<PAGE>
Filed pursuant to Rule 424(b)(1)
SEC File No. 333-21183
PROSPECTUS
3,500,000 SHARES
D.R. HORTON, INC.
CUSTOM HOMES
COMMON STOCK
------------
All of the 3,500,000 shares of Common Stock offered hereby (the "Offering")
are being sold by D.R. Horton, Inc. (the "Company").
The Common Stock is listed on the New York Stock Exchange under the symbol
"DHI." The last reported sale price of the Common Stock on the New York Stock
Exchange Composite Tape was $11 1/2 per share on March 10, 1997. See "Price
Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................... $11.00 $0.51 $10.49
- --------------------------------------------------------------------------------
Total(3)................................ $38,500,000 $1,785,000 $36,715,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting estimated expenses of $330,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 525,000 additional shares of Common Stock on the same terms as set
forth above solely to cover over-allotments, if any. See "Underwriting."
If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$44,275,000, $2,052,750 and $42,222,250, respectively.
------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if delivered to and accepted
by them and subject to certain conditions. It is expected that the shares of
Common Stock offered hereby will be available for delivery on or about March
14, 1997, at the office of Smith Barney Inc., 333 West 34th Street, New York,
New York 10001, or through the facilities of The Depository Trust Company.
------------
SMITH BARNEY INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
March 10, 1997
<PAGE>
The pictures below are representative of homes built by the Company.
Charlotte, North Carolina Dallas-Fort Worth, Texas
Suburban Washington D.C. Phoenix, Arizona
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere or incorporated by
reference in this Prospectus. As used in this Prospectus, except as the context
otherwise requires, references to D.R. Horton, Inc. and its subsidiaries
(collectively, the "Company"), and the financial and operating data contained
in this Prospectus reflect the consolidated results of such entities for the
periods indicated. All share and per share data included or incorporated by
reference herein have been adjusted to reflect the Company's 9% stock dividend
of June 1995, seven-for-five stock split of September 1995 and 8% stock
dividend of May 1996. Unless otherwise indicated, information set forth herein
assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
The Company is a national homebuilder constructing and selling single-family
homes in metropolitan areas of the Mid-Atlantic, Midwest, Southeast, Southwest
and Western regions of the United States. The Company builds homes in 27
markets and believes that it is one of only three public homebuilders with
operations in 21 or more states. The Company offers high-quality homes with
custom features, designed principally for the entry-level and move-up market
segments. The Company's homes generally range in size from 1,000 to 5,000
square feet and in price from $80,000 to $600,000, with an average selling
price of $166,600 for the year ended September 30, 1996, and $168,700 for the
three months ended December 31, 1996.
In fiscal 1996, the Company recorded its tenth consecutive year of record
revenues, earnings and sales backlog. The Company's revenues have increased
from $393.3 million in fiscal 1994 to $547.3 million in fiscal 1996, a compound
annual growth rate of 18%. Over this same period, net income has increased from
$17.7 million to $27.4 million, a 25% compound annual growth rate. Homes closed
by the Company have increased from 2,360 in fiscal 1994 to 3,284 in fiscal
1996.
Revenues increased 19%, to $144.4 million from $121.1 million for the three
months ended December 31, 1996, compared to the same period in 1995. The sales
value of net new contracts signed by the Company increased 12%, to $129.8
million (751 homes) compared to $115.4 million (699 homes) for the comparable
period in 1995. At December 31, 1996, the Company's backlog of homes under
contract totaled $223.5 million (1,208 homes), a 35% increase from $165.0
million (968 homes) at December 31, 1995. Net income for the three months ended
December 31, 1996, increased 26%, to $6.8 million ($0.21 per share), from $5.4
million ($0.19 per share), for the same quarter of 1995.
OPERATING STRATEGY
The Company attributes its success to its proven operating strategy, which
focuses on the following elements:
Geographic Diversification. The Company is one of the most geographically
diversified homebuilders in the United States, with operating divisions in 21
states and 27 markets, as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC REGION MARKETS
----------------- -------
<S> <C>
Mid-Atlantic............ Charlotte, Greensboro, Greenville, North Central New Jersey,
Raleigh/Durham, Suburban Washington, D.C.
Midwest................. Chicago, Cincinnati, Kansas City, Minneapolis/St. Paul, St. Louis
Southeast............... Atlanta, Birmingham, Nashville, Orlando, Pensacola, South Florida
Southwest............... Albuquerque, Austin, Dallas/Fort Worth, Houston, Phoenix
Western................. Denver, Las Vegas, Los Angeles, Salt Lake City, San Diego
</TABLE>
3
<PAGE>
The Company believes that its diversification strategy mitigates the effects
of local and regional economic cycles and enhances its growth potential.
New Markets/Acquisitions. While the Company believes that there are
significant growth opportunities in its existing markets, it intends to
continue to evaluate new markets for entry that have significant entry-level
and move-up segments and satisfy the Company's profitability, investment return
and other criteria. Since October 1, 1992, the Company has expanded into 15 new
markets through start-up operations and has completed complementary
acquisitions that have expanded the Company into four additional markets.
Additionally, the Company recently completed the acquisition of the Torrey
Group of Companies ("Torrey"), the largest builder in the rapidly growing
Atlanta, Georgia market. See "The Torrey Acquisition." The Company believes
that the expansion of its operations through the selective acquisition of
existing homebuilding companies can afford it several benefits not found in
start-up operations.
Before entering new markets, the Company evaluates their potential on the
basis of local housing demand, demographic trends and other factors, such as
local growth initiatives, employment demand and growth, and the availability of
quality lots and undeveloped real estate at reasonable prices. Typically, the
Company will not invest significant amounts in real estate, including raw land,
developed lots, models and speculative homes, or overhead in start-up
operations in new markets until such markets demonstrate significant growth
potential and acceptance of the Company and its products.
In evaluating potential acquisition candidates, the Company seeks
homebuilding companies that have an excellent reputation, a track record of
profitability and a strong management team. Typically, the Company endeavors to
limit the risks associated with acquiring an existing homebuilding company by
conducting extensive operational, financial and legal due diligence on each
acquisition candidate and by only acquiring homebuilding companies that the
Company believes should have an immediate positive impact on the Company's
earnings.
Market Focus-Custom Features. The Company typically positions itself in its
markets between large volume homebuilders and local custom builders by offering
a broader selection of homes with more amenities and greater design flexibility
than homes offered by volume builders, at prices that are generally more
affordable than those charged by local custom builders. The Company also is
able to customize its designs to deliver personalized homes to its customers.
While most design modifications are significant to the homebuyer, such changes
improve margins and typically involve relatively minor adjustments that allow
the Company to maintain the efficiencies of a volume homebuilder. The Company
believes that its ability to cater to the design tastes of prospective
homebuyers at competitive prices, even at the entry level, distinguishes it
from many of its competitors.
Decentralized Operations. The Company's homebuilding activities are
decentralized to give maximum flexibility to its local division managers. The
Company believes that division management is more informed to make decisions
regarding local operations. Each operating division is responsible for
preliminary site selection, negotiation of option contracts, and overseeing
land development activities. Additionally, each operating division plans its
homebuilding schedule, selects the building plans and architectural scheme for
its subdivisions, obtains all building approvals, and develops a marketing plan
for its homes. The Company's corporate office retains oversight and
responsibility for final approval of all land and lot acquisitions, inventory
levels, financing arrangements, accounting and management reporting, payment of
subcontractor invoices, payroll and employee benefits.
Cost Management. The Company strives to control its overhead costs by
centralizing the administrative and accounting functions and by limiting the
number of field administrative personnel and middle level management positions.
The Company attempts to control construction costs through the efficient design
of its homes and obtaining favorable pricing from certain subcontractors based
on the high volume of work performed
4
<PAGE>
for the Company. The Company's management information systems also assist in
controlling construction costs, overhead and capital by allowing management to
monitor construction expenditures on a home-by-home basis and the composition
and level of inventory on a subdivision basis.
Limited Real Estate Exposure. The Company attempts to minimize the risks
associated with land ownership while maximizing its return on invested capital
by acquiring developed building lots pursuant to lot option contracts,
generally on a non-recourse basis, after all zoning and other governmental
entitlements and approvals are obtained. The Company attempts to control a two
to four year supply of building lots based on current and expected absorption
rates. The Company also pursues selected land acquisition and development
opportunities to augment its inventory of option building lots and to maximize
profit opportunities. These acquisitions are generally limited to smaller
tracts of entitled land that will yield 50 to 150 lots when developed. By
limiting its land acquisition and development activities generally to smaller
parcels of land, the Company reduces the financial and market risks associated
with owning land during the development period.
THE TORREY ACQUISITION
On January 29, 1997, the Company entered into a stock purchase agreement (the
"Stock Purchase Agreement") for the acquisition of the entities comprising
Torrey (the "Torrey Acquisition"). The Company completed the Torrey Acquisition
on February 27, 1997. Under the terms of the Stock Purchase Agreement, the
Company paid at closing consideration consisting of $28.5 million in cash and
844,444 shares of Common Stock, and agreed to a contingent payment estimated at
$1 million, for all of the outstanding capital stock of the entities comprising
Torrey. The Company also assumed and refinanced approximately $89 million of
indebtedness, other obligations and minority interests.
Torrey has been the leading builder of single-family homes in the large and
growing Atlanta, Georgia market for the past three years as reported in Builder
Magazine. Atlanta has been the largest housing market in the United States for
the past three years based on single-family building permits issued. Torrey
targets both entry-level and first time move-up buyers. For the twelve months
ended September 30, 1996, Torrey delivered 1,442 homes, generating $183.8
million of revenue. In addition to building homes in the Atlanta market, Torrey
has homebuilding operations in Charlotte and Raleigh/Durham, North Carolina,
and Greenville, South Carolina. Despite Torrey's leading market share position
in the Atlanta market, the Company believes that it can improve Torrey's
operating results by providing additional and lower cost capital and operating
synergies.
The Company believes that the Torrey Acquisition is consistent with its
strategy of selectively pursuing acquisitions of homebuilders that have an
excellent reputation, a track record of profitability and a strong management
team.
