301 Commerce St.
Suite 500
Fort Worth, Texas 76102
(817) 390-8200
www.drhorton.com
ANNUAL REPORT
2004
FINANCIAL SUMMARY
(In millions, except for number of homes and per share amounts)
$1,000
Net Income
$975
$800
$600
$400
$200
$0
$12,500
$10,000
$7,500
$5,000
$2,500
$0
$626
$405
$257
$192
2000
2001
2002
2003
2004
Revenues
$10,841
$8,728
$6,739
$4,456
$3,654
2000
2001
2002
2003
2004
$12,500
New Home Sales
$11,406
$10,000
$7,500
$5,000
$3,676
$4,503
$9,162
$6,886
Income Statement Data:
Revenues .......................................
Net income ...................................
Operating Data:
Homes closed ...............................
Homes sold ...................................
Percentages of Revenues:
Gross profit (homebuilding) ..........
SG&A expense (homebuilding) ...
Pre-tax income ..............................
Net income ...................................
Balance Sheet Data:
Inventories ....................................
Total assets ....................................
Notes payable ...............................
Stockholders’ equity .....................
Book value per share* ..................
Common shares outstanding* ......
Sales Contract Backlog:
Homes ...........................................
Sales value ....................................
Years Ended September 30,
2004
2003
2002
2001
2000
$10,840.8
975.1
$8,728.1
626.0
$6,738.8
404.7
$4,455.5
257.0
$3,653.7
191.7
43,567
45,263
35,934
38,725
29,761
31,491
21,371
22,179
19,144
19,223
23.1%
9.0%
14.6%
9.0%
20.4%
9.6%
11.6%
7.2%
19.0%
9.8%
9.6%
6.0%
19.5%
9.9%
9.2%
5.8%
18.4%
10.0%
8.5%
5.2%
As of September 30,
2004
2003
2002
2001
2000
$6,567.4
8,985.2
3,499.2
3,960.7
$16.97
233.4
$5,082.3
7,279.4
2,963.2
3,031.3
$13.06
232.1
$4,343.1
6,017.5
2,878.3
2,269.9
$10.33
219.8
$2,804.4
3,652.2
1,884.3
1,250.2
$7.23
173.0
$2,191.0
2,694.6
1,344.4
969.6
$5.75
168.5
17,184
$4,568.5
15,488
$3,653.4
12,697
$2,825.2
9,263
7,388
$1,933.8 $1,536.9
2000
2001
2002
2003
2004
*adjusted for the 11% stock dividend of March 2001 and the three-for-two-stock splits of April 2002
and January 2004.
Sales Backlog
$4,568
$3,653
$2,825
$2,000
$1,537
$1,934
$1,000
$0
Stockholders’ Equity
$3,961
$3,031
$2,270
$1,250
$970
$4,500
$3,600
$2,700
$1,800
$900
$0
75%
60%
45%
30%
15%
0%
Homebuilding Leverage Ratio
55% 54% 51%
40%
39%
2000
2001
2002
2003
2004
2000
2001
2002
2003
2004
2000
2001
2002
2003
2004
$2,500
$0
$5,000
$4,000
$3,000
H O M E B U I L D I N G O P E R A T I O N S
WEST
Bakersfield/Lancaster/Palmdale, CA
Fresno/Modesto, CA
Los Angeles County, CA
Oakland/North Bay, CA
Orange County, CA
Riverside/San Bernardino, CA
Sacramento, CA
San Diego County, CA
San Francisco, CA
San Jose/Pleasanton/East Bay, CA
Ventura County, CA
Colorado Springs, CO
Denver, CO
Ft. Collins, CO
Hawaii, HI
Las Vegas, NV
Reno, NV
Albany, OR
Bend, OR
Eugene, OR
Portland, OR
Salt Lake City, UT
Seattle/Tacoma, WA
Vancouver, WA
MIDWEST
Chicago, IL
Minneapolis/St. Paul, MN
SOUTHWEST
Phoenix, AZ
Casa Grande, AZ
Tucson, AZ
Albuquerque, NM
Las Cruces, NM
Austin, TX
Dallas, TX
Fort Worth, TX
Houston, TX
Killeen/Temple, TX
Laredo, TX
Rio Grande Valley, TX
San Antonio, TX
Waco, TX
www.drhorton.com
MID-ATLANTIC
Baltimore, MD
Suburban Washington D.C.
New Jersey
Charlotte, NC
Greensboro, NC
Raleigh/Durham, NC
Philadelphia, PA
Charleston, SC
Columbia, SC
Greenville, SC
Hilton Head, SC
Myrtle Beach, SC
Northern Virginia, VA
SOUTHEAST
Birmingham, AL
Huntsville, AL
Atlanta, GA
Savannah, GA
Daytona, FL
Fort Myers/Naples, FL
Jacksonville, FL
Miami/West Palm Beach, FL
Orlando, FL
Tampa, FL
Dear Fellow Stockholders:
Our Company, America's Builder, just completed another record year, our 27th consecutive year of
growth in revenues and proÑtability! As a result, for the third consecutive year, we maintained our position
as the number one homebuilder in America by delivering more homes in the United States than any other
homebuilder! Some of the records that America's Builder achieved this year included:
‚ Earning record net income of $975.1 million, a 56% increase over our Ñscal 2003 record of
$626.0 million;
‚ Earning record diluted earnings per share of $4.11, a 51% increase over our 2003 record of $2.73;
‚ Achieving record revenues of $10.8 billion (43,567 homes delivered), a 24% increase over our 2003
record of $8.7 billion (35,934 homes delivered);
‚ Achieving gross proÑt margin on homebuilding revenues of 23.1%, a 270 basis point improvement
over the 20.4% earned in 2003;
‚ Attaining a record level of stockholders' equity of $4.0 billion, up 31% from the 2003 level of
$3.0 billion;
‚ Initiating record new sales orders, amounting to $11.4 billion (45,263 homes), a 24% increase over
our 2003 record of $9.2 billion (38,725 homes);
‚ Being the Ñrst homebuilding company in the world to sell more than 45,000 homes in a year and to
deliver more than 43,000 homes in a year;
‚ Holding a record year-end sales backlog of $4.6 billion (17,184 homes), up 25% over our
2003 year-end record of $3.7 billion (15,488 homes);
‚ Reducing our homebuilding leverage ratio (net of cash) to an all-time low of 38.9%, 1.1 percentage
points less than last year's record level of 40.0%;
‚ Ending the Ñscal year with $1.6 billion in ""dry powder'', including $480.1 million in homebuilding
cash and $1.1 billion unused capacity on our revolving credit facility, and
‚ Achieving a return on beginning stockholders' equity of 32% and on average stockholders' equity of
28%.
These accomplishments build on our history of out-performing our homebuilding industry competitors.
We understand that, for America's Builder, nothing happens until a home is sold. As a result of that focus,
our year-over-year percentage increases in homes sold during the period 1991-2004 exceeded the national
rate of change in homes sold in every year! In three of those years, national sales were down, but our year-
over-year sales increased each and every year!
One of the most signiÑcant factors that has allowed us to achieve such dramatic results is our
realization that homebuilding is clearly a local business. Our division presidents are truly entrepreneurs,
charged with the responsibility and given the authority to react to changes in their respective markets and
adjust land positions, product and pricing as necessary. In addition, in many of our markets, we are and
have always been willing to ""customize'' our production homes, making them more attractive to our home
buyers. Finally, our division presidents are stockholders through direct stock ownership and through stock
options. This ownership, coupled with an incentive bonus program that rewards bottom-line performance
and eÇcient management of Company assets, ensures that management and stockholder interests are
Ñrmly aligned. We are convinced that our decentralized structure, our ability to ""customize'' our
production homes and our management incentive plans have allowed us to grow America's Builder through
all economic cycles and gives us a competitive advantage in each of our markets.
We have historically grown through a balanced combination of internal growth and acquisitions.
During the last two years, our growth has been wholly internal. Our Ñve-year compounded annual growth
rate in revenues through Ñscal 2004 was 28%. While we are proud of our revenue growth, we are more
focused on improving our proÑtability, which is reÖected by our 44% Ñve-year compounded annual growth
rate in net income.
Last year, we suggested that we could achieve our $10 billion revenue target with organic growth only.
We not only did so, we exceeded it by $841 million! As we enter Ñscal 2005, we believe that we can
generate approximately $12 billion in revenues, again solely through internal growth, by continuing to more
deeply penetrate our existing markets and by expanding our already successful strategy of opening
""satellite'' operations in smaller markets adjacent to our existing operating divisions. Such satellite
operations remain under the operational and administrative control of their nearby parent divisions, and
consist solely of a city manager and construction and sales personnel. As we have consistently done in the
past, we will continue to evaluate any attractive acquisition opportunities that may arise. Based upon our
history of seventeen successful acquisitions, we have no doubt that we are capable of successfully
identifying, acquiring and seamlessly integrating the operations of successful homebuilding companies into
the Horton ""family.''
At September 30, 2004, our stockholders' equity was $4.0 billion, 31% higher than a year ago, and
1.3 million times the $3,000 with which I started the Company in 1978! Importantly, our homebuilding
leverage, net of cash, declined from 40.0% at the end of Ñscal 2003 to 38.9% at the end of 2004, an
improvement of 110 basis points! Our improvement in net homebuilding leverage in 2004 was achieved
solely through a continued disciplined approach to land acquisitions, in which budgeted land deals were
funded only to the extent that our operating divisions met or exceeded their budgeted revenue targets. We
believe that all of our credit parameters are now at investment-grade levels and have been for more than a
year.
Our strong balance sheet and our consistent ability to deliver superior operating results have generated
strong acceptance of America's Builder by the capital markets. In January 2004, we issued $200 million in
5% senior notes due in 2009, part of the proceeds of which were used to redeem $150 million of our
83/8% senior notes that matured in June 2004. In July 2004, we issued $200 million in 61/8% senior notes
due in 2014. In September 2004, we issued $250 million in 55/8% senior notes due in 2014, and in October
2004, we issued $250 million in 47/8% senior notes due in 2010. The latter issue was our Ñrst ever with an
investment-grade covenant package, reÖecting the market's acceptance of our Company as an investment-
grade issuer, even though, except for Fitch Ratings, the rating agencies have not yet formally recognized
us as such. We had $113 million in letters of credit outstanding and no cash advances under our
$1.21 billion revolving credit line at September 30, 2004. The $1.1 billion in capacity under the credit line,
plus the $480 million in homebuilding cash at year-end, give us $1.6 billion in ""dry powder'', and aÅord us
ample resources to eÅect our growth strategies in Ñscal 2005 and beyond.
On December 1, 2003, we announced that our Board of Directors had declared a three-for-two stock
split, to be eÅected as a 50% stock dividend, payable January 12, 2004, to stockholders of record on
December 22, 2003. In Ñscal 2004, our quarterly cash dividend amounted to $.08 per share, up 71%
adjusted for the eÅect of the January 2004 stock split. Although we made no stock repurchases in Ñscal
2004, our Board authorization for such repurchases remains at $175.6 million as of September 30, 2004.
To the extent that our future operating cash Öows are positive, we will continue to evaluate the possibility
of future share repurchases.
We thank all D.R. Horton stockholders for helping us build a company with a solid foundation and an
exciting future. Although we are gratiÑed by the recent improvement in our stock's performance, we
continue to believe that our stock is signiÑcantly undervalued. Since our June 1992 IPO, our twelve-year
track record in revenue and earnings growth should be the envy of most so-called ""growth'' companies
with larger price-earnings multiples than ours.
We also thank our dedicated employees, suppliers and subcontractors. They are the backbone of our
success as America's Builder and provide us the ability to react quickly and make sound decisions. We
look forward to a highly successful Ñscal 2005 as the largest and most proÑtable homebuilder in America!
Donald R. Horton
Chairman of the Board
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
¥
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Ñscal year ended September 30, 2004
or
n
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission Ñle number 1-14122
D.R. Horton, Inc.
(Exact name of registrant as speciÑed in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
301 Commerce St., Suite 500
Fort Worth, Texas
(Address of principal executive oÇces)
75-2386963
(I.R.S. Employer
IdentiÑcation No.)
76102
(Zip Code)
(817) 390-8200
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, par value $.01 per share
101/2% Senior Notes due 2005
71/2% Senior Notes due 2007
8% Senior Notes due 2009
93/4% Senior Subordinated Notes due 2010
77/8% Senior Notes due 2011
93/8% Senior Subordinated Notes due 2011
81/2% Senior Notes due 2012
The New York Stock Exchange
The New York Stock Exchange
The New York Stock Exchange
The New York Stock Exchange
The New York Stock Exchange
The New York Stock Exchange
The New York Stock Exchange
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has Ñled all reports required to be Ñled 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 Ñle such reports), and (2) has been subject to such Ñling requirements for the past 90 days. Yes ¥
No n
Indicate by check mark if disclosure of delinquent Ñlers pursuant to Item 405 of Regulation S-K (Û 229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in deÑnitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. n
Indicate by check mark whether the registrant is an accelerated Ñler (as deÑned in Rule 12b-2 of the
Act). Yes ¥
No n
As of March 31, 2004, the aggregate market value of the outstanding shares held by non-aÇliates of the registrant was
approximately $7,532,556,000. Solely for purposes of this calculation, all directors and executive oÇcers were excluded as
aÇliates of the registrant.
As of December 2, 2004, there were 236,185,469 shares of Common Stock, par value $.01 per share, issued and
233,532,669 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's deÑnitive Proxy Statement for the 2005 Annual Meeting of Stockholders are incorporated
herein by reference in Part III.
ITEM 1. BUSINESS
PART 1
D.R. Horton, Inc. is a national homebuilder. We construct and sell high quality single-family homes,
designed principally for Ñrst-time and move-up homebuyers, through our operating divisions in 21 states
and 63 metropolitan markets of the United States, primarily under the name of D.R. Horton, America's
Builder. D.R. Horton, Inc. is a Fortune 500 company 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 oÅering 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, from July 1993 to February 2002, we acquired 17 other
homebuilding companies, which strengthened our market position in existing markets and expanded our
geographic presence and product oÅerings in other markets. We are now the largest homebuilding
company in the United States, based on domestic homebuilding revenues, homes sold and homes closed
during the year ended September 30, 2004. Our homes generally range in size from 1,000 to 5,000 square
feet and range in price from $80,000 to $900,000. For the year ended September 30, 2004, we closed
43,567 homes with an average closing sales price approximating $240,800.
Through our Ñnancial 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 Ñnancing 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 Ñnancial reporting segments consist of homebuilding and Ñnancial services. Our homebuilding
operations are a substantial part of our business, comprising approximately 98% of consolidated revenues
and approximately 95% of consolidated income before income taxes in Ñscal year 2004. 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, condominiums, duplexes, and
triplexes, which share common walls and roofs. Approximately 84%, 91%, and 92% of home sales revenues
in Ñscal 2004, 2003 and 2002, respectively, were generated from the sale of detached homes. Our Ñnancial
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 identiÑable
assets, for both of our reporting segments is included in our consolidated Ñnancial statements.
We make available, as soon as reasonably practicable, on our Internet website all of our reports
required to be Ñled 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 beneÑcial
ownership reports on Forms 3, 4, and 5, proxy statements and amendments to such reports. These reports
may be accessed by going to our website at www.drhorton.com 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.
Our principal executive oÇces are located at 301 Commerce Street, Fort Worth, Texas 76102. Our
telephone number is (817) 390-8200, and our Internet website address is www.drhorton.com.
1
Operating Strategy
We believe that the following operating strategies have enabled us to achieve consistent growth and
proÑtability:
Geographic Diversity
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 startup operations
and acquisitions.
We believe our diversiÑcation strategy mitigates the eÅects 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 signiÑcant growth potential and acceptance of our products.
While we believe there are signiÑcant growth opportunities in our existing markets, we also intend to
continue our diversiÑcation strategy by seeking to enter new markets. 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.
Decentralized Operations
We decentralize our homebuilding activities to give more operating Öexibility to our local division
presidents. We have 42 separate 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 acquisition and development personnel, a sales manager and sales personnel, a construction
manager and construction superintendents, a controller, a purchasing manager and oÇce staÅ. We believe
that division presidents and their management teams, who are intimately familiar with local conditions,
make better decisions regarding local operations. Our division presidents receive performance bonuses
based upon achieving targeted Ñnancial measures in their operating divisions.
Operating Division Responsibilities
Each operating division is responsible for:
‚ Site selection, which involves
Ì A feasibility study;
Ì Soil and environmental reviews;
Ì Review of existing zoning and other governmental requirements; and
Ì Review of the need for and extent of oÅsite work required to meet local building codes;
‚ Negotiating lot option or similar contracts;
‚ Overseeing land development;
‚ Selecting building plans and architectural schemes;
‚ Obtaining all necessary building approvals;
‚ Selecting and managing construction subcontractors and suppliers;
‚ Planning and managing homebuilding schedules; and
‚ Developing and implementing marketing plans.
Centralized Controls
We centralize the key risk elements of our homebuilding business through our regional and corporate
oÇces. We have six separate homebuilding operating regions, each of which generally consists of a region
2
president, legal counsel, a chief Ñnancial oÇcer and a purchasing manager. Each of our region presidents
and their management teams are responsible for oversight of the operations of four to ten divisions,
including review and approval of division business plans and budgets, review and approval of all land and
lot acquisition contracts, allocation of capital, oversight of inventory levels, and review of major personnel
decisions and division president compensation plans.
Our corporate oÇce departments are responsible for establishing our operational policies and internal
control standards and monitoring compliance with established policies and controls throughout our
operations. The corporate oÇce also has primary responsibility for direct management of certain key risk
elements and initiatives through the following centralized functions:
‚ Financing;
‚ Cash management;
‚ Risk and litigation management;
‚ Capital allocation;
‚ Oversight of inventory levels;
‚ Environmental assessments of land and lot acquisitions;
‚ Approval and funding of land and lot acquisitions;
‚ Accounting and management reporting;
‚ Internal audit;
‚ Information technology systems;
‚ Administration of payroll and employee beneÑts;
‚ Negotiation of national purchasing contracts; and
‚ Monitoring and analysis of margins, returns and expenses.
Cost Management
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 and our corporate oÇce. We also minimize advertising costs by actively participating in
promotional activities sponsored by local real estate brokers and trade associations.
We control construction costs by striving to eÇciently design our homes, by obtaining competitive
bids for construction materials and labor and by negotiating 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.
Acquisitions
We have recently focused on internal growth. However, as an integral component of our operational
strategy, we continue to evaluate opportunities for strategic acquisitions. We believe that expanding our
operations through the acquisition of existing homebuilding companies aÅords us several beneÑts not found
in start-up operations. Such beneÑts include:
‚ Established land positions and inventories;
‚ Existing relationships with land owners, developers, subcontractors and suppliers; and
‚ Proven product acceptance by homebuyers and local brand name recognition in new markets.
3
In evaluating potential acquisition candidates, we seek homebuilding companies that have excellent
reputations, track records of proÑtability and strong management teams. We limit the risks associated with
acquiring a going concern by conducting extensive operational, Ñnancial 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 one year. We believe that our acquisition evaluation and due diligence processes and
our decentralized operating approach with centralized controls have contributed to the successful
integration of our prior acquisitions. In the future, we will continue to evaluate potential acquisition
opportunities that satisfy our acquisition criteria in existing or new markets.
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 in the
following table:
State
Region/Market
Mid-Atlantic Region
Maryland ÏÏÏÏ Baltimore
Suburban Washington D.C.
New JerseyÏÏÏ New Jersey
North Carolina Charlotte
Greensboro
Raleigh/Durham
PennsylvaniaÏÏ Philadelphia
South Carolina Charleston
Columbia
Greenville
Hilton Head
Myrtle Beach
Virginia ÏÏÏÏÏÏ Northern Virginia
Midwest Region
IllinoisÏÏÏÏÏÏÏ Chicago
MinnesotaÏÏÏÏ Minneapolis/St. Paul
Southeast Region
Alabama ÏÏÏÏÏ Birmingham
Huntsville
Georgia ÏÏÏÏÏÏ Atlanta
Savannah
Florida ÏÏÏÏÏÏ Daytona Beach
Fort Myers/Naples
Jacksonville
Miami/West Palm Beach
Orlando
Tampa
Southwest Region
Arizona ÏÏÏÏÏÏ Casa Grande
Phoenix
Tucson
New MexicoÏÏ Albuquerque
Las Cruces
TexasÏÏÏÏÏÏÏÏ Austin
Dallas
Fort Worth
Houston
Killeen/Temple
Laredo
Rio Grande Valley
San Antonio
Waco
Mortgage (M)
Title (T)
State
Region/Market
Mortgage (M)
Title (T)
West Region
CaliforniaÏÏÏÏÏ Bakersfield/Lancaster/Palmdale
Fresno/Modesto
Los Angeles County
Oakland/North Bay
Orange County
Riverside/San Bernardino
Sacramento
San Diego County
San Francisco
San Jose/Pleasanton/East Bay
Ventura County
Colorado ÏÏÏÏÏ Colorado Springs
Denver
Ft. Collins
Hawaii ÏÏÏÏÏÏ Hawaii
Nevada ÏÏÏÏÏÏ Las Vegas
Reno
Oregon ÏÏÏÏÏÏ Albany
Bend
Eugene
Portland
Utah ÏÏÏÏÏÏÏÏ Salt Lake City
Washington ÏÏ Seattle/Tacoma
Vancouver
M
M
M
M
M
M
M
M
M
M
M
M
M
M
M
M
M
M
M
M
M
M,T
T
M
M
M
M
M
M
M
M
M,T
M
M,T
M
M,T
M
M
M,T
M,T
M,T
M
M,T
M
M
M,T
M,T
M,T
M,T
M
M
M,T
4
When evaluating the viability of new or existing homebuilding markets, we consider the following
factors, among others:
‚ Regional economic conditions;
‚ Job growth;
‚ Land availability;
‚ Local land development process;
‚ New home sales activity;
‚ Competition;
‚ Secondary home sales activity; and
‚ Local housing products, features and pricing.
