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UNITED STATES
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
For the fiscal year ended December 31, 2000
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: 0-23270
DOMINION HOMES, INC.
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(Exact name of registrant as specified in its charter)
Ohio 31-1393233
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5501 Frantz Road, Dublin, Ohio 43017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:614-761-6000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Shares
with no par value
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 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. ( )
Based upon the closing sale price reported on the NASDAQ National Market on
March 15, 2001, the aggregate market value of the Common Shares of the
Registrant held by non-affiliates (assuming, for this purpose, that all
executive officers and directors are affiliates) on that date was $14,696,390.
As of March 15, 2001 there were 6,383,877 Common Shares issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on May 2, 2001 (in pertinent part, as
indicated)............................................Part III
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PART I
ITEM 1 BUSINESS
BACKGROUND
Dominion Homes, Inc. ("the Company") was incorporated in Ohio in
October 1993 in anticipation of its initial public offering. Prior to
consummation of the Company's initial public offering in March 1994, the Company
was operated as part of the homebuilding and related divisions (the
"Homebuilding Divisions") of BRC Properties Inc. ("BRC") (formerly known as
Borror Realty Company), an Ohio corporation incorporated in 1946. BRC started
building homes in 1976 under the direction of Donald A. Borror, the Company's
current Chairman Emeritus of the Board. In connection with the Company's initial
public offering, the Company acquired from BRC substantially all of the
operating assets of the Homebuilding Divisions. At March 15, 2001, BRC owned
4,186,500 Common Shares of the Company, representing 65.6% of the issued and
outstanding Common Shares.
The principal corporate offices of the Company are located at 5501
Frantz Road, Dublin, Ohio and its telephone number is (614) 761-6000.
The Annual Report on Form 10-K has been prepared to serve as the
Company's Annual Report to Shareholders required by Rule 14a-3(b) of the
regulations promulgated by the Securities Exchange Commission pursuant to the
Securities Exchange Act of 1934.
MARKET OVERVIEW
The Company conducts its homebuilding operations in two markets,
Central Ohio and Louisville, Kentucky. The Company is one of the largest
homebuilders in Central Ohio and had a 23.5% share of the Central Ohio market in
2000. The percentage of market share was determined by an independent survey and
based upon the number of homes closed in Central Ohio during 2000. Columbus, the
capital of Ohio, has been a stable market, with diverse economic and employment
bases. Columbus is the home of The Ohio State University. In addition, a number
of notable organizations have their headquarters in Central Ohio, including
Honda of America Manufacturing, Inc., The Limited, Inc., Nationwide Insurance
Company, Wendy's International, Inc., Huntington Bancshares Incorporated,
Battelle Memorial Institute, Worthington Industries, Inc., The Scotts Company
and Cardinal Health, Inc. Columbus is the county seat of Franklin County and the
largest city in Ohio. The Company builds homes in all of the counties in the
Columbus Metropolitan Statistical Area (the "CMSA") which includes Franklin,
Pickaway, Madison, Fairfield, Delaware and Licking Counties (the "CMSA
Counties"), and also in Union County. References herein to Central Ohio means
the CMSA Counties and Union County.
During third quarter 1998, the Company entered the Louisville, Kentucky
market. This resulted from extensive research by the Company of potential
markets for expansion beyond Central Ohio. The Company chose Louisville because
of its proximity to Central Ohio, its lack of builders with dominant market
share and the ability of the Company to provide product offerings similar to its
Central Ohio homes. The Company also considered Louisville's strong economy,
available land supply and subcontractor base. Louisville is the home of The
University of Louisville and headquarters for major corporations such as Humana
Corporation and Tricon International. United Parcel Service also has a major
distribution center in Louisville. The Louisville Metropolitan Statistical Area
(the "LMSA") is comprised of Jefferson, Oldham, Bullitt and Shelby Counties in
Kentucky and Harrison, Floyd and Clark Counties in Southern Indiana. The Company
owns and operates its homebuilding operations in Louisville through its
wholly-owned subsidiary, Dominion Homes of Kentucky, Ltd., an Ohio limited
liability partnership.
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PRODUCTS
The Company offers four distinct series of single-family homes that are
differentiated by size, price, standard features and available options. This
product diversity allows the Company to target specific market segments and
appeal to a wide range of homebuyers. The Company's products range from starter
homes to executive homes with prices from under $100,000 to more than $300,000.
Homes offered in the Independence series range in size from 1,000 to 1,400
square feet, at prices from under $100,000 to $120,000 and are targeted at entry
level homebuyers. Century Series homes range in size from 1,100 to 1,500 square
feet, at prices from $130,000 to $160,000, and are targeted at a slightly higher
entry level home buyer. Homes offered in the Celebrity Series range in size from
1,500 to 2,000 square feet, at prices from $150,000 to $200,000, and are
targeted to appeal to both entry level and move-up homebuyers. Homes offered in
the Tradition Series generally range in size from 2,000 to 3,000 square feet, at
prices from $200,000 to more than $300,000, and are targeted to appeal primarily
to existing homeowners who desire to move up to larger homes with more
amenities.
The Company is a "full option" homebuilder. Each of the Company's homes
has a standard design and basic features. After the purchaser has chosen a home
from over 45 standard floor plans and elevations, the purchaser can
"individualize" the home, at additional cost, through the selection of
structural, exterior and interior options. Structural options include two-foot
sidewall extensions, side-load garages and master bathrooms. Exterior/interior
options include brick or stone facades, fireplaces, and upgrades on bathroom and
kitchen fixtures, cabinets, tiles and floorings. The Company's homes feature
nationally recognized and industry leading brand names, including Trane(R)
natural gas furnaces, Andersen(R) wood windows, Armstrong(R) flooring, General
Electric(R) appliances, Wilsonart(R) decorative laminate, Aristokraft(R)
cabinets and the Kohler(R) family of bathroom and kitchen fixtures.
MARKETING AND SALES
The Company markets all of its homes under the "Dominion Homes(R)"
tradename. The Company has an extensive targeted marketing program that includes
advertising by radio, television, newspapers, magazines, direct mail and
billboards. The Company's advertising typically emphasizes the quality of its
homes, the location of its communities, the brand name components used in its
homes and the wide variety of its home styles and options. The Company believes
these factors differentiate its products and reinforce its "Dominion Homes - The
Best of Everything(R)" brand awareness program. At the end of 2000, according to
a third party survey, the Dominion Homes(R) name was recognized by 90% of the
Central Ohio respondents.
The Company markets a "Helping Hand Program" to purchasers of its
Century and Celebrity Series homes. The Helping Hand Program is a work equity
program approved by the U.S. Department of Housing and Urban Development ("HUD")
which permits home buyers to reduce their down payments by performing some minor
construction tasks themselves. Through training conducted by the Company's
personnel and a detailed video, participating homebuyers receive step-by-step
guidance on completing these tasks. The Company aggressively markets this
program because it enables the Company to sell homes to entry level home buyers
who otherwise would not have the down payment necessary to qualify for mortgage
financing. This program also allows homebuyers to purchase homes with more
desirable features and amenities than they would otherwise qualify to purchase.
In 2000, 44.6% of the purchasers of the Company's homes participated in the
Helping Hand Program.
The Company also markets another program to purchasers of its
Independence, Century and Celebrity Series homes known as the "Nehemiah
Program." This program is also approved by HUD and allows homebuyers to receive
gift funds from Nehemiah Homeownership 2000, Inc. to be used as their down
payment. The Company is obligated to make a contribution to Nehemiah
Homeownership 2000, Inc. in an amount similar to the amount of the gift funds.
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The Company conducts its home sales from over 45 furnished model home
sales offices in Central Ohio and Louisville, Kentucky. In addition, the Company
operates a retail sales office in Central Ohio to focus on participation sales
with local realtors. Sales representatives are employees of the Company and are
trained to fully explain the features and benefits of the Company's homes, to
determine which home best suits the customer's needs, to explain available
mortgage financing opportunities and to explain the construction process. The
Company devotes significant attention to the continued training of sales
representatives to assure high levels of professionalism and product knowledge.
The Company believes that the use of an in-house sales staff allows for a more
knowledgeable sales presentation and enables the Company to communicate a
consistent message to its customers. Sales representatives are compensated on a
commission and bonus basis. At December 31, 2000, the Company employed 44 sales
representatives in Central Ohio and 3 in Louisville, Kentucky.
The Company welcomes independent real estate broker participation
because it believes that such participation introduces the Company to customers
who might not otherwise consider purchasing a home from the Company. In order to
facilitate real estate broker participation, the Company has a sales office
designed to meet the needs of the Central, Ohio realtor community. In 2000, the
Company paid sales commissions of $4.8 million to independent brokers on 806
homes that had an aggregate sales price of $148.5 million.
The Company uses promotional and sales incentives, such as discounts on
the purchase price of its homes or options, to market its products. Generally,
it is the Company's intention to use this practice on a selective or seasonal
basis to target slow sales areas and manage production capacity. The Company
also offers a discount to customers who previously purchased a Dominion Home, to
employees of companies with which it does business and to its own employees.
Sales of the Company's homes are made pursuant to standard sales
contracts. These contracts generally require the purchaser to make a $500
deposit when the contract is executed and to pay the balance of the cash down
payment at the start of construction. The Company also has a "zero down payment"
program whereby the customer makes a $250 deposit, when the contract is
executed, and a second $250 deposit when the customer's loan is approved. Under
the "zero down payment" program, there is no further down payment required.
The Company generally does not commence construction of a home until it
obtains a sales contract and notice from the customer's lender that mortgage
financing has been approved. However, the Company routinely commences
construction of a home with a sales contract that is contingent upon the
customer selling an existing home. Some customers fail to complete their
contracts, which results in partially constructed homes that are no longer under
contract. In addition, the Company selectively starts construction of a limited
number of homes without a contract to create an inventory in anticipation of
seasonal demand and to attract customers, such as corporate transferees, who
need homes within 60 to 90 days. At December 31, 2000, the Company had 132
inventory homes in various stages of construction. The Company also starts
foundations of homes on a strategic and selective basis in order to minimize the
effects of weather on the building process. These foundations are not included
in the number of inventory homes reported by the Company.
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DESIGN AND CONSTRUCTION
The Company employs a full-service architectural department which
controls the design of its homes. Each home design is value-engineered for
greater efficiency in the building process and lower cost to the purchaser. For
example, where possible, back-to-back bathrooms are designed to avoid the need
for multiple drains and room sizes are designed to correspond to standard carpet
widths to avoid the expense and waste involved in cutting carpet. On an ongoing
basis, the design team utilizes the Company's knowledge of its markets and
feedback gained from its customers to create new designs and modify existing
designs to keep pace with changing consumer preferences.
The design team is aided by a computer graphics design system. This
system provides the Company with greater flexibility in creating new designs and
modifying existing designs and enhances the Company's ability to accurately
estimate the materials necessary for a particular design.
The Company acts as the general contractor for the construction of its
homes. The Company's construction superintendents, together with the
construction managers to whom they report, monitor construction, coordinate the
activities of subcontractors and suppliers, maintain quality and cost controls
and monitor compliance with zoning and building codes.
The use of subcontractors enables the Company to minimize its
investment in employees, equipment and building supply inventory. This practice
also increases the Company's flexibility in responding to changes in the demand
for housing. The Company has longstanding business relationships with many of
its subcontractors. These relationships, combined with the Company's building
volume, year round retention of subcontractors and efficient design have enabled
the Company to negotiate favorable agreements with its subcontractors.
The Company has reduced its exposure to risks of inadequate supply and
significant price fluctuations through its ownership and operation of a
lumberyard, which allows it to purchase its lumber directly from mills and
wholesalers. From time to time the Company purchases lumber for delayed delivery
to ensure adequate supply and predictable cost. Substantially all of the lumber
purchased by the lumberyard was used by the Company. Additionally, the Company
distributes roof shingles, windows and doors through its lumberyard and will
continue to explore other distribution opportunities.
The Company has integrated various information and administrative
systems to support its construction operations. This management information
system allows the Company to control construction costs by making available the
information necessary to monitor subcontractor performance and expenditures on
each home. Subcontracted work is authorized by work orders, the cost of
deviations from the work order must be approved for payment by the Company's
construction superintendents and significant cost variances are investigated.
The management information system also integrates the Company's sales reporting,
contract management and material distribution systems into the construction
process.
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DECORATING CENTER
The Company offers its customers full-service advice and a wide variety
of selections in its decorating centers in Central Ohio and Louisville,
Kentucky. The Central Ohio decorating center features full-sized samples,
vignettes, and computer-aided graphics that depict the exterior of the
customer's home. These features allow the customer to visualize color
combinations and options, feel the textures and picture how the selections work
together. The Louisville, Kentucky decorating center, while smaller in scope,
offers many of the same features as the Central Ohio decorating center.
Decorating consultants are available to assist customers in making selections
from among hundreds of options on display at the decorating center, from
bathroom fixtures to outdoor siding. Management believes that the decorating
center reduces customer anxiety in the decorating and selection process and
significantly contributes to customer satisfaction.