5
<PAGE>
THE OFFERING
Total Common Stock
offered.................... 3,500,000 shares
Common Stock to be
outstanding after the
Offering...................
New York Stock Exchange 36,760,173 shares(1)
Symbol..................... DHI
Use of proceeds............. The net proceeds to the Company from the Offering
will be used to temporarily repay indebtedness
under revolving credit facilities and for
general corporate purposes.
- --------
(1) Does not reflect 2,372,756 additional shares of Common Stock subject to
outstanding options as of December 31, 1996 pursuant to the Company's 1991
Stock Incentive Plan (the "Stock Option Plan").
RISK FACTORS
Investment in the Common Stock involves certain risks discussed under "Risk
Factors" that should be considered by prospective investors.
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT NET INCOME PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED FOR THE THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------------------------- -------------------------------
PRO FORMA PRO FORMA
AS AS
ADJUSTED(1) ADJUSTED(1)
1994 1995 1996 1996 1995 1996 1996
-------- -------- -------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............... $393,317 $437,388 $547,336 $780,438 $121,068 $144,381 $214,891
Gross profit........... 67,218 77,646 98,282 144,610 21,533 26,345 38,651
Income before income
taxes................. 28,591 32,557 44,432 69,407 8,725 11,159 14,663
Net income............. $ 17,663 $ 20,539 $ 27,379 $ 42,614 $ 5,415 $ 6,807 $ 8,945
Net income per share... $ 0.63 $ 0.74 $ 0.87 $ 1.19 $ 0.19 $ 0.21 $ 0.24
Weighted average number
of common shares (in
thousands)............ 27,845 27,849 31,420 35,764 28,250 33,003 37,347
SELECTED OPERATING DATA:
Gross profit margin.... 17.1% 17.8% 18.0% 18.5% 17.8% 18.2% 18.0%
Number of homes
closed................ 2,360 2,474 3,284 5,037 731 855 1,333
New sales orders, net
(homes)(2)............ 2,327 2,553 3,488 5,150 699 751 1,102
New sales orders, net
($ value)(2).......... $394,587 $449,260 $585,489 $826,214 $115,363 $129,776 $179,954
Sales backlog at end of
period (homes)(3)..... 773 1,000 1,204 1,712 968 1,208 1,499
Sales backlog at end of
period ($ value)(3)... $140,524 $170,736 $208,888 $297,572 $165,030 $223,474 $267,392
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-------------------------
PRO FORMA
AS
ACTUAL ADJUSTED(4)
----------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Inventories........................................... $ 400,453 $ 497,037
Total assets.......................................... 445,854 567,300
Total debt............................................ 203,200 265,249
Stockholders' equity.................................. 184,780 228,480
</TABLE>
- --------
(1) Pro forma to reflect the acquisitions of the assets of Trimark Communities,
LLC ("Trimark") and SGS Communities, Inc. ("SGS"), which were both
completed during the first quarter of fiscal 1997, and the Torrey
Acquisition, which was completed in the second quarter of fiscal 1997, as
if such acquisitions had occurred on the first day of each reported period.
See "Unaudited Pro Forma Financial Data." As adjusted to reflect the sale
of 3,500,000 shares of Common Stock offered hereby by the Company and the
application of the net proceeds therefrom to temporarily reduce
indebtedness under the Company's revolving credit facilities.
(2) Represents homes placed under contract during the period, net of
cancellations. See "Business--Marketing and Sales."
(3) Represents homes under contract but not yet closed at the end of the
period. See "Business--Marketing and Sales."
(4) Pro forma to reflect the Torrey Acquisition and the sale of 3,500,000
shares of Common Stock offered hereby by the Company and the application of
the net proceeds therefrom to temporarily reduce indebtedness under the
Company's revolving credit facilities.
7
<PAGE>
RISK FACTORS
In addition to the other information contained or incorporated by reference
in this Prospectus, prospective investors should carefully consider the
factors set forth below before purchasing any shares of Common Stock offered
hereby.
General Real Estate, Economic and Other Conditions. The homebuilding
industry is cyclical and is significantly affected by changes in general and
local economic conditions, such as employment levels, availability of
financing for homebuyers, interest rates, consumer confidence and housing
demand. In addition, homebuilders are subject to various risks, including
competitive overbuilding, availability and cost of building lots, materials
and labor, weather conditions, delays in construction schedules, cost
overruns, changes in governmental regulation and increases in real estate
taxes and other local government fees. Moreover, homebuilders are subject to
the risks associated with natural disasters such as hurricanes, earthquakes,
and fires. The Company and its competitors also are impacted by comprehensive
local, state and Federal statutes and rules regulating environmental matters,
zoning, building design and density requirements, as they affect the
availability and cost of building lots and the timing of homebuilding
activities.
Interest Rates; Mortgage Financing. Virtually all purchasers of the
Company's homes finance their acquisitions through third-party lenders
providing mortgage financing. In general, housing demand is adversely affected
by increases in interest rates, decreasing availability of mortgage financing,
increasing housing costs and unemployment. If mortgage interest rates increase
and the ability of prospective buyers to finance home purchases is adversely
affected, the Company's operating results may be negatively impacted. The
Company's homebuilding activities also are dependent upon the availability and
cost of mortgage financing for buyers of homes owned by potential customers so
those customers can sell their existing homes and purchase a home from the
Company. In addition, the Company believes that the availability of Federal
Housing Administration and Veterans Administration mortgage financing is an
important factor in marketing many of its homes. Any limitations or
restrictions on the availability of such financing could adversely affect the
Company's sales. See "Business--Customer Financing."
Competition. The homebuilding industry is highly competitive and fragmented.
Homebuilders compete not only for homebuyers, but also for desirable
properties, financing, raw materials and skilled labor. The Company competes
with other local, regional and national homebuilders, often within larger
subdivisions designed, planned and developed by such homebuilders. Some of the
Company's competitors have longer operating histories and greater financial,
marketing and sales resources than the Company, including, in some instances,
affiliated mortgage companies.
Future Capital Requirements. The Company's operations require significant
amounts of cash, and the Company will be required to seek additional capital
for the future growth and development of its business. There can be no
assurance as to the terms or availability of such additional capital. If the
Company is not successful in obtaining sufficient capital on favorable terms,
it could result in a reduction in sales and may adversely affect the Company's
future growth or results of operations. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
Acquisitions. From April 1994, through the present, the Company has acquired
six homebuilding companies, including the Torrey Acquisition completed on
February 27, 1997. In the future, the Company intends to seek to acquire
additional homebuilding companies. Subsequent to the acquisitions, the
previous owners of the acquired companies normally continue to manage their
operations as subsidiaries of the Company. Although the Company believes that
it has successfully integrated the companies it has previously acquired into
its operations without substantial costs, delays or other problems, there is
no assurance that the Company will be able to successfully integrate the
operations of Torrey and any future acquisitions of homebuilding companies. In
addition, while the Company believes that its management has been effective in
overseeing the combined operations of the Company and its acquisitions, there
can be no assurance that the Company will be able to implement successfully
its operating and growth strategies in each of its markets. Finally, there can
be no
8
<PAGE>
assurance that the pace of the Company's acquisitions will not adversely
affect the Company's efforts to integrate acquisitions and manage the acquired
companies profitably.
Control Relationships. Donald R. Horton and other affiliates of the Company
will own, directly or indirectly, approximately 39.69% of the Company's
outstanding Common Stock after giving effect to the Offering (39.14% if the
Underwriters' over-allotment option is exercised in full). Accordingly, such
persons may effectively be able to elect the entire board of Directors of the
Company and control its management, operations and affairs. Donald R. Horton,
along with his children and certain family trusts of which he and his wife and
children are the beneficiaries, will own approximately 34.00% of the Company's
outstanding Common Stock after giving effect to the Offering (33.53% if the
Underwriters' over-allotment option is exercised in full).
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
in the Offering will be approximately $36.4 million ($41.9 million if the
Underwriters' over-allotment option is exercised in full). The Company intends
to use the proceeds from the Offering to temporarily repay indebtedness under
revolving credit facilities and for general corporate purposes. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Financial Condition, Liquidity and Capital Resources." Borrowings
under the Company's various credit facilities bear interest at effective rates
ranging from LIBOR plus 1 1/4% to LIBOR plus 2%.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "DHI." The following table sets forth the high and low sale prices
for the Common Stock for the periods indicated, as reported on the Nasdaq
National Market (through December 13, 1995) and the New York Stock Exchange
(on and after December 14, 1995).
<TABLE>
<CAPTION>
FISCAL YEAR 1997
FISCAL YEAR FISCAL YEAR (THROUGH
1995 1996 MARCH 10, 1997)
----------------- ------------------ ----------------
HIGH LOW HIGH LOW HIGH LOW
--------- ------- --------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Quarter ended December
31..................... $ 8 5/16 $5 3/8 $11 $8 15/16 $ 11 3/8 $8 5/8
Quarter ended March 31.. 6 5/16 5 5/16 11 15/16 8 15/16 13 10 1/8
Quarter ended June 30... 8 15/16 6 9/16 10 5/8 8 5/8
Quarter ended September
30..................... 10 1/2 8 1/2 10 3/8 7 1/2
</TABLE>
As of March 7, 1997, there were 197 holders of record of the Common Stock.
On March 10, 1997, the last sale price reported on the New York Stock Exchange
Composite Tape for the Common Stock was $11 1/2.
DIVIDEND POLICY
Declarations of cash dividends are within the discretion of the Board of
Directors and are dependent upon various factors, including the earnings, cash
flow, capital requirements and operating and financial condition of the
Company. Other than as required to maintain the financial ratios and net worth
requirements under the Company's revolving credit facilities, there are no
restrictions on payments of cash dividends by the Company. On January 20,
1997, the Company declared a cash dividend of $.02 per outstanding share of
Common Stock, its first cash dividend since its initial public offering. The
Company intends to pay an annual cash dividend, payable quarterly on
outstanding shares of Common Stock.
9
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at December
31, 1996, with pro forma adjustments to reflect the acquisition of Torrey as
if such acquisition had occurred on December 31, 1996, and as adjusted to
reflect the Torrey Acquisition and the sale by the Company of the Common Stock
offered hereby and the application of the net proceeds therefrom. See "Use of
Proceeds".
