-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tip+yZqfrRs+m9Ahx1rny8tLXCyBjkVz6tWBCqM6zwyZV2tkYtkWBsi1bQVUxnkE ezqo8LYHi7tFzPyIhrPpHg== 0000930661-97-000550.txt : 19970311 0000930661-97-000550.hdr.sgml : 19970311 ACCESSION NUMBER: 0000930661-97-000550 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19970310 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HORTON D R INC /DE/ CENTRAL INDEX KEY: 0000882184 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 752386963 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 333-21183 FILM NUMBER: 97553168 BUSINESS ADDRESS: STREET 1: 1901 ASCENSION BLVD STREET 2: STE 100 CITY: ARLINGTON STATE: TX ZIP: 76006 BUSINESS PHONE: 8178568200 POS AM 1 POST-EFFECTIVE AMENDMENT NO.1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1997 Registration No. 333-21183 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- POST-EFFECTIVE AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------- D.R. HORTON, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 75-2386963 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) CHARLES N. WARREN SENIOR VICE PRESIDENT AND GENERAL COUNSEL 1901 ASCENSION BLVD., SUITE 100 ARLINGTON, TEXAS 76006 (817) 856-8200 1901 ASCENSION BLVD., SUITE 100 (NAME, ADDRESS, INCLUDING ZIP CODE, ARLINGTON, TEXAS 76006 AND (817) 856-8200 TELEPHONE NUMBER, INCLUDING AREA CODE, (ADDRESS, INCLUDING ZIP CODE, AND OF AGENT FOR SERVICE) TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) COPIES OF COMMUNICATIONS TO: IRWIN F. SENTILLES, III DANIEL J. ZUBKOFF GIBSON, DUNN & CRUTCHER LLP CAHILL GORDON & REINDEL 1717 MAIN STREET, SUITE 5400 EIGHTY PINE STREET DALLAS, TEXAS 75201 NEW YORK, NEW YORK 10005 (214) 698-3100 (212) 701-3000 ----------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. ----------- If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] ----------- If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] ----------- If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - ----------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM TITLE OF EACH CLASS OF NUMBER OF MAXIMUM AGGREGATE SECURITIES TO BE SHARES TO BE OFFERING PRICE OFFERING PRICE AMOUNT OF REGISTERED REGISTERED(1) PER SHARE(2)(3) (2)(3) REGISTRATION FEE(4) - ----------------------------------------------------------------------------------------- Common Stock, par value $.01 per share......... 3,910,000 $11.50 $44,965,000 $13,626 - ----------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------
(1) Includes 510,000 shares of Common Stock which the Underwriters have the option to purchase from the Company to cover over-allotments, if any. (2) Estimated solely for purposes of calculating the registration fee. (3) Based on the average of the high and low prices of the Common Stock as reported on the New York Stock Exchange Composite Tape on March 6, 1997. (4) Registration fee previously paid with initial filing with respect to 5,750,000 shares of Common Stock on February 5, 1997. ----------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- WITHDRAWAL OF CERTAIN SHARES FROM REGISTRATION D.R. Horton, Inc. (the "Company") hereby withdraws, as of the date of effectiveness of this Post-Effective Amendment No. 1, 1,840,000 shares of its Common Stock, par value $.01 per share (the "Common Stock") from this Registration Statement. As a consequence, out of the 5,750,000 shares of Common Stock originally subject to this Registration Statement, 3,910,000 shares of Common Stock remain subject to this Post-Effective Amendment No. 1. The Company is withdrawing the foregoing amount of shares of Common Stock to reflect a reduction in size of the proposed offering subject to this Registration Statement. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED MARCH 10, 1997 PROSPECTUS 3,400,000 SHARES D.R. HORTON, INC. CUSTOM HOMES COMMON STOCK -------- All of the 3,400,000 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 6, 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. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) - -------------------------------------------------------------------------------- Per Share.................................. $ $ $ - -------------------------------------------------------------------------------- Total(3)................................... $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) For information regarding indemnification of the Underwriters, see "Underwriting." (2) Before deducting estimated expenses of $ , payable by the Company. (3) The Company has granted to the Underwriters a 30-day option to purchase up to 510,000 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 $ , $ , $ and $ , 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 , 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 , 1997 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 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:
GEOGRAPHIC REGION MARKETS ----------------- ------- 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
3 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 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 THE OFFERING Total Common Stock offered.................... 3,400,000 shares Common Stock to be outstanding after the Offering................... New York Stock Exchange 36,660,173 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 SUMMARY FINANCIAL INFORMATION (DOLLARS IN THOUSANDS, EXCEPT NET INCOME PER SHARE AMOUNTS)
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 -------- -------- -------- ----------- -------- -------- ----------- INCOME STATEMENT DATA: Revenues............... $393,317 $437,388 $547,336 $780,438 $121,068 $144,381 $214,891 Gross profit........... 67,218 77,646 98,282 144,641 21,533 26,345 38,651 Income before income taxes................. 28,591 32,557 44,432 69,438 8,725 11,159 14,674 Net income............. $ 17,663 $ 20,539 $ 27,379 $ 42,633 $ 5,415 $ 6,807 $ 8,952 Net income per share... $ 0.63 $ 0.74 $ 0.87 $ 1.20 $ 0.19 $ 0.21 $ 0.24 Weighted average number of common shares (in thousands)............ 27,845 27,849 31,420 35,664 28,250 33,003 37,247 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
