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Letter to Our Stockholders:
D.R. Horton, Inc. enjoyed another exceptional year in 1996. By growing
revenues and earnings to new records, our Company achieved its 19th consecutive
year of growth and profitability and is now the twenty-second largest
homebuilder in the United States.
SINCE COMPLETING OUR INITIAL PUBLIC OFFERING IN JUNE 1992, D.R. HORTON, INC.
HAS:
. Expanded from 8 to 24 markets
. Grown its revenues from $153 million to over $547 million
. Increased net income from $8.1 million to $27.4 million
. Increased stockholders' equity from $50.2 million to $177.6 million
. Provided stockholders with an annual return on average stockholders'
equity of 20%
The growth that we have experienced since June 1992 reinforces the belief that
we can achieve our goal of $1 billion in revenues by the year 2000.
KEY FINANCIAL ACCOMPLISHMENTS IN 1996 INCLUDE:
. 33% increase in net income to $27.4 million
. 25% increase in revenues to $547.3 million (3,284 homes)
. 30% increase in new sales orders to $585.5 million (3,488 homes)
. 22% increase in year end sales backlog to $208.9 million (1,204 homes)
DURING 1996 WE ALSO WERE SUCCESSFUL IN:
. Improving our pretax earnings by 70 basis points to 8.1% of revenues. This
was accomplished by improved gross margins (20 basis points), reduced
selling, general and administrative expenses as a percentage of revenues (40
basis points), and increased other income from mortgage and title activities
(10 basis points).
. Listing our Company on the New York Stock Exchange under the symbol "DHI",
which reduced the quoted spreads on our stock and improved the execution of
stockholder transactions.
. Raising $43.2 million of additional equity by issuing additional common
stock in January 1996. This provided us with the equity necessary for our
continued growth and increased our book value per share by 18%.
. Increasing our banking relationships with credit facilities approaching $300
million, all on an unsecured basis and at improved financing rates and
terms. $100 million of this amount is a five-year term note and $150 million
is a three-year revolver. By using bank financing instead of public debt,
the Company saved over $2 million in financing costs in 1996 alone.
. Expanding our operations to Pensacola and Albuquerque, which provided new
opportunities for future growth. D.R. Horton, Inc. served 24 markets and
is one of three homebuilding companies with operations in 19 states.
. Diversifying our activities to expand on the relationships we have with our
homebuyers by creating DRH Mortgage Company, Ltd., a joint venture, which
provides mortgage financing services primarily to purchasers of homes built
and sold by the Company. We presently offer these services in our Texas and
Arizona markets, with expansion planned to other markets. Our title agency
activities also were expanded to include operations in Florida and
additional markets in Texas. We continue exploring other ways to broaden the
services we provide to our homebuyers.
. Using option contracts to control (rather than own) adequate land positions
to meet our future needs allows us to conserve our capital and reduce the
risk associated with land ownership. At September 30, 1996, D.R. Horton held
option contracts for 9,180 lots with an estimated aggregate purchase price
approximating $290 million. This represents about 64% of our total lot
position.
. Distributing an 8% stock dividend in May as a method of enhancing
stockholder value. We believe this also improves the liquidity of our common
stock.
. Establishing the D.R. Horton stock purchase plan to promote employee
purchases of D.R. Horton, Inc. common stock. Company employees own more
than 50% of the outstanding stock, thereby uniting employees and
stockholders in common goals.
COMPANY AWARDS
We reward excellence within our Company by issuing three annual awards:
. The Dallas/Fort Worth East Division, managed by Leon Horton, was named
"Division of The Year" by Mr. Horton's peer group within the Company.
. Our San Diego Division had an award winning Triana Project where the Company
enjoyed great success.
Nancy French, our sales person on this project, led the Company
by selling the highest dollar volume of homes and is our "Sales
Person of the Year".
Tom Lombardi, the construction manager for the same project,
is our "Construction Person of the Year" for supervising
construction of the most homes in 1996.
We congratulate the recipients of these awards and we emphasize that our
employees are key to the success of our Company.
THE FUTURE
D.R. Horton is well positioned to achieve its 20th consecutive year of growth
and profitability in 1997. We begin the year with a large backlog and strong
financial position. Most importantly, we have a dedicated group of employees to
accomplish our goals.
In the first three months of our 1997 fiscal year, we entered the Nashville
market and acquired substantially all the assets of SGS Communities in North and
Central New Jersey and Trimark Communities in Denver. SGS compliments our
geographic diversity and provides a vehicle for expansion into other Northeast
markets. Trimark expands our existing Denver activities by diversifying our
product offerings to include affordable townhomes and condominiums. We expect
immediate incremental earnings from these acquisitions, and now have operations
in 26 markets in 21 states.
Our history demonstrates our ability to grow by starting up operations in new
markets and successfully acquiring homebuilding companies that make immediate
contributions to our earnings. The growth of our Company through geographic
expansion is unmatched by anyone in the industry.
We are grateful for our success in 1996 and look forward to increased
profitability in the future.
/s/ Donald R. Horton
Donald R. Horton
Chairman of the Board and President
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-4112
--------------
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 Identification No.)
incorporation or organization)
1901 ASCENSION BLVD, SUITE 100 76006
ARLINGTON, TEXAS (Zip Code)
(Address of principal executive
offices)
(817) 856-8200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, par value $.01 per The New York Stock Exchange
share
(Title of Class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K ((S)229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN, AND WILL
NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K
OR ANY AMENDMENT TO THIS FORM 10-K.
YES NO X
--- ---
AS OF DECEMBER 6, 1996, THERE WERE 32,377,695 SHARES OF COMMON STOCK, PAR
VALUE $.01 PER SHARE, ISSUED AND OUTSTANDING, AND THE AGGREGATE MARKET VALUE OF
THESE SHARES HELD BY NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY
$184,851,000. SOLELY FOR PURPOSES OF THIS CALCULATION, ALL DIRECTORS AND
EXECUTIVE OFFICERS WERE EXCLUDED AS AFFILIATES OF THE REGISTRANT.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on January 23, 1997, are incorporated herein by
reference in Part III.
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PART I
ITEM 1. BUSINESS
D.R. Horton, Inc. and its operating subsidiaries are engaged primarily in the
construction and sale of single-family homes in the Mid-Atlantic, Midwest,
Southeast, Southwest and Western regions of the United States. The Company
offers high-quality homes with custom features, designed principally for the
entry-level and move-up market segments. The Company's homes generally range in
size from 1,000 to 5,000 square feet and range in price from $80,000 to
$600,000. For the year ended September 30, 1996, the Company closed homes with
an average sales price approximating $166,600.
The Company is one of the most geographically diversified homebuilders in the
United States, with operating divisions in 21 states and 26 markets. These
markets include Albuquerque, Atlanta, Austin, Birmingham, Charlotte, Chicago,
Cincinnati, Dallas/Fort Worth, Denver, Greensboro, Houston, Kansas City, Las
Vegas, Los Angeles, Minneapolis/St. Paul, Nashville, New Jersey, Orlando,
Pensacola, Phoenix, Raleigh/Durham, Salt Lake City, San Diego, South Florida,
St. Louis and suburban Washington, D.C.
The Company was incorporated in Delaware on July 1, 1991, to acquire all of
the assets and businesses of 25 predecessor companies, which were residential
home construction and development companies owned or controlled by Donald R.
Horton.
The Company's principal executive offices are located at 1901 Ascension Blvd.,
Suite 100, Arlington, Texas 76006, and its telephone number is (817) 856-8200.
OPERATING STRATEGY
The Company believes that there are several important elements to its
operating strategy which have enabled it to achieve consistent growth and
profitability. The following are important elements of this strategy:
Geographic Diversification. From 1978 to late 1987, the Company's homebuilding
activities were conducted exclusively in the Dallas/Fort Worth area. The Company
then instituted a policy of diversifying geographically and commenced operations
in late 1987 in Phoenix. The Company entered Atlanta and Orlando in 1988;
Charlotte in 1989; Houston in 1990; suburban Washington, D.C. in 1991; Chicago,
Cincinnati, Raleigh/Durham and South Florida in 1992; Austin, Los Angeles, Salt
Lake City and San Diego in 1993; Minneapolis/St. Paul, Kansas City and Las Vegas
in 1994; Birmingham, Denver, Greensboro and St. Louis in 1995; and Albuquerque
and Pensacola in 1996. In the early months of fiscal 1997, the Company announced
the commencement of operations in Nashville and North Central New Jersey. The
Company continually monitors the sales and margins achieved in each of the
subdivisions in which it operates as part of an overall evaluation of the
employment of its capital. The Company believes there are significant growth
opportunities in its existing markets, however, it intends to continue its
policy of geographic diversification by seeking to enter new markets. The
Company believes that its diversification strategy mitigates the effects of
local and regional economic cycles and enhances its growth potential. Typically,
the Company will not invest material amounts in real estate, including raw land,
developed lots, models and speculative homes, or overhead in start-up operations
in new markets until such markets demonstrate significant growth potential and
acceptance of the Company and its products.