Our homebuilding revenues from home sales by geographic region are:
Mid-AtlanticÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
MidwestÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Southeast ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Southwest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
West ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
2002
2004
Year Ended September 30,
2003
(In millions)
$ 674.8
513.2
773.9
2,381.5
3,990.7
888.4
643.7
1,041.3
3,012.3
4,905.4
$ 625.7
488.7
595.8
1,997.3
2,822.1
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$10,491.1
$8,334.1
$6,529.6
Our homebuilding revenues from land and lot sales by geographic region are:
Year Ended September 30,
2003
2004
(In millions)
2002
Mid-Atlantic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Midwest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Southeast ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SouthwestÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
West ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
1.8
0.2
19.9
13.3
131.7
$
1.6
10.5
21.2
19.1
165.6
$13.8
5.1
38.3
6.6
31.8
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$166.9
$218.0
$95.6
The majority of our homebuilding inventories are concentrated in six states: Arizona, California,
Colorado, Florida, Nevada and Texas.
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. Before we acquire lots or
tracts of land, we will, among other things, complete a feasibility study, which includes soil tests,
independent environmental studies and other engineering work, and determine that all necessary zoning
and other governmental entitlements required to develop and use the property for home construction have
been obtained. Although we purchase and develop land primarily to support our homebuilding activities,
occasionally we sell lots and land to other developers and homebuilders.
We also enter into land/lot option contracts, in which we purchase the right, but generally not the
obligation, to buy land or lots at predetermined prices on a deÑned schedule commensurate with
5
anticipated home closings or planned land development. Our option contracts generally are non-recourse,
which limits our Ñnancial exposure to our earnest money deposited with land and lot sellers. This enables
us to control signiÑcant land and lot positions with minimal capital investment, which substantially reduces
the risks associated with land ownership and development.
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);
‚ 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 homes under contract only after receipt of a satisfactory
down payment and, where applicable, the buyer's receipt of mortgage approval; and
‚ Closely monitoring the number of speculative homes (homes started without an executed sales
contract) built in each subdivision.
Construction
Our home designs are prepared by architects in each of our markets to appeal to local tastes and
preferences of homebuyers in each community. We also oÅer 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. Our construction supervisors
monitor the construction of each home, participate in important 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. Subcontractors typically are retained for
a speciÑc subdivision pursuant to a contract that obligates the subcontractor to complete construction at a
Ñxed price. Agreements with our subcontractors and suppliers generally are negotiated for each subdivision.
We compete with other homebuilders for qualiÑed subcontractors, raw materials and lots in the markets
where we operate.
Construction time for our homes depends on the weather, availability of labor, materials and supplies,
size of the home, and other factors. We typically complete the construction of a home within four to six
months.
We do not maintain signiÑcant 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 any signiÑcant delays in construction due to shortages of materials or labor.
Marketing and Sales
We market and sell our homes through commissioned employees and independent real estate brokers.
We typically conduct home sales from sales oÇces located in furnished model homes in each subdivision.
We generally do not oÅer our model homes for sale until the completion of a subdivision. Our sales
personnel assist prospective homebuyers by providing them with Öoor plans, price information, tours of
model homes and the selection of options and other custom features. We train and inform our sales
personnel as to the availability of Ñnancing, construction schedules, and marketing and advertising plans.
6
We advertise in our local markets as necessary. We advertise in newspapers and trade publications
(i.e. real estate broker, mortgage company and utility 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 also attempt to
operate in subdivisions in conspicuous locations that permit us to take advantage of local traÇc patterns.
We also believe that model homes play a signiÑcant role in our marketing eÅorts, so we expend signiÑcant
eÅort to create an attractive atmosphere in our model homes.
In addition to using model homes, we typically build a limited number of speculative homes in each
subdivision to enhance our marketing and sales eÅorts to prospective homebuyers who are relocating to our
markets and to independent brokers, who often represent homebuyers requiring a completed home within
60 days. We sell a majority of these speculative homes while they are under construction or immediately
following completion. We determine the number of speculative homes to build 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.
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 signiÑcantly 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 Ñnancing contingency which
permits customers to cancel and receive a refund of their deposits if they cannot obtain mortgage Ñnancing
at prevailing or speciÑed interest rates within a speciÑed period, and our contracts may include other
contingencies, such as the sale of an existing home. Generally, the length of time between the signing of a
sales contract for a home and delivery of the home to the buyer (closing) is three to 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 signiÑcant 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 most of the actual construction also provide us with warranties
on workmanship and are generally prepared to respond to us and the homeowner promptly upon request.
In addition, we provide a supplemental ten-year limited warranty that covers major construction defects.
Customer Mortgage Financing
We provide mortgage Ñnancing services principally to purchasers of homes we build and sell 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
on a timely and eÇcient basis. During the year ended September 30, 2004, 92% of DHI Mortgage's loan
volume related to homes closed by our homebuilding operations, and DHI Mortgage provided mortgage
Ñnancing services for approximately 61% of our total homes closed.
DHI Mortgage originates mortgage loans, and then packages and sells substantially all of 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 Ñnancing, we work with a variety
of mortgage lenders that make available to homebuyers a range of mortgage Ñnancing programs.
7
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 assume little or no underwriting risk associated with these title policies.
Employees
At September 30, 2004, we employed 7,466 persons, of whom 1,420 were sales and marketing
personnel, 2,571 were executive, administrative and clerical personnel, 2,170 were involved in construction,
and 1,305 worked in mortgage and title operations. The Company 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 Ñnancing. Our homes compete on the basis of quality, price, design, mortgage Ñnancing terms
and location.
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 aÅect the development process, as well as building materials to be used,
building designs and minimum elevation of properties. Our homes are inspected by local authorities where
required, and homes eligible for insurance or guarantees provided by the FHA and VA are subject to
inspection by them. These regulations often provide broad discretion to the administering governmental
authorities. This can delay or increase the cost of development or homebuilding.
Our new housing developments may be subject to various assessments for schools, parks, streets and
other public improvements. These assessments increase our development and homebuilding costs and can
cause increases in the prices of our homes.
Our homebuilding operations are also subject to a variety of local, state and federal statutes,
ordinances, rules and regulations concerning protection of health and the environment. The particular
environmental laws for each site vary greatly according to location, environmental condition and the
present and former uses of the site and adjoining properties. These environmental laws may result in
delays, may cause us to incur substantial compliance and other costs, and may prohibit or severely restrict
development and homebuilding activity in certain environmentally sensitive regions or areas.
Our mortgage company and title insurance agencies must also comply with various federal and state
laws, consumer credit rules and regulations and other rules and regulations unique to such activities.
Additionally, mortgage loans and title activities originated under the FHA, VA, GNMA, Fannie Mae and
Freddie Mac are subject to rules and regulations imposed by those agencies.
ITEM 2. PROPERTIES
We own a 52,000 square foot oÇce complex, consisting of three single-story buildings of steel and
brick construction, located in Arlington, Texas, that served as our principal executive and administrative
oÇces from September 1992 through November 2004. In December 2004, we began leasing approximately
160,000 square feet of oÇce space in downtown Fort Worth, Texas that serves as our principal executive
and corporate administrative oÇces.
8
We also own several oÇce buildings totaling approximately 128,000 square feet and we lease
approximately 994,000 square feet of oÇce space under leases expiring through October 2011, in our
various operating markets to house our homebuilding and Ñnancial services operating division and region
oÇces.
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 eÅect on our Ñnancial position or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our common stock (the ""Common Stock'') is listed on the New York Stock Exchange under the
symbol ""DHI''. The following table shows the high and low sales prices for the Common Stock for the
periods indicated, as reported by the NYSE, adjusted for the three-for-two stock split (eÅected as a 50%
stock dividend) of January 12, 2004 and dividends declared per share (split-adjusted).
Year Ended September 30, 2004
Declared
Dividends
High
Low
Year Ended September 30, 2003
Declared
Dividends
High
Low
1st QuarterÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2nd Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3rd Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
4th Quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$30.25
36.50
35.95
34.33
$21.73
24.67
24.63
24.77
$.047
.080
.080
.080
$14.01
13.63
21.53
22.18
$10.69
11.30
12.64
17.88
$.040
.047
.047
.047
As of December 2, 2004, the closing price was $35.29, and there were approximately 682 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 Öows, capital requirements, our general Ñnancial 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 Common Stock in an amount, on a cumulative
basis, not to exceed 50% of consolidated net income, as deÑned, subject to certain other adjustments.
Pursuant to the most restrictive of these requirements, at September 30, 2004, we had approximately
$789.9 million available for the payment of dividends, the acquisition of our common stock and other
restricted payments.
10
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated Ñnancial 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 Ñnancial data elsewhere herein. These historical results are not necessarily
indicative of the results to be expected in the future.
Income Statement Data(1):
Revenues:
Homebuilding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Financial services ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gross proÑt-homebuildingÏÏÏÏÏÏÏÏÏÏÏ
Income before income taxes:
2004
Year Ended September 30,
2001
2002
(In millions, except per share data)
2003
2000
$10,658.0
182.8
2,460.7
$8,552.1
176.0
1,746.3
$6,625.2
113.6
1,260.8
$4,383.6
72.0
856.4
$3,604.2
49.5
663.1
Homebuilding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Financial services ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,508.2
74.7
Income before cumulative eÅect of
change in accounting principle(2) ÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income before cumulative eÅect of
change in accounting principle per
share(3):
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income per share(3):
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash dividends declared per common
share(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
975.1
975.1
4.19
4.11
4.19
4.11
0.29
914.7
93.4
626.0
626.0
2.81
2.73
2.81
2.73
0.18
591.1
56.4
404.7
404.7
2.01
1.91
2.01
1.91
0.13
380.8
27.0
254.9
257.0
1.50
1.47
1.51
1.48
0.08
294.5
14.7
191.7
191.7
1.14
1.13
1.14
1.13
0.06
2004
2003
As of September 30,
2002
(In millions)
2001
2000
Balance Sheet Data(1):
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Notes payableÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stockholders' equityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$6,567.4
8,985.2
3,499.2
3,960.7
$5,082.3
7,279.4
2,963.2
3,031.3
$4,343.1
6,017.5
2,878.3
2,269.9
$2,804.4
3,652.2
1,884.3
1,250.2
$2,191.0
2,694.6
1,344.4
969.6
(1) On February 21, 2002, D.R. Horton, Inc. and Schuler Homes, Inc. completed a merger in which
D.R. Horton was the surviving corporation. The total merger consideration consisted of
20,079,532 shares of D.R. Horton common stock, valued at $30.93 per share; $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. Schuler's revenues for the period February 22 through Septem-
ber 30, 2002 were $1,246.6 million. See Note C to the Consolidated Financial Statements for
additional details concerning the Company's merger with Schuler.
(2) In Ñscal 2001, we recorded a cumulative eÅect 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 Statement
11
of Financial Accounting Standards (""SFAS'') No. 133, ""Accounting for Derivative Instruments and
Hedging Activities.''
(3) All basic and diluted income per share amounts and cash dividends declared per share amounts have
been restated to reÖect the eÅects of the 9% stock dividend of September 29, 2000, the 11% stock
dividend of March 23, 2001 and the three-for-two stock splits (eÅected as 50% stock dividends) of
April 9, 2002 and January 12, 2004.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Critical Accounting Policies
General Ì A comprehensive enumeration of the signiÑcant accounting policies of D.R. Horton, Inc.
and subsidiaries is presented in Note A to the accompanying Ñnancial statements as of September 30,
2004 and 2003, and for the years ended September 30, 2004, 2003 and 2002. Each of our accounting
policies has been chosen based upon current authoritative literature that collectively comprises Generally
Accepted Accounting Principles (""GAAP'') for public companies operating in the United States of
America. In instances where alternative methods of accounting are permissible under GAAP, we have
chosen the method that most appropriately reÖects the nature of our business, the results of our operations
and our Ñnancial condition, and have consistently applied those methods over each of the periods presented
in the Ñnancial statements. The Audit Committee of our Board of Directors has reviewed and approved
the accounting policies selected.
Basis of presentation Ì Our Ñnancial statements include the accounts of D.R. Horton, Inc. and all of
its wholly-owned, majority-owned and controlled subsidiaries. All signiÑcant 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'').
Segment information Ì Our reportable business segments consist of homebuilding and Ñnancial
services. Our homebuilding segment derives the majority of its revenue from constructing and selling
single-family housing in 21 states and 63 markets throughout the United States. The Ñnancial 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 Ì We recognize homebuilding revenues when a home closes and title to and
possession of the property are transferred to the buyer. 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.
We recognize Ñnancial services revenues associated with our title operations as homes are closed,
closing services are rendered and title insurance policies are issued, all of which generally occur
simultaneously as each home is closed. We transfer 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, net of direct origination costs, are deferred and recognized as revenues, 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.
Inventories and Cost of Sales Ì We state inventories at the lower of historical cost or fair value in
accordance with Statement of Financial Accounting Standards (""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 builder's risk insurance are charged to
SG&A expense as incurred.
13
We use the speciÑc identiÑcation method for the purpose of accumulating home construction costs.
Cost of sales for homes closed includes the speciÑc 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
estimate 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 estimate the additional
costs remaining to be paid on each closed home. We monitor the accuracy of each month's 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 diÅer from our current estimate, our
method has historically produced consistently accurate estimates of actual costs to complete closed homes.
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 insigniÑcant 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 diÅer from such estimates.
Consolidation of Variable Interest Entities Ì In January 2003, the FASB issued Interpretation
No. 46, ""Consolidation of Variable Interest Entities'' as amended (""FIN 46''). FIN 46 provides guidance
for the Ñnancial accounting and reporting of interests in certain variable interest entities, which FIN 46
deÑnes as certain business entities that either have equity investors with no voting rights or have equity
investors that do not provide suÇcient Ñnancial 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, deÑned as
the primary beneÑciary 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 non-refundable. Certain non-refundable deposits are deemed to create a variable
interest in a variable interest entity under the requirements of FIN 46. As such, certain of our option
purchase contracts result in the acquisition of a variable interest in the entity holding the land parcel under
option.
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 beneÑciary based upon analysis of the
variability of the expected gains and losses of the entity. Based on this evaluation, if we are the primary
beneÑciary 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 unaÇliated variable interest entities that we must
consolidate pursuant to FIN 46, we generally have little or no control or inÖuence over the operations of
these entities or their owners. When our requests for Ñnancial 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 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
oÅset 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.
14
Warranty Costs Ì 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 reÖect qualitative risks
associated with the type of homes we build and the geographic areas in which we build them. Actual
future warranty costs could diÅer from our currently estimated amounts.
Insurance Claim Costs Ì We have, and require the majority of our subcontractors to have, general
liability 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.
We reserve for costs to cover our self-insured and deductible amounts under those 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 reserve amounts, actual future costs could diÅer signiÑcantly from our currently estimated
amounts.
Interest rate swaps Ì We have two interest rate swap agreements with a major United States bank
under which we receive each quarter the London Inter-Bank OÅered Rate (LIBOR) and pay a Ñxed
amount that averages 5.1% on a total notional amount of $200 million. We entered into both of the ten-
year swap contracts in 1998. Because we were unwilling to ""buy out'' the bank's current right to cancel
each swap during any quarter in which LIBOR exceeds 7%, we chose not to designate the swaps as cash-
Öow hedges under SFAS No. 133. As a result, even though they still protect us to some extent from
increases in variable interest rates associated with our revolving credit facility, we are required to record
the changes in their market value in our income statement each quarter. At the end of each quarter, the
swaps' market value will have changed depending upon the market's 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. Any future reductions in anticipated LIBOR
rates could result in corresponding future reductions in their market value and charges to our income
statements. Similarly, any future increases in anticipated LIBOR rates could result in corresponding future
increases in their market value and increases in our reported earnings. We cannot predict the changes in
either future LIBOR rates or the market values of our swaps.
Goodwill Ì We adopted SFAS No. 142 at the beginning of Ñscal 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 Öow 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 diÅer from such
estimates.
Stock-based compensation Ì With the approval of a committee consisting of independent members of
our Board of Directors, we occasionally issue to employees 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 grant approved options with strike prices equal to the market
price of the 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
15
(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,''
(""SFAS No. 123'') and SFAS No. 148, ""Accounting for Stock-Based Compensation Ì Transition and
Disclosure, an amendment of FASB Statement No. 123,'' (""SFAS No. 148'') require us to disclose the
eÅects 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
eÅective date.
In March 2004, the FASB issued a Proposed Statement of Financial Accounting Standard which
would amend SFAS No. 123 and require companies that issue share-based payments to record
compensation expense based on the fair value of the share-based payment. We will adopt the proposed
statement when it becomes eÅective, and we do not expect this change in accounting principle to
materially aÅect our results of operations in future periods.
Results of Operations Ì Overview
We experienced signiÑcant increases in revenues and earnings during the Ñscal years ended
September 30, 2004 and 2003, driven primarily by the continued growth of our homebuilding operations
and by signiÑcant improvements in homebuilding proÑt margins.
The demand from Ñrst-time and move-up homebuyers has remained favorable. Population growth,
demographics, immigration, household formations and changes in home ownership rates were the primary
long-term factors driving this housing demand, with particular strength in our Southeast, Southwest and
West regions. Low mortgage rates were a positive inÖuence on housing demand during 2004 and 2003,
during a period of generally weak employment levels. In addition, because the homebuilding industry in
the United States is highly fragmented, we have been able to capitalize on the beneÑts of our size, such as
our capital strength and access to lower material, labor and capital costs, to generate continued growth by
increasing market share.
The mortgage industry was negatively impacted by a decline in loan reÑnancing activity during 2004.
This resulted in increased competitive conditions and lower margins in the mortgage markets, including the
market for mortgage loans for new home construction.
Key Ñnancial highlights for our Ñscal years ended September 30, 2004 and 2003 were as follows:
Homebuilding Operations:
‚ Our homebuilding operations generated year-over-year increases in the value of net new sales
orders, homes closed and revenues exceeding 20% in both Ñscal 2004 and 2003.
‚ Homebuilding operating margins increased by 3.5 and 1.8 percentage points during Ñscal 2004 and
2003, respectively, due to improvements in homebuilding gross margins and control of overhead
costs.
‚ Homebuilding pre-tax income increased 65% and 55% in Ñscal 2004 and 2003, respectively.
‚ Our sales backlog at September 30, 2004 was $4.6 billion, a Ñscal year-end record and 25% higher
than our backlog at September 30, 2003.
‚ Homebuilding debt to total capitalization (net of cash), which is calculated as homebuilding notes
payable net of cash divided by total capital (homebuilding notes payable net of cash plus
stockholders' equity), was 38.9% at September 30, 2004, an improvement of 1.1 percentage points
from the prior year, and an all-time low for the Company.
Financial Services Operations:
‚ Total Ñnancial services revenues increased 4% and 55% in Ñscal 2004 and 2003, respectively,
reÖecting the focus of our mortgage and title operations on supporting our growing homebuilding
16
business, oÅset by the eÅects of increased competition in the mortgage industry for new home loans
in Ñscal 2004.
‚ Financial services pre-tax income declined by 20% in Ñscal 2004 after having increased by 66% in
Ñscal 2003, due to lower operating margins caused by the competitive conditions in the mortgage
industry and changes in the product mix of mortgage loans originated and sold in 2004.
Consolidated Results:
‚ Net income increased 56% and 55% in Ñscal 2004 and 2003, respectively, due to the improvements
in consolidated revenues and homebuilding operating margins.
‚ Diluted earnings per share increased 51% and 43% for Ñscal 2004 and 2003, respectively.
‚ The eÅective income tax rate for Ñscal year 2004 was 38.4%, as compared to 37.9% in Ñscal 2003
and 37.5% in Ñscal 2002. The increases in our eÅective income tax rates in 2004 and 2003 were due
primarily to increases in pre-tax income in states with higher state income tax rates.
Our operating strategy for Ñscal 2005 and future years is to take advantage of opportunities to grow
our homebuilding business, while continuing to generate proÑtability improvements and maintaining 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.
Results of Operations Ì Homebuilding
Year Ended September 30, 2004 Compared to Year Ended September 30, 2003
The following tables set forth key operating and Ñnancial data for our homebuilding operations as of
and for the Ñscal years ended September 30, 2004 and 2003:
Net New Sales Orders
Fiscal Years Ended September 30,
Homes Sold
Value ($'s in Millions)
Average Selling Price
2004
2003
Mid-Atlantic
Midwest ÏÏÏÏ
SoutheastÏÏÏ
Southwest ÏÏ
WestÏÏÏÏÏÏÏ
4,032
2,261
6,301
18,146
14,523
3,594
2,067
4,528
15,699
12,837
45,263
38,725
%
Change
12%
9%
39%
16%
13%
17%
2004
2003
$ 1,009.7
634.5
1,375.8
3,086.7
5,299.5
$ 780.8
553.6
863.3
2,614.7
4,349.9
$11,406.2
$9,162.3
%
Change
29%
15%
59%
18%
22%
24%
2004
2003
$250,400
280,600
218,300
170,100
364,900
$217,300
267,800
190,700
166,600
338,900
$252,000
$236,600
Homes in Backlog
2004
2003
%
Change
Sales Backlog
As of September 30,
Value ($'s in Millions)
Average Selling Price
2004
2003
%
Change
2004
2003
Mid-Atlantic
Midwest ÏÏÏÏÏ
SoutheastÏÏÏÏ
Southwest ÏÏÏ
WestÏÏÏÏÏÏÏÏ
1,740
861
2,987
6,632
4,964
1,602
981
1,823
6,676
4,406
9% $ 492.2
269.7
(12)%
64%
698.6
(1)% 1,195.3
1,912.7
13%
$ 370.9
278.9
364.1
1,120.9
1,518.6
33% $282,900
(3)% 313,200
233,900
92%
180,200
7%
385,300
26%
$231,500
284,300
199,700
167,900
344,700
17,184
15,488
11% $4,568.5
$3,653.4
25% $265,900
$235,900
%
Change
15%
5%
14%
2%
8%
7%
%
Change
22%
10%
17%
7%
12%
13%
17
Homes Closed
2004
2003
Mid-Atlantic
Midwest ÏÏÏÏ
SoutheastÏÏÏ
Southwest ÏÏ
WestÏÏÏÏÏÏÏ
3,894
2,381
5,137
18,190
13,965
3,245
2,002
4,374
14,209
12,104
43,567
35,934
Homes Closed
Fiscal Years Ended September 30,
Home Sales Revenues
($'s in Millions)
2004
2003
$
888.4
643.7
1,041.3
3,012.3
4,905.4
$ 674.8
513.2
773.9
2,381.5
3,990.7
$10,491.1
$8,334.1
%
Change
32%
25%
35%
26%
23%
26%
%
Change
20%
19%
17%
28%
15%
21%
Average Selling Price
2004
2003
$228,100
270,300
202,700
165,600
351,300
$208,000
256,300
176,900
167,600
329,700
%
Change
10%
5%
15%
(1)%
7%
$240,800
$231,900
4%
Homebuilding Operating Margin Analysis
Percentages of
Homebuilding
Revenues
Year Ended
September 30,
2003
2004
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selling, general and administrative expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest and other (income) expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
23.1% 20.4%
9.0
(0.1)
9.6
0.1
Income before income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
14.2% 10.7%
Net new sales orders represent the number and dollar value of new sales contracts executed with
customers, net of sales contract cancellations, during the year. The value of net new 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
average price of a net new 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 new 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 new sales
orders occurred in the Southeast and Mid-Atlantic regions, which is a result of our eÅorts to signiÑcantly
increase our presence in our Florida, Virginia and Maryland markets, where housing demand is strong. The
increase in our average selling price reÖects our ability to increase prices in the markets where demand for
our homes is strongest, while we continue our eÅorts to ensure that our product oÅerings and prices
remain aÅordable for our target customers, typically Ñrst-time and move-up homebuyers, in most of our
markets.
