e10vk
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended September 30, 2005 |
or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to |
Commission file number 1-14122
D.R. Horton, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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75-2386963 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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301 Commerce Street, Suite 500
Fort Worth, Texas
(Address of principal executive offices) |
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76102
(Zip Code) |
(817) 390-8200
Registrants telephone number, including area code
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class |
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Name of Each Exchange on Which Registered |
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Common Stock, par value $.01 per share |
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The New York Stock Exchange |
7.5% Senior Notes due 2007
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The New York Stock Exchange |
8% Senior Notes due 2009
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The New York Stock Exchange |
9.75% Senior Subordinated Notes due 2010
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The New York Stock Exchange |
7.875% Senior Notes due 2011
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The New York Stock Exchange |
9.375% Senior Subordinated Notes due 2011
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The New York Stock Exchange |
8.5% Senior Notes due 2012
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The New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
None
(Title of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate
by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate
by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (§ 229.405 of
this chapter) is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K. þ
Indicate
by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the
Act). Yes þ No o
Indicate
by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the
Act). Yes o No þ
As of
March 31, 2005, the aggregate market value of the
outstanding shares held by non-affiliates of the registrant was
approximately $8,321,502,000. Solely for purposes of this
calculation, all directors and executive officers were excluded
as affiliates of the registrant.
As of
December 1, 2005, there were 315,734,632 shares of
Common Stock, par value $.01 per share, issued and
313,081,832 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions
of the registrants definitive Proxy Statement for the 2006
Annual Meeting of Stockholders are incorporated herein by
reference in Part III.
TABLE OF CONTENTS
PART I
D.R. Horton, Inc. is the largest homebuilding company in the
United States, based on our domestic homes closed during the
twelve months ended September 30, 2005. We construct and
sell high quality single-family homes through our operating
divisions in 25 states and 74 metropolitan markets of the
United States, primarily under the name of D.R. Horton,
Americas Builder. D.R. Horton, Inc. is a Fortune
500 company, and our common stock is included in the
S&P 500 Index and listed on the New York Stock
Exchange under the ticker symbol DHI. Unless the
context otherwise requires, the terms D.R. Horton,
the Company, we and our used
herein refer to D.R. Horton, Inc., a Delaware corporation, and
its predecessors and subsidiaries.
Donald R. Horton began our homebuilding business in 1978. In
1991, we were incorporated in Delaware to acquire the assets and
businesses of our predecessor companies, which were residential
home construction and development companies owned or controlled
by Mr. Horton. In 1992, we completed our initial public
offering of our common stock. From inception, we have
consistently grown the size of our company by investing our
available capital into our existing homebuilding markets and
into start-up operations in new markets. Additionally, we have
acquired numerous other homebuilding companies, the most recent
of which was in 2002, which have strengthened our market
position in existing markets and expanded our geographic
presence and product offerings in other markets. The success of
our organic growth strategies and our effective acquisition
strategy has enabled us to become the largest homebuilding
company in the United States, a distinction we have maintained
for our last four fiscal years. Our homes generally range in
size from 1,000 to 5,000 square feet and range in price
from $90,000 to $900,000. For the year ended September 30,
2005, we closed 51,172 homes with an average closing sales price
approximating $261,400.
Through our financial services operations, we provide mortgage
banking and title agency services to homebuyers in many of our
homebuilding markets. DHI Mortgage, our wholly-owned subsidiary,
provides mortgage financing services, principally to purchasers
of homes we build and sell. Our subsidiary title companies serve
as title insurance agents by providing title insurance policies,
examination and closing services, primarily to purchasers of
homes we build and sell.
Our financial reporting segments consist of homebuilding and
financial services. Our homebuilding operations are by far the
most substantial part of our business, comprising approximately
98% of consolidated revenues and approximately 96% of
consolidated income before income taxes in fiscal year 2005.
During fiscal 2005, our total consolidated revenues were
$13,863.7 million, and our total consolidated income before
income taxes was $2,378.6 million. Our 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. In addition to building traditional single-family detached
homes, the homebuilding segment also builds attached homes, such
as town homes, duplexes, triplexes and condominiums (including
some mid-rise buildings), which share common walls and roofs.
The sale of detached homes generated approximately 83%, 84%, and
91% of home sales revenues in fiscal 2005, 2004 and 2003,
respectively. Our financial services segment generates its
revenues from originating and selling mortgages and collecting
fees for title insurance and closing services. Financial
information, including revenue, pre-tax income and identifiable
assets, for both of our reporting segments is included in our
consolidated financial statements.
We make available, as soon as reasonably practicable, on our
Internet website all of our reports required to be filed with
the Securities and Exchange Commission. These reports include
our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, changes in
beneficial ownership reports on Forms 3, 4,
and 5, proxy statements and amendments to such reports.
These reports may be accessed by going to our Internet website
and clicking on the Investor Relations link. We will
also provide these reports in electronic or paper format to our
stockholders free of charge upon request made to our Investor
Relations department. Information on our Internet website is not
part of this annual report on Form 10-K.
1
Our principal executive offices are located at 301 Commerce
Street, Suite 500, Fort Worth, Texas 76102. Our
telephone number is (817) 390-8200, and our Internet
website address is www.drhorton.com.
Operating Strategy
Our overall operating strategy is to take advantage of
opportunities to grow our homebuilding business profitably
through capturing greater market share, while continuing to
maintain a strong balance sheet. We plan to execute our growth
strategy primarily by investing our available capital in our
existing homebuilding markets through our capital allocation
process and by entering satellite markets as opportunities are
available. However, we will also evaluate homebuilding
acquisition opportunities as they arise.
We believe that the following specific operating strategies have
enabled us to achieve consistent growth and profitability in the
past and will continue to contribute to our future growth and
profitability goals.
From 1978 to late 1987, our homebuilding activities were
conducted in the Dallas/ Fort Worth area. We then began
diversifying geographically by entering additional markets, both
through start-up operations and acquisitions. We now operate in
25 states and 74 markets. This provides us with geographic
diversification in our homebuilding inventory investments and
our sources of revenues and earnings.
We believe our diversification strategy mitigates the effects of
local and regional economic cycles and enhances our growth
potential. Typically, we do not invest material amounts of
capital in real estate, including raw land, developed lots,
models and speculative homes, or overhead in start-up operations
in new markets, until such markets demonstrate significant
growth potential and acceptance of our products. While we
believe there are significant growth opportunities in our
existing markets, we also intend to continue our diversification
strategy by seeking to enter new markets, primarily through the
opening of satellite operations in smaller markets near our
existing operating divisions. We also continue to evaluate
opportunities to enter new markets or strengthen our presence in
our existing markets through acquisitions of other homebuilding
companies. We continually monitor the sales, margins and returns
achieved in each of our markets as part of our evaluation of the
use of our capital.
We are the largest homebuilding company in the United States in
terms of number of homes closed in fiscal 2005. We are also the
largest or one of the five largest builders in many of our
markets by the same measure in fiscal 2005. We believe that our
national, regional and local scale of operations has provided us
with benefits that may not be available in the same degree to
some other smaller homebuilders, such as:
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Negotiation of volume discounts and rebates from national,
regional and local materials suppliers and lower labor rates
from certain subcontractors; |
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Earlier opportunities on large land parcels, as land sellers may
present parcels for sale to us sooner due to our strong presence
in a market; |
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Efficient land entitlement processes, as we often dedicate
full-time staff to work with municipalities to resolve difficult
land and lot entitlement concerns; and |
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Greater access to and lower cost of capital, due to our strong
balance sheet and our lending and capital markets relationships
with national commercial and investment banking institutions. |
Our economies of scale have contributed to significant
improvements in our homebuilding operating margins. Our
operating margins provide us with operational flexibility to
compete for additional market share in each of our markets and
in new satellite markets versus our competitors that have lower
operating margins.
2
We decentralize our homebuilding activities to give more
operating flexibility to our local division presidents. At
September 30, 2005, we had 43 separate homebuilding
operating divisions, some of which are in the same market area
and some of which operate in more than one market area.
Generally, each operating division consists of a division
president; land entitlement, acquisition and development
personnel; a sales manager and sales personnel; a construction
manager and construction superintendents; customer service
personnel; a controller; a purchasing manager and office staff.
We believe that division presidents and their management teams,
who are familiar with local conditions, have better information
on which to base decisions regarding local operations. Our
division presidents receive performance bonuses based upon
achieving targeted financial and operational measures in their
operating divisions.
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Operating Division Responsibilities |
Each operating division is responsible for:
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Site selection, which involves |
A feasibility study;
Soil and environmental reviews;
Review of existing zoning and other governmental
requirements; and
Review of the need for and extent of offsite work
required to meet local building codes;
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Negotiating lot option or similar contracts; |
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Obtaining all necessary land development and home construction
approvals; |
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Overseeing land development; |
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Selecting building plans and architectural schemes; |
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Selecting and managing construction subcontractors and suppliers; |
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Planning and managing homebuilding schedules; and |
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Developing and implementing marketing plans. |
We centralize the key risk elements of our homebuilding business
through our regional and corporate offices. We have eight
separate homebuilding regional offices. Some of these oversee
operations in only one of our geographic reporting regions, and
others oversee operations in more than one geographic reporting
region. Generally, each regional office consists of a region
president, legal counsel, a chief financial officer, a
purchasing manager and limited office support staff. Each of our
region presidents and their management teams are responsible for
oversight of the operations of up to nine homebuilding operating
divisions, including:
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Review and approval of division business plans and budgets; |
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Review and approval of all land and lot acquisition contracts; |
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Allocation of inventory investments within corporate guidelines; |
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Oversight of land and home inventory levels; and |
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Review of major personnel decisions and division president
compensation plans. |
Our corporate executives and corporate office departments are
responsible for establishing our operational policies and
internal control standards and for monitoring compliance with
established policies
3
and controls throughout our operations. The corporate office
also has primary responsibility for direct management of certain
key risk elements and initiatives through the following
centralized functions:
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Financing; |
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Cash management; |
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Risk and litigation management; |
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Allocation of capital; |
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Issuance and monitoring of inventory investment guidelines to
regional homebuilding operations; |
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Environmental assessments of land and lot acquisitions; |
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Approval and funding of land and lot acquisitions; |
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Accounting and management reporting; |
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Internal audit; |
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Information technology systems; |
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Administration of payroll and employee benefits; |
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Negotiation of national purchasing contracts; |
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Management of major national or regional supply chain
initiatives; |
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Monitoring and analysis of margins, returns and
expenses; and |
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Administration of customer satisfaction surveys and reporting of
results. |
We control our overhead costs by centralizing certain
administrative and accounting functions and by closely
monitoring the number of administrative personnel and management
positions in our operating divisions, regions and corporate
office. We also minimize advertising costs by participating in
promotional activities sponsored by local real estate brokers
and trade associations.
We control construction costs by striving to design our homes
efficiently and by obtaining competitive bids for construction
materials and labor. We also negotiate favorable pricing from
our primary subcontractors and suppliers based on the volume of
services and products we purchase from them on a local, regional
and national basis. We monitor our construction costs on each
house through our purchasing and construction budgeting systems,
and we monitor our inventory levels, margins, returns and
expenses through our management information systems.
We have recently focused on internal growth and strengthening
our balance sheet. However, as an integral component of our
operational strategy, we also evaluate opportunities for
strategic acquisitions. We believe that, in some instances,
expanding our operations through the acquisition of existing
homebuilding companies can provide us benefits not found in
start-up operations, such as:
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Established land positions and inventories; |
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Existing relationships with municipalities, land owners,
developers, subcontractors and suppliers; |
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Proven product acceptance by homebuyers; and |
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Immediate impact on our total home closings and revenues, which
can provide improved costs in many parts of the company through
volume pricing incentives in some of our national and regional
purchasing contracts. |
4
In evaluating potential acquisition candidates, we seek
homebuilding companies that have excellent reputations, track
records of profitability and strong management teams. We seek to
limit the risks associated with acquiring such companies by
conducting extensive operational, financial and legal due
diligence on each acquisition and by only acquiring homebuilding
companies that we believe will have a positive impact on our
earnings within an acceptable period of time. We believe that
our acquisition evaluation and due diligence processes combined
with our decentralized operating approach with centralized
controls have contributed to the successful integration of our
prior acquisitions.
Markets
We conduct our homebuilding operations in all of the geographic
regions, states and markets listed below, and we conduct our
mortgage and title operations in many of these markets as
indicated below. New markets entered in fiscal 2005 are denoted
by an asterisk (*).
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Mortgage (M) | |
State | |
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Region/Market |
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Title (T) | |
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Mid-Atlantic Region |
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Delaware |
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Delaware Valley* |
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T |
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Maryland |
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Baltimore |
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M,T |
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Suburban Washington D.C. |
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M,T |
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New Jersey |
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New Jersey |
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M,T |
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North Carolina |
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Brunswick* |
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Charlotte |
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M |
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Greensboro/Winston-Salem |
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M |
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Raleigh/Durham |
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M |
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Pennsylvania |
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Philadelphia |
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York/Lancaster* |
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South Carolina |
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Charleston |
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M |
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Columbia |
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M |
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Greenville |
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M |
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Hilton Head |
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M |
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Myrtle Beach |
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M |
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Virginia |
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Northern Virginia |
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M,T |
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Midwest Region |
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Illinois |
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Chicago |
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M |
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Minnesota |
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Minneapolis/St. Paul |
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M,T |
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Wisconsin |
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Kenosha* |
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Southeast Region |
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Alabama |
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Birmingham |
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M |
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Huntsville |
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M |
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Georgia |
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Atlanta |
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M,T |
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Macon* |
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Savannah |
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M |
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Florida |
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Daytona Beach |
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M |
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Fort Myers/Naples |
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M,T |
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Jacksonville |
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M,T |
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Melbourne* |
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M,T |
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Miami/West Palm Beach |
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M,T |
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Orlando |
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M,T |
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Tampa |
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M,T |
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Louisiana |
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Baton Rouge* |
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Southwest Region |
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Arizona |
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Casa Grande |
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M,T |
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Phoenix |
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M,T |
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Tucson |
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M |
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New Mexico |
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Albuquerque |
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M |
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Las Cruces |
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M |
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Oklahoma |
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Oklahoma City* |
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Texas |
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Austin |
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M,T |
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Dallas |
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M,T |
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Fort Worth |
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M,T |
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Houston |
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M,T |
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Killeen/Temple |
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Laredo |
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M |
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Rio Grande Valley |
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M |
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San Antonio |
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M,T |
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Waco |
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M |
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West Region |
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California |
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Bakersfield/Lancaster/Palmdale |
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M |
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Fresno/Modesto |
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M |
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Los Angeles County |
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M |
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Oakland/North Bay |
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M |
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Orange County |
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M |
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Riverside/San Bernardino |
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M |
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Sacramento |
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M |
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San Diego County |
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M |
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San Francisco |
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M |
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San Jose/Pleasanton/East Bay |
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M |
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Ventura County |
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M |
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Colorado |
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Colorado Springs |
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M |
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Denver |
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M |
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Ft. Collins |
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M |
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Hawaii |
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Hawaii* |
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M |
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Maui* |
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M |
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Oahu |
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M |
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Nevada |
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Las Vegas |
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M,T |
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Reno |
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M |
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Oregon |
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Albany |
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M |
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Bend |
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M |
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Eugene |
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M |
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Portland |
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M |
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Utah |
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Salt Lake City |
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M |
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Washington |
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Olympia* |
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M |
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Seattle/Tacoma |
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M |
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Vancouver |
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M |
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5
When evaluating new or existing homebuilding markets, we
consider the following local, market-specific factors, among
others:
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Economic conditions; |
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Job growth; |
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Land availability; |
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Land entitlement and development processes; |
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New home sales activity; |
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Competition; |
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Secondary home sales activity; and |
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Prevailing housing products, features and pricing. |
The major part of our homebuilding operations is in six states.
The following were the percentages of our total homebuilding
inventory in those states:
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As of September 30, |
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2005 | |
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2004 | |
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Arizona
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9 |
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8 |
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California
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28 |
% |
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26 |
% |
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Colorado
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8 |
% |
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11 |
% |
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Florida
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8 |
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6 |
% |
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Nevada
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9 |
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9 |
% |
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Texas
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12 |
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15 |
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Total
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74 |
% |
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75 |
% |
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Our homebuilding revenues from home sales by geographic region
were:
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Year Ended September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Mid-Atlantic
|
|
$ |
1,087.1 |
|
|
$ |
888.4 |
|
|
$ |
674.8 |
|
Midwest
|
|
|
688.9 |
|
|
|
643.7 |
|
|
|
513.2 |
|
Southeast
|
|
|
1,826.5 |
|
|
|
1,041.3 |
|
|
|
773.9 |
|
Southwest
|
|
|
3,758.1 |
|
|
|
3,012.3 |
|
|
|
2,381.5 |
|
West
|
|
|
6,016.0 |
|
|
|
4,905.4 |
|
|
|
3,990.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
13,376.6 |
|
|
$ |
10,491.1 |
|
|
$ |
8,334.1 |
|
|
|
|
|
|
|
|
|
|
|
For a discussion of net sales orders and homes closed for the
years ended September 30, 2005, 2004 and 2003 and sales
order backlog as of September 30, 2005, 2004 and 2003,
please see Managements Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations Homebuilding.
6
Our homebuilding revenues from land and lot sales by geographic
region were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Mid-Atlantic
|
|
$ |
13.2 |
|
|
$ |
1.8 |
|
|
$ |
1.6 |
|
Midwest
|
|
|
3.4 |
|
|
|
0.2 |
|
|
|
10.5 |
|
Southeast
|
|
|
16.5 |
|
|
|
19.9 |
|
|
|
21.2 |
|
Southwest
|
|
|
10.9 |
|
|
|
13.3 |
|
|
|
19.1 |
|
West
|
|
|
208.0 |
|
|
|
131.7 |
|
|
|
165.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
252.0 |
|
|
$ |
166.9 |
|
|
$ |
218.0 |
|
|
|
|
|
|
|
|
|
|
|
Land Policies
Typically, we acquire land only after we have completed
appropriate due diligence and after we have obtained the rights
(entitlements) to begin development or construction
work resulting in an acceptable number of residential lots.
Before we acquire lots or tracts of land, we will, among other
things, complete a feasibility study, which includes soil tests,
independent environmental studies and other engineering work,
and evaluate the status of necessary zoning and other
governmental entitlements required to develop and use the
property for home construction. Although we purchase and develop
land primarily to support our homebuilding activities, we also
sell lots and land to other developers and homebuilders.
We also enter into land/lot option contracts, in which we obtain
the right, but generally not the obligation, to buy land or lots
at predetermined prices on a defined schedule commensurate with
anticipated home closings or planned land development. Our
option contracts generally are non-recourse, which limits our
financial exposure to our earnest money deposited with land and
lot sellers. This enables us to control significant land and lot
positions with minimal capital investment, which substantially
reduces the risks associated with land ownership and development.
Almost all of our land positions are acquired directly by us. We
typically avoid entering into joint venture arrangements due to
their increased costs and complexity, as well as the loss of
operational control inherent in such arrangements. We are a
party to a very small number of joint ventures that were
acquired through acquisitions of other homebuilders. All of
these joint ventures are consolidated in our financial
statements.
We limit our exposure to real estate inventory risks by:
|
|
|
|
|
Maintaining approximately a three to four year supply of
land/lots controlled (owned and optioned) based on anticipated
future home closing levels; |
|
|
|
Closely monitoring local market and demographic trends, housing
preferences and related economic developments, such as new job
opportunities, local growth initiatives and personal income
trends; |
|
|
|
Utilizing land/lot option contracts, where possible; |
|
|
|
Limiting the size of acquired land parcels to smaller tracts,
where possible; |
|
|
|
Generally commencing construction of custom features or optional
upgrades on homes under contract only after the buyers
receipt of mortgage approval and receipt of satisfactory
deposits from the buyer; and |
|
|
|
Closely monitoring the number of speculative homes (homes under
construction without an executed sales contract) built in each
subdivision. |
7
Construction
Our home designs are selected or prepared in each of our markets
to appeal to local tastes and preferences of homebuyers in each
community. We also offer optional interior and exterior features
to allow homebuyers to enhance the basic home design and to
allow us to generate additional revenues from each home sold.
Substantially all of our construction work is performed by
subcontractors. Subcontractors typically are retained for a
specific subdivision pursuant to a contract that obligates the
subcontractor to complete construction at an agreed-upon price.
Agreements with our subcontractors and suppliers generally are
negotiated for each subdivision. We compete with other
homebuilders for qualified subcontractors, raw materials and
lots in the markets where we operate. We employ construction
superintendents to monitor homes under construction, participate
in major design and building decisions, coordinate the
activities of subcontractors and suppliers, review the work of
subcontractors for quality and cost controls and monitor
compliance with zoning and building codes. In addition, our
construction superintendents play a significant role in working
with our homebuyers by assisting with option selection and home
modification decisions, educating buyers on the construction
process and instructing buyers on post-closing home maintenance.
Construction time for our homes depends on the weather,
availability of labor, materials and supplies, size of the home,
and other factors. We typically complete the construction of a
home within four to six months.
We typically do not maintain significant inventories of
construction materials, except for work in progress materials
for homes under construction. Typically, the construction
materials used in our operations are readily available from
numerous sources. We have contracts exceeding one year with
certain suppliers of our building materials that are cancelable
at our option with a 30 day notice. In recent years, we
have not experienced delays in construction due to shortages of
materials or labor that have materially affected our
consolidated operating results.
Marketing and Sales
We market and sell our homes through commissioned employees and
independent real estate brokers. We typically conduct home sales
from sales offices located in furnished model homes in each
subdivision, and we typically do not offer our model homes for
sale until the completion of a subdivision. Our sales personnel
assist prospective homebuyers by providing them with floor
plans, price information, tours of model homes and assisting
them with the selection of options and other custom features. We
train and inform our sales personnel as to the availability of
financing, construction schedules, and marketing and advertising
plans. As market conditions warrant, we may provide potential
homebuyers with one or more of a variety of incentives,
including discounts and free upgrades, to be competitive in a
particular market.
We advertise in our local markets as necessary. We advertise in
newspapers and real estate trade publications, as well as with
marketing brochures and newsletters. We also use billboards,
radio and television advertising and our Internet website to
market the location, price range and availability of our homes.
To minimize advertising costs, we attempt to operate in
subdivisions in conspicuous locations that permit us to take
advantage of local traffic patterns. We also believe that model
homes play a substantial role in our marketing efforts, so we
expend significant effort to create an attractive atmosphere in
our model homes.
In addition to using model homes, in certain markets we build a
limited number of speculative homes in each subdivision. These
homes enhance our marketing and sales efforts to prospective
homebuyers who are relocating to these markets, as well as to
independent brokers, who often represent homebuyers requiring a
completed home within 60 days. We determine our speculative
homes strategy in each market based on local market factors,
such as new job growth, the number of job relocations, housing
demand, seasonality and our past experience in the market. We
determine the number of speculative homes to build in each
subdivision based on our current and planned sales pace, and we
seek to monitor and adjust
8
speculative homes inventory on an ongoing basis as conditions
warrant. We typically sell a substantial majority of our
speculative homes while they are under construction or
immediately following completion.
Our sales contracts require an earnest money deposit of at least
$500. The amount of earnest money required varies between
markets and subdivisions, and may significantly exceed $500.
Additionally, customers are generally required to pay additional
deposits when they select options or upgrade features for their
homes. Most of our sales contracts stipulate that when customers
cancel their contracts with us, we have the right to retain
their earnest money and option deposits; however, our operating
divisions occasionally choose to refund such deposits. Our sales
contracts also include a financing contingency which permits
customers to cancel and receive a refund of their deposits if
they cannot obtain mortgage financing at prevailing or specified
interest rates within a specified period. Our contracts may
include other contingencies, such as the sale of an existing
home. Depending upon market conditions, the sales contracts used
in certain subdivisions may also contain restrictions aimed at
limiting purchases of our homes by speculative investors who
plan to purchase our homes and then quickly place the homes up
for resale. As a percentage of gross sales orders, cancellations
of sales contracts have generally ranged from 16% to 20% over
the past five years. The length of time between the signing of a
sales contract for a home and delivery of the home to the buyer
(closing) averages between three and six months.
Customer Service and Quality Control
Our operating divisions are responsible for pre-closing quality
control inspections and responding to customers
post-closing needs. We believe that prompt and courteous
response to homebuyers needs during and after construction
reduces post-closing repair costs, enhances our reputation for
quality and service, and ultimately leads to significant repeat
and referral business from the real estate community and
homebuyers. We provide our homebuyers with a limited one-year
warranty on workmanship and building materials. The
subcontractors who perform the actual construction also provide
us with warranties on workmanship and are generally prepared to
respond to us and the homeowner promptly upon request. In
addition, we typically provide a supplemental ten-year limited
warranty that covers major construction defects, and some of our
suppliers provide manufacturers warranties on specified
products installed in the home.
Customer Mortgage Financing
We provide mortgage financing services principally to purchasers
of our homes in the majority of our homebuilding markets through
our wholly-owned subsidiary, DHI Mortgage. DHI Mortgage
coordinates and expedites the entire sales transaction for both
our homebuyers and our homebuilding operations by ensuring that
mortgage commitments are received and that closings take place
in a timely and efficient manner. DHI Mortgage originates
mortgage loans for a substantial portion of our homebuyers and,
when necessary to fulfill the needs of some homebuyers, also
brokers loans to third-party lenders who directly originate the
mortgage loans. During the year ended September 30, 2005,
approximately 93% of DHI Mortgages loan volume related to
homes closed by our homebuilding operations, and DHI Mortgage
provided mortgage financing services for approximately 63% of
our total homes closed.
For loans that it originates, DHI Mortgage packages and sells
the loans and their servicing rights to third-party investors
shortly after origination on a non-recourse or limited recourse
basis. In markets where we currently do not provide mortgage
financing, we work with a variety of mortgage lenders that make
available to homebuyers a range of mortgage financing programs.
Title Services
We serve as a title insurance agent in selected markets by
providing title insurance policies, examination and closing
services to purchasers of homes we build and sell, through our
subsidiary title companies. We currently assume little or no
underwriting risk associated with these title policies.
9
Employees
At September 30, 2005, we employed 8,900 persons, of whom
1,540 were sales and marketing personnel, 2,919 were executive,
administrative and clerical personnel, 2,845 were involved in
construction and 1,596 worked in mortgage and title operations.
We had fewer than 20 employees covered by collective bargaining
agreements. Employees of some of the subcontractors which we use
are represented by labor unions or are subject to collective
bargaining agreements. We believe that our relations with our
employees and subcontractors are good.
Competition
The homebuilding industry is highly competitive. We compete in
each of our markets with numerous other national, regional and
local homebuilders for homebuyers, desirable properties, raw
materials, skilled labor and financing. Our homes compete on the
basis of quality, price, design, mortgage financing terms and
location. Our financial services business competes with other
mortgage lenders, including national, regional and local
mortgage bankers, savings and loan associations and other
financial institutions, some of which have greater access to
capital markets and different lending criteria.
Governmental Regulation and Environmental Matters
The homebuilding industry is subject to extensive and complex
regulations. We and our subcontractors must comply with various
federal, state and local laws and regulations, including zoning,
density and development requirements, building, environmental,
advertising and real estate sales rules and regulations. These
requirements affect the development process, as well as building
materials to be used, building designs and minimum elevation of
properties. Our homes are inspected by local authorities where
required, and homes eligible for insurance or guarantees
provided by the FHA and VA are subject to inspection by them.
These regulations often provide broad discretion to the
administering governmental authorities. In addition, our new
housing developments may be subject to various assessments for
schools, parks, streets and other public improvements.
Our homebuilding operations are also subject to a variety of
local, state and federal statutes, ordinances, rules and
regulations concerning protection of health, safety and the
environment. The particular environmental laws for each site
vary greatly according to location, environmental condition and
the present and former uses of the site and adjoining properties.
Our mortgage company and title insurance agencies must also
comply with various federal and state laws and regulations.
These include eligibility and other requirements for
participation in the programs offered by the FHA, VA, GNMA,
Fannie Mae and Freddie Mac. These also include required
compliance with consumer lending and other laws and regulations
such as disclosure requirements, prohibitions against
discrimination and real estate settlement procedures. All of
these laws and regulations may subject our operations to
examination by the applicable agencies.
Seasonality
We experience seasonal variations in our quarterly operating
results and capital requirements. Historically, more of our
sales contracts have been made during the spring and summer
months than in the balance of the year. As a result, we
typically have more homes under construction, close more homes
and have greater revenues and operating income in the third and
fourth quarters of our fiscal year.
Discussion of our business and operations included in this
annual report on Form 10-K should be read together with the
risk factors set forth below. They describe various risks and
uncertainties to which we are or may become subject. These risks
and uncertainties, together with other factors described
elsewhere in this report, have the potential to affect our
business, financial condition, results of operations, cash
flows, strategies or prospects in a material and adverse manner.
10
|
|
|
Because of the cyclical nature of our industry, future
changes in general economic, real estate construction or other
business conditions could adversely affect our business or our
financial results. |
Cyclical Industry. The homebuilding industry is cyclical
and is significantly affected by changes in general and local
economic conditions, such as:
|
|
|
|
|
employment levels; |
|
|
|
availability of financing for homebuyers; |
|
|
|
interest rates; |
|
|
|
consumer confidence; |
|
|
|
demographic trends; and |
|
|
|
housing demand. |
These may occur on a national scale or may affect some of the
regions or markets in which we operate more than others. If
adverse conditions affect any of our larger markets, they could
have a proportionately greater impact on us than some other
homebuilding companies.
An oversupply of alternatives to new homes, such as rental
properties and used or foreclosed homes, could also depress new
home prices and reduce our margins on the sales of new homes.
Risks Related to National Security. Continued military
deployments in the Middle East and other overseas regions,
terrorist attacks, other acts of violence or threats to national
security, and any corresponding response by the United States or
others, or related domestic or international instability, may
adversely affect general economic conditions or cause a slowdown
of the national economy.
Inventory Risks. Inventory risks can be substantial for
our homebuilding business. Our long-term ability to build homes
depends upon our acquiring land suitable for residential
building at affordable prices in locations where our customers
want to live. We must anticipate demand for new homes and
continuously seek and make acquisitions of land for replacement
and expansion of land inventory within our current markets and
for expansion into new markets. In some markets, this has become
more difficult and costly.
Our current goal is to own or control approximately a three to
four year supply of land and building lots. The risks inherent
in controlling or purchasing and developing land increase as
consumer demand for housing decreases. Thus, we may have
acquired options on or bought and developed land at a cost we
will not be able to recover fully or on which we cannot build
and sell homes profitably. Our deposits for building lots
controlled under option or similar contracts may be put at risk.
The market value of undeveloped land, building lots and housing
inventories can also fluctuate significantly as a result of
changing market conditions. We cannot make any assurances that
the measures we employ to manage inventory risks and costs will
be successful.
In addition, inventory carrying costs can be significant and can
result in reduced margins or losses in a poorly performing
project or market. In the event of significant changes in
economic or market conditions, we may have to sell homes or land
for a lower profit margin or at a loss.
Supply Risks. The homebuilding industry has from time to
time experienced significant difficulties that can affect the
cost or timing of construction, including:
|
|
|
|
|
shortages of qualified trades people; |
|
|
|
reliance on local subcontractors, who may be inadequately
capitalized; |
|
|
|
shortages of materials; and |
|
|
|
volatile increases in the cost of materials, particularly
increases in the price of lumber, drywall and cement, which are
significant components of home construction costs. |
11
Risks from Nature. Weather conditions and natural
disasters, such as hurricanes, tornadoes, earthquakes, volcanic
activity, droughts, floods and wildfires, can harm our
homebuilding business. These can delay home closings, adversely
affect the cost or availability of materials or labor, or damage
homes under construction. The climates and geology of many of
the states in which we operate, including California, Florida
and Texas, where we have some of our larger operations, present
increased risks of adverse weather or natural disaster.
