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 March 31, 2003
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the Transition Period From To
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Commission file number 1-14122
D.R. Horton, Inc.
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(Exact name of registrant as specified in its charter)
DELAWARE 75-2386963
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1901 Ascension Blvd., Suite 100, Arlington, Texas 76006
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(Address of principal executive offices) (Zip Code)
(817) 856-8200
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(Registrant's telephone number, including area code)
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(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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.01 par value -- 146,915,960 shares as of May 6, 2003
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This report contains 37 pages.
INDEX
D.R. HORTON, INC.
PART I. FINANCIAL INFORMATION. Page
- ------- ---------------------- ------
ITEM 1. Financial Statements.
Consolidated Balance Sheets-- March 31, 2003 and September 30, 2002. 3
Consolidated Statements of Income-- Three Months and Six Months
Ended March 31, 2003 and 2002. 4
Consolidated Statements of Cash Flows-- Six Months Ended March 31,
2003 and 2002. 5
Notes to Consolidated Financial Statements. 6-18
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition. 19-27
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk. 28
ITEM 4. Controls and Procedures. 29
PART II. OTHER INFORMATION.
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ITEM 2. Changes in Securities and Use of Proceeds. 30
ITEM 4. Submission of Matters to a Vote of Security Holders. 30
ITEM 5. Other Information. 31
ITEM 6. Exhibits and Reports on Form 8-K. 32
SIGNATURES. 33
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CERTIFICATIONS.
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Certification of Chief Executive Officer Pursuant to Section 302 (a)
of the Sarbanes-Oxley Act of 2002. 34-35
Certification of Chief Financial Officer Pursuant to Section 302 (a)
of the Sarbanes-Oxley Act of 2002. 36-37
ITEM 1. FINANCIAL STATEMENTS
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
2003 2002
------------ ------------
(In thousands)
(Unaudited)
ASSETS
Homebuilding:
Cash and cash equivalents .................................... $ 161,139 $ 92,106
Inventories:
Finished homes and construction in progress ................. 2,407,594 2,035,221
Residential lots - developed and under development .......... 2,321,784 2,297,545
Land held for development ................................... 6,801 10,303
---------- ----------
4,736,179 4,343,069
Property and equipment (net) ................................. 77,035 71,895
Earnest money deposits and other assets ...................... 371,891 430,415
Excess of cost over net assets acquired ...................... 581,230 579,230
---------- ----------
5,927,474 5,516,715
---------- ----------
Financial Services:
Cash and cash equivalents .................................... 26,339 12,238
Mortgage loans held for sale ................................. 424,674 464,088
Other assets ................................................. 20,462 24,486
---------- ----------
471,475 500,812
---------- ----------
$6,398,949 $6,017,527
========== ==========
LIABILITIES
Homebuilding:
Accounts payable and other liabilities ....................... $ 803,555 $ 834,048
Notes payable ................................................ 2,763,264 2,486,976
---------- ----------
3,566,819 3,321,024
---------- ----------
Financial Services:
Accounts payable and other liabilities ....................... 14,442 14,340
Notes payable to financial institutions ...................... 325,613 391,355
---------- ----------
340,055 405,695
---------- ----------
3,906,874 3,726,719
---------- ----------
Minority interests ........................................... 26,039 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,
146,874,543 shares at March 31, 2003 and 146,505,091 shares
at September 30, 2002, issued and outstanding ............... 1,469 1,465
Additional capital ........................................... 1,353,537 1,349,630
Unearned compensation ........................................ (3,273) (4,453)
Retained earnings ............................................ 1,143,825 923,221
Treasury stock, 1,672,500 shares at March 31, 2003 and no
shares at September 30, 2002, at cost ....................... (29,522) --
---------- ---------
2,466,036 2,269,863
---------- ---------
$6,398,949 $6,017,527
========== ==========
See accompanying notes to consolidated financial statements.
-3-
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Six Months
Ended March 31, Ended March 31,
---------------------- ----------------------
2003 2002 2003 2002
---------------------- ----------------------
(In thousands, except per share data)
(Unaudited)
Homebuilding:
Revenues
Home sales ...................................... $1,777,829 $1,534,357 $3,444,278 $2,660,095
Land/lot sales .................................. 90,952 41,843 131,196 51,073
---------- ---------- ---------- ----------
1,868,781 1,576,200 3,575,474 2,711,168
---------- ---------- ---------- ----------
Cost of sales
Home sales ...................................... 1,419,537 1,258,842 2,753,295 2,157,740
Land/lot sales .................................. 76,868 36,203 111,650 44,110
---------- ---------- ---------- ----------
1,496,405 1,295,045 2,864,945 2,201,850
---------- ---------- ---------- ----------
Gross profit
Home sales ...................................... 358,292 275,515 690,983 502,355
Land/lot sales .................................. 14,084 5,640 19,546 6,963
---------- ---------- ---------- ----------
372,376 281,155 710,529 509,318
Selling, general and administrative expense ...... 187,285 149,494 366,466 267,911
Interest expense ................................. 7 2,563 354 3,759
Other (income)/expense ........................... (71) (2,426) (276) 146
---------- ---------- ---------- ----------
185,155 131,524 343,985 237,502
---------- ---------- ---------- ----------
Financial Services:
Revenues ......................................... 39,766 23,865 78,007 48,787
General and administrative expense ............... 22,235 14,918 44,242 30,041
Interest expense ................................. 1,482 999 3,549 2,335
Other (income) ................................... (4,982) (2,818) (10,910) (5,862)
---------- ---------- ---------- ----------
21,031 10,766 41,126 22,273
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES ..................... 206,186 142,290 385,111 259,775
Provision for income taxes ....................... 78,351 53,359 145,448 97,416
---------- ---------- ---------- ----------
NET INCOME ..................................... $ 127,835 $ 88,931 $ 239,663 $ 162,359
========== ========== ========== ==========
Net income per share:
Basic .......................................... $ 0.87 $ 0.69 $ 1.64 $ 1.33
Diluted ........................................ $ 0.86 $ 0.64 $ 1.62 $ 1.26
========== ========== ========== ==========
Weighted average number of shares of stock
Basic .......................................... 146,327 128,897 146,426 122,095
Diluted ........................................ 148,218 141,473 148,362 129,415
========== ========== ========== ==========
Cash dividends per share ....................... $ 0.07 $ 0.06 $ 0.13 $ 0.11
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
-4-
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months
Ended March 31,
-----------------------
2003 2002
---------- ----------
(In thousands)
(Unaudited)
OPERATING ACTIVITIES
Net income ............................................................... $ 239,663 $ 162,359
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization ............................................ 18,784 11,024
Amortization of debt premiums and fees ................................... 3,559 4,476
Changes in operating assets and liabilities:
Increase in inventories ................................................. (358,234) (116,046)
Decrease (increase) in earnest money deposits and other assets .......... 62,164 (45,592)
Decrease in mortgage loans held for sale ................................ 39,414 20,495
Decrease in accounts payable and other liabilities ...................... (25,045) (97,586)
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES ..................................... (19,695) (60,870)
---------- ----------
INVESTING ACTIVITIES
Net purchases of property and equipment .................................. (22,199) (15,725)
Distributions from venture capital entities .............................. -- 500
Net cash paid for acquisitions ........................................... -- (152,573)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES ..................................... (22,199) (167,798)
---------- ----------
FINANCING ACTIVITIES
Proceeds from notes payable .............................................. 1,066,160 1,555,000
Issuance of senior notes payable ......................................... 214,206 --
Repayment of notes payable ............................................... (1,110,417) (1,377,974)
Proceeds from stock associated with certain employee benefit plans ....... 3,660 10,564
Purchase of treasury stock ............................................... (29,522) --
Payment of cash dividends ................................................ (19,059) (8,476)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................................. 125,028 179,114
---------- ----------
INCREASE (DECREASE) IN CASH ............................................... 83,134 (49,554)
Cash at beginning of period .............................................. 104,344 239,280
---------- ----------
Cash at end of period .................................................... $ 187,478 $ 189,726
========== ==========
See accompanying notes to consolidated financial statements.