Sales backlog represents homes under contract but not yet closed at the end of the period, some of
which are subject to contingencies, including mortgage loan approval, that can result in cancellations. In
the past, our backlog has been a reliable indicator of the level of future closings, although contracts in
backlog may not all result in closings. 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 backlog increased in four of our Ñve
market regions, led by a 92% increase in the Southeast region, which is a result of our eÅorts to
signiÑcantly increase our presence in our Florida markets. The average selling price of homes in backlog
increased in all of our market regions, reÖecting the generally strong demand for our homes in Ñscal 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%
18
in all of our Ñve market regions, and the number of homes closed increased by 15% or more in all market
regions as well, reÖecting the successful execution of our growth strategies and our homebuilding divisions'
ability to eÇciently 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 Ñve market regions, with the largest increases occurring in the Southeast and Mid-
Atlantic regions.
Total homebuilding gross proÑt 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 proÑt as a percentage of
homebuilding revenues increased 2.7 percentage points, to 23.1% in 2004, from 20.4% in 2003. Gross proÑt
from home sales as a percentage of home sales revenues increased 2.2 percentage points, to 22.8% in 2004,
from 20.6% in 2003, which is attributable to our ability to increase home prices due to strong demand for
our homes in many of our markets and our ongoing eÅorts to control and reduce construction costs as we
achieve greater economies of scale.
Selling, general and administrative (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 0.6 percentage points, to 9.0% in 2004 from 9.6% in 2003. The improvement in SG&A expenses
as a percentage of revenues is attributable to our ongoing cost control eÅorts and our ability to generate
higher revenue levels that better leverage our existing Ñxed SG&A costs.
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, during
the past two years we have replaced certain of our higher interest rate notes with notes bearing lower
interest rates and we have 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 oÅ 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 oÅset by the eÅects 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
$11.8 million of minority interests in the income of our consolidated joint ventures.
Year Ended September 30, 2003 Compared to Year Ended September, 30 2002
The following tables set forth key operating and Ñnancial data for our homebuilding operations as of
and for the Ñscal years ended September 30, 2003 and 2002:
Net New Sales Orders
Fiscal Years Ended September 30,
Homes Sold
Value ($'s in Millions)
Average Selling Price
2003
2002
Mid-Atlantic
Midwest ÏÏÏÏÏ
SoutheastÏÏÏÏ
Southwest ÏÏÏ
WestÏÏÏÏÏÏÏÏ
3,594
2,067
4,528
15,699
12,837
3,381
1,909
3,718
12,743
9,740
38,725
31,491
%
Change
6%
8%
22%
23%
32%
23%
2003
2002
$ 780.8
553.6
863.3
2,614.7
4,349.9
$ 700.2
464.4
617.0
2,131.5
2,972.8
$9,162.3
$6,885.9
%
Change
12%
19%
40%
23%
46%
33%
2003
2002
$217,300
267,800
190,700
166,600
338,900
$207,100
243,300
165,900
167,300
305,200
$236,600
$218,700
%
Change
5%
10%
15%
Ì%
11%
8%
19
Homes in Backlog
2003
2002
Mid-Atlantic
Midwest ÏÏÏÏÏ
SoutheastÏÏÏÏ
Southwest ÏÏÏ
WestÏÏÏÏÏÏÏÏ
1,602
981
1,823
6,676
4,406
1,253
916
1,669
5,186
3,673
15,488
12,697
Homes Closed
2003
2002
Mid-Atlantic
Midwest ÏÏÏÏÏ
SoutheastÏÏÏÏ
Southwest ÏÏÏ
WestÏÏÏÏÏÏÏÏ
3,245
2,002
4,374
14,209
12,104
2,950
1,911
3,513
11,859
9,528
%
Change
28%
7%
9%
29%
20%
22%
%
Change
10%
5%
25%
20%
27%
Sales Backlog
As of September 30,
Value ($'s in Millions)
2003
2002
$ 370.9
278.9
364.1
1,120.9
1,518.6
$ 264.8
238.5
274.7
887.8
1,159.4
$3,653.4
$2,825.2
%
Change
40%
17%
33%
26%
31%
29%
Homes Closed
Fiscal Years Ended September 30,
Home Sales Revenues
($'s in Millions)
2003
2002
$ 674.8
513.2
773.9
2,381.5
3,990.7
$ 625.7
488.7
595.8
1,997.3
2,822.1
%
Change
8%
5%
30%
19%
41%
Average Selling Price
2003
2002
$231,500
284,300
199,700
167,900
344,700
$211,300
260,400
164,600
171,200
315,700
%
Change
10%
9%
21%
(2)%
9%
$235,900
$222,500
6%
Average Selling Price
2003
2002
$208,000
256,300
176,900
167,600
329,700
$212,100
255,700
169,600
168,400
296,200
%
Change
(2)%
Ì%
4%
Ì%
11%
35,934
29,761
21%
$8,334.1
$6,529.6
28%
$231,900
$219,400
6%
Homebuilding Operating Margin Analysis
Percentages of
Homebuilding
Revenues
Year Ended
September 30,
2002
2003
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selling, general and administrative expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest and other expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
20.4% 19.0%
9.6
0.1
9.8
0.3
Income before income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
10.7%
8.9%
The value of net new sales orders increased 33%, to $9,162.3 million (38,725 homes) in 2003 from
$6,885.9 million (31,491 homes) in 2002. The value of net new sales orders increased in all of our Ñve
market regions, with the largest percentage increases occurring in the West and Southeast regions. The
overall increase in the value of net new sales orders was due to generally strong housing demand
throughout the majority of our markets and the Schuler acquisition. Excluding the Ñscal 2003 activities of
Schuler prior to the February 21, 2003 anniversary date of the acquisition, the value of net new sales
orders increased 23%, to $8,452.9 million, and the number of net new sales orders increased 17%, to
36,706 homes. The average price of a net new sales order in 2003 was $236,600, up 8% over the $218,700
average in 2002. The increase in average selling price was due primarily to the increase in net new sales
orders in the West region, to 33% of the total net new sales orders in 2003 from 31% of net new sales
orders in 2002. In the West region, average selling prices are higher than in any of our other market
regions.
20
At September 30, 2003, the value of our backlog of sales orders was $3,653.4 million (15,488 homes),
up 29% from $2,825.2 million (12,697 homes) at September 30, 2002. The average sales price of homes in
backlog was $235,900 at September 30, 2003, up 6% from the $222,500 average at September 30, 2002.
The value of our sales backlog increased in all Ñve of our market regions, reÖecting our continued
execution of our growth strategies in each region and the generally strong demand for our homes in the
majority of our markets.
Revenues from home sales increased 28%, to $8,334.1 million (35,934 homes closed) in 2003 from
$6,529.6 million (29,761 homes closed) in 2002. Revenues from home sales increased in all of our Ñve
market regions, with the largest percentage increases occurring in the West and Southeast regions. The
increases in both revenues and homes closed were due to generally strong housing demand throughout the
majority of our markets and the acquisition of Schuler. Excluding the Ñscal 2003 activities of Schuler prior
to the February 21, 2003 anniversary date of the acquisition, home sales revenues increased 20% to
$7,856.0 million (34,410 homes closed) in 2003 from $6,529.6 million (29,761 homes closed) in 2002.
The average selling price of homes we closed during 2003 was $231,900, up 6% from $219,400 in
2002. The increase in average selling price was due primarily to the increase in homes closed in the West
region, to 34% of total homes closed in 2003 from 32% of homes closed in 2002. In the West region,
average selling prices are higher than in any of our other market regions.
Total homebuilding gross proÑt increased by 39%, to $1,746.3 million in 2003 from $1,260.8 million in
2002. Including sales of both homes and land/lots, total homebuilding gross proÑt as a percentage of
homebuilding revenues increased 1.4 percentage points, to 20.4% in 2003, from 19.0% in 2002. Gross proÑt
from home sales as a percentage of home sales revenues increased 1.5 percentage points, to 20.6% in 2003,
from 19.1% in 2002. Most of the costs associated with the sales of inventory acquired in the Schuler
acquisition, with lower gross margins as a result of purchase accounting adjustments that increased the
acquired inventory to its fair value as of the date of acquisition, was recognized in 2002.
Selling, general and administrative (SG&A) expenses from homebuilding activities increased by 26%,
to $817.0 million in 2003 from $646.8 million in 2002. As a percentage of revenues, SG&A expenses
decreased 0.2 percentage points, to 9.6% in 2003 from 9.8% in 2002. The improvement in SG&A expenses
as a percentage of revenues was primarily due to our cost control eÅorts and the increased leverage of
Ñxed SG&A expenses achieved by the increase in homebuilding revenues.
Interest incurred related to homebuilding debt increased by 20%, to $239.5 million in 2003 from
$198.8 million in 2002. Our average homebuilding debt increased 14% in 2003 from 2002. During 2003 we
incurred a full year of interest associated with the homebuilding debt acquired in the Schuler acquisition,
which is Ñxed rate debt with higher interest rates than most of our other debt.
We capitalize interest costs only to inventory under construction or development. During 2003 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
oÅ prior to maturity. During 2002, we expensed the portion of the interest related to interest bearing debt
in excess of our inventory under construction or development. Interest amortized to cost of sales increased
by 61% to $219.4 million in 2003 from $136.2 million in 2002 while total cost of sales increased only 27%
in 2003. The disproportionately large increase in interest to total cost of sales in 2003 as compared to 2002
was attributable to the 2002 closings related to the Schuler acquisition that had little or no capitalized
interest associated with them.
Other expense associated with homebuilding activities was $9.4 million in 2003, compared to
$16.9 million in 2002. The expense in 2003 is primarily due to $11.8 million of minority interests in the
income of our consolidated joint ventures. Additionally, $4.2 million of expense was recorded to write-
down to estimated fair value the carrying amounts of our investments in start-up and emerging growth
companies, which was oÅset by $3.6 million in interest income and a $1.8 million increase in the fair value
of our interest rate swaps. The expense in 2002 was primarily due to a $12.3 million decline in the fair
21
value of our interest rate swaps and a $6.6 million write-down to estimated fair value of the carrying
amounts of our investments in start-up and emerging growth companies.
Results of Operations Ì Financial Services
Year Ended September 30, 2004 Compared to Year Ended September 30, 2003
Year Ended September 30,
2004
2003
($'s In millions)
% Change
Number of loans originated ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
33,621
29,169
Loan origination fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Sale of servicing rights and gains from sale of mortgages ÏÏÏÏÏÏÏ
Other revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
35.4
87.5
23.2
$
33.1
91.5
16.9
Total mortgage banking revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Title policy premiums, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
General and administrative expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other (income) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
146.1
36.7
182.8
121.0
5.9
(18.8)
141.5
34.5
176.0
98.3
7.4
(23.2)
15%
7%
(4)%
37%
3%
6%
4%
23%
(20)%
(19)%
Income before income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
74.7
$
93.5
(20)%
Percentages of
Financial
Services
Revenues
Year Ended
September 30,
2003
2004
General and administrative expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other (income) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income before income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
66.2% 55.9%
4.2%
3.2%
(10.3)% (13.2)%
40.9% 53.1%
Revenues from the Ñnancial services segment increased 4%, to $182.8 million in 2004 from
$176.0 million in 2003. The increase in Ñnancial services revenues was primarily due to an increase in the
number of mortgage loan originations to customers of our homebuilding operations, oÅset by a decline in
the average mortgage revenues earned per loan. 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 Ñxed-rate loans to lower margin adjustable-rate loans, and increased competition due to excess
capacity in the mortgage industry, which has reduced the margins on all mortgage loans.
General and administrative expenses associated with Ñnancial services increased 23%, to $121.0 mil-
lion in 2004 from $98.3 million in 2003. As a percentage of Ñnancial services revenues, general and
administrative expenses increased by 10.3 percentage points, to 66.2% in 2004 from 55.9% in 2003. The
increase in general and administrative expenses as a percentage of Ñnancial services revenue and the
related decrease in income before income taxes were due primarily to the decline in average mortgage
revenues earned per loan and increased costs associated with strengthening our Ñnancial services
infrastructure to support our growing homebuilding business and expanding our mortgage operations into
California.
22
Year Ended September 30, 2003 Compared to Year Ended September 30, 2002
Year Ended September 30,
2003
2002
($'s In millions)
% Change
Number of loans originated ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
29,169
20,421
Loan origination fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Sale of servicing rights and gains from sale of mortgages ÏÏÏÏÏÏÏ
Other revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
33.1
91.5
16.9
$
Total mortgage banking revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Title policy premiums, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
General and administrative expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other (income) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
141.5
34.5
176.0
98.3
7.4
(23.2)
22.3
55.1
11.2
88.6
25.0
113.6
67.8
5.5
(16.1)
Income before income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
93.5
$
56.4
43%
48%
66%
51%
60%
38%
55%
45%
35%
44%
66%
Percentages of
Financial
Services
Revenues
Year Ended
September 30,
2002
2003
General and administrative expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other (income) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income before income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
55.9% 59.7%
4.8%
4.2%
(13.2)% (14.2)%
53.1% 49.6%
Revenues from the Ñnancial services segment increased 55%, to $176.0 million in 2003 from
$113.6 million in 2002. The increase in Ñnancial services revenues was primarily due to an increase in the
number of mortgage loan originations to customers of our homebuilding operations and an increase in the
average mortgage revenues earned per loan.
General and administrative expenses associated with Ñnancial services increased 45%, to $98.3 million
in 2003 from $67.8 million in 2002. As a percentage of Ñnancial services revenues, general and
administrative expenses decreased by 3.8 percentage points, to 55.9% in 2003 from 59.7% in 2002. The
decrease in general and administrative expenses as a percentage of Ñnancial services revenue and the
related increase in income before income taxes were due primarily to eÇciencies realized with the increase
in revenues generated from the increase in mortgage loans originated and the increase in revenues earned
per loan.
Capital Resources and Liquidity
We fund our homebuilding and Ñnancial services operations with cash Öows from operating activities,
borrowings under our bank credit facilities and the issuance of new debt or equity securities. As we utilize
our capital resources and liquidity to fund the growth of our operations, we focus on maintaining strong
balance sheet leverage ratios.
At September 30, 2004, our ratio of homebuilding debt to total capital was 38.9%, an improvement of
1.1 percentage points from 40.0% at September 30, 2003. Homebuilding debt to total capital consists of
homebuilding notes payable (net of cash) divided by total capital (homebuilding notes payable net of cash
23
plus stockholders' equity). Our stockholders' equity to total assets ratio increased 2.5 percentage points, to
44.1% at September 30, 2004, from 41.6% at September 30, 2003.
We believe that we will be able to continue to fund our homebuilding and Ñnancial services operations
and our future cash needs (including debt maturities) through a combination of our existing cash
resources, cash Öows from operating activities, our existing credit facilities and the issuance of new debt
securities through the public debt markets.
Homebuilding Capital Resources
Cash Ì At September 30, 2004, our available homebuilding cash and cash equivalents amounted to
$480.1 million.
Bank Credit Facility Ì In March 2004, we restructured and amended our existing unsecured revolving
credit facility, increasing it to $1.0 billion and extending its maturity to March 25, 2008. The new facility
included a $350 million letter of credit sub-facility and an uncommitted $250 million accordion feature
that permitted an increase in the facility. In June 2004, we exercised the accordion feature and obtained
commitments from our lenders that increased the total size of the facility to $1.21 billion. The facility is
guaranteed by substantially all of our wholly-owned subsidiaries other than our Ñnancial services
subsidiaries.
We had no outstanding cash borrowings on our homebuilding revolving credit facility at
September 30, 2004 and 2003. Under the debt covenants associated with our revolving credit facility, our
additional homebuilding borrowing capacity under the facility is limited to the lesser of the unused portion
of the facility, $1.1 billion at September 30, 2004, 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, 2004, the borrowing base arrangement would have limited our
additional borrowing capacity from any source to $2.2 billion. At September 30, 2004, 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.
Shelf Registration Statements Ì At September 30, 2004, we had the capacity to issue new debt or
equity securities amounting to $1.75 billion under our universal shelf registration statement. After the
October 2004 issuance of $250 million of 47/8% Senior notes due 2010, our remaining capacity to issue new
debt or equity securities was $1.5 billion. Also, at September 30, 2004, we had the capacity to issue
approximately 22.5 million shares of common stock under our acquisition shelf registration statement, to
eÅect, in whole or in part, possible future business acquisitions.
Financial Services Capital Resources
Cash Ì At September 30, 2004, we had available Ñnancial services cash and cash equivalents of
$37.9 million.
Mortgage Warehouse Loan Facility Ì In April 2004, our wholly-owned mortgage company restruc-
tured and amended its mortgage warehouse loan facility, increasing the facility to $300 million and
extending its maturity to April 8, 2005. This loan facility was amended on September 28, 2004 for a
30-day period, temporarily increasing the facility to $350 million to provide for increased year-end closing
volume. At September 30, 2004, we had borrowings of $267.7 million outstanding under the mortgage
warehouse facility.
Commercial Paper Conduit Facility Ì Our wholly-owned mortgage company also has a $300 million
commercial paper conduit facility (the ""CP conduit facility''), which expires on June 29, 2006. The terms
of the facility are renewable annually by the sponsoring banks. At September 30, 2004, $225.0 million had
been drawn under the CP conduit facility.
24
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 pledged 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, 2004, our total mortgage loans held for sale were
$623.3 million. All mortgage company activities are Ñnanced with the mortgage warehouse facility, the CP
conduit facility or internally generated funds. Both of the Ñnancial services' credit facilities contain
Ñnancial covenants with which we are in compliance.
Operating Cash Flow Activities
During the year ended September 30, 2004, we used $422.5 million of cash in our operating activities,
as compared to $423.3 million of cash provided by operations during the prior year, resulting in net cash
provided from operating activities of $0.8 million for the two years ended September 30, 2004.
Both the net cash used in operations in Ñscal 2004 and the net cash provided by operations in Ñscal
2003 were the result of cash provided from net income and increases in accounts payable and other
liabilities, oÅset by cash used to increase inventories, mortgage loans held for sale and other assets,
reÖecting the growth of our homebuilding and Ñnancial services operations. The variance in operating cash
Öows from 2003 to 2004 is a direct result of our decision to invest $1.4 billion of cash to fund inventory
growth in Ñscal 2004 versus a $0.5 billion cash investment in inventory growth in Ñscal 2003.
A large portion of our cash invested in inventories represents purchases of land and lots that will be
used to generate revenues and cash Öows in future years. Since we control the amounts and timing of our
investments in land and lots based on our inventory growth goals and our market opportunities, we believe
that cash Öows from operating activities before inventory additions is currently a better indicator of our
liquidity.
Investing Cash Flow Activities
In Ñscal 2004 and 2003, cash used in investing activities represented net purchases of property and
equipment, primarily model home furniture and oÇce equipment. Such purchases are not signiÑcant
relative to our total assets or cash Öows, and they typically do not vary signiÑcantly from year to year.
Financing Cash Flow Activities
The majority of our short-term Ñnancing needs are funded with cash generated from operations and
funds available under our homebuilding and Ñnancial services credit facilities. Long-term Ñnancing needs
are generally 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 Ñnancial services subsidiaries.
In January 2004, we issued $200 million of 5% senior notes due 2009. On June 15, 2004, we used the
majority of the proceeds of the issue to repay at maturity the $150 million aggregate principal amount
outstanding of our 83/8% senior notes.
In July 2004, we issued $200 million of 61/8% senior notes due 2014. In September 2004, we issued
$250 million of 55/8% senior notes due 2014. We used the proceeds from both of these oÅerings to reduce
borrowings under our revolving credit facility.
In October 2004, we issued $250 million of 47/8% senior notes due 2010. We used the proceeds from
this oÅering for general corporate purposes, including land acquisition and development, home construction
and homebuilding operations and other working capital needs.
During Ñscal 2004, our Board of Directors declared one quarterly cash dividend of $0.047 per
common share (split-adjusted), and three quarterly cash dividends of $0.08 per common share, the last of
which was paid on August 20, 2004 to stockholders of record on August 6, 2004. On October 14, 2004,
25
our Board of Directors declared a cash dividend of $0.08 per common share, which was paid on
November 2, 2004, to stockholders of record on October 26, 2004.
Changes in Capital Structure
On December 1, 2003, our Board of Directors declared a three-for-two common stock split (eÅected
as a 50% stock dividend), which was paid on January 12, 2004 to stockholders of record on December 22,
2003.
On July 31, 2003, our Board of Directors authorized the repurchase of up to $200 million of our
common stock and up to $200 million of our outstanding debt securities, as market conditions warrant. As
of September 30, 2004 and 2003, 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.
Contractual Cash Obligations and Commercial Commitments
Our primary contractual cash obligations for our homebuilding and Ñnancial 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 speciÑc 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 Öows, our homebuilding and Ñnancial services credit facilities and by issuing
senior notes.
