FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2002
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the Transition Period From To
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Commission file number 1-14122
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D.R. Horton, Inc.
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(Exact name of registrant as specified in its charter)
DELAWARE 75-2386963
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 Ascension Blvd., Suite 100, Arlington, Texas 76006
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(Address of principal executive offices) (Zip Code)
(817) 856-8200
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.01 par value -- 146,309,661 shares as of May 10, 2002
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This report contains 35 pages.
INDEX
D.R. HORTON, INC.
PAGE
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PART I. FINANCIAL INFORMATION.
ITEM 1. Financial Statements.
Consolidated Balance Sheets -- March 31, 2002 and September 30, 2001. 3
Consolidated Statements of Income -- Three Months and Six Months Ended
March 31, 2002 and 2001. 4
Consolidated Statements of Cash Flows -- Six Months Ended March 31,
2002 and 2001. 5
Notes to Consolidated Financial Statements. 6-18
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition. 19-27
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk. 28
PART II. OTHER INFORMATION.
ITEM 2. Changes in Securities. 29
ITEM 4. Submission of Matters to a Vote of Security Holders. 30
ITEM 5. Other Information. 31
ITEM 6. Exhibits and Reports on Form 8-K 32-34
SIGNATURES. 35
ITEM 1. FINANCIAL STATEMENTS
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, SEPTEMBER 30,
2002 2001
------------- -------------
(IN THOUSANDS)
(UNAUDITED)
ASSETS
HOMEBUILDING:
Cash ....................................................................... $ 176,241 $ 232,305
Inventories:
Finished homes and construction in progress ............................ 1,991,513 1,424,101
Residential lots - developed and under development .................... 2,199,256 1,377,452
Land held for development .............................................. 10,365 2,824
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4,201,134 2,804,377
Property and equipment (net) ............................................... 68,536 53,096
Earnest money deposits and other assets .................................... 358,888 181,659
Excess of cost over net assets acquired .................................... 564,005 136,223
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5,368,804 3,407,660
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FINANCIAL SERVICES:
Cash ....................................................................... 13,485 6,975
Mortgage loans held for sale ............................................... 202,323 222,818
Other assets ............................................................... 12,042 14,737
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227,850 244,530
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$ 5,596,654 $ 3,652,190
============= =============
LIABILITIES
HOMEBUILDING:
Accounts payable and other liabilities ..................................... $ 629,932 $ 498,576
Notes payable .............................................................. 2,748,197 1,701,689
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3,378,129 2,200,265
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FINANCIAL SERVICES:
Accounts payable and other liabilities ..................................... 9,750 10,173
Notes payable to financial institutions .................................... 148,157 182,641
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157,907 192,814
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3,536,036 2,393,079
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Minority interests ......................................................... 21,887 8,864
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STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 30,000,000 shares authorized,
no shares issued ....................................................... -- --
Common stock, $.01 par value, 200,000,000 shares authorized, 146,254,255
shares at March 31, 2002 and 76,901,511 shares at September 30,
2001, issued and outstanding ........................................... 1,463 769
Additional capital ......................................................... 1,346,209 704,842
Unearned compensation ...................................................... (7,460) --
Retained earnings .......................................................... 698,519 544,636
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2,038,731 1,250,247
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$ 5,596,654 $ 3,652,190
============= =============
See accompanying notes to consolidated financial statements.
-3-
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------
(UNAUDITED)
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HOMEBUILDING:
Revenues
Home sales ....................................... $ 1,534,357 $ 853,575 $ 2,660,095 $ 1,709,652
Land/lot sales ................................... 41,843 38,832 51,073 56,309
------------ ------------ ------------ ------------
1,576,200 892,407 2,711,168 1,765,961
------------ ------------ ------------ ------------
Cost of sales
Home sales ....................................... 1,258,842 682,760 2,157,740 1,372,659
Land/lot sales ................................... 36,203 30,647 44,110 44,079
------------ ------------ ------------ ------------
1,295,045 713,407 2,201,850 1,416,738
------------ ------------ ------------ ------------
Gross profit
Home sales ....................................... 275,515 170,815 502,355 336,993
Land/lot sales ................................... 5,640 8,185 6,963 12,230
------------ ------------ ------------ ------------
281,155 179,000 509,318 349,223
Selling, general and administrative expense ........... 149,494 94,101 267,911 185,999
Interest expense ...................................... 2,563 1,623 3,759 4,529
Other (income) expense ................................ (2,426) 5,684 146 8,998
------------ ------------ ------------ ------------
131,524 77,592 237,502 149,697
------------ ------------ ------------ ------------
FINANCIAL SERVICES:
Revenues .............................................. 23,865 14,429 48,787 28,538
Selling, general and administrative expense ........... 14,918 9,830 30,041 19,967
Interest expense ...................................... 999 875 2,335 2,007
Other (income) ........................................ (2,818) (1,213) (5,862) (2,629)
------------ ------------ ------------ ------------
10,766 4,937 22,273 9,193
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES ....................... 142,290 82,529 259,775 158,890
Provision for income taxes ............................ 53,359 30,948 97,416 59,584
------------ ------------ ------------ ------------
Income before cumulative effect of change in
accounting principle ............................. 88,931 51,581 162,359 99,306
Cumulative effect of change in accounting
principle, net of income taxes of $1,282 ......... -- -- -- 2,136
------------ ------------ ------------ ------------
NET INCOME ....................................... $ 88,931 $ 51,581 $ 162,359 $ 101,442
============ ============ ============ ============
Basic earnings per common share:
Income before cumulative effect of change
in accounting principle ...................... $ 0.69 $ 0.46 $ 1.33 $ 0.88
Cumulative effect of change in accounting
principle, net of income taxes ............... -- -- -- 0.02
------------ ------------ ------------ ------------
Net income ....................................... $ 0.69 $ 0.46 $ 1.33 $ 0.90
============ ============ ============ ============
Diluted earnings per common share:
Income before cumulative effect of change in
in accounting principle ...................... $ 0.64 $ 0.45 $ 1.26 $ 0.86
Cumulative effect of change in accounting
principle, net of income taxes ............... -- -- -- 0.02
------------ ------------ ------------ ------------
Net income ....................................... $ 0.64 $ 0.45 $ 1.26 $ 0.88
============ ============ ============ ============
Cash dividends per share .............................. $ 0.06 $ 0.05 $ 0.11 $ 0.09
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
-4-
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS
ENDED MARCH 31,
------------------------------
2002 2001
------------ ------------
(IN THOUSANDS)
(UNAUDITED)
OPERATING ACTIVITIES
Net income ................................................................ $ 162,359 $ 101,442
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization ............................................. 11,024 11,972
Amortization of debt premiums and fees .................................... 4,476 1,165
Changes in operating assets and liabilities:
Increase in inventories .................................................. (116,046) (289,052)
Increase in earnest money deposits and other assets ...................... (45,592) (24,905)
Decrease (increase) in mortgage loans held for sale ...................... 20,495 (9,527)
Decrease in accounts payable and other liabilities ....................... (97,586) (17,584)
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NET CASH USED IN OPERATING ACTIVITIES .......................................... (60,870) (226,489)
------------ ------------
INVESTING ACTIVITIES
Net purchases of property and equipment ................................... (15,725) (10,356)
Distributions from (investments in) venture capital entities .............. 500 (2,022)
Net cash paid for acquisitions ............................................ (152,573) (1,318)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES .......................................... (167,798) (13,696)
------------ ------------
FINANCING ACTIVITIES
Proceeds from notes payable ............................................... 1,555,000 538,993
Repayment of notes payable ................................................ (1,377,974) (444,808)
Issuance of senior subordinated notes payable ............................. -- 198,404
Proceeds from issuance of common stock associated with certain
employee benefit plans ................................................... 855 73
Proceeds from exercise of stock options ................................... 9,709 7,251
Payment of cash dividends ................................................. (8,476) (6,106)
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NET CASH PROVIDED BY FINANCING ACTIVITIES ...................................... 179,114 293,807
------------ ------------
(DECREASE) INCREASE IN CASH .................................................... (49,554) 53,622
Cash at beginning of period .............................................. 239,280 72,525
------------ ------------
Cash at end of period .................................................... $ 189,726 $ 126,147
============ ============
See accompanying notes to consolidated financial statements.
-5-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2002
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements include the
accounts of D.R. Horton, Inc. and its subsidiaries (the "Company"). Intercompany
accounts and transactions have been eliminated in consolidation. The statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the
three-month and six-month periods ended March 31, 2002 are not necessarily
indicative of the results that may be expected for the year ending September 30,
2002.
Business - The Company is a national builder that is engaged primarily in the
construction and sale of single-family housing 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 land or lots it has developed. The Company also
provides title agency and mortgage brokerage services to its home buyers.
Stock Split - In March 2002, the Company's Board of Directors declared a
three-for-two stock split (effected as a 50% stock dividend), payable on April
9, 2002 to common stockholders of record on March 26, 2002. The shares issued
and outstanding as of March 31, 2002 and the related Common Stock and Additional
Capital balances have been restated to reflect the stock split.
NOTE B - CHANGES IN ACCOUNTING PRINCIPLES
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 Item 3, 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 the six months ended March 31, 2001. The fair value of the
Company's interest rate swaps at March 31, 2002 and September 30, 2001 is
recorded in homebuilding other assets, and the changes in their fair value
during the three months and six months ended March 31, 2002 and 2001 are
recorded in homebuilding other income.
SFAS No. 133 was also implemented on October 1, 2000 for the hedging activities
of the Company's financial services segment. The effects of doing so were not
significant.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". Under Statement No. 142, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject to annual
impairment tests. Other intangible assets will continue to be amortized over
their useful lives. The Company early-adopted the new rules on accounting for
goodwill and other intangible assets beginning October 1, 2001. The Company
performed the required impairment tests at October 31, 2001 and determined that
no goodwill or other intangible asset impairments exist. The following
summarizes the pro forma impact of the non-amortization approach for the three
months and six months ended March 31, 2001 as if these Statements had been
adopted on October 1, 2000:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2001
------------------ ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income, as previously reported .................... $ 51,581 $ 101,442
Amortization of goodwill, net of income taxes
of $775 and $1,538 respectively ................... 1,291 2,564
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Net income, as adjusted ............................... $ 52,872 $ 104,006
============= =============
Net income per share, as adjusted:
Basic ......................................... $ 0.47 $ 0.92
============= =============
Diluted ....................................... $ 0.46 $ 0.91
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-6-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
MARCH 31, 2002
NOTE C - SEGMENT INFORMATION
The Company's financial reporting segments consist of homebuilding and financial
services. The Company's homebuilding operations comprise the most substantial
part of its business, with approximately 98% of consolidated revenues for the
three months and six months ended March 31, 2002 and 2001. The homebuilding
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.
NOTE D - EARNINGS PER SHARE
Basic earnings per share for the three months and six months ended March 31,
2002 and 2001 is based on the weighted average number of shares of common stock
outstanding. Diluted earnings per share is based on the weighted average number
of shares of common stock and dilutive securities outstanding.
The following table sets forth the computation of basic and diluted earnings per
share:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
---------------------- -----------------------
2002 2001 2002 2001
--------- ---------- ---------- ----------
(IN THOUSANDS)
Numerator:
Net income .................................................................. $ 88,931 $ 51,581 $ 162,359 $ 101,442
Effect of dilutive securities:
Interest expense and amortization of issuance costs associated zero coupon
convertible senior notes, net of applicable income
taxes ................................................................... 1,042 -- 1,042 --
--------- ---------- ---------- ----------
Numerator for diluted earnings per share after assumed
conversions ............................................................. $ 89,973 $ 51,581 $ 163,401 $ 101,442
========= ========== ========== ==========
Denominator:
Denominator for basic earnings per share--weighted
average shares .......................................................... 128,897 113,150 122,095 112,796
Effect of dilutive securities:
Zero coupon convertible senior notes ........................................ 10,000 -- 5,000 --
Employee stock options ...................................................... 2,576 1,940 2,320 1,832
--------- ---------- ---------- ----------
Denominator for diluted earnings per share--adjusted weighted
average shares and assumed conversions .................................. 141,473 115,090 129,415 114,628
========= ========== ========== ==========
In March 2002, the Company's Board of Directors declared a three-for-two stock
split (effected as a 50% stock dividend), payable on April 9, 2002 to common
stockholders of record on March 26, 2002. All average share amounts presented
above have been restated to reflect the effects of the three-for-two stock
split.