Acquisitions -- As an integral component of the Company's operational strategy
of continued expansion and geographic diversification, the Company continually
evaluates opportunities for strategic acquisitions. The Company believes that
the expansion of its operations through the acquisition of existing homebuilding
companies affords it several benefits not found in start-up operations. Such
benefits include established land positions and inventories; existing
relationships with land owners, developers, subcontractors and suppliers; brand
name recognition; and proven product acceptance by homebuyers in the market. In
evaluating potential acquisition candidates, the Company seeks homebuilding
companies that have an excellent reputation, a track record of profitability and
a strong management team with an entrepreneurial orientation. The Company has
limited the risks associated with acquiring a going concern by conducting
extensive operational, financial and legal due diligence on each acquisition
candidate and by structuring each transaction typically as a purchase of
1
assets and assumption of only specific related liabilities. In addition, the
Company seeks to further limit acquisition risk by only acquiring homebuilding
companies that the Company believes should have an immediate positive impact on
the Company's earnings.
The Company has acquired five homebuilding companies since 1994. Joe Miller
Homes, Inc./Argus Development, Inc. in Minneapolis/St. Paul, Minnesota, were
acquired in April 1994. Arappco Inc., in Greensboro, North Carolina, and Regency
Development, Inc., in Birmingham, Alabama, were acquired in July and September,
1995, respectively. In October and December 1996 (fiscal 1997), the Company
acquired Trimark Communities, L.L.C. in Denver, Colorado and SGS Communities,
Inc. in North Central New Jersey, respectively. In both existing and new
markets, the Company anticipates that it will continue to evaluate potential
future acquisition opportunities that satisfy its acquisition criteria.
Market Focus -- Custom Features. The Company positions itself between large
volume homebuilders and local custom homebuilders by offering a broader
selection of homes that typically have more amenities and greater design
flexibility than homes offered by volume builders, at prices that are generally
more affordable than those charged by local custom builders. The Company
generally offers between five and ten home designs that it believes will appeal
to local homebuyers at each of its subdivisions, but is prepared to offer
additional building plans and options that may be more suitable or desirable to
homebuyers. The Company also is prepared to customize such designs to the
individual tastes and specifications of its homebuyers. While most design
modifications are significant to homebuyers, such changes typically involve
relatively minor adjustments including, among other things, modifying the
interior or exterior dimensions of the home and changing exterior materials.
Such changes generally improve the Company's gross margins. Consequently, the
Company believes that it is able to maintain the efficiencies of a volume
builder while delivering high-quality, personalized homes to its customers. The
Company believes that its ability to cater to the design tastes and desires of
the prospective homebuyer at competitive prices, even at the entry-level,
distinguishes it from many of its competitors.
Decentralized Operations. The Company's homebuilding activities are
decentralized to give more operating flexibility to its local division managers.
The Company's homebuilding activities are conducted through 30 operating
divisions, some of which are in the same general market area. Generally, each
operating division consists of a vice president, an office manager and staff, a
sales manager, one to eleven sales people and one construction manager, who
oversees one to nine construction supervisors. The Company believes that
division managers, who are intimately familiar with local conditions, make
better decisions regarding local operations than do the centralized, corporate
management teams who make such decisions for many of our competitors. Each
operating division is responsible for preliminary site selection, negotiation of
option or similar contracts, and overseeing land development activities. Site
selection and lot acquisition typically involve a feasibility study by the
operating division, including soil and environmental reviews, a review of
existing zoning and other governmental requirements, and a review of the need
for and extent of offsite work and additional lot preparation required to meet
local building codes. Each operating division also plans its homebuilding
schedule, selects the building plans and architectural scheme for its
subdivisions, obtains all necessary building approvals, and develops a marketing
plan for its homes. Division managers receive performance bonuses based upon
achieving targeted operating levels in their operating divisions.
The Company's corporate office controls key risk elements by retaining
oversight and responsibility for final approval of all land and lot
acquisitions, inventory levels, financing arrangements, accounting and
management reporting, payment of subcontractor invoices, payroll and employee
benefits.
Cost Management. The Company strives to control its overhead costs by
centralizing its administrative and accounting functions and by limiting the
number of field administrative personnel and middle level management positions.
The Company also attempts to minimize advertising costs by participating in
promotional activities, publications and newsletters sponsored by local real
estate brokers, mortgage companies, utility companies and trade associations,
and, in certain instances, by positioning its subdivisions in conspicuous
locations that permit it to take advantage of local traffic patterns.
The Company attempts to control construction costs through the efficient
design of its homes and by obtaining favorable pricing from certain
subcontractors based on the high volume of work they perform for the Company.
2
The Company's management information systems, including the purchase order
system, also assist in controlling construction costs by allowing corporate and
division management to monitor expenditures on a home-by-home basis. In
addition, the Company's management information systems allow the Company to
monitor its inventory composition and levels, thereby controlling capital and
overhead costs.
Limited Real Estate Exposure. The Company generally acquires developed
building lots pursuant to lot option and similar contracts after all zoning and
other governmental entitlements and approvals are obtained. By utilizing lot
option contracts, the Company purchases the right, but not the obligation, to
buy building lots at predetermined prices on a takedown schedule commensurate
with anticipated home closings. The lot option contracts are generally on a
nonrecourse basis, thereby limiting the Company's financial exposure to earnest
money deposits given to property sellers. This practice enables the Company to
control significant lot positions with minimal up front capital and
substantially reduces the risks associated with land ownership and development.
The Company attempts to control a two to four year supply of building lots
within each market based on current and expected absorption rates. At September
30, 1996, the Company held lot option and similar contracts for 9,180 lots with
an estimated aggregate purchase price approximating $290 million. These options
are secured by cash deposits approximating $3.6 million and promissory notes
approximating $1.4 million.
MARKETS
The Company's homebuilding activities are conducted in five geographic
regions, comprised of the following markets:
GEOGRAPHIC REGION MARKETS
----------------- -------
Mid-Atlantic...... Charlotte, Greensboro, North Central New Jersey,
Raleigh/Durham, Suburban Washington, D.C.
Chicago, Cincinnati, Kansas City, Minneapolis/St. Paul,
Midwest........... St. Louis
Atlanta, Birmingham, Nashville, Orlando, Pensacola, South
Southeast......... Florida
Southwest......... Albuquerque, Austin, Dallas/Fort Worth, Houston, Phoenix
Western........... Denver, Las Vegas, Los Angeles, Salt Lake City, San Diego
The Company's operations in each of its markets differ based on a number of
market-specific factors. These factors include regional economic conditions and
job growth, land availability and the local land development process, consumer
tastes, competition from other builders of new homes and secondary home sales
activity. The Company considers each of these factors when entering new markets
or conducting operations in existing markets.
Revenues for the Company by geographic region are:
YEAR ENDED SEPTEMBER 30,
--------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
Mid-Atlantic...................................... $121,829 $113,251 $116,452
Midwest........................................... 54,072 69,929 88,461
Southeast......................................... 53,384 49,291 87,181
Southwest......................................... 139,420 153,074 173,802
Western........................................... 24,612 51,843 81,440
-------- -------- --------
Total........................................... $393,317 $437,388 $547,336
======== ======== ========
Land Policies
While the Company expects to continue to rely predominantly on lot option and
similar contracts to secure developed lots, it will pursue selected land
acquisition and development opportunities to augment its inventory of low-cost,
quality building lots and to maximize profit opportunities. Substantially all of
the land acquired by the Company is purchased only after necessary entitlements
have been obtained so that the Company has the right to begin development or
construction. The Company generally limits its acquisitions to smaller tracts of
entitled land that will yield under 150 lots when developed and, where possible,
obtains options to acquire adjacent parcels for later development. By limiting
3
its acquisition and development activities to smaller parcels of land, the
Company reduces the financial and market risks associated with holding land
during the development period. Before it acquires tracts of land, the Company
will, among other things, complete a feasibility study, which includes soil
tests, independent environmental studies and other engineering work, and
determine that all necessary zoning and other governmental entitlements required
to develop and use the property for home construction have been acquired. At
September 30, 1996, only about 36% of the Company's total lot position of 14,350
lots was being or had been developed by the Company. Although the Company
purchases land and engages in land development activities primarily to support
its own homebuilding activities, lots and land are occasionally sold to other
developers and homebuilders.
The following table sets forth a summary of the Company's land/lot positions
at September 30, 1996:
Finished lots owned by the Company.................................... 968
Lots under development owned by the Company........................... 4,202
------
Total owned lots.................................................... 5,170
Lots available under lot option and similar contracts................. 9,180
------
Total land/lot position............................................. 14,350
======
The Company also seeks to limit its exposure to real estate inventory risks by
(i) generally commencing construction of homes under contract only after receipt
of a satisfactory down payment and, where applicable, the buyer's receipt of
mortgage approval, (ii) limiting the number of speculative homes (homes started
without an executed sales contract) built in each subdivision, and (iii) closely
monitoring local market and demographic trends, housing preferences and related
economic developments, such as new job opportunities, local growth initiatives
and personal income trends.
CONSTRUCTION
The Company's home designs are prepared by architects in each of the Company's
markets to appeal to the local tastes and preferences of the community. Optional
interior and exterior features also are offered by the Company to enhance the
basic home design and to promote the custom aspect of the Company's sales
efforts.
