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 March 31, 1998
--------------
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
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)
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(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 -- 52,935,208 shares as of May 14, 1998
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This Report contains 18 pages.
INDEX
D.R. HORTON, INC.
PART I. FINANCIAL INFORMATION. Page
----
ITEM 1. Financial Statements.
Consolidated Balance Sheets--March 31, 1998 and
September 30, 1997. 3
Consolidated Statements of Income--Three Months and
Six Months Ended March 1998 and 1997. 4
Consolidated Statement of Stockholders' Equity--Six
Months Ended March 31, 1998. 5
Consolidated Statements of Cash Flows--Six Months
Ended March 31, 1998 and 1997. 6
Notes to Consolidated Financial Statements. 7-10
ITEM 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition. 11-14
PART II. OTHER INFORMATION.
Item 4. Submission of Matters to a Vote of Security Holders. 15
Item 5. Other Information. 15-16
Item 6. Exhibits and Reports on Form 8-K. 16-17
SIGNATURES. 18
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
1998 1997
----------- -------------
(In thousands)
(Unaudited)
ASSETS
Cash $ 61,973 $ 43,984
Inventories:
Finished homes and construction in progress 452,190 342,911
Residential lots - developed and under development 322,316 260,198
Land held for development 1,246 1,482
-------- --------
775,752 604,591
Property and equipment, net 20,617 13,124
Earnest money deposits and other assets 33,349 29,502
Excess of cost over net assets acquired, net 40,943 28,593
-------- --------
$932,634 $719,794
======== ========
LIABILITIES
Accounts payable and other liabilities $122,796 $101,699
Notes payable 524,595 355,315
-------- --------
647,391 457,014
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, 37,450,229 at March 31, 1998 and
37,319,184 at September 30, 1997, issued and
outstanding. 375 373
Additional capital 212,216 210,742
Retained earnings 72,652 51,665
-------- --------
285,243 262,780
-------- --------
$932,634 $719,794
======== ========
See accompanying notes to consolidated financial statements.
-3-
D. R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Six Months
Ended March 31, Ended March 31,
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(In thousands, except net income per share)
(Unaudited)
Revenues $277,451 $159,596 $508,603 $303,977
Cost of sales 227,395 129,792 414,607 247,828
-------- -------- -------- --------
Gross profit 50,056 29,804 93,996 56,149
Selling, general and
administrative expense 30,055 18,794 55,758 33,911
-------- -------- -------- --------
Operating income 20,001 11,010 38,238 22,238
Interest (expense) (1,472) (816) (2,641) (1,600)
Other income 706 408 1,432 1,122
-------- -------- -------- --------
(766) (408) (1,209) (478)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 19,235 10,602 37,029 21,760
Income taxes 7,495 3,911 14,455 8,263
-------- -------- -------- --------
NET INCOME $ 11,740 $ 6,691 $ 22,574 $ 13,497
======== ======== ======== ========
Net income per share:
Basic $0.31 $0.20 $0.60 $0.41
======== ======== ======== ========
Diluted $0.31 $0.20 $0.59 $0.40
======== ======== ======== ========
Weighted average number of
shares of common stock
outstanding:
Basic 37,394 33,469 37,365 32,916
======== ======== ======== ========
Diluted 38,412 33,980 38,318 33,362
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
-4-
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, 1997 $ 373 $210,742 $ 51,665 $262,780
Net income - - 22,574 22,574
Issuance under D.R. Horton, Inc.
employee benefit plans - 24 - 24
Exercise of stock options 2 1,450 - 1,452
Cash dividends - - (1,587) (1,587)
---------------------------------------------
Balances at March 31, 1998 $ 375 $212,216 $ 72,652 $285,243
=============================================
See accompanying notes to consolidated financial statements.
