FORM 10-K
Commission File Number 1-14122
D.R. HORTON, INC.
Securities registered pursuant to Section 12(b) of the Act:
Securities registered Pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o.
As of November 14, 2001, there were 76,909,368 shares of Common Stock, par value $.01 per share, issued and outstanding, and the aggregate market value of these shares held by non-affiliates of the registrant was approximately $1,647,739,000. Solely for purposes of this calculation, all directors and executive officers were excluded as affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for the 2002 Annual Meeting of Stockholders are incorporated herein by reference in Part III.
TABLE OF CONTENTS
PART 1
ITEM 1. BUSINESS
D.R. Horton, Inc. (the “Company”) is a national homebuilder. As such, we construct and sell single-family homes in metropolitan areas of the Mid-Atlantic, Midwest, Southeast, Southwest and West regions of the United States. We offer high quality homes, designed principally for first-time and move-up home buyers. Our homes generally range in size from 1,000 to 5,000 square feet and range in price from $80,000 to $900,000. For the year ended September 30, 2001, we closed 21,371 homes with an average sales price approximating $200,700.
We are one of the largest and most geographically diversified homebuilders in the United States, with operating divisions in 20 states and 38 markets as of September 30, 2001. The markets we operate in include: Albuquerque, Atlanta, Austin, Birmingham, Charleston, Charlotte, Chicago, Columbia, Dallas, Denver, Fort Myers/ Naples, Fort Worth, Greensboro, Greenville, Hilton Head, Houston, Jacksonville, Killeen, Las Vegas, Los Angeles, Louisville, Maryland-D.C., Miami/ West Palm Beach, Minneapolis/ St. Paul, Myrtle Beach, New Jersey, Orlando, Phoenix, Portland, Raleigh/ Durham, Richmond, Sacramento, Salt Lake City, San Antonio, San Diego, Tucson, Virginia-D.C. and Williamsburg.
We build homes under the following names: D.R. Horton, Arappco, Cambridge, Continental, Dietz Crane, Dobson, Emerald, Mareli, Milburn, Regency, SGS, Torrey and Trimark.
Our financial reporting segments consist of homebuilding and financial services. Our homebuilding operations comprise the most substantial part of our business, with more than 98% of consolidated revenues in fiscal 1999, 2000 and 2001. The homebuilding operations segment generates the majority of its revenues from the sale of completed homes with a lesser amount from the sale of land and lots. The financial services segment generates its revenues from originating and selling mortgages and collecting fees for title insurance and closing services. Financial information, including revenue, pre-tax income and identifiable assets of both of our reporting segments are included in the consolidated financial statements.
We were incorporated in Delaware on July 1, 1991, to acquire all of the assets and businesses of 25 predecessor companies, which were residential home construction and development companies owned or controlled by Donald R. Horton.
Our principal executive offices are located at 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006, our telephone number is (817) 856-8200, and our Internet website address is www.drhorton.com.
1
Operating Strategy
We believe that the following operating strategies have enabled us to achieve consistent growth and profitability:
From 1978 to late 1987, excluding locations acquired in our 1998 merger with Continental Homes, our homebuilding activities were conducted in the Dallas/ Fort Worth area. We then instituted a policy of diversifying geographically, entering the following of our current markets, both through startup operations and acquisitions, in the years shown:
We continually monitor the sales and margins achieved in each of the subdivisions in which we operate as part of our evaluation of the use of our capital. While we believe there are significant growth opportunities in our existing markets, we also intend to continue our policy of diversification by seeking to enter new markets. We believe our diversification strategy mitigates the effects of local and regional economic cycles and enhances our growth potential. Typically, we will not invest material amounts in real estate, including raw land, developed lots, models and speculative homes, or overhead in start-up operations in new markets, until such markets demonstrate significant growth potential and acceptance of our products.
As an integral component of our operational strategy of continued expansion, we continually evaluate opportunities for strategic acquisitions. We believe that expanding our operations through the acquisition of existing homebuilding companies affords us several benefits not found in start-up operations. Such benefits include:
In evaluating potential acquisition candidates, we seek homebuilding companies that have an excellent reputation, a track record of profitability and a strong management team with an entrepreneurial orientation.
2
We decentralize our homebuilding activities to give more operating flexibility to our local division presidents. We have 45 separate operating divisions, some of which are in the same market area. Generally, each operating division consists of a division president, an office manager and staff, a sales manager and sales personnel, and a construction manager and construction superintendents. We believe that division presidents, who are intimately familiar with local conditions, make better decisions regarding local operations. Our division presidents receive performance bonuses based upon achieving targeted operating levels in their operating divisions.
Each operating division is responsible for:
The corporate office controls key risk elements through centralized:
3
We control our overhead costs by centralized administrative and accounting functions and by limiting the number of field administrative personnel and middle level management positions. We also minimize advertising costs by participating in promotional activities, publications and newsletters sponsored by local real estate brokers, mortgage companies, utility companies and trade associations.
We control construction costs through the efficient design of our homes and by obtaining favorable pricing from certain subcontractors and national vendors based on the high volume of services and products they provide us. We also control construction costs by monitoring expenses on each house through our purchase order system. We control capital and overhead costs by monitoring our inventory levels through our management information systems.
Markets
We conduct homebuilding activities in five geographic regions, consisting of:
When entering new markets or conducting operations in existing markets, among the things we consider are:
4
Our homebuilding revenues by geographic region are:
Land Policies
Typically, we acquire land and enter into lot option contracts to acquire developed building lots only after necessary “entitlements” have been obtained,i.e., when we have the right to begin development or construction. Before we acquire lots or tracts of land, we will, among other things, complete a feasibility study, which includes soil tests, independent environmental studies and other engineering work, and determine that all necessary zoning and other governmental entitlements required to develop and use the property for home construction have been acquired. Although we purchase and develop land primarily to support our own homebuilding activities, occasionally we sell lots and land to other developers and homebuilders.
We also use lot option contracts, in which we purchase the right, but not the obligation, to buy building lots at predetermined prices on a takedown schedule commensurate with anticipated home closings. Lot option contracts generally are on a nonrecourse basis, thereby limiting our financial exposure to earnest money deposits given to property sellers. This enables us to control significant lot positions with a minimal capital investment and substantially reduces the risks associated with land ownership and development. At September 30, 2001, about 46% of our total lot position of 115,655 lots was under option contracts.
A summary of our land/lot position at September 30, 2001 is:
We limit our exposure to real estate inventory risks by:
5
Construction
Our home designs are prepared by architects in each of our markets to appeal to local tastes and preferences of the community. We also offer optional interior and exterior features to enhance the basic home design and to promote our sales efforts.
Substantially all of our construction work is performed by subcontractors. Our construction supervisors monitor the construction of each home, participate in material design and building decisions, coordinate the activities of subcontractors and suppliers, subject the work of subcontractors to quality and cost controls and monitor compliance with zoning and building codes. Subcontractors typically are retained for a specific subdivision pursuant to a contract that obligates the subcontractor to complete construction at a fixed price. Agreements with our subcontractors and suppliers generally are negotiated for each subdivision. We compete with other homebuilders for qualified subcontractors, raw materials and lots in the markets where we operate.
Construction time for our homes depends on the weather, availability of labor, materials and supplies, size of the home, and other factors. We typically complete the construction of a home within four months.
We do not maintain significant inventories of construction materials, except for work in process materials for homes under construction. Typically, the construction materials used in our operations are readily available from numerous sources. We have contracts exceeding one year with certain suppliers of our building materials that are cancellable at our option with a 30 day notice. In recent years, we have not experienced any significant delays in construction due to shortages of materials or labor.
Marketing and Sales
We market and sell our homes through commissioned employees and independent real estate brokers. We typically conduct home sales from sales offices located in furnished model homes in each subdivision. At September 30, 2001, we owned 942 model homes, which we generally do not offer for sale until the completion of a subdivision. Our sales personnel assist prospective home buyers by providing them with floor plans, price information, tours of model homes and the selection of options and other custom features. We train and inform our sales personnel as to the availability of financing, construction schedules, and marketing and advertising plans.
In addition to using model homes, we typically build a limited number of speculative homes in each subdivision to enhance our marketing and sales activities. Construction of these speculative homes also is necessary to satisfy the requirements of relocated personnel and independent brokers, who often represent home buyers requiring a completed home within 60 days. We sell a majority of these speculative homes while they are under construction or immediately following completion. The number of speculative homes is influenced by local market factors, such as new employment opportunities, significant job relocations, growing housing demand and the length of time we have built in the market. Depending upon the seasonality of each market, we attempt to limit our speculative homes in each subdivision. At September 30, 2001, we averaged less than five speculative homes, in various stages of construction, in each subdivision.