Substantially all of the Company's construction work is performed by
subcontractors. The Company's construction supervisors monitor the construction
of each home, participate in material design and building decisions, coordinate
the activities of subcontractors and suppliers, subject the work of
subcontractors to quality and cost controls and monitor compliance with zoning
and building codes. Subcontractors typically are retained for a specific
subdivision pursuant to a contract that obligates the subcontractor to complete
construction at a fixed price. Agreements with the Company's subcontractors and
suppliers generally are negotiated for each subdivision. The Company competes
with other homebuilders for qualified subcontractors, raw materials and lots in
the markets where it operates.
Construction time for the Company's homes depends on the weather, availability
of labor, materials and supplies, and other factors. The Company typically
completes the construction of a home within four months.
The Company does not maintain significant inventories of construction
materials, except for work in process materials for homes under construction.
Typically, the construction materials used in the Company's operations are
readily available from numerous sources. The Company does not have any long-term
contracts with suppliers of its building materials. In recent years, the Company
has not experienced any significant delays in construction due to shortages of
materials or labor.
MARKETING AND SALES
The Company markets and sells its homes through commissioned employees and
independent real estate brokers. Home sales are typically conducted from sales
offices located in furnished model homes used in each subdivision. At September
30, 1996, the Company owned 223 model homes. These model homes generally are
4
not offered for sale until the completion of the respective subdivision. The
Company's sales personnel assist prospective homebuyers by providing them with
floor plans, price information, tours of model homes and the selection of
options and other custom features. Such personnel are trained by the Company and
kept informed as to the availability of financing, construction schedules and
marketing and advertising plans.
In addition to using model homes, the Company typically builds a limited
number of speculative homes in each subdivision to enhance its marketing and
sales activities. Construction of these speculative homes also is necessary to
satisfy the requirements of relocated personnel and independent brokers, who
often represent homebuyers requiring a completed home within 60 days. A majority
of these speculative homes are sold while under construction or immediately
following completion. The number of speculative homes is influenced by local
market factors, such as new employment opportunities, significant job
relocations, growing housing demand and the length of time the Company has built
in the market. Depending upon the seasonality of each of its markets, the
Company seeks to limit its speculative homes to approximately five homes per
subdivision. At September 30, 1996, the Company was operating in 184
subdivisions and averaged under five speculative homes in each subdivision.
The Company advertises on a limited basis in newspapers and in real estate
broker, mortgage company and utility publications, brochures, newsletters and
billboards. To minimize advertising costs, the Company attempts to operate in
subdivisions in conspicuous locations that permit it to take advantage of local
traffic patterns. The Company also believes that model homes play a significant
role in its marketing efforts. Consequently, the Company expends significant
efforts in creating an attractive atmosphere in its model homes.
Sales of the Company's homes generally are made pursuant to a standard sales
contract which requires a down payment of 5% to 10% of the sales price. The
contract includes a financing contingency which permits the customer to cancel
in the event mortgage financing at prevailing interest rates is unobtainable
within a specified period, typically four to six weeks, and may include other
contingencies, such as the sale of an existing home. The Company includes a home
sale in its sales backlog upon execution of the sales contract and receipt of
the initial down payment. The Company does not recognize revenue upon the sale
of a home until the home is closed and title passes. The Company estimates that
the average period between the execution of a sales contract for a home and
closing is approximately three to five months for presold homes.
CUSTOMER SERVICE AND QUALITY CONTROL
The Company's operating divisions are responsible for pre-closing, quality
control inspections and responding to customers' post-closing needs. The Company
believes that prompt and courteous response to homebuyers' needs during and
after construction reduces post-closing repair costs, enhances the Company's
reputation for quality and service, and ultimately leads to significant repeat
and referral business from the real estate community and homebuyers. The Company
provides its homebuyers with a limited one-year warranty on workmanship and
building materials. The subcontractors who perform most of the actual
construction, in turn provide warranties of workmanship to the Company, and
generally are prepared to respond to the Company and homeowner promptly upon
request. In most cases, the Company supplements its one-year warranty by
purchasing a ten-year limited warranty from a third party. To cover its
potential warranty obligations, the Company accrues an estimated amount for
future warranty costs.
CUSTOMER FINANCING
In 1996, the Company formed D.R. Horton Mortgage Company, Ltd., a joint
venture with a third party, to provide mortgage financing services, principally
to purchasers of homes built and sold by the Company. D.R. Horton Mortgage
presently provides services in Dallas/Fort Worth, Austin, Houston and Phoenix.
In its other markets, the Company does not underwrite or otherwise provide
mortgage financing. The Company works with a variety of mortgage lenders that
make available to homebuyers a range of conventional mortgage financing
programs. By making information about these programs available to prospective
homebuyers and maintaining a relationship with such mortgage lenders, the
Company is able to coordinate and expedite the entire sales transaction by
5
ensuring that mortgage commitments are received and that closings take place on
a timely and efficient basis.
TITLE SERVICES
Through its wholly owned subsidiaries, DRH Title Company of Texas, Ltd. and
DRH Title Company of Florida, Inc., the Company serves as a title insurance
agent by providing title insurance policies and closing services to purchasers
of homes built and sold by the Company in the Dallas/Fort Worth, Austin and
Florida markets. The Company assumes no underwriting risk associated with these
title policies.
EMPLOYEES
At September 30, 1996, the Company employed 612 persons, of whom 203 were
sales and marketing personnel, 199 were executive, administrative and clerical
personnel, 198 were involved in construction, and 12 worked in title operations.
Fewer than 10 of the Company's employees are covered by collective bargaining
agreements. Certain of the subcontractors which the Company engages are
represented by labor unions or are subject to collective bargaining agreements.
The Company believes that its relations with its employees and subcontractors
are good.
ITEM 2. PROPERTIES
The Company owns a 52,000 square foot office complex, consisting of three
single-story buildings of steel and brick construction, located in Arlington,
Texas, that serves as the Company's principal executive offices and houses two
of the Company's Dallas/Fort Worth divisions. The Company also leases
approximately 52,100 square feet of space for its operating divisions under
leases expiring between November 1996 and July 2001.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business. Such
matters, if decided adversely to the Company, would not, in the opinion of
management, have a material adverse effect upon the financial condition of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock (the "Common Stock") is listed on the New York
Stock Exchange under the symbol "DHI". The following table sets forth the high
and low sales prices for the Common Stock for the periods indicated, as reported
on the NASDAQ National Market (through December 13, 1995) and on the New York
Stock Exchange on and after December 14, 1995, adjusted for the 9% stock
dividend of June 1995, the seven for five stock split (effected as a 40% stock
dividend) of September 1995 and the 8% stock dividend of May 1996.
YEAR ENDED SEPTEMBER 30,
------------------------------------
1995 1996
----------------- ------------------
HIGH LOW HIGH LOW
--------- ------- --------- --------
Quarter Ended December 31............... $ 8 5/16 $5 3/8 $11 $8 15/16
Quarter Ended March 31.................. 6 5/16 5 5/16 11 15/16 8 15/16
Quarter Ended June 30................... 8 15/16 6 9/16 10 5/8 8 5/8
Quarter Ended September 30.............. 10 1/2 8 1/2 10 3/8 7 1/2
As of September 30, 1996, there were approximately 189 holders of record. No
cash dividends have been declared since the completion of the initial public
offering.
6
The declaration of cash dividends is at the discretion of the Company's Board
of Directors and will depend upon, among other things, future earnings, cash
flows, capital requirements, the general financial condition of the Company and
general business conditions. Other than as required to maintain the financial
ratios and net worth requirements under the credit facilities, there are no
restrictions on the payment of cash dividends by the Company.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company are
qualified by reference to and should be read in conjunction with the
consolidated financial statements, related notes thereto and other financial
data included elsewhere herein. These historical results are not necessarily
indicative of the results to be expected in the future.
In 1993, the Company changed its fiscal year end to September 30, thus
operating information for the nine months then ended represents the Company's
fiscal period.
PERIODS ENDED SEPTEMBER 30,
----------------------------------
NINE
YEAR ENDED MONTHS YEARS
DECEMBER 31, ------ ---------------------------
1992 1993 1993 1994 1995 1996
------------- ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT NET INCOME PER SHARE)
INCOME STATEMENT DATA:
Revenues................ $182.6 $190.1 $248.2 $393.3 $437.4 $547.3
Net Income.............. 9.2 8.9 12.2 17.7 20.5 27.4
Net Income per
share(1)............... .38 .32 .44 .63 .74 .87
AS OF AS OF SEPTEMBER 30,
DECEMBER 31, ---------------------------
1992 1993 1994 1995 1996
------------- ------ ------ ------ ------
(IN MILLIONS) (IN MILLIONS)
BALANCE SHEET DATA:
Inventories............. $ 90.4 $129.0 $204.1 $282.9 $345.3
Total Assets............ 104.3 158.7 230.9 318.8 402.9
Notes Payable........... 31.6 62.2 108.6 169.9 169.9
Stockholders' Equity.... 55.9 65.9 84.6 106.1 177.6
- --------
(1) Adjusted for stock dividends of 5% in 1993, 6% in 1994, 9% and 40% in 1995,
and 8% in 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following tables set forth certain information regarding the Company's
operations for the periods indicated.
