-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D95PnMnB9HwyDjjquxvp7j7kFUeAmkX6ThyChtb9j84DDhlF6r5X+qUaT3G1HPso hl9Q8+oZq9JA2AlBIlWPqw== /in/edgar/work/20000811/0000882184-00-000014/0000882184-00-000014.txt : 20000921 0000882184-00-000014.hdr.sgml : 20000921 ACCESSION NUMBER: 0000882184-00-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HORTON D R INC /DE/ CENTRAL INDEX KEY: 0000882184 STANDARD INDUSTRIAL CLASSIFICATION: [1531 ] IRS NUMBER: 752386963 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14122 FILM NUMBER: 694534 BUSINESS ADDRESS: STREET 1: 1901 ASCENSION BLVD STREET 2: STE 100 CITY: ARLINGTON STATE: TX ZIP: 76006 BUSINESS PHONE: 8178568200 MAIL ADDRESS: STREET 1: 1901 ASCENSION BLVD STREET 2: SUITE 100 CITY: ARLINGTON STATE: TX ZIP: 76006 10-Q 1 0001.txt THIRD QUARTER FORM 10-Q FOR D.R. HORTON, INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2000 ------------------ OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the Transition Period From ______________ To _______________ Commission file number 1-14122 --------- D.R. HORTON, INC. ------------------ (Exact name of registrant as specified in its charter) DELAWARE 75-2386963 --------------------------------- ------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006 ----------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (817) 856-8200 --------------- (Registrant's telephone number, including area code) ------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- 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 -- 61,832,433 shares as of August 8, 2000 ------------- This Report contains 20 pages. ---- INDEX D.R. HORTON, INC. PART I. FINANCIAL INFORMATION. Page - ------------------------------ ---- ITEM 1. Financial Statements. Consolidated Balance Sheets--June 30, 2000 and September 30, 1999. 3 Consolidated Statements of Income--Three Months and Nine Months Ended June 30, 2000 and 1999. 4 Consolidated Statement of Stockholders' Equity-- Nine Months Ended June 30, 2000. 5 Consolidated Statements of Cash Flows--Nine Months Ended June 30, 2000 and 1999. 6 Notes to Consolidated Financial Statements. 7-10 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. 11-17 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 18 PART II. OTHER INFORMATION. - --------------------------- ITEM 2. Changes in Securities. 19 ITEM 6. Exhibits and Reports on Form 8-K. 19 SIGNATURES. 20 - ---------- D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, September 30, 2000 1999 ---------- ------------- ASSETS (In thousands) (Unaudited) Homebuilding: Cash........................................... $70,287 $122,208 Inventories: Finished homes and construction in progress. 1,166,140 952,015 Residential lots - developed and under development......................... 1,010,449 909,586 Land held for development .................. 5,897 4,507 ----------- ----------- 2,182,486 1,866,108 Property and equipment (net)................... 41,993 36,972 Earnest money deposits and other assets........ 145,527 96,807 Excess of cost over net assets acquired (net) 111,381 112,456 ----------- ----------- 2,551,674 2,234,551 ----------- ----------- Financial Services: Cash........................................... 8,857 6,360 Mortgage loans held for sale................... 99,929 113,786 Other assets................................... 7,464 7,111 ----------- ----------- 116,250 127,257 ----------- ----------- $2,667,924 $2,361,808 =========== =========== LIABILITIES Homebuilding: Accounts payable and other liabilities......... $362,090 $365,506 Notes payable: Unsecured: Revolving credit facility due 2002....... 415,000 395,000 8% senior notes due 2009, net............ 383,051 382,941 8 3/8% senior notes due 2004, net........ 148,448 148,150 10% senior notes due 2006, net........... 147,368 147,278 10 1/2% senior notes due 2005, net....... 199,265 -- Other secured............................ 13,693 12,904 ----------- ----------- 1,306,825 1,086,273 ----------- ----------- 1,668,915 1,451,779 Financial Services: Accounts payable and other liabilities......... 3,893 3,268 Notes payable to financial institutions........ 82,201 104,350 ----------- ----------- 86,094 107,618 ----------- ----------- 1,755,009 1,559,397 ----------- ----------- Minority interest.............................. 5,030 4,802 ----------- ----------- STOCKHOLDERS' EQUITY Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued........... -- -- Common stock, $.01 par value, 200,000,000 shares authorized, 64,415,074 at June 30, 2000 and 64,267,073 at September 30, 1999, issued and outstanding ....................... 644 643 Additional capital............................. 420,857 419,259 Retained earnings.............................. 523,331 400,111 Treasury stock, 2,589,200 shares at June 30, 2000 and 1,484,300 shares at September 30, 1999, at cost ............... (36,947) (22,404) ----------- ----------- 907,885 797,609 ----------- ----------- $2,667,924 $2,361,808 =========== =========== See accompanying notes to consolidated financial statements. -3- D. R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Three Months Nine Months Ended June 30, Ended June 30, ------------------ ------------------- 2000 1999 2000 1999 ------- ------ ------ ------ (In thousands, except net income per share) (Unaudited) Homebuilding: Revenues Home sales................ $930,786 $824,588 $2,493,314 $2,119,463 Land/lot sales............ 15,630 8,548 38,780 57,101 -------- -------- ---------- ----------- 946,416 833,136 2,532,094 2,176,564 -------- -------- ---------- ----------- Cost of sales Home sales................ 755,527 671,278 2,028,349 1,727,419 Land/lot sales............ 18,387 7,541 36,524 50,472 -------- -------- ---------- ----------- 773,914 678,819 2,064,873 1,777,891 -------- -------- ---------- ----------- Gross profit Home sales................ 175,259 153,310 464,965 392,044 Land/lot sales............ (2,757) 1,007 2,256 6,629 -------- -------- ---------- ----------- 172,502 154,317 467,221 398,673 Selling, general and administrative expense........ 97,243 81,753 262,073 219,344 Interest expense.............. 2,339 2,874 7,195 8,755 Other (income)................ (747) (57) (1,472) (1,781) -------- -------- ---------- ----------- 73,667 69,747 199,425 172,355 -------- -------- ---------- ----------- Financial Services: Revenues...................... 12,800 9,814 34,926 26,097 Selling, general and administrative expense........ 9,155 6,386 25,152 16,589 Interest expense.............. 1,485 1,403 4,191 2,815 Other (income)................ (1,700) (1,509) (4,723) (3,148) -------- -------- ---------- ----------- 3,860 3,534 10,306 9,841 -------- -------- ---------- ----------- INCOME BEFORE INCOME TAXES.. 77,527 73,281 209,731 182,196 Provision for income taxes.... 29,460 28,947 79,698 71,747 -------- -------- ---------- ----------- NET INCOME.................. $48,067 $44,334 $130,033 $110,449 ======== ======== ========== =========== Net income per share: Basic..................... $0.78 $0.69 $2.09 $1.79 Diluted................... $0.77 $0.68 $2.08 $1.75 ======== ======== ========== =========== Weighted average number of shares of stock outstanding: Basic..................... 61,823 64,088 62,106 61,837 Diluted................... 62,321 64,919 62,581 63,175 ======== ======== ========== =========== Cash dividends per share...... $0.04 $0.03 $0.11 $0.0825 ======== ======== ========== =========== See accompanying notes to consolidated financial statements. -4- D. R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Total Common Additional Retained Treasury Stockholders' Stock Capital Earnings Stock Equity -------------------------------------------------- (In thousands) (Unaudited) Balances at October 1, 1999 $643 $419,259 $400,111 ($22,404) $797,609 Net income - - 130,033 - 130,033 Issuances under D.R. Horton, Inc. employee benefit plans (32,475 shares) - 346 - - 346 Exercise of stock options (115,526 shares) 1 1,252 - - 1,253 Purchase of treasury stock (1,104,900 shares) - - - (14,543) (14,543) Dividends declared ($.11 per share) - - (6,813) - (6,813) -------------------------------------------------- Balances at June 30, 2000 $644 $420,857 $523,331 ($36,947) $907,885 ================================================== See accompanying notes to consolidated financial statements. -5- D. R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended June 30, -------------------- 2000 1999 --------- --------- (In thousands) (Unaudited) OPERATING ACTIVITIES Net income $130,033 $110,449 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 15,899 14,112 Amortization of debt premiums and fees 1,830 1,006 Changes in operating assets and liabilities: Increase in inventories (305,929) (345,398) Increase in earnest money deposits and other assets (33,220) (32,591) Decrease/(increase)in mortgage loans held for sale 13,857 (30,163) Increase/(decrease) in accounts payable and other liabilities (2,563) 49,021 -------- -------- NET CASH USED IN OPERATING ACTIVITIES (180,093) (233,564) -------- -------- INVESTING ACTIVITIES Net purchase of property and equipment (13,931) (16,120) Net investment in venture capital entities (18,311) --- Net cash paid for acquisitions (5,016) (1,125) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (37,258) (17,245) -------- -------- FINANCING ACTIVITIES Proceeds from notes payable 570,000 475,016 Repayment of notes payable (580,213) (591,164) Issuance of Senior Notes payable 197,897 371,359 Repurchase of treasury stock (14,543) (3,976) Proceeds from common stock offerings and stock associated with certain employee benefit plans 1,599 2,978 Payment of cash dividends (6,813) (5,164) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 167,927 249,049 -------- -------- DECREASE IN CASH (49,424) (1,760) Cash at beginning of period 128,568 76,754 -------- -------- Cash at end of period $ 79,144 $ 74,994 ======== ======== Supplemental cash flow information: Interest paid, net of amounts capitalized $ 10,576 $ 10,596 ======== ======== Income taxes paid $ 93,137 $ 74,207 ======== ======== Supplemental disclosures of noncash activities: Notes payable assumed related to acquisitions $ 0 $103,384 ======== ======== Conversion of subordinated notes to common stock $ 0 $ 59,327 ======== ======== Issuance of common stock related to acquisition $ 0 $ 55,000 ======== ======== See accompanying notes to consolidated financial statements. -6- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) June 30, 2000 NOTE A - BASIS OF PRESENTATION The accompanying unaudited, consolidated financial statements include the accounts of D.R. Horton, Inc. (the "Company") and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Certain reclassifications have been made in prior years' financial statements to conform to classifications used in the current year. Operating results for the three and nine month periods ended June 30, 2000, are not necessarily indicative of the results that may be expected for the year ending September 30, 2000. Business - The Company is a national builder that is engaged primarily in the construction and sale of single-family housing in the United States. The Company designs, builds and sells single-family houses on lots developed by the Company and on finished lots which it purchases, ready for home construction. Periodically, the Company sells land or lots it has developed. The Company also provides title agency and mortgage brokerage services to its home buyers. NOTE B - SEGMENT INFORMATION The Company's financial reporting segments consist of homebuilding and financial services. The Company's homebuilding operations comprise the most substantial part of its business, with approximately 99% of consolidated revenues for the three and nine months ended June 30, 2000 and 1999. The homebuilding operations segment generates the majority of its revenues from the sale of completed homes with a lesser amount from the sale of land and lots. The financial services segment generates its revenues from originating and selling mortgages and collecting fees for title insurance agency and closing services. NOTE C - NET INCOME PER SHARE Basic net income per share for the three and nine month periods ended June 30, 2000 and 1999, is based on the weighted average number of shares of common stock outstanding. Diluted net income per share is based on the weighted average number of shares of common stock and dilutive securities outstanding. The following table sets forth the computation of basic and diluted earnings per share (in thousands): Three months ended Nine months ended June 30, June 30, ------------------- ------------------ 2000 1999 2000 1999 ------- ------- ------- ------- Denominator for basic earnings per share--- weighted average shares 61,823 64,088 62,106 61,837 Effect of dilutive securities: 6 7/8% convertible subordinated notes - - - 439 Employee stock options 498 831 475 899 ------- ------- ------- ------- Denominator for diluted earnings per share---adjusted weighted average shares and assumed conversions 62,321 64,919 62,581 63,175 ======= ======= ======= ======= Options to purchase 1,996,000 and 1,549,000 shares of common stock at various prices were outstanding during the nine months ended June 30, 2000 and 1999, 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. -7- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) June 30, 2000 NOTE D - 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. Interest costs are (in thousands): Three months ended Nine months ended June 30, June 30, ------------------------ --------------------- 2000 1999 2000 1999 ------ ------ ------ ------ Capitalized interest, beginning of period $ 55,148 $ 36,486 $ 41,525 $ 35,153 Interest incurred -homebuilding 29,310 22,069 76,382 55,479 Interest expensed: Directly-homebuilding (2,339) (2,874) (7,195) (8,755) Amortized to cost of sales (18,631) (14,593) (47,224) (40,789) -------- -------- -------- -------- Capitalized interest, end of period $ 63,488 $ 41,088 $ 63,488 $ 41,088 ======== ======== ======== ======== -8- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) June 30, 2000 NOTE E - SUMMARIZED FINANCIAL INFORMATION The 8%, 8 3/8%, 10% and 10 1/2% Senior Notes are fully and unconditionally guaranteed, on a joint and several basis, by all of the Company's direct and indirect subsidiaries other than certain inconsequential subsidiaries. Each of the guarantors is a wholly-owned subsidiary. Separate financial statements and other disclosures concerning the guarantor subsidiaries are not presented because management has determined that they are not material to investors. Summarized financial information of the Company and its subsidiaries, including the non-guarantor subsidiaries, is presented below. Additional financial information relating to the non-guarantor financial services subsidiaries is included in the accompanying financial statements. As of and for the nine months ended June 30, 2000 and 1999, and for the year ended September 30, 1999 (in thousands):