Possible Consequences. As a result of the foregoing
matters, in the future, potential customers may be less willing
or able to buy our homes, or we may take longer or incur more
costs to build them. We may not be able to recapture increased
costs by raising prices in many cases because of market
conditions or because we fix our prices in advance of delivery
by signing home sales contracts. We may be unable to change the
mix of our home offerings or the affordability of our homes to
maintain our margins or satisfactorily address changing market
conditions in other ways. In addition, cancellations of home
sales contracts in backlog may increase beyond historical rates
as homebuyers cancel or do not honor their contracts.
Our financial services business is closely related to our
homebuilding business as it originates mortgage loans
principally to purchasers of the homes we build. A decrease in
the demand for our homes because of the foregoing matters or an
increase in consumer preference for adjustable rate or other
low-margin loans could also adversely affect the financial
results of this segment of our business. An increase in the
default rate on the mortgages we originate could adversely
affect the pricing we receive upon the sale of mortgages that we
originate in the future.
|
|
|
Future increases in interest rates, reductions in mortgage
availability or increases in the effective costs of owning a
home could prevent potential customers from buying our homes and
adversely affect our business or our financial results. |
Most of our customers finance their home purchases through
lenders providing mortgage financing. Interest rates have been
at historical lows for a significant time. Many homebuyers have
also chosen adjustable rate, interest only or other mortgages
that involve initial lower monthly payments. As a result, new
homes have been more affordable. Increases in interest rates or
decreases in availability of mortgage financing, however, could
reduce the market for new homes. Potential homebuyers may be
less willing or able to pay the increased monthly costs or to
obtain mortgage financing that exposes them to interest rate
changes. Lenders may increase the qualifications needed for
mortgages or adjust their terms to address any increased credit
risk. Even if potential customers do not need financing, changes
in interest rates and mortgage availability could make it harder
for them to sell their current homes to potential buyers who
need financing. These matters could adversely affect the sales
or pricing of our homes and could also reduce the volume or
margins in our financial services business. The impact on our
financial services business could be compounded to the extent we
are unable to match interest rates and amounts on loans we have
committed to originate through the various hedging strategies we
employ.
In addition, we believe that the availability of FHA and VA
mortgage financing is an important factor in marketing some of
our homes. We also believe that the liquidity provided by Fannie
Mae and Freddie Mac to the mortgage industry is important to the
housing market. However, the federal government has recently
sought to reduce the size of the home-loan portfolios and
operations of these two government-sponsored enterprises. Any
limitations or restrictions on the availability of the financing
or on the liquidity by them could adversely affect interest
rates, mortgage financing and our sales of new homes and
mortgage loans.
Significant expenses of owning a home, including mortgage
interest expense and real estate taxes, generally are deductible
expenses for an individuals federal, and in some cases
state, income taxes, subject to various limitations under
current tax law and policy. If the federal government or a state
government changes its income tax laws, as has been discussed
recently, to eliminate or substantially modify these income tax
deductions, the after-tax cost of owning a new home could
increase for many of our potential
12
customers. The resulting loss or reduction of homeowner tax
deductions, if such tax law changes were enacted without
offsetting provisions, could adversely impact demand for and
sales prices of new homes.
|
|
|
Governmental regulations could increase the cost and limit
the availability of our development and homebuilding projects or
affect our related financial services operations and adversely
affect our business or financial results. |
We are subject to extensive and complex regulations that affect
land development and home construction, including zoning,
density restrictions, building design and building standards.
These regulations often provide broad discretion to the
administering governmental authorities as to the conditions we
must meet prior to being approved, if approved at all. We are
subject to determinations by these authorities as to the
adequacy of water or sewage facilities, roads or other local
services. In addition, in many markets government authorities
have implemented no growth or growth control initiatives. Any of
these can limit, delay or increase the costs of development or
homebuilding.
New housing developments may be subject to various assessments
for schools, parks, streets and other public improvements. These
can cause an increase in the effective prices for our homes. In
addition, increases in property tax rates by local governmental
authorities, as recently experienced in response to reduced
federal and state funding, can adversely affect the ability of
potential customers to obtain financing or their desire to
purchase new homes.
We also are subject to a variety of local, state and federal
laws and regulations concerning protection of health, safety and
the environment. The impact of environmental laws varies
depending upon the prior uses of the building site or adjoining
properties and may be greater in areas with less supply where
undeveloped land or desirable alternatives are less available.
These matters may result in delays, may cause us to incur
substantial compliance, remediation and other costs, and can
prohibit or severely restrict development and homebuilding
activity in environmentally sensitive regions or areas.
Our financial services operations are also subject to numerous
federal, state and local laws and regulations. These include
eligibility requirements for participation in federal loan
programs and compliance with consumer lending and similar
requirements such as disclosure requirements, prohibitions
against discrimination and real estate settlement procedures.
They may also subject our operations to examination by the
applicable agencies. These may limit our ability to provide
mortgage financing or title services to potential purchasers of
our homes.
|
|
|
Our substantial debt could adversely affect our financial
condition. |
We have a significant amount of debt. As of September 30,
2005, our consolidated debt was $4,909.6 million. In the
ordinary course of business, we may incur significant additional
debt, to the extent permitted by our revolving credit facility
and our indentures.
Possible Consequences. The amount of our debt could have
important consequences. For example, it could:
|
|
|
|
|
limit our ability to obtain future financing for working
capital, capital expenditures, acquisitions, debt service
requirements or other requirements; |
|
|
|
require us to dedicate a substantial portion of our cash flow
from operations to payment of our debt and reduce our ability to
use our cash flow for other purposes; |
|
|
|
limit our flexibility in planning for, or reacting to, the
changes in our business; |
|
|
|
place us at a competitive disadvantage because we have more debt
than some of our competitors; and |
|
|
|
make us more vulnerable in the event of a downturn in our
business or in general economic conditions. |
13
Dependence on Future Performance. Our ability to meet our
debt service and other obligations will depend upon our future
financial performance. We are engaged in businesses that are
substantially affected by changes in economic conditions. Our
revenues and earnings vary with the level of general economic
activity in the markets we serve. Our businesses are also
affected by financial, political, business and other factors,
many of which are beyond our control. The factors that affect
our ability to generate cash can also affect our ability to
raise additional funds for these purposes through the sale of
debt or equity securities, the refinancing of debt, or the sale
of assets. Changes in prevailing interest rates may affect our
ability to meet our debt service obligations, because borrowings
under our credit facilities bear interest at floating rates and
our interest rate swap agreements fix our interest
rate for only a portion of these borrowings.
As of September 30, 2005, the scheduled maturities of
principal on our outstanding debt for the subsequent
12 months totaled $1,270.5 million, including
$1,249.5 million in financial services debt that must be
renewed annually. Based on the current level of operations, we
believe our cash flow from operations, available cash, available
borrowings under our credit facilities and our ability to access
the capital markets and to refinance or renew our facilities in
a timely manner will be adequate to meet our future cash needs.
We cannot, however, make any assurances that in the future our
business will generate sufficient cash flow from operations or
that borrowings or access to the capital markets or refinancing
or renewal facilities will be available to us in amounts
sufficient to enable us to pay or refinance our indebtedness or
to fund other cash needs.
Indenture and Credit Facility Restrictions. Our revolving
credit facility and the indentures governing most series of our
senior and senior subordinated notes impose restrictions on our
operations and activities. The most significant restrictions
relate to limits on investments, stock repurchases, cash
dividends and other restricted payments, incurrence of
indebtedness, creation of liens and asset dispositions, and
require maintenance of minimum levels of tangible net worth and
compliance with other financial covenants. If we fail to comply
with any of these restrictions or covenants, the trustees, the
noteholders or the lending banks, as applicable, could cause our
debt to become due and payable prior to maturity. If we do not
maintain our current credit ratings, available credit under our
revolving credit facility is subject to limitations based on
specified percentages of the costs of homes, developed lots and
lots under development included in inventory and the amount of
other senior, unsecured indebtedness. Under the most restrictive
of the limitations imposed by our indentures and revolving
credit agreement, as of September 30, 2005, we would have
been permitted to increase our homebuilding debt by
approximately $2.5 billion. This amount is not intended as
an indication of the amount of additional debt we could in fact
obtain.
Change of Control Purchase Options. If a change of
control occurs as defined in the indentures governing many
series of our senior and senior subordinated notes, constituting
$2,494.8 million principal amount in the aggregate, we
would be required to offer to purchase such notes at 101% of
their principal amount, together with all accrued and unpaid
interest, if any. Moreover, a change of control may also result
in the acceleration of our revolving credit facility. If
purchase offers were required under the indentures for these
notes or our revolving credit facility debt were accelerated, we
can give no assurance that we would have sufficient funds to pay
the amounts that we would be required to repurchase or repay. We
currently would not have sufficient funds available to purchase
all of such outstanding debt upon a change of control.
Impact of Financial Services Debt. Our financial services
business is conducted through subsidiaries that are not
restricted by our indentures or revolving credit facility. The
ability of our financial services segment to provide funds to
our homebuilding operations is subject to restrictions in its
credit facilities. These funds will not be available to us in
the event of defaults under these facilities. Moreover, our
right to receive assets from these subsidiaries upon liquidation
or recapitalization will be subject to the prior claims of the
creditors of these subsidiaries. Our claims to funds from this
segment would be subordinate to subsidiary indebtedness to the
extent of any security for such indebtedness and to any
indebtedness otherwise recognized as senior to our claims.
14
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Homebuilding is very competitive, and competitive
conditions could adversely affect our business or our financial
results. |
The homebuilding industry is highly competitive. Homebuilders
compete not only for homebuyers, but also for desirable
properties, financing, raw materials and skilled labor. We
compete with other local, regional and national homebuilders,
including those with a sales presence on the Internet, often
within larger subdivisions designed, planned and developed by
such homebuilders. The competitive conditions in the
homebuilding industry could result in:
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difficulty in acquiring suitable land at acceptable prices; |
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increased selling incentives; |
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lower sales or profit margins; or |
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delays in construction of our homes. |
Our financial services business competes with other mortgage
lenders, including national, regional and local mortgage
bankers, savings and loan associations and other financial
institutions. Mortgage lenders with greater access to capital
markets or different lending criteria may be able to offer more
attractive financing to potential customers.
If we are affected by these competitive conditions at increased
levels, our business and financial results could be adversely
affected.
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Our future growth may require additional capital, which
may not be available. |
Our operations require significant amounts of cash. We may be
required to seek additional capital, whether from sales of
equity or debt or additional bank borrowings, for the future
growth and development of our business. We can give no assurance
as to the availability of such additional capital or, if
available, whether it would be on terms acceptable to us.
Moreover, the indentures for most of our outstanding public debt
and the covenants of our revolving credit facility contain
provisions that may restrict the debt we may incur in the
future. If we are not successful in obtaining sufficient
capital, it could reduce our sales and may adversely affect our
future growth and financial results.
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We cannot make any assurances that our growth strategies
will be successful. |
Since 1993, we have acquired many homebuilding companies.
Although we have recently focused on internal growth, we may
make strategic acquisitions of homebuilding companies in the
future. Successful strategic acquisitions require the
integration of operations and management and other efforts to
realize the benefits that may be available. Although we believe
that we have been successful in doing so in the past, we can
give no assurance that we would be able to identify, acquire and
integrate successfully strategic acquisitions in the future.
Acquisitions can result in the dilution of existing stockholders
if we issue our common stock as consideration or reduce our
liquidity or increase our debt if we fund them with cash. In
addition, acquisitions can expose us to the risk of writing off
goodwill related to such acquisitions based on the subsequent
results of the reporting units to which the acquired businesses
were assigned. Moreover, we may not be able to implement
successfully our operating and growth strategies within our
existing markets.
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Homebuilding is subject to warranty and product liability
claims in the ordinary course of business that can be
significant. |
As a homebuilder, we are subject to home warranty and
construction defect claims arising in the ordinary course of
business. As a consequence, we maintain product liability
insurance, obtain indemnities and certificates of insurance from
subcontractors generally covering claims related to workmanship
and materials, and create warranty and other reserves for the
homes we sell based on historical experience in our markets and
our judgment of the qualitative risks associated with the types
of homes built. Because of the uncertainties inherent to these
matters, we cannot provide assurance that our insurance
coverage, our subcontractor arrangements and our reserves will
be adequate to address all of our warranty and
15
construction defect claims in the future. Contractual
indemnities can be difficult to enforce, we may be responsible
for applicable self-insured retentions and some types of claims
may not be covered by insurance or may exceed applicable
coverage limits. Additionally, the coverage offered by and the
availability of product liability insurance for construction
defects are currently limited and costly. We have responded to
the recent increases in insurance costs and coverage limitations
by increasing our self-insured retentions and claim reserves.
There can be no assurance that coverage will not be further
restricted and become more costly.
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ITEM 1B. |
UNRESOLVED STAFF COMMENTS |
None.
In addition to our inventories of land, lots and homes, we own
several office buildings totaling approximately
180,000 square feet and we lease approximately
1,345,000 square feet of office space under leases expiring
through January 2015, in our various operating markets to house
our homebuilding and financial services operating division,
region and corporate offices.
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ITEM 3. |
LEGAL PROCEEDINGS |
We are involved in lawsuits and other contingencies in the
ordinary course of business. Management believes that, while the
ultimate outcome of the contingencies cannot be predicted with
certainty, the ultimate liability, if any, will not have a
material adverse effect on our financial position or operations.
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ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
None.
16
PART II
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ITEM 5. |
MARKET FOR REGISTRANTS COMMON EQUITY; RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our common stock is listed on the New York Stock Exchange
(NYSE) under the symbol DHI. The following
table shows the high and low sales prices for our common stock
for the periods indicated, as reported by the NYSE, and
dividends declared per common share. The amounts reflect the
three-for-two stock split (effected as a 50% stock dividend) of
January 12, 2004 and the four-for-three stock split
(effected as a
331/3%
stock dividend) of March 16, 2005.
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Year Ended September 30, 2005 | |
|
Year Ended September 30, 2004 | |
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| |
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| |
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Declared | |
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Declared | |
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High | |
|
Low | |
|
Dividends | |
|
High | |
|
Low | |
|
Dividends | |
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| |
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| |
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| |
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| |
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| |
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| |
1st Quarter
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|
$ |
31.41 |
|
|
$ |
20.40 |
|
|
$ |
.0600 |
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|
$ |
22.69 |
|
|
$ |
16.30 |
|
|
$ |
.0350 |
|
2nd Quarter
|
|
|
34.58 |
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|
|
27.44 |
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|
|
.0675 |
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|
|
27.38 |
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|
|
18.50 |
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|
|
.0600 |
|
3rd Quarter
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|
|
39.20 |
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|
|
26.83 |
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|
|
.0900 |
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|
|
26.96 |
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|
|
18.47 |
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|
|
.0600 |
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4th Quarter
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|
|
42.82 |
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|
|
33.34 |
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|
|
.0900 |
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|
|
25.75 |
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|
|
18.58 |
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|
.0600 |
|
As of December 1, 2005, the closing price of our common
stock on the NYSE was $36.01, and there were approximately 681
holders of record.
The declaration of cash dividends is at the discretion of our
Board of Directors and will depend upon, among other things,
future earnings, cash flows, capital requirements, our general
financial condition and general business conditions. We are
required to comply with certain covenants contained in the bank
agreements and many of our senior note and senior subordinated
note indentures. The most restrictive of these requirements
allows us to pay cash dividends on our common stock in an
amount, on a cumulative basis, not to exceed 50% of consolidated
net income, as defined, subject to certain other adjustments.
Pursuant to the most restrictive of these requirements, at
September 30, 2005, we had approximately $1.4 billion
available for the payment of dividends, the acquisition of our
common stock and other restricted payments.
The information required by this item with respect to equity
compensation plans is set forth under Item 12 of this
annual report on Form 10-K and is incorporated herein by
reference.
During fiscal years 2005, 2004 and 2003, we did not sell any
securities that were not registered under the Securities Act of
1933, as amended.
In May 2005, our Board of Directors authorized the repurchase of
up to $175.6 million of our common stock as market
conditions or other circumstances may warrant. No repurchases
were made under this authorization during fiscal 2005. In
November 2005, our Board of Directors increased the
authorization for repurchases of our common stock to
$500 million. The November 2005 authorization replaced the
previous authorization.
17
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ITEM 6. |
SELECTED FINANCIAL DATA |
The following selected consolidated financial data are derived
from our Consolidated Financial Statements. The data should be
read in conjunction with the Consolidated Financial Statements,
related Notes thereto and other financial data elsewhere herein.
These historical results are not necessarily indicative of the
results to be expected in the future.
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Year Ended September 30, | |
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|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
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| |
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| |
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| |
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| |
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| |
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(In millions, except per share data) | |
Income Statement Data(1):
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Revenues:
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Homebuilding
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$ |
13,628.6 |
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$ |
10,658.0 |
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$ |
8,552.1 |
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$ |
6,625.2 |
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|
$ |
4,383.6 |
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Financial Services
|
|
|
235.1 |
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|
|
182.8 |
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|
|
176.0 |
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|
|
113.6 |
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|
|
72.0 |
|
Gross profit Homebuilding
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|
|
3,488.3 |
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|
|
2,460.7 |
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|
|
1,746.3 |
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|
|
1,260.8 |
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|
|
856.4 |
|
Income before income taxes:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Homebuilding
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|
|
2,273.0 |
|
|
|
1,508.2 |
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|
|
914.7 |
|
|
|
591.1 |
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|
|
380.8 |
|
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Financial Services
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|
|
105.6 |
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|
74.7 |
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|
|
93.5 |
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|
|
56.4 |
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|
|
27.0 |
|
Income before cumulative effect of change in accounting
principle(2)(3)
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|
|
1,470.5 |
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|
|
975.1 |
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|
|
626.0 |
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|
|
404.7 |
|
|
|
254.9 |
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Net income
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|
|
1,470.5 |
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|
|
975.1 |
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|
|
626.0 |
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|
|
404.7 |
|
|
|
257.0 |
|
Income before cumulative effect of change in accounting
principle per share(4):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Basic
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|
|
4.71 |
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|
|
3.14 |
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|
|
2.11 |
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|
|
1.51 |
|
|
|
1.12 |
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Diluted(3)(5)
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|
|
4.62 |
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|
|
3.09 |
|
|
|
1.99 |
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|
|
1.39 |
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|
|
1.07 |
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Net income per share(4):
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|
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|
|
|
|
|
|
|
|
|
|
|
|
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Basic
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|
|
4.71 |
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|
|
3.14 |
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|
|
2.11 |
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|
|
1.51 |
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|
|
1.13 |
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|
Diluted(5)
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|
|
4.62 |
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|
|
3.09 |
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|
|
1.99 |
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|
|
1.39 |
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|
|
1.08 |
|
Cash dividends declared per common share(4)
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|
|
0.3075 |
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|
|
0.2150 |
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|
|
0.1350 |
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|
|
0.0967 |
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|
|
0.0604 |
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|
|
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|
|
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|
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|
As of September 30, | |
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|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
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(In millions) | |
Balance Sheet Data(1):
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|
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Inventories
|
|
$ |
8,486.8 |
|
|
$ |
6,567.4 |
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|
$ |
5,082.3 |
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|
$ |
4,343.1 |
|
|
$ |
2,804.4 |
|
Total assets
|
|
|
12,514.8 |
|
|
|
8,985.2 |
|
|
|
7,279.4 |
|
|
|
6,017.5 |
|
|
|
3,652.2 |
|
Notes payable
|
|
|
4,909.6 |
|
|
|
3,499.2 |
|
|
|
2,963.2 |
|
|
|
2,878.3 |
|
|
|
1,884.3 |
|
Stockholders equity
|
|
|
5,360.4 |
|
|
|
3,960.7 |
|
|
|
3,031.3 |
|
|
|
2,269.9 |
|
|
|
1,250.2 |
|
|
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(1) |
On February 21, 2002, we acquired Schuler Homes in a
merger. The total merger consideration consisted of
20,079,532 shares (pre-splits) of D.R. Horton common stock,
valued at $30.93 per share (pre-splits);
$168.7 million in cash; $802.2 million of assumed
Schuler debt, $238.2 million of which was paid at closing;
$218.7 million of assumed trade payables and other
liabilities; and $10.8 million of assumed obligations to
the Schuler entities minority interest holders.
Schulers revenues for the period February 22, 2002
through September 30, 2002 were $1,246.6 million. |
|
(2) |
In fiscal 2001, we recorded a cumulative effect of a change in
accounting principle of $2.1 million, net of income taxes
of $1.3 million, as an adjustment to net income, related to
our adoption of |
18
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Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities. |
|
(3) |
Beginning in fiscal 2002, pursuant to our adoption of Statement
of Financial Accounting Standards No. 142, we no longer
amortize goodwill, but test it for impairment annually. If we
had not amortized goodwill in fiscal 2001, reported net income
and diluted net income per share (before cumulative effect of
change in accounting principle and adjusted to reflect the
effects of the three-for-two common stock splits, effected as
50% stock dividends and paid on April 9, 2002 and
January 12, 2004, and the four-for-three common stock
split, effected as a
331/3%
stock dividend and paid on March 16, 2005) would have been: |
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|
Diluted Income Before Cumulative Effect | |
|
|
Income Before Cumulative Effect of | |
|
of Change in Accounting Principle | |
|
|
Change in Accounting Principle | |
|
per Share | |
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|
| |
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| |
|
|
|
|
Excluding | |
|
Including | |
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|
|
Excluding | |
|
|
Originally | |
|
|
|
Goodwill | |
|
Goodwill | |
|
|
|
Goodwill | |
|
|
Reported | |
|
Increase | |
|
Amortization | |
|
Amortization | |
|
Increase | |
|
Amortization | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
|
|
|
|
|
|
2001
|
|
$ |
254.9 |
|
|
$ |
6.0 |
|
|
$ |
260.9 |
|
|
$ |
1.07 |
|
|
$ |
0.03 |
|
|
$ |
1.10 |
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(4) |
All basic and diluted income per share amounts and cash
dividends declared per share amounts reflect the effects of the
three-for-two stock splits (effected as 50% stock dividends) of
April 9, 2002 and January 12, 2004, and the
four-for-three stock split (effected as a
331/3%
stock dividend) of March 16, 2005. |
|
(5) |
The adoption of Emerging Issues Task Force Issue No. 04-8,
The Effect of Contingently Convertible Debt on Diluted
Earnings per Share (EITF 04-8), reduced diluted net
income per share by $0.06, $0.05 and $0.03 for the fiscal years
ended September 30, 2003, 2002 and 2001, respectively. See
Note A to the Consolidated Financial Statements for
additional details concerning the adoption of EITF 04-8. |
19
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ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION |
Critical Accounting Policies
General A comprehensive enumeration of the
significant accounting policies of D.R. Horton, Inc. and
subsidiaries is presented in Note A to the accompanying
financial statements as of September 30, 2005 and 2004, and
for the years ended September 30, 2005, 2004 and 2003. Each
of our accounting policies has been chosen based upon current
authoritative literature that collectively comprises
U.S. Generally Accepted Accounting Principles (GAAP). In
instances where alternative methods of accounting are
permissible under GAAP, we have chosen the method that most
appropriately reflects the nature of our business, the results
of our operations and our financial condition, and have
consistently applied those methods over each of the periods
presented in the financial statements. The Audit Committee of
our Board of Directors has reviewed and approved the accounting
policies selected.
Basis of Presentation Our financial
statements include the accounts of D.R. Horton, Inc. and all of
its wholly-owned, majority-owned and controlled subsidiaries.
All significant intercompany accounts, transactions and balances
have been eliminated in consolidation. We have also consolidated
certain variable interest entities from which we are purchasing
lots under option purchase contracts, under the requirements of
Interpretation No. 46 issued by the Financial Accounting
Standards Board (FASB).
Use of Estimates The preparation of financial
statements in conformity with GAAP requires us to make estimates
and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results
could differ materially from those estimates.
Segment Information We report our
consolidated financial statements in accordance with Statement
of Financial Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related
Information. Our homebuilding operating regions are our
operating segments under SFAS No. 131 and have been
aggregated into a single homebuilding reportable segment. Our
homebuilding segment derives the majority of its revenue from
constructing and selling single-family housing in 25 states
and 74 markets throughout the United States. Our other operating
and reporting segment is our financial services segment. The
financial services segment generates revenue by originating and
selling mortgage loans and by collecting fees for title
insurance and closing services in many of the same markets. We
have no foreign subsidiaries or operations.
Revenue Recognition We generally recognize
homebuilding revenue and related profit at the time of the
closing of a sale, when title to and possession of the property
are transferred to the buyer. In situations where the
buyers financing is originated by DHI Mortgage, our
wholly-owned mortgage subsidiary, and the buyer has not made an
adequate initial investment as prescribed by
SFAS No. 66, the gross profit on such sales is
deferred until the sale of the related mortgage loan to a
third-party investor has been completed. Virtually all of our
homebuilding revenues are received in cash within a day or two
of closing. We include amounts in transit from title companies
at the end of each reporting period in homebuilding cash. When
we execute sales contracts with our homebuyers, or when we
require advance payment from homebuyers for custom changes,
upgrades or options related to their homes, we record the cash
deposits received as liabilities until the homes are closed or
the contracts are canceled. We either retain or refund to the
homebuyer deposits on canceled sales contracts, depending upon
the applicable provisions of the contract or other circumstances.
We recognize financial services revenues associated with our
title operations as closing services are rendered and title
insurance policies are issued, both of which generally occur
simultaneously as each home is closed. We transfer substantially
all underwriting risk associated with title insurance policies
to third-party insurers. We recognize the majority of the
revenues associated with our mortgage operations when the
mortgage loans and related servicing rights are sold to
third-party investors. Origination fees and direct origination
costs are deferred and recognized as revenues and expenses,
respectively, along with the associated gains and losses on the
sales of the loans and related servicing rights, when the loans
are sold. We sell all mortgage loans and related servicing
rights to third-party investors.
20
Some of the loans sold by DHI Mortgage are sold with limited
recourse provisions. Based on historical experience, we estimate
and record an allowance for losses related to loans sold with
recourse. In the past, such losses have not been significant.
Inventories and Cost of Sales We state
inventories at the lower of historical cost or fair value in
accordance with SFAS No. 144. In addition to the costs
of direct land acquisition, land development and home
construction, inventory costs include interest, real estate
taxes and direct overhead costs incurred during development and
home construction. Applicable direct overhead costs that we
incur after development projects or homes are substantially
complete, such as utilities, maintenance, and cleaning, are
charged to selling, general and administrative (SG&A)
expense as incurred. All indirect overhead costs, such as
compensation of construction superintendents, sales personnel
and division and region management, advertising and
builders risk insurance are charged to SG&A expense as
incurred.
We use the specific identification method for the purpose of
accumulating home construction costs. Cost of sales for homes
closed includes the specific construction costs of each home and
all applicable land acquisition, land development and related
costs (both incurred and estimated to be incurred) based upon
the total number of homes expected to be closed in each project.
Any changes to the estimated total development costs subsequent
to the initial home closings in a project are generally
allocated on a pro-rata basis to the remaining homes in the
project.
When a home is closed, we generally have not yet paid and
recorded all incurred costs necessary to complete the home. Each
month we record as a liability and as a charge to cost of sales
the amount we determine will ultimately be paid related to
completed homes that have been closed as of the end of that
month. We compare our home construction budgets to actual
recorded costs to determine the additional costs remaining to be
paid on each closed home. We monitor the accuracy of each
months accrual by comparing actual costs incurred on
closed homes in subsequent months to the amount we accrued.
Although actual costs to be paid on closed homes in the future
could differ from our current accruals, our method has
historically been consistently accurate.
Each quarter, we review all components of our inventory for the
purpose of determining whether recorded costs and costs required
to complete each home or project are recoverable. If our review
indicates that an impairment loss is required under the
SFAS No. 144 guidelines, we estimate and record such
loss to cost of sales in that quarter. To date, such impairment
losses have been insignificant in the aggregate. Fair value
estimation under SFAS No. 144 involves management
estimates of future revenues and costs and, due to uncertainties
in the estimation process, actual results could differ from such
estimates.
Consolidation of Variable Interest Entities
In January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities as
amended (FIN 46). FIN 46 provides guidance for the
financial accounting and reporting of interests in certain
variable interest entities, which FIN 46 defines as certain
business entities that either have equity investors with no
voting rights or have equity investors that do not provide
sufficient financial resources for the entities to support their
activities. FIN 46 requires consolidation of such entities
by any company that is subject to a majority of the risk of loss
from the entities activities or is entitled to receive a
majority of the entities residual returns or both, defined
as the primary beneficiary of the variable interest entity.
In the ordinary course of business, we enter into land and lot
option purchase contracts in order to procure land or lots for
the construction of homes. Under such option purchase contracts,
we will fund a stated deposit in consideration for the right,
but not the obligation, to purchase land or lots at a future
point in time with predetermined terms. Under the terms of the
option purchase contracts, many of our option deposits are not
refundable at our discretion. Certain of these deposits are
deemed to create a variable interest in a variable interest
entity under the requirements of FIN 46. As such, certain
of our option purchase contracts result in the acquisition of a
variable interest in the entity holding the land parcel under
option.
In applying the provisions of FIN 46, we evaluate those
land and lot option purchase contracts with variable interest
entities to determine whether we are the primary beneficiary
based upon analysis of the
21
variability of the expected gains and losses of the entity.
Based on this evaluation, if we are the primary beneficiary of
an entity with which we have entered into a land or lot option
purchase contract, the variable interest entity is consolidated.
Since we own no equity interest in any of the unaffiliated
variable interest entities that we must consolidate pursuant to
FIN 46, we generally have little or no control or influence
over the operations of these entities or their owners. When our
requests for financial information are denied by the land
sellers, certain assumptions about the assets and liabilities of
such entities are required. In most cases, the fair value of the
assets of the consolidated entities has been assumed to be the
remaining contractual purchase price of the land or lots we are
purchasing. In these cases, it is assumed that the entities have
no debt obligations and the only asset recorded is the land or
lots we have the option to buy with a related offset to minority
interest for the assumed third party investment in the variable
interest entity. Creditors, if any, of these variable interest
entities have no recourse against us.
Warranty Costs We have established warranty
reserves by charging cost of sales and crediting a warranty
liability for each home closed. We estimate the amounts charged
to be adequate to cover expected warranty-related costs for
materials and labor required under one- and ten-year warranty
obligation periods. The one-year warranty is comprehensive for
all parts and labor; the ten-year period is for major
construction defects. Our warranty cost accruals are based upon
our historical warranty cost experience in each market in which
we operate and are adjusted as appropriate to reflect
qualitative risks associated with the type of homes we build and
the geographic areas in which we build them. Actual future
warranty costs could differ from our currently estimated
amounts. A 10% change in the historical warranty rates used to
estimate our warranty accrual would not result in a material
change in our accrual.
Insurance Claim Costs We have, and require
the majority of our subcontractors to have, general liability
insurance (including construction defect coverage) and workers
compensation insurance. These insurance policies protect us
against a portion of our risk of loss from claims, subject to
certain self-insured retentions, deductibles and other coverage
limits. In some states where we believe it is too difficult or
expensive for our subcontractors to obtain general liability
insurance, we have waived our traditional subcontractor general
liability insurance requirements to obtain lower bids from
subcontractors. We self-insure a portion of our overall risk,
partially through the use of a captive insurance entity which
issues a general liability policy to us, naming some
subcontractors as additional insureds.
We record expenses and liabilities for costs to cover our
self-insured and deductible amounts under our insurance policies
and for any estimated costs of claims and lawsuits in excess of
our coverage limits or not covered by our policies, based on an
analysis of our historical claims, which includes an estimate of
construction defect claims incurred but not yet reported.