-5-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
March 31,2003
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 considered
necessary for a fair presentation have been included. Operating results for the
three-month and six-month periods ended March 31, 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 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation No. 46 provides guidance for the
financial accounting and reporting of certain variable interest entities. The
Interpretation clarifies the application of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements", to certain business entities that either
have equity investors with no voting rights or have equity investors that do not
provide sufficient financial resources for the entities to support their
activities. The Interpretation requires consolidation of such entities by any
company that is subject to a majority of the risk of loss from the entities'
activities or is entitled to receive a majority of the entities' residual
returns or both. Furthermore, disclosures about significant variable interest
entities are required even if the company is not required to consolidate them.
The Interpretation applies to all variable interest entities created after
January 31, 2003, and the consolidation requirements apply to older entities in
the first fiscal year or interim period beginning after June 15, 2003. Certain
of the disclosure requirements apply in all financial statements filed after
January 31, 2003. The Company has reviewed all of its unconsolidated business
relationships and believes that it has no significant investments in variable
interest entities at March 31, 2003. Moreover, the Company believes that full
adoption of Interpretation No. 46 as required in fiscal 2003 will not have a
material effect on its financial position, results of operations or cash flows.
NOTE C - SEGMENT INFORMATION
The Company's financial reporting segments consist of homebuilding and financial
services. The Company's homebuilding operations comprise the most substantial
part of its business, with approximately 98% of consolidated revenues for the
three-months and six-months ended March 31, 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 its home sales revenues were generated from the sale
of detached homes for the three and six months ended March 31, 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 March 31, 2003, the mortgage subsidiary's total equity was $115.6 million.
NOTE D - EARNINGS PER SHARE
Basic earnings per share for the three months and six months ended March 31,
2003 and 2002 is based on the weighted
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D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
March 31,2003
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 Six Months Ended
March 31, March 31,
--------------------- ---------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Numerator:
Net income ................................................ $ 127,835 $ 88,931 $ 239,663 $ 162,359
Effect of dilutive securities:
Interest expense and amortization of issuance costs
associated with zero coupon convertible senior notes,
net of applicable income taxes ............................ -- 1,042 -- 1,042
---------- ---------- ---------- ----------
Numerator for diluted earnings per share after assumed
conversions ............................................... $ 127,835 $ 89,973 $ 239,663 $ 163,401
========== ========== ========== ==========
Denominator:
Denominator for basic earnings per share--
weighted average shares .................................. 146,327 128,897 146,426 122,095
Effect of dilutive securities:
Zero coupon convertible senior notes ...................... -- 10,000 -- 5,000
Employee stock options .................................... 1,891 2,576 1,936 2,320
---------- ---------- ---------- ----------
Denominator for diluted earnings per share--
adjusted weighted average shares ......................... 148,218 141,473 148,362 129,415
========== ========== ========== ==========
Options to purchase approximately 2,723,000 and 2,709,000 shares of common stock
at various prices were outstanding during the three months and six months ended
March 31, 2003, respectively, but were not included in the computation of
diluted earnings per share because the exercise prices were greater than the
average market price of the common shares and, therefore, their effect would be
antidilutive. All options outstanding during the three months and six months
ended March 31, 2002 were included in the computation of diluted earnings per
share.
-7-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
March 31,2003
NOTE E - DEBT
The Company's notes payable consist of the following (in thousands):
March 31, September 30,
2003 2002
---------- -------------
Homebuilding:
Unsecured:
Revolving credit facility due 2006 ....................... $ 50,000 $ --
8 3/8% Senior notes due 2004, net ........................ 149,538 149,339
10 1/2% Senior notes due 2005, net ....................... 199,623 199,559
10% Senior notes due 2006, net ........................... 147,903 147,802
7 1/2% Senior notes due 2007, net ........................ 215,000 --
9% Senior notes due 2008, net ............................ 102,155 102,427
8% Senior notes due 2009, net ............................ 383,535 383,438
9 3/8% Senior notes due 2009, net ........................ 244,965 246,057
9 3/4% Senior subordinated notes due 2010, net ........... 149,037 148,994
9 3/8% Senior subordinated notes due 2011, net ........... 199,721 199,710
7 7/8% Senior notes due 2011, net ........................ 198,499 198,437
10 1/2% Senior subordinated notes due 2011, net .......... 152,520 153,284
8 1/2% Senior notes due 2012, net ........................ 248,065 247,995
Zero coupon convertible senior notes due 2021, net ....... 212,548 209,144
Other secured .............................................. 110,155 100,790
---------- ----------
$2,763,264 $2,486,976
========== ==========
Financial Services:
Mortgage warehouse facility due 2003 ...................... $ 155,613 $ 242,355
Commercial paper conduit facility due 2005 ................ 170,000 149,000
---------- ----------
$ 325,613 $ 391,355
========== ==========
Homebuilding:
The Company has an $805 million unsecured revolving credit facility, including
$125 million which may be used for letters of credit. The facility matures in
January 2006, and is guaranteed by substantially all of the Company's
subsidiaries other than its financial services subsidiaries. Borrowings bear
daily interest at rates based upon the London Interbank Offered Rate (LIBOR)
plus a spread based upon the Company's ratio of debt to tangible net worth. The
interest rate applicable to the revolving credit facility at March 31, 2003 was
2.9%. 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
March 31, 2003, these covenants limit the additional homebuilding debt the
Company could incur to $1,327.5 million, which included $633.3 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%.
