1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 0-23270
DOMINION HOMES, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-1393233
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
5501 Frantz Road, Dublin, Ohio 43017-0766
(Address of principal executive offices)
(614) 761-6000
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Number of common shares outstanding as of May 8, 1998: 6,271,053
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DOMINION HOMES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
March 31, December 31,
1998 1997
(unaudited)
--------- ---------
ASSETS
Cash and cash equivalents $ 252 $ 252
Notes and accounts receivable, net:
Trade 1,321 1,443
Due from financial institutions for residential closings 1,317 340
Real estate inventories:
Land and land development costs 55,264 62,867
Homes under construction 54,277 46,717
Other 3,394 2,177
--------- ---------
Total real estate inventories 112,935 111,761
Prepaid expenses and other 1,105 455
Deferred income taxes 2,000 2,110
Property and equipment, at cost 4,370 4,325
Less accumulated depreciation (2,904) (2,891)
--------- ---------
Net property and equipment 1,466 1,434
--------- ---------
Total assets $ 120,396 $ 117,795
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, trade $ 7,198 $ 6,770
Deposits on homes under contract 2,704 1,977
Accrued liabilities 11,136 10,625
Note payable, banks 52,144 52,687
Term debt 4,484 5,076
--------- ---------
Total liabilities 77,666 77,135
--------- ---------
Commitments and contingencies
Shareholders' equity
Common shares, without stated value, 12,000,000 shares
authorized, 6,271,053 and 6,266,953 shares issued
and outstanding, respectively 30,717 30,673
Less deferred compensation (129) (150)
Retained earnings 12,142 10,137
--------- ---------
Total shareholders' equity 42,730 40,660
--------- ---------
Total liabilities and shareholders' equity $ 120,396 $ 117,795
========= =========
The accompanying notes are an integral part of the financial statements.
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DOMINION HOMES, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
---------- ----------
Revenues $ 54,458 $ 36,997
Cost of real estate sold 43,558 29,380
---------- ----------
Gross profit 10,900 7,617
Selling, general and administrative 6,352 5,135
---------- ----------
Income from operations 4,548 2,482
Interest expense 1,091 1,443
---------- ----------
Income before income taxes 3,457 1,039
Provision for income taxes 1,452 436
---------- ----------
Net income $ 2,005 $ 603
========== ==========
Earnings per share
Basic $ 0.32 $ 0.10
========== ==========
Diluted $ 0.30 $ 0.10
========== ==========
Weighted average shares outstanding
Basic 6,268,199 6,239,153
========== ==========
Diluted 6,579,019 6,319,208
========== ==========
The accompanying notes are an integral part of the financial statements.
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DOMINION HOMES, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
======================================================================================================
Common Shares Deferred Retained
Shares Amount Compensation Earnings Total
- ------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 6,266,953 $30,673 $(150) $10,137 $40,660
Net income 2,005 2,005
Shares issued-shares awarded 4,100 44 44
Deferred compensation 21 21
- ------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 6,271,053 $30,717 $(129) $12,142 $42,730
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
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DOMINION HOMES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
-------- --------
Cash flows from operating activities:
Net income $ 2,005 $ 603
Adjustments to reconcile net income to cash
Provided by (used in) operating activities:
Depreciation and amortization 198 235
Disposal of property and equipment (47) 46
Issuance of common shares for compensation 44
Deferred income taxes 110
Changes in assets and liabilities:
Notes and accounts receivable (855) (868)
Real estate inventories (1,174) (9,921)
Prepaid expenses and other (636) (120)
Accounts payable 428 (155)
Deposits on homes under contract 727 245
Accrued liabilities 492 234
-------- --------
Net cash provided by (used in) operating activities 1,292 (9,701)
Cash flows from investing activities:
Proceeds from sale of property and equipment 17
Purchase of property and equipment (173) (61)
-------- --------
Net cash used in investing activities (156) (61)
Cash flows from financing activities:
Payments on note payable banks (51,208) (34,543)
Proceeds from note payable banks 50,665 44,881
Payments on term debt (593) (602)
-------- --------
Net cash (used in) provided by financing activities (1,136) 9,736
-------- --------
Net change in cash and cash equivalents 0 (26)
Cash and cash equivalents, beginning of period 252 252
-------- --------
Cash and cash equivalents, end of period $ 252 $ 226
======== ========
Supplemental disclosures of cash flow information:
Interest paid (net of amounts capitalized) $ 208 $ 504
======== ========
Income taxes paid $ 485 $ 763
======== ========
The accompanying notes are an integral part of the financial statements.