Projection of losses related to these liabilities is subject to
a high degree of variability due to uncertainties such as trends
in construction defect claims relative to our markets and the
types of products we build, claim settlement patterns, insurance
industry practices and legal interpretations, among others.
Because of the high degree of judgment required in determining
these estimated liability amounts, actual future costs could
differ significantly from our currently estimated amounts. A 10%
change in the claim rate or the average cost per claim used to
estimate the self-insured accruals would not result in a
material change in our accrual.
Goodwill We adopted SFAS No. 142 at
the beginning of fiscal 2002. Under its provisions, we are no
longer permitted to amortize goodwill to earnings. Such amounts
are recorded on our balance sheet under the caption
Goodwill. SFAS No. 142 requires companies
to periodically assess recorded goodwill amounts for the purpose
of determining whether any impairments have occurred and need to
be recorded. We have measured the fair value of our reporting
units using a discounted cash flow model and determined that the
fair value of our reporting units is greater than their book
value and therefore no impairment of goodwill exists. We
regularly evaluate whether events and circumstances have
occurred that indicate the remaining balance of goodwill may not
be recoverable. The goodwill assessment procedures required by
SFAS No. 142 require management to make comprehensive
estimates of future revenues and costs. Due to the uncertainties
associated with such estimates, actual results could differ from
such estimates.
22
Income Taxes We calculate a provision for
income taxes using the asset and liability method, under which
deferred tax assets and liabilities are recognized by
identifying the temporary differences arising from the different
treatment of items for tax and accounting purposes. In
determining the future tax consequences of events that have been
recognized in our financial statements or tax returns, judgment
is required. Differences between the anticipated and actual
outcomes of these future tax consequences could have a material
impact on our consolidated results of operations or financial
position.
In December 2004, the FASB issued Staff Position 109-1,
Application of FASB Statement No. 109, Accounting
for Income Taxes, to the Tax Deduction on Qualified
Production Activities Provided by the American Jobs Creation Act
of 2004 (FSP 109-1). The American Jobs Creation Act, which
was signed into law in October 2004, provides a tax deduction on
qualified domestic production activities. When fully phased-in,
the deduction will be up to 9% of the lesser of qualified
production activities income or taxable income. Based on
the guidance provided by FSP 109-1, this deduction should be
accounted for as a special deduction under
SFAS No. 109 and will reduce tax expense in the period
or periods that the amounts are deductible on the tax return.
The tax benefit resulting from the new deduction will be
effective beginning in our first quarter of fiscal year 2006. We
are evaluating the impact of this law on our future financial
statements, and we currently estimate the future reduction in
our federal income tax rate to be in the range of 0.50% to 0.75%.
Stock-based Compensation With the approval of
our compensation committee, consisting of independent members of
our Board of Directors, we from time to time issue to employees
and directors options to purchase our common stock. The
committee approves grants only out of amounts remaining
available for grant from amounts formally authorized by our
common stockholders. We typically grant approved options with
exercise prices equal to the market price of our common stock on
the date of the option grant. The majority of the options
granted vest ratably over a ten-year period. We account for
options under the provisions of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and, accordingly, recognize no
compensation expense for the grants. SFAS No. 123
Accounting for Stock-Based Compensation, and
SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure, an amendment
of FASB Statement No. 123, require us to disclose the
effects on net income and diluted net income per share had we
recorded compensation expense in accordance with
SFAS No. 123. The SFAS No. 123 requirements
applied only to options granted after its effective date.
In December 2004, the FASB issued SFAS No. 123(R),
Share-Based Payment. This statement, which replaces
SFAS No. 123 and supersedes APB Opinion No. 25,
requires that companies measure and recognize compensation
expense at an amount equal to the fair value of share-based
payments granted under compensation arrangements. The statement
is effective beginning in our first quarter of fiscal year 2006.
We have evaluated the impact of the adoption of
SFAS No. 123(R), and we have determined that it will
not have a material impact on our consolidated financial
position, results of operations or cash flows.
Results of Operations Fiscal Year 2005
Overview
We generated significant increases in revenues and earnings
during the fiscal year ended September 30, 2005, driven
primarily by the continued growth of our homebuilding operations
and by significant improvements in homebuilding profit margins.
The demand from first-time and move-up homebuyers in the United
States was favorable during fiscal 2005, as national new home
sales remained at a historically high level. Additionally, low
mortgage rates continued to be a positive influence on housing
demand during fiscal 2005.
However, we believe that the primary drivers of housing demand
were local in nature, related to the strength of market-specific
economic factors such as local job growth, unemployment rates
and income growth. Additionally, we believe that the supply of
new homes was significantly affected by local factors, such as
government approval processes and the availability of land and
lots suitable for residential construction. In a number of
markets, increasingly difficult and lengthy governmental
approval processes have limited the supply of new housing, which
has contributed to new home price appreciation. Due to
23
such local factors, housing demand and supply has varied
significantly among markets, which has created differing
competitive dynamics for homebuilders in each individual market.
Due in part to these factors, the overall U.S. homebuilding
industry remains highly fragmented. However, the industry
consolidation that began in the early 1990s continued in 2005.
In 2005, we continued to execute our strategy of generating
consistent, profitable growth through gaining market share,
increasing capital allocated to strong homebuilding markets and
capitalizing on our national, regional and local scale to
improve our material, labor and capital cost structures.
Key financial highlights for our fiscal year ended
September 30, 2005 were as follows:
|
|
|
|
|
Homebuilding revenues increased by 28% in fiscal 2005 and the
value of net sales orders grew by 28%. |
|
|
|
Homebuilding operating margins increased by 250 basis
points during fiscal 2005 due to improvements in homebuilding
gross margins and control of overhead costs. |
|
|
|
Homebuilding pre-tax income increased 51% in fiscal 2005,
reflecting a 42% increase in homebuilding gross profit, while
overhead costs increased only 28%. |
|
|
|
Our sales order backlog at September 30, 2005 was
$5.8 billion, a fiscal year-end record and 28% higher than
our backlog at September 30, 2004. |
|
|
|
Net homebuilding debt to total capital, which is calculated as
homebuilding notes payable net of cash divided by total capital
(homebuilding notes payable net of cash plus stockholders
equity), was 32.2% at September 30, 2005, an improvement of
670 basis points from the prior year, and an all-time low
for the Company. |
|
|
|
Financial Services Operations: |
|
|
|
|
|
Total financial services revenues increased 29% in fiscal 2005,
driven by the growth in our homebuilding business and an
increase in the percentage of our homes closed that were served
by DHI Mortgage compared to fiscal 2004. |
|
|
|
Financial services pre-tax income increased by 41% in fiscal
2005, due to increased revenue from loan production and title
closings, leveraging our financial services overhead costs and
controlling our operating costs. |
|
|
|
|
|
Net income increased 51% in fiscal 2005, due to the significant
growth in consolidated revenues and improvements in homebuilding
and financial services operating margins. |
|
|
|
Diluted earnings per share increased 50% in fiscal 2005. |
|
|
|
The effective income tax rate for fiscal 2005 was 38.2%, as
compared to 38.4% in fiscal 2004 and 37.9% in fiscal 2003. The
increases in our effective income tax rates in 2005 and 2004 as
compared with 2003 were due primarily to increases in pre-tax
income in states with higher state income tax rates. |
Our operating strategy for fiscal 2006 is to take advantage of
opportunities to grow our homebuilding business profitability
through capturing greater market share, while continuing to
maintain a strong balance sheet. We plan to execute our growth
strategy primarily by investing our available capital in our
existing homebuilding markets through our capital allocation
process and entering satellite markets as opportunities are
available. However, we will continue to evaluate homebuilding
acquisition opportunities as they arise. To the extent that
additional capital is available in excess of amounts we choose
to invest in our homebuilding operations, we will consider
directing such capital toward alternative uses, including stock
24
repurchases, as market conditions or other circumstances may
warrant, within the constraints of our balance sheet leverage
targets and the restrictions in our bank agreements and
indentures.
Results of Operations Homebuilding
|
|
|
Fiscal Year Ended September 30, 2005 Compared to
Fiscal Year Ended September 30, 2004 |
The following tables set forth key operating and financial data
for our homebuilding operations by geographic region as of and
for the fiscal years ended September 30, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales Orders | |
|
|
Fiscal Years Ended September 30, | |
|
|
| |
|
|
Homes Sold | |
|
Value (In millions) | |
|
Average Selling Price | |
|
|
| |
|
| |
|
| |
|
|
|
|
% | |
|
|
|
% | |
|
|
|
% | |
|
|
2005 | |
|
2004 | |
|
Change | |
|
2005 | |
|
2004 | |
|
Change | |
|
2005 | |
|
2004 | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Mid-Atlantic
|
|
|
5,072 |
|
|
|
4,032 |
|
|
|
26 |
% |
|
$ |
1,342.7 |
|
|
$ |
1,009.7 |
|
|
|
33 |
% |
|
$ |
264,700 |
|
|
$ |
250,400 |
|
|
|
6 |
% |
Midwest
|
|
|
3,093 |
|
|
|
2,261 |
|
|
|
37 |
% |
|
|
821.5 |
|
|
|
634.5 |
|
|
|
29 |
% |
|
|
265,600 |
|
|
|
280,600 |
|
|
|
(5 |
)% |
Southeast
|
|
|
8,181 |
|
|
|
6,301 |
|
|
|
30 |
% |
|
|
2,036.3 |
|
|
|
1,375.8 |
|
|
|
48 |
% |
|
|
248,900 |
|
|
|
218,300 |
|
|
|
14 |
% |
Southwest
|
|
|
21,375 |
|
|
|
18,146 |
|
|
|
18 |
% |
|
|
4,227.8 |
|
|
|
3,086.7 |
|
|
|
37 |
% |
|
|
197,800 |
|
|
|
170,100 |
|
|
|
16 |
% |
West
|
|
|
15,511 |
|
|
|
14,523 |
|
|
|
7 |
% |
|
|
6,215.1 |
|
|
|
5,299.5 |
|
|
|
17 |
% |
|
|
400,700 |
|
|
|
364,900 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,232 |
|
|
|
45,263 |
|
|
|
18 |
% |
|
$ |
14,643.4 |
|
|
$ |
11,406.2 |
|
|
|
28 |
% |
|
$ |
275,100 |
|
|
$ |
252,000 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Order Backlog | |
|
|
As of September 30, | |
|
|
| |
|
|
Homes in Backlog | |
|
Value (In millions) | |
|
Average Selling Price | |
|
|
| |
|
| |
|
| |
|
|
|
|
% | |
|
|
|
% | |
|
|
|
% | |
|
|
2005 | |
|
2004 | |
|
Change | |
|
2005 | |
|
2004 | |
|
Change | |
|
2005 | |
|
2004 | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Mid-Atlantic
|
|
|
2,516 |
|
|
|
1,740 |
|
|
|
45 |
% |
|
$ |
747.7 |
|
|
$ |
492.2 |
|
|
|
52 |
% |
|
$ |
297,200 |
|
|
$ |
282,900 |
|
|
|
5 |
% |
Midwest
|
|
|
1,361 |
|
|
|
861 |
|
|
|
58 |
% |
|
|
402.2 |
|
|
|
269.7 |
|
|
|
49 |
% |
|
|
295,500 |
|
|
|
313,200 |
|
|
|
(6 |
)% |
Southeast
|
|
|
3,136 |
|
|
|
2,987 |
|
|
|
5 |
% |
|
|
908.4 |
|
|
|
698.6 |
|
|
|
30 |
% |
|
|
289,700 |
|
|
|
233,900 |
|
|
|
24 |
% |
Southwest
|
|
|
7,273 |
|
|
|
6,632 |
|
|
|
10 |
% |
|
|
1,665.0 |
|
|
|
1,195.3 |
|
|
|
39 |
% |
|
|
228,900 |
|
|
|
180,200 |
|
|
|
27 |
% |
West
|
|
|
4,958 |
|
|
|
4,964 |
|
|
|
|
% |
|
|
2,111.9 |
|
|
|
1,912.7 |
|
|
|
10 |
% |
|
|
426,000 |
|
|
|
385,300 |
|
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,244 |
|
|
|
17,184 |
|
|
|
12 |
% |
|
$ |
5,835.2 |
|
|
$ |
4,568.5 |
|
|
|
28 |
% |
|
$ |
303,200 |
|
|
$ |
265,900 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes Closed | |
|
|
Fiscal Years Ended September 30, | |
|
|
| |
|
|
Homes Closed | |
|
Value (In millions) | |
|
Average Selling Price | |
|
|
| |
|
| |
|
| |
|
|
|
|
% | |
|
|
|
% | |
|
|
|
% | |
|
|
2005 | |
|
2004 | |
|
Change | |
|
2005 | |
|
2004 | |
|
Change | |
|
2005 | |
|
2004 | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Mid-Atlantic
|
|
|
4,296 |
|
|
|
3,894 |
|
|
|
10 |
% |
|
$ |
1,087.1 |
|
|
$ |
888.4 |
|
|
|
22 |
% |
|
$ |
253,000 |
|
|
$ |
228,100 |
|
|
|
11 |
% |
Midwest
|
|
|
2,593 |
|
|
|
2,381 |
|
|
|
9 |
% |
|
|
688.9 |
|
|
|
643.7 |
|
|
|
7 |
% |
|
|
265,700 |
|
|
|
270,300 |
|
|
|
(2 |
)% |
Southeast
|
|
|
8,032 |
|
|
|
5,137 |
|
|
|
56 |
% |
|
|
1,826.5 |
|
|
|
1,041.3 |
|
|
|
75 |
% |
|
|
227,400 |
|
|
|
202,700 |
|
|
|
12 |
% |
Southwest
|
|
|
20,734 |
|
|
|
18,190 |
|
|
|
14 |
% |
|
|
3,758.1 |
|
|
|
3,012.3 |
|
|
|
25 |
% |
|
|
181,300 |
|
|
|
165,600 |
|
|
|
9 |
% |
West
|
|
|
15,517 |
|
|
|
13,965 |
|
|
|
11 |
% |
|
|
6,016.0 |
|
|
|
4,905.4 |
|
|
|
23 |
% |
|
|
387,700 |
|
|
|
351,300 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,172 |
|
|
|
43,567 |
|
|
|
17 |
% |
|
$ |
13,376.6 |
|
|
$ |
10,491.1 |
|
|
|
28 |
% |
|
$ |
261,400 |
|
|
$ |
240,800 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Homebuilding Operating Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
Percentages of | |
|
|
Homebuilding | |
|
|
Revenues | |
|
|
| |
|
|
Fiscal Years Ended | |
|
|
September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Gross profit Home sales
|
|
|
25.4 |
% |
|
|
22.8 |
% |
Gross profit Land/lot sales
|
|
|
35.5 |
% |
|
|
38.5 |
% |
Gross profit Total homebuilding
|
|
|
25.6 |
% |
|
|
23.1 |
% |
Selling, general and administrative expense
|
|
|
9.0 |
% |
|
|
9.0 |
% |
Interest and other (income) expense
|
|
|
(0.1 |
)% |
|
|
(0.1 |
)% |
Income before income taxes
|
|
|
16.7 |
% |
|
|
14.2 |
% |
Net sales orders represent the number and dollar value of new
sales contracts executed with customers, net of sales contract
cancellations. The value of net sales orders increased 28%, to
$14,643.4 million (53,232 homes) in 2005 from
$11,406.2 million (45,263 homes) in 2004. The overall
cancellation rates of the value of new sales contracts in 2005
and 2004 were 19% and 17%, respectively. The average price of a
net sales order in 2005 was $275,100, up 9% from the $252,000
average in 2004. The number and value of net sales orders
increased in all five of our market regions, reflecting the
successful execution of our organic growth strategies and the
overall strong demand for our homes in fiscal 2005.
All regions produced double-digit percentage increases in the
value of net sales orders during fiscal 2005, led by a 48%
increase in the Southeast region resulting from our continued
expansion of our presence in our Florida markets where housing
demand is high. The average price of net sales orders increased
in all of our regions except the Midwest, where the average
sales price was down 5% due to our efforts to offer more
lower-priced products in the Chicago market. While we continue
to increase prices in the markets where demand for our homes is
strongest, we remain focused on ensuring that our core product
offerings and prices in most of our markets remain affordable
for our core customers, typically first-time and move-up
homebuyers.
Sales order backlog represents homes under contract but not yet
closed at the end of the period. Some of the contracts in our
sales order backlog are subject to contingencies, including
mortgage loan approval, which can result in cancellations. In
the past, our backlog has been a reliable indicator of the level
of closings in our two subsequent fiscal quarters, although some
contracts in backlog will not result in closings. Historically,
our backlog conversion rates (closings during the quarter
divided by beginning of the quarter backlog), have generally
been in the range between 50% and 75%, with the highest
quarterly conversion rate of each fiscal year typically
occurring in the fourth quarter.
At September 30, 2005, the value of our backlog of sales
orders was $5,835.2 million (19,244 homes), up 28% from
$4,568.5 million (17,184 homes) at September 30, 2004.
The average sales price of homes in backlog was $303,200 at
September 30, 2005, up 14% from the $265,900 average at
September 30, 2004. The value of our sales order backlog
increased in all five of our market regions, led by increases of
52% in our Mid-Atlantic region, where we have significantly
increased our capital investment, and 49% in our Midwest region,
where sales in our Chicago market were especially strong in
2005. The average selling price of homes in backlog increased in
four of our five market regions, with the largest increases
occurring in our Southeast and Southwest regions, where
generally strong demand for our homes allowed us to increase
prices. The average sales price in the Midwest was down 6% due
to the strong market acceptance of recently introduced, more
affordably priced products in the Chicago market.
Revenues from home sales increased 28%, to
$13,376.6 million (51,172 homes closed) in 2005 from
$10,491.1 million (43,567 homes closed) in 2004. Revenues
from home sales increased by more than 20% and the number of
homes closed increased by 10% or more in four of our five market
regions. These results reflect the successful execution of our
growth strategies, continued strength in demand for new
26
homes and our homebuilding divisions ability to
efficiently deliver homes in backlog to homebuyers. The average
selling price of homes we closed during 2005 was $261,400, up 9%
from $240,800 in 2004. The average selling price of homes closed
increased by 9% or more in four of our five market regions. The
average selling price of homes closed in our Midwest region
decreased by 2% due to our offerings of more affordable products
in the Chicago market. Revenues from home sales in fiscal 2005
were reduced by a $92.2 million deferral of gross profit at
September 30, 2005, in accordance with SFAS 66.
Total homebuilding gross profit increased by 42%, to
$3,488.3 million in 2005 from $2,460.7 million in
2004. Including sales of both homes and land/lots, total
homebuilding gross profit as a percentage of homebuilding
revenues increased 250 basis points, to 25.6% in 2005 from
23.1% in 2004. Gross profit from home sales as a percentage of
home sales revenues increased 260 basis points, to 25.4% in
2005 from 22.8% in 2004. This gross profit improvement is
attributable to our ability to increase home prices in many of
our markets; our ongoing efforts to control and reduce
construction costs through our local, regional and national
purchasing efforts; our ongoing re-allocation of capital to our
more profitable markets and a decrease in the capitalized
interest amortized to cost of sales attributable to our
homebuilding leverage ratio improvement and our debt refinancing
efforts over the past two years.
SG&A expenses from homebuilding activities increased by 28%,
to $1,226.6 million in 2005 from $959.0 million in
2004. As a percentage of revenues, SG&A expenses were 9.0%
in both years.
Interest incurred related to homebuilding debt increased by 17%,
to $277.3 million in 2005 from $236.7 million in 2004,
while our average daily homebuilding debt increased 26% in 2005
from 2004. The percentage increase in our average homebuilding
debt was higher than the percentage increase in our interest
incurred due to the March 2004 restructuring of our unsecured
revolving credit facility which resulted in lower borrowing
costs throughout 2005, and due to our efforts over the past two
fiscal years to replace some of our higher interest rate notes
with notes bearing lower interest rates.
We capitalize interest costs only to inventory under
construction or development. During both fiscal years, our
inventory under construction or development exceeded our
interest-bearing debt; therefore, we capitalized all interest
from homebuilding debt except for the unamortized discounts,
premiums and fees related to debt we paid off prior to maturity.
Interest amortized to cost of sales decreased by 10%, to
$225.0 million in 2005 from $249.0 million in 2004.
This reduction in interest amortized to total cost of sales is a
direct result of the reductions in our homebuilding leverage and
our debt refinancing efforts over the last two years.
Other income, net of other expenses, associated with
homebuilding activities was $15.7 million in 2005, compared
to $9.9 million in 2004. The major component of other
income in both 2005 and 2004 was the increase in the fair value
of our interest rate swaps of $9.5 million and
$8.1 million, respectively. Also included in other income
in 2005 and 2004 was interest income of $3.9 million and
$2.2 million, respectively.
27
|
|
|
Fiscal Year Ended September 30, 2004 Compared to
Fiscal Year Ended September 30, 2003 |
The following tables set forth key operating and financial data
for our homebuilding operations by geographic region as of and
for the fiscal years ended September 30, 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales Orders | |
|
|
Fiscal Years Ended September 30, | |
|
|
| |
|
|
Homes Sold | |
|
Value (In millions) | |
|
Average Selling Price | |
|
|
| |
|
| |
|
| |
|
|
|
|
% | |
|
|
|
% | |
|
|
|
% | |
|
|
2004 | |
|
2003 | |
|
Change | |
|
2004 | |
|
2003 | |
|
Change | |
|
2004 | |
|
2003 | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Mid-Atlantic
|
|
|
4,032 |
|
|
|
3,594 |
|
|
|
12 |
% |
|
$ |
1,009.7 |
|
|
$ |
780.8 |
|
|
|
29 |
% |
|
$ |
250,400 |
|
|
$ |
217,300 |
|
|
|
15 |
% |
Midwest
|
|
|
2,261 |
|
|
|
2,067 |
|
|
|
9 |
% |
|
|
634.5 |
|
|
|
553.6 |
|
|
|
15 |
% |
|
|
280,600 |
|
|
|
267,800 |
|
|
|
5 |
% |
Southeast
|
|
|
6,301 |
|
|
|
4,528 |
|
|
|
39 |
% |
|
|
1,375.8 |
|
|
|
863.3 |
|
|
|
59 |
% |
|
|
218,300 |
|
|
|
190,700 |
|
|
|
14 |
% |
Southwest
|
|
|
18,146 |
|
|
|
15,699 |
|
|
|
16 |
% |
|
|
3,086.7 |
|
|
|
2,614.7 |
|
|
|
18 |
% |
|
|
170,100 |
|
|
|
166,600 |
|
|
|
2 |
% |
West
|
|
|
14,523 |
|
|
|
12,837 |
|
|
|
13 |
% |
|
|
5,299.5 |
|
|
|
4,349.9 |
|
|
|
22 |
% |
|
|
364,900 |
|
|
|
338,900 |
|
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,263 |
|
|
|
38,725 |
|
|
|
17 |
% |
|
$ |
11,406.2 |
|
|
$ |
9,162.3 |
|
|
|
24 |
% |
|
$ |
252,000 |
|
|
$ |
236,600 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Order Backlog | |
|
|
As of September 30, | |
|
|
| |
|
|
Homes in Backlog | |
|
Value (In millions) | |
|
Average Selling Price | |
|
|
| |
|
| |
|
| |
|
|
|
|
% | |
|
|
|
% | |
|
|
|
% | |
|
|
2004 | |
|
2003 | |
|
Change | |
|
2004 | |
|
2003 | |
|
Change | |
|
2004 | |
|
2003 | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Mid-Atlantic
|
|
|
1,740 |
|
|
|
1,602 |
|
|
|
9 |
% |
|
$ |
492.2 |
|
|
$ |
370.9 |
|
|
|
33 |
% |
|
$ |
282,900 |
|
|
$ |
231,500 |
|
|
|
22 |
% |
Midwest
|
|
|
861 |
|
|
|
981 |
|
|
|
(12 |
)% |
|
|
269.7 |
|
|
|
278.9 |
|
|
|
(3 |
)% |
|
|
313,200 |
|
|
|
284,300 |
|
|
|
10 |
% |
Southeast
|
|
|
2,987 |
|
|
|
1,823 |
|
|
|
64 |
% |
|
|
698.6 |
|
|
|
364.1 |
|
|
|
92 |
% |
|
|
233,900 |
|
|
|
199,700 |
|
|
|
17 |
% |
Southwest
|
|
|
6,632 |
|
|
|
6,676 |
|
|
|
(1 |
)% |
|
|
1,195.3 |
|
|
|
1,120.9 |
|
|
|
7 |
% |
|
|
180,200 |
|
|
|
167,900 |
|
|
|
7 |
% |
West
|
|
|
4,964 |
|
|
|
4,406 |
|
|
|
13 |
% |
|
|
1,912.7 |
|
|
|
1,518.6 |
|
|
|
26 |
% |
|
|
385,300 |
|
|
|
344,700 |
|
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,184 |
|
|
|
15,488 |
|
|
|
11 |
% |
|
$ |
4,568.5 |
|
|
$ |
3,653.4 |
|
|
|
25 |
% |
|
$ |
265,900 |
|
|
$ |
235,900 |
|
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes Closed | |
|
|
Fiscal Years Ended September 30, | |
|
|
| |
|
|
Homes Closed | |
|
Value (In millions) | |
|
Average Selling Price | |
|
|
| |
|
| |
|
| |
|
|
|
|
% | |
|
|
|
% | |
|
|
|
% | |
|
|
2004 | |
|
2003 | |
|
Change | |
|
2004 | |
|
2003 | |
|
Change | |
|
2004 | |
|
2003 | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Mid-Atlantic
|
|
|
3,894 |
|
|
|
3,245 |
|
|
|
20 |
% |
|
$ |
888.4 |
|
|
$ |
674.8 |
|
|
|
32 |
% |
|
$ |
228,100 |
|
|
$ |
208,000 |
|
|
|
10 |
% |
Midwest
|
|
|
2,381 |
|
|
|
2,002 |
|
|
|
19 |
% |
|
|
643.7 |
|
|
|
513.2 |
|
|
|
25 |
% |
|
|
270,300 |
|
|
|
256,300 |
|
|
|
5 |
% |
Southeast
|
|
|
5,137 |
|
|
|
4,374 |
|
|
|
17 |
% |
|
|
1,041.3 |
|
|
|
773.9 |
|
|
|
35 |
% |
|
|
202,700 |
|
|
|
176,900 |
|
|
|
15 |
% |
Southwest
|
|
|
18,190 |
|
|
|
14,209 |
|
|
|
28 |
% |
|
|
3,012.3 |
|
|
|
2,381.5 |
|
|
|
26 |
% |
|
|
165,600 |
|
|
|
167,600 |
|
|
|
(1 |
)% |
West
|
|
|
13,965 |
|
|
|
12,104 |
|
|
|
15 |
% |
|
|
4,905.4 |
|
|
|
3,990.7 |
|
|
|
23 |
% |
|
|
351,300 |
|
|
|
329,700 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,567 |
|
|
|
35,934 |
|
|
|
21 |
% |
|
$ |
10,491.1 |
|
|
$ |
8,334.1 |
|
|
|
26 |
% |
|
$ |
240,800 |
|
|
$ |
231,900 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Homebuilding Operating Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
Percentages of | |
|
|
Homebuilding | |
|
|
Revenues | |
|
|
| |
|
|
Fiscal Years Ended | |
|
|
September 30, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Gross profit Home sales
|
|
|
22.8 |
% |
|
|
20.6 |
% |
Gross profit Land/lot sales
|
|
|
38.5 |
% |
|
|
15.3 |
% |
Gross profit Total homebuilding
|
|
|
23.1 |
% |
|
|
20.4 |
% |
Selling, general and administrative expense
|
|
|
9.0 |
% |
|
|
9.6 |
% |
Interest and other (income) expense
|
|
|
(0.1 |
)% |
|
|
0.2 |
% |
Income before income taxes
|
|
|
14.2 |
% |
|
|
10.7 |
% |
The value of net sales orders increased 24%, to
$11,406.2 million (45,263 homes) in 2004 from
$9,162.3 million (38,725 homes) in 2003. The overall
cancellation rates of the value of new sales contracts in 2004
and 2003 were 17% and 18%, respectively. The average price of a
net sales order in 2004 was $252,000, up 7% from the $236,600
average in 2003. The number of homes sold, value and the average
price of net sales orders increased in each of our market
regions during 2004 due to the successful execution of our
growth strategies and generally strong demand for our homes in
all of our market regions. The largest increases in the value of
net sales orders occurred in the Southeast and Mid-Atlantic
regions, which was the result of our efforts to significantly
increase our presence in our Florida, Virginia and Maryland
markets. The increase in our average selling price reflected our
ability to increase prices in the markets where demand for our
homes was strongest in 2004, while we continued our efforts to
ensure that our product offerings and prices in most of our
markets remain affordable for our target customers, typically
first-time and move-up homebuyers.
At September 30, 2004, the value of our backlog of sales
orders was $4,568.5 million (17,184 homes), up 25% from
$3,653.4 million (15,488 homes) at September 30, 2003.
The average sales price of homes in backlog was $265,900 at
September 30, 2004, up 13% from the $235,900 average at
September 30, 2003. The value of our sales order backlog
increased in four of our five market regions, led by a 92%
increase in the Southeast region, which was a result of our
efforts to significantly increase our presence in our Florida
markets. The average selling price of homes in backlog increased
in all of our market regions, reflecting the generally strong
demand for our homes in fiscal 2004 which allowed us to increase
prices.
Revenues from home sales increased 26%, to
$10,491.1 million (43,567 homes closed) in 2004 from
$8,334.1 million (35,934 homes closed) in 2003. Revenues
from home sales increased by more than 20% in all of our five
market regions, and the number of homes closed increased by 15%
or more in all market regions, reflecting the successful
execution of our growth strategies and our homebuilding
divisions ability to efficiently deliver homes in backlog
to homebuyers. The average selling price of homes we closed
during 2004 was $240,800, up 4% from $231,900 in 2003. The
average selling price of homes closed increased in four of our
five market regions, with the largest increases occurring in the
Southeast and Mid-Atlantic regions.
Total homebuilding gross profit increased by 41%, to
$2,460.7 million in 2004 from $1,746.3 million in
2003. Including sales of both homes and land/lots, total
homebuilding gross profit as a percentage of homebuilding
revenues increased 270 basis points, to 23.1% in 2004 from
20.4% in 2003. Gross profit from home sales as a percentage of
home sales revenues increased 220 basis points, to 22.8% in
2004 from 20.6% in 2003, which was attributable to our ability
to increase home prices due to strong demand for our homes in
many of our markets in 2004 and our ongoing efforts to control
and reduce construction costs as we achieve greater economies of
scale.
SG&A expenses from homebuilding activities increased by 17%,
to $959.0 million in 2004 from $817.0 million in 2003.
As a percentage of revenues, SG&A expenses decreased
60 basis points, to 9.0% in 2004 from 9.6% in 2003. The
improvement in SG&A expenses as a percentage of revenues was
29
attributable to our ongoing cost control efforts and our ability
to generate higher revenue levels that better leveraged our
existing fixed SG&A expenses in 2004.
Interest incurred related to homebuilding debt decreased by 1%,
to $236.7 million in 2004 from $239.5 million in 2003.
Our average homebuilding debt increased 5% in 2004 from 2003;
however, we replaced certain of our higher interest rate notes
with notes bearing lower interest rates, and we restructured and
amended our unsecured revolving credit facility, which lowered
our interest costs, resulting in this slight decrease in
interest incurred in 2004.
We capitalize interest costs only to inventory under
construction or development. During both years, our inventory
under construction or development exceeded our interest-bearing
debt; therefore, we capitalized all interest from homebuilding
debt except for the unamortized discounts and fees related to
debt we paid off prior to maturity. Interest amortized to cost
of sales increased by 13% to $249.0 million in 2004 from
$219.4 million in 2003. This increase was attributable to a
20% increase in total cost of sales, partially offset by the
effects of the decline in interest incurred.
