ITEM 1. BUSINESS
D.R. Horton, Inc. (the "Company") is a national homebuilder. As such, we construct and sell single-family homes in metropolitan areas of the Mid- Atlantic, Midwest, Southeast, Southwest and West regions of the United States. We offer high quality homes, designed principally for first-time and move-up home buyers. Our homes generally range in size from 1,000 to 5,000 square feet and range in price from $60,000 to $800,000. For the year ended September 30, 2000, we closed 19,144 homes with an average sales price approximating $182,600.
On April 20, 1998, we acquired Continental Homes Holding Corp. ("Continental"), a geographically diversified homebuilder, through the merger of Continental into the Company (the "Merger"). In the Merger, the Company issued approximately 15.5 million shares of its common stock, and Continental's outstanding convertible securities and options became convertible into and exercisable for an additional 8.2 million shares. The Merger was accounted for as a pooling of interests. Accordingly, all information for prior periods has been restated to show the combined results of the Company and Continental.
We are one of the largest and most geographically diversified homebuilders in the United States, with operating divisions in 23 states and 39 markets as of September 30, 2000. The markets we operate in include: Albuquerque, Atlanta, Austin, Birmingham, Charleston, Charlotte, Chicago, Cincinnati, Columbia, Dallas/Fort Worth, Denver, Greensboro, Greenville, Hilton Head, Houston, Jacksonville, Killeen, Las Vegas, Los Angeles, Louisville, Minneapolis/St. Paul, Myrtle Beach, Nashville, New Jersey, Newport News, Orlando, Phoenix, Portland, Raleigh/Durham, Richmond, Sacramento, Salt Lake City, San Antonio, San Diego, St. Louis, South Florida, Tucson, suburban Washington, D.C. and Wilmington.
We build homes under the following names: D.R. Horton, Arappco, Cambridge, Continental, Dobson, Mareli, Milburn, Regency, SGS, Torrey and Trimark.
Our financial reporting segments consist of homebuilding and financial services. Our homebuilding operations comprise the most substantial part of our business, with approximately 99% of consolidated revenues in fiscal 1998, 1999 and 2000. The homebuilding operations segment generates the majority of its revenues from the sale of completed homes with a lesser amount from the sale of land and lots. The financial services segment generates its revenues from originating and selling mortgages and collecting fees for title insurance agency and closing services. Financial information, including revenue, pre-tax income and identifiable assets of both of our reporting segments are included in the consolidated financial statements.
We were incorporated in Delaware on July 1, 1991, to acquire all of the assets and businesses of 25 predecessor companies, which were residential home construction and development companies owned or controlled by Donald R. Horton.
Our principal executive offices are located at 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006, and the telephone number is (817) 856-8200.
Operating Strategy
We believe that the following operating strategies have enabled us to achieve consistent growth and profitability:
Geographic Diversity
From 1978 to late 1987, excluding Continental Homes' locations, our homebuilding activities were conducted in the Dallas/Fort Worth area. We then instituted a policy of diversifying geographically, entering the following markets, both through startup operations and acquisitions, in the years shown:
We continually monitor the sales and margins achieved in each of the subdivisions in which we operate as part of our evaluation of the use of our capital. While we believe there are significant growth opportunities in our existing markets, we also intend to continue our policy of diversification by seeking to enter new markets. We believe our diversification strategy mitigates the effects of local and regional economic cycles and enhances our growth potential. Typically, we will not invest material amounts in real estate, including raw land, developed lots, models and speculative homes, or overhead in start-up operations in new markets, until such markets demonstrate significant growth potential and acceptance of our products.
Acquisitions
As an integral component of our operational strategy of continued expansion, we continually evaluate opportunities for strategic acquisitions. We believe that expanding our operations through the acquisition of existing homebuilding companies affords us several benefits not found in start-up operations. Such benefits include:
. Established land positions and inventories;
. Existing relationships with land owners, developers, subcontractors and suppliers;
. Brand name recognition; and
. Proven product acceptance by home buyers in the market.
In evaluating potential acquisition candidates, we seek homebuilding companies that have an excellent reputation, a track record of profitability and a strong management team with an entrepreneurial orientation. We limit the risks associated with acquiring a going concern by conducting extensive operational, financial and legal due diligence on each acquisition and by only acquiring homebuilding companies that we believe will have an immediate positive impact on our earnings. During the last seven fiscal years, we have made 14 acquisitions. We will continue to evaluate potential future acquisition opportunities that satisfy our acquisition criteria in both existing and new markets.
Decentralized Operations
We decentralize our homebuilding activities to give more operating flexibility to our local division presidents. We have 46 separate operating divisions, some of which are in the same market area. Generally, each operating division consists of a division president, an office manager and staff, a sales manager and sales personnel, and a construction manager and construction superintendents. We believe that division presidents, who are intimately familiar with local conditions, make better decisions regarding local operations. Our division presidents receive performance bonuses based upon achieving targeted operating levels in their operating divisions.
Operating Division Responsibilities
Each operating division is responsible for:
. Site selection, which involves
-- A feasibility study;
-- Soil and environmental reviews;
-- Review of existing zoning and other governmental requirements; and
-- Review of the need for and extent of offsite work required to meet local building codes.
. Negotiating lot option or similar contracts;
. Overseeing land development;
. Planning its homebuilding schedule;
. Selecting building plans and architectural schemes;
. Obtaining all necessary building approvals; and
. Developing a marketing plan.
Corporate Office Controls
The corporate office controls key risk elements through centralized:
. Financing;
. Cash management;
. Risk management;
. Accounting and management reporting;
. Payment of subcontractors' invoices;
. Administration of payroll and employee benefits;
. Final approval of land and lot acquisitions;
. Capital allocation; and
. Oversight of inventory levels.
Cost Management
We control our overhead costs by centralized administrative and accounting functions and by limiting the number of field administrative personnel and middle level management positions. We also minimize advertising costs by participating in promotional activities, publications and newsletters sponsored by local real estate brokers, mortgage companies, utility companies and trade associations.
We control construction costs through the efficient design of our homes and by obtaining favorable pricing from certain subcontractors and national vendors based on the high volume of services and products they provide us. We also control construction costs by monitoring expenses on each house through our purchase order system. We control capital and overhead costs by monitoring our inventory levels through our management information systems.
Markets
We conduct homebuilding activities in five geographic regions, consisting of:
When entering new markets or conducting operations in existing markets, among the things we consider are:
. Regional economic conditions;
. Job growth;
. Land availability;
. Local land development process;
. Consumer tastes;
. Competition; and
. Secondary home sales activity.
Our homebuilding revenues by geographic region are:
Land Policies
Typically, we acquire land and enter into lot option contracts to acquire developed building lots only after necessary "entitlements" have been obtained, i.e., when we have the right to begin development or construction. Before we acquire lots or tracts of land, we will, among other things, complete a feasibility study, which includes soil tests, independent environmental studies and other engineering work, and determine that all necessary zoning and other governmental entitlements required to develop and use the property for home construction have been acquired. Although we purchase and develop land primarily to support our own homebuilding activities, occasionally we sell lots and land to other developers and homebuilders.
We also use lot option contracts, in which we purchase the right, but not the obligation, to buy building lots at predetermined prices on a takedown schedule commensurate with anticipated home closings. Lot option contracts generally are on a nonrecourse basis, thereby limiting our financial exposure to earnest money deposits given to property sellers. This enables us to control significant lot positions with a minimal capital investment and substantially reduces the risks associated with land ownership and development. At September 30, 2000, about 43% of our total lot position of 84,377 lots was under option contracts.
A summary of our land/lot position at September 30, 2000 is:
We limit our exposure to real estate inventory risks by:
. Generally commencing construction of homes under contract only after receipt of a satisfactory down payment and, where applicable, the buyer's receipt of mortgage approval;
. Limiting the number of speculative homes (homes started without an executed sales contract) built in each subdivision;
. Closely monitoring local market and demographic trends, housing preferences and related economic developments, such as new job opportunities, local growth initiatives and personal income trends;
. Utilizing lot option contracts, where possible; and
. Limiting the size of acquired land parcels to smaller tracts of land.
Construction
Our home designs are prepared by architects in each of our markets to appeal to local tastes and preferences of the community. We also offer optional interior and exterior features to enhance the basic home design and to promote our sales efforts.
Substantially all of our construction work is performed by subcontractors. Our construction supervisors monitor the construction of each home, participate in material design and building decisions, coordinate the activities of subcontractors and suppliers, subject the work of subcontractors to quality and cost controls and monitor compliance with zoning and building codes. Subcontractors typically are retained for a specific subdivision pursuant to a contract that obligates the subcontractor to complete construction at a fixed price. Agreements with our subcontractors and suppliers generally are negotiated for each subdivision. We compete with other homebuilders for qualified subcontractors, raw materials and lots in the markets where we operate.
Construction time for our homes depends on the weather, availability of labor, materials and supplies, size of the home, and other factors. We typically complete the construction of a home within four months.
We do not maintain significant inventories of construction materials, except for work in process materials for homes under construction. Typically, the construction materials used in our operations are readily available from numerous sources. We have contracts exceeding one year with certain suppliers of our building materials that are cancellable at our option with a 30 day notice. In recent years, we have not experienced any significant delays in construction due to shortages of materials or labor.
