FORM 10-Q/A
(AMENDMENT NO. 1)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the Quarterly Period Ended December 31, 2002
--------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the Transition Period From To
------------------- -------------------
Commission file number 1-14122
D.R. Horton, Inc.
------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2386963
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1901 Ascension Blvd., Suite 100, Arlington, Texas 76006
------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(817) 856-8200
------------------------------------------------------------------------
(Registrant's telephone number, including area code)
------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.01 par value -- 146,579,465 shares as of February 10, 2003
-------------
See "Explanatory Note" regarding this Amended Form 10-Q on the next page.
This report contains 31 pages.
EXPLANATORY NOTE REGARDING FILING THIS AMENDED FORM 10-Q ON FORM 10-Q/A
We are filing this Form 10-Q/A to correct an error contained in our Form 10-Q
filed with the Securities and Exchange Commission on February 14, 2003. The
error occurred in "Note E - Debt" to the Consolidated Financial Statements on
page 8. Although the total amount listed for all notes payable was correct, the
amount listed for the "zero coupon convertible senior notes due 2021, net" had a
"2" missing. This number should have been $210,852,000 and not $10,852,000. The
error occurred during the process of converting the Form 10-Q from text format
to Edgar format, and has been corrected in this Form 10-Q/A. This error had no
impact on the Consolidated Financial Statements as originally filed in the Form
10-Q on February 14, 2003 because the total amount of the Debt was properly
reflected where applicable.
INDEX
D.R. HORTON, INC.
PART I. FINANCIAL INFORMATION. Page
------- ---------------------- ----
ITEM 1. Financial Statements.
Consolidated Balance Sheets-- December 31, 2002 and
September 30, 2002. 3
Consolidated Statements of Income-- Three Months Ended
December 31, 2002 and 2001. 4
Consolidated Statements of Cash Flows-- Three Months Ended
December 31, 2002 and 2001. 5
Notes to Consolidated Financial Statements. 6-15
ITEM 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition. 16-22
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk. 23
ITEM 4. Controls and Procedures 24
PART II. OTHER INFORMATION.
-------- -----------------
ITEM 2. Changes in Securities and Use of Proceeds. 25
ITEM 5. Other Information 25
ITEM 6. Exhibits and Reports on Form 8-K. 25-26
SIGNATURES. 27
-----------
CERTIFICATIONS.
---------------
Certification of Chief Executive Officer Pursuant to
Section 302 (a) of the Sarbanes-Oxley Act of 2002 28-29
Certification of Chief Financial Officer Pursuant to
Section 302 (a) of the Sarbanes-Oxley Act of 2002 30-31
ITEM 1. FINANCIAL STATEMENTS
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
2002 2002
------------ -------------
(In thousands)
(Unaudited)
ASSETS
Homebuilding:
Cash ................................................................. $ 179,995 $ 92,106
Inventories:
Finished homes and construction in progress ........................ 2,178,053 2,035,221
Residential lots - developed and under development ................. 2,391,706 2,297,545
Land held for development .......................................... 10,740 10,303
---------- ----------
4,580,499 4,343,069
Property and equipment (net) ......................................... 77,057 71,895
Earnest money deposits and other assets .............................. 376,213 430,415
Excess of cost over net assets acquired .............................. 578,994 579,230
---------- ----------
5,792,758 5,516,715
---------- ----------
Financial Services:
Cash ................................................................. 14,700 12,238
Mortgage loans held for sale ......................................... 431,827 464,088
Other assets ......................................................... 19,307 24,486
---------- ----------
465,834 500,812
---------- ----------
$6,258,592 $6,017,527
========== ==========
LIABILITIES
Homebuilding:
Accounts payable and other liabilities ............................... $ 814,210 $ 834,048
Notes payable ........................................................ 2,699,559 2,486,976
---------- ----------
3,513,769 3,321,024
---------- ----------
Financial Services:
Accounts payable and other liabilities ............................... 13,791 14,340
Notes payable to financial institutions .............................. 338,336 391,355
---------- ----------
352,127 405,695
---------- ----------
3,865,896 3,726,719
---------- ----------
Minority interests ................................................... 18,552 20,945
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 30,000,000 shares authorized,
no shares issued ................................................... -- --
Common stock, $.01 par value, 200,000,000 shares authorized,
146,557,322 shares at December 31, 2002 and 146,505,091 shares at
September 30, 2002, issued and outstanding ......................... 1,466 1,465
Additional capital ................................................... 1,350,266 1,349,630
Unearned compensation ................................................ (3,847) (4,453)
Retained earnings .................................................... 1,026,259 923,221
---------- ----------
2,374,144 2,269,863
---------- ----------
$6,258,592 $6,017,527
========== ==========
See accompanying notes to consolidated financial statements.
-3-
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months
Ended December 31,
-------------------------------------
2002 2001
------------------ -----------------
(In thousands, except per share data)
(Unaudited)
Homebuilding:
Revenues
Home sales ................................................................... $ 1,666,449 $ 1,125,738
Land/lot sales ............................................................... 40,244 9,230
------------ ------------
1,706,693 1,134,968
------------ ------------
Cost of sales
Home sales ................................................................... 1,333,758 898,898
Land/lot sales ............................................................... 34,782 7,907
------------ ------------
1,368,540 906,805
------------ ------------
Gross profit
Home sales ................................................................... 332,691 226,840
Land/lot sales ............................................................... 5,462 1,323
------------ ------------
338,153 228,163
Selling, general and administrative expense .................................... 179,181 118,417
Interest expense ............................................................... 347 1,196
Other (income) expense ......................................................... (205) 2,572
------------ ------------
158,830 105,978
------------ ------------
Financial Services:
Revenues ....................................................................... 38,241 24,922
General and administrative expense ............................................. 22,007 15,123
Interest expense ............................................................... 2,067 1,336
Other (income) ................................................................. (5,928) (3,044)
------------ ------------
20,095 11,507
------------ ------------
INCOME BEFORE INCOME TAXES ................................................... 178,925 117,485
Provision for income taxes ..................................................... 67,097 44,057
------------ ------------
NET INCOME ................................................................... $ 111,828 $ 73,428
============ ============
Net income per share:
Basic ........................................................................ $ 0.76 $ 0.64
Diluted ...................................................................... $ 0.75 $ 0.62
============ ============
Weighted average number of shares of stock outstanding:
Basic ........................................................................ 146,523 115,442
Diluted ...................................................................... 148,503 117,506
============ ============
Cash dividends per share ....................................................... $ 0.06 $ 0.05
============ ============
See accompanying notes to consolidated financial statements.
-4-
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months
Ended December 31,
-----------------------------
2002 2001
----------- ------------
(In thousands)
(Unaudited)
OPERATING ACTIVITIES
Net income.................................................................... $ 111,828 $ 73,428
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization................................................. 9,004 5,317
Amortization of debt premiums and fees........................................ 1,744 2,272
Changes in operating assets and liabilities:
Increase in inventories...................................................... (231,760) (171,947)
(Increase) decrease in earnest money deposits and other assets............... 59,111 (7,331)
(Increase) decrease in mortgage loans held for sale.......................... 32,261 (11,040)
Decrease in accounts payable and other liabilities........................... (22,673) (56,462)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES........................................... (40,485) (165,763)
------------ ------------
INVESTING ACTIVITIES
Net purchases of property and equipment....................................... (13,229) (7,036)
Distributions from venture capital entities................................... -- 500
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES........................................... (13,229) (6,536)
------------ ------------
FINANCING ACTIVITIES
Proceeds from notes payable................................................... 538,876 450,000
Issuance of senior notes payable.............................................. 214,206 --
Repayment of notes payable.................................................... (600,757) (484,662)
Proceeds from stock associated with certain employee benefit plans............ 530 3,506
Payment of cash dividends..................................................... (8,790) (3,845)
------------ ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES............................. 144,065 (35,001)
------------ ------------
(DECREASE) INCREASE IN CASH..................................................... 90,351 (207,300)
Cash at beginning of period................................................... 104,344 239,280
------------ ------------
Cash at end of period......................................................... $ 194,695 $ 31,980
============ ============
See accompanying notes to consolidated financial statements.
-5-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
December 31, 2002
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements include the
accounts of D.R. Horton, Inc. and its subsidiaries (the "Company"). Intercompany
accounts and transactions have been eliminated in consolidation. The statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the
three-month period ended December 31, 2002 are not necessarily indicative of the
results that may be expected for the year ending September 30, 2003.
