FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the Quarterly Period Ended December 31, 1999
---------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the Transition Period From To
------------------- -------------------
Commission file number 1-14122
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D.R. HORTON, INC.
------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2386963
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 Ascension Blvd., Suite 100, Arlington, Texas 76006
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(817) 856-8200
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(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.01 par value -- 61,764,480 shares as of February 7, 2000
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This Report contains 16 pages.
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INDEX
D.R. HORTON, INC.
PART I. FINANCIAL INFORMATION. Page
- ------------------------------ ----
ITEM 1. Financial Statements.
Consolidated Balance Sheets--December 31, 1999 and
September 30, 1999. 3
Consolidated Statements of Income--Three Months Ended
December 31, 1999 and 1998. 4
Consolidated Statement of Stockholders' Equity--Three
Months Ended December 31, 1999. 5
Consolidated Statements of Cash Flows--Three Months
Ended December 31, 1999 and 1998. 6
Notes to Consolidated Financial Statements. 7-9
ITEM 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition. 10-14
PART II. OTHER INFORMATION.
- ---------------------------
ITEM 6. Exhibits and Reports on Form 8-K. 15
SIGNATURES. 16
- ----------
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1999 1999
----------------------------
(In thousands)
(Unaudited)
ASSETS
Homebuilding:
Cash $ 36,324 $ 122,208
Inventories:
Finished homes and construction in progress 988,198 952,015
Residential lots - developed and under development 998,714 909,586
Land held for development 3,235 4,507
---------- ----------
1,990,147 1,866,108
Property and equipment (net) 38,334 36,972
Earnest money deposits and other assets 127,438 96,807
Excess of cost over net assets acquired (net) 110,428 112,456
---------- ----------
2,302,671 2,234,551
---------- ----------
Financial Services:
Cash 12,990 6,360
Mortgage loans held for sale 95,789 113,786
Other assets 7,650 7,111
---------- ----------
116,429 127,257
---------- ----------
$2,419,100 $2,361,808
========== ==========
LIABILITIES
Homebuilding:
Accounts payable and other liabilities $ 341,951 $ 365,506
Notes payable:
Unsecured:
Revolving credit facility due 2002 465,000 395,000
8% senior notes due 2009, net 382,977 382,941
8 3/8% senior notes due 2004, net 148,249 148,150
10% senior notes due 2006, net 147,307 147,278
Other secured 5,936 12,904
---------- ----------
1,149,469 1,086,273
---------- ----------
1,491,420 1,451,779
---------- ----------
Financial Services:
Accounts payable and other liabilities 2,345 3,268
Notes payable to financial institutions 86,604 104,350
---------- ----------
88,949 107,618
---------- ----------
1,580,369 1,559,397
---------- ----------
Minority interests 4,992 4,802
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 30,000,000
shares authorized, no shares issued - -
Common stock, $.01 par value, 200,000,000
shares authorized, 64,342,380 at December 31,
1999 and 64,267,073 at September 30, 1999,
issued and outstanding. 643 643
Additional capital 420,083 419,259
Retained earnings 440,773 400,111
Treasury stock, 1,861,700 shares at December 31,
1999 and 1,484,300 shares at September 30, 1999,
at cost (27,760) (22,404)
---------- ----------
833,739 797,609
---------- ----------
$2,419,100 $2,361,808
========== ==========
See accompanying notes to consolidated financial statements.