We advertise on a limited basis in newspapers and in real estate broker, mortgage company and utility publications, brochures, newsletters and on billboards. In addition, we use our Internet web site to market the location, price range, and availability of our homes. To minimize advertising costs, we attempt to operate in subdivisions in conspicuous locations that permit us to take advantage of local traffic patterns. We also believe that model homes play a significant role in our marketing efforts. Consequently, we expend significant effort in creating an attractive atmosphere in our model homes.
Our sales contracts require a down payment of at least $500. The contracts include a financing contingency which permits customers to cancel if they cannot obtain mortgage financing at prevailing interest rates within a specified period, typically four to six weeks, and may include other contingencies, such as the sale of an existing home. We include a home sale in our sales backlog when the sales contract is signed and we have received the initial down payment. We do not recognize revenue upon the sale of a home until it is closed and title passes to the home buyer. The average period between the signing of a sales contract for a home and closing is approximately three to five months.
6
Customer Service and Quality Control
Our operating divisions are responsible for pre-closing, quality control inspections and responding to customers’ post-closing needs. We believe that prompt and courteous response to home buyers’ needs during and after construction reduces post-closing repair costs, enhances our reputation for quality and service, and ultimately leads to significant repeat and referral business from the real estate community and home buyers. We provide our home buyers with a limited one-year warranty on workmanship and building materials. The subcontractors who perform most of the actual construction also provide us with warranties on workmanship and are generally prepared to respond to us and the homeowner promptly upon request. In most cases, we supplement our one-year warranty by purchasing a ten-year limited warranty from a third party. To cover our potential warranty obligations, we accrue an estimated amount for future warranty costs.
Customer Financing
We provide mortgage financing services principally to purchasers of homes we build and sell. CH Mortgage, a wholly-owned subsidiary, provides mortgage banking services in Arizona, Colorado, Florida, Georgia, Illinois, Maryland, Minnesota, Nevada, New Mexico, North and South Carolina, Texas, and Virginia. DRH Mortgage, LLC, a joint venture formed in 1998 with a third party, presently provides services in California. On a combined basis, our mortgage banking entities provided mortgage financing services for about 61% of the homes closed during the year ended September 30, 2001, in the markets served, compared to 51% during the year ended September 30, 2000. We anticipate expanding these mortgage activities to other markets in which we conduct homebuilding operations.
In other markets where we currently do not provide mortgage financing, we work with a variety of mortgage lenders that make available to home buyers a range of conventional mortgage financing programs. By making information about these programs available to prospective home buyers and maintaining a relationship with such mortgage lenders, we are able to coordinate and expedite the entire sales transaction by ensuring that mortgage commitments are received and that closings take place on a timely and efficient basis.
Title Services
Through our subsidiaries, Century Title, Custom Title, DRH Title Company of Texas, Ltd., DRH Title Company of Florida, Inc., DRH Title Company of Minnesota, Inc., Metro Title Company, Principal Title and Travis County Title Company, we serve as a title insurance agent by providing title insurance policies and closing services to purchasers of homes we build in the Austin, Dallas, Fort Worth, Houston, Maryland-D.C., Miami/ West Palm Beach, Minneapolis, Orlando, Phoenix, San Antonio and Virginia-D.C. markets. We assume no underwriting risk associated with these title policies.
Employees
At September 30, 2001, we employed 4,342 persons, of whom 1,095 were sales and marketing personnel, 1,382 were executive, administrative and clerical personnel, 1,326 were involved in construction, and 539 worked in mortgage and title operations. The Company had fewer than 20 employees covered by collective bargaining agreements. Some of the subcontractors which we use are represented by labor unions or are subject to collective bargaining agreements. We believe that our relations with our employees and subcontractors are good.
Competition
The single family residential housing industry is highly competitive and we compete in each of our markets with numerous other national, regional and local homebuilders, often with larger subdivisions designed, planned and developed by such homebuilders. Our homes compete on the basis of quality, price, design, mortgage financing terms and location.
7
Governmental Regulation and Environmental Matters
The housing, mortgage and title insurance industries are subject to extensive and complex regulations. We and our subcontractors must comply with various federal, state and local laws and regulations, including zoning, density and development requirements, building, environmental, advertising and consumer credit rules and regulations, as well as other rules and regulations in connection with our development, homebuilding, sales and financial services activities. These include requirements affecting the development process, as well as building materials to be used, building designs and minimum elevation of properties. Our homes are inspected by local authorities where required, and homes eligible for insurance or guarantees provided by the FHA and VA are subject to inspection by them. These regulations often provide broad discretion to the administering governmental authorities. This can delay or increase the cost of development or homebuilding.
We also are subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning protection of health and the environment. The particular environmental laws for each site vary greatly according to location, environmental condition and the present and former uses of the site and adjoining properties. These environmental laws may result in delays, may cause us to incur substantial compliance and other costs, and can prohibit or severely restrict development and homebuilding activity in certain environmentally sensitive regions or areas.
Our internal mortgage activities and title insurance agencies must also comply with various federal and state laws, consumer credit rules and regulations and other rules and regulations unique to such activities. Additionally, mortgage loans and title activities originated under the FHA, VA, FNMA and GNMA are subject to rules and regulations imposed by those agencies.
ITEM 2. PROPERTIES
We own a 52,000 square foot office complex, consisting of three single-story buildings of steel and brick construction, located in Arlington, Texas, that serves as the principal executive offices and houses one of the Dallas/ Fort Worth divisions. We also own a 37,000 square foot one-story building in Atlanta, Georgia; a 22,864 square foot building in Lakeville, Minnesota; two buildings in Englewood, Colorado totaling 28,217 square feet; and a 16,000 square foot building in The Woodlands, Texas, that serve as division offices for some of our operating divisions. We lease approximately 438,000 square feet of space for our other operating divisions under leases expiring between November 2001 and March 2011.
ITEM 3. LEGAL PROCEEDINGS
We are a party to routine litigation incidental to our business. Such matters, if decided adversely to us, would not, in the opinion of management, have a material adverse effect upon our financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
PART II
Our common stock (the “Common Stock”) is listed on the New York Stock Exchange under the symbol “DHI”. The following table shows the high and low sales prices for the Common Stock for the periods indicated, as reported by the NYSE, adjusted for the 9% stock dividend of September 29, 2000, and the 11% stock dividend of March 23, 2001.
As of November 14, 2001, the closing price was $26.02, and there were approximately 334 holders of record. We have declared quarterly cash dividends of four cents per share for fiscal 2000 and five cents per share for fiscal 2001.
The declaration of cash dividends is at the discretion of our Board of Directors and will depend upon, among other things, future earnings, cash flows, capital requirements, our general financial condition and general business conditions. We are required to comply with certain covenants contained in the bank agreements and Senior Note and Senior Subordinated Note indentures. The most restrictive of these requirements allows us to pay cash dividends on common stock in an amount, on a cumulative basis, not to exceed 50% of consolidated net income, as defined, subject to certain other adjustments. Pursuant to the most restrictive of these requirements, we had approximately $392.5 million available for the payment of dividends and the acquisition of our common stock at September 30, 2001.
9
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data are derived from our Consolidated Financial Statements. The data should be read in conjunction with the Consolidated Financial Statements, related Notes thereto and other financial data elsewhere herein. These historical results are not necessarily indicative of the results to be expected in the future.
10
RESULTS OF OPERATIONS— CONSOLIDATED
D.R. Horton, Inc. and subsidiaries (the “Company”) provide homebuilding services in 20 states and 38 markets through its 45 homebuilding divisions. Through its financial services operations, the Company also provides mortgage banking and title agency services in many of these same markets.
Consolidated revenues increased 21.9%, to $4,455.5 million in 2001 from $3,653.7 million in 2000, primarily due to increases in both home sales and financial services revenues. The increase in home sales revenues was attributable in part to $103.0 million in revenues generated by Fortress-Florida, acquired in May 2001, and Emerald Builders, acquired in July 2001.
Income before income taxes increased 31.9%, to $407.8 million in 2001 from $309.2 million in 2000. As a percentage of revenues, income before income taxes increased 0.7 percentage points, to 9.2%, from 8.5% in 2000, primarily due to an increase in the gross profit percentage achieved by the homebuilding segment, which was offset in part by write-downs to estimated fair value of the carrying amounts of the Company’s investments in start-up and emerging growth companies and the decline in the fair value of the Company’s interest rate swap agreements during the year.
The consolidated provision for income taxes increased 30.1%, to $152.9 million in 2001, from $117.5 million in 2000, due to the corresponding increase in income before income taxes. The effective income tax rate decreased 0.5 percentage points, to 37.5% in 2001, from 38.0% in 2000, primarily due to changes in the overall effective state income tax rate.