Other income associated with homebuilding activities was
$9.9 million in 2004, compared to other expense of
$9.4 million in 2003. The major component of other income
in 2004 was an increase in the fair value of our interest rate
swaps of $8.1 million. The major component of other expense
in 2003 was $11.8 million of minority interests in the
income of our consolidated joint ventures.
30
Results of Operations Financial Services
|
|
|
Fiscal Year Ended September 30, 2005 Compared to
Fiscal Year Ended September 30, 2004 |
The following tables set forth key operating and financial data
for our financial services operations, comprising DHI Mortgage
and our subsidiary title companies, for the fiscal years ended
September 30, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
% Change | |
|
|
| |
|
| |
|
| |
Number of first-lien loans originated or brokered by DHI
Mortgage for D.R. Horton homebuyers
|
|
|
32,404 |
|
|
|
26,387 |
|
|
|
23% |
|
Number of homes closed by D.R. Horton
|
|
|
51,172 |
|
|
|
43,567 |
|
|
|
17% |
|
Mortgage capture rate
|
|
|
63% |
|
|
|
61% |
|
|
|
|
|
Number of total loans originated or brokered by DHI Mortgage for
D.R. Horton homebuyers
|
|
|
43,581 |
|
|
|
30,801 |
|
|
|
41% |
|
Total number of loans originated or brokered by DHI Mortgage
|
|
|
46,648 |
|
|
|
33,621 |
|
|
|
39% |
|
Captive business percentage
|
|
|
93% |
|
|
|
92% |
|
|
|
|
|
Loans sold by DHI Mortgage to third parties
|
|
|
35,962 |
|
|
|
28,173 |
|
|
|
28% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Loan origination fees
|
|
$ |
40.0 |
|
|
$ |
35.4 |
|
|
|
13 |
% |
Sale of servicing rights and gains from sale of mortgages
|
|
|
113.5 |
|
|
|
87.5 |
|
|
|
30 |
% |
Other revenues
|
|
|
32.7 |
|
|
|
23.2 |
|
|
|
41 |
% |
|
|
|
|
|
|
|
|
|
|
Total mortgage banking revenues
|
|
|
186.2 |
|
|
|
146.1 |
|
|
|
27 |
% |
Title policy premiums, net
|
|
|
48.9 |
|
|
|
36.7 |
|
|
|
33 |
% |
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
235.1 |
|
|
|
182.8 |
|
|
|
29 |
% |
General and administrative expenses
|
|
|
147.6 |
|
|
|
121.0 |
|
|
|
22 |
% |
Interest expense
|
|
|
16.8 |
|
|
|
5.9 |
|
|
|
185 |
% |
Other (income)
|
|
|
(34.9 |
) |
|
|
(18.8 |
) |
|
|
86 |
% |
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$ |
105.6 |
|
|
$ |
74.7 |
|
|
|
41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentages of | |
|
|
Financial | |
|
|
Services | |
|
|
Revenues | |
|
|
| |
|
|
Fiscal Years Ended | |
|
|
September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
General and administrative expense
|
|
|
62.8 |
% |
|
|
66.2 |
% |
Interest expense
|
|
|
7.1 |
% |
|
|
3.2 |
% |
Other (income)
|
|
|
(14.8 |
)% |
|
|
(10.3 |
)% |
Income before income taxes
|
|
|
44.9 |
% |
|
|
40.9 |
% |
The volume of loans originated and brokered by our mortgage
operations is directly related to the number and value of homes
closed by our homebuilding operations. Total first-lien loans
originated or brokered by DHI Mortgage for our homebuyers
increased 23% in fiscal 2005 compared to fiscal 2004, which was
greater than our 17% increase in the number of homes closed
because the percentage of total home closings from our own
homebuyers for which DHI Mortgage handled the financing (our
mortgage capture rate) increased to 63% in 2005 from 61% in
2004. Home closings from our own homebuyers
31
constituted 93% of DHI Mortgage loan originations in 2005,
compared to 92% in 2004, reflecting DHI Mortgages
continued focus on supporting the captive business provided by
our homebuilding operations. Sales of loans to third-party
investors increased 28% in 2005 as compared to 2004.
Revenues from the financial services segment increased 29%, to
$235.1 million in 2005 from $182.8 million in 2004.
The increase in financial services revenues was primarily due to
the increase in the number of mortgage loans originated and
sold, while the average mortgage revenues earned per loan sold
remained relatively constant. The majority of the revenues
associated with our mortgage operations are recognized when the
mortgage loans and related servicing rights are sold to
third-party investors.
General and administrative expenses associated with financial
services increased 22%, to $147.6 million in 2005 from
$121.0 million in 2004. As a percentage of financial
services revenues, general and administrative expenses decreased
by 340 basis points, to 62.8% in 2005 from 66.2% in 2004.
The improvement in general and administrative expenses as a
percentage of financial services revenue was due primarily to
the increase in revenues, which better leveraged our fixed costs
in 2005 as compared to 2004, and was also due to the effective
cost control efforts of our financial services operations.
|
|
|
Fiscal Year Ended September 30, 2004 Compared to
Fiscal Year Ended September 30, 2003 |
The following tables set forth key operating and financial data
for our financial services operations for the fiscal years ended
September 30, 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended September 30, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
% Change | |
|
|
| |
|
| |
|
| |
Number of first-lien loans originated or brokered by DHI
Mortgage for D.R. Horton homebuyers
|
|
|
26,387 |
|
|
|
21,744 |
|
|
|
21% |
|
Number of homes closed by D.R. Horton
|
|
|
43,567 |
|
|
|
35,934 |
|
|
|
21% |
|
Mortgage capture rate
|
|
|
61% |
|
|
|
61% |
|
|
|
|
|
Number of total loans originated or brokered by DHI Mortgage for
D.R. Horton homebuyers
|
|
|
30,801 |
|
|
|
23,808 |
|
|
|
29% |
|
Total number of loans originated or brokered by DHI Mortgage
|
|
|
33,621 |
|
|
|
29,169 |
|
|
|
15% |
|
Captive business percentage
|
|
|
92% |
|
|
|
82% |
|
|
|
|
|
Loans sold by DHI Mortgage to third parties
|
|
|
28,173 |
|
|
|
26,818 |
|
|
|
5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended September 30, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Loan origination fees
|
|
$ |
35.4 |
|
|
$ |
33.1 |
|
|
|
7 |
% |
Sale of servicing rights and gains from sale of mortgages
|
|
|
87.5 |
|
|
|
91.5 |
|
|
|
(4 |
)% |
Other revenues
|
|
|
23.2 |
|
|
|
16.9 |
|
|
|
37 |
% |
|
|
|
|
|
|
|
|
|
|
Total mortgage banking revenues
|
|
|
146.1 |
|
|
|
141.5 |
|
|
|
3 |
% |
Title policy premiums, net
|
|
|
36.7 |
|
|
|
34.5 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
182.8 |
|
|
|
176.0 |
|
|
|
4 |
% |
General and administrative expenses
|
|
|
121.0 |
|
|
|
98.3 |
|
|
|
23 |
% |
Interest expense
|
|
|
5.9 |
|
|
|
7.4 |
|
|
|
(20 |
)% |
Other (income)
|
|
|
(18.8 |
) |
|
|
(23.2 |
) |
|
|
(19 |
)% |
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$ |
74.7 |
|
|
$ |
93.5 |
|
|
|
(20 |
)% |
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
Percentages of | |
|
|
Financial | |
|
|
Services | |
|
|
Revenues | |
|
|
| |
|
|
Fiscal Years Ended | |
|
|
September 30, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
General and administrative expense
|
|
|
66.2 |
% |
|
|
55.9 |
% |
Interest expense
|
|
|
3.2 |
% |
|
|
4.2 |
% |
Other (income)
|
|
|
(10.3 |
)% |
|
|
(13.2 |
)% |
Income before income taxes
|
|
|
40.9 |
% |
|
|
53.1 |
% |
Total first-lien loans originated or brokered by DHI Mortgage
for our homebuyers increased 21% in fiscal 2004 compared to
fiscal 2003, consistent with our 21% increase in the number of
homes closed. The percentage of total home closings from our own
homebuyers which had financing handled by DHI Mortgage (our
mortgage capture rate) was 61% in both years. Home closings from
our own homebuyers constituted 92% of DHI Mortgage loan
originations in 2004, compared to 82% in 2003, reflecting a
decrease in the number of refinance loans originated in 2004.
Sales of loans to third-party investors increased 5% in 2004 as
compared to 2003.
Revenues from the financial services segment increased 4%, to
$182.8 million in 2004 from $176.0 million in 2003.
The increase in financial services revenues was primarily due to
an increase in the number of mortgage loan originations to
customers of our homebuilding operations and sold to third-party
investors, offset by a decline in the average mortgage revenues
earned per loan sold. The decrease in the average mortgage
revenues earned per loan was primarily due to a shift in the
product mix of mortgage loans originated and sold from higher
margin fixed-rate loans to lower margin adjustable-rate loans,
and increased competition due to excess capacity in the mortgage
industry, which reduced the margins on all mortgage loans in
2004.
General and administrative expenses associated with financial
services increased 23%, to $121.0 million in 2004 from
$98.3 million in 2003. As a percentage of financial
services revenues, general and administrative expenses increased
to 66.2% in 2004 from 55.9% in 2003. The increase in general and
administrative expenses as a percentage of financial services
revenue and the related decrease in income before income taxes
were due primarily to the decline in average mortgage revenues
earned per loan and increased costs associated with
strengthening our financial services infrastructure to support
our growing homebuilding business and expanding our mortgage
operations into California.
Capital Resources and Liquidity
We fund our homebuilding and financial services operations with
cash flows from operating activities, borrowings under our bank
credit facilities and the issuance of new debt securities. As we
utilize our capital resources and liquidity to fund the growth
of our operations, we have focused on maintaining strong balance
sheet leverage ratios.
At September 30, 2005, our ratio of net homebuilding debt
to total capital was 32.2%, an improvement of 670 basis
points from 38.9% at September 30, 2004. Net homebuilding
debt to total capital consists of homebuilding notes payable net
of cash divided by total capital (homebuilding notes payable net
of cash plus stockholders equity). The improvement
reflects a 35% increase in stockholders equity, while net
homebuilding debt increased only 1%. Our operating target range
for net homebuilding debt to total capital is below 45%, so the
32.2% ratio at September 30, 2005 is well below our
targeted operating leverage level. Future fiscal year-end net
homebuilding debt to total capital ratios may be higher than the
fiscal 2005 year-end ratio.
We believe that the ratio of net homebuilding debt to total
capital is useful in understanding the leverage employed in our
homebuilding operations and comparing us with other
homebuilders. We exclude the debt of our financial services
business because the business is separately capitalized, its
debt is
33
substantially collateralized and our financial services debt is
not guaranteed by our parent company or any of our homebuilding
entities. We include cash because of its capital function. For
comparison, at September 30, 2005 and 2004, our ratios of
homebuilding debt to total capital were 40.6% and 43.2%,
respectively.
We believe that we will be able to continue to fund our
homebuilding and financial services operations and our future
cash needs (including debt maturities) through a combination of
our existing cash resources, cash flows from operations, our
existing or renewed credit facilities and the issuance of new
debt securities through the public debt markets.
|
|
|
Homebuilding Capital Resources |
Cash At September 30, 2005, our
available homebuilding cash and cash equivalents amounted to
$1,111.6 million.
Bank Credit Facility We have a
$1.21 billion unsecured revolving credit facility, which
includes a $350 million letter of credit sub-facility, that
matures on March 25, 2008. The facility is guaranteed by
substantially all of our wholly-owned subsidiaries other than
our financial services subsidiaries. We borrow funds through the
revolving credit facility throughout the year to fund working
capital requirements, and we repay such borrowings with cash
generated from our operations and from the issuance of public
debt securities.
We had no outstanding cash borrowings on our homebuilding
revolving credit facility at September 30, 2005 and 2004.
Under the debt covenants associated with our revolving credit
facility, when we have fewer than two investment grade senior
unsecured debt ratings from Moodys Investors Service,
Fitch Ratings and Standard and Poors Corporation, our
additional homebuilding borrowing capacity under the facility is
limited to the lesser of the unused portion of the facility,
$1.09 billion at September 30, 2005, or an amount
determined under a borrowing base arrangement. Under the
borrowing base limitation, the sum of our senior debt and the
amount drawn on our revolving credit facility may not exceed
certain percentages of the various categories of our
unencumbered inventory. At September 30, 2005, the
borrowing base arrangement would have limited our additional
borrowing capacity from any source to $2.5 billion.
Effective November 7, 2005, we now have the two required
debt ratings, so the borrowing base limitation is not currently
in effect. At September 30, 2005, we were in compliance
with all of the covenants, limitations and restrictions that
form a part of our public debt obligations and our bank
revolving credit facility.
We are currently in negotiations to re-finance our revolving
credit facility, which we expect will extend the maturity date
and increase the capacity of the facility, lower the interest
rate spread we must pay on borrowings under the facility and
slightly revise certain other terms, covenants, limitations and
restrictions under the facility. We expect the new revolving
credit facility to be completed and in effect by
December 31, 2005.
Shelf Registration Statements At
September 30, 2005, we had the capacity to issue new debt
or equity securities amounting to $3.0 billion under our
universal shelf registration statement. Also, at
September 30, 2005, we had the capacity to issue
approximately 22.5 million shares of common stock under our
acquisition shelf registration statement, to effect, in whole or
in part, possible future business acquisitions.
Debt Repayments On April 1, 2005, we
repaid the $200 million principal amount of our
10.5% senior notes which became due on that date.
On July 15, 2005, we redeemed the $235 million
principal amount of our 9.375% senior notes due 2009 at an
aggregate redemption price of approximately $246 million,
plus accrued interest. The notes were originally issued by
Schuler Homes, Inc. and were assumed by us in our merger with
Schuler in February 2002. Concurrent with the redemption, we
recorded interest expense of approximately $4.4 million,
representing the call premium net of the unamortized premium
related to the redeemed notes.
34
|
|
|
Financial Services Capital Resources |
Cash At September 30, 2005, we had
available financial services cash and cash equivalents of
$38.2 million.
Mortgage Warehouse Loan Facility Our mortgage
subsidiary renewed and amended its $300 million mortgage
warehouse loan facility in April 2005, increasing the amount
that may be borrowed under the uncommitted accordion provisions
to $150 million and extending its maturity to April 7,
2006. Our borrowing capacity under this facility is limited to
the lesser of the unused portion of the facility, as adjusted by
the accordion provisions or otherwise by agreement of the
parties, or an amount determined under a borrowing base
arrangement. Under the borrowing base limitation, the amount
drawn on our mortgage warehouse loan facility may not exceed 98%
of all eligible mortgage loans held for sale and made available
to the lenders to secure any borrowings under the facility.
Through amendment to the credit agreement in June 2005, we
obtained additional commitments from our lenders through the
accordion provisions that increased the total commitments under
the facility to $450 million. To provide for fiscal
year-end closing volume, we obtained temporary commitment
increases of $225 million through amendments to the credit
agreement in September 2005, which resulted in a total capacity
of $675 million at September 30, 2005. Through
amendments to the credit agreement in October and November 2005,
the commitments under the facility were adjusted to
$450 million, effective from October 28, 2005 through
January 15, 2006. On January 16, 2006, the total
capacity will return to $300 million, subject to increase
to $450 million should the accordion provisions be
implemented again. At September 30, 2005, we had borrowings
of $549.5 million outstanding under the mortgage warehouse
facility.
Commercial Paper Conduit Facility Our
mortgage subsidiary also has a $500 million commercial
paper conduit facility (the CP conduit facility), that expires
on June 29, 2006. Through amendment to the credit agreement
in June 2005, we increased the capacity available under this
facility from $300 million to $500 million. To provide
for fiscal year-end closing volume, we obtained a temporary
increase of $200 million through amendments to the credit
agreement in September 2005, which resulted in a total capacity
of $700 million at September 30, 2005. The temporary
increase was effective through October 14, 2005 when the
capacity decreased to $600 million available through
November 10, 2005. Beginning on November 11, 2005, the
total capacity decreased to $500 million. The terms of the
facility are renewable annually by the sponsoring banks. At
September 30, 2005, $700 million was drawn under the
CP conduit facility.
In the past, we have been able to renew or extend the mortgage
warehouse loan facility and the CP conduit facility on
satisfactory terms prior to their maturities and obtain
temporary additional commitments through amendments of the
respective credit agreements during periods of higher than
normal volumes of mortgages held for sale. Although we do not
anticipate any problems in renewing or extending these
facilities or obtaining temporary additional commitments in the
future, the liquidity of our financial services business depends
upon our continued ability to do so.
The mortgage warehouse loan facility and the CP conduit facility
are not guaranteed by either the parent company or any of the
subsidiaries that guarantee our homebuilding debt. Borrowings
under both facilities are secured by certain mortgage loans held
for sale. The mortgage loans assigned to secure the
CP conduit facility are used as collateral for asset backed
commercial paper issued by multi-seller conduits in the
commercial paper market. At September 30, 2005, our total
mortgage loans held for sale were $1,358.7 million. All
mortgage company activities are financed with the mortgage
warehouse facility, the CP conduit facility or internally
generated funds. Our mortgage warehouse loan facility and our
CP conduit facility contain financial covenants as to our
mortgage subsidiarys minimum required tangible net worth,
its maximum allowable ratio of debt to tangible net worth and
its minimum required net income. Our mortgage subsidiary is in
compliance with each of these covenants.
35
|
|
|
Operating Cash Flow Activities |
During the year ended September 30, 2005, we used
$620.7 million of cash in our operating activities, as
compared to $422.5 million during the prior year. The net
cash used in operations in fiscal 2005 and 2004 was the result
of cash provided from net income and increases in accounts
payable and other liabilities, offset by cash used to increase
residential land, lot and home inventories, mortgage loans held
for sale and other assets, reflecting the growth of our
homebuilding and financial services operations. Among other
factors, the variance in operating cash flows from fiscal 2004
to 2005 is a result of our decision to invest $1.9 billion
of cash to fund inventory growth in fiscal 2005, versus a
$1.4 billion cash investment in inventory growth in fiscal
2004.
A large portion of our cash invested in inventories represents
purchases of land and lots that will be used to generate
revenues and cash flows in future years. Since we control the
amounts and timing of our investments in land and lots based on
our future growth goals and our market opportunities, we believe
that cash flows from operating activities before increases in
residential land and lot inventories is currently a better
indicator of our liquidity.
|
|
|
Investing Cash Flow Activities |
In fiscal 2005 and 2004, cash used in investing activities
represented net purchases of property and equipment, primarily
model home furniture and office equipment. Such purchases
partially increase with our growth, but they are not significant
relative to our total assets or cash flows, and they typically
do not vary significantly from year to year.
|
|
|
Financing Cash Flow Activities |
The majority of our short-term financing needs are funded with
cash generated from operations and funds available under our
homebuilding and financial services credit facilities. Long-term
financing needs are typically funded with the issuance of new
senior unsecured debt securities through the public capital
markets. Our homebuilding senior and senior subordinated notes
are guaranteed by substantially all of our wholly-owned
subsidiaries other than our financial services subsidiaries.
In October 2004, we issued $250 million of
4.875% senior notes due 2010. We used the proceeds from
this offering for general corporate purposes, including land
acquisition and development, home construction and homebuilding
operations and other working capital needs.
In December 2004, we issued $300 million of
5.625% senior notes due 2016. We used the proceeds from
this offering to repay borrowings under the revolving credit
facility and for general corporate purposes.
In February 2005, we issued $300 million of
5.25% senior notes due 2015. We used the proceeds from this
offering to repay borrowings under the revolving credit facility
and for general corporate purposes.
In July 2005, we issued $300 million of 5.375% senior
notes due 2012. We used the proceeds from this offering for
general corporate purposes, including the repayment of
borrowings under the revolving credit facility and for the early
redemption of our 9.375% senior notes due 2009.
During fiscal 2005, our Board of Directors declared one
quarterly cash dividend of $0.06 per common share
(split-adjusted), one quarterly cash dividend of
$0.0675 per common share (split-adjusted), and two
quarterly cash dividends of $0.09 per common share, the
last of which was paid on August 19, 2005 to stockholders
of record on August 5, 2005. On October 6, 2005, our
Board of Directors declared a cash dividend of $0.09 per
common share, which was paid on October 31, 2005, to
stockholders of record on October 20, 2005.
|
|
|
Changes in Capital Structure |
In December 2003, our Board of Directors declared a
three-for-two stock split (effected as a 50% stock dividend),
paid on January 12, 2004 to holders of record of our common
stock as of December 22,
36
2003. In February 2005, our Board of Directors declared a
four-for-three stock split (effected as a
331/3%
stock dividend), paid on March 16, 2005 to holders of
record of our common stock as of March 1, 2005.
In July 2003, the Board of Directors authorized the repurchase
of up to $200 million of our common stock and outstanding
debt securities, as market conditions warrant. In May 2005, the
Board of Directors authorized the repurchase of up to
$175.6 million of our common stock and up to
$200 million of our outstanding debt securities,
representing the amounts then remaining of the 2003
authorization. As of September 30, 2005, we had
$175.6 million remaining of the Board of Directors
authorization for repurchases of common stock and
$200 million remaining of the authorization for repurchases
of debt securities.
On November 17, 2005, our Board of Directors authorized the
repurchase of up to $500 million of our common stock and up
to $200 million of outstanding debt securities, replacing
the existing common stock and debt securities repurchase
authorization.
Contractual Cash Obligations and Commercial Commitments
Our primary contractual cash obligations for our homebuilding
and financial services segments are payments under short-term
and long-term debt agreements and lease payments under operating
leases. Purchase obligations of our homebuilding segment
represent specific performance requirements under lot option
purchase agreements that may require us to purchase land
contingent upon the land seller meeting certain obligations. We
expect to fund our contractual obligations in the ordinary
course of business through our operating cash flows, our
homebuilding and financial services credit facilities and by
accessing the capital markets.
Our future cash requirements for contractual obligations as of
September 30, 2005 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period | |
|
|
| |
|
|
Less Than | |
|
|
|
More Than | |
|
|
|
|
1 Year | |
|
1 3 Years | |
|
3 5 Years | |
|
5 Years | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes Payable
|
|
$ |
21.0 |
|
|
$ |
218.3 |
|
|
$ |
986.0 |
|
|
$ |
2,444.8 |
|
|
$ |
3,670.1 |
|
Operating Leases
|
|
|
22.0 |
|
|
|
35.3 |
|
|
|
21.0 |
|
|
|
15.2 |
|
|
|
93.5 |
|
Purchase Obligations
|
|
|
137.2 |
|
|
|
89.0 |
|
|
|
4.6 |
|
|
|
|
|
|
|
230.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
180.2 |
|
|
$ |
342.6 |
|
|
$ |
1,011.6 |
|
|
$ |
2,460.0 |
|
|
$ |
3,994.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes Payable
|
|
$ |
1,249.5 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,249.5 |
|
Operating Leases
|
|
|
3.3 |
|
|
|
4.2 |
|
|
|
0.7 |
|
|
|
|
|
|
|
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
1,252.8 |
|
|
$ |
4.2 |
|
|
$ |
0.7 |
|
|
$ |
|
|
|
$ |
1,257.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2005, our homebuilding operations had
outstanding letters of credit of $137.2 million and surety
bonds of $1.8 billion, issued by third parties, to secure
performance under various contracts. We expect that our
performance obligations secured by these letters of credit and
bonds will generally be completed in the ordinary course of
business and in accordance with the applicable contractual
terms. When we complete our performance obligations, the related
letters of credit and bonds are generally released shortly
thereafter, leaving us with no continuing obligations. We have
no material third-party guarantees.
To meet the financing needs of our customers, our mortgage
operations extend interest rate lock commitments (IRLCs) to
borrowers who have applied for loan funding and meet defined
credit and underwriting criteria. Typically, the IRLCs have a
duration of less than six months. Some IRLCs are
37
committed immediately to a specific investor through the use of
best-efforts whole loan delivery commitments, while other IRLCs
are funded prior to being committed to third-party investors.
We manage interest rate risk related to our uncommitted IRLCs
through the use of forward sales of mortgage-backed securities
(FMBS) and the purchase of Eurodollar Futures Contracts
(EDFC) on certain loan types. As of September 30,
2005, our IRLCs totaled $622.8 million, and we had
approximately $143.3 million outstanding of FMBS and EDFC
and $492.0 million of best efforts whole loan delivery
commitments related to our IRLCs.
Off-Balance Sheet Arrangements
In the ordinary course of business, we enter into land and lot
option purchase contracts in order to procure land or lots for
the construction of homes. Lot option contracts enable us to
control significant lot positions with a minimal capital
investment and substantially reduce the risks associated with
land ownership and development. At September 30, 2005, we
had $287.4 million in deposits to purchase land and lots
with a total remaining purchase price of $5.9 billion, of
which only $230.8 million of the remaining purchase price
is subject to specific performance clauses which may require us
to purchase the land or lots upon the land seller meeting
certain obligations. Pursuant to FIN 46, we consolidated
certain variable interest entities with assets of
$200.4 million.
Land and Lot Position and Homes in Inventory
At September 30, 2005, we controlled approximately 346,000
lots, 55% of which were lots under option or similar contracts.
The following is a summary of our land/lot position at
September 30:
|
|
|
|
|
|
|
|
|
|
|
As of September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Lots owned developed and under development
|
|
|
156,000 |
|
|
|
110,000 |
|
Lots controlled under lot option and similar contracts
|
|
|
190,000 |
|
|
|
158,000 |
|
|
|
|
|
|
|
|
Total land/lots controlled
|
|
|
346,000 |
|
|
|
268,000 |
|
|
|
|
|
|
|
|
Percentage controlled under option
|
|
|
55% |
|
|
|
59% |
|
|
|
|
|
|
|
|
The total number of homes under construction was approximately
25,000 and 24,000 at September 30, 2005 and 2004,
respectively. Included in homes under construction at the end of
both years, were approximately 1,600 model homes and less than
200 unsold homes that had been completed for more than six
months.
Seasonality
We experience seasonal variations in our quarterly operating
results and capital requirements. We typically have more homes
under construction, close more homes and have greater revenues
and operating income in the third and fourth quarters of our
fiscal year. In fiscal 2005, 61% of our consolidated revenues
and 63% of our consolidated operating income were attributable
to operations in the third and fourth fiscal quarters. This
seasonal activity increases our working capital requirements for
our homebuilding operations during the third and fourth fiscal
quarters and increases our funding requirements for the
mortgages we originate in our financial services segment at the
end of these quarters. Because the cash generated from our
homebuilding operations during these quarters is not available
to our financial services segment, we have employed the
uncommitted accordion provisions of the segments credit
facilities and sought other temporary commitment increases for
this purpose. Any additional temporary financing for our
mortgage operations is typically reduced during the first and
second quarters of the succeeding fiscal year as we sell our
related mortgage portfolio. As a result, our results of
operations and financial position at the end of the third and
fourth fiscal quarters are not necessarily representative of the
balance of our fiscal year.
38
Inflation
We and the homebuilding industry in general may be adversely
affected during periods of high inflation, primarily because of
higher land, financing, labor and material construction costs.
In addition, higher mortgage interest rates can significantly
affect the affordability of permanent mortgage financing to
prospective homebuyers. We attempt to pass through to our
customers any increases in our costs through increased sales
prices and, to date, inflation has not had a material adverse
effect on our results of operations.
Forward-Looking Statements
Certain statements contained in this report, as well as in other
materials we have filed or will file with the Securities and
Exchange Commission, statements made by us in periodic press
releases and oral statements we make to analysts, stockholders
and the press in the course of presentations about us, may be
construed as forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933,
Section 21E of the Securities Exchange Act of 1934 and the
Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on managements
beliefs as well as assumptions made by, and information
currently available to, management. These forward-looking
statements typically include the words anticipate,
believe, consider, estimate,
expect, forecast, goal,
intend, objective, plan,
projection, seek, strategy,
target or other words of similar meaning. Any or all
of the forward-looking statements included in this report and in
any other of our reports or public statements may not
approximate actual experience, and the expectations derived from
them may not be realized, due to unknown risks, uncertainties
and other factors. As a result, actual results may differ
materially from the expectations or results we discuss in the
forward-looking statements. These risks, uncertainties and other
factors include, but are not limited to:
|
|
|
|
|
changes in general economic, real estate and other conditions; |
|
|
|
changes in interest rates, the availability of mortgage
financing or the effective cost of owning a home; |
|
|
|
the effects of governmental regulations and environmental
matters; |
|
|
|
our substantial debt; |
|
|
|
competitive conditions within our industry; |
|
|
|
the availability of capital; |
|
|
|
our ability to effect our growth strategies
successfully; and |
|
|
|
the uncertainties inherent in warranty and product liability
claims matters. |
We undertake no obligation to publicly update or revise 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.
Further discussion of these and other risk considerations is
provided in Item 1A Risk Factors under
Part I of this annual report on Form 10-K.
|
|
ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are subject to interest rate risk on our long term debt. We
monitor our exposure to changes in interest rates and utilize
both fixed and variable rate debt. For fixed rate debt, changes
in interest rates generally affect the value of the debt
instrument, but not our earnings or cash flows. Conversely, for
variable rate debt, changes in interest rates generally do not
impact the fair value of the debt instrument, but may affect our
future earnings and cash flows. We have mitigated our exposure
to changes in interest rates on our variable rate bank debt by
entering into interest rate swap agreements to obtain a fixed
interest rate for a portion of the variable rate borrowings. We
generally do not have an obligation to prepay
39
fixed-rate debt prior to maturity and, as a result, interest
rate risk and changes in fair value would not have a significant
impact on our fixed-rate debt until such time as we are required
to refinance, repurchase or repay such debt.
Our interest rate swaps are not designated as hedges under
SFAS No. 133. We are exposed to market risk associated
with changes in the fair values of the swaps, and such changes
must be reflected in our income statements.
Our mortgage company is exposed to interest rate risk associated
with its mortgage loan origination services. Interest rate lock
commitments (IRLCs) are extended to borrowers who have applied
for loan funding and who meet defined credit and underwriting
criteria. Typically, the IRLCs have a duration of less than six
months. Some IRLCs are committed immediately to a specific
investor through the use of best-efforts whole loan delivery
commitments, while other IRLCs are funded prior to being
committed to third-party investors. We manage interest rate risk
related to uncommitted IRLCs through the use of forward sales of
mortgage-backed securities (FMBS) and the purchase of
Eurodollar Futures Contracts (EDFC) on certain loan types.
FMBS and EDFC related to IRLCs are classified and accounted for
as non-designated derivative instruments, with gains and losses
recorded in current earnings. FMBS and EDFC related to funded,
uncommitted loans are designated as fair value hedges, with
changes in the value of the derivative instruments recognized in
current earnings, along with changes in the value of the funded,
uncommitted loans. The effectiveness of the fair value hedges is
continuously monitored and any ineffectiveness, which for the
years ended September 30, 2005, 2004 and 2003 was not
significant, is recognized in current earnings. At
September 30, 2005, FMBS and EDFC to mitigate interest rate
risk related to uncommitted mortgage loans held for sale and
uncommitted IRLCs totaled $253.0 million. Uncommitted
IRLCs, the duration of which was less than six months, totaled
approximately $130.8 million, and uncommitted mortgage
loans held for sale totaled approximately $88.4 million at
September 30, 2005. At September 30, 2005, the fair
value of the FMBS, EDFC and IRLCs was an insignificant amount.