-5-
D. R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months
Ended March 31,
---------------------------
1998 1997
---------- ----------
(In thousands)
(Unaudited)
OPERATING ACTIVITIES
Net income $ 22,574 $ 13,497
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 3,174 1,651
Expense associated with issuance
of stock under employee benefit plans 329 100
Changes in operating assets and liabilities:
Increase in inventories (112,741) (110,078)
Increase in earnest money deposits
and other assets (133) (7,534)
Increase in accounts payable and
other liabilities 17,594 13,951
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (69,203) (88,413)
-------- --------
INVESTING ACTIVITIES
Net purchase of property and equipment (7,322) (3,778)
Net cash paid for acquisitions (25,575) (44,560)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (32,897) (48,338)
-------- --------
FINANCING ACTIVITIES
Proceeds from notes payable 151,989 160,157
Repayment of notes payable (31,785) (65,605)
Issuance of common stock - 36,403
Proceeds from exercise of stock options 1,472 791
Payment of cash dividends (1,587) (648)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 120,089 131,098
-------- --------
INCREASE (DECREASE) IN CASH 17,989 (5,653)
Cash at beginning of period 43,984 32,467
-------- --------
Cash at end of period $ 61,973 $ 26,814
======== ========
Supplemental cash flow information:
Interest paid $ 16,271 $ 8,130
======== ========
Income taxes paid $ 17,604 $ 10,920
======== ========
See accompanying notes to consolidated financial statements.
-6-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 1998
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. Operating results for the three and six month periods ended
March 31, 1998, are not necessarily indicative of the results that may be
expected for the year ending September 30, 1998.
NOTE B - NET INCOME PER SHARE
Basic net income per share for the three and six month periods ended March 31,
1998 and 1997, 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.
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 March 31, 1998, not significant.
The provisions for income tax expense for the three and six month periods ended
March 31, 1998 and 1997, 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 Six months ended
March 31, March 31,
------------------ ------------------
1998 1997 1998 1997
------ ------ ------ ------
(In thousands)
Capitalized interest,
beginning of period $21,267 $12,073 $17,995 $11,042
Interest incurred 9,905 5,139 18,197 9,011
Interest expensed:
Directly (1,472) (816) (2,641) (1,600)
Amortized to cost of sales (4,982) (2,270) (8,833) (4,327)
------- ------- ------- -------
Capitalized interest,
end of period $24,718 $14,126 $24,718 $14,126
======= ======= ======= =======
-7-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
March 31, 1998
NOTE E - ACQUISITIONS
On February 14, 1998, D.R. Horton, Inc. closed the acquisition of the
outstanding stock of C. Richard Dobson Builders, Inc. (Dobson), and certain of
its affiliated companies, for $23.4 million. Dobson's assets (primarily
inventories) on that date approximated $64.9 million; its liabilities, including
$49.0 in notes payable paid at closing, approximated $52.5 million. Operating
results for Dobson since its acquisition are included in the financial
statements as of and for the periods ended March 31, 1998. The Dobson
acquisition was treated as a purchase for accounting purposes.
On April 20, 1998, D.R. Horton, Inc. and Continental Homes Holding Corp.