CUSTOMER SATISFACTION PROGRAM
The Company recognizes that for most customers the purchase of a home
represents the single largest investment they will ever make. The Company
strives to ensure the soundness of this investment through the timely delivery
of quality homes that are located in attractive communities and that provide
lasting value.
The Company also understands that many prospective customers are
uncertain about how to choose a homebuilder and a home and have little knowledge
about home construction. Accordingly, every phase of the Company's operations,
from the beginning of the selling process through construction, closing and
service after the closing, educates and involves the customer in the
homebuilding process.
At a construction conference, the Construction Orientation Manager
meets with the customer to review the home plans and explains the construction
process and schedule. Because the Company wants the customer to see the quality
built into the customer's home, the customer is invited to visit the home site
at any time during the course of construction.
The Company's "Gold Medal" quality assurance program is designed to
provide the customer with peace of mind. Under this program, each home is
subject to eight separate inspections by the Company's construction personnel.
Also, members of the Company's senior management inspect randomly selected homes
on a monthly basis. Because of the Company's attention to quality and its
commitment to "doing it right the first time," the Company offers a
comprehensive warranty program that features a two-year warranty covering all
mechanical elements (including heating, plumbing and electrical systems), roof,
windows and doors, as well as a thirty-year warranty covering all major
structural components. The structural warranty on each home is automatically
transferable to subsequent owners of the home. The Company also passes along to
its customers all warranties provided by manufacturers and suppliers.
The Company invites each customer at and after closing to complete
questionnaires that rate the customer's sales representative, construction
superintendent and decorating consultant and provide certain other information
regarding the customer's homebuilding experience. The Company uses the
information obtained from these questionnaires to refine its products, programs
and services to assure that the Company continues to be responsive to its
customers.
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LAND ACQUISITION AND DEVELOPMENT
The Company believes that one of its key strengths has been its ability
to identify and acquire property to be utilized as lots for future residential
home development. The Company's practice has been to develop most of the lots on
which it builds its homes. The Company generally does not buy unimproved land
for speculation and generally limits its investment in unimproved land to an
amount that it expects to be able to develop and sell within three to five
years. In recent years the process to obtain the required zoning and other
approvals necessary to build the Company's communities has taken longer and has
become increasingly difficult. Consequently, the Company is identifying future
residential home sites sooner and starting these processes earlier than in the
past.
The Company believes that it obtains certain advantages through its
practice of acquiring and developing unimproved land. This practice provides the
Company with the ability to: (i) improve its profit margins by reducing the cost
of finished lots; (ii) maintain an adequate supply of finished lots to meet
market demand; (iii) control the details of development and create in its
communities a distinctive look of quality and success; and (iv) construct homes
more efficiently.
The Company believes that its understanding of homebuilding markets,
particularly in Central Ohio, gives it an advantage in identifying and acquiring
unimproved land with good market potential. In considering the suitability of
unimproved land for development, the Company reviews factors such as (i)
availability of existing community services such as sewers, water, gas and
electricity; (ii) estimated costs of development; (iii) quality of school
systems; (iv) population growth patterns; (v) proximity to developed residential
and retail areas; (vi) employment growth rates; (vii) anticipated absorption
rates for new housing; and (viii) availability of transportation.
Although the Company purchases land and engages in land development
activities primarily for the purpose of maintaining an adequate supply of lots
on which to build, the Company also sells unimproved land and finished lots to
developers and other homebuilders. Revenues from the sale of unimproved land and
developed lots were $192,000 in 2000.
Prior to its acquisition of unimproved land, the Company ensures that
any necessary zoning, environmental or other governmental approvals required to
develop the land into residential lots have been obtained and that the land is
served by utilities. The Company's engineering and design professionals then
plan and engineer the land and construct the streets, sewers, water and drainage
facilities and other improvements to meet the Company's specifications. In
developing land, the Company is required by some municipalities and other
governmental authorities to provide letters of credit or performance bonds to
secure performance of the Company's obligations to install sewers, streets and
other improvements. At December 31, 2000, the Company had an aggregate of $20.9
million of letters of credit and performance bonds outstanding for these
purposes. The Company does not believe that any of the outstanding letters of
credit or performance bonds are likely to be drawn upon.
To limit its risk, the Company attempts to control land through the use
of option and contingent purchase contracts. These contracts condition the
Company's obligation to purchase land upon the Company's review and approval of
such matters as zoning, utilities, soil and subsurface conditions, environmental
and wetland conditions, title matters, economic feasibility of development and
other property-related criteria.
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The Company designs each residential community to have its own
identity. Through its control over the details of development, from the
placement of streets to the design of each community entryway, the Company
creates in each of its communities a distinctive look of quality and success.
The Company generally completes the sale of homes in its communities in time
periods that range from three to five years from first to last sale, with
smaller communities generally taking less time to complete than larger ones. In
addition, the Company typically incorporates a homeowner association for
communities with common areas to ensure the continued maintenance of the common
areas after the community is developed.
The Company occasionally enters into joint venture agreements with
other homebuilders to own and develop communities. The primary reason for these
joint venture agreements is to limit the Company's exposure to owning large
amounts of land in a single community and to limit the risks associated with
longer holding periods for these larger communities.
Land inventory owned by the Company includes land titled in the
Company's name. Land inventory controlled by the Company represents land which
the Company is committed to purchase or has the right to acquire under
contingent purchase contracts and option contracts.
The following table sets forth the Company's land inventory as of
December 31, 2000:
Finished Lots Under Unimproved Land Total
Land Inventory Lots Development Estimated Lots Estimated Lots
- ----------------------------------- ---------------- ----------------- -------------------- ------------------
Owned by the Company:
Central Ohio 1,072 638 5,452 7,162
Louisville, Kentucky 151 121 286 558
Controlled by the Company:
Central Ohio - - 7,084 7,084
Louisville, Kentucky - - 534 534
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1,223 759 13,356 15,338
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CUSTOMER FINANCING
Virtually all of the Company's customers use long-term fixed mortgages
to finance their home purchases. To accommodate its customers' needs for
mortgage financing, the Company organized Dominion Homes Financial Service, Ltd.
("DHFS") on November 16, 1999. DHFS primary mortgage services are loan
application processing and placement of mortgages through an agent for a number
of mortgage banking institutions. Because DHFS merely places mortgage financing
and does not, itself, provide such financing, it does not bear the interest rate
and market risks associated with the securitization of mortgage loans. DHFS
began operating in second quarter 2000 and by year-end provided most of the
mortgage financing for Dominion Homes' customers. DHFS offers its customers a
number of attractive loan options that include interest rate buy downs and
payment of the customer's loan origination fees, rate commitment fees, discount
points and some closing fees. Prior to operating DHFS the Company did not offer
customers home financing but instead referred its customers to independent
mortgage brokers that offer qualified customers a variety of financing options,
including both government insured and conventional financing programs.
The Company will build a home under Federal Housing Administration
("FHA") or Department of Veteran Affairs ("VA") guidelines to allow the customer
to finance the purchase through a FHA or VA mortgage program. In comparison to
conventional financing, government insured financing generally allows customers
to purchase homes with a higher percentage of their incomes directed toward
housing expenses and with lower down payments (as little as no money down when
used in conjunction with the Company's Helping Hand or Nehemiah Programs). FHA
and VA rules are also generally more liberal with respect to the amount of
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points and closing costs that the seller may pay. During 2000, 61.8% of the
Company's closings involved government insured financing. At December 31, 2000,
the FHA financing limit was $191,425 in the CMSA Counties, $132,000 in Union
County and $180,405 in the LMSA Counties.
TITLE INSURANCE AGENCY
Alliance Title Agency ("Alliance"), which is 49.9% owned by the
Company, provides title insurance for most of the Company's home sales in
Central Ohio. The Company believes that it has improved service to its customers
and enhanced its administrative processes through the operations of Alliance.
AVAILABILITY OF LABOR AND RAW MATERIALS
During periods of increased construction activity, the homebuilding
industry has faced shortages in the availability of skilled labor. Waiting for
skilled labor to become available may result in construction delays, while the
use of less skilled labor to fill a skilled labor shortage may cause quality
standards to suffer. Additionally, harsh winters could result in a larger than
usual labor demand in the early spring from the homebuilding industry. Increases
in the demand for skilled labor can also result in increases in the cost of such
labor. The Company believes that, by taking a long-term approach to its
relationships with subcontractors and by providing consistent work, its ability
to retain subcontractors and better control the cost of skilled labor is
enhanced. However, significant increases in home deliveries from year to year
have resulted in labor cost increases in past years.
The principal raw materials used in the homebuilding industry, lumber,
drywall, brick, concrete, and plumbing and electrical supplies, generally are
available from a variety of sources, but are subject to periodic price
fluctuations. In particular, lumber has occasionally been subject to limited
availability and significant price increases. Future price increases in these
items could have a material adverse effect on the Company's profitability
because the Company may not be able to pass price increases in raw materials or
labor on to its customers.
COMPETITION
The homebuilding industry in the Central Ohio and Louisville, Kentucky
markets is highly competitive. The Company competes with national, regional and
local homebuilders, some of which have greater financial, marketing, sales and
other resources than the Company. The Company competes with other homebuilders
and the resale market for the sale of homes on the basis of such factors as
location, price, design and the Company's reputation for quality and service.
The Company also competes with other homebuilders for materials and skilled
labor and with other homebuilders and land developers for financing and
desirable unimproved land. The Company believes its primary competitive
strengths are: (i) knowledge, financial strength and dominant size in the
Central Ohio market and its financial strength in the Louisville, Kentucky
market, which have allowed it to capitalize on opportunities for advantageous
land acquisition in desirable locations; (ii) ability to design and offer
communities and homes that home buyers find appealing; (iii) reputation for
quality and service and (iv) a vertically integrated company that includes a
lumber and other building materials distribution center, a land development
division, a mortgage services company and a title insurance agency.
REGULATION
The Company is subject to environmental, wetlands, zoning, land use,
sales, building design, construction, health and safety and other regulations by
various federal, state and local authorities. The Company must obtain licenses,
permits and approvals from various governmental authorities to conduct its
business, the granting of which are beyond the Company's control. The Company is
subject to local regulations which impose zoning and density requirements in
order to limit the areas for residential development and the number of houses
within particular areas.
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The Company could be subject to periodic delays or precluded entirely
from developing land due to building moratoriums. Generally, such moratoriums
relate to insufficient water or sewage facilities within specific areas or
subdivisions. To date, moratoriums have not had a material adverse effect on the
Company's business.
The Company often obtains options to purchase unimproved land but does
not purchase such land until it is assured that the land will be serviced by
utilities, has acceptable zoning in place, and has satisfactory results from
soil and wetland studies. Although these issues have not materially affected the
Company in the past, they are becoming more significant obstacles to the
development of land by the Company and the homebuilding industry in general.
Obtaining acceptable zoning and overcoming objections of neighborhood groups and
citizen activists is becoming more difficult, time consuming and expensive.
There can be no assurance that these issues will not adversely affect the
Company in the future. There can also be no assurance that the Company will not
be required to incur material liabilities relating to the removal of hazardous
waste or other environmental matters.
SERVICE MARKS
The Company uses, owns and has obtained federal registration for the
service marks Dominion Homes(R) and The Best of Everything(R). The Company uses
the service marks The Dominion Home Store and Dominion Homes Financial Services,
and its application for federal registration of these service marks is pending.
EMPLOYEES
On December 31, 2000, the Company employed 428 individuals (including 9
part-time employees) in Central Ohio and 24 individuals (including 3 part-time
employees) in Louisville, Kentucky. In Central Ohio, the Company employed 166
individuals in construction, 91 in sales and marketing, 70 in the lumber and
building materials distribution center, 12 in land development and 89 in
management, professional services, administrative or clerical positions. In
Louisville, the Company employed 10 individuals in construction, 8 in sales, 1
in land development and 5 in management, administrative and clerical positions.
The Company's employees are not represented by labor unions or covered by
collective bargaining agreements. The Company believes its relationships with
its employees and subcontractors are generally good.
OTHER INFORMATION
Information regarding seasonality, practices of the Company regarding
working capital items and backlog orders is contained in the discussion under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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ITEM 2 PROPERTIES
The Company leases its corporate offices in Central Ohio from BRC. The
lease was effective January 1, 1998 and runs for twelve years with a rental rate
of $12.00 per square foot on a total net basis. The lease contains two options
to renew for periods of five years each at then-current market rates. The rental
rates were established by an MAI appraiser commissioned by the Affiliated
Transaction Review Committee of the Company's Board of Directors, and confirmed
in a review by a second MAI appraiser.
The Company owns a lumberyard located on approximately six acres in
Columbus, Ohio. The facility includes nine buildings, constructed of steel, wood
or concrete block and contains approximately 75,000 square feet of space.
The Company leases 11,200 square feet in a Central Ohio shopping center
from BRC. The Company uses the space for a decorating center, centralized sales
office, mortgage services company and construction conference center. The leases
have been approved by the Company's Affiliated Transaction Review Committee.