Our future cash requirements for contractual obligations as of September 30, 2004 are presented
below:
Payments Due by Period
Less Than
1 Year
2-3 Years
More Than
5 Years
Total
4-5 Years
(In millions)
Homebuilding:
Notes Payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating Leases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase Obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$247.3
18.5
84.0
Totals ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$349.8
Financial Services:
Notes Payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating Leases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$492.7
3.1
Totals ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$495.8
$21.9
30.0
39.5
$91.4
$ Ì
5.4
$ 5.4
$1,038.8
16.8
4.6
$1,695.5
19.8
Ì
$3,003.5
85.1
128.1
$1,060.2
$1,715.3
$3,216.7
$
$
Ì $
1.4
Ì $ 492.7
10.0
0.1
1.4
$
0.1
$ 502.7
At September 30, 2004, our homebuilding operations had outstanding letters of credit of
$133.8 million and surety bonds of $1,367.7 million, 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 Ñnancing needs of our customers, our mortgage operations extend interest rate lock
commitments (""IRLCs'') to borrowers who have applied for loan funding and meet deÑned credit and
underwriting criteria. Typically, the IRLCs have a duration of less than six months. Some IRLCs are
26
committed immediately to a speciÑc investor through the use of best-eÅorts 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 infrequent purchase of options on Ñnancial instruments. As
of September 30, 2004, our IRLCs totaled $562.8 million, and we had approximately $117.0 million
outstanding of FMBS and $432.6 million of best eÅorts whole loan delivery commitments related to our
IRLCs.
OÅ-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 signiÑcant lot
positions with a minimal capital investment and substantially reduce the risks associated with land
ownership and development. At September 30, 2004, we had $251.4 million in deposits to purchase land
and lots with a total remaining purchase price of $4.9 billion, of which only $128.1 million is subject to
speciÑc 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 $153.7 million.
Land and Lot Position and Homes in Inventory
At September 30, 2004, we controlled approximately 268,000 lots, 59% 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,
2003
2004
Finished lots owned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Lots under development owned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
24,000
86,000
Total lots ownedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Lots controlled under lot option and similar contracts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
110,000
158,000
22,000
67,000
89,000
90,000
Total land/lots controlled ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
268,000
179,000
Percentage controlled under option ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
59%
50%
The percentage of our lots controlled under option contracts increased during 2004 as our operating
divisions used our position as a large, national homebuilder to negotiate favorable land acquisition terms
that utilize our capital eÇciently and mitigate our land ownership risks.
At September 30, 2004, we had a total of approximately 24,000 homes under construction, including
approximately 1,600 model homes and less than 200 unsold homes that had been completed for more than
six months. At September 30, 2003, we had a total of approximately 21,000 homes under construction,
including approximately 1,450 model homes and less than 300 unsold homes that had been completed for
more than six months.
InÖation
We and the homebuilding industry in general may be adversely aÅected during periods of high
inÖation, primarily because of higher land, Ñnancing, labor and material construction costs. In addition,
higher mortgage interest rates can signiÑcantly aÅect the aÅordability of permanent mortgage Ñnancing to
prospective homebuyers. We attempt to pass through to our customers any increases in our costs through
increased sales prices and, to date, inÖation has not had a material adverse eÅect on our results of
operations. However, there is no assurance that inÖation will not have a material adverse impact on our
future results of operations.
27
Safe Harbor Statement and Risks
Certain statements contained in this report, as well as in other materials we have Ñled or will Ñle 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 deÑned in the Private Securities Litigation Reform Act of
1995. These forward-looking statements typically include the words ""anticipate,'' ""believe,'' ""estimate,''
""expect,'' ""forecast,'' ""goal,'' ""intend,'' ""objective,'' ""plan,'' ""projection,'' ""seek,'' ""strategy'' 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 known or unknown risks and uncertainties. As a result, actual results
may diÅer materially from the results discussed in and anticipated by the forward-looking statements. The
following cautionary discussion of risks and uncertainties relevant to our business includes factors we
believe could adversely aÅect us. Other factors beyond those listed below could also adversely aÅect us.
‚ General Economic, Real Estate and Other Conditions Ì The homebuilding industry is cyclical and
is signiÑcantly aÅected by changes in general and local economic conditions, such as employment
levels, housing demand, availability of Ñnancing for homebuyers, interest rates, consumer conÑdence
and the eÅects of terrorist acts or threats or responses to them. Any oversupply of alternatives to
new homes, such as rental properties and used homes, could depress new home prices and reduce
our margins on the sale of new homes. Homebuilders are also subject to inventory risks related to
anticipating consumer demand and supply and risks related to the availability and cost of land
suitable for homebuilding, the availability and cost of materials and labor and adverse weather
conditions and natural disasters. As a result, 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. In addition,
some home buyers may cancel or not honor their home sales contracts altogether.
‚ Increases in Interest Rates or Decreases in Mortgage Availability Ì Virtually all of our customers
Ñnance their homes through lenders providing mortgage Ñnancing. Any future increases in interest
rates, decreases in the availability of mortgage Ñnancing, or curtailment of the liquidity provided to
the mortgage markets by Fannie Mae and Freddie Mac could adversely aÅect the ability of our
customers to obtain Ñnancing. This could adversely aÅect sales of our homes by making our homes
less aÅordable.
‚ Governmental Regulations and Environmental Matters Ì We are subject to extensive and complex
regulations that aÅect land development and home construction, including zoning, density and
building standards. Such regulations often provide broad discretion to the administering governmen-
tal authorities. This can delay or increase the costs of development or homebuilding. New housing
developments can also be subject to assessments for public improvements and property taxes, which
can be substantial. Laws and regulations relating to the protection of the environment can cause
delays, increased costs of compliance and prohibitions or restrictions of development and
homebuilding activity in environmentally sensitive areas. All of these factors can cause increases in
the prices of our homes and adversely aÅect sales of our homes.
‚ Competitive Conditions Ì The homebuilding industry is very competitive. In each of the markets
we serve, we compete with other homebuilders for homebuyers, desirable properties, Ñnancing, raw
materials and skilled labor. Competitive conditions in the homebuilding industry could result in
diÇculty in acquiring suitable land at acceptable prices, the need for increased selling incentives,
lower sales or proÑt margins or delays in construction.
‚ Warranty and Product Liability Claims Ì 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 certiÑcates of insurance from subcontractors generally
covering claims related to workmanship and materials and create warranty reserves for the homes
28
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 construction defect claims in the future.
Contractual indemnities can be diÇcult 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 oÅered by and availability of product liability
insurance for construction defects is 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.
‚ Substantial Debt Ì We have a signiÑcant amount of debt. The amount of our debt could limit our
ability to obtain future Ñnancing for working capital, capital expenditures, acquisitions, debt service
requirements or other requirements. It could require us to use a substantial portion of our cash Öow
from operations for debt service rather than for other purposes. It could also limit our Öexibility in
planning for, or reacting to, changes in our business and make us more vulnerable in the event of a
downturn in our business or in general economic conditions.
‚ Availability of Capital Ì Our ability to grow our business and operations proÑtably is substantially
dependent upon our ability to generate or obtain capital. Important sources of capital have included
the sale of equity or debt and additional bank borrowings. Increases in interest rates, changes in our
debt ratings by the national credit rating agencies, concerns by potential investors about the market
or the economy, changing lending objectives of Ñnancial institutions, or further consolidation of
Ñnancial institutions that lend to the homebuilding industry could increase our costs of borrowing or
reduce the availability of funds necessary for us to achieve our strategic growth objectives.
Moreover, the indentures for many of our outstanding notes contain provisions that may restrict the
debt we may incur in the future.
‚ Growth Strategies Ì Since 1993, we have acquired many homebuilding companies. Although we
are currently focusing 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 eÅorts to realize the beneÑts that may be available. Although we believe
that we have been successful in doing so in the past, we can give no assurance that, when we
resume our acquisition activity, we will be able to successfully identify, acquire and integrate
strategic acquisitions in the future. Moreover, we may not be able to implement successfully our
operating and growth strategies within our existing markets.
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.
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 Ñxed and variable rate debt. For Ñxed rate debt, changes in interest rates
generally aÅect the value of the debt instrument, but not our earnings or cash Öows. Conversely, for
variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument,
but may aÅect our future earnings and cash Öows. 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 Ñxed
interest rate for a portion of the variable rate borrowings. We generally do not have an obligation to prepay
Ñxed-rate debt prior to maturity and, as a result, interest rate risk and changes in fair value would not have
a signiÑcant impact on our Ñxed-rate debt until such time as we are required to reÑnance, repurchase or
repay such debt.
29
Our interest rate swaps were not designated as hedges under SFAS No. 133 when it was adopted on
October 1, 2000. We are exposed to market risk associated with changes in the fair values of the swaps,
and such changes must be reÖected 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 deÑned credit and underwriting criteria. Typically, the IRLCs have a duration of
less than six months. Some IRLCs are committed immediately to a speciÑc investor through the use of
best-eÅorts whole loan delivery commitments, while other IRLCs are funded prior to being committed to
third-party investors. Forward sales of mortgage-backed securities (""FMBS'') are used to protect
uncommitted IRLCs against the risk of changes in interest rates. FMBS related to IRLCs are classiÑed
and accounted for as non-designated derivative instruments, with gains and losses recorded in current
earnings. FMBS 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 eÅectiveness of the fair value hedges is continuously monitored and
any ineÅectiveness, which for the years ended September 30, 2004, 2003 and 2002 was not signiÑcant, is
recognized in current earnings. At September 30, 2004, total FMBS to mitigate interest rate risk related to
uncommitted mortgage loans held for sale and uncommitted IRLCs totaled $144.0 million. Uncommitted
IRLCs totaled approximately $130.1 million, the duration of which was less than six months and
uncommitted mortgage loans held for sale totaled approximately $27.6 million. At September 30, 2004, the
fair value of the FMBS and IRLCs was an insigniÑcant amount.
The following table sets forth, as of September 30, 2004, for our debt obligations, principal cash Öows
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.
2005
Debt:
Fixed rate ÏÏÏÏÏÏÏÏÏÏÏ $245.5
Average interest rate ÏÏ
Variable rate ÏÏÏÏÏÏÏÏ $494.5
Average interest rate ÏÏ
10.34%
2.56%
Interest Rate Swaps:
Year Ended September 30,
2007
2008
2006
2009
Thereafter
Total
($ In millions)
Fair market
value @
9/30/04
$ 16.4
$
6.40%
5.5
5.80%
$217.6
$821.2
$1,695.5
$3,001.7
$3,264.7
7.63%
7.62%
7.82%
7.95%
$ Ì $ Ì $ Ì $ Ì $
Ì
Ì
Ì
Ì
Ì $ 494.5
Ì
2.56%
$ 494.5
Variable to Ñxed ÏÏÏÏÏ $200.0
Average pay rate ÏÏÏÏÏ
Average receive rate ÏÏ
5.10%
5.10%
90-day LIBOR
$200.0
$200.0
$200.0
$ Ì $ Ì $
Ì $ (12.7)
Ì
5.10%
5.02%
Ì
Ì
30
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Balance Sheets, September 30, 2004 and 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Income for the three years ended September 30, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Stockholders' Equity for the three years ended September 30, 2004 ÏÏÏÏ
Consolidated Statements of Cash Flows for the three years ended September 30, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏ
Notes to Consolidated Financial Statements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Page
32
33
34
35
36
37
31
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, 2004 and 2003, and the related consolidated statements of income, stockholders'
equity, and cash Öows for each of the three years in the period ended September 30, 2004. These Ñnancial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on these Ñnancial 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 Ñnancial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the Ñnancial
statements. An audit also includes assessing the accounting principles used and signiÑcant estimates made
by management, as well as evaluating the overall Ñnancial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the Ñnancial statements referred to above present fairly, in all material respects, the
consolidated Ñnancial position of D.R. Horton, Inc. and subsidiaries at September 30, 2004 and 2003, and
the consolidated results of their operations and their cash Öows for each of the three years in the period
ended September 30, 2004, in conformity with U.S. generally accepted accounting principles.
Fort Worth, Texas
November 19, 2004
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Homebuilding:
Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories:
Construction in progress and Ñnished homes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Residential lots Ì developed and under development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Land held for development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated land inventory not owned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Property and equipment (net) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Earnest money deposits and other assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Financial Services:
Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mortgage loans held for saleÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Homebuilding:
Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued and other liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Notes payableÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
LIABILITIES
Financial Services:
Accounts payable and other liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Notes payable to Ñnancial institutions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Minority interests ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued ÏÏÏÏÏ
Common stock, $.01 par value, 400,000,000 shares authorized, 236,028,696 shares
issued and 233,375,896 shares outstanding at September 30, 2004 and
157,419,220 shares issued and 154,766,420 shares outstanding at
September 30, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additional capitalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unearned compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retained earningsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Treasury stock, 2,652,800 shares at September 30, 2004 and 2003, at cost ÏÏÏÏÏÏÏÏÏ
See accompanying notes to consolidated Ñnancial statements.
33
As of September 30,
2003
2004
(In millions)
$ 480.1
$ 542.4
2,878.5
3,529.0
6.2
153.7
6,567.4
91.9
576.6
578.9
8,294.9
2,464.6
2,506.2
6.5
105.0
5,082.3
81.7
436.7
578.9
6,722.0
37.9
623.3
29.1
690.3
$8,985.2
40.5
485.5
31.4
557.4
$7,279.4
$ 453.9
888.2
3,006.5
4,348.6
$ 422.4
709.5
2,565.2
3,697.1
16.8
492.7
509.5
4,858.1
166.4
17.1
398.0
415.1
4,112.2
135.9
Ì
Ì
2.4
1,599.9
Ì
2,417.3
(58.9)
1.6
1,581.7
(2.2)
1,509.1
(58.9)
3,960.7
$8,985.2
3,031.3
$7,279.4
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended September 30,
2004
2002
2003
(In millions, except per share data)
Homebuilding:
Revenues:
Home sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Land/lot salesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$10,491.1
166.9
$8,334.1
218.0
$6,529.6
95.6
Cost of sales:
Home sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Land/lot salesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
8,094.7
102.6
6,621.2
184.6
5,282.1
82.3
10,658.0
8,552.1
6,625.2
Gross proÑt:
Home sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Land/lot salesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selling, general and administrative expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other (income) expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Financial Services:
RevenuesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
General and administrative expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other (income) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
8,197.3
6,805.8
5,364.4
2,396.4
64.3
2,460.7
959.0
3.4
(9.9)
1,712.9
33.4
1,746.3
817.0
5.2
9.4
1,247.5
13.3
1,260.8
646.8
6.0
16.9
1,508.2
914.7
591.1
182.8
121.0
5.9
(18.8)
74.7
176.0
98.3
7.4
(23.2)
93.5
113.6
67.8
5.5
(16.1)
56.4
647.5
242.8
INCOME BEFORE INCOME TAXES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,582.9
607.8
1,008.2
382.2
NET INCOME ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic net income per common share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income per common share assuming dilution ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash dividends declared per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
$
$
975.1
$ 626.0
$ 404.7
4.19
4.11
0.29
$
$
$
2.81
2.73
0.18
$
$
$
2.01
1.91
0.13
See accompanying notes to consolidated Ñnancial statements.
34
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Total
Common Additional
Stock
Unearned
Capital Compensation Earnings
(In millions, except common stock share data)
Stock
Retained Treasury Stockholders'
Equity
Balances at September 30, 2001
(76,901,511 shares) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ .8
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
$ 704.8
Ì
Issuances under D.R. Horton, Inc.
employee beneÑt plans (18,460 shares)
Ì
Exercise of stock options (756,235 shares) ÏÏ Ì
Fair value of unvested stock options issued
in connection with an acquisition ÏÏÏÏÏÏÏÏ Ì
Amortization of unvested stock options
issued in connection with an acquisition
over remaining vesting period ÏÏÏÏÏÏÏÏÏÏÏ Ì
Cash dividends declared ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Stock issued as partial consideration for
.4
13.6
10.4
Ì
Ì
acquisition (20,079,532 shares) ÏÏÏÏÏÏÏÏÏ
Three-for-two stock split
(48,749,353 shares) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
.2
.5
620.9
(.5)
$ Ì $ 544.6 $ Ì $1,250.2
404.7
404.7
Ì
Ì
Ì
Ì
(6.0)
1.6
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
(26.1) Ì
Ì
Ì
Ì
Ì
.4
13.6
4.4
1.6
(26.1)
621.1
Ì
Balances at September 30, 2002
(146,505,091 shares) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1.5
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Issuances under D.R. Horton, Inc. employee
beneÑt plans (40,736 shares) ÏÏÏÏÏÏÏÏÏÏÏ Ì
Exercise of stock options (873,353 shares) ÏÏ Ì
Amortization of unvested stock options
issued in connection with an acquisition
over remaining vesting period ÏÏÏÏÏÏÏÏÏÏÏ Ì
Cash dividends declared ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Treasury stock purchases (2,652,800 shares) Ì
Conversion of convertible notes
$1,349.6
Ì
$(4.4)
Ì
$ 923.2 $ Ì $2,269.9
626.0
626.0
Ì
.9
12.0
Ì
Ì
Ì
Ì
Ì
2.2
Ì
Ì
Ì
Ì
Ì
Ì
Ì
.9
12.0
Ì
Ì
(40.1) Ì
Ì (58.9)
2.2
(40.1)
(58.9)
Ì
Ì
219.3
(10,000,040 shares) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
.1
219.2
Balances at September 30, 2003
(154,766,420 shares) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1.6
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Issuances under D.R. Horton, Inc. employee
beneÑt plans (64,526 shares) ÏÏÏÏÏÏÏÏÏÏÏ Ì
Ì
Exercise of stock options (1,033,582 shares)
Amortization of unvested stock options
issued in connection with an acquisition
over remaining vesting period ÏÏÏÏÏÏÏÏÏÏÏ Ì
Cash dividends declared ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Three-for-two stock split
(77,511,368 shares) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
.8
Balances at September 30, 2004
$1,581.7
Ì
$(2.2)
Ì
$1,509.1 $(58.9) $3,031.3
975.1
975.1
Ì
2.5
16.5
Ì
Ì
(.8)
Ì
Ì
2.2
Ì
Ì
Ì
Ì
Ì
Ì
2.5
16.5
Ì
Ì
(66.9) Ì
2.2
(66.9)
Ì
Ì
Ì
(233,375,896 shares) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2.4
$1,599.9
$ Ì $2,417.3 $(58.9) $3,960.7
See accompanying notes to consolidated Ñnancial statements.
35
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Depreciation and amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of debt discounts and fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Changes in operating assets and liabilities:
2004
Year Ended September 30,
2003
(In millions)
2002
$
975.1
$
626.0
$
404.7
49.6
5.9
41.8
4.0
32.8
7.8
Increase in inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(Increase) decrease in earnest money deposits and other assets ÏÏÏ
Increase in mortgage loans held for sale ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase in accounts payable and other liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(1,411.1)
(95.3)
(137.8)
191.1
(486.0)
9.5
(21.4)
249.4
(244.2)
(92.3)
(241.3)
41.9
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIESÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(422.5)
423.3
(90.6)
INVESTING ACTIVITIES
Net purchases of property and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash paid for acquisitions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
NET CASH USED IN INVESTING ACTIVITIES ÏÏÏÏÏÏÏÏÏÏÏÏÏ
(55.2)
Ì
(55.2)
(48.6)
Ì
(48.6)
(39.3)
(153.8)
(193.1)
FINANCING ACTIVITIES
Proceeds from notes payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Repayment of notes payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Issuance of senior and senior subordinated notes payableÏÏÏÏÏÏÏÏÏ
Repurchase of treasury stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from stock associated with certain employee beneÑt plans
Cash dividends paidÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
NET CASH PROVIDED BY FINANCING ACTIVITIES ÏÏÏÏÏÏÏ
(DECREASE) INCREASE IN CASH ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash at beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,879.5
(3,059.8)
644.6
Ì
15.4
(66.9)
412.8
(64.9)
582.9
Cash at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
518.0
Supplemental cash Öow information:
Interest paid, net of amounts capitalized ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income taxes paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Supplemental disclosures of noncash activities:
Notes payable assumed related to acquisitions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Conversion of senior notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Issuance of common stock related to acquisitions ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Notes payable issued for inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
$
$
$
$
8.5
614.4
See accompanying notes to consolidated Ñnancial statements.
36
1,945.4
(2,266.7)
512.6
(58.9)
11.6
(40.1)
103.9
478.6
104.3
582.9
12.0
325.0
$
$
$
3,138.1
(3,223.5)
247.9
Ì
12.4
(26.1)
148.8
(134.9)
239.2
104.3
9.7
302.4
$
$
$
Ì $
Ì $
802.2
Ì $
219.3
$
Ì
Ì $
Ì $
621.1
71.9
$
102.3
$
36.8
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A Ì SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated Ñnancial statements include the accounts of D. R. Horton, Inc. and its wholly-
owned, majority-owned and controlled subsidiaries (the Company), 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.
The preparation of Ñnancial statements in conformity with accounting principles generally accepted in
the United States requires management to make estimates and assumptions that aÅect the amounts
reported in the Ñnancial statements and accompanying notes. Actual results could diÅer materially from
those estimates.
Reporting Segments
The Company has two operating and reporting segments: Homebuilding and Financial Services.
Homebuilding is the Company's core business, generating 98% of consolidated revenues and 91% to 95%
of consolidated income before income taxes in Ñscal 2004, 2003 and 2002.
The Company's 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 21 states
and 63 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 Company's Ñnancial services segment provides mortgage banking and title agency services
principally to customers of the Company's 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 Ñnancial 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 Company's 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.
Revenue Recognition
Homebuilding revenue is recognized at the time of the closing of a sale, when title to and possession
of the property are transferred to the buyer. Virtually all homebuilding revenues are received in cash
within two days of closing. Financial services revenues associated with the Company's title operations are
recognized as homes are closed, closing services are rendered and title insurance policies are issued, all of
which generally occur simultaneously as each home is closed. The majority of the revenues associated with
the Company's mortgage operations is recognized when the mortgage loans and related servicing rights are
sold to third-party investors. Origination fees, net of direct origination costs, are deferred and recognized as
revenues, along with the associated gains or losses on the sale of the loans and related servicing rights,
when the loans are sold to third-party investors.
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.
37
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (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 Öows 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, and 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 builder's
risk insurance, are charged to SG&A expense as incurred.
Land and development costs are allocated to individual residential lots on a pro-rata basis, and the
cost of residential lots are transferred to construction in progress when home construction begins. Home
construction costs are accumulated for each speciÑc home.
