FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2003
-------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the Transition Period From To
------------ ------------
Commission file number 1-14122
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D.R. Horton, Inc.
-----------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2386963
---------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1901 Ascension Blvd., Suite 100, Arlington, Texas 76006
------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(817) 856-8200
--------------------------------
(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.01 par value -- 157,195,345 shares as of August 8, 2003
-----------------
This report contains 35 pages.
INDEX
D.R. HORTON, INC.
PART I. FINANCIAL INFORMATION. Page
- ------ ---------------------- ----
ITEM 1. Financial Statements.
Consolidated Balance Sheets-- June 30, 2003 and September 30, 2002. 3
Consolidated Statements of Income-- Three Months and Nine Months Ended June 30, 2003
and 2002. 4
Consolidated Statements of Cash Flows-- Nine Months Ended June 30, 2003
and 2002. 5
Notes to Consolidated Financial Statements. 6-19
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition. 20-28
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk. 29
ITEM 4. Controls and Procedures. 30
PART II. OTHER INFORMATION.
- -------- ------------------
ITEM 2. Changes in Securities and Use of Proceeds. 31
ITEM 5. Other Information. 32
ITEM 6. Exhibits and Reports on Form 8-K. 33-34
SIGNATURES. 35
- -----------
ITEM 1. FINANCIAL STATEMENTS
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
2003 2002
--------- --------
(In thousands)
(Unaudited)
ASSETS
Homebuilding:
Cash and cash equivalents................................................................. $ 264,158 $ 92,106
Inventories:
Finished homes and construction in progress........................................... 2,651,045 2,035,221
Residential lots - developed and under development................................... 2,335,681 2,297,545
Land held for development ............................................................ 10,570 10,303
------------ -------------
4,997,296 4,343,069
Property and equipment (net).............................................................. 75,689 71,895
Earnest money deposits and other assets................................................... 418,600 430,415
Excess of cost over net assets acquired................................................... 581,230 579,230
------------ -------------
6,336,973 5,516,715
------------ -------------
Financial Services:
Cash and cash equivalents................................................................. 32,084 12,238
Mortgage loans held for sale.............................................................. 525,475 464,088
Other assets.............................................................................. 21,527 24,486
------------ -------------
579,086 500,812
------------ -------------
$ 6,916,059 $ 6,017,527
------------ -------------
LIABILITIES
Homebuilding:
Accounts payable and other liabilities.................................................... $ 918,128 $ 834,048
Notes payable............................................................................. 2,666,990 2,486,976
------------ ------------
3,585,118 3,321,024
------------ ------------
Financial Services:
Accounts payable and other liabilities.................................................... 12,147 14,340
Notes payable to financial institutions................................................... 414,042 391,355
------------ ------------
426,189 405,695
------------ ------------
4,011,307 3,726,719
------------ ------------
Minority interests........................................................................ 69,450 20,945
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 30,000,000 shares authorized,
no shares issued...................................................................... -- --
Common stock, $.01 par value, 400,000,000 shares authorized, 157,131,997
shares at June 30, 2003 and 146,505,091 shares at September 30, 2002,
issued and outstanding................................................................ 1,571 1,465
Additional capital........................................................................ 1,576,738 1,349,630
Unearned compensation..................................................................... (2,707) (4,453)
Retained earnings......................................................................... 1,289,222 923,221
Treasury stock, 1,672,500 shares at June 30, 2003 and no shares at
September 30, 2002, at cost........................................................... (29,522) --
------------ ------------
2,835,302 2,269,863
------------ ------------
$ 6,916,059 $ 6,017,527
============ ============
See accompanying notes to consolidated financial statements.
-3-
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Nine Months
Ended June 30, Ended June 30,
----------------- ------------------
2003 2002 2003 2002
-------- -------- -------- --------
(In thousands, except per share data)
(Unaudited)
Homebuilding:
Revenues
Home sales................................................ $ 2,108,899 $ 1,750,189 $ 5,553,177 $ 4,410,284
Land/lot sales............................................ 57,869 29,426 189,065 80,499
----------- ------------ ----------- ------------
2,166,768 1,779,615 5,742,242 4,490,783
----------- ------------ ----------- ------------
Cost of sales
Home sales................................................ 1,676,326 1,416,050 4,429,621 3,573,790
Land/lot sales............................................ 50,505 25,938 162,155 70,048
----------- ------------ ----------- ------------
1,726,831 1,441,988 4,591,776 3,643,838
----------- ------------ ----------- ------------
Gross profit
Home sales................................................ 432,573 334,139 1,123,556 836,494
Land/lot sales............................................ 7,364 3,488 26,910 10,451
----------- ------------ ----------- ------------
439,937 337,627 1,150,466 846,945
Selling, general and administrative expense.................... 207,971 177,020 574,437 444,931
Interest expense............................................... 1,703 1,465 2,057 5,224
Other expense.................................................. 3,330 3,842 3,054 3,988
----------- ------------ ----------- ------------
226,933 155,300 570,918 392,802
----------- ------------ ----------- ------------
Financial Services:
Revenues....................................................... 45,619 28,864 123,626 77,651
General and administrative expense............................. 25,344 18,220 69,586 48,261
Interest expense............................................... 1,732 1,155 5,281 3,490
Other (income)................................................. (5,434) (4,714) (16,344) (10,576)
----------- ------------ ----------- ------------
23,977 14,203 65,103 36,476
----------- ------------ ----------- ------------
INCOME BEFORE INCOME TAXES................................ 250,910 169,503 636,021 429,278
Provision for income taxes..................................... 95,345 63,563 240,793 160,979
----------- ------------ ----------- ------------
NET INCOME................................................ $ 155,565 $ 105,940 $ 395,228 $ 268,299
=========== ============ =========== ============
Net income per share:
Basic..................................................... $ 1.07 $ 0.72 $ 2.70 $ 2.06
Diluted................................................... $ 0.99 $ 0.67 $ 2.62 $ 1.94
=========== ============ =========== ============
Weighted average number of shares of stock:
Basic..................................................... 145,996 146,331 146,283 130,174
Diluted................................................... 157,476 158,957 151,400 139,263
=========== ============ =========== ============
Cash dividends per share....................................... $ 0.07 $ 0.06 $ 0.20 $ 0.17
=========== ============ =========== ============
See accompanying notes to consolidated financial statements.
-4-
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months
Ended June 30,
--------------
2003 2002
---- ----
(In thousands)
(Unaudited)
OPERATING ACTIVITIES
Net income............................................................................. $ 395,228 $ 268,299
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization.......................................................... 30,041 18,621
Amortization of debt premiums and fees................................................. 5,848 5,991
Changes in operating assets and liabilities:
Increase in inventories............................................................. (545,754) (311,773)
Decrease (increase) in earnest money deposits and other assets...................... 20,961 (38,274)
Increase in mortgage loans held for sale............................................ (61,387) (65,660)
Increase (decrease) in accounts payable and other liabilities....................... 88,915 (110,590)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES....................................................... (66,148) (233,386)
----------- -----------
INVESTING ACTIVITIES
Net purchases of property and equipment................................................ (31,245) (28,155)
Distributions from venture capital entities............................................ -- 250
Net cash paid for acquisitions......................................................... -- (152,662)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES....................................................... (31,245) (180,567)
----------- -----------
FINANCING ACTIVITIES
Proceeds from notes payable............................................................ 1,507,421 2,439,106
Issuance of senior notes payable....................................................... 512,556 247,928
Repayment of notes payable............................................................. (1,679,582) (2,451,496)
Proceeds from stock associated with certain employee benefit plans..................... 7,645 12,380
Purchase of treasury stock............................................................. (29,522) --
Payment of cash dividends.............................................................. (29,227) (17,318)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES................................................... 289,291 230,600
----------- -----------
INCREASE (DECREASE) IN CASH................................................................. 191,898 (183,353)
Cash at beginning of period............................................................ 104,344 239,280
----------- -----------
Cash at end of period.................................................................. $ 296,242 $ 55,927
=========== ============
See accompanying notes to consolidated financial statements.
-5-
D.R. HORTON, INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2003
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements include the
accounts of D.R. Horton, Inc. and its subsidiaries (the "Company"). Intercompany
accounts and transactions have been eliminated in consolidation. The statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal, recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month and nine-month periods
ended June 30, 2003 are not necessarily indicative of the results that may be
expected for the year ending September 30, 2003.
Business - The Company is a national builder that is engaged primarily in the
construction and sale of single-family housing in 44 markets and 20 states in
the United States. The Company designs, builds and sells detached and attached
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 home buyers. The Company does not retain or service the
mortgages that it originates but, rather, sells the mortgages and related
servicing rights to investors.
NOTE B - SEGMENT INFORMATION
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 98% of consolidated revenues for the
three-months and nine-months ended June 30, 2003 and 2002. The homebuilding
reporting segment is comprised of the aggregate of the Company's regional
homebuilding operating segments and generates the majority of its revenues from
the sale of completed homes, with a lesser amount from the sale of land and
lots. Approximately 92% of home sales revenues were generated from the sale of
detached homes for the three months and nine months ended June 30, 2003. The
financial services segment generates its revenues from originating and selling
mortgages and collecting fees for title insurance agency and closing services.
Effective with its fiscal year beginning October 1, 2002, the Company's
wholly-owned mortgage subsidiary is required by Statement of Position 01-6 (SOP
01-6), of the Accounting Standards Executive Committee of the American Institute
of Certified Public Accountants, to disclose the minimum net worth requirements
by regulatory agencies, secondary market investors and states in which it
conducts business. Currently, the largest of these minimum net worth
requirements is $1.0 million, which is insignificant compared to the $35 million
minimum net worth required by the mortgage subsidiary's warehouse credit line.
At June 30, 2003, the mortgage subsidiary's total equity was $133.2 million.
NOTE C - CONSOLIDATION OF VARIABLE INTEREST ENTITIES
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
FIN 46 provides guidance for the financial accounting and reporting of interests
in certain variable interest entities. FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain business entities that either have equity investors with no voting
rights or have equity investors that do not provide sufficient financial
resources for the entities to support their activities. FIN 46 requires
consolidation of such entities by any company that is subject to a majority of
the risk of loss from the entities' activities or is entitled to receive a
majority of the entities' residual returns or both. Furthermore, disclosures
about significant interests in variable interest entities are required even if
the company is not required to consolidate them. The consolidation requirements
of FIN 46 are currently effective for all interests in variable interest
entities created after January 31, 2003, and will be effective for all interests
in variable interest entities created before February 1, 2003 in the first
fiscal year or interim period beginning after June 15, 2003.
In the ordinary course of its business the Company enters into land and lot
option purchase contracts in order to procure land or lots for the construction
of homes. Under such option purchase contracts the Company will fund a stated
deposit in consideration for the right to purchase land or lots at a future
point in time with predetermined terms. Under the terms of the option purchase
-6-
D.R. HORTON, INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2003
contracts, most of the Company's option deposits are non-refundable.Certain non-
refundable deposits are deemed to create a variable interest in a variable
interest entity under the requirements of FIN 46. As such, certain of the
Company's option purchase contracts result in the acquisition of a variable
interest in the entity holding the land parcel under option. The Company's
maximum exposure to loss associated with such variable interest entities is
limited to the amount of the Company's option deposit.