PERCENTAGES OF REVENUE
-------------------------
YEAR ENDED
SEPTEMBER 30,
-------------------------
1994 1995 1996
------- ------- -------
Costs and Expenses:
Cost of sales................................... 82.9% 82.2% 82.0%
Selling, general and administrative expenses.... 9.9 10.2 9.8
Interest expense................................ -- 0.3 0.3
------- ------- -------
Total costs and expenses......................... 92.8 92.7 92.1
Other (income)................................... (0.1) (0.1) (0.2)
Income before income taxes....................... 7.3 7.4 8.1
Income taxes..................................... 2.8 2.7 3.1
------- ------- -------
Net income....................................... 4.5% 4.7% 5.0%
======= ======= =======
7
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
HOMES HOMES HOMES
HOMES CLOSED CLOSED PERCENT CLOSED PERCENT CLOSED PERCENT
- ------------ ------ -------- ------ -------- ------ --------
Mid-Atlantic (Charlotte,
Greensboro, Raleigh/Durham,
Suburban Washington,
D.C.)...................... 442 18.7% 436 17.6% 547 16.7%
Midwest (Chicago,
Cincinnati, Kansas City,
Minneapolis/St. Paul, St.
Louis)..................... 286 12.1 348 14.1 457 13.9
Southeast (Atlanta,
Birmingham, Orlando,
Pensacola, South Florida).. 398 16.9 303 12.2 519 15.8
Southwest (Albuquerque,
Austin, Dallas/Fort Worth,
Houston, Phoenix).......... 1,108 47.0 1,131 45.7 1,239 37.7
Western (Denver, Las Vegas,
Los Angeles, Salt Lake
City, San Diego)........... 126 5.3 256 10.4 522 15.9
----- -------- ----- -------- ----- --------
2,360 100.0% 2,474 100.0% 3,284 100.0%
===== ======== ===== ======== ===== ========
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
HOMES HOMES HOMES
NEW SALES CONTRACTS SOLD $ SOLD $ SOLD $
- ------------------- ------ -------- ------ -------- ------ --------
($ IN THOUSANDS)
Mid-Atlantic (Charlotte,
Greensboro, Raleigh/Durham,
Suburban Washington,
D.C.)...................... 402 $113,434 403 $103,952 495 $106,908
Midwest (Chicago,
Cincinnati, Kansas City,
Minneapolis/St. Paul, St.
Louis)..................... 272 51,890 339 68,675 527 100,990
Southeast (Atlanta,
Birmingham, Orlando,
Pensacola, South Florida).. 346 48,073 371 64,654 493 80,104
Southwest (Albuquerque,
Austin, Dallas/ Fort Worth,
Houston, Phoenix).......... 1,138 149,023 1,148 155,202 1,311 190,006
Western (Denver, Las Vegas,
Los Angeles, Salt Lake
City, San Diego)........... 169 32,167 292 56,777 662 107,481
----- -------- ----- -------- ----- --------
2,327 $394,587 2,553 $449,260 3,488 $585,489
===== ======== ===== ======== ===== ========
AS OF SEPTEMBER 30,
-------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
YEAR END SALES BACKLOG HOMES $ HOMES $ HOMES $
- ---------------------- ------ -------- ------ -------- ------ --------
($ IN THOUSANDS)
Mid-Atlantic (Charlotte,
Greensboro, Raleigh/Durham,
Suburban Washington,
D.C.)...................... 137 $ 42,886 198 $ 43,949 146 $ 34,405
Midwest (Chicago,
Cincinnati, Kansas City,
Minneapolis/St. Paul, St.
Louis)..................... 123 23,585 114 22,332 184 34,861
Southeast (Atlanta,
Birmingham, Orlando,
Pensacola, South Florida).. 68 10,216 190 33,557 164 26,479
Southwest (Albuquerque,
Austin, Dallas/Fort Worth,
Houston, Phoenix).......... 400 56,004 417 58,132 489 74,336
Western (Denver, Las Vegas,
Los Angeles, Salt Lake
City, San Diego)........... 45 7,833 81 12,766 221 38,807
----- -------- ----- -------- ----- --------
773 $140,524 1,000 $170,736 1,204 $208,888
===== ======== ===== ======== ===== ========
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATION AND FINANCIAL CONDITION
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
Revenues increased by 25.1% to $547.3 million in 1996 from $437.4 million in
1995. The number of homes closed by the Company increased by 32.7%, to 3,284
homes in 1996 from 2,474 homes in 1995. Home closings increased in all of the
Company's market regions, with percentage increases ranging from 9.5% in the
Southwest region to 103.9% in the Western region. Of the 32.7% increase in 1996
home closings, 13.4% was the result of acquisitions made in Greensboro and
Birmingham in the last quarter of 1995. The 1996 increase in revenues was
achieved in spite of a 4.1% decrease in the average selling price of homes
closed, to $166,600 in 1996 from $173,700 in 1995. The decrease was due to
changes in the geographic mix of homes closed within the Company and different
price points in certain markets.
New net sales contracts increased 36.6% to 3,488 homes in 1996 from 2,553 in
1995. Percentage increases in new net sales contracts ranging from 126.7% to
14.2% were achieved in the Company's market regions. The 1996 average sales
price was $167,900, compared to $176,000 in 1995.
The Company was operating in 184 subdivisions at September 30, 1996, compared
to 162 at September 30, 1995. At September 30, 1996, the Company's backlog of
sales contracts was 1,204 homes, a 20.4% increase over the comparable figure at
September 30, 1995. The average sales price of homes in backlog increased to
$173,500 at September 30, 1996, from $170,700 at September 30, 1995.
Cost of sales increased by 24.8%, to $449.1 million in 1996 from $359.7
million in 1995. As a percentage of revenues, cost of sales decreased by 0.2%,
to 82.0% in 1996 from 82.2% in 1995. This improvement resulted from good market
conditions during the year, proactive efforts to maintain sales prices and
control costs, and higher margins on homes closed on internally developed lots.
The Company does not capitalize pre-opening costs for new subdivisions.
Selling, general and administrative (SG&A) expense increased by 20.9%, to
$53.9 million in 1996 from $44.5 million in 1995. The increase in SG&A expense
was due largely to the increases in sales and construction activity required to
sustain the higher levels of revenues. SG&A expense as a percentage of revenues
decreased by 0.4%, to 9.8% in 1996 from 10.2% in 1995, as the Company was
successful in controlling its variable overhead costs while the revenue increase
offset more fixed costs.
Interest expense increased to $1.5 million in 1996, from $1.2 million in 1995,
caused by average interest-bearing debt growing at a slightly faster pace than
the average amount of inventory under construction and development. The Company
follows a policy of capitalizing interest only on inventory under construction
or development. During both 1996 and 1995, a portion of incurred interest and
other financing costs could not be charged to inventory and was expensed.
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, pretax earnings from
the Company's title operations and, in 1996, pretax earnings from the Company's
mortgage operations, increased to $1.5 million in 1996, from $0.6 million in
1995. The increase was due primarily to the fact that 1996 comprised a full year
of operations for DRH Title Company of Texas, Ltd., compared to only six months
in 1995. Additionally, DRH Title Company of Florida, Inc., and DRH Mortgage
Company, Ltd. commenced operation in 1996 and provided pretax earnings.
The provision for income taxes increased 41.9%, to $17.1 million in 1996 from
$12.0 million in 1995, due in part to the corresponding increase in income
before income taxes. The effective tax rate increased to 38.4% in 1996 from
36.9% in 1995. As a percentage of revenues, the income tax provision increased
0.4% to 3.1% in 1996. The increases in the effective tax rate and in the tax
provision as a percentage of revenues were due primarily to higher expected
rates of state and local income taxes.
9
YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994
Revenues increased by 11.2%, to $437.4 million in 1995 from $393.3 million in
1994. The number of homes closed by the Company increased by 4.8% to 2,474 homes
in 1995 from 2,360 homes in 1994, led by a 103.2% increase in the Company's
Western region and a 21.7% increase in the Company's Midwest region. The large
increase in the Western region resulted from earlier investments incurred to
enter markets within this region and illustrates a normal progression for newer
markets. The 1995 increase in revenues also was due in part to a 4.3% increase
in the average selling price of homes closed, to $173,700 in 1995 from $166,600
in 1994. The increase was due primarily to changes in the geographic mix of
homes closed within the Company, as homes closed in the newer markets were at
higher prices. Miscellaneous land/lot sales in 1995 and the impact of
acquisitions also contributed to the increase in revenues.
New net sales contracts increased by 9.7%, to 2,553 homes in 1995 from 2,327
in 1994. Percentage increases in new net sales contracts were achieved in all of
the Company's market regions, led by 72.8% and 24.6% increases in the Western
and Midwest regions, respectively. The 1995 average selling price was $176,000,
compared to $169,600 in 1994.
The Company was operating in 162 subdivisions at September 30, 1995, compared
to 137 at September 30, 1994. At September 30, 1995, the Company's backlog of
sales contracts was 1,000 homes, a 29.4% increase over the comparable figure at
September 30, 1994. The average sales price of homes in backlog decreased to
$170,700 at September 30, 1995, from $181,800 at September 30, 1994.
Cost of sales increased by 10.3%, to $359.7 million in 1995 from $326.1
million in 1994. As a percentage of revenues, cost of sales decreased by 0.7%,
to 82.2% in 1995 from 82.9% in 1994. This improvement resulted from proactive
efforts to maintain sales prices and control costs, higher margins on homes
closed on internally developed lots, and miscellaneous land/lot sales. The
Company does not capitalize pre-opening costs for new subdivisions.