Marketing and Sales
We market and sell our homes through commissioned employees and independent real estate brokers. We typically conduct home sales from sales offices located in furnished model homes in each subdivision. At September 30, 2000, we owned 751 model homes, which we generally do not offer for sale until the completion of a subdivision. Our sales personnel assist prospective home buyers by providing them with floor plans, price information, tours of model homes and the selection of options and other custom features. We train and inform our sales personnel as to the availability of financing, construction schedules, and marketing and advertising plans.
In addition to using model homes, we typically build a limited number of speculative homes in each subdivision to enhance our marketing and sales activities. Construction of these speculative homes also is necessary to satisfy the requirements of relocated personnel and independent brokers, who often represent home buyers requiring a completed home within 60 days. We sell a majority of these speculative homes while they are under construction or immediately following completion. The number of speculative homes is influenced by local market factors, such as new employment opportunities, significant job relocations, growing housing demand and the length of time we have built in the market. Depending upon the seasonality of each market, we attempt to limit our speculative homes in each subdivision. At September 30, 2000, we averaged less than 5 speculative homes, in various stages of construction, in each subdivision.
We advertise on a limited basis in newspapers and in real estate broker, mortgage company and utility publications, brochures, newsletters and on billboards. In addition, we use our Internet web site to market the location, price range, and availability of our homes. To minimize advertising costs, we attempt to operate in subdivisions in conspicuous locations that permit us to take advantage of local traffic patterns. We also believe that model homes play a significant role in our marketing efforts. Consequently, we expend significant effort in creating an attractive atmosphere in our model homes.
Our sales contracts require a down payment of at least $500. The contracts include a financing contingency which permits customers to cancel if they cannot obtain mortgage financing at prevailing interest rates within a specified period, typically four to six weeks, and may include other contingencies, such as the sale of an existing home. We include a home sale in our sales backlog when the sales contract is signed and we have received the initial down payment. We do not recognize revenue upon the sale of a home until it is closed and title passes to the home buyer. The average period between the signing of a sales contract for a home and closing is approximately three to five months.
Customer Service and Quality Control
Our operating divisions are responsible for pre-closing, quality control inspections and responding to customers' post-closing needs. We believe that prompt and courteous response to home buyers' needs during and after construction reduces post-closing repair costs, enhances our reputation for quality and service, and ultimately leads to significant repeat and referral business from the real estate community and home buyers. We provide our home buyers with a limited one-year warranty on workmanship and building materials. The subcontractors who perform most of the actual construction also provide us with warranties on workmanship and are generally prepared to respond to us and the homeowner promptly upon request. In most cases, we supplement our one-year warranty by purchasing a ten-year limited warranty from a third party. To cover our potential warranty obligations, we accrue an estimated amount for future warranty costs.
Customer Financing
We provide mortgage financing services principally to purchasers of homes we build and sell. CH Mortgage, a wholly-owned subsidiary, provides mortgage banking services in Arizona, Colorado, Florida, Georgia, Illinois, Maryland, Minnesota, Nevada, New Mexico, North and South Carolina, Oregon and Texas. D.R. Horton Mortgage Company, Ltd., a joint venture formed in 1998 with a third party, presently provides services in California. On a combined basis, our mortgage banking entities provided mortgage financing services for about 51% of the homes closed during the year ended September 30, 2000 in the markets served. We anticipate expanding these mortgage activities to other markets in which we conduct homebuilding operations.
In other markets where we currently do not provide mortgage financing, we work with a variety of mortgage lenders that make available to home buyers a range of conventional mortgage financing programs. By making information about these programs available to prospective home buyers and maintaining a relationship with such mortgage lenders, we are able to coordinate and expedite the entire sales transaction by ensuring that mortgage commitments are received and that closings take place on a timely and efficient basis.
Title Services
Through our subsidiaries, Century Title, Custom Title, DRH Title Company of Texas, Ltd., DRH Title Company of Florida, Inc., DRH Title Company of Minnesota, Inc., Metro Title Company and Travis County Title Company, we serve as a title insurance agent by providing title insurance policies and closing services to purchasers of homes we build in the Dallas/Fort Worth, Austin, Orlando, Minneapolis, Phoenix, San Antonio, South Florida and suburban Washington, D.C. markets. We assume no underwriting risk associated with these title policies.
Employees
At September 30, 2000, we employed 3,631 persons, of whom 970 were sales and marketing personnel, 1,100 were executive, administrative and clerical personnel, 1,104 were involved in construction, and 457 worked in mortgage and title operations. Fewer than 20 of our employees are covered by collective bargaining agreements. Some of the subcontractors which we use are represented by labor unions or are subject to collective bargaining agreements. We believe that our relations with our employees and subcontractors are good.
Competition
The single family residential housing industry is highly competitive and we compete in each of our markets with numerous other national, regional and local homebuilders, often with larger subdivisions designed, planned and developed by such homebuilders. Our homes compete on the basis of quality, price, design, mortgage financing terms and location.
Governmental Regulation and Environmental Matters
The housing, mortgage and title insurance industries are subject to extensive and complex regulations. We and our subcontractors must comply with various federal, state and local laws and regulations, including zoning, density and development requirements, building, environmental, advertising and consumer credit rules and regulations, as well as other rules and regulations in connection with our development, homebuilding, sales and financial services activities. These include requirements affecting the development process, as well as building materials to be used, building designs and minimum elevation of properties. Our homes are inspected by local authorities where required, and homes eligible for insurance or guarantees provided by the FHA and VA are subject to inspection by them. These regulations often provide broad discretion to the administering governmental authorities. This can delay or increase the cost of development or homebuilding.
We also are subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning protection of health and the environment. The particular environmental laws for each site vary greatly according to location, environmental condition and the present and former uses of the site and adjoining properties. These environmental laws may result in delays, may cause us to incur substantial compliance and other costs, and can prohibit or severely restrict development and homebuilding activity in certain environmentally sensitive regions or areas.
Our internal mortgage activities and title insurance agencies must also comply with various federal and state laws, consumer credit rules and regulations and other rules and regulations unique to such activities. Additionally, mortgage loans and title activities originated under the FHA, VA, FNMA and GNMA are subject to rules and regulations imposed by those agencies.
ITEM 2.
ITEM 2. PROPERTIES
We own a 52,000 square foot office complex, consisting of three single- story buildings of steel and brick construction, located in Arlington, Texas, that serves as the principal executive offices and houses two of the Dallas/Fort Worth divisions. We also lease approximately 333,072 square feet of space for our operating divisions under leases expiring between November 2000 and June 2006.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We are a party to routine litigation incidental to our business. Such matters, if decided adversely to us, would not, in the opinion of management, have a material adverse effect upon our financial condition.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock (the "Common Stock") is listed on the New York Stock Exchange under the symbol "DHI". The following table shows the high and low sales prices for the Common Stock for the periods indicated, as reported by the NYSE, adjusted for the 9% stock dividend of September 29, 2000.
As of November 30, 2000, the closing price was $18.56, and there were approximately 338 holders of record. We have declared quarterly cash dividends of three cents per share for fiscal 1999 and four cents per share for fiscal 2000.
The declaration of 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 general financial condition and general business conditions. We are required to comply with certain covenants contained in the bank agreements and Senior Note and Senior Subordinated Note indentures. The most restrictive of these requirements allows us to pay cash dividends on common stock in an amount, on a cumulative basis, not to exceed 50% of consolidated net income, as defined, subject to certain other adjustments. Pursuant to the most restrictive of these requirements, we had approximately $242.8 million available for the payment of dividends and the acquisition of our common stock at September 30, 2000.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data are derived from our Consolidated Financial Statements. The data should be read in conjunction with the Consolidated Financial Statements, related Notes thereto and other financial data elsewhere herein. These historical results are not necessarily indicative of the results to be expected in the future.
- -------- (1) See Note C to the audited financial statements for details concerning acquisitions by the Company.
(2) On April 20, 1998, Horton and Continental consummated a merger pursuant to which Continental was merged into the Company, with 2.25 shares of the Company common shares being exchanged for each outstanding share of Continental. Approximately 15.5 million Horton common shares were issued to effect the merger. The merger with Continental was treated as a pooling of interests for accounting purposes. Therefore, all financial amounts have been restated as if Continental and the Company had been combined throughout the periods presented.
Prior to the merger, Continental had a fiscal year end of May 31. Accordingly, the Continental consolidated balance sheet as of May 31, 1996 has been combined with the Company's balance sheet as of September 30, 1996. The related Continental statements of income, stockholders' equity and cash flows for the fiscal year ended May 31, 1996 have been combined with the Company's statements of income, stockholders' equity and cash flows for the fiscal year ended September 30, 1996, respectively. Continental's balance sheet and the related statements of income, stockholders' equity and cash flows have been restated to conform to the Company's fiscal year end of September 30, 1997.
As permitted by regulations of the Securities and Exchange Commission, Continental's four-month period ended September 30, 1996 has been omitted from the financial statements. Continental's revenues, cost of sales, income before taxes and net income for this four month period were $234.4 million, $191.6 million, $18.8 million and $11.2 million, respectively.
(3) Cash dividends per common share represent those dividends declared to D.R. Horton, Inc. shareholders, unadjusted for the merger.
(4) In fiscal 1998, net income includes the net effect of a $7.1 million, net of tax, provision for costs associated with the merger with Continental. The earnings per share effects were $0.12 basic and $0.10 diluted.