June 30, 2000 Nonguarantor Subsidiaries (Unaudited) D.R. ------------------------- Inter- Horton, Guarantor Financial company Inc. Subsidiaries Services Other Eliminations Total ---------- -------------- ----------- --------- ------------- ---------- Total assets............. $2,326,852 $2,159,217 $116,744 $56,828 ($1,991,717) $2,667,924 Total liabilities........ 1,418,967 1,726,593 94,831 45,267 (1,525,619) 1,760,039 Total equity............. 907,885 432,624 21,913 11,561 (466,098) 907,885 Revenues................. 390,041 2,116,776 34,926 25,277 - 2,567,020 Gross profit............. 61,317 399,399 - 5,996 509 467,221 Net income............... 130,033 127,658 5,188 (85) (132,761) 130,033 June 30, 1999 Nonguarantor Subsidiaries (Unaudited) D.R. ------------------------- Inter- Horton, Guarantor Financial company Inc. Subsidiaries Services Other Eliminations Total ---------- -------------- ----------- --------- ------------- ----------- Total assets............. $1,930,501 $2,026,999 $111,348 $32,459 ($1,862,369) $2,238,938 Total liabilities........ 1,162,451 1,648,831 101,008 21,161 (1,462,563) 1,470,888 Total equity............. 768,050 378,168 10,340 11,298 (399,806) 768,050 Revenues................. 413,096 1,744,087 26,097 19,381 - 2,202,661 Gross profit............. 59,110 335,409 - 4,154 - 398,673 Net income............... 110,449 84,067 6,019 (128) (89,958) 110,449 September 30, 1999 Nonguarantor Subsidiaries D.R. ------------------------- Inter- Horton, Guarantor Financial company Inc. Subsidiaries Services Other Eliminations Total ---------- -------------- ----------- --------- ------------- ----------- Total assets............. $1,996,311 $1,865,148 $125,895 $31,302 ($1,656,848) $2,361,808 Total liabilities........ 1,198,702 1,465,596 108,476 19,663 (1,228,238) 1,564,199 Total equity............. 797,609 399,552 17,419 11,639 (428,610) 797,609 Revenues................. 551,696 2,540,077 37,251 27,187 - 3,156,211 Gross profit............. 95,509 456,302 - 6,069 334 558,214 Net income............... 159,827 144,575 7,929 78 (152,582) 159,827
-9- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) June 30, 2000 NOTE E - SUMMARIZED FINANCIAL INFORMATION - Continued Summarized cash flow information for the non-guarantor financial services subsidiaries is presented below: Nine months ended June 30, 2000 1999 ---------- ---------- (In thousands) OPERATING ACTIVITIES Net income......................................... $ 5,188 $ 6,019 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................. 823 412 Changes in operating assets and liabilities: Decrease/(increase) in other assets.......... (509) 615 Decrease/(increase) in mortgage loans held for sale................................... 13,857 (30,163) Increase in accounts payable and other liabilities.......................... 624 2,017 ------- ------- NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES 19,983 (21,100) ------- ------- INVESTING ACTIVITIES Purchase of property and equipment................. (667) (1,239) ------- ------- NET CASH USED IN INVESTING ACTIVITIES (667) (1,239) ------- ------- FINANCING ACTIVITIES Net (repayments of)/proceeds from notes payable.... (22,148) 53,405 Increase/(decrease) in amounts payable to parent... 5,329 (39,698) ------- ------- NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES.. (16,819) 13,707 ------- ------- INCREASE/(DECREASE) IN CASH.................. 2,497 (8,632) Cash at beginning of period.......................... 6,360 13,017 ------- ------- Cash at end of period................................ $ 8,857 $ 4,385 ======= ======= Cash flows for the other non-guarantor subsidiaries are not significant in any period presented. -10- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - CONSOLIDATED D. R. Horton, Inc. and subsidiaries (the "Company") provide homebuilding activities in 23 states and 40 markets through its 47 homebuilding divisions. Through its financial services segment, the Company also provides mortgage banking and title agency services in many of these same markets. Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 Consolidated revenues for the three months ended June 30, 2000, increased 13.8%, to $959.2 million, from $843.0 million for the comparable period of 1999, primarily due to increases in home sales revenues. Income before income taxes for the three months ended June 30, 2000, increased 5.8%, to $77.5 million, from $73.3 million for the comparable period of 1999. As a percentage of revenues, income before income taxes for the three months ended June 30, 2000, decreased 0.6%, to 8.1%, from 8.7% for the comparable period of 1999, primarily due to an increase in selling, general and administrative expenses as a percentage of revenues. The consolidated provision for income taxes increased 1.8%, to $29.5 million for the three months ended June 30, 2000, from $28.9 million for the same period of 1999, due to the corresponding increase in income before income taxes. The effective income tax rate decreased 1.5%, to 38.0%, from 39.5% for the comparable period of 1999, primarily due to changes in the estimated overall effective state income tax rate. Nine Months Ended June 30, 2000 Compared to Nine Months Ended June 30, 1999 Consolidated revenues for the nine months ended June 30, 2000, increased 16.5%, to $2,567.0 million, from $2,202.7 million for the comparable period of 1999, primarily due to increases in home sales revenues. Income before income taxes for the nine months ended June 30, 2000, increased 15.1%, to $209.7 million, from $182.2 million for the comparable period of 1999. As a percentage of revenues, income before income taxes for the nine months ended June 30, 2000, decreased 0.1%, to 8.2%, from 8.3% for the comparable period of 1999, primarily due to an increase in selling, general and administrative expenses as a percentage of revenues. The consolidated provision for income taxes increased 11.1%, to $79.7 million for the nine months ended June 30, 2000, from $71.7 million for the same period of 1999, primarily due to the corresponding increase in income before income taxes. The effective income tax rate decreased 1.4%, to 38.0%, from 39.4% for the comparable period of 1999, primarily due to changes in the estimated overall effective state income tax rate. -11- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - HOMEBUILDING The following tables set forth certain operating and financial data for the Company's homebuilding activities:
Percentages of Homebuilding Revenues Three Months Ended Nine Months Ended June 30, June 30, 2000 1999 2000 1999 Costs and expenses: ------ ------ ------ ------ Cost of sales........................ 81.8% 81.5% 81.5% 81.7% Selling, general and administrative expense.............................. 10.3 9.8 10.4 10.1 Interest expense..................... 0.2 0.3 0.3 0.4 ------ ------ ------ ------ Total costs and expenses..................... 92.3 91.6 92.2 92.2 Other (income)............................... (0.1) -- (0.1) (0.1) ------ ------ ------ ------ Income before income taxes................... 7.8% 8.4% 7.9% 7.9% ====== ====== ====== ====== Homes Closed Three Months Ended June 30, Nine Months Ended June 30, 2000 1999 2000 1999 ---- ---- ---- ---- Homes Homes Homes Homes Closed Revenues Closed Revenues Closed Revenues Closed Revemues -------- -------- -------- -------- -------- -------- -------- -------- ($'s in millions) ($'s in millions) Mid-Atlantic......... 860 $178.5 787 $143.0 2,187 $ 436.1 2,126 $ 386.4 Midwest.............. 470 108.3 514 102.0 1,424 309.2 1,135 219.5 Southeast............ 767 129.7 675 108.1 2,015 337.1 1,859 296.4 Southwest............ 1,888 288.0 2,088 292.8 5,603 833.3 5,528 756.3 West................. 1,025 226.3 898 178.7 2,637 577.6 2,323 460.9 -------- -------- -------- -------- -------- --------- -------- --------- 5,010 $930.8 4,962 $824.6 13,866 $2,493.3 12,971 $2,119.5 ======== ======== ======== ======== ======== ========= ======== ========= New Sales Contracts (net of cancellations) Three Months Ended June 30, Nine Months Ended June 30, 2000 1999 2000 1999 ---- ---- ---- ---- Homes Homes Homes Homes Sold $ Sold $ Sold $ Sold $ -------- --------- -------- -------- -------- -------- -------- -------- ($'s in millions) ($'s in millions) Mid-Atlantic......... 754 $ 159.1 927 $177.4 2,084 $ 434.4 2,428 $ 459.8 Midwest.............. 476 118.4 564 121.2 1,317 326.4 1,358 278.3 Southeast............ 718 126.5 667 111.9 2,160 369.8 2,025 328.1 Southwest............ 1,998 321.2 2,132 307.8 5,992 937.6 6,066 861.7 West................. 1,149 276.4 987 208.5 2,827 650.8 2,568 517.6 -------- --------- -------- -------- -------- --------- -------- --------- 5,095 $1,001.6 5,277 $926.8 14,380 $2,719.0 14,445 $2,445.5 ======== ========= ======== ======== ======== ========= ======== ========= Sales Backlog June 30, 2000 June 30, 1999 ------------- ------------- Homes $ Homes $ -------- --------- -------- --------- ($'s in millions) Mid-Atlantic................................. 988 $ 241.1 1,234 $ 254.3 Midwest...................................... 1,027 264.4 1,094 231.7 Southeast.................................... 981 173.3 899 148.1 Southwest.................................... 3,470 577.3 3,581 529.3 West......................................... 1,357 326.1 1,459 308.0 -------- --------- -------- -------- 7,823 $1,582.2 8,267 $1,471.4 ======== ========= ======== ======== The Company's market regions consist of the following markets: Mid-Atlantic Charleston, Charlotte, Columbia, Greensboro, Greenville, Hilton Head, Myrtle Beach, New Jersey, Newport News, Raleigh/Durham, Richmond, Suburban Washington D.C. and Wilmington Midwest Chicago, Cincinnati, Louisville, Minneapolis/St. Paul and St. Louis Southeast Atlanta, Birmingham, Jacksonville, Nashville, Orlando, Pensacola and South Florida Southwest Albuquerque, Austin, Dallas/Fort Worth, Houston, Killeen, Phoenix, San Antonio and Tucson West Denver, Las Vegas, Los Angeles, Portland, Sacramento, Salt Lake City and San Diego
-12- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 Revenues from homebuilding activities increased 13.6%, to $946.4 million (5,010 homes closed) for the three months ended June 30, 2000, from $833.1 million (4,962 homes closed) for the comparable period of 1999. Revenues from home sales increased in four of the Company's five market regions, with percentage increases ranging from 6.2% in the Midwest region to 26.6% in the West region. Revenues from home sales declined 1.6% in the Southwest region. The increases in both revenues and homes closed were due to strong housing demand throughout the majority of the Company's markets. The average selling price of homes closed during the three months ended June 30, 2000 was $185,800, up 11.8% from $166,200 for the same period in 1999. The increase in average selling price was due to changes in the mix of homes closed and, with the strong housing demand, the Company's ability to sell more custom features with its homes and to raise prices to cover increased costs. The value of new net sales contracts increased 8.1%, to $1,001.6 million (5,095 homes) for the three months ended June 30, 2000, from $926.8 million (5,277 homes) for the same period of 1999. The value of new net sales contracts increased in three of the Company's five market regions, with percentage increases ranging from 4.4% in the Southwest to 32.5% in the West. The value of new net sales contracts declined 2.3% and 10.3% in the Midwest and Mid-Atlantic regions, respectively. The average price of a new net sales contract in the three months ended June 30, 2000 was $196,600, up 12.0% over the $175,600 average in the three months ended June 30, 1999. The increase in average selling price was due to changes in the mix of homes sold and, with the strong housing demand, the Company's ability to sell more custom features with its homes and to raise prices to cover increased costs. At June 30, 2000, the Company's backlog of sales contracts was $1,582.2 million (7,823 homes), up 7.5% from $1,471.4 million (8,267 homes) at June 30, 1999. The average sales price of homes in sales backlog was $202,300 at June 30, 2000, up 13.7% from the $178,000 average at June 30, 1999. The average sales price of homes in backlog typically is higher than the sales price of closed homes because it takes longer to construct more expensive homes. Cost of sales increased by 14.0%, to $773.9 million for the three months ended June 30, 2000, from $678.8 million for the comparable quarter of 1999. 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 was down 0.2%, to 81.2% for the three months ended June 30, 2000, from 81.4% for the comparable period of 1999, primarily due to the change in the mix of homes sold and the higher margins obtained from selling more custom features. Cost of land/lot sales increased to 117.6% of land/lot sales revenues for the three months ended June 30, 2000, from 88.2% for the comparable period of 1999, primarily due to the Company's decision in the current quarter to reduce the carrying amount of two parcels of developed land to their net realizable value. Total homebuilding cost of sales was 81.8% of total homebuilding revenues, up 0.3% from 81.5% for the comparable period of 1999, primarily due to the increase in land/lot cost of sales as a percentage of revenues. Selling, general and administrative (SG&A) expenses from homebuilding activities increased by 18.9%, to $97.2 million in the three months ended June 30, 2000, from $81.8 million in the comparable period of 1999. As a percentage of revenues, SG&A expenses increased to 10.3% for the three months ended June 30, 2000, from 9.8% for the comparable period of 1999. The increase in SG&A expenses as a percentage of revenue is primarily due to higher costs incurred in order to ensure that the Company is properly positioned for its peak home-closing season, which normally occurs during the fourth quarter of the fiscal year. Interest expense associated with homebuilding activities decreased to $2.3 million in the three months ended June 30, 2000, from $2.9 million in the comparable period of 1999. As a percentage of homebuilding revenues, homebuilding interest expense decreased to 0.2% for the three months ended June 30, 2000, from 0.3% in the comparable period of 1999. In anticipation of summer closings, the Company increased its inventory during the three months ended June 30, 2000. As a result, inventory under construction or development grew at a more rapid pace than interest-bearing debt. Therefore, compared to 1999, a larger proportion of total interest incurred was capitalized to inventory in the third quarter of fiscal 2000. The Company follows a policy of capitalizing interest only on inventory under construction or development. During both periods, the Company expensed the portion of incurred interest and other financing costs which could not be charged to inventory. Capitalized interest and other financing costs are included in cost of sales at the time of home closings. -13- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Nine Months Ended June 30, 2000 Compared to Nine Months Ended June 30, 1999 Revenues from homebuilding activities increased 16.3%, to $2,532.1 million (13,866 homes closed) for the nine months ended June 30, 2000, from $2,176.6 million (12,971 homes closed) for the comparable period of 1999. Revenues from home sales increased in all of the Company's market regions, with percentage increases ranging from 10.2% in the Southwest region to 40.9% in the Midwest region. The increases in both revenues and homes closed were due to strong housing demand and the increases attributable to the acquisition of Cambridge Homes in January 1999. In markets where the Company operated throughout both nine-month periods, home sales revenues increased by 14.5%, to $2,423.8 million, and the number of homes closed increased 4.6%, to 13,548 homes. The average selling price of homes closed during the nine months ended June 30, 2000 was $179,800, up 10.0% from $163,400 for the same period of 1999. The increase in average selling price was due to changes in the mix of homes closed and, with the strong housing demand, the Company's ability to sell more custom features with its homes and to raise prices to cover increased costs. The value of new net sales contracts increased 11.2%, to $2,719.0 million (14,380 homes) for the nine months ended June 30, 2000, from $2,445.5 million (14,445 homes) for the same period of 1999. The value of new net sales contracts increased in four of the Company's five market regions, with percentage increases ranging from 8.8% in the Southwest to 25.7% in the West. The value of new net sales contracts declined 5.5% in the Mid-Atlantic region. The overall increase in the value of new net sales contracts was due in part to sales achieved by Cambridge Homes, acquired in January 1999. In markets where the Company operated throughout both nine-month periods, the value of new net sales contracts increased 8.6%, to $2,650.3 million, and the number of new net sales contracts decreased 2.0%, to 14,133 homes. The average price of a new net sales contract in the nine months ended June 30, 2000 was $189,100, up 11.7% over the $169,300 average in the nine months ended June 30, 1999. The increase in average selling price was due to changes in the mix of homes closed and, with the strong housing demand, the Company's ability to sell more custom features with its homes and to raise prices to cover increased costs. Cost of sales increased by 16.1%, to $2,064.9 million for the nine months ended June 30, 2000, from $1,777.9 million for the comparable period of 1999. 