Selling, general and administrative (SG&A) expense increased by 14.0%, to
$44.5 million in 1995 from $39.1 million in 1993. The increase in SG&A expense
was due largely to the increases in sales and construction activity required to
sustain the higher levels of revenues. SG&A expense as a percentage of revenues
increased by 0.3%, to 10.2% in 1995 from 9.9% in 1994, due partly to costs
associated with expansion into new markets which had not yet generated
significant revenues.
Interest expense totalled $1.2 million in 1995, compared to none in 1994. The
Company follows a policy of capitalizing interest only on inventory under
construction or development. During 1995, the Company expensed a portion of
incurred interest and other financing costs due to increased levels of developed
lots and finished homes. During the 1994 period, all such costs were capitalized
in inventory. Capitalized interest and other financing costs are included in
cost of sales at the time of home closings.
Other income, which consisted mainly of interest income and pretax earnings of
DRH Title Company of Texas, Ltd. in 1995, increased to $621,000 in 1995, from
$446,000 in 1994.
The provision for income taxes increased 10.0%, to $12.0 million in 1995 from
$10.9 million in 1994, due primarily to the corresponding increase in income
before income taxes. The effective tax rate decreased to 36.9% in 1995 from
38.2% in 1994. As a percentage of revenues, the income tax provision decreased
by 0.1% to 2.7% in 1995. The decreases in the effective tax rate and in the tax
provision as a percentage of revenues were due primarily to the effects of
certain tax planning strategies relating to state income taxes.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company believes it has adequate financial resources and sufficient credit
lines to meet its working capital needs. At September 30, 1996, the Company had
available cash and cash equivalents of $32.5 million. Inventories (including
finished homes and construction in progress, residential lots developed and
10
under development, and land) had increased by 22.0%, to $345.3 million, from
$282.9 million at September 30, 1995. The increase was due to higher business
activity and the fact that the Company was operating in a greater number of
markets and subdivisions. In several markets, the Company is limited in its
ability to acquire finished lots under option contracts, which results in an
increase in residential lot inventory. The Company financed the inventory
increase by borrowing under credit facilities, retaining earnings, and the $43.2
million net proceeds of a public stock offering in January 1996. The Company's
ratio of notes payable to total capital decreased to 48.9% at September 30,
1996, from 61.6% at September 30, 1995. The equity to total assets ratio
increased during the year to 44.1% at September 30, 1996, from 33.3% at
September 30, 1995.
The Company's financing needs depend upon the results of its operations, sales
volume, inventory levels, inventory turnover, and acquisitions of other
homebuilding companies. The Company has financed its operations by borrowing
from financial institutions, by retaining earnings and from the sale of common
stock. Common stock options exercised in 1994, 1995 and 1996, provided funding
of $0.9 million, $0.8 million and $0.7 million, respectively.
Beginning in 1994, the Company began acquiring the principal assets of other
homebuilding companies, and had made three acquisitions through September 30,
1996. Two additional acquisitions were completed in October and December of
1996, the first three months of the Company's 1997 fiscal year. To date, all
acquisitions have been for cash with the assumption of certain liabilities,
typically trade accounts and notes payable. The acquisitions have been funded
through working capital and borrowings under existing credit facilities.
During April 1996, the Company entered a new facility with eight financial
institutions to provide unsecured borrowings. At September 30, 1996, the Company
had outstanding debt of $169.9 million. The majority of that amount represents
borrowings under the terms of the Company's new $260 million unsecured bank
credit facility, which has multi-year terms. The Company also has $47.5 million
in additional borrowing capacity under separate unsecured bank revolving credit
facilities with annual terms. The completion of the public sale of common stock
in January 1996 and the new credit facilities provide the Company with a strong
financial position, with resources adequate to fund near-term growth objectives.
To secure the Company's performance under its contractual development and
building obligations, the Company obtained performance bonds and letters of
credit for the benefit of third parties (principally municipalities in which the
Company conducts homebuilding activities) approximating $21.7 million and $5.2
million, respectively, at September 30, 1996.
The Company's rapid growth requires significant amounts of cash. It is
anticipated that future home construction, lot and land purchases and
acquisitions will be funded through internally generated funds and new and
existing lending relationships. The Company continuously evaluates its capital
structure and in the future, may seek to increase unsecured debt and obtain
additional equity to further solidify the capital structure or to provide funds
for acquisitions.
Except for ordinary expenditures for the construction of homes and, to a
limited extent, the acquisition of land and lots for development and sale of
homes, at September 30, 1996, the Company had no material commitments for
capital expenditures.
Inflation
The Company, as well as the homebuilding industry in general, may be adversely
affected during periods of high inflation, primarily because of higher land and
construction costs. Inflation also increases the Company's financing, labor and
material costs. In addition, higher mortgage interest rates significantly affect
the affordability of permanent mortgage financing to prospective homebuyers. The
Company attempts to pass through to its customers any increases in its costs
through increased sales prices and, to date, inflation has not had a material
adverse effect on the Company's results of operations. However, there is no
assurance that inflation will not have a material adverse impact on the
Company's future results of operations.
11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Auditors........................................... 13
Consolidated Balance Sheets, September 30, 1996 and 1995................. 14
Consolidated Statements of Income for the three years ended September 30,
1996.................................................................... 15
Consolidated Statements of Stockholders' Equity for the three years ended
September 30, 1996...................................................... 16
Consolidated Statements of Cash Flows for the three years ended September
30, 1996................................................................ 17
Notes to Consolidated Financial Statements............................... 18
12
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
D.R. Horton, Inc.
We have audited the accompanying consolidated balance sheets of D. R.
Horton, Inc. and subsidiaries as of September 30, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended September 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of D. R. Horton, Inc.
and subsidiaries at September 30, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
November 8, 1996
Fort Worth, Texas
13
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
-----------------
1995 1996
-------- --------
(IN THOUSANDS)
ASSETS
Cash......................................................... $ 16,737 $ 32,467
Inventories:
Finished homes and construction in progress................. 182,772 216,264
Residential lots -- developed and under development......... 98,824 127,707
Land held for development................................... 1,312 1,312
-------- --------
282,908 345,283
Property and equipment (net)................................. 5,359 5,631
Earnest money deposits and other assets...................... 10,680 15,247
Excess of cost over net assets acquired (net)................ 3,103 4,285
-------- --------
$318,787 $402,913
======== ========
LIABILITIES
Accounts payable............................................. $ 29,312 $ 34,391
Accrued expenses and customer deposits....................... 13,523 21,011
Notes payable................................................ 169,879 169,873
-------- --------
212,714 225,275
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 30,000,000 shares autho-
rized, no shares issued..................................... -- --
Common stock, $.01 par value, 100,000,000 shares authorized,
25,437,067 shares in 1995 and 32,362,036 in 1996, issued and
outstanding................................................. 254 324
Additional capital........................................... 91,635 159,714
Retained earnings............................................ 14,184 17,600
-------- --------
106,073 177,638
-------- --------
$318,787 $402,913
======== ========
See accompanying notes to consolidated financial statements.
14
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1994 1995 1996
-------------- -------------- --------------
(IN THOUSANDS, EXCEPT NET INCOME PER SHARE)
Revenues....................... $393,317 $437,388 $547,336
Cost of sales.................. 326,099 359,742 449,054
-------------- -------------- --------------
67,218 77,646 98,282
Selling, general and adminis-
trative expense............... 39,073 44,549 53,860
-------------- -------------- --------------
Operating income............... 28,145 33,097 44,422
Other:
Interest expense.............. -- (1,161) (1,474)
Other income.................. 446 621 1,484
-------------- -------------- --------------
446 (540) 10
-------------- -------------- --------------
INCOME BEFORE INCOME TAXES... 28,591 32,557 44,432
Provision for income taxes..... 10,928 12,018 17,053
-------------- -------------- --------------
NET INCOME................... $ 17,663 $ 20,539 $ 27,379
============== ============== ==============
Net income per share........... $ 0.63 $ 0.74 $ 0.87
============== ============== ==============
Weighted average number of
shares of common stock
outstanding, including common
stock equivalents............. 27,845 27,849 31,420
============== ============== ==============
See accompanying notes to consolidated financial statements.
15
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TOTAL
COMMON ADDITIONAL RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
(IN THOUSANDS)
Balances at October 1, 1993.......... $155 $ 61,305 $ 4,413 $ 65,873
Net income.......................... -- -- 17,663 17,663
Exercise of stock options (109,860
shares)............................ 1 907 -- 908
Issuance under D.R. Horton, Inc.
employee benefit plans (7,200
shares)............................ -- 110 -- 110
Six percent stock dividend.......... 9 11,225 (11,235) (1)
---- -------- -------- --------
Balances at September 30, 1994....... 165 73,547 10,841 84,553
Net income.......................... -- -- 20,539 20,539
Exercise of stock options (116,400
shares)............................ 1 772 -- 773
Issuances under D.R. Horton, Inc.
employee benefit plans (20,549
shares)............................ -- 208 -- 208
Nine percent stock dividend......... 15 17,181 (17,196) --
Seven for five stock split.......... 73 (73) -- --
---- -------- -------- --------
Balances at September 30, 1995....... 254 91,635 14,184 106,073
Net income.......................... -- -- 27,379 27,379
Stock sold through public offering
(4,375,000 shares)................. 44 43,149 -- 43,193
Exercise of stock options (124,619
shares)............................ 1 696 -- 697
Issuances under D.R. Horton, Inc.
employee benefit plans (29,300
shares) ........................... 1 296 -- 297
Eight percent stock dividend........ 24 23,938 (23,963) (1)
---- -------- -------- --------
Balances at September 30, 1996....... $324 $159,714 $ 17,600 $177,638
==== ======== ======== ========
See accompanying notes to consolidated financial statements.