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DOMINION HOMES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. These financial statements should be read in
conjunction with the December 31, 1997 audited annual financial statements of
Dominion Homes, Inc. contained in its Annual Report to Shareholders or in the
December 31, 1997 Form 10-K.
The financial information included herein reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for interim
periods. The results of operations for the three months ended March 31, 1998
are not necessarily indicative of the results to be expected for the full
year.
2. RECLASSIFICATION
Certain prior period information has been reclassified to conform to the
current period presentation. Effective January 1, 1998 the Company made a
decision to reclassify certain indirect construction costs to cost of real
estate sold from selling, general and administrative expense. Accordingly,
the cost of real estate sold for the three months ended March 31, 1997 was
increased by $1.7 million. The reclassification had no impact on reported net
income.
3. CAPITALIZED INTEREST
Interest is capitalized on land during the development period and on
housing construction costs during the construction period. As lots are
transferred to homes under construction, the interest capitalized on the lot
during the land development period is included as a cost of the land and is
expensed through cost of sales when the home is closed. Capitalized interest
related to housing construction costs is included in interest expense in the
period in which the home is closed. Capitalized interest related to land
under development and construction in progress was $2.0 million and $2.1
million at March 31, 1998 and March 31, 1997, respectively. The following
table summarizes the activity with respect to capitalized interest:
Three Months Ended
March 31,
1998 1997
----------- -----------
Interest incurred $ 1,185,000 $ 1,425,000
Interest capitalized (934,000) (935,000)
----------- -----------
Interest expensed directly 251,000 490,000
Previously capitalized interest charged to interest expense 840,000 953,000
----------- -----------
Total interest expense $ 1,091,000 $ 1,443,000
=========== ===========
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4. NOTE PAYABLE, BANKS
The Company is currently operating under a $90 million bank credit
facility that was executed on September 29, 1997 and is described in the
Company's Annual Report and Form 10-K for the fiscal year ended December 31,
1997. The Company is a party to interest rate swap contracts that fix the
interest rate at 6.13% plus a variable margin on $10 million of borrowings
under the existing bank credit facility and at 5.48% plus a variable margin
on a second $10 million of borrowings. The first interest rate swap contract
matures on October 16, 2000 and the second contract matures on January 14,
2001. The variable margin paid by the Company has been 2.25% since inception
of the existing bank credit facility and is determined quarterly. At March
31, 1998, the Company's overall effective borrowing rate was approximately
7.9%.
As indicated in the Company's Annual Report and Form 10-K, the Company has
been exploring other financing that will provide the Company with the
financial flexibility to expand to additional markets in Ohio and adjacent
states. On April 17, 1998, the Company executed a commitment letter
("Commitment") with Huntington National Bank, the lead bank under its
existing bank credit facility, for a $125 million senior unsecured revolving
credit facility which Huntington intends to syndicate. The Company intends to
use the proceeds of the new bank credit facility to refinance the borrowings
outstanding under its existing bank credit facility and to provide working
capital, financing for capital expenditures and acquisitions and financing
for other general corporate purposes. The Company also may use up to $20
million of the new bank credit facility for the issuance of standby letters
of credit. The Company expects to close the new bank credit facility during
the second quarter of 1998.
The Commitment provides that the new bank credit facility will mature on
May 31, 2003 and will permit cash advances and letters of credit in an
aggregate amount outstanding equal to the lesser of $125 million or the
availability under a borrowing base. The new bank credit facility will be
unsecured and will require the Company to give a negative pledge with respect
to the granting of security interests to other parties. Under the new bank
credit facility, interest will be payable monthly and at the end of each
interest period and principal will be due at maturity. Prior to maturity,
principal may be repaid and re-advanced any number of times. The Company will
have the option to use any combination of the following methods to price the
revolving line of credit: (a) the bank's prime rate of interest; or (b) a
Eurodollar rate of interest plus a variable margin of from 1.75% to 2.50%
based upon the ratio of the Company's EBITDA to interest expense ("Interest
Coverage Ratio").