(5) All basic and diluted net income per share amounts have been restated to reflect the effects of the September 29, 2000 9% stock dividend.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS--CONSOLIDATED
D.R. Horton, Inc. and subsidiaries (the "Company") provide homebuilding activities in 23 states and 39 markets through its 46 homebuilding divisions. Through its financial services activities, the Company also provides mortgage banking and title agency services in many of these same markets.
On April 20, 1998, D.R. Horton, Inc. ("Horton") acquired Continental Homes Holding Corp. ("Continental"), a geographically diversified homebuilder, through the merger of Continental into Horton (the "Merger"). In the Merger, Horton issued approximately 15.5 million shares of its common stock, and Continental's outstanding convertible securities and options became convertible into or exercisable for an additional approximately 8.2 million shares. The Merger was accounted for as a pooling of interests. Accordingly, Horton's financial information for prior periods has been restated to show the combined results of Horton and Continental. In the description of business that follows, the business of Continental has been combined with Horton as though Continental had been a part of Horton throughout the periods described.
Year Ended September 30, 2000 Compared to Year Ended September 30, 1999
Consolidated revenues increased 15.8%, to $3,653.7 million in 2000 from $3,156.2 million in 1999, due to increases in both home and land/lot sales revenues, as well as financial services revenues.
Income before income taxes increased 17.2%, to $309.2 million in 2000 from $263.8 million in 1999. As a percentage of revenues, income before income taxes increased 0.1%, to 8.5%, from 8.4% in 1999, primarily due to an increase in homebuilding gross profit as a percentage of revenues.
The consolidated provision for income taxes increased 13.0%, to $117.5 million in 2000, from $104.0 million in 1999, primarily due to the corresponding increase in income before income taxes. The effective income tax rate decreased 1.4%, to 38.0% in 2000, from 39.4% in 1999, primarily due to changes in the estimated overall effective state income tax rate.
Year Ended September 30, 1999 Compared to Year Ended September 30, 1998
Consolidated revenues increased 45.0%, to $3,156.2 million in 1999 from $2,176.9 million in 1998 due to increases in both home and land/lot sales revenues as well as financial services revenues.
Excluding the nonrecurring merger costs in 1998, income before income taxes increased 54.3% to $263.8 million in 1999 from $171.0 million in 1998. As a percentage of revenues, income before income taxes increased 0.5%, to 8.4%, from 7.9% in 1998 primarily due to the overall reduction in selling, general and administrative expenses as a percentage of revenues.
The consolidated provision for income taxes increased 58.2%, to $104.0 million in 1999, from $65.7 million in 1998, due to the corresponding increase in income before income taxes. The effective income tax rate was down 1.9% to 39.4% in 1999, compared to 41.3% in 1998, due primarily to the non- deductibility of certain merger costs in 1998.
RESULTS OF OPERATIONS--HOMEBUILDING
The following tables set forth certain operating and financial data for the Company's homebuilding activities:
Homes Closed
The Company's market regions consist of the following markets:
Mid-Atlantic Charleston, Charlotte, Columbia, Greensboro, Greenville, Hilton Head, Myrtle Beach, New Jersey, Newport News, Raleigh/Durham, Richmond, Suburban Washington D.C. and Wilmington Midwest Chicago, Cincinnati, Louisville, Minneapolis/St. Paul, and St. Louis Southeast Atlanta, Birmingham, Jacksonville, Nashville, Orlando, and South Florida Southwest Albuquerque, Austin, Dallas/Fort Worth, Houston, Killeen, Phoenix, San Antonio and Tucson West Denver, Las Vegas, Los Angeles, Portland, Sacramento, Salt Lake City and San Diego
Year Ended September 30, 2000 Compared to Year Ended September 30, 1999
Revenues from homebuilding activities (including land/lot sales) increased 15.6%, to $3,604.2 million (19,144 homes closed) in 2000, from $3,119.0 million (18,395 homes closed) in 1999. Revenues from home sales increased in all of the Company's market regions, with percentage increases ranging from 8.5% in the Southeast region to 28.7% in the Midwest region. The increases in both revenues and homes closed were due to strong housing demand and the increases attributable to the acquisition of Cambridge Homes in January 1999. In markets where the Company operated throughout both twelve-month periods, home sales revenues increased by 12.3%, to $3,426.6 million, and the number of homes closed increased 2.4%, to 18,826 homes.
The average selling price of homes closed during 2000 was $182,600, up 9.9% from $166,100 in 1999. The increase in average selling price was due to changes in the mix of homes closed and, with the strong housing demand, the Company's ability to sell more custom features with its homes and to raise prices to cover increased costs.
The value of new net sales contracts increased 12.6%, to $3,676.4 million (19,223 homes) in 2000, from $3,266.2 million (18,911 homes) in 1999. The value of new net sales contracts increased in four of the Company's five market regions, with percentage increases ranging from 0.5% in the Midwest to 35.4% in the West. The value of new net sales contracts declined 4.3% in the Mid-Atlantic region. The overall increase in the value of new net sales contracts was due in part to sales achieved by Cambridge Homes, acquired in January 1999. In markets where the Company operated throughout both fiscal years, the value of new net sales contracts increased 10.6%, to $3,607.7 million, and the number of new net sales contracts increased 0.4%, to 18,976 homes. The average price of a new net sales contract in 2000 was $191,300, up 10.8% over the $172,700 average in 1999. The increase in average selling price was due to changes in the mix of homes closed and, with the strong housing demand, the Company's ability to sell more custom features with its homes and to raise prices to cover increased costs.
At September 30, 2000, the Company's backlog of sales contracts was $1,536.9 million (7,388 homes), up 13.3% from the comparable amount at September 30, 1999. The average sales price of homes in sales backlog was $208,000 at September 30, 2000, up 12.1% from the $185,600 average at September 30, 1999.
Cost of sales increased by 15.4%, to $2,941.1 million in 2000, from $2,548.5 million in 1999. The increase in cost of sales was primarily attributable to the increase in revenues. Cost of home sales as a percentage of home sales revenues declined 0.2%, to 81.4% in 2000, from 81.6% in 1999, as higher costs were more than offset by increased prices and savings achieved in our national purchasing program. Cost of land/lot sales decreased to 87.6% of land/lot sales revenues in 2000, from 88.2% in 1999. Total homebuilding cost of sales was 81.6% of total homebuilding revenue, down 0.1% from 81.7% in 1999.
Selling, general and administrative (SG&A) expenses from homebuilding activities increased by 16.4%, to $360.4 million in 2000, from $309.6 million in 1999. As a percentage of revenues, SG&A expenses increased to 10.0% in 2000, from 9.9% in 1999.
Interest expense associated with homebuilding activities decreased to $10.2 million in 2000, from $12.0 million in 1999. As a percentage of homebuilding revenues, homebuilding interest expense decreased to
0.3% in 2000, from 0.4% in 1999. Throughout 2000, inventory under construction or development grew at a more rapid pace than interest-bearing debt. Therefore, a larger proportion of total interest incurred was capitalized to inventory than in 1999. The Company follows a policy of capitalizing interest only on inventory under construction or development. During both periods, we expensed the portion of incurred interest and other financing costs which could not be charged to inventory. Capitalized interest and other financing costs are included in cost of sales at the time of home closings.
Year Ended September 30, 1999 Compared to Year Ended September 30, 1998
Revenues from homebuilding activities (including land/lot sales) increased 44.7%, to $3,119.0 million (18,395 homes closed) in 1999, from $2,155.0 million (13,944 homes closed) in 1998. Revenues from home sales increased in all of the Company's market regions, with percentage increases ranging from 11.4% in the Southeast region to 162.5% in the Midwest region. The increases in both revenues and homes closed were due to strong housing demand, the Company's entrance into new markets, and the increases attributable to the acquisition of Cambridge Homes (January, 1999); C. Richard Dobson Builders, Inc. (February, 1998); Mareli Development & Construction Co. (May, 1998); and RMP Development, Inc. (June, 1998). In markets where the Company operated during both fiscal years, homebuilding revenues increased by 32.9%, to $2,828.1 million (17,206 homes closed).
The average selling price of homes closed during 1999 was $166,100, up 8.3% from $153,300 in 1998. The increase in average selling price was due to changes in the mix of homes closed and increased selling prices.
The value of new net sales contracts increased 28.9%, to $3,266.2 million (18,911 homes) in 1999, from $2,533.2 million (15,952 homes) in 1998. The value of new net sales contracts increased in all of the Company's market regions, with increases ranging from 14.5% in the Southeast region to 145.9% in the Midwest region. The overall increase in the value of new net sales contracts was due in part to sales achieved by Cambridge and the 1998 acquisitions, while the value of new net sales contracts increased 15.9%, to $2,935.3 million, in markets where the Company operated in both periods. The average price of a new net sales contract in 1999 was $172,700, up 8.8% over the $158,800 average in 1998. This increase was due to changes in the mix of homes sold and increased selling prices.
At September 30, 1999, the Company's backlog of sales contracts was $1,356.5 million (7,309 homes), up 28.8% from the comparable amount at September 30, 1998. In markets in which the Company operated during both fiscal years, the sales contract backlog was $1,195.4 million (6,585 homes), up 11.4% from 1998. The average sales price of homes in sales backlog was $185,600 at September 30, 1999, up 11.8% from the $166,000 average at September 30, 1998.
