-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TGreFqZFVQ6FJn97J4O7lh0QYfSBJT3IUvjgGTAxScLuoTSgIgLJCOhp5rTTi5Ym zR0jtSZYL7sMpb2s3Ld/bQ== 0000882184-03-000020.txt : 20030814 0000882184-03-000020.hdr.sgml : 20030814 20030814134046 ACCESSION NUMBER: 0000882184-03-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HORTON D R INC /DE/ CENTRAL INDEX KEY: 0000882184 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 752386963 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14122 FILM NUMBER: 03845709 BUSINESS ADDRESS: STREET 1: 1901 ASCENSION BLVD STREET 2: STE 100 CITY: ARLINGTON STATE: TX ZIP: 76006 BUSINESS PHONE: 8178568200 MAIL ADDRESS: STREET 1: 1901 ASCENSION BLVD STREET 2: SUITE 100 CITY: ARLINGTON STATE: TX ZIP: 76006 10-Q 1 dhi10q3q2003.txt 10Q FILING FOR 3RD QUARTER 2003 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2003 ------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ----- EXCHANGE ACT OF 1934 For the Transition Period From To ------------ ------------ Commission file number 1-14122 ----------- D.R. Horton, Inc. ----------------------------- (Exact name of registrant as specified in its charter) DELAWARE 75-2386963 ---------------------- ------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006 ------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (817) 856-8200 -------------------------------- (Registrant's telephone number, including area code) ----------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, $.01 par value -- 157,195,345 shares as of August 8, 2003 ----------------- This report contains 35 pages. INDEX D.R. HORTON, INC.
PART I. FINANCIAL INFORMATION. Page - ------ ---------------------- ---- ITEM 1. Financial Statements. Consolidated Balance Sheets-- June 30, 2003 and September 30, 2002. 3 Consolidated Statements of Income-- Three Months and Nine Months Ended June 30, 2003 and 2002. 4 Consolidated Statements of Cash Flows-- Nine Months Ended June 30, 2003 and 2002. 5 Notes to Consolidated Financial Statements. 6-19 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. 20-28 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk. 29 ITEM 4. Controls and Procedures. 30 PART II. OTHER INFORMATION. - -------- ------------------ ITEM 2. Changes in Securities and Use of Proceeds. 31 ITEM 5. Other Information. 32 ITEM 6. Exhibits and Reports on Form 8-K. 33-34 SIGNATURES. 35 - -----------
ITEM 1. FINANCIAL STATEMENTS
D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, September 30, 2003 2002 --------- -------- (In thousands) (Unaudited) ASSETS Homebuilding: Cash and cash equivalents................................................................. $ 264,158 $ 92,106 Inventories: Finished homes and construction in progress........................................... 2,651,045 2,035,221 Residential lots - developed and under development................................... 2,335,681 2,297,545 Land held for development ............................................................ 10,570 10,303 ------------ ------------- 4,997,296 4,343,069 Property and equipment (net).............................................................. 75,689 71,895 Earnest money deposits and other assets................................................... 418,600 430,415 Excess of cost over net assets acquired................................................... 581,230 579,230 ------------ ------------- 6,336,973 5,516,715 ------------ ------------- Financial Services: Cash and cash equivalents................................................................. 32,084 12,238 Mortgage loans held for sale.............................................................. 525,475 464,088 Other assets.............................................................................. 21,527 24,486 ------------ ------------- 579,086 500,812 ------------ ------------- $ 6,916,059 $ 6,017,527 ------------ ------------- LIABILITIES Homebuilding: Accounts payable and other liabilities.................................................... $ 918,128 $ 834,048 Notes payable............................................................................. 2,666,990 2,486,976 ------------ ------------ 3,585,118 3,321,024 ------------ ------------ Financial Services: Accounts payable and other liabilities.................................................... 12,147 14,340 Notes payable to financial institutions................................................... 414,042 391,355 ------------ ------------ 426,189 405,695 ------------ ------------ 4,011,307 3,726,719 ------------ ------------ Minority interests........................................................................ 69,450 20,945 ------------ ------------ STOCKHOLDERS' EQUITY Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued...................................................................... -- -- Common stock, $.01 par value, 400,000,000 shares authorized, 157,131,997 shares at June 30, 2003 and 146,505,091 shares at September 30, 2002, issued and outstanding................................................................ 1,571 1,465 Additional capital........................................................................ 1,576,738 1,349,630 Unearned compensation..................................................................... (2,707) (4,453) Retained earnings......................................................................... 1,289,222 923,221 Treasury stock, 1,672,500 shares at June 30, 2003 and no shares at September 30, 2002, at cost........................................................... (29,522) -- ------------ ------------ 2,835,302 2,269,863 ------------ ------------ $ 6,916,059 $ 6,017,527 ============ ============ See accompanying notes to consolidated financial statements.
-3-
D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Three Months Nine Months Ended June 30, Ended June 30, ----------------- ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- (In thousands, except per share data) (Unaudited) Homebuilding: Revenues Home sales................................................ $ 2,108,899 $ 1,750,189 $ 5,553,177 $ 4,410,284 Land/lot sales............................................ 57,869 29,426 189,065 80,499 ----------- ------------ ----------- ------------ 2,166,768 1,779,615 5,742,242 4,490,783 ----------- ------------ ----------- ------------ Cost of sales Home sales................................................ 1,676,326 1,416,050 4,429,621 3,573,790 Land/lot sales............................................ 50,505 25,938 162,155 70,048 ----------- ------------ ----------- ------------ 1,726,831 1,441,988 4,591,776 3,643,838 ----------- ------------ ----------- ------------ Gross profit Home sales................................................ 432,573 334,139 1,123,556 836,494 Land/lot sales............................................ 7,364 3,488 26,910 10,451 ----------- ------------ ----------- ------------ 439,937 337,627 1,150,466 846,945 Selling, general and administrative expense.................... 207,971 177,020 574,437 444,931 Interest expense............................................... 1,703 1,465 2,057 5,224 Other expense.................................................. 3,330 3,842 3,054 3,988 ----------- ------------ ----------- ------------ 226,933 155,300 570,918 392,802 ----------- ------------ ----------- ------------ Financial Services: Revenues....................................................... 45,619 28,864 123,626 77,651 General and administrative expense............................. 25,344 18,220 69,586 48,261 Interest expense............................................... 1,732 1,155 5,281 3,490 Other (income)................................................. (5,434) (4,714) (16,344) (10,576) ----------- ------------ ----------- ------------ 23,977 14,203 65,103 36,476 ----------- ------------ ----------- ------------ INCOME BEFORE INCOME TAXES................................ 250,910 169,503 636,021 429,278 Provision for income taxes..................................... 95,345 63,563 240,793 160,979 ----------- ------------ ----------- ------------ NET INCOME................................................ $ 155,565 $ 105,940 $ 395,228 $ 268,299 =========== ============ =========== ============ Net income per share: Basic..................................................... $ 1.07 $ 0.72 $ 2.70 $ 2.06 Diluted................................................... $ 0.99 $ 0.67 $ 2.62 $ 1.94 =========== ============ =========== ============ Weighted average number of shares of stock: Basic..................................................... 145,996 146,331 146,283 130,174 Diluted................................................... 157,476 158,957 151,400 139,263 =========== ============ =========== ============ Cash dividends per share....................................... $ 0.07 $ 0.06 $ 0.20 $ 0.17 =========== ============ =========== ============
See accompanying notes to consolidated financial statements. -4-
D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended June 30, -------------- 2003 2002 ---- ---- (In thousands) (Unaudited) OPERATING ACTIVITIES Net income............................................................................. $ 395,228 $ 268,299 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization.......................................................... 30,041 18,621 Amortization of debt premiums and fees................................................. 5,848 5,991 Changes in operating assets and liabilities: Increase in inventories............................................................. (545,754) (311,773) Decrease (increase) in earnest money deposits and other assets...................... 20,961 (38,274) Increase in mortgage loans held for sale............................................ (61,387) (65,660) Increase (decrease) in accounts payable and other liabilities....................... 88,915 (110,590) ----------- ----------- NET CASH USED IN OPERATING ACTIVITIES....................................................... (66,148) (233,386) ----------- ----------- INVESTING ACTIVITIES Net purchases of property and equipment................................................ (31,245) (28,155) Distributions from venture capital entities............................................ -- 250 Net cash paid for acquisitions......................................................... -- (152,662) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES....................................................... (31,245) (180,567) ----------- ----------- FINANCING ACTIVITIES Proceeds from notes payable............................................................ 1,507,421 2,439,106 Issuance of senior notes payable....................................................... 512,556 247,928 Repayment of notes payable............................................................. (1,679,582) (2,451,496) Proceeds from stock associated with certain employee benefit plans..................... 7,645 12,380 Purchase of treasury stock............................................................. (29,522) -- Payment of cash dividends.............................................................. (29,227) (17,318) ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES................................................... 289,291 230,600 ----------- ----------- INCREASE (DECREASE) IN CASH................................................................. 191,898 (183,353) Cash at beginning of period............................................................ 104,344 239,280 ----------- ----------- Cash at end of period.................................................................. $ 296,242 $ 55,927 =========== ============
See accompanying notes to consolidated financial statements. -5- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) June 30, 2003 NOTE A - BASIS OF PRESENTATION The accompanying unaudited, consolidated financial statements include the accounts of D.R. Horton, Inc. and its subsidiaries (the "Company"). Intercompany accounts and transactions have been eliminated in consolidation. The statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending September 30, 2003. Business - The Company is a national builder that is engaged primarily in the construction and sale of single-family housing in 44 markets and 20 states in the United States. The Company designs, builds and sells detached and attached single-family houses on lots developed by the Company and on finished lots which it purchases, ready for home construction. Periodically, the Company sells lots it has developed. The Company also provides title agency and mortgage brokerage services to its home buyers. The Company does not retain or service the mortgages that it originates but, rather, sells the mortgages and related servicing rights to investors. NOTE B - SEGMENT INFORMATION The Company's financial reporting segments consist of homebuilding and financial services. The Company's homebuilding operations comprise the most substantial part of its business, with approximately 98% of consolidated revenues for the three-months and nine-months ended June 30, 2003 and 2002. The homebuilding reporting segment is comprised of the aggregate of the Company's regional homebuilding operating segments and generates the majority of its revenues from the sale of completed homes, with a lesser amount from the sale of land and lots. Approximately 92% of home sales revenues were generated from the sale of detached homes for the three months and nine months ended June 30, 2003. The financial services segment generates its revenues from originating and selling mortgages and collecting fees for title insurance agency and closing services. Effective with its fiscal year beginning October 1, 2002, the Company's wholly-owned mortgage subsidiary is required by Statement of Position 01-6 (SOP 01-6), of the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants, to disclose the minimum net worth requirements by regulatory agencies, secondary market investors and states in which it conducts business. Currently, the largest of these minimum net worth requirements is $1.0 million, which is insignificant compared to the $35 million minimum net worth required by the mortgage subsidiary's warehouse credit line. At June 30, 2003, the mortgage subsidiary's total equity was $133.2 million. NOTE C - CONSOLIDATION OF VARIABLE INTEREST ENTITIES In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 provides guidance for the financial accounting and reporting of interests in certain variable interest entities. FIN 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain business entities that either have equity investors with no voting rights or have equity investors that do not provide sufficient financial resources for the entities to support their activities. 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. Furthermore, disclosures about significant interests in variable interest entities are required even if the company is not required to consolidate them. The consolidation requirements of FIN 46 are currently effective for all interests in variable interest entities created after January 31, 2003, and will be effective for all interests in variable interest entities created before February 1, 2003 in the first fiscal year or interim period beginning after June 15, 2003. In the ordinary course of its 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 to purchase land or lots at a future point in time with predetermined terms. Under the terms of the option purchase -6- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) June 30, 2003 contracts, most 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. The Company's maximum exposure to loss associated with such variable interest entities is limited to the amount of the Company's option deposit. In accordance with the implementation requirements of FIN 46, the Company has evaluated all of its interests in variable interest entities created after January 31, 2003 and has begun its evaluation of its variable interests created prior to February 1, 2003. Based upon its evaluations to date, the Company has consolidated certain variable interest entities from which the Company is purchasing lots under option contracts.The consolidation of these entities added $41.7 million in inventory and minority interests to the Company's balance sheet at June 30, 2003. The Company's obligations related to these lot option contracts are guaranteed by performance letters of credit totaling $17.3 million. Creditors, if any, of these variable interest entities have no recourse against the Company. The Company will complete the evaluations of all of its interests in variable interest entities by September 30, 2003. Based on the results of evaluations completed through June 30, 2003, the Company believes that FIN 46 will not materially affect its financial position, results of operations or cash flows. NOTE D - EARNINGS PER SHARE Basic earnings per share for the three months and nine months ended June 30, 2003 and 2002 is based on the weighted average number of shares of common stock outstanding. Diluted earnings per share is based on the weighted average number of shares of common stock and dilutive securities outstanding. The following table sets forth the weighted average number of shares of common stock and dilutive securities outstanding used in the computation of basic and diluted earnings per share (in thousands):
Three Months Ended Nine Months Ended June 30, June 30, ------------------- ------------------ 2003 2002 2003 2002 ---- ---- ---- ---- Numerator: Net income..................................................... $155,565 $105,940 $395,228 $268,299 Effect of dilutive securities: Interest expense and amortization of issuance costs associated with zero coupon convertible senior notes, net of applicable income taxes................................. 993 1,054 993 2,096 -------- -------- -------- -------- Numerator for diluted earnings per share after assumed conversions................................................ $156,558 $106,994 $396,221 $270,395 ======== ======== ======== ======== Denominator: Denominator for basic earnings per share-- weighted average shares.................................... 145,996 146,331 146,283 130,174 Effect of dilutive securities: Zero coupon convertible senior notes........................... 9,086 10,000 3,029 6,667 Employee stock options......................................... 2,394 2,626 2,088 2,422 -------- -------- -------- -------- Denominator for diluted earnings per share-- adjusted weighted average shares........................... 157,476 158,957 151,400 139,263 ======== ======== ======== ========
-7- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) June 30, 2003 NOTE E - DEBT The Company's notes payable consist of the following (in thousands):
June 30, September 30, 2003 2002 ----------- -------------- Homebuilding: Unsecured: Revolving credit facility due 2006.............................. $ -- $ -- 8 3/8% Senior notes due 2004, net............................... 149,637 149,339 10 1/2% Senior notes due 2005, net.............................. 199,657 199,559 10% Senior notes due 2006, net.................................. -- 147,802 7 1/2% Senior notes due 2007, net............................... 215,000 -- 9% Senior notes due 2008, net................................... 102,023 102,427 8% Senior notes due 2009, net................................... 383,584 383,438 9 3/8% Senior notes due 2009, net............................... 244,437 246,057 9 3/4% Senior subordinated notes due 2010, net.................. 149,059 148,994 9 3/8% Senior subordinated notes due 2011, net.................. 199,727 199,710 7 7/8% Senior notes due 2011, net............................... 198,532 198,437 10 1/2% Senior subordinated notes due 2011, net................. 152,152 153,284 8 1/2% Senior notes due 2012, net............................... 248,101 247,995 6 7/8% Senior notes due 2013, net............................... 200,000 -- 5 7/8% Senior notes due 2013, net............................... 100,000 -- Zero coupon convertible senior notes due 2021, net.............. -- 209,144 Other secured........................................................ 125,081 100,790 ---------- ---------- $2,666,990 $2,486,976 ========== ========== Financial Services: Mortgage warehouse facility due 2003................................. $ 214,042 $ 242,355 Commercial paper conduit facility due 2005........................... 200,000 149,000 ---------- ---------- $ 414,042 $ 391,355 ========== ==========
