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, 1996 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 1-14112 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 (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 -- 32,435,553 shares as of January 29, 1997 INDEX D.R. HORTON, INC. PART I. FINANCIAL INFORMATION. Item 1. Financial Statements. Consolidated Balance Sheets--December 31, 1996 and September 30, 1995. Consolidated Statements of Income--Three Months Ended December 31, 1996 and 1995. Consolidated Statement of Stockholders' Equity--Three Months Ended December 31, 1996. Consolidated Statements of Cash Flows--Three Months Ended December 31, 1996 and 1995. Notes to Consolidated Financial Statements. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. PART II. OTHER INFORMATION. Item 6. Exhibits and Reports on Form 8-K. SIGNATURES. D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, September 30, 1996 1996 ---- ---- (In thousands) (Unaudited) ASSETS Cash $15,125 $32,467 Inventories: Finished homes and construction in progress 237,858 216,264 Residential lots-developed and under development 161,283 127,707 Land held for development 1,312 1,312 ----- ----- 400,453 345,283 Property and equipment (net) 5,754 5,631 Earnest money deposits and other assets 18,940 15,247 Excess of cost over net assets acquired (net) 5,582 4,285 ----- ----- $445,854 $402,913 ======== ======== LIABILITIES Accounts payable $33,434 $34,391 Accrued expenses and customer deposits 24,440 21,011 Notes payable 203,200 169,873 ------- ------- 261,074 225,275 STOCKHOLDERS' EQUITY Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued - - Common stock, $.01 par value, 100,000,000 shares authorized, 32,415,729 at December 31, 1996 and 32,362,036 at September 30, 1996, issued and outstanding. 324 324 Additional capital 160,049 159,714 Retained earnings 24,407 17,600 ------ ------ 184,780 177,638 ------- ------- $445,854 $402,913 ======== ======== See accompanying notes to consolidated financial statements. D. R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Three Months Ended December 31, ------------------ 1996 1995 ---- ---- (In thousands, except net income per share) (Unaudited) Revenues $144,381 $121,068 Cost of sales 118,036 99,535 ------- ------ 26,345 21,533 Selling, general and administrative expense 15,117 12,513 ------ ------ Operating income 11,228 9,020 Other: Interest expense (784) (669) Other income 715 374 --- --- (69) (295) --- ---- INCOME BEFORE INCOME TAXES 11,159 8,725 Provision for income taxes 4,352 3,310 ----- ----- NET INCOME $6,807 $5,415 ====== ====== Net income per share $0.21 $0.19 ===== ===== Weighted average number of shares of common stock and common stock equivalents outstanding 33,003 28,250 ====== ====== See accompanying notes to consolidated financial statements. D. R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Total Common Additional Retained Stockholders' Stock Capital Earnings Equity ----- ------- -------- ------ (In thousands) (Unaudited) Balances at October 1, 1996 $324 $159,714 $17,600 $177,638 Net income - - 6,807 6,807 Issuance under D.R.Horton, Inc. employee benefit plans - 133 - 133 Exercise of stock options - 202 - 202 -------------------------------------- Balances at December 31, 1996 $324 $160,049 $24,407 $184,780 ====================================== See accompanying notes to consolidated financial statements. D. R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended December 31, ------------------ 1996 1995 ---- ---- (In thousands) (Unaudited) OPERATING ACTIVITIES Net income $6,807 $5,415 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 739 665 Expense associated with issuance of stock under employee benefit plans 133 - Changes in operating assets and liabilities: Increase in inventories (30,262) (11,134) Increase in earnest money deposits and other assets (1,750) (727) Increase (decrease) in accounts payable, accrued expenses and customer deposits (4,167) 74 ------ -- NET CASH USED IN OPERATING ACTIVITIES (28,500) (5,707) ------- ------ INVESTING ACTIVITIES Net purchase of property and equipment (501) (1,095) Net cash paid for acquisitions (17,737) 0 ------- - NET CASH USED IN INVESTING ACTIVITIES (18,238) (1,095) ------- ------ FINANCING ACTIVITIES Proceeds from notes payable 46,372 24,648 Repayment of notes payable (17,178) (11,434) Proceeds from exercise of stock options 202 26 --- -- NET CASH PROVIDED BY FINANCING ACTIVITIES 29,396 13,240 ------ ------ INCREASE (DECREASE) IN CASH (17,342) 6,438 Cash at beginning of period 32,467 16,737 ------ ------ Cash at end of period $15,125 $23,175 ======= ======= Supplemental cash flow information: Interest paid $3,578 $3,473 ====== ====== Income taxes paid $4,505 $1,784 ====== ====== See accompanying notes to consolidated financial statements. D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) December 31, 1996 NOTE A - BASIS OF PRESENTATION The accompanying unaudited, consolidated financial statements include the accounts of D.R. Horton, Inc. (the "Company") and its subsidiaries, all of which are wholly owned. 