10-QPeriod: Q3 FY2002

HORTON D R INC /DE/ Quarterly Report for Q3 Ended Jun 30, 2002

Filed August 13, 2002For Securities:DHI

Summary

D.R. Horton, Inc. (DHI) reported a strong performance for the third quarter of fiscal year 2002, ending June 30, 2002. The company demonstrated significant revenue growth, driven by robust homebuilding activity and expansion through acquisitions. Consolidated revenues surged by 61.3% year-over-year to $1.81 billion, with homebuilding revenues alone increasing by 61.5% to $1.78 billion. This growth was fueled by a substantial increase in homes closed and a higher average selling price, partly attributed to the strategic acquisition of Schuler Homes, Inc. in February 2002. The company's financial services segment also experienced considerable growth, with revenues up 51.8% to $28.9 million, benefiting from increased mortgage and title services offered to its growing homebuyer base and the impact of recent acquisitions. Despite these positive top-line trends, profitability per dollar of revenue saw a slight compression in the homebuilding segment due to purchase accounting adjustments from the Schuler acquisition. However, overall income before taxes grew significantly, reflecting the scale of operations and continued demand in the housing market.

Key Highlights

  • 1Consolidated revenues increased by 61.3% to $1.81 billion for the third quarter of fiscal year 2002 compared to the prior year.
  • 2Homebuilding revenues grew by 61.5% to $1.78 billion, with a 45.6% increase in homes closed and a 11.4% rise in average selling price per home.
  • 3The acquisition of Schuler Homes, Inc. in February 2002 significantly contributed to the company's growth, particularly in the West region with higher average selling prices.
  • 4Net new sales contracts increased by 67.5% to $2.03 billion, indicating strong future demand, with backlog value up 30.4% year-over-year.
  • 5Financial services segment revenues increased by 51.8% to $28.9 million, driven by expanded mortgage and title services.
  • 6Income before income taxes increased by 54.0% to $169.5 million for the quarter, although pre-tax profit margin slightly decreased due to acquisition-related accounting adjustments.
  • 7The company strengthened its balance sheet with an increase in stockholders' equity to total assets ratio to 37.2% and maintained significant access to capital through its revolving credit facility and other debt issuances.

Frequently Asked Questions

D.R. Horton's significant revenue growth in Q3 2002 was driven by a combination of factors including strong housing demand across most of its markets, the successful integration of acquisitions (Fortress-Florida, Emerald Builders, and notably Schuler Homes acquired in February 2002), and an increase in the average selling price of homes closed. The financial services segment also contributed to revenue growth through increased mortgage and title services.

The acquisition of Schuler Homes in February 2002 significantly boosted D.R. Horton's top-line results, particularly in the West region, by increasing the number of homes closed and raising the average selling price due to Schuler's focus on higher-priced markets. However, purchase accounting adjustments related to this acquisition, specifically the recording of Schuler's inventory at fair value, led to higher cost of sales and a slight compression in the homebuilding gross profit margin for the period.

As of June 30, 2002, D.R. Horton had $55.9 million in cash and cash equivalents. The company's financial condition appears solid, with inventories significantly increased due to business expansion and acquisitions. The stockholders' equity to total assets ratio improved to 37.2%. The company has substantial access to liquidity through an $805 million revolving credit facility and has covenants in place that limit additional debt but also show significant capacity for future borrowing if needed. The financial services segment has secured additional credit facilities to support its operations.

D.R. Horton manages interest rate risk on its debt by using a mix of fixed and variable rate debt. For variable rate debt, the company has mitigated exposure by entering into interest rate swap agreements to fix rates on a portion of its borrowings. The financial services segment also employs various hedging strategies, including forward commitments and options, to manage interest rate risk associated with its mortgage loan production activities.