The following table sets forth, as of September 30, 2005,
for our debt obligations, principal cash flows by scheduled
maturity, weighted average interest rates and estimated fair
market value. In addition, the table sets forth the notional
amounts, weighted average interest rates and estimated fair
market value of our interest rate swaps. At September 30,
2005, the fair value of the interest rate swaps was a
$3.2 million liability.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending September 30, | |
|
|
|
|
|
Fair | |
|
|
| |
|
|
|
|
|
value @ | |
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
|
Total | |
|
9/30/05 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
($ In millions) | |
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$ |
21.0 |
|
|
$ |
218.2 |
|
|
$ |
0.1 |
|
|
$ |
586.0 |
|
|
$ |
400.0 |
|
|
$ |
2,444.8 |
|
|
$ |
3,670.1 |
|
|
$ |
3,727.1 |
|
|
Average interest rate
|
|
|
8.2 |
% |
|
|
7.6 |
% |
|
|
8.0 |
% |
|
|
7.3 |
% |
|
|
6.9 |
% |
|
|
6.8 |
% |
|
|
7.0 |
% |
|
|
|
|
|
Variable rate
|
|
$ |
1,249.5 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,249.5 |
|
|
$ |
1,249.5 |
|
|
Average interest rate
|
|
|
4.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5 |
% |
|
|
|
|
Interest Rate Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to fixed
|
|
$ |
200.0 |
|
|
$ |
200.0 |
|
|
$ |
200.0 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3.2 |
|
|
Average pay rate
|
|
|
5.1 |
% |
|
|
5.1 |
% |
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average receive rate
|
|
90-day LIBOR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page | |
|
|
| |
Report of Independent Registered Public Accounting Firm
|
|
|
42 |
|
Consolidated Balance Sheets, September 30, 2005 and 2004
|
|
|
43 |
|
Consolidated Statements of Income for the three years ended
September 30, 2005
|
|
|
44 |
|
Consolidated Statements of Stockholders Equity for the
three years ended September 30, 2005
|
|
|
45 |
|
Consolidated Statements of Cash Flows for the three years ended
September 30, 2005
|
|
|
46 |
|
Notes to Consolidated Financial Statements
|
|
|
47 |
|
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
D.R. Horton, Inc.
We have audited the accompanying consolidated balance sheets of
D.R. Horton, Inc. and subsidiaries as of September 30, 2005
and 2004, and the related consolidated statements of income,
stockholders equity, and cash flows for each of the three
years in the period ended September 30, 2005. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of D.R. Horton, Inc. and subsidiaries at
September 30, 2005 and 2004, and the consolidated results
of their operations and their cash flows for each of the three
years in the period ended September 30, 2005, in conformity
with U.S. generally accepted accounting principles.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of D.R. Horton, Inc.s internal control over
financial reporting as of September 30, 2005, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated
December 7, 2005 expressed an unqualified opinion thereon.
Fort Worth, Texas
December 7, 2005
42
|
|
ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
ASSETS |
Homebuilding:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
1,111.6 |
|
|
$ |
480.1 |
|
Inventories:
|
|
|
|
|
|
|
|
|
|
Construction in progress and finished homes
|
|
|
3,105.9 |
|
|
|
2,878.5 |
|
|
Residential land and lots developed and under
development
|
|
|
5,174.3 |
|
|
|
3,529.0 |
|
|
Land held for development
|
|
|
6.2 |
|
|
|
6.2 |
|
|
Consolidated land inventory not owned
|
|
|
200.4 |
|
|
|
153.7 |
|
|
|
|
|
|
|
|
|
|
|
8,486.8 |
|
|
|
6,567.4 |
|
Property and equipment (net)
|
|
|
107.2 |
|
|
|
91.9 |
|
Earnest money deposits and other assets
|
|
|
756.0 |
|
|
|
576.6 |
|
Goodwill
|
|
|
578.9 |
|
|
|
578.9 |
|
|
|
|
|
|
|
|
|
|
|
11,040.5 |
|
|
|
8,294.9 |
|
|
|
|
|
|
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
38.2 |
|
|
|
37.9 |
|
Mortgage loans held for sale
|
|
|
1,358.7 |
|
|
|
623.3 |
|
Other assets
|
|
|
77.4 |
|
|
|
29.1 |
|
|
|
|
|
|
|
|
|
|
|
1,474.3 |
|
|
|
690.3 |
|
|
|
|
|
|
|
|
|
|
$ |
12,514.8 |
|
|
$ |
8,985.2 |
|
|
|
|
|
|
|
|
|
LIABILITIES |
Homebuilding:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
820.7 |
|
|
$ |
585.2 |
|
Accrued expenses and other liabilities
|
|
|
1,196.9 |
|
|
|
756.9 |
|
Notes payable
|
|
|
3,660.1 |
|
|
|
3,006.5 |
|
|
|
|
|
|
|
|
|
|
|
5,677.7 |
|
|
|
4,348.6 |
|
|
|
|
|
|
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
|
24.0 |
|
|
|
16.8 |
|
Notes payable to financial institutions
|
|
|
1,249.5 |
|
|
|
492.7 |
|
|
|
|
|
|
|
|
|
|
|
1,273.5 |
|
|
|
509.5 |
|
|
|
|
|
|
|
|
|
|
|
6,951.2 |
|
|
|
4,858.1 |
|
|
|
|
|
|
|
|
Minority interests
|
|
|
203.2 |
|
|
|
166.4 |
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
Preferred stock, $.10 par value, 30,000,000 shares
authorized, no shares issued
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 400,000,000 shares
authorized, 315,591,668 shares issued and
312,938,868 shares outstanding at September 30, 2005
and 314,045,820 shares issued and 311,393,020 shares
outstanding at September 30, 2004
|
|
|
3.2 |
|
|
|
3.1 |
|
Additional capital
|
|
|
1,624.8 |
|
|
|
1,599.2 |
|
Retained earnings
|
|
|
3,791.3 |
|
|
|
2,417.3 |
|
Treasury stock, 2,652,800 shares at September 30, 2005
and 2004, at cost
|
|
|
(58.9 |
) |
|
|
(58.9 |
) |
|
|
|
|
|
|
|
|
|
|
5,360.4 |
|
|
|
3,960.7 |
|
|
|
|
|
|
|
|
|
|
$ |
12,514.8 |
|
|
$ |
8,985.2 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
43
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions, except per share data) | |
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales
|
|
$ |
13,376.6 |
|
|
$ |
10,491.1 |
|
|
$ |
8,334.1 |
|
|
Land/lot sales
|
|
|
252.0 |
|
|
|
166.9 |
|
|
|
218.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,628.6 |
|
|
|
10,658.0 |
|
|
|
8,552.1 |
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales
|
|
|
9,977.7 |
|
|
|
8,094.7 |
|
|
|
6,621.2 |
|
|
Land/lot sales
|
|
|
162.6 |
|
|
|
102.6 |
|
|
|
184.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,140.3 |
|
|
|
8,197.3 |
|
|
|
6,805.8 |
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales
|
|
|
3,398.9 |
|
|
|
2,396.4 |
|
|
|
1,712.9 |
|
|
Land/lot sales
|
|
|
89.4 |
|
|
|
64.3 |
|
|
|
33.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,488.3 |
|
|
|
2,460.7 |
|
|
|
1,746.3 |
|
Selling, general and administrative expense
|
|
|
1,226.6 |
|
|
|
959.0 |
|
|
|
817.0 |
|
Interest expense
|
|
|
4.4 |
|
|
|
3.4 |
|
|
|
5.2 |
|
Other (income) expense
|
|
|
(15.7 |
) |
|
|
(9.9 |
) |
|
|
9.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,273.0 |
|
|
|
1,508.2 |
|
|
|
914.7 |
|
|
|
|
|
|
|
|
|
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
235.1 |
|
|
|
182.8 |
|
|
|
176.0 |
|
General and administrative expense
|
|
|
147.6 |
|
|
|
121.0 |
|
|
|
98.3 |
|
Interest expense
|
|
|
16.8 |
|
|
|
5.9 |
|
|
|
7.4 |
|
Other (income)
|
|
|
(34.9 |
) |
|
|
(18.8 |
) |
|
|
(23.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
105.6 |
|
|
|
74.7 |
|
|
|
93.5 |
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
2,378.6 |
|
|
|
1,582.9 |
|
|
|
1,008.2 |
|
Provision for income taxes
|
|
|
908.1 |
|
|
|
607.8 |
|
|
|
382.2 |
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$ |
1,470.5 |
|
|
$ |
975.1 |
|
|
$ |
626.0 |
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$ |
4.71 |
|
|
$ |
3.14 |
|
|
$ |
2.11 |
|
|
|
|
|
|
|
|
|
|
|
Net income per common share assuming dilution
|
|
$ |
4.62 |
|
|
$ |
3.09 |
|
|
$ |
1.99 |
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$ |
0.3075 |
|
|
$ |
0.215 |
|
|
$ |
0.135 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
44
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
|
Common | |
|
Additional | |
|
Unearned | |
|
Retained | |
|
Treasury | |
|
Stockholders | |
|
|
Stock | |
|
Capital | |
|
Compensation | |
|
Earnings | |
|
Stock | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions, except common stock share data) | |
Balances at September 30, 2002 (146,505,091 shares)
|
|
$ |
1.5 |
|
|
$ |
1,349.6 |
|
|
$ |
(4.4 |
) |
|
$ |
923.2 |
|
|
$ |
|
|
|
$ |
2,269.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
626.0 |
|
|
|
|
|
|
|
626.0 |
|
|
Issuances under D.R. Horton, Inc. employee benefit plans
(40,736 shares)
|
|
|
|
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.9 |
|
|
Exercise of stock options (873,353 shares)
|
|
|
|
|
|
|
12.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.0 |
|
|
Amortization of unvested stock options issued in connection with
an acquisition over remaining vesting period
|
|
|
|
|
|
|
|
|
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
2.2 |
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40.1 |
) |
|
|
|
|
|
|
(40.1 |
) |
|
Treasury stock purchases (2,652,800 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58.9 |
) |
|
|
(58.9 |
) |
|
Conversion of convertible notes (10,000,040 shares)
|
|
|
0.1 |
|
|
|
219.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
219.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2003 (154,766,420 shares)
|
|
$ |
1.6 |
|
|
$ |
1,581.7 |
|
|
$ |
(2.2 |
) |
|
$ |
1,509.1 |
|
|
$ |
(58.9 |
) |
|
$ |
3,031.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
975.1 |
|
|
|
|
|
|
|
975.1 |
|
|
Issuances under D.R. Horton, Inc. employee benefit plans
(64,526 shares)
|
|
|
|
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.5 |
|
|
Exercise of stock options (1,033,582 shares)
|
|
|
|
|
|
|
16.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.5 |
|
|
Amortization of unvested stock options issued in connection with
an acquisition over remaining vesting period
|
|
|
|
|
|
|
|
|
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
2.2 |
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66.9 |
) |
|
|
|
|
|
|
(66.9 |
) |
|
Three-for-two stock split (77,511,368 shares)
|
|
|
0.8 |
|
|
|
(0.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Four-for-three stock split (78,017,124 shares) paid in
March 2005
|
|
|
0.7 |
|
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2004 (311,393,020 shares)
|
|
$ |
3.1 |
|
|
$ |
1,599.2 |
|
|
$ |
|
|
|
$ |
2,417.3 |
|
|
$ |
(58.9 |
) |
|
$ |
3,960.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,470.5 |
|
|
|
|
|
|
|
1,470.5 |
|
|
Issuances under D.R. Horton, Inc. employee benefit plans
(95,669 shares)
|
|
|
|
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9 |
|
|
Exercise of stock options (1,450,179 shares)
|
|
|
0.1 |
|
|
|
23.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.8 |
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(96.5 |
) |
|
|
|
|
|
|
(96.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2005 (312,938,868 shares)
|
|
$ |
3.2 |
|
|
$ |
1,624.8 |
|
|
$ |
|
|
|
$ |
3,791.3 |
|
|
$ |
(58.9 |
) |
|
$ |
5,360.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
45
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
1,470.5 |
|
|
$ |
975.1 |
|
|
$ |
626.0 |
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
52.8 |
|
|
|
49.6 |
|
|
|
41.8 |
|
|
Amortization of debt premiums, discounts and fees
|
|
|
4.3 |
|
|
|
5.9 |
|
|
|
4.0 |
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in construction in progress and finished homes
|
|
|
(227.4 |
) |
|
|
(413.9 |
) |
|
|
(429.4 |
) |
|
Increase in residential land and lots developed,
under development, and held for development
|
|
|
(1,627.8 |
) |
|
|
(997.2 |
) |
|
|
(56.6 |
) |
|
(Increase) decrease in earnest money deposits and other assets
|
|
|
(146.9 |
) |
|
|
(95.3 |
) |
|
|
9.5 |
|
|
Increase in mortgage loans held for sale
|
|
|
(735.4 |
) |
|
|
(137.8 |
) |
|
|
(21.4 |
) |
|
Increase in accounts payable and other liabilities
|
|
|
589.2 |
|
|
|
191.1 |
|
|
|
249.4 |
|
|
|
|
|
|
|
|
|
|
|
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
|
|
|
(620.7 |
) |
|
|
(422.5 |
) |
|
|
423.3 |
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net purchases of property and equipment
|
|
|
(68.2 |
) |
|
|
(55.2 |
) |
|
|
(48.6 |
) |
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(68.2 |
) |
|
|
(55.2 |
) |
|
|
(48.6 |
) |
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
4,060.2 |
|
|
|
3,524.1 |
|
|
|
2,458.0 |
|
|
Repayment of notes payable
|
|
|
(2,667.8 |
) |
|
|
(3,059.8 |
) |
|
|
(2,266.7 |
) |
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(58.9 |
) |
|
Proceeds from stock associated with certain employee benefit
plans
|
|
|
24.8 |
|
|
|
15.4 |
|
|
|
11.6 |
|
|
Cash dividends paid
|
|
|
(96.5 |
) |
|
|
(66.9 |
) |
|
|
(40.1 |
) |
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
1,320.7 |
|
|
|
412.8 |
|
|
|
103.9 |
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH
|
|
|
631.8 |
|
|
|
(64.9 |
) |
|
|
478.6 |
|
|
Cash at beginning of year
|
|
|
518.0 |
|
|
|
582.9 |
|
|
|
104.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$ |
1,149.8 |
|
|
$ |
518.0 |
|
|
$ |
582.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized
|
|
$ |
20.6 |
|
|
$ |
8.5 |
|
|
$ |
12.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$ |
895.0 |
|
|
$ |
614.4 |
|
|
$ |
325.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of noncash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of senior notes
|
|
$ |
|
|
|
$ |
|
|
|
$ |
219.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable issued for inventory
|
|
$ |
17.8 |
|
|
$ |
71.9 |
|
|
$ |
102.3 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
46
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The consolidated financial statements have been prepared in
accordance with U.S. Generally Accepted Accounting
Principles (GAAP) and include the accounts of D. R. Horton,
Inc. and its wholly-owned, majority-owned and controlled
subsidiaries (which are referred to as the Company, unless the
context otherwise requires), as well as certain variable
interest entities required to be consolidated pursuant to
Interpretation No. 46 issued by the Financial Accounting
Standards Board (FASB). All intercompany balances and
transactions have been eliminated in consolidation.
Certain prior year balances have been reclassified to conform to
the fiscal 2005 presentation. These reclassifications had no
effect on the Companys financial position, results of
operations or cash flows. Additionally, prior year balances
reflect the retroactive application of Emerging Issues Task
Force Issue No. 04-8, The Effect of Contingently
Convertible Debt on Diluted Earnings per Share
(EITF 04-8) and the March 2005 four-for-three stock split.
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from
those estimates.
In October 2004, the FASB ratified EITF 04-8, which
requires that shares underlying contingently convertible debt be
included in diluted earnings per share computations using the
if-converted method regardless of whether the market price
trigger, or other contingent features, have been met. The
effective date for EITF 04-8 is for reporting periods
ending after December 15, 2004. EITF 04-8 also
requires restatement of earnings per share amounts for prior
periods presented during which the instrument was outstanding.
In May 2001, the Company issued 381,113 zero coupon convertible
senior notes, which were converted into shares of its common
stock in June 2003. During certain quarters of the year ended
September 30, 2003, the market price trigger was not met
and the convertible shares were not included in the computation
of diluted earnings per share. The adoption of EITF 04-8
reduced net income per common share assuming dilution by $0.06
for the fiscal year ended September 30, 2003.
In December 2003, the Companys Board of Directors declared
a three-for-two stock split (effected as a 50% stock dividend),
paid on January 12, 2004 to common stockholders of record
on December 22, 2003. In February 2005, the Companys
Board of Directors declared a four-for-three stock split
(effected as a
331/3%
stock dividend), paid on March 16, 2005 to common
stockholders of record on March 1, 2005. The earnings per
share and cash dividends declared per share for the years ended
September 30, 2005, 2004 and 2003 reflect the effects of
the stock splits.
The Company reports its consolidated financial statements in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information. The Companys
homebuilding operating regions are its operating segments under
SFAS No. 131 and have been aggregated into a single
homebuilding reportable segment. Homebuilding is the
Companys core business, generating 98% of consolidated
revenues and 91% to 96% of consolidated
47
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
income before income taxes in fiscal 2005, 2004 and 2003. The
Companys other operating and reporting segment is its
financial services segment.
The Companys homebuilding segment is primarily engaged in
the acquisition and development of land for residential purposes
and the construction and sale of residential homes on such land,
in 25 states and 74 markets in the United States. The
homebuilding segment generates most of its revenues from the
sale of completed homes, with a lesser amount from the sale of
land and lots.
The Companys financial services segment provides mortgage
banking and title agency services principally to customers of
the Companys homebuilding segment. The Company does not
retain or service the mortgages that it originates, but, rather,
sells the mortgages and related servicing rights to investors.
The financial services segment generates its revenue from
originating and selling mortgages and collecting fees for title
insurance agency and closing services.
Assets, liabilities, revenues, expenses and operating income of
the Companys reporting segments are separately presented
in the consolidated balance sheets and consolidated statements
of income. The accounting policies of the reporting segments are
described throughout this note.
Homebuilding revenue and related profit are generally recognized
at the time of the closing of a sale, when title to and
possession of the property are transferred to the buyer. In
situations where the buyers financing is originated by DHI
Mortgage, the Companys wholly-owned mortgage subsidiary,
and the buyer has not made an adequate initial investment as
prescribed by SFAS No. 66, the gross profit on such
sales is deferred until the sale of the related mortgage loan to
a third-party investor has been completed. Virtually all
homebuilding revenues are received in cash within two days of
closing.
Financial services revenues associated with the Companys
title operations are recognized as closing services are rendered
and title insurance policies are issued, both of which generally
occur simultaneously as each home is closed. The majority of the
revenues associated with the Companys mortgage operations
is recognized when the mortgage loans and related servicing
rights are sold to third-party investors. Origination fees and
direct origination costs are deferred and recognized as revenues
and expenses, respectively, along with the associated gains and
losses on the sales of the loans and related servicing rights,
when the loans are sold. Interest income is accrued from the
date a mortgage loan is originated until the loan is sold.
Some of the loans sold by DHI Mortgage are sold with limited
recourse provisions. Based on historical experience, the Company
has estimated and recorded an allowance for losses related to
loans sold with recourse. Such losses have not been significant.
|
|
|
Cash and Cash Equivalents |
The Company considers all highly liquid investments with an
initial maturity of three months or less when purchased to be
cash equivalents. Amounts in transit from title companies for
home closings are included in cash. Additionally, the Company
holds cash that is restricted as to its use. Restricted cash
includes customer deposits that are temporarily restricted in
accordance with regulatory requirements, and cash restricted
pursuant to insurance related regulatory requirements. At
September 30, 2005 and 2004, the balances of restricted
cash were $29.4 million and $23.1 million,
respectively, and are included in other assets on the
Companys balance sheet.
48
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Inventories and Cost of Sales |
Finished inventories, inventories under construction or
development or held for development are stated at accumulated
costs, unless such costs would not be recovered from the cash
flows generated by future disposition. In this instance, such
inventories are measured at fair value, less disposal costs.
Inventory costs include land, land development and home
construction costs, as well as interest and real estate taxes
related to property under development and construction.
Applicable direct overhead costs incurred after development
projects or homes are substantially complete such as utilities,
maintenance, and cleaning are charged to SG&A expense as
incurred. All indirect overhead costs, such as compensation of
construction superintendents, sales personnel and division and
region management, advertising and builders risk
insurance, are charged to SG&A expense as incurred.
Land and development costs are typically allocated to individual
residential lots on a pro-rata basis, and the costs of
residential lots are transferred to construction in progress
when home construction begins. Home construction costs are
accumulated for each specific home.
The specific identification method is used for the purpose of
accumulating home construction costs. Cost of sales for homes
closed includes the specific construction costs of each home,
land acquisition and land development costs allocated to each
home, closing costs and sales commissions paid to third parties,
related interest and real estate taxes, and an estimate of
future warranty and related costs for the homes closed.
Each quarter, all components of inventory are reviewed for the
purpose of determining whether recorded costs and costs required
to complete each home or project are recoverable. If the review
indicates that an impairment loss is required under
SFAS No. 144 guidelines, an estimate of the loss is
made and recorded to cost of sales in that quarter. To date,
such impairment losses have been insignificant in the aggregate.
The Company capitalizes interest costs to inventory during
development and construction. Capitalized interest is charged to
cost of sales as the related inventory is delivered to the
buyer. The following table summarizes the Companys
homebuilding interest costs incurred, capitalized, charged to
cost of sales and expensed directly during the years ended
September 30, 2005, 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Capitalized interest, beginning of year
|
|
$ |
152.7 |
|
|
$ |
168.4 |
|
|
$ |
153.5 |
|
Interest incurred homebuilding
|
|
|
277.3 |
|
|
|
236.7 |
|
|
|
239.5 |
|
Interest expensed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directly homebuilding
|
|
|
(4.4 |
) |
|
|
(3.4 |
) |
|
|
(5.2 |
) |
|
Amortized to cost of sales
|
|
|
(225.0 |
) |
|
|
(249.0 |
) |
|
|
(219.4 |
) |
|
|
|
|
|
|
|
|
|
|
Capitalized interest, end of year
|
|
$ |
200.6 |
|
|
$ |
152.7 |
|
|
$ |
168.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Land Inventory Not Owned |
In January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities as
amended (FIN 46). FIN 46 provides guidance for the
financial accounting and reporting of interests in certain
variable interest entities, which FIN 46 defines as certain
business entities that either have equity investors with no
voting rights or have equity investors that do not provide
sufficient financial
49
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
resources for the entities to support their activities.
FIN 46 requires consolidation of such entities by any
company that is subject to a majority of the risk of loss from
the entities activities or is entitled to receive a
majority of the entities residual returns or both, defined
as the primary beneficiary of the variable interest entity.
In the ordinary course of its homebuilding business, the Company
enters into land and lot option purchase contracts in order to
procure land or lots for the construction of homes. Under such
option purchase contracts, the Company will fund a stated
deposit in consideration for the right, but not the obligation,
to purchase land or lots at a future point in time with
predetermined terms. Under the terms of the option purchase
contracts, many of the option deposits are not refundable at the
Companys discretion. Certain of these deposits are deemed
to create a variable interest in a variable interest entity
under the requirements of FIN 46. As such, certain of the
Companys option purchase contracts result in the
acquisition of a variable interest in the entity holding the
land parcel under option.
In applying the provisions of FIN 46, the Company evaluates
those land and lot option purchase contracts with variable
interest entities to determine whether the Company is the
primary beneficiary based upon analysis of the variability of
the expected gains and losses of the entity. Based on this
evaluation, if the Company is the primary beneficiary of an
entity with which the Company has entered into a land or lot
option purchase contract, the variable interest entity is
consolidated.
Since the Company owns no equity interest in any of the
unaffiliated variable interest entities that it must consolidate
pursuant to FIN 46, the Company generally has little or no
control or influence over the operations of these entities or
their owners. When the Companys requests for financial
information are denied by the land sellers, certain assumptions
about the assets and liabilities of such entities are required.
In most cases, the fair value of the assets of the consolidated
entities have been assumed to be the remaining contractual
purchase price of the land or lots the Company is purchasing. In
these cases, it is assumed that the entities have no debt
obligations and the only asset recorded is the land or lots the
Company has the option to buy with a related offset to minority
interest for the assumed third party investment in the variable
interest entity.
The consolidation of these variable interest entities added
$200.4 million and $153.7 million in land inventory
not owned and minority interests to the Companys balance
sheets at September 30, 2005 and 2004, respectively. The
Companys obligations related to these land or lot option
contracts are guaranteed by cash deposits totaling
$21.3 million and $17.2 million and performance
letters of credit, promissory notes and surety bonds totaling
$5.9 million and $3.3 million, as of
September 30, 2005 and 2004, respectively. Creditors, if
any, of these variable interest entities have no recourse
against the Company.
Including the deposits with the variable interest entities
above, the Company has deposits amounting to $287.4 million
to purchase land and lots with a total remaining purchase price
of $5.9 billion at September 30, 2005. For the
variable interest entities which are unconsolidated because the
Company is not subject to a majority of the risk of loss or
entitled to receive a majority of the entities residual
returns, the maximum exposure to loss is generally limited to
the amounts of the Companys option deposits, which totaled
$217.9 million at September 30, 2005.
Property and equipment is stated at cost less accumulated
depreciation. Repairs and maintenance costs are expensed as
incurred. Depreciation generally is recorded using the
straight-line method over the estimated useful life of the
asset. Depreciable lives for model home furniture typically
range from 2 to 3 years, depreciable lives for office
furniture and equipment typically range from 2 to 5 years,
and depreciable lives for buildings and improvements typically
range from 5 to 20 years. Accumulated depreciation was
$141.3 million and $118.1 million as of
September 30, 2005 and 2004, respectively.
50
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Depreciation expense was $52.8 million, $43.7 million
and $38.3 million in fiscal 2005, 2004 and 2003,
respectively.
Potential impairments of long-lived assets are reviewed annually
or when events and circumstances warrant an earlier review. In
accordance with SFAS No. 144, impairment is determined
when estimated future undiscounted cash flows associated with an
asset are less than the assets carrying value.
|
|
|
Goodwill and Other Intangible Assets |
Goodwill represents the excess of purchase price over net assets
acquired. The Company adopted the provisions of
SFAS No. 142, Goodwill and Other Intangible
Assets effective October 1, 2001. Upon the adoption
of SFAS No. 142, goodwill is subject to an annual
impairment test. Other intangible assets continue to be
amortized over their useful lives. Goodwill is reviewed for
potential impairment annually or when events and circumstances
warrant an earlier review. Impairment is determined to exist
when the estimated fair value of goodwill is less than its
carrying value. The Company performed the required impairment
tests during fiscal 2005, 2004 and 2003 and determined that no
goodwill impairment existed.
Accumulated amortization related to goodwill was
$38.9 million at September 30, 2005 and 2004.
Amortization of other intangible assets was $3.7 million
and $1.2 million in fiscal 2004 and 2003, respectively.
These intangible assets were fully amortized by the end of
fiscal 2004, and therefore, their carrying values were $0 as of
September 30, 2004.
The Company typically provides its homebuyers a one-year
comprehensive limited warranty for all parts and labor and a
ten-year limited warranty for major construction defects. Since
the Company subcontracts its homebuilding work to subcontractors
who typically provide it with an indemnity and a certificate of
insurance prior to receiving payments for their work, claims
relating to workmanship and materials are generally the primary
responsibility of the subcontractors. Warranty liabilities have
been established by charging cost of sales for each home
delivered. The amounts charged are based on managements
estimate of expected warranty-related costs under all unexpired
warranty obligation periods. The Companys warranty
liability is based upon historical warranty cost experience in
each market in which it operates and is adjusted as appropriate
to reflect qualitative risks associated with the types of homes
built and the geographic areas in which they are built.
The following table sets forth the Companys warranty
liability:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Warranty liability, beginning of year
|
|
$ |
96.0 |
|
|
$ |
73.1 |
|
|
Warranties issued
|
|
|
71.2 |
|
|
|
54.9 |
|
|
Changes in liabilities for pre-existing warranties
|
|
|
(2.6 |
) |
|
|
0.3 |
|
|
Settlements made
|
|
|
(43.0 |
) |
|
|
(32.3 |
) |
|
|
|
|
|
|
|
Warranty liability, end of year
|
|
$ |
121.6 |
|
|
$ |
96.0 |
|
|
|
|
|
|
|
|
The Company has, and requires the majority of its subcontractors
to have, general liability insurance (including construction
defect coverage) and workers compensation insurance. These
insurance policies
51
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
protect the Company against a portion of its risk of loss from
claims, subject to certain self-insured retentions, deductibles
and other coverage limits. In certain states where the Company
believes it is too difficult or expensive for subcontractors to
obtain general liability insurance, the Company has waived its
traditional subcontractor general liability insurance
requirements to obtain lower bids from subcontractors. The
Company self insures a portion of its overall risk, partially
through the use of a captive insurance entity which issues a
general liability policy to the Company, naming certain
subcontractors as additional insureds. The Company records
expenses and liabilities for costs to cover its self-insured and
deductible amounts under those policies and for any costs of
claims and lawsuits in excess of its coverage limits or not
covered by such policies, based on an analysis of the
Companys historical claims, which includes an estimate of
claims incurred but not yet reported. Expenses related to such
claims were approximately $101.2 million,
$80.9 million and $43.5 million in fiscal 2005, 2004
and 2003, respectively.
The Company expenses advertising costs as they are incurred.
Advertising expense was approximately $78.9 million,
$64.3 million and $59.3 million in fiscal 2005, 2004
and 2003, respectively.
The provision for income taxes is calculated using the asset and
liability method, under which deferred tax assets and
liabilities are recorded based on the difference between the
financial statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Basic earnings per share is based upon the weighted average
number of shares of common stock outstanding during each year.
Diluted earnings per share is based upon the weighted average
number of shares of common stock and dilutive securities
outstanding.
On February 5, 2002, each of the Companys 381,113
Zero Coupon Convertible Senior Notes outstanding first became
eligible for conversion into 26.2391 shares of the
Companys common stock. These Convertible Senior Notes were
convertible on any date as of which the average closing price of
the Companys common stock for the twenty preceding trading
days exceeded 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 Companys common
stock exceeded the specified threshold at the end of the
March 31, 2002 and June 30, 2002 quarters and for a
portion of the quarter ended June 30, 2003. On May 27,
2003, the Company called the zero coupon convertible senior
notes for redemption. The call for redemption gave the note
holders the right to convert their notes into shares of the
Companys common stock or to redeem them for cash at their
accreted value as of the redemption date. All of the notes were
presented by June 26, 2003 for conversion into the
Companys common stock, and accordingly the Company issued
approximately 10 million shares of common stock in exchange
for the notes, whose total accreted value as of the conversion
dates was approximately $214.1 million. In accordance with
the requirements of EITF 04-08 (see Effect of EITF
04-8 above), the shares underlying the Convertible Senior
Notes are included in the denominator for diluted earnings per
share for all fiscal quarters that the Convertible Senior Notes
were outstanding. 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 all quarters that such notes were outstanding.
52
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the numerators and denominators
used in the computation of basic and diluted earnings per share.
The average share amounts reflect the effects of the
three-for-two and four-for-three stock splits, paid as stock
dividends on January 12, 2004 and March 16, 2005,
respectively. All options outstanding during fiscal 2005, 2004,
and 2003 were included in the computation of diluted earnings
per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
1,470.5 |
|
|
$ |
975.1 |
|
|
$ |
626.0 |
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and amortization of issuance costs associated
with zero coupon convertible senior notes, net of applicable
income taxes
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted earnings per share after assumed
conversions
|
|
$ |
1,470.5 |
|
|
$ |
975.1 |
|
|
$ |
629.1 |
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share weighted
average shares
|
|
|
312.2 |
|
|
|
310.5 |
|
|
|
297.0 |
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zero coupon convertible senior notes
|
|
|
|
|
|
|
|
|
|
|
14.6 |
|
|
|
Employee stock options
|
|
|
5.9 |
|
|
|
5.5 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share adjusted
weighted average shares and assumed conversions
|
|
|
318.1 |
|
|
|
316.0 |
|
|
|
316.1 |
|
|
|
|
|
|
|
|
|
|
|
The Company may, with the approval of the Compensation Committee
of its Board of Directors, grant stock options for a fixed
number of shares to employees. The Company accounts for stock
option grants in accordance with Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock
Issued to Employees. The Company adopted the
disclosure-only provisions as specified by the
SFAS No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation
Transition and Disclosure. The exercise price of the
Companys employee stock options equals the market price of
the underlying stock on the date of grant, and therefore no
compensation expense is recognized for the initial grant.
