D.R. Horton, Inc. is a national homebuilder. We construct and sell high quality
single-family homes, designed principally for first-time and move-up homebuyers,
through our operating divisions in 21'states and 63 metropolitan markets of the
United States, primarily under the name of D.R. Horton, America's Builder. D.R.'
Horton, Inc. is a Fortune'500 company listed on the New York Stock Exchange under
the ticker symbol 'DHI.
Donald R. Horton began our homebuilding business in 1978. In 1991, we were
incorporated in Delaware to acquire the assets and businesses of our predecessor
companies, which were residential home construction and development companies
owned or controlled by Mr.'Horton. In 1992, we completed our initial public
offering of our common stock. From inception, we have consistently grown the
size of our company by investing our available capital into our existing homebuilding
markets and into start-up operations in new markets. Additionally, from July
1993 to February 2002, we acquired 17 other homebuilding companies, which strengthened
our market position in existing markets and expanded our geographic presence
and product offerings in other markets. Our homes generally range in size from
1,000 to 5,000'square feet and range in price from $80,000 to $900,000.
Through our financial services operations, we provide mortgage banking and
title agency services to homebuyers in many of our homebuilding markets. DHI
Mortgage, our wholly owned subsidiary, provides mortgage financing services,
principally to purchasers of homes we build and sell. Our subsidiary title companies
serve as title insurance agents by providing title insurance policies, examination
and closing services, primarily to purchasers of homes we build and sell.
Our financial reporting segments consist of homebuilding and financial services.
Our homebuilding operations are a substantial part of our business. Our homebuilding
segment generates the majority of its revenues from the sale of completed homes
with a lesser amount from the sale of land and lots. In addition to building
traditional single family detached homes, the homebuilding segment also builds
attached homes, such as town homes, condominiums, duplexes, and triplexes, which
share common walls and roofs.
We believe our diversification strategy mitigates the effects of local and
regional economic cycles and enhances our growth potential. Typically, we do
not invest material amounts of capital in real estate, including raw land, developed
lots, models and speculative homes, or overhead in start-up operations in new
markets, until such markets demonstrate significant growth potential and acceptance
of our products. While we believe there are significant growth opportunities
in our existing markets, we also intend to continue our diversification strategy
by seeking to enter new markets. We continually monitor the sales, margins and
returns achieved in each of our markets as part of our evaluation of the use
of our capital.
Operating Division Responsibilities
Each operating division is responsible for:
Site selection, which involves
' A feasibility study;
' Soil and environmental reviews;
' Review of existing zoning and other governmental requirements;'and
' Review of the need for and extent of offsite work required to meet local
building codes;
Negotiating lot option or similar contracts;
Overseeing land development;
Selecting building plans and architectural schemes;
Obtaining all necessary building approvals;
Selecting and managing construction subcontractors and suppliers;
Planning and managing homebuilding schedules;'and
Developing and implementing marketing plans.
Markets
We conduct our homebuilding operations in all of the geographic regions, states
and markets listed below, and we conduct our mortgage and title operations in
many of these markets as indicated in the following table:
When evaluating the viability of new or existing homebuilding markets, we consider
the following factors, among others:
Regional economic conditions;
Job growth;
Land availability;
Local land development process;
New home sales activity;
Competition;
Secondary home sales activity;'and
Local housing products, features and pricing.
Typically, we acquire land only after we have completed appropriate due diligence
and after we have obtained the rights ('entitlements') to begin development
or construction work. Before we acquire lots or tracts of land, we will, among
other things, complete a feasibility study, which includes soil tests, independent
environmental studies and other engineering work, and determine that all necessary
zoning and other governmental entitlements required to develop and use the property
for home construction have been obtained. Although we purchase and develop land
primarily to support our homebuilding activities, occasionally we sell lots
and land to other developers and homebuilders.
We also enter into land/lot option contracts, in which we purchase the right,
but generally not the obligation, to buy land or lots at predetermined prices
on a defined schedule commensurate with anticipated home closings or planned
land development. Our option contracts generally are non-recourse, which limits
our financial exposure to our earnest money deposited with land and lot sellers.
This enables us to control significant land and lot positions with minimal capital
investment, which substantially reduces the risks associated with land ownership
and development.
We limit our exposure to real estate inventory risks by:
Maintaining approximately a three to four year supply of land/lots controlled
(owned and optioned);
Closely monitoring local market and demographic trends, housing preferences
and related economic developments, such as new job opportunities, local growth
initiatives and personal income trends;
Utilizing land/lot option contracts, where possible;
Limiting the size of acquired land parcels to smaller tracts, where possible;
Generally commencing construction of homes under contract only after receipt
of a satisfactory down payment and, where applicable, the buyer's receipt of
mortgage approval;'and
Closely monitoring the number of speculative homes (homes started without an
executed sales contract) built in each subdivision.
Construction
Our home designs are prepared by architects in each of our markets to appeal
to local tastes and preferences of homebuyers in each community. We also offer
optional interior and exterior features to allow homebuyers to enhance the basic
home design and to allow us to generate additional revenues from each home sold.
Substantially all of our construction work is performed by subcontractors.
Our construction supervisors monitor the construction of each home, participate
in important design and building decisions, coordinate the activities of subcontractors
and suppliers, review the work of subcontractors for quality and cost controls
and monitor compliance with zoning and building codes. Subcontractors typically
are retained for a specific subdivision pursuant to a contract that obligates
the subcontractor to complete construction at a fixed price. Agreements with
our subcontractors and suppliers generally are negotiated for each subdivision.
We compete with other homebuilders for qualified subcontractors, raw materials
and lots in the markets where we operate.
Construction time for our homes depends on the weather, availability of labor,
materials and supplies, size of the home, and other factors. We typically complete
the construction of a home within four to six months.
We do not maintain significant inventories of construction materials, except
for work in progress materials for homes under construction. Typically, the
construction materials used in our operations are readily available from numerous
sources. We have contracts exceeding one year with certain suppliers of our
building materials that are cancelable at our option with a 30'day notice. In
recent years, we have not experienced any significant delays in construction
due to shortages of materials or labor.
Our operating divisions are responsible for pre-closing quality control inspections
and responding to customers' post-closing needs. We believe that prompt and
courteous response to homebuyers' needs during and after construction reduces
post-closing repair costs, enhances our reputation for quality and service,
and ultimately leads to significant repeat and referral business from the real
estate community and homebuyers. We provide our homebuyers with a limited one-year
warranty on workmanship and building materials. The subcontractors who perform
most of the actual construction also provide us with warranties on workmanship
and are generally prepared to respond to us and the homeowner promptly upon
request. In addition, we provide a supplemental ten-year limited warranty that
covers major construction defects.
Competition
The homebuilding industry is highly competitive. We compete in each of our
markets with numerous other national, regional and local homebuilders for homebuyers,
desirable properties, raw materials, skilled labor and financing. Our homes
compete on the basis of quality, price, design, mortgage financing terms and
location.