Business Context and Reporting Period
Company: D.R. Horton, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2000 (Six months ended March 31, 2000)
Business Overview: A national builder of single-family housing operating in 23 states and 40 markets. The company also provides mortgage banking and title agency services through its financial services segment.
Key Financial Metrics
| Metric (in thousands) | Six Months Ended Mar 31, 2000 |
Six Months Ended Mar 31, 1999 |
|---|---|---|
| Total Revenues | $1,607,804 | $1,359,711 |
| Net Income | $81,966 | $66,115 |
| Diluted EPS | $1.31 | $1.05 |
| Cash Flow from Operations | $(215,116) | $(174,047) |
| Cash and Equivalents (End of Period) | $85,397 | $54,693 |
| Total Debt (Notes Payable) | $1,336,732 | $1,086,273 |
| Homebuilding Gross Margin | 18.6% | 18.2% |
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenues increased 18.2% to $1.61 billion, driven primarily by a 18.0% increase in homebuilding revenues ($1.59 billion). Home sales volume increased to 8,856 homes closed compared to 8,009 in the prior year.
- Profitability: Net income rose 24.0% to $82.0 million. Income before taxes increased 21.4% to $132.2 million. The effective tax rate decreased to 38.0% from 39.3%.
- Pricing Power: The average selling price of homes closed increased 9.1% to $176,400. The average price of new sales contracts increased 11.6% to $185,000.
- Backlog: Sales backlog increased 10.4% to $1.51 billion (7,738 homes) at March 31, 2000, compared to $1.37 billion (7,952 homes) at March 31, 1999.
- Financial Services: Revenues in this segment grew 35.9% to $22.1 million, though SG&A expenses rose 56.8% due to startup costs in new markets.
- Inventory Build: Inventories increased by $285.6 million since September 30, 1999, to support anticipated spring demand.
Guidance, Outlook, and Risks
- Capital Strategy: On March 21, 2000, the company issued $150 million in 10.5% Senior Notes due 2005. Proceeds were used to repay revolving credit facility debt and for general corporate purposes. The company maintains an $825 million revolving credit facility with $275 million remaining capacity.
- Dividends: The Board declared cash dividends totaling $0.07 per share for the six-month period.
- Share Repurchases: The company repurchased 1,104,900 shares of common stock for $14.5 million during the period.
- Strategic Investments: The company has invested $15.3 million in venture capital partnerships (GP-Encore and Encore II) focused on e-commerce and homebuilding technology, with a total commitment of up to $125 million over four years.
- Risks: Management highlights risks including substantial leverage, changes in interest rates, availability of mortgage financing, government regulations, and competitive conditions. The company utilizes interest rate swaps to manage exposure on variable rate debt.
Investor Verification Checklist
- Debt Covenants: Verify compliance with debt covenants regarding the ratio of homebuilding notes payable to total capital, which increased to 60.8%.
- Inventory Valuation: Review the $285.6 million increase in inventory to ensure it aligns with sales velocity and market demand in key regions.
- Interest Rate Exposure: Assess the impact of the new $150 million senior note issuance and the effectiveness of interest rate swap agreements on future interest expense.
- Financial Services Margins: Monitor the financial services segment's SG&A expenses, which rose significantly faster than revenues due to expansion costs.
- Backlog Conversion: Track the conversion rate of the $1.51 billion sales backlog into revenue in subsequent quarters.