Homebuilding: The Company has an $805 million unsecured revolving credit facility, including $125 million which may be used for letters of credit. The facility matures in January 2006, and is guaranteed by substantially all of the Company's subsidiaries other than its financial services subsidiaries. Borrowings bear daily interest at rates based upon the London Interbank Offered Rate (LIBOR) plus a spread based upon the Company's ratio of debt to tangible net worth. On August 5, 2003, the facility was amended and the amount available for use for letters of credit was increased to $250 million. The interest rate applicable to the revolving credit facility at June 30, 2003 was 2.7%. In addition to the stated interest rates, the revolving credit facility requires the Company to pay certain fees. The revolving credit facility and the indentures related to the Company's Senior and Senior Subordinated Notes contain covenants which, taken together, limit amounts of debt that may be incurred, investments in inventory, stock repurchases, cash dividends and other restricted payments, asset dispositions and creation of liens, and require certain levels of tangible net worth. At June 30, 2003, these covenants limit the additional homebuilding debt the Company could incur to $1,601.1 million, which included $694.7 million available under the revolving credit facility. On December 3, 2002, the Company issued $215 million principal amount of 7 1/2% Senior Notes. The notes, which are due December 1, 2007, with interest payable semi-annually, represent unsecured obligations of the Company. The Company may redeem up to 35% of the amount originally issued with the proceeds of public offerings at a redemption price equal to 107.5% of the principal amount through December 1, 2005, plus accrued interest. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs, is 7.6%. -8- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) June 30, 2003 On April 17, 2003, the Company issued $200 million principal amount of 6 7/8% Senior Notes. The notes, which are due May 1, 2013, with interest payable semi-annually, represent unsecured obligations of the Company. The Company may redeem up to 35% of the amount originally issued with the proceeds of public offerings at a redemption price equal to 106.875% of the principal amount through May 1, 2006, plus accrued interest. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs, is 7.0%. On May 23, 2003, the Company redeemed its 10% Senior Notes due 2006 at an aggregate redemption price of approximately $150.1 million, including accrued interest. The Company used part of the proceeds of the 6 7/8% Senior Notes to redeem the called notes. Concurrent with the redemption, the Company recorded interest expense of approximately $1.3 million, representing unamortized discount and unamortized debt issuance costs associated with the redeemed notes. On June 18, 2003, the Company issued $100 million principal amount of 5 7/8% Senior Notes. The notes, which are due July 1, 2013, with interest payable semi-annually, represent unsecured obligations of the Company. The Company may redeem up to 35% of the amount originally issued with the proceeds of public offerings at a redemption price equal to 105.875% of the principal amount through July 1, 2006, plus accrued interest. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs, is 5.9%. On May 27, 2003, the Company called all of its zero coupon convertible senior notes for redemption. The call for redemption gave note holders the right to convert their notes into shares of D.R. Horton common stock. As a result, all of the notes were presented 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. As a result of the conversion, common stock increased $0.1 million and additional capital increased $219.2 million. On July 25, 2003, the Company redeemed its 9% Senior Notes due April 15, 2008 at an aggregate redemption price of $107.0 million, including accrued interest. The Company used the proceeds of the 5 7/8% Senior Notes and available cash to redeem the called notes. Concurrent with the redemption, the Company recorded interest expense of approximately $2.5 million, representing the difference between the redemption premium and the unamortized premium associated with the redeemed notes. Financial Services: The Company's mortgage subsidiary has a $230 million, one-year mortgage warehouse line payable to financial institutions, maturing February 12, 2004,at the 30-day LIBOR rate plus a fixed premium. The Company's mortgage subsidiary also has a $300 million commercial paper conduit credit facility which expires in July 2005, the terms of which are renewable annually by the sponsoring bank. The current total borrowing capacity of our mortgage subsidiary under these two credit facilities is $530 million. These two credit facilities are secured by mortgage loans held for sale and are not guaranteed by D.R. Horton, Inc. or any of the guarantors of the Senior and Senior Subordinated Notes. The interest rates of the mortgage warehouse line payable at June 30, 2003 was 2.2%. The interest rate on the commercial paper conduit facility at June 30, 2003 was 1.9%. -9- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) June 30, 2003 NOTE F - INTEREST The Company capitalizes interest during development and construction. Capitalized interest is charged to cost of sales as the related inventory is delivered to the home buyer. Homebuilding interest costs are (in thousands):
Three Months Ended Nine Months Ended June 30, June 30, ------------------------ --------------------------- 2003 2002 2003 2002 -------- ---------- --------- ---------- Capitalized interest, beginning of period........... $180,954 $ 124,652 $ 153,536 $ 96,910 Interest incurred - homebuilding.................... 62,354 58,349 179,354 141,596 Interest expensed: Directly - homebuilding........................ (1,703) (1,465) (2,057) (5,224) Amortized to cost of sales..................... (55,487) (37,811) (144,715) (89,557) -------- --------- --------- ---------- Capitalized interest, end of period................. $186,118 $ 143,725 $ 186,118 $ 143,725 ======== ========= ========= =========
NOTE G - WARRANTY In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", which is effective as to disclosure requirements for all financial statements for periods ending after December 15, 2002. With respect to the product warranty disclosure requirements contained therein, the Company provides its home buyers a one-year comprehensive limited warranty for all parts and labor and a ten-year limited warranty for major construction defects. Since the Company subcontracts its homebuilding work to subcontractors who provide it with an indemnity and a certificate of insurance prior to receiving payments for their work, claims relating to workmanship and materials are generally the primary responsibility of the subcontractors. Warranty reserves have been established by charging cost of sales and crediting a warranty liability for each home delivered. The amounts charged are estimated by management to be adequate to cover expected warranty- related costs under all unexpired warranty obligation periods. The Company's warranty cost accruals are based upon historical warranty cost experience in each market in which it operates and are adjusted as appropriate to reflect qualitative risks associated with the types of homes built and the geographic areas in which they are built. Changes in the Company's warranty liability are as follows (in thousands):
Three Months Ended Nine Months Ended June 30, 2003 June 30, 2003 ------------------ ----------------- Warranty liability, beginning of period................... $46,122 $39,471 Warranties issued.................................... 10,480 27,647 Settlements made..................................... (6,313) (16,829) ------ ------- Warranty liability, end of period......................... $50,289 $50,289 ======= =======
-10- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) June 30, 2003 NOTE H - STOCK-BASED COMPENSATION On January 1, 2003, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," which amended the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has elected to follow APB Opinion No. 25 in accounting for its employee stock options. The exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, and therefore no compensation expense is recognized for the initial grants. If compensation cost for the Company's stock-based compensation plan had been determined based on the fair value method at the grant date, as prescribed in SFAS No. 123, the Company's net income and net earnings per share would have been as follows (in thousands, except per-share amounts):
Three Months Ended Nine Months Ended June 30, June 30, -------------------------- ------------------------ 2003 2002 2003 2002 ---- ---- ---- ---- Net income, as reported........................................ $155,565 $105,940 $395,228 $268,299 Pro forma effect of expensing stock options (net of related tax effects)................. (1,068) (568) (3,204) (1,704) -------- -------- -------- -------- Pro forma net income........................................... $154,497 $105,372 $392,024 $266,595 ======== ======== ======== ======== Reported basic net income per share............................ $ 1.07 $ 0.72 $ 2.70 $ 2.06 Pro forma effect of expensing stock options.................... (0.01) -- (0.02) (0.01) -------- -------- --------- ----- Pro forma basic net income per share........................... $ 1.06 $ 0.72 $ 2.68 $ 2.05 ======== ======== ========= ======== Reported diluted net income per share.......................... $ 0.99 $ 0.67 $ 2.62 $ 1.94 Pro forma effect of expensing stock options.................... -- -- (0.02) (0.01) -------- -------- --------- -------- Pro forma diluted net income per share......................... $ 0.99 $ 0.67 $ 2.60 $ 1.93 ======== ======== ========= ========
NOTE I - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133. This statement is effective for contracts entered into or modified after June 30, 2003. The Company does not believe that the implementation of SFAS No. 149 will have a material impact on the Company's financial position, results of operations or cash flows. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the statement and still existing at the beginning of the interim period of adoption. The Company does not believe that the implementation of SFAS No. 150 will have a material impact on the Company's financial position, results of operations or cash flows. -11- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) June 30, 2003 NOTE J - SUMMARIZED FINANCIAL INFORMATION The 5 7/8%, 6 7/8%, 7 1/2%, 7 7/8%, 8%, 8 3/8%, 8 1/2%, 9%, 9 3/8%, and 10 1/2% Senior Notes, and the 9 3/8%, 9 3/4% and 10 1/2% 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 financial services subsidiaries and certain other inconsequential subsidiaries (collectively, Non-Guarantor Subsidiaries). Each of the Guarantor Subsidiaries is wholly-owned. In lieu of providing separate audited financial statements for the Guarantor Subsidiaries, consolidated condensed financial statements are presented below. Separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented because management has determined that they are not material to investors.
Consolidating Balance Sheet June 30, 2003 Non-Guarantor Subsidiaries ---------------- D.R. Guarantor Financial Intercompany Horton, Inc. Subsidiaries Services Other Eliminations Total ------------ ------------ --------- -------- ------------ ---------- ASSETS (In thousands) Homebuilding: Cash and cash equivalents ............................ $ -- $ 244,810 $ -- $ 19,348 $ -- $ 264,158 Advances to/investments in unconsolidated subsidiaries ........................................ 4,716,250 307,858 -- -- (5,024,108) -- Inventories .......................................... 874,740 4,004,432 -- 118,326 (202) 4,997,296 Property and equipment (net) ......................... 12,420 57,099 -- 6,170 -- 75,689 Earnest money deposits and other assets .............. 158,364 247,959 -- 12,277 -- 418,600 Excess of cost over net assets acquired .............. -- 581,230 -- -- -- 581,230 --------- --------- ----- ------- --------- --------- 5,761,774 5,443,388 -- 156,121 (5,024,310) 6,336,973 --------- --------- ----- ------- --------- --------- Financial Services: Cash and cash equivalents ............................ -- -- 32,084 -- -- 32,084 Mortgage loans held for sale ......................... -- -- 525,475 -- -- 525,475 Other assets ......................................... -- -- 21,527 -- -- 21,527 ---------- ---------- ------- ------- ---------- --------- -- 579,086 -- -- 579,086 ---------- ---------- -------- -------- ----------- ---------- Total Assets ........................................ $5,761,774 $5,443,388 $579,086 $156,121 $(5,024,310) $6,916,059 ========== ========== ======== ======== =========== ========== LIABILITIES & EQUITY Homebuilding: Accounts payable and other liabilities ............... $ 324,377 $ 576,195 $ -- $ 17,556 $ -- $ 918,128 Advances from parent/unconsolidated subsidiaries ........................................ -- 3,034,144 -- 33,708 (3,067,852) -- Notes payable ........................................ 2,602,095 38,707 -- 26,188 -- 2,666,990 --------- ------ ---- ------ ---------- --------- 2,926,472 3,649,046 -- 77,452 (3,067,852) 3,585,118 --------- --------- ---- ------ ---------- --------- Financial Services: Accounts payable and other liabilities ............... -- -- 12,147 -- -- 12,147 Advances from parent/unconsolidated subsidiaries ......................................... -- -- 29,417 -- (29,417) -- Notes payable ........................................ -- -- 414,042 -- -- 414,042 --------- --------- ------- ------ --------- --------- -- -- 455,606 -- (29,417) 426,189 --------- --------- ------- ------ --------- --------- Total Liabilities .................................... 2,926,472 3,649,046 455,606 77,452 (3,097,269) 4,011,307 --------- --------- ------- ------ ---------- --------- Minority interests ................................... -- -- 23 69,427 -- 69,450 --------- ---------- -------- ------ ---------- --------- Stockholders' Equity ................................. 2,835,302 1,794,342 123,457 9,242 (1,927,041) 2,835,302 --------- --------- ------- ----- ---------- --------- Total Liabilities & Equity ........................... $5,761,774 $5,443,388 $579,086 $156,121 $(5,024,310) $6,916,059 ========== ========== ======== ======== =========== ==========
-12- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) June 30, 2003 NOTE J - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Balance Sheet September 30, 2002 Non-Guarantor Subsidiaries ---------------- D.R. Guarantor Financial Intercompany Horton, Inc. Subsidiaries Services Other Eliminations Total ------------ ------------ --------- -------- ------------ ---------- (In thousands) ASSETS Homebuilding: Cash and cash equivalents ............................ $ -- $ 80,273 $ -- $ 11,833 $ -- $ 92,106 Advances to/investments in unconsolidated subsidiaries ......................................... 4,126,233 260,725 -- 68 (4,387,026) -- Inventories .......................................... 689,111 3,566,280 -- 88,048 (370) 4,343,069 Property and equipment (net) ......................... 10,826 55,424 -- 5,645 -- 71,895 Earnest money deposits and other assets .............. 209,990 212,685 -- 12,408 (4,668) 430,415 Excess of cost over net assets acquired .............. -- 579,230 -- -- -- 579,230 --------- --------- ------- ------- --------- --------- 5,036,160 4,754,617 -- 118,002 (4,392,064) 5,516,715 --------- --------- ------- ------- --------- --------- Financial services: Cash and cash equivalents ............................ -- -- 12,238 -- -- 12,238 Mortgage loans held for sale ......................... -- -- 464,088 -- -- 464,088 Other assets ......................................... -- -- 24,486 -- -- 24,486 --------- --------- ------- ------- --------- -------- -- -- 500,812 -- -- 500,812 --------- --------- ------- ------- --------- -------- Total Assets ........................................ $5,036,160 $4,754,617 $500,812 $118,002 $(4,392,064) $6,017,527 ========== ========== ======== ======== =========== ========== LIABILITIES & EQUITY Homebuilding: Accounts payable and other liabilities ............... $ 341,405 $ 483,252 $ -- $ 9,415 $ (24) $ 834,048 Advances from parent/unconsolidated subsidiaries ......................................... -- 3,019,521 -- 50,370 (3,069,891) -- Notes payable ........................................ 2,424,892 30,491 -- 36,237 (4,644) 2,486,976 --------- --------- ------- ------- --------- --------- 2,766,297 3,533,264 -- 96,022 (3,074,559) 3,321,024 --------- --------- ------- ------- --------- --------- Financial services: Accounts payable and other liabilities ............... -- -- 14,340 -- -- 14,340 Advances from parent/unconsolidated subsidiaries ......................................... -- -- 25,386 -- (25,386) -- Notes payable ........................................ -- -- 391,355 -- -- 391,355 --------- --------- ------- ------- --------- --------- -- -- 431,081 -- (25,386) 405,695 --------- --------- ------- ------- --------- --------- Total Liabilities .................................... 2,766,297 3,533,264 431,081 96,022 (3,099,945) 3,726,719 --------- --------- ------- ------- --------- --------- Minority interests ................................... -- -- 26 20,919 -- 20,945 --------- --------- ------- ------- --------- --------- Stockholders' Equity ................................. 2,269,863 1,221,353 69,705 1,061 (1,292,119) 2,269,863 --------- --------- ------ ------- --------- --------- Total Liabilities & Equity ........................... $5,036,160 $4,754,617 $500,812 $118,002 $(4,392,064) $6,017,527 ========== ========== ======== ======== =========== ==========
-13- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) June 30, 2003 NOTE J - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Income Three Months Ended June 30, 2003 Non-Guarantor Subsidiaries ------------------ D.R. Guarantor Financial Intercompany Horton, Inc. Subsidiaries Services Other Eliminations Total -------------- ------------ --------- --------- ------------ ---------- (In thousands) Homebuilding: Revenues: Home sales ....................................... $ 311,161 $ 1,733,481 $ -- $ 64,257 $ -- $2,108,899 Land/lot sales ................................... 8,896 48,973 -- -- -- 57,869 --------- --------- ------ ------- --------- --------- 320,057 1,782,454 -- 64,257 -- 2,166,768 --------- --------- ------ ------- --------- --------- Cost of sales: Home sales ....................................... 248,997 1,380,022 -- 47,351 (44) 1,676,326 Land/lot sales .. ................................ 5,472 45,033 -- -- -- 50,505 --------- --------- ------ ------- --------- --------- 254,469 1,425,055 -- 47,351 (44) 1,726,831 --------- --------- ------ ------- --------- --------- Gross profit: Home sales ....................................... 62,164 353,459 -- 16,906 44 432,573 Land/lot sales ................................... 3,424 3,940 -- -- -- 7,364 --------- --------- ------ ------- --------- --------- 65,588 357,399 -- 16,906 44 439,937 Selling, general and administrative expense ............................................ 61,353 135,236 -- 8,381 3,001 207,971 Interest expense .................................... 1,088 847 -- 630 (862) 1,703 Other expense (income) .............................. (247,763) (2,836) -- 1,916 252,013 3,330 --------- --------- ------ ------- --------- --------- 250,910 224,152 -- 5,979 (254,108) 226,933 --------- --------- ------ ------- --------- --------- Financial services: Revenues ............................................ -- -- 45,619 -- -- 45,619 General and administrative expense .................. -- -- 28,345 -- (3,001) 25,344 Interest expense .................................... -- -- 1,732 -- -- 1,732 Other (income) ...................................... -- -- (5,434) -- -- (5,434) --------- --------- ------ ------- --------- --------- -- -- 20,976 -- 3,001 23,977 --------- --------- ------ ------- --------- --------- Income before income taxes .......................... 250,910 224,152 20,976 5,979 (251,107) 250,910 Provision for income taxes .......................... 95,345 85,174 7,975 2,272 (95,421) 95,345 --------- --------- ------ ------- --------- --------- Net income .......................................... $ 155,565 $ 138,978 $ 13,001 $ 3,707 $ (155,686) $ 155,565 =========== ========== ======== ======== =========== ==========
-14- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) June 30, 2003 NOTE J - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Income Nine Months Ended June 30, 2003 Non-Guarantor Subsidiaries ----------------- D.R. Guarantor Financial Intercompany Horton, Inc. Subsidiaries Services Other Eliminations Total ------------ ------------ --------- -------- ------------ ---------- (In thousands) Homebuilding: Revenues: Home sales ....................................... $ 764,136 $ 4,650,213 $ -- $138,828 $ -- $5,553,177 Land/lot sales ................................... 14,680 174,385 -- -- -- 189,065 --------- --------- ------ ------- --------- --------- 778,816 4,824,598 -- 138,828 -- 5,742,242 --------- --------- ------ ------- --------- --------- Cost of sales: Home sales ....................................... 598,123 3,727,772 -- 103,960 (234) 4,429,621 Land/lot sales ................................... 15,733 146,422 -- -- -- 162,155 --------- --------- ------ ------- --------- --------- 613,856 3,874,194 -- 103,960 (234) 4,591,776 --------- --------- ------ ------- --------- --------- Gross profit: Home sales ....................................... 166,013 922,441 -- 34,868 234 1,123,556 Land/lot sales ................................... (1,053) 27,963 -- -- -- 26,910 --------- --------- ------ ------- --------- --------- 164,960 950,404 -- 34,868 234 1,150,466 Selling, general and administrative expense ............................................ 159,954 392,015 -- 14,285 8,183 574,437 Interest expense ................................. 1,088 384 -- 1,447 (862) 2,057 Other expense (income) ........................... (632,103) (6,075) -- 3,314 637,918 3,054 --------- --------- ------ ------- --------- --------- 636,021 564,080 -- 15,822 (645,005) 570,918 --------- --------- ------ ------- --------- --------- Financial services: Revenues ............................................ -- -- 123,626 -- -- 123,626 General and administrative expense .................. -- -- 77,769 -- (8,183) 69,586 Interest expense .................................... -- -- 5,281 -- -- 5,281 Other (income) ...................................... -- -- (16,344) -- -- (16,344) --------- --------- ------ ------- --------- --------- -- -- 56,920 -- 8,183 65,103 --------- --------- ------ ------- --------- --------- Income before income taxes .......................... 636,021 564,080 56,920 15,822 (636,822) 636,021 Provision for income taxes .......................... 240,793 213,557 21,550 5,990 (241,097) 240,793 --------- --------- ------ ------- --------- --------- Net income .......................................... $ 395,228 $ 350,523 $ 35,370 $ 9,832 $ (395,725) $ 395,228 ========== ========== ======== ======== ========== =========
-15- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) June 30, 2003 NOTE J - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Income Three Months Ended June 30, 2002 Non-Guarantor Subsidiaries ------------------ D.R. Guarantor Financial Intercompany Horton, Inc. Subsidiaries Services Other Eliminations Total ----------- ------------ ---------- -------- ------------ ---------- (In thousands) Homebuilding: Revenues: Home sales ....................................... $ 239,827 $ 1,498,052 $ -- $ 12,310 $ -- $1,750,189 Land/lot sales ................................... 2,106 27,320 -- -- -- 29,426 --------- --------- ------ ------- --------- --------- 241,933 1,525,372 -- 12,310 -- 1,779,615 --------- --------- ------ ------- --------- --------- Cost of sales: Home sales ....................................... 184,347 1,221,525 -- 10,237 (59) 1,416,050 Land/lot sales ................................... 2,129 23,809 -- -- -- 25,938 --------- --------- ------ ------- --------- --------- 186,476 1,245,334 -- 10,237 (59) 1,441,988 --------- --------- ------ ------- --------- --------- Gross profit: Home sales ....................................... 55,480 276,527 -- 2,073 59 334,139 Land/lot sales ................................... (23) 3,511 -- -- -- 3,488 --------- --------- ------ ------- --------- --------- 55,457 280,038 -- 2,073 59 337,627 Selling, general and administrative expense ............................................ 43,885 129,788 -- 1,465 1,882 177,020 Interest expense .................................... 1,018 446 -- 1 -- 1,465 Other expense (income) .............................. (158,949) (2,035) -- (132) 164,958 3,842 --------- --------- ------ ------- --------- --------- 169,503 151,839 -- 739 (166,781) 155,300 --------- --------- ------ ------- --------- --------- Financial services: Revenues ............................................ -- -- 28,864 -- -- 28,864 General and administrative expense .................. -- -- 20,102 -- (1,882) 18,220 Interest expense .................................... -- -- 1,155 -- -- 1,155 Other (income) ...................................... -- -- (4,714) -- -- (4,714) --------- --------- ------ ------- --------- --------- -- -- 12,321 -- 1,882 14,203 --------- --------- ------ ------- --------- --------- Income before income taxes .......................... 169,503 151,839 12,321 739 (164,899) 169,503 Provision for income taxes .......................... 63,563 56,939 4,621 276 (61,836) 63,563 --------- --------- ------ ------- --------- --------- Net income .......................................... $ 105,940 $ 94,900 $ 7,700 $ 463 $ (103,063) $ 105,940 =========== =========== ======== ======== =========== ==========