Consolidated revenues increased 15.8%, to $3,653.7 million in 2000 from $3,156.2 million in 1999 due to increases in both home and land/lot sales revenues, as well as financial services revenues.
Income before income taxes increased 17.2%, to $309.2 million in 2000 from $263.8 million in 1999. As a percentage of revenues, income before income taxes increased 0.1 percentage point, to 8.5% from 8.4% in 1999, primarily due to an increase in homebuilding gross profit as a percentage of revenues.
The consolidated provision for income taxes increased 13.0%, to $117.5 million in 2000 from $104.0 million in 1999, primarily due to the corresponding increase in income before income taxes. The effective income tax rate decreased 1.4 percentage points, to 38.0% in 2000 from 39.4% in 1999, primarily due to changes in the overall effective state income tax rate.
RESULTS OF OPERATIONS— HOMEBUILDING
The following tables set forth certain operating and financial data for the Company’s homebuilding activities:
11
Homes Closed
Net New Sales Contracts
Sales Backlog
The Company’s market regions consist of the following markets:
Revenues from home sales increased 22.7%, to $4,289.8 million (21,371 homes closed) in 2001 from $3,496.1 million (19,144 homes closed) in 2000. Revenues from home sales increased in four of the
12
The average selling price of homes closed during 2001 was $200,700, up 9.9% from $182,600 in 2000. The increase in average selling price was due to changes in the mix of homes closed and, with the strong housing demand, the Company’s ability to sell more custom features with its homes and to raise prices in some of its markets.
The value of new net sales contracts increased 22.5%, to $4,502.6 million (22,179 homes) in 2001 from $3,676.4 million (19,223 homes) in 2000. The value of new net sales contracts increased in all of the Company’s five market regions, with percentage increases ranging from 2.4% in the Mid-Atlantic to 45.7% in the West. The overall increase in the value of new net sales contracts was due to strong housing demand throughout the majority of the Company’s markets, as well as sales achieved by Fortress-Florida, acquired in May 2001, and Emerald Builders, acquired in July 2001. In markets where the Company operated throughout both fiscal years, the value of new net sales contracts increased 19.5%, to $4,391.0 million, and the number of new net sales contracts increased 12.0%, to 21,518 homes. The average price of a new net sales contract in 2001 was $203,000, up 6.1% over the $191,300 average in 2000. The increase in average selling price was due to changes in the mix of homes sold and, with the strong housing demand, the Company’s ability to sell more custom features with its homes and to raise prices in some of its markets.
At September 30, 2001, the Company’s backlog of sales contracts was $1,933.8 million (9,263 homes), up 25.8% from $1,536.9 million (7,388 homes) at September 30, 2000. In markets where the Company operated at the end of both fiscal years, the Company’s backlog of sales contracts increased 14.4%, to $1,758.1 (8,229 homes). The average sales price of homes in backlog was $208,800 at September 30, 2001, up 0.4% from the $208,000 average at September 30, 2000.
Cost of sales increased by 19.9%, to $3,527.1 million in 2001 from $2,941.1 million in 2000. The increase in cost of sales was primarily attributable to the increase in revenues. Cost of home sales as a percentage of home sales revenues declined 1.0 percentage point, to 80.4% in 2001, from 81.4% in 2000, as the Company continued to benefit from increased prices, savings achieved in its national purchasing program and lower material costs. Total homebuilding cost of sales was 80.4% of total homebuilding revenue, down 1.2 percentage points from 81.6% in 2000.
Selling, general and administrative (SG&A) expenses from homebuilding activities increased by 19.9%, to $432.0 million in 2001 from $360.4 million in 2000. As a percentage of revenues, SG&A expenses decreased to 9.9% in 2001 from 10.0% in 2000, primarily as a result of a 0.2 percentage point decline in salaries and benefits expense as a percentage of revenues.
Interest expense associated with homebuilding activities decreased to $8.8 million in 2001 from $10.2 million in 2000. As a percentage of homebuilding revenues, homebuilding interest expense decreased to 0.2% in 2001 from 0.3% in 2000. Throughout 2001, inventory under construction or development grew at a more rapid pace than interest-bearing debt. Therefore, a larger proportion of total interest incurred was capitalized to inventory than in 2000. The Company follows a policy of capitalizing interest only on inventory under construction or development. During both periods, the Company expensed the portion of incurred interest and other financing costs which could not be charged to inventory. Capitalized interest and other financing costs are included in cost of sales at the time of home closings.
Other expense associated with homebuilding activities was $34.7 million in 2001, as compared to $2.1 million of other income in 2000. The expense in 2001 is primarily due to a $22.9 million write-down to estimated fair value of the carrying amounts of the Company’s investments in start-up and emerging growth companies and a $13.8 million decline in the fair value of the Company’s interest rate swap agreements.
13
Revenues from home sales increased 14.4%, to $3,496.1 million (19,144 homes closed) in 2000 from $3,055.0 million (18,395 homes closed) in 1999. Revenues from home sales increased in all of the Company’s market regions, with percentage increases ranging from 8.5% in the Southeast region to 28.7% in the Midwest region. The increases in both revenues and homes closed were due to strong housing demand and the increases attributable to the acquisition of Cambridge Homes in January 1999. In markets where the Company operated throughout both twelve-month periods, home sales revenues increased by 12.3%, to $3,426.6 million, and the number of homes closed increased 2.4%, to 18,826 homes.
The average selling price of homes closed during 2000 was $182,600, up 9.9% from $166,100 in 1999. The increase in average selling price was due to changes in the mix of homes closed and, with the strong housing demand, the Company’s ability to sell more custom features with its homes and to raise prices to cover increased costs.
The value of new net sales contracts increased 12.6%, to $3,676.4 million (19,223 homes) in 2000 from $3,266.2 million (18,911 homes) in 1999. The value of new net sales contracts increased in four of the Company’s five market regions, with percentage increases ranging from 0.5% in the Midwest to 35.4% in the West. The value of new net sales contracts declined 4.3% in the Mid-Atlantic region. The overall increase in the value of new net sales contracts was due in part to sales achieved by Cambridge Homes, acquired in January 1999. In markets where the Company operated throughout both fiscal years, the value of new net sales contracts increased 10.6%, to $3,607.7 million, and the number of new net sales contracts increased 0.4%, to 18,976 homes. The average price of a new net sales contract in 2000 was $191,300, up 10.8% over the $172,700 average in 1999. The increase in average selling price was due to changes in the mix of homes sold and, with the strong housing demand, the Company’s ability to sell more custom features with its homes and to raise prices to cover increased costs.
At September 30, 2000, the Company’s backlog of sales contracts was $1,536.9 million (7,388 homes), up 13.3% from the comparable amount at September 30, 1999. The average sales price of homes in sales backlog was $208,000 at September 30, 2000, up 12.1% from the $185,600 average at September 30, 1999.
Cost of sales increased by 15.4%, to $2,941.1 million in 2000 from $2,548.5 million in 1999. The increase in cost of sales was primarily attributable to the increase in revenues. Cost of home sales as a percentage of home sales revenues declined 0.2 percentage points, to 81.4% in 2000 from 81.6% in 1999, as higher costs were more than offset by increased prices and savings achieved in our national purchasing program. Cost of land/lot sales decreased to 87.6% of land/lot sales revenues in 2000, from 88.2% in 1999. Total homebuilding cost of sales was 81.6% of total homebuilding revenue, down 0.1 percentage point from 81.7% in 1999.
Selling, general and administrative (SG&A) expenses from homebuilding activities increased by 16.4%, to $360.4 million in 2000 from $309.6 million in 1999. As a percentage of revenues, SG&A expenses increased to 10.0% in 2000 from 9.9% in 1999.
Interest expense associated with homebuilding activities decreased to $10.2 million in 2000, from $12.0 million in 1999. As a percentage of homebuilding revenues, homebuilding interest expense decreased to 0.3% in 2000 from 0.4% in 1999. Throughout 2000, inventory under construction or development grew at a more rapid pace than interest-bearing debt. Therefore, a larger proportion of total interest incurred was capitalized to inventory than in 1999. The Company follows a policy of capitalizing interest only on inventory under construction or development. During both periods, we expensed the portion of incurred interest and other financing costs which could not be charged to inventory. Capitalized interest and other financing costs are included in cost of sales at the time of home closings.