-3-
D. R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months
Ended December 31,
--------------------------
1999 1998
---------- ----------
(In thousands, except
per share data)
(Unaudited)
Homebuilding:
Revenues
Home sales..................................... $ 782,372 $ 611,701
Land/lot sales................................. 15,192 41,127
--------- ---------
797,564 652,828
--------- ---------
Cost of sales
Home sales..................................... 635,832 494,003
Land/lot sales................................. 10,805 36,777
--------- ---------
646,637 530,780
--------- ---------
Gross profit
Home sales..................................... 146,540 117,698
Land/lot sales................................. 4,387 4,350
--------- ---------
150,927 122,048
Selling, general and administrative expense........ 82,697 68,943
Interest expense................................... 3,295 2,793
Other (income)..................................... (81) (990)
--------- ---------
65,016 51,302
--------- ---------
Financial Services:
Revenues........................................... 11,376 7,802
Selling, general and administrative expense........ 7,975 4,974
Interest expense................................... 1,549 743
Other (income)..................................... (1,733) (879)
--------- ---------
3,585 2,964
--------- ---------
INCOME BEFORE INCOME TAXES..................... 68,601 54,266
Provision for income taxes......................... 26,069 21,571
--------- ---------
NET INCOME..................................... $ 42,532 $ 32,695
========= =========
Net income per share:
Basic.......................................... $ 0.68 $ 0.54
Diluted........................................ $ 0.67 $ 0.52
========= =========
Weighted average number of shares of stock outstanding:
Basic.......................................... 62,650 60,011
Diluted........................................ 63,151 62,378
========= =========
Cash dividends declared per share.................. $ 0.03 $ 0.0225
========= =========
See accompanying notes to consolidated financial statements.
-4-
D. R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Total
Common Additional Retained Treasury Stockholders'
Stock Capital Earnings Stock Equity
--------------------------------------------------
(In thousands)
(Unaudited)
Balances at October 1, 1999 $643 $419,259 $400,111 ($22,404) $797,609
Net income - - 42,532 - 42,532
Issuances under D.R. Horton,
Inc. employee benefit plans
(17,100 shares) - 189 - - 189
Exercise of stock options
(58,207 shares) - 635 - - 635
Purchase of treasury stock
(377,400 shares) (5,356) (5,356)
Dividends declared
($.03 per share) - - (1,870) - (1,870)
--------------------------------------------------
Balances at December 31, 1999 $643 $420,083 $440,773 ($27,760) $833,739
==================================================
See accompanying notes to consolidated financial statements.
-5-
D. R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months
Ended December 31,
--------------------
1999 1998
--------- ---------
(In thousands)
(Unaudited)
OPERATING ACTIVITIES
Net income $ 42,532 $ 32,695
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 5,110 3,836
Changes in operating assets and liabilities:
Increase in inventories (124,039) (109,248)
Increase in earnest money deposits and other assets (31,765) (895)
Decrease in mortgage loans held for sale 17,997 7,749
Decrease in accounts payable, accrued expenses and
customer deposits (24,288) (626)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (114,453) (66,489)
-------- --------
INVESTING ACTIVITIES
Net purchase of property and equipment (4,004) (7,053)
Net cash paid for acquisitions - (6,300)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (4,004) (13,353)
-------- --------
FINANCING ACTIVITIES
Proceeds from notes payable 115,000 251,297
Repayment of notes payable (69,395) (154,012)
Repurchase of treasury stock (5,356) -
Proceeds from issuance of stock associated with certain
employee benefit plans 189 6
Proceeds from exercise of stock options 635 929
Payment of cash dividends (1,870) (1,312)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 39,203 96,908
-------- --------
INCREASE (DECREASE) IN CASH (79,254) 17,066
Cash at beginning of period 128,568 76,754
-------- --------
Cash at end of period $ 49,314 $ 93,820
======== ========
Supplemental cash flow information:
Interest paid, net of amounts capitalized $ 4,672 $ 5,302
======== ========
Income taxes paid $ 20,071 $ 6,031
======== ========
Supplemental disclosures of noncash activities:
Conversion of subordinated notes to common stock $ 0 $ 59,327
======== ========
See accompanying notes to consolidated financial statements.
-6-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
December 31, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements include the
accounts of D.R. Horton, Inc. (the "Company") and its subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation. The statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Certain reclassifications have been made in prior years'
financial statements to conform to classifications used in the current year.
Operating results for the three- month period ended December 31, 1999, are not
necessarily indicative of the results that may be expected for the year ending
September 30, 2000.
Business - The Company is a national builder that is engaged primarily in the
construction and sale of single-family housing in the United States. The Company
designs, builds and sells single-family houses on lots developed by the Company
and on finished lots which it purchases, ready for home construction.
Periodically, the Company sells land or lots it has developed. The Company also
provides title agency and mortgage brokerage services to its homebuyers.
