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 June 30, 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
---------
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 -- 64,213,410 shares as of July 28, 1999
------------
This Report contains 20 pages.
----
<PAGE>
INDEX
D.R. HORTON, INC.
PART I. FINANCIAL INFORMATION. Page
ITEM 1. Financial Statements.
Consolidated Balance Sheets--June 30, 1999 and September 30, 1998. 3
Consolidated Statements of Income--Three Months and Nine Months
Ended June 30, 1999 and 1998. 4
Consolidated Statement of Stockholders' Equity--Nine Months
Ended June 30, 1999. 5
Consolidated Statements of Cash Flows--Nine Months Ended
June 30, 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. 10-17
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II. OTHER INFORMATION.
ITEM 6. Exhibits and Reports on Form 8-K. 19
SIGNATURES. 20
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
1999 1998
--------------------------------
(In thousands)
(Unaudited)
ASSETS
Homebuilding:
Cash $ 74,994 $ 76,754
Inventories:
Finished homes and construction in progress 956,441 717,709
Residential lots - developed and
under development 850,606 630,252
Land held for development 5,837 10,072
---------- ----------
1,812,884 1,358,033
Property and equipment (net) 37,249 25,456
Earnest money deposits and other assets 95,857 74,827
Excess of cost over net assets acquired (net) 111,598 56,782
---------- ----------
2,132,582 1,591,852
---------- ----------
Financial Services:
Mortgage loans held for sale 102,488 72,325
Other assets 3,868 3,658
---------- ----------
106,356 75,983
---------- ----------
$2,238,938 $1,667,835
========== ==========
LIABILITIES
Homebuilding:
Accounts payable and other liabilities $ 326,533 $ 259,005
Notes payable:
Unsecured:
Revolving credit facility due 2002 370,000 455,000
8% senior notes due 2009, net 382,931 -
8 3/8% senior notes due 2004, net 148,051 147,754
10% senior notes due 2006, net 147,247 147,156
6 7/8% convertible subordinated
notes due 2002, net - 58,794
Other secured 7,511 17,303
---------- ----------
1,055,740 826,007
---------- ----------
1,382,273 1,085,012
---------- ----------
Financial Services:
Accounts payable and other liabilities 2,968 1,444
Notes payable to financial institutions 81,902 28,497
---------- ----------
84,870 29,941
---------- ----------
1,467,143 1,114,953
---------- ----------
Minority interest 3,745 3,446
---------- ----------
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,
64,211,760 at June 30, 1999
and 55,836,733 at September 30,
1998, issued and outstanding 642 558
Additional capital 418,724 301,503
Retained earnings 352,660 247,375
Treasury stock, 230,000 shares at cost (3,976) -
---------- ----------
768,050 549,436
---------- ----------
$2,238,938 $1,667,835
========== ==========
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
D. R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Nine Months
Ended June 30, Ended June 30,
------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
(In thousands, except net income per share)
(Unaudited)
Homebuilding:
Revenues
Home sales................. $824,588 $606,161 $2,119,463 $1,472,591
Land/lot sales............. 8,548 2,183 57,101 3,266
-------- -------- ---------- ----------
833,136 608,344 2,176,564 1,475,857
-------- -------- ---------- ----------
Cost of sales
Home sales................. 675,512 497,568 1,737,052 1,207,713
Land/lot sales............. 7,541 1,568 50,472 2,404
-------- -------- ---------- ----------
683,053 499,136 1,787,524 1,210,117
-------- -------- ---------- ----------
Gross profit
Home sales................. 149,076 108,593 382,411 264,878
Land/lot sales............. 1,007 615 6,629 862
-------- -------- ---------- ----------
150,083 109,208 389,040 265,740
Selling, general and
administrative expense..... 77,519 58,360 209,711 152,517
Interest expense............. 2,874 4,136 8,755 9,204
Other (income)............... (57) (2,413) (1,781) (4,466)
-------- -------- ---------- ----------
69,747 49,125 172,355 108,485
-------- -------- ---------- ----------
Financial Services:
Revenues..................... 9,814 5,520 26,097 14,163
Selling, general and
administrative expense..... 6,386 3,900 16,589 9,690
Interest expense............. 1,403 648 2,815 1,293
Other (income)............... (1,509) (704) (3,148) (1,758)
-------- -------- ---------- ----------
3,534 1,676 9,841 4,938
-------- -------- ---------- ----------
Merger Costs................... - 11,917 - 11,917
-------- -------- ---------- ----------
INCOME BEFORE INCOME TAXES. 73,281 38,884 182,196 101,506
Provision for income taxes... 28,947 15,796 71,747 40,602
-------- -------- ---------- ----------
NET INCOME................. $ 44,334 $ 23,088 $ 110,449 $ 60,904
======== ======== ========== ==========
Net income per share:
Basic........................ $0.69 $0.44 $1.79 $1.15
Diluted...................... $0.68 $0.39 $1.75 $1.02
======== ======== ========== ==========
Weighted average number of
shares of stock outstanding:
Basic...................... 64,088 53,066 61,837 52,897
Diluted.................... 64,919 62,241 63,175 62,178
======== ======== ========== ==========
Cash dividends per share....... $0.03 $0.0225 $0.0825 $0.0650
======== ======== ========== ==========
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
D. R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Common Additional Retained Treasury Stockholders'
Stock Capital Earnings Stock Equity
----------------------------------------------------------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balances at October 1, 1998 $558 $301,503 $247,375 $ 0 $549,436
Net income - - 110,449 - 66,115
Stock issued as partial consideration
for acquisition
(2,555,911 shares) 26 54,974 - - 55,000
Issuance under D.R. Horton, Inc.