Cost of sales increased by 44.8%, to $2,548.5 million in 1999, from $1,760.1 million in 1998. The increase in cost of sales was primarily attributable to the increase in revenues. Cost of home sales as a percentage of home sales revenues was at 81.6% for both years. The application of purchase accounting to homes acquired in the Cambridge acquisition, and closed subsequent to the acquisition, caused an $8.4 million increase (0.3% of revenues) in cost of goods sold for the year. Cost of land/lot sales decreased to 88.2% of land/lot sales revenues in 1999, from 94.2% in 1998. Total homebuilding cost of sales was 81.7% of total homebuilding revenues in both years.
Selling, general and administrative (SG&A) expenses from homebuilding activities increased by 39.5%, to $309.6 million in 1999, from $221.9 million in 1998. As a percentage of revenues, SG&A expenses decreased to 9.9% in 1999, from 10.3% in 1998. The decrease in SG&A expenses as a percentage of revenue is primarily due to the Company's cost containment efforts and the increased revenues that absorb the fixed elements of overhead. Included in SG&A expenses in 1999, is a $5.2 million charge (0.2% of revenues) for severance benefits associated with former Continental executives.
Interest expense associated with homebuilding activities decreased to $12.0 million in 1999, from $14.0 million in 1998. As a percentage of homebuilding revenues, interest expense decreased to 0.4% in 1999, from
0.7% in 1998. The decrease in homebuilding interest expense resulted from a slightly lower overall homebuilding effective interest rate in 1999, due to the peak usage of the variable rate revolving line of credit facility coinciding with the mid-year trough in the floating rate to which it is tied. Homebuilding interest expense also declined due to the growth in active inventory outpacing the growth in interest-bearing debt. That permitted us to capitalize relatively higher amounts of incurred interest during 1999. The Company follows a policy of capitalizing interest only on inventory under construction or development. During 1999 and 1998, we expensed the portion of incurred interest and other financing costs which could not be charged to inventory. Capitalized interest and other financing costs are included in cost of sales at the time of home closings.
RESULTS OF OPERATIONS--FINANCIAL SERVICES
Financial services include mortgage financing and title insurance agency and closing services, primarily related to purchases of homes built and sold by the Company. Mortgage services are provided in Arizona, California, Colorado, Florida, Georgia, Illinois, Maryland, Minnesota, Nevada, New Mexico, North and South Carolina, Oregon and Texas. Title agency and closing services are provided in Arizona, Florida, Maryland, Minnesota, Texas and Virginia. The following table summarizes financial and other information for the Company's financial services operations:
Year Ended September 30, 2000 Compared to Year Ended September 30, 1999
Revenues from the financial services segment increased 32.9%, to $49.5 million in 2000, from $37.3 million in 1999. The increase in financial services revenues was due to the rapid expansion of the Company's mortgage loan and title services provided to customers of the Company's homebuilding segment. These activities are being expanded to additional markets served by the homebuilding segment. General and administrative expenses associated with financial services increased 43.5%, to $35.5 million in 2000, from $24.7 million in 1999. As a percentage of financial services revenues, general and administrative expenses increased by 5.3%, to 71.6% in 2000, from 66.3% in 1999, due primarily to 2000 startup expenses in new markets with limited revenues.
Year Ended September 30, 1999 Compared to Year Ended September 30, 1998
Revenues from financial services operations increased 70.2% to $37.3 million in 1999 from $21.9 million in 1998. The increase in financial services revenues was due to the rapid expansion of the Company's title agency and mortgage loan services provided to the Company's homebuilding customers. Accordingly, general and administrative expenses associated with financial services increased 62.1%, to $24.7 million in 1999 from $15.2 million in 1998. As a percentage of financial services revenues, general and administrative expenses decreased by 3.3% to 66.3% in 1999 from 69.6% in 1998, due primarily to higher than normal 1998 startup expenses in new markets.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had available cash and cash equivalents of $72.5 million. Inventories (including finished homes, construction in progress, and developed residential lots and other land) at September 30, 2000, had increased by $324.9 million from September 30, 1999, due to a general increase in business activity and the expansion of operations in the Company's market areas. The inventory increase was financed largely by issuing senior notes and retaining earnings. The revolving credit facility was reduced by $203 million during fiscal 2000. As a result, the Company's ratio of homebuilding notes payable to total capital at September 30, 2000, decreased 1.5% to 56.2%, from 57.7% at September 30, 1999. The stockholders' equity to total assets ratio increased 2.2%, to 36.0% at September 30, 2000, from 33.8% at September 30, 1999.
The Company has an $825 million, unsecured revolving credit facility, consisting of a $775 million four-year revolving loan and a $50 million four- year letter of credit facility that matures in fiscal 2002. Additionally, the Company has another $25 million standby letter of credit agreement and a $10.9 million non-renewable letter of credit facility. At September 30, 2000, the Company had outstanding homebuilding debt of $1,245.6 million, of which $192 million represented advances under the revolving credit facility. Under the debt covenants associated with the revolving credit facility, at September 30, 2000, the Company had additional homebuilding borrowing capacity of $583 million. The Company has entered into multi-year interest rate swap agreements, aggregating $200 million, that fix the interest rate on a portion of the variable rate revolving credit facility. An additional interest rate swap agreement, with a notional amount of $148.5 million, was entered into in December 1999. This agreement has the effect of converting part of the Company's fixed rate debt to a variable rate, which is currently less than the related fixed rate, and helps re-establish the Company's balance of fixed and variable rate debt at historical levels.
During March and June 2000, under an existing universal shelf registration statement, the Company issued $200 million aggregate principal amount of 10 1/2% Senior Notes, due 2005. During September 2000, the Company issued $150 million aggregate principal amount of 9 3/4% Senior Subordinated Notes due 2010. The proceeds of the notes were used to repay outstanding debt under our revolving credit facility and for general corporate purposes. The Company has $250 million remaining on its currently effective universal shelf registration statement, which facilitates access to the capital markets.
At September 30, 2000, the financial services segment has mortgage loans held for sale of $119.6 million and loan commitments for $75.6 million at fixed rates. The Company hedges the interest rate market risk on these mortgage loans held for sale and loan commitments through the use of best- efforts whole loan delivery commitments, mandatory forward commitments to sell mortgage-backed securities and the purchase of options on financial instruments.
The financial services segment has a $175 million, one-year bank warehouse facility that is secured by mortgage loans held for sale. The warehouse facility is not guaranteed by the parent company. As of September 30, 2000, $98.8 million had been drawn under this facility. In the future, it is anticipated that all mortgage company activities will be financed under the warehouse facility.
The Company's rapid growth and acquisition strategy require significant amounts of cash. It is anticipated that future home construction, lot and land purchases and acquisitions will be funded through internally generated funds and existing credit facilities. Additionally, an effective shelf registration contains about 7.4 million shares of common stock issuable to effect, in whole or in part, possible future acquisitions. In the future, the Company intends to maintain effective shelf registration statements that would facilitate access to the capital markets.
During fiscal 2000, the Company's Board of Directors declared one quarterly cash dividend of $0.03 per common share and three quarterly cash dividends of $0.04 per common share, the last of which was paid on August 25, 2000.
In November 1998, the Company's Board of Directors approved stock and debt repurchase programs for up to $100 million each. These programs are intended to allow the Company to repurchase securities at attractive prices should favorable market conditions occur. During the fiscal year 2000, the Company repurchased in the
open market $14.5 million of its common stock, or 1,104,900 shares at an average cost of $13.16. At September 30, 2000, the Company had repurchased $36.9 million of its common stock, or 2,589,200 shares.
In July 1999, the Company formed GP-Encore, Inc. and Encore II, Inc., which have since entered into three separate limited partnership agreements with the purpose of investing in start-up and emerging growth companies whose technology and business plans will permit the Company to leverage its size, expertise and customer base in the homebuilding industry. The Company has authorized investments of up to $125 million through these limited partnerships over the next four years. These investments will be concentrated primarily in e-commerce businesses that serve the homebuilding, real estate and financial services industries, as well as in strategic opportunities that allow for diversification of the Company's operations. As of September 30, 2000, the Company had made such investments totaling $29.3 million, which are reported in homebuilding other assets.
Except for ordinary expenditures for the construction of homes, the acquisition of land and lots for development and sale of homes, at September 30, 2000, the Company had no material commitments for capital expenditures.
INFLATION
The Company and the homebuilding industry in general, may be adversely affected during periods of high inflation, primarily because of higher land and construction costs. Inflation also increases the Company's financing, labor and material costs. In addition, higher mortgage interest rates significantly affect the affordability of permanent mortgage financing to prospective homebuyers. The Company attempts to pass through to its customers any increases in its costs through increased sales prices and, to date, inflation has not had a material adverse effect on the Company's results of operations. However, there is no assurance that inflation will not have a material adverse impact on the Company's future results of operations.
SAFE HARBOR STATEMENT
Certain statements contained in this report, as well as in other materials we have filed or will file with the Securities and Exchange Commission, statements made by us in periodic press releases and oral statements made by Company officials to analysts, stockholders and the press in the course of presentations about the Company, may be construed as "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Any or all of the forward-looking statements included in this report and in any other reports or public statements of the Company may turn out to be inaccurate due to known or unknown risks and uncertainties. As a result, actual results may differ materially from the results discussed in and anticipated by the forward-looking statements. The following cautionary discussion of risks and uncertainties relevant to our business includes factors we believe could adversely affect us. Other factors beyond those listed below could also adversely affect us.