NOTE B - SEGMENT INFORMATION
The Company's financial reporting segments consist of homebuilding and financial
services. The Company's homebuilding operations comprise the most substantial
part of its business, with approximately 99% of consolidated revenues for the
three months ended December 31, 1999 and 1998. The homebuilding operations
segment generates the majority of its revenues from the sale of completed homes
with a lesser amount from the sale of land and lots. The financial services
segment generates its revenues from originating and selling mortgages and
collecting fees for title insurance agency and closing services.
NOTE C - NET INCOME PER SHARE
Basic net income per share for the three month periods ended December 31, 1999
and 1998, is based on the weighted average number of shares of common stock
outstanding. Diluted net income per share is based on the weighted average
number of shares of common stock and dilutive common stock equivalents
outstanding.
The following table sets forth the computation of basic and diluted earnings per
share (in thousands):
Three months ended
December 31,
--------------------
1999 1998
-------- --------
Denominator for basic earnings per share---weighted
average shares 62,650 60,110
Effect of dilutive securities:
6 7/8% convertible subordinated notes 0 1,317
Employee stock options 501 951
------- -------
Denominator for diluted earnings per share---adjusted
weighted average shares and assumed conversions 63,151 62,378
======= =======
Options to purchase 2,170,000 and 1,676,000 shares of common stock at various
prices were outstanding during the three months ended December 31, 1999 and
1998, respectively, but were not included in the computation of diluted earnings
per share because the exercise prices were greater than the average market price
of the common shares and, therefore, their effect would be antidilutive.
-7-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
December 31, 1999
NOTE D - INTEREST
Three months ended
December 31,
-------------------------
1999 1998
------ ------
Interest costs are (in thousands):
Capitalized interest, beginning of period $ 41,525 $ 35,153
Interest incurred-homebuilding 22,101 15,283
Interest expensed:
Directly-homebuilding (3,295) (2,793)
Amortized to cost of sales (13,868) (14,884)
-------- --------
Capitalized interest, end of period $ 46,463 $ 32,759
======== ========
NOTE E - SUMMARIZED FINANCIAL INFORMATION
The 8%, 8 3/8% and 10% Senior Notes are fully and unconditionally guaranteed, on
a joint and several basis, by all of the Company's direct and indirect
subsidiaries other than certain inconsequential subsidiaries. Each of the
Guarantors is a wholly- owned subsidiary. Separate financial statements and
other disclosures concerning the guarantor subsidiaries are not presented
because management has determined that they are not material to investors.
Summarized financial information of the Company and its subsidiaries, including
the non-guarantor subsidiaries, is presented below. Additional financial
information relating to the non-guarantor financial services subsidiaries is
included in the accompanying financial statements.
As of and for the three months ended December 31, 1999 and 1998, and for the
year ended September 30, 1999 (in thousands):
December 31, 1999 Nonguarantor Subsidiaries
(Unaudited) D.R. ------------------------- Inter-
Horton, Guarantor Financial company
Inc. Subsidiaries Services Other Eliminations Total
---------- -------------- ----------- --------- ------------- ----------
Total assets............. $2,104,894 $1,889,220 $117,129 $42,155 ($1,734,298) $2,419,100
Total liabilities........ 1,271,155 1,481,057 96,118 30,131 (1,293,100) 1,585,361
Total Equity............. 833,739 408,163 21,011 12,024 (441,198) 833,739
Revenues................. 114,039 675,824 11,376 7,701 - 808,940
Gross profit............. 19,319 129,469 - 2,048 91 150,927
Net income............... 42,532 40,271 2,223 236 (42,730) 42,532
December 31, 1998 Nonguarantor Subsidiaries
(Unaudited) D.R. ------------------------- Inter-
Horton, Guarantor Financial company
Inc. Subsidiaries Services Other Eliminations Total