On February 5, 2002, each of the Company's 381,113 zero coupon convertible
senior notes outstanding first became eligible for conversion into 26.239 shares
of the Company's common stock. These convertible senior notes are convertible on
any date as of which the average closing price of the Company's common stock for
the twenty preceding trading days exceeds the specified threshold of 110% of the
accreted value of each note, divided by the conversion rate. The twenty-day
average closing price of the Company's common stock exceeded the specified
threshold on March 31, 2002, which had the effect of increasing the denominator
for diluted earnings per share by 10 million shares for the three months ended
March 31, 2002 and 5 million shares for the six months ended March 31, 2002.
Also, the numerator for diluted earnings per share was increased by tax-effected
interest expense and amortization of issuance costs associated with the
convertible senior notes for the three months and six months ended March 31,
2002.
-7-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
MARCH 31, 2002
NOTE E - DEBT
The Company's homebuilding notes payable consist of the following:
MARCH 31, SEPTEMBER 30,
2002 2001
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(IN THOUSANDS)
(UNAUDITED)
Unsecured:
Revolving credit facility due 2006 .................... $ 480,000 $ --
8.375% Senior notes due 2004, net ..................... 149,141 148,943
10.5% Senior notes due 2005, net ...................... 199,498 199,439
10% Senior notes due 2006, net ........................ 147,701 147,600
9% Senior notes due 2008, net ......................... 102,704 --
8% Senior notes due 2009, net ......................... 383,346 383,257
9.375% Senior notes due 2009, net ..................... 262,305 --
9.75% Senior subordinated notes due 2010, net ......... 148,954 148,917
9.375% Senior subordinated notes due 2011, net ........ 199,698 199,688
7.875% Senior notes due 2011, net ..................... 198,377 198,319
10.5% Senior subordinated notes due 2011, net ......... 159,334 --
Zero coupon convertible senior notes due 2021, net .... 205,805 202,509
Other secured ............................................... 111,334 73,017
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$ 2,748,197 $ 1,701,689
============= =============
On January 31, 2002, the Company refinanced its existing unsecured revolving
credit facility with a new, replacement facility. The new $805 million facility
includes $125 million which may be used for letters of credit. The new facility
matures in January 2006, and is guaranteed by substantially all of the Company's
subsidiaries other than its financial services subsidiaries. Borrowings bear
daily interest at rates based upon the London Interbank Offered Rate (LIBOR)
plus a spread based upon the Company's ratio of debt to tangible net worth. In
addition to stated interest rates, the revolving credit facility requires the
Company to pay certain fees. The new credit facility contains covenants which
are essentially the same as those that existed under the old facility.
On February 21, 2002, the Company assumed the outstanding debt of Schuler Homes,
Inc. ("Schuler") as part of Schuler's merger into the Company. The debt assumed
included the 9% senior notes due 2008, the 9.375% senior notes due 2009 and the
10.5% senior subordinated notes due 2011, all of which were recorded by the
Company at their market values as of February 21, 2002. The Company repaid $20.2
million, in principal amount, of the Schuler senior and senior subordinated
notes as part of the Company's change of control offer in connection with the
merger.
On April 11, 2002, the Company issued $250 million of 8.5% Senior notes due
2012. The net proceeds from this offering were used to repay borrowings under
the unsecured revolving credit facility. These notes are guaranteed by
substantially all of the Company's subsidiaries other than its financial
services subsidiaries.
-8-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
MARCH 31, 2002
NOTE F - INTEREST
The Company capitalizes interest during development and construction.
Capitalized interest is charged to cost of sales as the related inventory is
delivered to the home buyer. Homebuilding interest costs are:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(IN THOUSANDS)
Capitalized interest, beginning of period ............. $ 110,126 $ 74,557 $ 96,910 $ 66,092
Interest incurred - homebuilding ...................... 46,535 31,185 83,247 60,728
Interest expensed:
Directly - homebuilding ......................... (2,563) (1,623) (3,759) (4,529)
Amortized to cost of sales ...................... (29,446) (18,540) (51,746) (36,712)
------------ ------------ ------------ ------------
Capitalized interest, end of period ................... $ 124,652 $ 85,579 $ 124,652 $ 85,579
============ ============ ============ ============
NOTE G - ACQUISITIONS
On February 21, 2002, Schuler Homes, Inc. merged with and into D.R. Horton,
Inc., with D.R. Horton the surviving corporation. At the time of the merger,
Schuler's assets amounted to $1,377.6 million, mostly inventory. The total
merger consideration consisted of the issuance of 20,079,532 shares of D.R.
Horton, Inc. common stock, valued at $30.93 per share (the average closing price
of D.R. Horton common stock for a period of ten trading days from December 4,
2001 to December 17, 2001); the payment of $168.7 million in cash; the
assumption of $802.2 million of Schuler's debt, $238.2 million of which was paid
at closing; the assumption of trade payables and other liabilities amounting to
$200.0 million; and the assumption of $10.8 million of obligations to the
Schuler entities' minority interest holders. Also, D.R. Horton issued options to
purchase approximately 527,000 shares of D.R. Horton common stock to Schuler
employees to replace outstanding Schuler stock options. The fair value of the
options issued was $10.4 million and was recorded as additional capital. The
intrinsic value of the unvested options issued was $7.8 million and was recorded
as unearned compensation. The unearned compensation is being amortized over the
remaining vesting period of the stock options.
The merger was treated as a purchase of Schuler by D.R. Horton for accounting
purposes. Under this method, Schuler assets acquired and liabilities assumed
were recorded on the Company's balance sheet at their fair market values as of
February 21, 2002.
Schuler's results of operations from February 22, 2002 to March 31, 2002 are
included in the Company's results of operations for the three and six months
ended March 31, 2002.
The following unaudited pro forma combined condensed financial data for the
three and six-month periods ending March 31, 2002 and 2001 are derived from the
historical financial statements of D.R. Horton, Inc., Schuler, Fortress-Florida
(acquired in May 2001), and Emerald Builders (acquired in July 2001). The
unaudited pro forma combined condensed financial data give effect to the merger
with Schuler and the acquisitions of Fortress-Florida and Emerald as if they had
occurred at the beginning of each period presented. Pro forma adjustments to
historical financial data include adjustments that we deem appropriate,
reflecting items of recurring significance and which are factually supported
based on currently available information.
The proforma adjustments include the estimated effects on net income of the
recording of Schuler's inventory at fair value, net of income taxes, as follows:
$1.3 million for the three months ended March 31, 2002; $9.7 million for the
three months ended March 31, 2001; $4.7 million for the six months ended March
31,2002; and $12.3 million for the six months ended March 31,2001.
-9-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
MARCH 31, 2002
NOTE G - ACQUISITIONS - (CONTINUED)
The unaudited pro forma combined condensed financial data have been included for
comparative purposes only and do not purport to show what the operating results
would have been if the merger had been consummated as of the dates indicated and
should not be construed as representative of future operating results.
THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
----------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues .............................................. $ 1,759,696 $ 1,470,800 $ 3,334,957 $ 2,800,106
------------- ------------- ------------- -------------
Income before cumulative effect of change in
accounting principle ............................. 92,468 79,122 189,209 149,093
Cumulative effect of change in accounting
principle, net of income taxes ................... -- -- -- 2,136
------------- ------------- ------------- -------------
Net income ....................................... $ 92,468 $ 79,122 $ 189,209 $ 151,229
============= ============= ============= =============
Basic earnings per common share:
Income before cumulative effect of change
in accounting principle ...................... $ 0.63 $ 0.55 $ 1.30 $ 1.03
Cumulative effect of change in accounting
principle, net of income taxes ............... -- -- -- 0.02
------------- ------------- ------------- -------------
Net income ....................................... $ 0.63 $ 0.55 $ 1.30 $ 1.05
============= ============= ============= =============
Diluted earnings per common share:
Income before cumulative effect of change in
in accounting principle ...................... $ 0.59 $ 0.54 $ 1.24 $ 1.03
Cumulative effect of change in accounting
principle, net of income taxes ............... -- -- -- 0.01
------------- ------------- ------------- -------------
Net income ....................................... $ 0.59 $ 0.54 $ 1.24 $ 1.04
============= ============= ============= =============
-10-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
MARCH 31, 2002
NOTE H - SUMMARIZED FINANCIAL INFORMATION
The 7.875%, 8%, 8.375%, 9%, 9.375%, 10% and 10.5% Senior Notes, the 9.375%,
9.75% and 10.5% 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
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
MARCH 31, 2002
NON-GUARANTOR
SUBSIDIARIES
----------------------
D.R. GUARANTOR FINANCIAL INTERCOMPANY
HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL
----------- ------------ --------- --------- ------------ -----------
(IN THOUSANDS)
ASSETS
HOMEBUILDING:
Cash and cash equivalents .................. $ -- $ 162,600 $ -- $ 13,641 $ -- $ 176,241
Advances to/investments in subsidiaries .... 4,172,895 44,038 -- 2,595 (4,219,528) --
Inventories ................................ 620,202 3,499,536 -- 81,760 (364) 4,201,134
Property and equipment (net) ............... 9,813 53,814 -- 4,909 -- 68,536
Earnest money deposits and other assets .... 93,322 260,711 -- 9,914 (5,059) 358,888
Excess of cost over net assets acquired
(net) .................................... -- 564,005 -- -- -- 564,005
----------- ---------- --------- --------- ----------- -----------
4,896,232 4,584,704 -- 112,819 (4,224,951) 5,368,804
----------- ---------- --------- --------- ----------- -----------
FINANCIAL SERVICES:
Cash and cash equivalents .................. -- -- 13,485 -- -- 13,485
Mortgage loans held for sale ............... -- -- 202,323 -- -- 202,323
Other assets ............................... -- -- 12,042 -- -- 12,042
----------- ---------- --------- --------- ----------- -----------
-- -- 227,850 -- -- 227,850
----------- ---------- --------- --------- ----------- -----------
TOTAL ASSETS ............................... $ 4,896,232 $4,584,704 $ 227,850 $ 112,819 $(4,224,951) $ 5,596,654
=========== ========== ========= ========= =========== ===========
LIABILITIES & EQUITY
HOMEBUILDING:
Accounts payable and other liabilities ..... $ 175,090 $ 447,696 $ -- $ 7,173 $ (27) $ 629,932
Advances from parent/subsidiaries .......... -- 2,917,034 -- 44,554 (2,961,588) --
Notes payable .............................. 2,682,411 30,664 -- 40,154 (5,032) 2,748,197
----------- ---------- --------- --------- ----------- -----------
2,857,501 3,395,394 -- 91,881 (2,966,647) 3,378,129
----------- ---------- --------- --------- ----------- -----------
FINANCIAL SERVICES:
Accounts payable and other liabilities ..... -- -- 9,750 -- -- 9,750
Advances from parent/subsidiaries .......... -- -- 10,624 -- (10,624) --
Notes payable .............................. -- -- 148,157 -- -- 148,157
----------- ---------- --------- --------- ----------- -----------
-- -- 168,531 -- (10,624) 157,907
---------- --------- --------- ----------- -----------
