Business Context and Reporting Period
Company: D.R. Horton, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 1999
Business Overview: A national builder engaged primarily in the construction and sale of single-family housing across 23 states and 40 markets. The company also provides mortgage banking and title agency services through its financial services division.
Key Financial Metrics
Revenue (Nine Months Ended June 30, 1999): $2,202.7 million (Homebuilding: $2,176.6 million; Financial Services: $26.1 million).
Net Income: $110.4 million (Nine Months); $44.3 million (Three Months).
Earnings Per Share (Diluted): $1.75 (Nine Months); $0.68 (Three Months).
Gross Profit Margin: 17.5% (Homebuilding, Nine Months).
Cash and Equivalents: $75.0 million as of June 30, 1999.
Total Debt: Approximately $1.14 billion (Homebuilding notes payable: $1,055.7 million; Financial Services notes: $81.9 million).
Liquidity: $405 million remaining borrowing capacity under the revolving credit facility.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenues increased 47.8% to $2,202.7 million for the nine months ended June 30, 1999, compared to $1,490.0 million in the prior year period. Homebuilding revenues rose 47.5%.
- Profitability: Net income increased 81.4% to $110.4 million (Nine Months) compared to $60.9 million in the prior year. Income before taxes increased 60.6% excluding non-recurring merger costs from the prior year.
- Operational Volume: Homes closed increased 33.5% to 12,971 units (Nine Months). New net sales contracts increased 21.0% to 14,445 units.
- Backlog: Sales backlog increased 36.4% to $1,471.4 million (8,267 homes) as of June 30, 1999.
- Acquisitions: The acquisition of Cambridge Homes in January 1999 contributed significantly to inventory and revenue growth.
Guidance, Outlook, and Risks
Management Commentary: Growth is attributed to strong housing demand, entry into new markets, and acquisitions. The company notes that cost containment efforts have reduced SG&A expenses as a percentage of revenue. Management anticipates funding future growth through internally generated funds and existing credit facilities.
Capital Resources: The company issued $385 million in 8% Senior Notes in February 1999. It maintains an $825 million unsecured revolving credit facility. Stockholders' equity to total assets ratio improved to 34.3%.
Risks and Contingencies:
- Year 2000 (Y2K): The company is assessing Y2K compliance for hardware and software. While principal systems are compliant, there is a risk of disruption from third-party vendors or government agencies.
- Market Risk: Exposure to interest rate fluctuations on variable rate debt, partially mitigated by $300 million in interest rate swap agreements.
- Leverage: The company maintains substantial leverage, with notes payable to total capital at 59.7%.
Investor Verification Checklist
- Verify the final valuation adjustments for the Cambridge Homes acquisition, as the determination was not completed as of July 29, 1999.
- Monitor the utilization of the $405 million remaining capacity in the revolving credit facility given the rapid inventory expansion.
- Assess the impact of the $6.4 million severance charge for former Continental executives included in SG&A expenses.
- Review the progress of Y2K compliance testing for non-principal systems and third-party vendors prior to September 30, 1999.
- Confirm the sustainability of the 17.5% gross margin as land/lot sales costs increased to 88.4% of revenue for the nine-month period.