consummated a merger pursuant to which Continental was merged into Horton, with
2.25 shares of Horton common shares being exchanged for each outstanding share
of Continental. A total of 15,459,514 Horton common shares were issued to effect
the merger. The merger with Continental was treated as a pooling of interests
for accounting purposes. As such, previously reported financial information for
Horton has been restated to combine Horton and Continental, as follows:
D.R. HORTON, INC. COMBINED FINANCIAL INFORMATION
COMBINED CONSOLIDATED STATEMENTS OF INCOME
Three months ended Six months ended
March 31, March 31,
----------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(In thousands, except net income per share)
Homebuilding activities
Revenues $448,857 $323,731 $867,513 $655,030
Cost of sales 368,444 266,860 710,981 539,287
-------- -------- -------- --------
Gross profit 80,413 56,871 156,532 115,743
Selling, general and
administrative expense 48,430 36,211 94,157 69,154
-------- -------- -------- --------
Operating income from
homebuilding activities 31,983 20,660 62,375 46,589
Interest (expense) (2,593) (2,347) (5,068) (4,611)
Other income 1,010 1,003 2,053 1,776
-------- -------- -------- --------
Income before income taxes
- homebuilding 30,400 19,316 59,360 43,754
-------- -------- -------- --------
Financing activities
Revenues 4,102 2,909 8,643 5,916
Selling, general and
administrative expense 2,493 2,269 5,790 4,501
-------- -------- -------- --------
Operating income from
financing activities 1,609 640 2,853 1,415
Interest (expense) (328) (117) (645) (216)
Other income 523 266 1,054 574
-------- -------- -------- --------
Income before income taxes
- financing 1,804 789 3,262 1,773
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 32,204 20,105 62,622 45,527
Income taxes 12,712 7,921 24,806 17,938
-------- -------- -------- --------
NET INCOME $ 19,492 $ 12,184 $ 37,816 $ 27,589
======== ======== ======== ========
Net income per share:
Basic $0.37 $0.25 $0.72 $0.57
======== ======== ======== ========
Diluted $0.33 $0.23 $0.64 $0.51
======== ======== ======== ========
Weighted average number of shares
of common stock outstanding:
Basic 52,847 48,987 52,812 48,486
======== ======== ======== ========
Diluted 62,260 57,733 62,193 57,160
======== ======== ======== ========
-8-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATES (Unaudited) - (Continued)
March 31, 1998
NOTE E - ACQUISITIONS (Continued)
D.R. HORTON, INC.
COMBINED CONSOLIDATED BALANCE SHEETS
March 31, September
1998 30, 1997
---------- ----------
ASSETS (In thousands)
HOMEBUILDING
Cash $ 91,278 $ 78,228
Inventories:
Finished homes and construction in progress 656,527 531,941
Residential lots-developed and under development 559,433 479,553
Land held for development 13,452 12,774
---------- ----------
1,229,412 1,024,268
---------- ----------
Property and equipment, net 24,679 16,988
Earnest money deposits and other assets 73,841 56,420
Excess of cost over net assets acquired, net 49,409 37,717
---------- ----------
1,468,619 1,213,621
---------- ----------
FINANCING
Mortgage loans held for sale 38,897 34,072
Other assets 478 630
---------- ----------
39,375 34,702
---------- ----------
$1,507,994 $1,248,323
========== ==========
LIABILITIES
HOMEBUILDING
Accounts payable and other liabilities $ 189,777 $ 165,309
Notes payable 828,855 632,552
---------- ----------
1,018,632 797,861
---------- ----------
FINANCING
Notes payable 17,291 18,188
Other liabilities 3,471 506
---------- ----------
20,762 18,694
---------- ----------
1,039,394 816,555
---------- ----------
Minority interests 3,499 3,902
---------- ----------
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, 52,909,743 at March 31,
1998, and 52,749,526 at September 30, 1997,
issued and outstanding 529 527
Additional capital 270,321 268,631
Retained earnings 194,251 158,708
---------- ----------
465,101 427,866
---------- ----------
$1,507,994 $1,248,323
========== ==========
-9-
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
March 31, 1998
NOTE F - SUMMARIZED FINANCIAL INFORMATION
The 8 3/8% senior notes payable, due June, 2004, in the aggregate principal
amount of $150,000,000, are fully and unconditionally guaranteed, on a joint and
several basis, by all the Company's direct and indirect subsidiaries other than
certain inconsequential subsidiaries. Each of the guarantors is a wholly-owned
subsidiary of the Company. Summarized financial information of the Company and
its subsidiaries is presented below. Separate financial statements and other
disclosures concerning the guarantor subsidiaries are not presented because
management has determined that they are not material to investors.