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5. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per
Share." SFAS No. 128 establishes standards for computing and presenting
earnings per share ("EPS") and supersedes APB Opinion No. 15 "Earnings Per
Share" ("Opinion 15"). SFAS No. 128 replaces the presentation of primary EPS
with a presentation of basic EPS which excludes dilution and is computed by
dividing income available to common stockholders by the weighted average
number of common shares outstanding during the period. This statement also
requires dual presentation of basic EPS and diluted EPS on the face of the
income statement for all periods presented. Diluted EPS is computed as the
weighted average shares outstanding adjusted for the effect of common share
equivalents. EPS data for the three months ended March 31, 1997 have been
restated to conform with the requirements of SFAS No. 128.
A reconciliation of the weighted average shares used in basic and diluted
EPS is as follows:
Three Months Ended
March 31
1998 1997
--------- ---------
Weighted average shares outstanding
during the period 6,268,199 6,239,153
Assuming exercise of options 310,820 80,055
--------- ---------
Weighted average shares outstanding adjusted
for common share equivalents 6,579,019 6,319,208
========= =========
6. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings, most of which arise
in the ordinary course of business and some of which are covered by
insurance. In the opinion of the Company's management, none of the claims
relating to such proceedings will have a material adverse effect on the
financial condition or results of operations of the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company achieved record first quarter revenues, home deliveries, homes
sold, sales contracts in backlog and net income. Revenues during first quarter
1998 increased by 47.2% to $54.5 million from $37.0 million for first quarter
1997. The increase in revenues resulted from closing 104 more homes in first
quarter 1998, as closings increased to 370 from 266 in first quarter 1997.
Revenues also increased as a result of higher average prices for homes
delivered. The average price for homes delivered increased to $146,916 during
first quarter 1998 compared to $138,327 during first quarter 1997. During the
first quarter of 1998 the Company was able to take advantage of its strong
marketing campaign, good economic conditions, high consumer confidence and mild
weather to record 670 sales contracts, the largest number of sales contracts in
its history. This compares to 356 homes sold during the three months ended March
31, 1997 and represents a 88.2% quarter to quarter increase. There were 1,003
contracts in backlog at March 31, 1998, representing an aggregate sales value of
$154.4 million, compared to 778 sales contracts in backlog at March 31, 1997,
representing an aggregate sales value of $118.0 million. As a result of the
Company's increased revenues and ability to maintain expenses, net income
increased to $2.0 million in first quarter 1998 compared to $603,000 in first
quarter 1997, an increase of 232.5%. The Company also attributes the improvement
in financial results to selective price increases, delivering homes with more
customer selected options, effective control of direct construction costs and
favorable economic and weather-related conditions.
The Company continued to search during first quarter 1998 for locations in
which to expand its operations outside of Central Ohio. To fund this future
expansion, the Company began discussions with several sources to increase its
credit resources. On April 17, 1998, the Company entered into a commitment with
the Huntington National Bank to increase the Company's revolving line of credit
to $125 million and extend the maturity date of the revolving line of credit to
May 31, 2003. The loan commitment also provides that up to $25 million of the
revolving line of credit may be used for expansion outside of Central Ohio. See
Note 4 to the Financial Statements for additional details.
Also during first quarter 1998 the Company continued to focus its efforts
toward implementing new computer systems that will increase operating
efficiencies, provide the technology for growth both within and outside of
Central Ohio and address the Year 2000 issues.