. General Economic, Real Estate and Other Conditions--The homebuilding industry is cyclical and is significantly affected by changes in general and local economic conditions, such as employment levels, availability of financing for home buyers, interest rates, consumer confidence and housing demand. Any oversupply of alternatives to new homes, such as rental properties and used homes, could depress new home prices and reduce our margins on the sale of new homes. Homebuilders are also subject to risks related to the availability and cost of land suitable for homebuilding, the availability and cost of materials and labor, adverse weather conditions which can cause delays in construction schedules and cost overruns.
. Increases in Interest Rates or Decreases in Mortgage Availability-- Virtually all of our customers finance their homes through lenders providing mortgage financing. Any future increases in interest rates or decreases in the availability of mortgage financing could depress the market for new homes by making our homes less affordable.
. Governmental Regulations and Environmental Matters--We are subject to extensive and complex regulations that affect the development and homebuilding process, including zoning, density and building standards. Such regulations often provide broad discretion to the administering governmental authorities. This can delay or increase the costs of development or homebuilding. Laws and regulations relating to the protection of the environment can cause delays, increased costs of compliance and prohibitions or restrictions of development and homebuilding activity in environmentally sensitive areas.
. Substantial Debt--We have a significant amount of debt. The amount of our debt could limit our ability to obtain future financing for working capital, capital expenditures, acquisitions, debt service requirements or other requirements. It could also limit our flexibility in planning for, or reacting to, changes in our business and make us more vulnerable in the event of a downturn in our business or in general economic conditions.
. Competitive Conditions--The homebuilding industry is very competitive. In each of the markets we serve, we compete with other homebuilders for home buyers, desirable properties, financing, raw materials and skilled labor. Competitive conditions in the homebuilding industry could result in difficulty in acquiring suitable land at acceptable prices, the need for increased selling incentives, lower sales or delays in construction.
. Availability of Capital--Our ability to grow our business and operations profitably is substantially dependent upon our ability to obtain capital from the sale of equity or debt or additional bank borrowings. Increases in interest rates, changes in our debt ratings by the national credit rating agencies, concerns by potential investors about the market or the economy, changing lending objectives of financial institutions, or further consolidation of financial institutions that lend to the homebuilding industry could increase our costs of borrowing or reduce the availability of funds necessary for us to achieve our strategic growth objectives. Moreover, the indentures for our outstanding debt contain provisions that may restrict the debt we may incur in the future.
. Growth Strategies--Since 1993, we have acquired and successfully integrated many homebuilding companies. In the future, we may acquire additional companies. Our prospects may be affected by our ability to successfully identify and integrate future acquisitions. Our prospects may also be affected by our ability to implement successfully our growth strategies in the markets we currently serve.
. Diversification Efforts--Our prospects may be affected by the results of our investments in e-commerce and technology initiatives related to homebuilding.
We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate risk on its long term debt. The Company manages its exposure to changes in interest rates by optimizing the use of variable and fixed rate debt. In addition, the Company hedges its exposure to changes in interest rates on its variable rate bank debt by entering into interest rate swap agreements to lock in a fixed interest rate for a portion of these borrowings. Finally, in order to maintain a more appropriate balance of variable and fixed rate debt, the Company entered into an interest rate swap agreement exchanging a fixed rate interest payment for a variable rate payment on a notional amount equal to the $148.5 million principal amount of the 10% Senior Notes due 2006. The variable payment for which the Company is obligated is fixed through the 10% Senior Notes' first call date, April 15, 2001, and will ensure that the Company will have received a net amount of $2.3 million as of that date. Thereafter, the variable payment will be made through the 10% Senior Notes's maturity, April 15, 2006, and will be based upon the 90-day LIBOR rate, plus 2.745%.
In connection with the Financial Services segment, mortgage loans held for sale and the associated warehouse line are subject to interest rate risk. The Company uses forward commitments to manage this interest rate risk. However, all the financial services segment's obligations are short-term in duration and repriced frequently. Accordingly, the Company does not believe that the risks associated with this segment's financing activities are material.
The following table sets forth, as of September 30, 2000, the Company's long term debt obligations, principal cash flows by scheduled maturity, weighted average interest rates and estimated fair market value. In addition, the table sets forth the notional amounts and weighted average interest rates of the Company's interest rate swaps.
- -------- * - 8.745% until April 15, 2001; 90-day LIBOR + 2.745% thereafter
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
The Board of Directors D.R. Horton, Inc.
We have audited the accompanying consolidated balance sheets of D.R. Horton, Inc. and subsidiaries as of September 30, 2000 and 1999, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of D.R. Horton, Inc. and subsidiaries at September 30, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young Fort Worth, Texas November 9, 2000
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See accompanying notes to consolidated financial statements
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
See accompanying notes to consolidated financial statements.
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
See accompanying notes to consolidated financial statements
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying notes to consolidated financial statements
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business: D. R. Horton, Inc. (the Company) is a national builder that is engaged primarily in the construction and sale of single-family housing in 39 markets and 23 states in the United States. The Company designs, builds and sells single-family houses on lots developed by the Company and on finished lots which it purchases, ready for home construction. Periodically, the Company sells lots it has developed. The Company also provides title agency and mortgage brokerage services to its homebuyers. The Company does not retain or service the mortgages that it originates but, rather, sells the mortgages and related servicing rights to investors.
Merger: On April 20, 1998, the Company and Continental Homes Holding Corp. (Continental) consummated a merger pursuant to which Continental was merged into the Company, with 2.25 shares of the Company common shares exchanged for each outstanding share of Continental. Approximately 15,459,500 of Company common shares were issued to effect the merger. The merger with Continental was treated as a pooling of interests for accounting purposes. Therefore, all financial amounts have been presented as if Continental and the Company had been combined at the earliest period presented.
Continental's statements of income, stockholders' equity and cash flows have been restated to conform to the Company's fiscal year end of September 30, 1997. The results of operations for the separate companies prior to combination and the combined amounts presented in the consolidated financial statements are (in thousands):
Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
Accounting principles: The preparation of financial statements in accordance with generally accepted accounting principles 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.
Cash: The Company considers all highly liquid investments with an initial maturity of three months or less when purchased to be cash equivalents. Amounts in transit from title companies for home closings are included in cash.
Cost of sales: Cost of sales includes home warranty costs, purchased discounts for customer financing, and sales commissions paid to third parties.
Excess of cost over net assets acquired: The excess of amounts paid for business acquisitions over the net fair value of the assets acquired and liabilities assumed is amortized using the straight-line method over the estimated benefit period, ranging from ten to twenty years. Additional consideration paid in subsequent periods under the terms of purchase agreements are included as acquisition costs. Amortization expense was $3,427,000, $9,481,000 and $8,193,000 in fiscal 1998, 1999 and 2000, respectively. Accumulated amortization was $21,116,000 and $29,309,000 at September 30, 1999 and 2000, respectively.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Impairment of intangible assets is reviewed annually or when events and circumstances warrant an earlier review. Impairment is determined when estimated future undiscounted cash flows associated with an intangible asset are less than the asset's carrying value.
Interest: The Company capitalizes interest during development and construction. Capitalized interest is charged to cost of sales as the related inventory is delivered to the home buyer. Interest costs are (in thousands):
Inventories: Finished inventories are stated at the lower of accumulated cost or fair value less costs to sell. Inventories under development or held for development are stated at accumulated costs, unless such costs would not be recovered from the cash flows generated by future disposition. In this instance, such inventories are measured at fair value, less costs of disposal.
Sold units are expensed on a specific identification basis as cost of sales. Included in inventories are related interest and property taxes which are capitalized in inventory during the development and construction periods. Residential lots are transferred to construction in progress when building permits are requested. Land and development costs are allocated to individual lots on a prorata basis.
Reclassifications: Certain prior year amounts have been reclassified to conform to the current year presentation.
Minority interest: The Company has a joint venture arrangement on a land project whereby the Company is entitled to 55% of the profits and/or losses and is the managing partner. The financial position and results of operations of the joint venture are consolidated for financial statement purposes and the partners' equity position is disclosed as a minority interest.
Property and equipment: Property and equipment, including model home furniture, are stated on the basis of cost. Major renewals and improvements are capitalized. Repairs and maintenance are expensed as incurred. Depreciation generally is provided using the straight-line method over the estimated useful life of the asset. Accumulated depreciation was $30,563,000 and $38,285,000 as of September 30, 1999 and 2000, respectively.
Revenue recognition: Revenue is recognized at the time of the closing of a sale, when title to and possession of the property transfer to the buyer.
Advertising cost: The Company expenses advertising costs as they are incurred. Advertising expense was approximately $13,077,000, $22,182,000, and $24,043,000 in fiscal 1998, 1999, and 2000, respectively.
Earnings per share: Basic earnings per share is based upon the weighted average number of shares of common stock outstanding during each year.
Diluted earnings per share is based upon the weighted average number of shares of common stock outstanding during each year, adjusted for the effects of dilutive securities. Per share information has been restated for the effect of the 9% stock dividend issued in September, 2000.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the computation of basic and diluted earnings per share (in thousands):
Options to purchase 1,703,000 and 1,425,000 shares of common stock at various prices were outstanding during 1999 and 2000, respectively, but were not included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common shares and, therefore, their effect would be antidilutive.
Segment information: Effective September 30, 1999, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS 131 establishes new standards for segment reporting which is based on the way management organizes segments within a company for making operating decisions and assessing performance.