As of and for the period ended: (In thousands)
March 31, 1998 (Unaudited)
D.R. Horton, Guarantor Nonguarantor Intercompany
Inc. Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------ ------------ ----------
Total assets............ $803,290 $684,713 $6,963 ($562,332) $932,634
Total liabilities....... 572,806 630,413 697 (556,525) 647,391
Revenues................ 151,933 356,670 831 (831) 508,603
Gross profit............ 24,413 69,583 676 (676) 93,996
Net income.............. 16,982 41,890 502 (36,800) 22,574
March 31, 1997 (Unaudited)
D.R. Horton, Guarantor Nonguarantor Intercompany
Inc. Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------ ------------ ----------
Total assets............ $550,920 $384,118 $2,088 ($302,517) $634,609
Total liabilities....... 343,400 355,111 766 (301,632) 397,645
Revenues................ 109,011 194,966 681 (681) 303,977
Gross profit............ 21,138 35,011 550 (550) 56,149
Net income.............. 11,042 23,836 537 (21,918) 13,497
September 30, 1997
D.R. Horton, Guarantor Nonguarantor Intercompany
Inc. Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------ ------------ ----------
Total assets............ $619,586 $456,323 $2,065 ($358,180) $719,794
Total liabilities....... 395,803 417,284 1,272 (357,345) 457,014
Revenues................ 286,568 550,712 1,513 (1,513) 837,280
Gross profit............ 51,485 100,454 1,226 (1,226) 151,939
Net income.............. 34,521 70,942 909 (70,168) 36,204
-10-
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 Six
Months Ended Months Ended
March 31, March 31,
------------------- -------------------
1998 1997 1998 1997
------------------- -------------------
Costs and expenses:
Cost of sales 82.0% 81.3% 81.5% 81.5%
Selling, general and
administrative expense 10.8 11.8 11.0 11.2
Interest expense 0.5 0.5 0.5 0.5
------- ------- ------- -------
Total costs and expenses 93.3 93.6 93.0 93.2
Other (income) (0.2) (0.3) (0.3) (0.3)
------- ------- ------- -------
Income before income taxes 6.9 6.7 7.3 7.1
Income taxes 2.7 2.5 2.9 2.7
------- ------- ------- -------
Net income 4.2% 4.2% 4.4% 4.4%
======= ======= ======= =======
New sales contracts, net Homes in
of cancellations Home closings sales backlog
----------------------------------- ----------------------------------- --------------
Three Six Three Six
Months Ended Months Ended Months Ended Months Ended As of
March 31, March 31, March 31, March 31, March 31,
---------------- ---------------- ---------------- ---------------- --------------
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Mid-Atlantic (Maryland,
New Jersey, North and
South Carolina, Virginia) 651 192 947 300 422 151 672 267 879 361
Midwest (Illinois,
Kansas, Minnesota,
Missouri, Ohio) 294 140 425 229 134 106 240 211 365 202
Southeast (Alabama,
Florida, Georgia)
Tennessee) 644 298 1,069 398 466 241 902 371 604 407
Southwest (Arizona, New
Mexico, Texas) 655 339 989 604 362 270 715 603 719 490
West (California, Colorado,
Nevada, Utah) 563 312 917 501 297 202 582 373 755 381
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Totals 2,807 1,281 4,347 2,032 1,681 970 3,111 1,825 3,322 1,841
====== ======= ====== ====== ====== ====== ====== ====== ====== ======
-11-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Revenues for the three months ended March 31, 1998, increased by 73.8%, to
$277.5 million, from $159.6 million in the comparable period of 1997. The number
of homes closed by the Company increased by 73.3%, to 1,681 homes in the three
months ended March 31, 1998, from 970 in the same period of 1997. Percentage
increases in homes closed ranging from 26.4% to 179.5% were achieved in the
Company's market regions. The increases in both revenues and home closings were
due in part to the results achieved in January and February, 1998, by Torrey,
acquired in February, 1997, and Dobson, acquired in February, 1998. In January
and February, 1998, Torrey provided $39.1 million in revenue (266 homes closed),
compared to $7.9 million (56 homes closed) in the comparable period of 1997.