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
-8-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
March 31,2003
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 April 18, 2003, the Company called for full redemption of the 10% Senior
Notes due 2006 at an aggregate redemption price of approximately $150.1 million,
including accrued interest. The Company will use a part of the proceeds of the 6
7/8% Senior Notes to redeem the called notes. Concurrent with the redemption,
the Company will record interest expense of approximately $1.3 million,
representing unaccreted discount and unamortized debt issuance costs associated
with the redeemed notes.
Financial Services:
The Company's mortgage subsidiary has a $190 million, one-year mortgage
warehouse line payable to financial institutions, maturing August 12, 2003, at
the 30-day LIBOR rate plus a fixed premium. The Company's mortgage subsidiary
also has a $200 million commercial paper conduit credit facility which expires
in July 2005, the terms of which are renewable annually by the sponsoring bank.
The current total borrowing capacity of our mortgage subsidiary under these two
credit facilities is $390 million. These two credit facilities are secured by
mortgage loans held for sale and are not guaranteed by D.R. Horton, Inc. or any
of the guarantors of the Senior and Senior Subordinated Notes. The interest
rates of the mortgage warehouse line payable at March 31, 2003 and 2002 were
2.4% and 2.9%, respectively. The interest rate on the commercial paper conduit
facility at March 31, 2003 was 1.9%.
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 Six Months Ended
March 31, March 31,
------------------------ ---------------------
2003 2002 2003 2002
--------- --------- -------- ---------
Capitalized interest, beginning of period..... $170,405 $ 110,126 $153,536 $ 96,910
Interest incurred - homebuilding.............. 60,265 46,535 117,000 83,247
Interest expensed:
Directly - homebuilding...................... (7) (2,563) (354) (3,759)
Amortized to cost of sales................... (49,709) (29,446) (89,228) (51,746)
-------- --------- -------- ---------
Capitalized interest, end of period........... $180,954 $ 124,652 $180,954 $ 124,652
======== ========= ======== =========
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.
-9-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
March 31,2003
Changes in the Company's warranty liability are as follows (in thousands):
Three Months Ended Six Months Ended
March 31, 2003 March 31, 2003
------------------ ----------------
Warranty liability, beginning of period.... $42,349 $39,471
Warranties issued......................... 8,970 17,167
Settlements made.......................... (5,197) (10,516)
------- -------
Warranty liability, end of period.......... $46,122 $46,122
======= =======
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 Six Months Ended
March 31, March 31,
---------------------- ----------------------
2003 2002 2003 2002
----------- ---------- ---------- ----------
Net income, as reported .......................... $ 127,835 $ 88,931 $ 239,663 $ 162,359
Pro forma effect of expensing
stock options (net of related tax effects) ...... (1,060) (567) (2,137) (1,136)
---------- ---------- ---------- ----------
Pro forma net income ............................. $ 126,775 $ 88,364 $ 237,526 $ 161,223
========== ========== ========== ==========
Reported basic net income per share .............. $ 0.87 $ 0.69 $ 1.64 $ 1.33
Pro forma effect of expensing stock options ...... -- -- (0.02) (0.01)
---------- ---------- ---------- ----------
Pro forma basic net income per share ............. $ 0.87 $ 0.69 $ 1.62 $ 1.32
========== ========== ========== ==========
Reported diluted net income per share ............ $ 0.86 $ 0.64 $ 1.62 $ 1.26
Pro forma effect of expensing stock options ...... -- (0.01) (0.02) (0.01)
---------- ---------- ---------- ----------
Pro forma diluted net income per share ........... $ 0.86 $ 0.63 $ 1.60 $ 1.25
========== ========== ========== ==========
-10-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
March 31,2003
NOTE I - SUMMARIZED FINANCIAL INFORMATION
The 7 1/2%, 7 7/8%, 8%, 8 3/8%, 8 1/2%, 9%, 9 3/8%, 10% and 10 1/2% Senior
Notes, the 9 3/8%, 9 3/4% and 10 1/2% Senior Subordinated Notes, and the Zero
Coupon Convertible Senior Notes are fully and unconditionally guaranteed, on a
joint and several basis, by all of the Company's direct and indirect
subsidiaries (Guarantor Subsidiaries), other than financial services
subsidiaries and certain other inconsequential subsidiaries (collectively,
Non-Guarantor Subsidiaries). Each of the Guarantor Subsidiaries is wholly-owned.
In lieu of providing separate audited financial statements for the Guarantor
Subsidiaries, consolidated condensed financial statements are presented below.
Separate financial statements and other disclosures concerning the Guarantor
Subsidiaries are not presented because management has determined that they are
not material to investors.
Consolidating Balance Sheet
March 31, 2003
Non-Guarantor
Subsidiaries
----------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ ----------- --------- ------------ -----------
ASSETS (In thousands)
Homebuilding:
Cash and cash equivalents ........................ $ -- $ 149,836 $ -- $ 11,303 $ -- $ 161,139
Advances to/investments in unconsolidated
subsidiaries .................................... 4,486,565 190,734 -- -- (4,677,299) --
Inventories ...................................... 808,364 3,838,807 -- 89,254 (246) 4,736,179
Property and equipment (net) ..................... 12,186 58,694 -- 6,155 -- 77,035
Earnest money deposits and other assets .......... 155,136 207,866 -- 8,889 -- 371,891
Excess of cost over net assets acquired .......... -- 581,230 -- -- -- 581,230
----------- ----------- ----------- --------- ------------ -----------
5,462,251 5,027,167 -- 115,601 (4,677,545) 5,927,474
----------- ----------- ----------- --------- ------------ -----------
Financial Services:
Cash and cash equivalents ........................ -- -- 26,339 -- -- 26,339
Mortgage loans held for sale ..................... -- -- 424,674 -- -- 424,674
Other assets ..................................... -- -- 20,462 -- -- 20,462
----------- ----------- ----------- --------- ------------ -----------
-- -- 471,475 -- -- 471,475
----------- ----------- --------- ------------ ----------- -----------
Total Assets ...................................... $ 5,462,251 $ 5,027,167 $ 471,475 $ 115,601 $ (4,677,545) $ 6,398,949
=========== =========== =========== ========= ============ ===========
LIABILITIES & EQUITY
Homebuilding:
Accounts payable and other liabilities ........... $ 288,324 $ 501,251 $ -- $ 13,980 $ -- $ 803,555
Advances from parent/unconsolidated subsidiaries . -- 2,832,135 -- 52,082 (2,884,217) --
Notes payable .................................... 2,707,891 33,734 -- 21,639 -- 2,763,264
----------- ----------- ----------- --------- ------------ -----------
2,996,215 3,367,120 -- 87,701 (2,884,217) 3,566,819