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COMPANY OUTLOOK
The Company expects its financial results for 1998 to exceed the financial
results reported for 1997. This expectation is based upon record sales and
closings during the first quarter of 1998, a record backlog of sales contracts
at March 31, 1998 and continued steady sales. Barring unusual weather conditions
or other unforeseen events, the Company believes it is well positioned to
complete construction of a record number of homes during 1998. While shortages
of materials or labor may cause delays, the Company believes that its ongoing
subcontractor retention programs mitigate the risk of such shortages. Also, the
Company continues to benefit from improvements in operational and administrative
efficiencies
Assuming the new revolving line of credit is consummated, economic conditions
remain favorable, and new market opportunities continue to look promising, the
Company anticipates expanding to an area outside of Central Ohio prior to the
end of 1998. The Company however does not expect this expansion to significantly
impact 1998 revenues or net income.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995
The statements contained in this report under the caption "Company Outlook"
and other provisions of this report on Form 10-Q which are not historical facts
are "forward looking statements" that involve various important risks,
uncertainties and other factors which could cause the Company's actual results
for 1998 and beyond to differ materially from those expressed in such forward
looking statements. These important factors include, without limitation, the
following risks and uncertainties: real or perceived adverse economic conditions
and/or an increase in mortgage interest rates, mortgage commitments that expire
prior to homes being delivered, the Company's ability to install public
improvements or build and close homes on a timely basis due to adverse weather
conditions, delays in the zoning, permitting or inspection processes, the effect
of changing consumer tastes on the market acceptance for the Company's products,
the impact of competitive products and pricing, the effect of shortages or
increases in the costs of materials, labor and financing, the continued
availability of credit, the outcome of litigation, the impact of changes in
government regulation, the problems associated with the Year 2000 issue, the
problems that could arise from expansion to areas outside of Central Ohio and
the other risks described in the Company's December 31, 1997 Form 10-K.
SEASONALITY AND VARIABILITY IN QUARTERLY RESULTS
The Company has experienced, and expects to continue to experience,
significant seasonality and quarter-to-quarter variability in homebuilding
activity levels. Typically, closings and related revenues will increase in the
second half of the year. The Company believes that this seasonality reflects the
tendency of homebuyers to shop for a new home in the Spring with the goal of
closing in the Fall or Winter. Weather conditions can also accelerate or delay
the scheduling of closings. The Company is concentrating on mitigating these
seasonal variations whenever possible.
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The following table sets forth certain data for each of the last eight
quarters:
THREE SALES BACKLOG
MONTHS REVENUES CONTRACTS CLOSINGS (AT PERIOD END)
ENDED (IN THOUSANDS) (IN UNITS) (IN UNITS) (IN UNITS)
========================================================================================
June 30, 1996 $41,524 325 278 785
Sept. 30, 1996 $45,916 305 301 789
Dec. 31, 1996 $51,821 253 354 688
Mar. 31, 1997 $36,997 356 266 778
June 30, 1997 $56,672 333 380 731
Sept. 30, 1997 $58,723 380 383 728
Dec. 31, 1997 $55,534 333 358 703
Mar. 31, 1998 $54,458 670 370 1,003
At March 31, 1998 the aggregate sales value of homes in backlog was $154.8
million compared to $118.0 million at March 31, 1997. The average sales value of
homes in backlog at March 31, 1998 increased to $154,364 compared to $151,717 at
March 31, 1997.
The Company annually incurs a substantial amount of indirect construction
costs which are essentially fixed in nature. For purposes of financial
reporting, the Company capitalizes these costs to real estate inventories on the
basis of the ratio of estimated annual indirect costs to direct construction
costs to be incurred. Thus, variations in construction activity cause
fluctuations in interim and annual gross profits.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from
the statements of income expressed as percentages of total revenues:
Three Months Ended
March 31,
1998 1997
------ ------
Revenues ...................................... 100.0% 100.0%
Cost of real estate sold ...................... 80.0 79.4
------ ------
Gross profit ............................... 20.0 20.6
Selling, general and administrative expenses .. 11.6 13.9
------ ------
Income from operations ..................... 8.4 6.7
Interest expense .............................. 2.0 3.9
------ ------
Income before income tax ...................... 6.4 2.8
Income tax provision .......................... 2.7 1.2
------ ------
Net income ................................. 3.7% 1.6%
====== ======
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FIRST QUARTER 1998 COMPARED TO FIRST QUARTER 1997
REVENUES. Revenues for first quarter 1998 increased to $54.5 million from
$37.0 million for first quarter 1997. The number of closings during first
quarter 1998 increased to 370 homes from 266 homes during first quarter 1997.