Since its acquisition, Dobson has provided $19.3 million in revenues, with 121
homes closed. Excluding the Torrey and Dobson amounts referred to above,
revenues for the three months ended March 31, 1998, increased by 44.4%, to
$219.1 million.
The average selling price of homes closed in the three months ended March 31,
1998, was $164,900, essentially unchanged from $164,200 in the same period of
1997. The average selling price of homes closed by Torrey and Dobson during the
current three-month period was $148,900. The effect of the lower average prices
associated with the homes closed by Torrey and Dobson was offset by a 3%
increase in average selling price of homes closed by the Company's other
divisions.
New net sales contracts increased 119.1%, to 2,807 homes for the three months
ended March 31, 1998, from 1,281 homes for the three months ended March 31,
1997. The dollar amount of new net sales contracts increased 121.1%, to $469.5
million. Percentage increases in new net sales contracts ranging from 80.4% to
239.1% were achieved in the Company's market regions. In January and February,
1998, Torrey had 386 new net home sales, compared to 33 in the comparable period
of 1997. In the three months ended March 31, 1998, Dobson had 167 new net home
sales. Excluding Torrey and Dobson, new net sales contracts amounted to 2,254
homes in the current three-month period, an 80.6% increase over 1997.
The Company was operating in 397 subdivisions at March 31, 1998, compared to 272
subdivisions at March 31, 1997. At March 31, 1998, the Company's backlog of
sales contracts was 3,322 homes ($579.0 million), an 80.4% increase over
comparable figures at March 31, 1997. The increase in backlog was due in part to
Dobson's backlog of 293 home sales contracts ($48.0 million), purchased in
February, 1998.
Cost of sales increased by 75.2%, to $227.4 million in the three months ended
March 31, 1998, from $129.8 million in the comparable period of 1997. The
increase was primarily attributable to the increase in revenues. As a percentage
of revenues, cost of sales increased to 82.0% in 1998 from 81.3% in 1997, due to
lower margins associated with Dobson closings and the effects of purchase
accounting.
Selling, general and administrative (SG&A) expense increased by 59.9%, to $30.1
million in the three months ended March 31, 1998, from $18.8 million in the
comparable period of 1997. As a percentage of revenues, SG&A expense decreased
1.0%, to 10.8% in 1998, from 11.8% in 1997, due primarily to the large increase
in revenues absorbing fixed costs.
Interest expense amounted to $1.5 million in the three months ended March 31,
1998, compared to $0.8 million in the comparable period of 1997. The Company
follows a policy of capitalizing interest only on inventory under construction
or development. During the three months ended March 31, 1998 and 1997, the
Company expensed a greater portion of incurred interest and other financing
costs due to increased levels of finished lots and 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 $706,000
in the three months ended March 31, 1998, from $408,000 for the same period of
1997, due to increased activity by these entities.
The provision for income taxes was $7.5 million in the three months ended March
31, 1998, up $3.6 million from the $3.9 million for the comparable quarter of
1997. The increase in income taxes was primarily attributable to the increase in
income before income taxes. The effective income tax rate for the three months
ended March 31, 1998, was 39.0%, compared to 36.9% for the comparable period of
1997, due primarily to an increase in the state income tax rates anticipated to
be in effect in the current fiscal year.
-12-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended March 31, 1998 Compared to Six Months Ended March 31, 1997
Revenues for the six months ended March 31, 1998, increased by 67.3%, to $508.6
million, from $304.0 million in the comparable period of 1997. The number of
homes closed by the Company increased by 70.5%, to 3,111 in the six months ended
March 31, 1998, from 1,825 in the same period of 1997. Percentage increases in
homes closed ranging from 13.7% to 151.7% were achieved in each of the Company's
market regions. During the six months ended March 31, 1998 for which virtually
no comparable activity occurred in the prior year, Torrey and Dobson together
provided $122.6 million in revenues, with 828 homes closed. Excluding Torrey and
Dobson, revenues for the six months ended March 31, 1998, increased 30.4%, to
$386.0 million.
The average selling price of homes closed in the six months ended March 31,
1998, was $163,300, a 1.8% decrease from the $166,300 for the same period of
1997. The decrease in average home selling price was due primarily to Torrey and
Dobson, whose combined average home closing price was $147,600 for the 1998
period.
New net sales contracts increased 113.9%, to 4,347 homes for the six months
ended March 31, 1998, from 2,032 homes for the six months ended March 31, 1997.
The dollar amount of new net sales contracts increased 112.6%, to $727.4
million. Percentage increases in new net sales contracts ranging from 63.7% to
215.7% were achieved in the Company's market regions. New net sales for Torrey
and Dobson during that part of the current six-month period with no activity in
the comparable year earlier period, amounted to $148.3 million (1,014 homes).
Net of their effect, the dollar value of new net sales contracts increased by
71.7%, to $579.1 million (3,333 homes) in the six months ended March 31, 1998.
Cost of sales increased by 67.3%, to $414.6 million in the six months ended
March 31, 1998, from $247.8 million in the comparable period of 1997. The
increase was wholly attributable to the increase in revenues, as cost of sales
as a percentage of revenues remained constant at 81.5%.
Selling, general and administrative (SG&A) expense increased by 64.4%, to $55.8
million in the six months ended March 31, 1998, from $33.9 million in the
comparable period of 1997. As a percentage of revenues, SG&A expense decreased
to 11.0% for the six months ended March 31, 1998, from 11.2% for the same period
of 1997. The decrease in SG&A expenses as a percentage of revenues is due
primarily to the increased revenues.
Interest expense during the six months ended March 31, 1998 amounted to $2.6
million, compared to $1.6 million in the comparable period of 1997. The Company
follows a policy of capitalizing interest only on inventory under construction
or development. During the six months ended March 31, 1998 and 1997, the Company
expensed a greater portion of incurred interest and other financing costs due to
increased levels of finished lots and 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 Co., Ltd., increased to $1,432,000
in the six months ended March 31, 1998, from $1,122,000 in the same period of
1997.
The provision for income taxes was $14.5 million in the six months ended March
31, 1998, compared to $8.3 million in the comparable period of 1997, due
primarily to the increase in income before income taxes. The effective income
tax rate for the six months ended March 31, 1998, was 39.0%, compared to 38.0%
for the comparable period of 1997, due primarily to an increase in the state
income tax rates anticipated to be in effect in the current fiscal year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had available cash and cash equivalents of $62.0
million. Inventories (including finished homes and construction in progress,
developed residential lots and other land) at March 31, 1998, increased by
$171.2 million from September 30, 1997, due to the acquisition of Dobson, whose
assets consisted primarily of inventories. Inventories also increased due to a
general increase in business activity and the expansion of operations in all of
the Company's market areas. The inventory increase and the acquisition of Dobson
were financed by borrowing under the revolving credit facility. As a result, the
Company's ratio of notes payable to total capital increased to 64.8% at March
31, 1998, from 57.5% at September 30, 1997. The stockholders' equity to total
assets ratio decreased during the six months, to 30.6% at March 31, 1998, from
36.5% at September 30, 1997.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During fiscal 1998, the Company's Board of Directors has declared two quarterly
cash dividends of $.0225 per common share, the last of which is payable on May
15, 1998, to stockholders of record on April 29, 1998.
In February, 1998, the Company completed the acquisition of all of the
outstanding capital stock of C. Richard Dobson Builders, Inc. (Dobson), and
certain of its affiliated companies, for $23.4 million. Dobson's assets,
primarily inventories, amounted to approximately $64.9 million. Total
liabilities assumed amounted to approximately $52.5 million, including notes
payable of $49.0 million, which were paid at closing. The Dobson acquisition was
accounted for as a purchase.