-16- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) June 30, 2003 NOTE J - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Income Nine Months Ended June 30, 2002 Non-Guarantor Subsidiaries ----------------- D.R. Guarantor Financial Intercompany Horton, Inc. Subsidiaries Services Other Eliminations Total ----------- ------------ --------- ------- ------------ ---------- (In thousands) Homebuilding: Revenues: Home sales ....................................... $ 641,378 $ 3,720,591 $ -- $ 48,315 $ -- $4,410,284 Land/lot sales ................................... 3,566 76,933 -- -- -- 80,499 --------- --------- ------ ------- --------- --------- 644,944 3,797,524 -- 48,315 -- 4,490,783 --------- --------- ------ ------- --------- --------- Cost of sales: Home sales ....................................... 502,674 3,031,487 -- 39,903 (274) 3,573,790 Land/lot sales ................................... 2,634 67,414 -- -- -- 70,048 --------- --------- ------ ------- --------- --------- 505,308 3,098,901 -- 39,903 (274) 3,643,838 --------- --------- ------ ------- --------- --------- Gross profit: Home sales ....................................... 138,704 689,104 -- 8,412 274 836,494 Land/lot sales ................................... 932 9,519 -- -- -- 10,451 --------- --------- ------ ------- --------- --------- 139,636 698,623 -- 8,412 274 846,945 Selling, general and administrative expense ............................................ 116,930 318,241 -- 4,772 4,988 444,931 Interest expense .................................... 3,929 1,292 -- 13 (10) 5,224 Other expense (income) .............................. (410,501) (3,909) -- 6,257 412,141 3,988 --------- --------- ------ ------- --------- --------- 429,278 382,999 -- (2,630) (416,845) 392,802 --------- --------- ------ ------- --------- --------- Financial services: Revenues ............................................ -- -- 77,651 -- -- 77,651 General and administrative expense .................. -- -- 53,249 -- (4,988) 48,261 Interest expense .................................... -- -- 3,490 -- -- 3,490 Other (income) ...................................... -- -- (10,576) -- -- (10,576) --------- --------- ------ ------- --------- --------- -- -- 31,488 -- 4,988 36,476 --------- --------- ------ ------- --------- --------- Income before income taxes .......................... 429,278 382,999 31,488 (2,630) (411,857) 429,278 Provision for income taxes .......................... 160,979 143,624 11,809 (987) (154,446) 160,979 --------- --------- ------ ------- --------- --------- Net income .......................................... $ 268,299 $ 239,375 $ 19,679 $ (1,643) $ (257,411) $ 268,299 =========== ============ ========= ======== =========== ==========
-17- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) June 30, 2003 NOTE J - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Cash Flows Nine Months Ended June 30, 2003 Non-Guarantor Subsidiaries ---------------- D.R. Guarantor Financial Intercompany Horton, Inc. Subsidiaries Services Other Eliminations Total ------------ ------------ --------- ------- ------------ --------- (In thousands) OPERATING ACTIVITIES Net income .......................................... $ 395,228 $ 350,523 $ 35,370 $ 9,832 $ (395,725) $ 395,228 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ...................... 5,592 21,764 1,317 1,368 -- 30,041 Amortization of debt premiums and fees ............. 5,848 -- -- -- -- 5,848 Changes in operating assets and liabilities: (Increase) decrease in inventories ................ (160,569) (396,464) -- 11,447 (168) (545,754) (Increase) decrease in earnest money deposits and other assets ........................ 55,911 (33,440) 3,027 131 (4,668) 20,961 Increase in mortgage loans held for sale ........... -- -- (61,387) -- -- (61,387) Increase (decrease) in accounts payable and other liabilities ............................ (16,780) 92,943 (2,196) 14,924 24 88,915 --------- --------- ------ ------- --------- --------- Net cash provided by (used in) operating activities ......................................... 285,230 35,326 (23,869) 37,702 (400,537) (66,148) --------- --------- ------ ------- --------- --------- INVESTING ACTIVITIES Net purchases of property and equipment ............. (4,528) (23,439) (1,385) (1,893) -- (31,245) --------- --------- ------ ------- --------- --------- Net cash used in investing activities ............... (4,528) (23,439) (1,385) (1,893) -- (31,245) --------- --------- ------ ------- --------- --------- FINANCING ACTIVITIES Net change in notes payable ......................... 339,422 (9,805) 22,687 (11,909) -- 340,395 Increase (decrease) in intercompany advances......... (569,020) 162,455 22,413 (16,385) 400,537 -- Purchase of treasury stock .......................... (29,522) -- -- -- -- (29,522) Proceeds from stock associated with certain employee benefit plans ............................. 7,645 -- -- -- -- 7,645 Cash dividends paid ................................. (29,227) -- -- -- -- (29,227) --------- --------- ------ ------- --------- --------- Net cash provided by (used in) financing activities ......................................... (280,702) 152,650 45,100 (28,294) 400,537 289,291 Increase in cash .................................... -- 164,537 19,846 7,515 -- 191,898 Cash at beginning of period ......................... -- 80,273 12,238 11,833 -- 104,344 --------- --------- ------ ------- --------- --------- Cash at end of period ............................... $ -- $ 244,810 $ 32,084 $ 19,348 $ -- $ 296,242 ========== ========== ======== ======== ========== ==========
-18- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) June 30, 2003 NOTE J - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Cash Flows Nine Months Ended June 30, 2002 Non-Guarantor Subsidiaries ----------------- D.R. Guarantor Financial Intercompany Horton, Inc. Subsidiaries Services Other Eliminations Total ----------- ------------ --------- -------- ------------ -------- (In thousands) Net income ........................................... $ 268,299 $ 239,375 $ 19,679 $ (1,643) $(257,411) $ 268,299 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ...................... 3,065 14,075 1,102 379 -- 18,621 Amortization of debt premiums and fees ............. 5,991 -- -- -- -- 5,991 Changes in operating assets and liabilities: Increase in inventories .......................... (115,340) (150,207) -- (46,220) (6) (311,773) Increase in earnest money deposits and other assets ................................ (19,419) (8,916) (2,068) (2,281) (5,590) (38,274) Increase in mortgage loans held for sale ......... -- -- (65,660) -- -- (65,660) Increase (decrease) in accounts payable and other liabilities ........................... (30,740) (96,768) 682 16,198 38 (110,590) --------- --------- ------ ------- --------- --------- Net cash provided by (used in) operating activities ........................................ 111,856 (2,441) (46,265) (33,567) (262,969) (233,386) --------- --------- ------ ------- --------- --------- INVESTING ACTIVITIES Net purchases of property and equipment ............ (4,014) (21,317) (1,908) (916) -- (28,155) Distributions from venture capital entities ........ -- -- -- 250 -- 250 Net cash paid for acquisitions ..................... -- (152,662) -- -- -- (152,662) --------- --------- ------ ------- --------- --------- Net cash used in investing activities .............. (4,014) (173,979) (1,908) (666) -- (180,567) --------- --------- ------ ------- --------- --------- FINANCING ACTIVITIES Net change in notes payable ........................ 478,331 (266,436) 21,989 (3,897) 5,551 235,538 Increase (decrease) in intercompany advances........ (581,235) 469,448 32,378 46,856 32,553 -- Proceeds from stock associated with certain employee benefit plans ........................... 12,380 -- -- -- -- 12,380 Cash dividends/distributions paid .................. (17,318) (224,865) -- -- 224,865 (17,318) --------- --------- ------ ------- --------- --------- Net cash provided by (used in) financing activities ....................................... (107,842) (21,853) 54,367 42,959 262,969 230,600 --------- --------- ------ ------- --------- --------- Increase (decrease) in cash ........................ -- (198,273) 6,194 8,726 -- (183,353) Cash at beginning of period ........................ -- 230,481 6,975 1,824 -- 239,280 --------- --------- ------ ------- --------- --------- Cash at end of period .............................. $ -- $ 32,208 $ 13,169 $ 10,550 $ -- $ 55,927 =========== =========== ======== ======== ========== =========
-19- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES We believe that there have been no significant changes to our critical accounting policies during the nine months ended June 30, 2003, as compared to those we disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Annual Report on Form 10-K for the year ended September 30, 2002. RESULTS OF OPERATIONS - CONSOLIDATED We provide homebuilding services in 20 states and 44 markets through our 47 homebuilding divisions. Through our financial services operations, we also provide mortgage banking and title agency services in many of these same markets. On February 21, 2002, Schuler Homes, Inc. ("Schuler") merged into D.R. Horton, Inc., with D.R. Horton continuing as the surviving corporation. Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002 Consolidated revenues for the three months ended June 30, 2003, increased 22.3%, to $2,212.4 million, from $1,808.5 million for the comparable period of 2002, due to increases in both homebuilding and financial services revenues. Income before income taxes for the three months ended June 30, 2003, increased 48.0%, to $250.9 million, from $169.5 million for the comparable period of 2002. As a percentage of revenues, income before income taxes for the three months ended June 30, 2003, increased 1.9 percentage points, to 11.3% from 9.4% for the comparable period of 2002, primarily due to the effects of purchase accounting adjustments related to the Schuler acquisition in the three months ended June 30, 2002. The consolidated provision for income taxes increased 50.0%, to $95.3 million for the three months ended June 30, 2003, from $63.6 million for the same period of 2002, due to the corresponding increase in income before income taxes and an increase in the effective income tax rate. The effective income tax rate for the three months ended June 30, 2003 increased to 38.0%, from 37.5% for the comparable period of 2002, due primarily to increases in pre-tax income in states with higher tax rates. Nine Months Ended June 30, 2003 Compared to Nine Months Ended June 30, 2002 Consolidated revenues for the nine months ended June 30, 2003, increased 28.4%, to $5,865.9 million, from $4,568.4 million for the comparable period of 2002, due to increases in both homebuilding and financial services revenues. Approximately $498.8 million of the increase in homebuilding revenues was attributable to revenues generated by Schuler prior to the February 21, 2003 anniversary date of the acquisition. Income before income taxes for the nine months ended June 30, 2003, increased 48.2%, to $636.0 million, from $429.3 million for the comparable period of 2002. As a percentage of revenues, income before income taxes for the nine months ended June 30, 2003, increased 1.4 percentage points, to 10.8% from 9.4% for the comparable period of 2002, primarily due to the effects of purchase accounting adjustments related to the Schuler acquisition in the nine months ended June 30, 2002. The consolidated provision for income taxes increased 49.6%, to $240.8 million for the nine months ended June 30, 2003, from $161.0 million for the same period of 2002, due to the corresponding increase in income before income taxes and an increase in the effective income tax rate. The effective income tax rate for the nine months ended June 30, 2003 increased to 37.9%, from 37.5% for the comparable period of 2002, due primarily to increases in pre-tax income in states with higher tax rates. -20- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - HOMEBUILDING The following tables set forth certain operating and financial data for our homebuilding activities ($ in millions):
Percentages of Homebuilding Revenues --------------------------------------- Three Months Ended Nine Months Ended June 30, June 30, ------------------ ----------------- 2003 2002 2003 2002 ---- ---- ---- ---- Costs and expenses: Cost of sales ................ 79.7% 81.0% 80.0% 81.2% Selling, general and administrative expense..... 9.6 9.9 10.0 9.9 Interest expense ............. 0.1 0.1 -- 0.1 --- --- ---- --- Total costs and expenses ..... 89.4 91.0 90.0 91.2 Other expense ................ 0.1 0.3 0.1 0.1 --- --- --- --- Income before income taxes ... 10.5% 8.7% 9.9% 8.7% ==== === === ===
Homes Closed Three Months Ended June 30, Nine Months Ended June 30, - ------------ --------------------------- -------------------------- 2003 2002 2003 2002 ----------------- ------------------ ------------------- ------------------- Homes Homes Homes Homes Closed Revenues Closed Revenues Closed Revenues Closed Revenues ------ -------- ------ -------- ------ -------- ------ -------- Mid-Atlantic ............... 833 $ 175.0 788 $ 167.3 2,241 $ 463.7 2,016 $ 431.0 Midwest .................... 468 118.2 472 119.4 1,335 335.3 1,323 333.5 Southeast .................. 1,099 194.8 838 139.1 3,025 519.8 2,516 429.7 Southwest .................. 3,581 607.7 3,062 516.4 9,938 1,677.9 7,971 1,352.9 West ....................... 3,024 1,013.2 2,717 808.0 7,868 2,556.5 6,381 1,863.2 ----- -------- ----- -------- ----- ------- ----- ------- 9,005 $2,108.9 7,877 $1,750.2 24,407 $ 5,553.2 20,207 $ 4,410.3 ===== ======== ===== ======== ====== ========= ====== =========
Net New Sales Orders Three Months Ended June 30, Nine Months Ended June 30, - -------------------- --------------------------- -------------------------- 2003 2002 2003 2002 --------------- ------------------ ------------------ ------------------ Homes Homes Homes Homes Sold $ Sold $ Sold $ Sold $ ------ -------- ------- ------- ------- -------- ------- -------- Mid-Atlantic ............... 952 $ 216.1 960 $ 201.3 2,666 $ 577.1 2,471 $ 512.0 Midwest .................... 503 138.0 543 126.8 1,454 385.6 1,394 341.1 Southeast .................. 1,213 237.7 976 161.9 3,314 623.0 2,680 438.6 Southwest .................. 4,317 715.5 3,520 590.5 11,561 1,924.6 9,537 1,583.7 West ....................... 3,826 1,311.1 3,066 954.1 9,616 3,246.0 6,744 2,014.1 ----- ------- ----- ------- ------ ------- ----- ------- 10,811 $2,618.4 9,065 $2,034.6 28,611 $ 6,756.3 22,826 $ 4,889.5 ====== ======== ===== ======== ====== ========= ====== =========
Sales Backlog June 30, 2003 June 30, 2002 -------------- --------------------- --------------------- Homes $ Homes $ ------- ---------- ------- --------- Mid-Atlantic.............................. 1,678 $ 378.3 1,277 $ 271.3 Midwest................................... 1,035 288.9 989 270.4 Southeast................................. 1,958 377.9 1,628 262.4 Southwest................................. 6,809 1,134.4 5,868 984.4 West...................................... 5,421 1,848.9 3,824 1,159.7 ----- ------- ----- ------- 16,901 $4,028.4 13,586 $2,948.2 ====== ======== ====== ========
-21- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Our market regions consist of the following markets: Mid-Atlantic Charleston, Charlotte, Columbia, Greensboro, Greenville, Hilton Head, Maryland-D.C., Myrtle Beach, New Jersey, Raleigh/Durham and Virginia-D.C. Midwest Chicago and Minneapolis/St. Paul Southeast Atlanta, Birmingham, Fort Myers/Naples, Jacksonville, Miami/West Palm Beach and Orlando Southwest Albuquerque, Austin, Dallas, Fort Worth, Houston, Killeen, Phoenix, San Antonio and Tucson West Colorado Springs, Denver, Fort Collins, Hawaii, Inland Empire (Southern California), Las Vegas, Los Angeles, Oakland, Orange County, Portland, Sacramento, Salt Lake City, San Francisco, San Diego, Seattle/Tacoma and Ventura County Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002 Revenues from homebuilding activities increased 21.8%, to $2,166.8 million (9,005 homes closed) for the three months ended June 30, 2003, from $1,779.6 million (7,877 homes closed) for the comparable period of 2002. Revenues from home sales increased in four of our five market regions, with percentage increases ranging from 4.6% in the Mid-Atlantic region to 40.1% in the Southeast region. Home sales revenues declined 1.0% in the Midwest region. The increases in both revenues and homes closed were due to strong housing demand throughout the majority of our markets. Revenues from the sale of land and lots increased by $28.4 million, to $57.9 million in the three months ended June 30, 2003. The average selling price of homes closed during the three months ended June 30, 2003 was $234,200, up 5.4% from $222,200 for the same period in 2002. The increase in average selling price was due primarily to increases in average selling prices of homes closed in the West and Southeast regions of 12.7% and 6.9%, respectively. The value of net new sales orders increased 28.7%, to $2,618.4 million (10,811 homes) for the three months ended June 30, 2003, from $2,034.6 million (9,065 homes) for the same period of 2002. The value of net new sales orders increased in all five market regions, with percentage increases ranging from 7.3% in the Mid-Atlantic region to 46.9% in the Southeast region. The increases in both net new sales orders and their value were due to strong housing demand throughout the majority of our markets. The average price of a net new sales order in the three months ended June 30, 2003 was $242,200, up 7.9% from the $224,400 average in the comparable period of 2002. Increases in the average amounts of new sales orders occurred in four of our five market regions, ranging from 8.2% in the Mid-Atlantic region to 18.2% in the Southeast region. In the Southwest region, we refocused our marketing efforts on entry-level home buyers in selected Texas markets and in Phoenix. As a result, we sold 22.6% more homes in the three months ended June 30, 2003, than in the comparable period of 2002, but the average amount of each sales order declined 1.2%, to $165,700. At June 30, 2003, the value of our backlog of sales orders was $4,028.4 million (16,901 homes), up 36.6% from $2,948.2 million (13,586 homes) at June 30, 2002. The value of our backlog of sales orders increased in all five of our market regions, with percentage increases ranging from 6.8% in the Midwest region to 59.4% in the West region. The average sales price of homes in sales backlog was $238,400 at June 30, 2003, up 9.9% from the average price of $217,000 at June 30, 2002. The West region, with the highest average prices in the Company, was the primary cause of the overall increase in average price of homes in backlog at June 30, 2003. Cost of sales increased by 19.8%, to $1,726.8 million for the three months ended June 30, 2003, from $1,442.0 million for the comparable period of 2002. The increase in cost of sales was primarily attributable to the increase in revenues. Cost of home sales as a percentage of home sales revenues decreased 1.4 percentage points to 79.5% for the three months ended June 30, 2003, from 80.9% for the comparable period of 2002. A significant portion of 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 the three months ended June 30, 2002. For the same reason, total homebuilding cost of sales as a percentage of total homebuilding revenues decreased 1.3 percentage points, to 79.7% in the three months ended June 30, 2003, from 81.0% in the comparable period of 2002. -22- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Selling, general and administrative (SG&A) expenses from homebuilding activities increased by 17.5%, to $208.0 million in the three months ended June 30, 2003, from $177.0 million in the comparable period of 2002. As a percentage of homebuilding revenues, SG&A expenses decreased 0.3 percentage points, to 9.6% for the three months ended June 30, 2003, from 9.9% in the comparable period of 2002, due primarily to the continued success of our cost containment efforts and the increased revenues that absorb the fixed elements of overhead. Interest expense associated with homebuilding activities increased 16.2% , to $1.7 million in the three months ended June 30, 2003, from $1.5 million in the comparable period of 2002. During the three months ended June 30, 2003, average inventory under construction or development consistently exceeded the average amounts of interest-bearing debt. We follow a policy of capitalizing only the incurred interest and other financial costs that are associated with inventory under construction or development. Therefore, except for the $1.3 million in unamortized discount and issuance costs associated with the retire- ment of the 10% senior notes we redeemed in May 2003, we capitalized to inventory virtually all of the homebuilding interest and other financing costs we incurred in the three months ended June 30, 2003. Capitalized interest and other financing costs are included in cost of sales at the time homes are closed. Other expense associated with homebuilding activities was $3.3 million in the three months ended June 30, 2003, compared to $3.8 million in the comparable period of 2002. Other expense in both quarters was primarily due to decreases in the fair value of our interest rate swap agreements. Nine Months Ended June 30, 2003 Compared to Nine Months Ended June 30, 2002 Revenues from homebuilding activities increased 27.9%, to $5,742.2 million (24,407 homes closed) for the nine months ended June 30, 2003, from $4,490.8 million (20,207 homes closed) for the comparable period of 2002. Revenues from home sales increased in all of the Company's five market regions, with percentage increases ranging from 0.5% in the Midwest region to 37.2% in the West region. The increases in total homebuilding revenues and revenues from home sales were due to strong housing demand throughout the majority of our markets, and the acquisition of Schuler. Excluding the activities of Schuler prior to the February 21, 2003 anniversary date of the acquisition, home sales revenues increased 15.1% to $5,075.1 million (22,883 homes closed) for the nine months ended June 30, 2003, from $4,410.3 million (20,207 homes closed) for the comparable period of 2002. Revenues from the sale of land and lots increased to $189.1 million, from $80.5 million in the nine months ended June 30, 2003. The average selling price of homes closed during the nine months ended June 30, 2003 was $227,500, up 4.2% from $218,300 for the same period in 2002. The increase in average selling price was primarily due to the Schuler acquisition. Schuler's operations are concentrated on the West Coast and in Hawaii, where average home selling prices are significantly higher than in the rest of the United States. The value of net new sales orders increased 