The increase in revenues is attributed to the increased number of closings and a
higher average home price which increased to $146,916 during first quarter 1998
from $138,327 during first quarter 1997, an increase of $8,589. The increase in
the average home price is primarily attributed to the Company's customers
purchasing larger homes and homes with more options. Customers were able to
purchase larger homes and homes with more options during 1998 because the
Company began offering a greater selection of larger models and more locations
for larger homes during 1997 and because FHA mortgage limits were increased
during 1997, allowing customers to finance larger homes. The Company was also
able to continue selectively increasing the price on some of its homes.
GROSS PROFIT. Gross profit for first quarter 1998 increased to $10.9 million
from $7.6 million for first quarter 1997. This increase in gross profit is
attributed to an increase in deliveries. As a percentage of revenues, the gross
profit margin declined to 20.0% for first quarter 1998 from 20.6% for first
quarter 1997. The decline in gross profit margin is principally attributable to
lower gross margin associated with larger homes and additional work equity
discounts issued by the Company during first quarter 1998. Additionally, the
gross profit margin reflects the benefits of closing more homes while
maintaining indirect construction expenses.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expense for first quarter 1998 increased to $6.4 million from $5.1 million for
first quarter 1997. This $1.3 million increase in selling general and
administrative expense is a result of the increase in the number of closings and
additional selling and marketing expense. As a percentage of revenues, selling,
general and administrative expense for first quarter 1998 decreased to 11.6%
from 13.9% for first quarter 1997. This decrease primarily reflects the effect
of closing more homes without significantly impacting fixed costs.
INTEREST EXPENSE. Interest expense for first quarter 1998 decreased to $1.1
million from $1.4 million for first quarter 1997, which represents a 24.4%
decrease. The primary reasons for the decrease in interest expense were a lower
average revolving line of credit borrowings combined with a lower average
interest rate. The lower average interest rate was the result of alternative
pricing methods allowed by the September 29, 1997 loan agreement that were
implemented during fourth quarter 1997. The Company also increased capitalized
interest by $94,000 during first quarter 1998 compared to recognizing
capitalized interest expense of $18,000 during first quarter 1997. The weighted
average rate of interest under the Company's revolving line of credit was 8.3%
for the first quarter of 1998 compared to 8.8% for the first quarter 1997. The
average revolving line of credit borrowings outstanding were $53.1 million and
$60.2 million for the first quarter of 1998 and 1997, respectively.
PROVISION FOR INCOME TAXES. Income tax expense for first quarter 1998
increased to $1.5 million from $436,000 for first quarter 1997. The Company's
estimated annual effective tax rate was 42.0% for first quarter 1998 and 1997.
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SOURCES AND USES OF CASH
FIRST QUARTER 1998 COMPARED TO FIRST QUARTER 1997:
Operating activities during the first quarter of 1998 provided cash of $1.3
million compared to using $9.7 million during the first quarter of 1997. Net
income of $2.0 million earned during first quarter 1998, partially offset by
growth in real estate inventories of $1.2 million, accounted for the majority of
the positive cash flow experienced during first quarter 1998. Short term
liabilities associated with increased home sales and construction expenses, less
increases in prepaid expenses, accounted for the remaining cash flow in first
quarter 1998. In comparison, net income of $603,000 earned during first quarter
1997 was offset by $9.9 million the Company invested in real estate inventories,
principally to fund increased home construction activity undertaken during the
period. Net cash used in investing activities during first quarter 1998 was
$156,000, net of $17,000 from the sale of property and equipment, compared to
$61,000 invested during first quarter 1997. Computer aided graphic design
equipment for the Company's architectural department and sales office
improvements located in model homes comprised the majority of the investment in
property and equipment. The Company reduced financing debt by $1.1 million
during first quarter 1998. During first quarter 1997, the Company funded
increased home construction activity and reduced term debt with $10.3 million of
additional borrowing under the revolving line of credit.
REAL ESTATE INVENTORIES
The Company's practice is to develop most of the lots on which it builds its
homes. Generally, the Company attempts to maintain a land inventory that will be
sufficient to meet its anticipated lot needs for the next three to five years.