In accordance with the implementation requirements of FIN 46, the Company has
evaluated all of its interests in variable interest entities created after
January 31, 2003 and has begun its evaluation of its variable interests created
prior to February 1, 2003. Based upon its evaluations to date, the Company has
consolidated certain variable interest entities from which the Company is
purchasing lots under option contracts.The consolidation of these entities added
$41.7 million in inventory and minority interests to the Company's balance sheet
at June 30, 2003. The Company's obligations related to these lot option
contracts are guaranteed by performance letters of credit totaling $17.3
million. Creditors, if any, of these variable interest entities have no recourse
against the Company.
The Company will complete the evaluations of all of its interests in variable
interest entities by September 30, 2003. Based on the results of evaluations
completed through June 30, 2003, the Company believes that FIN 46 will not
materially affect its financial position, results of operations or cash flows.
NOTE D - EARNINGS PER SHARE
Basic earnings per share for the three months and nine months ended June 30,
2003 and 2002 is based on the weighted average number of shares of common stock
outstanding. Diluted earnings per share is based on the weighted average number
of shares of common stock and dilutive securities outstanding.
The following table sets forth the weighted average number of shares of common
stock and dilutive securities outstanding used in the computation of basic and
diluted earnings per share (in thousands):
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- ------------------
2003 2002 2003 2002
---- ---- ---- ----
Numerator:
Net income..................................................... $155,565 $105,940 $395,228 $268,299
Effect of dilutive securities:
Interest expense and amortization of issuance costs associated
with zero coupon convertible senior notes,
net of applicable income taxes................................. 993 1,054 993 2,096
-------- -------- -------- --------
Numerator for diluted earnings per share after assumed
conversions................................................ $156,558 $106,994 $396,221 $270,395
======== ======== ======== ========
Denominator:
Denominator for basic earnings per share--
weighted average shares.................................... 145,996 146,331 146,283 130,174
Effect of dilutive securities:
Zero coupon convertible senior notes........................... 9,086 10,000 3,029 6,667
Employee stock options......................................... 2,394 2,626 2,088 2,422
-------- -------- -------- --------
Denominator for diluted earnings per share--
adjusted weighted average shares........................... 157,476 158,957 151,400 139,263
======== ======== ======== ========
-7-
D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2003
NOTE E - DEBT
The Company's notes payable consist of the following (in thousands):
June 30, September 30,
2003 2002
----------- --------------
Homebuilding:
Unsecured:
Revolving credit facility due 2006.............................. $ -- $ --
8 3/8% Senior notes due 2004, net............................... 149,637 149,339
10 1/2% Senior notes due 2005, net.............................. 199,657 199,559
10% Senior notes due 2006, net.................................. -- 147,802
7 1/2% Senior notes due 2007, net............................... 215,000 --
9% Senior notes due 2008, net................................... 102,023 102,427
8% Senior notes due 2009, net................................... 383,584 383,438
9 3/8% Senior notes due 2009, net............................... 244,437 246,057
9 3/4% Senior subordinated notes due 2010, net.................. 149,059 148,994
9 3/8% Senior subordinated notes due 2011, net.................. 199,727 199,710
7 7/8% Senior notes due 2011, net............................... 198,532 198,437
10 1/2% Senior subordinated notes due 2011, net................. 152,152 153,284
8 1/2% Senior notes due 2012, net............................... 248,101 247,995
6 7/8% Senior notes due 2013, net............................... 200,000 --
5 7/8% Senior notes due 2013, net............................... 100,000 --
Zero coupon convertible senior notes due 2021, net.............. -- 209,144
Other secured........................................................ 125,081 100,790
---------- ----------
$2,666,990 $2,486,976
========== ==========
Financial Services:
Mortgage warehouse facility due 2003................................. $ 214,042 $ 242,355
Commercial paper conduit facility due 2005........................... 200,000 149,000
---------- ----------
$ 414,042 $ 391,355
========== ==========
Homebuilding:
The Company has an $805 million unsecured revolving credit facility, including
$125 million which may be used for letters of credit. The facility matures in
January 2006, and is guaranteed by substantially all of the Company's
subsidiaries other than its financial services subsidiaries. Borrowings bear
daily interest at rates based upon the London Interbank Offered Rate (LIBOR)
plus a spread based upon the Company's ratio of debt to tangible net worth. On
August 5, 2003, the facility was amended and the amount available for use for
letters of credit was increased to $250 million. The interest rate applicable to
the revolving credit facility at June 30, 2003 was 2.7%. In addition to the
stated interest rates, the revolving credit facility requires the Company to pay
certain fees.
The revolving credit facility and the indentures related to the Company's Senior
and Senior Subordinated Notes contain covenants which, taken together, limit
amounts of debt that may be incurred, investments in inventory, stock
repurchases, cash dividends and other restricted payments, asset dispositions
and creation of liens, and require certain levels of tangible net worth. At June
30, 2003, these covenants limit the additional homebuilding debt the Company
could incur to $1,601.1 million, which included $694.7 million available under
the revolving credit facility.
On December 3, 2002, the Company issued $215 million principal amount of 7 1/2%
Senior Notes. The notes, which are due December 1, 2007, with interest payable
semi-annually, represent unsecured obligations of the Company. The Company may
redeem up to 35% of the amount originally issued with the proceeds of public
offerings at a redemption price equal to 107.5% of the principal amount through
December 1, 2005, plus accrued interest. The annual effective interest rate of
the notes, after giving effect to the amortization of deferred financing costs,
is 7.6%.
-8-
D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2003
On April 17, 2003, the Company issued $200 million principal amount of 6 7/8%
Senior Notes. The notes, which are due May 1, 2013, with interest payable
semi-annually, represent unsecured obligations of the Company. The Company may
redeem up to 35% of the amount originally issued with the proceeds of public
offerings at a redemption price equal to 106.875% of the principal amount
through May 1, 2006, plus accrued interest. The annual effective interest rate
of the notes, after giving effect to the amortization of deferred financing
costs, is 7.0%.
On May 23, 2003, the Company redeemed its 10% Senior Notes due 2006 at an
aggregate redemption price of approximately $150.1 million, including accrued
interest. The Company used part of the proceeds of the 6 7/8% Senior Notes to
redeem the called notes. Concurrent with the redemption, the Company recorded
interest expense of approximately $1.3 million, representing unamortized
discount and unamortized debt issuance costs associated with the redeemed notes.
On June 18, 2003, the Company issued $100 million principal amount of 5 7/8%
Senior Notes. The notes, which are due July 1, 2013, with interest payable
semi-annually, represent unsecured obligations of the Company. The Company may
redeem up to 35% of the amount originally issued with the proceeds of public
offerings at a redemption price equal to 105.875% of the principal amount
through July 1, 2006, plus accrued interest. The annual effective interest rate
of the notes, after giving effect to the amortization of deferred financing
costs, is 5.9%.
On May 27, 2003, the Company called all of its zero coupon convertible senior
notes for redemption. The call for redemption gave note holders the right to
convert their notes into shares of D.R. Horton common stock. As a result, all of
the notes were presented for conversion into D.R. Horton common stock, and
accordingly the Company issued approximately 10 million shares of common stock
in exchange for the notes. As a result of the conversion, common stock increased
$0.1 million and additional capital increased $219.2 million.
On July 25, 2003, the Company redeemed its 9% Senior Notes due April 15, 2008 at
an aggregate redemption price of $107.0 million, including accrued interest. The
Company used the proceeds of the 5 7/8% Senior Notes and available cash to
redeem the called notes. Concurrent with the redemption, the Company recorded
interest expense of approximately $2.5 million, representing the difference
between the redemption premium and the unamortized premium associated with the
redeemed notes.
Financial Services:
The Company's mortgage subsidiary has a $230 million, one-year mortgage
warehouse line payable to financial institutions, maturing February 12, 2004,at
the 30-day LIBOR rate plus a fixed premium. The Company's mortgage subsidiary
also has a $300 million commercial paper conduit credit facility which expires
in July 2005, the terms of which are renewable annually by the sponsoring bank.
The current total borrowing capacity of our mortgage subsidiary under these two
credit facilities is $530 million. These two credit facilities are secured by
mortgage loans held for sale and are not guaranteed by D.R. Horton, Inc. or any
of the guarantors of the Senior and Senior Subordinated Notes. The interest
rates of the mortgage warehouse line payable at June 30, 2003 was 2.2%. The
interest rate on the commercial paper conduit facility at June 30, 2003 was
1.9%.
-9-
D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2003
NOTE F - 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. Homebuilding interest costs are (in thousands):
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------ ---------------------------
2003 2002 2003 2002
-------- ---------- --------- ----------
Capitalized interest, beginning of period........... $180,954 $ 124,652 $ 153,536 $ 96,910
Interest incurred - homebuilding.................... 62,354 58,349 179,354 141,596
Interest expensed:
Directly - homebuilding........................ (1,703) (1,465) (2,057) (5,224)
Amortized to cost of sales..................... (55,487) (37,811) (144,715) (89,557)
-------- --------- --------- ----------
Capitalized interest, end of period................. $186,118 $ 143,725 $ 186,118 $ 143,725
======== ========= ========= =========
NOTE G - WARRANTY
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others", which is effective as to disclosure requirements for
all financial statements for periods ending after December 15, 2002. With
respect to the product warranty disclosure requirements contained therein, the
Company provides its home buyers a one-year comprehensive limited warranty for
all parts and labor and a ten-year limited warranty for major construction
defects. Since the Company subcontracts its homebuilding work to subcontractors
who provide it with an indemnity and a certificate of insurance prior to
receiving payments for their work, claims relating to workmanship and materials
are generally the primary responsibility of the subcontractors. Warranty
reserves have been established by charging cost of sales and crediting a
warranty liability for each home delivered. The amounts charged are estimated by
management to be adequate to cover expected warranty- related costs under all
unexpired warranty obligation periods. The Company's warranty cost accruals are
based upon historical warranty cost experience in each market in which it
operates and are adjusted as appropriate to reflect qualitative risks associated
with the types of homes built and the geographic areas in which they are built.