The Company's financial reporting segments consist of homebuilding and financial services. The Company's homebuilding operations comprise the most substantial part of its business, with approximately 99% of consolidated revenues in fiscal 1998, 1999 and 2000. The homebuilding operations segment generates the majority of its revenues from the sale of completed homes with a lesser amount from the sale of land and lots. The financial services segment generates its revenues from originating and selling mortgages and collecting fees for title insurance agency and closing services. Expenditures for long- lived assets and depreciation and amortization related to the financial services segment for the years ended September 30, 1998, 1999 and 2000 were not significant.
The accounting policies of the reportable segments are described throughout this note. Assets, revenues and operating income of the Company's reportable segments are included in the consolidated balance sheets and consolidated statements of income.
Mortgage loans: Mortgage loans held for sale are reported net of discounts and are stated at the lower of cost or market as determined in the aggregate, based on sale commitments or current market quotes, net of any unrealized market gains or losses on related hedge instruments. Any gain or loss on the sale of loans is recognized at the time of sale. Loan origination fees, net of the related direct origination costs, are deferred as an adjustment to the carrying value of the related mortgage loans held for sale and are recognized in income upon the sale of the mortgage loans.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Loan commitments: To meet the financing needs of its customers, the Company is party to commitments to extend credit at fixed rates. These loan commitments have no carrying value on the balance sheet and expose the Company to market risk as a result of increases in mortgage interest rates. These risks are managed by the Company's hedging activities described below. At September 30, 1999 and 2000, the Company had loan commitments of $103.0 million and $75.6 million, respectively.
Financial services hedging strategy: The Company manages its interest rate market risk on mortgage loans held for sale and its estimated future commitments to originate and close mortgage loans at fixed prices through the use of best-efforts whole loan delivery commitments, mandatory forward commitments to sell mortgage-backed securities and the purchase of options on financial instruments. The Company estimates the portion of the locked mortgage loan pipeline that is expected to close in order to determine the amount of hedging instruments. These hedging instruments are intended and effective as hedges for interest rate market risk on mortgage loans held for sale and estimated future commitments. Accordingly, gains and losses are deferred until ultimate disposition of the contract. As of September 30, 1999 and 2000, the Company had approximately $104.0 million and $118.3 million, respectively, of mandatory forward commitments outstanding and no options on financial instruments outstanding.
Long-lived assets: Impairment of long-lived assets is reviewed annually or when events and circumstances warrant an earlier review. In accordance with SFAS No. 121, impairment is determined when estimated future undiscounted cash flows associated with an asset are less than the asset's carrying value.
Stock-based compensation: The Company may, with the approval of its Board of Directors, grant stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly, recognizes no compensation expense for the stock option grants. The Company has adopted the disclosure-only provisions as specified by SFAS No. 123, "Accounting for Stock-Based Compensation."
Impact of recently issued accounting standards: SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued in June 1998. This statement addresses the accounting for and disclosure of derivative instruments, including derivative instruments imbedded in other contracts (collectively referred to as "derivatives"), and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the consolidated balance sheet and measure those instruments at fair value. SFAS No. 137 was issued in June 1999 delaying the implementation of SFAS 133 until fiscal 2001. Management has analyzed the implementation requirements and does not anticipate that the adoption of the new statement will have a significant effect on earnings or the financial position of the Company.
NOTE B--NOTES PAYABLE
In April 1999, the Company filed a universal shelf registration statement with the Securities and Exchange Commission for up to $600 million of the Company's debt and equity securities. The universal shelf registration provides that securities may be offered from time to time in one or more series and in the form of senior, senior subordinated or subordinated debt, preferred stock and/or common stock. The Company has $250 million remaining available on its currently effective universal shelf registration statement.
Homebuilding:
The Company has an $825 million unsecured revolving bank credit facility, consisting of a $775 million four-year revolving loan and a $50 million four- year letter of credit facility that matures in April 2002. Borrowings bear daily interest at rates based upon federal funds or the London Interbank Offered Rate (LIBOR) plus a spread based upon the Company's ratio of debt to tangible net worth. In addition to the stated interest
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
rates, the revolving credit facility requires the Company to pay certain fees. Under the debt covenants associated with the revolving credit facility, at September 30, 2000, the Company had additional borrowing capacity of $583 million. The Company also has a supplemental $25 million facility with the same maturity for use as standby letters of credit and a $10.9 million non-renewable letter of credit facility. The average interest rates of the unsecured bank debt at September 30, 1999 and 2000 were 6.3% and 7.4%, respectively.
In September 2000, the Company issued $150 million principal amount of 9 3/4% Senior Subordinated Notes. The Notes, which are due September 15, 2010, with interest payable semi-annually, represent unsecured obligations of the Company. The 9 3/4% Senior Subordinated Notes are not redeemable except that 33.3% of the amount originally issued can be redeemed with proceeds of a public equity offering by the Company at a redemption price of 109.75% through September 15, 2003. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs and discount, is 9.9%.
In March 2000, the Company issued $150 million principal amount of 10 1/2% Senior Notes due April 1, 2005. In June 2000, the Company issued an additional $50 million principal amount of its 10 1/2% Senior Notes due April 1, 2005. The notes bear interest payable semi-annually and represent unsecured obligations of the Company. The 10 1/2% Senior Notes are not redeemable except that 50% of the amount originally issued can be redeemed with proceeds of a public equity offering by the Company at a redemption price of 110.50% through April 1, 2003. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs and discount, is 10.9%.
In February 1999, the Company issued $385 million principal amount of 8% Senior Notes. The Notes, which are due February 1, 2009, with interest payable semi-annually, represent unsecured obligations of the Company. The 8% Senior Notes are not redeemable except that 35% of the amount originally issued can be redeemed with proceeds of a public equity offering by the Company at a redemption price of 108% through February 1, 2002. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs and discount, is 8.3%.
In June, 1997, the Company issued $150 million principal amount of 8 3/8% Senior Notes. The Notes, which are due June 15, 2004, with interest payable semi-annually, represent unsecured obligations of the Company. The 8 3/8% Senior Notes are not redeemable. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs and discount, is 8.7%.
In April 1996, the Company issued $130,000,000 principal amount of 10% Senior Notes due April 15, 2006. In January 1997, the Company issued an additional $20,000,000 principal amount of its 10% Senior Notes due April 15, 2006. The notes bear interest payable semi-annually and represent unsecured obligations of the Company. The 10% Senior Notes are redeemable at the option of the Company, in whole or in part, at any time on or after April 15, 2001, at redemption prices decreasing from 105%. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs and discount, is 10.2 %.
All series of Senior Notes are senior obligations of the Company and rank pari passu in right of payment to all existing and future unsecured indebtedness of the Company, and senior to all existing and future indebtedness expressly subordinated to them. The Senior Subordinated Notes rank behind all existing and future Senior Notes and bank credit facilities. Both the Senior and Senior Subordinated Notes are guaranteed by the majority of the Company's subsidiaries. Upon a change of control of the Company, holders of all series of the Notes have the right to require the Company to redeem such Notes at a price of 101% of the par amount, along with accrued and unpaid interest.
The indentures of the bank credit facilities and the Senior and Senior Subordinated Notes contain covenants which, taken together, limit investments in inventory, stock repurchases, cash dividends and other restricted payments, incurrence of indebtedness, asset dispositions and creation of liens, and require certain levels of tangible net worth. At September 30, 2000, these covenants limit the additional debt the Company could incur to
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$652.2 million. Additionally, cash dividends paid on the Company's common stock and other restricted payments are limited to an amount not to exceed, on a cumulative basis, 50% of consolidated net income, as defined, subject to certain other adjustments. Pursuant to the most restrictive of these requirements, the Company had approximately $242.8 million available for the payment of dividends and other restricted payments at September 30, 2000.
The Company uses interest rate swap agreements to help manage a portion of its interest rate exposure. The agreements convert a notional amount of $200 million from a variable rate to a fixed rate. These agreements are cancellable by a third party during periods where LIBOR exceeds 7%. The agreements expire at dates through September, 2008. The Company does not expect non-performance by the counter-party, a major U.S. bank, and any losses incurred in the event of non-performance are not expected to be material. Net payments or receipts under these agreements are recorded as adjustments to interest incurred. In December 1999, the Company entered an interest rate swap agreement to restore its balance of fixed and variable rate debt to historical levels. This agreement converts a notional amount of $148.5 million from a fixed to a variable rate. The Company receives 10% and pays 8.745% until April 15, 2001, and 90-day LIBOR plus 2.745% from then until the agreement matures on April 15, 2006. The agreement is cancellable by a third party anytime after April 15, 2001, if 90-day LIBOR is less than 7.255%. The Company does not expect non-performance by the counter-party, a major U.S. bank, and any losses in the event of non-performance are not expected to be material. As a result of these agreements, the Company incurred an additional net interest cost of $1.2 million in fiscal 1999 and a $3.6 million reduction of net interest costs in fiscal 2000.
In November 1998, the Company converted the remainder of its 6 7/8% convertible subordinated notes to 5.6 million shares of common stock.
Maturities of consolidated notes payable, assuming the revolving bank facility is not extended, are $117.1 million in 2001, $198.2 million in 2002, $151.1 million in 2004, $200.8 million in 2005 and $683.5 million thereafter.