RESULTS OF OPERATIONS— FINANCIAL SERVICES
Financial services include mortgage financing and title insurance agency and closing services, primarily related to purchases of homes built and sold by the Company. Mortgage services are provided in Arizona, California, Colorado, Florida, Georgia, Illinois, Maryland, Minnesota, Nevada, New Mexico, North and South Carolina, Texas and Virginia. Title agency and closing services are provided in Arizona, Florida,
14
Revenues from the financial services segment increased 45.3%, to $72.0 million in 2001 from $49.5 million in 2000. The increase in financial services revenues was due to the continued expansion of the Company’s mortgage loan and title services provided to customers of the Company’s homebuilding segment. These activities are being expanded to additional markets served by the homebuilding segment. General and administrative expenses associated with financial services increased 33.6%, to $47.4 million in 2001 from $35.5 million in 2000. As a percentage of financial services revenues, general and administrative expenses decreased by 5.7 percentage points to 65.9% in 2001 from 71.6% in 2000, primarily from efficiencies realized with the increase in revenues generated in markets entered in 2000.
Revenues from the financial services segment increased 32.9% to $49.5 million in 2000 from $37.3 million in 1999. The increase in financial services revenues was due to the continued 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 43.5%, to $35.5 million in 2000 from $24.7 million in 1999. As a percentage of financial services revenues, general and administrative expenses increased by 5.3 percentage points to 71.6% in 2000 from 66.3% in 1999, due primarily to startup expenses in new markets with limited revenues.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, the Company had available cash and cash equivalents of $239.3 million. Inventories (including finished homes, construction in progress, and developed residential lots and other land) at September 30, 2001, had increased by $613.3 million from September 30, 2000, due to a general increase in business activity, the acquisitions of Fortress-Florida and Emerald Homes and the expansion of operations in the Company’s market areas. The inventory increase was financed largely by issuing senior notes, senior subordinated notes and senior convertible notes, and by retaining earnings. The amount outstanding on the revolving credit facility was reduced by $192 million during the year. The Company’s ratio of homebuilding notes payable to total capital at September 30, 2001, increased 1.4 percentage points, to 57.6% from 56.2% at September 30, 2000. After an assumed application of excess cash of $157.3 million to reduce debt, the ratio of homebuilding notes payable to total capital declined 0.9 percentage points, to 55.3%. The stockholders’ equity to total assets ratio decreased 1.8 percentage points, to 34.2% at September 30, 2001, from 36.0% at September 30, 2000.
15
The Company has an $825 million, unsecured revolving credit facility, consisting of a $775 million four-year revolving loan and a $50 million four-year letter of credit facility that matures in April 2002. Additionally, the Company has another $45 million standby letter of credit agreement. The Company is currently negotiating the terms of a new four-year unsecured revolving credit facility that is expected to close in January 2002. At September 30, 2001, the Company had outstanding homebuilding debt of $1,701.7 million. Under the debt covenants associated with the revolving credit facility, at September 30, 2001, the Company had additional homebuilding borrowing capacity of $746.8 million. The Company has entered into multi-year interest rate swap agreements, aggregating a notional amount of $200 million, that fix the interest rate on a portion of the variable rate revolving credit facility.
In April 2001, a universal shelf registration statement for an aggregate amount of $750 million was filed. It was declared effective by the Securities and Exchange Commission on April 20, 2001. Under the new shelf registration statement, on May 11, 2001, the Company issued $381.1 million (at maturity) in zero coupon convertible senior notes due May 11, 2021, for gross proceeds of $200 million. Each $1,000 note was sold for $524.78, providing a yield-to-maturity of 3.25% per year. The notes are convertible into the Company’s common stock at any time, if the sale price of the common stock exceeds specified thresholds or in other specified instances, at the rate of approximately 17.5 shares per $1,000 face amount at maturity. The conversion ratio equates to an initial conversion price of $30.00 per share. Holders have the option to require the Company to repurchase the notes on any of the second, seventh or twelfth anniversary dates from the issue date for the initial issue price plus accrued yield to the purchase date. The Company must satisfy any notes submitted for repurchase on the second anniversary date in cash. Any notes submitted for repurchase on the seventh or twelfth anniversary dates may be settled in any combination of cash and/or the Company’s common stock, at the Company’s option. The Company will have the option to redeem the notes, in cash, at any time after the second anniversary date of the notes for the initial issue price plus accrued yield to redemption. The Company will pay contingent interest on the notes during specified six-month periods beginning on May 12, 2003, if the market price of the notes exceeds specified levels.
In March 2001, the Company issued $200 million 9 3/8% Senior Subordinated Notes, due March 15, 2011. In August 2001, the Company issued $200 million 7 7/8% Senior Notes due August 15, 2011. The Company used the proceeds from these notes and the zero coupon convertible senior notes to repay outstanding debt under its revolving credit facility and for general corporate purposes.
In June 2001, the Company issued a post-effective amendment to an existing registration statement, which increased to 9.0 million the number of shares of the Company’s common stock available for issuance as consideration for acquisitions. The amendment was declared effective by the Securities and Exchange Commission on June 18, 2001.
On May 1, 2001, the Company acquired the assets of Fortress-Florida, Inc. (Fortress), a wholly owned subsidiary of The Fortress Group, Inc., for $28.7 million. Fortress assets, primarily inventories, amounted to approximately $47.1 million. Total liabilities assumed amounted to approximately $24.3 million, including notes payable of $17.4 million, which were paid at closing. On July 17, 2001, the Company completed the acquisition of the assets of Emerald Builders (Emerald), a privately held homebuilder based in Houston, Texas. In the transaction, the Company issued approximately 1.0 million shares of common stock and paid $31.6 million in cash. Emerald’s assets, primarily inventories, amounted to approximately $170.4 million. Total liabilities assumed amounted to approximately $137.0 million, including notes payable of $110.6 million, most of which were paid at closing.
The Company examines the carrying value of its excess cost over net assets acquired (goodwill) and other intangible assets as current events and circumstances warrant to determine whether there are any impairment losses. If indicators of impairment were present in intangible assets used in operations and future cash flows were not expected to be sufficient to recover the assets’ carrying amount, an impairment loss would be charged to expense in the period identified. No event has been identified that would indicate an impairment of the value of goodwill recorded in the consolidated financial statements.
On October 23, 2001, the Company announced that it has signed a definitive agreement under which Schuler Homes, Inc. would merge into D. R. Horton, Inc. through a cash and stock transaction valued at
16
At September 30, 2001, the financial services segment had mortgage loans held for sale of $222.8 million and loan commitments for $143.8 million at fixed rates. The Company hedges the interest rate market risk on these mortgage loans held for sale and loan commitments through the use of best-efforts whole loan delivery commitments, mandatory forward commitments to sell mortgage-backed securities and the purchase of options on financial instruments.
The financial services segment has a $200 million, one-year bank warehouse facility that matures on August 13, 2002, and is secured by mortgage loans held for sale. The warehouse facility is not guaranteed by the parent company. As of September 30, 2001, $182.6 million had been drawn under this facility. All mortgage company activities are financed under the warehouse facility. The warehouse facility contains financial covenants relating to minimum net worth and maximum leverage with which the mortgage company is in compliance.
The Company’s rapid growth and acquisition strategy require significant amounts of cash. It is anticipated that future home construction, lot and land purchases and acquisitions will be funded through internally generated funds and existing and future credit facilities. At September 30, 2001, under the currently effective shelf registration statements, the Company has approximately 8.0 million shares issuable to effect, in whole or in part, possible future acquisitions and the capacity to issue new debt or equity securities amounting to $350 million. In the future, the Company intends to continue to maintain effective shelf registration statements that will facilitate access to the capital markets.
During fiscal 2001, the Company’s Board of Directors declared one quarterly cash dividend of $0.04 per common share and three quarterly cash dividends of $0.05 per common share, the last of which was paid on August 22, 2001 to stockholders of record on August 8, 2001. At September 30, 2001, the Company has $63.1 million authorized for stock repurchases and $100.0 million authorized for dept repurchases.
In 1999 and 2000, the Company entered into three separate limited partnership agreements with the purpose of investing in start-up and emerging growth companies whose technology and business plans have the potential of permitting the Company to leverage its size, expertise and customer base in the homebuilding industry. The Company originally authorized investment of up to $125 million in such companies over a four-year period. In January 2001, the original $125 million authorization was reduced to the $31.3 million that had been invested in such companies as of that date. The investments are concentrated in e-commerce businesses that serve the homebuilding, real estate and financial service industries, as well as in businesses whose strategic focus allows for the diversification of the Company’s operations. As of September 30, 2001, the carrying value of the Company’s investments in such companies, reported in homebuilding other assets, amounted to $10.2 million.
Except for the Schuler merger, ordinary expenditures for the construction of homes, the acquisition of land and lots for development and sale of homes, at September 30, 2001, the Company had no material commitments for capital expenditures.