TOTAL LIABILITIES .......................... 2,857,501 3,395,394 168,531 91,881 (2,977,271) 3,536,036
----------- ---------- --------- --------- ----------- -----------
Minority interests ......................... -- -- 17 21,870 -- 21,887
----------- ---------- --------- --------- ----------- -----------
Common stock ............................... 975 45 (26) 6,155 (6,174) 975
Additional capital ......................... 1,346,697 352,245 2,917 28,484 (383,646) 1,346,697
Retained earnings .......................... 698,519 837,020 56,411 (35,571) (857,860) 698,519
Unearned compensation ...................... (7,460) -- -- -- -- (7,460)
----------- ---------- --------- --------- ----------- -----------
2,038,731 1,189,310 59,302 (932) (1,247,680) 2,038,731
----------- ---------- --------- --------- ----------- -----------
TOTAL LIABILITIES & EQUITY ................. $ 4,896,232 $4,584,704 $ 227,850 $ 112,819 $(4,224,951) $ 5,596,654
=========== ========== ========= ========= =========== ===========
-11-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) - (CONTINUED)
NOTE H - SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2001
NON-GUARANTOR
SUBSIDIARIES
------------------------
D.R. GUARANTOR FINANCIAL INTERCOMPANY
HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL
------------ ------------ --------- ----------- ------------ ----------
(IN THOUSANDS)
ASSETS
HOMEBUILDING:
Cash and cash equivalents ..................... $ -- $ 230,481 $ -- $ 1,824 $ -- $ 232,305
Advances to/investments in subsidiaries ...... 2,493,783 74,241 -- -- (2,568,024) --
Inventories ................................... 564,593 2,212,933 -- 27,230 (379) 2,804,377
Property and equipment (net) .................. 8,114 39,823 -- 5,159 -- 53,096
Earnest money deposits and other assets ....... 39,978 140,436 -- 10,793 (9,548) 181,659
Excess of cost over net assets acquired
(net) ....................................... -- 136,223 -- -- -- 136,223
---------- ---------- --------- ----------- ----------- ----------
3,106,468 2,834,137 -- 45,006 (2,577,951) 3,407,660
---------- ---------- --------- ----------- ----------- ----------
FINANCIAL SERVICES:
Cash and cash equivalents ..................... -- -- 6,975 -- -- 6,975
Mortgage loans held for sale .................. -- -- 222,818 -- -- 222,818
Other assets .................................. -- -- 14,737 -- -- 14,737
---------- ---------- --------- ----------- ----------- ----------
-- -- 244,530 -- -- 244,530
---------- --------- ----------- ----------- ----------
TOTAL ASSETS ................................ $3,106,468 $2,834,137 $ 244,530 $ 45,006 $(2,577,951) $3,652,190
========== ========== ========= =========== =========== ==========
LIABILITIES & EQUITY
HOMEBUILDING:
Accounts payable and other liabilities ........ $ 191,596 $ 304,486 $ -- $ 2,552 $ (58) $ 498,576
Advances from parent/subsidiaries ............. -- 1,944,796 -- 28,367 (1,973,163) --
Notes payable ................................. 1,664,625 37,064 -- 9,489 (9,489) 1,701,689
---------- ---------- --------- ----------- ----------- ----------
1,856,221 2,286,346 -- 40,408 (1,982,710) 2,200,265
---------- ---------- --------- ----------- ----------- ----------
FINANCIAL SERVICES:
Accounts payable and other liabilities ........ -- -- 10,173 -- -- 10,173
Advances from parent/subsidiaries ............. -- -- 13,748 -- (13,748) --
Notes payable ................................. -- -- 182,641 -- -- 182,641
---------- ---------- --------- ----------- ----------- ----------
-- -- 206,562 -- (13,748) 192,814
---------- ---------- --------- ----------- ----------- ----------
TOTAL LIABILITIES ............................. 1,856,221 2,286,346 206,562 40,408 (1,996,458) 2,393,079
---------- ---------- --------- ----------- ----------- ----------
Minority interests ............................ -- -- 10 8,854 -- 8,864
---------- ---------- --------- ----------- ----------- ----------
Common stock .................................. 769 1 6 6,155 (6,162) 769
Additional capital ............................ 704,842 84,612 2,299 10,129 (97,040) 704,842
Retained earnings ............................. 544,636 463,178 35,653 (20,540) (478,291) 544,636
---------- ---------- --------- ----------- ----------- ----------
1,250,247 547,791 37,958 (4,256) (581,493) 1,250,247
---------- ---------- --------- ----------- ----------- ----------
TOTAL LIABILITIES & EQUITY .................... $3,106,468 $2,834,137 $ 244,530 $ 45,006 $(2,577,951) $3,652,190
========== ========== ========= =========== =========== ==========
-12-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) - (CONTINUED)
NOTE H - SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 2002
NON-GUARANTOR
SUBSIDIARIES
-------------------------
D.R. GUARANTOR FINANCIAL INTERCOMPANY
HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL
------------ ------------ ------------ --------- ------------ -----------
(IN THOUSANDS)
HOMEBUILDING:
Revenues:
Home sales ...................... $ 222,514 $ 1,284,294 $ -- $ 27,549 $ -- $ 1,534,357
Land/lot sales .................. 799 41,044 -- -- -- 41,843
------------ ------------ ------------ --------- ------------ -----------
223,313 1,325,338 -- 27,549 -- 1,576,200
------------ ------------ ------------ --------- ------------ -----------
Cost of sales:
Home sales ...................... 173,909 1,061,771 -- 23,201 (39) 1,258,842
Land/lot sales .................. (254) 36,457 -- -- -- 36,203
------------ ------------ ------------ --------- ------------ -----------
173,655 1,098,228 -- 23,201 (39) 1,295,045
------------ ------------ ------------ --------- ------------ -----------
Gross profit:
Home sales ...................... 48,605 222,523 -- 4,348 39 275,515
Land/lot sales .................. 1,053 4,587 -- -- -- 5,640
------------ ------------ ------------ --------- ------------ -----------
49,658 227,110 -- 4,348 39 281,155
Selling, general and administrative
expense ............................ 42,449 103,512 -- 2,012 1,521 149,494
Interest expense ..................... 1,873 689 -- 1 -- 2,563
Other expense (income) ............... (136,954) (1,067) -- 1,598 133,997 (2,426)
------------ ------------ ------------ --------- ------------ -----------
142,290 123,976 -- 737 (135,479) 131,524
------------ ------------ ------------ --------- ------------ -----------
FINANCIAL SERVICES:
Revenues ............................. -- -- 23,865 -- -- 23,865
Selling, general and administrative
expense ............................ -- -- 16,439 -- (1,521) 14,918
Interest expense ..................... -- -- 999 -- -- 999
Other (income) ....................... -- -- (2,818) -- -- (2,818)
------------ ------------ ------------ --------- ------------ -----------
-- -- 9,245 -- 1,521 10,766
------------ ------------ ------------ --------- ------------ -----------
Income before income taxes ........... 142,290 123,976 9,245 737 (133,958) 142,290
Provision for income taxes ........... 53,359 46,491 3,467 277 (50,235) 53,359
------------ ------------ ------------ --------- ------------ -----------
Net income ........................... $ 88,931 $ 77,485 $ 5,778 $ 460 $ (83,723) $ 88,931
============ ============ ============ ========= ============ ===========
-13-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) - (CONTINUED)
NOTE H - SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
SIX MONTHS ENDED MARCH 31, 2002
NON-GUARANTOR
SUBSIDIARIES
------------------------
D.R. GUARANTOR FINANCIAL INTERCOMPANY
HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL
----------- ------------ ----------- --------- ------------ -----------
(IN THOUSANDS)
HOMEBUILDING:
Revenues:
Home sales ......................... $ 401,551 $ 2,222,539 $ -- $ 36,005 $ -- $ 2,660,095
Land/lot sales ..................... 1,460 49,613 -- -- -- 51,073
----------- ----------- ----------- --------- ----------- -----------
403,011 2,272,152 -- 36,005 -- 2,711,168
----------- ----------- ----------- --------- ----------- -----------
Cost of sales:
Home sales ......................... 318,327 1,809,962 -- 29,666 (215) 2,157,740
Land/lot sales ..................... 505 43,605 -- -- -- 44,110
----------- ----------- ----------- --------- ----------- -----------
318,832 1,853,567 -- 29,666 (215) 2,201,850
----------- ----------- ----------- --------- ----------- -----------
Gross profit:
Home sales ......................... 83,224 412,577 -- 6,339 215 502,355
Land/lot sales ..................... 955 6,008 -- -- -- 6,963
----------- ----------- ----------- --------- ----------- -----------
84,179 418,585 -- 6,339 215 509,318
Selling, general and administrative
expense ............................ 73,045 188,453 -- 3,307 3,106 267,911
Interest expense ...................... 2,911 846 -- 12 (10) 3,759
Other expense (income) ................ (251,552) (1,874) -- 6,389 247,183 146
----------- ----------- ----------- --------- ----------- -----------
259,775 231,160 -- (3,369) (250,064) 237,502
----------- ----------- ----------- --------- ----------- -----------
FINANCIAL SERVICES:
Revenues .............................. -- -- 48,787 -- -- 48,787
Selling, general and administrative
expense ............................ -- -- 33,147 -- (3,106) 30,041
Interest expense ...................... -- -- 2,335 -- -- 2,335
Other (income) ........................ -- -- (5,862) -- -- (5,862)
----------- ----------- ----------- --------- ----------- -----------
-- -- 19,167 -- 3,106 22,273
----------- ----------- ----------- --------- ----------- -----------
Income before income taxes ............ 259,775 231,160 19,167 (3,369) (246,958) 259,775
Provision for income taxes ............ 97,416 86,685 7,188 (1,263) (92,610) 97,416
----------- ----------- ----------- --------- ----------- -----------
Net income ............................ $ 162,359 $ 144,475 $ 11,979 $ (2,106) $ (154,348) $ 162,359
=========== =========== =========== ========= =========== ===========
-14-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) - (CONTINUED)
NOTE H - SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 2001
NON-GUARANTOR
SUBSIDIARIES
--------------------------
D.R. GUARANTOR FINANCIAL INTERCOMPANY
HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL
----------- ------------ ----------- ----------- ------------ -----------
(IN THOUSANDS)
HOMEBUILDING:
Revenues:
Home sales ......................... $ 156,304 $ 693,224 $ -- $ 4,047 $ -- $ 853,575
Land/lot sales ..................... 10,371 28,461 -- -- -- 38,832
----------- ----------- ----------- ----------- ----------- -----------
166,675 721,685 -- 4,047 -- 892,407
----------- ----------- ----------- ----------- ----------- -----------
Cost of sales:
Home sales ......................... 125,753 554,278 -- 2,840 (111) 682,760
Land/lot sales ..................... 7,486 23,161 -- -- -- 30,647
----------- ----------- ----------- ----------- ----------- -----------
133,239 577,439 -- 2,840 (111) 713,407
----------- ----------- ----------- ----------- ----------- -----------
Gross profit:
Home sales ......................... 30,551 138,946 -- 1,207 111 170,815
Land/lot sales ..................... 2,885 5,300 -- -- -- 8,185
----------- ----------- ----------- ----------- ----------- -----------
33,436 144,246 -- 1,207 111 179,000
Selling, general and administrative
expense ............................ 21,939 69,075 -- 2,200 887 94,101
Interest expense ...................... 1,579 42 -- 74 (72) 1,623
Other expense (income) ................ (72,611) (413) -- 2,479 76,229 5,684
----------- ----------- ----------- ----------- ----------- -----------
82,529 75,542 -- (3,546) (76,933) 77,592
----------- ----------- ----------- ----------- ----------- -----------
FINANCIAL SERVICES:
Revenues .............................. -- -- 14,429 -- -- 14,429
Selling, general and administrative
expense ............................ -- -- 10,717 -- (887) 9,830
Interest expense ...................... -- -- 875 -- -- 875
Other (income) ........................ -- -- (1,213) -- -- (1,213)
----------- ----------- ----------- ----------- ----------- -----------
-- -- 4,050 -- 887 4,937
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes ............ 82,529 75,542 4,050 (3,546) (76,046) 82,529
Provision for income taxes ............ 30,948 28,328 1,519 (1,330) (28,517) 30,948
----------- ----------- ----------- ----------- ----------- -----------
Net income ............................ $ 51,581 $ 47,214 $ 2,531 $ (2,216) $ (47,529) $ 51,581
=========== =========== =========== =========== =========== ===========