38.2%, to $6,756.3 million (28,611 homes) for the nine months ended June 30, 2003, from $4,889.5 million (22,826 homes) for the same period of 2002. The value of net new sales orders increased in all of the Company's five market regions, with percentage increases ranging from 12.7% in the Mid-Atlantic region to 61.2% in the West region. Excluding the activities of Schuler prior to the February 21, 2003 anniversary date of the acquisition, the value of net new sales orders increased 23.7%, to $6,046.9 million (26,592 homes) for the nine months ended June 30, 2003, from $4,889.5 million (22,826 homes) for the comparable period of 2002. The average price of a net new sales orders in the nine months ended June 30, 2003 was $236,100, up 10.2% over the $214,200 average in the nine months ended June 30, 2002, due to increased sales orders in the West region, which has the highest average selling price of all our regions. Cost of sales increased 26.0%, to $4,591.8 million for the nine months ended June 30, 2003, from $3,643.8 million for the comparable period of 2002. The increase in cost of sales was primarily attributable to the increase in revenues. Cost of home sales as a percentage of home sales revenues decreased 1.2 percentage points, to 79.8% for the nine months ended June 30, 2003, from 81.0% for the comparable period of 2002. A significant portion of costs associated with the sales of inventory acquired in the Schuler acquisition, with lower gross margins as a result of purchase accounting adjustments -23- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS that increased the acquired inventory to its fair value as of the date of acquisition, was recognized in the nine months ended June 30, 2002. For the same reason, total homebuilding cost of sales as a percentage of total homebuilding revenues decreased 1.2 percentage points, to 80.0% in the nine months ended June 30, 2003, from 81.2% in the comparable period of 2002. Selling, general and administrative (SG&A) expenses from homebuilding activities increased by 29.1%, to $574.4 million in the nine months ended June 30, 2003, from $444.9 million in the comparable period of 2002. As a percentage of homebuilding revenues, SG&A expenses for the nine months ended June 30, 2003 were consistent with the comparable period of 2002, increasing to 10.0% of revenues from 9.9% in the year earlier period. Interest expense associated with homebuilding activities decreased to $2.1 million in the nine months ended June 30, 2003, from $5.2 million in the comparable period of 2002. During the nine months ended June 30, 2003, average inventory under struction or development consistently exceeded the average amounts of interest-bearing debt. We follow a policy of capitalizing only the incurred interest and other financing costs that are associated with inventory under construction or development. Therefore, except for the $1.3 million in unamortized discount and issuance costs associated with the retirement of the 10% senior notes we redeemed in May 2003, we capitalized to inventory virtually all of the homebuilding interest and other financing costs we incurred in the nine months ended June 30, 2003. Capitalized interest and other financing costs are included in cost of sales at the time homes are closed. Other expense associated with homebuilding activities was $3.1 million in the nine months ended June 30, 2003, compared to $4.0 million in the comparable period of 2002. The expense in both periods was primarily due to write-downs to estimated fair value of the carrying amounts of our investments in start-up and emerging growth companies and the decline in the fair value of our interest rate swap agreements during the periods. RESULTS OF OPERATIONS - FINANCIAL SERVICES Financial services include mortgage financing and title insurance agency and closing services, primarily related to purchases of homes we build and sell. We provide mortgage services in Arizona, California, Colorado, Florida, Georgia, Illinois, Maryland, Minnesota, Nevada, New Mexico, North Carolina, Oregon, South Carolina, Texas, Virginia and Washington. We provide title agency and closing services in Arizona, Florida, Georgia, Maryland, Minnesota, Texas, Virginia and Washington. The following table summarizes financial and other information for our financial services operations:
Three Months Ended Nine Months Ended June 30, June 30, 2003 2002 2003 2002 ---- ---- ---- ---- ($ in thousands) Number of loans originated.................................... 7,720 5,134 20,322 13,581 -------- -------- -------- -------- Loan origination fees......................................... $ 8,909 $ 5,884 $ 22,841 $ 14,702 Sale of servicing rights and gains from sale of mortgages..... 22,528 13,485 63,708 37,785 Other revenues................................................ 5,062 2,144 12,570 6,777 -------- -------- -------- -------- Total mortgage banking revenues............................... 36,499 21,513 99,119 59,264 Title policy premiums, net.................................... 9,120 7,351 24,507 18,387 -------- -------- -------- -------- Total revenues................................................ 45,619 28,864 123,626 77,651 General and administrative expense............................ 25,344 18,220 69,586 48,261 Interest expense.............................................. 1,732 1,155 5,281 3,490 Interest/other (income)....................................... (5,434) (4,714) (16,344) (10,576) -------- -------- -------- -------- Income before income taxes.................................... $ 23,977 $ 14,203 $ 65,103 $ 36,476 ======== ======== ======== ========
-24- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002 Revenues from financial services increased 58.0%, to $45.6 million in the three months ended June 30, 2003, from $28.9 million in the comparable period of 2002. The increase in financial services revenues was due to the rapid expansion of our mortgage loan and title services provided to customers of our homebuilding segment. General and administrative expenses associated with financial services increased 39.1%, to $25.3 million in the three months ended June 30, 2003, from $18.2 million in the comparable period of 2002. As a percentage of financial services revenues, general and administrative expenses decreased 7.5 percentage points, to 55.6% in the three months ended June 30, 2003, from 63.1% in the comparable period in 2002, due primarily to efficiencies realized with the increase in revenues in markets entered in 2002. Nine Months Ended June 30, 2003 Compared to Nine Months Ended June 30, 2002 Revenues from financial services increased 59.2%, to $123.6 million in the nine months ended June 30, 2003, from $77.7 million in the comparable period of 2002. The increase in financial services revenues was due to the rapid expansion of the Company's mortgage loan and title services provided to customers of the Company's homebuilding segment. General and administrative expenses associated with financial services increased 44.2%, to $69.6 million in the nine months ended June 30, 2003, from $48.3 million in the comparable period of 2002. As a percentage of financial services revenues, general and administrative expenses decreased by 5.9 percentage points, to 56.3% in the nine months ended June 30, 2003, from 62.2% in the comparable period in 2002, due primarily to efficiencies realized with the increase in revenues in markets entered in 2002. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES At June 30, 2003, we had available cash and cash equivalents of $296.2 million. Inventories (including finished homes, construction in progress, and developed residential lots and other land), at June 30, 2003, had increased by $654.2 million since September 30, 2002, due to a general increase in business activity and the expansion of operations in our market areas. The inventory increase was financed largely by issuing senior notes and by retaining earnings. Our revolving credit facility had no amounts outstanding at either June 30, 2003 or September 30, 2002. Our ratio of homebuilding notes payable (net of cash) to total capital at June 30, 2003 decreased 5.4 percentage points, to 45.9% from 51.3% at September 30, 2002. The stockholders' equity to total assets ratio increased 3.3 percentage points, to 41.0% at June 30, 2003, from 37.7% at September 30, 2002. We have an $805 million, unsecured revolving credit facility, including $250 million which may be used for letters of credit. As of June 30, 2003, the letters of credit limit was $125 million and increased to $250 million on August 5, 2003. The facility matures in January 2006, and is guaranteed by substantially all of our wholly-owned subsidiaries other than those that make up our financial services segment. At June 30, 2003, we had outstanding homebuilding debt of $2,667.0 million. Under the debt covenants associated with the revolving credit facility, our additional borrowing capacity under it is limited to the lesser of the unused portion of the facility, $694.7 million at June 30, 2003, or an amount determined under a borrowing base arrangement. Under the borrowing base limitation, the sum of our senior debt and the amount drawn under our revolving credit facility may not exceed certain percentages of the various categories of our unencumbered inventory. At June 30, 2003, the borrowing base arrangement would have limited our additional borrowing capacity from any source to $1,601.1 million. At June 30, 2003, we were in compliance with all of the covenants, limitations and restrictions that form a part of our public debt obligations and our bank revolving credit facility. We have entered into multi-year interest rate swap agreements, aggregating a notional amount of $200 million, that have the effect of fixing the interest rate on a portion of the variable rate revolving credit facility at 5.1%. In the normal course of business, we provide standby letters of credit and performance bonds, issued by third parties, to secure performance under various contracts. At June 30, 2003, outstanding standby letters of credit and performance bonds, the majority of which mature in less than one year, were $133.0 million and $1,074.1 million, respectively. -25- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS At June 30, 2003, our financial services segment had mortgage loans held for sale of $525.5 million and loan commitments for $480.7 million at fixed rates. We hedge the interest rate risk on these mortgage loans and mortgage loan commitments through the use of best-efforts whole loan delivery commitments, forward sales of mortgage-backed securities and the infrequent purchase of options on financial instruments. We record gains or losses related to such hedging instruments in other income as their market values change. Such gains and losses have not significantly affected our financial services results of operations. Currently, our wholly-owned mortgage company has a mortgage warehouse loan facility in the amount of $230 million which matures on February 12, 2004, and which is secured by certain mortgage loans held for sale. The mortgage warehouse facility is not guaranteed by either the parent company or any of the subsidiaries that guarantee our homebuilding debt and is expected to be renewed at maturity in the ordinary course of business. At June 30, 2003, $214.0 million had been drawn under the mortgage warehouse facility. Our wholly-owned mortgage company completed a $100 million mortgage-backed commercial paper conduit facility (the "CP conduit facility") in July 2002. The CP conduit facility was increased to $200 million in November 2002, and to $300 million on July 25, 2003. Although the current agreement governing the CP conduit facility expires on June 29, 2006, maintenance of the facility beyond the first (and subsequent) anniversary date(s) must be annually approved by the sponsoring bank. The CP conduit facility is also secured by certain mortgage loans held for sale and is not guaranteed by either the parent company or any of the subsidiaries that guarantee our homebuilding debt. As of June 30, 2003, $200.0 million had been drawn under the CP conduit facility. The mortgage loans pledged to secure the CP conduit facility are used as collateral for mortgage-backed securities sold in the secondary commercial paper markets at rates that are more attractive than those applicable to the mortgage warehouse facility. All mortgage company activities are financed with the mortgage warehouse facility, the CP conduit facility or internally generated funds. Both of the financial services' credit facilities contain financial covenants with which we are in compliance. Our historical strategy of internal growth and growth by acquisition has required significant amounts of cash. It is anticipated that future home construction, lot and land purchases and acquisitions will be funded through internally generated funds, existing and future credit facilities and the issuance of new debt or equity securities. Under a currently effective shelf registration statement, we have approximately 15 million shares of common stock issuable to effect, in whole or in part, possible future acquisitions. Under another effective shelf registration statement, we have, at June 30, 2003, the capacity to issue new debt or equity securities amounting to $485 million. In the future, the Company intends to continue to maintain effective shelf registration statements that will facilitate access to the capital markets. On December 3, 2002, we issued $215 million of 7 1/2% senior notes due 2007. The net proceeds from this offering were used to repay borrowings under the unsecured revolving credit facility. These notes are guaranteed by substantially all of our wholly-owned subsidiaries other than our financial services subsidiaries. On April 17, 2003, we issued $200 million of 6 7/8% senior notes due 2013. The majority of the net proceeds from this offering were used to redeem the approximately $148.5 million aggregate principal amount outstanding of our 10% senior notes due 2006, at a redemption price of 100% of the principal amount. These notes are guaranteed by substantially all of our wholly-owned subsidiaries other than our financial services subsidiaries. On June 18, 2003, we issued $100 million of 5 7/8% senior notes due 2013.The net proceeds from this offering were used to redeem the approximately $100 million aggregate principal amount outstanding of our 9% senior notes due 2008. These notes were called for full redemption on June 25, 2003 and redeemed on July 25, 2003, at a redemption price of 104.5% of the principal amount, together with accrued and unpaid interest thereon to the redemption date. The 5 7/8% senior notes due 2013 are guaranteed by substantially all of our wholly-owned subsidiaries other than our financial services subsidiaries. -26- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On May 27, 2003, we 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. As a result, all of the notes were presented by June 26, 2003, for conversion into D.R. Horton common stock, and accordingly we issued approximately 10 million shares of common stock in exchange for the notes. In the nine months ended June 30, 2003, we repurchased 1,672,500 shares of our common stock in open market purchases at an aggregate purchase price of $29.5 million. In July 2003, we purchased an additional 173,000 shares at an aggregate price of $4.9 million. On July 31, 2003, our Board of Directors increased the authorizations for repurchases of our common stock to $200 million and of our outstanding debt securities to an additional $200 million. On April 28, 2003, we, at the direction of our Board of Directors, declared a quarterly cash dividend of $0.07 per common share, which was paid on May 20, 2003 to stockholders of record on May 13, 2003. At June 30, 2003, except for ordinary expenditures for the construction of homes and the acquisition and development of land and lots, we had no material commitments for capital expenditures. In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 provides guidance for the financial accounting and reporting of interests in certain variable interest entities. FIN 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain business entities that either have equity investors with no voting rights or have equity investors that do not provide sufficient financial resources for the entities to support their activities. 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. Furthermore, disclosures about significant interests in variable interest entities are required even if the company is not required to consolidate them. The consolidation requirements of FIN 46 are currently effective for all interests in variable interest entities created after January 31, 2003, and will be effective for all interests in variable interest entities created before February 1, 2003 in the first fiscal year or interim period beginning after June 15, 2003. In the ordinary course of our 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 to purchase land or lots at a future point in time with predetermined terms. Under the terms of the option purchase contracts, most 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. Our maximum exposure to loss associated with such variable interest entities is limited to the amount of our option deposit. In accordance with the implementation requirements of FIN 46, we have evaluated all of our interests in variable interest entities created after January 31, 2003 and have begun our evaluation of our variable interests created prior to February 1, 2003. Based upon our evaluations to date, we have consolidated certain variable interest entities from which we are purchasing lots under option contracts. The consolidation of these entities added $41.7 million in inventory and minority interests to our balance sheet at June 30, 2003. Our obligations related to these lot option contracts are guaranteed by performance letters of credit totaling $17.3 million. Creditors, if any, of these variable interest entities have no recourse against us. We will complete the evaluations of all of our interests in variable interest entities by September 30, 2003. Based on the results of evaluations completed through June 30, 2003, we believe that FIN 46 will not materially affect our financial position, results of operations or cash flows. -27- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SAFE HARBOR STATEMENT Certain statements contained in this report, as well as in other materials we have filed or will file with the Securities and Exchange Commission, statements made by us in periodic press releases and oral statements we make to analysts, stockholders and the press in the course of presentations about us, may be construed as "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements typically include words such as "anticipate", "believe", "expect", "estimate", "project" and "future". Any or all of the forward-looking statements included in this report and in any other of our reports or public statements may turn out to be inaccurate due to known or unknown risks and uncertainties. As a result, actual results may differ materially from the results discussed in and anticipated by the forward-looking statements. The following risks and uncertainties relevant to our business include factors we believe could adversely affect us. They include, but are not limited to: - changes in general economic, real estate and business conditions; - changes in interest rates and the availability of mortgage financing; - governmental regulations and environmental matters; - our substantial leverage; - competitive conditions within our industry; - the availability of capital; and - our ability to effect our growth strategies successfully. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted. Additional information about issues that could lead to material changes in performance is contained in our annual report on Form 10-K, which is filed with the Securities and Exchange Commission. -28- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are subject to interest rate risk on our long term debt. We monitor our exposure to changes in interest rates and utilize both fixed and variable rate debt. For fixed rate debt, changes in interest rates generally affect the value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but may affect our future earnings and cash flows. We have mitigated our exposure to changes in interest rates on our variable rate bank debt by entering into interest rate swap agreements to obtain a fixed interest rate for a portion of the variable rate borrowings. We generally do not have an obligation to prepay fixed-rate debt prior to maturity and, as a result, interest rate risk and changes in fair value would not have a significant impact on our fixed-rate debt until such time as we are required to refinance, repurchase or repay such debt. Our interest rate swaps were not designated as hedges under Statement of Financial Accounting Standards No. 133 when it was adopted on October 1, 2000. We are exposed to market risk associated with changes in the fair values of the swaps and any such changes are reflected in our income statements. Our financial services segment is exposed to interest rate risk associated with its mortgage loan origination services. Mortgage loans are funded at fixed interest rates before they are committed to specific investors and interest rate lock commitments (IRLC's) are extended to borrowers who have applied for loan funding and who meet certain defined credit and underwriting criteria. Forward sales of mortgage-backed securities are designated as fair value hedges of the risk of changes in the overall fair value of funded loans. Accordingly, changes in the value of the derivative instruments are recognized in current earnings, as are the changes in the value of the funded loans. The effectiveness of the fair value hedge is continuously monitored and any ineffectiveness, which for the three and nine month periods ended June 30, 2003 and 2002, was not significant, is recognized in current earnings. The IRLC's are classified and accounted for as non- designated derivative instruments with gains and losses recorded in current earnings. Interest rate risk associated with IRLC's is managed through the use of best-efforts whole loan delivery commitments, forward sales of mortgage-backed securities and the infrequent purchase of options on financial instruments. These instruments are considered non- designated derivatives and are accounted for at fair market value with gains and losses recorded in current earnings. At June 30, 2003, total forward sales of mortgage backed securities to mitigate interest rate risk related to uncommitted mortgage loans held for sale and IRLC's were approximately $284.0 million, the duration of which was less than nine months. The following table shows, as of June 30, 2003, our long term debt obligations, principal cash flows by scheduled maturity, weighted average interest rates and estimated fair market value. In addition, the table shows the notional amounts, weighted average interest rates and estimated fair market value of our interest rate swaps.