17
INFLATION
The Company and the homebuilding industry in general, may be adversely affected during periods of high inflation, primarily because of higher land and construction costs. Inflation also increases the Company’s financing, labor and material costs. In addition, higher mortgage interest rates significantly affect the affordability of permanent mortgage financing to prospective homebuyers. The Company attempts to pass through to its customers any increases in its costs through increased sales prices and, to date, inflation has not had a material adverse effect on the Company’s results of operations. However, there is no assurance that inflation will not have a material adverse impact on the Company’s future results of operations.
SAFE HARBOR STATEMENT
Certain statements contained in this report, as well as in other materials we have filed or will file with the Securities and Exchange Commission, statements made by us in periodic press releases and oral statements made by Company officials to analysts, stockholders and the press in the course of presentations about the Company, may be construed as “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Any or all of the forward-looking statements included in this report and in any other reports or public statements of the Company may turn out to be inaccurate due to known or unknown risks and uncertainties. As a result, actual results may differ materially from the results discussed in and anticipated by the forward-looking statements. The following cautionary discussion of risks and uncertainties relevant to our business includes factors we believe could adversely affect us. Other factors beyond those listed below could also adversely affect us.
18
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.
19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate risk on its long term debt. The Company monitors its exposure to changes in interest rates and utilizes both fixed and variable rate debt. For fixed rate debt, changes in interest rates generally affect the value of the debt instrument, but not the Company’s 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 the Company’s future earnings and cash flows. The Company has mitigated its exposure to changes in interest rates on its 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. The Company generally does 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 the Company’s fixed-rate debt until such time as the Company is required to refinance, repurchase or repay such debt.
The Company’s interest rate swaps were not designated as hedges under Statement of Financial Accounting Standards No. 133 when it was adopted on October 1, 2000. Since their maturities and other terms did not match the related debt, they were determined to be ineffective hedges (as defined by the Statement). Therefore, the Company is exposed to market risk associated with changes in the fair values of the swaps, since any such changes must be reflected in the Company’s income statements.
The Company’s financial services segment is exposed to interest rate risk associated with its mortgage loan production activities. 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 commitments to sell mortgage-backed securities are designated as fair value hedges of the risk of changes in the overall fair value of funded loans. The effectiveness of the fair value hedge is continuously monitored and any ineffectiveness, which for the year ended September 30, 2001, 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 commitments to sell mortgage-backed securities and the 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 September 30, 2001, total forward commitments to mitigate interest rate risk related to funded loans and IRLC’s were approximately $160.5 million, the duration of which was less than six months.
The following table sets forth, as of September 30, 2001, the Company’s long term debt obligations, principal cash flows by scheduled maturity, weighted average interest rates and estimated fair market value. In addition, the table sets forth the notional amounts, weighted average interest rates and estimated fair market value of the Company’s interest rate swaps.
20
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
21
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
We have audited the accompanying consolidated balance sheets of D.R. Horton, Inc. and subsidiaries as of September 30, 2001 and 2000, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of D.R. Horton, Inc. and subsidiaries at September 30, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 2001, in conformity with accounting principles generally accepted in the United States.
Fort Worth, Texas
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
D.R. HORTON, INC. AND SUBSIDIARIES
See accompanying notes to consolidated financial statements
23
See accompanying notes to consolidated financial statements.
24
25
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business:D.R. Horton, Inc. (the Company) is a national builder that is engaged primarily in the construction and sale of single-family housing in 38 markets and 20 states in the United States. The Company designs, builds and sells single-family houses on lots developed by the Company and on finished lots which it purchases, ready for home construction. Periodically, the Company sells lots it has developed. The Company also provides title agency and mortgage brokerage services to its homebuyers. The Company does not retain or service the mortgages that it originates but, rather, sells the mortgages and related servicing rights to investors.
Principles of consolidation:The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
Accounting principles:The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates.
Cash: The Company considers all highly liquid investments with an initial maturity of three months or less when purchased to be cash equivalents. Amounts in transit from title companies for home closings are included in cash.
Cost of sales: Cost of sales includes home warranty costs, purchased discounts for customer financing, and sales commissions paid to third parties.
Excess of cost over net assets acquired:For business acquisitions consummated prior to July 1, 2001, the excess of amounts paid over the net fair value of the assets acquired and liabilities assumed is amortized using the straight-line method over the estimated benefit period, ranging from ten to twenty years. The Company plans to adopt Statement of Financial Accounting Standard (SFAS) No. 142, “Goodwill and Other Intangible Assets” on October 1, 2001, the first day of fiscal 2002. At that time, the consolidated goodwill will no longer be amortized but will be subject to periodic review for impairment.
Additional consideration paid in subsequent periods under the terms of purchase agreements is included as acquisition costs. Amortization expense was $9,481,000, $8,193,000 and $9,567,000 in fiscal 1999, 2000 and 2001, respectively. Accumulated amortization was $29,309,000 and $38,876,000 at September 30, 2000 and 2001, respectively.
Potential impairments of intangible assets are reviewed annually or when events and circumstances warrant an earlier review. Impairments are determined to exist when estimated future undiscounted cash flows associated with an intangible asset are less than the asset’s carrying value.
Interest: The Company capitalizes interest during development and construction. Capitalized interest is charged to cost of sales as the related inventory is delivered to the home buyer. Interest costs are (in thousands):
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS— (Continued)
Inventories:Finished inventories are stated at the lower of accumulated cost or fair value less costs to sell. Inventories under development or held for development are stated at accumulated costs, unless such costs would not be recovered from the cash flows generated by future disposition. In this instance, such inventories are measured at fair value, less costs of disposal.
Sold units are expensed on a specific identification basis as cost of sales. Included in inventories are related interest and property taxes which are capitalized in inventory during the development and construction periods. Residential lots are transferred to construction in progress when building permits are requested. Land and development costs are allocated to individual lots on a pro-rata basis.
Minority interests:The Company has joint venture arrangements on two land projects whereby the Company is entitled to a percentage of the profits and/or losses and is the managing partner. The financial position and results of operations of the joint venture are consolidated for financial statement purposes and the partners’ equity positions are disclosed as minority interests.
Property and equipment:Property and equipment, including model home furniture, is stated on the basis of cost. Major renewals and improvements are capitalized. Repairs and maintenance are expensed as incurred. Depreciation generally is provided using the straight-line method over the estimated useful life of the asset. Accumulated depreciation was $38,285,000 and $54,038,000 as of September 30, 2000 and 2001, respectively.
Revenue recognition:Revenue is recognized at the time of the closing of a sale, when title to and possession of the property transfer to the buyer.
Advertising cost:The Company expenses advertising costs as they are incurred. Advertising expense was approximately $22,182,000, $24,043,000, and $28,900,000 in fiscal 1999, 2000, and 2001, respectively.
Earnings per share:Basic net income per share is based upon the weighted average number of shares of common stock outstanding during each year.
Diluted earnings per share is based upon the weighted average number of shares of common stock 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):
In September 2000, the Board of Directors declared a 9% common stock dividend, payable on September 29, 2000, to stockholders of record on September 18, 2000. In February 2001, the Board of Directors declared an 11% common stock dividend , payable on March 23, 2001 to stockholders of record on
28
March 9, 2001. The dividends were accounted for based on the fair value of the Company’s stock on the date of declaration. The average share amounts presented above for 1999 and 2000 have been restated to reflect the effects of the stock dividends.
Options to purchase 1,425,000 shares of common stock at various prices were outstanding during fiscal 2000 but were not included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common shares and, therefore, their effect would be antidilutive. All options outstanding during 2001 were included in the computation of diluted earnings per share.
Segment information:Effective September 30, 1999, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS 131 establishes new standards for segment reporting which is based on the way management organizes segments within a company for making operating decisions and assessing performance.
The Company’s financial reporting segments consist of homebuilding and financial services. The Company’s homebuilding operations comprise the most substantial part of its business, with more than 98% of consolidated revenues in fiscal 1999, 2000 and 2001. The homebuilding operations segment generates the majority of its revenues from the sale of completed homes with a lesser amount from the sale of land and lots. The financial services segment generates its revenues from originating and selling mortgages and collecting fees for title insurance agency and closing services. Expenditures for long-lived assets and depreciation and amortization related to the financial services segment for the years ended September 30, 1999, 2000 and 2001 were not significant.
The accounting policies of the reportable segments are described throughout this note. Assets, revenues and operating income of the Company’s reportable segments are included in the consolidated balance sheets and consolidated statements of income.
Long-lived assets:Potential impairments of long-lived assets are reviewed annually or when events and circumstances warrant an earlier review. In accordance with SFAS No. 121, impairment is determined when estimated future undiscounted cash flows associated with an asset are less than the asset’s carrying value.