----------- ----------- ----------- --------- ------------ -----------
Financial Services:
Accounts payable and other liabilities ........... -- -- 14,442 -- -- 14,442
Advances from parent/unconsolidated subsidiaries . -- -- 20,938 -- (20,938) --
Notes payable .................................... -- -- 325,613 -- -- 325,613
----------- ----------- ----------- --------- ------------ -----------
-- -- 360,993 -- (20,938) 340,055
----------- ----------- ----------- --------- ------------ -----------
Total Liabilities ................................ 2,996,215 3,367,120 360,993 87,701 (2,905,155) 3,906,874
----------- ----------- ----------- --------- ------------ -----------
Minority interests ............................... -- -- 28 26,011 -- 26,039
----------- ----------- ----------- --------- ------------ -----------
Stockholders' Equity ............................. 2,466,036 1,660,047 110,454 1,889 (1,772,390) 2,466,036
----------- ----------- ----------- --------- ------------ -----------
Total Liabilities & Equity ....................... $ 5,462,251 $ 5,027,167 $ 471,475 $ 115,601 $ (4,677,545) $ 6,398,949
=========== =========== =========== ========= ============ ===========
-11-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
March 31,2003
NOTE I - 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
=========== =========== =========== ========= ============ ===========
-12-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
March 31,2003
NOTE I - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Income
Three Months Ended March 31, 2003
Non-Guarantor
Subsidiaries
---------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ ---------- --------- ------------ -----------
(In thousands)
Homebuilding:
Revenues:
Home sales ....................................... $ 256,090 $ 1,469,744 $ -- $ 51,995 $ -- $ 1,777,829
Land/lot sales ................................... 2,519 88,433 -- -- -- 90,952
----------- ------------ --------- --------- ----------- -----------
258,609 1,558,177 -- 51,995 -- 1,868,781
----------- ------------ --------- --------- ----------- -----------
Cost of sales:
Home sales ....................................... 200,810 1,179,041 -- 39,773 (87) 1,419,537
Land/lot sales ................................... 6,912 69,956 -- -- -- 76,868
----------- ------------ --------- --------- ----------- -----------
207,722 1,248,997 -- 39,773 (87) 1,496,405
----------- ------------ --------- --------- ----------- -----------
Gross profit:
Home sales ....................................... 55,280 290,703 -- 12,222 87 358,292
Land/lot sales ................................... (4,393) 18,477 -- -- -- 14,084
----------- ------------ --------- --------- ----------- -----------
50,887 309,180 -- 12,222 87 372,376
Selling, general and administrative expense ....... 54,118 127,491 -- 3,060 2,616 187,285
Interest expense .................................. -- (480) -- 487 -- 7
Other expense (income) ............................ (209,417) (1,426) -- 894 209,878 (71)
----------- ------------ --------- --------- ----------- -----------
206,186 183,595 -- 7,781 (212,407) 185,155
----------- ------------ --------- --------- ----------- -----------
Financial services:
Revenues .......................................... -- -- 39,766 -- -- 39,766
General and administrative expense ................ -- -- 24,851 -- (2,616) 22,235
Interest expense .................................. -- -- 1,482 -- -- 1,482
Other (income) .................................... -- -- (4,982) -- -- (4,982)
----------- ------------ --------- --------- ----------- -----------
-- -- 18,415 -- 2,616 21,031
----------- ------------ --------- --------- ----------- -----------
Income before income taxes ........................ 206,186 183,595 18,415 7,781 (209,791) 206,186
Provision for income taxes ........................ 78,351 69,758 7,002 2,945 (79,705) 78,351
----------- ------------ --------- --------- ----------- -----------
Net income ........................................ $ 127,835 $ 113,837 $ 11,413 $ 4,836 $ (130,086)$ 127,835
=========== ============ ========= ========= =========== ===========
-13-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
March 31,2003
NOTE I - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Income
Six Months Ended March 31, 2003
Non-Guarantor
Subsidiaries
---------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ --------- --------- ------------ -----------
(In thousands)
Homebuilding:
Revenues:
Home sales ....................................... $ 452,975 $ 2,916,732 $ -- $ 74,571 $ -- $ 3,444,278
Land/lot sales ................................... 5,784 125,412 -- -- -- 131,196
----------- ------------ --------- --------- ----------- -----------
458,759 3,042,144 -- 74,571 -- 3,575,474
----------- ------------ --------- --------- ----------- -----------
Cost of sales:
Home sales ....................................... 349,126 2,347,750 -- 56,609 (190) 2,753,295
Land/lot sales ................................... 10,261 101,389 -- -- -- 111,650
----------- ------------ --------- --------- ----------- -----------
359,387 2,449,139 -- 56,609 (190) 2,864,945
----------- ------------ --------- --------- ----------- -----------
Gross profit:
Home sales ....................................... 103,849 568,982 -- 17,962 190 690,983
Land/lot sales ................................... (4,477) 24,023 -- -- -- 19,546
----------- ------------ --------- --------- ----------- -----------
99,372 593,005 -- 17,962 190 710,529
Selling, general and administrative expense ....... 98,601 256,779 -- 5,904 5,182 366,466
Interest expense .................................. -- (463) -- 817 -- 354
Other expense (income) ............................ (384,340) (3,239) -- 1,398 385,905 (276)
----------- ------------ --------- --------- ----------- -----------
385,111 339,928 -- 9,843 (390,897) 343,985
----------- ------------ --------- --------- ----------- -----------
Financial services:
Revenues .......................................... -- -- 78,007 -- -- 78,007
General and administrative expense ................ -- -- 49,424 -- (5,182) 44,242
Interest expense .................................. -- -- 3,549 -- -- 3,549
Other (income) .................................... -- -- (10,910) -- -- (10,910)
----------- ------------ --------- --------- ----------- -----------
-- -- 35,944 -- 5,182 41,126
----------- ------------ --------- --------- ----------- -----------
Income before income taxes ........................ 385,111 339,928 35,944 9,843 (385,715) 385,111
Provision for income taxes ........................ 145,448 128,383 13,575 3,718 (145,676) 145,448
----------- ------------ --------- --------- ----------- -----------
Net income ........................................ $ 239,663 $ 211,545 $ 22,369 $ 6,125 $ (240,039)$ 239,663
=========== ============ ========= ========= =========== ===========
-14-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
March 31,2003
NOTE I - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Income
Three Months Ended March 31, 2002
Non-Guarantor
Subsidiaries
---------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------- ------------ --------- --------- ------------ -----------
(In thousands)
Homebuilding:
Revenues:
Home sales ....................................... $ 222,514 $ 1,284,294 $ -- $ 27,549 $ -- $ 1,534,357
Land/lot sales ................................... 799 41,044 -- -- -- 41,843
----------- ------------ --------- --------- ----------- -----------
223,313 1,325,338 -- 27,549 -- 1,576,200
----------- ------------ --------- --------- ----------- -----------
Cost of sales:
Home sales ....................................... 173,909 1,061,771 -- 23,201 (39) 1,258,842
Land/lot sales ................................... (254) 36,457 -- -- -- 36,203
----------- ------------ --------- --------- ----------- -----------
173,655 1,098,228 -- 23,201 (39) 1,295,045
----------- ------------ --------- --------- ----------- -----------
Gross profit:
Home sales ....................................... 48,605 222,523 -- 4,348 39 275,515
Land/lot sales ................................... 1,053 4,587 -- -- -- 5,640
----------- ------------ --------- --------- ----------- -----------
49,658 227,110 -- 4,348 39 281,155
Selling, general and administrative expense ....... 42,449 103,512 -- 2,012 1,521 149,494
Interest expense .................................. 1,873 689 -- 1 -- 2,563
Other expense (income) ............................ (136,954) (1,067) -- 1,598 133,997 (2,426)
----------- ------------ --------- --------- ----------- -----------
142,290 123,976 -- 737 (135,479) 131,524
----------- ------------ --------- --------- ----------- -----------
Financial services:
Revenues .......................................... -- -- 23,865 -- -- 23,865
General and administrative expense ................ -- -- 16,439 -- (1,521) 14,918
Interest expense .................................. -- -- 999 -- -- 999
Other (income) .................................... -- -- (2,818) -- -- (2,818)
----------- ------------ --------- --------- ----------- -----------
-- -- 9,245 -- 1,521 10,766
----------- ------------ --------- --------- ----------- -----------
Income before income taxes ........................ 142,290 123,976 9,245 737 (133,958) 142,290
Provision for income taxes ........................ 53,359 46,491 3,467 277 (50,235) 53,359
----------- ------------ --------- --------- ----------- -----------
Net income ........................................ $ 88,931 $ 77,485 $ 5,778 $ 460 $ (83,723)$ 88,931
=========== ============ ========= ========= =========== ===========
-15-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
March 31,2003
NOTE I - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Income
Six Months Ended March 31, 2002
Non-Guarantor
Subsidiaries
---------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------- --------- --------- ------------ -----------
(In thousands)
Homebuilding:
Revenues:
Home sales ....................................... $ 401,551 $ 2,222,539 $ -- $ 36,005 $ -- $ 2,660,095
Land/lot sales ................................... 1,460 49,613 -- -- -- 51,073
----------- ------------ --------- --------- ----------- -----------
403,011 2,272,152 -- 36,005 -- 2,711,168
----------- ------------ --------- --------- ----------- -----------
Cost of sales:
Home sales ....................................... 318,327 1,809,962 -- 29,666 (215) 2,157,740
Land/lot sales ................................... 505 43,605 -- -- -- 44,110
----------- ------------ --------- --------- ----------- -----------
318,832 1,853,567 -- 29,666 (215) 2,201,850
----------- ------------ --------- --------- ----------- -----------
Gross profit:
Home sales ....................................... 83,224 412,577 -- 6,339 215 502,355
Land/lot sales ................................... 955 6,008 -- -- -- 6,963
----------- ------------ --------- --------- ----------- -----------
84,179 418,585 -- 6,339 215 509,318
Selling, general and administrative expense ....... 73,045 188,453 -- 3,307 3,106 267,911
Interest expense .................................. 2,911 846 -- 12 (10) 3,759
Other expense (income) ............................ (251,552) (1,874) -- 6,389 247,183 146
----------- ------------ --------- --------- ----------- -----------
259,775 231,160 -- (3,369) (250,064) 237,502
----------- ------------ --------- --------- ----------- -----------
Financial services:
Revenues .......................................... -- -- 48,787 -- -- 48,787
General and administrative expense ................ -- -- 33,147 -- (3,106) 30,041
Interest expense .................................. -- -- 2,335 -- -- 2,335
Other (income) .................................... -- -- (5,862) -- -- (5,862)
----------- ------------ --------- --------- ----------- -----------
-- -- 19,167 -- 3,106 22,273
----------- ------------ --------- --------- ----------- -----------
Income before income taxes ........................ 259,775 231,160 19,167 (3,369) (246,958) 259,775
Provision for income taxes ........................ 97,416 86,685 7,188 (1,263) (92,610) 97,416
----------- ------------ --------- --------- ----------- -----------
Net income ........................................ $ 162,359 $ 144,475 $ 11,979 $ (2,106) $ (154,348)$ 162,359
=========== ============ ========= ========= =========== ===========
-16-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
March 31,2003
NOTE I - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Cash Flows
Six Months Ended March 31, 2003
Non-Guarantor
Subsidiaries
--------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ ---------- --------- ------------ -----------
(In thousands)
OPERATING ACTIVITIES
Net income ............................................ $ 239,663 $ 211,545 $ 22,369 $ 6,125 $ (240,039) $ 239,663
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................ 2,592 14,625 854 713 -- 18,784
Amortization of debt premiums and fees ............... 3,559 -- -- -- -- 3,559
Changes in operating assets and liabilities:
Increase in inventories ............................. (106,422) (250,482) -- (1,206) (124) (358,234)
(Increase) decrease in earnest money
deposits and other assets .......................... 54,223 5,003 4,087 3,519 (4,668) 62,164
Decrease in mortgage loans held for sale ............ -- -- 39,414 -- -- 39,414
Increase (decrease) in accounts payable
and other liabilities .............................. (52,829) 17,999 104 9,657 24 (25,045)
----------- ------------ --------- -------- ----------- ----------
Net cash provided by (used in) operating
activities ............................................ 140,786 (1,310) 66,828 18,808 (244,807) (19,695)
----------- ------------ --------- -------- ----------- ----------
INVESTING ACTIVITIES
Net purchases of property and equipment ............... (2,773) (17,286) (917) (1,223) -- (22,199)
----------- ------------ --------- -------- ----------- ----------
Net cash used in investing activities ................. (2,773) (17,286) (917) (1,223) -- (22,199)
