D.R. Horton, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended September 30, 2021. This is an annual filing; the supplied text does not provide standalone fourth-quarter results. D.R. Horton is a U.S. homebuilder operating in 98 markets across 31 states, with lot development, mortgage and title, rental, and other businesses.
Financial and operating performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Consolidated revenue | $27.8 billion | $20.3 billion |
| Pre-tax income | $5.36 billion | $2.98 billion |
| Net income attributable to D.R. Horton | $4.18 billion | $2.37 billion |
| Diluted earnings per share | $11.41 | $6.41 |
| Pre-tax margin | 19.3% | 14.7% |
| Net cash provided by operating activities | $534 million | $1.42 billion |
| Cash and cash equivalents | $3.21 billion | $3.02 billion |
| Consolidated debt | $5.41 billion | $4.28 billion |
- Homebuilding: Revenue rose 35% to $26.6 billion; closings increased 25% to 81,965 homes, at an average price of $323,300. Home-sales gross margin expanded to 25.5% from 21.8%; homebuilding pre-tax income was $4.81 billion, or 18.1% of revenue, versus $2.67 billion, or 13.6%.
- Orders and backlog: Net sales orders rose 4% to 81,378 homes, with order value up 18% to $27.7 billion. Year-end backlog was 26,221 homes valued at $9.5 billion, up 16% in value; average backlog price rose to $360,900. Cancellations fell to 17% from 20% of gross orders.
- Other operations: Financial-services revenue increased 41% to $824 million and pre-tax income rose 49% to $365 million. Forestar revenue rose 42% to $1.33 billion and pre-tax income was $147 million. Rental revenue was $268 million and pre-tax income was $87 million.
- Cash flow and investment: Operating cash flow fell to $534 million, principally as inventory investment increased: cash used for homes in progress and finished homes was $1.73 billion, and for residential land and lots was $1.72 billion. Homebuilding cash was $3.0 billion; homebuilding inventory rose to $13.9 billion.
- Leverage and capital returns: Debt to total capital was 26.7%, versus 26.6%; net debt to total capital was 12.9%, versus 9.7%. Homebuilding debt to total capital was 17.8%. The company repurchased 10.4 million shares for $874 million and paid $289 million in dividends. The Board approved a quarterly dividend of $0.225 per share in October 2021.
Material changes versus FY2020
- Revenue increased 37%, pre-tax income 80%, net income attributable to D.R. Horton 76%, and diluted EPS 78%, reflecting more closings, higher average selling prices, and stronger home-sales margins.
- Operating cash flow declined by about $887 million as the company expanded home, land, and rental-property inventory. Homebuilding debt increased to $3.2 billion from $2.5 billion.
- Lots controlled through purchase contracts increased to 402,500 from 264,300, representing 76% of owned and controlled lots, compared with 70% a year earlier. The remaining purchase price on these contracts was $15.5 billion, secured by $1.1 billion of deposits and related instruments.
- The company expanded rental operations: rental inventory increased to $840.9 million from $316.0 million. It also changed rental-property and cash-flow presentation prospectively during FY2021 and realigned reportable segments; prior segment information was conformed where stated.
Outlook, risks, and unusual items
- Management said demand remained strong, supported by low mortgage rates and limited affordable-home supply. Supply-chain disruption, material shortages, and tight construction labor extended build times to two to seven months. The company slowed sales orders in many communities to align them with production and expected this constraint to continue in the near term.
- Management expected to increase production capacity and close more homes in FY2022 than in FY2021. The filing gives no quantified revenue, earnings, or margin guidance.
- Key risks include housing-cycle and affordability shifts, higher mortgage rates, inflation in labor and material costs, continued supply constraints, land and inventory impairment, and dependence on mortgage-financing markets. Severe weather, regulation, warranty and construction-defect claims, and cyber or data-security incidents are also identified risks.
- Legal-claim reserves were $577.5 million, approximately 99% relating to construction defects; estimated related insurance receivables were $109.5 million. The separate warranty liability was $376.3 million. Construction-defect reserve estimates are judgmental; the auditor identified their estimation as a critical audit matter. The auditor issued an unqualified opinion and reported effective internal control over financial reporting.
- Forestar recorded an $18.1 million loss on extinguishment of debt after redeeming $350 million of 8.0% notes. Consolidated debt included $1.5 billion under the mortgage repurchase facility, which matured in February 2022 and required renewal or other financing to maintain liquidity. Total scheduled debt maturities were $1.9 billion within 12 months, including that facility.
Important facts for investors to verify
- Whether labor and material availability allows production and closings to meet management’s FY2022 expectation, and whether build-time delays affect backlog conversion or cancellations.
- Whether higher input costs, home prices, incentives, and mortgage rates sustain or reduce the FY2021 improvement in home-sales margins and affordability.
- The renewal or replacement terms for the mortgage repurchase facility, and the sources used to address near-term maturities and working-capital needs.
- Exposure under the $15.5 billion remaining purchase price on lot contracts, including deposits, specific-performance provisions, and the growing reliance on controlled lots.
- Developments in construction-defect claims and whether reserves and recoveries remain adequate; the filing notes that actual costs could differ materially from estimates.
- Whether rental expansion generates returns consistent with its increased inventory and capital requirements.