NOTES PAYABLE

The Company’s notes payable at their principal amounts, net of any unamortized discounts, consist of the following:



	September 30,
	2013		2012
	(In millions)
Homebuilding:
Unsecured:
Revolving credit facility, maturing 2018	$	—	$	—
6.875% senior notes due 2013	—		171.7
6.125% senior notes due 2014, net	145.8		145.5
2% convertible senior notes due 2014, net	478.7		447.0
5.625% senior notes due 2014, net	137.8		137.6
5.25% senior notes due 2015, net	157.5		157.4
5.625% senior notes due 2016, net	169.7		169.6
6.5% senior notes due 2016, net	372.5		372.4
4.75% senior notes due 2017	350.0		350.0
3.625% senior notes due 2018	400.0		—
4.375% senior notes due 2022	350.0		350.0
4.75% senior notes due 2023	300.0		—
5.75% senior notes due 2023	400.0		—
Other secured	8.4		4.1
	$	3,270.4	$	2,305.3
Financial Services:
Mortgage repurchase facility, maturing 2014	$	238.6	$	187.8

As of September 30, 2013, maturities of consolidated notes payable, assuming the mortgage repurchase facility is not extended or renewed, are $1,030.8 million in fiscal 2014, $157.7 million in fiscal 2015, $542.9 million in fiscal 2016, $350.0 million in fiscal 2017, $400.0 million in fiscal 2018 and $1,050.0 million in maturities thereafter.

Homebuilding:

The Company has a senior unsecured revolving credit facility which was amended in August 2013 to increase its capacity from $600 million to $725 million and to extend its maturity date to September 7, 2018. The facility has an uncommitted accordion feature that could increase the size of the facility to $1.0 billion, subject to certain conditions and availability of additional bank commitments. The facility also provides for the issuance of letters of credit. Letters of credit issued under the facility reduce available borrowing capacity and may total no more than $362.5 million in the aggregate. The interest rate on borrowings under the revolving credit facility may be based on either the Prime Rate or London Interbank Offered Rate (LIBOR) plus an applicable margin, as defined in the credit agreement governing the facility. At September 30, 2013, there were no borrowings outstanding and $61.6 million of letters of credit issued under the revolving credit facility.

The Company's revolving credit facility imposes restrictions on its operations and activities, including requiring the maintenance of a minimum level of tangible net worth, a maximum allowable ratio of debt to tangible net worth and a borrowing base restriction if the Company's ratio of debt to tangible net worth exceeds a certain level. These covenants are measured as defined in the credit agreement governing the facility and are reported to the lenders quarterly. A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under the revolving credit facility or cause any outstanding borrowings to become due and payable prior to maturity. In addition, the credit agreement governing the facility and the indentures governing the senior notes impose restrictions on the creation of secured debt and liens. At September 30, 2013, the Company was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility and public debt obligations.

The Company has an automatically effective universal shelf registration statement filed with the Securities and Exchange Commission (SEC) in September 2012, registering debt and equity securities that the Company may issue from time to time in amounts to be determined.

In February 2013, the Company issued $400 million principal amount of 3.625% senior notes due February 15, 2018 and $300 million principal amount of 4.75% senior notes due February 15, 2023. In August 2013, the Company issued $400 million principal amount of 5.75% senior notes due August 15, 2023. On May 1, 2013, the Company repaid the remaining $171.7 million principal amount of its 6.875% senior notes which were due on that date.

The key terms of each of the Company’s senior notes outstanding as of September 30, 2013 are summarized below.



Note Payable	Principal Amount	Date Issued	Date Due	Redeemable Prior to Maturity		Effective Interest Rate (1)
	(In millions)
6.125% senior	$145.9	July 2004	January 15, 2014	No		6.3%
2% convertible senior (3)	$500.0	May 2009	May 15, 2014	No		9.9%
5.625% senior	$137.9	September 2004	September 15, 2014	No		5.8%
5.25% senior	$157.7	February 2005	February 15, 2015	Yes	(2)	5.4%
5.625% senior	$170.2	December 2004	January 15, 2016	Yes	(2)	5.8%
6.5% senior	$372.7	April 2006	April 15, 2016	Yes	(2)	6.6%
4.75% senior	$350.0	May 2012	May 15, 2017	Yes	(2)	5.0%
3.625% senior	$400.0	February 2013	February 15, 2018	Yes	(2)	3.8%
4.375% senior	$350.0	September 2012	September 15, 2022	Yes	(2)	4.5%
4.75% senior	$300.0	February 2013	February 15, 2023	Yes	(2)	4.9%
5.75% senior	$400.0	August 2013	August 15, 2023	Yes	(2)	5.9%

______________


(1)	Interest is payable semi-annually on each of the series of senior and convertible senior notes. The annual effective interest rate is calculated after giving effect to the amortization of the financing costs and any discount associated with the note issuance.