SFAS No. 123 and SFAS No. 148 require
disclosure of pro forma net income and pro forma net income per
share as if the fair value based method had been applied in
measuring compensation expense for fiscal 2005, 2004 and 2003
for options granted after fiscal 1995.
53
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the effect on net income and
earnings per share as if the fair value based method had been
applied:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions, except per share | |
|
|
data) | |
Net income as reported
|
|
$ |
1,470.5 |
|
|
$ |
975.1 |
|
|
$ |
626.0 |
|
Add: Stock-based employee compensation expense included in
reported net income, net of tax
|
|
|
|
|
|
|
1.3 |
|
|
|
1.4 |
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method, net of tax
|
|
|
(7.8 |
) |
|
|
(7.1 |
) |
|
|
(5.7 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$ |
1,462.7 |
|
|
$ |
969.3 |
|
|
$ |
621.7 |
|
|
|
|
|
|
|
|
|
|
|
Reported basic net income per share
|
|
$ |
4.71 |
|
|
$ |
3.14 |
|
|
$ |
2.11 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic net income per share
|
|
$ |
4.69 |
|
|
$ |
3.12 |
|
|
$ |
2.09 |
|
|
|
|
|
|
|
|
|
|
|
Reported diluted net income per share
|
|
$ |
4.62 |
|
|
$ |
3.09 |
|
|
$ |
1.99 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted net income per share
|
|
$ |
4.61 |
|
|
$ |
3.07 |
|
|
$ |
1.98 |
|
|
|
|
|
|
|
|
|
|
|
The net income per share amounts presented above reflect the
effects of the three-for-two and four-for-three stock splits
paid on January 12, 2004 and March 16, 2005,
respectively.
The Company entered into two ten-year interest rate swap
agreements in 1998 with a major United States bank under
which it receives each quarter the London Inter-Bank Offered
Rate (LIBOR) and pays a fixed amount that
averages 5.1% on a total notional amount of
$200 million. At the end of each quarter, the swaps
market value will have changed depending upon the markets
current anticipation of quarterly LIBOR rate levels from the
present until the swaps maturity in 2008. The swaps
market values generally vary directly with changes in
anticipated future LIBOR rates. The swaps do not qualify as
cash-flow hedges under SFAS No. 133, so changes in the
swaps fair value must be recorded in the consolidated
statements of income. The fair values of the interest rate swaps
were liabilities to the Company of $3.2 million at
September 30, 2005 and $12.7 million at
September 30, 2004, and are recorded in homebuilding other
liabilities. Changes in their fair values are recorded in
homebuilding other income or expense. During the years ended
September 30, 2005, 2004 and 2003, the Company had gains
related to the interest rate swaps of $9.5 million,
$8.1 million and $1.8 million, respectively.
Mortgage loans held for sale consist primarily of single-family
residential loans collateralized by the underlying property.
Loans that have been closed but not committed to a third-party
investor are matched with either forward sales of mortgage
backed securities (FMBS) or Eurodollar Futures Contracts
(EDFC) that are designated as fair value hedges. Hedged
loans are either committed to third-party investors within three
days of origination or pooled and committed in bulk to
third-party investors typically within 30 days of
origination. All loans held for sale are carried at cost
adjusted for changes in fair value after the date of designation
of an effective hedge, based on either sale commitments or
current market quotes. Any gain or loss on the sale of loans is
recognized at the time of sale. As of September 30, 2005,
the Company had $88.4 million in loans not committed to
third-party investors which were hedged with
54
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$109.7 million of FMBS and EDFC. During the years ended
September 30, 2005, 2004 and 2003, the Company had net
gains on sales of loans of $113.5 million,
$87.5 million, and $91.5 million, respectively.
The FMBS and EDFC associated with uncommitted, funded loans are
designated as fair value hedges of the risk of changes in the
overall fair value of the related loans. Accordingly, changes in
the value of the derivative instruments are recognized in
current earnings, as are changes in the value of the loans.
During the fiscal years ended September 30, 2005, 2004 and
2003, the Companys net gains related to the ineffective
portion of its fair value hedging instruments were
insignificant. The net gains are included in financial services
revenues.
To meet the financing needs of its customers, the Company is
party to interest rate lock commitments (IRLCs) which are
extended to borrowers who have applied for loan funding and meet
certain defined credit and underwriting criteria. In accordance
with SFAS No. 133 and related Derivatives
Implementation Group conclusions, the Company classifies and
accounts for IRLCs as non-designated derivative instruments at
fair value. The effectiveness of the fair value hedges is
continuously monitored and any ineffectiveness, which for the
years ended September 30, 2005, 2004 and 2003 was not
significant, is recognized in current earnings. At
September 30, 2005 and 2004, the Companys IRLCs
totaled $622.8 million and $562.8 million,
respectively.
The Company manages interest rate risk related to its IRLCs
through the use of best-efforts whole loan delivery commitments,
forward sales of mortgage-backed securities and the purchase of
Eurodollar futures contracts. These instruments are considered
non-designated derivatives and are accounted for at fair market
value with gains and losses recorded in current earnings. As of
September 30, 2005, the Company had approximately
$143.3 million outstanding of FMBS and EDFC, and
$492.0 million of best efforts whole loan delivery
commitments related to its IRLCs.
|
|
|
Recent Accounting Pronouncements |
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections. This
statement, which replaces APB Opinion No. 20,
Accounting Changes and SFAS No. 3,
Reporting Accounting Changes in Interim Financial
Statements, changes the requirements for the accounting
for and reporting of a change in accounting principle. The
statement requires retrospective application of changes in
accounting principle to prior periods financial statements
unless it is impracticable to determine the period-specific
effects or the cumulative effect of the change.
SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December 15, 2005. The adoption of SFAS No. 154
is not expected to have a material impact on the Companys
consolidated financial position, results of operations or cash
flows.
In December 2004, the FASB issued SFAS No. 123(R),
Share-Based Payment. This statement, which replaces
SFAS No. 123 and supersedes APB Opinion No. 25,
requires that companies measure and recognize compensation
expense at an amount equal to the fair value of share-based
payments granted under compensation arrangements. The statement
is effective beginning in the Companys first quarter of
fiscal year 2006. The Company has evaluated the impact of the
adoption of SFAS No. 123(R) and has determined that it
will not have a material impact on the Companys
consolidated financial position, results of operations or cash
flows.
In December 2004, the FASB issued Staff Position 109-1,
Application of FASB Statement No. 109, Accounting
for Income Taxes, to the Tax Deduction on Qualified
Production Activities Provided by the American Jobs Creation Act
of 2004 (FSP 109-1). The American Jobs Creation Act, which
was signed into law in October 2004, provides a tax deduction on
qualified domestic production activities. When fully
55
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
phased-in, the deduction will be up to 9% of the lesser of
qualified production activities income or taxable
income. Based on the guidance provided by FSP 109-1, this
deduction should be accounted for as a special deduction under
SFAS No. 109 and will reduce tax expense in the period
or periods that the amounts are deductible on the tax return.
The tax benefit resulting from the new deduction will be
effective beginning in the Companys first quarter of
fiscal year 2006. The Company is evaluating the impact of this
law on its future financial statements and currently estimates
the future reduction in its federal income tax rate to be in the
range of 0.50% to 0.75%.
NOTE B NOTES PAYABLE
The Companys notes payable at their principal amounts, net
of unamortized discount or premium, as applicable, consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Homebuilding:
|
|
|
|
|
|
|
|
|
|
Unsecured:
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility due 2008
|
|
$ |
|
|
|
$ |
|
|
|
|
10.5% senior notes due 2005, net
|
|
|
|
|
|
|
199.9 |
|
|
|
7.5% senior notes due 2007
|
|
|
215.0 |
|
|
|
215.0 |
|
|
|
5% senior notes due 2009, net
|
|
|
199.6 |
|
|
|
199.5 |
|
|
|
8% senior notes due 2009, net
|
|
|
384.1 |
|
|
|
383.8 |
|
|
|
9.375% senior notes due 2009, net
|
|
|
|
|
|
|
242.5 |
|
|
|
4.875% senior notes due 2010, net
|
|
|
248.7 |
|
|
|
|
|
|
|
9.75% senior subordinated notes due 2010, net
|
|
|
149.3 |
|
|
|
149.2 |
|
|
|
7.875% senior notes due 2011, net
|
|
|
198.8 |
|
|
|
198.7 |
|
|
|
9.375% senior subordinated notes due 2011, net
|
|
|
199.8 |
|
|
|
199.8 |
|
|
|
10.5% senior subordinated notes due 2011, net
|
|
|
150.2 |
|
|
|
150.9 |
|
|
|
8.5% senior notes due 2012, net
|
|
|
248.4 |
|
|
|
248.3 |
|
|
|
5.375% senior notes due 2012
|
|
|
300.0 |
|
|
|
|
|
|
|
6.875% senior notes due 2013
|
|
|
200.0 |
|
|
|
200.0 |
|
|
|
5.875% senior notes due 2013
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
6.125% senior notes due 2014, net
|
|
|
197.4 |
|
|
|
197.2 |
|
|
|
5.625% senior notes due 2014, net
|
|
|
248.1 |
|
|
|
247.9 |
|
|
|
5.25% senior notes due 2015, net
|
|
|
297.8 |
|
|
|
|
|
|
|
5.625% senior notes due 2016, net
|
|
|
297.5 |
|
|
|
|
|
|
Other secured
|
|
|
25.4 |
|
|
|
73.8 |
|
|
|
|
|
|
|
|
|
|
$ |
3,660.1 |
|
|
$ |
3,006.5 |
|
|
|
|
|
|
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
|
Mortgage warehouse facility due 2006
|
|
$ |
549.5 |
|
|
$ |
267.7 |
|
|
Commercial paper conduit facility due 2006
|
|
|
700.0 |
|
|
|
225.0 |
|
|
|
|
|
|
|
|
|
|
$ |
1,249.5 |
|
|
$ |
492.7 |
|
|
|
|
|
|
|
|
56
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company filed with the Securities and Exchange Commission a
universal shelf registration statement registering
$3.0 billion in debt and equity securities effective in
September 2005. At September 30, 2005, the remaining
capacity to issue new debt or equity securities amounted to
$3.0 billion.
Maturities of consolidated notes payable, assuming the mortgage
warehouse and commercial paper conduit facilities are not
extended or renewed, are $1,270.5 million in 2006,
$218.2 million in 2007, $0.1 million in 2008,
$586.0 million in 2009, $400.0 million in 2010 and
$2,444.8 million thereafter.
The Company has a $1.21 billion unsecured revolving credit
facility, which includes a $350 million letter of credit
sub-facility, that matures on March 25, 2008. The
Companys borrowing capacity under this facility is reduced
by the amount of letters of credit outstanding. At
September 30, 2005, the Companys borrowing capacity
from this facility was $1.09 billion. The facility is
guaranteed by substantially all of the Companys
wholly-owned 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 Companys ratio of debt to tangible net
worth and its senior unsecured debt rating. In addition to the
stated interest rates, the revolving credit facility requires
the Company to pay certain fees. The interest rates of the
unsecured bank debt at September 30, 2005 and 2004 were
5.1% and 3.1%, respectively.
Following is a summary of the key terms of each of the
Companys unsecured homebuilding notes payable outstanding
as of September 30, 2005, including the annual effective
interest rate of each series of notes, after giving effect to
the amortization of deferred financing costs, discounts and
premiums.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable | |
|
|
|
|
Principal | |
|
|
|
|
|
Prior to | |
|
Effective | |
Note Payable(1) |
|
Amount | |
|
Date Issued | |
|
Date Due | |
|
Maturity | |
|
Interest Rate | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
|
|
|
|
|
|
|
|
7.5% senior
|
|
$ |
215.0 |
|
|
|
December 2002 |
|
|
|
December 1, 2007 |
|
|
|
No(3) |
|
|
|
7.6 |
% |
5% senior
|
|
$ |
200.0 |
|
|
|
January 2004 |
|
|
|
January 15, 2009 |
|
|
|
No(3) |
|
|
|
5.3 |
% |
8% senior
|
|
$ |
385.0 |
|
|
|
February 1999 |
|
|
|
February 1, 2009 |
|
|
|
No |
|
|
|
8.3 |
% |
4.875% senior
|
|
$ |
250.0 |
|
|
|
October 2004 |
|
|
|
January 15, 2010 |
|
|
|
Yes(4) |
|
|
|
5.1 |
% |
9.75% senior subordinated
|
|
$ |
150.0 |
|
|
|
September 2000 |
|
|
|
September 15, 2010 |
|
|
|
No |
|
|
|
9.9 |
% |
7.875% senior
|
|
$ |
200.0 |
|
|
|
August 2001 |
|
|
|
August 15, 2011 |
|
|
|
No |
|
|
|
8.0 |
% |
9.375% senior subordinated
|
|
$ |
200.0 |
|
|
|
March 2001 |
|
|
|
March 15, 2011 |
|
|
|
Yes, on or after |
|
|
|
9.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 15, 2006 |
(2) |
|
|
|
|
10.5% senior subordinated
|
|
$ |
144.8 |
|
|
|
Assumed from Schuler |
|
|
|
July 15, 2011 |
|
|
|
Yes, on or after |
|
|
|
9.6 |
% |
|
|
|
|
|
|
|
February 2002 |
|
|
|
|
|
|
|
July 15, 2006 |
(2) |
|
|
|
|
8.5% senior
|
|
$ |
250.0 |
|
|
|
April 2002 |
|
|
|
April 15, 2012 |
|
|
|
Yes, on or after |
|
|
|
8.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 15, 2007 |
(2) |
|
|
|
|
5.375% senior
|
|
$ |
300.0 |
|
|
|
July 2005 |
|
|
|
June 15, 2012 |
|
|
|
Yes(4) |
|
|
|
5.4 |
% |
6.875% senior
|
|
$ |
200.0 |
|
|
|
April 2003 |
|
|
|
May 1, 2013 |
|
|
|
No(3) |
|
|
|
7.0 |
% |
5.875% senior
|
|
$ |
100.0 |
|
|
|
June 2003 |
|
|
|
July 1, 2013 |
|
|
|
Yes, on or after |
|
|
|
5.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2008(2)(3) |
|
|
|
|
|
6.125% senior
|
|
$ |
200.0 |
|
|
|
July 2004 |
|
|
|
January 15, 2014 |
|
|
|
No(3) |
|
|
|
6.3 |
% |
5.625% senior
|
|
$ |
250.0 |
|
|
|
September 2004 |
|
|
|
September 15, 2014 |
|
|
|
No(3) |
|
|
|
5.8 |
% |
5.25% senior
|
|
$ |
300.0 |
|
|
|
February 2005 |
|
|
|
February 15, 2015 |
|
|
|
Yes(4) |
|
|
|
5.4 |
% |
5.625% senior
|
|
$ |
300.0 |
|
|
|
December 2004 |
|
|
|
January 15, 2016 |
|
|
|
Yes(4) |
|
|
|
5.8 |
% |
57
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(1) |
Interest is payable semi-annually on each of the series of
senior and senior subordinated notes. |
|
(2) |
Each series of notes that is redeemable may be redeemed at a
price equal to 100% of the principal amount plus a premium
declining ratably to par over a three-year period beginning on
the date indicated. |
|
(3) |
The Company may redeem up to 35% of the amount originally issued
with the proceeds of public equity offerings at a redemption
price equal to the principal amount, plus a premium and accrued
interest for up to three years after the date of issuance. |
|
(4) |
The Company may redeem the notes in whole at any time or in part
from time to time, at a redemption price equal to the greater of
100% of their principal amount or the present value of the
remaining scheduled payments on the redemption date, plus in
each case, accrued interest. |
All series of senior notes are senior obligations of the Company
and rank pari passu in right of payment to all existing
and future unsecured indebtedness of the Company, and senior to
all existing and future indebtedness expressly subordinated to
them. The senior subordinated notes rank behind all existing and
future senior notes and bank credit facilities. Both the senior
and senior subordinated notes are guaranteed by substantially
all of the Companys wholly-owned subsidiaries other than
its financial services subsidiaries. Upon a change of control of
the Company, holders of all series of notes issued prior to
October 2004 have the right to require the Company to redeem
such notes at a price of 101% of the par amount, along with
accrued and unpaid interest.
On April 1, 2005, the Company repaid the $200 million
principal amount of the 10.5% senior notes which became due
on that date.
On July 15, 2005, the Company redeemed the
$235 million principal amount of its 9.375% senior
notes due 2009 at an aggregate redemption price of approximately
$246 million, plus accrued interest. The notes were
originally issued by Schuler Homes, Inc. and were assumed by the
Company in their merger in February 2002. Concurrent with the
redemption, the Company recorded interest expense of
approximately $4.4 million, representing the call premium
net of the unamortized premium related to the redeemed notes.
In May 2005, the Board of Directors authorized the repurchase of
up to $200 million of the Companys outstanding debt
securities, all of which was remaining at September 30,
2005. On November 17, 2005, the Board of Directors
authorized the repurchase of up to $200 million of
outstanding debt securities, replacing the existing debt
securities repurchase authorization.
The bank credit facilities and many of the indentures for the
senior and senior subordinated notes contain covenants which,
taken together, limit investments in inventory, stock
repurchases, cash dividends and other restricted payments,
incurrence of indebtedness, asset dispositions and creation of
liens, and require certain levels of tangible net worth. At
September 30, 2005, under the most restrictive covenants,
the additional debt the Company could incur was limited to
$2.5 billion, in accordance with a limitation in the bank
credit facility that is only applicable when the Company has
fewer than two investment grade debt ratings from three
specified rating agencies. Effective November 7, 2005, this
limitation on additional indebtedness is no longer in effect,
because the Company received its second investment grade rating.
Additionally, cash dividends paid on or repurchases of the
Companys common stock and other restricted payments are
limited to an amount not to exceed, on a cumulative basis, 50%
of consolidated net income, as defined, subject to certain other
adjustments. Under the most restrictive of these requirements,
the Company had approximately $1.4 billion available for
the payment of dividends and other restricted payments at
September 30, 2005.
The Company uses interest rate swap agreements to help manage a
portion of its interest rate exposure. The agreements convert a
notional amount of $200 million from a variable rate to a
fixed rate.
58
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
These agreements are cancelable by a third party during periods
where LIBOR exceeds 7%. The agreements expire at dates through
September 2008. The Company does not expect non-performance by
the counter-party, a major U.S. bank, and any losses
incurred in the event of non-performance are not expected to be
material. Net payments or receipts under these agreements are
recorded as adjustments to interest incurred. As a result of
these agreements, the Companys net interest costs were
increased by $4.9 million in 2005 and $7.5 million in
2004 and 2003.
The Companys mortgage subsidiary renewed and amended its
$300 million mortgage warehouse loan facility in April
2005, increasing the amount that may be borrowed under the
uncommitted accordion provisions to $150 million and
extending its maturity to April 7, 2006. The borrowing
capacity under this facility is limited to the lesser of the
unused portion of the facility, as adjusted by the accordion
provision or otherwise by amendment of the parties, or an amount
determined under a borrowing base arrangement. Under the
borrowing base limitation, the amount drawn on the mortgage
warehouse loan facility may not exceed 98% of all eligible
mortgage loans held for sale and made available to the lenders
to secure any borrowings under the facility.
Through amendment to the credit agreement in June 2005, the
Company obtained additional commitments from its lenders through
the accordion provisions that increased the total commitments
under the facility to $450 million. Temporary commitment
increases of $225 million were obtained through amendments
to the credit agreement in September 2005, resulting in total
capacity of $675 million at September 30, 2005.
Through amendments to the credit agreement in October and
November 2005, the commitments under the facility were adjusted
to $450 million, effective from October 28, 2005
through January 15, 2006. On January 16, 2006, the
total capacity will return to $300 million, subject to
increase to $450 million should the Company elect to
request and obtain additional commitments under the
$150 million accordion provision again.
The mortgage warehouse facility is secured by certain mortgage
loans held for sale and is not guaranteed by D.R. Horton, Inc.
or any of the guarantors of its homebuilding debt. Borrowings
bear daily interest at the 30-day LIBOR rate plus a fixed
premium. The interest rates of the mortgage warehouse line
payable at September 30, 2005 and 2004 were 4.7% and 2.7%,
respectively.
The Companys mortgage subsidiary also has a
$500 million commercial paper conduit facility (the CP
conduit facility), that expires on June 29, 2006. Through
amendment to the credit agreement in June 2005, the Company
increased the capacity available under this facility from
$300 million to $500 million. A temporary increase of
$200 million was obtained through amendments to the credit
agreement in September 2005, resulting in a total capacity of
$700 million at September 30, 2005. The temporary
increase was effective through October 14, 2005, when the
capacity decreased to $600 million available through
November 10, 2005. Beginning on November 11, 2005, the
total capacity decreased to $500 million.
The CP conduit facility is secured by certain mortgage loans
held for sale and is not guaranteed by D.R. Horton, Inc. or any
of the guarantors of its homebuilding debt. The mortgage loans
assigned to secure the CP conduit facility are used as
collateral for asset backed commercial paper issued by
multi-seller conduits in the commercial paper market. The
interest rates of the CP conduit facility at September 30,
2005 and 2004 were 4.3% and 2.4%, respectively.
NOTE C STOCKHOLDERS EQUITY
At September 30, 2005, 315,591,668 shares of Common
Stock were issued and 312,938,868 shares were outstanding.
No shares of Preferred Stock were issued or outstanding. As of
September 30, 2005,
59
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
15,672,273 and 4,556,218 shares of Common Stock were
reserved for issuance pursuant to the
D.R. Horton, Inc. Stock Incentive Plans and Employee
Stock Purchase Plan, respectively.
On December 1, 2003, the Board of Directors declared a
three-for-two common stock split (effected as a 50% stock
dividend), which was paid on January 12, 2004 to
stockholders of record on December 22, 2003. On
February 15, 2005, the Board of Directors declared a
four-for-three common stock split (effected as a
331/3%
stock dividend), which was paid on March 16, 2005 to
stockholders of record on March 1, 2005.
The Company has a shelf registration statement with the
Securities and Exchange Commission (SEC) to issue, from
time to time, up to 22.5 million shares of registered
common stock in connection with future acquisitions. The Company
filed with the SEC a universal shelf registration statement
registering $3.0 billion in debt and equity securities
effective in September 2005. At September 30, 2005, the
remaining capacity to issue new debt or equity securities
amounted to $3.0 billion.
In May 2005, the Board of Directors authorized the repurchase of
up to $175.6 million of the Companys common stock,
all of which was remaining at September 30, 2005. On
November 17, 2005, the Board of Directors authorized the
repurchase of up to $500 million of the Companys
common stock, replacing the existing common stock repurchase
authorization.
NOTE D PROVISION FOR INCOME TAXES
The provision for income taxes includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Current provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
865.7 |
|
|
$ |
561.5 |
|
|
$ |
355.6 |
|
|
State
|
|
|
127.1 |
|
|
|
96.0 |
|
|
|
48.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
992.8 |
|
|
|
657.5 |
|
|
|
403.8 |
|
|
|
|
|
|
|
|
|
|
|
Deferred benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(72.8 |
) |
|
|
(45.7 |
) |
|
|
(19.6 |
) |
|
State
|
|
|
(11.9 |
) |
|
|
(4.0 |
) |
|
|
(2.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(84.7 |
) |
|
|
(49.7 |
) |
|
|
(21.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$ |
908.1 |
|
|
$ |
607.8 |
|
|
$ |
382.2 |
|
|
|
|
|
|
|
|
|
|
|
60
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. These differences primarily relate
to the following:
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Capitalization of inventory costs
|
|
$ |
123.1 |
|
|
$ |
96.1 |
|
|
Warranty and construction defect costs
|
|
|
110.8 |
|
|
|
77.7 |
|
|
Incentive compensation plans
|
|
|
27.1 |
|
|
|
16.9 |
|
|
Other
|
|
|
26.1 |
|
|
|
28.5 |
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
287.1 |
|
|
|
219.2 |
|
Deferred tax liabilities
|
|
|
22.0 |
|
|
|
38.8 |
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$ |
265.1 |
|
|
$ |
180.4 |
|
|
|
|
|
|
|
|
The net deferred tax assets are classified in the balance sheet
as homebuilding other assets.
The difference between income tax expense and tax computed by
applying the federal statutory income tax rate of 35% to income
before taxes is due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Income taxes at federal statutory rate
|
|
$ |
832.5 |
|
|
$ |
554.0 |
|
|
$ |
352.9 |
|
Increase (decrease) in tax resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net
|
|
|
73.3 |
|
|
|
55.5 |
|
|
|
28.5 |
|
|
Other
|
|
|
2.3 |
|
|
|
(1.7 |
) |
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$ |
908.1 |
|
|
$ |
607.8 |
|
|
$ |
382.2 |
|
|
|
|
|
|
|
|
|
|
|
NOTE E EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan for all Company employees who have
been with the Company for a period of six months or more. The
Company matches portions of employees voluntary
contributions. Additional employer contributions in the form of
profit sharing are at the discretion of the Company. Expenses
for the plan were $9.2 million, $7.5 million and
$6.9 million in fiscal 2005, 2004 and 2003, respectively.
The Companys Supplemental Executive Retirement Plan
(SERP) is a non-qualified deferred compensation program
that provides benefits payable to certain management employees
upon retirement, death, or termination of employment with the
Company. Under it, the Company accrues an unfunded benefit based
on a percentage of the eligible employees salaries, as
well as an interest factor based upon a predetermined formula.
The Companys liabilities related to the SERP were
$8.4 million and $7.3 million at September 30,
2005 and 2004, respectively. The Company recorded
$1.8 million, $1.5 million and $0.9 million of
expense for this plan in fiscal 2005, 2004 and 2003,
respectively.
In June 2002, the Company established a new deferred
compensation plan to a select group of employees. The
participating employees designate investments for their
contributions; however, the Company is not required to invest
the contributions in the designated investments. The
Companys net liabilities related to the deferred
compensation plan were $53.3 million and $28.0 million
at September 30,
61
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2005 and 2004, respectively. The Company records as expense the
amount that the employee contributions would have earned had the
funds been invested in the designated investments. The Company
recorded $7.6 million, $2.2 million and
$1.3 million of expense for this plan in fiscal 2005, 2004
and 2003, respectively.
The Companys Employee Stock Purchase Plan provides
eligible employees the opportunity to purchase common stock of
the Company at a discounted price of at least 85% of the fair
market value of the stock on the designated dates of purchase.
The price may be further discounted depending on the average
fair market value of the stock during the period and certain
other criteria. Under the terms of the plan, the total fair
market value of the common stock that an eligible employee may
purchase each year is limited to the lesser of 15% of the
employees annual compensation or $25,000. Under the plan,
employees of the Company purchased 95,669 shares for
$1.9 million in fiscal 2005, 86,035 shares for
$2.5 million in fiscal 2004 and 54,315 shares for
$0.9 million in fiscal 2003.
The Company Stock Incentive Plans provide for the granting of
stock options to certain key employees of the Company to
purchase shares of common stock. Options are granted at exercise
prices which equal the market value of the Companys common
stock at the date of the grant. Options generally expire
10 years after the dates on which they were granted.
Options generally vest over periods of 5 to 9.75 years.
There were 1,706,629 and 612,247 shares available for
future grants under the Plans at September 30, 2005 and
2004, respectively. The Company issued a three-for-two stock
split on January 12, 2004 and a four-for-three stock split
on March 16, 2005. The amounts in the following table have
been adjusted to reflect the effects of the stock splits.
Activity under the Company Stock Incentive Plans are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
Options | |
|
Price | |
|
Options | |
|
Price | |
|
Options | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
16,733,401 |
|
|
$ |
11.06 |
|
|
|
14,610,313 |
|
|
$ |
6.71 |
|
|
|
17,572,516 |
|
|
$ |
6.38 |
|
Granted
|
|
|
30,000 |
|
|
|
36.92 |
|
|
|
4,798,666 |
|
|
|
21.60 |
|
|
|
120,000 |
|
|
|
10.26 |
|
Exercised
|
|
|
(1,673,426 |
) |
|
|
5.46 |
|
|
|
(1,539,281 |
) |
|
|
4.56 |
|
|
|
(1,746,751 |
) |
|
|
3.55 |
|
Canceled
|
|
|
(1,124,331 |
) |
|
|
13.96 |
|
|
|
(1,136,297 |
) |
|
|
8.43 |
|
|
|
(1,335,452 |
) |
|
|
6.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
13,965,644 |
|
|
$ |
11.55 |
|
|
|
16,733,401 |
|
|
$ |
11.06 |
|
|
|
14,610,313 |
|
|
$ |
6.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
4,438,303 |
|
|
$ |
7.83 |
|
|
|
4,219,837 |
|
|
$ |
5.81 |
|
|
|
3,960,341 |
|
|
$ |
5.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise prices for options outstanding at September 30,
2005, ranged from $1.94 to $36.92.
62
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The weighted average remaining contractual lives of those
options are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding | |
|
Exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted | |
|
Weighted | |
|
|
|
Weighted | |
|
Weighted | |
|
|
|
|
Average | |
|
Average | |
|
|
|
Average | |
|
Average | |
|
|
|
|
Exercise | |
|
Remaining | |
|
|
|
Exercise | |
|
Remaining | |
Exercise Price Range |
|
Options | |
|
Price | |
|
Contract Life | |
|
Options | |
|
Price | |
|
Contract Life | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Less than $4.50
|
|
|
2,132,369 |
|
|
$ |
3.37 |
|
|
|
2.8 |
|
|
|
1,063,153 |
|
|
$ |
3.11 |
|
|
|
2.1 |
|
$4.50-$9.00
|
|
|
3,716,671 |
|
|
|
5.47 |
|
|
|
4.0 |
|
|
|
1,831,223 |
|
|
|
5.52 |
|
|
|
3.8 |
|
More than $9.00
|
|
|
8,116,604 |
|
|
|
16.48 |
|
|
|
7.7 |
|
|
|
1,543,927 |
|
|
|
13.80 |
|
|
|
7.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13,965,644 |
|
|
$ |
11.55 |
|
|
|
6.0 |
|
|
|
4,438,303 |
|
|
$ |
7.83 |
|
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average fair value of grants made in fiscal 2005,
2004 and 2003 was $18.42, $12.34 and $6.06 per share,
respectively. All amounts reflect the three-for-two stock split
(effected as a 50% stock dividend) of January 2004 and the
four-for-three stock split (effected as a
331/3%
dividend) of March 2005.
The fair values of the options granted were estimated on the
date of their grant using the Black-Scholes option pricing model
based on the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Risk free interest rate
|
|
|
4.25 |
% |
|
|
4.38 |
% |
|
|
4.05 |
% |
Expected life (in years)
|
|
|
6.21 |
|
|
|
7.18 |
|
|
|
6.63 |
|
Expected volatility
|
|
|
51.34 |
% |
|
|
57.95 |
% |
|
|
67.66 |
% |
Expected dividend yield
|
|
|
0.98 |
% |
|
|
1.11 |
% |
|
|
1.42 |
% |
NOTE F FINANCIAL INSTRUMENTS
The fair values of the Companys financial instruments are
based on quoted market prices, where available, or are
estimated. Fair value estimates are made at a specific point in
time based on relevant market information and information about
the financial instrument. These estimates are subjective in
nature, involve matters of judgment and therefore, cannot be
determined with precision. Estimated fair values are
significantly affected by the assumptions used. The
Companys methods and assumptions used in estimating fair
values are described below.