employee benefit plans
(5,266 shares) - 59 - - 59
Exercise of stock options
(244,507 shares) 2 2,436 - - 2,438
Conversion of convertible subordinated
notes (5,569,343 shares) 56 59,271 - - 59,327
Purchase of treasury stock
(230,000 shares) - - - (3,976) (536)
Cash dividends - - (5,164) - (3,238)
----------------------------------------------------------
Balances at June 30, 1999 $642 $418,243 $310,252 ($3,976) $728,601
==========================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
D. R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months
Ended June 30,
----------------------
1999 1998
--------- ----------
(In thousands)
(Unaudited)
OPERATING ACTIVITIES
Net income $ 110,449 $ 60,904
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 14,502 6,970
Changes in operating assets and liabilities:
Increase in inventories (345,398) (195,030)
Increase in earnest money deposits and
other assets (31,975) (8,829)
Increase in mortgage loans held for sale (30,163) (32,236)
Increase in accounts payable, accrued
expenses and customer deposits 49,021 48,298
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (233,564) (119,923)
--------- ---------
INVESTING ACTIVITIES
Net purchase of property and equipment (16,120) (8,725)
Net cash paid for acquisitions (1,125) (33,091)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (17,245) (41,816)
--------- ---------
FINANCING ACTIVITIES
Net increase in notes payable 255,211 197,584
Proceeds from exercise of stock options 2,978 2,388
Purchase of treasury shares (3,976) -
Payment of cash dividends (5,164) (3,464)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 249,049 196,508
--------- ---------
INCREASE (DECREASE) IN CASH (1,760) 34,769
Cash at beginning of period 76,754 78,228
--------- ---------
Cash at end of period $ 74,994 $ 112,997
========= =========
Supplemental cash flow information:
Interest paid, net of amounts capitalized $ 10,596 $ 11,712
========= =========
Income taxes paid $ 74,207 $ 41,020
========= =========
Supplemental disclosures of noncash activities:
Notes payable assumed related to acquisitions $ 103,384 $ 61,335
========= =========
Conversion of subordinated notes to common stock $ 59,327 $ 3,334
========= =========
Issuance of common stock related to acquisition $ 55,000 $ 0
========= =========
See accompanying notes to consolidated financial statements.
-6-
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements include the
accounts of D.R. Horton, Inc. and its subsidiaries (the "Company"). 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 nine month periods ended
June 30, 1999, are not necessarily indicative of the results that may be
expected for the year ending September 30, 1999.
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 - NET INCOME PER SHARE
Basic net income per share for the three and nine month periods ended June 30,
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 Nine months ended
June 30, June 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
Numerator:
Net income $44,334 $23,088 $110,449 $60,904
Effect of dilutive securities:
Interest expense associated with
6 7/8% convertible subordinated
notes, net - 906 - 2,654
------- ------- -------- -------
Numerator for diluted earnings
per share after assumed
conversions $44,334 $23,994 $110,449 $63,558
======= ======= ======== =======
Denominator:
Denominator for basic earnings per
share-weighted average shares 64,088 53,066 61,837 52,897
Effect of dilutive securities:
6 7/8% convertible subordinated notes - 8,041 439 8,124
Employee stock options 831 1,134 899 1,157
------- ------- -------- -------
Denominator for diluted earnings
per share---adjusted
weighted average shares
and assumed conversions 64,919 62,241 63,175 62,178
======= ======= ======== =======
-7-
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 1999
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 June 30, 1999, not significant.