At March 31, 1998, the Company either owned or was under contract to purchase
lots or land that could be developed into approximately 4,600 lots. The Company
controlled through option agreements an additional 3,500 lots. Included in the
3,500 lots controlled through option agreements were 45 lots owned by Borror
Realty Company ("BRC"). During first quarter 1998 the Company exercised options
to purchase 139 controlled lots, including 13 lots from BRC. Option agreements
expire at varying dates through 2003. The Company's decision to exercise any
particular option or otherwise acquire additional land is based upon an
assessment of a number of factors, including its existing land inventory at the
time and its evaluation of the future demand for its homes. During first quarter
1998, the Company sold one lot to another builder for $36,000.
During first quarter 1998, real estate inventories of land and land
development costs decreased by $7.6 million as a result of the large number of
homes started during first quarter 1998 combined with a seasonal reduction in
land development activity. However, the amount of inventory of homes under
construction increased $7.6 million due to the larger number of homes under
construction, the emphasis the Company placed on accelerating the construction
process and favorable weather conditions. Lumber and building supply inventories
also increased by $1.2 million as a result of the increased sales and
construction activity that occurred in first quarter 1998.
On March 31, 1998, the Company had 69 single family inventory homes in
various stages of construction, which represented an aggregate investment of
$4.8 million. At March 31, 1997, the Company had 135 inventory homes, including
32 condominiums, in various stages of construction, which represented an
aggregate investment of $9.3 million. Inventory homes are not reflected in sales
or backlog.
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SELLER-PROVIDED DEBT
The Company had $4.5 million and $1.4 million of seller-provided term debt
outstanding at March 31, 1998 and 1997, respectively. The Company did not add
any new seller-provided term debt during first quarter 1998. The seller-provided
term debt outstanding at March 31, 1998 had interest rates between 6.5% and 8.5%
and maturities that ranged from one to four years.
LAND PURCHASE COMMITMENTS
At March 31, 1998, the Company had commitments to purchase 135 residential
lots and unimproved land at an aggregate cost of $3.7 million, less $58,000 in
good faith deposits, all of which is expected to be funded prior to December 31,
1998. In addition, at March 31, 1998, the Company had $28.4 million of
cancelable obligations to purchase residential lots and unimproved land in which
$760,000 in good faith deposits had been invested by the Company. Included in
the $28.4 million of cancelable purchase obligations is $950,000 of purchase
options with BRC. The majority of the land subject to cancelable obligations is
for post 1998 development activities. The Company expects to fund its capital
requirements for land acquisition and development and its obligations under
purchase contracts and mortgage notes from internally generated cash and from
the borrowing capacity available under its bank credit facilities.
CREDIT FACILITIES
The Company is currently operating under a $90 million bank credit facility
that was executed on September 29, 1997 and is described in the Company's Annual
Report and Form 10-K for the fiscal year ended December 31, 1997. The Company is
a party to interest rate swap contracts that fix the interest rate at 6.13% plus
a variable margin on $10 million of borrowings under the existing bank credit
facility and at 5.48% plus a variable margin on a second $10 million of
borrowings. The first interest rate swap contract matures on October 16, 2000
and the second contract matures on January 14, 2001. The variable margin paid by
the Company has been 2.25% since inception of the existing bank credit facility
and is determined quarterly. At March 31, 1998, the Company's overall effective
borrowing rate was approximately 7.9%.
As indicated in the Company's 1997 Annual Report and Form 10-K, the Company
has been exploring other financing that will provide the Company with the
financial flexibility to expand to additional markets in Ohio and adjacent
states. On April 17, 1998, the Company executed a commitment letter
("Commitment") with Huntington National Bank, the lead bank under its existing
bank credit facility, for a $125 million senior unsecured revolving credit
facility which Huntington intends to syndicate. The Company intends to use the
proceeds of the new bank credit facility to refinance the borrowings outstanding
under its existing bank credit facility and to provide working capital,
financing for capital expenditures and acquisitions and financing for other
general corporate purposes. The Company also may use up to $20 million of the
new bank credit facility for the issuance of standby letters of credit. The
Company expects to close the new bank credit facility during the second quarter
of 1998. See Note 4 to the Financial Statements for additional details.