Three Months Year ended September 30, Fair ended ------------------------------------------------- market September 30, value at 2003 2004 2005 2006 2007 Thereafter Total 6/30/03 ---- ---- ---- ---- ---- ---------- ----- ------- ($'s in millions) Debt: Fixed rate ............... $ 117.1 $ 199.3 $ 220.5 $ 6.1 $ 1.9 $ 2,087.0 $ 2,631.9 $ 2,863.8 Average interest rate .... 8.34% 8.36% 10.51% 7.41% 6.15% 8.34% 8.52% -- Variable rate ............ $ 432.2 $ 4.7 -- -- -- -- $ 436.9 $ 436.9 Average interest rate .... 2.19% 3.40% -- -- -- -- 2.20% -- Interest Rate Swaps: Variable to fixed ........ $ 200.0 $ 200.0 $ 200.0 $ 200.0 $ 200.0 $ 200.0 -- $ (24.9) Average pay rate ......... 5.10% 5.10% 5.10% 5.10% 5.10% 5.02% -- -- Average receive rate ..... 90-day LIBOR
-29- ITEM 4. CONTROLS AND PROCEDURES. The Company's management has long recognized its responsibilities for developing, implementing and monitoring effective and efficient controls and procedures. As part of those responsibilities, as of June 30, 2003, an evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-14(c) and Rule 15d-14(c) under the Securities Exchange Act of 1934. Based on that evaluation, the CEO and CFO concluded that the Company's disclosure controls and procedures were effective in timely alerting them to material information relating to the Company, including its consolidated subsidiaries, required to be included in the Company's periodic filings with the Securities and Exchange Commission. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to June 30, 2003. Accordingly, there have been no corrective actions taken as no significant deficiencies or material weaknesses were detected in these controls. -30- PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. 6.875% Senior Notes: On April 17, 2003, the Company issued $200,000,000 in principal amount of its 6.875% Senior Notes due 2013 (the "6.875% Notes"). The 6.875% Notes bear interest from April 17, 2003 at 6.875% per annum, payable semi-annually on May 1 and November 1 of each year commencing on November 1, 2003. As part of that issuance, the Company executed the Sixteenth Supplemental Indenture, dated as of April 17, 2003, among the Company, the Guarantors named therein and American Stock Transfer & Trust Company, as Trustee, authorizing the 6.875% Notes. On May 23, 2003, the Company used part of the proceeds from the 6.875% offering to fully redeem the 10% Senior Notes due April 2006 at a redemption price of $1,010.56 per $1,000 face amount which included principal and accrued interest to May 23, 2003. The Supplemental Indenture, and the Indenture to which it relates (dated June 9, 1997, as supplemented), impose limitations on the ability of the Company and its subsidiaries guaranteeing the 6.875% Notes to, among other things, incur indebtedness, make "Restricted Payments" (as defined, which includes payments of dividends or other distributions on the Common Stock of the Company), effect certain "Asset Dispositions" (as defined therein), enter into certain transactions with affiliates, merge or consolidate with any person, or transfer all or substantially all of their properties and assets. These limitations are substantially similar to the limitations already existing with respect to the Company's other senior notes, and related indentures and supplemental indentures. Other information concerning the offering and issuance of the 6.875% Notes has previously been reported in, and is described in the Company's Prospectus Supplement, dated April 11, 2003 and filed with the Securities and Exchange Commission (the "Commission") on April 15, 2003 pursuant to Rule 424(b)(5), and the Company's current reports, on Form 8-K, dated April 15, 2003 and filed with the Commission on April 15, 2003 and, dated April 11, 2003 and filed with the Commission on April 17, 2003. 5.875% Senior Notes: On June 25, 2003, the Company issued $100,000,000 in principal amount of its 5.875% Senior Notes due 2013 (the "5.875% Notes"). The 5.875% Notes bear interest from June 25, 2003 at 5.875% per annum, payable semi-annually on each January 1 and July 1 of each year commencing on January 1, 2004. As part of that issuance, the Company executed the Seventeenth Supplemental Indenture, dated as of June 25, 2003, among the Company, the Guarantors named therein and American Stock Transfer & Trust Company, as Trustee, authorizing the Notes. On July 25, 2003, the Company used the proceeds from the 5.875% offering to fully redeem the 9% Senior Notes due April 2008 at a redemption price of $1,070 per $1,000 face amount which included principal, premium and accrued interest to July 25, 2003. The Supplemental Indenture, and the Indenture to which it relates (dated June 9, 1997, as supplemented), impose limitations on the ability of the Company and its subsidiaries guaranteeing the Notes to, among other things, incur indebtedness, make "Restricted Payments" (as defined, which includes payments of dividends or other distributions on the Common Stock of the Company), effect certain "Asset Dispositions" (as defined therein), enter into certain transactions with affiliates, merge or consolidate with any person, or transfer all or substantially all of their properties and assets. These limitations are substantially similar to the limitations already existing with respect to the Company's other senior notes, and related indentures and supplemental indentures. Other information concerning the offering and issuance of the Notes has previously been reported in, and is described in the Company's Prospectus Supplement, dated June 18, 2003 and filed with the Commission on June 20, 2003 pursuant to Rule 424(b)(5), and the Company's current report, on Form 8-K, dated June 18, 2003 and filed with the Commission on June 24, 2003. Redemption of Zero Coupon Convertible Notes: On June 26, 2003, the Company announced the results of the call of its Zero Coupon Convertible Senior Notes due 2021. All of the Zero Coupon Convertible Senior Notes were presented for conversion into approximately 10 million shares of D.R. Horton, Inc. common stock. As a result, the Company decreased its debt account by approximately $214 million and increased its shareholders' equity account by approximately $219 million. -31- ITEM 5. OTHER INFORMATION Stock and Debt Repurchase Authorization and Stock Repurchase Activity. On July 31, 2003, the Company announced that its board of directors authorized the Company to repurchase up to $200 million of its common stock and up to $200 million of senior and senior subordinated debt securities. These repurchase programs replace the previous stock and debt repurchase authorizations. In July 2003, the Company repurchased approximately $4.9 million of its common stock (173,000 shares), for a 2003 fiscal year to date total of approximately $34.4 million (1,845,500 shares). -32- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 3.1 Amended and Restated Certificate of Incorporation, as amended, of the Company is incorporated by reference from Exhibit 4.2 to the Company's registration statement (No. 333- 76175) on Form S-3, filed with the Commission on April 13, 1999. 3.1(a) Amendment to Amended and Restated Certificate of Incorporation, as amended, of the Company, effective February 6, 2003, is incorporated by reference from Exhibit 3.1(a) to the Company's Quarterly Report on Form 10-Q/A, filed with the Commission on February 18, 2003. 3.2 Amended and Restated Bylaws of the Company are incorporated by reference from Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998, filed with the Commission on February 16, 1999. 4.1 Indenture, dated June 9, 1997, among the Company, the Guarantors named therein and American Stock Transfer & Trust Company, as trustee, is incorporated by reference from Exhibit 4.1(a) to the Company's Registration Statement on Form S-3 (No. 333-27521) and filed with the Commission on May 21, 1997. 4.2 Sixteenth Supplemental Indenture 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 is incorporated by reference from Exhibit 4.1 to the Company's Form 8-K dated April 11, 2003 and filed with the Commission on April 17, 2003. 4.3 Seventeenth Supplemental Indenture 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 is incorporated by reference from Exhibit 4.1 to the Company's Form 8-K dated June 18, 2003 and filed with the Commission on June 24, 2003. 10.1 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, is filed herewith. 10.2 Eighth Amendment to Credit Agreement, dated August 12, 2003, among CH Mortgage Company I, LTD., as Borrower, U.S. Bank National Association, as Agent, and Lenders referred to therein, is filed herewith. 10.3 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., is filed herewith. 10.4 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., is filed herewith. 31.1 Certificate of Chief Executive Officer provided pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002, is filed herewith. 31.2 Certificate of Chief Financial Officer provided pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002, is filed herewith 32.1 Certificate provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Company's Chief Executive Officer, is filed herewith. 32.2 Certificate provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Company's Chief Financial Officer, is filed herewith. - ------------ -33- (b) Reports on Form 8-K. 1. On April 8, 2003 the Company filed a Current Report on Form 8-K (Item 9 and Item 12), dated April 8, 2003, whereby it filed with the Commission its press release related to the Company's Net Sales Orders for the three and six-month periods ended March 31, 2003. 2. On April 15, 2003, the Company filed a Current Report on Form 8-K (Item 5), dated April 15, 2003, whereby it filed with the Commission unaudited pro forma combined condensed statements of income for the year ended September 30, 2002, reflecting the Company's acquisition of Schuler Homes, Inc.which occurred on February 21, 2002. 3. On April 17, the Company filed a Current Report on Form 8-K (Item 5, Item 7, Item 9 and Item 12), dated April 11, 2003 whereby the Company (i) announced its financial results for the three-month and six-month periods ended March 31, 2003, and issued a related press release and filed this press release as exhibit 99.1 to the Form 8-K, and (ii) filed with the Commission (a) an Underwriting Agreement, (b) the form of Sixteenth Supplemental Indenture, (c) legal opinion, and (d) statement of computation of ratios or earnings to fixed charges, all relating to the offering and issuance of $200,000,000 of the Company's 6.875% Senior Notes due 2013. 4. On June 24, 2003, the Company filed a Current Report on Form 8-K (Item 5 and Item 7), dated June 18, 2003, whereby the Company filed with the Commission (i) an Underwriting Agree- ment, (ii) the form of Seventeenth Supplemental Indenture, (iii) legal opinion, and (iv) statement of computation of ratios of earnings to fixed charges, all relating to the offering and issuance of $100,000,000 of the Company's 5.875% Senior Notes due 2013. -34- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. D.R. HORTON, INC. Date: August 14, 2003 By /s/ Samuel R. Fuller ------------------------ Samuel R. Fuller, on behalf of D.R. Horton, Inc. and as Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) -35- EX-10 3 ex101_7amend.txt EXHIBIT 10.1 SEVENTH AMENDMENT Exhibit 10.1 SEVENTH AMENDMENT TO CREDIT AGREEMENT THIS SEVENTH AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of February 28, 2003, is by and among CH MORTGAGE COMPANY I, LTD., a Texas limited partnership (the "Company"), U.S. BANK NATIONAL ASSOCIATION, a national banking association ("U.S. Bank"), and as agent (the "Agent") for the Lenders ("the Lenders") party to the Credit Agreement described below, the Lenders party to the Credit Agreement and COLONIAL BANK, an Alabama corporation (the "New Lender"). Recitals A. The Company, the Agent and the Lenders are parties to a Credit Agreement dated as of August 13, 1999, as amended by a First Amendment to Credit Agreement dated as of August 14, 2000, by a Second Amendment to Credit Agreement and Second Amendment to Pledge Agreement dated as of August 10, 2001, by a Third Amendment to Credit Agreement dated as of February 22, 2002, by a Fourth Amendment to Credit Agreement dated as of August 12, 2002, by a Fifth Amendment to Credit Agreement dated as of September 25, 2002, by an Agreement to Increase Commitment Amounts dated as of September 20, 2002 and by a Sixth Amendment to Credit Agreement (the "Sixth Amendment") dated as of October 18, 2002 (as so amended, the "Credit Agreement"), pursuant to which the Lenders provide the Company and certain Co-Borrowers with a revolving mortgage warehousing credit facility. B. Pursuant to the Fifth Amendment and the Sixth Amendment, the Aggregate Commitment Amounts were reduced to $190,000,000 effective on and after December 20, 2002. C. The Company wishes to add the New Lender as a "Lender" under the Credit Agreement with Commitment in the amount of $25,000,000, for the purpose of increasing the Aggregate Commitment Amounts to $215,000,000. D. This Amendment is executed and delivered by the Company, the Agent, the New Lender and the other Lenders for the purposes of, among other things (a) reflecting the Commitment Amount of the New Lender and the New Lender's agreement to be bound by the Credit Agreement and the other Loan Documents, (b) reflecting the Agent's consent to the addition of the New Lender as Lenders party to the Credit Agreement and (c) reflecting that the maximum amount of increases to the Aggregate Commitment Amounts that may be adopted under Section 10.11(d) without the further consent of all of the Lenders has been reduced from $250,000,000 to $200,000,000. NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Article I --------- Definitions ----------- Section 1.01. Incorporated Definitions. ------------------------- Capitalized terms used in this Amendment, to the extent not otherwise defined herein, shall have the same meanings as in the Credit Agreement. Article II ---------- Concerning the New Lender and Increased Commitment Amounts; Amendments ---------------------------------------------------------------------- Section 2.01. Addition of New Lender. ----------------------- Subject to Article 3 hereof upon and after the Effective Date (defined below), the New Lender hereby assumes, adopts and agrees to become a party, as a Lender, to the Credit Agreement and to each other Loan Document to which the Lenders are parties and for all purposes thereof, with a Commitment Amount as stated in the amended Schedule 5 to the Credit Agreement attached hereto as Exhibit A, and the parties hereto, other than the New Lender, acknowledge and consent to such actions by the New Lender. Upon a nd after the Effective Date, the New Lender shall be a Lender under the Credit Agreement and the other Loan Documents to which the Lenders are parties and shall have all of the rights, privileges and benefits of a Lender under the Credit Agreement and the other Loan Documents, and all of the duties of a Lender thereunder, in each case as if the New Lender had been initially a party to the Credit Agreement. Upon the Effective Date (defined below), the New Lender shall make Loans as calculated by the Agent so that its outstanding Loans are equal to its respective Percentage Share of all Loans outstanding on such date and the Agent shall distribute the proceeds of such Loans to the other Lenders in accordance with their Percentage Share of all Loans outstanding on the Effective Date, in each case after giving effect to this Amendment, but prior to any additional Loans requested by the Company to be made on the Effective Date. Section 2.02. Interest and Fees. ------------------ From and after the Effective Date, all interest, all Balances Deficiency Fees and all Facility Fees accrued under the Credit Agreement for the billing period in which the Effective Date falls shall be paid to the Agent as provided in the Credit Agreement, and distributed by the Agent (A) with respect to amounts accrued before the Effective Date, to the Lenders (other than the New Lender) and (B) with respect to amounts accrued on or after the Effective Date, to the New Lender and the other Lenders, in accordance with the terms of the Credit Agreement. Section 2.03 Copies of Loan Documents. ------------------------- The Agent represents and warrants to the New Lender that the copies of the Loan Documents and the related agreements, certificates, and opinion letters, if any, previously delivered by the Agent to the New Lender are true and correct copies of the Loan Documents and related agreements, certificates, and opinion letters executed by and/or delivered in connection with the closing of the credit facilities contemplated by the Credit Agreement, other than the letter agreement described in Section 2.05(c) of the Credit Agreement. Section 2.04. No Representation or Warranty by NewLender. ------------------------------------------- The New Lender agrees and acknowledges that (a) neither any other Lender nor the Agent make any representation or warranty and assume no responsibility with respect to any statements, warranties or representations made in or in connection with the Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any of the Loan Documents or any other instrument or document furnished pursuant thereto and (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower, or the performance or observance by any Borrower or any other Person of any of their respective obligations under the Loan Documents or any other instrument or document furnished pursuant thereto. Section 2.05. No Reliance By New Lender. -------------------------- The New Lender (a) confirms to each other Lender and the Agent that it has received a copy of the Loan Documents together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Amendment; and (b) acknowledges that it has, independently and without reliance upon the Agent or any other Lender and instead in reliance upon its own review of such documents and information as the New Lender deems appropriate, made its own credit analysis and decision to enter into this Amendment and the Loan Documents and agrees that it will,independently and without reliance upon the Agent or any other Lender, and based on such documents and information as the New Lender shall deem appropriate at the time, continue to make its own credit decision in taking or not taking action under the Loan Documents. Section 2.06. Accordion Feature. ------------------ Section 10.11(d) of the Credit Agreement is amended by deleting the clause "$250,000,000" as it appears therein and by substituting in lieu thereof the clause "$200,000,000". Section 2.07. Schedule of Commitment Amounts. ------------------------------- Schedule 5 of the Credit Agreement is hereby amended and restated in its entirety to read as set forth in Exhibit A hereto. Article III ----------- Conditions Precedent -------------------- Section 3.01. Delivery of Documents. ---------------------- This Amendment shall become effective onFebruary 28, 2003 (the "Effective Date"), provided the Agent shall have received at least nine (9) counterparts of this Amendment, duly executed by the Company, the New Lender and the other Lenders, and the following conditions are satisfied: (a) a new Note payable to the New Lender substantially in the form Exhibit B hereto, in the amount of the New Lender's Commitment Amount (the "New Note"), duly executed by the Company; (b) a certificate of the Secretary or Assistant Secretary of the General Partner certifying as to (i) resolutions of its Board of Directors authorizing the execution, delivery and performance of this Amendment and the New Note and any and all other documents to be executed and delivered by the Company in connection with this Amendment (collectively, the "Amendment Documents"),(ii) the officers of the General Partner authorized to sign the Amendment Documents, and (iii) specimen signatures of the officers so authorized; (c) Pursuant to Section 10.02 of the Credit Agreement, the Agent, on behalf of each Lender executing this Amendment (including the New Lender), shall have received an amendment fee from the Company in the amount of $1,500 for each Lender (including the New Lender) executing this Amendment; (d) such other documents as the Agent or Lender may reasonably request; and (e) payment of the fees specified in Section 2.07 to the parties entitled thereto. Article IV ---------- General ------- Section 4.01.The Company, the Agent,and each Lender party hereto acknow- ledge that, as amended hereby, the Credit Agreement and the other Loan Documents remain in full force and effect with respect to the Company and the Lenders, and that each reference to the Credit Agreement or the Loan Documents shall refer to the Credit Agreement, amended hereby. The Company confirms and acknowledges that it will continue to comply with the covenants set out in the Credit Agreement and the other Loan Documents, as amended hereby, and that its representations and warranties set out in the Credit Agreement and the other Loan Documents, as amended hereby, are true and correct as of the date of this Amendment. The Company represents and warrants that (i) the execution, delivery and performance of this Amendment is within its organizational powers and has been duly authorized by all necessary organizational action; (ii) this Amendment has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms (subject to limitations as to enforceability which might result from bankruptcy, insolvency, or other similar laws affecting creditors' rights generally and general principles of equity) and (iii) no Events of Default or Defaults exist. Section 4.02. The Company agrees to reimburse the Agent upon demand for all reasonable expenses (including reasonable attorneys fees and legal expenses) incurred by the Agent in the preparation, negotiation and execution of the Amendment Documents, and to pay and save the Lenders harmless from all liability for any stamp or other taxes which may be payable with respect to the execution or delivery of this Amendment, which obligations of the Company shall survive any termination of the Credit Agreement. Section 4.03. This Amendment may be executed in as many counterparts as may be deemed necessary or convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument. Section 4.04. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. Section 4.05. This Amendment shall be governed by, and construed in accordance with, the internal law, and not the law of conflicts, of the State of Minnesota, but giving effect to federal laws applicable to national banks. Section 4.06. This Amendment shall be binding upon the Company, the Lenders, the Agent and their respective successors and assigns, and shall inure to the benefit of the Company, the Lenders, the Agent and the successors and assigns of the Lenders and the Agent. [The remainder of this page is intentionally left blank] IN WITNESS WHEREOF, the undersigned have caused this instrument to be executed as of the date first above written. CH MORTGAGE COMPANY I, LTD. By: CH Mortgage Company GP, Inc., its General Partner By: /s/ Mark C. Winter ----------------------- Name: Mark C. Winters Title: CFO/VP STATE OF TEXAS COUNTY OF TRAVIS On this the 17th day of February, 2003, personally appeared Mark C. Winter, as CFO/VP of CH Mortgage Company, GP, Inc., a Delaware corporation, as general partner of CH Mortgage Company I, Ltd., a Texas limited partnership (the "Borrower"), and before me executed this Seventh Amendment to Credit Agreement, on behalf of the Borrower. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. Signature of Notary Public, State of /s/ Melody A. Hanson (Print, Type or Stamp Commissioned Name of Notary Public) Personally known_____; OR Produced Identification Type of ID produced NOTARIAL SEAL) U.S. BANK NATIONAL ASSOCIATION, as Agent and Lender By: /s/ Kathleen M. Connor ----------------------- Name: Kathleen M. Connor Title: Vice President NATIONAL CITY BANK OF KENTUCKY By: /s/ Gary Sieveking ----------------------- Name: Gary Sievek Title: Senior Vice President JPMORGAN CHASE BANK By: /s/ Cynthia E. Crites ------------------------ Name: Cynthia E. Crites Title: Senior Vice President COMERICA BANK By: /s/ Robert W. Marr ------------------------ Name: Robert W. Marr Title: Vice President COLONIAL BANK By: /s/ Amy J. Nunneley ------------------------- Name: Amy J. Nuknneley Title: Senior Vice President STATE OF Alabama COUNTY OF Jefferson On this the 26th day of February, 2003, personally appeared Amy Nunneley, as Senior Vice President of Colonial Bank, an Alabama corporation (the "Bank"), and before me executed this Seventh Amendment to Credit Agreement, on behalf of the Bank. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. /s/ Terence J. Bayant --------------------- Signature of Notary Public, State of Alabama ------------------------------------------------------- (Print, Type or Stamp Commissioned Name of Notary Public) Personally known X ; OR Produced Identification ---- ----- Type of ID produced ------------------- (NOTARIAL SEAL) A-1 EXHIBIT A TO SEVENTH AMENDMENT TO CREDIT AGREEMENT Schedule 5 to Credit Agreement COMMITMENT AMOUNTS AND PERCENTAGE SHARES
Commitment Percentage Amount Share ------ ----- U.S. Bank National Association ............................. $80,000,000 37.21% National City Bank of Kentucky ............................. $25,000,000 11.63% Comerica Bank .............................................. $30,000,000 13.95% Colonial Bank .............................................. $25,000,000 11.63% JPMorgan Chase Bank ........................................ $55,000,000 25.58% ----------- --------- Total ...................................................... $215,000,000 100.00%
B-1 EXHIBIT B TO SEVENTH AMENDMENT TO CREDIT AGREEMENT PROMISSORY NOTE Minneapolis, Minnesota $25,000,000 February 28, 2003 FOR VALUE RECEIVED, CH MORTGAGE COMPANY I, LTD., a Texas limited partnership (the "Company"), and each "Co-Borrower" from time to time party to the Credit Agreement described below (to the extent provided therein), hereby promise to pay to the order of COLONIAL BANK (the "Lender") at the main office of the Agent (as such term and each other capitalized term used herein are defined in the Credit Agreement hereinafter referred to) in Minneapolis, Minnesota, in lawful money of the United States of America in immediately available funds, the principal sum of TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000) or the aggregate unpaid principal amount of all Loans made by the Lender pursuant to the Credit Agreement described below, whichever is less, and to pay interest in like funds from the date hereof on the unpaid balance thereof at the rates per annum and at such times as are specified in the Credit Agreement. Interest (computed on the basis of actual days elapsed and a year of 360 days) shall be payable at said office at the times specified in the Credit Agreement. Principal hereof shall be payable in the amounts and at the times set forth in the Credit Agreement. This note is one of the Notes referred to in the Credit Agreement dated as of August 13, 1999, between the Borrower, the "Co-Borrowers" (as defined therein), if any, party thereto, the Lender, the other lenders party thereto and U.S. Bank National Association, as Agent (as the same has been and may hereafter be amended, modified or restated from time to time, the "Credit Agreement"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings given to such terms in the Credit Agreement. This note is subject to certain mandatory and voluntary prepayments and its maturity is subject to acceleration, in each case upon the terms provided in the Credit Agreement. The Borrowers hereby waive diligence, presentment, demand, protest, and notice (except such notice as is required under the Loan Documents) of any kind whatsoever. The nonexercise by the Lender of any of its rights hereunder or under the other Loan Documents in any particular instance shall not constitute a waiver thereof in any subsequent instance. The Borrowers reserve the right to prepay the outstanding principal balance of this Note, in whole or in part at any time and from time to time without premium or penalty in accordance with the terms of the Credit Agreement. This note is entitled to the benefit of the Pledge and Security Agreement and the other Loan Documents. B-1 THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. In the event of default hereunder, the undersigned agrees to pay all costs and expenses of collection, including but not limited to reasonable attorneys' fees. CH MORTGAGE COMPANY I, LTD. By: CH Mortgage Company GP, Inc., its General Partner By _________________________________ Its__________________________________ STATE OF ___________ COUNTY OF __________ On this the ____ day of ___________, 2003, personally appeared ________________, as ___________________________ of CH Mortgage Company, GP, Inc., a Delaware corporation, as general partner of CH Mortgage Company I, Ltd., a Texas limited partnership (the "Borrower"), and before me executed this Promissory Note, on behalf of the Borrower. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. Signature of Notary Public, State of (Print, Type or Stamp Commissioned Name of Notary Public) Personally known_____; OR Produced Identification Type of ID produced ------------------------------------- (NOTARIAL SEAL) Seventh Amendment to CA v4.doc B-2 EX-10 4 ex102_8amend.txt EXHIBIT 10.2 EIGHTH AMENDMENT Exhibit 10.2 EIGHTH AMENDMENT TO CREDIT AGREEMENT THIS EIGHTH AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of August 12, 2003, is by and among CH MORTGAGE COMPANY I, LTD., a Texas limited partnership (the "Company"), U.S. BANK NATIONAL ASSOCIATION, a national banking association ("U.S. Bank"), and as agent (the "Agent") for the Lenders ("the Lenders") party to the Credit Agreement described below, and the Lenders party to the Credit Agreement. Recitals -------- A. The Company, the Agent and the Lenders are parties to a Credit Agreement dated as of August 13, 1999, as amended by a First Amendment to Credit Agreement dated as of August 14, 2000, by a Second Amendment to Credit Agreement and Second Amendment to Pledge Agreement dated as of August 10, 2001, by a Third Amendment to Credit Agreement dated as of February 22, 2002, by a Fourth Amendment to Credit Agreement dated as of August 12, 2002, by a Fifth Amendment to Credit Agreement dated as of September 25, 2002, by an Agreement to Increase Commitment Amounts dated as of September 20, 2002, by a Sixth Amendment to Credit Agreement dated as of October 18, 2002 and by a Seventh Amendment to Credit Agreement dated as of February 28, 2003 (as so amended, the "Credit Agreement"), pursuant to which the Lenders provide the Company and certain Co-Borrowers with a revolving mortgage warehousing credit facility. B. The Company wishes to increase the Commitment Amount of JPMorgan Chase Bank ("Chase") from $55,000,000 to $70,000,000. C. This Amendment is executed and delivered by the Company, the Agent and the Lenders for the purposes of, among other things (a) reflecting the increase of the Commitment Amount of Chase, (b) reflecting that the maximum amount of increases to the Aggregate Commitment Amounts that may be adopted under Section 10.11(d) without the further consent of all of the Lenders has been increased from $200,000,000 to $300,000,000 and (c) reflecting certain other amendments to the Credit Agreement, as set forth below. NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Article I --------- Definitions ----------- Section 1.01. Incorporated Definitions. -------------------------- Capitalized terms used in this Amendment, to the extent not otherwise defined herein, shall have the same meanings as in the Credit Agreement. Article II ---------- Amendments ---------- Section 2.01. Definitions. ------------ The definitions of "Drawdown Termination Date", "Jumbo Sublimit" and "Wet Warehousing Sublimit" contained in Section 1.1 of the Credit Agreement are amended in their entireties to read as follows: "Drawdown Termination Date" means the earlier of February 12, 2004, or the ----------------------------- day on which the Notes first become due and payable. "Jumbo Sublimit" means twenty-five percent (25%) of the Aggregate --------------- Commitment Amounts. "Wet Warehousing Sublimit" means fifty-five percent (55%) of the ------------------------- Aggregate Commitment Amounts during the last four (4) Business Days in any calendar month and the first four (4) Business Days in the next succeeding calendar month or thirty percent (30%) of the Aggregate Commitment Amounts at any other time. Section 2.02. Accordion Feature. ----------------- Section 10.11(d) of the Credit Agreement is amended by deleting the clause "$200,000,000" as it appears therein and by substituting in lieu thereof the clause "$300,000,000". Section 2.03. Schedule of Commitment Amounts. ------------------------------ Schedule 5 of the Credit Agreement is hereby amended andrestated in its entirety to read as set forth in Exhibit A hereto. Article III ----------- Conditions Precedent -------------------- Section 3.01. Delivery of Documents. ---------------------- This Amendment shall become effective on August 12, 2003 (the "Effective Date"), provided the Agent shall have received at least nine (9) counterparts of this Amendment, duly executed by the Company and the Lenders, and the following conditions are satisfied: (a) a certificate of the Secretary or Assistant Secretary of the General Partner certifying as to (i) resolutions of its Board of Directors authorizing the execution, delivery and performance of this Amendment and any and all other documents to be executed and delivered by the Company in connection with this Amendment (collectively, the "Amendment Documents"), (ii) the officers of the General Partner authorized to sign the Amendment Documents, and (iii) specimen signatures of the officers so authorized; (b) pursuant to Section 10.02 of the Credi t Agreement, the Agent, on behalf of each Lender executing this Amendment, shall have receivedan amendment fee from the Company in the amount o f $1,500 for each Lender executing this Amendment; (c) A Lender Name Disclosure and Customer Acknowledgement in the form prescribed by Colonial Bank, duly executed by the Company; (d) such other documents as the Agent or Lender may reasonably request; and (e) payment of the fees specified in Section 2.07 to the parties entitled thereto. Upon the Effective Date, Chase shall make Loans as calculated by the Agent so that its outstanding Loans are equal to its respective Percentage Share of all Loans outstanding on such date and the Agent shall distribute the proceeds of such Loans to the other Lenders in accordance with their Percentage Share of all Loans outstanding on the Effective Date, in each case after giving effect to this Amendment, but prior to any additional Loans requested by the Company to be made on the Effective Date. The Borrower acknowledges that Colonial Bank, one of the Lenders, has converted from an Alabama state banking corporation to a national banking association. Accordingly, upon the Effective Date, all references in the Loan Documents to Colonial Bank are hereby amended to be references to "Colonial Bank, N.A." Article IV ---------- General ------- Section 4.01. The Company, the Agent, and each Lender party hereto acknowledge that, as amended hereby, the Credit Agreement and the other Loan Documents remain in full force and effect with respect to the Company and the Lenders, and that each reference to the Credit Agreement or the Loan Documents shall refer to the Credit Agreement, amended hereby. The Company confirms and acknowledges that it will continue to comply with the covenants set out in the Credit Agreement and the other Loan Documents, as amended hereby, and that its representations and warranties set out in the Credit Agreement and the other Loan Documents, as amended hereby, are true and correct as of the date of this Amendment. The Company represents and warrants that (i) the execution, delivery and performance of this Amendment is within its organizational powers and has been duly authorized by all necessary organizational action; (ii) this Amendment has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms (subject to limitations as to enforceability which might result from bankruptcy, insolvency, or other similar laws affecting creditors' rights generally and general principles of equity) and (iii) no Events of Default or Defaults exist. Section 4.02. The Company agrees to reimburse the Agent upon demand for all reasonable expenses (including reasonable attorneys fees and legal expenses) incurred by the Agent in the preparation, negotiation and execution of the Amendment Documents, and to pay and save the Lenders harmless from all liability for any stamp or other taxes which may be payable with respect to the execution or delivery of this Amendment, which obligations of the Company shall survive any termination of the Credit Agreement. Section 4.03. This Amendment may be executed in as many counterparts as may be deemed necessary or convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument. Section 4.04. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. Section 4.05. This Amendment shall be governed by, and construed in accordance with, the internal law, and not the law of conflicts, of the State of Minnesota, but giving effect to federal laws applicable to national banks. Section 4.06. This Amendment shall be binding upon the Company, the Lenders, the Agent and their respective successors and assigns, and shall inure to the benefit of the Company, the Lenders, the Agent and the successors and assigns of the Lenders and the Agent. [The remainder of this page is intentionally left blank] IN WITNESS WHEREOF, the undersigned have caused this instrument to be executed as of the date first above written. CH MORTGAGE COMPANY I, LTD. By: CH Mortgage Company GP, Inc., its General Partner By: /s/ Mark C. Winter ---------------------- Name: Mark C. Winter Title: CFO.VP STATE OF TEXAS COUNTY OF TRAVIS On this the 12th day of August, 2003, personally appeared Mark C. Winter, as CFO/VPof CH Mortgage Company, GP, Inc., a Delaware corporation, as general partner of CH Mortgage Company I, Ltd., a Texas limited partnership (the "Borrower"), and before me executed this Eighth Amendment to Credit Agreement, on behalf of the Borrower. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. /s/ Loretta Shields ------------------- Signature of Notary Public, State of Texas (Print, Type or Stamp Commissioned Name of Notary Public) Personally known_____; OR Produced Identification -------- Type of ID produced ----------------------------------- (NOTARIAL SEAL) U.S. BANK NATIONAL ASSOCIATION, as Agent and Lender By: /s/ Kathleen M. Connor -------------------------- Name: Kathleen M. Connor Title: Vice President NATIONAL CITY BANK OF KENTUCKY By: /s/ Paul A. Best Name: Paul A. Best Title: Senior Vice President JPMORGAN CHASE BANK By: /s/ Cynthia E. Crites ------------------------- Name: Cynthia E. Crites Title: Senior Vice President COMERICA BANK By: /s/ Robert W. Marr Name: Robert W. Marr Title: Vice President COLONIAL BANK, N.A. By: /s/ Amy J. Nunneley ----------------------- Name: Amy J. Nunneley Title: Senior Vice President STATE OF ALABAMA COUNTY OF JEFFERSON On this the 7th day of August, 2003, personally appeared Amy J. Nunneley, as Senior Vice President of Colonial Bank, N.A., a national banking association (the "Bank"), and before me executed this Eighth Amendment to Credit Agreement, on behalf of the Bank. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. /s/ Bonita W. Blackman ---------------------- Signature of Notary Public, State of Alabama (Print, Type or Stamp Commissioned Name of Notary Public) Personally known X ; OR Produced Identification ----- --------------- Type of ID produced ------------------------------------------ (NOTARIAL SEAL) EXHIBIT A TO EIGHTH AMENDMENT TO CREDIT AGREEMENT Schedule 5 to Credit Agreement COMMITMENT AMOUNTS AND PERCENTAGE SHARES