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA (1) AS ADJUSTED(2)
-------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Notes Payable.......................... $203,200 $301,634 $265,249
Stockholders' equity(3):
Common Stock, par value $.01 per share;
100,000,000 shares authorized;
32,415,729 actual shares; 33,260,173
pro forma shares, and 36,760,173 pro
forma as adjusted shares, issued and
outstanding........................... 324 333 368
Additional capital..................... 160,049 167,355 203,705
Retained earnings...................... 24,407 24,407 24,407
-------- -------- --------
Total stockholders' equity........... $184,780 $192,095 $228,480
======== ======== ========
Total capitalization................. $387,980 $493,729 $493,729
======== ======== ========
</TABLE>
- --------
(1) Pro forma to reflect the Torrey Acquisition as if such acquisition had
occurred on December 31, 1996. See "Unaudited Pro Forma Consolidated
Balance Sheets."
(2) As adjusted to reflect the Torrey Acquisition and the sale of 3,500,000
shares of Common Stock offered hereby by the Company and the application
of the net proceeds therefrom to temporarily reduce indebtedness under the
Company's revolving credit facilities.
(3) Does not reflect 2,372,756 additional shares of Common Stock subject to
outstanding options as of December 31, 1996, pursuant to the Stock Option
Plan.
10
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The unaudited Pro Forma Consolidated Statements of Operations of the Company
for the three months ended December 31, 1996, and for the fiscal year ended
September 30, 1996, were prepared to illustrate the estimated effects of: (i)
the acquisitions of the assets of Trimark and SGS, which were completed during
the first quarter of fiscal 1997; (ii) the Torrey Acquisition, which was
completed in the second quarter of fiscal 1997; and (iii) the sale of
3,500,000 shares of Common Stock offered hereby by the Company and the
application of the net proceeds therefrom to temporarily reduce indebtedness
under the Company's revolving credit facilities, as if such acquisitions and
Common Stock sale had occurred on the first day of each period.
The unaudited Pro Forma Consolidated Balance Sheets of the Company as of
December 31, 1996, were prepared to illustrate the estimated effects of the
Torrey Acquisition and the sale of the 3,500,000 shares of Common Stock
offered by the Company.
The pro forma statements do not purport to represent either the actual
financial position or results of operations of the Company had the pro forma
transactions occurred on the dates assumed, or the results expected in the
future. The pro forma adjustments are based upon available information and
upon certain assumptions that management believes are reasonable. The notes to
the unaudited Pro Forma Consolidated Statements of Operations and Balance
Sheets provide a summary of the adjustments made in determining the pro forma
amounts. The pro forma financial information should be read in conjunction
with the historical financial statements of the Company, including the notes
thereto, and the other financial information pertaining to the Company,
including information set forth in "Capitalization" and the related notes
thereto, included elsewhere or incorporated by reference into this Prospectus.
The pro forma financial information is based upon the purchase method of
accounting for the acquisitions of Trimark, SGS and Torrey.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
D.R. TRIMARK PRO FORMA PRO FORMA AS
HORTON AND SGS (1) TORREY ADJUSTMENTS COMBINED(2) ADJUSTMENTS(3) ADJUSTED(3)
-------- ----------- ------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $144,381 $8,136 $62,374 $ -- $214,891 $ -- $214,891
Cost of sales........... 118,036 6,287 53,079 (1,162)(5) 176,240 -- 176,240
-------- ------ ------- ------ -------- ----- --------
Gross profit............ 26,345 1,849 9,295 1,162 38,651 -- 38,651
Selling, general and
administrative
expenses............... 15,117 634 7,531 851 (6) 24,133 -- 24,133
-------- ------ ------- ------ -------- ----- --------
Operating income........ 11,228 1,215 1,764 311 14,518 -- 14,518
-------- ------ ------- ------ -------- ----- --------
Other:
Interest (expense)..... (784) -- (192) -- (976) 705 (271)
Other
income/(expense)...... 715 (207) 79 (171)(7) 416 -- 416
-------- ------ ------- ------ -------- ----- --------
(69) (207) (113) (171) (560) 705 145
-------- ------ ------- ------ -------- ----- --------
Income before income
taxes.................. 11,159 1,008 1,651 140 13,958 705 14,663
Provision for income
taxes (4).............. 4,352 392 644 55 5,443 275 5,718
-------- ------ ------- ------ -------- ----- --------
Net income.............. $ 6,807 $ 616 $ 1,007 $ 85 $ 8,515 $ 430 8,945
======== ====== ======= ====== ======== ===== ========
Net income per share.... $ 0.21 $ 0.25 $ 0.24
======== ======== ========
Weighted average number
of common shares (in
thousands)............. 33,003 844(8) 33,847 3,500 37,347
======== ====== ======== ===== ========
</TABLE>
11
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRO FORMA
D.R. TRIMARK PRO FORMA PRO FORMA AS
HORTON AND SGS TORREY ADJUSTMENTS COMBINED(2) ADJUSTMENTS(3) ADJUSTED(3)
--------- -------- -------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 547,336 $ 49,274 $183,828 $ -- $780,438 $ -- $780,438
Cost of sales........... 449,054 36,854 155,593 (4,725)(5) 636,776 (948) 635,828
--------- -------- -------- ------- -------- ------ --------
Gross profit............ 98,282 12,420 28,235 4,725 143,662 948 144,610
Selling, general and
administrative
expenses............... 53,860 5,374 16,131 1,484(6) 76,849 -- 76,849
--------- -------- -------- ------- -------- ------ --------
Operating income........ 44,422 7,046 12,104 3,241 66,813 948 67,761
--------- -------- -------- ------- -------- ------ --------
Other:
Interest (expense)..... (1,474) -- -- -- (1,474) 1,474 --
Other income/
(expense)............. 1,484 (413) (594) 1,169(7) 1,646 -- 1,646
--------- -------- -------- ------- -------- ------ --------
10 (413) (594) 1,169 172 1,474 1,646
--------- -------- -------- ------- -------- ------ --------
Income before income
taxes.................. 44,432 6,633 11,510 4,410 66,985 2,422 69,407
Provision for income
taxes (4).............. 17,053 2,586 4,489 1,720 25,848 945 26,793
--------- -------- -------- ------- -------- ------ --------
Net income.............. $ 27,379 $ 4,047 $ 7,021 $ 2,690 $ 41,137 $1,477 $ 42,614
========= ======== ======== ======= ======== ====== ========
Net income per share.... $ 0.87 $ 1.28 $ 1.19
========= ======== ========
Weighted average number
of common shares (in
thousands)............. 31,420 844(8) 32,264 3,500 35,764
========= ======= ======== ====== ========
</TABLE>
- --------
The anticipated cost savings described below are based upon estimates and
assumptions made by the Company that, although considered reasonable by the
Company, are subject to business, economic and other uncertainties.
(1) Reflects the estimated financial results from October 1, 1996, until the
dates of acquisition (October 15, 1996, for Trimark, and December 2, 1996,
for SGS). The results for Trimark and SGS subsequent to such dates are
included in the Company's financial results.
(2) To reflect the estimated combined results of the Company, Trimark, SGS and
Torrey.
(3) To reflect the sale of the Common Stock to be issued in conjunction with
the Offering. The adjustments reflect reduction of previously capitalized
and expensed interest.
(4) Prior to their acquisition by the Company, Trimark, SGS and Torrey
operated as S corporations under applicable provisions of the Internal
Revenue Code of 1986, as amended, and taxable income was taxed directly to
their stockholders. For pro forma purposes, income taxes are provided at
the Company's estimated incremental tax rate.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED YEAR ENDED
DECEMBER SEPTEMBER
31, 1996 30, 1996
-------- ----------
<S> <C> <C>
(5)Adjustments to cost of sales are:
Net financing costs of incremental debt incurred to
finance acquisitions................................... $ 331 $ 1,661
Reclassification of capitalized inventory costs to
conform to Company accounting policies................. (1,317) (6,153)
Reduction in warranty insurance costs paid to third
parties................................................ (76) (233)
Reduction in employee benefit costs..................... (100) --
------- -------
Total adjustments to cost of sales.................... $(1,162) $(4,725)
======= =======
(6)Adjustments to selling, general and administrative
expenses are:
Reductions in salaries and related employee benefits.... $ (583) $(5,116)
Reductions in overhead items such as: insurance, audit,
bank charges, referral fees, autos, telephone, etc.,
consistent with Company policies, net of capitalized
items expensed under Company accounting policies....... (105) (483)
Amortization of excess of cost over net assets acquired
over 20 years.......................................... 222 930
Reclassification of capitalized inventory costs to
conform to Company accounting policies................. 1,317 6,153
------- -------
Total adjustments to selling, general and
administrative expenses.............................. $ 851 $ 1,484
======= =======
</TABLE>
(7) To eliminate earnings of minority interests purchased in the Torrey
Acquisition.
(8) Common Stock issued as consideration in the Torrey Acquisition.