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 was down 0.1%, to 81.4% for the nine months ended June 30, 2000, from 81.5% for the comparable period of 1999. Cost of land/lot sales increased to 94.2% of land/lot sales revenues for the nine months ended June 30, 2000, from 88.4% for the comparable period of 1999, primarily due to the Company's decision in the current quarter to reduce the carrying amount of two parcels of developed land to their net realizable value. Total homebuilding cost of sales was 81.5% of total homebuilding revenue, down 0.2% from 81.7% for the comparable period of 1999. Selling, general and administrative (SG&A) expenses from homebuilding activities increased by 19.5%, to $262.1 million in the nine months ended June 30, 2000, from $219.3 million in the comparable period of 1999. As a percentage of revenues, SG&A expenses increased to 10.4% for the nine months ended June 30, 2000, from 10.1% for the comparable period of 1999. The increase in SG&A expenses as a percentage of revenue is primarily due to higher costs incurred in order to ensure that the Company is properly positioned for its peak home-closing season, which normally occurs during the fourth quarter of the fiscal year. Interest expense associated with homebuilding activities decreased to $7.2 million in the nine months ended June 30, 2000, from $8.8 million in the comparable period of 1999. As a percentage of homebuilding revenues, homebuilding interest expense decreased to 0.3% for the nine months ended June 30, 2000, from 0.4% for the comparable period of 1999. In anticipation of summer closings, the Company increased its inventory during the second and third quarter. As a result, inventory under construction or development grew at a more rapid pace than interest-bearing debt. Therefore, in the nine months ended June 30, 2000, a larger proportion of total interest incurred was capitalized to inventory than in the comparable periods of fiscal 1999. The Company follows a policy of capitalizing interest only on inventory under construction or development. During both periods, the Company expensed the portion of incurred interest and other financing costs which could not be charged to inventory. Capitalized interest and other financing costs are included in cost of sales at the time of home closings. -14- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - FINANCIAL SERVICES The following table summarizes financial and other information for the Company's financial services operations: Three months ended Nine months ended June 30, June 30, --------------------------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- ($'s in thousands) Number of loans originated....... 2,236 2,196 6,009 5,864 ------ ------ ------- ------- Loan origination fees............ $2,650 $2,442 $6,995 $6,214 Sale of servicing rights and gains from sale of mortgages... 5,428 4,435 14,695 12,399 Other revenues................... 1,142 1,205 3,344 2,928 ------ ------ ------- ------- Total mortgage banking revenues.. 9,220 8,082 25,034 21,541 Title policy premiums, net....... 3,580 1,732 9,892 4,556 ------ ------ ------- ------- Total revenues.................. 12,800 9,814 34,926 26,097 General and administrative expenses........................ 9,155 6,386 25,152 16,589 Interest expense................. 1,485 1,403 4,191 2,815 Interest/other (income).......... (1,700) (1,509) (4,723) (3,148) ------ ------ ------- ------- Income before income taxes....... $3,860 $3,534 $10,306 $9,841 ====== ====== ======= ======= Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 Revenues from the financial services segment increased 30.4%, to $12.8 million in the three months ended June 30, 2000, from $9.8 million in the comparable period of 1999. 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. These activities are being expanded to additional markets served by the homebuilding segment. SG&A expenses associated with financial services increased 43.4%, to $9.2 million in the three months ended June 30, 2000, from $6.4 million in the comparable period of 1999. As a percentage of financial services revenues, SG&A expenses increased by 6.4%, to 71.5% in the three months ended June 30, 2000, from 65.1% in the comparable period in 1999, due primarily to 2000 startup expenses in new markets with limited revenues. Nine months Ended June 30, 2000 Compared to Nine months Ended June 30, 1999 Revenues from the financial services segment increased 33.8%, to $34.9 million in the nine months ended June 30, 2000, from $26.1 million in the comparable period of 1999. 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. These activities are being expanded to additional markets served by the homebuilding segment. SG&A expenses associated with financial services increased 51.6%, to $25.2 million in the nine months ended June 30, 2000, from $16.6 million in the comparable period of 1999. As a percentage of financial services revenues, SG&A expenses increased by 8.4%, to 72.0% in the nine months ended June 30, 1999, from 63.6% in the comparable period in 1999, due primarily to 2000 startup expenses in new markets with limited revenues. -15- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES At June 30, 2000, the Company had available cash and cash equivalents of $79.1 million. Inventories (including finished homes, construction in progress, and developed residential lots and other land) at June 30, 2000, had increased by $316.4 million since September 30, 1999, due to a general increase in business activity and the expansion of operations in the Company's market areas. The inventory increase was financed largely by issuing $200 million in senior notes, borrowing an additional $20 million under the revolving credit facility and by retaining earnings. As a result, the Company's ratio of homebuilding notes payable to total capital at June 30, 2000, increased 1.3% to 59.0%, from 57.7% at September 30, 1999. The stockholders' equity to total assets ratio increased 0.2%, to 34.0% at June 30, 2000, from 33.8% at September 30, 1999. The Company has an $825 million, unsecured revolving credit facility, consisting of a $775 million four-year revolving loan and a $50 million four-year letter of credit facility that matures in 2002. Additionally, the Company has another $25 million standby letter of credit agreement and a $13.5 million non-renewable letter of credit facility acquired with the Cambridge acquisition. At June 30, 2000, the Company had outstanding homebuilding debt of $1,306.8 million, of which $415 million represented advances under the revolving credit facility. Under the debt covenants associated with the revolving credit facility, at June 30, 2000, the Company had additional homebuilding borrowing capacity of $360 million. The Company has entered into multi-year interest rate swap agreements, aggregating $200 million, that fix the interest rate on a portion of the variable rate revolving credit facility. An additional interest rate swap agreement, with a notional amount of $148.5 million, was entered into in December 1999. This agreement has the effect of converting part of the Company's fixed rate debt to a variable rate, which is currently less than the related fixed rate, and helps re-establish the Company's balance of fixed and variable rate debt at historical levels. During March and June 2000, under an existing shelf registration statement, the Company issued $200 million aggregate principal amount of 10 1/2% Senior Notes, due 2005. The proceeds of the notes were used to repay outstanding debt under our revolving credit facility and for general corporate purposes. The Company has $400 million remaining on its currently effective universal shelf registration statement, which facilitates access to the capital markets. At June 30, 2000, the financial services segment has mortgage loans held for sale of $99.9 million and loan commitments for $110.1 million at fixed rates. The Company hedges the interest rate market risk on these mortgage loans held for sale and loan commitments through the use of best-efforts whole loan delivery commitments, mandatory forward commitments to sell mortgage-backed securities and the purchase of options on financial instruments. The financial services segment has a $175 million, one-year bank warehouse facility that is secured by mortgage loans held for sale. The warehouse facility is not guaranteed by the parent company. As of June 30, 2000, $82.2 million had been drawn under this facility. In the future, it is anticipated that all mortgage company activities will be financed under the warehouse facility. The Company's rapid growth and acquisition strategy require significant amounts of cash. It is anticipated that future home construction, lot and land purchases and acquisitions will be funded through internally generated funds and existing credit facilities. Additionally, an effective shelf registration contains about 7.4 million shares of common stock issuable to effect, in whole or in part, possible future acquisitions. In the future, the Company intends to maintain effective shelf registration statements that would facilitate access to the capital markets. During the nine months ended June 30, 2000, the Company's Board of Directors declared one quarterly cash dividend of $0.03 per common share and two quarterly cash dividends of $0.04 per common share, the last of which was paid on May 22, 2000. In November 1998, the Company's Board of Directors approved stock and debt repurchase programs for up to $100 million each. These programs are intended to allow the Company to repurchase securities at attractive prices should favorable market conditions occur. During the nine months ended June 30, 2000, the Company repurchased in the open market $14.5 million of its common stock, or 1,104,900 shares at an average cost of $13.16. In July 1999, the Company formed GP-Encore, Inc. and Encore II, Inc., which have since entered into three separate limited partnership agreements with the purpose of investing in start-up and emerging growth companies whose technology and business plans will permit the Company to leverage its size, expertise and customer base in the homebuilding industry. The Company has agreed to invest up to $125 million through these limited partnerships over the next four years. These investments will be concentrated primarily in e-commerce businesses that serve the homebuilding, real estate and financial services industries, as well as in strategic opportunities that allow for diversification of the Company's operations. As of June 30, 2000, the Company had made such investments totaling $18.6 million, which are reported in homebuilding other assets. -16- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for ordinary expenditures for the construction of homes, the acquisition of land and lots for development and sale of homes, at June 30, 2000, the Company had no material commitments for capital expenditures. SAFE HARBOR STATEMENT Certain statements contained herein, as well as statements made by the Company in periodic press releases and oral statements made by the Company's officials to analysts and stockholders in the course of presentations about the Company may be construed as "Forward-Looking Statements" as defined in the Private Securities Litigation Reform Act of 1995. Such statements may involve unstated risks, uncertainties and other factors that may cause actual results to differ materially from those initially anticipated. Such risks, uncertainties and other factors include, but are not limited to: o The Company's substantial leverage o Changes in general economic and business conditions o Changes in interest rates and the availability of mortgage financing o Governmental regulations and environmental matters o Changes in costs and availability of material, supplies and labor o Competitive conditions within the homebuilding industry o The availability of capital o The Company's ability to effect its growth strategies successfully o The success of the Company's diversification efforts -17- ITEM 3. Quantitative and Qualitative Disclosures about Market Risk The Company is subject to interest rate risk on its long term debt. The Company manages its exposure to changes in interest rates by optimizing the use of variable and fixed rate debt. In addition, the Company has hedged its exposure to changes in interest rates on its variable rate bank debt by entering into interest rate swap agreements to obtain a fixed interest rate for a portion of those borrowings. Finally, in order to maintain a more appropriate balance of variable and fixed rate debt, the Company entered into an interest rate swap agreement exchanging a variable rate interest payment for a fixed rate payment on a notional amount equal to the $148.5 million principal amount of the 10% Senior Notes due 2006. The variable payment for which the Company is obligated is fixed through the 10% Senior Notes' first call date, April 15, 2001, and will ensure that the Company will have received a net amount of $2.3 million as of that date. Thereafter, the variable payment will be made through the 10% Senior Notes' maturity, April 15, 2006, and will be based upon the 90-day LIBOR rate, plus 2.745%. The following table shows, as of June 30, 2000, the Company's long term debt obligations, principal cash flows by scheduled maturity, weighted average interest rates and estimated fair market value. In addition, the table shows the notional amounts and weighted average interest rates of the Company's interest rate swaps.