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INFLATION AND OTHER COST INCREASES
The Company is not always able to reflect all of its cost increases in the
prices of its homes because competitive pressures and other factors require it
in many cases to maintain or discount those prices. After a sales contract has
been accepted, the Company is generally able to maintain costs with
subcontractors from the date the sales contract is accepted until the date
construction is completed; however, unanticipated additional costs may be
incurred between the date a sales contract is accepted and the date construction
is completed. For example, delays in construction of a home can cause the
mortgage commitment to expire and can require the Company, if mortgage interest
rates have increased, to pay significant amounts to the mortgage lender to
extend the original mortgage interest rate. In addition, during periods of high
construction activities, additional costs may be incurred to obtain
subcontractor availability when certain trades are not readily available, which
additional costs can result in lower gross profits.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NOT APPLICABLE
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is involved in various legal proceedings, most of which
arise in the ordinary course of business and some of which are covered
by insurance. In the opinion of the Company's management, none of the
claims relating to such proceedings will have a material adverse effect
on the financial condition or results of operations of the Company.
Item 2. Change in Securities and Use of Proceeds. Not applicable.
Item 3. Defaults Upon Senior Securities. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders. Not applicable
Item 5. Other Information. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) See attached index (following the signature page).
(b) Reports on Form 8-K. Not applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DOMINION HOMES, INC.
(Registrant)
Date: May 8, 1998 By: /s/Douglas G. Borror
--------------------
Douglas G. Borror
Chief Executive Officer,
President
Date: May 8, 1998 By: /s/Jon M. Donnell
-----------------
Jon M. Donnell
Chief Operating Officer,
Chief Financial Officer
(Principal Financial Officer)
Date: May 8, 1998 By: /s/Tad E. Lugibihl
------------------
Tad E. Lugibihl
Controller
(Principal Accounting Officer)
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INDEX TO EXHIBITS
Exhibit No. Description Location
- ----------- ----------- --------
2.1 Corporate Exchange and Subscription Agreement, dated January 20, Incorporated by reference to Exhibit
1994, between Borror Corporation and Borror Realty Company 2.1 to the Company's Registration
Statement on Form S-1 (File No.
33-74298) as filed with the
Commission on January 21, 1994 and as
amended on March 2, 1994 (The "Form
S-1").
2.2 Form of First Amendment to Corporate Exchange and Subscription Incorporated by reference to Exhibit
Agreement 2.2 to Form S-1.
3.1 Amended and Restated Articles of Incorporation of Dominion Homes, Incorporated by reference to Exhibit
Inc., as amended May 7, 1997 4(a)(3) to the Company's Registration
Statement on Form S-8 (File No.
333-26817) filed with the Commission
on May 9, 1997.
3.2 Amended and Restated Code of Regulations of Borror Corporation Incorporated by reference to Exhibit
3.2 to Form S-1.
4. Specimen of Stock Certificate of Dominion Homes, Inc. Incorporated by reference to Exhibit
4 to the Company's March 31, 1997
Form 10-Q.
10.1 Dominion Homes, Inc. Incentive Stock Plan, as amended December 5, Incorporated by reference to Exhibit
1995 and May 7, 1997 4(c) to the Company's Registration
Statement on Form S-8 (File No.
333-26817) as filed with the
Commission on May 9, 1997.
10.2 Shareholder Agreement, dated January 20, 1994, between Borror Incorporated by reference to Exhibit
Corporation and Borror Realty Company 10.4 to Form S-1.
10.3 Land Option Agreement, dated January 20, 1994, between Borror Incorporated by reference to Exhibit
Corporation and Borror Realty Company 10.5 to Form S-1.
10.4 Model Home Lease Agreement, dated January 20, 1994, between Borror Incorporated by reference to Exhibit
Corporation and Borror Realty Company 10.6 to Form S-1.
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10.5 Architectural Department Lease Agreement, dated January 4, 1994, Incorporated by reference to Exhibit
between Borror Corporation and Borror Realty Company 10.9 to Form S-1.
10.6 Open Ended Mortgage and Security Agreement, dated December 22, Incorporated by reference to Exhibit
1987, between The Borror Corporation and W. Lyman Case & Company 10.11 to Form S-1.