---------- -------------- ----------- --------- ------------- -----------
Total assets............. $1,573,034 $1,446,602 $67,969 $39,898 ($1,331,740) $1,795,763
Total liabilities........ 931,953 1,091,345 46,426 40,219 (955,261) 1,154,682
Total Equity............. 641,081 355,257 21,543 (321) (376,479) 641,081
Revenues................. 118,894 527,650 7,802 6,284 - 660,630
Gross profit............. 13,197 104,229 - 1,250 - 118,676
Net income............... 32,695 25,875 1,785 (139) (27,521) 32,695
September 30, 1999 Nonguarantor Subsidiaries
D.R. ------------------------- Inter-
Horton, Guarantor Financial company
Inc. Subsidiaries Services Other Eliminations Total
---------- -------------- ----------- --------- ------------- -----------
Total assets............. $1,996,311 $1,865,148 $125,895 $31,302 ($1,656,848) $2,361,808
Total liabilities........ 1,198,702 1,465,596 108,476 19,663 (1,228,238) 1,564,199
Total Equity............. 797,609 399,552 17,419 11,639 (428,610) 797,609
Revenues................. 551,696 2,540,077 37,251 27,187 - 3,156,211
Gross profit............. 95,509 456,302 - 6,069 334 558,214
Net income............... 159,827 144,575 7,929 78 (152,582) 159,827
-8-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
December 31, 1999
NOTE E - SUMMARIZED FINANCIAL INFORMATION - Continued
Summarized cash flow information for the non-guarantor financial services
subsidiaries is presented below:
Three months
ended
December 31,
1999 1998
---------- ----------
(In thousands)
OPERATING ACTIVITIES
Net income......................................... $ 2,223 $ 1,785
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 276 110
Changes in operating assets and liabilities:
(Increase)/decrease in other assets.......... (444) 334
Decrease in mortgage loans held for sale..... 17,997 7,749
Increase/(decrease) in accounts payable
and other liabilities...................... 443 (370)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,495 9,608
------- -------
INVESTING ACTIVITIES
Purchase of property and equipment................. (370) (180)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (370) (180)
------- -------
FINANCING ACTIVITIES
Net (repayments of)/proceeds from notes payable.... (17,746) 16,938
Increase/(decrease) in amounts payable to parent... 4,251 (33,817)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (13,495) (16,879)
------- -------
INCREASE/(DECREASE) IN CASH 6,630 (7,451)
Cash at beginning of period.......................... 6,360 13,017
------- -------
Cash at end of period................................ $12,990 $ 5,566
======= =======
Cash flows for the other non-guarantor subsidiaries are not significant in any
period presented.
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - CONSOLIDATED
D. R. Horton, Inc. and subsidiaries (the "Company") provide homebuilding
activities in 23 states and 40 markets through its 50 homebuilding divisions.
Through its financial services segment, the Company also provides mortgage
banking and title agency services in many of these same markets.
Three Months Ended December 31, 1999 Compared to Three Months Ended December 31,
1998
Consolidated revenues for the three months ended December 31, 1999, increased
22.4%, to $808.9 million, from $660.6 million for the comparable period of 1998,
primarily due to increases in home sales revenues.
Income before income taxes for the three months ended December 31, 1999,
increased 26.4%, to $68.6 million, from $54.3 million for the comparable period
of 1998. As a percentage of revenues, income before income taxes for the three
months ended December 31, 1999, increased 0.3%, to 8.5%, from 8.2% for the
comparable period of 1998, primarily due to the increase in gross margin
percentage achieved by the homebuilding segment.
The consolidated provision for income taxes increased 20.9%, to $26.1 million
for the three months ended December 31, 1999, from $21.6 million for the same
period of 1998, due to the corresponding increase in income before income taxes.
The effective income tax rate decreased 1.8%, to 38.0%, from 39.8% for the
comparable period of 1998, primarily due to changes in the estimated overall
effective state income tax rate.