(2)	The Company may redeem the notes in whole at any time or in part from time to time, at a redemption price equal to the greater of 100% of their principal amount or the present value of the remaining scheduled payments on the redemption date, plus accrued interest.

(3)

Holders of the 2% convertible senior notes may convert all or any portion of their notes at their option at any time prior to maturity. The conversion rate is subject to adjustment in certain events, which include the payment of cash dividends in excess of $0.0375 per share in any fiscal quarter, but will not be adjusted for accrued interest, including any additional interest. As a result of the cash dividend of $0.15 per share which was paid in the first quarter of fiscal 2013 (see Note I), the conversion rate of the 2% convertible senior notes increased from 76.5697 to 77.18004 shares of the Company's common stock per $1,000 principal amount of senior notes. The new conversion rate is equivalent to a conversion price of approximately $12.96 per share of common stock, compared to the initial conversion price of $13.06 per share. If all of the 2% convertible senior notes due 2014 were converted into the Company's common stock, the Company would issue 38.6 million shares of its common stock as a result of the conversion. If the convertible senior notes are eligible for conversion at maturity, the Company may redeem them with cash, shares of its common stock or a combination thereof at its election. The effective interest rate of the convertible senior notes is 9.9% after giving effect to the amortization of the discount and financing costs.

All series of senior notes and borrowings under the revolving credit facility are senior obligations and rank pari passu in right of payment to all existing and future unsecured indebtedness, and senior to all existing and future indebtedness expressly subordinated to them. The senior notes and borrowings under the revolving credit facility are guaranteed by substantially all of the Company’s homebuilding subsidiaries. If a change of control of the Company occurs, as defined in the indentures governing $283.8 million principal amount of its senior notes as of September 30, 2013, the Company would be required to offer to purchase these notes at a price of 101% of their principal amount, along with accrued and unpaid interest. In addition, upon the occurrence of both a change of control and a ratings downgrade event, as defined in the indentures governing $1.8 billion principal amount of its senior notes as of September 30, 2013, the Company would be required in certain circumstances to offer to repurchase these notes at 101% of their principal amount, along with accrued and unpaid interest. If a fundamental change, including a change in control, occurs as defined in the indenture governing the convertible senior notes, which constituted $500 million principal amount as of September 30, 2013, the Company would be required to offer to purchase these notes at par, along with accrued and unpaid interest. Also, a change of control as defined in the revolving credit facility would constitute an event of default under the revolving credit facility, which could result in the acceleration of any borrowings outstanding under the facility and the termination of the commitments thereunder.

Effective August 1, 2013, the Board of Directors authorized the repurchase of up to $500 million of the Company’s debt securities effective through July 31, 2014. All of the $500 million authorization was remaining at September 30, 2013.

Financial Services:

The Company’s mortgage subsidiary, DHI Mortgage, has a mortgage repurchase facility that is accounted for as a secured financing. The mortgage repurchase facility provides financing and liquidity to DHI Mortgage by facilitating purchase transactions in which DHI Mortgage transfers eligible loans to the counterparties against the transfer of funds by the counterparties, thereby becoming purchased loans. DHI Mortgage then has the right and obligation to repurchase the purchased loans upon their sale to third-party purchasers in the secondary market or within specified time frames from 45 to 120 days in accordance with the terms of the mortgage repurchase facility. In March 2013, the mortgage repurchase facility was renewed and amended, and new commitments from banks were obtained which increased the total capacity of the facility to $300 million. The facility's capacity can be increased to $400 million subject to the availability of additional commitments. The maturity date of the facility is February 28, 2014.

As of September 30, 2013, $351.1 million of mortgage loans held for sale with a collateral value of $329.9 million were pledged under the mortgage repurchase facility. As a result of advance paydowns totaling $91.3 million, DHI Mortgage had an obligation of $238.6 million outstanding under the mortgage repurchase facility at September 30, 2013 at a 2.8% annual interest rate.

The mortgage repurchase facility is not guaranteed by either D.R. Horton, Inc. or any of the subsidiaries that guarantee the Company’s homebuilding debt. The facility contains financial covenants as to the mortgage subsidiary’s minimum required tangible net worth, its maximum allowable ratio of debt to tangible net worth and its minimum required liquidity. These covenants are measured and reported monthly. At September 30, 2013, DHI Mortgage was in compliance with all of the conditions and covenants of the mortgage repurchase facility.