In addition, the Company leases from unaffiliated parties approximately
2,400 square feet of office space in Louisville, Kentucky and 2,400 square feet
of office-warehouse space in Central Ohio.
The Company has entered into a program with an unaffiliated party to
sell and lease back many of its model homes. The Company had 33 model homes in
Central Ohio and Louisville, Kentucky under lease with this program at December
31, 2000. These leases have one-year terms and then become month-to-month
leases, at the option of the Company.
ITEM 3 LEGAL PROCEEDINGS
The Company is involved in various legal proceedings, most of which
arise in the ordinary course of business and some of which are covered by
insurance. In the opinion of the Company's management, none of the claims
relating to such proceedings will have a material adverse effect on the
financial condition or results of operations of the Company.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Shares are traded on the NASDAQ National Market
under the symbol "DHOM." The following table sets forth for the periods
indicated the high and low sales prices for the Common Shares, as reported by
the NASDAQ National Market.
Sales Prices
CALENDAR YEAR ENDING DECEMBER 31, 2001 HIGH LOW
-------------- --------------
First Quarter (Through March 15, 2001)............. $ 10.50 $ 7.50
CALENDAR YEAR ENDING DECEMBER 31, 2000 HIGH LOW
-------------- --------------
First Quarter...................................... $ 6.56 $ 5.31
Second Quarter..................................... $ 6.63 $ 5.31
Third Quarter...................................... $ 8.50 $ 5.34
Fourth Quarter..................................... $ 9.56 $ 6.75
CALENDAR YEAR ENDING DECEMBER 31, 1999 HIGH LOW
-------------- --------------
First Quarter...................................... $ 11.13 $ 7.25
Second Quarter..................................... $ 8.75 $ 5.25
Third Quarter...................................... $ 7.75 $ 5.25
Fourth Quarter..................................... $ 6.94 $ 5.50
On March 15, 2001, the last sale price of the Common Shares, as
reported by the NASDAQ National Market, was $8.47 per share, and there were
approximately 197 holders of record of the Common Shares.
The Company has not paid any dividends in the past and does not
anticipate that it will pay any dividends in the near term. The provisions of
the Company's bank credit facilities limit the amount of dividends that the
Company may pay during any calendar year to 25% of the Company's net income
after taxes for such year.
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13
ITEM 6 SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
The following table summarizes certain selected financial and operating
data of the Company. This data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company, including the notes
thereto, appearing elsewhere herein.
SELECTED FINANCIAL DATA 2000 1999 1998 1997 1996
- ----------------------- ---- ---- ---- ---- ----
Revenues $326,415 $277,577 $264,937 $207,926 $175,579
Gross profit 65,334 53,103 49,830 42,244 32,579
Income from operations 24,526 19,502 21,110 18,919 12,756
Income before income taxes 15,401 13,478 16,553 13,274 6,411
Provision for income taxes 6,342 5,460 6,942 5,569 2,374
Net income 9,059 8,018 9,611 7,705 4,037
Basic earnings per share 1.42 1.27 1.53 1.23 0.65
Diluted earnings per share 1.39 1.23 1.46 1.20 0.64
Total assets at year end 201,193 174,059 136,356 117,795 103,826
Long term obligations at year-end 108,804 97,058 64,876 57,763 54,563
OPERATING DATA 2000 1999 1998 1997 1996
- -------------- ---- ---- ---- ---- ----
Homes:
Sales contracts (1) 1,785 1,680 1,783 1,402 1,308
Closings 1,798 1,641 1,735 1,387 1,188
Backlog at year-end 777 790 751 703 688
Aggregate sales value of homes in
backlog at year-end $153,921 $140,220 $129,241 $106,686 $101,202
- -----------------------
(1) Net of cancellations.
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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
For the year 2000 the Company experienced record sales in both the
number of homes sold and sales value as well as record closings in both the
number of homes closed and revenues. Home closings in 2000 generated the largest
gross profit in the Company's history. However, the increase in gross profit was
somewhat offset by higher selling, general and administrative expenses and
higher interest expenses. Net income for 2000 increased 13% over 1999 to $9.1
million from $8.0 million. The Company sold 1,785 homes during 2000 with a sales
value of $331.8 million compared to 1,680 homes sold during 1999 with a sales
value of $283.4 million, a 17% increase in sales value. The Company closed 1,798
homes during 2000 that generated $326.4 million in revenues compared to 1,641
homes closed during 1999 that generated $277.6 million in revenues. Revenues
increased because the average sales price of homes delivered in 2000 increased
to $180,800 from $168,800 in 1999, an increase of $12,000, or 7.1%, per home,
and because of the larger number of homes closed during 2000 than 1999. The
Company had 777 sales contracts in backlog at December 31, 2000, with a record
sales value of $153.9 million, compared to 790 homes, with a sales value of
$140.2 million, at December 31, 1999. Selling, general and administrative
expenses increased $7.2 million during 2000, principally due to additional
selling expenses associated with the larger sales volume, increased investment
in the Louisville, Kentucky homebuilding market and the start-up of the
Company's mortgage services company. As a percentage of revenues, selling,
general and administrative expense for 2000 increased to 12.5% from 12.2% for
1999. Interest expense for 2000 increased $3.1 million due to higher borrowings
and the higher interest rates that the Company experienced during 2000. The
Company incurred higher borrowings during 2000 principally due to the more
expensive homes under construction and increased investment in real estate
inventories during 2000. As a percentage of revenues, interest expense for 2000
increased to 2.8% from 2.1% for 1999.
The Company has over 40 sales communities in Central Ohio and 5 in
Louisville, Kentucky. During 2000 the Company added to its inventory of land,
ensuring a continued supply of desirable lots despite increasing regulatory and
community pressures to limit lot availability. At December 31, 2000 the Company
owned or controlled land that could be developed into over 14,000 lots in
Central Ohio and 1,000 lots in Louisville, Kentucky.
On November 16, 1999, the Company formed DHFS to provide mortgage
services to the Company's customers, to better manage the home buying experience
and to better control the costs of providing financing. DHFS is a wholly owned
subsidiary of the Company that began operating in second quarter 2000. By the
end of 2000 DHFS originated most of the mortgage financing for its customers.
COMPANY OUTLOOK
The year 2001 is a year of uncertainty for the Company. On the one
hand, the Company believes it is well positioned in the homebuilding market for
2001 because of its backlog of sales contracts, the variety of its home products
and its inventory of new home sites. During 2001 the Company expects to solidify
its position as one of the leading homebuilders in Louisville, Kentucky and to
take advantage of its mortgage services company's first full year of operations.
On the other hand, a slowing economy and eroding consumer confidence in the
economy pose risks that homebuilding activity could slow and revenues and gross
profit margins could be adversely affected.
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15
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995
The statements contained in this report under the captions "Company
Outlook" and other provisions of this report which are not historical facts are
"forward looking statements" that involve various important risks, uncertainties
and other factors which could cause the Company's actual results for 2001 and
beyond to differ materially from those expressed in such forward looking
statements. These important factors include, without limitation, the following
risks and uncertainties: real or perceived adverse economic conditions,
increases in mortgage interest rates, changes in mortgage finance programs,
increases in the cost of acquiring and developing land, mortgage service
commitments that expire prior to homes being delivered, entry into the mortgage
services business, the Company's ability to install public improvements or build
and close homes on a timely basis due to adverse weather conditions, delays or
adverse decisions in the zoning, permitting, subdivision platting or inspection
processes, the effect of changing consumer tastes on the market acceptance for
the Company's homes, the impact of competitive products and pricing, the effect
of shortages or increases in the costs of materials, subcontractors, labor,
utility infrastructure, financing, the continued availability of credit, the
commencement or outcome of litigation, the impact of changes in government
regulation, problems that could arise from further expansion into the
Louisville, Kentucky market and other risks described in the Company's
Securities and Exchange Commission filings.
SEASONALITY AND VARIABILITY IN QUARTERLY RESULTS
The Company has experienced, and expects to continue to experience,
significant seasonality and quarter-to-quarter variability in homebuilding
activity. Typically, closings and related revenues will increase in the second
half of the year. The Company believes this seasonality reflects the tendency of
homebuyers to shop for a new home in the Spring with the goal of closing in the
Fall or Winter. Weather conditions can also accelerate or delay the scheduling
of closings.
The following table sets forth certain data for each of the last eight
quarters:
Sales Backlog
Three Revenues Contracts Closings (at period end)
Months Ended (in thousands) (in units)(1) (in units) (in units)
------------ -------------- ------------- ---------- ----------
Mar. 31, 1999 $ 52,774 453 331 873
June 30, 1999 $ 72,795 412 436 849
Sept. 30, 1999 $ 73,067 404 428 825
Dec. 31, 1999 $ 78,941 411 446 790
Mar. 31, 2000 $ 62,218 608 359 1,039
June 30, 2000 $ 76,492 420 443 1,016
Sept. 30, 2000 $ 87,547 353 482 887
Dec. 31, 2000 $100,158 404 514 777
- ---------------------
(1) Net of cancellations.
At December 31, 2000 the aggregate sales value of homes in backlog
was $153.9 million compared to $140.2 million at December 31, 1999. The average
sales value of homes in backlog at December 31, 2000 increased to $198,096 from
$177,500 at December 31, 1999.
The Company annually incurs a substantial amount of indirect
construction costs which are essentially fixed in nature. For purposes of
quarterly financial reporting, the Company capitalizes these costs to real
estate inventories on the basis of the ratio of estimated annual indirect costs
to direct construction costs to be incurred. Thus, variations in construction
activity cause fluctuations in interim and annual gross profits.
14
16
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
items from the Statements of Operations contained in the Financial Statements
expressed as percentages of total revenues, as well as certain operating data:
Year Ended December 31,
2000 1999 1998
---- ---- ----
Revenues 100.0 % 100.0 % 100.0 %
Cost of real estate sold 80.0 80.8 81.2
-------------- -------------- --------------
Gross profit 20.0 19.2 18.8
Selling, general and administrative 12.5 12.2 10.9
-------------- -------------- --------------
Income from operations 7.5 7.0 7.9
Interest expense 2.8 2.1 1.7
-------------- -------------- --------------
Income before income taxes 4.7 4.9 6.2
Provision for income taxes 1.9 2.0 2.6
-------------- -------------- --------------
Net income 2.8 % 2.9 % 3.6 %
============== ============== ==============
Homes:
Sales contracts 1,785 1,680 1,402
Closings 1,798 1,641 1,387
Backlog at year end 777 790 703
Average sales price of homes closed
during the year (in thousands) $ 181 $ 169 $ 148
Average sales value of homes in backlog
at year end (in thousands) $ 198 $ 177 $ 152
Aggregate sales value of homes in
backlog at year end (in thousands) $ 153,921 $140,220 $106,686
A home is included in "sales contracts" when the Company's standard
sales contract, which requires a deposit and generally has no contingencies
other than for buyer financing and/or for the sale of an existing home, is
executed. "Closings" or "deliveries" represent homes for which the closing has
occurred and conveyance of the deed has passed from the Company to the buyer.
Revenue and cost of real estate sold are recognized at the time of closing.
"Backlog" represents homes for which the Company's standard sales contract has
been executed, but for which closings had not occurred as of the end of the
period.
Homes included in "sales contracts" in the foregoing table are net of
cancellations. Most cancellations occur because customers cannot qualify for
financing. While most cancellations occur prior to the start of construction,
some cancellations occur during the construction process. The cancellation rates
for homes in backlog as of December 31, 1999, 1998 and 1997 were 11.6%, 10.4%,
and 14.5%, respectively.
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17
2000 COMPARED TO 1999
REVENUES. Revenues for 2000 increased to $326.4 million from the
delivery of 1,798 homes compared to 1999 revenues of $277.6 million from the
delivery of 1,641 homes. Revenues for 2000 increased $48.8 million, or 17.6%,
due to closing 157 more homes at a higher average price of delivered home.
Included in the 1,798 homes delivered in 2000 were 28 homes, with a sales value
of $4.8 million, that were sold and leased back by the Company for use as model
homes and sales offices. The Company did not sell and lease back any model homes
during 1999. The average price of homes delivered in 2000 increased to $180,800
from $168,800 in 1999, an increase of $12,000, or 7%, per home. The higher
average price of delivered homes in 2000 was the result of the Company
emphasizing the sale of larger homes and homes with more options, combined with
increased FHA mortgage limits. The increased FHA mortgage limits allowed
homebuyers to qualify for larger mortgages while minimizing their required down
payment. Included in revenues are other revenue, consisting of revenues from the
Company's mortgage company and the sale of land and building supplies to other
builders. These other revenues amounted to $1,421,000 during 2000 compared to
$607,000 during 1999.
