10-KPeriod: FY2006

HORTON D R INC /DE/ Annual Report, Year Ended Sep 30, 2006

Filed December 12, 2006For Securities:DHI

Summary

D.R. Horton, Inc. (DHI), the largest homebuilder in the U.S. by homes closed, reported significant growth in revenues and income before taxes in fiscal year 2006. The company experienced an 8% increase in homebuilding revenues, reaching $14.8 billion, and a 5% increase in the value of net sales orders, totaling $13.9 billion. However, the company also noted a challenging market environment with softening demand and an increase in sales contract cancellations, particularly in the latter half of fiscal year 2006. This led to a decrease in homebuilding operating margins by 400 basis points, primarily due to lower gross margins on homes sold, increased incentives offered to buyers, and inventory impairment charges. Despite these headwinds, D.R. Horton maintained a strong market position and continued to expand its geographic reach.

Key Highlights

  • 1D.R. Horton is the largest homebuilder in the U.S., operating in 27 states and 84 metropolitan markets.
  • 2Homebuilding revenues grew 8% to $14.8 billion in fiscal year 2006.
  • 3The company experienced a decrease in homebuilding operating margins by 400 basis points due to market softening and increased incentives.
  • 4Sales contract cancellations rose significantly, reaching 28% for the full year and 40% in the fourth quarter of fiscal 2006.
  • 5Inventory impairment charges and land option cost write-offs totaled $270.9 million in fiscal year 2006.
  • 6Financial services segment revenues increased by 24%, driven by a 41% rise in loans sold.
  • 7The company's net income decreased by 16% to $1.23 billion in fiscal year 2006, with diluted EPS falling to $3.90.

Frequently Asked Questions

In fiscal year 2006, D.R. Horton reported total revenues of $15.1 billion and net income of $1.23 billion. Homebuilding revenues were $14.8 billion, while financial services revenues were $291 million. However, net income decreased by 16% compared to fiscal year 2005 due to a challenging housing market.

The company experienced an industry-wide softening of demand for new homes in fiscal year 2006. This led to increased inventories, a greater use of sales incentives by builders and sellers of existing homes, a decrease in homebuyer consumer confidence, and a significant increase in sales contract cancellations, particularly in the latter half of the fiscal year.

The challenging market conditions resulted in a decrease in D.R. Horton's homebuilding operating margins by 400 basis points. This was primarily due to lower gross margins on homes sold, the increased use of sales incentives, and inventory impairment charges and land option cost write-offs totaling $270.9 million for the year.

The company has adjusted its operating strategy to reduce SG&A infrastructure, decrease land and lot inventory, and limit the construction of unsold homes to match reduced production expectations. While D.R. Horton believes long-term fundamentals for home sales demand remain solid, it cannot predict the duration or severity of the current market conditions and is focused on strengthening its financial condition and liquidity.