Changes in the Company's warranty liability are as follows (in thousands):
Three Months Ended Nine Months Ended
June 30, 2003 June 30, 2003
------------------ -----------------
Warranty liability, beginning of period................... $46,122 $39,471
Warranties issued.................................... 10,480 27,647
Settlements made..................................... (6,313) (16,829)
------ -------
Warranty liability, end of period......................... $50,289 $50,289
======= =======
-10-
D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2003
NOTE H - STOCK-BASED COMPENSATION
On January 1, 2003, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure," which amended the disclosure requirements of SFAS
No. 123, "Accounting for Stock-Based Compensation," to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The Company has elected to follow APB 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. If compensation cost for the Company's stock-based
compensation plan had been determined based on the fair value method at the
grant date, as prescribed in SFAS No. 123, the Company's net income and net
earnings per share would have been as follows (in thousands, except per-share
amounts):
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- ------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income, as reported........................................ $155,565 $105,940 $395,228 $268,299
Pro forma effect of expensing
stock options (net of related tax effects)................. (1,068) (568) (3,204) (1,704)
-------- -------- -------- --------
Pro forma net income........................................... $154,497 $105,372 $392,024 $266,595
======== ======== ======== ========
Reported basic net income per share............................ $ 1.07 $ 0.72 $ 2.70 $ 2.06
Pro forma effect of expensing stock options.................... (0.01) -- (0.02) (0.01)
-------- -------- --------- -----
Pro forma basic net income per share........................... $ 1.06 $ 0.72 $ 2.68 $ 2.05
======== ======== ========= ========
Reported diluted net income per share.......................... $ 0.99 $ 0.67 $ 2.62 $ 1.94
Pro forma effect of expensing stock options.................... -- -- (0.02) (0.01)
-------- -------- --------- --------
Pro forma diluted net income per share......................... $ 0.99 $ 0.67 $ 2.60 $ 1.93
======== ======== ========= ========
NOTE I - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133. This statement is effective for contracts entered into or modified
after June 30, 2003. The Company does not believe that the implementation of
SFAS No. 149 will have a material impact on the Company's financial position,
results of operations or cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This statement
establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003 and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. It is to be implemented by reporting the
cumulative effect of a change in an accounting principle for financial
instruments created before the issuance date of the statement and still existing
at the beginning of the interim period of adoption. The Company does not believe
that the implementation of SFAS No. 150 will have a material impact on the
Company's financial position, results of operations or cash flows.
-11-
D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2003
NOTE J - SUMMARIZED FINANCIAL INFORMATION
The 5 7/8%, 6 7/8%, 7 1/2%, 7 7/8%, 8%, 8 3/8%, 8 1/2%, 9%, 9 3/8%, and 10 1/2%
Senior Notes, and the 9 3/8%, 9 3/4% and 10 1/2% 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
June 30, 2003
Non-Guarantor
Subsidiaries
----------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ --------- -------- ------------ ----------
ASSETS (In thousands)
Homebuilding:
Cash and cash equivalents ............................ $ -- $ 244,810 $ -- $ 19,348 $ -- $ 264,158
Advances to/investments in unconsolidated
subsidiaries ........................................ 4,716,250 307,858 -- -- (5,024,108) --
Inventories .......................................... 874,740 4,004,432 -- 118,326 (202) 4,997,296
Property and equipment (net) ......................... 12,420 57,099 -- 6,170 -- 75,689
Earnest money deposits and other assets .............. 158,364 247,959 -- 12,277 -- 418,600
Excess of cost over net assets acquired .............. -- 581,230 -- -- -- 581,230
--------- --------- ----- ------- --------- ---------
5,761,774 5,443,388 -- 156,121 (5,024,310) 6,336,973
--------- --------- ----- ------- --------- ---------
Financial Services:
Cash and cash equivalents ............................ -- -- 32,084 -- -- 32,084
Mortgage loans held for sale ......................... -- -- 525,475 -- -- 525,475
Other assets ......................................... -- -- 21,527 -- -- 21,527
---------- ---------- ------- ------- ---------- ---------
-- 579,086 -- -- 579,086
---------- ---------- -------- -------- ----------- ----------
Total Assets ........................................ $5,761,774 $5,443,388 $579,086 $156,121 $(5,024,310) $6,916,059
========== ========== ======== ======== =========== ==========
LIABILITIES & EQUITY
Homebuilding:
Accounts payable and other liabilities ............... $ 324,377 $ 576,195 $ -- $ 17,556 $ -- $ 918,128
Advances from parent/unconsolidated
subsidiaries ........................................ -- 3,034,144 -- 33,708 (3,067,852) --
Notes payable ........................................ 2,602,095 38,707 -- 26,188 -- 2,666,990
--------- ------ ---- ------ ---------- ---------
2,926,472 3,649,046 -- 77,452 (3,067,852) 3,585,118
--------- --------- ---- ------ ---------- ---------
Financial Services:
Accounts payable and other liabilities ............... -- -- 12,147 -- -- 12,147
Advances from parent/unconsolidated
subsidiaries ......................................... -- -- 29,417 -- (29,417) --
Notes payable ........................................ -- -- 414,042 -- -- 414,042
--------- --------- ------- ------ --------- ---------
-- -- 455,606 -- (29,417) 426,189
--------- --------- ------- ------ --------- ---------
Total Liabilities .................................... 2,926,472 3,649,046 455,606 77,452 (3,097,269) 4,011,307
--------- --------- ------- ------ ---------- ---------
Minority interests ................................... -- -- 23 69,427 -- 69,450
--------- ---------- -------- ------ ---------- ---------
Stockholders' Equity ................................. 2,835,302 1,794,342 123,457 9,242 (1,927,041) 2,835,302
--------- --------- ------- ----- ---------- ---------
Total Liabilities & Equity ........................... $5,761,774 $5,443,388 $579,086 $156,121 $(5,024,310) $6,916,059
========== ========== ======== ======== =========== ==========
-12-
D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2003
NOTE J - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Balance Sheet
September 30, 2002
Non-Guarantor
Subsidiaries
----------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ --------- -------- ------------ ----------
(In thousands)
ASSETS
Homebuilding:
Cash and cash equivalents ............................ $ -- $ 80,273 $ -- $ 11,833 $ -- $ 92,106
Advances to/investments in unconsolidated
subsidiaries ......................................... 4,126,233 260,725 -- 68 (4,387,026) --
Inventories .......................................... 689,111 3,566,280 -- 88,048 (370) 4,343,069
Property and equipment (net) ......................... 10,826 55,424 -- 5,645 -- 71,895
Earnest money deposits and other assets .............. 209,990 212,685 -- 12,408 (4,668) 430,415
Excess of cost over net assets acquired .............. -- 579,230 -- -- -- 579,230
--------- --------- ------- ------- --------- ---------
5,036,160 4,754,617 -- 118,002 (4,392,064) 5,516,715
--------- --------- ------- ------- --------- ---------
Financial services:
Cash and cash equivalents ............................ -- -- 12,238 -- -- 12,238
Mortgage loans held for sale ......................... -- -- 464,088 -- -- 464,088
Other assets ......................................... -- -- 24,486 -- -- 24,486
--------- --------- ------- ------- --------- --------
-- -- 500,812 -- -- 500,812
--------- --------- ------- ------- --------- --------
Total Assets ........................................ $5,036,160 $4,754,617 $500,812 $118,002 $(4,392,064) $6,017,527
========== ========== ======== ======== =========== ==========
LIABILITIES & EQUITY
Homebuilding:
Accounts payable and other liabilities ............... $ 341,405 $ 483,252 $ -- $ 9,415 $ (24) $ 834,048
Advances from parent/unconsolidated
subsidiaries ......................................... -- 3,019,521 -- 50,370 (3,069,891) --
Notes payable ........................................ 2,424,892 30,491 -- 36,237 (4,644) 2,486,976
--------- --------- ------- ------- --------- ---------
2,766,297 3,533,264 -- 96,022 (3,074,559) 3,321,024
--------- --------- ------- ------- --------- ---------
Financial services:
Accounts payable and other liabilities ............... -- -- 14,340 -- -- 14,340
Advances from parent/unconsolidated
subsidiaries ......................................... -- -- 25,386 -- (25,386) --
Notes payable ........................................ -- -- 391,355 -- -- 391,355
--------- --------- ------- ------- --------- ---------
-- -- 431,081 -- (25,386) 405,695
--------- --------- ------- ------- --------- ---------
Total Liabilities .................................... 2,766,297 3,533,264 431,081 96,022 (3,099,945) 3,726,719
--------- --------- ------- ------- --------- ---------
Minority interests ................................... -- -- 26 20,919 -- 20,945
--------- --------- ------- ------- --------- ---------
Stockholders' Equity ................................. 2,269,863 1,221,353 69,705 1,061 (1,292,119) 2,269,863
--------- --------- ------ ------- --------- ---------
Total Liabilities & Equity ........................... $5,036,160 $4,754,617 $500,812 $118,002 $(4,392,064) $6,017,527
========== ========== ======== ======== =========== ==========
-13-
D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2003
NOTE J - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Income
Three Months Ended June 30, 2003
Non-Guarantor
Subsidiaries
------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
-------------- ------------ --------- --------- ------------ ----------
(In thousands)
Homebuilding:
Revenues:
Home sales ....................................... $ 311,161 $ 1,733,481 $ -- $ 64,257 $ -- $2,108,899
Land/lot sales ................................... 8,896 48,973 -- -- -- 57,869
--------- --------- ------ ------- --------- ---------
320,057 1,782,454 -- 64,257 -- 2,166,768
--------- --------- ------ ------- --------- ---------
Cost of sales:
Home sales ....................................... 248,997 1,380,022 -- 47,351 (44) 1,676,326
Land/lot sales .. ................................ 5,472 45,033 -- -- -- 50,505
--------- --------- ------ ------- --------- ---------
254,469 1,425,055 -- 47,351 (44) 1,726,831
--------- --------- ------ ------- --------- ---------
Gross profit:
Home sales ....................................... 62,164 353,459 -- 16,906 44 432,573
Land/lot sales ................................... 3,424 3,940 -- -- -- 7,364
--------- --------- ------ ------- --------- ---------
65,588 357,399 -- 16,906 44 439,937
Selling, general and administrative
expense ............................................ 61,353 135,236 -- 8,381 3,001 207,971
Interest expense .................................... 1,088 847 -- 630 (862) 1,703
Other expense (income) .............................. (247,763) (2,836) -- 1,916 252,013 3,330
--------- --------- ------ ------- --------- ---------
250,910 224,152 -- 5,979 (254,108) 226,933
--------- --------- ------ ------- --------- ---------
Financial services:
Revenues ............................................ -- -- 45,619 -- -- 45,619
General and administrative expense .................. -- -- 28,345 -- (3,001) 25,344
Interest expense .................................... -- -- 1,732 -- -- 1,732
Other (income) ...................................... -- -- (5,434) -- -- (5,434)
--------- --------- ------ ------- --------- ---------
-- -- 20,976 -- 3,001 23,977
--------- --------- ------ ------- --------- ---------
Income before income taxes .......................... 250,910 224,152 20,976 5,979 (251,107) 250,910
Provision for income taxes .......................... 95,345 85,174 7,975 2,272 (95,421) 95,345
--------- --------- ------ ------- --------- ---------
Net income .......................................... $ 155,565 $ 138,978 $ 13,001 $ 3,707 $ (155,686) $ 155,565
=========== ========== ======== ======== =========== ==========
-14-
D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2003
NOTE J - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Income
Nine Months Ended June 30, 2003
Non-Guarantor
Subsidiaries
-----------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ --------- -------- ------------ ----------
(In thousands)
Homebuilding:
Revenues:
Home sales ....................................... $ 764,136 $ 4,650,213 $ -- $138,828 $ -- $5,553,177
Land/lot sales ................................... 14,680 174,385 -- -- -- 189,065
--------- --------- ------ ------- --------- ---------
778,816 4,824,598 -- 138,828 -- 5,742,242
--------- --------- ------ ------- --------- ---------
