Business Context and Reporting Period
Company: D.R. Horton, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2003
Business Overview: A national builder of single-family housing operating in 44 markets across 20 states. The company also provides financial services, including mortgage banking and title agency. The reporting period includes the impact of the Schuler Homes acquisition (anniversary date February 21, 2003).
Key Financial Metrics
| Metric | Three Months Ended Mar 31, 2003 | Six Months Ended Mar 31, 2003 |
|---|---|---|
| Total Revenues | $1,908.5 million | $3,653.5 million |
| Net Income | $127.8 million | $239.7 million |
| Diluted EPS | $0.86 | $1.62 |
| Homebuilding Gross Margin | 19.9% | 19.9% |
| Cash and Equivalents | $187.5 million (Total) | $187.5 million (Total) |
| Total Debt (Notes Payable) | $3,088.9 million | $3,088.9 million |
| Net New Sales Orders | 10,548 homes ($2,439.5M) | 17,800 homes ($4,138.0M) |
| Sales Backlog | 15,095 homes ($3,518.9M) | 15,095 homes ($3,518.9M) |
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenues increased 19.3% for the quarter and 32.4% for the six-month period compared to the prior year. This growth was driven by strong housing demand and the inclusion of Schuler Homes revenues.
- Profitability: Net income rose 43.7% for the quarter and 47.6% for the six-month period. Income before taxes increased 44.9% (quarter) and 48.2% (six months).
- Operating Metrics: Homes closed increased to 7,888 (quarter) and 15,402 (six months). Net new sales orders increased 33.1% (quarter) and 44.9% (six months) in value.
- Cost Structure: Cost of sales as a percentage of home sales revenues improved (decreased) to 79.8% for the quarter and 79.9% for the six months, compared to 82.0% and 81.1% in the prior year, respectively. This improvement is attributed to the absence of purchase accounting adjustments that negatively impacted margins in the prior year.
- Interest Expense: Homebuilding interest expense was negligible for the quarter and minimal for the six months ($0.4M) due to a declining interest rate environment and high capitalization of interest into inventory.
Guidance, Outlook, and Risks
- Liquidity and Capital: The company maintains an $805 million unsecured revolving credit facility with $633.3 million available. Total additional borrowing capacity under covenants is limited to $1.327 billion. The company issued $200 million in new senior notes in April 2003 to refinance existing debt.
- Convertible Notes: Holders of zero-coupon convertible senior notes had a put option expiring May 12, 2003. No notes were tendered for redemption. The company has the right to call these notes beginning May 12, 2003.
- Stock Repurchases: The company repurchased 1.67 million shares for $29.5 million during the quarter. $33.5 million remains on the authorization.
- Risks: Key risks include changes in general economic conditions, interest rates, availability of mortgage financing, governmental regulations, and the company's substantial leverage.
- Outlook: Management anticipates funding future growth through internally generated funds, existing credit facilities, and new debt or equity issuances. No specific numerical guidance for future quarters was provided in this text.
Investor Verification Checklist
- Schuler Acquisition Impact: Verify the specific contribution of Schuler Homes to the reported revenue and order growth to isolate organic performance.
- Debt Covenants: Confirm compliance with the borrowing base limitations and tangible net worth covenants given the high inventory levels ($4.7 billion).
- Interest Rate Exposure: Review the effectiveness of the $200 million interest rate swap agreements in mitigating variable rate debt risk.
- Backlog Conversion: Monitor the conversion rate of the $3.5 billion sales backlog into future revenue.
- Convertible Note Redemption: Track the company's decision regarding the call option on the zero-coupon convertible notes post-May 12, 2003.