Commitment Percentage Amount Share ------------ ------------- U.S. Bank National Association $ 80,000,000 34.79% National City Bank of Kentucky $ 25,000,000 10.87% Comerica Bank $ 30,000,000 13.04% Colonial Bank, N.A. $ 25,000,000 10.87% JPMorgan Chase Bank $ 70,000,000 30.43% Total $230,000,000 100.00%
EX-10 5 ex103_3omnibus.txt EXHIBIT 10.3 THIRD OMNIBUS Exhibit 10.3 THIRD OMNIBUS AMENDMENT THIS THIRD OMNIBUS AMENDMENT (this "Amendment"), dated as of April 18, 2003, is entered into, by and among CH FUNDING, LLC, as the Borrower (the "Borrower"), ATLANTIC ASSET SECURITIZATION CORP., as the Issuer ("Atlantic"), CREDIT LYONNAIS NEW YORK BRANCH, as a Bank and as the Administrative Agent (the "Administrative Agent") and CH MORTGAGE COMPANY I, LTD., as the Servicer (the "Servicer"). Capitalized terms used and not otherwise defined herein are used as defined in the related Operative Documents (as defined below). RECITALS WHEREAS, CH Funding, LLC, as Debtor, Credit Lyonnais New York Branch, as Administrative Agent, U.S. Bank and the Servicer entered into that certain Security Agreement dated as of July 9, 2002 (as the same may be amended, restated, supplemented or modified from time to time, the "Security Agreement"); and WHEREAS, the Borrower, Atlantic, the Administrative Agent, and the Servicer, have entered into that certain Loan Agreement dated as of July 9, 2002, as amended by the Omnibus Amendment, dated as of August 26, 2002, by and among the parties hereto, and as further amended by the Second Omnibus Amendment, dated as of November 25, 2002, by and among the parties hereto (as the same may be amended, restated, supplemented or modified from time to time, the "Loan Agreement" and together with the Security Agreement, the "Operative Documents"); WHEREAS, the parties to the Operative Documents hereto desire to amend further the Operative Documents; NOW, THEREFORE, the parties agree as follows: Section 1. Amendment to Security Agreement. a. Section 5 of the Security Agreement is hereby amended by inserting at the beginning of the paragraph the following: "Subject to Section 2.7 of the Loan Agreement". b. Section 8(E) of the Security Agreement is hereby amended by inserting after the word "commercially" and before the word "manner" the following: "reasonable". Section 2. Amendment to Loan Agreement a. Section 2.15(b) of the Loan Agreement is hereby amended by inserting after the words "a period of one month" and before the words ", which Advance" the following: "(provided that if such Interest Period begins on a date for which there is no corresponding date in the month in which such Interest Period is scheduled to end, the last day of such Interest Period shall be the last Business Day of the month in which such Interest Period is scheduled to end)." b. Section 2.15(b) of the Loan Agreement is hereby further amended by inserting after clause (v) the following: " or, "(vi) the Eurodollar Rate determined pursuant hereto does not accurately reflect the cost of funds to the Issuer or the Banks (as conclusively determined by the Agent) during such Interest Period, or "(vii) adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for the relevant Interest Period," c. Section 3.4(A) of the Loan Agreement is hereby further amended by deleting clauses (i) and (ii) and by inserting in lieu thereof the following: "(i) at no time shall Mortgage Notes having an aggregate Collateral Value in excess of $5,000,000 (the Collateral Value assigned to each such Mortgage Notes shall be determined utilizing as the principal amount of such Mortgage Note the lesser of the uncorrected face value of such Mortgage Note and the correct face value of such Mortgage Note known to the Borrower or the Servicer) be so delivered for replacement with the corrected Mortgage Notes hereunder; "(ii) until such time as a corrected Mortgage Note shall have been delivered to the Collateral Agent, the Collateral Value attributed to each Mortgage Note delivered to the Servicer to be corrected in accordance with this Section 3.4 shall be the lesser of the uncorrected face value of such Mortgage Note and the corrected face value of such Mortgage Note known to the Borrower and communicated by the Borrower to the Collateral Agent; and "(iii) notwithstanding the preceding clause (ii), unless the corrected Mortgage Note is endorsed in blank (without recourse) and re-delivered to the Collateral Agent within 14 calendar days of the delivery by the Collateral Agent of the Mortgage Note to be corrected, the Collateral Value attributed to both the Mortgage Note to be delivered and the corrected Mortgage Note shall be zero beginning on the 15th calendar day; provided, however, that the Collateral Value attributable to the corrected Mortgage Note will be reinstated promptly upon the subsequent delivery thereof to the Collateral Agent." Section 3. Operative Documents in Full Force and Effect as Amended. Except as specifically amended hereby, all of the provisions of the Operative Documents and all of the provisions of all other documentation required to be delivered with respect thereto shall remain in full force and effect from and after the date hereof. Section 4. Miscellaneous. a. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall not constitute a novation of any Operative Document, but shall constitute an amendment thereof. The parties hereto agree to be bound by the terms and conditions of each Operative Document, as amended by this Amendment, as though such terms and conditions were set forth herein b. The descriptive headings of the various sections of this Amendment are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. c. This Amendment may not be amended or otherwise modified except as provided in each respective Operative Agreement. d. This Amendment and the rights and obligations of the parties under this amendment shall be governed by, and construed in accordance with, the laws of the state of New York (without giving effect to the conflict of laws principles thereof, other than Section 5-1401 of the New York General Obligations Law, which shall apply hereto). [Signatures appear on following page.] IN WITNESS WHEREOF, the parties have agreed to and caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. ISSUER AGREED: ATLANTIC ASSET SECURITIZATION CORP. By: Credit Lyonnais New York Branch, as Attorney-in-Fact By: /s/ Anthony Brown Name: Anthony Brown Title: Vice President ADMINISTRATIVE AGENT AGREED: CREDIT LYONNAIS NEW YORK BRANCH By: /s/ Anthony Brown Name: Anthony Brown Title: Vice President BANK AGREED: CREDIT LYONNAIS NEW YORK BRANCH By: /s/ Anthony Brown Name: Title: Vice President SERVICER AGREED: CH MORTGAGE COMPANY I, LTD. By: CH Mortgage Company GP, Inc., its general partner By: /s/ Randal C. Present Name: Title: President BORROWER AGREED: CH FUNDING, LLC By: /s/ Randal C.Present Name: Title: President EX-10 6 ex104_4omnibus.txt EXHIBIT 10.4 FOURTH OMNIBUS Exhibit 10.4 FOURTH OMNIBUS AMENDMENT THIS FOURTH OMNIBUS AMENDMENT (this "Amendment"), dated as of July 25, ----------- 2003, is entered into, by and amongCH FUNDING, LLC, (the "Borrower"), CREDIT ----------- LYONNAIS NEW YORK BRANCH, as the Administrative Agent (the "Administrative --------------- Agent"), U.S. BANK NATIONAL ASSOCIATION, as the Collateral Agent ("U.S. Bank") - ------ ----------- and CH MORTGAGE COMPANY I, LTD., (the "Servicer"). Capitalized terms used and --------- not otherwise defined herein are used as defined in the related Operative Documents (as defined below). RECITALS WHEREAS, CH Mortgage Company I, Ltd., as the Seller, and CH Funding, LLC, as the Purchaser, entered into that certain Master Repurchase Agreement and Addendum to the Master Repurchase Agreement incorporated therein, dated as of July 9, 2002, as amended by the Omnibus Amendment, dated as of August 26, 2002, by and among the Borrower, Atlantic Asset Securitization Corp. ("Atlantic"), the Administrative Agent, and the Servicer (the "First Omnibus Amendment") and the Second Omnibus Amendment, dated as of November 25, 2002, by and among the Borrower, Atlantic, the Administrative Agent and the Servicer (the "Second Omnibus Amendment") (as the same may be amended, restated, supplemented or modified from time to time, the "Repurchase Agreement"); ---------------------- WHEREAS, the Borrower, the Administrative Agent and U.S. Bank entered into that certain Collateral Agency Agreement, dated as of July 9, 2002, as amended by the First Omnibus Amendment and the Second Omnibus Amendment (the "Collateral Agency Agreement"); - ---------------------------- WHEREAS, CH Funding, LLC, as Debtor, Credit Lyonnais New York Branch, as Administrative Agent, U.S. Bank and the Servicer entered into that certain Security Agreement dated as of July 9, 2002, as amended by the Third Omnibus Amendment dated as of April 18, 2003 by and among the Borrower, Atlantic, the Administrative Agent and the Servicer (the "Third Omnibus Amendment") (as the same may be amended, restated, supplemented or modified from time to time, the "Security Agreement" and together with the Repurchase Agreement and the -------------------- Collateral Agency Agreement, the"Operative Documents"); and --------------------- WHEREAS, the Borrower, Atlantic, Falcon Asset Securitization Corporation ("Falcon"), Bank One, NA (Main Office Chicago) ("Bank One"), Lloyds TSB Bank plc, the Administrative Agent, and the Servicer, have entered into that certain Amended and Restated Loan Agreement dated as of July 25, 2003, which incorporat es those amendments contained in the First Omnibus Amendment, the Second Omnibus Amendment and the Third Omnibus Amendment and completely replaces and supplants the foregoing Omnibus Amendments (as the same may be amended, restated, supplemented or modified from time to time, the "Loan Agreement"); and ---------------- WHEREAS, the parties hereto desire to further amend the Operative Documents and to incorporate the amendments to the Operative Documents contained in the First Omnibus Amendment, the Second Omnibus Amendment and the Third Omnibus Amendment into this Fourth Omnibus Amendment, which shall completely replace and supplant the foregoing Omnibus Amendments. NOW, THEREFORE, the parties agree as follows: Section 1. Amendment to Repurchase Agreement. ---------------------------------- a. Section 1.1 of the Repurchase Agreement is hereby amended as follows: 1) The definition of Advance Rate is amended by deleting the definition in its entirety and replacing it with the following: ""Advance Rate" means (i) with respect to a Conforming -------------+ Loan or a Jumbo Loan, ninety-eight percent (98%), (ii) with respect to an Alt-A Loan, ninety-seven percent (97%) and (iii) with respect to a Subprime Loan or a Super Jumbo Loan, ninety-five percent (95%)." 2) The definition of Alternate Base Rate is amended by deleting the definition in its entirety and replacing it with the following: ""Alternate Base Rate" means: (a) for the CL New York Group, on any date, a fluctuating rate of interest per annum equal to the higher of: (i) the rate of interest most recently announced by CL New York as its base rate (which is not necessarily the lowest rate charged to any customer), changing when and as said base rate changes; and (ii) the Federal Funds Rate (as defined below) most recently determined by the Administrative Agent plus 1.0% per annum; and (b) for the Bank One Group, on any date, a fluctuating rate of interest per annum equal to the higher of: (i) a rate per annum equal to the prime rate of interest announced from time to time by Bank One or its parent (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes; and (ii) the Federal Funds Rate (as defined below) most recently determined by Bank One plus 1.0% per annum. For purposes of this definition, "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal (for each day during such period) to (i) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York; or (ii) if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by Bank One, as a Managing Agent or the Administrative Agent, as applicable, from three federal funds brokers of recognized standing selected by it." 3) The following definition is added after the definition of Alternate Base Rate: ""Annual Extension Date" shall mean (i) July 1, 2004 and (ii) thereafter, if consented to by the Lenders, the Managing Agents and the Administrative Agent pursuant to Section 2.1(b) of the Loan Agreement, the date that is specified by the Lenders, the Managing Agents and the Administrative Agent in the applicable consent, which date shall not be more than 364 days following the then effective Annual Extension Date; provided, however, that any extension of the Annual Extension Date shall not extend the Facility Termination Date." 4) The following definition is added after the definition of Approved Investor: ""Bank One" means Bank One, NA (Main Office Chicago)." 5) The following definition is added after the definition of Bank One: ""Bank One Group" means Falcon, Bank One and each other Group Bank of Falcon." 6) The following definition is added after the definition of CL New York: ""CL New York Group" means Atlantic, CL New York, and each other Group Bank of Atlantic." 7) The definition of Collateral Value is amended by deleting clauses (A)(2), (A)(3), and (g) in their entirety and replacing them with the following: "(2) with respect to which there is a loan level Take- Out Commitment, the price of that Take-Out Commitment, including, if applicable, any related servicing release premium; "(3) with respect to which there is no loan level Take- Out Commitment, a ratable amount determined by multiplying (a) the weighted average purchase price (expressed as a percentage of par) that Approved Investors are obligated to pay, pursuant to Take-Out Commitments, for all Eligible Mortgage Loans, including any related servicing release premium, as shown on the most recent Collateral Agent Daily Report, times (b) the outstanding principal amount of such Eligible Mortgage Loan; and" "(g) at any time, (A) the portion of total Collateral Value that may be attributable to Mortgage Loans that have been Eligible Mortgage Loans owned by the Borrower for more than 120 days shall not exceed ten percent (10%) of the Maximum Facility Amount and (B) the portion of total Collateral Value that may be attributable to Mortgage Loans that have been Eligible Mortgage Loans owned by the Borrower for more than 180 days shall be zero (except for Subprime Loans which if owned by the Borrower for more than 120 days shall be zero);" 8) The following definition is added after the definition of Deferred Purchase Price: ""Document Defect" means, with respect to a Principal ---------------- Mortgage Document, an error on the face of the document, including, without limitation, a missing date, a missing signature, a missing legal description, an origination amount that does not match the amount shown on reports and on the other Principal Mortgage Documents or, with respect to a Principal Mortgage Document other than a Mortgage Note, such Principal Mortgage Document is missing." 9) The definition of Eligible Mortgage Loan is amended by adding the following at the end of clause (e): "; provided that Principal Mortgage Documents with Document Defects may be corrected by the Servicer pursuant to Section -------- 6.2 hereof;" --- 10) The definition of Facility Termination Date is amended by deleting the definition in its entirety and replacing it with the following: ""Facility Termination Date" means the earliest to occur --------------------------- of (a) June 29, 2006, subject to the limitation set forth in Section ------- 2.1(b) of the Loan Agreement, (b) the date on which the Maximum ----- Facility Amount is terminated by the Borrower pursuant to Section 2.1 ----------- (d) of the Loan Agreement, (c) the date of termination of the Facility pursuant to Section 7.1 hereof and (d) the date, on or after the ----------- occurrence of an Event of Default, determined pursuant to Section 8.2 ----------- of the Loan Agreement." 11) The following definition is added after the definition of Facility Termination Date: ""Falcon" means Falcon Asset Securitization Corporation, -------- a Delaware Corporation." 12) The following definition is added after the definition of Governmental Requirement: ""Group" means the CL New York Group and the Bank One ------- Group." 13) The definition of Hedge Report is amended by deleting clause (vii) in its entirety and replacing it with the following: "(vii) such other information as the Administrative Agent or any of the Managing Agent may request, in the form of Exhibit K to the Loan Agreement." 14) The definition of Issuer is amended by deleting the definition in its entirety and replacing it with the following: ""Issuer" means each of Atlantic and Falcon and their -------- successors and assigns." 15) The following definition is added after the definition of Issuer: ""Issuer Facility Amount" means (a) with respect to ------------------------- Atlantic on an aggregate basis,$200,000,000 and (b) with respect to Falcon on an aggregate basis, $100,000,000. Any reduction (or termination) of the Maximum Facility Amount pursuant to the terms of this Agreement shall reduce ratably (or terminate) the Issuer Facility Amount of each Issuer." 16) The definition of Jumbo Loan is amended by adding the following at the end thereof ", but shall not exceed $1,000,000." 