Cost of sales:
Home sales ....................................... 598,123 3,727,772 -- 103,960 (234) 4,429,621
Land/lot sales ................................... 15,733 146,422 -- -- -- 162,155
--------- --------- ------ ------- --------- ---------
613,856 3,874,194 -- 103,960 (234) 4,591,776
--------- --------- ------ ------- --------- ---------
Gross profit:
Home sales ....................................... 166,013 922,441 -- 34,868 234 1,123,556
Land/lot sales ................................... (1,053) 27,963 -- -- -- 26,910
--------- --------- ------ ------- --------- ---------
164,960 950,404 -- 34,868 234 1,150,466
Selling, general and administrative
expense ............................................ 159,954 392,015 -- 14,285 8,183 574,437
Interest expense ................................. 1,088 384 -- 1,447 (862) 2,057
Other expense (income) ........................... (632,103) (6,075) -- 3,314 637,918 3,054
--------- --------- ------ ------- --------- ---------
636,021 564,080 -- 15,822 (645,005) 570,918
--------- --------- ------ ------- --------- ---------
Financial services:
Revenues ............................................ -- -- 123,626 -- -- 123,626
General and administrative expense .................. -- -- 77,769 -- (8,183) 69,586
Interest expense .................................... -- -- 5,281 -- -- 5,281
Other (income) ...................................... -- -- (16,344) -- -- (16,344)
--------- --------- ------ ------- --------- ---------
-- -- 56,920 -- 8,183 65,103
--------- --------- ------ ------- --------- ---------
Income before income taxes .......................... 636,021 564,080 56,920 15,822 (636,822) 636,021
Provision for income taxes .......................... 240,793 213,557 21,550 5,990 (241,097) 240,793
--------- --------- ------ ------- --------- ---------
Net income .......................................... $ 395,228 $ 350,523 $ 35,370 $ 9,832 $ (395,725) $ 395,228
========== ========== ======== ======== ========== =========
-15-
D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2003
NOTE J - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Income
Three Months Ended June 30, 2002
Non-Guarantor
Subsidiaries
------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
----------- ------------ ---------- -------- ------------ ----------
(In thousands)
Homebuilding:
Revenues:
Home sales ....................................... $ 239,827 $ 1,498,052 $ -- $ 12,310 $ -- $1,750,189
Land/lot sales ................................... 2,106 27,320 -- -- -- 29,426
--------- --------- ------ ------- --------- ---------
241,933 1,525,372 -- 12,310 -- 1,779,615
--------- --------- ------ ------- --------- ---------
Cost of sales:
Home sales ....................................... 184,347 1,221,525 -- 10,237 (59) 1,416,050
Land/lot sales ................................... 2,129 23,809 -- -- -- 25,938
--------- --------- ------ ------- --------- ---------
186,476 1,245,334 -- 10,237 (59) 1,441,988
--------- --------- ------ ------- --------- ---------
Gross profit:
Home sales ....................................... 55,480 276,527 -- 2,073 59 334,139
Land/lot sales ................................... (23) 3,511 -- -- -- 3,488
--------- --------- ------ ------- --------- ---------
55,457 280,038 -- 2,073 59 337,627
Selling, general and administrative
expense ............................................ 43,885 129,788 -- 1,465 1,882 177,020
Interest expense .................................... 1,018 446 -- 1 -- 1,465
Other expense (income) .............................. (158,949) (2,035) -- (132) 164,958 3,842
--------- --------- ------ ------- --------- ---------
169,503 151,839 -- 739 (166,781) 155,300
--------- --------- ------ ------- --------- ---------
Financial services:
Revenues ............................................ -- -- 28,864 -- -- 28,864
General and administrative expense .................. -- -- 20,102 -- (1,882) 18,220
Interest expense .................................... -- -- 1,155 -- -- 1,155
Other (income) ...................................... -- -- (4,714) -- -- (4,714)
--------- --------- ------ ------- --------- ---------
-- -- 12,321 -- 1,882 14,203
--------- --------- ------ ------- --------- ---------
Income before income taxes .......................... 169,503 151,839 12,321 739 (164,899) 169,503
Provision for income taxes .......................... 63,563 56,939 4,621 276 (61,836) 63,563
--------- --------- ------ ------- --------- ---------
Net income .......................................... $ 105,940 $ 94,900 $ 7,700 $ 463 $ (103,063) $ 105,940
=========== =========== ======== ======== =========== ==========
-16-
D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2003
NOTE J - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Income
Nine Months Ended June 30, 2002
Non-Guarantor
Subsidiaries
-----------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
----------- ------------ --------- ------- ------------ ----------
(In thousands)
Homebuilding:
Revenues:
Home sales ....................................... $ 641,378 $ 3,720,591 $ -- $ 48,315 $ -- $4,410,284
Land/lot sales ................................... 3,566 76,933 -- -- -- 80,499
--------- --------- ------ ------- --------- ---------
644,944 3,797,524 -- 48,315 -- 4,490,783
--------- --------- ------ ------- --------- ---------
Cost of sales:
Home sales ....................................... 502,674 3,031,487 -- 39,903 (274) 3,573,790
Land/lot sales ................................... 2,634 67,414 -- -- -- 70,048
--------- --------- ------ ------- --------- ---------
505,308 3,098,901 -- 39,903 (274) 3,643,838
--------- --------- ------ ------- --------- ---------
Gross profit:
Home sales ....................................... 138,704 689,104 -- 8,412 274 836,494
Land/lot sales ................................... 932 9,519 -- -- -- 10,451
--------- --------- ------ ------- --------- ---------
139,636 698,623 -- 8,412 274 846,945
Selling, general and administrative
expense ............................................ 116,930 318,241 -- 4,772 4,988 444,931
Interest expense .................................... 3,929 1,292 -- 13 (10) 5,224
Other expense (income) .............................. (410,501) (3,909) -- 6,257 412,141 3,988
--------- --------- ------ ------- --------- ---------
429,278 382,999 -- (2,630) (416,845) 392,802
--------- --------- ------ ------- --------- ---------
Financial services:
Revenues ............................................ -- -- 77,651 -- -- 77,651
General and administrative expense .................. -- -- 53,249 -- (4,988) 48,261
Interest expense .................................... -- -- 3,490 -- -- 3,490
Other (income) ...................................... -- -- (10,576) -- -- (10,576)
--------- --------- ------ ------- --------- ---------
-- -- 31,488 -- 4,988 36,476
--------- --------- ------ ------- --------- ---------
Income before income taxes .......................... 429,278 382,999 31,488 (2,630) (411,857) 429,278
Provision for income taxes .......................... 160,979 143,624 11,809 (987) (154,446) 160,979
--------- --------- ------ ------- --------- ---------
Net income .......................................... $ 268,299 $ 239,375 $ 19,679 $ (1,643) $ (257,411) $ 268,299
=========== ============ ========= ======== =========== ==========
-17-
D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2003
NOTE J - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2003
Non-Guarantor
Subsidiaries
----------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ --------- ------- ------------ ---------
(In thousands)
OPERATING ACTIVITIES
Net income .......................................... $ 395,228 $ 350,523 $ 35,370 $ 9,832 $ (395,725) $ 395,228
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ...................... 5,592 21,764 1,317 1,368 -- 30,041
Amortization of debt premiums and fees ............. 5,848 -- -- -- -- 5,848
Changes in operating assets and liabilities:
(Increase) decrease in inventories ................ (160,569) (396,464) -- 11,447 (168) (545,754)
(Increase) decrease in earnest money
deposits and other assets ........................ 55,911 (33,440) 3,027 131 (4,668) 20,961
Increase in mortgage loans held for sale ........... -- -- (61,387) -- -- (61,387)
Increase (decrease) in accounts payable
and other liabilities ............................ (16,780) 92,943 (2,196) 14,924 24 88,915
--------- --------- ------ ------- --------- ---------
Net cash provided by (used in) operating
activities ......................................... 285,230 35,326 (23,869) 37,702 (400,537) (66,148)
--------- --------- ------ ------- --------- ---------
INVESTING ACTIVITIES
Net purchases of property and equipment ............. (4,528) (23,439) (1,385) (1,893) -- (31,245)
--------- --------- ------ ------- --------- ---------
Net cash used in investing activities ............... (4,528) (23,439) (1,385) (1,893) -- (31,245)
--------- --------- ------ ------- --------- ---------
FINANCING ACTIVITIES
Net change in notes payable ......................... 339,422 (9,805) 22,687 (11,909) -- 340,395
Increase (decrease) in intercompany advances......... (569,020) 162,455 22,413 (16,385) 400,537 --
Purchase of treasury stock .......................... (29,522) -- -- -- -- (29,522)
Proceeds from stock associated with certain
employee benefit plans ............................. 7,645 -- -- -- -- 7,645
Cash dividends paid ................................. (29,227) -- -- -- -- (29,227)
--------- --------- ------ ------- --------- ---------
Net cash provided by (used in) financing
activities ......................................... (280,702) 152,650 45,100 (28,294) 400,537 289,291
Increase in cash .................................... -- 164,537 19,846 7,515 -- 191,898
Cash at beginning of period ......................... -- 80,273 12,238 11,833 -- 104,344
--------- --------- ------ ------- --------- ---------
Cash at end of period ............................... $ -- $ 244,810 $ 32,084 $ 19,348 $ -- $ 296,242
========== ========== ======== ======== ========== ==========
-18-
D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 2003
NOTE J - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2002
Non-Guarantor
Subsidiaries
-----------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
----------- ------------ --------- -------- ------------ --------
(In thousands)
Net income ........................................... $ 268,299 $ 239,375 $ 19,679 $ (1,643) $(257,411) $ 268,299
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ...................... 3,065 14,075 1,102 379 -- 18,621
Amortization of debt premiums and fees ............. 5,991 -- -- -- -- 5,991
Changes in operating assets and liabilities:
Increase in inventories .......................... (115,340) (150,207) -- (46,220) (6) (311,773)
Increase in earnest money deposits
and other assets ................................ (19,419) (8,916) (2,068) (2,281) (5,590) (38,274)
Increase in mortgage loans held for sale ......... -- -- (65,660) -- -- (65,660)
Increase (decrease) in accounts payable
and other liabilities ........................... (30,740) (96,768) 682 16,198 38 (110,590)
--------- --------- ------ ------- --------- ---------
Net cash provided by (used in) operating
activities ........................................ 111,856 (2,441) (46,265) (33,567) (262,969) (233,386)
--------- --------- ------ ------- --------- ---------
INVESTING ACTIVITIES
Net purchases of property and equipment ............ (4,014) (21,317) (1,908) (916) -- (28,155)
Distributions from venture capital entities ........ -- -- -- 250 -- 250
Net cash paid for acquisitions ..................... -- (152,662) -- -- -- (152,662)
--------- --------- ------ ------- --------- ---------
Net cash used in investing activities .............. (4,014) (173,979) (1,908) (666) -- (180,567)
--------- --------- ------ ------- --------- ---------
FINANCING ACTIVITIES
Net change in notes payable ........................ 478,331 (266,436) 21,989 (3,897) 5,551 235,538
Increase (decrease) in intercompany advances........ (581,235) 469,448 32,378 46,856 32,553 --
Proceeds from stock associated with certain
employee benefit plans ........................... 12,380 -- -- -- -- 12,380
Cash dividends/distributions paid .................. (17,318) (224,865) -- -- 224,865 (17,318)
--------- --------- ------ ------- --------- ---------
Net cash provided by (used in) financing
activities ....................................... (107,842) (21,853) 54,367 42,959 262,969 230,600
--------- --------- ------ ------- --------- ---------
Increase (decrease) in cash ........................ -- (198,273) 6,194 8,726 -- (183,353)
Cash at beginning of period ........................ -- 230,481 6,975 1,824 -- 239,280
--------- --------- ------ ------- --------- ---------
Cash at end of period .............................. $ -- $ 32,208 $ 13,169 $ 10,550 $ -- $ 55,927
=========== =========== ======== ======== ========== =========
-19-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
We believe that there have been no significant changes to our critical
accounting policies during the nine months ended June 30, 2003, as compared to
those we disclosed in Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Annual Report on Form 10-K
for the year ended September 30, 2002.