The provisions for income tax expense for the three and nine month periods ended
June 30, 1999 and 1998, 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 Nine months ended
June 30, June 30,
------------------- -------------------
1999 1998 1999 1998
(In thousands)
Capitalized interest,
beginning of period $ 36,486 $ 38,058 $ 35,153 $ 28,952
Interest incurred 23,472 19,955 58,294 52,573
Interest expensed:
Directly (4,277) (4,784) (11,570) (10,497)
Amortized to cost of sales (14,593) (11,396) (40,789) (29,195)
-------- -------- -------- --------
Capitalized interest,
end of period $ 41,088 $ 41,833 $ 41,088 $ 41,833
======== ======== ======== ========
NOTE E - ACQUISITIONS
On January 28, 1999, the Company acquired the operating assets (primarily
inventories) of Cambridge Homes of Chicago. In the transaction, the Company
issued 2,555,911 shares of common stock, valued at $55 million, and assumed
debt, consisting primarily of notes payable associated with the acquired assets,
of approximately $103 million, which was paid with borrowings under the
revolving credit facility. The Cambridge acquisition was treated as a purchase
for accounting purposes.
At July 29, 1999, the determination of the final valuation of the Cambridge
acquisition had not been completed. Any subsequent adjustments to the beginning
balance sheet amounts estimated herein will be recorded in future periods as
adjustments to the excess of cost over net assets acquired.
-8-
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
June 30, 1999
NOTE F - SUMMARIZED FINANCIAL INFORMATION
The 8%, 8 3/8%, and 10% senior notes payable are fully and unconditionally
guaranteed, on a joint and several basis, by all direct and indirect
subsidiaries other than certain inconsequential subsidiaries. Each of the
guarantors is a wholly-owned subsidiary. 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 primary
financial statements. 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 periods ended (In thousands):
<TABLE>
<CAPTION>
June 30, 1999 - 9 months Nonguarantor Subsidiaries
(Unaudited) D.R. ------------------------- Inter-
Horton, Guarantor Financial company
Inc. Subsidiaries Services Other Eliminations Total
---------- -------------- ----------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total assets............. $1,610,778 $2,026,999 $111,348 $32,459 ($1,542,646) $2,238,938
Total liabilities........ 1,162,451 1,648,831 101,008 21,161 (1,462,563) 1,470,888
Revenues................. 413,096 1,744,087 26,097 19,381 0 2,202,661
Gross profit............. 57,547 327,339 0 4,154 0 389,040
Net income............... 20,573 84,067 6,019 (128) (82) 110,449
<CAPTION>
June 30, 1998 - 9 months Nonguarantor Subsidiaries
(Unaudited) D.R. ------------------------- Inter-
Horton, Guarantor Financial company
Inc. Subsidiaries Services Other Eliminations Total
---------- -------------- ----------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total assets............. $1,206,583 $1,335,638 $79,998 $30,486 ($1,030,837) $1,621,868
Total liabilities........ 975,922 1,086,243 73,620 18,563 (1,025,047) 1,129,301
Revenues................. 239,556 1,226,200 14,163 10,101 0 1,490,020
Gross profit............. 32,913 230,939 0 1,888 0 265,740
Net income............... 1,657 57,287 2,964 (1,004) 0 60,904
<CAPTION>
September 30, 1998 - year Nonguarantor Subsidiaries
D.R. ------------------------- Inter-
Horton, Guarantor Financial company
Inc. Subsidiaries Services Other Eliminations Total
---------- -------------- ----------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total assets............. $1,169,347 $1,548,554 $89,097 $30,672 ($1,169,835) $1,667,835
Total liabilities........ 906,014 1,272,398 81,820 19,301 (1,161,134) 1,118,399
Revenues................. 362,847 1,777,833 21,892 14,369 0 2,176,941
Gross profit............. 44,553 342,300 0 2,586 0 389,439
Net income............... 2,140 88,128 4,418 (1,306) 0 93,380
</TABLE>
-9-
<PAGE>
ITEM 2.
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 47 homebuilding divisions.
Through its financial services activities, the Company also provides mortgage
banking and title agency services in many of these same markets.
Three Months Ended June 30, 1999 Compared to Three Months Ended March 31, 1998
Consolidated revenues for the three months ended June 30, 1999, increased 37.3%,
to $843.0 million, from $613.9 million for the comparable period of 1998, due to
increases in both home and land/lot sales revenues as well as financial services
revenues.
In the three months ended June 30, 1998, the Company expensed $11.9 million in
non-recurring costs associated with the merger with Continental Homes. The costs
consisted primarily of fees to third party investment, accounting and legal
advisors.
Excluding the nonrecurring merger costs, income before income taxes for the
three months ended June 30, 1999, increased 44.3%, to $73.3 million, from $50.8
million for the comparable period of 1998. As a percentage of revenues, income
before income taxes for the three months ended June 30, 1999, increased 0.4%, to
8.7%, from 8.3% for the comparable period of 1998 primarily due to the overall
reduction in selling, general and administrative expenses as a percentage of
revenues.
The consolidated provision for income taxes increased 83.3%, to $28.9 million
for the three months ended June 30, 1999, from $15.8 million for the same period
of 1998, due to the corresponding increase in income before income taxes. The
effective income tax rate was down 1.1% to 39.5% for the three months ended June
30, 1999, compared to 40.6% for the same period of 1998 due in part to the
non-deductibility of certain merger costs in the quarter ended June 30, 1998.
Nine Months Ended June 30, 1999 Compared to Nine Months Ended March 31, 1998
Consolidated revenues for the nine months ended June 30, 1999, increased 47.8%,
to $2,202.7 million, from $1,490.0 million for the comparable period of 1998,
due to increases in both home and land/lot sales revenues as well as financial
services revenues.
Excluding the nonrecurring merger costs, income before income taxes for the nine
months ended June 30, 1999, increased 60.6%, to $182.2 million, from $113.4
million for the comparable period of 1998. As a percentage of revenues, income
before income taxes for the nine months ended June 30, 1999, increased 0.7%, to
8.3%, from 7.6% for the comparable period of 1998 primarily due to the overall
reduction in selling, general and administrative expenses as a percentage of
revenues.
The consolidated provision for income taxes increased 76.7%, to $71.7 million
for the nine months ended June 30, 1999, from $40.6 million for the same period
of 1998, due to the corresponding increase in income before income taxes. The
effective income tax rate was down 0.6% to 39.4% for the nine months ended June
30, 1999, compared to 40.0% for the same period of 1998 due in part to the
non-deductibility of certain merger costs in the nine months ended June 30,
1998.
-10-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS - HOMEBUILDING
The following tables summarize financial data for the Company's homebuilding
activities:
<TABLE>
<CAPTION>
Percentages of Homebuilding Revenues
Three Months Ended Nine Months Ended
June 30, June 30,
---------- ----------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cost and expenses:
Cost of sales........................ 82.0% 82.0% 82.1% 82.0%
Selling, general and administrative
expense.............................. 9.3 9.6 9.7 10.3
Interest expense..................... 0.3 0.7 0.4 0.6
-------- -------- -------- --------
Total costs and expenses..................... 91.6 92.3 92.2 92.9
Other (income)............................... - (0.4) (0.1) (0.3)
-------- -------- -------- --------
Income before income taxes................... 8.4% 8.1% 7.9% 7.4%
======== ======== ======== ========
<CAPTION>
Homes Closed
Three Months Ended June 30, Nine Months Ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
Homes Homes Homes Homes
Closed Revenues Closed Revenues Closed Revenues Closed Revenues
-------- -------- -------- -------- -------- --------- -------- ---------
($'s in millions) ($'s in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mid-Atlantic............... 787 $143.0 595 $105.3 2,126 $386.4 1,267 $ 225.6
Midwest.................... 514 102.0 188 34.1 1,135 219.5 428 79.3
Southeast.................. 675 108.1 743 108.6 1,859 296.4 1,810 265.4
Southwest.................. 2,088 292.8 1,652 213.0 5,528 756.3 4,519 579.0
West....................... 898 178.7 751 145.2 2,323 460.9 1,688 323.3
-------- -------- -------- -------- -------- --------- -------- ---------
4,962 $824.6 3,929 $606.2 12,971 $2,119.5 9,712 $1,472.6
======== ======== ======== ======== ======== ========= ======== =========
<CAPTION>
New Sales Contracts (net of cancellations)
Three Months Ended June 30, Nine Months Ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
Homes Homes Homes Homes
Sold $ Sold $ Sold $ Sold $
-------- -------- -------- -------- -------- --------- -------- ---------
($'s in millions) ($'s in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mid-Atlantic............... 927 $177.4 748 $141.9 2,428 $ 459.8 1,695 $309.7
Midwest.................... 564 121.2 227 43.4 1,358 278.3 652 124.5
Southeast.................. 667 111.9 658 101.7 2,025 328.1 2,004 300.0
Southwest.................. 2,132 307.8 1,988 265.1 6,066 861.7 5,276 697.0
West....................... 987 208.5 790 159.2 2,568 517.6 2,311 454.9
-------- -------- -------- -------- -------- --------- -------- ---------
5,277 $926.8 4,411 $711.3 14,445 $2,445.5 11,938 $1,886.1
======== ======== ======== ======== ======== ========= ======== =========
<CAPTION>
Sales Backlog
June 30,
1999 1998
---- ----
Homes $ Homes $
--------- --------- --------- ---------
($'s in millions)