16
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
------------------------------
1994 1995 1996
-------- --------- ---------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income.................................... $ 17,663 $ 20,539 $ 27,379
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization................ 1,190 2,025 2,583
Expense associated with issuance of stock
under certain D.R. Horton employee benefit
plans....................................... 110 208 229
Changes in operating assets and liabilities:
Increase in inventories..................... (61,234) (56,401) (62,375)
Increase in earnest money deposits and other
assets..................................... (393) (910) (4,271)
Increase (decrease) in accounts payable,
accrued expenses and customer deposits..... (1,317) 2,197 12,567
-------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES.......... (43,981) (32,342) (23,888)
-------- --------- ---------
INVESTING ACTIVITIES
Net purchase of property and equipment........ (2,563) (2,414) (2,667)
Net cash paid for acquisitions................ (3,583) (4,577) (1,370)
-------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES.......... (6,146) (6,991) (4,037)
-------- --------- ---------
FINANCING ACTIVITIES
Proceeds from notes payable................... 133,297 232,964 238,987
Repayment of notes payable.................... (92,791) (188,857) (239,289)
Proceeds from common stock offerings,
including stock associated with certain
employee benefit plans....................... -- -- 43,260
Proceeds from exercise of stock options....... 907 773 697
-------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES...... 41,413 44,880 43,655
-------- --------- ---------
INCREASE (DECREASE) IN CASH................ (8,714) 5,547 15,730
Cash at beginning of year...................... 19,904 11,190 16,737
-------- --------- ---------
Cash at end of year............................ $ 11,190 $ 16,737 $ 32,467
======== ========= =========
Supplemental cash flow information:
Interest paid................................. $ 7,059 $ 11,689 $ 14,628
======== ========= =========
Income taxes paid............................. $ 11,561 $ 11,336 $ 16,143
======== ========= =========
See accompanying notes to consolidated financial statements.
17
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business. The Company is engaged primarily in the construction and sale of
single-family housing in 19 states in the United States. The Company designs,
builds and sells single-family houses on finished lots which it purchases ready
for home construction or which it develops. The Company purchases undeveloped
land to develop into finished lots for future construction of single-family
houses and for sale to others. The Company also provides title agency and
mortgage services in selected markets; however, such activities are not material
to the consolidated operating results of the Company.
Principles of Consolidation: The consolidated financial statements include
the accounts of D.R. Horton, Inc. (the Company) and its subsidiaries, all of
which are wholly owned. Intercompany accounts and transactions have been
eliminated in consolidation.
Accounting Principles: The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Statements of Financial Accounting Standards: During the fourth quarter of
1996, the Company elected to adopt Statement of Financial Accounting Standards
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("FAS 121") retroactive to October 1, 1995. The
adoption of FAS 121 did not impact the Company's results of operations or
financial position and did not result in a restatement of any of the financial
results for fiscal 1996. The Company believes the adoption of FAS 121 would not
have had an effect on financial results in fiscal 1995 and 1994 had FAS 121 been
adopted in those years.
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation" ("FAS 123"), issued in October 1995, establishes financial
accounting and reporting standards for stock-based employee compensation plans.
As permitted by FAS 123, the Company has elected to continue to use Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related Interpretations, in accounting for its Stock Incentive Plan.
Refer to Note F.
Cash: The Company considers all highly liquid investments with an initial
maturity of three months or less when purchased to be cash equivalents. Amounts
in transit from title companies for home closings are included in cash.
Cost of Sales: Cost of sales includes home warranty costs, purchased discounts
for customer financing, and sales commissions paid to third parties.
Fair Value of Financial Instruments: The fair value of financial instruments
is determined by reference to various market data and other valuation techniques
as appropriate. The carrying amounts of cash and cash equivalents and trade
payables approximate fair value because of the short maturity of these financial
instruments. Generally, the homebuilding notes payable bear interest at rates
indexed to LIBOR or the Federal Funds rate. Therefore, the carrying amounts of
the outstanding borrowings at September 30, 1996, approximate fair value. At
both September 30, 1996 and 1995, the estimated fair value of the Company's
debt, including the interest rate swap agreement described in Note B,
approximated its carrying value.
Fair value estimates are made at specific points in time based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve matters of significant judgment,
and therefore, cannot be determined with precision. Changes in assumptions could
significantly affect estimates.
18
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories: Inventories are stated at the lower of cost (specific
identification method) or net realizable value. In addition to direct land
acquisition, land development and direct housing construction costs, inventory
costs include interest and real estate taxes, which are capitalized in inventory
during the development and construction periods. Residential lots are
transferred to construction in progress when building permits are requested.
Land and development costs, capitalized interest and real estate taxes incurred
during land development are allocated to individual lots on a prorata basis.
Interest. The Company capitalizes interest during development and
construction. Capitalized interest is charged to cost of sales as the related
inventory is delivered to the home buyer. The summary of interest for 1994, 1995
and 1996 is:
YEAR ENDED SEPTEMBER 30,
----------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
Capitalized interest, beginning of year....... $ 1,581 $ 4,325 $ 7,118
Interest incurred............................. 7,269 12,002 14,835
Interest expensed.............................
Directly..................................... -- (1,161) (1,474)
Amortized to cost of sales................... (4,525) (8,048) (9,437)
-------- -------- --------
Capitalized interest, end of year............. $ 4,325 $ 7,118 $ 11,042
======== ======== ========
Property and Equipment: Property and equipment, including model home
furniture, are stated on the basis of cost. Major renewals and improvements are
capitalized. Repairs and maintenance are expensed as incurred. Depreciation
generally is provided using the straight-line method over the estimated useful
life of the asset. Accumulated depreciation was $3,481,000 and $5,000,000 as of
September 30, 1995 and 1996, respectively.
Excess of Cost Over Net Assets Acquired: The excess of amounts paid for
business acquisitions over the net fair value of the assets acquired and
liabilities assumed is amortized using the straight-line method over twenty
years. Additional consideration paid in subsequent periods under the terms of
purchase agreements are included as acquisition costs. Amortization expense was
$42,000, $114,000 and $188,000 in 1994, 1995 and 1996, respectively. Accumulated
amortization was $156,000 and $344,000 at September 30, 1995 and 1996,
respectively.
Revenue Recognition: Revenue generally is recognized at the time of the
closing of a sale, when title to and possession of the property transfer to
the buyer.
Net Income Per Share: Net income per share is based upon the average number of
shares of common stock outstanding during each year and the effect of common
stock equivalents related to dilutive stock options.
19
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- NOTES PAYABLE
Notes payable (in thousands):
SEPTEMBER 30,
-----------------
1995 1996
-------- --------
Unsecured: Banks
$250,000 term and revolving credit facility, maturing
April, 1999 to April,2001, rates range from Federal
Funds + 1.6% to LIBOR + 2%.............................. $134,800 $158,600
$10,000 revolving line of credit, maturing March 1997,
LIBOR + 2%.............................................. -- --
$20,000 revolving line of credit, maturing September 1997,
LIBOR + 1 1/2%.......................................... 7,000 --
$17,500 revolving line of credit, payable on demand with
six months' notice, LIBOR + 1 1/4%...................... 13,770 4,000
Other notes payable....................................... 14,309 7,273
-------- --------
Total notes payable..................................... $169,879 $169,873
======== ========
Maturities of notes payable, assuming the revolving lines of credit are not
extended, are $10.3 million in 1997, $0.4 million in 1998, $59.2 million in
1999, and $100.0 million in 2001. The weighted average interest rates at
September 30, 1995 and 1996 were 7.9% and 7.5%, respectively.
In addition to the stated interest rates, various credit facilities require
the Company to pay certain fees. The $250 million credit facility also provides
$10 million for use as letters of credit. Effective October 1, 1996, there was a
reduction in the interest rate on the revolving portion of $250 million credit
facility. Certain of the notes and loan agreements contain financial covenants
generally relating to cash dividends, minimum interest coverage, net worth,
leverage, inventory levels and other matters.
The Company uses an interest rate swap agreement to help manage a portion of
its interest rate exposure. The agreement converts from a variable rate to a
fixed rate on a notional amount of $100 million. The agreement expires April
2001. The Company does not expect non-performance by the counterparty, and any
losses incurred in the event of non-performance would not be material. As a
result of this agreement, the Company incurred net interest expense of $0.4
million during 1996. Net payments or receipts under the Company's interest rate
swap agreement are recorded as adjustments to interest expense.