12
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
D.R. HORTON, PRO FORMA PRO FORMA PRO FORMA
INC. TORREY ADJUSTMENTS(1) COMBINED(2) ADJUSTMENTS(3) AS ADJUSTED(4)
------------ -------- -------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash.................... $ 15,125 $ 4,903 $(4,903) $ 15,125 $ -- $ 15,125
Inventories............. 400,453 94,184 2,400 497,037 -- 497,037
Property and equipment
(net).................. 5,754 4,949 921 11,624 -- 11,624
Earnest money deposits
and other assets....... 18,940 2,195 -- 21,135 -- 21,135
Excess of cost over net
assets acquired (net).. 5,582 -- 16,797 22,379 -- 22,379
-------- -------- ------- -------- -------- --------
$445,854 $106,231 $15,215 $567,300 $ -- $567,300
======== ======== ======= ======== ======== ========
LIABILITIES
Accounts payable........ $ 33,434 $ 11,450 $ -- $ 44,884 $ -- $ 44,884
Accrued expenses and
customer deposits...... 24,440 4,247 -- 28,687 -- 28,687
Notes payable........... 203,200 67,847 30,587 301,634 (36,385) 265,249
-------- -------- ------- -------- -------- --------
261,074 83,544 30,587 375,205 (36,385) 338,820
-------- -------- ------- -------- -------- --------
Minority interests...... -- 5,785 (5,785) -- -- --
-------- -------- ------- -------- -------- --------
STOCKHOLDERS' EQUITY
Preferred Stock, $.10
par value, 30,000,000
shares authorized, no
shares issued.......... -- -- -- -- -- --
Common Stock, $.01 par
value, 100,000,000
shares authorized,
32,415,729 actual
shares, 33,260,173 pro
forma shares, and
36,760,173 pro forma as
adjusted shares, issued
and outstanding........ 324 -- 9 333 35 368
Additional capital...... 160,049 -- 7,306 167,355 36,350 203,705
Retained earnings....... 24,407 16,902 (16,902) 24,407 -- 24,407
-------- -------- ------- -------- -------- --------
184,780 16,902 (9,587) 192,095 36,385 228,480
-------- -------- ------- -------- -------- --------
$445,854 $106,231 $15,215 $567,300 $ -- $567,300
======== ======== ======= ======== ======== ========
</TABLE>
- --------
(1) To reflect the Torrey Acquisition for $28.5 million in cash, 844,444
shares of Common Stock, a contingent payment of $1 million, and the
assumption and refinancing of approximately $89 million in liabilities,
other obligations and minority interests. Adjustments to balance sheets
are as follows:
<TABLE>
<S> <C>
Net increase in inventory to fair market value...................... $2,400
Adjust building to appraised value.................................. 921
Increase in notes payable to finance goodwill and net assets........ 30,587
</TABLE>
(2) To reflect the combined financial position of the Company and Torrey, as
if the Torrey Acquisition had occurred on December 31, 1996. A Common
Stock price of $11.25 per share, the maximum valuation under the terms of
the Stock Purchase Agreement, was used with a discount to reflect its
restricted nature.
(3) To reflect the effects of the sale of 3,500,000 shares of Common Stock
offered hereby by the Company and the application of the net proceeds
therefrom to temporarily reduce indebtedness under the Company's revolving
credit facilities, as if such Common Stock sale had occurred on December
31, 1996.
(4) To reflect the combined financial position of the Company and Torrey, the
effects of the sale of 3,500,000 shares of Common Stock offered hereby by
the Company and the application of the net proceeds therefrom to
temporarily reduce indebtedness under the Company's revolving credit
facilities, as if such combination and Common Stock sale had occurred on
December 31, 1996.
13
<PAGE>
SELECTED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT NET INCOME PER SHARE AMOUNTS)
The following selected financial data (except for the selected operating
data) are derived from the Consolidated Financial Statements of the Company.
The Company's Consolidated Financial Statements as of and for each of the
three years ended September 30, 1996, have been audited by Ernst & Young LLP,
independent auditors. The selected financial information of the Company as of
December 31, 1995 and 1996, and for each of the three month periods then
ended, have been derived from unaudited financial statements, which, in the
opinion of management, include all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of such information
for the unaudited interim periods. The selected financial data should be read
in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and the Company's Consolidated Financial
Statements, including the related notes thereto, incorporated by reference in
this Prospectus.
<TABLE>
<CAPTION>
FOR THE FOR THE
FISCAL YEARS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
---------------------------- ------------------
1994 1995 1996 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................... $393,317 $437,388 $547,336 $121,068 $144,381
Gross profit............... 67,218 77,646 98,282 21,533 26,345
Selling, general and
administrative expenses... 39,073 44,549 53,860 12,513 15,117
Operating income........... 28,145 33,097 44,422 9,020 11,228
Interest and other income
(expense)................. 446 (540) 10 (295) (69)
-------- -------- -------- -------- --------
Income before income
taxes..................... 28,591 32,557 44,432 8,725 11,159
Provision for income
taxes..................... 10,928 12,018 17,053 3,310 4,352
-------- -------- -------- -------- --------
Net income................. $ 17,663 $ 20,539 $ 27,379 $ 5,415 $ 6,807
======== ======== ======== ======== ========
Net income per share....... $ 0.63 $ 0.74 $ 0.87 $ 0.19 $ 0.21
======== ======== ======== ======== ========
Weighted average number of
common shares (in
thousands)................ 27,845 27,849 31,420 28,250 33,003
======== ======== ======== ======== ========
SELECTED OPERATING DATA:
Gross profit margin........ 17.1% 17.8% 18.0% 17.8% 18.2%
Number of homes closed..... 2,360 2,474 3,284 731 855
New sales orders, net
(homes)(1)................ 2,327 2,553 3,488 699 751
New sales orders, net ($
value)(1)................. $394,587 $449,260 $585,489 $115,363 $129,776
Sales backlog at end of
period (homes)(2)......... 773 1,000 1,204 968 1,208
Sales backlog at end of
period ($ value)(2)....... $140,524 $170,736 $208,888 $165,030 $223,474
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
-------------------------- -----------------
1994 1995 1996 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Inventories...................... $204,094 $282,908 $345,283 $294,042 $400,453
Total assets..................... 230,898 318,787 402,913 337,630 445,854
Total debt....................... 108,578 169,879 169,873 183,207 203,200
Stockholders' equity............. 84,553 106,073 177,638 111,514 184,780
</TABLE>
- --------
(1) Represents homes placed under contract during the period, net of
cancellations. See "Business--Marketing and Sales."
(2) Represents homes under contract but not yet closed at the end of the
period. See "Business--Marketing and Sales."
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following tables set forth certain information regarding the Company's
operations for the periods indicated.
<TABLE>
<CAPTION>
PERCENTAGES OF REVENUE
-----------------------------------------
FISCAL YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------- --------------------
1994 1995 1996 1995 1996
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Costs and Expenses:
Cost of sales..................... 82.9% 82.2% 82.0% 82.2% 81.8%
Selling, general and
administrative expenses.......... 9.9 10.2 9.8 10.3 10.5
Interest expense.................. -- 0.3 0.3 0.6 0.5
----- ----- ----- --------- ---------
Total costs and expenses........... 92.8 92.7 92.1 93.1 92.8
Other (income)..................... (0.1) (0.1) (0.2) (0.3) (0.5)
----- ----- ----- --------- ---------
Income before income taxes......... 7.3 7.4 8.1 7.2 7.7
Income taxes....................... 2.8 2.7 3.1 2.7 3.0
----- ----- ----- --------- ---------
Net income......................... 4.5% 4.7% 5.0% 4.5% 4.7%
===== ===== ===== ========= =========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, THREE MONTHS ENDED DECEMBER 31,
---------------------------------------- ------------------------------------
1994 1995 1996 1995 1996
------------ ------------ ------------ ----------------- -----------------
HOMES HOMES HOMES HOMES HOMES
CLOSED % CLOSED % CLOSED % CLOSED % CLOSED %
------ ----- ------ ----- ------ ----- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HOMES CLOSED
Mid-Atlantic (Charlotte,
Greensboro, New Jersey,
Raleigh/Durham,
Suburban Washington D.
C.).................... 442 18.7% 436 17.6% 547 16.7% 137 18.7% 116 13.6%
Midwest (Chicago,
Cincinnati, Kansas
City, Minneapolis/St.
Paul, St. Louis)....... 286 12.1 348 14.1 457 13.9 72 9.9 105 12.3
Southeast (Atlanta,
Birmingham, Nashville,
Orlando, Pensacola,
South Florida)......... 398 16.9 303 12.2 519 15.8 140 19.2 130 15.2
Southwest (Albuquerque,
Austin, Dallas/Fort
Worth, Houston,
Phoenix)............... 1,108 47.0 1,131 45.7 1,239 37.7 308 42.1 333 38.9
Western (Denver, Las
Vegas, Los Angeles,
Salt Lake City, San
Diego)................. 126 5.3 256 10.4 522 15.9 74 10.1 171 20.0
----- ----- ----- ----- ----- ----- ------ -------- ------ --------
2,360 100.0% 2,474 100.0% 3,284 100.0% 731 100.0% 855 100.0%
===== ===== ===== ===== ===== ===== ====== ======== ====== ========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, THREE MONTHS ENDED DECEMBER 31,
-------------------------------------------- -----------------------------------
1994 1995 1996 1995 1996
-------------- -------------- -------------- ----------------- -----------------
HOMES HOMES HOMES HOMES HOMES
SOLD $ SOLD $ SOLD $ SOLD $ SOLD $
----- -------- ----- -------- ----- -------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NEW SALES CONTRACTS
($ IN THOUSANDS)
Mid-Atlantic (Charlotte,
Greensboro, New Jersey,
Raleigh/Durham,
Suburban Washington D.
C.).................... 402 $113,434 403 $103,952 495 $106,908 113 $ 23,958 108 $ 25,010
Midwest (Chicago,
Cincinnati, Kansas
City, Minneapolis/St.
Paul, St. Louis)....... 272 51,890 339 68,675 527 100,990 111 21,953 89 17,874
Southeast (Atlanta,
Birmingham, Nashville,
Orlando, Pensacola,
South Florida)......... 346 48,073 371 64,654 493 80,104 107 17,517 100 16,158
Southwest (Albuquerque,
Austin, Dallas/Fort
Worth, Houston,
Phoenix)............... 1,138 149,023 1,148 155,202 1,311 190,006 267 36,978 265 40,451
Western (Denver, Las
Vegas, Los Angeles,
Salt Lake City, San
Diego)................. 169 32,167 292 56,777 662 107,481 101 14,957 189 30,283
----- -------- ----- -------- ----- -------- ----- ---------- ----- ----------
2,327 $394,587 2,553 $449,260 3,488 $585,489 699 $ 115,363 751 $ 129,776
===== ======== ===== ======== ===== ======== ===== ========== ===== ==========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, THREE MONTHS ENDED DECEMBER 31,
-------------------------------------------- ---------------------------------
1994 1995 1996 1995 1996
-------------- -------------- -------------- ---------------- ----------------
HOMES $ HOMES $ HOMES $ HOMES $ HOMES $
----- -------- ----- -------- ----- -------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
END OF PERIOD SALES
BACKLOG
($ IN THOUSANDS)
Mid-Atlantic (Charlotte,
Greensboro, New Jersey,
Raleigh/Durham,
Suburban Washington D.