-15-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) - (CONTINUED)
NOTE H - SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
SIX MONTHS ENDED MARCH 31, 2001
NON-GUARANTOR
SUBSIDIARIES
----------------------
D.R. GUARANTOR FINANCIAL INTERCOMPANY
HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL
----------- ------------ --------- --------- ------------ -----------
(IN THOUSANDS)
HOMEBUILDING:
Revenues:
Home sales ............................. $ 275,503 $ 1,421,997 $ -- $ 12,152 $ -- $ 1,709,652
Land/lot sales ......................... 16,609 39,700 -- -- -- 56,309
----------- ----------- --------- --------- ----------- -----------
292,112 1,461,697 -- 12,152 -- 1,765,961
----------- ----------- --------- --------- ----------- -----------
Cost of sales:
Home sales ............................. 222,314 1,141,634 -- 8,968 (257) 1,372,659
Land/lot sales ......................... 12,274 31,805 -- -- -- 44,079
----------- ----------- --------- --------- ----------- -----------
234,588 1,173,439 -- 8,968 (257) 1,416,738
----------- ----------- --------- --------- ----------- -----------
Gross profit:
Home sales ............................. 53,189 280,363 -- 3,184 257 336,993
Land/lot sales ......................... 4,335 7,895 -- -- -- 12,230
----------- ----------- --------- --------- ----------- -----------
57,524 288,258 -- 3,184 257 349,223
Selling, general and administrative
expense ................................. 42,155 137,772 -- 4,321 1,751 185,999
Interest expense .......................... 4,435 90 -- 182 (178) 4,529
Other expense (income) .................... (147,956) (1,212) -- 3,561 154,605 8,998
----------- ----------- --------- --------- ----------- -----------
158,890 151,608 -- (4,880) (155,921) 149,697
----------- ----------- --------- --------- ----------- -----------
FINANCIAL SERVICES:
Revenues .................................. -- -- 28,538 -- -- 28,538
Selling, general and administrative
expense ................................. -- -- 21,718 -- (1,751) 19,967
Interest expense .......................... -- -- 2,007 -- -- 2,007
Other (income) ............................ -- -- (2,629) -- -- (2,629)
----------- ----------- --------- --------- ----------- -----------
-- -- 7,442 -- 1,751 9,193
----------- ----------- --------- --------- ----------- -----------
Income before income taxes ................ 158,890 151,608 7,442 (4,880) (154,170) 158,890
Provision for income taxes ................ 59,584 56,853 2,791 (1,830) (57,814) 59,584
----------- ----------- --------- --------- ----------- -----------
Income before cumulative effect of change
in accounting principle ................ 99,306 94,755 4,651 (3,050) (96,356) 99,306
Cumulative effect of change in accounting
principle, net of income taxes ......... 2,136 -- -- -- -- 2,136
----------- ----------- --------- --------- ----------- -----------
Net income ................................ $ 101,442 $ 94,755 $ 4,651 $ (3,050) $ (96,356) $ 101,442
=========== =========== ========= ========= =========== ===========
-16-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) - (CONTINUED)
NOTE H - SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 2002
NON-GUARANTOR
SUBSIDIARIES
--------------------
D.R. GUARANTOR FINANCIAL INTERCOMPANY
HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL
------------ ------------ --------- -------- ------------ ---------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income ...................................... $ 162,359 $ 144,475 $ 11,979 $ (2,106) $ (154,348) $ 162,359
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ................ 1,728 8,404 678 214 -- 11,024
Amortization of debt premiums and fees ....... 4,476 -- -- -- -- 4,476
Changes in operating assets and liabilities:
Increase in inventories ................... (56,648) (18,539) -- (40,844) (15) (116,046)
(Increase) decrease in earnest money
deposits and other assets .............. (24,378) (19,820) 2,716 379 (4,489) (45,592)
Decrease in mortgage loans held for sale .. -- -- 20,495 -- -- 20,495
Increase (decrease) in accounts payable
and other liabilities .................. (47,192) (67,646) (416) 17,637 31 (97,586)
--------- ----------- -------- -------- ----------- ---------
Net cash provided by (used in) operating
activities ................................... 40,345 46,874 35,452 (24,720) (158,821) (60,870)
--------- ----------- -------- -------- ----------- ---------
INVESTING ACTIVITIES
Net (purchases) dispositions of property and
equipment .................................... (3,055) (12,007) (699) 36 -- (15,725)
Distributions from venture capital entities ..... -- -- -- 500 -- 500
Net cash paid for acquisitions .................. -- (152,573) -- -- -- (152,573)
--------- ----------- -------- -------- ----------- ---------
Net cash provided by (used in) investing
activities ................................... (3,055) (164,580) (699) 536 -- (167,798)
--------- ----------- -------- -------- ----------- ---------
FINANCING ACTIVITIES
Net change in notes payable ..................... 472,144 (260,634) (34,484) (4,457) 4,457 177,026
Increase (decrease) in intercompany payables .... (511,522) 450,349 6,241 40,458 14,474 --
Proceeds from stock associated with certain
employee benefit plans ....................... 855 -- -- -- -- 855
Proceeds from exercise of stock options ......... 9,709 -- -- -- -- 9,709
Cash dividends/distributions paid ............... (8,476) (139,890) -- -- 139,890 (8,476)
--------- ----------- -------- -------- ----------- ---------
Net cash provided by (used in) financing
activities ................................... (37,290) 49,825 (28,243) 36,001 158,821 179,114
--------- ----------- -------- -------- ----------- ---------
Increase (decrease) in cash ......................... -- (67,881) 6,510 11,817 -- (49,554)
Cash at beginning of period ......................... -- 230,481 6,975 1,824 -- 239,280
--------- ----------- -------- -------- ----------- ---------
Cash at end of period ............................... $ -- $ 162,600 $ 13,485 $ 13,641 $ -- $ 189,726
========= =========== ======== ======== =========== =========
-17-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) - (CONTINUED)
NOTE H - SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 2001
NON-GUARANTOR
SUBSIDIARIES
-------------------
D.R. GUARANTOR FINANCIAL INTERCOMPANY
HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL
------------ ------------ --------- ------- ------------ ---------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income ...................................... $ 101,442 $ 94,755 $ 4,651 $(3,050) $ (96,356) $ 101,442
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ................ 899 10,222 608 243 -- 11,972
Amortization of debt premiums and fees ....... 1,165 -- -- -- -- 1,165
Changes in operating assets and liabilities:
(Increase) decrease in inventories ........ (74,649) (217,017) -- 2,594 20 (289,052)
(Increase) decrease in earnest money
deposits and other assets .............. (1,497) (23,194) (2,014) 1,621 179 (24,905)
Increase in mortgage loans held for sale .. -- -- (9,527) -- -- (9,527)
Increase (decrease) in accounts payable
and other liabilities .................. (2,911) (75,599) (1,794) 2,518 60,202 (17,584)
--------- ------------ -------- ------- ----------- ---------
Net cash provided by (used in) operating
activities ................................... 24,449 (210,833) (8,076) 3,926 (35,955) (226,489)
--------- ------------ -------- ------- ----------- ---------
INVESTING ACTIVITIES
Net purchases of property and equipment ......... (1,268) (7,477) (1,175) (436) -- (10,356)
Investments in venture capital entities ......... -- -- -- (2,022) -- (2,022)
Net cash paid for acquisitions .................. -- (1,318) -- -- -- (1,318)
--------- ------------ -------- ------- ----------- ---------
Net cash used in investing activities ........... (1,268) (8,795) (1,175) (2,458) -- (13,696)
--------- ------------ -------- ------- ----------- ---------
FINANCING ACTIVITIES
Net change in notes payable ..................... 310,262 (21,665) 3,993 (1,831) 1,830 292,589
Increase (decrease) in intercompany payables .... (314,446) 392,565 4,402 (146) (82,375) --
Proceeds from stock associated with certain
employee benefit plans ....................... 73 -- -- -- -- 73
Proceeds from exercise of stock options ......... 7,251 -- -- -- -- 7,251
Cash dividends/distributions paid ............... (6,106) (114,500) (2,000) -- 116,500 (6,106)
--------- ------------ -------- ------- ----------- ---------
Net cash provided by (used in) financing
activities ................................... (2,966) 256,400 6,395 (1,977) 35,955 293,807
--------- ------------ -------- ------- ----------- ---------
Increase (decrease) in cash ........................ 20,215 36,772 (2,856) (509) -- 53,622
Cash at beginning of period ........................ 20,397 40,349 10,727 1,052 -- 72,525
--------- ------------ -------- ------- ----------- ---------
Cash at end of period .............................. $ 40,612 $ 77,121 $ 7,871 $ 543 $ -- $ 126,147
========= ============ ======== ======= =========== =========
-18-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - CONSOLIDATED
D. R. Horton, Inc. and subsidiaries (the "Company") conduct homebuilding
activities in 21 states and 42 markets through its 50 homebuilding divisions.
Through its financial services segment, the Company also provides mortgage
banking and title agency services in many of these same markets.
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001
Consolidated revenues for the three months ended March 31, 2002, increased
76.4%, to $1,600.1 million, from $906.8 million for the comparable period of
2001, due to increases in both homebuilding and financial services revenues.
$492.6 million of the increase in homebuilding revenues was attributable to
revenues generated by Fortress-Florida, acquired in May 2001, Emerald Builders,
acquired in July 2001, and Schuler, acquired in February 2002.
Income before income taxes for the three months ended March 31, 2002, increased
72.4%, to $142.3 million, from $82.5 million for the comparable period of 2001.
As a percentage of revenues, income before income taxes for the three months
ended March 31, 2002, decreased 0.2 percentage points, to 8.9%, from 9.1% for
the comparable period of 2001, primarily due to the effects of purchase
accounting adjustments related to the Schuler acquisition, offset by fixed costs
leverage achieved by the large amount of home closings generated by the Schuler
operating divisions after the February 21, 2002 merger.
The consolidated provision for income taxes increased 72.4%, to $53.4 million
for the three months ended March 31, 2002, from $30.9 million for the same
period of 2001, due to the corresponding increase in income before income taxes.
The effective income tax rate was 37.5% for both periods.
SIX MONTHS ENDED MARCH 31, 2002 COMPARED TO SIX MONTHS ENDED MARCH 31, 2001
Consolidated revenues for the six months ended March 31, 2002, increased 53.8%,
to $2,760.0 million, from $1,794.5 million for the comparable period of 2001,
primarily due to increases in home sales revenues. $591.8 million of the
increase in homebuilding revenues was attributable to revenues generated by the
acquisitions of Fortress-Florida, Emerald Builders and Schuler.
Income before income taxes for the six months ended March 31, 2002, increased
63.5%, to $259.8 million, from $158.9 million for the comparable period of 2001.
As a percentage of revenues, income before income taxes for the six months ended
March 31, 2002, increased 0.5 percentage points, to 9.4%, from 8.9% for the
comparable period of 2001, primarily due to the reduction in homebuilding
selling, general and administrative (SG&A) expenses as a percentage of revenues.
The consolidated provision for income taxes increased 63.5%, to $97.4 million
for the six months ended March 31, 2002, from $59.6 million for the same period
of 2001, due to the corresponding increase in income before income taxes. The
effective income tax rate was 37.5% for both periods.
The cumulative effect of a change in accounting principle was an increase in
income of $2.1 million, net of income taxes, for the six months ended March 31,
2001. This accounting change is the result of the Company's October 1, 2000
adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which requires the Company to recognize its interest rate swap
agreements in the consolidated balance sheet at fair value.