AS OF DECEMBER 31, 1996 ------------------------- PRO FORMA AS ACTUAL ADJUSTED(4) ----------- ------------- BALANCE SHEET DATA: Inventories........................................... $ 400,453 $ 497,037 Total assets.......................................... 445,854 567,300 Total debt............................................ 203,200 264,682 Stockholders' equity.................................. 184,780 229,047
- -------- (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 3,400,000 shares of Common Stock offered hereby by the Company and the application of the estimated 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 3,400,000 shares of Common Stock offered hereby by the Company and the application of the estimated net proceeds therefrom to temporarily reduce indebtedness under the Company's revolving credit facilities. 7 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 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 39.80% of the Company's outstanding Common Stock after giving effect to the Offering (39.26% 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 34.10% of the Company's outstanding Common Stock after giving effect to the Offering (33.63% 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 are estimated to be approximately $37.0 million ($42.5 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).
FISCAL YEAR 1997 FISCAL YEAR FISCAL YEAR (THROUGH 1995 1996 MARCH 6, 1997) ----------------- ------------------ ---------------- HIGH LOW HIGH LOW HIGH LOW --------- ------- --------- -------- -------- ------- 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
As of January 31, 1997, there were 181 holders of record of the Common Stock. On March 6, 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 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 estimated net proceeds therefrom. See "Use of Proceeds".
DECEMBER 31, 1996 ------------------------------------- PRO FORMA ACTUAL PRO FORMA (1) AS ADJUSTED(2) -------- ------------- -------------- (DOLLARS IN THOUSANDS) Debt: Notes Payable.......................... $203,200 $301,634 $264,682 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 36,660,173 pro forma as adjusted shares, issued and outstanding........................... 324 333 367 Additional capital..................... 160,049 167,355 204,273 Retained earnings...................... 24,407 24,407 24,407 -------- -------- -------- Total stockholders' equity........... $184,780 $192,095 $229,047 ======== ======== ======== Total capitalization................. $387,980 $493,729 $493,729 ======== ======== ========
- -------- (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 3,400,000 shares of Common Stock offered hereby by the Company and the application of the estimated 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 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 3,400,000 shares of Common Stock offered hereby by the Company and the application of the estimated 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 3,400,000 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
PRO FORMA D.R. TRIMARK PRO FORMA PRO FORMA AS HORTON AND SGS (1) TORREY ADJUSTMENTS COMBINED(2) ADJUSTMENTS(3) ADJUSTED(3) -------- ----------- ------- ----------- ----------- -------------- ----------- 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) 716 (260) Other income/(expense)...... 715 (207) 79 (171)(7) 416 -- 416 -------- ------ ------- ------ -------- ----- -------- (69) (207) (113) (171) (560) 716 156 -------- ------ ------- ------ -------- ----- -------- Income before income taxes.................. 11,159 1,008 1,651 140 13,958 716 14,674 Provision for income taxes (4).............. 4,352 392 644 55 5,443 279 5,722 -------- ------ ------- ------ -------- ----- -------- Net income.............. $ 6,807 $ 616 $ 1,007 $ 85 $ 8,515 $ 437 8,952 ======== ====== ======= ====== ======== ===== ======== Net income per share.... $ 0.21 $ 0.25 $ 0.24 ======== ======== ======== Weighted average number of common shares (in thousands)............. 33,003 844(8) 33,847 3,400 37,247 ======== ====== ======== ===== ========
11 UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED SEPTEMBER 30, 1996
PRO FORMA D.R. TRIMARK PRO FORMA PRO FORMA AS HORTON AND SGS TORREY ADJUSTMENTS COMBINED(2) ADJUSTMENTS(3) ADJUSTED(3) --------- -------- -------- ----------- ----------- -------------- ----------- 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 (979) 635,797 --------- -------- -------- ------- -------- ------ -------- Gross profit............ 98,282 12,420 28,235 4,725 143,662 979 144,641 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 66,813 979 67,792 --------- -------- -------- ------- -------- ------ -------- Other: Interest (expense)..... (1,474) -- -- -- (1,474) 1,474 0 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 2,453 69,438 Provision for income taxes (4).............. 17,053 2,586 4,489 1,720 25,848 957 26,805 --------- -------- -------- ------- -------- ------ -------- Net income.............. $ 27,379 $ 4,047 $ 7,021 $ 2,690 $ 41,137 $1,496 $ 42,633 ========= ======== ======== ======= ======== ====== ======== Net income per share.... $ 0.87 $ 1.28 $ 1.20 ========= ======== ======== Weighted average number of common shares (in thousands)............. 31,420 844(8) 32,264 3,400 35,664 ========= ======= ======== ====== ========
- -------- 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 and the acquisitions of Trimark, SGS and Torrey. (3) To reflect the sale of the Common Stock to be issued in conjunction with the Offering. A Common Stock price of $11.50 per share was assumed. 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.