Three Months Ended Sept. 30, Year ended September 30, ---------- -------------------------------------------------------------------------------- ($ in millions) FMV @ 2000 2001 2002 2003 2004 Thereafter Total 6/30/00 ----- ----- ----- ----- ----- ---------- -------- --------- Debt: Fixed rate.............. $4.2 $2.7 $4.8 $0 $149.6 $730.5 $891.8 $833.3 Average interest rate... 8.63% 8.00% 7.15% --- 8.45% 9.13% 9.00% --- Variable rate........... $82.2 $0 $415.0 $0 $0 $0 $497.2 $497.2 Average interest rate... 7.65% --- 7.53% --- --- --- 7.55% --- Interest Rate Swaps: Variable to fixed....... $200.0 $200.0 $200.0 $200.0 $200.0 $200.0 --- $4.2 Average pay rate........ 5.10% 5.10% 5.10% 5.10% 5.10% 5.08% --- --- Average receive rate.... 90-day LIBOR Fixed to variable....... $148.5 $148.5 $148.5 $148.5 $148.5 $148.5 --- ($1.9) Average pay rate........ 8.745% * -----------90-day LIBOR + 2.745%---------- --- --- Average receive rate.... 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% --- --- * - 8.745% until April 15, 2001; 90-day LIBOR + 2.745% thereafter.
-18- PART II. OTHER INFORMATION ITEM 2. Changes in Securities. On June 8, 2000, the Company issued $50 million principal amount of its 10 1/2 % Senior Notes, due 2005 (the "Notes"). The $50 million principal amount of Notes are in the same series as, and are in addition to, the $150 million principal amount of Notes issued March 21, 2000 (the "Existing Notes") pursuant to the Eighth Supplemental Indenture, dated as of March 21, 2000. Prior to the offering of the $50 million principal amount of Notes, the Company obtained the consents of holders of the Existing Notes to amend the Eighth Supplemental Indenture to increase the aggregate principal amount of the Notes that may be issued thereunder from $150 million to $200 million. The Company also executed a Tenth Supplemental Indenture, dated as of June 5, 2000, which amended the Eighth Supplement Indenture to permit issuance of the additional Notes. Each of the supplemental indentures is among the Company, the Guarantors named therein and American Stock Transfer & Trust Company, as Trustee. The Eighth Supplemental Indenture, and the Indenture to which it relates (dated June 9, 1997, as supplemented), impose limitations on the ability of the Company and its subsidiaries guaranteeing the Notes to, among other things, incur indebtedness, make "Restricted Payments" (as defined, which includes payments of dividends or other distributions on the Common Stock of the Company), effect certain "Asset Dispositions" (as defined), enter into certain transactions with affiliates, merge or consolidate with any person, or transfer all or substantially all of their properties and assets. These limitations are substantially similar to the limitations already existing with respect to the Company's 8% Senior Notes, due 2009, and related Indenture and Supplemental Indenture. Other information concerning the offering and issuance of the Notes has previously been reported in, and is described in, the Company's Registration Statement on Form S-3 (Registration Number 333-76175) dated April 13, 1999, the Company's Prospectus Supplement, dated June 5, 2000 and filed with the Securities Exchange Commission (the "Commission") on June 6, 2000 pursuant to Rule 424(b), and the Company's current report on Form 8-K, dated June 6, 2000 and filed with the Commission on June 6, 2000, each of which is incorporated herein by reference. ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 4.1 Indenture, dated as of June 9, 1997, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, relating to Senior Debt Securities, is incorporated herein by reference from Exhibit 4.1(a) to the Company's Registration Statement on Form S-3 (Registration No. 333-27521), filed with the Commission on May 21, 1997. 4.2 Eighth Supplemental Indenture, dated as of March 21, 2000, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, relating to the 10 1/2% Senior Notes due 2005, is incorporated herein by reference from Exhibit 4.1 to the Company's Form 8-K, filed with the Commission on March 17, 2000. 4.3 Tenth Supplemental Indenture, dated as of June 5, 2000, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, relating to the 10 1/2% Senior Notes due 2005, including the form of the Company's 10 1/2% Senior Notes due 2005, is incorporated herein by reference from Exhibit 4.1 to the Company's Form 8-K, filed with the Commission on June 6, 2000. 4.4 Solicitation Agent Agreement, dated May 27, 2000, between the Company and Morgan Stanley & Co. Incorporated, is filed herewith. (b) Reports on Form 8-K. On June 6, 2000, the Company filed a Current Report on Form 8-K (Items 5 and 7), which filed an underwriting agreement, a supplemental indenture and a statement of computation of ratio of earnings to fixed changes, all relating to the offering and issuance of $50 million additional principal amount of the Company's 10 1/2% Senior Notes, due 2005. -19- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. D.R. HORTON, INC. Date: August 11, 2000 By: /s/ Samuel R. Fuller ----------------------- Samuel R. Fuller, on behalf of D.R. Horton, Inc. and as Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) -20- INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION 4.4 Solicitation Agent Agreement, dated May 27, 2000, between the Company and Morgan Stanley & Co. Incorporated, is filed herewith. EX-4.4 2 0002.txt SOLICITATION AGENT AGREEMENT Exhibit 4.4 SOLICITATION AGENT AGREEMENT D.R. HORTON, INC. May 27, 2000 Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Ladies and Gentlemen: 1. D.R. Horton, Inc, (the "Company") plans to solicit consents (the "Consents") from the holders of all of its $150,000,000 10-1/2% Senior Notes due 2005 (the "Securities") to a proposed amendment (the "Proposed Amendment") to the indenture (the "Indenture") pursuant to which the Securities were issued, on the terms and subject to the conditions set forth in the Consent Solicitation Statement (the "Solicitation") and the Consent Letter (the "Consent Letter") attached hereto as Exhibits A and B, respectively (collectively referred to herein as the "Consent Solicitation"). The Proposed Amendment is to increase the maximum principal amount of 10-1/2% Senior Notes due 2005 that may be issued under the Indenture from $150,000,000 to $200,000,000, and is being sought in connection with a proposed offering and sale (the "Offering") of additional Securities (the "Additional Securities"). The Securities are, and the Additional Securities will be, unconditionally guaranteed, jointly and severally, by certain subsidiaries of the Company (the "Guarantors"). 2. The Company hereby engages you as exclusive Solicitation Agent, authorizes you to act as such in connection with the Consent Solicitation and agrees that you shall act as an independent contractor with duties solely to the Company. As Solicitation Agent, you agree, in accordance with your customary practices, to perform those services in connection with the Consent Solicitation as are customarily performed by investment banking concerns in connection with consent solicitations of like nature, including but not limited to soliciting Consents sought by the Company pursuant to the Consent Solicitation. 3. The Company agrees to furnish you with as many copies as you may reasonably request of the Solicitation and Consent Letter, any amendments or supplements thereto and any other documents or materials whatsoever relating to the Consent Solicitation that are distributed or made available to the public or the holders of the Securities (collectively, as amended or supplemented from time to time, and including any documents incorporated by reference therein, the "Consent Solicitation Material") to be used by the Company in connection with the Consent Solicitation. The Company agrees that, within a reasonable time prior to using any Consent Solicitation Material, it will submit copies of such material to you and your counsel and will not use or publish any such material to which you or your counsel reasonably object. In the event that (i) the Company uses or permits the use of any Consent Solicitation Material (a) which has not been submitted to you for your comments or (b) which has been so submitted and with respect to which you have made comments, but which comments have not resulted in a response reasonably satisfactory to you and your counsel to reflect your comments, (ii) the Company shall have breached, in any material respect, any of its representations, warranties, agreements or covenants herein and such breach is not promptly cured or (iii) the Consent Solicitation is terminated or withdrawn for any reason or any stop order, restraining order, injunction or denial of an application for approval has been issued and not thereafter stayed or vacated with respect to, or any proceeding, litigation or investigation has been initiated that is reasonably likely to have a material adverse effect on the ability of the Company to carry out the Consent Solicitation or the performance of this Agreement, then in any such case you shall be entitled to withdraw as Solicitation Agent without any liability or penalty to you or any other Indemnified Person (as defined in Section 10) and without loss of any right to the payment of all expenses payable hereunder which have accrued to the date of such withdrawal. If you withdraw as Solicitation Agent pursuant to the preceding sentence, the reimbursement for your expenses through the date of such withdrawal shall be paid to you promptly after such date. The Company shall inform you promptly after it receives notice or becomes aware of the happening of any event, or the discovery of any fact, that would require the making of any change in any Consent Solicitation Material then being used or would affect the truth or completeness of any representation or warranty contained in this Agreement if such representation or warranty were being made immediately after the happening of such event or the discovery of such fact. 4. The Company and you agree that you will receive no separate compensation for your services as Solicitation Agent hereunder apart from the underwriting discount in connection with the Offering. 5. In addition to your compensation for your services as Solicitation Agent, the Company agrees to pay (i) all reasonable fees and expenses relating to the preparation, printing, mailing and publishing of the Consent Solicitation Material and the supplemental indenture with respect to the Indenture to effect the Proposed Amendment (the "Supplemental Indenture"), (ii) all advertising charges, (iii) all other reasonable fees and expenses in connection with the Consent Solicitation, including those of any depositary, information agent or other person rendering services in connection therewith and (iv) to brokers and dealers (including you), commercial banks, trust companies and other nominees the amount of their customary mailing and handling expenses incurred in forwarding the Consent Solicitation Material to their customers. The reasonable fees and expenses of the Processing Agent (as defined in Section 6) will be paid by you. The Company will also reimburse you for all out-of-pocket expenses reasonably incurred by you in connection with your services as Solicitation Agent, as well as the reasonable fees and expenses of Cahill Gordon & Reindel, your legal counsel. All payments to be made by the Company pursuant to Section 4 and this Section 5 shall be made promptly after the closing of the Consent -2- Solicitation. The Company shall perform its obligations set forth in this Section 5 whether or not the Consent Solicitation is commenced or the Company acquires any Consents pursuant to the Consent Solicitation or otherwise. 6. The Company will arrange for MacKenzie Partners, Inc. to serve as processing agent (the "Processing Agent") in connection with the Consent Solicitation and, as such, to advise you at least daily as to such matters relating to the Consent Solicitation as you may request. The Company shall provide you or cause the trustee under the Indenture and the Depository Trust Company ("DTC") to provide you with copies of the records or other lists showing the names and addresses of, and principal amounts of Securities held by, the holders of Securities as of a recent date and shall, from and after such date, use its best efforts to cause you to be advised from day to day during the pendency of the Consent Solicitation of all transfers of Securities, such notification consisting of the name and address of the transferor and transferee of any Securities and the date of such transfer. The Company will arrange for MacKenzie Partners, Inc. to serve as information agent in connection with the Consent Solicitation and, as such, to advise you as to such matters relating to the Consent Solicitation as you may request and to furnish you with any written reports concerning any such information as you may request. 7. The Company represents and warrants to you, and agrees with you, that on and as of the date the Consent Solicitation is commenced (the "Commencement Date") and upon the consummation of the Solicitation (which, for purposes of this Agreement, shall be deemed to occur when payments for Consents are made): (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and it has taken all necessary corporate action to authorize the Consent Solicitation, the execution, delivery and performance of the Supplemental Indenture and all other actions contemplated by the Company in the Consent Solicitation Material. (b) This Agreement has been duly executed and delivered by the Company. (c) A complete and correct copy of the Consent Solicitation Material has been furnished to you or will be furnished to you no later than the Commencement Date. The Consent Solicitation Material, as amended and supplemented from time to time, comply and will comply in all material respects with the applicable provisions the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder. The Consent Solicitation Material do not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they are made, not misleading, except that the Company makes no representation or warranty -3- with respect to any statement contained in, or any matter omitted from, any Consent Solicitation Material relating to you and based upon information furnished in writing by you to the Company expressly for use therein. (d) The Consent Solicitation, the payment for the Consents pursuant to the Consent Solicitation and the execution and delivery of, and the consummation of the transactions contemplated in, this Agreement and the Supplemental Indenture will comply in all material respects with all applicable requirements of law, including any applicable regulation of any governmental agency, authority or instrumentality, and no material consent, authorization, approval, order, exemption or other action of, or filing with, any governmental agency, authority or instrumentality of the United States or any jurisdiction therein or any other jurisdiction is required in connection with the Consent Solicitation, the execution, delivery and performance of the Supplemental Indenture or the consummation by the Company of the transactions contemplated herein or in the Consent Solicitation Material, other than those consents, authorizations, approvals, orders, exemptions and other actions that will have been obtained or taken, and any filings that will have been made, prior to the consummation of the Consent Solicitation. (e) The Consent Solicitation, the payment for the Consents pursuant to the Consent Solicitation and the execution and delivery of, and the consummation of the transactions contemplated in, this Agreement and the Supplemental Indenture will not (i) conflict with or violate the certificate of incorporation or bylaws of the Company or any of its subsidiaries, (ii) result in a breach of or constitute a default under, any loan or credit agreement, indenture, mortgage, note or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which any of them or any of their respective properties or assets is or may be bound or (iii) violate any order, judgment or decree of any court or governmental agency, authority or instrumentality of the United States or any jurisdiction therein or any other jurisdiction applicable to the Company or any of its subsidiaries, in the case of foregoing clauses (ii) and (iii), in each case, except for such breaches, defaults or violations as would not have a material adverse effect on the ability of the Company to effect the Consent Solicitation ("Material Adverse Effect"). (f) Any document incorporated by reference in the Consent Solicitation Material when filed complied or will comply, as the case may be, in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and the rules and regulations thereunder. -4- (g) Subject to the conditions described in the Solicitation, sufficient funds are or will be available to the Company to enable the Company promptly to make the consent payments for the Consents. (h) The Proposed Amendment set forth in the Supplemental Indenture when executed and delivered will conform, in all material respects, to the descriptions thereof in the Consent Solicitation Material. (i) The Consent Solicitation does not require registration under the Securities Act. (j) The Supplemental Indenture may be entered into upon the consent of holders of a majority of the aggregate principal amount of the Securities outstanding under the Indenture, pursuant to the terms of the Indenture. Upon such execution and delivery thereof, and on the date of payment for Consents, the Supplemental Indenture will have been duly and validly executed and delivered by the Company and the guarantors party thereto, and each of the Supplemental Indenture and the Indenture as supplemental by the Supplemental Indenture will be a legal, valid and binding obligation of the Company and the guarantors party thereto, enforceable against them in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 8. The Company will advise you promptly of (i) the occurrence of any event which could cause the Company to withdraw or terminate the Consent Solicitation or would permit the Company to exercise any right not to make consent payments thereunder, (ii) any proposal or requirement to make, amend or supplement any Consent Solicitation Material, (iii) the issuance of any order or the taking of any other action by any administrative or judicial tribunal or other governmental agency or instrumentality concerning the Consent Solicitation (and, if in writing, will furnish you a copy thereof) and (iv) any other information relating to the Consent Solicitation which you may from time to time request. The Company agrees that if any event occurs or condition exists as a result of which the Consent Solicitation Material would include an untrue statement of a material fact, or omit to state any material fact necessary to make the statements therein, in the light of the circumstances when the Consent Solicitation Material is delivered to a holder of Securities, not misleading, or if, in the opinion of the Company, after consultation with you, it is necessary at any time to amend or supplement the Consent Solicitation Material to comply with applicable law, the Company shall immediately notify you, prepare an amendment or supplement to the Consent Solicitation Material that will correct -5- such statement or omission or effect such compliance, and supply such amended or supplemented Consent Solicitation Material to you. 9. The Company hereby agrees to hold you harmless and to indemnify you (including any of your affiliated companies and any director, officer, agent or employee of you or any such affiliated company) and any director, officer or other person controlling (within the meaning of Section 20(a) of the Exchange Act) you (including any of your affiliated companies) (collectively, "Indemnified Persons") from and against any and all losses, claims, damages, liabilities or expenses (whether in contract, tort or otherwise) whatsoever (as incurred or suffered and including, but not limited to, any and all expenses reasonably incurred in investigating, preparing or defending any litigation or proceeding, commenced or threatened, or any claim whatsoever and whether or not you or any other Indemnified Person shall be a party thereto) (a) arising out of or based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Consent Solicitation Material, or any omission or alleged omission to state in any Consent Solicitation Material a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they are made, not misleading, (ii) any withdrawal or termination by the Company of, or failure by the Company to make or consummate, the Consent Solicitation or make any consent payments pursuant to the Consent Solicitation or (iii) any breach by the Company of any representation or warranty or failure to comply with any of the agreements contained herein or (b) otherwise arising out of, relating to or in connection with or alleged to arise out of, relate to or be in connection with the Consent Solicitation or your role in connection therewith; except in the case of this clause (b) above for any such loss, claim, damage, liability or expense which is attributable to your willful misconduct, bad faith or gross negligence and except in the case of clauses (a)(i) and (b) above for any such loss, claim, damage, liability or expense which arises out of or is based upon (x) any untrue statement or alleged untrue statement of a material fact contained in any Consent Solicitation Material or (y) any omission or alleged omission to state in any Consent Solicitation Material a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they are made, not misleading, if in any such case such statement or omission relates to you and was made in reliance upon and in conformity with information furnished in writing by you to the Company expressly for use therein. The foregoing indemnity shall be in addition to any liability which the Company might otherwise have to you and such other Indemnified Persons. You shall have no liability (direct or indirect and whether in tort, contract or otherwise) to the Company or any other person for any losses, claims, damages, liabilities or expenses arising from your own acts or omissions in performing your obligations hereunder or otherwise in connection with the Consent Solicitation except for any such losses, claims, damages, liabilities or expenses attributable to your willful misconduct, bad faith or gross negligence. If a claim is made against any Indemnified Person as to which such Indemnified Person may seek indemnity under this Section 10, such -6- Indemnified Person shall notify the Company promptly after any written assertion of such claim threatening to institute an action or proceeding with respect thereto and shall notify the Company promptly of any action commenced against such Indemnified Person within a reasonable time after such Indemnified Person shall have been served with a summons or other first legal process giving information as to the nature and basis of the claim. Failure to so notify the Company shall not, however, relieve the Company from any liability which they may have on account of the indemnity under this Section 10 if the Company has not been prejudiced in any material respect by such failure. The Company shall be entitled to participate at its own expense in any such litigation or proceeding and to assume at its sole expense the defense of any such litigation or proceeding, and such defense shall be conducted by counsel reasonably satisfactory to such Indemnified Person. The Company shall, upon the request of such Indemnified Person, assume the defense of any such litigation or proceeding, and in the case of any such request such defense shall be conducted by counsel reasonably satisfactory to you. In any such litigation or proceeding the defense of which the Company shall have so assumed, any Indemnified Person shall have the right to participate in such litigation or proceeding and to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Company and the Indemnified Person shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include (x) the Company and (y) the Indemnified Person and the Indemnified Person is advised by counsel that representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Company shall not, in connection with any litigation or proceeding or related litigation or proceeding in the same jurisdiction, be liable under this Agreement for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such Indemnified Persons and that all such fees and expenses shall be reimbursed as they are incurred. Such separate firm shall be designated by Morgan Stanley & Co. Incorporated. The Company shall not be liable for any settlement of any litigation or proceeding effected without their written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Company agrees, subject to the provisions of this Section 10, to indemnify the Indemnified Person from and against any loss, damage, liability or expenses by reason of such settlement or judgment. The Company agrees to notify you promptly of the assertion of any claim in connection with the Consent Solicitation against either of them, any of their respective officers or directors or any person who controls either of them within the meaning of Section 20(a) of the Securities Exchange Act of 1934, as amended. To the extent the indemnity provided for in the foregoing paragraphs of this Section 10 is unavailable to an Indemnified Person in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the Company agrees to contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and by you, on the other, from the Consent Solicitation or (ii) if the allocation provided by the -7- foregoing clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing clause (i), but also the relative fault of the Company, on the one hand, and of you, on the other, in connection with the statements, actions or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and by you, on the other, shall be deemed in the same proportion as (i) the maximum aggregate value of the consideration proposed to be paid by the Company for consent payments pursuant to the Consent Solicitation bears to (ii) the maximum aggregate fee proposed to be paid to you pursuant to Section 4. The relative fault of the Company, on the one hand, and of you, on the other, (i) in the case of an untrue or alleged untrue statement of a material fact or an omission or alleged omission to state a material fact, shall be determined by reference to, among other things, whether such statement or omission relates to information supplied by the Company or by you and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission and (ii) in the case of any other action or omission, shall be determined by reference, among other things, whether such action or omission was taken or omitted to be taken by the Company or by you and the parties' relative intent, knowledge, access to information and opportunity to prevent such action or omission. The Company and you agree that it would not be just and equitable if contribution pursuant to this Section 10 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages, liabilities or expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitation set forth above, any legal or other expenses reasonably incurred by such Indemnified Person in connection with investigating or defending any such action or claim. 10. The indemnity and contribution agreements contained in Section 10, the provisions of Sections 4 and 5 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any failure to commence, or the withdrawal, termination or completion of, the Consent Solicitation or the termination or assignment of this Agreement, (ii) any investigation made by or on behalf of the Company or any Indemnified Person and (iii) any withdrawal by you pursuant to Section 3. 11. On the Commencement Date and upon execution of the Supplemental Indenture ("Execution Date"), you shall have received opinions of Gibson, Dunn & Crutcher LLP in the form set forth in Exhibit C , each dated the date of delivery and addressed to the Solicitation Agent. -8- 12. In the event that any provision hereof shall be determined to be invalid or unenforceable in any respect, such determination shall not affect such provision in any other respect or any other provision hereof, which shall remain in full force and effect. 13. This Agreement may be executed in two or more separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 14. This Agreement, including any right to indemnity or contribution hereunder, shall inure to the benefit of and be binding upon the Company, you and the other Indemnified Persons (as defined in Section 10) and their respective successors and assigns. Nothing in this Agreement is intended, or shall be construed, to give to any other person or entity any right hereunder or by virtue hereof. 15. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof. 16. The Company agrees that any reference to you in the Consent Solicitation Material, or in any other release or communication relating to the Consent Solicitations, is subject to your prior written approval, which approval shall not be unreasonably withheld. 17. All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally to the parties hereto as follows: (a) If to you: Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Attn: High Yield Liability Management Department -9- with a copy to: Cahill Gordon & Reindel 80 Pine Street New York, New York 10005 Telecopy No.: (212) 269-5420 Attn: Daniel J. Zubkoff, Esq. (b) If to the Company: D.R. Horton, Inc. 1901 Ascension Boulevard Suite 100 Arlington, Texas 76006 Telecopy No.: (817) 856-8259 Attn: Paul Buchschacher, Esq. with a copy to: Gibson, Dunn & Crutcher LLP 2100 McKinney Avenue Suite 1100 Dallas, Texas 75201-6911 Telecopy No.: (214) 698-3400 Attn: Irwin F. Sentilles, Esq. 18. You and the Company each waive any right to trial by jury in any action, claim, suit or proceeding with respect to your engagement hereunder. The Company hereby (a) submits to the jurisdiction of any New York State or Federal court sitting in New York City with respect to any actions and proceedings arising out of or relating to this Agreement, (b) agrees that all claims with respect to such actions or proceedings may be heard and determined in such New York State or Federal court, (c) waives the defense of any inconvenient forum and (d) agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. -10- Please indicate your willingness to act as Solicitation Agent on the terms set forth herein and your acceptance of the foregoing provisions by signing in the space provided below for that purpose and returning to us a copy of this letter, whereupon this letter shall constitute a binding agreement between us. Very truly yours, D.R. HORTON, INC. By: /s/ Samuel R. Fuller ---------------------------------- Samuel R. Fuller Executive Vice President, Treasurer and Chief Financial Officer Accepted as of the date first above written: MORGAN STANLEY & CO. INCORPORATED By: /s/ Franklin D. McMahon ------------------------------------- Name: Franklin D. McMahon Title: Managing Director -11- EXHIBIT A [Consent Solicitation Statement] D.R. HORTON, INC. CONSENT SOLICITATION STATEMENT For Consent Solicitation Expiring 5:00 P.M., New York City Time, on June 8, 2000, Unless Extended $150,000,000 Aggregate Principal Amount of 10-1/2% Senior Notes Due 2005 CUSIP Number 23331AAE9 We are sending this consent solicitation statement to the holders of our outstanding 10-1/2% Senior Notes Due 2005 to solicit their consent to an amendment to the indenture governing the notes to permit the issuance of up to an additional $50,000,000 aggregate principal amount of the notes. We seek to issue additional 10-1/2% senior notes in the near future for the principal purpose of paying down outstanding borrowings under our existing revolving credit facility, which will increase availability under the revolving credit facility, and for general corporate purposes. The proposed amendment would permit us to issue the additional notes by increasing the size of the issue from $150,000,000 to $200,000,000. Any issuance of the additional notes will comply with the