RESULTS OF OPERATIONS - HOMEBUILDING
The following tables set forth certain operating and financial data for the
Company's homebuilding activities:
Percentages of Homebuilding Revenues
Three Months Ended December 31,
1998 1999
Costs and expenses: ------ ------
Cost of sales 81.1% 81.3%
Selling, general and administrative expense 10.3% 10.6%
Interest expense 0.4% 0.4%
------ ------
Total costs and expenses 91.8% 92.3%
Other (income) - (0.2%)
------ ------
Income before income taxes 8.2% 7.9%
====== ======
Three Months Ended December 31,
1999 1998
---- ----
Homes Homes
Homes Closed Closed Revenues Closed Revenues
-------- -------- -------- --------
($'s in millions)
Mid-Atlantic............... 647 $124.0 632 $113.4
Midwest.................... 511 105.1 246 46.2
Southeast.................. 592 98.0 595 93.8
Southwest.................. 1,890 275.1 1,645 218.8
West....................... 852 180.2 728 139.5
-------- -------- -------- --------
4,492 $782.4 3,846 $611.7
======== ======== ======== ========
-10-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended December 31,
1999 1998
---- ----
New Sales Contracts Homes Homes
(net of cancellations) Sold $ Sold $
-------- -------- -------- --------
($'s in millions)
Mid-Atlantic............... 569 $122.0 571 $111.6
Midwest.................... 365 98.0 228 45.5
Southeast.................. 618 100.8 545 84.9
Southwest.................. 1,634 253.2 1,645 229.6
West....................... 665 148.3 548 109.1
-------- -------- -------- --------
3,851 $722.3 3,537 $580.7
======== ======== ======== ========
December 31,
1999 1998
---- ----
Sales Backlog Homes $ Homes $
-------- --------- -------- ---------
($'s in millions)
Mid-Atlantic............... 1,013 $ 240.9 871 $ 179.1
Midwest.................... 988 240.1 401 79.8
Southeast.................. 862 143.4 683 107.4
Southwest.................. 2,825 451.0 3,043 434.7
West....................... 980 221.1 1,034 220.9
-------- --------- -------- --------
6,668 $1,296.5 6,032 $1,021.9
======== ========= ======== ========
The Company's market regions consist of the following markets:
Mid-Atlantic Charleston, Charlotte, Columbia, Greensboro, Greenville,
Hilton Head, Myrtle Beach, New Jersey, Newport News,
Raleigh/Durham, Richmond, Suburban Washington D.C. and
Wilmington
Midwest Chicago, Cincinnati, Louisville, Minneapolis/St. Paul and
St. Louis
Southeast Atlanta, Birmingham, Jacksonville, Nashville, Orlando,
Pensacola and South Florida
Southwest Albuquerque, Austin, Dallas/Fort Worth, Houston, Killeen,
Phoenix, San Antonio and Tucson
West Denver, Las Vegas, Los Angeles, Portland, Sacramento,
Salt Lake City and San Diego
Three Months Ended December 31, 1999 Compared to Three Months Ended December 31,
1998
Revenues from homebuilding activities increased 22.2%, to $797.6 million (4,492
homes closed) for the three months ended December 31, 1999, from $652.8 million
(3,846 homes closed) for the comparable period of 1998. The number of homes
closed increased in four of the Company's five market regions, with percentage
increases ranging from 107.7% in the Midwest region to 2.4% in the Mid-Atlantic
region. The number of homes closed in the Southeast region declined 0.5%. The
increases in both revenues and homes closed were due to strong housing demand,
the Company's entrance into new markets, and the increases attributable to the
acquisition of Cambridge Homes in January, 1999. In markets where the Company
operated during both fiscal years, revenues increased by 18.9%, to $727.1
million (4,234 homes closed).
The average selling price of homes closed during the three months ended December
31, 1999 was $174,200, up 9.6% from $159,000 for the same period in 1998. The
increase in average selling price was due to changes in the mix of homes closed
and increased selling prices.
-11-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
New net sales contracts increased 8.9%, to 3,851 homes for the three months
ended December 31, 1999, from 3,537 for the same period of 1998. Percentage
increases in new net sales contracts were achieved in three of the Company's
five market regions, with increases ranging from 60.1% in the Midwest region to
13.4% in the Southeast region. New net sales contracts in the Mid- Atlantic and
Southwest regions declined 0.4% and 0.7%, respectively. The overall increase in
new net sales contracts was due in part to sales achieved by Cambridge Homes.
New net sales contracts increased 3.2%, to 3,650 homes, in markets where the
Company operated in both periods. The average price of a new net sales contract
in the three months ended December 31, 1999 was $187,600, up 14.3% over the
$164,200 average in the three months ended December 31, 1998. This increase was
due to changes in the mix of homes sold and increased selling prices.
At December 31, 1999, the Company's backlog of sales contracts was $1,296.5
million (6,668 homes), up 26.9% from the comparable amount at December 31, 1998.