<S> <C> <C> <C> <C>
Mid-Atlantic.................................. 1,234 $ 254.3 1,032 $ 195.9
Midwest....................................... 1,094 231.8 456 86.6
Southeast..................................... 899 148.1 914 140.1
Southwest..................................... 3,581 529.2 2,784 377.4
West.......................................... 1,459 308.0 1,373 278.4
--------- --------- --------- ---------
8,267 $1,471.4 6,559 $1,078.4
========== ========= ========= =========
</TABLE>
The Company's market regions consist of the following markets:
Mid-Atlantic Baltimore, Charleston, Charlotte, 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
-11-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenues from homebuilding activities (including land/lot sales) increased
37.0%, to $833.1 million (4,962 homes closed) for the three months ended June
30, 1999, from $608.3 million (3,929 homes closed) for the comparable period of
1998. The Company periodically sells land or lots to others and revenues from
these activities were $8.5 million in the three months ended June 30, 1999,
compared to $2.2 million for the same quarter of 1998. The number of homes
closed increased in four of the Company's five market regions, with percentage
increases ranging from 173.4% in the Midwest region to 19.6% in the West, while
the Southeast declined 9.2%. 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 (January,
1999); Mareli Development & Construction Co. (May, 1998); and RMP Development,
Inc. (June, 1998). In markets where the Company operated during both fiscal
years, home sales revenues increased by 33.2%, to $809.8 million (4,874 homes
closed).
The average selling price of homes closed during the three months ended June 30,
1999 was $166,200, up 7.7% from $154,300 for the same period of 1998. The
increase in average selling price was due to changes in the mix of homes closed
and increased selling prices.
New net sales contracts increased 19.6%, to 5,277 homes ($926.8 million) for the
three months ended June 30, 1999, from 4,411 homes ($711.3 million) for the same
period of 1998. Percentage increases in new net sales contracts were achieved in
all of the Company's market regions, with increases ranging from 148.5% in the
Midwest region to 1.4% in the Southeast region. The overall increase in new net
sales contracts was due in part to sales achieved by Cambridge and the 1998
acquisitions, while in markets where the Company operated in both periods, new
net sales contracts increased 15.6%, to 5,097 homes. The average amount of new
net sales contracts in the three months ended June 30, 1999, was $175,600, up
8.9% over the $161,200 average in the three months ended June 30, 1998. This
increase was due to changes in the mix of homes sold and increased selling
prices.
The Company was operating in 615 subdivisions at June 30, 1999, compared to 511
at June 30, 1998. At June 30, 1999, the Company's backlog of sales contracts was
$1,471.4 million (8,267 homes), up 36.4% from the comparable amount at June 30,
1998. In markets where the Company operated during both years, the sales
contract backlog was $1,438.8 million (8,127 homes), up 33.4% from June 30,
1998. The average sales price of homes in sales backlog was $178,000 at June 30,
1999, up 8.3% from the $164,400 average at June 30, 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 36.8%, to $683.1 million for the three months ended
June 30, 1999, from $499.1 million for the comparable quarter of 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 down
0.2% to 81.9% for the three months ended June 30, 1999, from 82.1% for the
comparable period of 1998. Cost of land/lot sales increased to 88.2% of land/lot
sales revenues for the three months ended June 30, 1999, from 71.8% for the
comparable period of 1998. Total homebuilding cost of sales as a percentage of
total homebuilding revenues was 82.0% for both three month periods.
Selling, general and administrative (SG&A) expenses from homebuilding activities
increased by 32.8%, to $77.5 million in the three months ended June 30, 1999,
from $58.4 million in the comparable period of 1998. As a percentage of
revenues, SG&A expenses decreased to 9.3% for the three months ended June 30,
1999, from 9.6% 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.
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest expense associated with homebuilding activities decreased to $2.9
million in the three months ended June 30, 1999, from $4.1 million in the
comparable period of 1998. As a percentage of homebuilding revenues,
homebuilding interest expense decreased 0.4% to 0.3% for the quarter ended June
30, 1999, from 0.7% for the comparable quarter of 1998. The decrease in interest
expense is a result of the growth of active inventory outpacing the growth of
interest bearing debt which permitted the capitalization of a larger share of
incurred interest. 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 was
not charged to inventory. Capitalized interest and other financing costs are
included in cost of sales at the time of home closings.
