Business Context and Reporting Period
Company: D.R. Horton, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: December 31, 2001
Business Overview: A national builder of single-family housing operating in 20 states and 38 markets, alongside a financial services segment providing mortgage banking and title agency services.
Key Financial Metrics
| Metric | Q4 2001 | Q4 2000 |
|---|---|---|
| Total Revenues | $1,159.9 million | $887.7 million |
| Net Income | $73.4 million | $49.9 million |
| Diluted EPS | $0.94 | $0.66 |
| Homebuilding Gross Margin | 20.1% | 19.5% |
| Cash and Equivalents | $32.0 million | $79.1 million |
| Total Debt (Notes Payable) | $1,854.7 million | N/A |
| Backlog (Units) | 8,716 homes | 7,327 homes |
| Backlog (Value) | $1,829.5 million | $1,581.1 million |
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenues increased 30.7% year-over-year, driven by a 29.9% increase in homebuilding revenues and a 76.6% surge in financial services revenues.
- Profitability: Income before taxes rose 53.9% to $117.5 million. The effective tax rate remained stable at 37.5%.
- Operational Volume: Homes closed increased to 5,691 (up 32.7% from 4,290). Net new sales contracts rose 21.6% to 5,144 units.
- Pricing Trends: The average selling price of closed homes decreased slightly by 0.9% to $197,800, while the average price of new sales contracts dropped 6.7% to $198,600, reflecting a strategic shift toward first-time home buyers and acquisition mix changes.
- Cash Flow: Net cash used in operating activities was $165.8 million, primarily due to a $171.9 million increase in inventories to support growth.
Guidance, Outlook, and Risks
- Acquisition Activity: The Company entered into a definitive agreement to merge with Schuler Homes, Inc. for approximately $1.5 billion (cash and stock). The transaction is pending shareholder approval scheduled for February 21, 2002. Estimated cash requirements for the merger are $330 million.
- Debt Refinancing: On January 31, 2002, the Company refinanced its revolving credit facility. The new facility totals $795 million (post-merger) and matures in January 2006.
- Dividends: A quarterly cash dividend of $0.06 per share was declared on January 24, 2002, payable February 15, 2002 (up from $0.05 in the prior quarter).
- Accounting Changes: The Company early-adopted SFAS No. 142 regarding goodwill, ceasing amortization of goodwill effective October 1, 2001. This contributed to improved SG&A expense ratios.
- Risks: Key risks include changes in interest rates, availability of mortgage financing, government regulations, substantial leverage, and the successful integration of the Schuler Homes acquisition.
Investor Verification Checklist
- Merger Closing: Verify the status of the Schuler Homes, Inc. merger and the final cash consideration required.
- Liquidity Position: Monitor cash levels given the significant cash outflow for inventory buildup ($175.7 million increase) and upcoming merger costs.
- Debt Covenants: Review the terms of the new $795 million revolving credit facility and compliance with debt covenants post-merger.
- Backlog Conversion: Track the conversion rate of the $1.83 billion sales backlog into future revenue.
- Interest Rate Exposure: Assess the impact of variable rate debt and the effectiveness of the $200 million interest rate swap portfolio.