C.).................... 137 $ 42,886 198 $ 43,949 146 $ 34,405 174 $ 39,642 214 $ 60,842
Midwest (Chicago,
Cincinnati, Kansas
City, Minneapolis/St.
Paul, St. Louis)....... 123 23,585 114 22,332 184 34,861 153 29,326 168 30,981
Southeast (Atlanta,
Birmingham, Nashville,
Orlando, Pensacola,
South Florida)......... 68 10,216 190 33,557 164 26,479 157 26,886 134 20,474
Southwest (Albuquerque,
Austin, Dallas/Fort
Worth, Houston,
Phoenix)............... 400 56,004 417 58,132 489 74,336 376 53,156 421 65,887
Western (Denver, Las
Vegas, Los Angeles,
Salt Lake City, San
Diego)................. 45 7,833 81 12,766 221 38,807 108 16,020 271 45,290
--- -------- ----- -------- ----- -------- ---- --------- ------ ---------
773 $140,524 1,000 $170,736 1,204 $208,888 968 $ 165,030 1,208 $ 223,474
=== ======== ===== ======== ===== ======== ==== ========= ====== =========
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1995
Revenues for the three months ended December 31, 1996, increased by 19.3%,
to $144.4 million, from $121.1 million for the comparable period of 1995. The
number of homes closed by the Company increased by 17.0%, to 855 homes in the
three months ended December 31, 1996, from 731 homes in the same period of
1995. Percentage increases in home closings ranging from 8.1% to 131.1% were
achieved in the Company's Midwest, Southwest and Western market regions, which
were somewhat offset by modest percentage decreases in home closings in the
Mid-Atlantic and Southeast market regions. Home sales revenues increased
partly due to an increase in the average home delivery price (to $168,700 in
1996, from $165,600 for the comparable period of 1995). The increase in the
average home delivery price was due primarily to changes in the geographic mix
of homes closed within the Company.
16
<PAGE>
New net sales contracts increased 7.4%, to 751 homes for the three months
ended December 31, 1996, from 699 homes for the three months ended December
31, 1995. The dollar amount of new net sales contracts increased by 12.5%,
with percentage increases ranging from 4.4% to 102.5% achieved in the
Company's Mid-Atlantic, Southwest and Western market regions. Those increases
were offset by moderate percentage declines in the Midwest and Southeast
market regions. The Company was operating in 225 subdivisions at December 31,
1996, compared to 171 subdivisions at December 31, 1995. At December 31, 1996,
the Company's backlog of sales contracts was 1,208 homes, a 24.8% increase
over comparable figures at December 31, 1995. The increase in sales backlog
was partially due to the sales backlog acquired in the purchase of Trimark
Communities, L.L.C., of Denver, Colorado (Trimark), and SGS Communities, Inc.,
of New Jersey (SGS) during the quarter. The average sales value of homes in
backlog increased to $185,000 at December 31, 1996, from $170,500 at December
31, 1995. The increase was due partially to the high average dollar value of
the sales backlog acquired with the December, 1996 acquisition of SGS, and to
changes in the geographic mix of homes sold during the quarter.
The increase in revenues caused cost of sales to increase by 18.6%, to
$118.0 million in the three months ended December 31, 1996, from $99.5 million
in the comparable period of 1995. As a percentage of revenues, cost of sales
decreased to 81.8% in 1996 from 82.2% in 1995. The decrease in cost of sales
as a percentage of revenues is primarily due to efforts to increase sales
prices and control costs.
Selling, general and administrative (SG&A) expense increased by 20.8%, to
$15.1 million in the three months ended December 31, 1996, from $12.5 million
in the comparable period of 1995. As a percentage of revenues, SG&A expense
increased to 10.5% in 1996, from 10.3% in 1995. This increase was partially
due to costs associated with the first quarter acquisitions.
Interest expense amounted to $0.8 million in the three months ended December
31, 1996, compared to $0.7 in the comparable period of 1995. The Company
follows a policy of capitalizing interest only on inventory under construction
or development. During the three months ended December 31, 1996 and 1995, the
Company expensed a portion of incurred interest and other financing costs due
to increased levels of developed lots and finished homes. Capitalized interest
and other financing costs are included in cost of sales at the time of home
closings.
Other income, which consists mainly of interest income and the pre-tax
earnings of the DRH Title Companies and DRH Mortgage Company, Ltd., increased
to $715,000 in the three months ended December 31, 1996, from $374,000 for the
comparable period of 1995. The increase was primarily due to expanded title
agency activities and the initiation of mortgage company services which were
not provided in 1995. Increased interest income from overnight investing of
cash balances also contributed to the increase in other income.
The provision for income taxes was $4.4 million in the three months ended
December 31, 1996, up $1.1 million from the $3.3 million for the comparable
quarter of 1995. The increase in income taxes was attributable to the increase
in income before income taxes and an increase in the estimated effective
income tax rate anticipated for fiscal 1997.
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
Revenues increased by 25.1% to $547.3 million in 1996 from $437.4 million in
1995. The number of homes closed by the Company increased by 32.7%, to 3,284
homes in 1996 from 2,474 homes in 1995. Home closings increased in all of the
Company's market regions, with percentage increases ranging from 9.5% in the
Southwest region to 103.9% in the Western region. Of the 32.7% increase in
1996 home closings, 13.4% was the result of acquisitions made in Greensboro
and Birmingham in the last quarter of 1995. The 1996 increase in revenues was
achieved in spite of a 4.1% decrease in the average selling price of homes
closed, to $166,600 in 1996 from $173,700 in 1995. The decrease was due to
changes in the geographic mix of homes closed within the Company and different
price points in certain markets.
17
<PAGE>
New net sales contracts increased 36.6%, to 3,488 homes in 1996 from 2,553
in 1995. Percentage increases in new net sales contracts ranging from 126.7%
to 14.2% were achieved in the Company's market regions. The 1996 average sales
price was $167,900, compared to $176,000 in 1995.
The Company was operating in 184 subdivisions at September 30, 1996,
compared to 162 at September 30, 1995. At September 30, 1996, the Company's
backlog of sales contracts was 1,204 homes, a 20.4% increase over the
comparable figure at September 30, 1995. The average sales price of homes in
backlog increased to $173,500 at September 30, 1996, from $170,700 at
September 30, 1995.
Cost of sales increased by 24.8%, to $449.1 million in 1996 from $359.7
million in 1995. As a percentage of revenues, cost of sales decreased by 0.2%,
to 82.0% in 1996 from 82.2% in 1995. This improvement resulted from good
market conditions during the year, proactive efforts to maintain sales prices
and control costs, and higher margins on homes closed on internally developed
lots. The Company does not capitalize pre-opening costs for new subdivisions.
Selling, general and administrative (SG&A) expense increased by 20.9%, to
$53.9 million in 1996 from $44.5 million in 1995. The increase in SG&A expense
was due largely to the increases in sales and construction activity required
to sustain the higher levels of revenues. SG&A expense as a percentage of
revenues decreased by 0.4%, to 9.8% in 1996 from 10.2% in 1995, as the Company
was successful in controlling its variable overhead costs while the revenue
increase offset more fixed costs.
Interest expense increased to $1.5 million in 1996, from $1.2 million in
1995, caused by average interest-bearing debt growing at a slightly faster
pace than the average amount of inventory under construction and development.
The Company follows a policy of capitalizing interest only on inventory under
construction or development. During both 1996 and 1995, a portion of incurred
interest and other financing costs could not be charged to inventory and was
expensed. Capitalized interest and other financing costs are included in cost
of sales at the time of home closings.
Other income, which consists mainly of interest income, pretax earnings from
the Company's title operations and, in 1996, pretax earnings from the
Company's mortgage operations, increased to $1.5 million in 1996, from $0.6
million in 1995. The increase was due primarily to the fact that 1996
comprised a full year of operations for DRH Title Company of Texas, Ltd.,
compared to only six months in 1995. Additionally, DRH Title Company of
Florida, Inc., and DRH Mortgage Company, Ltd. commenced operations in 1996 and
provided pretax earnings.
The provision for income taxes increased 41.9%, to $17.1 million in 1996
from $12.0 million in 1995, due in part to the corresponding increase in
income before income taxes. The effective tax rate increased to 38.4% in 1996
from 36.9% in 1995. As a percentage of revenues, the income tax provision
increased 0.4% to 3.1% in 1996. The increases in the effective tax rate and in
the tax provision as a percentage of revenues were due primarily to higher
expected rates of state and local income taxes.
YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994
Revenues increased by 11.2%, to $437.4 million in 1995 from $393.3 million
in 1994. The number of homes closed by the Company increased by 4.8% to 2,474
homes in 1995 from 2,360 homes in 1994, led by a 103.2% increase in the
Company's Western region and a 21.7% increase in the Company's Midwest region.
The large increase in the Western region resulted from earlier investments
incurred to enter markets within this region and illustrates a normal
progression for newer markets. The 1995 increase in revenues also was due in
part to a 4.3% increase in the average selling price of homes closed, to
$173,700 in 1995 from $166,600 in 1994. The increase was due primarily to
changes in the geographic mix of homes closed within the Company, as homes
closed in the newer markets were at higher prices. Miscellaneous land/lot
sales in 1995 and the impact of acquisitions also contributed to the increase
in revenues.
18
<PAGE>
New net sales contracts increased by 9.7%, to 2,553 homes in 1995 from 2,327
in 1994. Percentage increases in new net sales contracts were achieved in all
of the Company's market regions, led by 72.8% and 24.6% increases in the
Western and Midwest regions, respectively. The 1995 average selling price was
$176,000, compared to $169,600 in 1994.
The Company was operating in 162 subdivisions at September 30, 1995,
compared to 137 at September 30, 1994. At September 30, 1995, the Company's
backlog of sales contracts was 1,000 homes, a 29.4% increase over the
comparable figure at September 30, 1994. The average sales price of homes in
backlog decreased to $170,700 at September 30, 1995, from $181,800 at
September 30, 1994.