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 with 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. Operating results for the three-month period ended December 31, 1996, are not necessarily indicative of the results that may be expected for the year ending September 30, 1997. NOTE B - NET INCOME PER SHARE Net income per share for the three month periods ended December 31, 1996 and 1995, is based on the weighted average number of shares of common stock and dilutive common stock equivalents outstanding. On April 23, 1996, the Board of Directors declared an eight percent stock dividend on the Company's common stock, which was paid on May 24, 1996, to stockholders of record on May 8, 1996. Earnings per share and weighted average shares outstanding have been restated to reflect the eight percent stock dividend. NOTE C - PROVISIONS FOR INCOME TAXES Deferred tax liabilities and assets, arising from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, consist primarily of differences in depreciation, warranty costs and inventory cost capitalization methods and were, as of December 31, 1996, not significant. The provisions for income tax expense for the three month periods ended December 31, 1996 and 1995, are based on the effective tax rates estimated to be in effect for the respective years. The deferred income tax provisions were not significant in either period. The difference between income tax expense and tax computed by applying the statutory Federal income tax rate to income before income taxes is due primarily to the effect of applicable state income taxes. NOTE D - INTEREST Three months ended December 31, ------------ 1996 1995 ---- ---- Interest costs are (in thousands): Capitalized interest, beginning of period $11,042 $7,118 Interest incurred 3,872 3,880 Interest expensed: Directly (784) (669) Amortized to cost of sales (2,057) (1,986) ------ ------ Capitalized interest, end of period $12,073 $8,343 ======= ====== D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) December 31, 1996 NOTE E - ACQUISITIONS In October, 1996, the Company completed the acquisition of the principal assets (approximately $7.6 million, primarily inventories) of Trimark Communities, L.L.C., of Denver, Colorado, for $6.6 million in cash and the assumption of approximately $1.1 million in trade accounts and notes payable associated with the acquired assets. In December, 1996, the Company purchased the principal assets (approximately $20.4 million, primarily inventories) of SGS Communities, Inc., of New Jersey, for $11.8 million in cash and the assumption of $9.7 million in trade accounts and notes payable associated with the acquired assets. At January 29, 1997, the final determination of the valuations of the acquired assets had not yet been made. Any subsequent adjustments to the beginning balance sheet valuation amounts estimated herein will be recorded in future periods as adjustments to the excess of cost over net assets acquired. The Company has announced the pending acquisition of the Torrey Group of Companies of Atlanta, Georgia, which is expected to be consummated during the Company's second fiscal quarter. Under the terms of the acquisition agreement, the Company will pay total consideration for all of the outstanding capital stock of Torrey of $38 million, consisting of $28.5 million in cash and $9.5 million in common stock (approximately 863,000 shares). The Company will also assume approximately $74 million of Torrey indebtedness upon consummation of the acquisition. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The following tables set forth certain operating and financial data for the Company: Percentages of Revenue -------------- Three Months Ended December 31, -------------- 1996 1995 ---- ---- Costs and expenses: Cost of sales 81.8 % 82.2 % Selling, general and administrative expense 10.5 10.3 Interest expense 0.5 0.6 --- --- Total costs and expenses 92.8 93.1 Other (income) (0.5) (0.3) ---- ---- Income before income taxes 7.7 7.2 Income taxes 3.0 2.7 --- --- Net income 4.7 % 4.5 % === === New sales contracts, net Homes in of cancellations Home closings sales backlog ---------------- ------------- ------------- Three Three Months Ended Months Ended As of December 31, December 31, December 31, ------------ ------------ ------------ 1996 1995 1996 1995 1996 1995 ---- ---- ---- ---- ---- ---- Mid-Atlantic (Maryland, New Jersey, North and South Carolina, Virginia) 108 113 116 137 214 174 Midwest(Illinois, Kansas, Minnesota, Missouri, Ohio) 89 111 105 72 168 153 Southeast(Alabama, Florida, Georgia, Tennessee) 100 107 130 140 134 157 Southwest (Arizona, New Mexico, Texas) 265 267 333 308 421 376 West (California, Colorado, Nevada, Utah) 189 101 171 74 271 108 --- --- --- -- --- --- Totals 751 699 855 731 1,208 968 === === === === ===== === MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Three Months Ended December 31, 1996 Compared to Three Months Ended December 31, 1995 Revenues for the three months ended December 31, 1996, increased by 19.3%, to $144.4 million, from $121.1 million for the comparable period of 1995. The number of homes closed by the Company increased by 17.0% to 855 homes in the three months ended December 31, 1996, from 731 homes in the same period of 1995. Percentage increases in home closings ranging from 8.1% to 131.1% were achieved in the Company's Midwest, Southwest and Western market regions, which were somewhat offset by modest percentage decreases in home closings in the Mid-Atlantic and Southeast market regions. Home sales revenues increased partly due to an increase in the average home delivery price (to $168,700 in 1996, from $165,600 for the comparable period of 1995). The increase in the average home delivery price was due primarily to changes in the geographic mix of homes closed within the Company. New net sales contracts increased 7.4%, to 751 homes for the three months ended December 31, 1996, from 699 homes for the three months ended December 31, 1995. The dollar amount of new net sales contracts increased 12.5%, to $129.8 million, with percentage increases ranging from 4.4% to 102.5% achieved in the Company's Mid-Atlantic, Southwest and Western market regions. Those increases were offset by moderate percentage declines in the Midwest and Southeast market regions. The Company was operating in 225 subdivisions at December 31, 1996, compared to 171 subdivisions at December 31, 1995. At December 31, 1996, the Company's backlog of sales contracts was 1,208 homes, a 24.8% increase over comparable figures at December 31, 1995. The increase in sales backlog was partially due to the sales backlog acquired in the purchase of Trimark Communities, L.L.C., of Denver, Colorado (Trimark), and SGS Communities, Inc., of New Jersey (SGS) during the quarter. The average sales value of homes in backlog increased to $185,000 at December 31, 1996, from $170,500 at December 31, 1995. The increase was due partially to the high average dollar value of the sales backlog acquired with the December, 1996 acquisition of SGS, and to changes in the geographic mix of homes sold during the quarter. The increase in revenues caused cost of sales to increase by 18.6%, to $118.0 million in the three months ended December 31, 1996, from $99.5 million in the comparable period of 1995. As a percentage of revenues, cost of sales decreased to 81.8% in 1996 from 82.2% in 1995. The decrease in cost of sales as a percentage of revenues is primarily due to efforts to increase sales prices and control costs. Selling, general and administrative (SG&A) expense increased by 20.8%, to $15.1 million in the three months ended December 31, 1996, from $12.5 million in the comparable period of 1995. As a percentage of revenues, SG&A expense increased to 10.5% in 1996, from 10.3% in 1995. This increase was partially due to costs associated with the first quarter acquisitions. Interest expense amounted to $0.8 million in the three months ended December 31, 1996, compared to $0.7 in the comparable period of 1995. The Company follows a policy of capitalizing interest only on inventory under construction or development. During the three months ended December 31, 1996 and 1995, the Company expensed a portion of incurred interest and other financing costs due to increased levels of developed lots and finished homes. Capitalized interest and other financing costs are included in cost of sales at the time of home closings. Other income, which consists mainly of interest income and the pre-tax earnings of the DRH Title Companies and DRH Mortgage Company, Ltd., increased