Stock-based compensation: The Company may, with the approval of its Board of Directors, grant stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and, accordingly, recognizes no compensation expense for the stock option grants. The Company has adopted the disclosure-only provisions as specified by the SFAS No. 123, “Accounting for Stock-Based Compensation.”
Impact of recently issued accounting standards: Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities”, was issued in June 1998, and was later amended by SFAS 137 and 138, which were issued in June 1999 and June 2000, respectively. Pursuant to the implementation requirements of SFAS No. 133, the Company adopted it on October 1, 2000, the first day of the Company’s fiscal year ending September 30, 2001. The Company’s interest rate swaps, the terms of which are more fully described in Note B, were not designated as hedges under the provisions of SFAS No. 133. The Statement requires such swaps to be recorded in the consolidated balance sheet at fair value. Changes in their fair value must be recorded in the consolidated statements of income. Accordingly, the Company recorded a cumulative effect of a change in accounting principle amounting to $2.1 million, net of income taxes of $1.3 million, as an adjustment to net income in 2001. The fair value of the Company’s interest rate swaps is recorded in homebuilding other assets, and the change in their fair value is recorded in other expense. The impact of adoption of SFAS No. 133 relating to hedging activities for mortgage loans and loan commitments was not material.
29
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets”, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to periodic tests for impairment of recorded values.
In accordance with the terms of SFAS No. 142 that permit its early adoption, the Company plans to apply the new rules for goodwill and other intangible assets beginning October 1, 2001. Application of the provision prohibiting the amortization of goodwill is expected to result in an increase in income before income taxes of approximately $9.0 million in the fiscal year ended September 30, 2002. During the year, the Company will perform the required tests for impairment of goodwill. The Company does not believe that such tests will have a significant, adverse effect on its results of operations or financial position.
Mortgage loans:Mortgage loans held for sale are reported net of discounts and are stated at fair value as determined in the aggregate, based on sale commitments or current market quotes. Any gain or loss on the sale of loans is recognized at the time of sale. Loan origination fees, net of the related direct origination costs, are deferred as an adjustment to the carrying value of the related mortgage loans held for sale and are recognized in income upon the sale of the mortgage loans.
The Company enters into forward commitments to sell mortgage-backed securities when loans are funded but not yet committed to a specific investor and designates the derivative instruments as fair value hedges of the risk of changes in the overall fair value of the loans. Accordingly, changes in the value of the derivative instruments are recognized in current earnings, as is the change in value of the loans. During the fiscal year ended September 30, 2001, the Company’s net gain related to the ineffective portion of its fair value hedging instruments was not material. The net gain is included in Financial Services Revenues in the Consolidated Statements of Income.
Loan commitments: To meet the financing needs of its customers, the Company is party to interest rate lock commitments (“IRLCs”) which are extended to borrowers who have applied for loan funding and meet certain defined credit and underwriting criteria. In accordance with SFAS No. 133 and related Derivatives Implementation Group conclusions, the Company classifies and accounts for IRLCs as non-designated derivative instruments with gains and losses recorded to current earnings. At September 30, 2000 and 2001, the Company’s IRLCs totaled $75.6 million and $143.8 million, respectively.
The Company manages interest rate risk related to its IRLCs through the use of best-efforts whole loan delivery commitments, forward commitments to sell mortgage-backed securities and the infrequent purchase of options on financial instruments. These instruments are considered nondesignated derivatives and are accounted for at fair market value with gains and losses recorded to current earnings. As of September 30, 2001, the Company had approximately $160.5 million of forward commitments outstanding which were subject to interest rate risk.
30
NOTE B— NOTES PAYABLE
The Company’s notes payable consist of the following (in thousands):
In April 2001, the Company filed a universal shelf registration statement with the Securities and Exchange Commission for up to an aggregate amount of $750 million of the Company’s debt and equity securities. The universal shelf registration provides that securities may be offered from time to time in one or more series and in the form of senior, senior subordinated or subordinated debt, preferred stock and/or common stock. The Company has $350 million remaining on its currently effective universal shelf registration statement.
Homebuilding:
The Company has an $825 million unsecured revolving bank credit facility, consisting of a $775 million four-year revolving loan and a $50 million four-year letter of credit facility that matures in April 2002. Additionally, the Company has another $45 million standby letter of credit agreement maturing in 2003. The Company is currently in negotiations to refinance the four-year revolving loan and letter of credit facilities. Borrowings bear daily interest at rates based upon federal funds or the London Interbank Offered Rate (LIBOR) plus a spread based upon the Company’s ratio of debt to tangible net worth. In addition to the stated interest rates, the revolving credit facility requires the Company to pay certain fees. Under the debt covenants associated with the revolving credit facility, at September 30, 2001, the Company had additional borrowing capacity of $746.8 million. The average interest rates of the unsecured bank debt at September 30, 2000 and 2001 were 7.4% and 3.3%, respectively.
In August 2001, the Company issued $200 million principal amount of 7 7/8% Senior Notes. The notes, which are due August 15, 2011, with interest payable semi-annually, represent unsecured obligations of the Company. The 7 7/8% Senior Notes are not redeemable except that 35% of the amount originally issued can be redeemed with the proceeds of public equity offerings at a redemption price equal to 107.875% of the principal amount through August 15, 2004, plus accrued interest. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs and discount, is 8.0%.
In May 2001, the Company issued, for gross proceeds of approximately $200 million, Zero Coupon Convertible Senior Notes due 2021 with a face amount at maturity of approximately $381.1 million. The notes were issued at a price of $524.78 per $1,000 face amount at maturity, which equates to an annual yield to maturity over the life of the notes of 3.25%. The notes are convertible into the Company’s common stock at any time, if the sale price of the common stock exceeds specified thresholds or in other specified instances, at
31
the rate of approximately 17.5 shares per $1,000 face amount at maturity. The conversion ratio equates to an initial conversion price of $30.00 per share. Holders have the option to require the Company to repurchase the notes on any of the second, seventh or twelfth anniversary dates from the issue date for the initial issue price plus accrued yield to the purchase date. The Company must satisfy any notes submitted for repurchase on the second anniversary date in cash. Any notes submitted for repurchase on the seventh or twelfth anniversary dates may be settled in any combination of cash and/or the Company’s common stock, at the Company’s option. The Company will have the option to redeem the notes, in cash, at any time after the second anniversary date of the notes for the initial issue price plus accrued yield to redemption. The Company will pay contingent interest on the Notes during specified six-month periods beginning on May 12, 2003, if the market price of the notes exceeds specified levels.
In March 2001, the Company issued $200 million principal amount of 9 3/8% Senior Subordinated Notes. These notes, which are due March 15, 2011, with interest payable semi-annually, represent unsecured obligations of the Company. The 9 3/8% Senior Subordinated notes may be redeemed, in whole or in part, at any time on or after March 15, 2006 at a redemption price equal to 100% of the principal amount plus a premium declining ratably to par, plus accrued interest. The Company may also redeem up to 35% of the amount originally issued with the proceeds of public equity offerings at a redemption price equal to 109.375% of the principal amount, plus accrued interest through March 15, 2004. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs and discount, is 9.5%.
In September 2000, the Company issued $150 million principal amount of 9 3/4% Senior Subordinated Notes. These notes, which are due September 15, 2010, with interest payable semi-annually, represent unsecured obligations of the Company. The 9 3/4% Senior Subordinated Notes are not redeemable except that 33.3% of the amount originally issued can be redeemed with proceeds of a public equity offering by the Company at a redemption price of 109.75% through September 15, 2003. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs and discount, is 9.9%.
In March 2000, the Company issued $150 million principal amount of 10 1/2% Senior Notes due April 1, 2005. In June 2000, the Company issued an additional $50 million principal amount of its 10 1/2% Senior Notes due April 1, 2005. The notes bear interest payable semi-annually and represent unsecured obligations of the Company. The 10 1/2% Senior Notes are not redeemable except that 50% of the amount originally issued can be redeemed with proceeds of a public equity offering by the Company at a redemption price of 110.5% through April 1, 2003. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs and discount, is 10.9%.
In February 1999, the Company issued $385 million principal amount of 8% Senior Notes. These notes, which are due February 1, 2009, with interest payable semi-annually, represent unsecured obligations of the Company. The 8% Senior Notes are not redeemable except that 35% of the amount originally issued can be redeemed with proceeds of a public equity offering by the Company at a redemption price of 108% through February 1, 2002. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs and discount, is 8.3%.
In June 1997, the Company issued $150 million principal amount of 8 3/8% Senior Notes. These notes, which are due June 15, 2004, with interest payable semi-annually, represent unsecured obligations of the Company. The 8 3/8% Senior Notes are not redeemable. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs and discount, is 8.7%.
In April 1996, the Company issued $130 million principal amount of 10% Senior Notes due April 15, 2006. In January 1997, the Company issued an additional $20 million principal amount of its 10% Senior Notes due April 15, 2006. The notes bear interest payable semi-annually and represent unsecured obligations of the Company. The 10% Senior Notes are redeemable at the option of the Company, in whole or in part, at
32
any time on or after April 15, 2001 at redemption prices decreasing from 105%. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs and discount, is 10.2%.
All series of Senior Notes are senior obligations of the Company and rank pari passu in right of payment to all existing and future unsecured indebtedness of the Company, and senior to all existing and future indebtedness expressly subordinated to them. The Senior Subordinated Notes rank behind all existing and future Senior Notes and bank credit facilities. Both the Senior and Senior Subordinated Notes are guaranteed by the majority of the Company’s subsidiaries. Upon a change of control of the Company, holders of all series of the notes have the right to require the Company to redeem such notes at a price of 101% of the par amount, along with accrued and unpaid interest.
The indentures of the bank credit facilities and the Senior and Senior Subordinated Notes contain covenants which, taken together, limit investments in inventory, stock repurchases, cash dividends and other restricted payments, incurrence of indebtedness, asset dispositions and creation of liens, and require certain levels of tangible net worth. At September 30, 2001, these covenants limit the additional debt the Company could incur to $746.8 million. Additionally, cash dividends paid on the Company’s common stock and other restricted payments are limited to an amount not to exceed, on a cumulative basis, 50% of consolidated net income, as defined, subject to certain other adjustments. Pursuant to the most restrictive of these requirements, the Company had approximately $392.5 million available for the payment of dividends and other restricted payments at September 30, 2001.
The Company uses interest rate swap agreements to help manage a portion of its interest rate exposure. The agreements convert a notional amount of $200 million from a variable rate to a fixed rate. These agreements are cancellable by a third party during periods where LIBOR exceeds 7%. The agreements expire at dates through September, 2008. The Company does not expect non-performance by the counter-party, a major U.S. bank, and any losses incurred in the event of non-performance are not expected to be material. Net payments or receipts under these agreements are recorded as adjustments to interest incurred. As a result of these agreements, the Company’s net interest costs were reduced by $3.6 million and $1.5 million in fiscal 2000 and 2001, respectively.
Maturities of consolidated notes payable, assuming the revolving bank facility is not extended, are $234.6 million in 2002, $15.3 million in 2003, $152.8 million in 2004, $201.1 million in 2005, $148.5 million in 2006 and $1,317.9 million thereafter.
Financial Services:
The Company has a $200 million mortgage warehouse line payable to financial institutions, secured by mortgage loans held for sale, maturing August 13, 2002 at the 30-day LIBOR rate plus 1%. These notes payable enable the Company’s wholly-owned subsidiary, CH Mortgage Company I, Ltd. to perform its loan origination and warehousing functions. The interest rates of the mortgage warehouse line payable at September 30, 2000 and 2001 were 7.6% and 3.6%, respectively.
NOTE C— ACQUISITIONS
On October 22, 2001, the Company entered into a definitive agreement under which Schuler Homes, Inc. would merge into D.R. Horton, Inc. through a cash and stock transaction valued at approximately $1.2 billion, including the assumption of debt. The transaction is conditioned upon obtaining the approvals of both D.R. Horton stockholders and Schuler Homes stockholders, including separate class votes by the Class A and Class B common stockholders of Schuler Homes, as well as other customary closing conditions. Under the terms of the transaction, each Schuler Homes stockholder will have the right to elect to receive a combination of cash and stock, or all cash or all stock. However, elections to receive either all cash or all stock will be subject to proration in order to limit the total amount of cash consideration to be paid by the Company to an
33
aggregate of $4.09 multiplied by the total Schuler Homes shares outstanding. The complete Agreement and Plan of Merger and subsequent amendment were included as exhibits to the Company’s Current Reports on Form 8-K, filed with the SEC on October 24, 2001, as amended on November 8, 2001.
In fiscal 1999, 2000 and 2001, the Company made the following acquisitions:
Consideration includes cash paid and assumption of certain accounts payable and notes payable, which were repaid subsequent to the acquisitions. In addition, the Company issued 2,555,911 shares of common stock, valued at $55.0 million, as partial consideration for the acquisition of Cambridge Properties and 1,012,925 shares of common stock, valued at $25.0 million, as partial consideration for the acquisition of Emerald Builders.
On May 1, 2001, the Company acquired the assets of Fortress-Florida, Inc. (Fortress), a wholly-owned subsidiary of The Fortress Group, Inc., for $28.7 million in cash. Fortress assets, primarily inventories, amounted to approximately $47.1 million. Total liabilities assumed amounted to approximately $24.3 million, including notes payable of $17.4 million, which were paid at closing. The Fortress acquisition was treated as a purchase for accounting purposes.
On July 17, 2001, the Company completed the acquisition of the assets of Emerald Builders (Emerald), a privately held homebuilder based in Houston, Texas. In the transaction, the Company issued 1,012,925 shares of common stock valued at $25.0 million, paid $31.6 million in cash and assumed liabilities of approximately $137.0 million, including notes payable of $110.6 million, most of which were paid at closing. Emerald’s assets, primarily inventories, amounted to approximately $170.4 million. The Emerald acquisition was treated as a purchase for accounting purposes. Pro forma results of operations had the Fortress and Emerald acquisitions occurred on the first day of our fiscal year are not materially different from historical results and are not presented.
NOTE D— STOCKHOLDERS’ EQUITY
On September 7, 2000, the Board of Directors declared a 9% common stock dividend, payable on September 29, 2000, to stockholders of record on September 18, 2000. The dividend was accounted for based on the fair value of the Company’s stock on the date of declaration.
On February 27, 2001, the Board of Directors declared an 11% common stock dividend, payable on March 23, 2001, to stockholders of record on March 9, 2001. The dividend was accounted for based on the fair value of the Company’s stock on the date of declaration.
The Company has a shelf registration statement with the Securities and Exchange Commission to issue, from time to time, up to 8.0 million shares of registered common stock in connection with future acquisitions.
In November, 1998, the Board of Directors authorized the repurchase of up to $100 million each of the Company’s common stock and senior debt securities, as market conditions warrant. Through September 30, 2001, the Company had repurchased $36.9 million (2,589,200 shares) of common stock in open market purchases under the stock repurchase plan. All 2,589,200 shares were reissued in March 2001 as partial payment of the 11% stock dividend.
34
NOTE E—PROVISION FOR INCOME TAXES
The provision for income taxes includes the following components (in thousands):
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. These differences primarily relate to the following (in thousands):
The difference between income tax expense and tax computed by applying the federal statutory income tax rate of 35% to income before taxes is due to the following (in thousands):
35
NOTE F—EMPLOYEE BENEFIT PLANS
The Company has 401(k) plans for all Company employees who have been with the Company for a period of six months or more. The Company matches portions of employees’ voluntary contributions. Additional employer contributions in the form of profit sharing are at the discretion of the Company. Expenses for these Plans were $2,272,000, $3,124,000 and $4,204,000 for 1999, 2000 and 2001, respectively.
The Company’s Supplemental Executive Retirement Plans (SERP’s) are non-qualified deferred compensation programs that provide benefits payable to certain management employees upon retirement, death, or termination of employment with the Company. Under one SERP, the Company accrues an unfunded benefit based on a percentage of the eligible employees’ salaries, as well as an interest factor based upon a predetermined formula. The Company recorded $833,000, $972,000 and $1,265,000 of expense for this plan in 1999, 2000 and 2001, respectively.
Effective January 15, 1999, the Company adopted the D.R. Horton, Inc. 1999 Employee Stock Purchase Plan which provides eligible employees the opportunity to purchase common stock of the Company at a discounted price of 85% of the fair market value of the stock on the date of purchase. Under the terms of the plan, the total fair market value of the common stock that an eligible employee may purchase each year is limited to the lesser of 15% of the employee’s annual compensation or $25,000. Under the plan, employees of the Company purchased 34,750 shares for $380,000 in 2000 and 7,450 shares for $125,000 in 2001.
The Company Stock Incentive Plans provide for the granting of stock options to certain key employees of the Company to purchase shares of common stock. Options are granted at exercise prices which approximate the market value of the Company’s common stock at the date of the grant. Options generally expire 10 years after the dates on which they were granted. Options vest over periods of 4 to 10 years. There were 1,104,591 and 1,611,012 shares available for future grants under the Plans at September 30, 2000 and 2001, respectively. The Company issued a 9% stock dividend on September 18, 2000, and an 11% stock dividend on March 9, 2001. The net effects of the dividends were to increase options outstanding by 345,664 shares in September 2000 and 493,210 in March 2001.