NOTE C -- ACQUISITIONS
In 1994 and 1995, the Company made the following acquisitions:
COMPANY ACQUIRED DATE ACQUIRED CONSIDERATION
---------------- -------------- -------------
Regency Development, Inc. (Birmingham)........ September 1995 $12.3 million
Arappco, Inc. (Greensboro).................... July 1995 $12.2 million
Joseph M. Miller Construction, Inc./Argus
Development, Inc. (Minneapolis).............. April 1994 $16.6 million
Consideration includes cash paid, promissory notes and assumption of certain
accounts payable and notes payable which were repaid subsequent to the
acquisitions.
The acquisitions contain provisions for additional consideration to be paid
annually for up to three years subsequent to the acquisition date, based upon
subsequent pretax income. Such additional consideration will be recorded when
paid as excess cost over net assets acquired, which is amortized using the
20
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
straight line method over 20 years. All of the acquired companies are involved
in homebuilding and land development. The Company has accounted for these
acquisitions under the purchase method and has included the operations of the
acquired businesses in its Consolidated Statements of Income since their
acquisition.
The Company's unaudited pro forma summary consolidated results of operations
as if the above noted acquisitions had occurred at October 1, 1995 are presented
below. In preparing the pro forma information, various assumptions were made and
the Company does not purport this information to be indicative of what would
have occurred had the acquisitions been made as of October 1, 1995.
YEAR ENDED
SEPTEMBER 30, 1995
------------------
(IN THOUSANDS,
EXCEPT NET INCOME
PER SHARE)
Revenues............................................... $474,476
Net Income............................................. $ 22,359
Net Income per share................................... $ 0.80
NOTE D -- STOCKHOLDERS' EQUITY
The Board of Directors of the Company declared the following common stock
dividends:
DECLARED DATE AMOUNT PAID RECORD DATE
------------- ------ ------- -----------
5/12/94 6% 6/30/94 5/31/94
4/20/95 9% 6/30/95 5/31/95
4/22/96 8% 5/24/96 5/08/96
Stock Split: On August 15, 1995, the Board of Directors declared a seven-
for-five stock split effected in the form of a 40% stock dividend on its common
stock. Accordingly, the $.01 par value for the additional shares issued, in
respect of the seven-for-five stock split, was transferred from additional
paid-in-capital to common stock.
Net income per share and weighted average shares outstanding for all periods
presented have been restated to reflect the stock dividends and the stock split.
Other than as required to maintain the financial ratios and net worth
requirements under the credit agreements, there are no restrictions on the
payment of cash dividends by the Company.
21
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- PROVISION FOR INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. These differences
primarily relate to the capitalization of inventory costs, the accrual of
warranty costs, and depreciation. The Company's deferred tax assets and
liabilities are not significant.
The difference between income tax expense and tax computed by applying the
federal statutory income tax rate to income before taxes is due primarily to the
effect of applicable state income taxes. Income tax expense consists of:
YEAR ENDED SEPTEMBER 30,
----------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
Current:
Federal....................................... $ 10,477 $ 11,767 $ 17,650
State......................................... 963 1,274 1,829
-------- -------- --------
11,440 13,041 19,479
-------- -------- --------
Deferred:
Federal....................................... (468) (923) (2,198)
State......................................... (44) (100) (228)
-------- -------- --------
(512) (1,023) (2,426)
-------- -------- --------
$ 10,928 $ 12,018 $ 17,053
======== ======== ========
NOTE F -- EMPLOYEE BENEFIT PLANS
The D.R. Horton, Inc. Profit Sharing Plus Plan is a 401(k) plan for Company
employees. The Company matches 50% of employees' voluntary contributions up to a
maximum of 3% of each participant's earnings. Additional employer contributions
in the form of profit sharing are at the discretion of the Company. Expenses for
this Plan were $158,000, $233,000 and $327,000 for 1994, 1995 and 1996,
respectively.
Effective January 1, 1994, the Company adopted the D.R. Horton, Inc. Stock
Tenure Plan (an Employee Stock Ownership Plan), covering those employees
generally not participating in certain other D.R. Horton benefit plans.
Contributions are made at the discretion of the Company. Expenses of $110,000,
$106,000 and $229,000 were recognized for 1994, 1995 and 1996, respectively,
related to Company contributions of common stock to the Plan.
The Company's Supplemental Executive Retirement Plans (SERP's) are
non-qualified deferred compensation programs that provide benefits payable to
certain management employees upon retirement, death, or termination of
employment with the Company. SERP No. 1 provides for voluntary deferral of
compensation which is invested under a trust agreement. All salary deferrals
under this Plan have been accrued and the investments are recorded as an other
asset. Under SERP No. 2, the Company accrues an unfunded benefit, as well as an
interest factor based upon a predetermined formula. The Company recorded
$231,000, $347,000 and $313,000 of expense for SERP No. 2 in 1994, 1995 and
1996, respectively.
In 1996, the Company approved the D.R. Horton, Inc. Employee Stock Purchase
Plan which allows employees to purchase stock directly from the Company at
market value.
At September 30, 1996, 237,500 shares of common stock have been reserved for
future issuance under the stock tenure and stock purchase plans.
22
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The D.R. Horton, Inc. 1991 Stock Incentive Plan provides for the granting of
stock options to certain key employees of the Company to purchase shares of
common stock. Options are granted at exercise prices which approximate the
market value of the Company's common stock at the date of the grant. Options
generally expire 10 years after the dates on which they were granted and vest
evenly over the life of the option. At September 30, 1996, 3,034,250 shares of
common stock have been reserved for future issuance under this plan. Activity
under the plan is:
1994 1995 1996
------------------ ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
STOCK OPTIONS OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES
------------- -------- -------- --------- -------- --------- --------
Outstanding at beginning
of year................ 872,655 $ 7.32 992,713 $ 8.60 1,782,517 $ 6.56
Granted................. 185,700 13.98 313,000 12.15 559,000 10.15
Exercised............... (109,860) 3.62 (116,400) 3.84 (124,619) 3.24
Cancelled............... (6,500) 7.86 (19,940) 9.80 (122,022) 8.54
Effects of stock
dividends.............. 50,718 8.26 613,144 6.87 145,908 6.69
-------- ------ --------- ------ --------- ------
Outstanding at end of
year................... 992,713 $ 8.60 1,782,517 $ 6.56 2,240,784 $ 7.11
======== ====== ========= ====== ========= ======
Exercisable at end of
year................... 403,997 $ 5.55 565,551 $ 4.44 659,615 $ 4.74
======== ====== ========= ====== ========= ======
Exercise prices for options outstanding at September 30, 1996, ranged from
$1.804 to $10.185. The weighted average remaining contractual lives of those
options are as follows:
OUTSTANDING EXERCISABLE
--------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE MATURITY EXERCISE MATURITY
PRICE RANGE OPTIONS PRICE (YEARS) OPTIONS PRICE (YEARS)
----------- --------- -------- -------- ------- -------- --------
Less than $4.............. 161,631 $1.89 5.0 161,631 $1.89 5.0
$4-$8..................... 1,239,792 5.99 6.9 459,841 5.35 6.4
More than $8.............. 839,361 9.76 9.1 38,143 9.47 7.9
--------- ----- --- ------- ----- ---
Total................... 2,240,784 $7.11 7.6 659,615 $4.74 6.2
========= ===== === ======= ===== ===
The Company has elected to follow Accounting Principles Board Opinion No. 25
in accounting for its employee stock options. The exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, therefore, no compensation expense is recognized.
Application of the fair value method, as specified by FAS 123, had no material
impact on net income or net income per share amounts. However, such pro forma
effects are not indicative of future fair value effects until the rules
stipulated by FAS 123 are applied to all outstanding, nonvested awards.
NOTE G -- COMMITMENTS AND CONTINGENCIES
The Company is involved in lawsuits and other contingencies in the ordinary
course of business. Management believes that, while the ultimate outcome of the
contingencies cannot be predicted with certainty, the ultimate liability, if
any, will not have a material adverse effect on the Company's financial
position.
In the ordinary course of business, the Company enters into option agreements
to purchase land and developed lots. Deposits of approximately $5.0 million at
September 30, 1996, secure the Company's performance under these agreements.
23
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company leases office space under noncancelable operating leases. Minimum
annual lease payments under these leases at September 30, 1996, are
approximately:
(IN THOUSANDS)
1997............................... $342
1998............................... 199
1999............................... 46
2000............................... 38
2001............................... 33
----
$658
====
Rent expense approximated $840,000, $989,000 and $1,140,000, for 1994, 1995
and 1996, respectively.
In the normal course of its business activities, the Company provides letters
of credit and performance bonds, issued by third parties, to secure performance
under various contracts. At September 30, 1996, outstanding letters of credit
totalled $5.2 million and performance bonds totalled $21.7 million.