On April 20, 1998, the Company closed its merger with Continental Homes Holding
Corp. (Continental). In accordance with the terms of the merger agreement, a
total of 15,459,514 shares of D.R. Horton, Inc. common stock were exchanged for
all of the Continental common stock outstanding, based upon an exchange ratio of
2.25. As restated at March 31, 1998, combined consolidated stockholders' equity
is $465.1 million. At time of the merger, the Company assumed Continental's
existing public debt, consisting of $150 million 10% senior notes due April 15,
2006, and $86.1 million in 6 7/8% convertible subordinated notes due November 1,
2002. The $150 million 10% senior notes may be put to the Company at 101% of par
value through June 18, 1998, under terms of the change of control provisions in
the indenture. The convertible notes may be exchanged for Horton common stock at
the rate of 94.73625 shares for each $1,000 principal amount at any time prior
to maturity. The convertible notes are redeemable in whole or in part at the
option of the Company at any time on or after November 1, 1998, at redemption
prices decreasing from 103.438%.
On April 21, 1998, the Company increased and restructured its unsecured bank
credit facility, to $825 million, consisting of a $775 million four-year
revolving loan and a $50 million four-year letter of credit facility. At March
31, 1998, the Company had outstanding debt of $524.6 million, of which $372.0
million represented advances under the bank credit facility that existed at that
time. In connection with the Continental merger, the Company drew $76 million
under its credit facility to repay certain of Continental's obligations to
banks. After giving effect to the Continental merger, and under the debt
covenants associated with the restructured credit facility, the Company had
additional borrowing capacity of $165.5 million at March 31, 1998.
The Company's rapid growth and acquisition strategy require significant amounts
of capital. 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 has a currently effective
shelf registration statement for debt securities and common and preferred stock
with a remaining capacity of $100 million. Market conditions will determine when
and whether the Company sells any securities using the balance of this
registration statement. 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, the acquisition
of land and lots for development and sale of homes, at March 31, 1998, the
Company had no material commitments for capital expenditures.
Safe Harbor Statement
Certain statements in this Quarterly Report on Form 10-Q, 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, changes in
general economic conditions, fluctuations in interest rates, increases in costs
of material, supplies and labor and general competitive conditions.
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PART II. OTHER INFORMATION.
ITEM 4. Submission of Matters to a Vote of Security Holders.
On January 22, 1998, the Company held its Annual Meeting of Stockholders (the
"Annual Meeting"). At the Annual Meeting, the stockholders re-elected all nine
members of the Board of Directors of the Company to serve until the Company's
next annual meeting of stockholders and until their respective successors are
elected and qualified. The names of the nine directors, the votes cast for and
the number of votes withheld were as follows:
Name Votes For Votes Withheld
---- --------- --------------
Richard Beckwitt 34,791,542 251,854
Richard I. Galland 34,791,542 251,854
Donald R. Horton 34,791,442 251,954
Richard L. Horton 34,791,542 251,854
Terrill J. Horton 34,791,542 251,854
David J. Keller 34,791,542 251,854
Francine I. Neff 34,791,542 251,854
Scott J. Stone 34,791,542 251,854
Donald J. Tomnitz 34,791,542 251,854
At the Annual Meeting, the stockholders also approved a proposal to amend the
Company's 1991 Stock Incentive Plan, as amended, to increase the number of
shares of the Company's Common Stock issuable thereunder from 3,969,041 shares
to 6,000,000 shares (the "Proposal"). The number of votes cast for and against
the Proposal and the number of abstentions were as follows:
Votes For Votes Against Abstentions
---------- ------------- -----------
25,160,109 6,548,607 11,646
ITEM 5. Other Information.
In connection with the Company's acquisition of Dobson and Continental, and the
merger of certain of the Company's subsidiaries into other subsidiaries of the
Company, the Company has executed a Third Supplemental Indenture, dated as of
April 17, 1998, and a Fourth Supplemental Indenture, dated as of April 20, 1998;
each such Supplemental Indenture is among the Company, the guarantors named
therein and American Stock Transfer & Trust Company, as Trustee, and relates to
the Company's 8-3/8% Senior Notes, due 2004, (the "Notes"). The Third and Fourth
Supplemental Indentures reflect the addition, as guarantors of the Notes, of
certain:
(a) newly activated subsidiaries of the Company:
Name Jurisdiction of Organization
---- ----------------------------
D.R. Horton, Inc. - Sacramento California
D.R. Horton - Sacramento California
Management Company, Inc.