Business - The Company is a national builder that is engaged primarily in the
construction and sale of single-family housing in 44 markets and 20 states in
the United States. The Company designs, builds and sells single-family houses on
lots developed by the Company and on finished lots which it purchases, ready for
home construction. Periodically, the Company sells lots it has developed. The
Company also provides title agency and mortgage brokerage services to its home
buyers. The Company does not retain or service the mortgages that it originates
but, rather, sells the mortgages and related servicing rights to investors.
NOTE B - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 amends FASB
Statement No. 123, "Accounting for Stock-Based Compensation." Although it does
not require use of fair value method of accounting for stock-based employee
compensation, it does provide alternative methods of transition. It also amends
the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, "Interim
Financial Reporting," to require disclosure in the summary of significant
accounting policies of the effects of an entity's accounting policy with respect
to stock-based employee compensation on reported net income and earnings per
share in annual and interim financial statements. SFAS No. 148's amendment of
the transition and annual disclosure requirements are effective for fiscal years
ending after December 15, 2002. The amendment of disclosure requirements of
Opinion No. 28 are effective for interim periods beginning after December 15,
2002. The Company will adopt this standard for the second quarter of fiscal year
2003. Unless the Company elects to adopt the fair value recognition provisions
of SFAS No. 123, adoption of SFAS No. 148 will only require expanded disclosure
to include the effect of stock-based compensation in interim reporting.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation No. 46 provides guidance for the
financial accounting and reporting of certain variable interest entities. The
Interpretation clarifies the application of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements", to certain business entities that either
have equity investors with no voting rights or have equity investors that do not
provide sufficient financial resources for the entities to support their
activities. The Interpretation requires consolidation of such entities by any
company that is subject to a majority of the risk of loss from the entities'
activities or is entitled to receive a majority of the entities' residual
returns or both. Furthermore, disclosures about significant variable interest
entities are required even if the company is not required to consolidate them.
The Interpretation applies to all variable interest entities created after
January 31, 2003, and the consolidation requirements apply to older entities in
the first fiscal year or interim period beginning after June 15, 2003. Certain
of the disclosure requirements apply in all financial statements filed after
January 31, 2003. The Company has reviewed all of its unconsolidated business
relationships and believes that it has no significant investments in variable
interest entities at December 31, 2002. Moreover, the Company believes that full
adoption of Interpretation No. 46 as required in fiscal 2003 will not have a
material effect on its financial position, results of operations or cash flows.
-6-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
December 31, 2002
NOTE C - SEGMENT INFORMATION
The Company's financial reporting segments consist of homebuilding and financial
services. The Company's homebuilding operations comprise the most substantial
part of its business, with approximately 98% of consolidated revenues for the
three months ended December 31, 2002 and 2001. The homebuilding reporting
segment is comprised of the aggregate of the Company's regional homebuilding
operating segments and generates the majority of its revenues from the sale of
completed homes, with a lesser amount from the sale of land and lots. The
financial services segment generates its revenues from originating and selling
mortgages and collecting fees for title insurance agency and closing services.
Effective with its fiscal year beginning October 1, 2002, the Company's
wholly-owned mortgage subsidiary is required by Statement of Position 01-6 (SOP
01-6), of the Accounting Standards Executive Committee of the American Institute
of Certified Public Accountants, to disclose the minimum net worth requirements
by regulatory agencies, secondary market investors and states in which it
conducts business. Currently, the largest of these minimum net worth
requirements is $1.0 million, which is insignificant compared to the $35 million
minimum net worth required by the mortgage subsidiary's warehouse credit line.
At December 31, 2002, the mortgage subsidiary's total equity was $99.7 million.
NOTE D - EARNINGS PER SHARE
Basic earnings per share for the three months ended December 31, 2002 and 2001
is based on the weighted average number of shares of common stock outstanding.
Diluted earnings per share is based on the weighted average number of shares of
common stock and dilutive securities outstanding.
The following table sets forth the weighted average number of shares of common
stock and dilutive securities outstanding used in the computation of basic and
diluted earnings per share (in thousands):
Three Months Ended
December 31,
2002 2001
---------- ----------
Denominator:
Denominator for basic earnings per share--
weighted average shares ........................... 146,523 115,442
Effect of dilutive securities:
Employee stock options ............................. 1,980 2,064
---------- ----------
Denominator for diluted earnings per share--
adjusted weighted average shares .................. 148,503 117,506
========== ==========
In March 2002, the Company's Board of Directors declared a three-for-two stock
split (effected as a 50% stock dividend), payable on April 9, 2002 to common
stockholders of record on March 26, 2002. All average share amounts presented
above have been restated to reflect the effects of the three-for-two stock
split.
Options to purchase 2,714,000 shares of common stock at various prices were
outstanding during the three months ended December 31, 2002, but were not
included in the computation of diluted earnings per share because the exercise
prices were greater than the average market price of the common shares and,
therefore, their effect would be antidilutive. All options outstanding during
the three months ended December 31, 2001 were included in the computation of
diluted earnings per share.
-7-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
December 31, 2002
NOTE E - DEBT
The Company's notes payable consist of the following (in thousands):
December 31, September 30,
2002 2002
----------- ------------
Homebuilding:
Unsecured:
Revolving credit facility due 2006 ......................... $ -- $ --
8 3/8% Senior notes due 2004, net .......................... 149,438 149,339
10 1/2% Senior notes due 2005, net ......................... 199,591 199,559
10% Senior notes due 2006, net ............................. 147,853 147,802
7 1/2% Senior notes due 2007, net .......................... 215,000 --
9% Senior notes due 2008, net .............................. 102,291 102,427
8% Senior notes due 2009, net .............................. 383,486 383,438
9 3/8% Senior notes due 2009, net .......................... 245,502 246,057
9 3/4% Senior subordinated notes due 2010, net ............. 149,015 148,994
9 3/8% Senior subordinated notes due 2011, net ............. 199,715 199,710
7 7/8% Senior notes due 2011, net .......................... 198,468 198,437
10 1/2% Senior subordinated notes due 2011, net ............ 152,895 153,284
8 1/2% Senior notes due 2012, net .......................... 248,030 247,995
Zero coupon convertible senior notes due 2021, net ......... 210,852 209,144
Other secured ............................................... 97,423 100,790
---------- ----------
$2,699,559 $2,486,976
========== ==========
Financial Services:
Mortgage warehouse facility due 2003 ........................ $ 138,336 $ 242,355
Commercial paper conduit facility due 2005 .................. 200,000 149,000
---------- ----------
$ 338,336 $ 391,355
========== ==========
Homebuilding:
The Company has an $805 million unsecured revolving credit facility, including
$125 million which may be used for letters of credit. The facility matures in
January 2006, and is guaranteed by substantially all of the Company's
subsidiaries other than its financial services subsidiaries. Borrowings bear
daily interest at rates based upon the London Interbank Offered Rate (LIBOR)
plus a spread based upon the Company's ratio of debt to tangible net worth. The
interest rate applicable to the revolving credit facility at December 31, 2002
was 3.0%. In addition to the stated interest rates, the revolving credit
facility requires the Company to pay certain fees.
The revolving credit facility and the indentures related to the Company's Senior
and Senior Subordinated Notes contain covenants which, taken together, limit
amounts of debt that may be incurred, investments in inventory, stock
repurchases, cash dividends and other restricted payments, asset dispositions
and creation of liens, and require certain levels of tangible net worth. At
December 31, 2002, these covenants limit the additional homebuilding debt the
Company could incur to $1,195.5 million, which included $688.9 million available
under the revolving credit facility.
On December 3, 2002, the Company issued $215 million principal amount of 7 1/2%
Senior Notes. The notes, which are due December 1, 2007, with interest payable
semi-annually, represent unsecured obligations of the Company. The Company may
redeem up to 35% of the amount originally issued with the proceeds of public
offerings at a redemption price equal to 107.5% of the principal amount through
December 1, 2005, plus accrued interest. The annual effective interest rate of
the notes, after giving effect to the amortization of deferred financing costs,
is 7.6%.
-8-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
December 31, 2002
Financial Services:
The Company's mortgage subsidiary has a $190 million, one-year mortgage
warehouse line payable to financial institutions, maturing August 12, 2003, at
the 30-day LIBOR rate plus a fixed premium. The Company's mortgage subsidiary
also has a $200 million commercial paper conduit credit facility which expires
in July 2005, the terms of which are renewable annually by the sponsoring bank.
The current total borrowing capacity of our mortgage subsidiary under these two
credit facilities is $390 million. These two credit facilities are secured by
mortgage loans held for sale and are not guaranteed by D.R. Horton, Inc. or any
of the guarantors of the Senior and Senior Subordinated Notes. The interest
rates of the mortgage warehouse line payable at December 31, 2002 and 2001 were
2.5% and 2.9%, respectively. The interest rate on the commercial paper conduit
facility at December 31, 2002 was 2.0%.