Cost of sales increased by 10.3%, to $359.7 million in 1995 from $326.1
million in 1994. As a percentage of revenues, cost of sales decreased by 0.7%,
to 82.2% in 1995 from 82.9% in 1994. This improvement resulted from proactive
efforts to maintain sales prices and control costs, higher margins on homes
closed on internally developed lots, and miscellaneous land/lot sales. The
Company does not capitalize pre-opening costs for new subdivisions.
Selling, general and administrative (SG&A) expense increased by 14.0%, to
$44.5 million in 1995 from $39.1 million in 1993. The increase in SG&A expense
was due largely to the increases in sales and construction activity required
to sustain the higher levels of revenues. SG&A expense as a percentage of
revenues increased by 0.3%, to 10.2% in 1995 from 9.9% in 1994, due partly to
costs associated with expansion into new markets which had not yet generated
significant revenues.
Interest expense totalled $1.2 million in 1995, compared to none in 1994.
The Company follows a policy of capitalizing interest only on inventory under
construction or development. During 1995, the Company expensed a portion of
incurred interest and other financing costs due to increased levels of
developed lots and finished homes. During the 1994 period, all such costs were
capitalized in inventory. Capitalized interest and other financing costs are
included in cost of sales at the time of home closings.
Other income, which consisted mainly of interest income and pretax earnings
of DRH Title Company of Texas, Ltd. in 1995, increased to $621,000 in 1995,
from $446,000 in 1994.
The provision for income taxes increased 10.0%, to $12.0 million in 1995
from $10.9 million in 1994, due primarily to the corresponding increase in
income before income taxes. The effective tax rate decreased to 36.9% in 1995
from 38.2% in 1994. As a percentage of revenues, the income tax provision
decreased by 0.1% to 2.7% in 1995. The decreases in the effective tax rate and
in the tax provision as a percentage of revenues were due primarily to the
effects of certain tax planning strategies relating to state income taxes.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had available cash and cash equivalents of
$15.1 million. Inventories (including finished homes and construction in
progress, developed residential lots and other land) at December 31, 1996,
increased by $55.2 million from September 30, 1996, due to the acquisitions of
selected assets (including inventories) of Trimark and SGS. Inventories also
increased due to a general increase in business activity and the expansion of
operations in the newer market areas. Because the inventory increase and the
acquisitions were financed largely by borrowing, the Company's ratio of notes
payable to total capital increased to 52.4% at December 31, 1996, from 48.9%
at September 30, 1996. The equity to total assets ratio decreased slightly
during the three months, to 41.4% at December 31, 1996, from 44.1% at
September 30, 1996.
The Company's financing needs depend upon the results of its operations,
sales volume, inventory levels, inventory turnover, and acquisitions. The
Company has financed its operations through borrowings from financial
institutions, through funds from earnings, and, in 1992 and 1996, from the
sale of Common Stock.
At December 31, 1996, the Company had outstanding debt of $203.2 million and
additional aggregate unsecured financing available under debt agreements of
$101.2 million. The Company currently has
19
<PAGE>
debt capacity of $410 million. However, the covenants contained in its credit
facilities currently limit such capacity to $356 million.
In October, 1996, the Company completed the acquisition of the principal
assets (approximately $7.6 million, primarily inventories) of Trimark for
approximately $6.6 million in cash and the assumption of approximately $1.1
million in trade accounts and notes payable associated with the acquired
assets. In December, 1996, the Company purchased the principal assets
(approximately $20.4 million, primarily inventories) of SGS for $11.8 million
in cash and the assumption of $9.7 million in trade accounts and notes payable
associated with the acquired assets.
On February 27, 1997, the Company completed the Torrey Acquisition. Under
the terms of the Stock Purchase Agreement, the Company paid at closing
consideration consisting of $28.5 million in cash and 844,444 shares of Common
Stock, and agreed to a contingent payment estimated at $1 million, for all of
the outstanding capital stock of the entities comprising Torrey. The Company
also assumed and refinanced approximately $89 million of indebtedness, other
obligations and minority interests.
The Company's rapid growth requires significant amounts of cash. It is
anticipated that future home construction, lot and land purchases and
acquisitions will be funded through internally generated funds and new and
existing borrowings. The Company continuously evaluates its capital structure
and in the future may seek to further increase unsecured debt and obtain
additional equity to fund ongoing operations as well as to pursue additional
growth opportunities.
Except for ordinary expenditures for the construction of homes and, to a
limited extent, the acquisition of land and lots for development and sale of
homes, at December 31, 1996, the Company had no material commitments for
capital expenditures.
INFLATION
The Company, as well as the homebuilding industry in general, may be
adversely affected during periods of high inflation, primarily because of
higher land and construction costs. Inflation also increases the Company's
financing, labor and material costs. In addition, higher mortgage interest
rates significantly affect the affordability of permanent mortgage financing
to prospective homebuyers. The Company attempts to pass through to its
customers any increases in its costs through increased sales prices and, to
date, inflation has not had a material adverse effect on the Company's results
of operations. However, there is no assurance that inflation will not have a
material adverse impact on the Company's future results of operations.
20
<PAGE>
BUSINESS
The Company is engaged primarily in the construction and sale of single-
family homes in metropolitan areas of the Mid-Atlantic, Midwest, Southeast,
Southwest and Western regions of the United States. The Company offers high-
quality homes with custom features, designed principally for the entry-level
and move-up market segments. The Company's homes generally range in size from
1,000 to 5,000 square feet and range in price from $80,000 to $600,000. For
the year ended September 30, 1996, the Company closed homes with an average
sales price approximating $166,600. The average sales price of homes closed in
the three months ended December 31, 1996, was $168,700.
The Company is one of the most geographically diversified homebuilders in
the United States, with operating divisions in 21 states and 27 markets. These
markets include Albuquerque, Atlanta, Austin, Birmingham, Charlotte, Chicago,
Cincinnati, Dallas/Fort Worth, Denver, Greensboro, Greenville, Houston, Kansas
City, Las Vegas, Los Angeles, Minneapolis/St. Paul, Nashville, North Central
New Jersey, Orlando, Pensacola, Phoenix, Raleigh/Durham, Salt Lake City, San
Diego, South Florida, St. Louis and suburban Washington, D.C.
The Company was incorporated in Delaware on July 1, 1991, to acquire all of
the assets and businesses of 25 predecessor companies, which were residential
home construction and development companies owned or controlled by Donald R.
Horton.
The Company's principal executive offices are located at 1901 Ascension
Blvd., Suite 100, Arlington, Texas 76006, and its telephone number is (817)
856-8200.
OPERATING STRATEGY
The Company believes that there are several important elements to its
operating strategy which have enabled it to achieve consistent growth and
profitability. The following are important elements of this strategy:
Geographic Diversification. From 1978 to late 1987, the Company's
homebuilding activities were conducted exclusively in the Dallas/Fort Worth
area. The Company then instituted a policy of diversifying geographically,
entering the following markets in the years indicated:
<TABLE>
<CAPTION>
YEAR ENTERED MARKETS
------------ -------
<S> <C>
1987.................... Phoenix
1988.................... Atlanta, Orlando
1989.................... Charlotte
1990.................... Houston
1991.................... Suburban Washington D.C.
1992.................... Chicago, Cincinnati, Raleigh/Durham, South Florida
1993.................... Austin, Los Angeles, Salt Lake City, San Diego
1994.................... Minneapolis/St. Paul, Kansas City, Las Vegas
1995.................... Birmingham, Denver, Greensboro, St. Louis
1996.................... Albuquerque, Pensacola
1997.................... Nashville, North Central New Jersey, Greenville
</TABLE>
The Company continually monitors the sales and margins achieved in each of
the subdivisions in which it operates as part of an overall evaluation of the
employment of its capital. While the Company believes there are significant
growth opportunities in its existing markets, it intends to continue its
policy of geographic diversification by seeking to enter new markets. The
Company believes that its diversification strategy mitigates the effects of
local and regional economic cycles and enhances its growth potential.
Typically, the Company will not invest material amounts in real estate,
including raw land, developed lots, models and speculative homes, or overhead
in start-up operations in new markets until such markets demonstrate
significant growth potential and acceptance of the Company and its products.
21
<PAGE>
Acquisitions. As an integral component of the Company's operational strategy
of continued expansion and geographic diversification, the Company continually
evaluates opportunities for strategic acquisitions. The Company believes that
the expansion of its operations through the acquisition of existing
homebuilding companies affords it several benefits not found in start-up
operations. Such benefits include established land positions and inventories;
existing relationships with land owners, developers, subcontractors and
suppliers; brand name recognition; and proven product acceptance by homebuyers
in the market. In evaluating potential acquisition candidates, the Company
seeks homebuilding companies that have an excellent reputation, a track record
of profitability and a strong management team with an entrepreneurial
orientation. The Company has limited the risks associated with acquiring a
going concern by conducting extensive operational, financial and legal due
diligence on each acquisition candidate and by only acquiring homebuilding
companies that the Company believes should have an immediate positive impact
on the Company's earnings.
The Company has acquired six homebuilding companies since 1994:
<TABLE>
<CAPTION>
DATE
ACQUIRED ENTITIES ACQUIRED MARKETS
-------- ----------------- -------
<C> <S> <C>
April 1994 Joe Miller Homes, Inc. Minneapolis/St. Paul
and
Argus Development, Inc.
July 1995 Arappco, Inc. Greensboro
September 1995 Regency Development, Inc. Birmingham
October 1996 Trimark Communities, LLC Denver
December 1996 SGS Communities, Inc. North Central New Jersey
February 1997 The Torrey Group of Atlanta, Charlotte, Greenville and
Companies Raleigh/Durham
</TABLE>
In both existing and new markets, the Company anticipates that it will
continue to evaluate potential future acquisition opportunities that satisfy
its acquisition criteria.
On February 27, 1997, the Company completed the Torrey Acquisition. Under
the terms of the Stock Purchase Agreement, the Company paid at closing
consideration consisting of $28.5 million in cash and 844,444 shares of Common
Stock, and agreed to a contingent payment estimated at $1 million, for all of
the outstanding capital stock of the entities comprising Torrey. The Company
also assumed and refinanced approximately $89 million of indebtedness, other
obligations and minority interests.