-19-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - HOMEBUILDING
The following tables set forth certain operating and financial data for the
Company's homebuilding activities:
PERCENTAGES OF HOMEBUILDING REVENUES
----------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------ -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales ................................... 82.2% 79.9% 81.2% 80.2%
Selling, general and administrative expense ..... 9.5 10.6 9.9 10.5
Interest expense ................................ 0.2 0.2 0.1 0.3
------------ ------------ ------------ ------------
Total costs and expenses ............................. 91.9 90.7 91.2 91.0
Other (income) expense ............................... (0.2) 0.6 0.0 0.5
------------ ------------ ------------ ------------
Income before income taxes ........................... 8.3% 8.7% 8.8% 8.5%
============ ============ ============ ============
HOMES CLOSED THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
------------------------------------------------- -------------------------------------------------
2002 2001 2002 2001
----------------------- ----------------------- ----------------------- -----------------------
HOMES HOMES HOMES HOMES
CLOSED REVENUES CLOSED REVENUES CLOSED REVENUES CLOSED REVENUES
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
($'S IN MILLIONS) ($'S IN MILLIONS)
MID-ATLANTIC ....... 633 $ 138.6 630 $ 139.5 1,228 $ 263.7 1,225 $ 273.5
MIDWEST ............ 388 95.4 386 89.7 851 214.1 874 208.4
SOUTHEAST .......... 790 135.7 593 104.5 1,678 290.6 1,158 204.7
SOUTHWEST .......... 2,338 403.9 1,886 314.3 4,909 836.5 3,678 602.8
WEST ............... 2,490 760.8 835 205.6 3,664 1,055.2 1,685 420.3
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
6,639 $ 1,534.4 4,330 $ 853.6 12,330 $ 2,660.1 8,620 $ 1,709.7
========== ========== ========== ========== ========== ========== ========== ==========
NET NEW SALES CONTRACTS THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
------------------------------------------------- -------------------------------------------------
2002 2001 2002 2001
----------------------- ----------------------- ----------------------- -----------------------
HOMES HOMES HOMES HOMES
SOLD $ SOLD $ SOLD $ SOLD $
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
($'S IN MILLIONS) ($'S IN MILLIONS)
Mid-Atlantic ....... 883 $ 182.6 860 $ 184.3 1,511 $ 310.7 1,410 $ 312.7
MIDWEST ............ 463 117.4 595 155.6 851 214.3 921 235.6
SOUTHEAST .......... 969 158.4 850 154.0 1,704 276.7 1,398 252.0
SOUTHWEST .......... 3,685 613.9 2,795 453.4 6,017 993.2 4,474 731.1
WEST ............... 2,617 761.1 1,612 408.6 3,678 1,060.0 2,738 724.7
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
8,617 $ 1,833.4 6,712 $ 1,355.9 13,761 $ 2,854.9 10,941 $ 2,256.1
========== ========== ========== ========== ========== ========== ========== ==========
SALES CONTRACT BACKLOG MARCH 31, 2002 MARCH 31, 2001
-------------------------- --------------------------
HOMES $ HOMES $
----------- ----------- ----------- -----------
($'S IN MILLIONS)
MID-ATLANTIC ......... 1,105 $ 237.4 1,008 $ 246.8
MIDWEST .............. 918 263.0 947 252.7
SOUTHEAST ............ 1,490 239.6 1,227 225.0
SOUTHWEST ............ 5,410 910.2 3,985 679.8
WEST ................. 3,475 1,013.5 2,542 679.0
----------- ----------- ----------- -----------
12,398 $ 2,663.7 9,709 $ 2,083.3
=========== =========== =========== ===========
-20-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's market regions consist of the following markets:
MID-ATLANTIC Charleston, Charlotte, Columbia, Greensboro, Greenville,
Hilton Head, Maryland-D.C., Myrtle Beach, New Jersey,
Raleigh/Durham, Richmond, Virginia-D.C. and Williamsburg
MIDWEST Chicago, Louisville and Minneapolis/St. Paul
SOUTHEAST Atlanta, Birmingham, Fort Myers/Naples, Jacksonville,
Miami/West Palm Beach and Orlando
SOUTHWEST Albuquerque, Austin, Dallas, Fort Worth, Houston, Killeen,
Phoenix, San Antonio and Tucson
WEST Colorado Springs, Denver, Hawaii, Las Vegas, Los Angeles,
Portland, Sacramento, San Francisco Bay Area, Salt Lake
City, San Diego and Seattle
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001
Revenues from homebuilding activities increased 76.6%, to $1,576.2 million
(6,639 homes closed) for the three months ended March 31, 2002, from $892.4
million (4,330 homes closed) for the comparable period of 2001. Revenues from
home sales increased in four of the Company's five market regions, with
percentage increases ranging from 6.3% in the Midwest region to 270.1% in the
West. Home sales revenues declined 0.6% in the Mid-Atlantic region. The
increases in total homebuilding revenues and revenues from home sales were due
to strong housing demand throughout the majority of the Company's markets, the
acquisitions of Fortress-Florida and Emerald Builders during fiscal 2001, and
the merger with Schuler in February 2002. In divisions where the Company
operated throughout both periods, home sales revenues increased 22.8%, to
$1,041.7 million (4,978 homes closed) for the three months ended March 31, 2002,
from $848.5 million (4,311 homes closed) for the comparable period of 2001.
The average selling price of homes closed during the three months ended March
31, 2002 was $231,100, up 17.3% from $197,100 for the same period in 2001. The
increase in average selling price was due primarily to the Schuler acquisition.
Schuler's operations are concentrated on the West Coast and in Hawaii, where
average home selling prices are significantly higher than in the rest of the
United States.
The value of net new sales contracts increased 35.2% to $1,833.4 million (8,617
homes) for the three months ended March 31, 2002, from $1,355.9 million (6,712
homes) for the same period of 2001. The number of net new sales contracts
increased in four of the Company's five market regions, with percentage
increases ranging from 2.7% in the Mid-Atlantic region to 62.3% in the West
region. The number of net new sales contracts declined 22.2% in the Midwest
region. In divisions where the Company operated throughout both periods, the
value of net new sales contracts increased 5.4%, to $1,425.5 million (6,959
homes) for the three months ended March 31, 2002, from $1,351.9 million (6,696
homes) for the comparable period of 2001. The average price of a net new sales
contract in the three months ended March 31, 2002 was $212,800, up 5.3% from the
$202,000 average in the comparable period of 2001. The increase in average
selling price was primarily due to the effect of the Schuler acquisition.
At March 31, 2002, the value of the Company's backlog of sales contracts was
$2,663.7 million (12,398 homes), up 27.9% from $2,083.3 million (9,709 homes) at
March 31, 2001. In divisions where the Company operated throughout both periods,
the Company's sales contracts in backlog increased 0.8%, to 9,775 homes (valued
at $2,064.2 million), from 9,697 homes (valued at $2,080.5 million) at March 31,
2001. The average sales price of homes in sales backlog was $214,800 at March
31, 2002, essentially unchanged from the average price at March 31, 2001.
Cost of sales increased by 81.5%, to $1,295.0 million for the three months ended
March 31, 2002, from $713.4 million for the comparable period of 2001. 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 increased
2.0 percentage points, to 82.0% for the three months ended March 31, 2002, from
80.0% for the comparable period of 2001, due primarily to $33.6 million in
charges related to the Schuler acquisition, the majority of which was a result
of recording Schuler's inventory at fair value on the acquisition date. The
increase in cost of home sales as a percentage of revenues was the primary cause
of the 2.3 percentage point increase in total homebuilding cost of sales as a
percentage of total homebuilding revenues, to 82.2% in the three months ended
March 31, 2002, from 79.9% in the comparable period of 2001.
-21-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Selling, general and administrative (SG&A) expenses from homebuilding activities
increased by 58.9%, to $149.5 million in the three months ended March 31, 2002,
from $94.1 million in the comparable period of 2001. As a percentage of
homebuilding revenues, SG&A expenses decreased to 9.5% for the three months
ended March 31, 2002, from 10.6% for the comparable period of 2001, due
primarily to the fixed costs leverage achieved by the large amount of home
closings revenues generated by the Schuler operating divisions between the
Schuler acquisition date, February 21, 2002, and the end of the quarter.
Interest expense associated with homebuilding activities increased to $2.6
million in the three months ended March 31, 2002, from $1.6 million in the
comparable period of 2001. As a percentage of homebuilding revenues,
homebuilding interest expense was 0.2% for the three months ended March 31,
2002, unchanged from the comparable period of 2001. During both periods, the
Company expensed the portion of incurred interest and other financing costs
which could not be charged to inventory. The Company follows a policy of
capitalizing interest only on inventory under construction or development.
Capitalized interest and other financing costs are included in cost of sales at
the time of home closings.
Other income associated with homebuilding activities was $2.4 million in the
three months ended March 31, 2002, compared to other expense of $5.7 million in
the comparable period of 2001. The income in the three months ended March 31,
2002 is primarily due to an increase in the fair value of the Company's interest
rate swap agreements during the quarter. During the year-ago quarter, the
expense was primarily due to a decrease in the fair value of the same interest
rate swap agreements and an adjustment to the carrying value of the Company's
investments in venture capital entities.
SIX MONTHS ENDED MARCH 31, 2002 COMPARED TO SIX MONTHS ENDED MARCH 31, 2001
Revenues from homebuilding activities increased 53.5%, to $2,711.2 million
(12,330 homes closed) for the six months ended March 31, 2002, from $1,766.0
million (8,620 homes closed) for the comparable period of 2001. Revenues from
home sales increased in four of the Company's five market regions, with
percentage increases ranging from 2.7% in the Midwest region to 151.1% in the
West region. Revenues from homebuilding activities declined 3.6% in the
Mid-Atlantic region. The increases in total homebuilding revenues and revenues
from home sales were due to strong housing demand throughout the majority of the
Company's markets, and the acquisitions of Fortress-Florida, Emerald Builders
and Schuler. In divisions where the Company operated throughout both periods,
home sales revenues increased 21.4% to $2,068.3 million (10,073 homes closed)
for the six months ended March 31, 2002, from $1,703.8 million (8,596 homes
closed) for the comparable period of 2001.
The average selling price of homes closed during the six months ended March 31,
2002 was $215,700, up 8.8% from $198,300 for the same period in 2001. The
increase in average selling price was primarily due to the Schuler acquisition.
Schuler's operations are concentrated on the West Coast and in Hawaii, where
average home selling prices are significantly higher than in the rest of the
United States.
The value of net new sales contracts increased 26.5%, to $2,854.9 million
(13,761 homes) for the six months ended March 31, 2002, from $2,256.1 million
(10,941 homes) for the same period of 2001. The number of net new sales
contracts increased in four of the Company's five market regions, with
percentage increases ranging from 7.2% in the Mid-Atlantic region to 34.5% in
the Southwest region. The number of net new sales contracts declined 7.6% in the
Midwest region. In divisions where the Company operated throughout both periods,
the value of net new sales contracts increased 4.7%, to $2,356.3 million (11,538
homes) for the six months ended March 31, 2002, from $2,251.3 million (10,919
homes) for the comparable period of 2001. The average price of a net new sales
contract in the six months ended March 31, 2002 was $207,500, up 0.6% over the
$206,200 average in the six months ended March 31, 2001.
Cost of sales increased 55.4%, to $2,201.9 million for the six months ended
March 31, 2002, from $1,416.7 million for the comparable period of 2001. 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 increased
0.8 percentage points, to 81.1% for the six months ended March 31, 2002, from
80.3% for the comparable period of 2001, due primarily to $33.6 million in
charges related to the Schuler acquisition, the majority of which was a result
of recording Schuler's inventory at fair value on the acquisition date. The
increase in cost of home sales as a percentage of revenues was the primary cause
of the 1.0 percentage point increase in total homebuilding cost of sales as a
percentage of total homebuilding revenues, to 81.2% in the six months ended
March 31, 2002, from 80.2% in the comparable period of 2001.