GROSS PROFIT. Gross profit for 2000 increased to $65.3 million from
$53.1 million in 1999. Gross profit as a percentage of revenues also increased
in 2000 to 20.0% from 19.2% in 1999. The primary reasons for the increase in
2000 gross profit were the higher average sales price of homes delivered,
reduced costs associated with its customer's mortgage financing and more
effective control of financing and direct construction costs during 2000
compared to 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 2000 increased to $40.8 million or 12.5% of revenues
compared to $33.6 million or 12.2% of revenues for 1999. Selling, general and
administrative expenses increased primarily due to expanded operations in the
Louisville, Kentucky market, costs of the mortgage services subsidiary and
variable costs associated with selling more and larger homes.
INTEREST EXPENSE. Interest expense for 2000 increased to $9.1 million
from $6.0 million for 1999. As a percentage of revenues, interest expense for
2000 increased to 2.8% from 2.1% for 1999. The primary reasons for the increase
in interest expense were higher average revolving line of credit borrowings and
a higher weighted average interest rate. The Company required higher average
revolving line of credit borrowings due to the more expensive homes under
construction during 2000 and the increased investment in real estate
inventories. The average revolving line of credit borrowings outstanding were
$110.4 million and $82.3 million for 2000 and 1999, respectively. The weighted
average rate of interest under the Company's revolving line of credit was 8.5%
for 2000 compared to 7.5% for 1999. The Company capitalized an additional
$386,000 in interest in 2000 compared to 1999 due to the larger dollar value of
the backlog and increased real estate inventories.
PROVISION FOR INCOME TAXES. Income tax expense for 2000 increased to
$6.3 million from $5.5 million for 1999. The Company's estimated annual
effective tax rate increased to 41.2% for 2000 from 40.5% for 1999.
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18
1999 COMPARED TO 1998
REVENUES. Revenues for 1999 increased to $277.6 million from the
delivery of 1,641 homes compared to 1998 revenues of $264.9 million from the
delivery of 1,735 homes. Revenues for 1999 increased $12.7 million or 4.8% due
to a higher average price of delivered homes. The average price of homes
delivered in 1999 increased to $168,800 from $150,300 in 1998, an increase of
$18,500, or 12.3%, per house. The higher average price of delivered homes in
1999 was the result of the Company emphasizing the sale of larger homes and
homes with more options, combined with increased FHA mortgage limits. The
increased FHA mortgage limits allowed homebuyers to qualify for larger mortgages
while minimizing their required down payment. The number of closings in 1999
decreased by 94 homes compared to 1998, principally due to the record number of
homes sold in first quarter 1998. Included in revenues are other revenues
consisting of the sale of land and building supplies to other builders. These
other revenues amounted to $607,000 during 1999 compared to $4.2 million during
1998.
GROSS PROFIT. Gross profit for 1999 increased to $53.1 million from
$49.8 million in 1998. Gross profit as a percentage of revenues also increased
in 1999 to 19.2% from 18.8% in 1998. The primary reasons for the increase in
1999 gross profit were the higher average sales price of homes delivered and
more effective control of financing and direct construction costs during 1999
compared to 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1999 increased to $33.6 million or 12.2% of revenues
compared to $28.7 million or 10.9% of revenues for 1998. Selling, general and
administrative expenses increased primarily due to start-up costs in the
Louisville, Kentucky market, higher lease and amortization expense of technology
improvements and investment in corporate infrastructure.
INTEREST EXPENSE. Interest expense for 1999 increased to $6.0 million
from $4.6 million for 1998. As a percentage of revenues, interest expense for
1999 increased to 2.1% from 1.7% for 1998. The primary reasons for the increase
in interest expense were higher average revolving line of credit borrowings,
offset by a slightly lower average interest rate. The average revolving line of
credit borrowings increased during 1999 compared to 1998 due to the more
expensive homes under construction during 1999 and the start-up of the
operations in Louisville, Kentucky. The average revolving line of credit
borrowings outstanding were $82.3 million and $56.0 million for 1999 and 1998,
respectively. The weighted average rate of interest under the Company's
revolving line of credit was 7.5% for 1999 compared to 7.7% for 1998. The
Company also capitalized an additional $407,000 in interest in 1999 compared to
1998 due to the larger backlog and increased real estate inventories.
PROVISION FOR INCOME TAXES. Income tax expense for 1999 decreased to
$5.5 million from $6.9 million for 1998. The Company's estimated annual
effective tax rate decreased to 40.5% for 1999 from 41.9% for 1998.
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LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's capital needs have depended upon sales
volume, asset turnover, land acquisition and inventory levels. The Company's
traditional sources of capital have been internally generated cash, bank
borrowings and seller financing. The Company has incurred substantial
indebtedness in the past and expects to incur substantial indebtedness in the
future to fund its operations and its investment in land.
SOURCES AND USES OF CASH
2000 COMPARED TO 1999
Net cash required by homebuilding operations decreased $15.5 million
during 2000 to $10.0 million from $25.5 million the previous year. Net cash
invested in operations decreased principally because the Company invested $7.9
million less in real estate inventories during 2000 than in 1999 and because it
increased its provisions for home construction and warranty costs by $6.3
million. Net income for 2000 provided operating activities with cash of $9.1
million compared to $8.0 million for 1999. The Company's principal use of cash
during 2000 was its $25.9 million investment in real estate inventories, which
included additional cash used for land development of $18.1 million, homes under
construction of $6.4 million and building materials of $1.4 million. Net cash
used in investing activities during 2000 was $1.6 million compared to $1.1
million during 1999. Financing activities provided the Company with $10.8
million in cash compared to $29.2 million the previous year. The bank credit
facility provided $13.3 million during 2000, which was used principally to fund
real estate inventories.
SOURCES AND USES OF CASH
1999 COMPARED TO 1998
Net cash required by homebuilding operations increased $23.3 million
during 1999 to $25.5 million, from $2.2 million the previous year. Net cash
required by operations increased as the Company invested $32.7 million, or $20.5
million more than during 1998, in real estate inventories. Investment in real
estate inventories during 1999 included land development costs of $23.0 million,
homes under construction of $9.4 million and building materials of $300,000. Net
income for 1999 provided operating activities with cash of $8.0 million compared
to $9.6 million for 1998. Net cash used in investing activities during 1999 was
$1.1 million compared to $2.0 million during 1998. Financing activities provided
the Company with $29.2 million in cash compared to $4.2 million the previous
year. The bank credit facility provided $31.9 million during 1999, which was
used principally to fund real estate inventories.
18
20
REAL ESTATE INVENTORIES
The Company's practice is to develop most of the lots upon which it
builds its homes. Generally, the Company attempts to maintain a land inventory
that will be sufficient to meet its anticipated lot needs for the next three to
five years. At December 31, 2000, the Company either owned or was under contract
to purchase lots or land that could be developed into approximately 7,700 lots,
including 600 lots in Louisville, Kentucky. The Company controlled through
option agreements 7,600 additional lots, including 500 lots in Louisville,
Kentucky. During 2000, the Company exercised options to purchase 2,600 lots,
including 32 lots in Louisville, Kentucky. Option agreements expire at varying
dates through 2009. The Company's decision to exercise any particular option or
otherwise acquire additional land is based upon an assessment of a number of
factors, including its existing land inventory at the time and its evaluation of
the future demand for its homes.
Real estate inventories increased to $184.5 million at December 31,
2000 compared to $159.2 million at December 31, 1999. Land and land development
costs increased $17.5 million, homes under construction increased $6.4 million
and other inventories, consisting primarily of lumber and other building
materials, increased $1.4 million, for a combined increase of $24.2 million. Of
the $17.5 million increase in land and land development costs, $6.1 million is
due to new land inventories in Louisville, Kentucky. The balance of the increase
in land and land development inventories is principally due to the increased
cost of land and the Company's need to support a larger number of sales
communities. Homes under construction inventories increased principally due to
higher sales value of homes under construction at December 31, 2000 compared to
December 31, 1999.
On December 31, 2000, the Company had 132 inventory homes, including 13
in Louisville, Kentucky, in various stages of construction, which represented an
aggregate investment of $11.1 million. At December 31, 1999, the Company had 108
inventory homes, including 10 in Louisville, Kentucky, in various stages of
construction, which represented an aggregate investment of $9.1 million.
Inventory homes are not reflected in sales or backlog.
SELLER-PROVIDED DEBT
The Company had $1.5 million and $2.4 million of seller-provided term
debt outstanding at December 31, 2000 and 1999, respectively. The Company
expects to repay $1.4 million of seller-provided term debt in 2001 and the
remaining balance in August 2002. Interest rates range from 6.5% to 8.0%.
LAND PURCHASE COMMITMENTS
At December 31, 2000, the Company had commitments to purchase
residential lots and unimproved land at an aggregate cost of $10.3 million, of
which $9.3 million is expected to be funded during 2001. In addition, at
December 31, 2000, the Company had cancelable contracts to purchase residential
lots and unimproved land of $97.3 million of which $48.4 million expires in
2001. These cancelable contracts contain contingencies that in many cases either
delay the completion of the contracts or prevent the contracts from being
completed. In recent years the Company has experienced a greater percentage of
these contracts being delayed for extensive periods of time or not being able to
be completed, primarily due to opposition to acceptable zoning and other
financial issues. See Note 5 to the Consolidated Financial Statements for
additional details. The Company had a total of $6.2 million in good faith
deposits invested in purchase commitments and cancelable purchase obligations at
December 31, 2000.
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INFLATION AND OTHER COST INCREASES
The Company is not always able to reflect all of its cost increases in
the prices of its homes because competitive pressures and other factors
sometimes require it to maintain or discount those prices. While the Company
attempts to maintain costs with subcontractors from the date a sales contract
with a customer is accepted until the date construction is completed,
unanticipated costs may be incurred which cannot be passed on to the customer.
For example, delays in construction of a home can cause the mortgage commitment
to expire and can require the Company, if mortgage interest rates have
increased, to pay significant amounts to the mortgage lender to extend the
original mortgage interest rate. In addition, during periods of high
construction activities, additional costs may be incurred to obtain more
subcontractors when certain trades are not readily available, which additional
costs can result in lower gross profits.
BANK FACILITY
On May 29, 1998 the Company entered into a $125 million Senior
Unsecured Revolving Credit Facility ("the Facility") that was increased to $150
million on May 26, 2000. Five lending banks are party to the Facility, which was
syndicated by Huntington Capital Corp. Huntington National Bank is the
Administrative Agent and Issuing Bank of the Facility. See Note 7 to the
Consolidated Financial Statements for additional details.
The Facility provides for a variable rate of interest on its
borrowings. In order to reduce the risks caused by interest rate fluctuations,
the Company has entered into interest rate swap contracts that fix the interest
rate on a portion of its borrowings under the Facility. For additional
information regarding the interest rate swap contracts the Company has entered
into, see Item 7A Quantitative and Qualitative Disclosures About Market Risk. On
the portion of its borrowings under the Facility that are subject to LIBOR based
interest rates, which includes interest rate swaps, the Company pays a variable
margin based on the Company's Interest Coverage Ratio. The variable margin may
range from 1.75% to 2.50% and is determined quarterly. On January 3, 2001 the
Company entered into an additional $20 million interest rate swap at 5.62% that
matures January 12, 2004. The fair value of the interest rate swap contracts was
$160,000 and $378,000 at December 31, 2000 and 1999, respectively.
As of December 31, 2000, the Company was in compliance with Facility
covenants and had $18.7 million available under its Facility, after adjustment
for borrowing base limitations. Borrowing availability under the Facility could
increase, depending on the Company's utilization of the proceeds.
NEW ACCOUNTING STANDARDS
In June 2000, the Financial Accounting Standards Board (FASB) released
Statement of Financial Accounting Standards (SFAS) No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities - an Amendment to
FASB Statement No. 133, which modifies certain provisions and definitions in
accounting principles used in accounting for derivative and hedging activities.
The Company will be required to adopt SFAS No. 133, as amended by SFAS No. 138,
effective January 1, 2001. SFAS No. 133 standardizes the accounting for
derivative instruments by requiring that all entities recognize them as assets
and liabilities in the balance sheet and subsequently measure them at fair
market value. It also prescribes specific accounting principles to be applied to
hedging activities and hedging transactions, which are significantly different
from prior accounting principles. The Company has identified that SFAS No. 133
provisions will be applied to its interest rate swaps. The impact on the results
of operations and financial position is not expected to be significant. The
Company continues to review its operations for other possible derivative
instruments. The impact of these instruments on the results of operations and
financial position, if any, has not been determined.
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ITEM 7A QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
As of December 31, 2000 the Company had entered into interest rate swap
contracts with an aggregate notional amount of $40 million. These interest rate
swap contracts, reflected in aggregate in the table below, are comprised of: $10
million that commenced on January 14, 1998 and matured on January 14, 2001, $10
Million that commenced on May 6, 1998 and matures on May 6, 2003 and $20 million
that commenced on December 14, 2000 and matures on January 12, 2004. These
interest rate swap contracts fix the variable interest rate on the Company's
revolving credit note at 5.475%, 5.960% and 5.980%, respectively. The Company
enters into interest rate swap contracts to achieve an appropriate level of
variable and fixed-rate debt as approved by senior management. Interest rate
swap contracts allow the Company to have variable-rate borrowings and to select
the level of fixed-rate debt for the Company as a whole. Under interest rate
swap contracts, the Company agrees with other parties to exchange, at specified
intervals, the difference between fixed rate and floating-rate amounts
calculated by reference to an agreed notional amount. The level of fixed rate
debt on December 31, 2000, after the effect of interest rate swap contracts have
been considered, is approximately 38% of total borrowings under the Facility.