Torrey has been the leading builder of single-family homes in the large and
growing Atlanta, Georgia market for the past three years as reported in
Builder Magazine. Atlanta has been the largest housing market in the United
States for the past three years based on single-family building permits
issued. Torrey targets both entry-level and first time move-up buyers. For the
twelve months ended September 30, 1996, Torrey delivered 1,442 homes,
generating $183.8 million of revenue. In addition to building homes in the
Atlanta market, Torrey has homebuilding operations in Charlotte and
Raleigh/Durham, North Carolina, and Greenville, South Carolina. Despite
Torrey's leading market share position in the Atlanta market, the Company
believes that it can improve Torrey's operating results by providing
additional and lower cost capital and operating synergies.
The Company believes that the Torrey Acquisition is consistent with its
strategy of selectively pursuing acquisitions of homebuilders that have an
excellent reputation, a track record of profitability, and a strong management
team.
Market Focus--Custom Features. The Company positions itself between large
volume homebuilders and local custom homebuilders by offering a broader
selection of homes that typically have more amenities and greater design
flexibility than homes offered by volume builders, at prices that are
generally more affordable than those charged by local custom builders. The
Company generally offers between five and ten home designs that it believes
will appeal to local homebuyers at each of its subdivisions, but is prepared
to offer additional
22
<PAGE>
building plans and options that may be more suitable or desirable to
homebuyers. The Company also is prepared to customize such designs to the
individual tastes and specifications of its homebuyers. While most design
modifications are significant to homebuyers, such changes typically involve
relatively minor adjustments including, among other things, modifying the
interior or exterior dimensions of the home and changing exterior materials.
Such changes generally improve the Company's gross margins. Consequently, the
Company believes that it is able to maintain the efficiencies of a volume
builder while delivering high-quality, personalized homes to its customers.
The Company believes that its ability to cater to the design tastes and
desires of the prospective homebuyer at competitive prices, even at the entry-
level, distinguishes it from many of its competitors.
Decentralized Operations. The Company's homebuilding activities are
decentralized to give more operating flexibility to its local division
managers. The Company's homebuilding activities are conducted through 34
operating divisions, some of which are in the same general market area.
Generally, each operating division consists of a vice president, an office
manager and staff, a sales manager, one to eleven sales people and one
construction manager, who oversees one to nine construction supervisors. The
Company believes that division managers, who are intimately familiar with
local conditions, make better decisions regarding local operations than do the
centralized, corporate management teams who make such decisions for many of
its competitors. Each operating division is responsible for preliminary site
selection, negotiation of option or similar contracts, and overseeing land
development activities. Site selection and lot acquisition typically involve a
feasibility study by the operating division, including soil and environmental
reviews, a review of existing zoning and other governmental requirements, and
a review of the need for and extent of offsite work and additional lot
preparation required to meet local building codes. Each operating division
also plans its homebuilding schedule, selects the building plans and
architectural scheme for its subdivisions, obtains all necessary building
approvals, and develops a marketing plan for its homes. Division managers
receive performance bonuses based upon achieving targeted operating levels in
their operating divisions.
The Company's corporate office controls key risk elements by retaining
oversight and responsibility for final approval of all land and lot
acquisitions, inventory levels, financing arrangements, accounting and
management reporting, payment of subcontractor invoices, payroll and employee
benefits.
Cost Management. The Company strives to control its overhead costs by
centralizing its administrative and accounting functions and by limiting the
number of field administrative personnel and middle level management
positions. The Company also attempts to minimize advertising costs by
participating in promotional activities, publications and newsletters
sponsored by local real estate brokers, mortgage companies, utility companies
and trade associations, and, in certain instances, by positioning its
subdivisions in conspicuous locations that permit it to take advantage of
local traffic patterns.
The Company attempts to control construction costs through the efficient
design of its homes and by obtaining favorable pricing from certain
subcontractors based on the high volume of work they perform for the Company.
The Company's management information systems, including the purchase order
system, also assist in controlling construction costs by allowing corporate
and division management to monitor expenditures on a home-by-home basis. In
addition, the Company's management information systems allow the Company to
monitor its inventory composition and levels, thereby controlling capital and
overhead costs.
Limited Real Estate Exposure. The Company generally acquires developed
building lots pursuant to lot option and similar contracts after all zoning
and other governmental entitlements and approvals are obtained. By utilizing
lot option contracts, the Company purchases the right, but not the obligation,
to buy building lots at predetermined prices on a takedown schedule
commensurate with anticipated home closings. The lot option contracts are
generally on a nonrecourse basis, thereby limiting the Company's financial
exposure to earnest money deposits given to property sellers. This practice
enables the Company to control significant lot positions with minimal up front
capital and substantially reduces the risks associated with land ownership and
development. The Company attempts to control a two to four year supply of
building lots within each market based on current and expected absorption
rates. At December 31, 1996, the Company held lot option and similar contracts
for 10,928 lots with an estimated aggregate purchase price approximating $350
million. These options are secured by cash deposits approximating $4.4 million
and promissory notes approximating $1.4 million.
23
<PAGE>
MARKETS
The Company's homebuilding activities are conducted in five geographic
regions, comprised of the following markets:
<TABLE>
<CAPTION>
GEOGRAPHIC REGION MARKETS
----------------- -------
<S> <C>
Mid-Atlantic............ Charlotte, Greensboro, Greenville, North Central New Jersey,
Raleigh/Durham, Suburban Washington, D.C.
Midwest................. Chicago, Cincinnati, Kansas City, Minneapolis/St. Paul, St. Louis
Southeast............... Atlanta, Birmingham, Nashville, Orlando, Pensacola, South Florida
Southwest............... Albuquerque, Austin, Dallas/Fort Worth, Houston, Phoenix
Western................. Denver, Las Vegas, Los Angeles, Salt Lake City, San Diego
</TABLE>
The Company's operations in each of its markets differ based on a number of
market-specific factors. These factors include regional economic conditions
and job growth, land availability and the local land development process,
consumer tastes, competition from other builders of new homes and secondary
home sales activity. The Company considers each of these factors when entering
new markets or conducting operations in existing markets.
Revenues for the Company by geographic region are:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31,
-------------------------- -------------------
1994 1995 1996 1995 1996
-------- -------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Mid-Atlantic..................... $121,829 $113,251 $116,452 $ 28,266 $ 24,167
Midwest.......................... 54,072 69,929 88,461 14,957 21,754
Southeast........................ 53,384 49,291 87,181 24,187 22,163
Southwest........................ 139,420 153,074 173,802 41,955 48,901
Western.......................... 24,612 51,843 81,440 11,703 27,396
-------- -------- -------- --------- ---------
Total.......................... $393,317 $437,388 $547,336 $ 121,068 $ 144,381
======== ======== ======== ========= =========
</TABLE>
LAND POLICIES
While the Company expects to continue to rely predominantly on lot option
and similar contracts to secure developed lots, it will pursue selected land
acquisition and development opportunities to augment its inventory of low-
cost, quality building lots and to maximize profit opportunities.
Substantially all of the land acquired by the Company is purchased only after
necessary entitlements have been obtained so that the Company has the right to
begin development or construction. The Company generally limits its
acquisitions to smaller tracts of entitled land that will yield under 150 lots
when developed and, where possible, obtains options to acquire adjacent
parcels for later development. By limiting its acquisition and development
activities to smaller parcels of land, the Company reduces the financial and
market risks associated with holding land during the development period.
Before it acquires tracts of land, the Company will, among other things,
complete a feasibility study, which includes soil tests, independent
environmental studies and other engineering work, and determine that all
necessary zoning and other governmental entitlements required to develop and
use the property for home construction have been acquired. At December 31,
1996, only about 34% of the Company's total lot position of 16,584 lots was
being or had been developed by the Company. Although the Company purchases
land and engages in land development activities primarily to support its own
homebuilding activities, lots and land are occasionally sold to other
developers and homebuilders.
24
<PAGE>
The following table sets forth a summary of the Company's land/lot positions
at December 31, 1996:
<TABLE>
<S> <C>
Finished lots owned by the Company.................................... 1,315
Lots under development owned by the Company........................... 4,341
------
Total lots owned.................................................... 5,656
Lots available under lot option and similar contracts................. 10,928
------
Total land/lot position............................................. 16,584
======
</TABLE>
The Company also seeks to limit its exposure to real estate inventory risks
by (i) generally commencing construction of homes under contract only after
receipt of a satisfactory down payment and, where applicable, the buyer's
receipt of mortgage approval, (ii) limiting the number of speculative homes
(homes started without an executed sales contract) built in each subdivision;
and, (iii) closely monitoring local market and demographic trends, housing
preferences and related economic developments, such as new job opportunities,
local growth initiatives and personal income trends.
CONSTRUCTION
The Company's home designs are prepared by architects in each of the
Company's markets to appeal to the local tastes and preferences of the
community. Optional interior and exterior features also are offered by the
Company to enhance the basic home design and to promote the custom aspect of
the Company's sales efforts.
Substantially all of the Company's construction work is performed by
subcontractors. The Company's construction supervisors monitor the
construction of each home, participate in material design and building
decisions, coordinate the activities of subcontractors and suppliers, subject
the work of subcontractors to quality and cost controls and monitor compliance
with zoning and building codes. Subcontractors typically are retained for a
specific subdivision pursuant to a contract that obligates the subcontractor
to complete construction at a fixed price. Agreements with the Company's
subcontractors and suppliers generally are negotiated for each subdivision.
The Company competes with other homebuilders for qualified subcontractors, raw
materials and lots in the markets where it operates.
Construction time for the Company's homes depends on the weather,
availability of labor, materials and supplies, and other factors. The Company
typically completes the construction of a home within four months.
The Company does not maintain significant inventories of construction
materials, except for work in process materials for homes under construction.
Typically, the construction materials used in the Company's operations are
readily available from numerous sources. The Company does not have any long-
term contracts with suppliers of its building materials. In recent years, the
Company has not experienced any significant delays in construction due to
shortages of materials or labor.