NOTE F - INTEREST
The Company capitalizes interest during development and construction.
Capitalized interest is charged to cost of sales as the related inventory is
delivered to the home buyer. Homebuilding interest costs are (in thousands):
Three Months Ended
December 31,
------------------------
2002 2001
----------- -----------
Capitalized interest, beginning of period .......... $ 153,536 $ 96,910
Interest incurred - homebuilding ................... 56,735 36,712
Interest expensed:
Directly - homebuilding .......................... (347) (1,196)
Amortized to cost of sales ....................... (39,519) (22,300)
----------- -----------
Capitalized interest, end of period ................ $ 170,405 $ 110,126
=========== ===========
NOTE G - WARRANTY
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others", which is effective as to disclosure requirements for
all financial statements for periods ending after December 15, 2002. With
respect to the product warranty disclosure requirements contained therein, the
Company provides its home buyers a one-year comprehensive limited warranty for
all parts and labor and a ten-year limited warranty for major construction
defects. Since the Company subcontracts its homebuilding work to subcontractors
who provide it with an indemnity and a certificate of insurance prior to
receiving payments for their work, claims relating to workmanship and materials
are generally the primary responsibility of the subcontractors. Warranty
reserves have been established by charging cost of sales and crediting a
warranty liability for each home delivered. The amounts charged are estimated by
management to be adequate to cover expected warranty-related costs under all
unexpired warranty obligation periods. The Company's warranty cost accruals are
based upon historical warranty cost experience in each market in which it
operates and are adjusted as appropriate to reflect qualitative risks associated
with the types of homes built and the geographic areas in which they are built.
Changes in the Company's warranty liability are as follows (in thousands):
Three Months Ended
December 31, 2002
------------------
Warranty liability, beginning of period ............. $ 39,471
Warranties issued ................................... 8,197
Settlements made .................................... (5,319)
----------
Warranty liability, end of period ................... $ 42,349
==========
-9-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
December 31, 2002
NOTE H - SUMMARIZED FINANCIAL INFORMATION
The 7 1/2%, 7 7/8%, 8%, 8 3/8%, 8 1/2%, 9%, 9 3/8%, 10% and 10 1/2% Senior
Notes, the 9 3/8%, 9 3/4% and 10 1/2% Senior Subordinated Notes, and the Zero
Coupon Convertible Senior Notes are fully and unconditionally guaranteed, on a
joint and several basis, by all of the Company's direct and indirect
subsidiaries (Guarantor Subsidiaries), other than financial services
subsidiaries and certain other inconsequential subsidiaries (collectively,
Non-Guarantor Subsidiaries). Each of the Guarantor Subsidiaries is wholly-owned.
In lieu of providing separate audited financial statements for the Guarantor
Subsidiaries, consolidated condensed financial statements are presented below.
Separate financial statements and other disclosures concerning the Guarantor
Subsidiaries are not presented because management has determined that they are
not material to investors.
Consolidating Balance Sheet
December 31, 2002
Non-Guarantor
Subsidiaries
-----------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------- ------------- ----------- ----------- ------------- ------------
(In thousands)
ASSETS
Homebuilding:
Cash ............................................. $ -- $ 170,302 $ -- $ 9,693 $ -- $ 179,995
Advances to/investments in unconsolidated
subsidiaries .................................... 4,447,512 628,797 -- -- (5,076,309) --
Inventories ...................................... 740,104 3,750,581 -- 90,135 (321) 4,580,499
Property and equipment (net) ..................... 11,531 59,079 -- 6,447 -- 77,057
Earnest money deposits and other assets .......... 153,681 218,016 -- 7,234 (2,718) 376,213
Excess of cost over net assets acquired .......... -- 578,994 -- -- -- 578,994
----------- ----------- ----------- --------- ------------ -----------
5,352,828 5,405,769 -- 113,509 (5,079,348) 5,792,758
----------- ----------- ----------- --------- ------------ -----------
Financial services:
Cash ............................................. -- -- 14,700 -- -- 14,700
Mortgage loans held for sale ..................... -- -- 431,827 -- -- 431,827
Other assets ..................................... -- -- 19,307 -- -- 19,307
----------- ----------- ----------- --------- ------------ -----------
-- -- 465,834 -- -- 465,834
----------- ----------- ----------- --------- ------------ -----------
Total Assets ..................................... $ 5,352,828 $ 5,405,769 $ 465,834 $ 113,509 $ (5,079,348) $ 6,258,592
=========== =========== =========== ========= ============ ===========
LIABILITIES & EQUITY
Homebuilding:
Accounts payable and other liabilities ........... $ 345,368 $ 461,208 $ -- $ 7,651 $ (17) $ 814,210
Advances from parent/unconsolidated subsidiaries . -- 3,374,624 -- 50,100 (3,424,724) --
Notes payable .................................... 2,633,316 29,445 -- 39,499 (2,701) 2,699,559
----------- ----------- ----------- --------- ------------ -----------
2,978,684 3,865,277 -- 97,250 (3,427,442) 3,513,769
----------- ----------- ----------- --------- ------------ -----------
Financial services:
Accounts payable and other liabilities ........... -- -- 13,791 -- -- 13,791
Advances from parent/unconsolidated subsidiaries . -- -- 14,642 -- (14,642) --
Notes payable .................................... -- -- 338,336 -- -- 338,336
----------- ----------- ----------- --------- ------------ -----------
-- -- 366,769 -- (14,642) 352,127
----------- ----------- ----------- --------- ------------ -----------
Total Liabilities ................................ 2,978,684 3,865,277 366,769 97,250 (3,442,084) 3,865,896
----------- ----------- ----------- --------- ------------ -----------
Minority interests ............................... -- -- 24 18,528 -- 18,552
----------- ----------- ----------- --------- ------------ -----------
Common stock ..................................... 1,466 45 6 6,155 (6,206) 1,466
Additional capital ............................... 1,350,266 355,534 2,886 24,191 (382,611) 1,350,266
Unearned compensation ............................ (3,847) -- -- -- -- (3,847)
Retained earnings ................................ 1,026,259 1,184,913 96,149 (32,615) (1,248,447) 1,026,259
----------- ----------- ----------- --------- ------------ -----------
2,374,144 1,540,492 99,041 (2,269) (1,637,264) 2,374,144
----------- ----------- ----------- --------- ------------ -----------
Total Liabilities & Equity ....................... $ 5,352,828 $ 5,405,769 $ 465,834 $ 113,509 $ (5,079,348) $ 6,258,592
=========== =========== =========== ========= ============ ===========
-10-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
December 31, 2002
NOTE H - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Balance Sheet
September 30, 2002
Non-Guarantor
Subsidiaries
----------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------- ------------ ----------- --------- ------------ -----------
(In thousands)
ASSETS
Homebuilding:
Cash ............................................. $ -- $ 80,273 $ -- $ 11,833 $ -- $ 92,106
Advances to/investments in unconsolidated
subsidiaries .................................... 4,126,233 260,725 -- 68 (4,387,026) --
Inventories ...................................... 689,111 3,566,280 -- 88,048 (370) 4,343,069
Property and equipment (net) ..................... 10,826 55,424 -- 5,645 -- 71,895
Earnest money deposits and other assets .......... 209,990 212,685 -- 12,408 (4,668) 430,415
Excess of cost over net assets acquired .......... -- 579,230 -- -- -- 579,230
----------- ----------- ----------- --------- ------------ -----------
5,036,160 4,754,617 -- 118,002 (4,392,064) 5,516,715
----------- ----------- ----------- --------- ------------ -----------
Financial services:
Cash ............................................. -- -- 12,238 -- -- 12,238
Mortgage loans held for sale ..................... -- -- 464,088 -- -- 464,088
Other assets ..................................... -- -- 24,486 -- -- 24,486
----------- ----------- ----------- --------- ------------ -----------
-- -- 500,812 -- -- 500,812
----------- ----------- ----------- --------- ------------ -----------
Total Assets ..................................... $ 5,036,160 $ 4,754,617 $ 500,812 $ 118,002 $ (4,392,064) $ 6,017,527
=========== =========== =========== ========= ============ ===========
LIABILITIES & EQUITY
Homebuilding:
Accounts payable and other liabilities ........... $ 341,405 $ 483,252 $ -- $ 9,415 $ (24) $ 834,048
Advances from parent/unconsolidated subsidiaries . -- 3,019,521 -- 50,370 (3,069,891) --
Notes payable .................................... 2,424,892 30,491 -- 36,237 (4,644) 2,486,976
----------- ----------- ----------- --------- ------------ -----------
2,766,297 3,533,264 -- 96,022 (3,074,559) 3,321,024
----------- ----------- ----------- --------- ------------ -----------
Financial services:
Accounts payable and other liabilities ........... -- -- 14,340 -- -- 14,340
Advances from parent/unconsolidated subsidiaries . -- -- 25,386 -- (25,386) --
Notes payable .................................... -- -- 391,355 -- -- 391,355
----------- ----------- ----------- --------- ------------ -----------
-- -- 431,081 -- (25,386) 405,695
----------- ----------- ----------- --------- ------------ -----------
Total Liabilities ................................ 2,766,297 3,533,264 431,081 96,022 (3,099,945) 3,726,719
----------- ----------- ----------- --------- ------------ -----------
Minority interests ............................... -- -- 26 20,919 -- 20,945
----------- ----------- ----------- --------- ------------ -----------
Common stock ..................................... 1,465 45 6 6,155 (6,206) 1,465
Additional capital ............................... 1,349,630 350,347 2,885 29,379 (382,611) 1,349,630
Unearned compensation ............................ (4,453) -- -- -- -- (4,453)
Retained earnings ................................ 923,221 870,961 66,814 (34,473) (903,302) 923,221
----------- ----------- ----------- --------- ------------ -----------
2,269,863 1,221,353 69,705 1,061 (1,292,119) 2,269,863
----------- ----------- ----------- --------- ------------ -----------
Total Liabilities & Equity ....................... $ 5,036,160 $ 4,754,617 $ 500,812 $ 118,002 $ (4,392,064) $ 6,017,527
=========== =========== =========== ========= ============ ===========
-11-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
December 31, 2002
NOTE H - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Income
Three Months Ended December 31, 2002
Non-Guarantor
Subsidiaries
--------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ --------- --------- ------------ -----------
(In thousands)
Homebuilding:
Revenues:
Home sales ...................................... $ 196,885 $ 1,446,988 $ -- $ 22,576 $ -- $ 1,666,449
Land/lot sales .................................. 3,265 36,979 -- -- -- 40,244
----------- ------------ --------- --------- ----------- -----------
200,150 1,483,967 -- 22,576 -- 1,706,693
----------- ------------ --------- --------- ----------- -----------
Cost of sales:
Home sales ...................................... 148,316 1,168,709 -- 16,836 (103) 1,333,758
Land/lot sales .................................. 3,349 31,433 -- -- -- 34,782
----------- ------------ --------- --------- ----------- -----------
151,665 1,200,142 -- 16,836 (103) 1,368,540
----------- ------------ --------- --------- ----------- -----------
Gross profit:
Home sales ...................................... 48,569 278,279 -- 5,740 103 332,691
Land/lot sales .................................. (84) 5,546 -- -- -- 5,462
----------- ------------ --------- --------- ----------- -----------
48,485 283,825 -- 5,740 103 338,153
Selling, general and administrative expense ...... 44,483 129,288 -- 2,844 2,566 179,181
Interest expense ................................. -- 17 -- 330 -- 347
Other expense (income) ........................... (174,923) (1,813) -- 504 176,027 (205)
----------- ------------ --------- --------- ----------- -----------
178,925 156,333 -- 2,062 (178,490) 158,830
----------- ------------ --------- --------- ----------- -----------
Financial services:
Revenues ......................................... -- -- 38,241 -- -- 38,241
General and administrative expense ............... -- -- 24,573 -- (2,566) 22,007
Interest expense ................................. -- -- 2,067 -- -- 2,067
Other (income) ................................... -- -- (5,928) -- -- (5,928)
----------- ------------ --------- --------- ----------- -----------
-- -- 17,529 -- 2,566 20,095
----------- ------------ --------- --------- ----------- -----------
Income before income taxes ....................... 178,925 156,333 17,529 2,062 (175,924) 178,925
Provision for income taxes ....................... 67,097 58,625 6,573 773 (65,971) 67,097
----------- ------------ --------- --------- ----------- -----------
Net income ....................................... $ 111,828 $ 97,708 $ 10,956 $ 1,289 $ (109,953) $ 111,828
=========== ============ ========= ========= =========== ===========
-12-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
December 31, 2002
NOTE H - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Income
Three Months Ended December 31, 2001
Non-Guarantor
Subsidiaries
--------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ ---------- --------- ------------ -----------
(In thousands)
Homebuilding:
Revenues:
Home sales ...................................... $ 179,037 $ 938,245 $ -- $ 8,456 $ -- $ 1,125,738
Land/lot sales .................................. 661 8,569 -- -- -- 9,230
----------- ------------ --------- --------- ----------- -----------
179,698 946,814 -- 8,456 -- 1,134,968
----------- ------------ --------- --------- ----------- -----------
Cost of sales:
Home sales ...................................... 144,418 748,191 -- 6,465 (176) 898,898
Land/lot sales .................................. 759 7,148 -- -- -- 7,907
----------- ------------ --------- --------- ----------- -----------
145,177 755,339 -- 6,465 (176) 906,805
----------- ------------ --------- --------- ----------- -----------
Gross profit:
Home sales ...................................... 34,619 190,054 -- 1,991 176 226,840
Land/lot sales .................................. (98) 1,421 -- -- -- 1,323
----------- ------------ --------- --------- ----------- -----------
34,521 191,475 -- 1,991 176 228,163
Selling, general and administrative expense ...... 30,596 84,941 -- 1,295 1,585 118,417
Interest expense ................................. 1,038 157 -- 11 (10) 1,196
Other expense (income) ........................... (114,598) (807) -- 4,791 113,186 2,572
----------- ------------ --------- --------- ----------- -----------
117,485 107,184 -- (4,106) (114,585) 105,978
----------- ------------ --------- --------- ----------- -----------
Financial services:
Revenues ......................................... -- -- 24,922 -- -- 24,922
General and administrative expense ............... -- -- 16,708 -- (1,585) 15,123
Interest expense ................................. -- -- 1,336 -- -- 1,336
Other (income) ................................... -- -- (3,044) -- -- (3,044)
----------- ------------ --------- --------- ----------- -----------
-- -- 9,922 -- 1,585 11,507
----------- ------------ --------- --------- ----------- -----------
Income before income taxes ....................... 117,485 107,184 9,922 (4,106) (113,000) 117,485
Provision for income taxes ....................... 44,057 40,194 3,721 (1,540) (42,375) 44,057
----------- ------------ --------- --------- ----------- -----------
Net income ....................................... $ 73,428 $ 66,990 $ 6,201 $ (2,566) $ (70,625) $ 73,428
=========== ============ ========= ========= =========== ===========
-13-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
December 31, 2002
NOTE H - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Cash Flows
Three Months Ended December 31, 2002
Non-Guarantor
Subsidiaries
------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ --------- -------- ------------ ----------
(In thousands)
OPERATING ACTIVITIES
Net income .......................................... $ 111,828 $ 97,708 $ 10,956 $ 1,289 $ (109,953) $ 111,828
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ...................... 1,250 6,922 420 412 -- 9,004
Amortization of debt premiums and fees ............. 1,744 -- -- -- -- 1,744
Changes in operating assets and liabilities:
Increase in inventories ........................... (49,304) (180,320) -- (2,087) (49) (231,760)
(Increase) decrease in earnest money
deposits and other assets ........................ 56,963 (6,228) 5,152 5,174 (1,950) 59,111
Decrease in mortgage loans held for sale .......... -- -- 32,261 -- -- 32,261
Increase (decrease) in accounts payable
and other liabilities ............................ 4,070 (22,044) (551) (4,155) 7 (22,673)
----------- ----------- --------- -------- ----------- ----------
Net cash provided by (used in) operating
activities ......................................... 126,551 (103,962) 48,238 633 (111,945) (40,485)
----------- ----------- --------- -------- ----------- ----------
INVESTING ACTIVITIES
Net purchases of property and equipment ............. (1,349) (10,273) (393) (1,214) -- (13,229)
----------- ----------- --------- -------- ----------- ----------
Net cash used in investing activities ............... (1,349) (10,273) (393) (1,214) -- (13,229)
----------- ----------- --------- -------- ----------- ----------
FINANCING ACTIVITIES
Net change in notes payable ......................... 204,336 (4,198) (53,019) 5,206 -- 152,325
Increase (decrease) in intercompany payables ........ (321,278) 208,462 7,636 (6,765) 111,945 --
Proceeds from stock associated with certain
employee benefit plans ............................. 530 -- -- -- -- 530
Cash dividends/distributions paid ................... (8,790) -- -- -- -- (8,790)
----------- ----------- --------- -------- ----------- ----------
Net cash provided by (used in) financing
activities ......................................... (125,202) 204,264 (45,383) (1,559) 111,945 144,065
----------- ----------- --------- -------- ----------- ----------
Increase (decrease) in cash .......................... -- 90,029 2,462 (2,140) -- 90,351
Cash at beginning of period .......................... -- 80,273 12,238 11,833 -- 104,344
----------- ----------- --------- -------- ----------- ----------
Cash at end of period ................................ $ -- $ 170,302 $ 14,700 $ 9,693 $ -- $ 194,695
=========== =========== ========= ======== =========== ==========
-14-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
December 31, 2002
NOTE H - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Cash Flows
Three Months Ended December 31, 2001
Non-Guarantor
Subsidiaries
--------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ ---------- --------- ------------ ----------
(In thousands)
OPERATING ACTIVITIES
Net income .......................................... $ 73,428 $ 66,990 $ 6,201 $ (2,566) $ (70,625) $ 73,428
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ...................... 631 4,216 347 123 -- 5,317
Amortization of debt premiums and fees ............. 2,272 -- -- -- -- 2,272
Changes in operating assets and liabilities:
(Increase) decrease in inventories ................ (48,505) (123,889) -- 504 (57) (171,947)
(Increase) decrease in earnest money
deposits and other assets ........................ (3,560) (3,878) (533) 4,857 (4,217) (7,331)
Increase in mortgage loans held for sale .......... -- -- (11,040) -- -- (11,040)
Increase (decrease) in accounts payable
and other liabilities ............................ (10,268) (44,074) (2,315) 172 23 (56,462)
----------- ------------ --------- -------- ----------- ----------
Net cash provided by (used in) operating
activities ......................................... 13,998 (100,635) (7,340) 3,090 (74,876) (165,763)
----------- ------------ --------- -------- ----------- ----------
INVESTING ACTIVITIES
Net (purchases) dispositions of property and
equipment .......................................... (1,772) (5,214) (177) 127 -- (7,036)
Distributions from venture capital entities ......... -- -- -- 500 -- 500
----------- ------------ --------- -------- ----------- ----------
Net cash provided by (used in) investing
activities ......................................... (1,772) (5,214) (177) 627 -- (6,536)
----------- ------------ --------- -------- ----------- ----------
FINANCING ACTIVITIES
Net change in notes payable ......................... (2,123) (4,684) (27,855) (4,294) 4,294 (34,662)
Increase (decrease) in intercompany payables ........ (9,764) (19,540) 38,301 311 (9,308) --
Proceeds from stock associated with certain
employee benefit plans ............................. 3,506 -- -- -- -- 3,506
Cash dividends/distributions paid ................... (3,845) (79,890) -- -- 79,890 (3,845)
----------- ------------ --------- -------- ----------- ----------
Net cash provided by (used in) financing
activities ......................................... (12,226) (104,114) 10,446 (3,983) 74,876 (35,001)
----------- ------------ --------- -------- ----------- ----------
Increase (decrease) in cash .......................... -- (209,963) 2,929 (266) -- (207,300)
Cash at beginning of period .......................... -- 230,481 6,975 1,824 -- 239,280
----------- ------------ --------- -------- ----------- ----------
Cash at end of period ................................ $ -- $ 20,518 $ 9,904 $ 1,558 $ -- $ 31,980
=========== ============ ========= ======== =========== ==========
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
We believe that there have been no significant changes to our critical
accounting policies during the three months ended December 31, 2002, as compared
to those we disclosed in Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Annual Report on Form 10-K
for the year ended September 30, 2002.
RESULTS OF OPERATIONS - CONSOLIDATED
We provide homebuilding services in 20 states and 44 markets through our 48
homebuilding divisions. Through our financial services operations, we also
provide mortgage banking and title agency services in many of these same
markets.
Three Months Ended December 31, 2002 Compared to Three Months Ended December 31,
2001
Consolidated revenues for the three months ended December 31, 2002, increased
50.4%, to $1,744.9 million, from $1,159.9 million for the comparable period of
2001, due to increases in both homebuilding and financial services revenues.
Approximately $356.0 million of the increase in homebuilding revenues was
attributable to revenues generated by Schuler Homes, acquired in February 2002.
Income before income taxes for the three months ended December 31, 2002,
increased 52.3%, to $178.9 million, from $117.5 million for the comparable
period of 2001. As a percentage of revenues, income before income taxes for the
three months ended December 31, 2002, increased 0.2 percentage point, to 10.3%
from 10.1% for the comparable period of 2001, primarily due to the improved
results achieved by our financial services operations.
The consolidated provision for income taxes increased 52.3%, to $67.1 million
for the three months ended December 31, 2002, from $44.1 million for the same
period of 2001, due to the corresponding increase in income before income taxes.
The effective income tax rate was 37.5% for both periods.
RESULTS OF OPERATIONS - HOMEBUILDING
The following tables set forth certain operating and financial data for our
homebuilding activities:
Percentages of
Homebuilding Revenues
-----------------------
Three Months Ended
December 31,
-----------------------
2002 2001
---------- ----------
Costs and expenses:
Cost of sales ..................................... 80.2% 79.9%
Selling, general and administrative expense ....... 10.5 10.4
Interest expense .................................. -- 0.1
---------- ----------
Total costs and expenses ........................... 90.7 90.4
Other (income) expense ............................. -- 0.3
---------- ----------
Income before income taxes ......................... 9.3% 9.3%
========== ==========
-16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Homes Closed Three Months Ended December 31,
-----------------------------------------
2002 2001
------------------- -------------------
Homes Homes
Closed Revenues Closed Revenues
-------- -------- -------- --------
($'s in millions)
Mid-Atlantic ...................... 665 $ 134.2 595 $ 125.1
Midwest ........................... 426 109.5 463 118.7
Southeast ......................... 947 157.3 888 154.9
Southwest ......................... 3,080 517.9 2,571 432.6
West .............................. 2,396 747.5 1,174 294.4
-------- -------- -------- --------
7,514 $1,666.4 5,691 $1,125.7
======== ======== ======== ========
Net New Sales Orders Three Months Ended December 31,
-----------------------------------------
2002 2001
------------------- -------------------
Homes Homes
Sold $ Sold $
-------- -------- -------- --------
($'s in millions)
Mid-Atlantic ..................... 721 $ 146.0 628 $ 128.1
Midwest .......................... 429 106.9 388 96.9
Southeast ........................ 949 169.8 735 118.3
Southwest ........................ 2,771 468.9 2,332 379.2
West ............................. 2,382 806.9 1,061 298.9
-------- -------- -------- --------
7,252 $1,698.5 5,144 $1,021.4
======== ======== ======== ========
Sales Backlog December 31, 2002 December 31, 2001
------------------- -------------------
Homes $ Homes $
-------- -------- -------- --------
($'s in millions)
Mid-Atlantic ..................... 1,309 $ 276.6 855 $ 193.3
Midwest .......................... 919 235.9 843 241.0
Southeast ........................ 1,671 287.3 1,311 216.9
Southwest ........................ 4,877 838.7 3,996 684.6
West ............................. 3,659 1,218.8 1,711 493.7
-------- -------- -------- --------
12,435 $2,857.3 8,716 $1,829.5
======== ======== ======== ========
Our market regions consist of the following markets:
Mid-Atlantic Charleston, Charlotte, Columbia, Greensboro, Greenville,
Hilton Head, Maryland-D.C., Myrtle Beach, New Jersey, Raleigh/
Durham and Virginia-D.C.
Midwest Chicago and Minneapolis/St. Paul
Southeast Atlanta, Birmingham, Fort Myers/Naples, Jacksonville, Miami/
West Palm Beach and Orlando
Southwest Albuquerque, Austin, Dallas, Fort Worth, Houston, Killeen,
Phoenix, San Antonio and Tucson
West Colorado Springs, Denver, Fort Collins, Hawaii, Inland Empire
(Southern California), Las Vegas, Los Angeles, Oakland, Orange
County, Portland, Sacramento, Salt Lake City, San Francisco,
San Diego, Seattle/Tacoma and Ventura County
Three Months Ended December 31, 2002 Compared to Three Months Ended December 31,
2001
Revenues from homebuilding activities increased 50.4%, to $1,706.7 million
(7,514 homes closed) for the three months ended December 31, 2002, from $1,135.0
million (5,691 homes closed) for the comparable period of 2001. Revenues from
home sales increased in four of our five market regions, with percentage
-17-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
increases ranging from 1.5% in the Southeast region to 153.9% in the West. Home
sales revenues declined 7.8% in the Midwest region, primarily due to our
decision to abandon the Louisville market in 2002. The increases in both
revenues and homes closed were due to strong housing demand throughout the
majority of our markets, and the merger with Schuler in February 2002. Excluding
Schuler, home sales revenues in the West region, where all of the former Schuler
divisions are located, increased 38.2% over the year-ago quarter. On a
consolidated basis, in divisions where we operated throughout both periods, home
sales revenues increased 17.9%, to $1,325.9 million (6,437 homes closed) for the
three months ended December 31, 2002, from $1,124.7 million (5,685 homes closed)
for the comparable period of 2001.