The carrying amounts of cash and cash equivalents, the mortgage
warehouse facility, the commercial paper conduit facility and
other secured notes payable as reported in the Companys
balance sheets approximate their fair values due to their short
maturity or floating interest rate terms, as applicable.
63
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the senior and senior subordinated notes, fair values
represent quoted market prices. For the interest rate swaps,
fair values represent market values as determined by the issuer
of the swaps based upon the markets current anticipation
of future LIBOR rate levels. For mortgage loans held for sale,
forward sales of mortgage backed securities and interest rate
lock commitments, the fair values are estimated based on quoted
market prices for similar financial instruments. The table below
sets forth the carrying values and estimated fair values of the
Companys senior and senior subordinated notes, interest
rate swaps, mortgage loans held for sale, forward sales of
mortgage backed securities and interest rate lock commitments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2005 | |
|
September 30, 2004 | |
|
|
| |
|
| |
|
|
Carrying | |
|
Estimated | |
|
Carrying | |
|
Estimated | |
|
|
Value | |
|
Fair Value | |
|
Value | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
HOMEBUILDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
Senior and Senior Subordinated Notes
|
|
$ |
3,634.7 |
|
|
$ |
3,701.7 |
|
|
$ |
2,932.7 |
|
|
$ |
3,192.7 |
|
|
Interest rate swaps
|
|
|
3.2 |
|
|
|
3.2 |
|
|
|
12.7 |
|
|
|
12.7 |
|
FINANCIAL SERVICES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
1,358.7 |
|
|
|
1,358.7 |
|
|
|
623.3 |
|
|
|
623.3 |
|
|
Forward sales of mortgage backed securities and Eurodollar
futures contracts
|
|
|
0.7 |
|
|
|
0.7 |
|
|
|
(0.3 |
) |
|
|
(0.3 |
) |
|
Interest rate lock commitments
|
|
|
(0.4 |
) |
|
|
(0.4 |
) |
|
|
0.3 |
|
|
|
0.3 |
|
NOTE G COMMITMENTS AND CONTINGENCIES
The Company is involved in lawsuits and other contingencies in
the ordinary course of business. Management believes that, while
the outcome of such contingencies cannot be predicted with
certainty, the liabilities arising from these matters will not
have a material adverse effect on the Companys financial
position. However, to the extent the liability arising from the
ultimate resolution of any matter exceeds managements
estimates reflected in the recorded liabilities relating to such
matter, the Company could incur additional charges that could be
significant.
The Company has recorded liabilities for contingencies occurring
in the ordinary course of business, including warranty and
construction defect claims on closed homes, and the expected
costs of the self-insured portion of general liability and
workers compensation insurance claims. The Companys
estimates of such liabilities are based on the facts and
circumstances of individual pending claims and historical data
and trends, including but not limited to costs relative to
revenues, home closings and product types, and include estimates
of the costs of unreported claims related to past operations.
These liability estimates are subject to ongoing revision as the
circumstances of individual pending claims and historical data
and trends change. Adjustments to estimated reserves are
recorded in the accounting period in which the change in
estimate occurs. The Companys total liabilities for such
items were $329.9 million and $223.2 million at
September 30, 2005 and 2004, respectively.
In the ordinary course of business, the Company enters into land
and lot option purchase contracts in order to procure land or
lots for the construction of homes. At September 30, 2005,
the Company had cash deposits of $256.7 million, promissory
notes of $18.6 million, and letters of credit and surety
bonds of $12.1 million to purchase land and lots with a
total remaining purchase price of $5.9 billion. Only
$230.8 million of the $5.9 billion in land lot option
purchase contracts contain specific performance clauses which
may require the Company to purchase the land or lots upon the
land seller meeting certain obligations. The majority of land
and lots under contract are expected to be purchased within
three years.
64
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Additionally, in the normal course of its business activities,
the Company provides standby letters of credit and surety bonds,
issued by third parties, to secure performance under various
contracts. At September 30, 2005, outstanding standby
letters of credit were $137.2 million and surety bonds were
$1.8 billion. The Company has an additional capacity of
$231.0 million for standby letters of credit under its
revolving credit facility.
The Company leases office space and equipment under
non-cancelable operating leases. Minimum annual lease payments
under these leases at September 30, 2005 approximate (in
millions):
|
|
|
|
|
2006
|
|
$ |
25.3 |
|
2007
|
|
|
22.7 |
|
2008
|
|
|
16.8 |
|
2009
|
|
|
12.7 |
|
2010
|
|
|
9.0 |
|
Thereafter
|
|
|
15.2 |
|
|
|
|
|
|
|
$ |
101.7 |
|
|
|
|
|
Rent expense approximated $50.7 million, $33.2 million
and $27.7 million for fiscal 2005, 2004 and 2003,
respectively.
65
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE H SUMMARIZED FINANCIAL INFORMATION
All of the Companys senior and senior subordinated notes
are fully and unconditionally guaranteed, on a joint and several
basis, by all of the Companys direct and indirect
subsidiaries (Guarantor Subsidiaries), other than financial
services subsidiaries and certain other inconsequential
subsidiaries (collectively, Non-Guarantor Subsidiaries). Each of
the Guarantor Subsidiaries is wholly-owned. In lieu of providing
separate audited financial statements for the Guarantor
Subsidiaries, consolidated condensed financial statements are
presented below. Separate financial statements and other
disclosures concerning the Guarantor Subsidiaries are not
presented because management has determined that they are not
material to investors.
Certain balances in the following Consolidating Balance Sheet as
of September 30, 2004 and the Consolidating Statements of
Income and Consolidating Statements of Cash Flows for the years
ended September 30, 2004 and 2003 have been revised to
conform with the fiscal 2005 presentation. These revisions
primarily consist of separate reporting of investments in
subsidiaries and intercompany receivables/payables in the
Consolidating Balance Sheets, separate reporting of equity in
income of subsidiaries and other income/expense in the
Consolidating Statements of Income and the reclassification of
equity in income of subsidiaries from cash flows from financing
activities to cash flows from operating activities in the
Consolidating Statements of Cash Flows. Such reclassifications
on the Statements of Cash Flows resulted in decreases in
operating cash flows and increases in financing cash flows for
the D.R. Horton, Inc. column of $869.7 million and
$626.9 million for the years ended September 30, 2004
and 2003, respectively.
Consolidating Balance Sheet
September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. | |
|
Guarantor | |
|
Non-Guarantor | |
|
|
|
|
|
|
Horton, Inc. | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
726.6 |
|
|
$ |
381.0 |
|
|
$ |
42.2 |
|
|
$ |
|
|
|
$ |
1,149.8 |
|
|
Investments in subsidiaries
|
|
|
2,563.4 |
|
|
|
|
|
|
|
|
|
|
|
(2,563.4 |
) |
|
|
|
|
|
Inventories
|
|
|
2,157.4 |
|
|
|
6,113.4 |
|
|
|
216.0 |
|
|
|
|
|
|
|
8,486.8 |
|
|
Property and equipment (net)
|
|
|
13.8 |
|
|
|
74.8 |
|
|
|
18.6 |
|
|
|
|
|
|
|
107.2 |
|
|
Earnest money deposits and other assets
|
|
|
364.3 |
|
|
|
369.6 |
|
|
|
99.5 |
|
|
|
|
|
|
|
833.4 |
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
|
|
|
|
1,358.7 |
|
|
|
|
|
|
|
1,358.7 |
|
|
Goodwill
|
|
|
|
|
|
|
578.9 |
|
|
|
|
|
|
|
|
|
|
|
578.9 |
|
|
Intercompany receivables
|
|
|
3,969.3 |
|
|
|
|
|
|
|
|
|
|
|
(3,969.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
9,794.8 |
|
|
$ |
7,517.7 |
|
|
$ |
1,735.0 |
|
|
$ |
(6,532.7 |
) |
|
$ |
12,514.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
$ |
782.4 |
|
|
$ |
1,194.2 |
|
|
$ |
65.0 |
|
|
$ |
|
|
|
$ |
2,041.6 |
|
|
Intercompany payables
|
|
|
|
|
|
|
3,893.3 |
|
|
|
76.0 |
|
|
|
(3,969.3 |
) |
|
|
|
|
|
Notes payable
|
|
|
3,652.0 |
|
|
|
8.1 |
|
|
|
1,249.5 |
|
|
|
|
|
|
|
4,909.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
4,434.4 |
|
|
|
5,095.6 |
|
|
|
1,390.5 |
|
|
|
(3,969.3 |
) |
|
|
6,951.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
203.2 |
|
|
|
|
|
|
|
203.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
5,360.4 |
|
|
|
2,422.1 |
|
|
|
141.3 |
|
|
|
(2,563.4 |
) |
|
|
5,360.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Equity
|
|
$ |
9,794.8 |
|
|
$ |
7,517.7 |
|
|
$ |
1,735.0 |
|
|
$ |
(6,532.7 |
) |
|
$ |
12,514.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidating Balance Sheet
September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. | |
|
Guarantor | |
|
Non-Guarantor | |
|
|
|
|
|
|
Horton, Inc. | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
338.9 |
|
|
$ |
131.6 |
|
|
$ |
47.5 |
|
|
$ |
|
|
|
$ |
518.0 |
|
|
Investments in subsidiaries
|
|
|
2,101.8 |
|
|
|
|
|
|
|
|
|
|
|
(2,101.8 |
) |
|
|
|
|
|
Inventories
|
|
|
1,487.6 |
|
|
|
4,894.4 |
|
|
|
185.4 |
|
|
|
|
|
|
|
6,567.4 |
|
|
Property and equipment (net)
|
|
|
16.3 |
|
|
|
58.8 |
|
|
|
16.8 |
|
|
|
|
|
|
|
91.9 |
|
|
Earnest money deposits and other assets
|
|
|
256.3 |
|
|
|
299.8 |
|
|
|
49.6 |
|
|
|
|
|
|
|
605.7 |
|
|
Mortgage loans held for sale
|
|
|
|
|
|
|
|
|
|
|
623.3 |
|
|
|
|
|
|
|
623.3 |
|
|
Goodwill
|
|
|
|
|
|
|
578.9 |
|
|
|
|
|
|
|
|
|
|
|
578.9 |
|
|
Intercompany receivables
|
|
|
3,282.7 |
|
|
|
|
|
|
|
|
|
|
|
(3,282.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
7,483.6 |
|
|
$ |
5,963.5 |
|
|
$ |
922.6 |
|
|
$ |
(5,384.5 |
) |
|
$ |
8,985.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
$ |
537.1 |
|
|
$ |
772.3 |
|
|
$ |
49.5 |
|
|
$ |
|
|
|
$ |
1,358.9 |
|
|
Intercompany payables
|
|
|
|
|
|
|
3,192.1 |
|
|
|
90.6 |
|
|
|
(3,282.7 |
) |
|
|
|
|
|
Notes payable
|
|
|
2,985.8 |
|
|
|
18.9 |
|
|
|
494.5 |
|
|
|
|
|
|
|
3,499.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
3,522.9 |
|
|
|
3,983.3 |
|
|
|
634.6 |
|
|
|
(3,282.7 |
) |
|
|
4,858.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
166.4 |
|
|
|
|
|
|
|
166.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
3,960.7 |
|
|
|
1,980.2 |
|
|
|
121.6 |
|
|
|
(2,101.8 |
) |
|
|
3,960.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Equity
|
|
$ |
7,483.6 |
|
|
$ |
5,963.5 |
|
|
$ |
922.6 |
|
|
$ |
(5,384.5 |
) |
|
$ |
8,985.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidating Statement of Income
Year Ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. | |
|
Guarantor | |
|
Non-Guarantor | |
|
|
|
|
|
|
Horton, Inc. | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales
|
|
$ |
2,962.9 |
|
|
$ |
10,369.1 |
|
|
$ |
44.6 |
|
|
$ |
|
|
|
$ |
13,376.6 |
|
|
|
Land/lot sales
|
|
|
121.7 |
|
|
|
130.3 |
|
|
|
|
|
|
|
|
|
|
|
252.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,084.6 |
|
|
|
10,499.4 |
|
|
|
44.6 |
|
|
|
|
|
|
|
13,628.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales
|
|
|
2,019.2 |
|
|
|
7,928.2 |
|
|
|
30.3 |
|
|
|
|
|
|
|
9,977.7 |
|
|
|
Land/lot sales
|
|
|
78.6 |
|
|
|
84.0 |
|
|
|
|
|
|
|
|
|
|
|
162.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,097.8 |
|
|
|
8,012.2 |
|
|
|
30.3 |
|
|
|
|
|
|
|
10,140.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales
|
|
|
943.7 |
|
|
|
2,440.9 |
|
|
|
14.3 |
|
|
|
|
|
|
|
3,398.9 |
|
|
|
Land/lot sales
|
|
|
43.1 |
|
|
|
46.3 |
|
|
|
|
|
|
|
|
|
|
|
89.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
986.8 |
|
|
|
2,487.2 |
|
|
|
14.3 |
|
|
|
|
|
|
|
3,488.3 |
|
|
Selling, general and administrative expense
|
|
|
482.3 |
|
|
|
720.4 |
|
|
|
8.2 |
|
|
|
15.7 |
|
|
|
1,226.6 |
|
|
Equity in income of subsidiaries
|
|
|
(1,864.5 |
) |
|
|
|
|
|
|
|
|
|
|
1,864.5 |
|
|
|
|
|
|
Interest expense
|
|
|
4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.4 |
|
|
Other (income) expense
|
|
|
(14.0 |
) |
|
|
(1.8 |
) |
|
|
0.1 |
|
|
|
|
|
|
|
(15.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,378.6 |
|
|
|
1,768.6 |
|
|
|
6.0 |
|
|
|
(1,880.2 |
) |
|
|
2,273.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
235.1 |
|
|
|
|
|
|
|
235.1 |
|
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
|
163.3 |
|
|
|
(15.7 |
) |
|
|
147.6 |
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
16.8 |
|
|
|
|
|
|
|
16.8 |
|
|
Other (income)
|
|
|
|
|
|
|
|
|
|
|
(34.9 |
) |
|
|
|
|
|
|
(34.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89.9 |
|
|
|
15.7 |
|
|
|
105.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,378.6 |
|
|
|
1,768.6 |
|
|
|
95.9 |
|
|
|
(1,864.5 |
) |
|
|
2,378.6 |
|
|
Provision for income taxes
|
|
|
908.1 |
|
|
|
675.3 |
|
|
|
36.6 |
|
|
|
(711.9 |
) |
|
|
908.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
1,470.5 |
|
|
$ |
1,093.3 |
|
|
$ |
59.3 |
|
|
$ |
(1,152.6 |
) |
|
$ |
1,470.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidating Statement of Income
Year Ended September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. | |
|
Guarantor | |
|
Non-Guarantor | |
|
|
|
|
|
|
Horton, Inc. | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales
|
|
$ |
1,885.2 |
|
|
$ |
8,489.4 |
|
|
$ |
116.5 |
|
|
$ |
|
|
|
$ |
10,491.1 |
|
|
|
Land/lot sales
|
|
|
14.9 |
|
|
|
152.0 |
|
|
|
|
|
|
|
|
|
|
|
166.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,900.1 |
|
|
|
8,641.4 |
|
|
|
116.5 |
|
|
|
|
|
|
|
10,658.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales
|
|
|
1,376.6 |
|
|
|
6,633.8 |
|
|
|
84.3 |
|
|
|
|
|
|
|
8,094.7 |
|
|
|
Land/lot sales
|
|
|
12.0 |
|
|
|
90.6 |
|
|
|
|
|
|
|
|
|
|
|
102.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,388.6 |
|
|
|
6,724.4 |
|
|
|
84.3 |
|
|
|
|
|
|
|
8,197.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales
|
|
|
508.6 |
|
|
|
1,855.6 |
|
|
|
32.2 |
|
|
|
|
|
|
|
2,396.4 |
|
|
|
Land/lot sales
|
|
|
2.9 |
|
|
|
61.4 |
|
|
|
|
|
|
|
|
|
|
|
64.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
511.5 |
|
|
|
1,917.0 |
|
|
|
32.2 |
|
|
|
|
|
|
|
2,460.7 |
|
|
Selling, general and administrative expense
|
|
|
342.2 |
|
|
|
594.7 |
|
|
|
10.2 |
|
|
|
11.9 |
|
|
|
959.0 |
|
|
Equity in income of subsidiaries
|
|
|
(1,411.8 |
) |
|
|
|
|
|
|
|
|
|
|
1,411.8 |
|
|
|
|
|
|
Interest expense
|
|
|
3.0 |
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
|
|
|
|
3.4 |
|
|
Other (income) expense
|
|
|
(4.8 |
) |
|
|
(12.4 |
) |
|
|
7.3 |
|
|
|
|
|
|
|
(9.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,582.9 |
|
|
|
1,334.6 |
|
|
|
14.4 |
|
|
|
(1,423.7 |
) |
|
|
1,508.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
182.8 |
|
|
|
|
|
|
|
182.8 |
|
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
|
132.9 |
|
|
|
(11.9 |
) |
|
|
121.0 |
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
5.9 |
|
|
|
|
|
|
|
5.9 |
|
|
Other (income)
|
|
|
|
|
|
|
|
|
|
|
(18.8 |
) |
|
|
|
|
|
|
(18.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62.8 |
|
|
|
11.9 |
|
|
|
74.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,582.9 |
|
|
|
1,334.6 |
|
|
|
77.2 |
|
|
|
(1,411.8 |
) |
|
|
1,582.9 |
|
|
Provision for income taxes
|
|
|
607.8 |
|
|
|
512.4 |
|
|
|
29.7 |
|
|
|
(542.1 |
) |
|
|
607.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
975.1 |
|
|
$ |
822.2 |
|
|
$ |
47.5 |
|
|
$ |
(869.7 |
) |
|
$ |
975.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidating Statement of Income
Year Ended September 30, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. | |
|
Guarantor | |
|
Non-Guarantor | |
|
|
|
|
|
|
Horton, Inc. | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales
|
|
$ |
1,296.9 |
|
|
$ |
6,833.6 |
|
|
$ |
203.6 |
|
|
$ |
|
|
|
$ |
8,334.1 |
|
|
|
Land/lot sales
|
|
|
16.6 |
|
|
|
199.0 |
|
|
|
2.4 |
|
|
|
|
|
|
|
218.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,313.5 |
|
|
|
7,032.6 |
|
|
|
206.0 |
|
|
|
|
|
|
|
8,552.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales
|
|
|
1,033.0 |
|
|
|
5,440.9 |
|
|
|
147.7 |
|
|
|
(0.4 |
) |
|
|
6,621.2 |
|
|
|
Land/lot sales
|
|
|
19.0 |
|
|
|
163.2 |
|
|
|
2.4 |
|
|
|
|
|
|
|
184.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,052.0 |
|
|
|
5,604.1 |
|
|
|
150.1 |
|
|
|
(0.4 |
) |
|
|
6,805.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales
|
|
|
263.9 |
|
|
|
1,392.7 |
|
|
|
55.9 |
|
|
|
0.4 |
|
|
|
1,712.9 |
|
|
|
Land/lot sales
|
|
|
(2.4 |
) |
|
|
35.8 |
|
|
|
|
|
|
|
|
|
|
|
33.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261.5 |
|
|
|
1,428.5 |
|
|
|
55.9 |
|
|
|
0.4 |
|
|
|
1,746.3 |
|
|
Selling, general and administrative expense
|
|
|
260.5 |
|
|
|
524.0 |
|
|
|
20.8 |
|
|
|
11.7 |
|
|
|
817.0 |
|
|
Equity in income of subsidiaries
|
|
|
(1,009.7 |
) |
|
|
|
|
|
|
|
|
|
|
1,009.7 |
|
|
|
|
|
|
Interest expense
|
|
|
3.5 |
|
|
|
(0.3 |
) |
|
|
2.0 |
|
|
|
|
|
|
|
5.2 |
|
|
Other (income) expense
|
|
|
(1.0 |
) |
|
|
(4.6 |
) |
|
|
14.6 |
|
|
|
0.4 |
|
|
|
9.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,008.2 |
|
|
|
909.4 |
|
|
|
18.5 |
|
|
|
(1,021.4 |
) |
|
|
914.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
176.0 |
|
|
|
|
|
|
|
176.0 |
|
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
|
110.0 |
|
|
|
(11.7 |
) |
|
|
98.3 |
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
7.4 |
|
|
|
|
|
|
|
7.4 |
|
|
Other (income)
|
|
|
|
|
|
|
|
|
|
|
(23.2 |
) |
|
|
|
|
|
|
(23.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81.8 |
|
|
|
11.7 |
|
|
|
93.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,008.2 |
|
|
|
909.4 |
|
|
|
100.3 |
|
|
|
(1,009.7 |
) |
|
|
1,008.2 |
|
|
Provision for income taxes
|
|
|
382.2 |
|
|
|
344.8 |
|
|
|
38.0 |
|
|
|
(382.8 |
) |
|
|
382.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
626.0 |
|
|
$ |
564.6 |
|
|
$ |
62.3 |
|
|
$ |
(626.9 |
) |
|
$ |
626.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidating Statement of Cash Flows
Year Ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. | |
|
Guarantor | |
|
Non-Guarantor | |
|
|
|
|
|
|
Horton, Inc. | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
|
| |
|
|
(In millions) | |
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(201.8 |
) |
|
|
282.1 |
|
|
|
(701.0 |
) |
|
|
|
|
|
|
(620.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net purchases of property and equipment
|
|
|
(5.4 |
) |
|
|
(57.7 |
) |
|
|
(5.1 |
) |
|
|
|
|
|
|
(68.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(5.4 |
) |
|
|
(57.7 |
) |
|
|
(5.1 |
) |
|
|
|
|
|
|
(68.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in notes payable
|
|
|
652.5 |
|
|
|
(15.2 |
) |
|
|
755.1 |
|
|
|
|
|
|
|
1,392.4 |
|
|
Net change in intercompany receivables/payables
|
|
|
14.1 |
|
|
|
40.2 |
|
|
|
(54.3 |
) |
|
|
|
|
|
|
|
|
|
Proceeds from stock associated with certain employee benefit
plans
|
|
|
24.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24.8 |
|
|
Cash dividends
|
|
|
(96.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(96.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
594.9 |
|
|
|
25.0 |
|
|
|
700.8 |
|
|
|
|
|
|
|
1,320.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
387.7 |
|
|
|
249.4 |
|
|
|
(5.3 |
) |
|
|
|
|
|
|
631.8 |
|
Cash and cash equivalents at beginning of year
|
|
|
338.9 |
|
|
|
131.6 |
|
|
|
47.5 |
|
|
|
|
|
|
|
518.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
726.6 |
|
|
$ |
381.0 |
|
|
$ |
42.2 |
|
|
$ |
|
|
|
$ |
1,149.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidating Statement of Cash Flows
Year Ended September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. | |
|
Guarantor | |
|
Non-Guarantor | |
|
|
|
|
|
|
Horton, Inc. | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
|
| |
|
|
(In millions) | |
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) operating activities
|
|
|
(320.8 |
) |
|
|
(23.2 |
) |
|
|
(78.5 |
) |
|
|
|
|
|
|
(422.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net purchases of property and equipment
|
|
|
(9.1 |
) |
|
|
(41.6 |
) |
|
|
(4.5 |
) |
|
|
|
|
|
|
(55.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(9.1 |
) |
|
|
(41.6 |
) |
|
|
(4.5 |
) |
|
|
|
|
|
|
(55.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in notes payable
|
|
|
404.1 |
|
|
|
(29.8 |
) |
|
|
90.0 |
|
|
|
|
|
|
|
464.3 |
|
|
Net change in intercompany receivables/payables
|
|
|
120.1 |
|
|
|
(92.8 |
) |
|
|
(27.3 |
) |
|
|
|
|
|
|
|
|
|
Proceeds from stock associated with certain employee benefit
plans
|
|
|
15.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.4 |
|
|
Cash dividends
|
|
|
(66.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
472.7 |
|
|
|
(122.6 |
) |
|
|
62.7 |
|
|
|
|
|
|
|
412.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
142.8 |
|
|
|
(187.4 |
) |
|
|
(20.3 |
) |
|
|
|
|
|
|
(64.9 |
) |
Cash and cash equivalents at beginning of year
|
|
|
196.1 |
|
|
|
319.0 |
|
|
|
67.8 |
|
|
|
|
|
|
|
582.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
338.9 |
|
|
$ |
131.6 |
|
|
$ |
47.5 |
|
|
$ |
|
|
|
$ |
518.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidating Statement of Cash Flows
Year Ended September 30, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.R. | |
|
Guarantor | |
|
Non-Guarantor | |
|
|
|
|
|
|
Horton, Inc. | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(75.2 |
) |
|
|
404.2 |
|
|
|
99.3 |
|
|
|
(5.0 |
) |
|
|
423.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net purchases of property and equipment
|
|
|
(7.1 |
) |
|
|
(25.9 |
) |
|
|
(15.6 |
) |
|
|
|
|
|
|
(48.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(7.1 |
) |
|
|
(25.9 |
) |
|
|
(15.6 |
) |
|
|
|
|
|
|
(48.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in notes payable
|
|
|
227.1 |
|
|
|
(17.4 |
) |
|
|
(18.4 |
) |
|
|
|
|
|
|
191.3 |
|
|
Net change in intercompany receivables/payables
|
|
|
138.7 |
|
|
|
(122.2 |
) |
|
|
(21.5 |
) |
|
|
5.0 |
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(58.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58.9 |
) |
Proceeds from stock associated with certain employee benefit
plans
|
|
|
11.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.6 |
|
Cash dividends
|
|
|
(40.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
278.4 |
|
|
|
(139.6 |
) |
|
|
(39.9 |
) |
|
|
5.0 |
|
|
|
103.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
196.1 |
|
|
|
238.7 |
|
|
|
43.8 |
|
|
|
|
|
|
|
478.6 |
|
Cash and cash equivalents at beginning of year
|
|
|
|
|
|
|
80.3 |
|
|
|
24.0 |
|
|
|
|
|
|
|
104.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
196.1 |
|
|
$ |
319.0 |
|
|
$ |
67.8 |
|
|
$ |
|
|
|
$ |
582.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE I QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)
Quarterly results of operations are (in millions, except for per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2005 | |
|
|
Three Months Ended | |
|
|
| |
|
|
September 30 | |
|
June 30 | |
|
March 31 | |
|
December 31 | |
|
|
| |
|
| |
|
| |
|
| |
Revenues
|
|
$ |
5,096.7 |
|
|
$ |
3,370.2 |
|
|
$ |
2,876.7 |
|
|
$ |
2,520.1 |
|
Gross profit
|
|
|
1,263.0 |
|
|
|
878.8 |
|
|
|
719.5 |
|
|
|
627.0 |
|
Net income
|
|
|
563.8 |
|
|
|
371.7 |
|
|
|
294.0 |
|
|
|
241.0 |
|
Basic earnings per common share(1)
|
|
|
1.80 |
|
|
|
1.19 |
|
|
|
0.94 |
|
|
|
0.77 |
|
Diluted earnings per common share(1)
|
|
|
1.77 |
|
|
|
1.17 |
|
|
|
0.92 |
|
|
|
0.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2004 | |
|
|
Three Months Ended | |
|
|
| |
|
|
September 30 | |
|
June 30 | |
|
March 31 | |
|
December 31 | |
|
|
| |
|
| |
|
| |
|
| |
Revenues
|
|
$ |
3,510.6 |
|
|
$ |
2,790.4 |
|
|
$ |
2,335.3 |
|
|
$ |
2,204.5 |
|
Gross profit
|
|
|
824.5 |
|
|
|
625.8 |
|
|
|
517.1 |
|
|
|
493.3 |
|
Net income
|
|
|
349.6 |
|
|
|
251.3 |
|
|
|
188.6 |
|
|
|
185.6 |
|
Basic earnings per common share(1)
|
|
|
1.12 |
|
|
|
0.81 |
|
|
|
0.61 |
|
|
|
0.60 |
|
Diluted earnings per common share(1)
|
|
|
1.11 |
|
|
|
0.80 |
|
|
|
0.60 |
|
|
|
0.59 |
|
|
|
(1) |
All basic and diluted share amounts presented above reflect the
effects of the three-for-two stock split (effected as a 50%
stock dividend) of January 12, 2004, and the four-for-three
stock split (effected as a
331/3%
stock dividend) of March 16, 2005. |
The Company experiences variability in its results of operations
from quarter to quarter due to the seasonal nature of its
homebuilding business. Historically, the Company has closed a
greater number of homes in the third and fourth (June and
September) fiscal quarters than in the first and second
(December and March) fiscal quarters. As a result, revenues and
net income typically have been higher in the third and fourth
quarters of the fiscal year.
Revenues from home sales in the fourth quarter of fiscal 2005
were reduced by a $92.2 million deferral of gross profit at
September 30, 2005, in accordance with SFAS 66 as
discussed in the Companys revenue recognition accounting
policies in Note A.
74
|
|
ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE |
None.
|
|
ITEM 9A. |
CONTROLS AND PROCEDURES |
Under the supervision and with the participation of our
management, including the Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), we have evaluated the
effectiveness of the design and operation of our disclosure
controls and procedures as defined in Rule 13a15(e)
under the Securities Exchange Act of 1934 as of the end of the
period covered by this report. Based on that evaluation, the CEO
and CFO have concluded that our disclosure controls and
procedures were effective in timely alerting them to material
information relating to the Company, including its consolidated
subsidiaries, required to be included in the Companys
periodic filings with the Securities and Exchange Commission.
There have been no changes in the Companys internal
controls over financial reporting during the quarter ended
September 30, 2005 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting for the
Company. Internal control over financial reporting is a process
to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of financial statements
for external purposes in accordance with U.S. generally
accepted accounting principles. The Companys internal
controls over financial reporting include those policies and
procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
(2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted
accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
Companys assets that could have a material effect on the
financial statements. Because of its inherent limitations,
internal control over financial reporting is not intended to
provide absolute assurance that a misstatement of our financial
statements would be prevented or detected. Also, projections of
any evaluation of internal control effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with internal control policies or procedures may
deteriorate.
Management conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework
in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management
concluded that the Companys internal control over
financial reporting was effective as of September 30, 2005.
Ernst & Young LLP, an independent registered public
accounting firm, has audited this assessment of our internal
control over financial reporting and their report is included
herein.
75
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
D.R. Horton, Inc.
We have audited managements assessment, included in the
accompanying Report of Management on Internal Control over
Financial Reporting, that D.R. Horton, Inc. and subsidiaries
(the Company) maintained effective internal control
over financial reporting as of September 30, 2005, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
The Companys management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion
on managements assessment and an opinion on the
effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of the effectiveness to
future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, managements assessment that the Company
maintained effective internal control over financial reporting
as of September 30, 2005, is fairly stated, in all material
respects, based on the COSO criteria. Also in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of September 30, 2005,
based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of D.R. Horton, Inc. and
subsidiaries as of September 30, 2005 and 2004, and the
related consolidated statements of income, stockholders
equity, and cash flows for each of the three years in the period
ended September 30, 2005 and our report dated
December 7, 2005 expressed an unqualified opinion thereon.
Fort Worth, Texas
December 7, 2005
76
|
|
ITEM 9B. |
OTHER INFORMATION |
None.
PART III
|
|
ITEM 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
The information required by this item is set forth under the
captions Election of Directors at
pages 4 through 12, Meetings and Committees
of the Board at pages 33 through 35,
Section 16(a) Beneficial Ownership Reporting
Compliance at page 38, and Requesting
Documents from the Company at page 38, of the
registrants definitive Proxy Statement for the 2006 Annual
Meeting of Stockholders to be held on January 26, 2006 and
incorporated herein by reference.
|
|
ITEM 11. |
EXECUTIVE COMPENSATION |
The information required by this item is set forth under the
caption Executive Compensation at
page 26 through 32 of the registrants definitive
Proxy Statement for the 2006 Annual Meeting of Stockholders to
be held on January 26, 2006 and incorporated herein by
reference.
|
|
ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by this item is set forth under the
caption Beneficial Ownership of Common Stock
at pages 24 through 25 and Approve the D.R.
Horton, Inc. 2006 Stock Incentive Plan Securities
Authorized for Issuance Under Equity Compensation Plans
at page 21 of the registrants definitive Proxy
Statement for the 2006 Annual Meeting of Stockholders to be held
on January 26, 2006 and incorporated herein by reference.
|
|
ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
The information required by this item is set forth under the
caption Executive Compensation Transactions
with Management at page 28 of the
registrants definitive Proxy Statement for the 2006 Annual
Meeting of Stockholders to be held on January 26, 2006 and
incorporated herein by reference.
|
|
ITEM 14. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this item is set forth under the
caption Independent Registered Public Accountants
at pages 35 through 36 of the registrants
definitive Proxy Statement for the 2006 Annual Meeting of
Stockholders to be held on January 26, 2006 and
incorporated herein by reference.
PART IV
|
|
ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) The following documents are filed as part of this
report:
(1). Financial
Statements:
See Item 8 above.
(2). Financial
Statement Schedules:
Schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are omitted because they are not required under the related
instructions or are not
77
applicable, or because the required information is shown in the
consolidated financial statements or notes thereto.
(3).
and (c) Exhibits:
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit |
|
|
|
|
2 |
.1 |
|
Agreement and Plan of Merger, dated as of December 18,
1997, by and between the Registrant and Continental Homes
Holding Corp. The Registrant agrees to furnish supplementally a
copy of omitted schedules to the SEC upon request(1) |
|
|
2 |
.2 |
|
Agreement and Plan of Merger, dated as of October 22, 2001,
as amended on November 8, 2001, by and between the
Registrant and Schuler Homes, Inc. The Registrant agrees to
furnish supplementally a copy of omitted schedules to the SEC
upon request(2) |
|
|
3 |
.1 |
|
Amended and Restated Certificate of Incorporation, as amended(3) |
|
|
3 |
.1(a) |
|
Amendment to Amended and Restated Certificate of
Incorporation(3.a) |
|
|
3 |
.2 |
|
Amended and Restated Bylaws(4) |
|
|
4 |
.1 |
|
See Exhibits 3.1, 3.1(a) and 3.2 |
|
|
4 |
.2 |
|
Indenture, dated as of June 9, 1997, among the Registrant,
the guarantors named therein and American Stock
Transfer & Trust Company, as Trustee(5) |
|
|
4 |
.3 |
|
First Supplemental Indenture, dated as of June 9, 1997,
among the Registrant, the guarantors named therein and American
Stock Transfer & Trust Company, as Trustee(6) |
|
|
4 |
.4 |
|
Second Supplemental Indenture, dated as of September 30,
1997, among the Registrant, the guarantors named therein and
American Stock Transfer & Trust Company, as Trustee(7) |
|
|
4 |
.5 |
|
Third Supplemental Indenture, dated as of April 17, 1998,
among the Registrant, the guarantors named therein and American
Stock Transfer & Trust Company, as Trustee(8) |
|
|
4 |
.6 |
|
Fourth Supplemental Indenture, dated as of April 20, 1998,
among the Registrant, the guarantors named therein and American
Stock Transfer & Trust Company, as Trustee(9) |
|
|
4 |
.7 |
|
Fifth Supplemental Indenture, dated as of August 31, 1998,
among the Registrant, the guarantors named therein and American
Stock Transfer & Trust Company, as Trustee(10) |
|
|
4 |
.8 |
|
Sixth Supplemental Indenture, dated as of February 4, 1999,
among the Registrant, the guarantors named therein and American
Stock Transfer & Trust Company, as Trustee(11) |
|
|
4 |
.9 |
|
Seventh Supplemental Indenture, dated as of August 31,
1999, among the Registrant, the guarantors named therein and
American Stock Transfer & Trust Company, as Trustee(12) |
|
|
4 |
.10 |
|
Eighth Supplemental Indenture, dated as of March 21, 2000,
among the Registrant, the guarantors named therein and American
Stock Transfer & Trust Company, as Trustee(13) |
|
|
4 |
.11 |
|
Ninth Supplemental Indenture, dated as of March 31, 2000,
among the Registrant, the guarantors named therein and American
Stock Transfer & Trust Company, as Trustee(14) |
|
|
4 |
.12 |
|
Tenth Supplemental Indenture, dated as of June 5, 2000,
among the Registrant, the guarantors named therein and American
Stock Transfer & Trust Company, as Trustee(15) |
|
|
4 |
.13 |
|
Eleventh Supplemental Indenture, dated as of May 11, 2001,
among the Registrant, the guarantors named therein and American
Stock Transfer & Trust Company, as Trustee(16) |
|
|
4 |
.14 |
|
Twelfth Supplemental Indenture, dated as of May 21, 2001,
among the Registrant, the guarantors named therein and American
Stock Transfer & Trust Company, as Trustee(17) |
|
|
4 |
.15 |
|
Thirteenth Supplemental Indenture, dated as of August 15,
2001, among the Registrant, the guarantors named therein and
American Stock Transfer & Trust Company, as Trustee(18) |
|
|
4 |
.16 |
|
Fourteenth Supplemental Indenture, dated as of February 21,
2002, among the Registrant, the guarantors named therein and
American Stock Transfer & Trust Company, as trustee,
relating to the 8% Senior Notes due 2009 and the
7.875% Senior Notes due 2011(39) |
|
|
4 |
.17 |
|
Indenture, dated as of September 11, 2000, among the
Registrant, the guarantors named therein and American Stock
Transfer & Trust Company, as Trustee(19) |
78
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit |
|
|
|
|
4 |
.18 |
|
First Supplemental Indenture, dated as of September 11,
2000, among the Registrant, the guarantors named therein and
American Stock Transfer & Trust Company, as Trustee(20) |
|
|
4 |
.19 |
|
Second Supplemental Indenture, dated as of March 12, 2001,
among the Registrant, the guarantors named therein and American
Stock Transfer & Trust Company, as Trustee(21) |
|
|
4 |
.20 |
|
Third Supplemental Indenture, dated as of May 21, 2001,
among the Registrant, the guarantors named therein and American
Stock Transfer & Trust Company, as Trustee(22) |
|
|
4 |
.21 |
|
Fourth Supplemental Indenture, dated as of February 21,
2002, among the Registrant, 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(40) |
|
|
4 |
.22 |
|
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(37) |
|
|
4 |
.23 |
|
First Supplemental Indenture, dated as of February 21,
2002, among the Registrant, 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(38) |
|
|
4 |
.24 |
|
Indenture, dated as of April 11, 2002, among the
Registrant, the guarantors named therein and American Stock
Transfer & Trust Company, as trustee, relating to
senior debt securities of the Registrant(41) |
|
|
4 |
.25 |
|
First Supplemental Indenture, dated as of April 11, 2002,
among the Registrant, the guarantors named therein and American
Stock Transfer & Trust Company, as trustee, relating to
the 8.5% Senior Notes due 2012(42) |
|
|
4 |
.26 |
|
Registration Rights Agreement, dated as of April 11, 2002,
among the Registrant, 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(43) |
|
|
4 |
.27 |
|
Fifteenth Supplemental Indenture, dated December 3, 2002,
by and among the Company, the Guarantors named therein and
American Stock Transfer & Trust Company, as trustee,
relating to the 7.5% Senior Notes due 2007 issued by the
Company(49) |
|
|
4 |
.28 |
|
Sixteenth Supplemental Indenture, dated April 17, 2003, by
and among the Company, the Guarantors named therein and American
Stock Transfer & Trust Company, as trustee, relating to
the 6.875% Senior Notes due 2013 issued by the Company(50) |
|
|
4 |
.29 |
|
Seventeenth Supplemental Indenture, dated June 25, 2003, by
and among the Company, the Guarantors named therein and American
Stock Transfer & Trust Company, as trustee, relating to
the 5.875% Senior Notes due 2013 issued by the Company(51) |
|
|
4 |
.30 |
|
Eighteenth Supplemental Indenture, dated June 13, 2004, by
and among the Company, the Guarantors named therein and American
Stock Transfer & Trust Company, as trustee, relating to
the 5.0% Senior Notes due 2009 issued by the Company(57) |
|
|
4 |
.31 |
|
Nineteenth Supplemental Indenture, dated July 12, 2004, by
and among the Company, the Guarantors named therein and American
Stock Transfer & Trust Company, as trustee, relating to
the 6.125% Senior Notes due 2014 issued by the Company(58) |
|
|
4 |
.32 |
|
Twentieth Supplemental Indenture, dated September 21, 2004,
by and among the Company, the Guarantors named therein and
American Stock Transfer & Trust Company, as trustee,
relating to the 5.625% Senior Notes due 2014 issued by the
Company(59) |
|
|
4 |
.33 |
|
Twenty-First Supplemental Indenture, dated October 15,
2004, by and among the Company, the Guarantors named therein and
American Stock Transfer & Trust Company, as trustee,
relating to the 4.875% Senior Notes due 2010 issued by the
Company(60) |
|
|
4 |
.34 |
|
Twenty-Second Supplemental Indenture, dated December 15,
2004, by and among the Company, the Guarantors named therein and
American Stock Transfer & Trust Company, as trustee,
relating to the 5.625% Senior Notes due 2016 of D.R.
Horton, Inc.(61) |
79
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit |
|
|
|
|
4 |
.35 |
|
Twenty-Third Supplemental Indenture, dated February 11,
2005, by and among the Company, the Guarantors named therein and
American Stock Transfer & Trust Company, as trustee,
relating to the 5.25% Senior Notes due 2015 of D.R. Horton,
Inc.(62) |
|
|
4 |
.36 |
|
Twenty-Fourth Supplemental Indenture, dated July 7, 2005,
by and among the Company, the Guarantors named therein and
American Stock Transfer & Trust Company, as trustee,
relating to the 5.375% Senior Notes due 2012 of D.R.
Horton, Inc.(66) |
|
|
10 |
.1 |
|
Form of Indemnification Agreement between the Registrant and
each of its directors and executive officers and schedules of
substantially identical documents(23) |
|
|
10 |
.2 |
|
D.R. Horton, Inc. 1991 Stock Incentive Plan, as amended and
restated(24)(25) |
|
|
10 |
.2a |
|
Amendment No. 1 to 1991 Stock Incentive Plan as amended and
restated(25)(26) |
|
|
10 |
.3 |
|
Form of Non-Qualified Stock Option Agreement (Term
Vesting)(25)(27) |
|
|
10 |
.4 |
|
Form of Non-Qualified Stock Option Agreement (Performance
Vesting)(25)(28) |
|
|
10 |
.5 |
|
Form of Incentive Stock Option Agreement (Term Vesting)(25)(28) |
|
|
10 |
.6 |
|
Form of Incentive Stock Option Agreement (Performance
Vesting)(25)(28) |
|
|
10 |
.7 |
|
Form of Restricted Stock Agreement (Term Vesting)(25)(28) |
|
|
10 |
.8 |
|
Form of Restricted Stock Agreement (Performance Vesting)(25)(28) |
|
|
10 |
.9 |
|
Form of Stock Appreciation Right Agreement (Term Vesting)(25)(28) |
|
|
10 |
.10 |
|
Form of Stock Appreciation Right Agreement (Performance
Vesting)(25)(28) |
|
|
10 |
.11 |
|
Form of Stock Appreciation Right Notification (Tandem)(25)(28) |
|
|
10 |
.12 |
|
Form of Performance Share Notification(25)(28) |
|
|
10 |
.13 |
|
Form of Performance Unit Notification(25)(28) |
|
|
10 |
.14 |
|
D.R. Horton, Inc. Supplemental Executive Retirement Plan
No. 1(25)(29) |
|
|
10 |
.15 |
|
D.R. Horton, Inc. Supplemental Executive Retirement
Trust No. 1(25)(29) |
|
|
10 |
.16 |
|
D.R. Horton, Inc. Supplemental Executive Retirement Plan
No. 2(25)(29) |
|
|
10 |
.17 |
|
Continental Homes Holding Corp. 1988 Stock Incentive Plan (as
amended and restated June 20, 1997)(25)(30) |
|
|
10 |
.18 |
|
Restated Continental Homes Holding Corp. 1986 Stock Incentive
Plan, and the First Amendment thereto dated June 17,
1987(25)(31) |
|
|
10 |
.19 |
|
Form of Stock Option Agreement pursuant to Continentals
1986 and 1988 Stock Incentive Plans(25)(32) |
|
|
10 |
.20 |
|
The D.R. Horton, Inc. 2000 Incentive Bonus Plan(25)(33) |
|
|
10 |
.21 |
|
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(25)(35) |
|
|
10 |
.22 |
|
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(25)(36) |
|
|
10 |
.23 |
|
D.R. Horton, Inc. Deferred Compensation Plan, effective as of
June 15, 2002(25)(44) |
|
|
10 |
.24 |
|
Grantor Trust Agreement, dated June 21, 2002 by and
between the Registrant and Wachovia Bank, National Association,
as trustee(45) |
|
|
10 |
.25 |
|
Loan Agreement, dated July 9, 2002, among CH Funding LLC,
Atlantic Asset Securitization Corp., Credit Lyonnais New York
Branch and CH Mortgage Company I, Ltd.(46) |
|
|
10 |
.26 |
|
Omnibus Amendment, dated August 26, 2002, to Loan Agreement
dated July 9, 2002, among CH Mortgage Company I, Ltd.,
CH Funding LLC, Atlantic Asset Securitization Corp., Credit
Lyonnais New York Branch and U.S. Bank National
Association(47) |
80
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit |
|
|
|
|
10 |
.27 |
|
Second Omnibus Amendment, dated November 25, 2002, to Loan
Agreement dated July 9, 2002, among CH Mortgage
Company I, Ltd., CH Funding LLC, Atlantic Asset
Securitization Corp., Credit Lyonnais New York Branch and
U.S. Bank National Association(48) |
|
|
10 |
.28 |
|
Third Omnibus Amendment, dated April 18, 2003, among CH
Funding, LLC, Atlantic Asset Securitization Corp., Credit
Lyonnaise New York Branch, U.S. Bank National Association
and CH Mortgage Company I Ltd.(52) |
|
|
10 |
.29 |
|
Fourth Omnibus Amendment, dated July 25, 2003 among CH
Funding, LLC, Atlantic Asset Securitization Corp., Credit
Lyonnaise New York Branch, U.S. Bank National Association
and CH Mortgage Company I, Ltd.(53) |
|
|
10 |
.30 |
|
Fifth Omnibus Amendment, dated December 19, 2003 among CH
Funding, LLC, Credit Lyonnais New York Branch, U.S. Bank
National Association, Bank One, NA, Lloyds TSB Bank, PLC, Danske
Bank A/ S, Cayman Islands Branch and CH Mortgage Company I,
Ltd.(54) |
|
|
10 |
.31 |
|
Seventh Omnibus Amendment, dated June 29, 2005, among CH
Funding, LLC, Atlantic Asset Securitization Corp.,
La Fayette Asset Securitization LLC, Falcon Asset
Securitization Corporation, Calyon New York Branch,
U.S. Bank National Association, Lloyds TSB Bank PLC, and
DHI Mortgage Company, Ltd and the Lenders thereto(65) |
|
|
10 |
.32 |
|
Eighth Omnibus Amendment, dated September 26, 2005, by and
among CH Funding, LLC, Atlantic Asset Securitization Corp.,
La Fayette Asset Securitization LLC, Falcon Asset
Securitization Corporation, Calyon New York Branch,
U.S. Bank National Association, Lloyds TSB Bank PLC, and
DHI Mortgage Company, Ltd and the Lenders(*) |
|
|
10 |
.33 |
|
Ninth Omnibus Amendment dated, September 29, 2005, among CH
Funding, LLC, Atlantic Asset Securitization Corp.,
La Fayette Asset Securitization LLC, Falcon Asset
Securitization Corporation, Calyon New York Branch,
U.S. Bank National Association, Lloyds TSB Bank PLC, and
DHI Mortgage Company, Ltd and the Lenders thereto(*) |
|
|
10 |
.34 |
|
Amended and Restated Credit Agreement, dated April 9, 2004,
by and among DHI Mortgage Company, Ltd. (f/k/a CH Mortgage
Company, Ltd.) and U.S. Bank National Association and the
Lenders thereto(56) |
|
|
10 |
.35 |
|
Second Amendment to the Amended and Restated Credit Agreement,
dated April 8, 2005, by and among DHI Mortgage Company,
Ltd., U.S. Bank National Association and the Lenders
thereto(63) |
|
|
10 |
.36 |
|
Third Amendment to the Amended and Restated Credit Agreement,
dated June 23, 2005, by and among DHI Mortgage Company,
Ltd., U.S. Bank National Association and the Lenders
thereto(64) |
|
|
10 |
.37 |
|
Fourth Amendment to the Amended and Restated Credit Agreement,
dated September 26, 2005 by and among DHI Mortgage Company,
Ltd., U.S. Bank National Association and the Lenders
thereto(*) |
|
|
10 |
.38 |
|
Fifth Amendment to the Amended and Restated Credit Agreement,
dated September 28, 2005, by and among DHI Mortgage
Company, Ltd., U.S. Bank National Association and the
Lenders thereto(*) |
|
|
10 |
.39 |
|
Sixth Amendment to the Amended and Restated Credit Agreement,
dated October 28, 2005, by and among DHI Mortgage Company,
Ltd., U.S. Bank National Association and the Lenders
thereto(*) |
|
|
10 |
.40 |
|
Seventh Amendment to the Amended and Restated Credit Agreement,
dated November 30, 2005, by and among DHI Mortgage Company,
Ltd., U.S. Bank National Association and the Lenders
thereto(*) |
|
|
10 |
.41 |
|
Amended and Restated Revolving Credit Agreement dated
March 25, 2004, entered into by and among D.R. Horton,
Inc., Lenders (as defined in such Credit Agreement) and Bank of
America, N.A., as Administrative Agent and a Letter of Credit
Issuer (as defined in such Credit Agreement)(55) |
|
|
10 |
.42 |
|
Form of Annual Executive Compensation Notification
Chairman and CEO(67)(25) |
|
|
10 |
.43 |
|
Executive Compensation Summary Named Executive
Officers(68)(25) |
|
|
10 |
.44 |
|
Executive Compensation Summary Named Executive
Officers (COOs)(69)(25) |
81
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit |
|
|
|
|
12 |
.1 |
|
Statement of Computation of Ratio of Earnings to Fixed Charges(*) |
|
|
14 |
.1 |
|
Code of Ethical Conduct for the CEO, CFO and Senior Financial
Officers(**) |
|
|
21 |
.1 |
|
Subsidiaries of D.R. Horton, Inc.(*) |
|
|
23 |
.1 |
|
Consent of Ernst & Young LLP, Fort Worth, Texas(*) |
|
|
31 |
.1 |
|
Certificate of Chief Executive Officer provided pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002(*) |
|
|
31 |
.2 |
|
Certificate of Chief Financial Officer provided pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002(*) |
|
|
32 |
.1 |
|
Certificate provided pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, by the Registrants Chief
Executive Officer(*) |
|
|
32 |
.2 |
|
Certificate provided pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, by the Registrants Chief
Financial Officer(*) |
|
|
|
|
** |
Posted to the Companys website at www.drhorton.com
under the Corporate Governance link. |
|
|
|
|
(1) |
Incorporated by reference from Exhibit 2.1 to the
Registrants Registration Statement on Form S-4
(Registration No. 333-44279), filed with the SEC on
January 15, 1998. |
|
|
(2) |
Incorporated by reference from Exhibit 2.1 to the
Registrants Current Report on Form 8-K, dated
October 22, 2001, filed with the SEC on October 24,
2001; and Exhibit 2.2 to the Registrants Current
Report on Form 8-K, dated November 8, 2001, filed with
the SEC on November 8, 2001. |
|
|
(3) |
Incorporated herein by reference from Exhibit 3.1 to the
Registrants Quarterly Report on Form 10-Q / A for the
quarter ended December 31, 2002, dated February 18, 2003
and filed with the SEC on February 18, 2003. |
|
|
(3a) |
Incorporated herein by reference from Exhibit 3.1(a) to the
Registrants Quarterly Report on Form 10-Q / A for the
quarter ended December 31, 2002, dated February 18,
2003 and filed with the SEC on February 18, 2003. |
|
|
|
|
(4) |
Incorporated by reference from Exhibit 3.1 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended December 31, 1998, filed with the SEC on
February 16, 1999. |
|
|
(5) |
Incorporated by reference from Exhibit 4.1(a) to the
Registrants Registration Statement on Form S-3
(No. 333-27521), filed with the SEC on May 21, 1997. |
|
|
(6) |
Incorporated by reference from Exhibit 4.1 to the
Registrants Form 8-K/ A dated June 6, 1997,
filed with the SEC on June 9, 1997. |
|
|
(7) |
Incorporated by reference from Exhibit 4.4 to the
Registrants Annual Report on Form 10-K for the fiscal
year ended September 30, 1997, filed with the SEC on
December 8, 1997. |
|
|
(8) |
Incorporated by reference from Exhibit 4.3 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, filed with SEC on
May 14, 1998. |
|
|
(9) |
Incorporated by reference from Exhibit 4.4 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, filed with SEC on
May 14, 1998. |
|
|
(10) |
Incorporated by reference from Exhibit 4.7 to the
Registrants Annual Report on Form 10-K for the year
ended September 30, 1998, filed with the SEC on
December 10, 1998. |
|
(11) |
Incorporated by reference from Exhibit 4.1 to the
Registrants Current Report on Form 8-K, dated
February 2, 1999, filed with the SEC on February 2,
1999. |
|
(12) |
Incorporated by reference from Exhibit 4.9 to the
Registrants Annual Report on Form 10-K for the fiscal
year ended September 30, 1999, filed with the SEC on
December 10, 1999. |
|
(13) |
Incorporated by reference from Exhibit 4.1 to the
Registrants Current Report on Form 8-K, filed with
the SEC on March 17, 2000. |
82
|
|
(14) |
Incorporated by reference from Exhibit 4.5 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000, filed with the SEC on
May 12, 2000. |
|
(15) |
Incorporated by reference from Exhibit 4.1 to the
Registrants Current Report on Form 8-K, filed with
the SEC on June 6, 2000. |
|
(16) |
Incorporated by reference from Exhibit 4.1(a) to the
Registrants Current Report on Form 8-K, filed with
the SEC on May 14, 2001. |
|
(17) |
Incorporated by reference from Exhibit 4.5 to the
Registrants Quarterly Report on Form 10-Q, filed with
the SEC on August 14, 2001. |
|
(18) |
Incorporated by reference from Exhibit 4.1(a) to the
Registrants Current Report on Form 8-K, filed with
the SEC on August 14, 2001. |
|
(19) |
Incorporated by reference from Exhibit 4.1(a) to the
Registrants Current Report on Form 8-K, filed with
the SEC on September 11, 2000. |
|
(20) |
Incorporated by reference from Exhibit 4.1(b) to the
Registrants Current Report on Form 8-K, filed with
the SEC on September 11, 2000. |
|
(21) |
Incorporated by reference from Exhibit 4.1(a) to the
Registrants Current Report on Form 8-K, filed with
the SEC on March 8, 2001. |
|
(22) |
Incorporated by reference from Exhibit 4.2 to the
Registrants Quarterly Report on Form 10-Q, for the
quarter ended June 30, 2001, filed with the SEC on
August 14, 2001. |
|
(23) |
Incorporated by reference from Exhibit 10.1 to the
Registrants Annual Report on Form 10-K for the fiscal
year ended September 30, 1995, filed with the SEC on
November 22, 1995 (file number 1-14122); Exhibit 10.2
to the Registrants Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998, filed with the SEC on
August 6, 1998; and Exhibit 10.4 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001, filed with the SEC on
May 15, 2001. |
|
(24) |
Incorporated herein by reference from Exhibit 10.2 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002, dated August 13, 2002 and
filed with the SEC on August 13, 2002. |
|
(25) |
Management contract or compensatory plan arrangement. |
|
(26) |
Incorporated herein by reference from Exhibit 10.3 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002, dated August 13, 2002 and
filed with the SEC on August 13, 2002. |
|
(27) |
Incorporated by reference from Exhibit 10.3 to the
Registrants Registration Statement on Form S-1
(Registration No. 3-81856), filed with the SEC on
July 22, 1994. |
|
(28) |
Incorporated by reference from the Registrants Annual
Report on Form 10-K for the fiscal year ended
December 31, 1992, filed with the SEC on March 29,
1993. |
|
(29) |
Incorporated by reference from the Registrants
Transitional Report on Form 10-K for the period from
January 1, 1993 to September 30, 1993, filed with the
SEC on December 28, 1993 (file number 1-14122). |
|
(30) |
Incorporated by reference from Exhibit 10.3 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, filed with the SEC on
August 6, 1998. |
|
(31) |
Incorporated by reference from Exhibit 10.4 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, filed with the SEC on
August 6, 1998. |
|
(32) |
Incorporated by reference from Exhibit 10.5 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, filed with the SEC on
August 6, 1998. |
|
(33) |
Incorporated by reference from Exhibit A to the
Registrants Proxy Statement, filed with the SEC on
December 10, 1999. |
|
(34) |
Reserved. |
83
|
|
(35) |
Incorporated herein by reference from Exhibit 10.4 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002, dated May 15, 2002 and
filed with the SEC on May 15, 2002. |
|
(36) |
Incorporated herein by reference from Exhibit 10.5 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002, dated May 15, 2002 and
filed with the SEC on May 15, 2002. |
|
(37) |
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 SEC file number
for Schuler Homes, Inc. is 0-32461. |
|
(38) |
Incorporated herein by reference from Exhibit 4.12 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002, dated May 15, 2002 and
filed with the SEC on May 15, 2002. |
|
(39) |
Incorporated herein by reference from Exhibit 4.13 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002, dated May 15, 2002 and
filed with the SEC on May 15, 2002. |
|
(40) |
Incorporated herein by reference from Exhibit 4.14 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002, dated May 15, 2002 and
filed with the SEC on May 15, 2002. |
|
(41) |
Incorporated herein by reference from Exhibit 4.16 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002, dated May 15, 2002 and
filed with the SEC on May 15, 2002. |
|
(42) |
Incorporated herein by reference from Exhibit 4.17 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002, dated May 15, 2002 and
filed with the SEC on May 15, 2002. |
|
(43) |
Incorporated herein by reference from Exhibit 4.18 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002, dated May 15, 2002 and
filed with the SEC on May 15, 2002. |
|
(44) |
Incorporated herein by reference from Exhibit 10.1 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002, dated August 13, 2002 and
filed with the SEC on August 13, 2002. |
|
(45) |
Incorporated herein by reference from Exhibit 10.34 to the
Registrants Annual Report on Form 10-K for the year
ended September 30, 2002 and filed with the SEC on
December 13, 2002. |
|
(46) |
Incorporated herein by reference from Exhibit 10.41 to the
Registrants Annual Report on Form 10-K for the year
ended September 30, 2002 and filed with the SEC on
December 13, 2002. |
|
(47) |
Incorporated herein by reference from Exhibit 10.42 to the
Registrants Annual Report on Form 10-K for the year
ended September 30, 2002 and filed with the SEC on
December 13, 2002. |
|
(48) |
Incorporated herein by reference from Exhibit 10.43 to the
Registrants Annual Report on Form 10-K for the year
ended September 30, 2002 and filed with the SEC on
December 13, 2002. |
|
(49) |
Incorporated by reference from Exhibit 4.1 to the
Companys Form 8-K dated November 22, 2002 and
filed with the SEC on December 2, 2002. |
|
(50) |
Incorporated by reference from Exhibit 4.1 to the
Companys Form 8-K dated April 11, 2003 and filed
with the SEC on April 17, 2003. |
|
(51) |
Incorporated by reference from Exhibit 4.1 to the
Companys Form 8-K dated June 18, 2003 and filed
with the SEC on June 24, 2003. |
|
(52) |
Incorporated herein by reference from Exhibit 10.3 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003 dated August 14, 2003 and
filed with the SEC on August 14, 2003. |
84
|
|
(53) |
Incorporated herein by reference from Exhibit 10.4 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003, dated August 14, 2003 and
filed with the SEC on August 14, 2003. |
|
(54) |
Incorporated herein by reference from Exhibit 10.1 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended December 31, 2003, dated February 6,
2004 and filed with the SEC on February 6, 2004. |
|
(55) |
Incorporated herein by reference from Exhibit 99.2 to the
Registrants Current Report on Form 8-K dated
March 29, 2004 and filed with the SEC on March 30,
2004. |
|
(56) |
Incorporated herein by reference from Exhibit 10.2 to the
Registrants Quarterly Report on Form 10-Q for the
quarter ended March 31, 2004, dated May 7, 2004 and
filed with the SEC on May 10, 2004. |
|
(57) |
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Current Report on Form 8-K dated
January 6, 2004 and filed with the SEC on January 12,
2004. |
|
(58) |
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Current Report on Form 8-K dated
July 6, 2004 and filed with the SEC on July 9, 2004. |
|
(59) |
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Annual Report on Form 8-K dated
September 14, 2004 and filed with the SEC on
September 17, 2004. |
|
(60) |
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Current Report on Form 8-K dated
October 7, 2004 and filed with the SEC on October 14,
2004. |
|
(61) |
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Current Report on Form 8-K dated
December 8, 2004 and filed with the SEC on
December 14, 2004. |
|
(62) |
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Current Report on Form 8-K dated
February 4, 2005 and filed with the SEC on
February 10, 2005. |
|
(63) |
Incorporated herein by reference from Exhibit 10.1 to the
Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 2005 and filed with the SEC on May 4,
2005. |
|
(64) |
Incorporated herein by reference from Exhibit 10.2 to the
Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2005 and filed with the SEC on
August 9, 2005. |
|
(65) |
Incorporated herein by reference from Exhibit 10.3 to the
Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2005 and filed with the SEC on
August 9, 2005. |
|
(66) |
Incorporated herein by reference from Exhibit 4.1 to the
Registrants Current Report on Form 8-K dated
June 29, 2005 and filed with the SEC on July 6, 2005. |
|
(67) |
Incorporated herein by reference from Exhibit 10.2 to the
Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 2005 and filed with the SEC on May 4,
2005. |
|
(68) |
Incorporated herein by reference from Exhibit 10.3 to the
Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 2005 and filed with the SEC on May 4,
2005. |
|
(69) |
Incorporated herein by reference from Exhibit 10.4 to the
Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2005 and filed with the SEC on
August 9, 2005. |
85
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
|
Donald J. Tomnitz, |
|
Vice Chairman, Chief Executive Officer |
|
and President |
Date: December 13, 2005
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ Donald R. Horton
Donald
R. Horton |
|
Chairman of the Board |
|
December 13, 2005 |
|
/s/ Donald J. Tomnitz
Donald
J. Tomnitz |
|
Vice Chairman, Chief Executive Officer, President, and Director
(Principal Executive Officer) |
|
December 13, 2005 |
|
/s/ Bill W. Wheat
Bill
W. Wheat |
|
Chief Financial Officer,
Executive Vice President and Director (Principal Financial
Officer and Principal
Accounting Officer) |
|
December 13, 2005 |
|
/s/ Bradley S. Anderson
Bradley
S. Anderson |
|
Director |
|
December 13, 2005 |
|
/s/ Michael R. Buchanan
Michael
R. Buchanan |
|
Director |
|
December 13, 2005 |
|
/s/ Richard I. Galland
Richard
I. Galland |
|
Director |
|
December 13, 2005 |
|
/s/ Michael W. Hewatt
Michael
W. Hewatt |
|
Director |
|
December 13, 2005 |
|
/s/ Francine I. Neff
Francine
I. Neff |
|
Director |
|
December 13, 2005 |
86