-22-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Selling, general and administrative (SG&A) expenses from homebuilding activities
increased by 44.0%, to $267.9 million in the six months ended March 31, 2002,
from $186.0 million in the comparable period of 2001. As a percentage of
homebuilding revenues, SG&A expenses decreased to 9.9% for the six months ended
March 31, 2002, from 10.5% for the comparable period of 2001, due primarily to
the fixed costs leverage achieved by the large amount of home closings revenues
generated by the Schuler operating divisions between the Schuler acquisition
date, February 21, 2002, and the end of the current six-month period.
Interest expense associated with homebuilding activities decreased to $3.8
million in the six months ended March 31, 2002, from $4.5 million in the
comparable period of 2001. As a percentage of homebuilding revenues,
homebuilding interest expense declined 0.2 percentage points to 0.1% for the six
months ended March 31, 2002, from 0.3% for the comparable period of 2001. During
both periods, the Company expensed the portion of incurred interest and other
financing costs which could not be charged to inventory. The Company follows a
policy of capitalizing interest only on inventory under construction or
development. 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 $0.1 million in the
six months ended March 31, 2002, compared to $9.0 million in the comparable
period of 2001. The expense in 2001 is primarily due to the change in fair value
of the Company's interest rate swap agreements during the period, resulting from
the Company's adoption of SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities ," on October 1, 2000, and adjustments to the carrying
value of the Company's venture capital investments.
-23-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FINANCIAL SERVICES
The following table summarizes financial and other information for the Company's
financial services operations:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------- ---------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
($ IN THOUSANDS)
Number of loans originated .................................... 4,024 2,738 8,447 5,075
----------- ----------- ----------- -----------
Loan origination fees ......................................... $ 4,175 $ 3,080 $ 8,818 $ 5,726
Sale of servicing rights and gains from sale of mortgages ..... 11,239 6,160 24,300 12,987
Other revenues ................................................ 2,894 1,750 4,633 3,021
----------- ----------- ----------- -----------
Total mortgage banking revenues ............................... 18,308 10,990 37,751 21,734
Title policy premiums, net .................................... 5,557 3,439 11,036 6,804
----------- ----------- ----------- -----------
Total revenues ................................................ 23,865 14,429 48,787 28,538
Selling, general and administrative expense ................... 14,918 9,830 30,041 19,967
Interest expense .............................................. 999 875 2,335 2,007
Interest/other (income) ....................................... (2,818) (1,213) (5,862) (2,629)
----------- ----------- ----------- -----------
Income before income taxes .................................... $ 10,766 $ 4,937 $ 22,273 $ 9,193
=========== =========== =========== ===========
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001
Revenues from the financial services segment increased 65.4%, to $23.9 million
in the three months ended March 31, 2002, from $14.4 million in the comparable
period of 2001. The increase in financial services revenues was due to the rapid
expansion of the Company's mortgage loan and title services provided to
customers of the Company's homebuilding segment and the effects of the
Fortress-Florida and Emerald Builders acquisitions. Selling, general and
administrative expenses associated with financial services increased 51.8%, to
$14.9 million in the three months ended March 31, 2002, from $9.8 million in the
comparable period of 2001. As a percentage of financial services revenues,
selling, general and administrative expenses decreased by 5.6 percentage points,
to 62.5% in the three months ended March 31, 2002, from 68.1% in the comparable
period in 2001, due primarily to the increase in revenues absorbing fixed costs.
SIX MONTHS ENDED MARCH 31, 2002 COMPARED TO SIX MONTHS ENDED MARCH 31, 2001
Revenues from the financial services segment increased 71.0%, to $48.8 million
in the six months ended March 31, 2002, from $28.5 million in the comparable
period of 2001. The increase in financial services revenues was due to the rapid
expansion of the Company's mortgage loan and title services provided to
customers of the Company's homebuilding segment and the effects of the
Fortress-Florida and Emerald Builders acquisitions. General and administrative
expenses associated with financial services increased 50.5%, to $30.0 million in
the six months ended March 31, 2002, from $20.0 million in the comparable period
of 2001. As a percentage of financial services revenues, general and
administrative expenses decreased by 8.4 percentage points, to 61.6% in the six
months ended March 31, 2002, from 70.0% in the comparable period in 2001, due
primarily to the increase in revenues absorbing fixed costs.
-24-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, the Company had available cash and cash equivalents of $189.7
million. Inventories (including finished homes, construction in progress, and
developed residential lots and other land) at March 31, 2002, had increased by
$1,396.8 million since September 30, 2001, due to the acquisition of Schuler, a
general increase in business activity and the expansion of operations in the
Company's market areas. The increase in inventories was due primarily to the
Schuler acquisition. Net of homebuilding cash, the Company's ratio of
homebuilding notes payable to total capital at March 31, 2002, increased 1.8
percentage points, to 55.8% from 54.0% at September 30, 2001. The stockholders'
equity to total assets ratio increased 2.2 percentage points, to 36.4% at March
31, 2002, from 34.2% at September 30, 2001.
At March 31, 2002, the Company has an $805 million, unsecured revolving credit
facility , including $125 million which may be used for letters of credit. The
new facility matures in January 2006, and is guaranteed by substantially all of
the Company's subsidiaries other than its financial services subsidiaries. Under
the most restrictive of the limitations imposed by the Company's indentures and
the revolving credit facility, as of March 31, 2002, the Company was permitted
to increase its homebuilding debt by approximately $1,376.8 million, which
included $306.1 million available under the revolving credit facility. 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 the normal course of business, the Company provides standby letters of credit
and performance bonds, issued by third parties, to secure performance under
various contracts. At March 31, 2002, outstanding standby letters of credit and
performance bonds, the majority of which mature in less than one year, were
$88.8 million and $478.1 million, respectively.
At March 31, 2002, the financial services segment had mortgage loans held for
sale of $202.3 million and loan commitments for $249.4 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 $205 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
March 31, 2002, $148.2 million had been drawn under this facility. Substantially
all of the mortgage company activities are financed under the warehouse
facility.
On February 21, 2002, Schuler Homes, Inc. merged with and into D.R. Horton,
Inc., with D.R. Horton the surviving corporation. At the time of the merger,
Schuler's assets amounted to $1,377.6 million, mostly inventory. The total
merger consideration consisted of the issuance of 20,079,532 shares of D.R.
Horton, Inc. common stock, valued at $30.93 per share (the average closing price
of D.R. Horton common stock for a period of ten trading days from December 4,
2001 to December 17, 2001); the payment of $168.7 million in cash; the
assumption of $802.2 million of Schuler's debt, $238.2 million of which was paid
at closing; the assumption of trade payables and other liabilities amounting to
$200.0 million; and the assumption of $10.8 million of obligations to the
Schuler entities' minority interest holders. Also, D.R. Horton issued options to
purchase approximately 527,000 shares of D.R. Horton common stock to Schuler
employees to replace outstanding Schuler stock options. The fair value of the
options issued was $10.4 million and was recorded as additional capital. The
intrinsic value of the unvested options issued was $7.8 million and was recorded
as unearned compensation. The unearned compensation is being amortized over the
remaining vesting period of the stock options.
The Schuler merger was accounted for as a purchase. Accordingly, Schuler's
assets and liabilities, including identifiable intangibles, were initially
recorded at their fair values as of the date of the merger. The excess of the
total consideration paid over the net assets' fair value (approximately $425.2
million) was recorded as an addition to goodwill.
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, existing and
future credit facilities and the issuance of new debt or equity securities. At
March 31, 2002, under currently effective shelf registration
-25-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 $1.0 billion. In the future, the Company
intends to continue to maintain effective shelf registration statements that
will facilitate access to the capital markets.
During the three months ended March 31, 2002, the Company's Board of Directors
declared a quarterly cash dividend of $0.06 per common share, which was paid on
February 15, 2002 to stockholders of record on February 5, 2002. On March 4,
2002, the Company's Board of Directors declared a three-for-two stock split
(effected as a 50% stock dividend) which was paid on April 9, 2002, to
stockholders of record on March 26, 2002. Cash was paid in lieu of fractional
shares. On April 30, 2002, the Company's Board of Directors declared a cash
dividend of $0.06 per common share, payable on May 21, 2002 to stockholders of
record on May 14, 2002.
On April 11, 2002, the Company issued $250 million of 8.5% Senior notes due
2012. The net proceeds from this offering were used to repay borrowings under
the unsecured revolving credit facility. These notes are guaranteed by
substantially all of the Company's subsidiaries other than its financial
services subsidiaries.
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 March 31,
2002, the carrying value of the Company's investments in such companies,
reported in homebuilding other assets, amounted to $5.0 million.
Except for ordinary expenditures for the construction of homes and the
acquisition of land and lots for development and sale of homes, at March 31,
2002, the Company had no material commitments for capital expenditures.
-26-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT
Certain statements contained in this report, as well as in other materials we
have filed or will file with the Securities and Exchange Commission, statements
made by us in periodic press releases and oral statements 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 are subject to risks, uncertainties and other
factors, many of which are outside of the Company's control, that could cause
actual results to differ materially from the results discussed in and
anticipated by the forward-looking statements. The following risks and
uncertainties relevant to our business include factors we believe could
adversely affect us. Other factors beyond those listed could also adversely
affect us.
- Changes in general economic, real estate and other business
conditions
- Changes in interest rates and the availability of mortgage
financing
- Governmental regulations and environmental matters
- The Company's substantial leverage
- Competitive conditions within the homebuilding industry
- The availability of capital
- The Company's ability to effect its growth strategies successfully
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. However, any
further disclosures made on related subjects in subsequent reports on Forms
10-K, 10-Q and 8-K should be consulted. Additional information about issues that
could lead to material changes in performance is contained in the Company's
annual report on Form 10-K, which is filed with the Securities and Exchange
Commission.
-27-
ITEM 3. 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 three months ended March 31, 2002, was not
significant, is recognized in current earnings. The IRLC's are classified and
accounted for as non-designated derivative instruments with gains and losses
recorded in current earnings. Interest rate risk associated with IRLC's is
managed through the use of best-efforts whole loan delivery commitments, forward
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 March 31, 2002, total forward commitments to
mitigate interest rate risk related to funded loans and IRLC's were
approximately $154.5 million, the duration of which was less than six months.
The following table shows, as of March 31, 2002, the Company's long term debt
obligations, principal cash flows by scheduled maturity, weighted average
interest rates and estimated fair market value. In addition, the table shows the
notional amounts, weighted average interest rates and estimated fair market
value of the Company's interest rate swaps.
Six Months
Ended Fair
Sep. 30, Year ended September 30, market
---------- ------------------------------------------------------- value at
2002 2003 2004 2005 2006 Thereafter Total 03/31/02
---------- ------- ------- ------- ------- ----------- --------- ---------
($'s in millions)
DEBT:
Fixed rate ................... $ 24.3 $ 36.1 $ 167.9 $ 207.1 $ 150.5 $ 1,817.8 $ 2,403.7 $ 2,350.3
Average interest rate ........ 7.42% 6.33% 8.49% 10.73% 10.18% 8.08% 8.46% --
Variable rate ................ $ 152.9 $ 3.2 $ 8.3 -- $ 486.1 -- $ 650.5 $ 650.5
Average interest rate ........ 2.97% 5.75% 2.81% -- 3.68% -- 3.51% --
INTEREST RATE SWAPS:
Variable to fixed ............ $ 200.0 $ 200.0 $ 200.0 $ 200.0 $ 200.0 $ 200.0 -- ($ 5.4)
Average pay rate ............. 5.10% 5.10% 5.10% 5.10% 5.10% 5.07% -- --
Average receive rate ......... 90-day LIBOR
-28-
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
Certain new indebtedness and limitations on payment of dividends or other
distributions by the Company on its Common Stock were created in connection with
its February 21, 2002 acquisition of Schuler Homes, Inc. ("Schuler"). As part of
that acquisition, the Company executed:
(i) the Seventh Supplemental Indenture, dated as of February 21, 2002,
among the Company, the guarantors named therein and BNY Western Trust Company,
as successor in interest to U.S. Trust Company of California, N.A., as trustee,
assuming the obligations under the Indenture dated as of May 6, 1998, among
Schuler, the guarantors named therein and BNY Western Trust Company, as
successor in interest to U.S. Trust Company of California, N.A., as trustee, and
Schuler's related 9% Senior Notes due 2008;
(ii) the First Supplemental Indenture, dated as of February 21, 2002, among
the Company, the guarantors named therein and U.S. Bank, N.A., as successor by
merger to U.S. Bank Trust National Association, as trustee, assuming the
obligations under the Indenture, dated as of June 28, 2001, among Schuler, the
guarantors named therein and U.S. Bank, N.A., as successor by merger to U.S.
Bank Trust National Association, as trustee, and Schuler's related 9.375% Senior
Notes due 2009; and
(iii) the First Supplemental Indenture, dated as of February 21, 2002,
among the Company, the guarantors named therein and U.S. Bank, N.A., as
successor by merger to U.S. Bank Trust National Association, as trustee,
assuming the obligations under the Indenture, dated as of June 28, 2001, among
Schuler, the guarantors named therein and U.S. Bank, N.A., as successor by
merger to U.S. Bank Trust National Association, as trustee, and Schuler's
related 10.5% Senior Subordinated Notes due 2011.
Each of these indentures, as supplemented, impose limitations on the ability of
the Company and its subsidiaries guaranteeing the assumed notes to, among other
things, incur indebtedness, make "Restricted Payments" (as defined, which
includes payments of dividends or other distributions on the Common Stock of the
Company), effect certain "Asset Sales" (as defined), enter into certain
transactions with affiliates, merge or consolidate with any person, or transfer
all or substantially all of their properties and assets. These limitations are
similar to limitations already existing by reason of the Company's other senior
and senior subordinated notes and related indentures. The indentures related to
the Schuler senior notes, as supplemented, also impose limitations on the
ability of the Company and its guarantor subsidiaries to make any principal
payment on, or redeem, repurchase, defease or otherwise acquire or retire for
value prior to scheduled principal payments or at maturity indebtedness of the
Company or the guarantor subsidiaries which is expressly subordinated in right
of payment to such senior notes unless such transactions comply with the
limitations on "Restricted Payment" contained in such indentures. The Schuler
senior subordinated notes and the Company's 9.75% Senior Subordinated Notes due
2010 and 9.375% Senior Subordinated Notes due 2011 are indebtedness of the
Company expressly subordinated in right of payment to such senior notes.
Other information concerning the acquisition of Schuler has previously been
reported in, and is described in, the Company's Amendment No. 1 to Registration
Statement on Form S-4 (Registration Number 333-73888) filed with the SEC on
January 16, 2002 and the Company's current reports on Form 8-K, filed with the
SEC on February 19, 2002 and February 22, 2002 (as amended on March 25, 2002).
On April 11, 2002, the Company issued $250,000,000 in principal amount of its
8.5% Senior Notes due 2012 (the "Notes"). As part of that issuance, the Company
executed the Indenture, dated as of April 11, 2002, among the Company, the
guarantors named therein and American Stock Transfer & Trust Company, as
trustee, and the First Supplemental Indenture, dated as of April 11, 2002, among
the Company, the guarantors named therein and American Stock Transfer & Trust
Company, as trustee, authorizing the Notes, in addition to the Registration
Rights Agreement, dated as of April 11, 2002, among the Company, the guarantors
named therein and the initial purchasers of the Notes. This indenture and
supplemental indenture impose limitations on the ability of the Company and its
subsidiaries guaranteeing the Notes to, among other things, incur indebtedness,
make "Restricted Payments" (as defined, which includes payments of dividends or
other distributions on the Common Stock of the Company), effect certain "Asset
Dispositions" (as defined), enter into certain transactions with affiliates,
merge or consolidate with any other person, or transfer all or substantially all
of their properties and assets. These limitations are substantially similar to
the limitations already existing with respect to the Company's 8.375% Senior
Notes due 2004, 10.5% Senior Notes due 2005, 8% Senior Notes due 2009, 7.875%
Senior Notes due 2011 and Zero Coupon Convertible Senior Notes due 2021 and the
related indenture and supplemental indentures under which such series of senior
notes were issued.
-29-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) On February 21, 2002, the Company held its Annual Meeting of Stockholders
(the "Meeting"). At the Meeting, the stockholders re-elected ten members of the
Board of Directors of the Company to serve until the Company's next annual
meeting of stockholders and until their respective successors are elected and
qualified. The names of the ten directors, the votes cast for and the number of
votes withheld were as follows:
Name Votes For Votes Withheld
---- --------- --------------
Donald R. Horton 64,152,604 7,713,226
Bradley S. Anderson 70,714,594 1,151,236
Richard Beckwitt 70,592,380 1,303,450
Samuel R. Fuller 64,112,853 7,752,977
Richard I. Galland 70,712,119 1,153,711
Richard L. Horton 70,558,757 1,307,073
Terrill J. Horton 70,558,877 1,306,953
Francine I. Neff 71,009,112 1,129,718
Scott J. Stone 64,092,876 7,772,954
Donald J. Tomnitz 64,110,793 7,755,037
At the annual meeting of the Board of Directors following the Meeting, pursuant
to the Merger Agreement with Schuler Homes, Inc., James K. Schuler was elected
as a director to serve until the Company's next annual meeting of stockholders
and until his successor is elected and qualified.
(b) At the Meeting, a vote was taken for the approval and adoption of a proposal
to amend and restate the D.R. Horton, Inc. 1991 Stock Incentive Plan. The
following votes were cast upon this proposal:
For: 43,962,460
Against: 27,775,516
Abstain: 125,782
-30-
(c) At the Meeting, the stockholders considered and approved a proposal to
approve and adopt the Agreement and Plan of Merger, dated as of October 22,
2001, as amended November 8, 2001 (the "Merger Agreement"), between the Company
and Schuler, providing for, among other things, the merger of Schuler into the
Company (the "Merger Proposal"). The number of votes cast for and against the
Merger Proposal and the number of abstentions were as follows:
For: 64,440,267
Against: 77,471
Abstain: 68,635
ITEM 5. OTHER INFORMATION.
On February 21, 2002, the Company and the guarantors named therein executed the
Seventh Supplemental Indenture, dated as of February 21, 2002, among the
Company, the guarantors named therein and BNY Western Trust Company, as
successor in interest to U.S. Trust Company of California, N.A., as trustee,
relating to Schuler's 9% Senior Notes due 2008; the First Supplemental
Indenture, dated as of February 21, 2002, among the Company, the guarantors
named therein and U.S. Bank, N.A., as successor by merger to U.S. Bank Trust
National Association, as trustee, relating to Schuler's 9.375% Senior Notes due
2009; the First Supplemental Indenture, dated as of February 21, 2002, among the
Company, the guarantors named therein and U.S. Bank, N.A., as successor by
merger to U.S. Bank Trust National Association, as trustee, relating to
Schuler's 10.5% Senior Subordinated Notes due 2011. The effect of these three
supplemental indentures is for the Company to assume the obligations of Schuler
under the indentures to which such supplemental indentures relate and to include
the restricted subsidiaries of the Company as guarantors of the debt to which
such supplemental indentures relate. In addition, on February 21, 2002, the
Company and the guarantors named therein executed the Fourteenth Supplemental
Indenture, dated as of February 21, 2002, among the Company, the guarantors
named therein and American Stock Transfer & Trust Company, as trustee, relating
to the Company's 8.375% Senior Notes due 2004, 10.5% Senior Notes due 2005, 8%
Senior Notes due 2009, 7.875% Senior Notes due 2011 and Zero Coupon Convertible
Senior Notes due 2021; the Fourth Supplemental Indenture, dated as of February
21, 2002, among the Company, the guarantors named therein and American Stock
Transfer & Trust Company, as trustee, relating to the Company's 9.75% Senior
Subordinated Notes due 2010 and 9.375% Senior Subordinated Notes due 2011; and
the Fifth Supplemental Indenture, dated as of February 21, 2002, among the
Company, the guarantors named therein and First Union National Bank, as trustee,
relating to the Company's 10% Senior Notes due 2006. The effect of these three
indentures is to include the restricted subsidiaries of Schuler as guarantors of
the debt to which such supplemental indentures relate. The six supplemental
indentures are each attached hereto as exhibits. On April 1, 2002, as required
under the applicable indentures, the Company completed a change of control offer
to repurchase the three series of senior and senior subordinated notes
previously issued by Schuler at 101% of their aggregate principal amount.
$15,000,000 in aggregate principal amount of the 9.375% Senior Notes due 2009
and $5,225,000 in aggregate principal amount of the 10.5% Senior Subordinated
Notes due 2011 were tendered for purchase. No holders chose to tender the 9%
Senior Notes due 2008.
On March 4, 2002, the Company announced that the Board of Directors declared a 3
for 2 stock split (effected as a 50% stock dividend), which was paid on April 9,
2002 to holders of record of the Company's common stock as of the close of
business on March 26, 2002.
On March 11, 2002, the Company filed a universal shelf registration statement on
Form S-3 registering up to $1,000,000,000 of debt securities and associated
guarantees, preferred stock, depositary shares, common stock, warrants, stock
purchase contracts, stock purchase units, trust preferred securities and
associated subordinated trust debt securities, and units of the above
securities, which registration statement was declared effective by the SEC on
March 27, 2002.
-31-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3.1 Amended and Restated Certificate of Incorporation, as
amended, of the Company is incorporated herein by
reference from Exhibit 4.2 to the Company's registration
statement (No. 333-76175) on Form S-3, filed April 13,
1999.
3.2 Amended and Restated Bylaws of the Company are
incorporated herein by reference from Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1998.
4.1 Indenture, dated as of May 6, 1998, among Schuler
Residential, Inc. (formerly known as Schuler Homes, Inc.),
the guarantors named therein and BNY Western Trust
Company, as successor in interest to U.S. Trust Company of
California, N.A., as trustee, relating to the 9% Senior
Notes due 2008, is incorporated herein by reference from
Exhibit 4.4 to Schuler Residential, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998.
The Commission file number for Schuler Residential, Inc.
is 0-19891.
4.2 First Supplemental Indenture, dated as of February 26,
1999, among Schuler Residential, Inc. (formerly known as
Schuler Homes, Inc.), the guarantors named therein and BNY
Western Trust Company, as successor in interest to U.S.
Trust Company of California, N.A., as trustee, relating to
the 9% Senior Notes due 2008, is incorporated herein by
reference from Exhibit 1.07 to Schuler Homes, Inc.'s
Registration Statement on Form 8-A filed with the SEC on
June 22, 2001. The Commission file number for Schuler
Homes, Inc. is 0-32461.
4.3 Second Supplemental Indenture, dated as of July 15, 1999,
among Schuler Residential, Inc. (formerly known as Schuler
Homes, Inc.), the guarantors named therein and BNY Western
Trust Company, as successor in interest to U.S. Trust
Company of California, N.A., as trustee, relating to the
9% Senior Notes due 2008, is incorporated herein by
reference from Exhibit 1.08 to Schuler Homes, Inc.'s
Registration Statement on Form 8-A filed with the SEC on
June 22, 2001. The Commission file number for Schuler
Homes, Inc. is 0-32461.
4.4 Third Supplemental Indenture, dated as of June 27, 2000,
among Schuler Residential, Inc. (formerly known as Schuler
Homes, Inc.), the guarantors named therein and BNY Western
Trust Company, as successor in interest to U.S. Trust
Company of California, N.A., as trustee, relating to the
9% Senior Notes due 2008, is incorporated herein by
reference from Exhibit 1.09 to Schuler Homes, Inc.'s
Registration Statement on Form 8-A filed with the SEC on
June 22, 2001. The Commission file number for Schuler
Homes, Inc. is 0-32461.
4.5 Fourth Supplemental Indenture, dated as of October 20,
2000, among Schuler Residential, Inc. (formerly known as
Schuler Homes, Inc.), the guarantors named therein and BNY
Western Trust Company, as successor in interest to U.S.