The average selling price of homes closed during the three months ended December
31, 2002 was $221,800, up 12.1% from $197,800 for the same period in 2001. The
increase in average selling price was primarily due to the Schuler acquisition.
Schuler's operations are concentrated on the West Coast and in Hawaii, where
average home selling prices are significantly higher than in the rest of the
United States.
The value of net new sales orders increased 66.3% to $1,698.5 million (7,252
homes) for the three months ended December 31, 2002, from $1,021.4 million
(5,144 homes) for the same period of 2001. The value of net new sales orders
increased in all of our five market regions, with percentage increases ranging
from 10.2% in the Midwest region to 169.9% in the West region. The increases in
both net new sales orders and the value of same were due to strong housing
demand throughout the majority of our markets and the merger with Schuler in
February 2002. Excluding Schuler, the value of net new sales orders in the West
region, where all of the former Schuler divisions are located, increased 19.3%
over the year-ago quarter. On a consolidated basis, in markets where we operated
throughout both periods, the value of net new sales orders increased 22.2%, to
$1,248.1 million (6,004 homes) for the three months ended December 31, 2002,
from $1,021.1 million (5,141 homes) for the comparable period of 2001. The
average price of a net new sales order in the three months ended December 31,
2002 was $234,200, up 17.9% from the $198,600 average in the comparable period
of 2001. The increase in average selling price was primarily due to the effect
of the Schuler acquisition.
At December 31, 2002, the value of our backlog of sales orders was $2,857.3
million (12,435 homes), up 56.2% from $1,829.5 million (8,716 homes) at December
31, 2001. In markets where we operated throughout both periods, the value of our
backlog of sales orders increased 23.3%, to $2,255.9 million (10,637 homes),
from $1,829.5 million (8,716 homes) at December 31, 2001. The average sales
price of homes in sales backlog was $229,800 at December 31, 2002, up 9.5% from
the average price of $209,900 at December 31, 2001.
Cost of sales increased by 50.9%, to $1,368.5 million for the three months ended
December 31, 2002, from $906.8 million for the comparable period of 2001. The
increase in cost of sales was primarily attributable to the increase in
revenues. Cost of home sales as a percentage of home sales revenues increased
0.2 percentage point, to 80.0% for the three months ended December 31, 2002,
from 79.8% for the comparable period of 2001. Compared to all of fiscal 2002,
cost of home sales as a percentage of home sales revenues in the current quarter
decreased by 0.9 percentage point. The majority of costs associated with the
sales of inventory acquired in the Schuler acquisition that had lower gross
margins as a result of purchase accounting adjustments that increased the
acquired inventory to its fair value as of the date of acquisition was
recognized in fiscal 2002. A relatively insignificant amount was recognized in
the three months ended December 31, 2002, which accounted for the majority of
the 0.2 percentage point increase from the year-ago quarter. For the same
reason, total homebuilding cost of sales as a percentage of total homebuilding
revenues increased 0.3 percentage point, to 80.2% in the three months ended
December 31, 2002, from 79.9% in the comparable period of 2001. Compared to all
of fiscal 2002, total homebuilding cost of sales as a percentage of homebuilding
revenues in the current quarter decreased 1.0 percentage point.
Selling, general and administrative (SG&A) expenses from homebuilding activities
increased by 51.3%, to $179.2 million in the three months ended December 31,
2002, from $118.4 million in the comparable period of 2001. As a percentage of
homebuilding revenues, SG&A expenses increased 0.1 percentage point, to 10.5%
for the three months ended December 31, 2002, from 10.4% in the comparable
period of 2001. The majority of the increase in SG&A expenses and the increase
in SG&A expenses as a percentage of homebuilding revenues was attributable to
the SG&A expenses incurred by the former Schuler divisions in the current
quarter.
-18-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest expense associated with homebuilding activities decreased 71.0%, to
$0.3 million in the three months ended December 31, 2002, from $1.2 million in
the comparable period of 2001. Due to the declining interest rate environment
experienced throughout calendar 2002, our total interest costs as a percentage
of average interest-bearing debt declined. Also, throughout the three months
ended December 31, 2002, inventory under construction or development grew at a
more rapid pace than interest-bearing debt. Therefore, virtually all of the
total homebuilding interest incurred was capitalized to inventory in the current
quarter. During both periods, we expensed the portion of incurred interest and
other financing costs which could not be capitalized to inventory. Capitalized
interest and other financing costs are included in cost of sales at the time
homes are closed.
Other income associated with homebuilding activities was $0.2 million in the
three months ended December 31, 2002, compared to other expense of $2.6 million
in the comparable period of 2001. The income in the three months ended December
31, 2002 is primarily due to an increase in the fair value of our interest rate
swap agreements during the quarter. During the year-ago quarter, the expense was
primarily due to write-downs to estimated fair value of the carrying amounts of
our investments in start-up and emerging growth companies, offset in part by an
increase in the fair value of our interest rate swap agreements during the
quarter.
RESULTS OF OPERATIONS - FINANCIAL SERVICES
Financial services include mortgage financing and title insurance agency and
closing services, primarily related to purchases of homes we build and sell. We
provide mortgage services in Arizona, California, Colorado, Florida, Georgia,
Illinois, Maryland, Minnesota, Nevada, New Mexico, North Carolina, Oregon, South
Carolina, Texas, Virginia and Washington. We provide title agency and closing
services in Arizona, Florida, Georgia, Maryland, Minnesota, Texas, Virginia and
Washington. The following table summarizes financial and other information for
our financial services operations:
Three Months Ended
December 31,
-------------------
2002 2001
-------- --------
($ in thousands)
Number of loans originated.................................. 6,228 4,423
-------- --------
Loan origination fees....................................... $ 6,732 $ 4,643
Sale of servicing rights and gains from sale of mortgages... 20,134 13,061
Other revenues.............................................. 3,635 1,739
-------- --------
Total mortgage banking revenues............................. 30,501 19,443
Title policy premiums, net.................................. 7,740 5,479
-------- --------
Total revenues.............................................. 38,241 24,922
General and administrative expense.......................... 22,007 15,123
Interest expense............................................ 2,067 1,336
Interest/other (income)..................................... (5,928) (3,044)
-------- --------
Income before income taxes.................................. $ 20,095 $ 11,507
======== ========
Three Months Ended December 31, 2002 Compared to Three Months Ended December 31,
2001
Revenues from the financial services segment increased 53.4%, to $38.2 million
in the three months ended December 31, 2002, from $24.9 million in the
comparable period of 2001. The increase in financial services revenues was due
to the rapid expansion of our mortgage loan and title services provided to
customers of our homebuilding segment and the effects of the Schuler
acquisition. General and administrative expenses associated with financial
services increased 45.5%, to $22.0 million in the three months ended December
31, 2002, from $15.1 million in the comparable period of 2001. As a percentage
of financial services revenues, general and administrative expenses decreased
3.2 percentage points, to 57.5% in the three months ended December 31, 2002,
from 60.7% in the comparable period in 2001, due primarily to efficiencies
realized with the increase in revenues generated in markets entered in 2001.
-19-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2002, we had available cash and cash equivalents of $194.7
million. Inventories (including finished homes, construction in progress, and
developed residential lots and other land), at December 31, 2002, had increased
by $237.4 million since September 30, 2002, due to a general increase in
business activity and the expansion of operations in our market areas. The
inventory increase was financed largely by issuing senior notes and by retaining
earnings. Our revolving credit facility had no amounts outstanding at either
December 31, 2002 or September 30, 2002. Our ratio of homebuilding notes payable
(net of cash) to total capital at December 31, 2002, increased 0.2 percentage
point, to 51.5% from 51.3% at September 30, 2002. The stockholders' equity to
total assets ratio increased 0.2 percentage point, to 37.9% at December 31,
2002, from 37.7% at September 30, 2002.
We have an $805 million, unsecured revolving credit facility, including $125
million which may be used for letters of credit. The facility matures in January
2006, and is guaranteed by substantially all of our wholly-owned subsidiaries
other than those that make up our financial services segment. At December 31,
2002, we had outstanding homebuilding debt of $2,699.6 million. Under the debt
covenants associated with the revolving credit facility, our additional
borrowing capacity under it is limited to the lesser of the unused portion of
the facility, $688.9 million at December 31, 2002, or an amount determined under
a borrowing base arrangement. Under the borrowing base limitation, the sum of
our senior debt and the amount drawn under our revolving credit facility may not
exceed certain percentages of the various categories of our unencumbered
inventory. At December 31, 2002, the borrowing base arrangement would have
limited our additional borrowing capacity from any source to $1,195.5 million.
At December 31, 2002, we were in compliance with all of the covenants,
limitations and restrictions that form a part of our public debt obligations and
our bank revolving credit facility. We have entered into multi-year interest
rate swap agreements, aggregating a notional amount of $200 million, that have
the effect of fixing the interest rate on a portion of the variable rate
revolving credit facility at 5.1%.
In the normal course of business, we provide standby letters of credit and
performance bonds, issued by third parties, to secure performance under various
contracts. At December 31, 2002, outstanding standby letters of credit and
performance bonds, the majority of which mature in less than one year, were
$128.2 million and $1,050.8 million, respectively.
At December 31, 2002, our financial services segment had mortgage loans held for
sale of $431.8 million and loan commitments for $285.4 million at fixed rates.
We hedge the interest rate risk on these mortgage loans and mortgage loan
commitments through the use of best-efforts whole loan delivery commitments,
forward sales of mortgage-backed securities and the infrequent purchase of
options on financial instruments. We record gains or losses related to such
hedging instruments in other income as their market values change. Such gains
and losses have not significantly affected our financial services results of
operations.
As of December 31, 2002, our financial services segment had a $190 million,
one-year mortgage warehouse bank facility that matures on August 12, 2003, and
is secured by certain mortgage loans held for sale. The mortgage warehouse
facility is not guaranteed by either the parent company or any of the
subsidiaries that guarantee our homebuilding debt. At December 31, 2002, $138.3
million had been drawn under the mortgage warehouse facility. Our wholly-owned
mortgage company completed a new $100 million mortgage-backed commercial paper
conduit facility ("CP conduit facility") in July 2002. The facility was
increased to $200 million in November 2002. Although the agreement governing the
CP conduit facility expires on July 3, 2005, maintenance of the facility beyond
the first (and subsequent) anniversary date(s) must be annually approved by the
sponsoring bank. The CP conduit facility is also secured by certain mortgage
loans held for sale and is not guaranteed by either the parent company or any of
the subsidiaries that guarantee our homebuilding debt. As of December 31, 2002,
$200.0 million had been drawn under the CP conduit facility. The mortgage loans
pledged to secure the CP conduit facility are used as collateral for
mortgage-backed securities sold in the secondary commercial paper markets at
rates that are more attractive than those applicable to the mortgage warehouse
facility. All mortgage company activities are financed under the mortgage
warehouse and CP conduit facilities. Both of the financial services' credit
facilities contain financial covenants with which we are in compliance.
-20-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our historical strategy of internal growth and growth by acquisition has
required significant amounts of cash. It is anticipated that future home
construction, lot and land purchases and acquisitions will be funded through
internally generated funds, existing and future credit facilities and the
issuance of new debt or equity securities. At December 31, 2002, under currently
effective shelf registration statements, we have approximately 15 million shares
of common stock issuable to effect, in whole or in part, possible future
acquisitions and the capacity to issue new debt or equity securities amounting
to $785 million. In the future, the Company intends to continue to maintain
effective shelf registration statements that will facilitate access to the
capital markets.
On December 3, 2002, we issued $215 million of 7.5% Senior notes due 2007. The
net proceeds from this offering were used to repay borrowings under the
unsecured revolving credit facility. These notes are guaranteed by substantially
all of our wholly-owned subsidiaries other than our financial services
subsidiaries.
On May 11, 2003, the holders of our zero coupon convertible senior notes due
2021 will have an opportunity to require us to purchase their notes for cash at
their accreted value of $559.73 per note on that date. If all of the note
holders elect to require us to purchase all of their notes, we will be required
to purchase notes having a total accreted value of $213.3 million on that date.
We believe that a combination of cash resources available from operations and
under our revolving bank credit facility will be adequate to meet our
obligations associated with any exercise of the rights of our convertible note
holders to require us to redeem their notes on May 11, 2003. We also believe
that repaying any notes submitted for redemption will not have any significant
adverse effects on our financial condition, operations or cash flows, except
that we may be required to write off a pro-rata portion of unamortized debt
issuance costs that will total approximately $4.8 million on that date.
During the three months ended December 31, 2002, our Board of Directors declared
a quarterly cash dividend of $0.06 per common share, which was paid on November
15, 2002 to stockholders of record on November 4, 2002.
Except for ordinary expenditures for the construction of homes and the
acquisition of land and lots for development and sale of homes, at December 31,
2002, we had no material commitments for capital expenditures.
-21-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT
Certain statements contained in this report, as well as in other materials we
have filed or will file with the Securities and Exchange Commission, statements
made by us in periodic press releases and oral statements we make to analysts,
stockholders and the press in the course of presentations about us, may be
construed as "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. These forward-looking statements typically
include words such as "anticipate", "believe", "expect", "estimate", "project",
and/or "future". Any or all of the forward-looking statements included in this
report and in any other of our reports or public statements may turn out to be
inaccurate due to known or unknown risks and uncertainties. As a result, actual
results may differ materially from the results discussed in and anticipated by
the forward-looking statements. The following risks and uncertainties relevant
to our business include factors we believe could adversely affect us. Other
factors beyond those listed below could also adversely affect us.
- Changes in general economic, real estate and other conditions
- Changes in interest rates and the availability of mortgage financing
- Governmental regulations and environmental matters
- Our substantial leverage
- Competitive conditions within the homebuilding industry
- The availability of capital
- Our ability to effect our growth strategies successfully
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. However, any
further disclosures made on related subjects in subsequent reports on Forms
10-K, 10-Q and 8-K should be consulted. Additional information about issues that
could lead to material changes in performance is contained in our annual report
on Form 10-K, which is filed with the Securities and Exchange Commission.
-22-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to interest rate risk on our long term debt. We monitor our
exposure to changes in interest rates and utilize both fixed and variable rate
debt. For fixed rate debt, changes in interest rates generally affect the value
of the debt instrument, but not our earnings or cash flows. Conversely, for
variable rate debt, changes in interest rates generally do not impact the fair
value of the debt instrument, but may affect our future earnings and cash flows.
We have mitigated our exposure to changes in interest rates on our variable rate
bank debt by entering into interest rate swap agreements to obtain a fixed
interest rate for a portion of the variable rate borrowings. We generally do not
have an obligation to prepay fixed-rate debt prior to maturity and, as a result,
interest rate risk and changes in fair value would not have a significant impact
on our fixed-rate debt until such time as we are required to refinance,
repurchase or repay such debt.
Our interest rate swaps were not designated as hedges under Statement of
Financial Accounting Standards No. 133 when it was adopted on October 1, 2000.
We are exposed to market risk associated with changes in the fair values of the
swaps, since any such changes must be reflected in our income statements.
Our financial services segment is exposed to interest rate risk associated with
its mortgage loan origination services. Mortgage loans are funded at fixed
interest rates before they are committed to specific investors and interest rate
lock commitments (IRLC's) are extended to borrowers who have applied for loan
funding and who meet certain defined credit and underwriting criteria. Forward
sales of mortgage-backed securities are designated as fair value hedges of the
risk of changes in the overall fair value of funded loans. Accordingly, changes
in the value of the derivative instruments are recognized in current earnings,
as are the changes in the value of the funded loans. The effectiveness of the
fair value hedge is continuously monitored and any ineffectiveness, which for
the three month periods ended December 31, 2002 and 2001, was not significant,
is recognized in current earnings. The IRLC's are classified and accounted for
as non-designated derivative instruments with gains and losses recorded in
current earnings. Interest rate risk associated with IRLC's is managed through
the use of best-efforts whole loan delivery commitments, forward sales of
mortgage-backed securities and the infrequent purchase of options on financial
instruments. These instruments are considered non-designated derivatives and are
accounted for at fair market value with gains and losses recorded in current
earnings. At December 31, 2002, total forward sales of mortgage backed
securities to mitigate interest rate risk related to uncommitted mortgage loans
held for sale and IRLC's were approximately $178.0 million, the duration of
which was less than nine months.
The following table shows, as of December 31, 2002, our long term debt
obligations, principal cash flows by scheduled maturity, weighted average
interest rates and estimated fair market value. In addition, the table shows the
notional amounts, weighted average interest rates and estimated fair market
value of our interest rate swaps.
Nine Months
Ended Fair
Sep. 30, Year ended September 30, market
-------- -------------------------------------------------- value at
2003 2004 2005 2006 2007 Thereafter Total 12/31/02
-------- -------- -------- -------- -------- ---------- --------- ---------
($'s in millions)
Debt:
Fixed rate ................. $ 21.9 $ 167.6 $ 213.5 $ 151.0 -- $ 2,262.7 $ 2,816.7 $ 2,687.8
Average interest rate ...... 7.29% 8.53% 10.63% 10.17% -- 8.09% 8.43% --
Variable rate .............. $ 358.3 $ 14.0 -- $ 6.1 -- -- $ 378.4 $ 378.4
Average interest rate ...... 2.30% 4.31% -- 5.25% -- -- 2.43% --
Interest Rate Swaps:
Variable to fixed .......... $ 200.0 $ 200.0 $ 200.0 $ 200.0 $ 200.0 $ 200.0 -- $ (22.2)
Average pay rate ........... 5.10% 5.10% 5.10% 5.10% 5.10% 5.02% -- --
Average receive rate ....... 90-day LIBOR
-23-
ITEM 4. CONTROLS AND PROCEDURES.
The Company's management has long recognized its responsibilities for
developing, implementing and monitoring effective and efficient controls and
procedures. As part of those responsibilities, as of December 31, 2002, an
evaluation was performed under the supervision and with the participation of the
Company's management, including the Chief Executive Officer ("CEO") and Chief
Financial Officer ("CFO"), of the effectiveness of the design and operation of
the Company's disclosure controls and procedures as defined in Rule 13a - 14(c)
and Rule 15d - 14(c) under the Securities Exchange Act of 1934. Based on that
evaluation, the CEO and CFO concluded that the Company's disclosure controls and
procedures were effective in timely alerting them to material information
relating to the Company, including its consolidated subsidiaries, required to be
included in the Company's periodic filings with the Securities and Exchange
Commission. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to December 31, 2002. Accordingly, there have been no corrective
actions taken as no significant deficiencies or material weaknesses were
detected in these controls.
-24-
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On December 3, 2002, the Company issued $215,000,000 in principal amount of its
7.5% Senior Notes due 2007 (the "Notes"). The Notes bear interest from December
3, 2002 at 7.5% per annum, payable semi-annually on June 1 and December 1 of
each year commencing on June 1, 2003. As part of that issuance, the Company
executed the Fifteenth Supplemental Indenture, dated as of December 3, 2002,
among the Company, the Guarantors named therein and American Stock Transfer &
Trust Company, as Trustee, authorizing the Notes.
The Supplemental Indenture, and the Indenture to which it relates (dated June 9,
1997, as supplemented), impose limitations on the ability of the Company and its
subsidiaries guaranteeing the Notes to, among other things, incur indebtedness,
make "Restricted Payments" (as defined, which includes payments of dividends or
other distributions on the Common Stock of the Company), effect certain "Asset
Dispositions" (as defined therein), enter into certain transactions with
affiliates, merge or consolidate with any person, or transfer all or
substantially all of their properties and assets. These limitations are
substantially similar to the limitations already existing with respect to the
Company's other senior notes, and related indentures and supplemental
indentures.
Other information concerning the offering and issuance of the Notes has
previously been reported in, and is described in the Company's Prospectus
Supplement, dated November 22, 2002 and filed with the Securities and Exchange
Commission (the "Commission") on November 27, 2002 pursuant to Rule 424(b)(5),
and the Company's current report, on Form 8-K, dated November 22, 2002 and filed
with the Commission on December 2, 2002, and dated November 26, 2002 and filed
with the Commission on November 26, 2002.
ITEM 5. OTHER INFORMATION.
On January 30, 2003, at the Company's Annual Meeting of Stockholders, the
Company's stockholders approved an amendment to the Company's Amended and
Restated Certificate of Incorporation, as amended, to increase the number of
authorized shares of Common Stock from 200 million to 400 million. This
amendment was filed with the Secretary of State of the State of Delaware on
February 6, 2003 and also became effective on that date.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3.1 Amended and Restated Certificate of Incorporation, as amended,
of the Company, effective March 18, 1992, is filed herewith.
3.1(a) Amendment to Amended and Restated Certificate of
Incorporation, as amended, of the Company effective
February 6, 2003, is filed herewith.
3.2 Amended and Restated Bylaws of the Company are incorporated by
reference from Exhibit 3.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1998, filed
with the Commission on February 16, 1999.
4.1 Indenture, dated June 9, 1997, among the Company, the
Guarantors named therein and American Stock Transfer & Trust
Company, as trustee, is incorporated by reference from Exhibit
4.1(a) to the Company's Registration Statement on Form S-3
(No. 333-27521) and filed with the Commission on May 21, 1997.
-25-
4.2 Fifteenth Supplemental Indenture 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 is incorporated by reference from
Exhibit 4.1 to the Company's Form 8-K dated November 22, 2002
and filed with the Commission on December 2, 2002.
10.1 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 is incorporated by reference from Exhibit 10.43 to
the Company's Form 10-K dated December 13, 2002 and filed with
the Commission on December 13, 2002.
----------------
*Filed herewith.
(b) Reports on Form 8-K.
1. On November 26, 2002, the Company filed a Current Report on Form
8-K (Item 5), dated November 26, 2002, which filed with the
Commission unaudited pro forma combined condensed statements of
income for the nine months ended June 30, 2002 and the year ended
September 30, 2001 reflecting the Company's acquisition of
Schuler Homes, Inc. which occurred on February 21, 2002.
2. On December 2, 2002, the Company filed a Current Report on Form
8-K (Item 5), dated November 22, 2002, which filed with the
Commission (i) an Underwriting Agreement, (ii) the form of
Fifteenth Supplemental Indenture, (iii) legal opinion, and (iv)
statement of computation of ratios or earnings to fixed charges,
all relating to the offering and issuance of $215,000,000 of the
Company's 7.5% Senior Notes due 2007.
3. On December 13, 2002, the Company filed a Current Report on Form
8-K (Item 9), dated December 13, 2002, which submitted to the
Commission Section 906 certifications made by the Chief Executive
Officer and Chief Financial Officer of the Company as required by
the Sarbanes- Oxley Act of 2002.
-26-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
D.R. HORTON, INC.
Date: February 18, 2003 By /S/ SAMUEL R. FULLER
--------------------------------------------------
Samuel R. Fuller, on behalf of D.R. Horton, Inc.
and as Executive Vice President, Treasurer and
Chief Financial Officer (Principal Financial and
Accounting Officer)
-27-
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Donald J. Tomnitz, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of D.R. Horton, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
-28-
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 18, 2003 /S/ DONALD J. TOMNITZ
------------------------------
By: Donald J. Tomnitz
Vice Chairman, Chief Executive
Officer and President
-29-
I, Samuel R. Fuller, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of D.R. Horton, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
-30-
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 18, 2003 /S/ SAMUEL R. FULLER
-----------------------------------
By: Samuel R. Fuller
Executive Vice President, Treasurer
and Chief Financial Officer
-31-
Index to Exhibits
Exhibits.
3.1 Amended and Restated Certificate of Incorporation, as amended,
of the Company, effective March 18, 1992, is filed herewith.
3.1(a) Amendment to Amended and Restated Certificate of
Incorporation, as amended, of the Company effective
February 6, 2003, is filed herewith.
3.2 Amended and Restated Bylaws of the Company are incorporated by
reference from Exhibit 3.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1998, filed
with the Commission on February 16, 1999.
4.1 Indenture, dated June 9, 1997, among the Company, the
Guarantors named therein and American Stock Transfer & Trust
Company, as trustee, is incorporated by reference from Exhibit
4.1(a) to the Company's Registration Statement on Form S-3
(No. 333-27521) and filed with the Commission on May 21, 1997.
4.2 Fifteenth Supplemental Indenture 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 is incorporated by reference from
Exhibit 4.1 to the Company's Form 8-K dated November 22, 2002
and filed with the Commission on December 2, 2002.
10.1 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 is incorporated by reference from Exhibit 10.43 to
the Company's Form 10-K dated December 13, 2002 and filed with
the Commission on December 13, 2002.