Financial Services:
The Company has a $175 million mortgage warehouse line payable to financial institutions, secured by mortgage loans held for sale, maturing August 2001 at the Eurodollar rate plus 1%. These notes payable enable the Company's wholly- owned subsidiary, CH Mortgage Company I, Ltd. to perform its loan origination and warehousing functions. The interest rates of the mortgage warehouse line payable at September 30, 1999 and 2000 were 6.4% and 7.6%, respectively.
NOTE C--ACQUISITIONS
In fiscal 1998, 1999 and 2000, the Company made the following acquisitions:
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consideration includes cash paid and assumption of certain accounts payable and notes payable, which were repaid subsequent to the acquisitions. In addition, the Company issued 2,555,911 shares of common stock, valued at $55 million, as partial consideration for the acquisition of Cambridge Properties.
The Mareli Construction acquisition contains provisions for additional consideration to be paid annually for up to three years subsequent to the acquisition date. The additional consideration is based upon subsequent pretax income, adjusted for a preferential return to the Company. Such additional consideration will be recorded when paid as excess of cost over net assets acquired, which is amortized using the straight line method over the remaining amortization period for the related acquisition. All of the acquired companies are involved in homebuilding and land development except for Century Title, which conducts title agency services in Arizona. The Company has accounted for these acquisitions under the purchase method and has included the operations of the acquired businesses in its Consolidated Statements of Income since their acquisition.
The following unaudited pro forma summaries of combined operations were prepared to illustrate the estimated effects of the 1998 and 1999 acquisitions of Cambridge, Dobson, Mareli, and RMP as if such acquisitions had occurred on the first day of fiscal 1998. Pro forma information for 1999 is not significantly different from historical results and is not presented. The pro forma information should be read in conjunction with the historical financial statements and notes thereto. The pro forma financial information is provided for comparative purposes only and is not necessarily indicative of the results which would have been obtained if the acquisitions had been effected throughout the period. The pro forma financial information is based upon the purchase method of accounting.
NOTE D--STOCKHOLDERS' EQUITY
On September 7, 2000, the Board of Directors declared a 9% common stock dividend, payable on September 29, 2000, to stockholders of record on September 18, 2000. The dividend was accounted for based on the fair value of the Company's stock on the date of declaration.
The Company has a shelf registration statement with the Securities and Exchange Commission to issue, from time to time, up to 7.4 million shares of registered common stock in connection with future acquisitions.
In November, 1998, the Board of Directors authorized the repurchase of up to $100 million each of the Company's common stock and senior debt securities, as market conditions warrant. Through September 30, 2000, the Company had repurchased $36.9 million (2,589,200 shares) of common stock in open market purchases under the stock repurchase plan.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE E--PROVISION FOR INCOME TAXES
The provision for income taxes includes the following components (in thousands):
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. These differences primarily relate to the following (in thousands):
The difference between income tax expense and tax computed by applying the federal statutory income tax rate of 35% to income before taxes is due the following (in thousands):
NOTE F--EMPLOYEE BENEFIT PLANS
The Company has 401(k) plans for Company employees. The Company matches portions of employees' voluntary contributions. Additional employer contributions in the form of profit sharing are at the discretion of the Company. Expenses for these Plans were $1,977,000, $2,272,000 and $3,124,000 for 1998, 1999 and 2000, respectively.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's Supplemental Executive Retirement Plans (SERP's) are non- qualified deferred compensation programs that provide benefits payable to certain management employees upon retirement, death, or termination of employment with the Company. Under one SERP, the Company accrues an unfunded benefit based on a percentage of the eligible employees' salaries, as well as an interest factor based upon a predetermined formula. The Company recorded $698,000, $833,000 and $972,000 of expense for this plan in 1998, 1999 and 2000, respectively.
Effective January 1, 1994, the Company adopted the D.R. Horton, Inc. Stock Tenure Plan (an Employee Stock Ownership Plan), covering those employees generally not participating in the stock option or SERP benefit plans. Contributions are made at the discretion of the Company. Expenses related to Company contributions of common stock to the Plan of $999,000 were recognized for 1998. No expenses were recognized in 1999 and 2000. Further contributions to the plan have been suspended.
Effective January 15, 1999, the Company adopted the D.R. Horton, Inc. 1999 Employee Stock Purchase Plan which provides eligible employees the opportunity to purchase common stock of the Company at a discounted price of 85% of the fair market value of the stock on the date of purchase. Under the terms of the plan, the total fair market value of common stock that an eligible employee may purchase each year is limited to the lesser of 15% of the employee's annual compensation or $25,000. Under the plan, employees of the Company purchased 10,750 shares for $144,000 in 1999 and 34,750 shares for $380,000 in 2000.
The Company Stock Incentive Plans provide for the granting of stock options to certain key employees of the Company to purchase shares of common stock. Options are granted at exercise prices which approximate the market value of the Company's common stock at the date of the grant. Options generally expire 10 years after the dates on which they were granted. Options vest over periods of 4 to 10 years. There were 863,954 and 1,104,591 shares available for future grants under the Plans at September 30, 1999 and 2000, respectively. The Company issued a 9% stock dividend on September 29, 2000. The net effect of the dividend was to increase options outstanding by 345,664 shares.
Activity under the Company Stock Incentive Plans are:
Exercise prices for options outstanding at September 30, 2000, ranged from $1.6550 to $20.8142
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The weighted average remaining contractual lives of those options are:
The Company has elected to follow Accounting Principles Board Opinion No. 25, in accounting for its employee stock options. The exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, and therefore no compensation expense is recognized for the initial grants. SFAS No. 123 requires disclosure of pro forma income and pro forma income per share as if the fair value based method had been applied in measuring compensation expense for option awards granted in fiscal 1998, 1999 and 2000. Management believes the fiscal 1998, 1999 and 2000 pro forma amounts may not be representative of the effects of option awards on future pro forma net income and pro forma net income per share because options granted before 1996 are not considered in these calculations. Application of the fair value method, as specified by SFAS 123, would decrease net income by $815,000 ($0.01 per diluted share), $1,648,000 ($0.02 per diluted share) and $1,909,000 ($0.03 per diluted share) in 1998, 1999 and 2000, respectively.
The weighted average fair value of grants made in 1998, 1999 and 2000 was $10.09, $8.85 and $7.14, respectively.
The fair values of the options granted were estimated on the date of their grant using the Black-Scholes option pricing model based on the following weighted average assumptions:
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE G--FINANCIAL INSTRUMENTS
The fair values of the Company's financial instruments are based on quoted market prices, where available, or are estimated. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates are subjective in nature, involve matters of judgment and therefore, cannot be determined with precision. Estimated fair values are significantly affected by the assumptions used.
The table below sets forth the carrying values and estimated fair values of the Company's financial instruments (in thousands).
The Company used the following methods and assumptions in estimating fair values:
For cash and cash equivalents, the revolving credit facility, other notes payable and standby letters of credit the carrying amounts reported in the balance sheet or as reported in note (H) approximate fair values due to their short maturity or floating interest rate terms, as applicable.
For the senior and senior subordinated notes, fair values represent quoted market prices on the exchange on which the securities are traded. For interest rate swaps, mortgage loans held for sale, loan commitments and forward contracts, the fair values are estimated based on quoted market prices for similar financial instruments.
NOTE H--COMMITMENTS AND CONTINGENCIES
The Company is involved in lawsuits and other contingencies in the ordinary course of business. Management believes that, while the ultimate outcome of the contingencies cannot be predicted with certainty, the ultimate liability, if any, will not have a material adverse effect on the Company's financial position.
In the ordinary course of business, the Company enters into option agreements to purchase land and developed lots. At September 30, 2000, cash deposits of approximately $29.0 million and promissory notes approximating $1.1 million secured the Company's performance under these agreements.
Additionally, in the normal course of its business activities, the Company provides standby letters of credit and performance bonds, issued by third parties, to secure performance under various contracts. At September 30,
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2000, outstanding standby letters of credit were $82.0 million and performance bonds were $291.8 million. The Company has an additional capacity of $3.8 million for standby letters of credit under its revolving credit facility.
The Company leases office space under noncancellable operating leases. Minimum annual lease payments under these leases at September 30, 2000 approximate (in thousands):
Rent expense approximated $4,674,000, $8,456,000 and $11,346,000 for fiscal 1998, 1999 and 2000, respectively.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE I--SUMMARIZED FINANCIAL INFORMATION
The 8%, 8 3/8%, 10% and 10 1/2% Senior Notes and the 9 3/4% Senior Subordinated Notes are fully and unconditionally guaranteed, on a joint and several basis, by all of the Company's direct and indirect subsidiaries (Guarantor Subsidiaries), other than financial services subsidiaries and certain other inconsequential subsidiaries (collectively, Non-Guarantor Subsidiaries). Each of the Guarantor Subsidiaries is wholly-owned. In lieu of providing separate audited financial statements for the Guarantor Subsidiaries, consolidated condensed financial statements are presented below. Separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented because management has determined that they are not material to investors.