NOTE H -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly results of operations are:
1996
--------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------
SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31
------------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
Revenues................ $ 168,943 $ 143,283 $ 114,042 $ 121,068
Gross Margin............ 30,677 25,897 20,175 21,533
Net income.............. 9,408 7,434 5,122 5,415
Net income per
share(1)............... .29 .23 .16 .19
1995
--------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------
SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31
------------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
Revenues................ $ 132,827 $ 120,529 $ 87,076 $ 96,956
Gross Margin............ 23,992 21,647 15,359 16,648
Net income.............. 6,681 6,090 3,948 3,820
Net income per
share(1)............... .24 .22 .14 .14
1994
--------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------
SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31
------------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
Revenues................ $ 124,024 $ 107,782 $ 82,606 $ 78,905
Gross Margin............ 21,038 17,729 14,416 14,035
Net income.............. 5,679 4,690 3,698 3,596
Net income per
share(1)............... .20 .17 .13 .13
- --------
(1) Net income per share differs from that previously reported due to the effect
of the 1996 eight percent stock dividend.
24
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- SUBSEQUENT EVENTS (UNAUDITED)
In October and December 1996, the Company acquired substantially all the
assets of two homebuilding companies, Trimark Communities L.L.C., in Denver,
Colorado and SGS Communities, Inc., in North Central New Jersey, respectively.
Total consideration for these acquisitions was $31 million which includes cash
paid, and the assumption of certain accounts payable and notes payable. The
acquisitions contain provisions for additional consideration to be paid annually
for up to four years based upon subsequent pretax income of the acquired
businesses. Any such additional consideration will be recorded when paid as
excess cost over net assets acquired which will be amortized on a straight line
method over 20 years. These acquisitions will be accounted for under the
purchase method and their operations will be included in the Company's
Consolidated Statements of Income from the date of their acquisition.
25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth under the caption "Election
of Directors" at pages 2 through 4 of the registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on January 23, 1997, and incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under the caption
"Executive Compensation" at pages 6 and 7 of the registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on January 23, 1997,
and incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the caption
"Beneficial Ownership of Common Stock" at page 5 of the registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held on January 23,
1997, and incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under the caption
"Executive Compensation -- Transactions with Management" at page 11 of the
registrant's Proxy Statement for the Annual Meeting of Stockholders to be held
on January 23, 1997, and incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements:
See Item 8 above.
2. Financial Statement Schedules:
Schedules for which provision is made in the applicable accounting regulations
of the Securities and Exchange Commission (the "Commission") are not required
under the related instructions or are not applicable, and therefore have been
omitted.
26
3. Exhibits:
EXHIBIT
NUMBER EXHIBIT
------- -------
3.1 -- Amended and Restated Certificate of Incorporation, as amended(1)
3.2 -- Bylaws, as amended(2)
10.1 -- Form of Indemnification Agreement between the Company and each
of its directors and executive officers and schedule of
substantially identical documents(1)
10.2 -- D.R. Horton, Inc. 1991 Stock Incentive Plan(3)(4)
10.2a -- Amendment No. 1 to 1991 Stock Incentive Plan(3)(4)
10.2b -- Amendment No. 2 to 1991 Stock Incentive Plan(3)(4)
10.2c -- Amendment No. 3 to 1991 Stock Incentive Plan(4)(5)
10.2d -- Amendment No. 4 to 1991 Stock Incentive Plan(4)(5)
10.2e -- Amendment No. 5 to 1991 Stock Incentive Plan(1)(4)
10.3 -- Form of Non-Qualified Stock Option Agreement (Term Vesting)(6)
10.4 -- Form of Non-Qualified Stock Option Agreement (Performance
Vesting)(7)
10.5 -- Form of Incentive Stock Option (Term Vesting)(7)
10.6 -- Form of Incentive Stock Option (Performance Vesting)(7)
10.7 -- Form of Restricted Stock Agreement (Term Vesting)(7)
10.8 -- Form of Restricted Stock Agreement (Performance Vesting)(7)
10.9 -- Form of Stock Appreciation Right Agreement (Term Vesting)(7)
10.10 -- Form of Stock Appreciation Right Agreement (Performance
Vesting)(7)
10.11 -- Form of Stock Appreciation Right Notification (Tandem)(7)
10.12 -- Form of Performance Share Notification(7)
10.13 -- Form of Performance Unit Notification(7)
10.14 -- D.R. Horton, Inc. Supplemental Executive Retirement Plan No.
1(2)(4)
10.15 -- D.R. Horton, Inc. Supplemental Executive Retirement Trust No.
1(2)(4)
10.16 -- D.R. Horton, Inc. Supplemental Executive Retirement Plan No.
2(2)(4)
10.17 -- Master Loan and Inter-Creditor Agreement dated as of April 15,
1996, by and among D.R. Horton, Inc., as Borrower, and
NationsBank, N.A. (South), Bank of America National Trust and
Savings Association, and certain other lenders (collectively,
"Lenders"), and NationsBank, N.A. (South) as a Bank, Issuing Bank
and Administrative Agent for Lenders and Bank of America National
Trust and Savings Association as a Bank and Co-Agent for
Lenders(8)
10.18 -- Working Capital Line of Credit Agreement dated as of July 31,
1996, by and between D.R. Horton, Inc., as Borrower, and Barnett
Bank, N.A., as Lender(8)
10.19 -- Revolving Credit Agreement dated as of September 17, 1996, by and
between D.R. Horton, Inc., as Borrower, and PNC Bank, National
Association, and Lender(8)
21.1 -- Subsidiaries of D.R. Horton,Inc.(8)
23.1 -- Consent of Ernst & Young LLP, Fort Worth, Texas(8)
- --------
(1) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1995, filed with the Commission on
November 22, 1995.
(2) Incorporated by reference from the Registrant's Transition Report on Form
10-K for the period from January 1, 1993 to September 30, 1993, filed with
the Commission on December 28, 1993.
27
(3) Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (Registration No. 33-46554) declared effective by the Commission
on June 4, 1992.
(4) Management contract or compensatory plan or arrangement.
(5) Incorporated by reference from the Registrant's Annual Report Form 10-K
for the fiscal year ended September 30, 1994, filed with the Commission on
December 9, 1994.
(6) Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (Registration No. 33-81856) filed with the Commission on July 22,
1994.
(7) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992, filed with the Commission on
March 29, 1993.
(8) Filed herewith.
28
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Acts of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: November 21, 1996 D.R. HORTON, INC.
By /s/ Donald R. Horton
----------------------------------
Donald R. Horton,
Chairman of the Board and
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Donald R. Horton Chairman of the November 21, 1996
- ------------------------------------- Board and President
DONALD R. HORTON (Principal
Executive Officer)
/s/ Richard Beckwitt Director November 21, 1996
- -------------------------------------
RICHARD BECKWITT
/s/ Richard I. Galland Director November 21, 1996
- -------------------------------------
RICHARD I. GALLAND
/s/ Richard L. Horton Director November 21, 1996
- -------------------------------------
RICHARD L. HORTON
/s/ Terrill J. Horton Director November 21, 1996
- -------------------------------------
TERRILL J. HORTON
/s/ David J. Keller Treasurer, Chief November 21, 1996
- ------------------------------------- Financial Officer
DAVID J. KELLER and Director
(Principal
Financial Officer
and Principal
Accounting Officer)
/s/ Francine I. Neff Director November 21, 1996
- -------------------------------------
FRANCINE I. NEFF
/s/ Scott J. Stone Director November 21, 1996
- -------------------------------------
SCOTT J. STONE
/s/ Donald J. Tomnitz Director November 21, 1996
- -------------------------------------
DONALD J. TOMNITZ
29
CORPORATE INFORMATION
D.R. Horton, Inc. (the "Company") is engaged primarily in the construction
and sale of single-family homes. The Company offers high-quality homes with
custom features, designed principally for the entry-level and move-up
segments.
Horton has established a unique marketing niche, offering a broader selection
of homes that typically have more amenities and greater design flexibility than
homes offered by volume builders, at prices that are generally more affordable
than those charged by local custom builders. Horton homes range in size from
1,000 to 5,000 square feet and are priced from $80,000 to $600,000. For the year
ended September 30, 1996, the Company closed 3,284 homes with an average sales
price of approximately $166,600.
The Company is geographically diversified, operating in 21 states and 26
markets. Plans call for continued expansion in current markets, as well as entry
into new markets that have significant entry-level and move-up market segments
consistent with the Company's product and pricing strategy.
THE BOARD OF DIRECTORS
TRANSFER AGENT AND REGISTRAR
DONALD R. HORTON
Chairman and President (2) Society National Bank
Cleveland, Ohio
RICHARD BECKWITT
President -- Investments Division (2) INVESTOR RELATIONS
RICHARD I. GALLAND David J. Keller
Former Chief Executive Officer and D.R. Horton, Inc.
Chairman of Fina, Inc. (1) (2) 1901 Ascension Blvd., Suite 100
Arlington, Texas 76006
(817) 856-8200
RICHARD L. HORTON
Vice President -- Dallas/Fort Worth
East Division
ANNUAL MEETING
TERRILL J. HORTON
Vice President -- Dallas/Fort Worth
North Division
January 23, 1997 9:30 a.m. C.S.T.
DAVID J. KELLER
Executive Vice President, Treasurer and At the Corporate Offices of
Chief Financial Officer (2) D.R. Horton, Inc.
1901 Ascension Blvd., Suite 100
Arlington, Texas 76006
FRANCINE I. NEFF
Former Treasurer of the United States (1)
SCOTT J. STONE
Former Vice President -- Eastern Region
DONALD J. TOMNITZ
President -- Homebuilding Division
- --------
(1) Audit Committee Member
(2) Compensation Committee Member
30