Nine Months Ended June 30, 1999 Compared to Nine Months Ended June 30, 1998
Revenues from homebuilding activities (including land/lot sales) increased
47.5%, to $2,176.6 million (12,971 homes closed) for the nine months ended June
30, 1999, from $1,475.9 million (9,712 homes closed) for the comparable period
of 1998. The Company periodically sells land or lots to others and revenues from
these activities were $57.1 million for the nine months ended June 30, 1999, up
from $3.3 million for the same period of 1998. The number of homes closed
increased in all of the Company's market regions, with percentage increases
ranging from 165.2% in the Midwest region to 2.7% in the Southeast region. 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 (January, 1999); C. Richard Dobson Builders, Inc.
(February, 1998); Mareli Development & Construction Co. (May, 1998); and RMP
Development, Inc. (June, 1998). In markets where the Company operated during
both fiscal years, revenues increased by 38.1%, to $2,037.1 million (12,451
homes closed).
The average selling price of homes closed during the nine months ended June 30,
1999 was $163,400, up 7.8% from $151,600 for the same period of 1998. The
increase in average selling price was due to changes in the mix of homes closed
and increased selling prices.
New net sales contracts increased 21.0%, to 14,445 homes ($2,445.5 million) for
the nine months ended June 30, 1999, from 11,938 homes ($1,886.1 million) for
the same period of 1998. Percentage increases in new net sales contracts were
achieved in all of the Company's market regions, with increases ranging from
108.3% in the Midwest region to 1.0% in the Southeast region. The overall
increase in new net sales contracts was due in part to sales achieved by
Cambridge and the 1998 acquisitions, while new net sales contracts increased
13.5%, to 13,551 homes, in markets where the Company operated in both periods.
The average amount of new net sales contracts in the nine months ended June 30,
1999, was $169,300, up 7.2% over the $158,000 average in the nine months ended
June 30, 1998. This increase was due to changes in the mix of homes sold and
increased selling prices.
Cost of sales increased by 47.7%, to $1,787.5 million for the nine months ended
June 30, 1999, from $1,210.1 million for the comparable period of 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 82.0%
for the both nine-month periods. The application of purchase accounting to homes
acquired in the Cambridge acquisition, and closed subsequent to the acquisition,
caused an $8.4 million increase (0.5%) in cost of goods sold for the period.
Cost of land/lot sales increased to 88.4% of land/lot sales revenues for the
nine months ended June 30, 1999, from 73.6% for the comparable period of 1998.
Total homebuilding cost of sales increased to 82.1% for the nine months ended
June 30, 1999, from 82.0% for the comparable period of 1998.
Selling, general and administrative (SG&A) expenses from homebuilding activities
increased by 37.5%, to $209.7 million in the nine months ended June 30, 1999,
from $152.5 million in the comparable period of 1998. As a percentage of
revenues, SG&A expenses decreased to 9.7% for the nine months ended June 30,
1999, from 10.3% 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. Included in SG&A expenses for the nine months ended June 30, 1999, is
a $6.4 million charge (0.3%) for severance benefits associated with former
Continental executives.
-13-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest expense associated with homebuilding activities decreased to $8.8
million in the nine months ended June 30, 1999, from $9.2 million in the
comparable period of 1998. As a percentage of homebuilding revenues,
homebuilding interest expense decreased to 0.4% in the nine months ended June
30, 1999, from 0.6% in the comparable period of 1998. The decrease in interest
expense is a result of the growth of active inventory outpacing the growth of
interest bearing debt which permitted the capitalization of a larger share of
incurred interest. 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 was not
charged to inventory. Capitalized interest and other financing costs are
included in cost of sales at the time of home closings.
RESULTS OF OPERATIONS - FINANCIAL SERVICES
The following table summarizes financial data for the Company's financial
services operations:
Three months ended Nine months ended
June 30, June 30,
------------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
Number of loans originated............ 2,196 1,641 5,864 4,099
------- ------- ------- -------
Loan acquisition fees................. $ 2,442 $ 1,781 $ 6,214 $ 4,164
Sale of servicing and marketing gains. 4,435 3,373 12,399 7,174
Other revenues........................ 1,205 (563) 2,928 175
------- ------- ------- -------
Total mortgage banking revenues....... 8,082 4,591 21,541 11,513
Title policy premiums, net............ 1,732 929 4,556 2,650
------- ------- ------- -------
Total financial services revenues..... 9,814 5,520 26,097 14,163
General and administrative expenses... 6,386 3,900 16,589 9,690
Interest expense...................... 1,403 648 2,815 1,293
Interest/other (income)............... (1,509) (704) (3,148) (1,758)
------- ------- ------- -------
Income before income taxes............ $ 3,534 $ 1,676 $ 9,841 $ 4,938
======= ======= ======= =======
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenues from financial services operations increased 77.8%, to $9.8 million in
the three months ended June 30, 1999, from $5.5 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 the
Company's homebuilding customers and growth in the homebuilding operations.