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(b) subsidiaries acquired in the Dobson acquisition:
Name Jurisdiction of Organization
---- ----------------------------
C. Richard Dobson Builders, Inc. Virginia
Land Development, Inc. Virginia
(c) subsidiaries acquired in the Continental acquisition:
Name Jurisdiction of Organization
---- ----------------------------
Continental Homes, Inc. Delaware
KDB Homes, Inc. Delaware
L&W Investments, Inc. California
Continental Ranch, Inc. Delaware
Continental Homes of Florida, Inc. Florida
CHI Construction Company Arizona
CHTEX of Texas, Inc. Delaware
CH Investments of Texas, Inc. Delaware
Continental Homes of Austin, L.P. Texas
Continental Homes of Dallas, L.P. Texas
Continental Homes of San Antonio, L.P. Texas
The Third Supplemental Indenture also reflects the merger of 45 subsidiaries of
the Company, which were guarantors of the Notes, into three other subsidiaries
of the Company, which were also guarantors of the Notes. All of these
subsidiaries are listed in the Third Supplemental Indenture.
In connection with the Continental acquisition, the Company also executed (i) a
First Supplemental Indenture, dated as of April 20, 1998, among the Company, the
guarantors named therein and First Union National Bank, as Trustee, assuming
Continental's 10% Senior Notes, due 2006, and (ii) a First Supplemental
Indenture, dated as of April 20, 1998, between the Company and Manufacturers and
Traders Trust Company, as Trustee, assuming Continental's 6- 7/8% Convertible
Subordinated Notes, due 2002. Other information concerning the acquisitions of
Dobson and Continental has been previously reported in, and is described in, the
Company's Registration Statement on Form S-4 (Registration Number 333-44279)
dated March 13, 1998, and the Company's Current Reports on Form 8-K, dated April
14, 1998, April 20, 1998 (filed on April 21, 1998) and April 20, 1998 (filed on
May 4, 1998).
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
4.1 Indenture dated as of April 15, 1996 between Continental and
First Union National Bank, as Trustee, is incorporated herein
by reference from Exhibit 4.1 to Continental's Annual Report on
Form 10-K for the year ended May 31, 1996. The Commission file
number for Continental is 1-10700.
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4.2 Indenture dated as of November 1, 1995 between Continental and
Manufacturers and Traders Trust Company, as Trustee, is
incorporated by reference from Exhibit 4.1 to Continental's
Quarterly Report on Form 10-Q for the quarter ended November
30, 1995. The Commission file number for Continental is
1-10700.
4.3* Third Supplemental Indenture, dated as of April 17, 1998, among
the Company, the guarantors named therein and American Stock
Transfer & Trust Company, as Trustee, relating to the Company's
8-3/8% Senior Notes, due 2004.
4.4* Fourth Supplemental Indenture, dated as of April 20, 1998,
among the Company, the guarantors named therein and American
Stock Transfer & Trust Company, as Trustee, relating to the
Company's 8-3/8% Senior Notes, due 2004.
4.5* First Supplemental Indenture, dated as of April 20, 1998, among
the Company, the guarantors named therein and First Union
National Bank, as Trustee, relating to Continental's 10% Senior
Notes, due 2006.
4.6* First Supplemental Indenture, dated as of April 20, 1998,
between the Company and Manufacturers and Traders Trust
Company, as Trustee, relating to Continental's 6-7/8%
Convertible Subordinated Notes, due 2002.
- ----------
* Filed herewith.
(b) Reports on Form 8-K.
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: May 14, 1998 By:/s/ David J. Keller
-----------------------------------------------
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)
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