Trust Company of California, N.A., as trustee, relating to
the 9% Senior Notes due 2008, is incorporated herein by
reference from Exhibit 1.10 to Schuler Homes, Inc.'s
Registration Statement on Form 8-A filed with the SEC on
June 22, 2001. The Commission file number for Schuler
Homes, Inc. is 0-32461.
4.6 Fifth Supplemental Indenture, dated as of June 21, 2001,
among Schuler Residential, Inc. (formerly known as Schuler
Homes, Inc.), Schuler Homes, Inc., the guarantors named
therein and BNY Western Trust Company, as successor in
interest to U.S. Trust Company of California, N.A., as
trustee, relating to the 9% Senior Notes due 2008, is
incorporated herein by reference from Exhibit 1.11 to
Schuler Homes, Inc.'s Registration Statement on Form 8-A
filed with the SEC on June 22, 2001. The Commission file
number for Schuler Homes, Inc. is 0-32461.
-32-
4.7* Sixth Supplemental Indenture, dated as of October 4, 2001,
among Schuler Homes, Inc., the guarantors named therein
and BNY Western Trust Company, as successor in interest to
U.S. Trust Company of California, N.A., as trustee,
relating to the 9% Senior Notes due 2008.
4.8* Seventh Supplemental Indenture, dated as of February 21,
2002, among the Company, the guarantors named therein and
BNY Western Trust Company, as successor in interest to
U.S. Trust Company of California, N.A., as trustee,
relating to the 9% Senior Notes due 2008.
4.9 Indenture, dated as of June 28, 2001, among Schuler Homes,
Inc., the guarantors named therein and U.S. Bank, N.A., as
successor by merger to U.S. Bank Trust National
Association, as trustee, relating to the 9.375% Senior
Notes due 2009, is incorporated herein by reference from
Exhibit 4.8 to Schuler Homes, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001. The
Commission file number for Schuler Homes, Inc. is 0-32461.
4.10* First Supplemental Indenture, dated as of February 21,
2002, among the Company, the guarantors named therein and
U.S. Bank, N.A., as successor by merger to U.S. Bank Trust
National Association, as trustee, relating to the 9.375%
Senior Notes due 2009.
4.11 Indenture, dated as of June 28, 2001, among Schuler Homes,
Inc., the guarantors named therein and U.S. Bank, N.A., as
successor by merger to U.S. Bank Trust National
Association, as trustee, relating to the 10.5% Senior
Subordinated Notes due 2011, is incorporated herein by
reference from Exhibit 4.10 to Schuler Homes, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June
30, 2001. The Commission file number for Schuler Homes,
Inc. is 0-32461.
4.12* First Supplemental Indenture, dated as of February 21,
2002, among the Company, the guarantors named therein and
U.S. Bank, N.A., as successor by merger to U.S. Bank Trust
National Association, as trustee, relating to the 10.5%
Senior Subordinated Notes due 2011.
4.13* Fourteenth Supplemental Indenture, dated as of February
21, 2002, among the Company, the guarantors named therein
and American Stock Transfer & Trust Company, as trustee,
relating to the 8.375% Senior Notes due 2004, 10.5% Senior
Notes due 2005, 8% Senior Notes due 2009, 7.875% Senior
Notes due 2011 and Zero Coupon Convertible Senior Notes
due 2021.
4.14* Fourth Supplemental Indenture, dated as of February 21,
2002, among the Company, the guarantors named therein and
American Stock Transfer & Trust Company, as trustee,
relating to the 9.75% Senior Subordinated Notes due 2010
and 9.375% Senior Subordinated Notes due 2011.
4.15* Fifth Supplemental Indenture, dated as of February 21,
2002, among the Company, the guarantors named therein and
First Union National Bank, as trustee, relating to the 10%
Senior Notes due 2006.
4.16* Indenture, dated as of April 11, 2002, among the Company,
the guarantors named therein and American Stock Transfer &
Trust Company, as trustee, relating to senior debt
securities of the Company.
4.17* First Supplemental Indenture, dated as of April 11, 2002,
among the Company, the guarantors named therein and
American Stock Transfer & Trust Company, as trustee,
relating to the 8.5% Senior Notes due 2012.
4.18* Registration Rights Agreement, dated as of April 11, 2002,
among the Company, the guarantors named therein and
Salomon Smith Barney Inc., Banc of America Securities LLC,
Credit Lyonnais Securities (USA) Inc. and Fleet
Securities, Inc., relating to the 8.5% Senior Notes due
2012.
-33-
10.1 Revolving Credit Agreement, dated as of January 31, 2002,
among the Company, the lenders named therein, and Bank Of
America, N.A., a national banking association, as
Administrative Agent and Letter of Credit Issuer, is
incorporated herein by reference from Exhibit 10.1 to the
Company's Current Report on Form 8-K, dated January 31,
2002, filed with the SEC on February 1, 2002.
10.2* Indemnification Agreement for new Director, James K.
Schuler.
10.3 Employment Agreement, dated as of October 22, 2001,
between the Company and James K. Schuler, is incorporated
by reference from Exhibit 10.8 of the Company's
Registration Statement on Form S-4 (Registration No.
333-73888), filed with the SEC on November 21, 2001.
10.4* Form of Incentive Stock Option Agreement for replacement
incentive stock options granted to former employees of
Schuler Homes, Inc. pursuant to the D.R. Horton, Inc. 1991
Stock Incentive Plan, as amended and restated.
10.5* Form of Non-Qualified Stock Option Agreement for
replacement non-qualified stock options granted to former
employees of Schuler Homes, Inc. pursuant to the D.R.
Horton, Inc. 1991 Stock Incentive Plan, as amended and
restated.
----------
*Filed herewith.
(b) Reports on Form 8-K.
1. On January 22, 2002, the Company filed a Current Report on
Form 8-K (Item 5), which included its press release of
that date announcing the Company's financial results for
the quarter ended December 31, 2002.
2. On January 24, 2002, the Company filed a Current Report on
Form 8-K (Item 5), which announced the declaration of a
cash dividend of six cents ($0.06) per share.
3. On February 1, 2002, the Company filed a Current Report on
Form 8-K (Item 5), which announced that it had entered
into a four-year, unsecured, revolving credit facility
with several banks to replace its credit facility that had
been scheduled to mature in April 2002.
4. On February 19, 2002, the Company filed a Current Report
on Form 8-K (Item 5), which included its press release of
that date announcing the stock portion of the merger
consideration for the Schuler merger.
5. On February 22, 2002, the Company filed a Current Report
on Form 8-K (Items 2 and 7), which announced the
completion of the acquisition of Schuler and provided
further information concerning the acquisition of Schuler
and incorporated by reference the financial statements of
Schuler and pro forma combined financial information for
the Company and Schuler.
6. On March 25, 2002, the Company filed an amendment to the
Current Report on Form 8-K (Item 7) previously filed on
February 22, 2002, which provided amended pro forma
combined financial information for the Company and
Schuler.
-34-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
D.R. HORTON, INC.
Date: May 15, 2002 By /s/ SAMUEL R. FULLER
-----------------------------------------------
Samuel R. Fuller, on behalf of D.R. Horton, Inc.
and as Executive Vice President, Treasurer and
Chief Financial Officer (Principal Financial and
Accounting Officer)
-35-
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4.7 SIXTH SUPPLEMENTAL INDENTURE, DATED AS OF OCTOBER 4, 2001,
AMONG SCHULER HOMES, INC., THE GUARANTORS NAMED THEREIN AND
BNY WESTERN TRUST COMPANY, AS SUCCESSOR IN INTEREST TO U.S.
TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE, RELATING TO
THE 9% SENIOR NOTES DUE 2008.
4.8 SEVENTH SUPPLEMENTAL INDENTURE, DATED AS OF FEBRUARY 21,
2002, AMONG THE COMPANY, THE GUARANTORS NAMED THEREIN AND
BNY WESTERN TRUST COMPANY, AS SUCCESSOR IN INTEREST TO U.S.
TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE, RELATING TO
THE 9% SENIOR NOTES DUE 2008.
4.10 FIRST SUPPLEMENTAL INDENTURE, DATED AS OF FEBRUARY 21, 2002,
AMONG THE COMPANY, THE GUARANTORS NAMED THEREIN AND U.S.
BANK, N.A., AS SUCCESSOR BY MERGER TO U.S. BANK TRUST
NATIONAL ASSOCIATION, AS TRUSTEE, RELATING TO THE 9.375%
SENIOR NOTES DUE 2009.
4.12 FIRST SUPPLEMENTAL INDENTURE, DATED AS OF FEBRUARY 21, 2002,
AMONG THE COMPANY, THE GUARANTORS NAMED THEREIN AND U.S.
BANK, N.A., AS SUCCESSOR BY MERGER TO U.S. BANK TRUST
NATIONAL ASSOCIATION, AS TRUSTEE, RELATING TO THE 10.5%
SENIOR SUBORDINATED NOTES DUE 2011.
4.13 FOURTEENTH SUPPLEMENTAL INDENTURE, DATED AS OF FEBRUARY 21,
2002, AMONG THE COMPANY, THE GUARANTORS NAMED THEREIN AND
AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE,
RELATING TO THE 8.375% SENIOR NOTES DUE 2004, 10.5% SENIOR
NOTES DUE 2005, 8% SENIOR NOTES DUE 2009, 7.875% SENIOR
NOTES DUE 2011 AND ZERO COUPON CONVERTIBLE SENIOR NOTES DUE
2021.
4.14 FOURTH SUPPLEMENTAL INDENTURE, DATED AS OF FEBRUARY 21,
2002, AMONG THE COMPANY, THE GUARANTORS NAMED THEREIN AND
AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE,
RELATING TO THE 9.75% SENIOR SUBORDINATED NOTES DUE 2010 AND
9.375% SENIOR SUBORDINATED NOTES DUE 2011.
4.15 FIFTH SUPPLEMENTAL INDENTURE, DATED AS OF FEBRUARY 21, 2002,
AMONG THE COMPANY, THE GUARANTORS NAMED THEREIN AND FIRST
UNION NATIONAL BANK, AS TRUSTEE, RELATING TO THE 10% SENIOR
NOTES DUE 2006.
4.16 INDENTURE, DATED AS OF APRIL 11, 2002, AMONG THE COMPANY,
THE GUARANTORS NAMED THEREIN AND AMERICAN STOCK TRANSFER &
TRUST COMPANY, AS TRUSTEE, RELATING TO SENIOR DEBT
SECURITIES OF THE COMPANY.
4.17 FIRST SUPPLEMENTAL INDENTURE, DATED AS OF APRIL 11, 2002,
AMONG THE COMPANY, THE GUARANTORS NAMED THEREIN AND AMERICAN
STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE, RELATING TO THE
8.5% SENIOR NOTES DUE 2012.
4.18 REGISTRATION RIGHTS, DATED AS OF APRIL 11, 2002, AMONG THE
COMPANY, THE GUARANTORS NAMED THEREIN AND SALOMON SMITH
BARNEY INC., BANC OF AMERICA SECURITIES LLC, CREDIT LYONNAIS
SECURITIES (USA) INC. AND FLEET SECURITIES, INC., RELATING
TO THE 8.5% SENIOR NOTES DUE 2012.
10.2 INDEMNIFICATION AGREEMENT FOR NEW DIRECTOR, JAMES K.
SCHULER.
10.4 FORM OF INCENTIVE STOCK OPTION AGREEMENT FOR REPLACEMENT
INCENTIVE STOCK OPTIONS GRANTED TO FORMER EMPLOYEES OF
SCHULER HOMES, INC. PURSUANT TO THE D.R. HORTON, INC. 1991
STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED.
10.5 FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT FOR REPLACEMENT
NON-QUALIFIED STOCK OPTIONS GRANTED TO FORMER EMPLOYEES OF
SCHULER HOMES, INC. PURSUANT TO THE D.R. HORTON, INC. 1991
STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED.