Notes Payable

12 Months Ended

Sep. 30, 2011


NOTE D —	NOTES PAYABLE

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


	September 30,
	2011		2010
	(In millions)

Homebuilding:
Unsecured:
6% senior notes due 2011, net	$	—	$	70.1
7.875% senior notes due 2011, net		—		118.8
5.375% senior notes due 2012		—		146.6
6.875% senior notes due 2013		171.7		174.3
6.125% senior notes due 2014, net		145.2		146.0
2% convertible senior notes due 2014, net		418.1		391.9
5.625% senior notes due 2014, net		137.5		147.1
5.25% senior notes due 2015, net		157.3		199.7
5.625% senior notes due 2016, net		169.5		225.5
6.5% senior notes due 2016, net		383.1		430.1
Other secured		5.7		35.2

	$	1,588.1	$	2,085.3

Financial Services:
Mortgage repurchase facility, maturing 2012	$	116.5	$	86.5

As of September 30, 2011, maturities of consolidated notes payable, assuming the mortgage repurchase facility is not extended or renewed, are $122.3 million in fiscal 2012, $171.7 million in fiscal 2013, $783.8 million in fiscal 2014, $157.7 million in fiscal 2015, $553.7 million in fiscal 2016 and no maturities thereafter.

The Company has an automatically effective universal shelf registration statement filed with the Securities and Exchange Commission (SEC) in September 2009, registering debt and equity securities that the Company may issue from time to time in amounts to be determined.

Homebuilding:

Following is a summary of the key terms of each of the Company’s unsecured homebuilding notes payable outstanding as of September 30, 2011, including the annual effective interest rate of each series of notes, after giving effect to the amortization of discounts and deferred financing costs.


					Redeemable
	Principal				Prior to	Effective
Note Payable	Amount		Date Issued	Date Due	Maturity	Interest Rate (1)
	(In millions)

6.875% senior	$	171.7	April 2003	May 1, 2013	No		7.0	%
6.125% senior	$	145.9	July 2004	January 15, 2014	No		6.3	%
2% convertible senior (3)	$	500.0	May 2009	May 15, 2014	No		9.7	%
5.625% senior	$	137.9	September 2004	September 15, 2014	No		5.8	%
5.25% senior	$	157.7	February 2005	February 15, 2015	Yes (2)		5.4	%
5.625% senior	$	170.2	December 2004	January 15, 2016	Yes (2)		5.8	%
6.5% senior	$	383.5	April 2006	April 15, 2016	Yes (2)		6.6	%


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

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

(3)		Holders of the 2% convertible senior notes may convert all or any portion of their notes at their option at any time prior to maturity. The initial conversion rate for the notes is 76.5697 shares of the Company’s common stock per $1,000 principal amount of senior notes, equivalent to an initial conversion price of approximately $13.06 per share of common stock. The conversion rate is subject to adjustment in certain events but will not be adjusted for accrued interest, including any additional interest. Upon conversion of a 2% senior note, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination thereof at its election. The Company may not redeem the notes prior to the maturity date.

All series of senior notes are senior obligations and rank pari passu in right of payment to all existing and future unsecured indebtedness, and senior to all existing and future indebtedness expressly subordinated to them. The senior notes are guaranteed by substantially all of the Company’s wholly-owned subsidiaries other than its financial services subsidiaries. Upon a change of control of the Company (as defined), holders of all series of notes issued prior to October 2004, constituting $455.5 million principal amount in the aggregate as of September 30, 2011, have the right to require the Company to purchase these notes at a price of 101% of their principal amount, along with accrued and unpaid interest. If a fundamental change, including a change in control (as defined), occurs as defined in the indenture governing the convertible senior notes, holders of the convertible senior notes, constituting $500 million principal amount as of September 30, 2011, have the right to require the Company to purchase these notes at par, along with accrued and unpaid interest.

On August 1, 2011, the Board of Directors authorized the repurchase of up to $500 million of the Company’s debt securities effective through July 31, 2012. At September 30, 2011, $422.9 million of the authorization was remaining.