----------- ------------ --------- -------- ----------- ----------
FINANCING ACTIVITIES
Net change in notes payable ........................... 252,105 (6,516) (65,742) (9,898) -- 169,949
Increase (decrease) in intercompany advances .......... (345,197) 94,675 13,932 (8,217) 244,807 --
Purchase of treasury stock ............................ (29,522) -- -- -- -- (29,522)
Proceeds from stock associated with certain
employee benefit plans ............................... 3,660 -- -- -- -- 3,660
Cash dividends paid ................................... (19,059) -- -- -- -- (19,059)
----------- ------------ --------- -------- ----------- ----------
Net cash provided by (used in) financing
activities ........................................... (138,013) 88,159 (51,810) (18,115) 244,807 125,028
----------- ------------ --------- -------- ----------- ----------
Increase (decrease) in cash ........................... -- 69,563 14,101 (530) -- 83,134
Cash at beginning of period ........................... -- 80,273 12,238 11,833 -- 104,344
----------- ------------ --------- -------- ----------- ----------
Cash at end of period ................................. $ -- $ 149,836 $ 26,339 $ 11,303 $ -- $ 187,478
=========== ============ ========= ======== =========== ==========
-17-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
March 31,2003
NOTE I - SUMMARIZED FINANCIAL INFORMATION - (Continued)
Consolidating Statement of Cash Flows
Six Months Ended March 31, 2002
Non-Guarantor
Subsidiaries
--------------------
D.R. Guarantor Financial Intercompany
Horton, Inc. Subsidiaries Services Other Eliminations Total
------------ ------------ ---------- --------- ------------ ----------
(In thousands)
OPERATING ACTIVITIES
Net income ............................................ $ 162,359 $ 144,475 $ 11,979 $ (2,106) $ (154,348) $ 162,359
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................ 1,728 8,404 678 214 -- 11,024
Amortization of debt premiums and fees ............... 4,476 -- -- -- -- 4,476
Changes in operating assets and liabilities:
Increase in inventories ............................. (56,648) (18,539) -- (40,844) (15) (116,046)
(Increase) decrease in earnest money
deposits and other assets .......................... (24,378) (19,820) 2,716 379 (4,489) (45,592)
Decrease in mortgage loans held for sale ............ -- -- 20,495 -- -- 20,495
Increase (decrease) in accounts payable
and other liabilities .............................. (47,192) (67,646) (416) 17,637 31 (97,586)
----------- ------------ --------- -------- ----------- ----------
Net cash provided by (used in) operating
activities ........................................... 40,345 46,874 35,452 (24,720) (158,821) (60,870)
----------- ------------ --------- -------- ----------- ----------
INVESTING ACTIVITIES
Net (purchases) dispositions of property and
equipment ............................................ (3,055) (12,007) (699) 36 -- (15,725)
Distributions from venture capital entities ........... -- -- -- 500 -- 500
Net cash paid for acquisitions ........................ -- (152,573) -- -- -- (152,573)
----------- ------------ --------- -------- ----------- ----------
Net cash provided by (used in) investing
activities ........................................... (3,055) (164,580) (699) 536 -- (167,798)
----------- ------------ --------- -------- ----------- ----------
FINANCING ACTIVITIES
Net change in notes payable ........................... 472,144 (260,634) (34,484) (4,457) 4,457 177,026
Increase (decrease) in intercompany advances .......... (511,522) 450,349 6,241 40,458 14,474 --
Proceeds from stock associated with certain
employee benefit plans ............................... 10,564 -- -- -- -- 10,564
Cash dividends/distributions paid ..................... (8,476) (139,890) -- -- 139,890 (8,476)
----------- ------------ --------- -------- ----------- ----------
Net cash provided by (used in) financing
activities ........................................... (37,290) 49,825 (28,243) 36,001 158,821 179,114
----------- ------------ --------- -------- ----------- ----------
Increase (decrease) in cash ........................... -- (67,881) 6,510 11,817 -- (49,554)
Cash at beginning of period ........................... -- 230,481 6,975 1,824 -- 239,280
----------- ------------ --------- -------- ----------- ----------
Cash at end of period ................................. $ -- $ 162,600 $ 13,485 $ 13,641 $ -- $ 189,726
=========== ============ ========= ======== =========== ==========
-18-
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 six months ended March 31, 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 48
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 the surviving corporation.
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
Consolidated revenues for the three months ended March 31, 2003, increased
19.3%, to $1,908.5 million, from $1,600.1 million for the comparable period of
2002, due to increases in both homebuilding and financial services revenues.
Approximately $142.5 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 three months ended March 31, 2003, increased
44.9%, to $206.2 million, from $142.3 million for the comparable period of 2002.
As a percentage of revenues, income before income taxes for the three months
ended March 31, 2003, increased 1.9 percentage points, to 10.8% from 8.9% 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 March 31, 2002.
The consolidated provision for income taxes increased 46.8%, to $78.4 million
for the three months ended March 31, 2003, from $53.4 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 March 31, 2003 increased to 38.0%, from 37.5% for the
comparable period of 2002, due to increases in pre-tax income in states with
higher tax rates.
Six Months Ended March 31, 2003 Compared to Six Months Ended March 31, 2002
Consolidated revenues for the six months ended March 31, 2003, increased 32.4%,
to $3,653.5 million, from $2,760.0 million for the comparable period of 2002,
due to increases in both homebuilding and financial services revenues.
Approximately $498.6 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 six months ended March 31, 2003, increased
48.2%, to $385.1 million, from $259.8 million for the comparable period of 2002.
As a percentage of revenues, income before income taxes for the six months ended
March 31, 2003, increased 1.1 percentage points, to 10.5% 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 six months ended March 31,
2002.
The consolidated provision for income taxes increased 49.3%, to $145.4 million
for the six months ended March 31, 2003, from $97.4 million for the same period
of 2002, due to the corresponding increase in income before income taxes and an
increase in the effective income tax rate. The effective income tax rate for the
six months ended March 31, 2003 increased to 37.8%, from 37.5% for the
comparable period of 2002, due to increases in pre-tax income in states with
higher tax rates.