10.7 Decorating Center Lease Agreement, dated January 4, 1994, between Incorporated by reference to Exhibit
Borror Corporation and Borror Realty Company, as amended by 10.12 to the Company's December 31,
addendum No. 1, effective July 1, 1994 1994 Form 10-K.
10.8 Loan Agreement, dated September 29, 1997, among Dominion Homes, Incorporated by reference to Exhibit
Inc., the lenders listed therein, and The Huntington National 10.13 to the Company's Form 10-Q.
Bank, as agent
10.9 Incentive Stock Option Agreement, dated January 4, 1995, between Incorporated by reference to Exhibit
Borror Corporation and Richard R. Buechler (which agreement is 10.18 to the Company's December 31,
substantially the same as Incentive Stock Option Agreements 1995 Form 10-K.
entered into between the Company and other employees to whom
options were granted on January 4, 1995 under the Company's
Incentive Stock Plan)
10.10 Incentive Stock Option Agreement, dated July 1, 1997, between Incorporated by reference to Exhibit
Dominion Homes, Inc. and Richard R. Buechler (which agreement is 10.15 to the Company's September 30,
substantially the same as Incentive Stock Option Agreements 1997 Form 10-Q.
entered into between the Company and other employees to whom
options were granted on July 1, 1997 under the Company's
Incentive Stock Plan)
10.11 Amended and Restated Dominion Homes, Inc. Executive Deferred Incorporated by reference to Exhibit
Compensation Plan, effective November 15, 1997 4(a) to the Company's Registration
Statement on Form S-8 (file No.
333-40051) as filed with the
Commission on November 12, 1997.
10.12 Employment Agreement, dated May 17, 1996, between Dominion Homes, Incorporated by reference to Exhibit
Inc. and Richard R. Buechler 10.12 to the Company's December 31,
1997 Form 10-K.
10.13 Employment Agreement, dated May 17, 1996, between Dominion Homes, Incorporated by reference to Exhibit
Inc. and Robert A. Meyer, Jr. 10.13 to the Company's December 31,
1997 Form 10-K
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10.14 First Amendment to Lease Agreement, dated March 19, 1996, between Incorporated by reference to Exhibit
Borror Realty Company and Borror Corporation 10.21 to the Company's March 31, 1995
Form 10-Q.
10.15 Employment Agreement, dated May 17, 1996, between Borror Incorporated by reference to Exhibit
Corporation and Jon M. Donnell 10.22 to the Company's September 30,
1996 Form 10-Q.
10.16 First Amendment, dated November 6, 1996, to Employment Agreement Incorporated by reference to Exhibit
between Borror Corporation and Jon M. Donnell 10.28 to the Company's December 31,
1996 Form 10-K.
10.17 Restricted Stock Agreement, dated August 1, 1995, between Borror Incorporated by reference to Exhibit
Corporation and Jon M. Donnell 10.19 to the Company's December 31,
1995 Form 10-K.
10.18 Restricted Stock Agreement, dated November 6, 1996, between Borror Incorporated by reference to Exhibit
Corporation and Jon M. Donnell 10.30 to the Company's December 31,
1996 Form 10-K.
10.19 Restricted Stock Agreement, dated August 1, 1997, between Dominion Incorporated by reference to Exhibit
Homes, Inc., and Jon M. Donnell 10.24 to the Company's September 30,
1997 Form 10-Q.
10.20 Real Estate Purchase Contract, dated December 18, 1997, between Incorporated by reference to Exhibit
Borror Realty Company and Dominion Homes, Inc. 10.20 to the Company's December 31,
1997 Form 10-K
10.21 Lease, dated December 29, 1997 as amended by Addendum dated Incorporated by reference to Exhibit
February 2, 1998, between Borror Realty Company and Dominion 10.21 to the Company's December 31,
Homes, Inc. 1997 Form 10-K
10.22* Commitment letter, dated April 17, 1998, from The Huntington Filed Herewith
National Bank and Huntington Capital Corp., relating to a
$125,000,000 Senior Unsecured Credit Facility
27* Financial Data Schedule Filed herewith
* Filed Herewith
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