Business Context and Reporting Period
Company: D.R. Horton, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: December 31, 1999
Business Overview: A national builder of single-family housing operating in 23 states and 40 markets, alongside a financial services segment providing mortgage banking and title agency services.
Key Financial Metrics
| Metric | Q4 1999 | Q4 1998 |
|---|---|---|
| Total Revenues | $808.9 million | $660.6 million |
| Net Income | $42.5 million | $32.7 million |
| Diluted EPS | $0.67 | $0.52 |
| Gross Profit Margin (Homebuilding) | 18.7% | 19.2% |
| Operating Cash Flow | ($114.5 million) used | ($66.5 million) used |
| Total Debt (Homebuilding) | $1,149.5 million | $1,086.3 million |
| Cash and Equivalents | $49.3 million | $93.8 million |
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenues increased 22.4% year-over-year, driven primarily by a 22.2% increase in homebuilding revenues ($797.6 million vs. $652.8 million).
- Volume and Pricing: Homes closed increased to 4,492 (up 16.8% from 3,846). The average selling price of closed homes rose 9.6% to $174,200.
- Backlog Expansion: Sales backlog increased 26.9% to $1.3 billion (6,668 homes), with the average backlog price rising 14.8% to $194,400.
- Financial Services: Revenues surged 45.8% to $11.4 million due to rapid expansion of mortgage and title services, though SG&A expenses grew faster (60.3%), compressing margins.
- Liquidity: Cash decreased by $79.3 million quarter-over-quarter, primarily due to a $124.0 million increase in inventory to support business expansion.
Outlook, Risks, and Management Commentary
- Capital Strategy: The company maintains an $825 million revolving credit facility with $310 million in remaining borrowing capacity. Management utilized interest rate swaps to balance fixed and variable rate debt exposure.
- Shareholder Returns: The Board declared a cash dividend of $0.03 per share. Additionally, the company repurchased $5.4 million of its own stock (377,400 shares) during the quarter.
- Future Funding: Future growth and acquisitions are expected to be funded by internally generated funds and existing credit facilities. An effective shelf registration allows for the issuance of approximately 7.4 million shares for potential acquisitions.
- Risks: Management highlighted risks including substantial leverage, changes in interest rates, availability of mortgage financing, material costs, and competitive conditions.
Investor Verification Checklist
- Verify the sustainability of the 9.6% increase in average home selling prices amidst rising construction costs.
- Monitor the ratio of homebuilding notes payable to total capital (58.0% at period end) and debt covenant compliance.
- Assess the impact of the $124 million inventory build-up on future cash flow requirements.
- Review the profitability trajectory of the Financial Services segment, where SG&A growth outpaced revenue growth.
- Confirm the execution of the backlog, noting the 26.9% increase in contract value.