RESULTS OF OPERATIONS - CONSOLIDATED
We provide homebuilding services in 20 states and 44 markets through our 47
homebuilding divisions. Through our financial services operations, we also
provide mortgage banking and title agency services in many of these same
markets. On February 21, 2002, Schuler Homes, Inc. ("Schuler") merged into D.R.
Horton, Inc., with D.R. Horton continuing as the surviving corporation.
Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002
Consolidated revenues for the three months ended June 30, 2003, increased 22.3%,
to $2,212.4 million, from $1,808.5 million for the comparable period of 2002,
due to increases in both homebuilding and financial services revenues.
Income before income taxes for the three months ended June 30, 2003, increased
48.0%, to $250.9 million, from $169.5 million for the comparable period of 2002.
As a percentage of revenues, income before income taxes for the three months
ended June 30, 2003, increased 1.9 percentage points, to 11.3% from 9.4% for the
comparable period of 2002, primarily due to the effects of purchase accounting
adjustments related to the Schuler acquisition in the three months ended June
30, 2002.
The consolidated provision for income taxes increased 50.0%, to $95.3 million
for the three months ended June 30, 2003, from $63.6 million for the same period
of 2002, due to the corresponding increase in income before income taxes and an
increase in the effective income tax rate. The effective income tax rate for the
three months ended June 30, 2003 increased to 38.0%, from 37.5% for the
comparable period of 2002, due primarily to increases in pre-tax income in
states with higher tax rates.
Nine Months Ended June 30, 2003 Compared to Nine Months Ended June 30, 2002
Consolidated revenues for the nine months ended June 30, 2003, increased 28.4%,
to $5,865.9 million, from $4,568.4 million for the comparable period of 2002,
due to increases in both homebuilding and financial services revenues.
Approximately $498.8 million of the increase in homebuilding revenues was
attributable to revenues generated by Schuler prior to the February 21, 2003
anniversary date of the acquisition.
Income before income taxes for the nine months ended June 30, 2003, increased
48.2%, to $636.0 million, from $429.3 million for the comparable period of 2002.
As a percentage of revenues, income before income taxes for the nine months
ended June 30, 2003, increased 1.4 percentage points, to 10.8% from 9.4% for the
comparable period of 2002, primarily due to the effects of purchase accounting
adjustments related to the Schuler acquisition in the nine months ended June 30,
2002.
The consolidated provision for income taxes increased 49.6%, to $240.8 million
for the nine months ended June 30, 2003, from $161.0 million for the same period
of 2002, due to the corresponding increase in income before income taxes and an
increase in the effective income tax rate. The effective income tax rate for the
nine months ended June 30, 2003 increased to 37.9%, from 37.5% for the
comparable period of 2002, due primarily to increases in pre-tax income in
states with higher tax rates.
-20-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - HOMEBUILDING
The following tables set forth certain operating and financial data for our
homebuilding activities ($ in millions):
Percentages of Homebuilding Revenues
---------------------------------------
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
2003 2002 2003 2002
---- ---- ---- ----
Costs and expenses:
Cost of sales ................ 79.7% 81.0% 80.0% 81.2%
Selling, general and
administrative expense..... 9.6 9.9 10.0 9.9
Interest expense ............. 0.1 0.1 -- 0.1
--- --- ---- ---
Total costs and expenses ..... 89.4 91.0 90.0 91.2
Other expense ................ 0.1 0.3 0.1 0.1
--- --- --- ---
Income before income taxes ... 10.5% 8.7% 9.9% 8.7%
==== === === ===
Homes Closed Three Months Ended June 30, Nine Months Ended June 30,
- ------------ --------------------------- --------------------------
2003 2002 2003 2002
----------------- ------------------ ------------------- -------------------
Homes Homes Homes Homes
Closed Revenues Closed Revenues Closed Revenues Closed Revenues
------ -------- ------ -------- ------ -------- ------ --------
Mid-Atlantic ............... 833 $ 175.0 788 $ 167.3 2,241 $ 463.7 2,016 $ 431.0
Midwest .................... 468 118.2 472 119.4 1,335 335.3 1,323 333.5
Southeast .................. 1,099 194.8 838 139.1 3,025 519.8 2,516 429.7
Southwest .................. 3,581 607.7 3,062 516.4 9,938 1,677.9 7,971 1,352.9
West ....................... 3,024 1,013.2 2,717 808.0 7,868 2,556.5 6,381 1,863.2
----- -------- ----- -------- ----- ------- ----- -------
9,005 $2,108.9 7,877 $1,750.2 24,407 $ 5,553.2 20,207 $ 4,410.3
===== ======== ===== ======== ====== ========= ====== =========
Net New Sales Orders Three Months Ended June 30, Nine Months Ended June 30,
- -------------------- --------------------------- --------------------------
2003 2002 2003 2002
--------------- ------------------ ------------------ ------------------
Homes Homes Homes Homes
Sold $ Sold $ Sold $ Sold $
------ -------- ------- ------- ------- -------- ------- --------
Mid-Atlantic ............... 952 $ 216.1 960 $ 201.3 2,666 $ 577.1 2,471 $ 512.0
Midwest .................... 503 138.0 543 126.8 1,454 385.6 1,394 341.1
Southeast .................. 1,213 237.7 976 161.9 3,314 623.0 2,680 438.6
Southwest .................. 4,317 715.5 3,520 590.5 11,561 1,924.6 9,537 1,583.7
West ....................... 3,826 1,311.1 3,066 954.1 9,616 3,246.0 6,744 2,014.1
----- ------- ----- ------- ------ ------- ----- -------
10,811 $2,618.4 9,065 $2,034.6 28,611 $ 6,756.3 22,826 $ 4,889.5
====== ======== ===== ======== ====== ========= ====== =========
Sales Backlog June 30, 2003 June 30, 2002
-------------- --------------------- ---------------------
Homes $ Homes $
------- ---------- ------- ---------
Mid-Atlantic.............................. 1,678 $ 378.3 1,277 $ 271.3
Midwest................................... 1,035 288.9 989 270.4
Southeast................................. 1,958 377.9 1,628 262.4
Southwest................................. 6,809 1,134.4 5,868 984.4
West...................................... 5,421 1,848.9 3,824 1,159.7
----- ------- ----- -------
16,901 $4,028.4 13,586 $2,948.2
====== ======== ====== ========
-21-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our market regions consist of the following markets:
Mid-Atlantic Charleston, Charlotte, Columbia, Greensboro, Greenville,
Hilton Head, Maryland-D.C., Myrtle Beach, New Jersey,
Raleigh/Durham and Virginia-D.C.
Midwest Chicago and Minneapolis/St. Paul
Southeast Atlanta, Birmingham, Fort Myers/Naples, Jacksonville,
Miami/West Palm Beach and Orlando
Southwest Albuquerque, Austin, Dallas, Fort Worth, Houston,
Killeen, Phoenix, San Antonio and Tucson
West Colorado Springs, Denver, Fort Collins, Hawaii, Inland
Empire (Southern California), Las Vegas, Los Angeles,
Oakland, Orange County, Portland, Sacramento, Salt Lake
City, San Francisco, San Diego, Seattle/Tacoma and
Ventura County
Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002
Revenues from homebuilding activities increased 21.8%, to $2,166.8 million
(9,005 homes closed) for the three months ended June 30, 2003, from $1,779.6
million (7,877 homes closed) for the comparable period of 2002. Revenues from
home sales increased in four of our five market regions, with percentage
increases ranging from 4.6% in the Mid-Atlantic region to 40.1% in the
Southeast region. Home sales revenues declined 1.0% in the Midwest region. The
increases in both revenues and homes closed were due to strong housing demand
throughout the majority of our markets. Revenues from the sale of land and lots
increased by $28.4 million, to $57.9 million in the three months ended June 30,
2003.
The average selling price of homes closed during the three months ended June 30,
2003 was $234,200, up 5.4% from $222,200 for the same period in 2002. The
increase in average selling price was due primarily to increases in average
selling prices of homes closed in the West and Southeast regions of 12.7% and
6.9%, respectively.
The value of net new sales orders increased 28.7%, to $2,618.4 million (10,811
homes) for the three months ended June 30, 2003, from $2,034.6 million (9,065
homes) for the same period of 2002. The value of net new sales orders increased
in all five market regions, with percentage increases ranging from 7.3% in the
Mid-Atlantic region to 46.9% in the Southeast region. The increases in both net
new sales orders and their value were due to strong housing demand throughout
the majority of our markets. The average price of a net new sales order in the
three months ended June 30, 2003 was $242,200, up 7.9% from the $224,400 average
in the comparable period of 2002. Increases in the average amounts of new sales
orders occurred in four of our five market regions, ranging from 8.2% in the
Mid-Atlantic region to 18.2% in the Southeast region. In the Southwest region,
we refocused our marketing efforts on entry-level home buyers in selected Texas
markets and in Phoenix. As a result, we sold 22.6% more homes in the three
months ended June 30, 2003, than in the comparable period of 2002, but the
average amount of each sales order declined 1.2%, to $165,700.
At June 30, 2003, the value of our backlog of sales orders was $4,028.4 million
(16,901 homes), up 36.6% from $2,948.2 million (13,586 homes) at June 30, 2002.
The value of our backlog of sales orders increased in all five of our market
regions, with percentage increases ranging from 6.8% in the Midwest region to
59.4% in the West region. The average sales price of homes in sales backlog was
$238,400 at June 30, 2003, up 9.9% from the average price of $217,000 at June
30, 2002. The West region, with the highest average prices in the Company, was
the primary cause of the overall increase in average price of homes in backlog
at June 30, 2003.
