parties |
|
|
3,363 |
|
|
|
4,243 |
|
|
|
(21 |
)% |
|
|
7,006 |
|
|
|
9,663 |
|
|
|
(27 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
|
(In millions) |
|
Loan origination fees |
|
$ |
3.8 |
|
|
$ |
5.7 |
|
|
|
(33 |
)% |
|
$ |
9.8 |
|
|
$ |
13.2 |
|
|
|
(26 |
)% |
Sale of servicing rights and gains
from sale of mortgages |
|
|
12.2 |
|
|
|
26.8 |
|
|
|
(54 |
)% |
|
|
23.1 |
|
|
|
49.8 |
|
|
|
(54 |
)% |
Recourse expense |
|
|
(16.1 |
) |
|
|
(8.5 |
) |
|
|
89 |
% |
|
|
(19.7 |
) |
|
|
(13.8 |
) |
|
|
43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of servicing rights and gains
from sale of mortgages, net |
|
|
(3.9 |
) |
|
|
18.3 |
|
|
|
(121 |
)% |
|
|
3.4 |
|
|
|
36.0 |
|
|
|
(91 |
)% |
Other revenues, net of reinsurance reserves |
|
|
(1.3 |
) |
|
|
2.1 |
|
|
|
(162 |
)% |
|
|
(1.3 |
) |
|
|
5.3 |
|
|
|
(125 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage operations revenues |
|
|
(1.4 |
) |
|
|
26.1 |
|
|
|
(105 |
)% |
|
|
11.9 |
|
|
|
54.5 |
|
|
|
(78 |
)% |
Title policy premiums, net |
|
|
4.1 |
|
|
|
6.8 |
|
|
|
(40 |
)% |
|
|
8.5 |
|
|
|
13.4 |
|
|
|
(37 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
2.7 |
|
|
|
32.9 |
|
|
|
(92 |
)% |
|
|
20.4 |
|
|
|
67.9 |
|
|
|
(70 |
)% |
General and administrative expense |
|
|
17.2 |
|
|
|
22.8 |
|
|
|
(25 |
)% |
|
|
40.4 |
|
|
|
53.3 |
|
|
|
(24 |
)% |
Interest expense |
|
|
0.3 |
|
|
|
0.8 |
|
|
|
(63 |
)% |
|
|
1.0 |
|
|
|
2.1 |
|
|
|
(52 |
)% |
Interest and other (income) |
|
|
(2.4 |
) |
|
|
(2.6 |
) |
|
|
(8 |
)% |
|
|
(5.7 |
) |
|
|
(6.3 |
) |
|
|
(10 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
(12.4 |
) |
|
$ |
11.9 |
|
|
|
(204 |
)% |
|
$ |
(15.3 |
) |
|
$ |
18.8 |
|
|
|
(181 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services Operating Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentages of Financial Services Revenues,
Net of Recourse Expense |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
March 31, |
|
March 31, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
General and administrative expense |
|
|
637.0 |
% |
|
|
69.3 |
% |
|
|
198.0 |
% |
|
|
78.5 |
% |
Interest expense |
|
|
11.1 |
% |
|
|
2.4 |
% |
|
|
4.9 |
% |
|
|
3.1 |
% |
Interest and other (income) |
|
|
(88.9 |
)% |
|
|
(7.9 |
)% |
|
|
(27.9 |
)% |
|
|
(9.3 |
)% |
Income (loss) before income taxes |
|
|
(459.3 |
)% |
|
|
36.2 |
% |
|
|
(75.0 |
)% |
|
|
27.7 |
% |
-49-
Mortgage Loan Activity
In the three and six-month periods ended March 31, 2009, total first-lien loans originated or
brokered by DHI Mortgage for our homebuyers decreased by 42% and 37%, respectively, corresponding
to the decreases in the number of homes closed of 47% and 42%, respectively. The percentage
decreases in loans originated were less than the percentage decreases in homes closed due to an
increase in our mortgage capture rate (the percentage of total home closings by our homebuilding
operations for which DHI Mortgage handled the homebuyers financing). In the three and six-month
current year periods our mortgage capture rate increased to 69% and 67%, respectively, from 63% and
61% in the comparable prior year periods.
Home closings from our homebuilding operations constituted 76% and 82% of DHI Mortgage loan
originations in the three and six-month periods ended March 31, 2009, respectively, compared to 92%
and 93% in the comparable periods of 2008. 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 an increase in refinancing
activity as existing homeowners have taken advantage of the recent decline in mortgage interest
rates.
The number of loans sold to third-party purchasers decreased by 21% and 27% in the three and
six months ended March 31, 2009, respectively, from the comparable periods of 2008. The decreases
were primarily due to decreases in the number of mortgage loans originated as compared to the prior
year periods.
Consistent with fiscal 2008, originations during the first half of fiscal 2009 continued to
predominantly be eligible for sale to FNMA, FHLMC, or GNMA (Agency-eligible). For the six-month
period ended March 31, 2009, approximately 99% of DHI Mortgage production and mortgage loans held
for sale on March 31, 2009 were Agency-eligible. Other mortgage loans consist primarily of
repurchased loans originated between fiscal years 2005 through 2007. As of March 31, 2009, 74% of
other mortgage loans were Alt-A, subprime or non-prime loans. In June 2007, DHI Mortgage stopped
originating these types of Agency-ineligible loans.
As investor underwriting guidelines could rapidly change, DHI Mortgages ability to sell all
of its loans could be negatively impacted.
Financial Services Revenues and Expenses
Revenues from the financial services segment decreased 92% and 70%, to $2.7 million and $20.4
million in the three and six months ended March 31, 2009, respectively, from the comparable periods
of 2008. These decreases were primarily due to decreases in the number of mortgage loans originated
and sold, as well as increases in recourse expense related to future loan repurchase obligations,
which is a component of gains from sale of mortgages, and increases in the loss reserves for
reinsured loans, which is a component of other revenues. Charges related to recourse obligations
were $16.1 million and $19.7 million in the three and six-month periods ended March 31, 2009,
respectively, compared to $8.5 million and $13.8 million in the same periods of fiscal 2008. The
increase in recourse expense is due to increasing our loan loss reserves as a result of receiving
additional repurchase requests arising under the limited recourse provisions leading to increased
expectations for loan repurchases and losses. Also, 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 $5.7 million and $1.4 million
during the six-month periods ended March 31, 2009 and 2008, respectively.
Additionally, revenues during the prior year quarter included the recognition of an additional
$7.4 million of revenues related to the adoption of Staff Accounting Bulletin No. 109, Written
Loan Commitments Recorded at Fair Value Through Earnings (SAB 109), which was adopted on January
1, 2008. SAB 109 requires that the expected net future cash flows related to the associated
servicing of a loan are included in the measurement of all written loan commitments that are
accounted for at fair value through earnings at the time of commitment. The effect of SAB 109 in
the current quarter was $0.8 million decrease in revenues.
General and administrative (G&A) expenses associated with financial services decreased 25% and
24%, to $17.2 million and $40.4 million in the three and six months ended March 31, 2009,
respectively, from the comparable periods of 2008. The largest component of our financial services
G&A expense is employee compensation and related costs, which represented 72% and 75% of G&A costs
in the three and six-month periods of fiscal 2009, respectively, compared to 69% and 73% in the same periods of fiscal 2008. Those costs
decreased 21%, to $12.4
-50-
million and 22% to $30.2 million in the three and six months ended March
31, 2009, respectively, compared to the respective prior year periods, as we have continued to
align the number of employees with current and anticipated loan origination and title service
levels. Our financial services operations employed approximately 550 and 700 employees at March 31,
2009 and 2008, respectively.