Cost of sales for homes closed includes the speciÑc 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, 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 insigniÑcant in the aggregate.
Interest
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 Company's homebuilding interest costs incurred, capitalized, charged to cost of sales and
expensed directly during the years ended September 30, 2004, 2003 and 2002:
Year Ended September 30,
2003
2004
2002
Capitalized interest, beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest incurred Ì homebuilding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expensed
$ 168.4
236.7
$ 153.5
239.5
$
96.9
198.8
Directly Ì homebuilding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortized to cost of sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(3.4)
(249.0)
(5.2)
(219.4)
(6.0)
(136.2)
Capitalized interest, end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 152.7
$ 168.4
$ 153.5
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 Ñnancial accounting and reporting of
interests in certain variable interest entities, which FIN 46 deÑnes as certain business entities that either
have equity investors with no voting rights or have equity investors that do not provide suÇcient Ñnancial
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
38
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
a majority of the entities' residual returns or both, deÑned as the primary beneÑciary 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 Company's option deposits are non-refundable. Certain non-
refundable deposits are deemed to create a variable interest in a variable interest entity under the
requirements of FIN 46. As such, certain of the Company's option purchase contracts result in the
acquisition of a variable interest in the entity holding the land parcel under option.
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 beneÑciary
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 beneÑciary 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 unaÇliated variable interest entities that it
must consolidate pursuant to FIN 46, the Company generally has little or no control or inÖuence over the
operations of these entities or their owners. When the Company's requests for Ñnancial 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 oÅset to minority interest for the assumed third party
investment in the variable interest entity.
The consolidation of these variable interest entities added $153.7 million and $105.0 million in land
inventory not owned and minority interests to the Company's balance sheets at September 30, 2004 and
2003, respectively. The Company's obligations related to these land or lot option contracts are guaranteed
by cash deposits totaling $17.2 million and $13.9 million and performance letters of credit, promissory
notes and surety bonds totaling $3.3 million and $17.6 million, as of September 30, 2004 and 2003,
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 $251.4 million to purchase land and lots with a total remaining purchase price of $4.9 billion at
September 30, 2004. 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 limited to the amounts of the Company's option deposits, which totaled
$217.2 million at September 30, 2004.
Property and Equipment
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 oÇce 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 $118.1 million and $90.2 million as of September 30, 2004 and 2003, respectively.
Depreciation expense was $43.7 million, $38.3 million and $30.4 million in Ñscal 2004, 2003 and 2002,
respectively.
39
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Long-lived assets
Potential impairments of long-lived assets are reviewed annually or when events and circumstances
warrant an earlier review. In accordance with SFAS No. 144, impairment is determined when estimated
future undiscounted cash Öows associated with an asset are less than the asset's carrying value.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over net assets acquired. The Company adopted the
provisions of Statement of Financial Accounting Standards (""SFAS'') No. 142, ""Goodwill and Other
Intangible Assets'' eÅective 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 Ñscal 2004, 2003 and 2002
and determined that no goodwill impairment existed.
Accumulated amortization related to goodwill was $38.9 million at September 30, 2004 and 2003.
Amortization of other intangible assets was $3.7 million, $1.2 million and $0.9 million in Ñscal 2004, 2003
and 2002, respectively. The carrying values of other intangible assets as of September 30, 2004 and 2003
were $0 and $3.7 million, net of accumulated amortization of $5.8 million and $2.1 million, respectively.
Warranty Costs
The Company 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 provide it with an indemnity and a certiÑcate 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 based on
management's estimate of expected warranty-related costs under all unexpired warranty obligation periods.
The Company's warranty liability is based upon historical warranty cost experience in each market in
which it operates and is adjusted as appropriate to reÖect qualitative risks associated with the types of
homes built and the geographic areas in which they are built. The following table sets forth the Company's
warranty reserve:
September 30,
2004
2003
(In millions)
Warranty reserve, beginning of period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Warranties issued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Changes in reserves for pre-existing warranties ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Settlements madeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 73.1
54.9
0.3
(32.3)
$ 39.5
45.0
16.0
(27.4)
Warranty reserve, end of period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 96.0
$ 73.1
Insurance Claim Costs
The Company has, and requires the majority of its subcontractors to have, general liability and
workers compensation insurance. These insurance policies protect the Company against a portion of its risk
of loss from claims, subject to certain self-insured retentions, deductibles and other coverage limits. The
Company reserves for costs to cover its self-insured and deductible amounts under those policies and for
40
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
any costs of claims and lawsuits in excess of its coverage limits or not covered by such policies, based on
an analysis of the Company's historical claims which includes an estimate of claims incurred but not yet
reported. Expenses related to such claims were approximately $80.9 million, $43.5 million, and
$21.0 million in Ñscal 2004, 2003, and 2002, respectively.
Minority Interests
Through acquisitions, the Company has assumed several joint venture arrangements on construction
projects whereby the Company is entitled to a percentage of the proÑts and/or losses. The Company has a
controlling interest in these joint ventures, so their Ñnancial position and results of operations are
consolidated in the Company's Ñnancial statements and the partners' equity positions are recorded as
minority interests. Also, included in minority interests is the estimated fair value of all third-party interests
in variable interest entities consolidated pursuant to FIN 46.
Advertising costs
The Company expenses advertising costs as they are incurred. Advertising expense was approximately
$64.3 million, $59.3 million and $46.7 million in Ñscal 2004, 2003 and 2002, respectively.
Earnings Per Share
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 Company's 381,113 Zero Coupon Convertible Senior Notes
outstanding Ñrst became eligible for conversion into 26.2391 shares of the Company's common stock.
These Convertible Senior Notes were convertible on any date as of which the average closing price of the
Company's common stock for the twenty preceding trading days exceeded the speciÑed threshold of 110%
of the accreted value of each note, divided by the conversion rate. The twenty-day average closing price of
the Company's common stock exceeded the speciÑed 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, which had the eÅect of
increasing the denominator for diluted earnings per share. Also, the numerator for diluted earnings per
share was increased by tax-eÅected interest expense and amortization of issuance costs associated with the
Convertible Senior Notes for the March 31, 2002, June 30, 2002 and June 30, 2003 quarters. 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 our 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 D.R. Horton 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.
41
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The following table sets forth the numerators and denominators used in the computation of basic and
diluted earnings per share:
2004
Year Ended September 30,
2003
(In millions)
2002
Numerator:
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$975.1
$626.0
$404.7
EÅect of dilutive securities:
Interest expense and amortization of issuance costs associated
with zero coupon convertible senior notes, net of applicable
income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
0.9
2.1
Numerator for diluted earnings per share after assumed
conversionsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$975.1
$626.9
$406.8
Denominator:
Denominator for basic earnings per share Ì weighted average
shares ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
232.8
222.8
201.4
EÅect of dilutive securities:
Zero coupon convertible senior notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Employee stock options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
4.2
3.4
3.3
7.5
3.6
Denominator for diluted earnings per share Ì adjusted weighted
average shares and assumed conversions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
237.0
229.5
212.5
In December 2003, the Company's Board of Directors declared a three-for-two common stock split
(eÅected as a 50% stock dividend), which was paid on January 12, 2004 to stockholders of record on
December 22, 2003. The average share amounts presented above for the years ended September 30, 2003
and 2002 were restated to reÖect the eÅects of the three-for-two stock split.
Options to purchase 4.1 million shares of common stock at various prices were outstanding during
Ñscal 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 eÅect would
be antidilutive. All options outstanding during Ñscal 2004 and 2003 were included in the computation of
diluted earnings per share.
Stock-Based Compensation
The Company may, with the approval of the Compensation Committee of its Board of Directors,
grant stock options for a Ñxed 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 speciÑed by the
SFAS No. 123, ""Accounting for Stock-Based Compensation'' (""SFAS No. 123''), as amended by
SFAS No. 148, ""Accounting for Stock-Based Compensation Ì Transition and Disclosure''
(""SFAS No. 148''). The exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, and therefore no compensation expense is recognized for the
initial 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 Ñscal 2004, 2003 and 2002 for options granted after Ñscal 1995.
42
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The following table sets forth the eÅect on net income and earnings per share as if the fair value
based method had been applied:
Net income as reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Add: Stock-based employee compensation expense included in
Year Ended September 30,
2004
2002
2003
(In millions, except per share
data)
$626.0
$975.1
$404.7
reported net income, net of tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1.3
1.4
1.0
Deduct: Total stock-based employee compensation expense
determined under fair value based method, net of tax ÏÏÏÏÏÏÏÏÏÏÏ
(7.1)
(5.7)
(3.7)
Pro forma net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$969.3
$621.7
$402.0
Reported basic net income per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4.19
$ 2.81
$ 2.01
Pro forma basic net income per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4.16
$ 2.79
$ 2.00
Reported diluted net income per shareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4.11
$ 2.73
$ 1.91
Pro forma diluted net income per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4.09
$ 2.71
$ 1.90
In December 2003, the Company's Board of Directors declared a three-for-two common stock split
(eÅected as a 50% stock dividend), which was paid on January 12, 2004 to stockholders of record on
December 22, 2003. The net income per share amounts presented above for the years ended
September 30, 2003 and 2002 were restated to reÖect the eÅects of the three-for-two stock split.
Interest rate swaps
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 OÅered Rate (LIBOR) and pays
a Ñxed 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 market's 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-Öow
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
$12.7 million at September 30, 2004 and $20.8 million at September 30, 2003, 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, 2004, 2003 and 2002, the Company had gains related to
the interest rate swaps of $8.1 million, $1.8 million and a loss of $12.3 million, respectively.
Mortgage loans
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 forward sales of mortgage backed securities (""FMBS'') that are designated as fair value hedges.
Hedged loans are typically committed to third-party investors within three 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
eÅective 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, 2004, the Company had $27.6 million in
loans not committed to third-party investors which were hedged with $27.0 million of FMBS. During the
43
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
years ended September 30, 2004, 2003 and 2002, the Company had net gains on sales of loans of
$87.5 million, $91.5 million, and $55.1 million, respectively.
The forward sales of mortgage-backed securities 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 Ñscal years ended September 30, 2004, 2003 and 2002, the
Company's net gains related to the ineÅective portion of its fair value hedging instruments were
insigniÑcant. The net gains are included in Ñnancial services revenues.
Loan commitments
To meet the Ñnancing 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 deÑned
credit and underwriting criteria. In accordance with SFAS No. 133 and related Derivatives Implementa-
tion Group conclusions, the Company classiÑes and accounts for IRLCs as non-designated derivative
instruments at fair value with gains and losses recorded in current earnings. At September 30, 2004 and
2003, the Company's IRLCs totaled $562.8 million and $458.7 million, respectively.
The Company manages interest rate risk related to its IRLCs through the use of best-eÅorts whole
loan delivery commitments, forward sales of mortgage-backed securities and the infrequent purchase of
options on Ñnancial instruments. 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,
2004 the Company had approximately $117.0 million outstanding of FMBS and $432.6 million of best
eÅorts whole loan delivery commitments related to its IRLCs.
Recent Accounting Pronouncements
In October 2004, the Financial Accounting Standards Board (""FASB'') announced that Statement of
Financial Accounting Standards (""SFAS'') No. 123R, ""Share-Based Payment,'' would become eÅective
for most publicly owned companies for interim or annual periods beginning after June 15, 2005. This
Statement would require companies to record compensation expense for all share-based payments, such as
employee stock options, at fair value. The FASB plans to issue SFAS No. 123R in its Ñnal form on or
around December 15, 2004. The Company does not believe that the implementation of the provisions of
SFAS No. 123R will have a material impact on the Company's Ñnancial position, results of operations or
cash Öows.
ReclassiÑcation
Certain prior year balances have been reclassiÑed to conform to the Ñscal 2004 presentation.
44
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
NOTE B Ì NOTES PAYABLE
The Company's notes payable at their principal amounts, net of unamortized discount or premium, as
applicable, consist of the following:
Homebuilding:
Unsecured:
Revolving credit facility due 2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
83/8% Senior notes due 2004, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
101/2% Senior notes due 2005, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
71/2% Senior notes due 2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
5% Senior notes due 2009, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
8% Senior notes due 2009, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
93/8% Senior notes due 2009, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
93/4% Senior subordinated notes due 2010, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
77/8% Senior notes due 2011, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
93/8% Senior subordinated notes due 2011, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
101/2% Senior subordinated notes due 2011, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
81/2% Senior notes due 2012, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
67/8% Senior notes due 2013 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
57/8% Senior notes due 2013 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
61/8% Senior notes due 2014, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
55/8% Senior notes due 2014, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other secured ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
As of September 30,
2003
2004
(In millions)
$
Ì $ Ì
149.7
Ì
199.7
199.9
215.0
215.0
199.5
Ì
383.6
383.8
243.9
242.5
149.1
149.2
198.6
198.7
199.7
199.8
151.8
150.9
248.2
248.3
200.0
200.0
100.0
100.0
Ì
197.2
247.9
Ì
125.9
73.8
$3,006.5
$2,565.2
Financial Services:
Mortgage warehouse facility due 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Commercial paper conduit facility due 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 267.7
225.0
$ 148.0
250.0
$ 492.7
$ 398.0
The Company Ñled with the Securities and Exchange Commission a universal shelf registration
statement registering $2 billion in debt and equity securities eÅective in August 2004. At September 30,
2004, the remaining capacity to issue new debt or equity securities amounted to $1.75 billion. After the
October 2004 issuance of $250 million of 47/8% Senior notes due 2010, the remaining capacity to issue new
debt or equity securities amounted to $1.5 billion.
Maturities of consolidated notes payable, assuming the mortgage warehouse and commercial paper
conduit facilities are not extended or renewed, are $740.0 million in 2005, $16.4 million in 2006,
$5.5 million in 2007, $217.6 million in 2008, $821.2 million in 2009 and $1,695.5 million thereafter.
Homebuilding:
In March 2004, the Company restructured and amended its existing unsecured revolving credit
facility, increasing it to $1 billion and extending its maturity to March 25, 2008. The new facility included
45
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
a $350 million letter of credit sub-facility and an uncommitted $250 million accordion feature that
permitted an increase in the facility. In June 2004, the Company exercised the accordion feature and
obtained commitments from its lenders that increased the total size of the facility to $1.21 billion.
Borrowing capacity of this facility is reduced by the amount of letters of credit outstanding. At
September 30, 2004, the Company had borrowing capacity from this facility of $1.1 billion. The facility is
guaranteed by substantially all of the Company's wholly-owned subsidiaries other than its Ñnancial services
subsidiaries. Borrowings bear daily interest at rates based upon the London Interbank OÅered Rate
(LIBOR) plus a spread based upon the Company's 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, 2004 and
2003 were 3.1% and 2.6%, respectively.
Following is a summary of the key terms of each of the Company's unsecured homebuilding notes
payable outstanding as of September 30, 2004, including the annual eÅective interest rate of each series of
notes, after giving eÅect to the amortization of deferred Ñnancing costs, discounts and premiums.
Date Issued
Date Due
Redeemable
EÅective
Interest Rate
Note Payable(1)
Principal
Amount
(In millions)
101/2% Senior ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
71/2% Senior ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
5% Senior ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
8% Senior ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
93/8% Senior ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$200.0
$215.0
$200.0
$385.0
$235.0
March/June 2000
April 1, 2005
December 2002
December 1, 2007
January 2004
February 1999
Assumed from
Schuler
February 2002
January 15, 2009
February 1, 2009
July 15, 2009
93/4% Senior subordinated ÏÏÏ
77/8% Senior ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
93/8% Senior subordinated ÏÏÏ
$150.0
$200.0
$200.0
September 2000
September 15, 2010
August 2001
March 2001
August 15, 2011
March 15, 2011
No
No(3)
No(3)
No
Yes, on or after
July 15, 2005(2)
No
No
Yes, on or after
March 15, 2006(2)
Yes, on or after
July 15, 2006(2)
101/2% Senior subordinated ÏÏ
$144.8
81/2% Senior ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$250.0
Assumed from
Schuler
February 2002
April 2002
July 15, 2011
April 15, 2012
Yes, on or after
67/8% Senior ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
57/8% Senior ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$200.0
$100.0
April 2003
June 2003
May 1, 2013
July 1, 2013
61/8% Senior ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$200.0
July 2004
January 15, 2014
55/8% Senior ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$250.0
September 2004
September 15, 2014
April 15, 2007(2)(3)
No(3)
Yes, on or after
July 1, 2008(2)(3)
No(3)
No(3)
(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 only redeem up to 35% of the amount originally issued with the proceeds of
public equity oÅerings 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.
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
46
10.8%
7.6 %
5.3 %
8.3 %
8.4 %
9.9 %
8.0 %
9.5 %
9.6 %
8.6 %
7.0 %
5.9 %
6.3 %
5.8 %
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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 Company's wholly-owned subsidiaries other than its Ñnancial
services subsidiaries. Upon a change of control of the Company, holders of all series of the notes have the
right to require the Company to redeem such notes at a price of 101% of the par amount, along with
accrued and unpaid interest.
The bank credit facilities and 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, 2004, under the most restrictive covenants, the
additional debt the Company could incur would be limited to $2.2 billion. Additionally, cash dividends
paid on or repurchases of the Company's common stock and other restricted payments are limited to an
amount not to exceed, on a cumulative basis, 50% of consolidated net income, as deÑned, subject to
certain other adjustments. Pursuant to the most restrictive of these requirements, the Company had
approximately $789.9 million available for the payment of dividends and other restricted payments at
September 30, 2004.
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 Ñxed rate.
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 Company's net interest costs were increased by
$7.5 million in 2004 and 2003 and $6.0 million in 2002.
Financial Services:
The Company's mortgage subsidiary restructured and amended its mortgage warehouse loan facility in
April 2004, increasing the facility to $300 million and extending its maturity to April 8, 2005, at the
30-day LIBOR rate plus a Ñxed premium. Additionally, this loan facility was amended on September 28,
2004 for a 30-day period, temporarily increasing the facility to $350 million to provide for increased year-
end closing volume. 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 the Senior and Senior
Subordinated Notes. The interest rates of the mortgage warehouse line payable at September 30, 2004 and
2003 were 2.7% and 2.2%, respectively.
The Company's mortgage subsidiary also has a $300 million commercial paper conduit facility (the
""CP conduit facility''), which expires on June 29, 2006, the terms of which are renewable annually by the
sponsoring banks. 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 the Senior and Senior Subordinated Notes.
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. The interest rates of the CP conduit facility at
September 30, 2004 and 2003 were 2.4% and 1.7%, respectively.
NOTE C Ì ACQUISITIONS
On February 21, 2002, Schuler Homes, Inc. merged with and into D.R. Horton, Inc., with
D.R. Horton the surviving corporation. At the time of the merger, Schuler's assets amounted to
$1,393.3 million, principally inventory. The total merger consideration of $1,821.4 million consisted of the
issuance of 20,079,532 shares of D.R. Horton, Inc. common stock, valued at $30.93 per share (the average
47
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
closing price of D.R. Horton common stock for a period of ten trading days from December 4, 2001 to
December 17, 2001); the payment of $168.7 million in cash; the assumption of $802.2 million of Schuler's
debt, $238.2 million of which was paid at closing; the assumption of trade payables and other liabilities
amounting to $218.7 million; and the assumption of $10.8 million of obligations to the Schuler entities'
minority interest holders. Also, D.R. Horton issued options to purchase approximately 527,000 shares of
D.R. Horton common stock to Schuler employees to replace outstanding Schuler stock options. The fair
value of the options issued was $10.4 million and was recorded as additional capital. The fair value of the
unvested options issued was $6.0 million and was recorded as unearned compensation. The unearned
compensation was amortized over the remaining vesting period of the stock options. The amount of
goodwill acquired in the Schuler acquisition was $441.6 million of which $30.9 million is deductible for tax
purposes. There were no other signiÑcant changes in goodwill during the years ended September 30, 2004,
2003 and 2002.
The merger was treated as a purchase of Schuler by D.R. Horton for accounting purposes; therefore,
Schuler assets acquired and liabilities assumed were recorded on the Company's balance sheet at their fair
market values as of February 21, 2002. Schuler's results of operations from February 22, 2002 to
September 30, 2002 are included in the Company's results of operations for the year ended September 30,
2002.
The following unaudited pro forma combined condensed Ñnancial data for the year ending
September 30, 2002 were derived from the historical Ñnancial statements of D.R. Horton, Inc. and
Schuler. The unaudited pro forma combined condensed Ñnancial data give eÅect to the merger with
Schuler as if it had occurred at the beginning of the year ended September 30, 2002. Pro forma
adjustments to the historical Ñnancial data reÖect those that we deem appropriate and are factually
supported based upon currently available information.
The unaudited pro forma combined condensed Ñnancial data has been included for comparative
purposes only and does not purport to show what the operating results would have been if the merger had
been consummated as of the dates indicated and should not be construed as representative of future
operating results.
Year Ended
September 30,
2002
(Unaudited)
(In millions except
per share data)
$7,313.8
$ 436.7
RevenuesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic net income per common shareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income per share assuming dilutionÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
1.99
1.91
48
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
NOTE D Ì STOCKHOLDERS' EQUITY
At September 30, 2004, 236,028,696 shares of Common Stock were issued and 233,375,896 shares
were outstanding. No shares of Preferred Stock were issued or outstanding. As of September 30, 2004,
13,009,236 and 13,303,170 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 (eÅected
as a 50% stock dividend), which was paid on January 12, 2004 to stockholders of record on December 22,
2003.
The Company has a shelf registration statement with the Securities and Exchange Commission to
issue, from time to time, up to 22.5 million shares of registered common stock in connection with future
acquisitions.
On July 31, 2003, the Board of Directors authorized the repurchase of up to $200 million of the
Company's common stock and outstanding debt securities, as market conditions warrant. As of
September 30, 2004 and 2003, the Company 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.