Cost of sales increased by 19.8%, to $1,726.8 million for the three months ended
June 30, 2003, from $1,442.0 million for the comparable period of 2002. 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 decreased
1.4 percentage points to 79.5% for the three months ended June 30, 2003, from
80.9% for the comparable period of 2002. A significant portion of costs
associated with the sales of inventory acquired in the Schuler acquisition, with
lower gross margins as a result of purchase accounting adjustments that
increased the acquired inventory to its fair value as of the date of
acquisition, was recognized in the three months ended June 30, 2002. For the
same reason, total homebuilding cost of sales as a percentage of total
homebuilding revenues decreased 1.3 percentage points, to 79.7% in the three
months ended June 30, 2003, from 81.0% in the comparable period of 2002.
-22-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Selling, general and administrative (SG&A) expenses from homebuilding activities
increased by 17.5%, to $208.0 million in the three months ended June 30, 2003,
from $177.0 million in the comparable period of 2002. As a percentage of
homebuilding revenues, SG&A expenses decreased 0.3 percentage points, to 9.6%
for the three months ended June 30, 2003, from 9.9% in the comparable period of
2002, due primarily to the continued success of our cost containment efforts and
the increased revenues that absorb the fixed elements of overhead.
Interest expense associated with homebuilding activities increased 16.2% , to
$1.7 million in the three months ended June 30, 2003, from $1.5 million in the
comparable period of 2002. During the three months ended June 30, 2003,
average inventory under construction or development consistently exceeded the
average amounts of interest-bearing debt. We follow a policy of capitalizing
only the incurred interest and other financial costs that are associated with
inventory under construction or development. Therefore, except for the $1.3
million in unamortized discount and issuance costs associated with the retire-
ment of the 10% senior notes we redeemed in May 2003, we capitalized to
inventory virtually all of the homebuilding interest and other financing costs
we incurred in the three months ended June 30, 2003. Capitalized interest and
other financing costs are included in cost of sales at the time homes are
closed.
Other expense associated with homebuilding activities was $3.3 million in the
three months ended June 30, 2003, compared to $3.8 million in the comparable
period of 2002. Other expense in both quarters was primarily due to decreases in
the fair value of our interest rate swap agreements.
Nine Months Ended June 30, 2003 Compared to Nine Months Ended June 30, 2002
Revenues from homebuilding activities increased 27.9%, to $5,742.2 million
(24,407 homes closed) for the nine months ended June 30, 2003, from $4,490.8
million (20,207 homes closed) for the comparable period of 2002. Revenues from
home sales increased in all of the Company's five market regions, with
percentage increases ranging from 0.5% in the Midwest region to 37.2% in the
West region. The increases in total homebuilding revenues and revenues from home
sales were due to strong housing demand throughout the majority of our markets,
and the acquisition of Schuler. Excluding the activities of Schuler prior to the
February 21, 2003 anniversary date of the acquisition, home sales revenues
increased 15.1% to $5,075.1 million (22,883 homes closed) for the nine months
ended June 30, 2003, from $4,410.3 million (20,207 homes closed) for the
comparable period of 2002. Revenues from the sale of land and lots increased to
$189.1 million, from $80.5 million in the nine months ended June 30, 2003.
The average selling price of homes closed during the nine months ended June 30,
2003 was $227,500, up 4.2% from $218,300 for the same period in 2002. The
increase in average selling price was primarily due to the Schuler acquisition.
Schuler's operations are concentrated on the West Coast and in Hawaii, where
average home selling prices are significantly higher than in the rest of the
United States.
The value of net new sales orders increased 38.2%, to $6,756.3 million (28,611
homes) for the nine months ended June 30, 2003, from $4,889.5 million (22,826
homes) for the same period of 2002. The value of net new sales orders increased
in all of the Company's five market regions, with percentage increases ranging
from 12.7% in the Mid-Atlantic region to 61.2% in the West region. Excluding the
activities of Schuler prior to the February 21, 2003 anniversary date of the
acquisition, the value of net new sales orders increased 23.7%, to $6,046.9
million (26,592 homes) for the nine months ended June 30, 2003, from $4,889.5
million (22,826 homes) for the comparable period of 2002. The average price of a
net new sales orders in the nine months ended June 30, 2003 was $236,100, up
10.2% over the $214,200 average in the nine months ended June 30, 2002, due to
increased sales orders in the West region, which has the highest average selling
price of all our regions.
Cost of sales increased 26.0%, to $4,591.8 million for the nine months ended
June 30, 2003, from $3,643.8 million for the comparable period of 2002. 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 decreased
1.2 percentage points, to 79.8% for the nine months ended June 30, 2003, from
81.0% for the comparable period of 2002. A significant portion of costs
associated with the sales of inventory acquired in the Schuler acquisition, with
lower gross margins as a result of purchase accounting adjustments
-23-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
that increased the acquired inventory to its fair value as of the date of
acquisition, was recognized in the nine months ended June 30, 2002. For the same
reason, total homebuilding cost of sales as a percentage of total homebuilding
revenues decreased 1.2 percentage points, to 80.0% in the nine months ended June
30, 2003, from 81.2% in the comparable period of 2002.
Selling, general and administrative (SG&A) expenses from homebuilding activities
increased by 29.1%, to $574.4 million in the nine months ended June 30, 2003,
from $444.9 million in the comparable period of 2002. As a percentage of
homebuilding revenues, SG&A expenses for the nine months ended June 30, 2003
were consistent with the comparable period of 2002, increasing to 10.0% of
revenues from 9.9% in the year earlier period.
Interest expense associated with homebuilding activities decreased to $2.1
million in the nine months ended June 30, 2003, from $5.2 million in the
comparable period of 2002. During the nine months ended June 30, 2003, average
inventory under struction or development consistently exceeded the average
amounts of interest-bearing debt. We follow a policy of capitalizing only the
incurred interest and other financing costs that are associated with inventory
under construction or development. Therefore, except for the $1.3 million in
unamortized discount and issuance costs associated with the retirement of the
10% senior notes we redeemed in May 2003, we capitalized to inventory virtually
all of the homebuilding interest and other financing costs we incurred in the
nine months ended June 30, 2003. Capitalized interest and other financing
costs are included in cost of sales at the time homes are closed.
Other expense associated with homebuilding activities was $3.1 million in the
nine months ended June 30, 2003, compared to $4.0 million in the comparable
period of 2002. The expense in both periods was primarily due to write-downs to
estimated fair value of the carrying amounts of our investments in start-up and
emerging growth companies and the decline in the fair value of our interest rate
swap agreements during the periods.
RESULTS OF OPERATIONS - FINANCIAL SERVICES
Financial services include mortgage financing and title insurance agency and
closing services, primarily related to purchases of homes we build and sell. We
provide mortgage services in Arizona, California, Colorado, Florida, Georgia,
Illinois, Maryland, Minnesota, Nevada, New Mexico, North Carolina, Oregon, South
Carolina, Texas, Virginia and Washington. We provide title agency and closing
services in Arizona, Florida, Georgia, Maryland, Minnesota, Texas, Virginia and
Washington. The following table summarizes financial and other information for
our financial services operations:
Three Months Ended Nine Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
($ in thousands)
Number of loans originated.................................... 7,720 5,134 20,322 13,581
-------- -------- -------- --------
Loan origination fees......................................... $ 8,909 $ 5,884 $ 22,841 $ 14,702
Sale of servicing rights and gains from sale of mortgages..... 22,528 13,485 63,708 37,785
Other revenues................................................ 5,062 2,144 12,570 6,777
-------- -------- -------- --------
Total mortgage banking revenues............................... 36,499 21,513 99,119 59,264
Title policy premiums, net.................................... 9,120 7,351 24,507 18,387
-------- -------- -------- --------
Total revenues................................................ 45,619 28,864 123,626 77,651
General and administrative expense............................ 25,344 18,220 69,586 48,261
Interest expense.............................................. 1,732 1,155 5,281 3,490
Interest/other (income)....................................... (5,434) (4,714) (16,344) (10,576)
-------- -------- -------- --------
Income before income taxes.................................... $ 23,977 $ 14,203 $ 65,103 $ 36,476
======== ======== ======== ========
-24-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002
Revenues from financial services increased 58.0%, to $45.6 million in the
three months ended June 30, 2003, from $28.9 million in the comparable period
of 2002. The increase in financial services revenues was due to the rapid
expansion of our mortgage loan and title services provided to customers of our
homebuilding segment. General and administrative expenses associated with
financial services increased 39.1%, to $25.3 million in the three months ended
June 30, 2003, from $18.2 million in the comparable period of 2002. As a
percentage of financial services revenues, general and administrative expenses
decreased 7.5 percentage points, to 55.6% in the three months ended June 30,
2003, from 63.1% in the comparable period in 2002, due primarily to efficiencies
realized with the increase in revenues in markets entered in 2002.
Nine Months Ended June 30, 2003 Compared to Nine Months Ended June 30, 2002
Revenues from financial services increased 59.2%, to $123.6 million in the
nine months ended June 30, 2003, from $77.7 million in the comparable
period of 2002. 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. General and administrative
expenses associated with financial services increased 44.2%, to $69.6 million in
the nine months ended June 30, 2003, from $48.3 million in the comparable period
of 2002. As a percentage of financial services revenues, general and
administrative expenses decreased by 5.9 percentage points, to 56.3% in the nine
months ended June 30, 2003, from 62.2% in the comparable period in 2002, due
primarily to efficiencies realized with the increase in revenues in markets
entered in 2002.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2003, we had available cash and cash equivalents of $296.2 million.
Inventories (including finished homes, construction in progress, and developed
residential lots and other land), at June 30, 2003, had increased by $654.2
million since September 30, 2002, due to a general increase in business activity
and the expansion of operations in our market areas. The inventory increase was
financed largely by issuing senior notes and by retaining earnings. Our
revolving credit facility had no amounts outstanding at either June 30, 2003 or
September 30, 2002. Our ratio of homebuilding notes payable (net of cash) to
total capital at June 30, 2003 decreased 5.4 percentage points, to 45.9% from
51.3% at September 30, 2002. The stockholders' equity to total assets ratio
increased 3.3 percentage points, to 41.0% at June 30, 2003, from 37.7% at
September 30, 2002.
We have an $805 million, unsecured revolving credit facility, including $250
million which may be used for letters of credit. As of June 30, 2003, the
letters of credit limit was $125 million and increased to $250 million on August
5, 2003. The facility matures in January 2006, and is guaranteed by
substantially all of our wholly-owned subsidiaries other than those that make up
our financial services segment. At June 30, 2003, we had outstanding
homebuilding debt of $2,667.0 million. Under the debt covenants associated with
the revolving credit facility, our additional borrowing capacity under it is
limited to the lesser of the unused portion of the facility, $694.7 million at
June 30, 2003, or an amount determined under a borrowing base arrangement. Under
the borrowing base limitation, the sum of our senior debt and the amount drawn
under our revolving credit facility may not exceed certain percentages of the
various categories of our unencumbered inventory. At June 30, 2003, the
borrowing base arrangement would have limited our additional borrowing capacity
from any source to $1,601.1 million. At June 30, 2003, we were in compliance
with all of the covenants, limitations and restrictions that form a part of our
public debt obligations and our bank revolving credit facility. We have entered
into multi-year interest rate swap agreements, aggregating a notional amount of
$200 million, that have the effect of fixing the interest rate on a portion of
the variable rate revolving credit facility at 5.1%.
In the normal course of business, we provide standby letters of credit and
performance bonds, issued by third parties, to secure performance under various
contracts. At June 30, 2003, outstanding standby letters of credit and
performance bonds, the majority of which mature in less than one year, were
$133.0 million and $1,074.1 million, respectively.
-25-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
At June 30, 2003, our financial services segment had mortgage loans held for
sale of $525.5 million and loan commitments for $480.7 million at fixed rates.
We hedge the interest rate risk on these mortgage loans and mortgage loan
commitments through the use of best-efforts whole loan delivery commitments,
forward sales of mortgage-backed securities and the infrequent purchase of
options on financial instruments. We record gains or losses related to such
hedging instruments in other income as their market values change. Such gains
and losses have not significantly affected our financial services results of
operations.
Currently, our wholly-owned mortgage company has a mortgage warehouse loan
facility in the amount of $230 million which matures on February 12, 2004, and
which is secured by certain mortgage loans held for sale. The mortgage warehouse
facility is not guaranteed by either the parent company or any of the
subsidiaries that guarantee our homebuilding debt and is expected to be renewed
at maturity in the ordinary course of business. At June 30, 2003, $214.0 million
had been drawn under the mortgage warehouse facility. Our wholly-owned mortgage
company completed a $100 million mortgage-backed commercial paper conduit
facility (the "CP conduit facility") in July 2002. The CP conduit facility was
increased to $200 million in November 2002, and to $300 million on July 25,
2003. Although the current agreement governing the CP conduit facility expires
on June 29, 2006, maintenance of the facility beyond the first (and subsequent)
anniversary date(s) must be annually approved by the sponsoring bank. The CP
conduit facility is also secured by certain mortgage loans held for sale and is
not guaranteed by either the parent company or any of the subsidiaries that
guarantee our homebuilding debt. As of June 30, 2003, $200.0 million had been
drawn under the CP conduit facility. The mortgage loans pledged to secure the CP
conduit facility are used as collateral for mortgage-backed securities sold in
the secondary commercial paper markets at rates that are more attractive than
those applicable to the mortgage warehouse facility. All mortgage company
activities are financed with the mortgage warehouse facility, the CP conduit
facility or internally generated funds. Both of the financial services' credit
facilities contain financial covenants with which we are in compliance.
Our historical strategy of internal growth and growth by acquisition has
required significant amounts of cash. It is anticipated that future home
construction, lot and land purchases and acquisitions will be funded through
internally generated funds, existing and future credit facilities and the
issuance of new debt or equity securities. Under a currently effective shelf
registration statement, we have approximately 15 million shares of common stock
issuable to effect, in whole or in part, possible future acquisitions. Under
another effective shelf registration statement, we have, at June 30, 2003, the
capacity to issue new debt or equity securities amounting to $485 million. In
the future, the Company intends to continue to maintain effective shelf
registration statements that will facilitate access to the capital markets.
On December 3, 2002, we issued $215 million of 7 1/2% senior notes due 2007. The
net proceeds from this offering were used to repay borrowings under the
unsecured revolving credit facility. These notes are guaranteed by substantially
all of our wholly-owned subsidiaries other than our financial services
subsidiaries.
On April 17, 2003, we issued $200 million of 6 7/8% senior notes due 2013. The
majority of the net proceeds from this offering were used to redeem the
approximately $148.5 million aggregate principal amount outstanding of our 10%
senior notes due 2006, at a redemption price of 100% of the principal amount.
These notes are guaranteed by substantially all of our wholly-owned subsidiaries
other than our financial services subsidiaries.
On June 18, 2003, we issued $100 million of 5 7/8% senior notes due 2013.The net
proceeds from this offering were used to redeem the approximately $100 million
aggregate principal amount outstanding of our 9% senior notes due 2008. These
notes were called for full redemption on June 25, 2003 and redeemed on July 25,
2003, at a redemption price of 104.5% of the principal amount, together with
accrued and unpaid interest thereon to the redemption date. The 5 7/8% senior
notes due 2013 are guaranteed by substantially all of our wholly-owned
subsidiaries other than our financial services subsidiaries.
-26-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On May 27, 2003, we called the zero coupon convertible senior notes for
redemption. The call for redemption gave the note holders the right to convert
their notes into shares of our common stock. As a result, all of the notes were
presented by June 26, 2003, for conversion into D.R. Horton common stock, and
accordingly we issued approximately 10 million shares of common stock in
exchange for the notes.
In the nine months ended June 30, 2003, we repurchased 1,672,500 shares of
our common stock in open market purchases at an aggregate purchase price of
$29.5 million. In July 2003, we purchased an additional 173,000 shares at an
aggregate price of $4.9 million. On July 31, 2003, our Board of Directors
increased the authorizations for repurchases of our common stock to $200 million
and of our outstanding debt securities to an additional $200 million.
On April 28, 2003, we, at the direction of our Board of Directors, declared a
quarterly cash dividend of $0.07 per common share, which was paid on May 20,
2003 to stockholders of record on May 13, 2003.
At June 30, 2003, except for ordinary expenditures for the construction
of homes and the acquisition and development of land and lots, we had no
material commitments for capital expenditures.
In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46
provides guidance for the financial accounting and reporting of interests
in certain variable interest entities. FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements,"
to certain business entities that either have equity investors with no voting
rights or have equity investors that do not provide sufficient financial
resources for the entities to support their activities. FIN 46 requires
consolidation of such entities by any company that is subject to a majority
of the risk of loss from the entities' activities or is entitled to receive
a majority of the entities' residual returns or both. Furthermore,
disclosures about significant interests in variable interest entities are
required even if the company is not required to consolidate them. The
consolidation requirements of FIN 46 are currently effective for all
interests in variable interest entities created after January 31, 2003, and will
be effective for all interests in variable interest entities created before
February 1, 2003 in the first fiscal year or interim period beginning after
June 15, 2003.
In the ordinary course of our business we enter into land and lot option
purchase contracts in order to procure land or lots for the construction of
homes. Under such option purchase contracts we will fund a stated deposit in
consideration for the right to purchase land or lots at a future point in time
with predetermined terms. Under the terms of the option purchase contracts, most
of our option deposits are non-refundable. Certain non-refundable deposits are
deemed to create a variable interest in a variable interest entity under the
requirements of FIN 46. As such, certain of our option purchase contracts result
in the acquisition of a variable interest in the entity holding the land parcel
under option. Our maximum exposure to loss associated with such variable
interest entities is limited to the amount of our option deposit.
In accordance with the implementation requirements of FIN 46, we have evaluated
all of our interests in variable interest entities created after January 31,
2003 and have begun our evaluation of our variable interests created prior to
February 1, 2003. Based upon our evaluations to date, we have consolidated
certain variable interest entities from which we are purchasing lots under
option contracts. The consolidation of these entities added $41.7 million in
inventory and minority interests to our balance sheet at June 30, 2003. Our
obligations related to these lot option contracts are guaranteed by performance
letters of credit totaling $17.3 million. Creditors, if any, of these variable
interest entities have no recourse against us.
We will complete the evaluations of all of our interests in variable interest
entities by September 30, 2003. Based on the results of evaluations completed
through June 30, 2003, we believe that FIN 46 will not materially affect our
financial position, results of operations or cash flows.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND 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 we make to analysts,
stockholders and the press in the course of presentations about us, may be
construed as "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. These forward-looking statements typically
include words such as "anticipate", "believe", "expect", "estimate", "project"
and "future". Any or all of the forward-looking statements included in this
report and in any other of our reports or public statements 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 risks and uncertainties relevant
to our business include factors we believe could adversely affect us. They
include, but are not limited to:
- changes in general economic, real estate and business conditions;
- changes in interest rates and the availability of mortgage financing;
- governmental regulations and environmental matters;
- our substantial leverage;
- competitive conditions within our industry;
- the availability of capital; and
- our ability to effect our growth strategies successfully.
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. Additional information about issues that
could lead to material changes in performance is contained in our annual report
on Form 10-K, which is filed with the Securities and Exchange Commission.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to interest rate risk on our long term debt. We monitor our
exposure to changes in interest rates and utilize both fixed and variable rate
debt. For fixed rate debt, changes in interest rates generally affect the value
of the debt instrument, but not our earnings or cash flows. Conversely, for
variable rate debt, changes in interest rates generally do not impact the fair
value of the debt instrument, but may affect our future earnings and cash flows.
We have mitigated our exposure to changes in interest rates on our variable rate
bank debt by entering into interest rate swap agreements to obtain a fixed
interest rate for a portion of the variable rate borrowings. We generally do not
have an obligation to prepay fixed-rate debt prior to maturity and, as a result,
interest rate risk and changes in fair value would not have a significant impact
on our fixed-rate debt until such time as we are required to refinance,
repurchase or repay such debt.
Our interest rate swaps were not designated as hedges under Statement of
Financial Accounting Standards No. 133 when it was adopted on October 1, 2000.
We are exposed to market risk associated with changes in the fair values of the
swaps and any such changes are reflected in our income statements.
Our financial services segment is exposed to interest rate risk associated with
its mortgage loan origination services. Mortgage loans are funded at fixed
interest rates before they are committed to specific investors and interest rate
lock commitments (IRLC's) are extended to borrowers who have applied for loan
funding and who meet certain defined credit and underwriting criteria. Forward
sales of mortgage-backed securities are designated as fair value hedges of the
risk of changes in the overall fair value of funded loans. Accordingly, changes
in the value of the derivative instruments are recognized in current earnings,
as are the changes in the value of the funded loans. The effectiveness of the
fair value hedge is continuously monitored and any ineffectiveness, which for
the three and nine month periods ended June 30, 2003 and 2002, was not
significant, is recognized in current earnings. The IRLC's are classified and
accounted for as non- designated derivative instruments with gains and losses
recorded in current earnings. Interest rate risk associated with IRLC's is
managed through the use of best-efforts whole loan delivery commitments, forward
sales of mortgage-backed securities and the infrequent purchase of options on
financial instruments. These instruments are considered non- designated
derivatives and are accounted for at fair market value with gains and losses
recorded in current earnings. At June 30, 2003, total forward sales of mortgage
backed securities to mitigate interest rate risk related to uncommitted mortgage
loans held for sale and IRLC's were approximately $284.0 million, the duration
of which was less than nine months.
The following table shows, as of June 30, 2003, our long term debt obligations,
principal cash flows by scheduled maturity, weighted average interest rates and
estimated fair market value. In addition, the table shows the notional amounts,
weighted average interest rates and estimated fair market value of our interest
rate swaps.
Three Months Year ended September 30, Fair
ended ------------------------------------------------- market
September 30, value at
2003 2004 2005 2006 2007 Thereafter Total 6/30/03
---- ---- ---- ---- ---- ---------- ----- -------
($'s in millions)
Debt:
Fixed rate ............... $ 117.1 $ 199.3 $ 220.5 $ 6.1 $ 1.9 $ 2,087.0 $ 2,631.9 $ 2,863.8
Average interest rate .... 8.34% 8.36% 10.51% 7.41% 6.15% 8.34% 8.52% --
Variable rate ............ $ 432.2 $ 4.7 -- -- -- -- $ 436.9 $ 436.9
Average interest rate .... 2.19% 3.40% -- -- -- -- 2.20% --
Interest Rate Swaps:
Variable to fixed ........ $ 200.0 $ 200.0 $ 200.0 $ 200.0 $ 200.0 $ 200.0 -- $ (24.9)
Average pay rate ......... 5.10% 5.10% 5.10% 5.10% 5.10% 5.02% -- --
Average receive rate ..... 90-day LIBOR
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ITEM 4. CONTROLS AND PROCEDURES.
The Company's management has long recognized its responsibilities for
developing, implementing and monitoring effective and efficient controls and
procedures. As part of those responsibilities, as of June 30, 2003, an
evaluation was performed under the supervision and with the participation of the
Company's management, including the Chief Executive Officer ("CEO") and Chief
Financial Officer ("CFO"), of the effectiveness of the design and operation of
the Company's disclosure controls and procedures pursuant to Rule 13a-14(c) and
Rule 15d-14(c) under the Securities Exchange Act of 1934. Based on that
evaluation, the CEO and CFO concluded that the Company's disclosure controls and
procedures were effective in timely alerting them to material information
relating to the Company, including its consolidated subsidiaries, required to be
included in the Company's periodic filings with the Securities and Exchange
Commission. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to June 30, 2003. Accordingly, there have been no corrective actions
taken as no significant deficiencies or material weaknesses were detected in
these controls.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
6.875% Senior Notes: On April 17, 2003, the Company issued $200,000,000 in
principal amount of its 6.875% Senior Notes due 2013 (the "6.875% Notes"). The
6.875% Notes bear interest from April 17, 2003 at 6.875% per annum, payable
semi-annually on May 1 and November 1 of each year commencing on November 1,
2003. As part of that issuance, the Company executed the Sixteenth Supplemental
Indenture, dated as of April 17, 2003, among the Company, the Guarantors named
therein and American Stock Transfer & Trust Company, as Trustee, authorizing the
6.875% Notes. On May 23, 2003, the Company used part of the proceeds from the
6.875% offering to fully redeem the 10% Senior Notes due April 2006 at a
redemption price of $1,010.56 per $1,000 face amount which included principal
and accrued interest to May 23, 2003.
The Supplemental Indenture, and the Indenture to which it relates (dated June 9,
1997, as supplemented), impose limitations on the ability of the Company and its
subsidiaries guaranteeing the 6.875% Notes to, among other things, incur
indebtedness, make "Restricted Payments" (as defined, which includes payments of
dividends or other distributions on the Common Stock of the Company), effect
certain "Asset Dispositions" (as defined therein), enter into certain
transactions with affiliates, merge or consolidate with any person, or transfer
all or substantially all of their properties and assets. These limitations are
substantially similar to the limitations already existing with respect to the
Company's other senior notes, and related indentures and supplemental
indentures.
Other information concerning the offering and issuance of the 6.875% Notes has
previously been reported in, and is described in the Company's Prospectus
Supplement, dated April 11, 2003 and filed with the Securities and Exchange
Commission (the "Commission") on April 15, 2003 pursuant to Rule 424(b)(5), and
the Company's current reports, on Form 8-K, dated April 15, 2003 and filed with
the Commission on April 15, 2003 and, dated April 11, 2003 and filed with the
Commission on April 17, 2003.
5.875% Senior Notes: On June 25, 2003, the Company issued $100,000,000 in
principal amount of its 5.875% Senior Notes due 2013 (the "5.875% Notes"). The
5.875% Notes bear interest from June 25, 2003 at 5.875% per annum, payable
semi-annually on each January 1 and July 1 of each year commencing on January 1,
2004. As part of that issuance, the Company executed the Seventeenth
Supplemental Indenture, dated as of June 25, 2003, among the Company, the
Guarantors named therein and American Stock Transfer & Trust Company, as
Trustee, authorizing the Notes. On July 25, 2003, the Company used the proceeds
from the 5.875% offering to fully redeem the 9% Senior Notes due April 2008 at a
redemption price of $1,070 per $1,000 face amount which included principal,
premium and accrued interest to July 25, 2003.
The Supplemental Indenture, and the Indenture to which it relates (dated June 9,
1997, as supplemented), impose limitations on the ability of the Company and its
subsidiaries guaranteeing the Notes to, among other things, incur indebtedness,
make "Restricted Payments" (as defined, which includes payments of dividends or
other distributions on the Common Stock of the Company), effect certain "Asset
Dispositions" (as defined therein), enter into certain transactions with
affiliates, merge or consolidate with any person, or transfer all or
substantially all of their properties and assets. These limitations are
substantially similar to the limitations already existing with respect to the
Company's other senior notes, and related indentures and supplemental
indentures.
Other information concerning the offering and issuance of the Notes has
previously been reported in, and is described in the Company's Prospectus
Supplement, dated June 18, 2003 and filed with the Commission on June 20, 2003
pursuant to Rule 424(b)(5), and the Company's current report, on Form 8-K, dated
June 18, 2003 and filed with the Commission on June 24, 2003.
Redemption of Zero Coupon Convertible Notes: On June 26, 2003, the Company
announced the results of the call of its Zero Coupon Convertible Senior Notes
due 2021. All of the Zero Coupon Convertible Senior Notes were presented for
conversion into approximately 10 million shares of D.R. Horton, Inc. common
stock. As a result, the Company decreased its debt account by approximately $214
million and increased its shareholders' equity account by approximately $219
million.
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ITEM 5. OTHER INFORMATION
Stock and Debt Repurchase Authorization and Stock Repurchase Activity. On July
31, 2003, the Company announced that its board of directors authorized the
Company to repurchase up to $200 million of its common stock and up to $200
million of senior and senior subordinated debt securities. These repurchase
programs replace the previous stock and debt repurchase authorizations. In July
2003, the Company repurchased approximately $4.9 million of its common stock
(173,000 shares), for a 2003 fiscal year to date total of approximately $34.4
million (1,845,500 shares).
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3.1 Amended and Restated Certificate of Incorporation, as amended,
of the Company is incorporated by reference from Exhibit 4.2
to the Company's registration statement (No. 333- 76175) on
Form S-3, filed with the Commission on April 13, 1999.
3.1(a) Amendment to Amended and Restated Certificate of
Incorporation, as amended, of the Company, effective February
6, 2003, is incorporated by reference from Exhibit 3.1(a) to
the Company's Quarterly Report on Form 10-Q/A, filed with the
Commission on February 18, 2003.
3.2 Amended and Restated Bylaws of the Company are incorporated by
reference from Exhibit 3.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1998, filed
with the Commission on February 16, 1999.
4.1 Indenture, dated June 9, 1997, among the Company, the
Guarantors named therein and American Stock Transfer & Trust
Company, as trustee, is incorporated by reference from Exhibit
4.1(a) to the Company's Registration Statement on Form S-3
(No. 333-27521) and filed with the Commission on May 21, 1997.
4.2 Sixteenth Supplemental Indenture by and among the Company, the
Guarantors named therein and American Stock Transfer & Trust
Company, as trustee, relating to the 6.875% Senior Notes due
2013 issued by the Company is incorporated by reference from
Exhibit 4.1 to the Company's Form 8-K dated April 11, 2003 and
filed with the Commission on April 17, 2003.
4.3 Seventeenth Supplemental Indenture by and among the Company,
the Guarantors named therein and American Stock Transfer &
Trust Company, as trustee, relating to the 5.875% Senior Notes
due 2013 issued by the Company is incorporated by reference
from Exhibit 4.1 to the Company's Form 8-K dated June 18, 2003
and filed with the Commission on June 24, 2003.
10.1 Seventh Amendment to Credit Agreement, dated February 28,
2003, among CH Mortgage Company I, LTD., as Borrower, U.S.
Bank National Association, as Agent, and Lenders referred to
therein, is filed herewith.
10.2 Eighth Amendment to Credit Agreement, dated August 12, 2003,
among CH Mortgage Company I, LTD., as Borrower, U.S. Bank
National Association, as Agent, and Lenders referred to
therein, is filed herewith.
10.3 Third Omnibus Amendment, dated April 18, 2003, among CH
Funding, LLC, Atlantic Asset Securitization Corp., Credit
Lyonnaise New York Branch, U.S. Bank National Association and
CH Mortgage Company I LTD., is filed herewith.
10.4 Fourth Omnibus Amendment, dated July 25, 2003 among CH
Funding, LLC, Atlantic Asset Securitization Corp., Credit
Lyonnaise New York Branch, U.S. Bank National Association and
CH Mortgage Company I, LTD., is filed herewith.
31.1 Certificate of Chief Executive Officer provided pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002, is filed
herewith.
31.2 Certificate of Chief Financial Officer provided pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002, is filed
herewith
32.1 Certificate provided pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, by the Company's Chief Executive Officer, is filed
herewith.
32.2 Certificate provided pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, by the Company's Chief Financial Officer, is filed
herewith.
- ------------
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(b) Reports on Form 8-K.
1. On April 8, 2003 the Company filed a Current Report on Form
8-K (Item 9 and Item 12), dated April 8, 2003, whereby it
filed with the Commission its press release related to the
Company's Net Sales Orders for the three and six-month periods
ended March 31, 2003.
2. On April 15, 2003, the Company filed a Current Report on Form
8-K (Item 5), dated April 15, 2003, whereby it filed with the
Commission unaudited pro forma combined condensed statements
of income for the year ended September 30, 2002, reflecting
the Company's acquisition of Schuler Homes, Inc.which occurred
on February 21, 2002.
3. On April 17, the Company filed a Current Report on Form 8-K
(Item 5, Item 7, Item 9 and Item 12), dated April 11, 2003
whereby the Company (i) announced its financial results for
the three-month and six-month periods ended March 31, 2003,
and issued a related press release and filed this press
release as exhibit 99.1 to the Form 8-K, and (ii) filed with
the Commission (a) an Underwriting Agreement, (b) the form of
Sixteenth Supplemental Indenture, (c) legal opinion, and (d)
statement of computation of ratios or earnings to fixed
charges, all relating to the offering and issuance of
$200,000,000 of the Company's 6.875% Senior Notes due 2013.
4. On June 24, 2003, the Company filed a Current Report on Form
8-K (Item 5 and Item 7), dated June 18, 2003, whereby the
Company filed with the Commission (i) an Underwriting Agree-
ment, (ii) the form of Seventeenth Supplemental Indenture,
(iii) legal opinion, and (iv) statement of computation of
ratios of earnings to fixed charges, all relating to the
offering and issuance of $100,000,000 of the Company's 5.875%
Senior Notes due 2013.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
D.R. HORTON, INC.
Date: August 14, 2003 By /s/ Samuel R. Fuller
------------------------
Samuel R. Fuller, on behalf of
D.R. Horton, Inc. and as
Executive Vice President,
Treasurer and Chief Financial
Officer (Principal Financial and
Accounting Officer)
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