Consolidating Balance Sheet
September 30, 2000
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidating Balance Sheet
September 30, 1999
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidating Statement of Income
Year Ended September 30, 2000
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidating Statement of Income
Year Ended September 30, 1999
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidating Statement of Income
Year Ended September 30, 1998
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidating Statement of Cash Flows
Year Ended September 30, 2000
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidating Statement of Cash Flows
Year Ended September 30, 1999
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidating Statement of Cash Flows
Year Ended September 30, 1998
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE J--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly results of operations are (in thousands, except for per share amounts):
NOTE K--TRANSACTIONS WITH RELATED PARTIES
One of the Company's directors is the beneficial owner of EVP Capital, L.P., a general partner of Encore Venture Partners II (Texas), L.P. ("Encore"), the Company affiliate formed in fiscal 2000 to invest, along with Encore Venture Partners, L.P. and Encore Venture Partners II (California), in technology, start-up and emerging growth companies. He is also a limited partner of Encore. Pursuant to Encore's limited partnership agreement, partnership overhead expenses are borne by a limited partner owned by the Company, and EVP Capital, L.P. is paid an annual management fee, currently equal to 2.5% of the capital committed to Encore, not to exceed $1.25 million per year. For the year ended September 30, 2000, such management fee equaled approximately $677,000. In addition, EVP Capital, L.P. is entitled to 5% of the net profits of Encore after payment of a 10% preferred return on the capital contributed by the other partners. As of September 30, 2000, Encore had made investments totaling approximately $6.7 million.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth under the caption "Election of Directors" at pages 2 through 4, and the caption "Section 16(a) Beneficial Ownership Reporting Compliance" at page 21, of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on January 25, 2001 and incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under the caption "Executive Compensation" at page 14 through "Compensation Committee Interlocks and Insider Participation" at page 16 of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on January 25, 2001 and incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the caption "Beneficial Ownership of Common Stock" at pages 12 and 13 of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on January 25, 2001 and incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under the caption "Executive Compensation--Transactions with Management" at pages 15 and 16 of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on January 25, 2001 and incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements:
See Item 8 above.
2. Financial Statement Schedules:
Schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission (the "Commission") are not required under the related instructions or are not applicable, and therefore have been omitted.
3. Exhibits:
- -------- (1) Incorporated by reference from Exhibit 2.1 to the Registrant's Registration Statement on Form S-4 (Registration No. 333-44279), filed with the Commission on January 15, 1998. (2) Incorporated by reference from Exhibit 4.2 to the Registrant's registration statement (No. 333-76175) on Form S-3, filed with the Commission on April 13, 1999. (3) Incorporated by reference from Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998, filed with the Commission on February 12, 1999. (4) Incorporated by reference from Exhibit 4.1(a) to the Registrant's Registration Statement on Form S-3 (No. 333-27521), filed with the Commission on May 21, 1997. (5) Incorporated by reference from Exhibit 4.1 to the Registrant's Form 8-K/A dated April 1, 1997, filed with the Commission on June 6, 1997. (6) Incorporated by reference from Exhibit 4.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1997, filed with the Commission on December 8, 1997. (7) Incorporated by reference from Exhibit 4.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, filed with Commission on May 14, 1998. (8) Incorporated by reference from Exhibit 4.4 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, filed with Commission on May 14, 1998. (9) Incorporated by reference from Exhibit 4.7 to the Registrant's Annual Report on Form 10-K for the year ended September 30, 1998, filed with the Commission on December 10, 1998. (10) Incorporated by reference from Exhibit 4.1 to the Registrant's Current Report on Form 8-K, dated February 2, 1999, filed with the Commission on February 2, 1999. (11) Incorporated by reference from Exhibit 4.9 to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1999, filed with the Commission on December 10, 1999. (12) Incorporated by reference from Exhibit 4.1 to the Registrant's Current Report on Form 8-K, filed with the Commission on March 17, 2000. (13) Incorporated by reference from Exhibit 4.5 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, filed with the Commission on May 12, 2000. (14) Incorporated by reference from Exhibit 4.1 to the Registrant's Current Report on Form 8-K, filed with the Commission on June 6, 2000.
(15) Incorporated by reference from Exhibit 4.1(a) to the Registrant's Current Report on Form 8-K, filed with the Commission on September 7, 2000. (16) Incorporated by reference from Exhibit 4.1(b) to the Registrant's Current Report on Form 8-K, filed with the Commission on September 7, 2000. (17) Incorporated by reference from Exhibit 4.1 to Continental's Annual Report on Form 10-K for the year ended May 31, 1996. The Commission file number for Continental is 1-10700.
(18) Incorporated by reference from Exhibit 4.5 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, filed with Commission on May 14, 1998. (19) Incorporated by reference from Exhibit 4.10 to the Registrant's Annual Report on Form 10-K for the year ended September 30, 1998, filed with Commission on December 10, 1998. (20) Incorporated by reference from Exhibit 4.13 to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1999, filed with Commission on December 10, 1999. (21) Incorporated by reference from Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1995, filed with the Commission on November 22, 1995 (file number 1-14122); and Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, filed with the Commission on August 6, 1998. (22) Incorporated by reference from the Registrant's Registration Statement on Form S-1 (No. 33-46554) declared effective by the Commission on June 4, 1992. (23) Management contract or compensatory plan arrangement. (24) Incorporated by reference from the Registrant's Annual Report Form 10-K for the fiscal year ended September 30, 1994, filed with the Commission on December 9, 1994 (file number 1-14122). (25) Incorporated by reference from Exhibit 10.2e to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1995, filed with the Commission on November 22, 1995 (file number 1-14122). (26) Incorporated by reference from Exhibit 10.2f to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1997, filed with the Commission on December 8, 1997. (27) Incorporated by reference from Exhibit 10.3 to the Registrant's Registration Statement on Form S-1 (Registration No. 3-81856), filed with the Commission on July 22, 1994. (28) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, filed with the Commission on March 29, 1993. (29) Incorporated by reference from the Registrant's Transitional Report on Form 10-K for the period from January 1, 1993 to September 30, 1993, filed with the Commission on December 28, 1993 (file number 1-14122). (30) Incorporated by reference from Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, filed with the Commission on August 6, 1998. (31) Incorporated by reference from Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, filed with the Commission on August 6, 1998. (32) Incorporated by reference from Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, filed with the Commission on August 6, 1998. (33) Incorporated by reference from Exhibit A to the Registrant's Proxy Statement, filed with the Commission on December 10, 1999. (34) Incorporated by reference from Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, filed with the commission on May 12, 2000. (35) Incorporated by reference from Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, filed with the Commission on May 12, 2000. (36) Incorporated by reference from Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, filed with the Commission on May 12, 2000. (37) Incorporated by reference from Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 2000, filed with the Commission on December 10, 1999. (38) Incorporated by reference from Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 2000, filed with the Commission on December 10, 1999. (39) Filed herewith. (b) The following reports were filed on Form 8-K by the Registrant during the quarter ended September 30, 2000:
On September 7, 2000, the Company filed a Current Report on Form 8-K (Items 5 and 7), which filed an underwriting agreement, an indenture, a supplemental indenture and a statement of computation of ratio of earnings to fixed changes, all relating to the offering and issuance of $150 million principal amount of the Registrant's 10 1/2% Senior Subordinated Notes, due 2010.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: December 13, 2000 D.R. HORTON, INC.
By: /s/ Donald R. Horton ---------------------------------- Donald R. Horton, Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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CORPORATE INFORMATION
D.R. Horton, Inc., one of the largest homebuilders in the United States, builds high quality single-family homes designed principally for the entry- level and move-up markets. Founded in 1978, the Company operates in 23 states and 39 markets, with a geographic presence in the Midwest, Mid-Atlantic, Southeast, Southwest, and Western regions of the United States. The Company builds and sells homes under the trade names D.R. Horton, Arappco, Cambridge, Continental, Dobson, Mareli, Milburn, Regency, SGS Communities, Torrey and Trimark.
Horton has established a unique marketing niche, offering a broader selection of homes that typically have more amenities and greater design flexibility than homes offered by volume builders, at prices that are generally more affordable than those charged by local custom builders. Horton homes range in size from 1,000 to 5,000 square feet and are priced from $60,000 to $800,000. For the year ended September 30, 2000, the Company closed 19,144 homes with an average sales price of approximately $182,600.
THE BOARD OF DIRECTORS
Donald R. Horton Transfer Agent and Registrar Chairman
American Stock Transfer & Trust Bradley S. Anderson Co. Senior Vice President of New York, NY CB Richard Ellis, Inc. (1) (2) (800) 937-5449
Richard Beckwitt Investor Relations Principal of Encore Venture
Partners II (Texas), L.P. Stacey Dwyer
D.R. Horton, Inc. Richard I. Galland 1901 Ascension Blvd., Suite 100 Former Chief Executive Officer and Arlington, Texas 76006 Chairman of Fina, Inc. (1) (2) (817) 856-8200
Richard L. Horton Annual Meeting Former Vice President--Dallas/Fort Worth
January 25, 2001 9:30 a.m. C.S.T. East Division
At the Corporate Offices of Terrill J. Horton D.R. Horton, Inc. Former Vice President--Dallas/Fort 1901 Ascension Blvd., Suite 100 Worth Arlington, Texas 76006 North Division
Public Debt Ratings Francine I. Neff
Former Treasurer of the United Senior: States (1) (2) BB -- Standard & Poors Corporation
Scott J. Stone Ba1 -- Moody's Investors Service Former Vice President --Eastern Region
Senior Subordinated:
B+ -- Standard & Poors Donald J. Tomnitz Corporation Vice Chairman, President and Chief Ba3 -- Moody's Investors Service Executive Officer
Samuel R. Fuller Executive Vice President, Treasurer and Chief Financial Officer - -------- (1) Audit Committee Member (2) Compensation Committee Member