-19-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - HOMEBUILDING
The following tables set forth certain operating and financial data for our
homebuilding activities ($ in millions):
Percentages of Homebuilding Revenues
----------------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
------------------ --------------------
2003 2002 2003 2002
-------- -------- -------- --------
Costs and expenses:
Cost of sales .................................... 80.1% 82.2% 80.1% 81.2%
Selling, general and administrative expense ...... 10.0 9.5 10.3 9.9
Interest expense ................................. -- 0.2 -- 0.1
-------- -------- -------- --------
Total costs and expenses ......................... 90.1 91.9 90.4 91.2
Other (income) expense ........................... -- (0.2) -- --
-------- -------- -------- --------
Income before income taxes ....................... 9.9% 8.3% 9.6% 8.8%
======== ======== ======== ========
Homes Closed Three Months Ended March 31, Six Months Ended March 31,
----------------------------------------- ------------------------------------------
2003 2002 2003 2002
------------------- -------------------- -------------------- -------------------
Homes Homes Homes Homes
Closed Revenues Closed Revenues Closed Revenues Closed Revenues
-------- -------- --------- -------- --------- -------- -------- --------
Mid-Atlantic ................. 743 $ 154.5 633 $ 138.6 1,408 $ 288.7 1,228 $ 263.7
Midwest ...................... 441 107.6 388 95.4 867 217.1 851 214.1
Southeast .................... 979 167.7 790 135.7 1,926 325.0 1,678 290.6
Southwest .................... 3,277 552.3 2,338 403.9 6,357 1,070.2 4,909 836.5
West ......................... 2,448 795.7 2,490 760.8 4,844 1,543.3 3,664 1,055.2
-------- -------- -------- -------- -------- -------- -------- --------
7,888 $1,777.8 6,639 $1,534.4 15,402 $3,444.3 12,330 $2,660.1
======== ======== ======== ======== ======== ======== ======== ========
Net New Sales Orders Three Months Ended March 31, Six Months Ended March 31,
----------------------------------------- -----------------------------------------
2003 2002 2003 2002
------------------- ------------------- ------------------- -------------------
Homes Homes Homes Homes
Sold $ Sold $ Sold $ Sold $
-------- -------- -------- -------- -------- -------- -------- --------
Mid-Atlantic ................. 993 $ 215.1 883 $ 182.6 1,714 $ 361.0 1,511 $ 310.7
Midwest ...................... 522 140.7 463 117.4 951 247.6 851 214.3
Southeast .................... 1,152 215.5 969 158.4 2,101 385.4 1,704 276.7
Southwest .................... 4,473 740.2 3,685 613.9 7,244 1,209.1 6,017 993.2
West ......................... 3,408 1,128.0 2,617 761.1 5,790 1,934.9 3,678 1,060.0
-------- -------- -------- -------- -------- -------- -------- --------
10,548 $2,439.5 8,617 $1,833.4 17,800 $4,138.0 13,761 $2,854.9
======== ======== ======== ======== ======== ======== ======== ========
Sales Backlog March 31, 2003 March 31, 2002
------------------ -------------------
Homes $ Homes $
-------- -------- -------- --------
Mid-Atlantic ..................................... 1,559 $ 337.2 1,105 $ 237.4
Midwest .......................................... 1,000 269.0 918 263.0
Southeast ........................................ 1,844 335.1 1,490 239.6
Southwest ........................................ 6,073 1,026.6 5,410 910.2
West ............................................. 4,619 1,551.0 3,475 1,013.5
-------- -------- -------- --------
15,095 $3,518.9 12,398 $2,663.7
======== ======== ======== ========
-20-
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 March 31, 2003 Compared to Three Months Ended March 31, 2002
Revenues from homebuilding activities increased 18.6%, to $1,868.8 million
(7,888 homes closed) for the three months ended March 31, 2003, from $1,576.2
million (6,639 homes closed) for the comparable period of 2002. Revenues from
home sales increased in all five of our market regions, with percentage
increases ranging from 4.6% in the West region to 36.7% in the Southwest. The
increases in both revenues and homes closed 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 6.9%, to $1,640.3 million
(7,441 homes closed) for the three months ended March 31, 2003, from $1,534.4
million (6,639 homes closed) for the comparable period of 2002. Revenues from
the sale of land and lots increased by $49.1 million, to $91.0 million in the
three months ended March 31, 2003.
The average selling price of homes closed during the three months ended March
31, 2003 was $225,400, down 2.5% from $231,100 for the same period in 2002. The
decrease in average selling price was primarily due to relatively fewer closings
in the West region, which has the highest average selling price.
The value of net new sales orders increased 33.1%, to $2,439.5 million (10,548
homes) for the three months ended March 31, 2003, from $1,833.4 million (8,617
homes) for the same period of 2002. The value of net new sales orders increased
in all of our five market regions, with percentage increases ranging from 17.8%
in the Mid-Atlantic region to 48.2% in the West region. The increases in both
net new sales orders and their value were due to strong housing demand
throughout the majority of our markets and the merger with Schuler in February
2002. On a consolidated basis, excluding the activities of Schuler prior to the
February 21, 2003 anniversary date of the acquisition, the value of net new
sales orders increased 18.9%, to $2,180.4 million (9,777 homes) for the three
months ended March 31, 2003, from $1,833.4 million (8,617 homes) for the
comparable period of 2002. The average price of a net new sales order in the
three months ended March 31, 2003 was $231,300, up 8.7% from the $212,800
average in the comparable period of 2002. The increase in average selling price
was primarily due to increased sales orders in the West region, which has the
highest average selling price.
At March 31, 2003, the value of our backlog of sales orders was $3,518.9 million
(15,095 homes), up 32.1% from $2,663.7 million (12,398 homes) at March 31, 2002.
The value of our backlog of sales orders increased in all five of our market
regions, with percentage increases ranging from 2.3% in the Midwest to region to
53.0% in the West region. The average sales price of homes in sales backlog was
$233,100 at March 31, 2003, up 8.5% from the average price of $214,800 at March
31, 2002 due to the increase in sales orders in the West region, which has the
highest average selling price.
Cost of sales increased by 15.5%, to $1,496.4 million for the three months ended
March 31, 2003, from $1,295.0 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
2.2 percentage points to 79.8% for the three months ended March 31, 2003, from
82.0% 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 that
increased the acquired inventory to its fair value as of the date of
acquisition, was recognized in the three months ended March 31, 2002. For the
same reason, total homebuilding cost of sales as a percentage of total
homebuilding revenues decreased 2.1 percentage points, to 80.1% in the three
months ended March 31, 2003, from 82.2% in the comparable period of 2002.
-21-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Selling, general and administrative (SG&A) expenses from homebuilding activities
increased by 25.3%, to $187.3 million in the three months ended March 31, 2003,
from $149.5 million in the comparable period of 2002. As a percentage of
homebuilding revenues, SG&A expenses increased 0.5 percentage point, to 10.0%
for the three months ended March 31, 2003, from 9.5% in the comparable period of
2002, due primarily to the fixed costs leverage achieved by the large amount of
home closings revenues generated by the Schuler operating divisions between the
Schuler acquisition date, February 21, 2002, and March 31, 2002.
Interest expense associated with homebuilding activities decreased to a
negligible amount in the three months ended March 31, 2003, from $2.6 million in
the comparable period of 2002. Due to the declining interest rate environment
experienced throughout fiscal 2003, our total interest costs as a percentage of
average interest-bearing debt declined. Also, throughout the three months ended
March 31, 2003, inventory under construction or development grew at a more rapid
pace than interest- bearing debt. Therefore, virtually all of the total
homebuilding interest incurred was capitalized to inventory in the current
quarter. During both periods, we expensed the portion of incurred interest and
other financing costs which could not be capitalized to inventory. Capitalized
interest and other financing costs are included in cost of sales at the time
homes are closed.
Other income associated with homebuilding activities was $0.1 million in the
three months ended March 31, 2003, compared to $2.4 million in the comparable
period of 2002. The income in both quarters was primarily due to increases in
the fair value of our interest rate swap agreements.
Six Months Ended March 31, 2003 Compared to Six Months Ended March 31, 2002
Revenues from homebuilding activities increased 31.9%, to $3,575.5 million
(15,402 homes closed) for the six months ended March 31, 2003, from $2,711.2
million (12,330 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 1.4% in the Midwest region to 46.3% 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 11.5% to $2,966.2 million (13,878 homes closed) for the six months
ended March 31, 2003, from $2,660.1 million (12,330 homes closed) for the
comparable period of 2002. Revenues from the sale of land and lots increased by
$80.1 million, to $131.2 million in the six months ended March 31, 2003.