to $715,000 in the three months ended December 31, 1996, from $374,000 for the comparable period of 1995. The increase was primarily due to expanded title agency activities and the initiation of mortgage company services which were not provided in 1995. Increased interest income from overnight investing of cash balances also contributed to the increase in other income. The provision for income taxes was $4.4 million in the three months ended December 31, 1996, up $1.1 million from the $3.3 million for the comparable quarter of 1995. The increase in income taxes was attributable to the increase in income before income taxes and an increase in the estimated effective income tax rate anticipated for fiscal 1997. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES At December 31, 1996, the Company had available cash and cash equivalents of $15.1 million. Inventories (including finished homes and construction in progress, developed residential lots and other land) at December 31, 1996, increased by $55.2 million from September 30, 1996, due to the acquisitions of selected assets (including inventories) of Trimark and SGS. Inventories also increased due to a general increase in business activity and the expansion of operations in the newer market areas. Because the inventory increase and the acquisitions were financed largely by borrowing, the Company's ratio of notes payable to total capital increased to 52.4% at December 31, 1996, from 48.9% at September 30, 1996. The equity to total assets ratio decreased slightly during the three months, to 41.4% at December 31, 1996, from 44.1% at September 30, 1996. The Company's financing needs depend upon the results of its operations, sales volume, inventory levels, inventory turnover, and acquisitions. The Company has financed its operations through borrowings from financial institutions, through funds from earnings, and, in 1992 and 1996, from the sale of common stock. At December 31, 1996, the Company had outstanding debt of $203.2 million and aggregate unsecured financing available under debt agreements with twelve lenders approximating $287.5 million. The Company is currently in the final stages of negotiating increases to its existing unsecured credit facilities, which will increase its debt capacity to $410 million. Consummation of these increased credit facilities is expected to occur during the Company's second fiscal quarter. In October, 1996, the Company completed the acquisition of the principal assets (approximately $7.6 million, primarily inventories) of Trimark for approximately $6.6 million in cash and the assumption of approximately $1.1 million in trade accounts and notes payable associated with the acquired assets. In December, 1996, the Company purchased the principal assets (approximately $20.4 million, primarily inventories) of SGS for $11.8 million in cash and the assumption of $9.7 million in trade accounts and notes payable associated with the acquired assets. The Company has announced the pending acquisition of the Torrey Group of Companies of Atlanta, Georgia, which is expected to be consummated during the Company's second fiscal quarter. Under the terms of the acquisition agreement, the Company will pay total consideration for all of the outstanding capital stock of Torrey of $38 million, consisting of $28.5 million in cash and $9.5 million in common stock (approximately 863,000 shares). The Company will also assume approximately $74 million of Torrey indebtedness upon consummation of the acquisition. The Company's rapid growth requires 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 new and existing borrowing relationships. The Company continuously evaluates its capital structure and, in the future, may seek to further increase unsecured debt and obtain additional equity to fund ongoing operations as well as to pursue additional growth opportunities. Except for ordinary expenditures for the construction of homes and, to a limited extent, the acquisition of land and lots for development and sale of homes, at December 31, 1996, the Company had no material commitments for capital expenditures. PART II. OTHER INFORMATION. Item 1-5. Inapplicable Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits None (b) Reports on Form 8-K. None 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. - ----------------- (Registrant) Date: January 30, 1997 By: /s/ David J. Keller ---------------- ------------------- (Signature) David J. Keller, on behalf of D.R. Horton, Inc. and as Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer)