Business Context and Reporting Period
Company: D.R. Horton, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2001
Business Overview: A national builder engaged primarily in the construction and sale of single-family housing in the United States, operating in 22 states and 38 markets. The company also provides mortgage banking and title agency services through its financial services segment.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2001 |
Nine Months Ended June 30, 2001 |
|---|---|---|
| Total Revenues | $1,120,981 | $2,915,480 |
| Net Income | $68,803 | $170,245 |
| Diluted EPS | $0.89 | $2.22 |
| Cash and Equivalents | $81,403 (Balance Sheet) | $81,403 (Balance Sheet) |
| Total Debt (Notes Payable) | $1,781,161 | $1,781,161 |
| Homebuilding Gross Margin | 19.9% | 19.8% |
Note: Total Debt includes homebuilding notes payable ($1,625,924) and financial services notes payable ($155,237). Gross margin calculated as Homebuilding Gross Profit divided by Homebuilding Revenues.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenues increased 16.9% for the quarter and 13.6% for the nine-month period compared to the prior year, driven primarily by increased home sales volumes and higher average selling prices.
- Profitability: Income before taxes rose 42.0% for the quarter and 28.2% for the nine-month period. The effective tax rate decreased slightly to 37.5%.
- Operational Volume: Homes closed increased to 5,467 for the quarter (from 5,010) and 14,087 for the nine months (from 13,866). The average selling price of homes closed rose 7.3% to $199,400 for the quarter.
- Backlog: Sales contract backlog increased 42.9% to $2,261.4 million (10,608 homes) at June 30, 2001, compared to $1,582.2 million at June 30, 2000.
- Accounting Change: A cumulative effect of a change in accounting principle (SFAS No. 133) resulted in a $2.1 million increase to net income for the nine-month period.
Guidance, Outlook, and Risks
Management Commentary: Management attributes growth to strong housing demand and the ability to sell custom features at higher prices. The company is actively expanding operations and pursuing acquisitions.
Capital Resources & Liquidity:
- The company maintains an $825 million unsecured revolving credit facility, with $631.0 million available at June 30, 2001.
- On May 11, 2001, the company issued $381.1 million (at maturity) of Zero Coupon Convertible Senior Notes due 2021, using proceeds to repay revolving credit facility debt.
- The company expects to issue $200 million in 7.875% Senior Notes in August 2001 to repay debt and for general corporate purposes.
Acquisitions:
- Acquired assets of Fortress-Florida, Inc. for $28.7 million in May 2001.
- Completed acquisition of Emerald Builders in July 2001, issuing ~1.0 million shares, paying $30.7 million cash, and assuming ~$115.3 million in debt.
Risks and Contingencies:
- Market Risk: Exposure to interest rate fluctuations on variable rate debt, partially mitigated by interest rate swaps. Changes in swap fair values are recorded in earnings.
- Leverage: The company carries substantial debt; the ratio of homebuilding notes payable to total capital increased to 58.8%.
- Forward-Looking Statements: Risks include changes in economic conditions, interest rates, government regulations, and the availability of capital.
Investor Verification Checklist
- Debt Structure: Verify the terms and conversion triggers of the newly issued $381.1 million Zero Coupon Convertible Senior Notes due 2021.
- Acquisition Integration: Monitor the financial impact and integration of the Emerald Builders acquisition, including the assumed debt of $115.3 million.
- Inventory Levels: Review the $524.6 million increase in inventory since September 2000 to ensure it aligns with sales velocity and market demand.
- Interest Rate Exposure: Assess the impact of interest rate swap fair value changes on future earnings volatility.
- Refinancing Needs: Track the status of negotiations to refinance the $775 million revolving loan maturing in 2002.