The Company prefers, however, to maintain approximately 50% of its borrowings on
a fixed interest rate basis and increased its fixed interest rate borrowings to
approximately 47% of total borrowings in January 2001. The Company did this by
entering into a $20 million interest rate swap on January 3, 2001 that matures
on January 12, 2004 and fixes the variable interest rate on the Company's
revolving credit note at 5.620%. The Company does not enter into derivative
financial instrument transactions for speculative purposes.
The following table presents descriptions of the financial instruments
and derivative instruments that were held by the Company at December 31, 2000,
and which are sensitive to changes in interest rates. For the liabilities, the
table presents principal calendar year cash flows that exist by maturity date
and the related average interest rate. For the interest rate derivatives, the
table presents the notional amounts and expected interest rates that exist by
contractual dates. The notional amount is used to calculate the contractual
payments to be exchanged under the contract. The variable rates are estimated
based on the three-month forward LIBOR rate plus a variable margin of 2.25% for
200l and subsequent years and 1.75% for 2000 and 1999. All amounts are reflected
in U.S. Dollars (thousands).
TOTAL FAIR VALUE
2001 2002 2003 2000 1999 2000 1999
---- ---- ---- ---- ---- ---- ----
LIABILITIES
Variable rate $105,587 $92,308 $105,587 $92,308
Average interest rate 8.149% 7.751%
INTEREST-RATE DERIVATIVES
Notional amount $ 50,000 $ 50,000 $ 40,000 $ 40,000 $30,000 $ 160 $ 378
Average pay rate 5.832% 5.832% 5.800% 5.838% 5.873%
Average receive rate 8.649% 8.649% 8.649% 8.149% 7.751%
21
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ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders
of Dominion Homes, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Dominion Homes, Inc. and its subsidiaries at December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. 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 of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Columbus, Ohio
January 22, 2001
22
24
DOMINION HOMES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
================================================================================
Year ended December 31,
2000 1999 1998
-------------- -------------- --------------
Revenues $ 326,415 $ 277,577 $ 264,937
Cost of real estate sold 261,081 224,474 215,107
-------------- -------------- --------------
Gross profit 65,334 53,103 49,830
Selling, general and administrative 40,808 33,601 28,720
-------------- -------------- --------------
Income from operations 24,526 19,502 21,110
Interest expense 9,125 6,024 4,557
-------------- -------------- --------------
Income before income taxes 15,401 13,478 16,553
Provision for income taxes 6,342 5,460 6,942
-------------- -------------- --------------
Net income $ 9,059 $ 8,018 $ 9,611
============== ============== ==============
Earnings per share
Basic $ 1.42 $ 1.27 $ 1.53
============== =============== ==============
Diluted $ 1.39 $ 1.23 $ 1.46
============== =============== ==============
Weighted average shares outstanding
Basic 6,363,131 6,318,148 6,275,388
============== =============== ==============
Diluted 6,496,720 6,495,796 6,586,752
============== =============== ==============
The accompanying notes are an integral part of the consolidated
financial statements.
23
25
DOMINION HOMES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
December 31,
2000 1999
------------- -------------
ASSETS
Cash and cash equivalents $ 2,106 $ 2,862
Notes and accounts receivable:
Trade 314 212
Due from financial institutions for residential closings 712 544
Real estate inventories
Land and land development costs 113,186 95,657
Homes under construction 66,669 60,272
Other 4,619 3,251
------------- -------------
Total real estate inventories 184,474 159,180
------------- -------------
Prepaid expenses and other 4,639 3,891
Deferred income taxes 2,967 1,904
Property and equipment, at cost: 10,657 9,055
Less accumulated depreciation (4,676) (3,589)
------------- -------------
Total property and equipment 5,981 5,466
------------- -------------
Total assets $201,193 $174,059
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 5,808 $ 5,273
Deposits on homes under contract 1,804 1,634
Accrued liabilities 16,889 11,364
Note payable, banks 105,701 92,308
Term debt 3,103 4,750
------------- -------------
Total liabilities 133,305 115,329
------------- -------------
Commitments and contingencies
Shareholders' equity
Commonshares, without stated value, 12,000,000 shares authorized, 6,407,227
shares issued and 6,382,227 shares outstanding on December 31, 2000
and 6,382,480 shares issued and 6,357,480 shares
outstanding on December 31, 1999 31,611 31,388
Deferred compensation (376) (252)
Retained earnings 36,825 27,766
Treasury stock (172) (172)
------------- -------------
Total shareholders' equity 67,888 58,730
------------- -------------
Total liabilities and shareholders' equity $201,193 $174,059
============= =============
The accompanying notes are an integral part of the consolidated
financial statements.
24
26
DOMINION HOMES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share information)
Common Shares Deferred Compensation
------------- ---------------------
Trust Retained Treasury
Shares Amount Liability Shares Earnings Stock Total
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 6,266,953 30,673 $ (150) 10,137 $40,660
Net Income 9,611 9,611
Shares awarded and redeemed 14,551 178 (208) (30)
Treasury shares:
Held for deferred compensation $ (1,224) (1,224)
Deferred compensation 1,211 1,211
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 6,281,504 30,851 853 (1,224) 19,748 50,228
- -------------------------------------------------------------------------------------------------------------------------
Net Income 8,018 $ 8,018
Shares awarded and redeemed 100,976 537 (170) 367
Treasury shares:
Held for deferred compensation (35) (35)
Other shares purchased (25,000) $ (172) (172)
Deferred compensation 324 324
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 6,357,480 31,388 1,007 (1,259) 27,766 (172) 58,730
- -------------------------------------------------------------------------------------------------------------------------
Net Income 9,059 9,059
Shares awarded and redeemed 24,747 223 (221) 2
Treasury shares:
Held for deferred compensation (45) (45)
Deferred compensation 142 142
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 6,382,227 $ 31,611 $ 928 $ (1,304) $36,825 $ (172) $67,888
- -------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated
financial statements.
25
27
DOMINION HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
----------------------------------------------
2000 1999 1998
----------------------------------------------
Cash flows from operating activities:
Net income $ 9,059 $ 8,018 $ 9,611
Adjustments to reconcile net income to cash used in
operating activities:
Depreciation and amortization 1,864 1,440 618
Reserve for real estate inventories 889 245 (54)
Issuance of common shares for compensation 2 367 42
Deferred income taxes (1,063) (116) 322
Changes in assets and liabilities:
Notes and accounts receivable (270) 146 (307)
Real estate inventories (25,862) (32,700) (12,150)
Prepaid expenses and other (928) (984) (1,413)
Accounts payable 535 (247) (1,250)
Deposits on homes under contract 170 (967) 624
Accrued liabilities 5,620 (699) 1,758
------------- -------------- -------------
Net cash used in operating activities (9,984) (25,497) (2,199)
------------- -------------- -------------
Cash flows from investing activities:
Purchase of property & equipment (1,614) (1,058) (1,996)
------------- -------------- -------------
Net cash used in investing activities (1,614) (1,058) (1,996)
------------- -------------- -------------
Cash flows from financing activities:
Payments on note payable, banks (285,632) (266,884) (254,265)
Proceeds from note payable, banks 299,025 298,777 261,993
Payments on term debt (1,573) (2,057) (1,805)
Payment of deferred financing fees (369) (181) (1,380)
Payments on capital lease obligation (395) (292) (174)
Common shares purchased or redeemed (214) (207) (165)
------------- -------------- -------------
Net cash provided by financing activities 10,842 29,156 4,204
------------- -------------- -------------
Net change in cash and cash equivalents (756) 2,601 9
Cash and cash equivalents, beginning of year 2,862 261 252
------------- -------------- -------------
Cash and cash equivalents, end of year $ 2,106 $ 2,862 $ 261
============= ============== =============
Supplemental disclosures of cash flow information:
Interest paid (net of amounts capitalized) $ 3,097 $ 1,969 $ 792
============= ============== =============
Income taxes paid $ 6,948 $ 5,839 $ 6,636
============= ============== =============
Supplemental disclosures of non-cash financing activities:
Land acquired by purchase contracts or seller financing $ 321 $ 1,572
============= ============== =============
Capital lease obligations $ 1,066 $ 1,364
============= ============== =============
The accompanying notes are an integral part of the consolidated
financial statements.
26
28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS OPERATIONS AND BASIS OF PRESENTATION:
Dominion Homes, Inc. is a single-family homebuilder with operations in
Central Ohio and Louisville, Kentucky. The Company was incorporated in October
1993 in anticipation of its initial public offering of common shares in March
1994. Prior to the initial public offering, the homebuilding operations were
part of BRC Properties Inc. ("BRC"), formerly known as Borror Realty Company.
BRC was incorporated in 1946 and started building homes in 1976. BRC owned
4,176,500 common shares of the Company, or 65.4% of its outstanding common
shares, at December 31, 2000.
On November 16, 1999, Dominion Homes, Inc. formed Dominion Homes
Financial Services, Ltd. ("DHFS") to provide mortgage services, primarily to its
customers. DHFS became operational in second quarter 2000 and by year-end
provided mortgage services to most of Dominion Homes' customers. On December 30,
1999, Dominion Homes, Inc. formed Dominion Homes of Kentucky, Ltd. ("DHK") to
own and operate the Company's homebuilding operations in Louisville, Kentucky.
DHFS is an Ohio limited liability company and DHK is a Kentucky limited
partnership. Both entities are wholly owned by Dominion Homes, Inc. The
accompanying consolidated financial statements include the accounts of DHFS and
DHK. Intercompany transactions are eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS: For purposes of the consolidated statements
of cash flows, all highly liquid investments purchased with an original maturity
of three months or less are considered to be cash equivalents.
REAL ESTATE INVENTORIES: Real estate inventories are recorded at cost.
Land and land development costs are allocated to development phases based on the
total number of lots expected to be developed within each subdivision. As each
development phase is completed, land development costs, including capitalized
interest and real estate taxes, are then allocated to individual lots. Homes
under construction include land development costs, construction costs,
capitalized interest and indirect costs related to development and construction
activities. Indirect costs that do not relate to development and construction
activities, including general and administrative expenses, are charged to
expense as incurred. Other inventories consist primarily of lumber and building
supplies.
Management evaluates the recoverability of its real estate inventories
using several factors including, but not limited to, management's plans for
future operations, recent operating results and projected cash flows.
PROPERTY AND EQUIPMENT: Depreciation and amortization are recognized on
straight-line and declining-balance methods at rates adequate to amortize costs
over the estimated useful lives of the applicable assets. The estimated useful
lives of the assets range from three to forty years. Property and equipment
includes assets subject to capital leases with a cost of $2,058,000 and
$2,421,000, net of accumulated amortization of $566,000 and $476,000 at December
31, 2000 and 1999, respectively. Depreciation expense was $1,099,000, $815,000
and $534,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
Maintenance, repairs and minor renewals are charged to expense as
incurred while major renewals and betterments are capitalized and amortized. The
asset cost and accumulated depreciation is removed for assets sold or retired,
and any resulting gain or loss is reflected in operations.
27
29
COMPUTER SOFTWARE COSTS: The Company capitalizes the costs of acquired
software and directly related implementation costs.
EARNINGS PER SHARE: Basic earnings per common share is computed by
dividing net income available to common shareholders by the weighted average
number of common shares outstanding during each period. Diluted earnings per
common share computations include common share equivalents, when dilutive.
WARRANTY COSTS: The Company provides a two-year limited warranty on
materials and workmanship and a thirty-year warranty against major structural
defects. An estimated amount of warranty cost is provided for each home at the
date of closing based on actual warranty experience. Warranty expense was
$3,552,000, $2,759,000 and $2,250,000 for the years ended December 31, 2000,
1999 and 1998, respectively. Accrued warranty cost was $1,895,000 and $1,180,000
at December 31, 2000 and 1999, respectively.
INCOME TAXES: The Company records income taxes on the liability method.
This method requires the recognition of deferred income taxes for the tax effect
of temporary differences between the amount of assets and liabilities for
financial reporting purposes and such amounts as determined by tax regulations.
REVENUE RECOGNITION ON SALES OF REAL ESTATE: The Company recognizes
revenues from the sale of homes at the time the deed is conveyed from the
Company to the buyer. Accounts receivable due from financial institutions
represent payments to be received on completed closings. Gains on sales of model
homes subject to leasing arrangements are deferred and recognized over the term
of the lease.