In markets where the Company operated during both quarters, the sales contract
backlog was $1,151.6 million (6,090 homes), up 12.7% from December 31, 1998. The
average sales price of homes in sales backlog was $194,400 at December 31, 1999,
up 14.8% from the $169,400 average at December 31, 1998. The average sales price
of homes in backlog typically is higher than the sales price of closed homes
because it takes longer to construct more expensive homes.
Cost of sales increased by 21.8%, to $646.6 million for the three months ended
December 31, 1999, from $530.8 million for the comparable quarter in 1998. The
increase in cost of sales was primarily attributable to the increase in
revenues. Cost of home sales as a percentage of home sales revenues was up 0.5%,
to 81.3% for the three months ended December 31, 1999, from 80.8% for the
comparable period of 1998. Cost of land/lot sales decreased to 71.1% of land/lot
sales revenues for the three months ended December 31, 1999, from 89.4% for the
comparable period of 1998. Total homebuilding cost of sales was 81.1% of total
homebuilding revenues, down 0.2% from 81.3% for the comparable period of 1998.
Selling, general and administrative (SG&A) expenses from homebuilding activities
increased by 19.9%, to $82.7 million in the three months ended December 31,
1999, from $68.9 million in the comparable period of 1998. As a percentage of
revenues, SG&A expenses decreased to 10.3% for the three months ended December
31, 1999, from 10.6% for the comparable period of 1998. The decrease in SG&A
expenses as a percentage of revenue is primarily due to the Company's cost
containment efforts and the increased revenues that absorb the fixed elements of
overhead.
Interest expense associated with homebuilding activities increased to $3.3
million in the three months ended December 31, 1999, from $2.8 million in the
comparable period of 1998. As a percentage of homebuilding revenues,
homebuilding interest expense was 0.4% in both periods. The Company follows a
policy of capitalizing interest only on inventory under construction or
development. During both periods, the Company expensed the portion of incurred
interest and other financing costs which could not be charged to inventory.
Capitalized interest and other financing costs are included in cost of sales at
the time of home closings.
-12-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FINANCIAL SERVICES
The following table summarizes financial and other information for the Company's
financial services operations:
Three months ended
December 31,
1999 1998
------ ------
Number of loans originated....................... 1,942 1,757
------ ------
Loan origination fees............................ $2,199 $1,742
Sale of servicing rights and gains from
sale of mortgages.............................. 4,753 3,939
Other revenues................................... 1,208 805
------ ------
Total mortgage banking revenues.................. 8,160 6,486
Title policy premiums, net....................... 3,216 1,316
------ ------
Total revenues................................... 11,376 7,802
General and administrative expenses.............. 7,975 4,974
Interest expense................................. 1,549 743
Interest/other (income).......................... (1,733) (879)
------ ------
Income before income taxes....................... $3,585 $2,964
====== ======
Three Months Ended December 31, 1999 Compared to Three Months Ended December 31,
1998
Revenues from the financial services segment increased 45.8%, to $11.4 million
in the three months ended December 31, 1999, from $7.8 million in the comparable
period of 1998. The increase in financial services revenues was due to the rapid
expansion of the Company's mortgage loan and title services provided to
customers of the Company's homebuilding segment. These activities are being
expanded to additional markets served by the homebuilding segment. SG&A expenses
associated with financial services increased 60.3%, to $8.0 million in the three
months ended December 31, 1999, from $5.0 million in the comparable period of
1998. As a percentage of financial services revenues, SG&A expenses increased by
6.3%, to 70.1% in the three months ended December 31, 1999, from 63.8% in the
comparable period in 1998, due primarily to 1999 startup expenses in new markets
with limited revenues.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had available cash and cash equivalents of
$49.3 million. Inventories (including finished homes, construction in progress,
and developed residential lots and other land) at December 31, 1999, had
increased by $124.0 million since September 30, 1999, due to a general increase
in business activity and the expansion of operations in the Company's market
areas. The inventory increase was financed largely by borrowing an additional
$70 million under the revolving credit facility and by retaining earnings. As a
result, the Company's ratio of homebuilding notes payable to total capital at
December 31, 1999, was 58.0% compared to 57.7% at September 30, 1999. The
stockholders' equity to total assets ratio increased 0.7%, to 34.5% at December
31, 1999, from 33.8% at September 30, 1999.