MARKETING AND SALES
The Company markets and sells its homes through commissioned employees and
independent real estate brokers. Home sales are typically conducted from sales
offices located in furnished model homes used in each subdivision. At December
31, 1996, the Company owned 249 model homes. These model homes generally are
not offered for sale until the completion of the respective subdivision. The
Company's sales personnel assist prospective homebuyers by providing them with
floor plans, price information, tours of model homes and the selection of
options and other custom features. Such personnel are trained by the Company
and kept informed as to the availability of financing, construction schedules
and marketing and advertising plans.
In addition to using model homes, the Company typically builds a limited
number of speculative homes in each subdivision to enhance its marketing and
sales activities. Construction of these speculative homes also is necessary to
satisfy the requirements of relocated personnel and independent brokers, who
often represent homebuyers requiring a completed home within 60 days. A
majority of these speculative homes are sold while under construction or
immediately following completion. The number of speculative homes is
influenced by local
25
<PAGE>
market factors, such as new employment opportunities, significant job
relocations, growing housing demand and the length of time the Company has
built in the market. Depending upon the seasonality of each of its markets,
the Company seeks to limit its speculative homes to approximately five homes
per subdivision. At December 31, 1996, the Company was operating in 225
subdivisions and averaged five speculative homes in each subdivision.
The Company advertises on a limited basis in newspapers and in real estate
broker, mortgage company and utility publications, brochures, newsletters and
billboards. To minimize advertising costs, the Company attempts to operate in
subdivisions in conspicuous locations that permit it to take advantage of
local traffic patterns. The Company also believes that model homes play a
significant role in its marketing efforts. Consequently, the Company expends
significant efforts in creating an attractive atmosphere in its model homes.
Sales of the Company's homes generally are made pursuant to a standard sales
contract which requires a down payment of 5% to 10% of the sales price. The
contract includes a financing contingency which permits the customer to cancel
in the event mortgage financing at prevailing interest rates is unobtainable
within a specified period, typically four to six weeks, and may include other
contingencies, such as the sale of an existing home. The Company includes a
home sale in its sales backlog upon execution of the sales contract and
receipt of the initial down payment. The Company does not recognize revenue
upon the sale of a home until the home is closed and title passes. The Company
estimates that the average period between the execution of a sales contract
for a home and closing is approximately three to five months for presold
homes.
CUSTOMER SERVICE AND QUALITY CONTROL
The Company's operating divisions are responsible for pre-closing, quality
control inspections and responding to customers' post-closing needs. The
Company believes that prompt and courteous response to homebuyers' needs
during and after construction reduces post-closing repair costs, enhances the
Company's reputation for quality and service, and ultimately leads to
significant repeat and referral business from the real estate community and
homebuyers. The Company provides its homebuyers with a limited one-year
warranty on workmanship and building materials. The subcontractors who perform
most of the actual construction in turn provide warranties of workmanship to
the Company, and generally are prepared to respond to the Company and
homeowner promptly upon request. In most cases, the Company supplements its
one-year warranty by purchasing a ten-year limited warranty from a third
party. To cover its potential warranty obligations, the Company accrues an
estimated amount for future warranty costs.
CUSTOMER FINANCING
In 1996, the Company formed D.R. Horton Mortgage Company, Ltd., a joint
venture with a third party, to provide mortgage financing services,
principally to purchasers of homes built and sold by the Company. D.R. Horton
Mortgage presently provides services in Dallas/Fort Worth, Austin, Houston and
Phoenix.
In its other markets, the Company does not provide mortgage financing but
works with a variety of mortgage lenders that make available to homebuyers a
range of conventional mortgage financing programs. By making information about
these programs available to prospective homebuyers and maintaining a
relationship with such mortgage lenders, the Company is able to coordinate and
expedite the entire sales transaction by ensuring that mortgage commitments
are received and that closings take place on a timely and efficient basis.
TITLE SERVICES
Through its wholly owned subsidiaries, DRH Title Company of Texas, Ltd. and
DRH Title Company of Florida, Inc., the Company serves as a title insurance
agent by providing title insurance policies and closing services to purchasers
of homes built and sold by the Company in the Dallas/Fort Worth, Austin and
Florida markets. The Company assumes no underwriting risk associated with
these title policies.
26
<PAGE>
EMPLOYEES
At December 31, 1996, the Company employed 765 persons, of whom 232 were
sales and marketing personnel, 266 were executive, administrative and clerical
personnel, 256 were involved in construction, and 11 worked in title
operations. Fewer than 10 of the Company's employees are covered by collective
bargaining agreements. Certain of the subcontractors which the Company engages
are represented by labor unions or are subject to collective bargaining
agreements. The Company believes that its relations with its employees and
subcontractors are good.
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
the number of shares of Common Stock set forth opposite the name of such
Underwriter.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Smith Barney Inc...................................................... 875,000
Donaldson, Lufkin & Jenrette Securities Corporation................... 875,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................................... 875,000
Salomon Brothers Inc.................................................. 875,000
---------
Total............................................................... 3,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters propose to offer part of the shares directly to the public
at the public offering price set forth on the cover page of this Prospectus
and part of the shares to certain dealers at a price which represents a
concession not in excess of $.31 per share under the public offering price.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $.10 per share to certain other dealers. After the initial offering
of the shares to the public, the public offering price and such concessions
may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable for
thirty days from the date of this Prospectus, to purchase up to an aggregate
of 525,000 additional shares of Common Stock at the price to the public set
forth on the cover page of this Prospectus less underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose
of covering over-allotments, if any, in connection with the offering of the
shares offered hereby. To the extent such option is exercised, each
Underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares set forth opposite each Underwriter's name in the preceding table bears
to the total number of shares listed in such table.
The Company and certain of its executive officers and directors have agreed
that, for a period of 90 days from the date of this Prospectus, they will not,
without the prior written consent of Smith Barney Inc., offer, sell, contract
to sell, or otherwise dispose of, any shares of Common Stock of the Company
(other than up to an aggregate of 150,000 shares by executive officers and
directors subsequent to the completion of the distribution of the shares
offered hereby) or any securities convertible into, or exercisable or
exchangeable for, Common Stock of the Company.
27
<PAGE>
In connection with the Offering and in compliance with applicable law, the
Underwriters may overallot or effect transactions which stabilize, maintain or
otherwise affect the price of the Common Stock at a level above that which
might otherwise prevail in the open market, including by entering stabilizing
bids, effecting syndicate covering transactions or imposing penalty bids. A
stabilizing bid means the placing of any bid, or the effecting of any purchase,
for the purpose of pegging, fixing or maintaining the price of a security. A
syndicate covering transaction means the placing of any bid on behalf of the
underwriting syndicate or the effecting of any purchase to reduce a short
position created in connection with the Offering. A penalty bid means an
arrangement that permits Smith Barney Inc., as managing underwriter, to reclaim
a selling concession from a syndicate member in connection with the Offering
when shares of Common Stock originally sold by such syndicate member are
purchased in stabilizing or syndicate covering transactions. Such transactions
may be effected on the New York Stock Exchange, in the over-the-counter market
or otherwise. The Underwriters are not required to engage in any of these
activities. Any such activities, if commenced, may be discontinued at any time.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933.
LEGAL OPINIONS
Gibson, Dunn & Crutcher LLP, Dallas, Texas has rendered an opinion (filed as
an exhibit to the Registration Statement (as defined)) with respect to the
validity of the shares of Common Stock being offered hereby. Certain legal
matters are being passed upon for the Underwriters by Cahill Gordon & Reindel
(a partnership including a professional corporation), New York, New York.
EXPERTS
The consolidated financial statements of D.R. Horton, Inc. appearing in D.R.
Horton, Inc.'s Annual Report (Form 10-K) for the year ended September 30, 1996,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy and information statements filed
by the Company with the Commission pursuant to the informational requirements
of the Exchange Act may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: New York
Regional Office, Seven World Trade Center, 13th Floor, New York, New York
10048; and Chicago Regional Office, Northwest Atrium Center, 500 West Madison
Street, Room 3190, Chicago, Illinois 60661. Copies of such material may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such material is
also available for inspection at the offices of The New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005. The Commission also maintains
a Web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants such as the Company
which file electronically with the Commission.
The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the Common Stock offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement
and the exhibits and schedules thereto, to which reference is hereby made. For
further
28
<PAGE>
information with respect to the Company and such Common Stock, reference is
made to the Registration Statement, including the documents and exhibits filed
or incorporated as a part thereof. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement or to a document
incorporated by reference herein, reference is hereby made to the exhibitor for
a more complete description of the matter involved and each such statement
shall be deemed qualified in its entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1996, the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended December 31, 1996, the description of the Company's Common Stock
contained in the Company's Registration Statement on Form 8-A filed on
December 7, 1995, and pages two through seven ("Election of Directors" through
"Executive Compensation-Compensation Committee Interlocks and Insider
Participation") and page ten ("Executive Compensation-Transactions with
Management") contained in the Company's Proxy Statement dated December 20,
1996, relating to the 1997 Annual Meeting of Stockholders are incorporated in
this Prospectus by reference. All documents filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the Offering shall be deemed to
be incorporated by reference into this Prospectus and to be a part hereof from
the date of filing such documents.
Any statement in a document incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any subsequently filed document which is
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the documents incorporated
herein by reference (not including exhibits to such documents unless such
exhibits are specifically incorporated by reference in the information
contained in this Prospectus). All such requests should be addressed to: D.R.
Horton, Inc., 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006.
29
<PAGE>
Map depicting the states of the United States of America in which the Company
conducts its operations and a listing of each of the Company's operating
divisions, with telephone numbers, arranged by geographic region.
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY
OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY CIRCUMSTANCES
IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 9
Price Range of Common Stock.............................................. 9
Dividend Policy.......................................................... 9
Capitalization........................................................... 10
Unaudited Pro Forma Financial Data....................................... 11
Selected Financial Information........................................... 14
Management's Discussion and Analysis of Results of Operations and
Financial Condition..................................................... 15
Business................................................................. 21
Underwriting............................................................. 27
Legal Opinions........................................................... 28
Experts.................................................................. 28
Available Information.................................................... 28
Incorporation of Certain Information by Reference........................ 29
</TABLE>
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3,500,000 SHARES
D.R. HORTON, INC.
CUSTOM HOMES
COMMON STOCK
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PROSPECTUS
MARCH 10, 1997
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SMITH BARNEY INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
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