As a percentage of financial services revenues, G&A expenses in the three-month period ended
March 31, 2009 increased to 637.0%, from 69.3% in the comparable period of 2008. The increase was
primarily due to the reduction in revenues resulting from the increase in recourse expense and the
decrease in mortgage loan volume, as well as higher revenues in the prior year quarter due to the
adoption of SAB 109. As a percentage of financial services revenues, G&A expenses in the six-month
period ended March 31, 2009 increased to 198.0%, from 78.5% in the comparable period of 2008 due to
the same factors affecting the three-month period. 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.
RESULTS OF OPERATIONS CONSOLIDATED
Loss before Income Taxes
Loss before income taxes for the three months ended March 31, 2009 was $103.0 million,
compared to $884.6 million for the same period of 2008. Loss before income taxes for the six months
ended March 31, 2009 was $164.3 million, compared to $1,087.5 million for the same period of 2008.
The decreases in our consolidated losses were primarily due to significantly lower inventory
impairment charges and SG&A expense, partially offset by decreases in the amount of our home sales
gross profit due to a reduction in revenues for the three and six-month periods ended March 31,
2009. Further deterioration of market conditions in the homebuilding industry and related
availability of mortgage financing may further negatively impact our financial results, and may
also result in further asset impairment charges against income in future periods.
Income Taxes
The provision for income taxes for the three and six months ended March 31, 2009 was $5.6
million and $6.8 million, respectively. The provision for income taxes for the three and six months
ended March 31, 2008 was $421.0 million and $347.0 million, respectively. Our effective income tax
expense rate for the three and six-month periods ended March 31, 2009 was 5.4% and 4.1%,
respectively. Our effective income tax expense rate for the three and six-month periods ended March
31, 2008 was 47.6% and 31.9%, respectively. The differences in our effective tax rates are
primarily the result of recording a $714.3 million valuation allowance on our deferred tax assets
at March 31, 2008, of which $385.0 million related to deferred tax assets existing as of the
beginning of fiscal year 2008. The provision for income taxes for the three and six-month periods
ending March 31, 2009 relates primarily to state income taxes on business operations conducted in
states where we are profitable, adjustments to the previously recorded valuation allowance against
the deferred tax assets and a reduction of our reserve for unrecognized tax benefits of $2.7
million recorded during the three months ended March 31, 2009.
At March 31, 2009, we had a federal income tax receivable of $54.5 million, relating to a net
operating loss carryback from our 2008 year. In December 2008, we received a federal income tax
refund of $621.7 million with respect to our 2008 year. We expect to receive the $54.5 million
receivable in the form of a refund after we file our final tax return for fiscal 2008 in June 2009.
The refund is expected to be generated from the carryback of a tax loss generated in fiscal 2008
against taxable income earned in fiscal 2006.
At March 31, 2009 and September 30, 2008, we had net deferred tax assets of $1,232.7 million
and $1,174.8 million, respectively, offset by valuation allowances of $1,019.2 million and $961.3
million, respectively. A substantial portion of the remaining net deferred tax asset of $213.5
million at March 31, 2009 is expected to be recovered through the carryback of federal tax losses
to be generated in fiscal 2009, primarily through the sale of homes which have been impaired in
previous periods. Federal tax losses realized in fiscal 2009 can be carried back to fiscal 2007
when we had taxable income of $616.0 million. The remainder of the net deferred tax asset is
expected to be recovered through state income tax loss carrybacks and filing of an amended federal
tax return for fiscal 2007. The accounting for deferred taxes is based upon an estimate of future
results. Differences between the anticipated and actual outcome of these future tax consequences
could have a material impact on our consolidated results of operations or financial position. Our
ability to sell and close an adequate amount of previously impaired
-51-
homes in fiscal 2009 is a significant assumption required for full recovery of the net
deferred tax asset. Changes in existing tax laws could also affect actual tax results and the
valuation of deferred tax assets over time.
The total amount of unrecognized tax benefits was $16.0 million and $18.7 million as of March
31, 2009 and September 30, 2008, respectively, which includes interest, penalties, and the tax
benefit relating to the deductibility of interest and state income taxes. All tax positions, if
recognized, would affect our effective income tax rate. We do not expect the total amount of
unrecognized tax benefits to significantly decrease or increase within twelve months of the current
reporting date.
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 2009. We are currently being audited by various states. The IRS commenced an examination of
our tax returns for 2004 and 2005 in January 2007. Their examination concluded in February 2009,
resulting in the assessment of $5.9 million of additional federal income tax and interest. Also, we
recorded a reduction of $2.7 million to the amount of unrecognized tax benefits as a result of the
conclusion of the audit.
CAPITAL RESOURCES AND LIQUIDITY
We have historically funded our homebuilding and financial services operations with cash flows
from operating activities, borrowings under our bank credit facilities and the issuance of new debt
securities. In light of the challenging homebuilding market conditions experienced over the past
few years, which are continuing as reflected in our 50% decline in consolidated revenues during the
six months ended March 31, 2009 as compared to the prior year, we have been operating with a
primary focus to generate cash flows through reductions in assets. The generation of cash flow has
allowed us to reduce debt and increase our cash balances without incurring new debt. We intend to
maintain adequate liquidity and balance sheet strength, and we will evaluate opportunities to
access the capital markets as they become available.
At March 31, 2009, our ratio of net homebuilding debt to total capital was 34.3%, a decrease
of 860 basis points from 42.9% at March 31, 2008, and 930 basis points from 43.6% at September 30,
2008. Net homebuilding debt to total capital consists of homebuilding notes payable net of cash
divided by total capital net of cash (homebuilding notes payable net of cash plus stockholders
equity). The decrease in our ratio of net homebuilding debt to total capital at March 31, 2009 as
compared with the ratio a year earlier and at September 30, 2008 was primarily due to our higher
cash balance and lower debt balance resulting from the generation of cash flows from operations,
which was partially offset by the decrease in retained earnings. Our ratio of net homebuilding debt
to total capital remains within our target operating range of below 45%. We believe that our strong
balance sheet and liquidity position will allow us to be flexible in reacting to changing market
conditions. However, future period-end net homebuilding debt to total capital ratios may be higher
than the 34.3% ratio achieved at March 31, 2009.
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
homebuilding cash as a reduction of our homebuilding debt and total capital. For comparison to our
ratios of net homebuilding debt to capital above, at March 31, 2009 and 2008, and at September 30,
2008, our ratios of homebuilding debt to total capital, without netting cash balances, were 52.0%,
46.8%, and 55.6%, respectively.
Historically, we have used our $1.65 billion unsecured revolving credit facility as a partial
source of funding for our homebuilding operations. However, as we have generated substantial cash
flows from operations and accumulated a significant cash balance, we have not borrowed under the
revolving credit facility since January 2008. We have continued to pay fees
associated with the unused capacity under the facility since that time despite our expectation that
we do not anticipate borrowing under the facility in the near term. Additionally, the financial
covenants and borrowing base arrangement under the revolving credit facility impose restrictions on
our operations and activities. At March 31, 2009, the borrowing base arrangement limited our
additional borrowing capacity to $275 million. Also, the margin by which we have
complied with the tangible net worth covenant has declined in recent quarters. In order to modify
the financial covenants and achieve more capacity under our borrowing base arrangement, an
amendment to the facility would be required. Based on discussions with the lenders any amendment to
the facility would likely substantially reduce the total amount of the facility and possibly
-52-
require the funding of a cash collateral account while
increasing some of the costs associated with the facility.
Consequently, on May 4, 2009, we notified the lenders participating in the revolving credit
facility of our intention to voluntarily terminate the facility. In accordance with the provisions
of the agreement governing the revolving credit facility, it will terminate effective May 11, 2009.
We believe that we will be able to fund our working capital needs for our homebuilding and
financial services operations, as well as our debt obligations, through existing cash resources and
the cash flows from operations we expect to generate in the near term, our mortgage repurchase
facility and, for the longer term, the issuance of new securities through the public capital markets as market conditions may permit.
Homebuilding Capital Resources
Cash and Cash Equivalents At March 31, 2009, we had available homebuilding cash and cash
equivalents of $1.5 billion.
Bank Credit Facility and Indentures At March 31, 2009, we had a $1.65 billion unsecured
revolving credit facility, which included a $1.0 billion letter of credit sub-facility. On May 4,
2009, for the reasons discussed above, we notified the lenders participating in the $1.65 billion
unsecured revolving credit facility of our intention to voluntarily terminate the facility. In
accordance with the provisions of the agreement governing the revolving credit facility, it will
terminate effective May 11, 2009. As a result of the termination of the revolving credit facility,
we will recognize $7.6 million of loss on early retirement of debt related to the write-off of
unamortized fees in the three months ended June 30, 2009. There were no penalties incurred in
connection with the early termination of the revolving credit facility. Also, on May 4, 2009, we
entered into secured letter of credit agreements with the three banks which have issued outstanding
letters of credit under the revolving credit facility. The effect of these agreements is to remove
the outstanding letters of credit from the revolving credit facility and require us to deposit cash
as collateral with the issuing banks.
The revolving
credit facility, which provides for a maturity on December 16, 2011, has an uncommitted
accordion provision of $400 million which can be used to increase the size of the facility to $2.05
billion upon obtaining additional commitments from lenders. Our borrowing capacity under this
facility, including the issuance of additional letters of credit, is reduced by the amount of
letters of credit outstanding, and is currently further reduced by the limitations in effect under
the borrowing base arrangement, which limited further credit to $275 million at March 31, 2009, as
more fully described below. The facility is guaranteed by substantially all of our wholly-owned
subsidiaries other than our financial services subsidiaries. Borrowings bear interest at rates
based upon the London Interbank Offered Rate (LIBOR) plus a spread based upon our leverage ratio as
defined in our credit agreement, our ratio of adjusted EBITDA to adjusted interest incurred, also
as defined, and our senior unsecured debt rating. At March 31, 2009, we had no cash borrowings and
$61.7 million of standby letters of credit outstanding on our homebuilding revolving credit
facility and the interest rate was 3.3%. In addition to the stated interest rates, the revolving
credit facility requires us to pay certain fees.
Under the debt covenants associated with our revolving credit facility, if we have fewer than
two investment grade senior unsecured debt ratings from Moodys Investors Service, Standard and
Poors Ratings Services and Fitch Ratings, we are subject to a borrowing base limitation and
restrictions on unsold homes and residential land and lots. Our senior debt ratings, which are
currently below investment grade, are as follows: Moodys (Ba3); Standard & Poors (BB-); and Fitch
(BB). Consequently, these additional limitations are currently in effect.
Under the borrowing base limitation, the sum of our senior debt and the amount drawn on our
revolving credit facility may not exceed the lesser of (a) certain percentages of the acquisition
cost of various categories of our unencumbered inventory or (b) certain percentages of the book
value of various categories of our unencumbered inventory, cash and cash equivalents. At March 31,
2009, the borrowing base arrangement limited our additional borrowing capacity under the credit
facility, including the issuance of additional letters of credit to $275 million.
Reductions of outstanding senior debt will increase our capacity under the borrowing base, while
reductions of inventory and increases in senior debt will generally decrease our borrowing base capacity. In the event our
senior debt (including amounts drawn on the revolving credit
facility) exceeds the
borrowing base limitation
we would be required to cash collateralize letters of credit
-53-
issued under the credit facility and could be prohibited thereafter from issuing new letters of credit or
borrowing under the facility.
The revolving credit facility imposes restrictions on our operations and activities by
requiring us to maintain certain levels of leverage, tangible net worth and components of
inventory. If we do not maintain the requisite levels, we may not be able to pay dividends or
available financing could be reduced or terminated. In addition, the indentures governing our
senior notes and senior subordinated notes impose restrictions on the creation of secured debt and
liens.
Based on the terms of the credit agreement, the following table presents the levels required
to maintain our compliance with the financial covenants associated with our revolving credit
facility, and the levels achieved as of and for the period ended March 31, 2009. These covenants
are measured at the end of each fiscal quarter. They are required to be maintained by us and all of
our direct and indirect subsidiaries (collectively, Guarantor Subsidiaries), other than the
financial services subsidiaries and certain inconsequential subsidiaries (collectively,
Non-Guarantor Subsidiaries).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level Achieved |
|
|
|
|
|
|
|
as of or for the 12-month |
|
|
|
Required |
|
|
period ended |
|
|
|
Level |
|
|
March 31, 2009 |
|
Leverage Ratio (1) |
|
|
0.55 to 1.0 or less |
|
|
|
0.36 to 1.0 |
|
Ratio of adjusted EBITDA to adjusted Interest Incurred (2) |
|
|
|
|
|
|
0.72 to 1.0 |
|
Ratio of adjusted Cash Flow to adjusted Interest Incurred (3) |
|
|
1.5 to 1.0 |
|
|
|
9.0 to 1.0 |
|
Minimum Tangible Net Worth (4) (in millions) |
|
|
$2,000.0 |
|
|
|
$2,472.1 |
|
Ratio of Unsold Homes to Homes Closed |
|
40% or less |
|
|
27% |
|
Ratio of Residential Land and Lots to Tangible Net Worth (5) |
|
less than 200% |
|
|
107% |
|
|
|
|
(1) |
|
The Leverage Ratio is calculated by dividing net notes payable (as calculated below) by
total capitalization (as calculated below). |
|
|
|
|
|
|
|
As of |
|
|
|
March 31, 2009 |
|
|
|
(In millions) |
|
Consolidated notes payable |
|
$ |
2,912.0 |
|
Less: Non-Guarantor Subsidiaries notes payable |
|
|
(44.4 |
) |
|
|
|
|
D.R. Horton, Inc. and Guarantor Subsidiaries notes payable |
|
|
2,867.6 |
|
Add: Non-performance letters of credit |
|
|
30.6 |
|
Less: Allowable cash and cash equivalents of D.R. Horton, Inc.
and Guarantor Subsidiaries* |
|
|
(1,491.9 |
) |
|
|
|
|
Net notes payable |
|
$ |
1,406.3 |
|
|
|
|
|
Consolidated equity |
|
$ |
2,647.3 |
|
Less: Non-Guarantor Subsidiaries equity |
|
|
(159.3 |
) |
|
|
|
|
D.R. Horton, Inc. and Guarantor Subsidiaries equity |
|
$ |
2,488.0 |
|
|
|
|
|
Total capitalization |
|
$ |
3,894.3 |
|
|
|
|
|
|
|
|
* |
|
Includes the average cash and cash equivalents of D.R. Horton, Inc. and Guarantor
Subsidiaries in excess of $50 million during the quarter. |
-54-
|
|
|
(2) |
|
The Ratio of adjusted EBITDA to adjusted Interest Incurred is calculated by dividing D.R.
Horton, Inc. and Guarantor Subsidiaries adjusted EBITDA for the twelve months ended March
31, 2009 (as calculated below) by D.R. Horton, Inc. and Guarantor Subsidiaries adjusted
interest incurred for the same period (as calculated below). |
|
|
|
|
|
|
|
For the Twelve |
|
|
|
Months Ended |
|
|
|
March 31, 2009 |
|
|
|
(In millions) |
|
Consolidated loss before income taxes |
|
$ |
(1,708.6 |
) |
Less: Non-Guarantor Subsidiaries loss before income taxes |
|
|
8.2 |
|
|
|
|
|
D.R. Horton, Inc. and Guarantor Subsidiaries loss before income taxes |
|
|
(1,700.4 |
) |
Add: Non-Guarantor Subsidiaries dividend to D.R. Horton, Inc. |
|
|
10.4 |
|
Add: D.R. Horton, Inc. and Guarantor Subsidiaries interest expensed
and amortized to cost of sales |
|
|
229.8 |
|
Add: D.R. Horton, Inc. and Guarantor Subsidiaries depreciation
and amortization |
|
|
35.6 |
|
Add: Guarantor Subsidiaries goodwill impairment |
|
|
79.4 |
|
Add: D.R. Horton, Inc. and Guarantor Subsidiaries inventory
impairments and land option cost write-offs |
|
|
1,509.4 |
|
Less: Consolidated interest income |
|
|
(23.0 |
) |
Add: Non-Guarantor Subsidiaries interest income |
|
|
11.7 |
|
|
|
|
|
D.R. Horton, Inc. and Guarantor Subsidiaries adjusted EBITDA |
|
$ |
152.9 |
|
|
|
|
|
|
|
|
|
|
Consolidated interest incurred |
|
$ |
226.8 |
|
Less: Non-Guarantor Subsidiaries interest incurred |
|
|
(2.6 |
) |
|
|
|
|
D.R. Horton, Inc. and Guarantor Subsidiaries interest incurred |
|
|
224.2 |
|
Less: Consolidated interest income |
|
|
(23.0 |
) |
Add: Non-Guarantor Subsidiaries interest income |
|
|
11.7 |
|
|
|
|
|
D.R. Horton, Inc. and Guarantor Subsidiaries adjusted interest incurred |
|
$ |
212.9 |
|
|
|
|
|
|
|
|
|
|
Although the terms of the amended credit agreement do not require a minimum level of interest
coverage to create an event of default, because the ratio of adjusted EBITDA to adjusted
Interest Incurred is less than 2.0 to 1.0, we are required to pay an additional pricing
premium on any cash borrowings. |
|
(3) |
|
Since the ratio of adjusted EBITDA to adjusted Interest Incurred has been less than 1.5 to
1.0 for two consecutive quarters, we were required to maintain an adjusted Cash Flow to adjusted Interest
Incurred ratio for the most recent twelve months of 1.5 to 1.0 or maintain borrowing capacity
under our borrowing base limitation plus D.R. Horton, Inc. and Guarantor Subsidiaries cash
and cash equivalents of $500 million or more. |
|
|
|
The ratio of adjusted Cash Flow to adjusted Interest Incurred is calculated by dividing D.R.
Horton, Inc. and Guarantor Subsidiaries adjusted Cash Flow for the twelve months ended March
31, 2009 (as calculated below) by D.R. Horton, Inc. and Guarantor Subsidiaries adjusted
interest incurred for the same period (as calculated above). |
|
|
|
|
|
|
|
For the Twelve |
|
|
|
Months Ended |
|
|
|
March 31, 2009 |
|
|
|
(In millions) |
|
Consolidated net cash provided by (used in) operating activities |
|
$ |
1,848.5 |
|
Less: Non-Guarantor Subsidiaries net cash provided by operating activities |
|
|
(144.2 |
) |
Add: D.R. Horton, Inc. and Guarantor Subsidiaries adjusted interest incurred |
|
|
212.9 |
|
|
|
|
|
D.R. Horton, Inc. and Guarantor Subsidiaries adjusted cash flow |
|
$ |
1,917.2 |
|
|
|
|
|
-55-
|
|
|
(4) |
|
Minimum Tangible Net Worth is calculated by deducting Guarantor Subsidiaries goodwill of
$15.9 million from D.R. Horton, Inc. and Guarantor Subsidiaries equity of $2,488.0 million
(as calculated above). |
|
(5) |
|
The Ratio of Residential Land and Lots to Tangible Net Worth covenant limits the net book
value of land and lots to 200% of adjusted tangible net worth when the net book value of land
and lots is equal to or less than $4.74 billion. |
At March 31, 2009, we were in compliance with all of the financial covenants, limitations and
restrictions that form a part of the bank revolving credit facility and the public debt
obligations.
Repayments and Repurchases of Public Unsecured Debt On January 15, 2009, we repaid the
remaining $155.2 million principal amount of our 5% senior notes which were due on that date. On
February 1, 2009, we repaid the remaining $297.7 million principal amount of our 8% senior notes
which were due on that date. These repayments of public unsecured debt were made from our cash
balances on hand.
Additionally, during the six months ended March 31, 2009, primarily through unsolicited
transactions, we repurchased the following senior notes prior to their maturity date:
|
|
|
|
|
|
|
Principal |
|
|
|
Amount |
|
|
|
(In millions) |
|
5% senior notes due 2009 |
|
$ |
44.8 |
|
8% senior notes due 2009 |
|
|
52.0 |
|
4.875% senior notes due 2010 |
|
|
76.2 |
|
9.75% senior notes due 2010 |
|
|
26.3 |
|
6% senior notes due 2011 |
|
|
7.7 |
|
7.875% senior notes due 2011 |
|
|
11.2 |
|
6.5% senior notes due 2016 |
|
|
2.3 |
|
|
|
|
|
|
|
$ |
220.5 |
|
|
|
|
|
These senior notes were repurchased for an aggregate purchase price of $211.6 million, plus
accrued interest. The repurchases resulted in a gain of $8.4 million, which is net of unamortized
discounts and fees written off, and is included in our consolidated statement of operations for the
six months ended March 31, 2009. Repurchases of senior notes through March 31, 2009 have reduced
our debt repurchase authorization to $382.4 million.
On April 6, 2009, through an unsolicited transaction, we repurchased $25.2 million principal
amount of our 7.875% senior notes due 2011 for a purchase price of $23.7 million, plus accrued
interest.
Shelf Registration Statements We have an automatically effective universal shelf
registration statement filed with the SEC, registering debt and equity securities which we may
issue from time to time in amounts to be determined. Under SEC rules, this shelf registration
statement expires in June 2009. We expect to file a new registration statement prior to its
expiration. Also, at March 31, 2009, we had the capacity to issue approximately 22.5 million shares
of common stock under our acquisition shelf registration statement, to effect, in whole or in part,
possible future business acquisitions.
Financial Services Capital Resources
Cash and Cash Equivalents At March 31, 2009, the amount of our financial services cash and
cash equivalents was $29.6 million.
Mortgage Repurchase Facility Our mortgage subsidiary entered into a mortgage sale and
repurchase agreement (the mortgage repurchase facility) on March 28, 2008. The mortgage
repurchase facility, which is accounted for as a secured financing, provides financing and
liquidity to DHI Mortgage by facilitating purchase transactions in which DHI Mortgage transfers
eligible loans to the counterparties against the transfer of funds by the counterparties, thereby
becoming purchased loans. DHI Mortgage then has the right and obligation to repurchase the
purchased loans upon their sale to third-party purchasers in the secondary market or within
specified time frames from 45 to 120 days in accordance with the terms of the mortgage repurchase
facility. On March 5, 2009, through an amendment to the repurchase agreement, the capacity of the facility was reduced from $275
million to $75 million,
-56-
with a provision allowing an increase in the capacity to $100 million
during the last five business days of a fiscal quarter and the first seven business days of the
following fiscal quarter. Additionally, the amendment eliminated the minimum required net income
covenant and extended the maturity date of the facility to March 4, 2010.
As of March 31, 2009, $174.7 million of mortgage loans held for sale were pledged under the
repurchase arrangement, with a carrying value of $176.2 million. DHI Mortgage has the option to
fund a portion of its repurchase obligations in advance. As a result of advance fundings totaling
$123.7 million, DHI Mortgage had an obligation of $44.4 million outstanding under the mortgage
repurchase facility at March 31, 2009 at a 3.8% interest rate.
The mortgage repurchase facility is not guaranteed by either D.R. Horton, Inc. or any of the
subsidiaries that guarantee our homebuilding debt. The facility contains financial covenants as to
the mortgage subsidiarys minimum required tangible net worth, its maximum allowable ratio of debt
to tangible net worth and its minimum required liquidity. These covenants are measured and reported
monthly. At March 31, 2009, our mortgage subsidiary was in compliance with all of the conditions
and covenants of the mortgage repurchase facility.
In the past, we have been able to renew or extend our mortgage credit facilities on
satisfactory terms prior to their maturities, and obtain temporary additional commitments through
amendments of the respective 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. We cannot assure that we will be successful in these
efforts in the future.
Operating Cash Flow Activities
For the six months ended March 31, 2009, net cash provided by our operating activities was
$978.6 million compared to $1,010.0 million during the comparable period of the prior year. During
the six-month period ended March 31, 2009, the majority of the net cash provided by our operating
activities was due to a federal income tax refund of $621.7 million, resulting from the carryback
of our fiscal 2008 net operating loss to fiscal 2006. Also, we continued to generate cash flows
from operations by reducing our inventories during the current quarter. In light of the challenging
market conditions, we have substantially slowed our purchases of land and lots and our development
spending on land we own, and have restricted the number of homes under construction to better match
our expected rate of home sales and closings. We plan to continue to restrict our number of homes
under construction and significantly limit our development spending during the remainder of fiscal
2009. Our ability to reduce our inventory levels is, however, heavily dependent upon our ability to
close a sufficient number of homes in the next few quarters, which may prove difficult given the
current market conditions. To the extent our inventory levels decrease as planned during the
remainder of fiscal 2009, we expect to generate net positive cash flows from operating activities,
should all other factors remain constant; however, the amount of cash generated in the future may
be less than in prior periods.
Another significant factor affecting our operating cash flows for the six months ended March
31, 2009 was the decrease in mortgage loans held for sale of $164.5 million during the period. The
decrease in mortgage loans held for sale was due to a decrease in the number of loans originated
during the second quarter of fiscal 2009 compared to the fourth quarter of fiscal 2008. We expect
to continue to use cash to fund an increase in mortgage loans held for sale in quarters when our
homebuilding closings grow. However, in periods when home closings are flat or decline as compared
to prior periods, or if our mortgage capture rate declines, the amounts of net cash used may be
reduced or we may generate positive cash flows from reductions in the balances of mortgage loans
held for sale as we did in the current year period.
Investing Cash Flow Activities
For the six months ended March 31, 2009 and 2008, cash used in investing activities
represented net purchases of property and equipment, primarily model home furniture and office
equipment. These purchases are not significant relative to our total assets or cash flows, and have
declined in recent quarters due to the decrease in size of our operations.
-57-
Financing Cash Flow Activities
The majority of our short-term financing needs have been funded with cash generated from
operations, borrowings available under our financial services credit facility and, to a lesser
extent in early fiscal 2008, borrowings under our homebuilding credit facility. Long-term financing
needs of our homebuilding operations have been generally funded with the issuance of new senior
unsecured debt securities through the public capital markets. Our homebuilding senior and senior
subordinated notes and borrowings under our homebuilding revolving credit facility are guaranteed
by substantially all of our wholly-owned subsidiaries other than our financial services
subsidiaries.
During the three months ended March 31, 2009, our Board of Directors approved a quarterly cash
dividend of $0.0375 per common share, which was paid on February 26, 2009 to stockholders of record
on February 16, 2009. In April 2009, our Board of Directors approved a quarterly cash dividend of
$0.0375 per common share, payable on May 27, 2009 to stockholders of record on May 19, 2009.
Quarterly cash dividends of $0.15 and $0.075 per common share were declared in the comparable
quarters of fiscal 2008. The declaration of future cash dividends is at the discretion of our Board
of Directors and will depend upon, among other things, future earnings, cash flows, capital
requirements, our financial condition and general business conditions.
Changes in Capital Structure
In November 2008, our Board of Directors authorized the repurchase of up to $100 million of
our common stock and the repurchase of up to $500 million of debt securities. The new
authorizations are effective from December 1, 2008 to November 30, 2009. Repurchases of senior
notes through March 31, 2009 have reduced the debt repurchase authorization to $382.4 million.
On April 6, 2009, through an unsolicited transaction, we repurchased $25.2 million principal
amount of our 7.875% senior notes due 2011, which further reduced the remaining debt repurchase
authorization.
On May 4, 2009, we notified the lenders participating in the $1.65 billion unsecured revolving
credit facility of our intention to voluntarily terminate the facility. In accordance with the
provisions of the agreement governing the revolving credit facility, it will terminate effective
May 11, 2009.
In fiscal 2008 and through the first half of fiscal 2009, our primary
non-operating uses of
our available capital were the repayment of debt and dividend payments. We continue to evaluate our
alternatives for future non-operating sources and uses of our available capital, including the amounts of
debt repayments, dividend payments and maintenance or increase of cash balances, based on market
conditions and other circumstances, and within the constraints of our balance sheet leverage
targets and our liquidity targets.
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 securities through the public capital markets, as market
conditions may permit.
At March 31, 2009, our homebuilding operations had outstanding letters of credit of $61.7
million and surety bonds of $1.38 billion, 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.
-58-
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.
In the ordinary course of business, we enter into land and lot option purchase contracts to
procure land or lots for the construction of homes. Lot option contracts enable us to control
significant lot positions with limited capital investment and substantially reduce the risks
associated with land ownership and development. Within the land and lot option purchase contracts
in force at March 31, 2009, there were a limited number of contracts, representing only $25.5
million of remaining purchase price, subject to specific performance clauses which may require us
to purchase the land or lots upon the land sellers meeting their obligations. Also, pursuant to the
provisions of Interpretation No. 46, Consolidation of Variable Interest Entities an
interpretation of ARB No. 51 as amended (FIN 46R), issued by the FASB, we consolidated certain
variable interest entities with assets of $8.4 million related to some of our outstanding land and
lot option purchase contracts. Creditors, if any, of these variable interest entities have no
recourse against us. Additionally, pursuant to SFAS No. 49, Accounting for Product Financing
Arrangements, we recorded $8.1 million of land inventory not owned related to some of our
outstanding land and lot option purchase contracts. Further discussion of our land option contracts
is provided in the Land and Lot Position and Homes in Inventory section that follows.
LAND AND LOT POSITION AND HOMES IN INVENTORY
The following is a summary of our land and lot position and homes in inventory at March 31,
2009 and
September 30, 2008:
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As of March 31, 2009 |
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As of September 30, 2008 |
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Lots |
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Lots |
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Controlled |
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Controlled |
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Lots Owned - |
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Under Lot |
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Total |
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Lots Owned - |
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Under Lot |
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Total |
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Developed |
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Option and |
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Land/Lots |
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Homes |
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Developed |
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Option and |
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Land/Lots |
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Homes |
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and Under |
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Similar |
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Owned and |
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in |
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and Under |
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Similar |
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Owned and |
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in |
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Development |
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Contracts |
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Controlled |
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Inventory |
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Development |
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Contracts |
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Controlled |
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Inventory |
East |
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12,000 |
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4,000 |
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16,000 |
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1,000 |
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12,000 |
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6,000 |
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18,000 |
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1,100 |
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Midwest |
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7,000 |
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2,000 |
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9,000 |
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900 |
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8,000 |
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1,000 |
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9,000 |
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1,100 |
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Southeast |
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22,000 |
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5,000 |
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27,000 |
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2,200 |
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23,000 |
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6,000 |
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29,000 |
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2,300 |
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South Central |
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25,000 |
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8,000 |
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33,000 |
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2,900 |
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25,000 |
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9,000 |
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34,000 |
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3,700 |
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Southwest |
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6,000 |
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1,000 |
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7,000 |
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1,300 |
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6,000 |
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|
1,000 |
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7,000 |
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|
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1,900 |
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West |
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23,000 |
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3,000 |
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26,000 |
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2,000 |
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25,000 |
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3,000 |
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28,000 |
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2,300 |
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95,000 |
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23,000 |
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118,000 |
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10,300 |
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99,000 |
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26,000 |
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125,000 |
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12,400 |
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81 |
% |
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19 |
% |
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|
100 |
% |
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|
|
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|
79 |
% |
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21 |
% |
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|
100 |
% |
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|
At March 31, 2009, we owned or controlled approximately 118,000 lots, compared to
approximately 125,000 lots at September 30, 2008. Of the 118,000 total lots, we controlled
approximately 23,000 lots (19%), with a total remaining purchase price of approximately $634.3
million, through land and lot option purchase contracts with a total of $36.3 million in earnest
money deposits. Our lots controlled included approximately 6,200 optioned lots with a remaining
purchase price of approximately $169.5 million and secured by deposits totaling $17.6 million, for
which we do not expect to exercise our option to purchase the land or lots, but the contract has
not yet been terminated. Consequently, we have written off the deposits related to these contracts,
resulting in a net earnest money deposit balance of $18.7 million at March 31, 2009.
We had a total of approximately 10,300 homes in inventory, including approximately 1,400 model
homes at March 31, 2009, compared to approximately 12,400 homes in inventory, including
approximately 1,500 model homes at September 30, 2008. Of our total homes in inventory,
approximately 5,500 and 6,900 were unsold at March 31, 2009 and September 30, 2008, respectively.
At March 31, 2009, approximately 3,000 of our unsold homes were completed, of which approximately
1,300 homes had been completed for more than six months. At September 30, 2008, approximately 3,100
of our unsold homes were completed, of which approximately 1,100 homes had been completed for more
than six months.
-59-
Our current strategy is to continue to reduce our owned and controlled lot position, in line
with our reduced expectations for future home sales and closings, through the construction and sale
of homes and the sale of land and lots, and to limit our purchases of lots currently controlled
under option or in new lot positions to those needed to meet immediate home sales demand.
CRITICAL ACCOUNTING POLICIES
As disclosed in our annual report on Form 10-K for the fiscal year ended September 30, 2008,
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, income taxes
and stock-based compensation. Since September 30, 2008, there have been no significant changes to
those critical accounting policies and estimates except for the partial adoption of SFAS No. 157,
Fair Value Measurements as described below. Additionally, we have expanded our critical
accounting policy disclosure related to Insurance Claim Costs and Self-Insurance which follows.
Fair Value Measurements Partial Adoption of SFAS No. 157 Effective October 1, 2008, we
adopted SFAS No. 157, Fair Value Measurements, for fair value measurements of certain financial
instruments. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. Fair value is defined under SFAS No. 157 as the
exchange (exit) price that would be received for an asset or paid to transfer a liability in the
principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. This standard establishes a three-level hierarchy for
fair value measurements based upon the inputs to the valuation of an asset or liability. Observable
inputs are those which can be easily seen by market participants while unobservable inputs are
generally developed internally, utilizing managements estimates and assumptions.
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Level 1 Valuation is based on quoted prices in active markets for identical
assets and liabilities. |
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Level 2 Valuation is determined from quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or similar instruments in
markets that are not active, or by model-based techniques in which all significant
inputs are observable in the market. |
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Level 3 Valuation is derived from model-based techniques in which at least one
significant input is unobservable and based on our own estimates about the assumptions
that market participants would use to value the asset or liability. |
When available, we use quoted market prices in active markets to determine fair value. We
consider the principal market and nonperformance risk associated with our counterparties when
determining the fair value measurements. Fair value measurements under SFAS No. 157 are used for
IRLCs, mortgage loans held for sale, other mortgage loans and hedging instruments.
Insurance Claim Costs and Self-Insurance We have, and require the majority of the
subcontractors we use to have, general liability insurance which includes construction defect
coverage. Our general liability insurance policies protect us against a portion of our risk of loss
from construction defect and other claims and lawsuits, subject to certain self-insured retentions
and other coverage limits. For policy years 2004 through 2009, we are self-insured for up to $22.5
million of the aggregate claims incurred, at which point our excess loss insurance begins,
depending on the policy year. Once we have satisfied the annual aggregate limits, we are
self-insured for the first $10,000 to $1.5 million for each claim occurrence, depending on the
policy year. For policy year 2009, we are self-insured for up to $22.5 million of the aggregate
claims incurred and for up to $0.5 million of each claim occurrence thereafter.
In some states where we believe it is too difficult or expensive for our subcontractors to
obtain general liability insurance, we have waived our traditional subcontractor general liability
insurance requirements to obtain lower costs from subcontractors. In these states, we purchase
insurance policies from either third-party carriers or our wholly-owned captive insurance
subsidiary that provide coverage to us, and names certain subcontractors as additional insureds.
The policies issued to our homebuilding entities by our captive insurance subsidiary provide up to
$25.0 million in aggregate general liability coverage per policy year. The policies issued by our
captive insurance subsidiary represent self insurance of these risks by us; however, for policy
years after April 2007, the captive insurance subsidiary has reinsured the annual loss exposure
greater than $10.0 million with a third-party insurer.
-60-
Also, we are self-insured for the deductible amounts under our workers compensation insurance
policies. The deductibles vary by policy year, but in no years exceed $0.5 million per occurrence.
The deductible for the 2009 policy year is $0.5 million per occurrence.
We record expenses and liabilities related to the costs to cover the self-insured amounts
under our insurance policies for exposures related to workers compensation, construction defects
and claims and lawsuits incurred in the ordinary course of business, including employment matters,
personal injury claims, land development issues and contract disputes. Also, we record expenses and
liabilities for any estimated costs of potential claims and lawsuits (including expected legal
costs) in excess of our coverage limits or not covered by our policies, based on an analysis of our
historical claims, which includes an estimate of construction defect claims incurred but not yet
reported. The expenses and liabilities are subject to a high degree of variability due to
uncertainties such as trends in construction defect claims relative to our markets and the types of
products we build, claim settlement patterns, insurance industry practices and legal
interpretations, among others.
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 results of operations
and financial position at the end of a particular fiscal quarter are not necessarily representative
of the balance of our fiscal year.
In contrast to our typical seasonal results, due to deterioration of homebuilding market
conditions during the past two years, we have incurred consolidated operating losses each quarter
since the third quarter of fiscal 2007. These results were primarily due to recording significant
inventory and goodwill impairment charges. Also, the increasingly challenging market conditions
caused declines in sales volume, pricing and margins that mitigated our historical seasonal
variations. Although we may experience our typical historical seasonal pattern in the future, given
the current market conditions, we can make no assurances as to when or whether this pattern will
recur.
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 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 downturn in homebuilding and the disruptions in 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 and the increase in mortgage
interest rates; |
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the limited success of our strategies in responding to adverse conditions in the
industry; |
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changes in general economic, real estate, construction and other business
conditions; |
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changes in the costs of owning a home; |
-61-
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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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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 tax asset; and |
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the uncertainties inherent in home warranty and construction defect claims matters. |
We undertake no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. However, any further
disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be
consulted. Additional information about issues that could lead to material changes in performance
and risk factors that have the potential to affect us is contained in our annual report on Form
10-K, including the section entitled Risk Factors, which is filed with the Securities and
Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to interest rate risk on our long-term debt. We monitor our exposure to changes
in interest rates and utilize both fixed and variable rate debt. For fixed rate debt, changes in
interest rates generally affect the value of the debt instrument, but not our earnings or cash
flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the
fair value of the debt instrument, but may affect our future earnings and cash flows. We generally
do not have an obligation to prepay fixed-rate debt prior to maturity and, as a result, interest
rate risk and changes in fair value would not have a significant impact on our cash flows related
to our fixed-rate debt until such time as we are required to refinance, repurchase or repay such
debt.
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 six months ended March 31, 2009 was not significant, is recognized in current earnings in
accordance with SFAS No. 159. Prior to October 1, 2008, in accordance with SFAS No. 133, the
effectiveness of the fair value hedge in the prior year was monitored and any ineffectiveness,
which for the three and six months ended March 31, 2008 was not significant, was recognized in
current earnings. At March 31, 2009, hedging instruments used to mitigate interest rate risk
related to uncommitted mortgage loans held for sale and uncommitted IRLCs totaled $258.7 million.
Uncommitted IRLCs, the duration of which are generally less than six months, totaled approximately
$199.8 million, and uncommitted mortgage loans held for sale totaled approximately $33.6 million at
March 31, 2009.
At March 31, 2009, we had $256.0 million in EDFC options and MBS which were acquired as part
of a program to potentially offer homebuyers a below market interest rate on their home financing.
These hedging instruments and the related commitments are accounted for at fair value with gains
and losses recognized in current earnings. These gains and losses for the three and six months
ended March 31, 2009 and 2008 were not significant.
-62-
The following table sets forth principal cash flows by scheduled maturity, weighted average
interest rates and estimated fair value of our debt obligations as of March 31, 2009. 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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Six Months |
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Fair value |
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Ending |
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at |
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September 30, |
|
Fiscal Year Ending September 30, |
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March 31, |
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2009 |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
2014 |
|
Thereafter |
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Total |
|
2009 |
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|
(In millions) |
Debt: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate |
|
$ |
22.9 |
|
|
$ |
259.6 |
|
|
$ |
431.1 |
|
|
$ |
314.3 |
|
|
$ |
300.0 |
|
|
$ |
450.0 |
|
|
$ |
1,097.7 |
|
|
$ |
2,875.6 |
|
|
$ |
2,387.3 |
|
Average interest rate |
|
|
8.1 |
% |
|
|
6.7 |
% |
|
|
7.0 |
% |
|
|
5.4 |
% |
|
|
6.7 |
% |
|
|
6.0 |
% |
|
|
6.0 |
% |
|
|
6.2 |
% |
|
|
|
|
Variable rate |
|
$ |
44.4 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
44.4 |
|
|
$ |
44.4 |
|
Average interest rate |
|
|
3.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.8 |
% |
|
|
|
|
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 March 31, 2009 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
-63-
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.
On June 15, 2007, a putative class action, John R. Yeatman, et al. v. D.R. Horton, Inc., et
al., was filed by one of our customers against us and our affiliated mortgage company subsidiary in
the United States District Court for the Southern District of Georgia. The complaint sought
certification of a class alleged to include persons who, within the year preceding the filing of
the suit, purchased a home from us and obtained a mortgage for such purchase from our affiliated
mortgage company subsidiary. The complaint alleged that we violated Section 8 of the Real Estate
Settlement Procedures Act by effectively requiring our homebuyers to use our affiliated mortgage
company to finance their home purchases by offering certain discounts and incentives. The action
sought damages in an unspecified amount and injunctive relief. On April 23, 2008, the Court ruled
on our motion to dismiss and dismissed this complaint with prejudice. The plaintiffs filed a notice
of appeal, which is currently pending.
On March 24, 2008, a putative class action, James Wilson, et al. v. D.R. Horton, Inc., et al.,
was filed by five customers of Western Pacific Housing, Inc., one of our wholly-owned subsidiaries,
against us, Western Pacific Housing, Inc., and our affiliated mortgage company subsidiary, in the
United States District Court for the Southern District of California. The complaint seeks
certification of a class alleged to include persons who, within the four years preceding the filing
of the suit, purchased a home from us, or any of our subsidiaries, and obtained a mortgage for such
purchase from our affiliated mortgage company subsidiary. The complaint alleges that we violated
Section 1 of the Sherman Antitrust Act and Sections 16720, 17200 and 17500 of the California
Business and Professions Code by effectively requiring our homebuyers to apply for a loan through
our affiliated mortgage company. The complaint alleges that the homebuyers were either deceived
about loan costs charged by our affiliated mortgage company or coerced into using our affiliated
mortgage company, or both, and that discounts and incentives offered by us or our subsidiaries to
buyers who obtained financing from our affiliated mortgage company were illusory. The action seeks
treble damages in an unspecified amount and injunctive relief. Management believes the claims
alleged in this action are without merit and will defend them vigorously. However, as the action is
still in its early stages, we are unable to express an opinion as to the likelihood of an
unfavorable outcome or the amount of damages, if any.
ITEM 1A. RISK FACTORS
In addition to the risk factors previously identified in our annual report on Form 10-K for the
year ended September 30, 2008, we replace the risk factors entitled Our substantial debt could
adversely affect our financial condition and Failure to comply with certain financial tests or
meet ratios contained in our credit facilities could preclude the payment of dividends, impose
restrictions on our business, capital resources or other activities or otherwise adversely affect
us with the following:
Our substantial debt could adversely affect our financial condition.
We have a significant amount of debt. As of March 31, 2009, our consolidated debt was $2,912.0
million. As of March 31, 2009, the scheduled maturities of principal on our outstanding debt for
the subsequent 12 months totaled $241.2 million.
Possible Consequences. The amount and the maturities of our debt could have important
consequences. For example, they could:
|
|
|
require us to dedicate a substantial portion of our cash flow from operations to
payment of our debt and reduce our ability to use our cash flow for other purposes; |
|
|
|
|
limit our flexibility in planning for, or reacting to, the changes in our business; |
|
|
|
|
limit our ability to obtain future financing for working capital, capital expenditures,
acquisitions, debt service requirements or other requirements; |
-64-
|
|
|
place us at a competitive disadvantage because we have more debt than some of our
competitors; and |
|
|
|
|
make us more vulnerable to downturns in our business or general economic conditions. |
Dependence on Future Performance. Our ability to meet our debt service and other obligations
will depend, in part, upon our future financial performance. Our future results are subject to the
risks and uncertainties described in this report. These have been compounded by the current
industry and economic conditions. Our revenues and earnings vary with the level of general economic
activity in the markets we serve. Our businesses are also affected by financial, political,
business and other factors, many of which are beyond our control. The factors that affect our
ability to generate cash can also affect our ability to raise additional funds for these purposes
through the sale of debt or equity, the refinancing of debt, or the sale of assets. Changes in
prevailing interest rates may affect our ability to meet our debt service obligations, because
borrowings under our credit facilities bear interest at floating rates.
Credit Facility and Other Restrictions. On May 4, 2009 we gave notice to the lenders
participating in the revolving credit facility to terminate the
facility effective May 11, 2009.
Consequently, because of the termination of this facility, the restrictions and requirements it imposed
on us will no longer be in place. However, the indentures governing our senior notes and senior subordinated
notes impose restrictions on the creation of secured debt and liens.