CAPITALIZATION OF INTEREST: The Company capitalizes the cost of
interest related to construction costs incurred during the construction period
of homes and land development costs incurred while development activities on
undeveloped land are in process. The summary of total interest is as follows:
Year Ended December 31,
2000 1999 1998
---- ---- ----
Interest incurred $10,430,000 $6,943,000 $5,069,000
Interest capitalized (6,741,000) (4,726,000) (4,247,000)
---------- ---------- ----------
Interest expensed directly 3,689,000 2,217,000 822,000
Previously capitalized interest charged to expense 5,436,000 3,807,000 3,735,000
---------- ---------- ----------
Total interest expense $ 9,125,000 $6,024,000 $4,557,000
========== ========== ==========
Capitalized interest in ending inventory $ 4,609,000 $3,304,000 $2,384,000
========== ========== ==========
DEFERRED COSTS: Fees and costs incurred in connection with financing
agreements are capitalized as other assets and amortized over the terms of the
respective agreements. Amortization expense was $549,000, $385,000 and $298,000
for the years ended December 31, 2000, 1999 and 1998, respectively.
ADVERTISING COSTS: The Company expenses advertising costs when
incurred. Advertising expense was $3,397,000, $2,876,000 and $2,383,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS: The Company has entered into interest
rate swap contracts as hedges against increasing rates on its variable rate
debt. Gains or losses related to the swap contracts are recognized as an
adjustment to interest expense over the life of the agreement.
UTILIZATION OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements
28
30
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS: Certain prior year information has been reclassified
to conform with the current year presentation.
NEW ACCOUNTING STANDARDS: In June 2000, the Financial Accounting
Standards Board (FASB) released Statement of Financial Accounting Standards
(SFAS) No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an Amendment to FASB Statement No. 133, which modifies
certain provisions and definitions in accounting principles used in accounting
for derivative and hedging activities. The Company will be required to adopt
SFAS No. 133, as amended by SFAS No. 138, effective January 1, 2001. SFAS No.
133 standardizes the accounting for derivative instruments by requiring that all
entities recognize them as assets and liabilities in the balance sheet and
subsequently measure them at fair market value. It also prescribes specific
accounting principles to be applied to hedging activities and hedging
transactions, which are significantly different from prior accounting
principles. The Company has identified that SFAS No. 133 provisions will be
applied to its interest rate swaps. The impact on the results of operations and
financial position is not expected to be significant. The Company continues to
review its operations for other possible derivative instruments. The impact of
these instruments on the results of operations and financial position, if any,
has not been determined.
3. AFFILIATED ENTITY:
Alliance Title Agency was created by the Company in order to provide
title insurance to the Company's customers and third parties and to facilitate
the closing of the Company's homes. The Company owns 49.9% of the title
insurance agency and reports its investment using the equity method of
accounting. The Company recognized $455,000, $454,000 and $532,000 as its share
of the earnings from this investment for 2000, 1999 and 1998, respectively. The
Company's investment in the title insurance company was $219,915 and $159,998 at
December 31, 2000 and 1999, respectively, and is included in other assets in the
accompanying balance sheets.
4. EARNINGS PER SHARE:
A reconciliation of weighted average common shares used in basic and
diluted earnings per share calculations are as follows:
2000 1999 1998
---- ---- ----
Weighted average shares - basic 6,363,131 6,318,148 6,275,388
Common share equivalents 133,589 177,648 311,364
--------- --------- ---------
Weighted average shares - diluted 6,496,720 6,495,796 6,586,752
========= ========= =========
As of December 31, 2000, 1999 and 1998 there were 21,045, 129,000 and
109,500 options, respectively, which were antidilutive and have been excluded
from the respective diluted earnings per share calculations above.
29
31
5. LAND PURCHASE COMMITMENTS:
Purchase contracts for residential lots and unimproved land at December
31, 2000 and 1999 are:
2000 1999
---- ----
Number of expected lots 395 88
Purchase price $10,299,500 $ 3,691,000
Less deposits or guarantees (101,500) (1,164,000)
------------------- --------------------
Net land purchase commitments $10,198,000 $ 2,527,000
=================== ====================
The above commitments include the Central Ohio and Louisville, Kentucky
markets.
In addition, at December 31, 2000, the Company had entered into
cancelable contracts to purchase residential lots and unimproved land in
Central, Ohio and Louisville, Kentucky. These cancelable contracts contain
contingencies that in many cases either delay the completion of the contracts or
prevent the contracts from being completed. Cancelable contracts expire in the
following years:
Cancelable
Year Contracts
---- ---------
2001 $48,424,000
2002 20,899,000
2003 11,875,000
2004 7,648,000
Thereafter 8,445,000
-----------
$97,291,000
30
32
6 LAND DEVELOPMENT JOINT VENTURES
The Company has equity interests ranging from 33% to 50% in joint
venture partnerships and limited liability corporations that are engaged in land
development activities. The Company accounts for these investments using the
equity method. The Company's investment in joint ventures, which is included in
land and land development costs, were $13,479,000 and $14,703,000 at December
31, 2000 and 1999, respectively.
Summary financial information representing 100% of operations as of
December 31, 2000 and 1999, are set forth below:
2000 1999
-------------------- -----------------
Land and land under development $35,035,000 $36,791,000
Other assets 389,000 459,000
-------------------- -----------------
Total assets $35,424,000 $37,250,000
==================== =================
Liabilities $ 2,299,000 $ 1,483,000
Partners' equity 33,125,000 35,767,000
-------------------- -----------------
Total liabilities and partners' equity $35,424,000 $37,250,000
==================== =================
2000 1999 1998
-------------------- ----------------- -----------------
Revenues $ 12,000 $20,000
Expenses 97,000 $ 121,000 17,000
-------------------- ----------------- -----------------
(Loss) income $(85,000) $ (121,000) $ 3,000
==================== ================= =================
7. NOTE PAYABLE, BANKS:
On May 29, 1998 the Company entered into a Senior Unsecured Revolving
Credit Facility ("the Facility") on which interest is payable monthly and that
matures on May 31, 2003. The Facility provided that aggregate borrowings and
letters of credit will not exceed the lesser of $125 million or the availability
under a borrowing base. The Facility was amended by a First Consent Agreement,
dated August 9, 1999, to increase to $2.5 million from $500,000, the amount of
Common Shares the Company is allowed to redeem or purchase in the aggregate
through December 31, 2001. A First Amendment to the Credit Agreement was
executed on September 3, 1999 which incorporated the First Consent Agreement and
modified the borrowing base limitations, changed the definition of "Developed
Lots", modified several ratios, reduced the amount the Company is allowed to
invest in speculative homes and changed the amount of investment the Company is
allowed to make in markets outside of Central Ohio. A Second Consent and
Modification to the Facility was entered into on December 30, 1999, permitting
the Company to contribute and transfer certain assets of the Company's division
operating in the metropolitan Louisville, Kentucky area to a new wholly-owned
subsidiary, Dominion Homes of Kentucky Ltd. This subsidiary is a Kentucky
limited partnership and is permitted to incur indebtedness to the Company,
provided such indebtedness meets all other Facility restrictions. A Second
Amendment to Credit Agreement was entered into on May 26, 2000 that increased
the Facility to $150 million from $125 million. On October 31, 2000 a Third
Amendment to Credit Agreement was entered into that amended the terms of the
borrowing base.
31
33
As amended, the Facility contains the following significant provisions:
(1) the Company has the option to use any combination of the following methods
to price the revolving line of credit: (a) the bank's prime rate of interest or
(b) a Eurodollar rate of interest plus a variable margin based upon the
Company's ratio of EBITDA to Interest Expense ("Interest Coverage Ratio"); (2)
the Company has agreed to enter into interest rate contracts in the amount of
fifty percent of the outstanding borrowings in the event the Eurodollar rate
(without regard to the variable margin) becomes 8.50% per annum or greater; (3)
the Company has agreed to the following ratios: (a) Interest Coverage Ratio of
not less than 2.25 to 1.00 determined quarterly and based upon the preceding
four quarters; (b) total liabilities to tangible net worth of not greater than
2.50 to 1.00 through December 31, 2001 (2.75 to 1.00 from May 1 through August
31) and 2.25 to 1.00 from and after January 1, 2002 (2.50 to 1.00 from May 1
through August 31); (4) the Company has agreed to maintain at all times a ratio
of uncommitted land holdings to tangible net worth not greater than 2.00 to 1.00
through December 31, 2001 and not greater than 1.75 to 1.00 thereafter; (5) the
Company shall not, without lender approval, exceed the aggregate sum of $25
million for investments in uncommitted land holdings, speculative homes, model
homes and acquisitions of companies in the homebuilding industry outside of
Central Ohio or metropolitan Louisville, Kentucky, except that the Company may
not invest more than $15 million of such amount in one or more "start-up"
operations that are not associated with an ongoing business acquisition or more
than $20 million in the metropolitan Louisville, Kentucky area; (6) the Company
must maintain a tangible net worth of not less than $45 million plus
seventy-five percent of annual net income beginning with the fiscal year ending
December 31, 1999; (7) the Company shall not exceed the aggregate principal sum
of $10 million for other borrowings, additional debt or capital lease
obligations, except that the Company may borrow an additional $5 million of
non-recourse indebtedness from sellers of real estate, provided that such
additional non-recourse borrowings are fully reserved under the borrowing base;
(8) the Company shall not exceed $3 million of operating lease rentals and $2
million of model home rentals; (9) the Company shall not purchase, without
lender approval, unzoned land in excess of $1.0 million; (10) the Company will
not permit the value of its inventory homes to exceed $12.5 million and its
model homes to exceed $6.5 million; (11) the Company may not incur a loss during
any five consecutive quarters; and (12) the Company may not pay dividends during
any calendar year in excess of twenty-five percent of the Company's net income
after taxes for such year.
Note payable, banks consisted of $105,587,000 and $92,308,000 as of
December 31, 2000 and 1999, respectively due under the Facility.
The Facility provides for a variable rate of interest on its
borrowings. In order to reduce the risks caused by interest rate fluctuations,
the Company has entered into interest rate swap contracts that fix the interest
rate on a portion of its borrowings under the Facility. The Company's intention
is to maintain a fixed rate of interest on approximately 50% of its outstanding
borrowings. However, market conditions and timing effect the Company's ability
to maintain this balance between fixed and variable interest rates. As of
December 31, 2000 the Company had fixed the interest rate on 38%, or $40
million, of borrowings using interest rate swap contracts. Included in the
interest rate swaps at December 31, 2000 were a $10 million interest rate swap
at 5.48% that matures January 14, 2001, a $10 million interest rate swap at
5.96% that matures May 6, 2003 and a $20 million interest rate swap at 5.98%
that matures January 12, 2004. The fixed interest rates noted for the above
interest rate swaps does not include a variable margin that the Company also
pays that is based on the Company's Interest Coverage Ratio. The variable margin
may range from 1.75% to 2.50% and is determined quarterly. On January 3, 2001
the Company entered into an additional $20 million interest rate swap at 5.62%
that matures January 12, 2004. The fair value of the interest rate swap
contracts was $160,000 and $378,000 at December 31, 2000 and 1999, respectively.
As of December 31, 2000 and 1999 the Company was in compliance with
Facility covenants and had $18.7 million and $16.2 million, respectively,
available under the Facility, after adjustment for borrowing base limitations.
However, the borrowing availability under the Facility could increase, depending
on the Company's utilization of the proceeds.
32
34
The Company had a combined $20.9 million in irrevocable letters of
credit and performance bonds outstanding at December 31, 2000. The letters of
credit and performance bonds were issued to municipalities and other individuals
to ensure performance and completion of certain land development activities and
as collateral for land purchase commitments. The Company does not anticipate
incurring any liabilities with respect to the letters of credit and performance
bonds.
Information regarding the bank borrowings is summarized as follows:
2000 1999 1998
---- ---- ----
Borrowings outstanding:
Maximum amount $118,738,000 $95,865,000 $62,791,000
Average amount $110,444,000 $82,270,000 $56,049,000
Weighted average daily interest rate
during the year 8.5% 7.5% 7.7%
Interest rate at December 31 8.8% 8.0% 7.4%
8. TERM DEBT:
Term debt consisted of the following as of December 31:
2000 1999
---- ----
6.5 % Mortgage note payable due in installments
through August 2001 $1,213,000 $2,425,000
8.0% Mortgage note payable due in installments
through June 2002 320,000
8.0% Mortgage note payable due in installments
through February 2000 360,000
Capital lease obligations due in installments
through March 2004 1,570,000 1,965,000
-------------------- ------------------
Total term debt $3,103,000 $4,750,000
==================== ==================
Term debt matures in years subsequent to December 31, 2000 as follows:
Term Capital
Debt Lease Total
---- ----- -----
2001 $1,373,000 $ 542,000 $1,915,000
2002 160,000 542,000 702,000
2003 542,000 542,000
2004 159,000 159,000
----------------- ----------------- ------------------
1,533,000 1,785,000 3,318,000
Less amounts representing interest (215,000) (215,000)
----------------- ----------------- ------------------
$1,533,000 $1,570,000 $3,103,000
================= ================= ==================
33
35
9. INCOME TAXES:
The provision for income taxes consists of the following for the years
ended December 31, 2000, 1999 and 1998.