NOTE E Ì PROVISION FOR INCOME TAXES
The provision for income taxes includes the following components:
2004
Year Ended September 30,
2003
(In millions)
2002
Current provision:
Federal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$561.5
96.0
$355.6
48.2
$248.8
26.7
657.5
403.8
275.5
Deferred provision (beneÑt):
Federal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(45.7)
(4.0)
(19.6)
(2.0)
(29.9)
(2.8)
Total provision for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$607.8
$382.2
$242.8
(49.7)
(21.6)
(32.7)
49
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Deferred income taxes reÖect the net tax eÅects of temporary diÅerences between the carrying
amounts of assets and liabilities for Ñnancial reporting purposes and the amounts used for income tax
purposes. These diÅerences primarily relate to the following:
Deferred tax assets:
Capitalization of inventory costsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Warranty cost and other accrualsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fair value adjustment of Schuler notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in value of interest rate swaps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Venture capital investment valuation allowances ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total deferred tax assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred tax liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
As of September 30,
2004
2003
(In millions)
$ 96.1
99.3
5.2
4.8
5.9
7.9
219.2
38.8
$ 81.2
63.6
6.1
8.0
6.7
8.9
174.5
44.8
Net deferred tax assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$180.4
$129.7
The net deferred tax assets are included in the balance sheet as other assets.
The diÅerence 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:
Income taxes at federal statutory rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase (decrease) in tax resulting from:
2004
Year Ended September 30,
2003
(In millions)
$352.9
2002
$226.6
$554.0
State income taxes, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
55.5
(1.7)
28.5
0.8
15.8
0.4
Provision for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$607.8
$382.2
$242.8
NOTE F Ì 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 proÑt sharing are at the discretion of the Company.
Expenses for the plan were $7.5 million, $6.9 million and $6.0 million in Ñscal 2004, 2003 and 2002,
respectively.
The Company's Supplemental Executive Retirement Plan (""SERP'') is a non-qualiÑed deferred
compensation program that provides beneÑts payable to certain management employees upon retirement,
death, or termination of employment with the Company. Under it, the Company accrues an unfunded
beneÑt based on a percentage of the eligible employees' salaries, as well as an interest factor based upon a
predetermined formula. The Company recorded $1.5 million, $0.9 million and $0.8 million of expense for
this plan in Ñscal 2004, 2003 and 2002, 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
50
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Company is not required to invest the contributions in the designated investments. 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 $2.2 million, $1.3 million and $0.6 million of expense
for this plan in Ñscal 2004, 2003 and 2002, respectively.
The Company's Employee Stock Purchase Plan provides eligible employees the opportunity to
purchase common stock of the Company at a discounted price of 85% of the fair market value of the stock
on the date of purchase. Under the terms of the plan, the total fair market value of the common stock that
an eligible employee may purchase each year is limited to the lesser of 15% of the employee's annual
compensation or $25,000. Under the plan, employees of the Company purchased 64,526 shares for
$2.5 million in Ñscal 2004, 40,736 shares for $0.9 million in Ñscal 2003 and 18,460 shares for $0.4 million
in Ñscal 2002.
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 Company's 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
10 years. There were 459,185 and 3,205,962 shares available for future grants under the Plans at
September 30, 2004 and 2003, respectively. The Company issued a three-for-two stock split on January 12,
2004. The amounts in the following table have been adjusted to reÖect the eÅects of the stock splits.
Activity under the Company Stock Incentive Plans are:
2004
2003
2002
Weighted
Average
Exercise
Price
Options
Weighted
Average
Exercise
Price
Options
Weighted
Average
Exercise
Price
Options
Stock Options
Outstanding at
beginning of yearÏÏÏ
Granted ÏÏÏÏÏÏÏÏÏÏÏÏ
Exercised ÏÏÏÏÏÏÏÏÏÏÏ
Canceled ÏÏÏÏÏÏÏÏÏÏÏ
10,957,735
3,599,000
(1,154,461)
(852,223)
$ 8.95
28.80
6.08
11.24
13,179,387
90,000
(1,310,063)
(1,001,589)
$ 8.50
13.68
4.73
9.03
9,766,297
5,290,819
(1,522,895)
(354,834)
$ 5.57
12.66
4.53
6.77
Outstanding at end of
yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
12,550,051
$14.75
10,957,735
$ 8.95
13,179,387
$ 8.50
Exercisable at end of
yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3,164,878
$ 7.75
2,970,256
$ 6.82
2,608,938
$ 5.22
Exercise prices for options outstanding at September 30, 2004, ranged from $2.22 to $28.80.
The weighted average remaining contractual lives of those options are:
Exercise Price Range
Options
Outstanding
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contract Life
Less than $6 ÏÏÏÏÏÏ
$6-$12 ÏÏÏÏÏÏÏÏÏÏÏ
More than $12 ÏÏÏÏ
2,335,388
3,326,478
6,888,185
$ 4.35
7.34
21.86
TotalÏÏÏÏÏÏÏÏÏÏÏ
12,550,051
$14.75
3.3
5.0
8.7
6.7
Exercisable
Weighted
Average
Exercise
Price
$ 4.03
7.31
14.62
Options
1,091,842
1,391,391
681,645
3,164,878
$ 7.75
Weighted
Average
Remaining
Contract Life
2.6
4.9
7.8
4.7
51
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The weighted average fair value of grants made in Ñscal 2004, 2003 and 2002 was $16.45, $8.08 and
$8.57 per share, respectively. The amounts for Ñscal 2003 and 2002 have been adjusted for the three-for-
two stock split (eÅected as a 50% stock dividend) of January 2004.
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:
2004
2003
2002
Risk free interest rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected life (in years) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected volatilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected dividend yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
4.38% 4.05% 4.66%
6.63
7.18
57.95% 67.66% 61.20%
1.11% 1.42% 1.05%
7.0
NOTE G Ì FINANCIAL INSTRUMENTS
The fair values of the Company's Ñnancial instruments are based on quoted market prices, where
available, or are estimated. Fair value estimates are made at a speciÑc point in time based on relevant
market information and information about the Ñnancial instrument. These estimates are subjective in
nature, involve matters of judgment and therefore, cannot be determined with precision. Estimated fair
values are signiÑcantly aÅected by the assumptions used. The Company's 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 Company's balance sheets
approximate their fair values due to their short maturity or Öoating interest rate terms, as applicable.
For the Senior and Senior Subordinated Notes, fair values represent quoted market prices. For our
interest rate swaps, fair values represent market values as determined by the issuer of the swaps based
upon the market's 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 Ñnancial instruments. The table below sets forth the
carrying values and estimated fair values of the Company's 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, 2004
September 30, 2003
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
(In millions)
HOMEBUILDING:
Liabilities
Senior and Senior Subordinated Notes ÏÏÏÏÏÏÏÏ
Interest rate swaps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,932.7
12.7
$3,192.7
12.7
$2,439.3
20.8
$2,616.6
20.8
FINANCIAL SERVICES:
Assets
Mortgage loans held for sale ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Forward sales of mortgage backed securitiesÏÏÏÏ
Interest rate lock commitments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
623.3
(0.3)
0.3
623.3
(0.3)
0.3
485.5
(3.3)
3.4
485.5
(3.3)
3.4
52
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
NOTE H Ì COMMITMENTS AND CONTINGENCIES
The Company is involved in lawsuits and other contingencies in the ordinary course of business.
Management believes that, while the ultimate outcome of the contingencies cannot be predicted with
certainty, the ultimate liability, if any, will not have a material adverse eÅect on the Company's Ñnancial
position.
The Company has established reserves for contingencies occurring in the ordinary course of business,
including warranty costs on closed homes and the expected costs of the self-insured portion of general
liability and workers compensation insurance claims. The Company's estimates of the amounts to be
charged to these reserves are based on 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. The Company's total reserves for such items were $223.2 million and
$137.2 million at September 30, 2004 and 2003, 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, 2004, the Company had
cash deposits of $220.3 million, promissory notes of $9.8 million, and letters of credit and surety bonds of
$21.3 million to purchase land and lots with a total remaining purchase price of $4.9 billion. Only
$128.1 million of the $4.9 billion in land lot option purchase contracts contain speciÑc performance clauses
which will require the Company to purchase the land or lots. The majority of land and lots under contract
are expected to be purchased within three years.
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, 2004, outstanding standby letters of credit were $133.8 million and surety bonds were
$1,367.7 million. The Company has an additional capacity of $236.9 million for standby letters of credit
under its revolving credit facility.
The Company leases oÇce space and equipment under non-cancelable operating leases. Minimum
annual lease payments under these leases at September 30, 2004 approximate (in millions):
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$21.6
20.5
14.9
10.6
7.6
19.9
$95.1
Rent expense approximated $33.2 million, $27.7 million and $25.1 million for Ñscal 2004, 2003 and
2002, respectively.
53
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
NOTE I Ì SUMMARIZED FINANCIAL INFORMATION
All of the Company's Senior and Senior Subordinated Notes are fully and unconditionally guaranteed,
on a joint and several basis, by all of the Company's direct and indirect subsidiaries (Guarantor
Subsidiaries), other than Ñnancial 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 Ñnancial statements for the Guarantor Subsidiaries, consolidated condensed
Ñnancial statements are presented below. Separate Ñnancial statements and other disclosures concerning
the Guarantor Subsidiaries are not presented because management has determined that they are not
material to investors.
Consolidating Balance Sheet
September 30, 2004
D.R.
Horton, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
(In millions)
Eliminations
Total
$ 338.9
$ 131.6
$ 47.5
$
Ì $ 518.0
5,384.5
1,487.6
16.3
256.3
Ì
Ì
182.4
4,894.4
58.8
299.8
Ì
578.9
Ì
185.4
16.8
49.6
623.3
Ì
(5,566.9)
Ì
Ì
Ì
6,567.4
91.9
Ì
Ì
Ì
605.7
623.3
578.9
ASSETS
Cash and cash equivalents
Advances to and
investments in
subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Property & equipment (net)
Earnest money deposits &
other assets ÏÏÏÏÏÏÏÏÏÏÏÏ
Mortgage loans held for sale
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total Assets ÏÏÏÏÏÏÏÏÏÏÏÏÏ
$7,483.6
$6,145.9
$922.6
$(5,566.9)
$8,985.2
LIABILITIES & EQUITY
Accounts payable and other
liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Advances from
$ 537.1
$ 772.3
$ 49.5
$
Ì $1,358.9
parent/subsidiaries ÏÏÏÏÏÏ
Notes payableÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
2,985.8
Total Liabilities ÏÏÏÏÏÏÏÏÏÏ
3,522.9
Minority interests ÏÏÏÏÏÏÏÏÏ
Ì
3,374.5
18.9
4,165.7
Ì
Total Equity ÏÏÏÏÏÏÏÏÏÏÏÏÏ
3,960.7
1,980.2
90.6
494.5
634.6
166.4
121.6
(3,465.1)
Ì
Ì
3,499.2
(3,465.1)
4,858.1
Ì
166.4
(2,101.8)
3,960.7
Total Liabilities & Equity ÏÏÏ
$7,483.6
$6,145.9
$922.6
$(5,566.9)
$8,985.2
54
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Consolidating Balance Sheet
September 30, 2003
D.R.
Horton, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
(In millions)
Eliminations
Total
$ 196.1
$ 319.0
$ 67.8
$
Ì $ 582.9
4,634.6
957.8
13.3
191.8
Ì
Ì
219.9
3,921.3
51.4
232.6
Ì
578.9
Ì
203.2
17.0
43.7
485.5
Ì
(4,854.5)
Ì
Ì
Ì
5,082.3
81.7
Ì
Ì
Ì
468.1
485.5
578.9
ASSETS
Cash and cash equivalents
Advances to and
investments in
subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Property & equipment (net)
Earnest money deposits &
other assets ÏÏÏÏÏÏÏÏÏÏÏÏ
Mortgage loans held for sale
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total Assets ÏÏÏÏÏÏÏÏÏÏÏÏÏ
$5,993.6
$5,323.1
$817.2
$(4,854.5)
$7,279.4
LIABILITIES & EQUITY
Accounts payable and other
liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Advances from
$ 450.7
$ 613.4
$ 84.9
$
Ì $1,149.0
parent/subsidiaries ÏÏÏÏÏÏ
Notes payableÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
2,511.6
Total Liabilities ÏÏÏÏÏÏÏÏÏÏ
2,962.3
Minority interests ÏÏÏÏÏÏÏÏÏ
Ì
2,999.9
44.5
3,657.8
Ì
Total Equity ÏÏÏÏÏÏÏÏÏÏÏÏÏ
3,031.3
1,665.3
91.1
407.1
583.1
135.9
98.2
(3,091.0)
Ì
Ì
2,963.2
(3,091.0)
4,112.2
Ì
135.9
(1,763.5)
3,031.3
Total Liabilities & Equity ÏÏÏ
$5,993.6
$5,323.1
$817.2
$(4,854.5)
$7,279.4
55
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Consolidating Statement of Income
Year Ended September 30, 2004
D.R.
Horton, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
(In millions)
Homebuilding:
Revenues:
Home sales ÏÏÏÏÏÏÏÏÏÏÏ
Land/lot salesÏÏÏÏÏÏÏÏÏ
$ 1,885.2
14.9
$8,489.4
152.0
1,900.1
8,641.4
Cost of sales:
Home sales ÏÏÏÏÏÏÏÏÏÏÏ
Land/lot salesÏÏÏÏÏÏÏÏÏ
Gross proÑt:
Home sales ÏÏÏÏÏÏÏÏÏÏÏ
Land/lot salesÏÏÏÏÏÏÏÏÏ
Selling, general &
administrative expenseÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏ
Other (income) expense ÏÏ
Financial services:
RevenuesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
General & administrative
expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏ
Other (income) ÏÏÏÏÏÏÏÏÏ
1,376.6
12.0
1,388.6
508.6
2.9
511.5
342.2
3.0
(1,416.6)
6,633.8
90.6
6,724.4
1,855.6
61.4
1,917.0
594.7
0.1
(12.4)
1,582.9
1,334.6
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Income before income
taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for income taxes
1,582.9
607.8
1,334.6
512.4
$116.5
Ì
116.5
84.3
Ì
84.3
32.2
Ì
32.2
10.2
0.3
7.3
14.4
182.8
132.9
5.9
(18.8)
62.8
77.2
29.7
Eliminations
Total
$
Ì $10,491.1
166.9
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
10,658.0
8,094.7
102.6
8,197.3
2,396.4
64.3
2,460.7
11.9
Ì
1,411.8
959.0
3.4
(9.9)
(1,423.7)
1,508.2
Ì
182.8
(11.9)
Ì
Ì
11.9
121.0
5.9
(18.8)
74.7
(1,411.8)
(542.1)
1,582.9
607.8
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
975.1
$ 822.2
$ 47.5
$ (869.7)
$
975.1
56
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Consolidating Statement of Income
Year Ended September 30, 2003
D.R.
Horton, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
(In millions)
Eliminations
Total
Homebuilding:
Revenues:
Home sales ÏÏÏÏÏÏÏÏÏÏÏÏ
Land/lot salesÏÏÏÏÏÏÏÏÏÏ
$ 1,296.9
16.6
$6,833.6
199.0
1,313.5
7,032.6
Cost of sales:
Home sales ÏÏÏÏÏÏÏÏÏÏÏÏ
Land/lot salesÏÏÏÏÏÏÏÏÏÏ
Gross proÑt:
Home sales ÏÏÏÏÏÏÏÏÏÏÏÏ
Land/lot salesÏÏÏÏÏÏÏÏÏÏ
Selling, general &
administrative expenseÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏ
Other (income) expense ÏÏÏ
Financial services:
RevenuesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
General & administrative
expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏ
Other (income) ÏÏÏÏÏÏÏÏÏÏ
1,033.0
19.0
1,052.0
263.9
(2.4)
261.5
260.5
3.5
(1,010.7)
1,008.2
Ì
Ì
Ì
Ì
Ì
5,440.9
163.2
5,604.1
1,392.7
35.8
1,428.5
524.0
(0.3)
(4.6)
909.4
Ì
Ì
Ì
Ì
Ì
Income before income taxes
Provision for income taxes
1,008.2
382.2
909.4
344.8
$203.6
2.4
206.0
147.7
2.4
150.1
55.9
Ì
55.9
20.8
2.0
14.6
18.5
176.0
110.0
7.4
(23.2)
81.8
100.3
38.0
$
Ì $8,334.1
218.0
Ì
Ì
8,552.1
(0.4)
Ì
(0.4)
0.4
Ì
0.4
11.7
Ì
1,010.1
(1,021.4)
6,621.2
184.6
6,805.8
1,712.9
33.4
1,746.3
817.0
5.2
9.4
914.7
Ì
176.0
(11.7)
Ì
Ì
11.7
98.3
7.4
(23.2)
93.5
(1,009.7)
(382.8)
1,008.2
382.2
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
626.0
$ 564.6
$ 62.3
$ (626.9)
$ 626.0
57
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Consolidating Statement of Income
Year Ended September 30, 2002
D.R.
Horton, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
(In millions)
Eliminations
Total
Homebuilding:
Revenues:
Home sales ÏÏÏÏÏÏÏÏÏÏÏÏ
Land/lot salesÏÏÏÏÏÏÏÏÏÏ
$ 959.4
6.8
$5,496.2
77.3
966.2
5,573.5
$ 74.0
11.5
85.5
$ Ì
Ì
$6,529.6
95.6
Ì
6,625.2
Cost of sales:
Home sales ÏÏÏÏÏÏÏÏÏÏÏÏ
Land/lot salesÏÏÏÏÏÏÏÏÏÏ
Gross proÑt:
Home sales ÏÏÏÏÏÏÏÏÏÏÏÏ
Land/lot salesÏÏÏÏÏÏÏÏÏÏ
General & administrative
expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏ
Other (income) expense ÏÏÏ
Financial services:
RevenuesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
General & administrative
expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏ
Other (income) ÏÏÏÏÏÏÏÏÏÏ
742.8
6.2
749.0
216.6
0.6
217.2
180.1
3.9
(614.3)
647.5
Ì
Ì
Ì
Ì
Ì
4,482.6
65.6
4,548.2
1,013.6
11.7
1,025.3
451.6
0.6
(3.3)
576.4
Ì
Ì
Ì
Ì
Ì
Income before income taxes
Provision for income taxes
647.5
242.8
576.4
216.1
57.0
10.5
67.5
17.0
1.0
18.0
7.7
1.5
7.0
1.8
113.6
75.2
5.5
(16.1)
49.0
50.8
19.1
(0.3)
Ì
(0.3)
0.3
Ì
0.3
7.4
Ì
627.5
(634.6)
5,282.1
82.3
5,364.4
1,247.5
13.3
1,260.8
646.8
6.0
16.9
591.1
Ì
113.6
(7.4)
Ì
Ì
7.4
(627.2)
(235.2)
67.8
5.5
(16.1)
56.4
647.5
242.8
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 404.7
$ 360.3
$ 31.7
$(392.0)
$ 404.7
58
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Consolidating Statement of Cash Flows
Year Ended September 30, 2004
D.R.
Guarantor Non-Guarantor
Horton, Inc. Subsidiaries
Subsidiaries
(In millions)
Eliminations
Total
OPERATING ACTIVITIES
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 975.1
Adjustments to reconcile net
$ 822.2
$
47.5
$(869.7) $
975.1
income to net cash provided by
(used in) operating activities:
Depreciation and amortization ÏÏ
Amortization of debt discounts
and fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Changes in operating assets and
liabilities:
(Increase) decrease in
8.2
5.9
37.9
Ì
3.5
Ì
Ì
Ì
49.6
5.9
inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(459.9)
(971.1)
19.9
Ì (1,411.1)
Increase in earnest money
deposits and other assets ÏÏÏÏÏ
(19.7)
(71.0)
(4.6)
Increase in mortgage loans held
for saleÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase (decrease) in
accounts payable and other
liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash provided by (used in)
Ì
Ì
(137.8)
39.3
158.8
(7.0)
Ì
Ì
Ì
(95.3)
(137.8)
191.1
operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
548.9
(23.2)
(78.5)
(869.7)
(422.5)
INVESTING ACTIVITIES
Net purchases of property and
equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash used in investing activities
FINANCING ACTIVITIES
Net change in notes payableÏÏÏÏÏÏ
Increase (decrease) in
(9.1)
(9.1)
(41.6)
(41.6)
(4.5)
(4.5)
404.1
(29.8)
90.0
Ì
Ì
Ì
intercompany payablesÏÏÏÏÏÏÏÏÏ
(749.6)
407.2
(27.3)
369.7
Proceeds from stock associated
with certain employee beneÑt
plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash dividends/distributions paid
15.4
(66.9)
Ì
(500.0)
Net cash (used in) provided by
Ñnancing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(397.0)
Increase in cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash at beginning of year ÏÏÏÏÏÏÏÏÏÏ
142.8
196.1
(122.6)
(187.4)
319.0
Ì
Ì
62.7
(20.3)
67.8
Ì
500.0
869.7
Ì
Ì
(55.2)
(55.2)
464.3
Ì
15.4
(66.9)
412.8
(64.9)
582.9
Cash at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 338.9
$ 131.6
$
47.5
$ Ì $
518.0
59
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Consolidating Statement of Cash Flows
Year Ended September 30, 2003
D.R.
Guarantor Non-Guarantor
Horton, Inc. Subsidiaries
Subsidiaries
(In millions)
Eliminations
Total
OPERATING ACTIVITIES
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 626.0
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortizationÏÏÏÏ
Amortization of debt discounts
7.0
and fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
4.0
$ 564.6
$62.3
$(626.9) $ 626.0
31.1
Ì
3.7
Ì
Ì
Ì
41.8
4.0
Changes in operating assets and
liabilities:
(Increase) decrease in inventories
(Increase) decrease in earnest
(218.6)
(303.7)
36.7
(0.4)
(486.0)
money deposits and other assets
47.1
(26.6)
(6.3)
(4.7)
9.5
Increase in mortgage loans held
for sale ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Ì
(21.4)
Increase in accounts payable and
other liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
86.2
138.8
Net cash provided by operating
activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
551.7
404.2
24.3
99.3
Ì
0.1
(21.4)
249.4
(631.9)
423.3
INVESTING ACTIVITIES
Investment in consolidated
subsidiariesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(216.1)
Ì
Ì
Net purchases of property and
equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(7.1)
Net cash used in investing activitiesÏÏÏ
(223.2)
(25.9)
(25.9)
(15.6)
(15.6)
216.1
Ì
216.1
Ì
(48.6)
(48.6)
FINANCING ACTIVITIES
Net change in notes payable ÏÏÏÏÏÏÏ
Increase (decrease) in intercompany
payables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase of treasury stock ÏÏÏÏÏÏÏÏÏ
Proceeds from stock associated with
certain employee beneÑt plansÏÏÏÏ
Cash dividends/distributions paid ÏÏÏ
Net cash (used in) provided by
227.1
(17.4)
(18.4)
Ì
191.3
(272.1)
(58.9)
207.8
Ì
(21.5)
Ì
11.6
(40.1)
Ì
(330.0)
Ì
Ì
85.8
Ì
Ì
330.0
Ì
(58.9)
11.6
(40.1)
103.9
478.6
104.3
Ì
Ì
$ Ì $ 582.9
Ñnancing activitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(132.4)
(139.6)
(39.9)
415.8
Increase in cashÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash at beginning of year ÏÏÏÏÏÏÏÏÏÏÏ
196.1
Ì
238.7
80.3
Cash at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 196.1
$ 319.0
43.8
24.0
$67.8
60
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Consolidating Statement of Cash Flows
Year Ended September 30, 2002
D.R.
Guarantor Non-Guarantor
Horton, Inc. Subsidiaries
Subsidiaries
(In millions)
Eliminations
Total
OPERATING ACTIVITIES
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 404.7
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortizationÏÏÏÏ
Amortization of debt discounts
4.7
and fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
7.8
$ 360.3
$
31.7
$(392.0) $ 404.7
26.0
Ì
2.1
Ì
Ì
Ì
32.8
7.8
Changes in operating assets and
liabilities:
Increase in inventories ÏÏÏÏÏÏÏÏÏÏ
(Increase) decrease in earnest
(123.4)
(73.7)
(47.1)
Ì (244.2)
money deposits and other assets
(100.0)
23.5
(10.9)
(4.9)
(92.3)
Increase in mortgage loans held
for sale ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Ì
(241.3)
Ì (241.3)
Increase (decrease) in accounts
payable and other liabilities ÏÏÏÏ
78.3
(59.6)
23.2
Ì
41.9
Net cash provided by (used in)
operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
272.1
276.5
(242.3)
(396.9)
(90.6)
INVESTING ACTIVITIES
Net purchases of property and
equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(5.8)
(30.4)
(3.1)
Ì
(39.3)
Investment in consolidated
subsidiariesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash paid for acquisitions ÏÏÏÏÏÏ
(146.5)
Ì
Net cash used in investing activitiesÏÏÏ
(152.3)
Ì
(153.8)
(184.2)
Ì
Ì
146.5
Ì
Ì (153.8)
(3.1)
146.5
(193.1)
215.1
(257.6)
200.2
4.8
162.5
(321.2)
339.0
60.5
(78.3)
Ì
Ì
Ì
260.7
15.3
8.7
24.0
Ì
323.9
12.4
(26.1)
250.4
148.8
Ì (134.9)
239.2
Ì
$ Ì $ 104.3
FINANCING ACTIVITIES
Net change in notes payable ÏÏÏÏÏÏÏ
Increase (decrease) in intercompany
payables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from stock associated with
certain employee beneÑt plansÏÏÏÏÏÏ
Cash dividends/distributions paid ÏÏÏÏÏ
12.4
(26.1)
Ì
(323.9)
Net cash (used in) provided by
Ñnancing activitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(119.8)
Increase (decrease) in cashÏÏÏÏÏÏÏÏÏÏ
Cash at beginning of year ÏÏÏÏÏÏÏÏÏÏÏ
Ì
Ì
(242.5)
(150.2)
230.5
Cash at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ Ì $
80.3
$
61
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
NOTE J Ì QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly results of operations are (in millions, except for per share amounts):
September 30
Revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gross proÑtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic earnings per common share(1) ÏÏÏÏÏÏÏÏ
Diluted earnings per common share(1) ÏÏÏÏÏÏ
$3,510.6
824.5
349.6
1.50
1.47
September 30
Revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gross proÑtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic earnings per common share(1) ÏÏÏÏÏÏÏÏ
Diluted earnings per common share(1) ÏÏÏÏÏÏ
$2,862.2
595.9
230.7
0.99
0.98
Fiscal 2004
Three Months Ended
June 30
March 31
$2,790.4
625.8
251.3
1.08
1.06
$2,335.3
517.1
188.6
0.81
0.80
Fiscal 2003
Three Months Ended
June 30
March 31
$2,212.4
439.9
155.6
0.71
0.66
$1,908.5
372.4
127.8
0.58
0.57
December 31
$2,204.5
493.3
185.6
0.80
0.78
December 31
$1,744.9
338.2
111.8
0.51
0.50
(1) All basic and diluted share amounts presented above have been restated to reÖect the eÅects of the
three-for-two stock split (eÅected as a 50% stock dividend) of January 12, 2004.
NOTE K Ì TRANSACTIONS WITH RELATED PARTIES
One of the Company's former directors beneÑcially owns EVP Capital, L.P., (""EVP''), which was a
general partner of Encore Venture Partners II (Texas), L.P. (""Encore''), a Company aÇliate which,
together with other Company aÇliates, invested in technology start-up and emerging growth companies.
During the term of EVP's interest in Encore, this former director advised and assisted the Company in its
homebuilder acquisitions. In connection with the termination of the Company's investment program
through Encore, the existing agreement with EVP was terminated, along with EVP's interests in Encore.
After such termination, through advisory arrangements with the Company, this former director continued
to monitor Encore and aÇliate investments and to advise and assist the Company in its homebuilder
acquisitions and in the process of integrating acquired homebuilding operations. For this former director's
advice and assistance during the Ñscal year ended September 30, 2002, the Company paid EVP
$2.0 million, in addition to the reimbursement of expenses. The advisory arrangements terminated as of
September 30, 2002.
NOTE L Ì SUBSEQUENT EVENT
In October 2004, the Company issued $250 million principal amount of 47/8% Senior notes due 2010.
The notes, which are due January 15, 2010, with interest payable semi-annually, represent unsecured
obligations of the Company. The Company used the proceeds from the borrowings for general corporate
purposes, including land acquisition and development, home construction and homebuilding operations and
other working capital needs.
62
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
The Company's management has long recognized its responsibilities for developing, implementing and
monitoring eÅective and eÇcient internal controls and procedures. As part of those responsibilities, as of
September 30, 2004 an evaluation was performed under the supervision and with the participation of the
Company's management, including the Chief Executive OÇcer (""CEO'') and Chief Financial OÇcer
(""CFO''), of the eÅectiveness of the design and operation of the Company's disclosure controls and
procedures. Based on that evaluation, the Company's management, including the CEO and CFO,
concluded that the Company's disclosure controls and procedures were eÅective as of September 30, 2004.
There have been no signiÑcant changes in the Company's internal controls or in other factors that could
signiÑcantly aÅect internal controls subsequent to September 30, 2004.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth under the caption ""Election of Directors'' at pages 3
through 6 and the caption: ""Section 16(a) BeneÑcial Ownership Reporting Compliance'' at page 34, of the
registrant's deÑnitive Proxy Statement for the 2005 Annual Meeting of Stockholders to be held on
January 27, 2005 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 22 through ""Compensation Committee Interlocks and Insider Participation'' at page 26 of the
registrant's deÑnitive Proxy Statement for the 2005 Annual Meeting of Stockholders to be held on
January 27, 2005 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 (i) ""BeneÑcial Ownership of
Common Stock'' at page 21 through ""Compensation Committee Interlocks and Insider Participation,'' at
page 26 and (ii) ""Securities Authorized for Issuance Under Equity Compensation Plans'' at page 20 of the
registrant's deÑnitive Proxy Statement for the 2005 Annual Meeting of Stockholders to be held on
January 27, 2005 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 Ì
Transactions with Management'' at pages 25 through 26 of the registrant's deÑnitive Proxy Statement for
the 2005 Annual Meeting of Stockholders to be held on January 27, 2005 and incorporated herein by
reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is set forth under the caption ""Audit Fees and All Other Fees''
at page 33 of the registrant's deÑnitive Proxy Statement for the 2005 Annual Meeting of Stockholders to
be held on January 27, 2005 and incorporated herein by reference.
63
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are Ñled 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 (the ""SEC'') are not required under the related instructions or are not applicable,
and therefore have been omitted.
3. and 15.(c) Exhibits:
Exhibit
Number
2.1
2.2
Exhibit
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)
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)
Amended and Restated CertiÑcate of Incorporation, as amended(3)
3.1
3.1(a) Amendment to Amended and Restated CertiÑcate of Incorporation(3.a)
3.2
4.1
4.2
Amended and Restated Bylaws(4)
See Exhibits 3.1, 3.1(a) and 3.2
Indenture, dated as of June 9, 1997, among the Registrant, the guarantors named therein and
American Stock Transfer & Trust Company, as Trustee(5)
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)
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)
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)
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)
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)
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)
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)
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)
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)
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)
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
64
Exhibit
Number
Exhibit
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
4.24
4.25
4.26
4.27
4.28
4.29
4.30
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)
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)
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)
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 8.375% Senior Notes due 2004, 10.5% Senior Notes due 2005, 8% Senior Notes due 2009,
7.875% Senior Notes due 2011 and Zero Coupon Convertible Senior Notes due 2021(62)
Indenture, dated as of September 11, 2000, among the Registrant, the guarantors named therein
and American Stock Transfer & Trust Company, as Trustee(19)
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)
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)
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)
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(63)
Indenture, dated as of April 15, 1996, between Continental Homes Holding Corp. (""Continental'')
and First Union National Bank, as Trustee(23)
First Supplemental Indenture, dated as of April 20, 1998, among the Registrant, the guarantors
named therein and First Union National Bank, as Trustee(24)
Second Supplemental Indenture, dated as of August 31, 1998, among the Registrant, the guarantors
named therein and First Union National Bank, as Trustee(25)
Third Supplemental Indenture, dated as of August 31, 1999, among the Registrant, the guarantors
named therein and First Union National Bank, as Trustee(26)
Fourth Supplemental Indenture, dated as of May 21, 2001, among the Registrant, the guarantors
named therein and First Union National Bank, as Trustee(27)
Fifth Supplemental Indenture, dated as of February 21, 2002, among the Registrant, the guarantors
named therein and First Union National Bank, as trustee, relating to the 10% Senior Notes due
2006(64)
Indenture, dated as of May 6, 1998, among Schuler Residential, Inc. (formerly known as Schuler
Homes, Inc.), the guarantors named therein and BNY Western Trust Company, as successor in
interest to U.S. Trust Company of California, N.A., as trustee, relating to the 9% Senior Notes due
2008(50)
First Supplemental Indenture, dated as of February 26, 1999, among Schuler Residential, Inc.
(formerly known as Schuler Homes, Inc.), the guarantors named therein and BNY Western
Trust Company, as successor in interest to U.S. Trust Company of California, N.A., as trustee,
relating to the 9% Senior Notes due 2008(51)
Second Supplemental Indenture, dated as of July 15, 1999, among Schuler Residential, Inc.
(formerly known as Schuler Homes, Inc.), the guarantors named therein and BNY Western
Trust Company, as successor in interest to U.S. Trust Company of California, N.A., as trustee,
relating to the 9% Senior Notes due 2008(52)
65
Exhibit
Number
4.31
4.32
4.33
4.34
4.35
4.36
4.37
4.38
4.39
4.40
4.41
4.42
4.43
4.44
4.45
4.46
Exhibit
Third Supplemental Indenture, dated as of June 27, 2000, among Schuler Residential, Inc.
(formerly known as Schuler Homes, Inc.), the guarantors named therein and BNY Western
Trust Company, as successor in interest to U.S. Trust Company of California, N.A., as trustee,
relating to the 9% Senior Notes due 2008(53)
Fourth Supplemental Indenture, dated as of October 20, 2000, among Schuler Residential, Inc.
(formerly known as Schuler Homes, Inc.), the guarantors named therein and BNY Western
Trust Company, as successor in interest to U.S. Trust Company of California, N.A., as trustee,
relating to the 9% Senior Notes due 2008(54)
Fifth Supplemental Indenture, dated as of June 21, 2001, among Schuler Residential, Inc.
(formerly known as Schuler Homes, Inc.), Schuler Homes, Inc., the guarantors named therein and
BNY Western Trust Company, as successor in interest to U.S. Trust Company of California, N.A.,
as trustee, relating to the 9% Senior Notes due 2008(55)
Sixth Supplemental Indenture, dated as of October 4, 2001, among Schuler Homes, Inc., the
guarantors named therein and BNY Western Trust Company, as successor in interest to
U.S. Trust Company of California, N.A., as trustee, relating to the 9% Senior Notes due 2008(56)
Seventh Supplemental Indenture, dated as of February 21, 2002, among the Registrant, the
guarantors named therein and BNY Western Trust Company, as successor in interest to
U.S. Trust Company of California, N.A., as trustee, relating to the 9% Senior Notes due 2008(57)
Indenture, dated as of June 28, 2001, among Schuler Homes, Inc., the guarantors named therein
and U.S. Bank, N.A., as successor by merger to U.S. Bank Trust National Association, as trustee,
relating to the 9.375% Senior Notes due 2009(58)
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 9.375% Senior Notes due 2009(59)
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(60)
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(61)
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(65)
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(66)
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(67)
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(81)
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(82)
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(83)
Eighteenth Supplemental Indenture, dated January 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(91)
66
Exhibit
Number
4.47
4.48
4.49
10.1
10.2
10.2a
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
Exhibit
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(92)
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(93)
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(94)
Form of IndemniÑcation Agreement between the Registrant and each of its directors and executive
oÇcers and schedules of substantially identical documents(28)
D.R. Horton, Inc. 1991 Stock Incentive Plan, as amended and restated(29)(30)
Amendment No. 1 to 1991 Stock Incentive Plan, as amended and restated(30)(31)
Form of Non-QualiÑed Stock Option Agreement (Term Vesting)(30)(32)
Form of Non-QualiÑed Stock Option Agreement (Performance Vesting)(30)(33)
Form of Incentive Stock Option Agreement (Term Vesting)(30)(33)
Form of Incentive Stock Option Agreement (Performance Vesting)(30)(33)
Form of Restricted Stock Agreement (Term Vesting)(30)(33)
Form of Restricted Stock Agreement (Performance Vesting)(30)(33)
Form of Stock Appreciation Right Agreement (Term Vesting)(30)(33)
Form of Stock Appreciation Right Agreement (Performance Vesting)(30)(33)
Form of Stock Appreciation Right NotiÑcation (Tandem)(30)(33)
Form of Performance Share NotiÑcation(30)(33)
Form of Performance Unit NotiÑcation(30)(33)
D.R. Horton, Inc. Supplemental Executive Retirement Plan No. 1(30)(34)
D.R. Horton, Inc. Supplemental Executive Retirement Trust No. 1(30)(34)
D.R. Horton, Inc. Supplemental Executive Retirement Plan No. 2(30)(34)
Continental Homes Holding Corp. 1988 Stock Incentive Plan (as amended and restated June 20,
1997)(30)(35)
Restated Continental Homes Holding Corp. 1986 Stock Incentive Plan, and the First Amendment
thereto dated June 17, 1987(30)(36)
Form of Stock Option Agreement pursuant to Continental's 1986 and 1988 Stock Incentive
Plans(30)(37)
The D.R. Horton, Inc. 2000 Incentive Bonus Plan(30)(38)
First Amendment to Non-QualiÑed Stock Option Agreements, dated as of March 15, 2000,
between the Registrant and Richard Beckwitt(30)(39)
Letter Agreement concerning partial bonus under Incentive Bonus Plan, dated March 15, 2000,
between the Registrant and Richard Beckwitt(30)(40)
Limited Partnership Agreement of Encore Venture Partners II (Texas), L.P., dated as of March 21,
2000, among GP-Encore, Inc. (formerly, Encore I, Inc.), Encore II, Inc., EVP Capital, L.P.
(formerly, Encore Capital (Texas), L.P.) and Richard Beckwitt(30)(41)
Agreement for Termination of, and Withdrawal from, Partnership, dated as of June 30, 2001,
among Encore Venture Partners II (Texas), L.P., EVP Capital, L.P., Encore Management, LLC,
Richard Beckwitt, GP-Encore, Inc. and Encore II, Inc.(30)(69)
Summary of Advisory Arrangement for Richard Beckwitt(30)(70)
67
Exhibit
Number
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
Exhibit
Amended and Restated Master Loan and Inter-Creditor Agreement dated as of July 1, 1999,
among D.R. Horton, Inc., as Borrower; NationsBank, N.A., Fleet National Bank, Bank United,
Comerica Bank, Credit Lyonnais New York Branch, Sociπetπe Gπenπerale, Southwest Agency, The
First National Bank of Chicago, PNC Bank, National Association, Amsouth Bank, Bank One,
Arizona, NA, First American Bank Texas, SSB, Harris Trust and Savings Bank, Sanwa Bank
California, Norwest Bank Arizona, National Association, Wachovia Mortgage Company and
Summit Bank, as Banks; and NationsBank, N.A., as Administrative Agent(43)
Credit Agreement dated as of August 13, 1999, among CH Mortgage Company I, Ltd., as
Borrower; U.S. Bank National Association, Residential Funding Corporation, Hibernia Bank, First
Union National Bank, and National City Bank of Kentucky, as Lenders and U.S. Bank National
Association, as Agent(44)
Revolving Credit Agreement, dated as of January 31, 2002, among the Registrant, the lenders
named therein, and Bank of America, N.A., a national banking association, as Administrative Agent
and Letter of Credit Issuer(45)
IndemniÑcation Agreement by and between the Registrant and James K. Schuler, director(46)
Employment Agreement by and between the Registrant and James K. Schuler dated October 22,
2001(30)(47)
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(30)(48)
Form of Non-QualiÑed Stock Option Agreement for replacement non-qualiÑed 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(30)(49)
D.R. Horton, Inc. Deferred Compensation Plan, eÅective as of June 15, 2002(30)(68)
Grantor Trust Agreement, dated June 21, 2002 by and between the Registrant and Wachovia Bank,
National Association, as trustee(71)
First Amendment to Credit Agreement, dated as of August 14, 2000, among CH Mortgage
Company I, Ltd., as Borrower; U.S. Bank National Association, as agent and Lenders referred to
therein(72)
Second Amendment to Credit Agreement and Second Amendment to Pledge and Security
Agreement, dated as of August 10, 2001, among CH Mortgage Company I, Ltd., as Borrower;
U.S. Bank National Association, as agent and Lenders referred to therein(73)
Third Amendment to Credit Agreement, dated as of February 22, 2002, among CH Mortgage
Company I, Ltd., as Borrower; U.S. Bank National Association, as agent and Lenders referred to
therein(74)
Fourth Amendment to Credit Agreement, dated as of August 12, 2002, among CH Mortgage
Company I, Ltd., as Borrower; U.S. Bank National Association, as agent and Lenders referred to
therein(75)
Fifth Amendment to Credit Agreement, dated as of September 25, 2002, among CH Mortgage
Company I, Ltd., as Borrower; U.S. Bank National Association, as agent and Lenders referred to
therein(76)
Sixth Amendment to Credit Agreement, dated as of October 18, 2002, among CH Mortgage
Company I, Ltd., as Borrower; U.S. Bank National Association, as agent and Lenders referred to
therein(77)
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.(78)
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(79)
68
Exhibit
Number
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
12.1
14.1
21.1
23.1
31.1
31.2
32.1
32.2
Exhibit
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(80)
Seventh Amendment to Credit Agreement, dated February 28, 2003, among CH Mortgage
Company I, Ltd., as Borrower, U.S. Bank National Association, as Agent, and Lenders referred to
therein(84)
Eighth Amendment to Credit Agreement, dated August 12, 2003, among CH Mortgage Com-
pany I, Ltd., as Borrower, U.S. Bank National Association, as Agent, and Lenders referred to
therein(85)
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.(86)
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.(87)
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.(88)
Amended and Restated Revolving Credit Agreement dated March 25, 2004, entered into by and
among D.R. Horton, Inc., Lenders (as deÑned in such Credit Agreement) and Bank of America,
N.A., as Administrative Agent and a Letter of Credit Issuer (as deÑned in such Credit Agree-
ment)(89)
Amended and Restated Credit Agreement dated April 9, 2004 by and between DHI Mortgage
Company, Ltd. (f/k/a CH Mortgage Company, Ltd.) and U.S. Bank National Association and the
Lenders thereto(90)
Statement of Computation of Ratio of Earnings to Fixed Charges(*)
Code of Ethical Conduct for the CEO, CFO and Senior Financial OÇcers(**)
Subsidiaries of D.R. Horton, Inc.(*)
Consent of Ernst & Young LLP, Fort Worth, Texas(*)
CertiÑcate of Chief Executive OÇcer provided pursuant to Section 302(a) of the Sarbanes-Oxley
Act of 2002(*)
CertiÑcate of Chief Financial OÇcer provided pursuant to Section 302(a) of the Sarbanes-Oxley
Act of 2002(*)
CertiÑcate provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, by the Registrant's Chief Executive OÇcer(*)
CertiÑcate provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, by the Registrant's Chief Financial OÇcer(*)
* Filed herewith
** Posted to the Company's website at www.drhorton.com under the Corporate Governance link.
(1) Incorporated by reference from Exhibit 2.1 to the Registrant's Registration Statement on Form S-4
(Registration No. 333-44279), Ñled with the SEC on January 15, 1998.
(2) Incorporated by reference from Exhibit 2.1 to the Registrant's Current Report on Form 8-K, dated
October 22, 2001, Ñled with the SEC on October 24, 2001; and Exhibit 2.2 to the Registrant's
Current Report on Form 8-K, dated November 8, 2001, Ñled with the SEC on November 8, 2001.
(3) Incorporated herein by reference from Exhibit 3.1 to the Registrant's Quarterly Report on
Form 10-Q /A for the quarter ended December 31, 2002, dated February 18, 2003 and Ñled with
the SEC on February 18, 2003.
69
(3a) Incorporated herein by reference from Exhibit 3.1(a) to the Registrant's Quarterly Report on
Form 10-Q /A for the quarter ended December 31, 2002, dated February 18, 2003 and Ñled with the
SEC on February 18, 2003.
(4) Incorporated by reference from Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1998, Ñled with the SEC on February 16, 1999.
(5) Incorporated by reference from Exhibit 4.1(a) to the Registrant's Registration Statement on
Form S-3 (No. 333-27521), Ñled with the SEC on May 21, 1997.
(6) Incorporated by reference from Exhibit 4.1 to the Registrant's Form 8-K/A dated June 6, 1997,
Ñled with the SEC on June 9, 1997.