Activity under the Company Stock Incentive Plans are:
Exercise prices for options outstanding at September 30, 2001, ranged from $3.7168 to $18.2350.
36
The weighted average remaining contractual lives of those options are:
The Company has elected to follow Accounting Principles Board Opinion No. 25, in accounting for its employee stock options. The exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of grant, and therefore no compensation expense is recognized for the initial grants. SFAS No. 123 requires disclosure of pro forma income and pro forma income per share as if the fair value based method had been applied in measuring compensation expense for option awards granted in fiscal 1999, 2000 and 2001. Management believes the fiscal 1999, 2000 and 2001 pro forma amounts may not be representative of the effects of option awards on future pro forma net income and pro forma net income per share because options granted before 1996 are not considered in these calculations. Application of the fair value method, as specified by SFAS 123, would decrease net income by $1,648,000 ($0.02 per diluted share), $1,909,000 ($0.03 per diluted share) and $2,300,624 ($0.03 per diluted share) in 1999, 2000 and 2001, respectively.
The weighted average fair value of grants made in 1999, 2000 and 2001 was $8.85, $7.14 and $7.78, respectively.
The fair values of the options granted were estimated on the date of their grant using the Black-Scholes option pricing model based on the following weighted average assumptions:
NOTE G—FINANCIAL INSTRUMENTS
The fair values of the Company’s financial instruments are based on quoted market prices, where available, or are estimated. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates are subjective in nature, involve matters of judgment and therefore, cannot be determined with precision. Estimated fair values are significantly affected by the assumptions used.
37
The table below sets forth the carrying values and estimated fair values of the Company’s financial instruments (in thousands).
The Company used the following methods and assumptions in estimating fair values:
For cash and cash equivalents, the revolving credit facility, other notes payable, and standby letters of credit, the carrying amounts reported in the balance sheet or as reported in Note H approximate fair values due to their short maturity or floating interest rate terms, as applicable.
For the senior and senior subordinated notes, fair values represent quoted market prices on the exchange on which the securities are traded. For interest rate swaps, mortgage loans held for sale, loan commitments and forward contracts, the fair values are estimated based on quoted market prices for similar financial instruments.
NOTE H— COMMITMENTS AND CONTINGENCIES
The Company is involved in lawsuits and other contingencies in the ordinary course of business. Management believes that, while the ultimate outcome of the contingencies cannot be predicted with certainty, the ultimate liability, if any, will not have a material adverse effect on the Company’s financial position.
In the ordinary course of business, the Company enters into option agreements to purchase land and developed lots. At September 30, 2001, cash deposits of approximately $41.8 million and promissory notes approximating $1.7 million secured the Company’s performance under these agreements.
Additionally, in the normal course of its business activities, the Company provides standby letters of credit and performance bonds, issued by third parties, to secure performance under various contracts. At September 30, 2001, outstanding standby letters of credit were $74.9 million and performance bonds were $416.2 million. The Company has an additional capacity of $21.3 million for standby letters of credit under its revolving credit facility.
38
The Company leases office space under noncancellable operating leases. Minimum annual lease payments under these leases at September 30, 2001 approximate (in thousands):
Rent expense approximated $8,456,000, $11,346,000 and $14,393,000 for fiscal 1999, 2000 and 2001, respectively.
39
NOTE I— SUMMARIZED FINANCIAL INFORMATION
The 7 7/8%, 8%, 8 3/8%, 10% and 10 1/2% Senior Notes, the 9 3/8% and 9 3/4% Senior Subordinated Notes, and the Zero Coupon Convertible Senior Notes are fully and unconditionally guaranteed, on a joint and several basis, by all of the Company’s direct and indirect subsidiaries (Guarantor Subsidiaries), other than financial services subsidiaries and certain other inconsequential subsidiaries (collectively, Non-Guarantor Subsidiaries). Each of the Guarantor Subsidiaries is wholly-owned. In lieu of providing separate audited financial statements for the Guarantor Subsidiaries, consolidated condensed financial statements are presented below. Separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented because management has determined that they are not material to investors.
Consolidating Balance Sheet
September 30, 2001
40
September 30, 2000
41
Consolidating Statement of Income
Year Ended September 30, 2001
42
Year Ended September 30, 2000
43
Year Ended September 30, 1999
44
Consolidating Statement of Cash Flows
45
46
47
NOTE J— QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly results of operations are (in thousands, except for per share amounts):
NOTE K— TRANSACTIONS WITH RELATED PARTIES
One of the Company’s directors beneficially owns EVP Capital, L.P., (“EVP”), which was a general partner of Encore Venture Partners II (Texas), L.P. (“Encore”), a Company affiliate which, together with other Company affiliates, invested in technology start-up and emerging growth companies. During the term of EVP’s interest in Encore, such director advised and assisted the Company in its homebuilder acquisitions. In connection with the termination of the Company’s investment program through Encore, the existing agreement with EVP was terminated, along with EVP’s interests in Encore. Since such termination, through advisory arrangements with the Company, such director has continued to monitor Encore and affiliate investments and to advise and assist the Company in its homebuilder acquisitions, and the Company has paid fees to EVP. Under these advisory arrangements, such director has also been active in the process of integrating acquired homebuilding operations. For the years ended September 30, 2000 and 2001, the Company paid EVP approximately $677,000 and $1,724,000, respectively, excluding reimbursement of expenses, under the foregoing agreements and arrangements. For the first three quarters of fiscal 2002, the Company has agreed to pay EVP at a quarterly rate of $500,000, in addition to the reimbursement of expenses, in connection with such director’s continued advice and assistance.
48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth under the caption “Additional Information About D.R. Horton—Directors and Executive Officers” and the caption “Additional Information About D.R. Horton—Section 16(a) Beneficial Ownership Reporting Compliance” of the registrant’s definitive Proxy Statement for the 2002 Annual Meeting of Stockholders and incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under the caption “Additional Information About D.R. Horton—Executive Compensation” through “Additional Information About D.R. Horton—Compensation Committee Interlocks and Insider Participation” of the registrant’s definitive Proxy Statement for the 2002 Annual Meeting of Stockholders and incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the caption “Additional Information About D.R. Horton—D.R. Horton’s Principal Stockholders” of the registrant’s definitive Proxy Statement for the 2002 Annual Meeting of Stockholders and incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under the caption “Additional Information About D.R. Horton—Transactions with Management” of the registrant’s definitive Proxy Statement for the 2002 Annual Meeting of Stockholders and incorporated herein by reference.
49
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
50
51
52
53
(b) The following reports were filed on Form 8-K by the Registrant during the quarter ended September 30, 2001:
On August 14, 2001, the Company filed a Current Report on Form 8-K (Items 5 and 7), which filed an underwriting agreement, a supplemental indenture and a statement of computation of ratio of earnings to fixed changes, all relating to the offering and issuance of $200 million principal amount of the Registrant’s 7.875% Senior Notes due 2011.
54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
55
CORPORATE INFORMATION
D.R. Horton, Inc., one of the largest homebuilders in the United States, builds high quality single-family homes designed principally for the entry-level and move-up markets. Founded in 1978, the Company operates in 20 states and 38 markets, with a geographic presence in the Midwest, Mid-Atlantic, Southeast, Southwest, and Western regions of the United States. The Company builds and sells homes under the trade names D.R. Horton, Arappco, Cambridge, Continental, Dietz Crane, Dobson, Emerald Builders, Mareli, Milburn, Regency, SGS Communities, Torrey and Trimark.
Horton has established a unique marketing niche, offering a broader selection of homes that typically have more amenities and greater design flexibility than homes offered by volume builders, at prices that are generally more affordable than those charged by local custom builders. Horton homes range in size from 1,000 to 5,000 square feet and are priced from $80,000 to $900,000. For the year ended September 30, 2001, the Company closed 21,371 homes with an average sales price of approximately $200,700.
THE BOARD OF DIRECTORS
Donald R. Horton
Bradley S. Anderson
Richard Beckwitt
Richard I. Galland
Richard L. Horton
Terrill J. Horton
Francine I. Neff
Scott J. Stone
Donald J. Tomnitz
Samuel R. Fuller
American Stock Transfer & Trust Co.
Investor Relations
Stacey Dwyer
Annual Meeting
(To be announced)
At the Corporate Offices of
Public Debt Ratings
Senior:
Senior Subordinated:
56
EXHIBIT INDEX