Following is a summary of the retirement activity related to the Company’s senior notes for the years ended September 30, 2011 and 2010:


	Principal Amount
	Year Ended September 30,
	2011		2010
	(In millions)

Maturities:
4.875% senior notes, matured January 2010	$	—	$	130.9
9.75% senior notes, matured September 2010		—		51.9
9.75% senior subordinated notes, matured September 2010		—		11.3
6% senior notes, matured April 2011		70.1		—
7.875% senior notes, matured August 2011		106.1		—

Total maturities		176.2		194.1

Early Redemptions:
5.875% senior notes due 2013, redeemed February 2010		—		95.0
5.375% senior notes due 2012, redeemed April 2011		112.3		—

Total early redemptions		112.3		95.0

Repurchases:
9.75% senior notes due 2010		—		18.6
9.75% senior subordinated notes due 2010		—		4.0
6% senior notes due 2011		—		142.9
7.875% senior notes due 2011		12.8		44.7
5.375% senior notes due 2012		34.3		95.5
6.875% senior notes due 2013		2.6		25.2
5.875% senior notes due 2013		—		1.0
6.125% senior notes due 2014		1.0		53.1
5.625% senior notes due 2014		9.8		102.3
5.25% senior notes due 2015		42.7		99.5
5.625% senior notes due 2016		56.5		73.4
6.5% senior notes due 2016		47.2		67.0

Total repurchases		206.9		727.2

Total retirements	$	495.4	$	1,016.3

These senior notes were redeemed or repurchased for an aggregate purchase price of $505.3 million and $1,018.2 million, plus accrued interest, resulting in net losses on early retirement of debt of $10.8 million and $4.9 million in fiscal 2011 and 2010, respectively, which included the write off of unamortized discounts and fees.

In October 2011, through unsolicited transactions, the Company repurchased $10.8 million principal amount of its 6.5% senior notes due 2016, which further reduced the debt repurchase authorization.

During fiscal 2011, the Company provided a deed in lieu of foreclosure on a parcel of undeveloped land, which secured a non-recourse note payable, in exchange for a return of the note payable. The Company’s basis in the inventory parcel and the balance of the note were both $17.5 million. There was no gain or loss on the transaction.

The indentures governing the Company’s senior notes impose restrictions on the creation of secured debt and liens. At September 30, 2011, the Company was in compliance with all of the limitations and restrictions that form a part of the public debt obligations.

Financial Services:

The Company’s mortgage subsidiary, DHI Mortgage, has a mortgage repurchase facility that is accounted for as a secured financing. The mortgage repurchase facility provides financing and liquidity to DHI Mortgage by facilitating purchase transactions in which DHI Mortgage transfers eligible loans to the counterparties against the transfer of funds by the counterparties, thereby becoming purchased loans. DHI Mortgage then has the right and obligation to repurchase the purchased loans upon their sale to third-party purchasers in the secondary market or within specified time frames from 45 to 120 days in accordance with the terms of the mortgage repurchase facility. The total capacity of the facility is $100 million; however, through an amendment to the repurchase agreement, the capacity was increased to $150 million for the period from June 29, 2011 through October 20, 2011, after which time it returned to $100 million. The maturity date of the facility is March 4, 2012.

As of September 30, 2011, $251.5 million of mortgage loans held for sale were pledged under the mortgage repurchase facility. These mortgage loans had a collateral value of $236.3 million. DHI Mortgage has the option to fund a portion of its repurchase obligations in advance. As a result of advance paydowns totaling $119.8 million, DHI Mortgage had an obligation of $116.5 million outstanding under the mortgage repurchase facility at September 30, 2011 at a 3.8% annual interest rate.

The mortgage repurchase facility is not guaranteed by either D.R. Horton, Inc. or any of the subsidiaries that guarantee the Company’s homebuilding debt. The facility contains financial covenants as to the mortgage subsidiary’s minimum required tangible net worth, its maximum allowable ratio of debt to tangible net worth and its minimum required liquidity. At September 30, 2011, DHI Mortgage was in compliance with all of the conditions and covenants of the mortgage repurchase facility.