The Company has an $825 million, unsecured revolving credit facility, consisting
of a $775 million four-year revolving loan and a $50 million four-year letter of
credit facility that matures in 2002. Additionally, the Company has another $25
million standby letter of credit agreement and a $22.5 million non-renewable
letter of credit facility acquired with the Cambridge acquisition. At December
31, 1999, the Company had outstanding homebuilding debt of $1,149.5 million, of
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
which $465.0 million represented advances under the revolving credit facility.
Under the debt covenants associated with the revolving credit facility, at
December 31, 1999, the Company had additional borrowing capacity of $310.0
million. The Company has entered into multi- year interest rate swap agreements,
aggregating $200 million, that fix the interest rate on a portion of the
variable rate revolving credit facility. An additional interest rate swap
agreement, with a notional amount of $148.5 million, was entered into in the
three months ended December 31, 1999. The new agreement has the effect of
converting part of the Company's fixed rate debt to a variable rate which is
currently less than the related fixed rate. The new agreement helps re-establish
the Company's balance of fixed and variable rate debt at historical levels.
At December 31, 1999, the financial services segment has mortgage loans held for
sale of $95.8 million and loan commitments for $88.6 million at fixed rates. The
Company hedges the interest rate market risk on these mortgage loans held for
sale and loan commitments through the use of best-efforts whole loan delivery
commitments, mandatory forward commitments to sell mortgage-backed securities
and the purchase of options on financial instruments.
The financial services segment has a $175 million, one-year bank warehouse
facility that is secured by mortgage loans held for sale. The warehouse facility
is not guaranteed by the parent company. As of December 31, 1999, $86.6 million
had been drawn under this facility. In the future, it is anticipated that all
mortgage company activities will be financed under the warehouse facility.
The Company's rapid growth and acquisition strategy require significant amounts
of cash. It is anticipated that future home construction, lot and land purchases
and acquisitions will be funded through internally generated funds and existing
credit facilities. Additionally, an effective shelf registration contains about
7.4 million shares of common stock issuable to effect, in whole or in part,
possible future acquisitions. In the future, the company intends to maintain
effective shelf registration statements that would facilitate access to the
capital markets.
During the quarter, the Company's Board of Directors declared a cash dividend of
$.03 per common share, which was paid on October 28, 1999, to stockholders of
record on October 21, 1999.
In November, 1998, the Company's Board of Directors approved stock and debt
repurchase programs for up to $100 million each. These programs are intended to
allow the Company to repurchase securities at attractive prices should favorable
market conditions occur. During the three months ended December 31, 1999, the
Company repurchased in the open market $5.4 million of its common stock, or
377,400 shares at an average cost of $14.19.
Except for ordinary expenditures for the construction of homes, the acquisition
of land and lots for development and sale of homes, at December 31, 1999, the
Company had no material commitments for capital expenditures.
SAFE HARBOR STATEMENT
Certain statements contained herein, as well as statements made by the Company
in periodic press releases and oral statements made by the Company's officials
to analysts and stockholders in the course of presentations about the Company
may be construed as "Forward-Looking Statements" as defined in the Private
Securities Litigation Reform Act of 1995. Such statements may involve unstated
risks, uncertainties and other factors that may cause actual results to differ
materially from those initially anticipated. Such risks, uncertainties and other
factors include, but are not limited to:
o The Company's substantial leverage
o Changes in general economic and market conditions
o Changes in interest rates and the availability of mortgage financing
o Changes in costs and availability of material, supplies and labor
o General competitive conditions
o The availability of capital
o The ability to successfully effect acquisitions
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PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) The following reports were filed on Form 8-K by the Company during
the quarter ended December 31, 1999.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
D.R. HORTON, INC.
Date: February 11, 2000 By:/s/ Samuel R. Fuller
------------------------------------------------
Samuel R. Fuller, on behalf of D.R. Horton, Inc.
and as Assistant Treasurer and Interim Chief
Financial Officer (Principal Financial and
Accounting Officer)
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