2000 1999 1998
---- ---- ----
Currently payable:
Federal $ 5,784,000 $4,142,000 $ 5,212,000
State and local 1,621,000 1,202,000 1,408,000
------------------ ------------------ ------------------
7,405,000 5,344,000 6,620,000
Deferred:
Federal (854,000) 25,000 276,000
State (209,000) 91,000 46,000
------------------ ------------------ ------------------
(1,063,000) 116,000 322,000
------------------ ------------------ ------------------
Income tax expense $ 6,342,000 $5,460,000 $6,942,000
================== ================== ==================
The components of the net deferred tax asset at December 31 are as
follows:
2000 1999
---- ----
Assets:
Accrued expenses $2,397,000 $1,737,000
Deferred gain 294,000 281,000
Valuation reserves 208,000
--------------- ---------------
Gross deferred tax assets 2,899,000 2,018,000
Liabilities:
Property and equipment 126,000 56,000
Other (58,000) 58,000
--------------- ---------------
Gross deferred tax liabilities 68,000 114,000
Net deferred income taxes
as recorded on the balance sheet $2,967,000 $1,904,000
=============== ===============
A reconciliation of the federal corporate income tax rate and the
effective tax rate is summarized below for the years ended December 31, 2000,
1999 and 1998:
2000 1999 1998
------- ------- -------
Statutory income tax rate 34.0% 34.0% 34.3%
Permanent differences .7% .6% .4%
State and local taxes, net of federal benefit 7.0% 5.9% 6.1%
Other (.5)% 1.1%
--------- -------- --------
Effective income tax rate 41.2% 40.5% 41.9%
========= ======== ========
34
36
10. OPERATING LEASE COMMITMENTS:
Rent expense charged to operations is primarily for model homes,
vehicles, equipment and office facilities, including month-to-month leases and
noncancelable commitments. Rent expense amounted to $3,016,000, $2,177,000 and
$2,011,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
(See also Note 11 - Related Party Transactions.)
Minimum rental commitments due under noncancelable leases are as
follows:
Minimum
Year Rentals
---- -------
2001 $1,931,000
2002 1,277,000
2003 812,000
2004 596,000
2005 478,000
----- ----------
$5,094,000
==========
11. RELATED PARTY TRANSACTIONS:
The Company leases its corporate offices from BRC. The lease was
effective January 1, 1998 for a term of twelve years with a rental rate of
$12.00 per square foot on a total net basis. The lease contains two options to
renew for periods of five years each at then-current market rates. The rental
rates were established by an MAI appraiser commissioned by the Affiliated
Transaction Review Committee of the Company's Board of Directors, and confirmed
in a review by a second MAI appraiser. Lease expense was $451,000 for the years
ended December 31, 2000, 1999 and 1998.
The Company and BRC have also entered into operating lease agreements
under which the Company leases space in a shopping center from BRC. Lease
expense under these agreements for the years ended December 31, 2000, 1999, and
1998 was $156,000, $70,000 and $62,000, respectively. These lease agreements
have been approved by the Company's Affiliated Transaction Review Committee.
BRC paid the Company $25,000 in 2000, 1999 and 1998, respectively, for
miscellaneous services performed by Company personnel.
The Company acquired printing services from a printing company
principally owned by members of the Borror family. Such services aggregated
$98,000, $80,000 and $225,000 for the years ended December 31, 2000, 1999 and
1998, respectively.
12. RETIREMENT PLAN:
The Company offers a retirement plan intended to meet the requirements
of Section 401(k) of the Internal Revenue Code and that covers substantially all
employees after one year of service. On January 1, 1999, the Company began
matching 100% of the first 3% of employee voluntary deferrals of compensation
and 50% of the next 2% of voluntary deferrals of compensation. The Company's
contributions to the plan amounted to $511,000, $454,000 and $447,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.
35
37
13. INCENTIVE STOCK AND EXECUTIVE DEFERRED COMPENSATION PLANS:
In March 1994, the Company adopted the Dominion Homes, Inc. Incentive
Stock Plan (the "Plan"). The Plan is administered by the Compensation Committee
of the Board of Directors, and provides for grants of performance awards of
Common Shares, restricted Common Shares, incentive stock options and
non-qualified options for the purpose of attracting, motivating and retaining
key employees and eligible directors. The Plan provides for discretionary grants
to employees of the Company and annual non-discretionary stock option grants to
purchase 2,500 shares of stock to each non-employee director. A maximum of
850,000 Common Shares have been reserved for issuance under the Plan. The Plan
provides that grants shall include certain terms and conditions and be subject
to certain restrictions as provided for under applicable provisions of the
Internal Revenue Code and federal securities laws. In general, grants of options
are subject to vesting schedules at twenty percent a year, set forth an exercise
price that is equal to the fair market value on the grant date (110% of the fair
market value for 10% shareholders), and must be exercised within ten years of
the grant date (5 years for 10% shareholders).
In December 1994, the Company adopted a non-qualified Executive
Deferred Compensation Plan for directors and certain executives. Under this
plan, participants may elect to defer a portion of their compensation (up to 20%
of total base and bonus for employees and 100% of director fees). At December 31
of each year, the Company provides a matching contribution of 25% of the amount
deferred in a given year by a participant, provided that the Company's matching
contribution will not exceed $2,500 in any year. The Company's contribution
vests in 20% increments over a five-year period. As originally adopted,
contributions were to be converted into theoretical common shares and adjusted
in future periods based on the market value of the Common Shares, similar to
stock appreciation rights. On October 29, 1997, the Board of Directors approved
an Amended and Restated Executive Deferred Compensation Plan under which
contribution and matching amounts are used by the trustee to acquire Common
Shares of the Company in the open market. These Common Shares are held and voted
by the trustee pursuant to a Rabbi Trust Agreement.
The Company has entered into agreements with certain employees that
provide for the transfer of life insurance benefits to the employees in the
event that certain performance and employment criteria are met. Until the
performance and employment criteria are met, premiums paid on the life insurance
contracts, up to the accumulated cash value, are retained by the Company. In
most cases the employment criteria cannot be met for a minimum of ten years.
Once the performance and employment criteria are met, the accumulated cash value
of the life insurance contracts will be transferred to the employee as a
retirement benefit. Premiums on the life insurance contracts are expensed as
incurred and the Company has recognized an asset for the cash value of life
insurance of $793,000 and $341,000, at December 31, 2000 and 1999, respectively.
36
38
The Company applies APB Opinion 25 and related Interpretations in
accounting for its plans. The Company recognized expense for the Executive
Deferred Compensation Plan of $80,000, $41,000 and $48,000 for the plan years
ended December 31, 2000, 1999 and 1998, respectively. No compensation cost has
been recognized for its Incentive Stock Plan. Had compensation cost for the
Company's Incentive Stock Plan been determined based on the fair value of awards
at the grant dates, the Company's net income and earnings per share would have
been reduced to the pro forma amounts indicated below:
2000 1999 1998
---- ---- ----
Net income Pro forma $8,914,000 $7,791,000 $9,467,000
As Reported $9,059,000 $8,018,000 $9,611,000
Diluted earnings per share Pro forma $1.37 $1.20 $1.44
As Reported $1.39 $1.23 $1.46
Weighted-average fair value
of options granted during
the year $4.03 $3.90 $7.79
In determining the pro forma amount of stock-based compensation, the
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: no dividend yield; expected volatility of 80.0%, 80.0%, and 50.0%
for 2000, 1999 and 1998, respectively; risk-free interest rates of 6.5%, 5.5%,
and 5.5% for the 2000, 1999 and 1998 Plan options, respectively; and expected
life of 6 years for the Plan options.
37
39
A summary of the status of the Company's Incentive Stock Plan as of
December 31, 2000, 1999 and 1998, respectively, and changes during the years
then ended is presented below:
2000 1999 1998
-------- -------- --------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Fixed Options Price Shares Price Shares Price Shares Price
------------------- ------ ------------ ------ ------------ ------ -----
Outstanding at beginning of
year 533,600 $ 6.32 583,100 $ 5.89 490,500 $ 3.95
Granted 7,500 $ 5.50 67,500 $ 7.04 113,500 $ 14.24
Cancelled or forfeited (123,900) $ 12.04 (43,000) $ 5.93 (13,500) $ 5.29
Exercised (6,600) $ 3.63 (74,000) $ 3.83 (7,400) $ 6.73
-------- ------- -------
Outstanding at end of year 410,600 $ 4.64 533,600 $ 6.32 583,100 $ 5.89
======== ======= =======
Options exercisable at end of
year 377,100 $ 4.43 332,280 $ 5.31 289,560 $ 4.67
======== ======= =======
The following table summarizes information about fixed stock options outstanding
at December 31, 2000:
Weighted
Year Range of Number Average Remaining Number
Issued Exercise Prices Outstanding Contractual Life Exercisable
------ --------------- ----------- ----------------- -----------
1995 $ 3.88 - $ 4.50 126,600 4 Years 126,600
1996 $ 3.25 - $ 4.13 158,500 5 Years 158,500
1997 $ 4.75 65,000 6 Years 53,500
1998 $12.69 - $14.50 11,500 7 Years 9,900
1999 $ 6.00 - $ 8.50 41,500 8 Years 21,100
2000 $ 5.50 7,500 9 Years 7,500
--------- ---------
410,600 377,100
========= =========
14. COMMITMENTS AND CONTINGENCIES:
The Company is involved in various legal proceedings, most of which
arise in the ordinary course of business and some of which are covered by
insurance. In the opinion of the Company's management, none of the claims
relating to such proceedings will have a material adverse effect on the
financial condition or results of operations of the Company.
38
40
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Quarter Ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Revenues:
2000 $ 62,218 $ 76,492 $ 87,547 $ 100,158
1999 $ 52,774 $ 72,795 $ 73,067 $ 78,941
Gross profit:
2000 $ 11,999 $ 15,303 $ 17,972 $ 20,060
1999 $ 9,988 $ 13,463 $ 14,215 $ 15,437
Income before income taxes:
2000 $ 1,275 $ 3,573 $ 5,435 $ 5,118
1999 $ 1,252 $ 3,215 $ 4,544 $ 4,467
Net income:
2000 $ 757 $ 2,072 $ 3,152 $ 3,078
1999 $ 723 $ 1,868 $ 2,683 $ 2,744
Basic earnings per share:
2000 $ 0.12 $ 0.33 $ 0.50 $ 0.47
1999 $ 0.11 $ 0.30 $ 0.43 $ 0.43
Diluted earnings per share:
2000 $ 0.12 $ 0.32 $ 0.48 $ 0.47
1999 $ 0.11 $ 0.29 $ 0.42 $ 0.41
39
41
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In accordance with General Instruction G(3), the information contained
under the captions "BOARD OF DIRECTORS AND MANAGEMENT" and "SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on May 2, 2001, to
be filed with the Securities and Exchange Commission pursuant to Regulation 14A
promulgated under the Securities Exchange Act of 1934, is incorporated herein by
reference.
ITEM 11 EXECUTIVE COMPENSATION
In accordance with General Instruction G(3), the information contained
under the captions "COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS" in the
Company's definitive Proxy Statement for the Annual Meeting of Shareholders to
be held on May 2, 2001 to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A promulgated under the Securities Exchange Act of
1934, is incorporated herein by reference. Neither the report of the
Compensation Committee of the Company's Board of Directors on executive
compensation nor the share price performance graph included in the Company's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
May 2, 2001, shall be deemed to be incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In accordance with General Instruction G(3), the information contained
under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" in the Company's definitive Proxy Statement for the Annual Meeting
of Shareholders to be held on May 2, 2001, to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934, is incorporated herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with General Instruction G(3), the information contained
under the caption "CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS" in the
Company's definitive Proxy Statement for the Annual Meeting of Shareholders to
be held on May 2, 2001, to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A promulgated under the Securities Exchange Act of
1934, is incorporated herein by reference.
40
42
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) (1) Financial Statements.
--------------------
The consolidated financial statements filed as part of this Annual
Report on Form 10-K are the balance sheets of the Registrant as of
December 31, 2000 and 1999, and the related statements of operations,
changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 2000, together with the notes
thereto.
(a) (2) Financial Statement Schedules.
-----------------------------
There are no financial statement schedules required to be filed with
this Annual Report on Form 10-K.
(a) (3) Exhibits.
--------
Exhibits filed with this Annual Report on Form 10-K are attached
hereto. For a list of such exhibits, see "Index to Exhibits."
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed by the Company in 2000.
(c) Exhibits.
--------
Exhibits filed with this Annual Report on Form 10-K are attached
hereto. For a list of such exhibits, see "Index to Exhibits".
(d) Financial Statement Schedules.
-----------------------------
There are no financial statement schedules required to be filed with
this Annual Report on Form 10-K.
41
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 13, 2001 Dominion Homes, Inc.