The mortgage repurchase facility for our financial services subsidiaries also requires the
maintenance of a minimum level of tangible net worth, a maximum allowable ratio of debt to tangible
net worth and a minimum level of liquidity. A failure to comply with these requirements could allow
the lending bank to terminate the availability of funds to the financial services subsidiaries or
cause their debt to become due and payable prior to maturity.
Changes in Debt Ratings. In fiscal 2008, all three of the agencies that rate our senior
unsecured debt lowered our ratings to a level below investment grade,
and these agencies have since lowered our ratings even further The cost of debt capital has increased and could
increase more with further lowering of our debt ratings. The further lowering of our debt ratings
could also make accessing the public capital markets more difficult and expensive.
Change of Control Purchase Options. If a change of control occurs as defined in the
indentures governing many series of our senior and senior subordinated notes, which constituted
$1.0 billion principal amount in the aggregate as of March 31, 2009, we would be required to offer
to purchase such notes at 101% of their principal amount, together with all accrued and unpaid
interest, if any. If purchase offers were required under the indentures for these notes, we can
give no assurance that we would have sufficient funds to pay the amounts that we would be required
to purchase. At March 31, 2009, we did not have sufficient funds available to purchase all of such
outstanding debt upon a change of control.
Impact of Financial Services Debt. Our financial services business is conducted through
subsidiaries that are not restricted by our indentures. The ability of our financial services
subsidiaries to provide funds to our homebuilding operations, however, is subject to restrictions
in their mortgage repurchase facility. These funds would not be available to us upon the occurrence
and during the continuance of defaults under this facility. Moreover, our right to receive assets
from these subsidiaries upon liquidation or recapitalization will be subject to the prior claims of
the creditors of these subsidiaries. Any claims we may have to funds from this segment would be
subordinate to subsidiary indebtedness to the extent of any security for such indebtedness and to
any indebtedness otherwise recognized as senior to our claims.
We also
add the following risk factor:
The
utilization of our
tax losses could be substantially
limited if we experienced an ownership change as defined in the
Internal Revenue Code.
We have experienced continuing losses that have
produced net operating losses and unrealized built-in losses
for income tax purposes. These have the potential to
reduce future income tax obligations if we become profitable
in the future. However, Section 382 of the Internal Revenue Code
contains rules that limit the ability of a company that undergoes
an ownership change to utilize its net operating loss carryforwards
and certain built-in losses recognized in years after the ownership
change. Under the rules, such an ownership change is generally any change
in ownership of more than 50% of its stock within a rolling three-year period, as
calculated in accordance with the rules.
The rules generally operate by focusing on changes in ownership among
stockholders considered by the rules as owning directly or indirectly 5% or more of the stock of
the company and any change in ownership arising from new issuances
of stock by the company.
-65-
If
we undergo an ownership change for purposes of Section 382 as a
result of future transactions involving our common stock, our ability
to use any of our net operating loss carryforwards, tax credit
carryforwards or net unrealized built-in losses at the time of ownership
change would be subject to the limitations of Section 382 on their
use against future taxable income. Depending on the limitation, a
significant portion of our built-in losses,
any net operating loss carryforwards or tax credit carryforwards could expire before we would be
able to use them. This could adversely affect our financial position,
results of operations and cash flow.
We believe that we
have not experienced such an ownership change as of March 31, 2009; however, the amount by which our
ownership may change in the future could be affected by purchases and
sales of stock by 5%
stockholders, over which we have no control, and new issuances of stock by us, should we choose
to do so. We are continuing to monitor the situation and, if we
consider it advisable, could seek to institute measures intended to
deter such an ownership change in order to preserve these tax
attributes. We can give no assurances as to whether we would seek to
do so or as to the effectiveness of any such measures.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) At the Companys Annual Meeting of Stockholders held on January 29, 2009 (the Annual
Meeting), the stockholders re-elected each of the seven members of the Board of Directors of the
Company to serve until the Companys next annual meeting of stockholders and until their respective
successors are elected and qualified. The names of the seven directors, the number of votes cast
for and the number of votes withheld were as follows:
|
|
|
|
|
|
|
|
|
Name |
|
Votes For |
|
Votes Withheld |
Donald R. Horton |
|
|
270,102,919 |
|
|
|
13,028,553 |
|
Bradley S. Anderson |
|
|
261,489,448 |
|
|
|
21,642,023 |
|
Michael R. Buchanan |
|
|
272,813,583 |
|
|
|
10,317,888 |
|
Michael W. Hewatt |
|
|
257,063,298 |
|
|
|
26,068,173 |
|
Bob G. Scott |
|
|
272,756,237 |
|
|
|
10,375,234 |
|
Donald J. Tomnitz |
|
|
271,199,045 |
|
|
|
11,932,427 |
|
Bill W. Wheat |
|
|
260,887,269 |
|
|
|
22,244,203 |
|
(b) At the Annual Meeting, the stockholders voted to approve a stockholder proposal
concerning amending the Companys Equal Employment Opportunity Policy. The number of votes cast for
and against the proposal and the number of abstentions were as follows:
|
|
|
|
|
Votes For |
|
Votes Against |
|
Abstained |
132,680,185
|
|
111,985,658
|
|
5,243,610 |
(c) At the Annual Meeting, the stockholders voted to approve a stockholder proposal
concerning a majority vote standard for the election of directors. The number of votes cast for and
against the proposal and the number of abstentions were as follows:
|
|
|
|
|
Votes For |
|
Votes Against |
|
Abstained |
145,387,835
|
|
104,306,592
|
|
215,026 |
-66-
ITEM
5. OTHER INFORMATION
On
May 4, 2009, the Company notified the lenders participating in the
Companys revolving credit facility of its intention to
voluntarily terminate the facility. In accordance with the provisions
governing the revolving credit facility, the facility will terminate
effective May 11, 2009. See Homebuilding Capital Resources Bank Credit Facility and Indentures beginning on page 53 of this Form10-Q for additional
information regarding the revolving credit facility and the termination thereof, which information is incorporated by reference into this Item 5.
The original revolving credit facility was entered into as of December 16, 2005, and was amended on November 1, 2006 (the First Amendment), March 14, 2007 (the Second Amendment), July 6, 2007 (the Third Amendment), January 4, 2008 (the Fourth Amendment) and June 26, 2008 (the Fifth Amendment). The Fifth Amendment was entered into by the Company, as the Borrower, the lenders listed in such Fifth Amendment, the Guarantors listed on
Schedule 1 thereto, and Wachovia Bank, National Association, as Administrative Agent for the Lenders, Swingline Lender and a Letter of Credit Issuer.
ITEM 6. 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 |
|
First Amendment to Master Repurchase Agreement, dated March 5,
2009, among DHI Mortgage Company, Ltd., U.S. Bank National
Association, as Administrative Agent, Syndication Agent and a
buyer, and the other parties listed thereto. (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. (*) |
|
|
|
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. (*) |
|
|
|
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. (*) |
|
|
|
* |
|
Filed herewith. |
|
(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 filed
with the SEC on May 6, 2008. |
|
(3) |
|
Incorporated by reference from Exhibit 10.1 to the Companys Current Report on Form 8-K filed
with the SEC on March 10, 2009. |
-67-
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.
|
|
|
|
|
|
D.R. HORTON, INC.
|
|
Date: May 4, 2009 |
By: |
/s/ Bill W. Wheat
|
|
|
|
Bill W. Wheat, on behalf of D.R. Horton, Inc., |
|
|
|
as Executive Vice President and
Chief Financial Officer (Principal Financial and
Principal Accounting Officer) |
|
|
-68-