The average selling price of homes closed during the six months ended March 31,
2003 was $223,600, up 3.7% from $215,700 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 44.9%, to $4,138.0 million (17,800
homes) for the six months ended March 31, 2003, from $2,854.9 million (13,761
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 15.5% in the Mid-West region to 82.5% 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 20.1%, to $3,428.5
million (15,781 homes) for the six months ended March 31, 2003, from $2,854.9
million (13,761 homes) for the comparable period of 2002. The average price of a
net new sales orders in the six months ended March 31, 2003 was $232,500, up
12.0% over the $207,500 average in the six months ended March 31, 2002, due to
increased sales orders in the West region, which has the highest average selling
price.
Cost of sales increased 30.1%, to $2,864.9 million for the six months ended
March 31, 2003, from $2,201.9 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 79.9% for the six months ended March 31, 2003, from
81.1% for the comparable period of 2002. A significant portion of costs
associated with the sales of inventory acquired in the Schuler acquisition, with
-22-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 six months ended March 31, 2002. For the same
reason, total homebuilding cost of sales as a percentage of total homebuilding
revenues decreased 1.1 percentage points, to 80.1% in the six months ended March
31, 2003, from 81.2% in the comparable period of 2002.
Selling, general and administrative (SG&A) expenses from homebuilding activities
increased by 36.8%, to $366.5 million in the six months ended March 31, 2003,
from $267.9 million in the comparable period of 2002. As a percentage of
homebuilding revenues, SG&A expenses increased to 10.3% for the six months ended
March 31, 2003, from 9.9% for the comparable period of 2002, due primarily to
the fixed costs leverage achieved by the large amount of home closings revenues
generated by the Schuler operating divisions between the Schuler acquisition
date, February 21, 2002, and March 31, 2002.
Interest expense associated with homebuilding activities decreased to $0.4
million in the six months ended March 31, 2003, from $3.8 million in the
comparable period of 2002. Due to the declining interest rate environment
experienced throughout fiscal 2003, our total interest costs as a percentage of
average interest-bearing debt declined. Also, throughout the six months ended
March 31, 2003, inventory under construction or development grew at a more rapid
pace than interest-bearing debt. Therefore, virtually all of the total
homebuilding interest incurred was capitalized to inventory in the six months
ended March 31, 2003. During both periods, the Company expensed the portion of
incurred interest and other financing costs which could not be charged to
inventory. The Company follows a policy of capitalizing interest only on
inventory under construction or development. Capitalized interest and other
financing costs are included in cost of sales at the time of home closings.
Other income associated with homebuilding activities was $0.3 million in the six
months ended March 31, 2003, compared to other expense of $0.1 million in the
comparable period of 2002. The expense in 2002 was primarily due to write-downs
to estimated fair value of the carrying amounts of our investments in start-up
and emerging growth companies, offset in part by an increase in the fair value
of our interest rate swap agreements during the period.
RESULTS OF OPERATIONS - FINANCIAL SERVICES
Financial services include mortgage financing and title insurance agency and
closing services, primarily related to purchases of homes we build and sell. We
provide mortgage services in Arizona, California, Colorado, Florida, Georgia,
Illinois, Maryland, Minnesota, Nevada, New Mexico, North Carolina, Oregon, South
Carolina, Texas, Virginia and Washington. We provide title agency and closing
services in Arizona, Florida, Georgia, Maryland, Minnesota, Texas, Virginia and
Washington. The following table summarizes financial and other information for
our financial services operations:
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
2003 2002 2003 2002
-------- -------- -------- --------
($ in thousands)
Number of loans originated ................................. 6,374 4,024 12,602 8,447
-------- -------- -------- --------
Loan origination fees ...................................... $ 7,200 $ 4,175 $ 13,932 $ 8,818
Sale of servicing rights and gains from sale of mortgages .. 21,046 11,239 41,180 24,300
Other revenues ............................................. 3,873 2,894 7,508 4,633
-------- -------- -------- --------
Total mortgage banking revenues ............................ 32,119 18,308 62,620 37,751
Title policy premiums, net ................................. 7,647 5,557 15,387 11,036
-------- -------- -------- --------
Total revenues ............................................. 39,766 23,865 78,007 48,787
General and administrative expense ......................... 22,235 14,918 44,242 30,041
Interest expense ........................................... 1,482 999 3,549 2,335
Interest/other (income) .................................... (4,982) (2,818) (10,910) (5,862)
-------- -------- -------- --------
Income before income taxes ................................. $ 21,031 $ 10,766 $ 41,126 $ 22,273
======== ======== ======== ========
-23-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
Revenues from the financial services segment increased 66.6%, to $39.8 million
in the three months ended March 31, 2003, from $23.9 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 49.0%, to $22.2 million in the three months ended
March 31, 2003, from $14.9 million in the comparable period of 2002. As a
percentage of financial services revenues, general and administrative expenses
decreased 6.6 percentage points, to 55.9% in the three months ended March 31,
2003, from 62.5% in the comparable period in 2002, due primarily to efficiencies
realized with the increase in revenues in markets entered in 2002.
Six Months Ended March 31, 2003 Compared to Six Months Ended March 31, 2002
Revenues from the financial services segment increased 59.9%, to $78.0 million
in the six months ended March 31, 2003, from $48.8 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 47.3%, to $44.2 million in
the six months ended March 31, 2003, from $30.0 million in the comparable period
of 2002. As a percentage of financial services revenues, general and
administrative expenses decreased by 4.9 percentage points, to 56.7% in the six
months ended March 31, 2003, from 61.6% 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 March 31, 2003, we had available cash and cash equivalents of $187.5 million.
Inventories (including finished homes, construction in progress, and developed
residential lots and other land), at March 31, 2003, had increased by $393.1
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 $50 million outstanding at March 31, 2003 and no
amount outstanding at September 30, 2002. Our ratio of homebuilding notes
payable (net of cash) to total capital at March 31, 2003 and September 30, 2002,
remained constant at 51.3%. The stockholders' equity to total assets ratio
increased 0.8 percentage point, to 38.5% at March 31, 2003, from 37.7% at
September 30, 2002.
We have an $805 million, unsecured revolving credit facility, including $125
million which may be used for letters of credit. The facility matures in January
2006, and is guaranteed by substantially all of our wholly-owned subsidiaries
other than those that make up our financial services segment. At March 31, 2003,
we had outstanding homebuilding debt of $2,763.3 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, $633.3 million at March 31, 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 March 31, 2003, the borrowing base arrangement would have limited
our additional borrowing capacity from any source to $1,327.5 million. At March
31, 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 March 31, 2003, outstanding standby letters of credit and
performance bonds, the majority of which mature in less than one year, were
$144.4 million and $1,044.2 million, respectively.
-24-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
At March 31, 2003, our financial services segment had mortgage loans held for
sale of $424.7 million and loan commitments for $387.3 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