These mortgage and title activities continue to expand to additional
homebuilding markets. SG&A expenses associated with financial services increased
63.7%, to $6.4 million in the three months ended June 30, 1999, from $3.9
million in the comparable period of 1998. As a percentage of financial services
revenues, SG&A expenses decreased by 5.6%, to 65.1% in the three months ended
June 30, 1999, from 70.7% in the comparable period of 1998, due to increased
revenues in 1999 from 1998 investments in startup expenses for new markets.
-14-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended June 30, 1999 Compared to Nine Months Ended June 30, 1998
Revenues from financial services operations increased 84.3%, to $26.1 million in
the nine months ended June 30, 1999, from $14.2 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 the
Company's homebuilding customers and growth in the homebuilding operations.
These mortgage and title activities continue to expand to additional
homebuilding markets. SG&A expenses associated with financial services increased
71.2%, to $16.6 million in the nine months ended June 30, 1999, from $9.7
million in the comparable period of 1998. As a percentage of financial services
revenues, SG&A expenses decreased by 4.8%, to 63.6% in the nine months ended
June 30, 1999, from 68.4% in the comparable period of 1998, due to increased
revenues in 1999 from 1998 investments in startup expenses for new markets.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had available cash and cash equivalents of $75.0
million. Inventories (including finished homes, construction in progress, and
developed residential lots and other land) at June 30, 1999, had increased by
$454.9 million from September 30, 1998, due to a general increase in business
activity, the expansion of operations in the Company's market areas and the
acquisition of Cambridge's $110.1 million inventory. The inventory increase was
financed through borrowings, issuing $55 million of common stock for the
acquisition of Cambridge and by retaining earnings. The increased borrowing was
partially offset by the conversion of $58.8 million of 6 7/8% convertible
subordinated notes to common stock. As a result, the Company's ratio of
homebuilding notes payable to total homebuilding capital at June 30, 1999, was
57.9% and consolidated notes payable to total capital was 59.7%, decreases of
2.2% and 1.2% over the September 30, 1998 levels of 60.1% and 60.9%,
respectively. The stockholders' equity to total assets ratio increased to 34.3%
at June 30, 1999, from 32.9% at September 30, 1998.
On February 4, 1999, under an existing shelf registration statement, the Company
issued $385 million aggregate principal amount of 8% Senior Notes, due 2009. The
proceeds of the notes were used to repay outstanding debt under our revolving
credit facility and for general corporate purposes. The Company has filed a $600
million universal shelf registration statement that is presently effective and
facilitates access to the capital markets.
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 standby
letter of credit facility that matures in 2003. Additionally, the Company has a
$25 million standby letter of credit agreement. At June 30, 1999, the Company
had outstanding homebuilding debt of $1,055.7 million, of which $370.0 million
represented advances under the revolving credit facility. Under the debt
covenants associated with the revolving credit facility, at June 30, 1999, the
Company had additional borrowing capacity of $405 million. The Company has
entered into multi-year interest rate swap agreements, aggregating $300 million,
that fix the interest rate on a portion of the variable rate revolving credit
facility.
The financial services activities have an $85 million, one-year mortgage
warehouse facility with a bank that is secured by mortgage loans held for sale.
The warehouse facility is not guaranteed by the parent company. As of June 30,
1999, $81.9 million had been drawn under this facility with additional financing
needs provided by the Company. The Company is finalizing a new warehouse
facility that will expand this capacity significantly. It is anticipated that
all future mortgage company activities will be financed under the warehouse
facility.
On January 28, 1999, the Company acquired the operating assets of Cambridge
Properties, a partnership doing business as Cambridge Homes. In the transaction,
the Company issued 2,555,911 shares of our common stock under our shelf
registration statement, and assumed debt of approximately $103 million, which
was repaid with borrowings under our revolving credit facility.
-15-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 new 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.
During fiscal 1999, the Company's Board of Directors has declared one quarterly
cash dividend of $.0225 per common share and three quarterly cash dividends of
$.03 per common share, the last of which is payable Aug 26, 1999, to
stockholders of record on August 11, 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 take advantage of favorable market conditions, should they
occur. During the second and third fiscal quarters, the Company repurchased in
the open market an aggregate of 230,000 shares of its common stock at an average
cost of $17.29.
Except for ordinary expenditures for the construction of homes, the acquisition
of land and lots for development and sale of homes, at June 30, 1999, the
Company had no material commitments for capital expenditures.
YEAR 2000
The "Year 2000" issue (Y2K) refers to potential complications that may be caused
by computer hardware and software that were not designed for the change in the
century. If not corrected, such computer hardware and software may cause
management information systems to fail or miscalculate data.
The Company has assessed (and continues to assess) its vulnerability to Y2K.
Modifications and replacements of computer hardware and software to prepare for
Y2K are ongoing. The Company has assessed and tested its principal homebuilding
hardware and management information system and believes them to be Y2K
compliant. Evaluation, modification and testing of non-principal homebuilder
hardware and management information systems are generally complete. Such systems
are expected to be converted to the principal management information system or
Y2K modifications are expected to be completed by September 30, 1999, at a cost
of less than one million dollars.
Management information systems for the Company's financial services activities
also are being evaluated and will require modifications or upgraded software
packages that are expected to be completed by September 30, 1999, at minimal
cost.
The Company is continuing to evaluate other potential Y2K issues, including
non-management information systems. A Y2K coordinator is directing the Company's
overall effort. The Company's relationships with payroll service providers,
vendors, contractors, financial institutions and other third parties are
continuing to be reviewed to determine the impact, if any, Y2K will have on
these relationships.
The Company expects to incur Y2K specific costs in the future, but does not
anticipate that these costs will be material. It is possible that the Company
could encounter disruptions to its business that could have a material adverse
effect on its results of operations if all systems are not Y2K compliant. Also,
the Company could be materially impacted by widespread economic or financial
market disruptions or by Y2K computer system failures at government agencies on
which the Company is dependent for utilities, zoning, building permits and
related matters. There can be no assurance that Y2K will not adversely affect
the Company and its operations.
-16-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, the Company's substantial leverage,
changes in general economic and business conditions, changes in interest rates
and the availability of mortgage financing, governmental regulations and
environmental matters, changes in costs and availability of material, supplies
and labor, competitive conditions within our industry, the availability of
capital and the ability to successfully effect acquisitions.
-17-
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is subject to interest rate risk on its long term debt. The Company
manages its exposure to changes in interest rates by optimizing the use of
variable and fixed rate debt. In addition, the Company hedges its exposure to
changes in interest rates on its variable rate bank debt by entering into
interest rate swap agreements to obtain a fixed interest rate for a portion of
these borrowings.
The following table shows, as of June 30, 1999, the Company's long term debt
obligations, principal cash flows by scheduled maturity, weighted average
interest rates and estimated fair market value. In addition, the table shows the
notional amounts and weighted average interest rates of the Company's interest
rate swaps.
<TABLE>
<CAPTION>
Three Months
Ended
Sept. 30, Year ended September 30,
--------- ------------------------------------------------------------------------
($ in millions)
FMV @
1999 2000 2001 2002 2003 Thereafter Total 6/30/99
--------- --------- -------- -------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt:
Fixed rate....................... $ 3.1 $ 3.6 $ 0 $ 0 $ 0 $678.2 $684.9 $677.2
Average interest rate............ 6.00% 8.63% --- --- --- 8.81% 8.81% ---
Variable rate.................... $ 81.9 $ 0.8 $ 0 $370.0 $ 0 $ 0 $452.7 $452.7
Average interest rate............ 6.33% 8.00% --- 6.02% --- --- 5.64% ---
Interest Rate Swaps:
Variable to fixed................ $300.0 $300.0 $300.0 $200.0 $200.0 $200.0 --- $ 0.5
Average pay rate................. 5.53% 5.53% 5.36% 5.10% 5.10% 5.09% --- ---
Average receive rate............. 90 day LIBOR
</TABLE>
-18-
<PAGE>
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 June 30, 1999.
None.
-19-
<PAGE>
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: July 30, 1999 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)
-20-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From the
Consolidated Balance Sheet and Consolidates Statements of Income Found on
Pages 3 and 4 of the Company's Form 10-Q for the Year-to-date, and is
Qualified in Its Entirety by Reference to Such Financial Data.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 74,994
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,812,884
<CURRENT-ASSETS> 1,990,366
<PP&E> 37,249
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,238,938
<CURRENT-LIABILITIES> 329,501
<BONDS> 0
0
0
<COMMON> 642
<OTHER-SE> 767,408
<TOTAL-LIABILITY-AND-EQUITY> 2,238,938
<SALES> 2,176,564
<TOTAL-REVENUES> 2,202,661
<CGS> 1,787,524
<TOTAL-COSTS> 1,787,524
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,570
<INCOME-PRETAX> 182,196
<INCOME-TAX> 71,747
<INCOME-CONTINUING> 110,449
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 110,449
<EPS-BASIC> 1.79
<EPS-DILUTED> 1.75
</TABLE>