(7) Incorporated by reference from Exhibit 4.4 to the Registrant's Annual Report on Form 10-K for the
Ñscal year ended September 30, 1997, Ñled with the SEC on December 8, 1997.
(7) Incorporated by reference from Exhibit 4.3 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998, Ñled with SEC on May 14, 1998.
(9) Incorporated by reference from Exhibit 4.4 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998, Ñled with SEC on May 14, 1998.
(10) Incorporated by reference from Exhibit 4.7 to the Registrant's Annual Report on Form 10-K for the
year ended September 30, 1998, Ñled with the SEC on December 10, 1998.
(11) Incorporated by reference from Exhibit 4.1 to the Registrant's Current Report on Form 8-K, dated
February 2, 1999, Ñled with the SEC on February 2, 1999.
(12) Incorporated by reference from Exhibit 4.9 to the Registrant's Annual Report on Form 10-K for the
Ñscal year ended September 30, 1999, Ñled with the SEC on December 10, 1999.
(13) Incorporated by reference from Exhibit 4.1 to the Registrant's Current Report on Form 8-K, Ñled
with the SEC on March 17, 2000.
(14) Incorporated by reference from Exhibit 4.5 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2000, Ñled with the SEC on May 12, 2000.
(15) Incorporated by reference from Exhibit 4.1 to the Registrant's Current Report on Form 8-K, Ñled
with the SEC on June 6, 2000.
(16) Incorporated by reference from Exhibit 4.1(a) to the Registrant's Current Report on Form 8-K, Ñled
with the SEC on May 14, 2001.
(17) Incorporated by reference from Exhibit 4.5 to the Registrant's Quarterly Report on Form 10-Q, Ñled
with the SEC on August 14, 2001.
(18) Incorporated by reference from Exhibit 4.1(a) to the Registrant's Current Report on Form 8-K, Ñled
with the SEC on August 14, 2001.
(19) Incorporated by reference from Exhibit 4.1(a) to the Registrant's Current Report on Form 8-K, Ñled
with the SEC on September 11, 2000.
(20) Incorporated by reference from Exhibit 4.1(b) to the Registrant's Current Report on Form 8-K, Ñled
with the SEC on September 11, 2000.
(21) Incorporated by reference from Exhibit 4.1(a) to the Registrant's Current Report on Form 8-K, Ñled
with the SEC on March 8, 2001.
(22) Incorporated by reference from Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-Q, for
the quarter ended June 30, 2001, Ñled with the SEC on August 14, 2001.
(23) Incorporated by reference from Exhibit 4.1 to Continental's Annual Report on Form 10-K for the
year ended May 31, 1996, Ñled with the SEC on August 23, 1996. The SEC Ñle number for
Continental is 1-10700.
(24) Incorporated by reference from Exhibit 4.5 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998, Ñled with SEC on May 14, 1998.
(25) Incorporated by reference from Exhibit 4.10 to the Registrant's Annual Report on Form 10-K for
the year ended September 30, 1998, Ñled with SEC on December 10, 1998.
(26) Incorporated by reference from Exhibit 4.13 to the Registrant's Annual Report on Form 10-K for
the Ñscal year ended September 30, 1999, Ñled with SEC on December 10, 1999.
70
(27) Incorporated by reference from Exhibit 4.7 to the Registrant's Quarterly Report on Form 10-Q, for
the quarter ended June 30, 2001, Ñled with the SEC on August 14, 2001.
(28) Incorporated by reference from Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for
the Ñscal year ended September 30, 1995, Ñled with the SEC on November 22, 1995 (Ñle number 1-
14122); Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998, Ñled with the SEC on August 6, 1998; and Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2001, Ñled with the SEC on May 15, 2001.
(29) Incorporated herein by reference from Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002, dated August 13, 2002 and Ñled with the SEC on
August 13, 2002.
(30) Management contract or compensatory plan arrangement.
(31) Incorporated herein by reference from Exhibit 10.3 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002, dated August 13, 2002 and Ñled with the SEC on
August 13, 2002.
(32) Incorporated by reference from Exhibit 10.3 to the Registrant's Registration Statement on Form S-1
(Registration No. 3-81856), Ñled with the SEC on July 22, 1994.
(33) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the Ñscal year
ended December 31, 1992, Ñled with the SEC on March 29, 1993.
(34) Incorporated by reference from the Registrant's Transitional Report on Form 10-K for the period
from January 1, 1993 to September 30, 1993, Ñled with the SEC on December 28, 1993 (Ñle
number 1-14122).
(35) Incorporated by reference from Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998, Ñled with the SEC on August 6, 1998.
(36) Incorporated by reference from Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998, Ñled with the SEC on August 6, 1998.
(37) Incorporated by reference from Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998, Ñled with the SEC on August 6, 1998.
(38) Incorporated by reference from Exhibit A to the Registrant's Proxy Statement, Ñled with the SEC
on December 10, 1999.
(39) Incorporated by reference from Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2000, Ñled with the SEC on May 12, 2000.
(40) Incorporated by reference from Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2000, Ñled with the SEC on May 12, 2000.
(41) Incorporated by reference from Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2000, Ñled with the SEC on May 12, 2000.
(42) Reserved.
(43) Incorporated by reference from Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for
the Ñscal year ended September 30, 1999, Ñled with the SEC on December 10, 1999.
(44) Incorporated by reference from Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for
the Ñscal year ended September 30, 1999, Ñled with the SEC on December 10, 1999.
(45) Incorporated herein by reference from Exhibit 10.1 to the Registrant's Current Report on Form 8-K,
dated January 31, 2002, Ñled with the SEC on February 1, 2002.
(46) Incorporated herein by reference from Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002, dated May 15, 2002 and Ñled with the SEC on
May 15, 2002.
(47) Incorporated herein by reference from Exhibit 10.8 to the Registrant's Registration Statement on
Form S-4 (Registration No. 333-73888), Ñled with the SEC on November 21, 2001.
(48) Incorporated herein by reference from Exhibit 10.4 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002, dated May 15, 2002 and Ñled with the SEC on
May 15, 2002.
71
(49) Incorporated herein by reference from Exhibit 10.5 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002, dated May 15, 2002 and Ñled with the SEC on
May 15, 2002.
(50) Incorporated herein by reference from Exhibit 4.4 to Schuler Residential, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998. The SEC Ñle number for Schuler Residential,
Inc. is 0-19891.
(51) Incorporated herein by reference from Exhibit 1.07 to Schuler Homes, Inc.'s Registration Statement
on Form 8-A Ñled with the SEC on June 22, 2001. The SEC Ñle number for Schuler Homes, Inc.
is 0-32461.
(52) Incorporated herein by reference from Exhibit 1.08 to Schuler Homes, Inc.'s Registration Statement
on Form 8-A Ñled with the SEC on June 22, 2001. The SEC Ñle number for Schuler Homes, Inc.
is 0-32461.
(53) Incorporated herein by reference from Exhibit 1.09 to Schuler Homes, Inc.'s Registration Statement
on Form 8-A Ñled with the SEC on June 22, 2001. The SEC Ñle number for Schuler Homes, Inc.
is 0-32461.
(54) Incorporated herein by reference from Exhibit 1.10 to Schuler Homes, Inc.'s Registration Statement
on Form 8-A Ñled with the SEC on June 22, 2001. The SEC Ñle number for Schuler Homes, Inc.
is 0-32461.
(55) Incorporated herein by reference from Exhibit 1.11 to Schuler Homes, Inc.'s Registration Statement
on Form 8-A Ñled with the SEC on June 22, 2001. The SEC Ñle number for Schuler Homes, Inc.
is 0-32461.
(56) Incorporated herein by reference from Exhibit 4.7 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002, dated May 15, 2002 and Ñled with the SEC on
May 15, 2002.
(57) Incorporated herein by reference from Exhibit 4.8 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002, dated May 15, 2002 and Ñled with the SEC on
May 15, 2002.
(58) Incorporated herein by reference from Exhibit 4.8 to Schuler Homes, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001. The SEC Ñle number for Schuler Homes, Inc. is
0-32461.
(59) Incorporated herein by reference from Exhibit 4.10 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002, dated May 15, 2002 and Ñled with the SEC on
May 15, 2002.
(60) 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 Ñle number for Schuler Homes, Inc. is
0-32461.
(61) Incorporated herein by reference from Exhibit 4.12 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002, dated May 15, 2002 and Ñled with the SEC on
May 15, 2002.
(62) Incorporated herein by reference from Exhibit 4.13 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002, dated May 15, 2002 and Ñled with the SEC on
May 15, 2002.
(63) Incorporated herein by reference from Exhibit 4.14 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002, dated May 15, 2002 and Ñled with the SEC on
May 15, 2002.
(64) Incorporated herein by reference from Exhibit 4.15 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002, dated May 15, 2002 and Ñled with the SEC on
May 15, 2002.
(65) Incorporated herein by reference from Exhibit 4.16 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002, dated May 15, 2002 and Ñled with the SEC on
May 15, 2002.
72
(66) Incorporated herein by reference from Exhibit 4.17 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002, dated May 15, 2002 and Ñled with the SEC on
May 15, 2002.
(67) Incorporated herein by reference from Exhibit 4.18 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002, dated May 15, 2002 and Ñled with the SEC on
May 15, 2002.
(68) Incorporated herein by reference from Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002, dated August 13, 2002 and Ñled with the SEC on
August 13, 2002.
(69) Incorporated herein by reference from Exhibit 10.24 to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 2001 and Ñled with the SEC on November 20, 2001.
(70) Incorporated herein by reference from Exhibit 10.25 to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 2001 and Ñled with the SEC on November 20, 2001.
(71) Incorporated herein by reference from Exhibit 10.34 to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 2002 and Ñled with the SEC on December 13, 2002.
(72) Incorporated herein by reference from Exhibit 10.35 to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 2002 and Ñled with the SEC on December 13, 2002.
(73) Incorporated herein by reference from Exhibit 10.36 to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 2002 and Ñled with the SEC on December 13, 2002.
(74) Incorporated herein by reference from Exhibit 10.37 to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 2002 and Ñled with the SEC on December 13, 2002.
(75) Incorporated herein by reference from Exhibit 10.38 to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 2002 and Ñled with the SEC on December 13, 2002.
(76) Incorporated herein by reference from Exhibit 10.39 to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 2002 and Ñled with the SEC on December 13, 2002.
(77) Incorporated herein by reference from Exhibit 10.40 to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 2002 and Ñled with the SEC on December 13, 2002.
(78) Incorporated herein by reference from Exhibit 10.41 to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 2002 and Ñled with the SEC on December 13, 2002.
(79) Incorporated herein by reference from Exhibit 10.42 to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 2002 and Ñled with the SEC on December 13, 2002.
(80) Incorporated herein by reference from Exhibit 10.43 to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 2002 and Ñled with the SEC on December 13, 2002.
(81) Incorporated by reference from Exhibit 4.1 to the Company's Form 8-K dated November 22, 2002
and Ñled with the SEC on December 2, 2002.
(82) Incorporated by reference from Exhibit 4.1 to the Company's Form 8-K dated April 11, 2003 and
Ñled with the SEC on April 17, 2003.
(83) Incorporated by reference from Exhibit 4.1 to the Company's Form 8-K dated June 18, 2003 and
Ñled with the SEC on June 24, 2003.
(84) Incorporated herein by reference from Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003, dated August 14, 2003 and Ñled with the SEC on
August 14, 2003.
(85) Incorporated herein by reference from Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003, dated August 14, 2003 and Ñled with the SEC on
August 14, 2003.
(86) Incorporated herein by reference from Exhibit 10.3 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003 dated August 14, 2003 and Ñled with the SEC on
August 14, 2003.
(87) Incorporated herein by reference from Exhibit 10.4 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003, dated August 14, 2003 and Ñled with the SEC on
August 14, 2003.
73
(88) Incorporated herein by reference from Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 2003, dated February 6, 2004 and Ñled with the
SEC on February 6, 2004.
(89) Incorporated herein by reference from Exhibit 99.2 to the Registrant's Current Report on Form 8-K
dated March 29, 2004 and Ñled with the SEC on March 30, 2004.
(90) Incorporated herein by reference from Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2004, dated May 7, 2004 and Ñled with the SEC on
May 10, 2004.
(91) Incorporated herein by reference from Exhibit 4.1 to the Registrant's Current Report on Form 8-K
dated January 6, 2004 and Ñled with the SEC on January 12, 2004.
(92) Incorporated herein by reference from Exhibit 4.1 to the Registrant's Current Report on Form 8-K
dated July 6, 2004 and Ñled with the SEC on July 9, 2004.
(93) Incorporated herein by reference from Exhibit 4.1 to the Registrant's Current Report on Form 8-K
dated September 14, 2004 and Ñled with the SEC on September 17, 2004.
(94) Incorporated herein by reference from Exhibit 4.1 to the Registrant's Current Report on Form 8-K
dated October 7, 2004 and Ñled with the SEC on October 14, 2004.
(b) The following reports were Ñled on Form 8-K by the Registrant during the quarter ended
September 30, 2004:
(i) On July 8, 2004, the Registrant furnished to the SEC an Item 12 Current Report on
Form 8-K relating to a press release the Company issued on July 8, 2004 to announce its Net Sales
Orders for the quarterly and nine month periods ended June 30, 2004.
(ii) On July 9, 2004, the Company Ñled a Current Report on Form 8-K (Item 5 and Item 7),
dated July 9, 2004, whereby the Company Ñled with the Commission (i) an Underwriting Agreement,
(ii) the form of Nineteenth Supplemental Indenture, (iii) legal opinion, and (iv) statement of
computation of ratios of earnings to Ñxed charges, all relating to the oÅering and issuance of
$200 million principal amount of the Registrant's 6.125% Senior Notes due 2014.
(iii) On July 22, 2004, the furnished to the SEC an Item 12 Current Report on Form 8-K
relating to a press release the Company issued on July 21, 2004 to announce its net income for the
quarterly and nine month periods ended June 30, 2004 and to announce its backlog of homes under
contract at June 30, 2004.
(iv) On September 17, 2004, the Company Ñled a Current Report on Form 8-K (Item 8.01 and
Item 9.01), dated September 17, 2004, whereby the Company Ñled with the Commission (i) an
Underwriting Agreement, (ii) the form of Twentieth Supplemental Indenture, (iii) legal opinion, and
(iv) statement of computation of ratios of earnings to Ñxed charges, all relating to the oÅering and
issuance of $250 million principal amount of the Registrant's 5.625% Senior Notes due 2014.
74
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.
SIGNATURES
D.R. HORTON, INC.
By
/s/ DONALD J. TOMNITZ
Donald J. Tomnitz,
Vice Chairman, Chief Executive OÇcer
and President
Date: December 10, 2004
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
/s/ DONALD J. TOMNITZ
Donald J. Tomnitz
/s/ BILL W. WHEAT
Bill W. Wheat
/s/ BRADLEY S. ANDERSON
Bradley S. Anderson
/s/ MICHAEL R. BUCHANAN
Michael R. Buchanan
/s/ RICHARD I. GALLAND
Richard I. Galland
/s/ FRANCINE I. NEFF
Francine I. NeÅ
Chairman of the Board
December 10, 2004
Vice Chairman, Chief Executive
OÇcer, President, and Director
(Principal Executive OÇcer)
December 10, 2004
Chief Financial OÇcer,
Executive Vice President and
Director (Principal Financial
OÇcer and Principal
Accounting OÇcer)
December 10, 2004
Director
December 10, 2004
Director
December 10, 2004
Director
December 10, 2004
Director
December 10, 2004
75
CORPORATE INFORMATION
D.R. Horton, Inc. (the ""Company''), the largest homebuilder in the United States, constructs and
sells high quality single-family homes designed principally for the Ñrst-time and move-up home-buyers.
The Company operates in 21 states and 63 markets in the Mid-Atlantic, Midwest, Southeast, Southwest,
and West regions of the United States, primarily under the name of D. R. Horton, America's Builder. For
the year ended September 30, 2004, the Company closed 43,567 homes with an average sales price of
approximately $240,800. Founded in 1978, D.R. Horton, Inc. is a Fortune 500 company listed on the New
York Stock Exchange under the ticker symbol ""DHI.''
THE BOARD OF DIRECTORS
Donald R. Horton
Chairman
Donald J. Tomnitz
Vice Chairman, President and
Chief Executive OÇcer
Bill W. Wheat
Executive Vice President and
Chief Financial OÇcer
Bradley S. Anderson
Senior Vice President of
CB Richard Ellis, Inc.(1)(2)(3)
Michael R. Buchanan
Former National Managing Director, Real Estate
Group, Bank of America(1)(2)(3)
Richard I. Galland
Former Chief Executive OÇcer and Chairman of
Fina, Inc.(1)(2)(3)
Francine I. NeÅ
Former Treasurer of the United States(1)(2)(3)
Transfer Agent and Registrar
American Stock Transfer & Trust Co.
59 Maiden Lane
New York, NY 10038
(800) 937-5449
Investor Relations
Stacey H. Dwyer
D.R. Horton, Inc.
301 Commerce Street, Suite 500
Fort Worth, Texas 76102
(817) 390-8200
Annual Meeting
January 27, 2005
At the Corporate OÇces of
D.R. Horton, Inc.
301 Commerce Street
Fort Worth, Texas 76102
Public Debt Ratings
Senior:
BBB¿ Fitch Ratings
Ba1 Moody's Investors Service
BB° Standard & Poor's Corporation
Senior Subordinated:
Fitch Ratings
BB
Ba2 Moody's Investors Service
BB¿ Standard & Poor's Corporation
(1) Audit Committee Member
(2) Compensation Committee Member
(3) Nominating and Governance Committee Member
76
FINANCIAL SUMMARY
(In millions, except for number of homes and per share amounts)
$1,000
Net Income
$975
$800
$600
$400
$200
$0
$12,500
$10,000
$7,500
$5,000
$2,500
$0
$626
$405
$257
$192
2000
2001
2002
2003
2004
Revenues
$10,841
$8,728
$6,739
$4,456
$3,654
2000
2001
2002
2003
2004
$12,500
New Home Sales
$11,406
$10,000
$7,500
$5,000
$3,676
$4,503
$9,162
$6,886
Income Statement Data:
Revenues .......................................
Net income ...................................
Operating Data:
Homes closed ...............................
Homes sold ...................................
Percentages of Revenues:
Gross profit (homebuilding) ..........
SG&A expense (homebuilding) ...
Pre-tax income ..............................
Net income ...................................
Balance Sheet Data:
Inventories ....................................
Total assets ....................................
Notes payable ...............................
Stockholders’ equity .....................
Book value per share* ..................
Common shares outstanding* ......
Sales Contract Backlog:
Homes ...........................................
Sales value ....................................
Years Ended September 30,
2004
2003
2002
2001
2000
$10,840.8
975.1
$8,728.1
626.0
$6,738.8
404.7
$4,455.5
257.0
$3,653.7
191.7
43,567
45,263
35,934
38,725
29,761
31,491
21,371
22,179
19,144
19,223
23.1%
9.0%
14.6%
9.0%
20.4%
9.6%
11.6%
7.2%
19.0%
9.8%
9.6%
6.0%
19.5%
9.9%
9.2%
5.8%
18.4%
10.0%
8.5%
5.2%
As of September 30,
2004
2003
2002
2001
2000
$6,567.4
8,985.2
3,499.2
3,960.7
$16.97
233.4
$5,082.3
7,279.4
2,963.2
3,031.3
$13.06
232.1
$4,343.1
6,017.5
2,878.3
2,269.9
$10.33
219.8
$2,804.4
3,652.2
1,884.3
1,250.2
$7.23
173.0
$2,191.0
2,694.6
1,344.4
969.6
$5.75
168.5
17,184
$4,568.5
15,488
$3,653.4
12,697
$2,825.2
9,263
7,388
$1,933.8 $1,536.9
2000
2001
2002
2003
2004
*adjusted for the 11% stock dividend of March 2001 and the three-for-two-stock splits of April 2002
and January 2004.
Sales Backlog
$4,568
$3,653
$2,825
$2,000
$1,537
$1,934
$1,000
$0
Stockholders’ Equity
$3,961
$3,031
$2,270
$1,250
$970
$4,500
$3,600
$2,700
$1,800
$900
$0
75%
60%
45%
30%
15%
0%
Homebuilding Leverage Ratio
55% 54% 51%
40%
39%
2000
2001
2002
2003
2004
2000
2001
2002
2003
2004
2000
2001
2002
2003
2004
$2,500
$0
$5,000
$4,000
$3,000
H O M E B U I L D I N G O P E R A T I O N S
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Bakersfield/Lancaster/Palmdale, CA
Fresno/Modesto, CA
Los Angeles County, CA
Oakland/North Bay, CA
Orange County, CA
Riverside/San Bernardino, CA
Sacramento, CA
San Diego County, CA
San Francisco, CA
San Jose/Pleasanton/East Bay, CA
Ventura County, CA
Colorado Springs, CO
Denver, CO
Ft. Collins, CO
Hawaii, HI
Las Vegas, NV
Reno, NV
Albany, OR
Bend, OR
Eugene, OR
Portland, OR
Salt Lake City, UT
Seattle/Tacoma, WA
Vancouver, WA
MIDWEST
Chicago, IL
Minneapolis/St. Paul, MN
SOUTHWEST
Phoenix, AZ
Casa Grande, AZ
Tucson, AZ
Albuquerque, NM
Las Cruces, NM
Austin, TX
Dallas, TX
Fort Worth, TX
Houston, TX
Killeen/Temple, TX
Laredo, TX
Rio Grande Valley, TX
San Antonio, TX
Waco, TX
www.drhorton.com
MID-ATLANTIC
Baltimore, MD
Suburban Washington D.C.
New Jersey
Charlotte, NC
Greensboro, NC
Raleigh/Durham, NC
Philadelphia, PA
Charleston, SC
Columbia, SC
Greenville, SC
Hilton Head, SC
Myrtle Beach, SC
Northern Virginia, VA
SOUTHEAST
Birmingham, AL
Huntsville, AL
Atlanta, GA
Savannah, GA
Daytona, FL
Fort Myers/Naples, FL
Jacksonville, FL
Miami/West Palm Beach, FL
Orlando, FL
Tampa, FL
301 Commerce St.
Suite 500
Fort Worth, Texas 76102
(817) 390-8200
www.drhorton.com
ANNUAL REPORT
2004