/s/Douglas G. Borror
------------------------------------
By Douglas G. Borror,
Chairman and Chief Executive Officer
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 Capacities Date
- --------- ---------- ----
/s/ Donald A. Borror Director March 13, 2001
- -------------------------------
Donald A. Borror
/s/Douglas G. Borror Principal Executive Officer & March 13, 2001
- ------------------------------- Director
Douglas G. Borror
/s/Jon M. Donnell Principal Operations Officer March 13, 2001
- ------------------------------- & Director
Jon M. Donnell
/s/Peter J. O'Hanlon Principal Financial Officer March 13, 2001
- -------------------------------
Peter J. O'Hanlon
/s/Tad E. Lugibihl Principal Accounting Officer March 13, 2001
- -------------------------------
Tad E. Lugibihl
/s/David S. Borror Director March 13, 2001
- -------------------------------
David S. Borror
/s/Pete A. Klisares Director March 13, 2001
- -------------------------------
Pete A. Klisares
/s/Gerald E. Mayo Director March 13, 2001
- -------------------------------
Gerald E. Mayo
/s/C. Ronald Tilley Director March 13, 2001
- -------------------------------
C. Ronald Tilley
42
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INDEX TO EXHIBITS
Exhibit No. Description Location
- ----------- ----------- --------
2.1 Corporate Exchange and Subscription Agreement, dated January 20, Incorporated by reference to
1994, between Borror Corporation and Borror Realty Company Exhibit 2.1 to the Company's
Registration Statement on Form S-1
(File No. 33-74298) as filed with the
Commission on January 21, 1994 and as
amended on March 2, 1994 (The "Form
S-1").
2.2 Form of First Amendment to Corporate Exchange and Subscription Incorporated by reference to
Agreement Exhibit 2.2 to Form S-1.
3.1(a) Amended and Restated Articles of Incorporation of Dominion Homes, Incorporated by reference to
Inc., as filed with the Ohio Secretary of State on March 4, 1994. Exhibit 4(a)(1) to the Company's
Registration Statement on Form S-8
(File No. 333-26817) as filed with the
Commission on May 9, 1997 (the 1997
"Form S-8").
3.1(b) Certificate of Amendment to Amended and Restated Articles of Incorporated by reference to Exhibit
Incorporation of Dominion Homes, Inc., as filed with the Ohio 4(a)2 of the 1997 Form S-8.
Secretary of State on May 7, 1997
3.1(c) Amended and Restated Articles of Incorporation of Dominion Homes, Incorporated by reference to Exhibit
Inc., reflecting amendments through May 7, 1997 (for purposes of 4(a)(3) of the 1997 Form S-8.
Commission reporting compliance only).
3.2 Amended and Restated Code of Regulations of Dominion Homes, Inc. Incorporated by reference to
Exhibit 3.2 to the Company's June 30,
2000 Form 10-Q (File No. 0-23270).
4. Specimen of Stock Certificate of Dominion Homes, Inc. Incorporated by reference to Exhibit 4
to the Company's March 31, 1997 Form
10-Q (File No. 0-23270).
10.1 Dominion Homes, Inc. Incentive Stock Plan, as amended December 5, Incorporated by reference to
1995 and May 7, 1997 Exhibit 4(c) of the 1997 Form S-8.
1
45
10.2 Shareholder Agreement, dated January 20, 1994, between Borror Incorporated by reference to Exhibit
Corporation and Borror Realty Company 10.4 to Form S-1.
10.3 Decorating Center Lease Agreement, dated January 4, 1994, between Incorporated by reference to
Borror Corporation and Borror Realty Company, as amended by Exhibit 10.12 to the Company's
addendum No. 1, effective July 1, 1994 December 31, 1994 Form 10-K (File No.
0-23270).
10.4* Incentive Stock Option Agreement, dated January 4, 1995, between Filed herewith.
Borror Corporation and Robert A. Meyer, Jr. (which agreement is
substantially the same as Incentive Stock Option Agreements
entered into between the Company and other employees to whom
options were granted on January 4, 1995 under the Company's
Incentive Stock Plan)
10.5* Incentive Stock Option Agreement, dated July 1, 1997, between Filed herewith.
Dominion Homes, Inc. and Robert A. Meyer, Jr. (which agreement is
substantially the same as Incentive Stock Option Agreements
entered into between the Company and other employees to whom
options were granted on July 1, 1997 under the Company's Incentive
Stock Plan)
10.6* Stock Option Agreement, dated May 21, 1998, between Dominion Incorporated by reference to Exhibit
Homes, Inc. and Pete A. Klisares (which agreement is substantially 10.22 to the Company's June 30, 1998
the same as Stock Option Agreements entered into between the Form 10-Q (File No. 0-23270).
Company and its other outside, independent directors, Gerald Mayo
and C. Ronald Tilley)
10.7* Incentive Stock Option Agreement, dated July 1, 1998, between Incorporated by reference to Exhibit
Dominion Homes, Inc. and Jon M. Donnell 10.28 to the Company's June 30, 1998
Form 10-Q (File No. 0-23270).
10.8* Restricted Stock Agreement, dated August 1, 1995, between Borror Incorporated by reference to Exhibit
Corporation and Jon M. Donnell 10.19 to the Company's December 31,
1995 Form 10-K (File No.0-23270).
10.9* Restricted Stock Agreement, dated November 6, 1996, between Borror Incorporated by reference to Exhibit
Corporation and Jon M. Donnell 10.30 to the Company's December 31,
1996 Form 10-K (File No. 0-23270).
2
46
10.10* Restricted Stock Agreement, dated August 1, 1997, between Dominion Incorporated by reference to
Homes, Inc., and Jon M. Donnell Exhibit 10.24 to the Company's
September 30, 1997 Form 10-Q (File No.
0-23270).
10.11* Restricted Stock Agreement, dated June 1, 1998, between Dominion Incorporated by reference to
Homes, Inc. and Peter J. O'Hanlon Exhibit 10.25 to the Company's June
30, 1998 Form 10-Q (File No. 0-23270).
10.12* Restricted Stock Agreement, dated August 1, 1998, between Dominion Incorporated by reference to
Homes, Inc. and Jon M. Donnell Exhibit 10.27 to the Company's June
30, 1998 Form 10-Q (File No. 0-23270).
10.13* Amended Employment Agreement dated December 29, 2000, between Filed herewith.
Dominion Homes, Inc. and Jon M. Donnell
10.14* Amended Employment Agreement dated December 29, 2000, between Filed herewith.
Dominion Homes, Inc. and Robert A. Meyer, Jr.
10.15* Amended Employment Agreement dated December 29, 2000, between Filed herewith.
Dominion Homes, Inc. and Peter J. O'Hanlon
10.16* Amended and Restated Dominion Homes, Inc. Executive Deferred Incorporated by reference to Exhibit
Compensation Plan, effective November 15, 1997. 4(a) to the Company's Registration
Statement on Form S-8 (File No.
333-40051) as filed with the
Commission on November 12, 1997.
10.17* Amendment to Dominion Homes, Inc. Amended and Restated Executive Incorporated by reference to Exhibit
Deferred Compensation Plan, dated July 29, 1998. 10.30 to the Company's June 30, 1998
Form 10-Q (File No. 0-23270).
10.18* Amendment to Dominion Homes, Inc. Incentive Stock Plan, dated July Incorporated by reference to Exhibit
29, 1998 10.29 to the Company's June 30, 1998
Form 10-Q (File No. 0-23270).
10.19 Loan Agreement, dated May 29, 1998, among Dominion Homes, Inc., Incorporated by reference to Exhibit
Huntington Capital Corp. as syndicating agent, Huntington National 10.23 to the Company's June 30, 1998
Bank as Administrative and Issuing Agent and the lenders listed Form 10-Q (File No. 0-23270).
therein.
3
47
10.20 First Amendment to Lease Agreement, dated March 19, 1996, between Incorporated by reference to Exhibit
Borror Realty Company and Borror Corporation 10.21 to the Company's March 31, 1995
Form 10-Q (File No. 0-23270).
10.21 Lease dated December 29, 1997 as amended by Addendum dated Incorporated by reference to
February 2, 1998, between Borror Realty Company and Dominion Exhibit 10.21 to the Company's
Homes, Inc. December 31, 1997 Form 10-K (File No.
0-23270).
10.22 Office Sublease Agreement dated July 31, 1998, between Dominion Incorporated by reference to Exhibit
Homes, Inc. and Alliance Title Agency, Ltd. 10.31 to the Company's June 30, 1998
Form 10-Q (File No. 0-23270).
10.23* Split Dollar Life Insurance Agreement dated July 11, 1999 between Incorporated by reference to
Dominion Homes, Inc. and Douglas G. Borror (which agreement is Exhibit 10.1 to the Company's June 30,
substantially the same as Split Dollar Life Insurance Agreements 1999 Form 10-Q (File No. 0-23270).
entered into between the Company and other executive officers of
the Company except for life insurance values for which a
supplemental schedule is attached)
10.24* Stock Option Agreement dated April 29, 1999 between Dominion Incorporated by reference to
Homes, Inc. and Pete A. Klisares (which agreement is the same as Exhibit 10.2 to the Company's June 30,
Stock Option Agreements entered into between the Company and its 1999 Form 10-Q (File No. 0-23270).
other outside, independent directors, Gerald E. Mayo and C. Ronald
Tilley)
10.25 Assignment and Assumption of Lease dated June 24, 1999 by and Incorporated by reference to
among Rommy K. Chung, Dominion Homes, Inc. and BRC Properties Inc. Exhibit 10.3 to the Company's June 30,
(formerly The Borror Corporation) 1999 Form 10-Q (File No. 0-23270).
10.26 Lease dated March 1, 1994 between The Borror Corporation and Rommy Incorporated by reference to
K. Chung Exhibit 10.4 to the Company's June 30,
1999 Form 10-Q (File No. 0-23270).
10.27 Assignment and Assumption of Lease dated June 24, 1999 by and Incorporated by reference to
among Dao Q. Nguyen, Dominion Homes, Inc., and BRC Properties Inc. Exhibit 10.5 to the Company's June 30,
(formerly Borror Realty Company) 1999 Form 10-Q (File No. 0-23270).
4
48
10.28 Lease dated November 12, 1997 between Borror Realty Company and Incorporated by reference to
Thomas M. Nguyen and assigned on October 2, 1998 to Dao Q. Nguyen Exhibit 10.6 to the Company's June 30,
1999 Form 10-Q (File No. 0-23270).
10.29 First Consent Agreement dated August 9, 1999 amending the Loan Incorporated by reference to
Agreement dated May 29, 1998, among Dominion Homes, Inc., Exhibit 10.7 to the Company's June 30,
Huntington Capital Corp. as Syndicating Agent, Huntington National 1999 Form 10-Q (File No. 0-23270).
Bank as Administrative and Issuing Agent and the Lenders listed
therein
10.30 First Amendment to Credit Agreement dated September 3, 1999 Incorporated by reference to Exhibit
amending the Loan Agreement dated May 29, 1998, among Dominion 10.8 to the Company's September 30,
Homes, Inc., Huntington Capital Corp. as Syndicating Agent, 1999 Form 10-Q (File No.0-23270).
Huntington National Bank as Administrative and Issuing Agent and
the Lenders listed therein
10.31 Lease dated September 29, 1999 between BRC Properties Inc. and Incorporated by reference to Exhibit
Dominion Homes, Inc. 10.9 to the Company's September 30,
1999 Form 10-Q (File No. 0-23270).
10.32 Agreement For Services dated November 5, 1999 between Homebuilders Incorporated by reference to Exhibit
Financial Network, Inc. and Dominion Homes, Inc. 10.10 to the Company's September 30,
1999 Form 10-Q (File No. 0-23270).
10.33 Second Consent and Modification to Credit Agreement dated December Incorporated by reference to Exhibit
30, 1999 among Dominion Homes, Inc., Huntington Capital Corp. as 10.39 to the Company's December 31,
Syndicating Agent, Huntington National Bank as Administrative and 1999 Form 10-K (File No. 0-23270).
Issuing Agent and the Lenders listed therein.
10.34 Lease dated February 21, 2000 between BRC Properties Inc. and Incorporated by reference to Exhibit
Dominion Homes 10.40 to the Company's December 31,
1999 Form 10-K (File No. 0-23270).
10.35 Second Amendment to Credit Agreement dated May 26, 2000 Incorporated by reference to Exhibit
10 to the Company's June 30, 2000 Form
10-Q.
10.36 Third Amendment to Credit Agreement dated October 31, 2000 Filed herewith
5
49
10.37* Stock Option Agreement, dated April 27, 2000, between Dominion Filed herewith
Homes, Inc. and Pete A. Klisares (which Agreement is substantially
the same as Stock Option Agreements entered into between the
Company and its other outside, independent directors, Gerald Mayo
and C. Ronald Tilley.
21 Subsidiaries Incorporated by reference to Exhibit
21 to the Company's December 31, 1999
Form 10-K (File No. 0-23270).
23 Consent of PricewaterhouseCoopers LLP Independent Public Filed herewith.
Accountants
- -------------
* Indicates management contracts, compensatory plans or other arrangements.
6