debt incurrence tests contained in the indenture. The additional notes would comprise part of the same series of securities as the outstanding 10-1/2% senior notes. Approval of the amendment requires the consent of holders of at least a majority in aggregate principal amount of the outstanding 10-1/2% senior notes and does not require the consent of holders of any other series of notes issued under the indenture. Subject to the terms and conditions set forth in this consent solicitation statement and in the accompanying consent form, we will pay to each holder who validly consents to the proposed amendment a cash consent fee equal to $1.25 for each $1,000 in principal amount of 10-1/2% senior notes for which consents have been properly executed, validly delivered, and not revoked as of the time of the expiration of this solicitation. We will pay such cash to such holder or such person that the holder designates on the accompanying consent form. We will make these payments, however, only if we and the trustee enter into the amendment and we issue any additional notes. Any holder may revoke its consent as to all or a portion of its notes; however, revocation will be effective only if the trustee receives the notice of revocation before the date the amendment becomes effective. This solicitation will expire at 5:00 p.m., Eastern Time, on June 8, 2000. We may, however, extend the expiration date on a daily basis or otherwise, in which event the term "expiration date" will mean the time and date to which we have extended this solicitation. This consent solicitation statement does not constitute a solicitation of a consent in any jurisdiction in which, or to or from any person to or from whom, it is unlawful to make such a solicitation. The date of this consent solicitation statement is May 27, 2000. THE COMPANY We are a national homebuilder. We construct and sell single-family homes in metropolitan areas of the Mid-Atlantic, Midwest, Southeast, Southwest and West regions of the United States. We offer high quality homes, designed principally for first-time and move-up home buyers. Our homes generally range in size from 1,000 to 5,000 square feet and range in price from $80,000 to $600,000. For the year ended September 30, 1999, we closed 18,395 homes with an average sales price approximating $166,100. For the six months ended March 31, 2000, we closed 8,856 homes with an average sales price approximating $176,400. We are one of the largest and most geographically diversified homebuilders in the United States, with operating divisions in 23 states and 40 markets as of March 31, 2000. The markets we operate in include: Albuquerque, Atlanta, Austin, Birmingham, Charleston, Charlotte, Chicago, Cincinnati, Columbia, Dallas/Fort Worth, Denver, Greensboro, Greenville, Hilton Head, Houston, Jacksonville, Killeen, Las Vegas, Los Angeles, Louisville, Minneapolis/St. Paul, Myrtle Beach, Nashville, New Jersey, Newport News, Orlando, Pensacola, Phoenix, Portland, Raleigh/Durham, Richmond, Sacramento, Salt Lake City, San Antonio, San Diego, St. Louis, South Florida, Tucson, suburban Washington, D.C. and Wilmington. We build homes under the following names: D.R. Horton, Arappco, Cambridge, Continental, Dobson, Mareli, Milburn, Joe Miller, Regency, RMP, SGS, Torrey and Trimark. Our principal executive offices are at 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006, our telephone number is (817) 856-8200, and our internet address is www.drhorton.com. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE This consent solicitation statement incorporates by reference the documents listed below that we have previously filed with the Securities and Exchange Commission and that are not included in or delivered with this document. They contain important information about our company and its financial condition. FILING PERIOD Annual Report on Form 10-K Year ended September 30, 1999 Quarterly Reports on Form 10-Q Quarter ended December 31, 2000 Quarter ended March 31, 2000 Current Report on Form 8-K Filed March 17, 2000 Pages two through eleven, "Election Filed December 10, 2000 of Directors", through Executive Compensation-Compensation Committee Interlocks and Insider Participation" and page sixteen, "Section 16(a) Beneficial Ownership Reporting Compliance," contained in our Proxy Statement dated December 10, 1999, relating to our 2000 annual meeting of stockholders and incorporated into our Annual Report on Form 10-K We also incorporate by reference additional documents that we may file with the SEC between the date of this consent solicitation statement and the date the proposed amendment becomes effective. The information incorporated by reference is considered to be part of this consent solicitation statement, except for any information that is superseded by information that is included directly in this document. -2- You can obtain any of the documents incorporated by reference in this document from us without charge, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference as an exhibit to this consent solicitation statement. You can obtain documents incorporated by reference in this consent solicitation statement by requesting them in writing or by telephone from us at the following address: Assistant to Corporate Counsel D.R. Horton, Inc. 1901 Ascension Boulevard Suite 100 Arlington, Texas 76006 (817) 856-8200, ext. 1046 THE PROPOSED AMENDMENT We issued $150,000,000 aggregate principal amount of our 10-1/2% senior notes on March 21, 2000. We seek the proposed amendment in order to issue in the near future up to an additional $50,000,000 aggregate principal amount of our 10-1/2% senior notes. The indenture currently limits the principal amount of these notes to $150,000,000. The proposed amendment would increase this limit by $50,000,000 if we are successful in issuing any additional notes. If we are not successful in issuing any additional notes and we so advise the trustee, the limit would remain at $150,000,000. If the limit is increased but we do not issue all of the additional notes, the indenture would permit us to issue the balance of the additional notes in the future. We would use the net proceeds of the issuance of any additional notes to pay down outstanding borrowings under our existing revolving credit facility, which will increase availability under our revolving credit facility, and for general corporate purposes. Any issuance of the additional notes will comply with the debt incurrence tests contained in the indenture and would comprise part of the same series of securities as the outstanding 10-1/2% senior notes. -3- CAPITALIZATION The following table sets forth our capitalization at March 31, 2000, as adjusted to reflect the issuance of an additional $50,000,000 aggregate principal amount of notes and the application of the estimated net proceeds of the issuance. As of March 31, 2000 Actual Adjusted(1) ($ in thousands) ---------------------------- Homebuilding debt: Notes payable under revolving credit facility(2) $500,000 $450,880 Notes payable"other 8,617 8,617 8 3/8% senior notes due 2004, net 148,348 148,348 10 1/2% senior notes due 2005, net 149,415 199,415 10% senior notes due 2006, net 147,338 147,338 8% senior notes due 2009, net 383,014 383,014 ------- ------- Total homebuilding debt 1,336,732 1,337,462 Notes payable under mortgage warehouse facility 76,800 76,800 ------ ------ Total debt 1,413,532 1,414,262 --------- --------- Stockholders' equity: Preferred stock, $.10 par value; 30,000,000 shares authorized, no shares issued -- -- Common stock, $.01 par value; 200,000,000 shares authorized, 64,396,305 shares, issued and outstanding 644 644 Additional capital 420,643 420,643 Retained earnings 477,737 477,737 Treasury stock (36,947) (36,947) -------- -------- Total stockholders' equity 862,077 862,077 ------- ------- Total capitalization $2,275,609 $2,276,239 ========== ========== - ----------- (1) Adjusted to reflect the sale of $50,000,000 of additional notes and the application of the estimated net proceeds to repay debt under our revolving credit facility. (2) We have an $825,000,000 unsecured revolving credit facility with 12 financial institutions. The revolving credit facility matures in April 2002, and includes $50,000,000 reserved for use as standby letters of credit. Additionally, we have another $25,000,000 standby letter of credit agreement and a $22,500,000 non-renewable letter of credit facility acquired in connection with an acquisition. -4- THE SOLICITATION Terms of the Consent Solicitation We will pay to each holder, who delivers and does not revoke the enclosed form of consent prior to 5:00 p.m., Eastern time, on the expiration date, a consent payment of $1.25 in cash for each $1,000 in principal amount of the notes as to which such consent is given if the following conditions are met: - the requisite number of consents is received, - we and the trustee execute a supplemental indenture containing the proposed amendment, and - we issue any additional 10-1/2% senior notes. We will pay the consent payment promptly after the later of the expiration date or the closing of any offering of additional notes. If we do not issue any additional 10-1/2% senior notes, no consent fee will be paid. Holders who do not properly or timely consent to the proposed amendment, or whose consent is revoked, will not receive a consent payment even though the proposed amendment, if it becomes operative, will be binding upon them. A duly executed consent (unless revoked as described in this consent solicitation statement) shall bind the holders executing the same and any subsequent registered holder or transferee of the notes to which such consent relates. Any holder or subsequent holder may revoke its consent as to all or a portion of its notes; however, such revocation shall be effective only if the trustee receives the notice of revocation before the date the amendment becomes effective. The term "holder" means a registered holder of 10-1/2% senior notes as reflected in the records of the trustee. We anticipate that Cede & Co., as nominee holder of the 10-1/2% senior notes for the Depository Trust Company, will execute an authorization for DTC's participants to consent (or revoke consents) with respect to the notes owned by the participants and their customers. In such case, all references to "holder" shall, unless otherwise specified, include such participants specified on the DTC position listing as of the date indicated. The delivery of a consent to the proposed amendment will not affect a holder"s right to sell or transfer the notes. Upon receipt of the requisite consents, which may occur before the expiration date, we and the trustee may then execute the supplemental indenture containing the proposed amendment. The date and time at which such supplemental indenture is executed is referred to herein as the "effective date." Holders delivering consents after the effective date but prior to the expiration date will nonetheless be entitled to receive the consent payment if all the other conditions are satisfied. However, holders may revoke consents only prior to the effective date, which may occur before the expiration date. If the requisite consents are not received by 5:00 p.m., New York City time, on the expiration date, then we, in our sole discretion, may elect to the extend the expiration date, from time to time, in which case all such consents shall remain valid until the date and time to which the expiration date is so extended subject only to revocation as provided in this consent solicitation statement. We expressly reserve the right to: - extend the expiration date from time to time, - terminate this consent solicitation at any time prior the expiration date whether or not the requisite consents have been obtained, and - amend, at any time or from time to time, the terms of this consent solicitation. -5- Any such extension will be effective if we give oral or written notice to MacKenzie Partners, Inc., the processing agent for this consent solicitation, no later than 9:00 a.m., New York City time, on the first business day following any previously announced expiration date, with any oral notice followed by written notice, facsimile or otherwise, no later than 2:00 p.m., New York City time, on such day. Any termination or amendment of this consent solicitation shall be effective upon written notice, facsimile or otherwise, from us to the processing agent. As promptly as practicable following any such extension, termination, or amendment, we will give notice to each holder either in writing or by press release to a nationally recognized business wire service. Consent Procedures Holders who desire to consent to the proposed amendment must so indicate by marking the appropriate box on the consent included with this consent solicitation statement, and completing, signing, dating, and delivering the same to the processing agent in the manner described in this section. However, if none of the boxes on the consent is checked, but the consent is otherwise properly completed, signed, dated, and delivered, the holder will be deemed to have consented to the proposed amendment. Consents executed by the registered holder of 10-1/2% senior notes must be executed in exactly the same manner as the name(s) appear(s) on such notes. If notes to which a consent relates are held by two or more joint holders, all such holders must sign the consent. If a consent is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other registered holder acting in a fiduciary or representative capacity, such person must so indicate when signing and must submit to the processing agent appropriate evidence, satisfactory to us, of such person"s authority to so act, along with the consent. If notes are registered in different names, separate consents must be executed by each such registered holder. Consents by DTC participants whose notes are registered in the name of Cede & Co. must be signed in the manner in which their names appear on the position listing of Cede & Co. with respect to such notes. Subject to the terms and conditions set forth in this consent solicitation statement, we will accept all properly completed and executed consents received by the processing agent and not subsequently revoked prior to 5:00 p.m., New York City time, on the expiration date. All questions as to validity, form, eligibility, time of receipt, and acceptance of consents and revocation will be resolved by us in our sole discretion and our determination will be final and binding, subject only to review and approval of the processing agent with respect to proof of execution and ownership. We reserve the right to reject any and all consents not validly given or the acceptance of which could, in our opinion or in the opinion of our counsel, be unlawful. We also reserve the right, subject to review and approval of the processing agent, to waive any defects, irregularities, or conditions of delivery as to particular consents. Unless waived, all such defects and irregularities must be cured prior to the expiration date, and any consent with such defect or irregularity will not be deemed to have been properly given until so cured or waived. Neither we, the processing agent, nor any other person shall be under any duty to give notification of any such defects or irregularities, nor shall any of us incur any liability for failure to give such notification. Our interpretation of the terms and conditions of this consent solicitation shall be conclusive and binding. After the effective date of the amendment, all holders, including non-consenting holders and all subsequent holders, of the 10-1/2% senior notes will be bound by the proposed amendment. Revocation of Consents Consents with respect to the proposed amendment may be revoked by a holder of the notes to which such consent relates if the trustee receives the notice of revocation before the date the amendment becomes effective. Consents may not be revoked on or after the effective date. For purposes of this solicitation, notices of revocation received by the processing agent will be deemed to have been received by the trustee. Notices of revocation given by a holder must be completed, signed, dated, and delivered to the processing agent (accompanied by a proxy or other required documents) in the same manner as would be required of a consent by such holder. Unless waived, all defects and irregularities in a revocation must be cured prior to the effective date. -6- Solicitation Agent and Processing Agent We have retained Morgan Stanley & Co., Incorporated to act as our solicitation agent in connection with this consent solicitation. Morgan Stanley will not receive a separate fee for acting as solicitation agent; however, it will act as the underwriter with respect to the proposed offering of the additional 10-1/2% senior notes for which it will receive customary compensation. The solicitation agent will receive reimbursement for its reasonable out-of-pocket expenses (including reasonable fees and disbursements of its counsel) incurred in connection with the consent solicitation. We have retained MacKenzie Partners, Inc. as our processing agent in connection with this consent solicitation. The processing agent will receive and tabulate consents and revocations, if any. The processing agent will receive customary fees for such services and reimbursement for its reasonable out-of-pocket expenses. Requests for additional copies of this consent solicitation statement and the other documents enclosed with it may be directed to our solicitation agent at its address or telephone number set forth on the back cover of this consent solicitation statement. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS General The following discussion summarizes certain federal income tax consequences arising out of the receipt of the consent payment and adoption of the proposed amendment. The discussion is based on the Internal Revenue Code of 1986, as amended, Treasury Regulations thereunder, Internal Revenue Service rulings and judicial decisions, all as in effect on the date hereof, and all of which are subject to change, possibly retroactively. The discussion does not address all aspects of federal income taxation that may be relevant to particular holders in light of their personal circumstances or to certain types of holders subject to special treatment under the federal income tax laws (e.g., financial institutions, insurance companies, regulated investment companies, real estate investment trusts, foreign persons or entities, dealers in securities or currencies, tax-exempt organizations, broker-dealers, taxpayers subject to the alternative minimum tax and persons holding the notes as part of a straddle, hedge or conversion transaction) and does not discuss any aspect of state, local or foreign taxation. The discussion assumes that holders are United States persons who hold the notes as "capital assets" (generally, property held for investment) within the meaning of Section 1221 of the Internal Revenue Code. The following summary of federal income tax considerations is included herein for general information only. The tax treatment of a holder might vary depending upon such holder's particular situation. Accordingly, holders of the notes should consult their own tax advisors as to the specific tax consequences of granting or withholding consent to the proposed amendment. Treatment of Consent Payments There is no direct authority with respect to the federal income tax consequences of receiving the consent payment. A holder who receives the consent payment might be treated as receiving a fee to obtain such holder's consent to certain transactions (or a waiver of rights) or additional interest with respect to the notes. In either event, such holder would recognize ordinary taxable income equal to the amount of cash received. Alternatively, the consent payment might be treated as received in exchange for certain rights of the holders. In such event, holders who received the consent payment would reduce their tax basis for the notes by an amount equal to the amount of cash they received, and receipt of the consent payment therefor would not be currently recognized as taxable income. Instead, any such basis reduction would cause such holder to recognize additional capital gain (or, under the market discount rules, ordinary income) on a sale or other disposition of the notes. It is also possible that such basis reduction could cause such holder to recognize ordinary income, either upon disposition of the notes or over the remaining term of the notes. -7- We anticipate that we will treat the consent payment for federal income tax purposes as a fee paid to the holders. Accordingly, we will be required to provide information statements to the consenting holders and to the IRS reporting the consent payment. Proposed Amendment The federal income tax consequences of the adoption of the proposed amendment depend upon whether an exchange of notes is deemed to have occurred as a result thereof. If the proposed amendments are deemed to change to a material extent the terms of the notes, adoption of the proposed amendments would result in a constructive exchange for federal income tax purposes of new modified notes for the existing notes which, depending upon the circumstances, could be taxable to the holders. However, we believe that the proposed amendments will not result in such a constructive exchange for federal income tax purposes. Accordingly, holders would not recognize any gain or loss as a result of the proposed amendment becoming effective. Backup Withholding Certain noncorporate holders may be subject to backup withholding at the rate of 31% with respect to the consent payment. Generally, backup withholding is applied only when (a) the taxpayer (i) fails to furnish or certify its correct taxpayer identification number to the payor in the manner required or (ii) under certain circumstances fails to certify that it has not been notified by the IRS that it is subject to backup withholding for failure to report certain payments or (b) the IRS has notified the payor that the taxpayer identification number furnished by the taxpayer is incorrect or has otherwise notified the payor that backup withholding is required. Amounts withheld under the backup withholding rules will be allowed as a refund or credit against a holder's federal income tax liability, provided that such holder furnishes the required information to the IRS. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission under the Securities Exchange Act of 1934. You may read and copy this information at the following locations of the SEC: Judiciary Plaza, Room 10024 Seven World Trade Center, Citicorp Center 450 Fifth Street, N.W. Street Suite 1300 500 West Madison Street Washington, D.C. 20549 New York, New York 10048 Suite 1400 Chicago, Illinois 60661 You can also obtain copies of this information by mail from the Public Reference Room of the SEC, 450 Fifth Street, N.W., Room 10024, Washington, D.C. 20549, at prescribed rates. You may obtain information on the operation of the Public Reference Room by calling the SEC at (800) SEC-0330. The SEC also maintains an internet world wide web site that contains reports, proxy statements and other information about issuers, like us, who file electronically with the SEC. The address of that site is http://www.sec.gov. You can also inspect reports, proxy statements and other information about us at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. -8- EXHIBIT A PROPOSED AMENDMENT The following is a summary of the proposed amendment contained in the tenth supplemental indenture. The summary is qualified in its entirety by reference to the indenture and the supplements thereto, including the definitions therein of certain terms used below and those terms that are made part of the indenture by reference to the Trust Indenture Act of 1939, as amended. The number "$150,000,000" in Article One of the Eighth Supplemental Indenture is hereby deleted and the following phrase is substituted in its place: "(i) $150,000,000 until such date and time that the Company delivers to the Trustee an Officers" Certificate that it intends to enter into an agreement to issue Notes in addition to the Notes issued on March 21, 2000; and (ii) $200,000,000 thereafter (provided that this clause (ii) shall not apply if the Company delivers to the Trustee an Officers" Certificate that it does not intend to issue any such additional Notes)." -9- Holders who wish to consent should deliver, by regular mail, air courier, messenger or fax, their properly completed, executed and dated consent forms to the processing agent in accordance with the instructions set forth herein and therein. All facsimile transmissions must be followed by delivery of originally executed consents. The method of delivery of all documents, including consents, is at the election and risk of the holder. The address of the processing agent is as follows: Via Regular Mail, Overnight Delivery, Facsimile or by Hand MacKenzie Partners, Inc. 156 Fifth Avenue, 13th Floor New York, New York 10010 Attention: Jeanne Carr Facsimile Transmission: (212) 929-0308 (Originally executed consents must follow) Confirm by Telephone: (212) 929-5500 We have not authorized any person to give any information or make any representations in connection with this solicitation of consents other than as set forth herein and, if given or made, such information or representations must not be relied upon as having been authorized by us. The delivery of this consent solicitation statement shall not, under any circumstances, create any implication that the information herein is correct after the date hereof. Any questions or requests for assistance or additional copies of this consent solicitation statement or the consent may be directed to the solicitation agent at its telephone number and location set forth below. You may also contact your broker, dealer, commercial bank or trust company or other nominee for assistance covering this consent solicitation. The Solicitation Agent: MORGAN STANLEY & CO., INCORPORATED 1585 Broadway New York, New York 10036 Attention: Global Leveraged Finance Capital Markets (877) 445-0397 (toll free) EXHIBIT B [Consent Letter] D.R. HORTON, INC. CONSENT in respect of its 10-1/2% Senior Notes due 2005 CUSIP Number 23331AAE9 Pursuant to the Consent Solicitation Statement dated May 27, 2000 Please return this consent form to the Processing Agent: Via Regular Mail, Overnight Delivery, Facsimile or By Hand MACKENZIE PARTNERS, INC. By Hand Delivery, Mail For Information: By Facsimile Transmission: or Overnight Courier: 156 Fifth Avenue, 13th Floor New York, New York 10010 (212) 929-5500 (collect) Attn: Jeanne Carr (212) 929-0308 (800) 322-2885 (toll-free) Delivery to an address, or transmission via facsimile, other than as set forth above will not constitute valid delivery. In no event should a holder deliver any certificates representing the 10-1/2% senior notes due 2005. The instructions accompanying this consent should be read carefully before this consent is completed. Any questions or requests for assistance or additional copies of the consent solicitation statement or this consent may be directed to the solicitation agent at its address and telephone number and location set forth below. You may also contact your broker, dealer, commercial bank or trust company or other nominee for assistance concerning the consent solicitation. The undersigned is the holder of 10-1/2% Senior Notes due 2005 of D.R. Horton, Inc. issued under an indenture dated as of June 9, 1997 among D.R. Horton, Inc., the guarantors party thereto and American Stock Transfer & Trust Company, as trustee, as supplemented. The term "holder" as used herein shall mean a registered holder of 10-1/2% senior notes as reflected in the records of the trustee as of the date of execution of this consent. D.R. Horton anticipates that Cede & Co., as nominee holder of the 10-1/2% senior notes for the Depository Trust Company, will execute an authorization which will authorize the DTC's participants to consent with respect to the 10-1/2% senior notes owned by the participants and their customers and held in the name of Cede & Co. In such case, all references to "holder" shall, unless otherwise specified, include such participants specified on the DTC position listing as of the date indicated. Holders who wish to receive payments in consideration for their consent of $1.25 per $1,000 principal amount of notes (see payment instructions) in the event the proposed amendment is approved and the consent fee becomes payable as provided in the consent solicitation statement must consent prior to 5:00 p.m., New York City time, on June 8, 2000, as such date may be extended at the election of D.R. Horton, by delivering an executed consent to the processing agent (and such consent is not revoked prior to the effective date, as defined -1- in the consent solicitation statement). Subject to the terms and conditions set forth in the consent solicitation statement, D.R. Horton will accept all properly completed and delivered consents received prior to 5:00 p.m., New York City time, on June 8, 2000 from the holders of record as of the date of execution of such consent. Upon receipt by the processing agent of consents to the proposed amendment described in the consent solicitation statement from the holders of at least a majority in aggregate principal amount of the outstanding 10-1/2% senior notes, D.R. Horton and the trustee may then execute a supplemental indenture containing the proposed amendment. The date and time at which such supplemental indenture is executed is the "effective date." Consents may not be revoked after the effective date. As a holder of said 10-1/2% senior notes, the undersigned hereby: CONSENTS DOES NOT CONSENT ------ ------ with respect to the proposed amendment to be made to the indenture as described in the consent solicitation statement. If no election is specified, any otherwise properly completed, signed, dated and delivered consent form will be deemed a consent to the proposed amendment. By execution hereof, the undersigned acknowledges receipt of the consent solicitation statement and hereby represents and warrants that the undersigned is the holder of record or through its nominee Cede & Co. with respect to the 10-1/2% senior notes specified herein and has full power and authority to give the consent contained herein. The undersigned will, upon request, execute and deliver any additional documents deemed by D.R. Horton to be necessary or desirable to perfect the undersigned's consent. Unless otherwise specified by the undersigned, this consent relates to all 10-1/2% senior notes to which the undersigned is the holder. If this consent relates to less than all 10-1/2% senior notes as to which the undersigned is a holder, the specific 10-1/2% senior notes to which this consent relates shall be identified herein. This consent, if effective, will be binding upon the holder of the 10-1/2% senior notes who gives such consent and upon any subsequent transferee(s) of such 10-1/2% senior notes, subject only to a valid revocation of the consent by the holder or subsequent holders by delivery to the processing agent of a written notice of revocation prior to the effective date, completed, signed, dated and delivered to the processing agent in the manner described in the consent solicitation statement. Consents may not be revoked after the effective date. The holder shall be entitled to receive consent payments only in respect of a valid consent which has not been revoked. -2- DESCRIPTION OF NOTES TO WHICH CONSENT IS GIVEN Name(s) and Address(es) of Registered Notes with Respect to Which this Consent Holder(s)(please fill in, if blank, is Given (Attach additional schedule, exactly as name(s) appear(s) on Notes) if necessary) or DTC Participants(s) Please complete Payment Instructions on page 4 to ensure prompt payment of the consent fee (1) (2) (3) (4) Certificate Aggregate Principal Amount or Cede & Principal of Notes to Co. Account Amount of Which Consent Number(s) Notes is Given (if less than all)* ________________________________________________________________________________ Total: ________________________________________________________________________________ * If this consent form relates to less than the aggregate principal amount of 10-1/2% senior notes registered in the name of the registered holder(s), or held by DTC for the account of DTC participant(s), named above, list the certificate or account numbers and principal amounts at maturity of notes to which this consent form relates. Unless otherwise indicated in the column labeled "Principal Amount of Notes to Which Consent is Given," the undersigned holder will be deemed to have consented in respect to the entire aggregate principal amount represented by the 10-1/2% senior notes indicated in the column labeled "Aggregate Principal Amount of Notes." IMPORTANT READ CAREFULLY This consent must be executed by the registered holder(s), or the DTC participant(s), in exactly the same manner as the name(s) of such holder(s) appear(s) on the 10-1/2% senior notes or on the position listing of Cede & Co. If 10-1/2% senior notes to which this consent relates are held by two or more joint registered holders, all such holders must sign this consent form. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or other person acting in a fiduciary or representative capacity, such person should so indicate when signing and must submit proper evidence satisfactory to D.R. Horton of such person's authority so to act. Signatures on this consent must be guaranteed by a firm that is a member of the National Association of Securities Dealers, Inc., or a member of a registered national securities exchange or by a commercial bank or trust company having an office in the United States. SIGN HERE ______________________________________ _______________________________________ (Signature(s)) DTC Participant Number:_____________________________ Dated:__________________________________ _______________________________________ Names:__________________________________ _______________________________________ (Please Print) Capacity:______________________________________________________________________ Address:_______________________________________________________________________ (including Zip Code) Area Code and Telephone No. ( ) _________________________________________ Tax Identification or Social Security No.______________________________________ GUARANTEE OF SIGNATURES Authorized Signature ___________________________________________________ Name and Title:_________________________________________________________ (Please Print) Dated:__________________________________________________________________ Name of Firm:___________________________________________________________ -3- PAYMENT INSTRUCTIONS If (i) the processing agent receives the requisite consents, (ii) D.R. Horton, the guarantors party thereto and the trustee execute a supplemental indenture and (iii) D.R. Horton issues additional 10-1/2% senior notes, then promptly after the later of the expiration date or the closing of any offering of additional notes, D.R. Horton will cause the trustee will pay to each holder who has delivered a valid consent prior to the expiration date, and which consent has not been duly revoked prior to the effective date, a one-time cash payment in the amount of $1.25 for each $1,000 principal amount of notes as to which such consent relates. In order to be valid and effective, a consent must (a) be properly completed and executed and (b) be timely received by the processing agent and not thereafter validly revoked as provided in the consent solicitation statement. Consent payments will be made by the trustee, on behalf of D.R. Horton, by delivery of a check to the holder at its address as it appears on the Cede & Co. position listing. If you desire the payments to be sent otherwise, please so indicate below. PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (See Instruction 6) (See Instruction 6) Please complete in order to ensure To be completed ONLY if the checks for prompt and accurate payment of consent the consent payments, issued in the consent fee. name of undersigned, are to be sent to someone other than the party listed Issue checks to: under payment instructions. Name:_______________________________ (Please Print) Mail checks to: Address:____________________________ ____________________________________ Name:_________________________________ (Including Zip Code) (Please Print) Contact:____________________________ Address:______________________________ Telephone:__________________________ ______________________________________ (Including Zip Code) __________________________________ Contact:______________________________ (Taxpayer Identification or Telephone:____________________________ Social Security Number) (Complete Form W-9) ____________________________________ (Taxpayer Identification or Social Security Number) (Complete Form W-9) IMPORTANT TAX INFORMATION Under the Federal income tax law, a holder whose consent is given for payment is required by law to provide the trustee (as payer) with such holder's correct Taxpayer Identification Number (TIN) on Substitute Form W-9 below. If such holder is an individual, the TIN is his or her social security number. If the trustee is not provided with the correct TIN, a $50 penalty may be imposed by the Internal Revenue Service, and payments may be subject to backup withholding. Certain holders (including, among others, corporations) are not subject to these backup withholding and reporting requirements. Exempt holders should indicate their exempt status on Substitute Form W-9. In order for a foreign individual to qualify as an exempt recipient, such individual must submit a statement, signed under penalties of perjury, attesting to such individual's exempt status. Form of such statements can be obtained from the solicitation agent. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. -4- If backup withholding applies, 31% of any payments made to the holder or other payee will be required to be withheld. Backup withholding is not an additional tax, any amounts to withheld may be credited against the federal income tax liability of the holder subject to the withholding. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. Purpose of Substitute Form W-9 To prevent backup withholding on payments made with respect to consents, the holder is required to notify the trustee of such holder's correct TIN by completing the form below, certifying that the TIN provided on the Substitute Form W-9 is correct (or that such holder is awaiting a TIN) and that (a) such holder is exempt from backup withholding, or (b) such holder has not been notified by the Internal Revenue Service that he is subject to backup withholding as a result of a failure to report all interest or dividends or (c) the Internal Revenue Service has notified such holder that such holder is no longer subject to backup withholding. If a holder indicates that he is awaiting a TIN and the trustee is not provided with a TIN within 60 days, the trustee will withhold 31% of the payments payable to the holder until a TIN is provided to the trustee. What Number to Provide The holder is required to give the trustee the TIN (i.e., social security number or employer identification number) of the registered holder of the 10-1/2% senior notes for which the consent is given hereby. If the 10-1/2% senior notes are held in more than one name or are not held in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance. -5- PAYER'S NAME: American Stock Transfer & Trust Company SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN IN THE _________________________ BOX AT RIGHT AND CERTIFY BY SIGNING AND Social Security Number Form W-9 DATING BELOW OR _________________________ Employer Identification Number Part 2 -Certification Part 3 - Under Penalties of Perjury, I certify that (1) The number shown on this form is my Awaiting TIN____ correct Taxpayer Identification Number (or I am waiting for a number to be issued to me) and (2) I am not subject to backup withholding Part 4 - either because (a) I am exempt from backup withholding or (b) I have not Exempt ______ been notified by the IRS that I am subject to backup withholding as a result of failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Department of Treasury Certification instructions - You must cross out item Internal Revenue Service (2) in Part 2 below if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax Payees Request for return. However, if after being notified by the IRS Taxpayer Identification that you were subject to backup withholding you Number(TIN) received another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out item (2). If you are exempt from backup withholding, check the box in Part 4 below. Please fill in your name and address below. SIGNATURE______________________________________ DATE________________________ NAME___________________________________________ ADDRESS________________________________________ NOTE: FAILURE TO COMPLETE AND RETURN THE FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE CONSENT SOLICITATION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number within 60 days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number. _____________________________________ _____________________________, 2000 Signature Date -6- EXHIBIT C (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. (ii) This Agreement has been duly authorized, executed and delivered by the Company. (iii) The execution, delivery and performance of this Agreement by the Company, the execution, delivery and performance of the Supplemental Indenture and the Indenture as supplemented by the Supplemented Indenture by the Issuers and the compliance by the Company with all of the provisions of this Agreement will not, to such counsel's knowledge, conflict with or result in a material breach or violation of any of the terms or provisions of, or constitute a material default under, any indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument listed as an exhibit to its Annual Report on Form 10-K for the fiscal year ended September 30, 1999 or to any subsequent filing under the Exchange Act or the Securities Act, nor will such actions result in any violation of the provisions of the charter or by-laws of the Company or any statute or, to such counsel's knowledge, any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its property or assets; and no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement or the Supplemental Indenture by the Company. [Commencement Date: (iv) Each of the Supplemental Indenture and the Indenture as supplemented by the Supplemental Indenture has been duly authorized by the Company. When the Supplemental Indenture is executed and delivered, the Supplemental Indenture will have been duly executed and delivered by the Company, and each of the Supplemental Indenture and the Indenture as supplemented by the Supplemental Indenture will be a valid and binding agreement of the Company, enforceable in accordance with its terms except as (a) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors, rights generally and (b) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability.] [Execution Date: (iv) Each of the Supplemental Indenture and the Indenture as supplemented by the Supplemental Indenture has been duly authorized, executed and delivered by the Issuers and is a valid and binding agreement of the Issuers, enforceable in accordance with its terms except as (a) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors, rights generally and (b) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability.] (v) The Supplemental Indenture conforms in all material respects to the description thereof in the Consent Solicitation Material. (vi) The consummation by the Company of the Consent Solicitation in the manner described in the Solicitation will not require registration under the Securities Act. In rendering such opinion, such counsel may state that its opinion is limited to the Federal laws of the United States of America, the laws of the States of Texas and New York and the General Corporation Law of the State of Delaware. [Commencement Date: Such counsel shall also state that (x) such counsel has acted as special counsel to the Company in connection with the preparation of the Consent Solicitation Statement and during the course of the preparation of the Consent Solicitation Statement, such counsel participated in conferences with representatives of the Company, the Company's internal counsel, and its accountants and your representatives and at which conferences the contents of the Consent Solicitation Statement and related matters were discussed, and (y) based on the foregoing, no facts have come to the attention of such counsel which lead it to believe that (I) the Consent Solicitation Statement (except as to financial data (and related notes thereto) and statistical data and the financial statements and related schedules contained or incorporated by reference therein), as of its date, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or (II) any document incorporated by reference into the Consent Solicitation Statement or any amendment or supplement thereto made by the Company prior to the Commencement Date, when they were filed with the Commission, as the case may be, contained (except as to financial and data (and related notes thereto) and statistical data and the financial statements and related schedules contained or incorporated by reference therein) an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The foregoing statement may be qualified by a statement to the effect that such counsel has not independently verified the accuracy, completeness or fairness of the statements contained in the Consent Solicitation Statement or incorporated by reference therein, and such counsel is not passing upon and such counsel does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Consent Solicitation Statement. [Execution Date: -2- Such counsel shall also state that (x) such counsel has acted as special counsel to the Company in connection with the preparation of the Consent Solicitation Statement and during the course of the preparation of the Consent Solicitation Statement, such counsel participated in conferences with representatives of the Company, the Company's internal counsel, and its accountants and your representatives and at which conferences the contents of the Consent Solicitation Statement and related matters were discussed, and (y) based on the foregoing, no facts have come to the attention of such counsel which lead it to believe that (I) the Consent Solicitation Statement (except as to financial data (and related notes thereto) and statistical data and the financial statements and related schedules contained or incorporated by reference therein), as of the date hereof, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or (II) any document incorporated by reference into the Consent Solicitation Statement or any amendment or supplement thereto made by the Company prior to the date hereof, when they were filed with the Commission, as the case may be, contained (except as to financial and data (and related notes thereto) and statistical data and the financial statements and related schedules contained or incorporated by reference therein) an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The foregoing statement may be qualified by a statement to the effect that such counsel has not independently verified the accuracy, completeness or fairness of the statements contained in the Consent Solicitation Statement or incorporated by reference therein, and such counsel is not passing upon and such counsel does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Consent Solicitation Statement. -3- EX-27 3 0003.txt FDS FOR D.R. HORTON, INC.
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets and Consoldiated Statements of Income found on pages 3 and 4 of the Company's Form 10-Q for the year-to-date, and is qualified in its entirety by reference to such financial statements. 1000 9-MOS SEP-30-2000 OCT-01-1999 JUN-30-2000 79144 0 0 0 2182486 2361559 41993 0 2667924 365983 1389026 0 0 644 907241 2667924 2532094 2567020 2064873 2064873 0 0 11386 209731 79698 130033 0 0 0 130033 2.09 2.08
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