17) The following definition is added after the definition of Loan-to-Value: ""Managing Agent" means, with respect to Atlantic, CL New ---------------- York or any successor managing agent designated by such party; and, with respect to Falcon, Bank One or any successor managing agent designated by such party." b. Section 6.2 of the Repurchase Agreement is hereby amended by (i) deleting the title and replacing it with "Correction of Mortgage Notes and other Principal Mortgage Documents", (ii) adding an (A) at the beginning of the first paragraph, (iii) adding the following to the end of paragraph (A), "at no time shall Mortgage Notes having an aggregate Collateral Value in excess of two and one half percent (2.5%) of the Maximum Facility Amount, be so delivered for replacement with the corrected Mortgage Notes hereunder." and (iv) adding the following section (B) at the end of Section 6.2: "(B) the Buyer notifies the Seller that a Document Defect in a Principal Mortgage Document (other than a Mortgage Note) needs to be corrected then the Seller shall correct such Document Defect and deliver the corrected Principal Mortgage Document to the Buyer within 14 days. Unless the corrected Principal Mortgage Document is delivered to the Buyer within 14 days of such notice, the Collateral Value attributed to the related Mortgage Loan shall be zero beginning on the 15th calendar day; provided, however, that the Collateral Value attributable to such Mortgage Loan will be reinstated promptly upon the subsequent delivery of the corrected Principal Mortgage Document to the Buyer." Section 2. Amendment to Collateral Agency Agreement. - - ----------------------------------------- a. Exhibit D-1 of the Collateral Agency Agreement is hereby amended as follows: 1) The definition of Advance Rate is amended by deleting the definition in its entirety and replacing it with the following: ""Advance Rate" means (i) with respect to a Conforming -------------- Loan or a Jumbo Loan, ninety-eight percent (98%), (ii) with respect to an Alt-A Loan, ninety-seven percent (97%) and (iii) with respect to a Subprime Loan or a Super Jumbo Loan, ninety-five percent (95%)." 2) The following definition is added after the definition of Alt-A Loan: ""Annual Extension Date" shall mean (i) July 1, 2004 and ----------------------- (ii) thereafter, if consented to by the Lenders, the Managing Agents and the Administrative Agent pursuant to Section 2.1(b) of the Loan Agreement, the date that is specified by the Lenders, the Managing Agents and the Administrative Agent in the applicable consent, which date shall not be more than 364 days following the then effective Annual Extension Date; provided, however, that any extension of the Annual Extension Date shall not extend the Drawdown Termination Date." 3) The definition of Bank is amended by deleting the definition in its entirety and replacing it with the following: ""Bank" means each of CL New York, Bank One, Lloyds and each respective Eligible Assignee that shall become a party to this Agreement pursuant to an Assignment and Acceptance." 4) The following definition is added after the definition of Bank Commitment Percentage: ""Bank One" means Bank One, NA (Main Office Chicago)." 5) The following definition is added after the definition of Bank One: ""Bank One Group" means Falcon, Bank One and each other Group Bank of Falcon." 6) The following definition is added after the definition of CL New York: ""CL New York Group" means Atlantic, CL New York, and each other Group Bank of Atlantic." 7) The definition of Collateral Value is amended by deleting clauses (A)(2), (A)(3), and (g) in their entirety and replacing them with the following: "(2) with respect to which there is a loan level Take-Out Commitment, the price of that Take-Out Commitment, including, if applicable, any related servicing release premium; "(3) with respect to which there is no loan level Take-Out Commitment, a ratable amount determined by multiplying (a) the weighted average purchase price (expressed as a percentage of par) that Approved Investors are obligated to pay, pursuant to Take-Out Commitments, for all Eligible Mortgage Loans, including any related servicing release premium, as shown on the most recent Collateral Agent Daily Report, times (b) the outstanding principal amount of such Eligible Mortgage Loan; and" "(g) at any time, the portion of total Collateral Value that may be attributable to Mortgage Loans that have been Eligible Mortgage Loans pledged to the Administrative Agent, for the benefit of the Lenders, pursuant to the terms of the Loan Agreement (A) for more than 120 days shall not exceed ten percent (10%) of the Maximum Facility Amount and (B) for more than 180 days shall be zero (except that Subprime Loans that have been Eligible Mortgage Loans for more 120 days shall be zero);" 8) The definition of Commercial Paper Notes is amended by deleting the definition in its entirety and replacing it with the following: ""Commercial Paper Notes" means short-term promissory notes issued or to be issued by the Issuers to fund or maintain their Advances or investments in other financial assets." 9) The following definition is added after the definition of Defaulted Mortgage Loan: "Document Defect" means, with respect to a Principal Mortgage Document, an error on the face of the document, including, without limitation, a missing date, a missing signature, a missing legal description, an origination amount that does not match the amount shown on reports and on the other Principal Mortgage Documents or, with respect to a Principal Mortgage Document other than a Mortgage Note, such Principal Mortgag e Document is missing." 10) The definition of Drawdown Termination Date is amended by deleting the definition in its entirety and replacing it with the following: ""Drawdown Termination Date" means the earliest to occur of (a) June 29, 2006, subject to the limitation set forth in Section 2.1(b) of the Loan Agreement, (b) the date on which the Maximum Facility Amount is terminated by the Borrower pursuant to Section 2.1 (d) of the Loan Agreement, and (c) the date, on or after the occurrence of an Event of Default, determined pursuant to Section 8.2 of the Loan Agreement". 11) The definition of Eligible Assignee is amended by deleting the definition in its entirety and replacing it with the following: ""Eligible Assignee" means (i) CL New York or any of its Affiliates, or Bank One or any of its Affiliates, or Lloyds or any of its Affiliates, (ii) any Person managed by CL New York or any of its Affiliates, Bank One or any of its Affiliates, or Lloyds or any of its Affiliates, respectively, or (iii) any financial or other institution that is acceptable to the Managing Agents." 12) The definition of Eligible Mortgage Loan is amended by adding the following at the end of clause (e): "; provided that Principal Mortgage Documents with Document Defects may be corrected by the Servicer pursuant to Section 3.5 hereof;" 13) The following definition is added after the definition of Exceptions: ""Falcon" means Falcon Asset Securitization Corporation, a Delaware Corporation." 14) The following definition is added after the definition of Falcon: ""Falcon Program Agent" means Bank One, in its capacity as the collateral agent pursuant to a security agreement made by Falcon for the benefit of certain creditors of Falcon, and any successor to Bank One in such capacity." 15) The following definition is added after the definition of Governmental Requirement: ""Group" means the CL New York Group and the Bank One Group." 16) The definition of Hedge Report is amended by deleting the last line of the definition and replacing it with the following: "as the Administrative Agent or any of the Managing Agents may request, in the form of Exhibit K to the Loan Agreement." 17) The definition of Issuer is amended by deleting the definition in its entirety and replacing it with the following: ""Issuer" means each of Atlantic and Falcon and their successors and assigns." 18) The following definition is added after the definition of Issuer: ""Issuer Facility Amount" means (a) with respect to Atlantic on an aggregate basis, $200,000,000 and (b) with respect to Falcon on an aggregate basis, $100,000,000. Any reduction (or termination) of the Maximum Facility Amount pursuant to the terms of this Agreement shall reduce ratably (or terminate) the Issuer Facility Amount of each Issuer." 19) The definition of Jumbo Loan is amended by adding the following at the end thereof ", but shall not exceed $1,000,000." 20) The definition of Lenders is amended by deleting the definition in its entirety and replacing it with thefollowing: ""Lenders" means, collectively, the Issuers and the Banks." 21) The following definition is added after the definition of Lien: ""Lloyds" means Lloyds TSB Bank plc, a banking corporation organized under the laws of England." 22) The definition of Majority Banks is amended by deleting the references to "67%" and replacing them with "70%". 23) The following definition is added after the definition of Majority Banks: "Managing Agent" means, with respect to Atlantic, CL New York or any successor managing agent designated by such party; and, with respect to Falcon, Bank One or any successor managing agent designated by such party. 24) The definition of Maximum Facility Amount is amended by deleting it in its entirety and replacing it with the following: "Maximum Facility Amount" means $300,000,000.00, as such amount may be reduced pursuant to Section 2.1(c) of the Loan Agreement." 25) The definition of Shipping Request is amended by adding after the words "the Administrative Agent" and before the words "the Borrower" the following: ", the Managing Agents". 26) The definition of Take-Out Commitment is amended by deleting from (i) clause (A) the words "Administrative Agent" after the words "at a specified price and in amounts, form and substance satisfactory to the" and adding the words "Managing Agents"; and (ii) clause (B) the words "Administrative Agent" after the words "at a specified price (or a specified spread to an agreed-upon index) and in amounts, and upon terms, satisfactory to the" and adding the words "Managing Agents". b. Section 3.4(c) of the Collateral Agency Agreement is hereby amended by deleting the definition of Permitted Transferees and replacing it with the following: "Permitted Transferees" means the Originator, in connection with any sale and transfer thereto effected pursuant to the terms of the Repurchase Agreement and any Approved Investor approved by the Administrative Agent and the Managing Agents as a Permitted Transferee. c. Section 3.5 of the Collateral Agency Agreement is hereby amended by (i) deleting the title and replacing it with "Correction of Mortgage Notes and other Principal Mortgage Documents", (ii) adding an (A) at the beginning of the first paragraph, (iii) by deleting subsection (A)(i) and substituting the following in lieu thereof, "at no time shall Mortgage Notes having an aggregate Collateral Value in excess of two and one half percent (2.5%) of the Maximum Facility Amount be so delivered for replacement with the corrected Mortgage Notes hereunder;" and (iv) adding the following subsection (B) at the end of Section 3.5: "(B) the Collateral Agent notifies the Servicer that a Document Defect in a Principal Mortgage Document (other than a Mortgage Note) needs to be corrected then the Servicer shall correct such Document Defect and deliver the corrected Principal Mortgage Document to the Collateral Agent within 14 days. Unless the corrected Principal Mortgage Document is delivered to the Collateral Agent within 14 days of such notice, the Collateral Value attributed to the related Mortgage Loan shall be zero beginning on the 15th calendar day; provided, however, that the Collateral Value attributable to such Mortgage Loan will be reinstated promptly upon the subsequent delivery of the corrected Principal Mortgage Document to the Collateral Agent." d. Section 3.8 of the Collateral Agency Agreement is amended by deleting subparagraph (a) and replacing the following in lieu thereof: "(a) At the commencement of each Business Day, and in no event later than 1:00 p.m. (eastern time), the Collateral Agent shall furnish to the Borrower, Servicer and each Managing Agent by e-mail transmission (a hard copy of which shall not subsequently be mailed, sent or delivered to any such party, unless so requested by such party) a duly completed report (including a copy of the executed signature page) in the form of Exhibit D-8 hereto, (the "Collateral Agent Daily Report") specifying and certifying the then total Collateral Value of the Eligible Mortgage Collateral and other information, all as more fully provided for therein and as set forth on Schedule I hereto, noting any applicable Exceptions on Schedule I thereto." e. Section 3.12 of the Collateral Agency Agreement is amended by deleting subparagraphs (b) and (c) and replacing the following in lieu thereof: "(b) The Borrower shall provide the Administrative Agent and the Managing Agents with up-to-date copies of the Take-Out Commitment Master Agreements for each Approved Investor. "(c) Upon request of the Administrative Agent or either Managing Agent at any time, the Servicer shall furnish to the Administrative Agent and the applicable Managing Agent (x) if there are any Mortgage Loans not subject to a loan level Take-Out Commitment, a duly completed Hedge Report in the form of Exhibit K, and (y) a list of loan-specific Take-Out Commitments, together with copies of any such loan-specific Take-Out Commitments to the extent not previously delivered to the Administrative Agent." f. Section 6.9 of the Collateral Agency Agreement is amended by deleting Section 6.9 in its entirety and replacing the following in lieu thereof: "6.9 Rights of Atlantic Program Agent and Falcon Program Agent. The parties hereto acknowledge that Atlantic and Falcon has granted to the Atlantic Program Agent and the Falcon Program Agent, respectively, for the benefit of the holders of certain obligations of Atlantic and Falcon, respectively, from time to time, a security interest in Atlantic's or Falcon's right, title and interest in and to the Advances, the Transaction Documents and the Collateral. Each reference herein or in any of the other Transaction Documents to the Liens in the Collateral granted to Administrative Agent with respect to the interest of Atlantic under the Transaction Documents shall be deemed to include a reference to such security interest of the Atlantic Program Agent and the Falcon Program Agent. The Atlantic Program Agent and the Falcon Program Agent shall each be deemed to be a holder of Obligations. The Atlantic Program Agent and the Falcon Program Agent hereby appoint the Collateral Agent as its agent for the purpose of perfecting the Atlantic Program Agent's and the Falcon Program Agent's security interest in the Collateral, and the Collateral Agent hereby accepts such appointment." Section 3. Amendment to Security Agreement. -------------------------------- a. Section 5 of the Security Agreement is hereby amended by inserting at the beginning of the paragraph the following: "Subject to Section 2.7 of the Loan Agreement". b. Section 8(E) of the Security Agreement is hereby amended by inserting after the word "commercially" and before the word "manner" the following: "reasonable". Section 4. Operative Documents in Full Force and Effect as Amended. -------------------------------------------------------- Except as specifically amended hereby, all of the provisions of the Operative Documents and all of the provisions of all other documentation required to be delivered with respect thereto shall remain in full force and effect from and after the date hereof. Section 5. Miscellaneous. -------------- a. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall not constitute a novation of any Operative Document, but shall constitute an amendment thereof. The parties hereto agree to be bound by the terms and conditions of each Operative Document, as amended by this Amendment, as though such terms and conditions were set forth herein b. The descriptive headings of the various sections of this Amendment are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. c. This Amendment may not be amended or otherwise modified except as provided in each respective Operative Agreement. d. This Amendment and the rights and obligations of the parties under this amendment shall be governed by, and construed in accordance with, the laws of the state of New York (without giving effect to the conflict of laws principles thereof, other than Section 5-1401 of the New York General Obligations Law, which shall apply hereto). [Signatures appear on following page.] IN WITNESS WHEREOF, the parties have agreed to and caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. ADMINISTRATIVE AGENT CREDIT LYONNAIS NEW YORK BRANCH - -------------------- By: /s/Anthony Brown -------------------- Name: Anthony Brown Title: Vice President SERVICER CH MORTGAGE COMPANY I, LTD - -------- By: CH Mortgage Company GP, Inc., its general partner By: /s/ Randall C. Present -------------------------- Name: Randall C. Present Title: President BORROWER CH FUNDING, LLC - ------- By: /s/ Randall C. Present -------------------------- Name: Title: COLLATERAL AGENT U.S. BANK NATIONAL ASSOCIATION. - ---------------- By: /s/ David R. Peterson ------------------------- Name: David R. Peterson Title: Senior Vice President EX-31 7 ex31_1certif.txt EXHIBIT 31.1 CERTIFICATION OF CEO Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002 I, Donald J. Tomnitz, certify that: 1. I have reviewed this quarterly report on Form 10-Q of D.R. Horton, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosures controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter ( the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. .. Date: August 14, 2003 /s/ Donald J. Tomnitz -------------------------------- By: Donald J. Tomnitz Vice Chairman, Chief Executive Officer and President EX-31 8 ex31_2certif.txt EXHIBIT 31.2 CERTIFICATION OF CFO Exhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002 I, Samuel R. Fuller, certify that: 1. I have reviewed this quarterly report on Form 10-Q of D.R. Horton, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosures controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially effect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: August 14, 2003 /s/ Samuel R. Fuller ----------------------------------- By: Samuel R. Fuller Executive Vice President, Treasurer and Chief Financial Officer EX-32 9 ex32_1certif.txt EXHIBIT 32.1 CERTIFICATION OF CEO Exhibit 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of D.R. Horton, Inc. (the "Company") on Form 10-Q for the quarterly period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Donald J. Tomnitz, Vice Chairman, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13 (a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 14, 2003 /s/ Donald J. Tomnitz -------------------------------------- Donald J. Tomnitz Vice Chairman, Chief Executive Officer and President EX-32 10 ex32_2certif.txt EXHIBIT 32.2 CERTIFICATION OF CFO Exhibit 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C.SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of D.R. Horton, Inc. (the "Company") on Form 10-Q for the quarterly period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Samuel R. Fuller, Executive Vice President, Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13 (a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 14, 2003 /s/ Samuel R. Fuller ------------------------------------- Samuel R. Fuller Executive Vice President, Treasurer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----