THREE MONTHS ENDED YEAR ENDED DECEMBER SEPTEMBER 31, 1996 30, 1996 -------- ---------- (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 ======= =======
(7) To eliminate earnings of minority interests purchased in the Torrey Acquisition. (8) Common Stock issued as consideration in the Torrey Acquisition. 12 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996
D.R. HORTON, PRO FORMA PRO FORMA PRO FORMA INC. TORREY ADJUSTMENTS(1) COMBINED(2) ADJUSTMENTS(3) AS ADJUSTED(4) ------------ -------- -------------- ----------- -------------- --------------- 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 (36,952) 264,682 -------- -------- ------- -------- -------- -------- 261,074 83,544 30,587 375,205 (36,952) 338,253 -------- -------- ------- -------- -------- -------- Minority interests...... -- 5,785 (5,785) 0 -- 0 -------- -------- ------- -------- -------- -------- 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 36,660,173 pro forma as adjusted shares, issued and outstanding........ 324 -- 9 333 34 367 Additional capital...... 160,049 -- 7,306 167,355 36,918 204,273 Retained earnings....... 24,407 16,902 (16,902) 24,407 -- 24,407 -------- -------- ------- -------- -------- -------- 184,780 16,902 (9,587) 192,095 36,952 229,047 -------- -------- ------- -------- -------- -------- $445,854 $106,231 $15,215 $567,300 $ -- $567,300 ======== ======== ======= ======== ======== ========
- -------- (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: 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
(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 3,400,000 shares of Common Stock offered hereby by the Company and the application of the estimated 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. A Common Stock price of $11.50 was assumed. (4) To reflect the combined financial position of the Company and Torrey, the effects of the sale of 3,400,000 shares of Common Stock offered hereby by the Company and the application of the estimated 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. For the purpose of determining the effects of the Common Stock sale, a Common Stock price of $11.50 was assumed. 13 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.
FOR THE FOR THE FISCAL YEARS THREE MONTHS ENDED ENDED SEPTEMBER 30, DECEMBER 31, ---------------------------- ------------------ 1994 1995 1996 1995 1996 -------- -------- -------- -------- -------- 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
AS OF AS OF SEPTEMBER 30, DECEMBER 31, -------------------------- ----------------- 1994 1995 1996 1995 1996 -------- -------- -------- -------- -------- 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
- -------- (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 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The following tables set forth certain information regarding the Company's operations for the periods indicated.
PERCENTAGES OF REVENUE ----------------------------------------- FISCAL YEAR ENDED THREE MONTHS ENDED SEPTEMBER 30, DECEMBER 31, ------------------- -------------------- 1994 1995 1996 1995 1996 ----- ----- ----- --------- --------- 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% ===== ===== ===== ========= =========
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 % ------ ----- ------ ----- ------ ----- ----------------- ----------------- 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% ===== ===== ===== ===== ===== ===== ====== ======== ====== ========
15
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 $ ----- -------- ----- -------- ----- -------- ----------------- ----------------- 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 ===== ======== ===== ======== ===== ======== ===== ========== ===== ==========
FISCAL YEAR ENDED SEPTEMBER 30, THREE MONTHS ENDED DECEMBER 31, -------------------------------------------- --------------------------------- 1994 1995 1996 1995 1996 -------------- -------------- -------------- ---------------- ---------------- HOMES $ HOMES $ HOMES $ HOMES $ HOMES $ ----- -------- ----- -------- ----- -------- ---------------- ---------------- 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 === ======== ===== ======== ===== ======== ==== ========= ====== =========
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 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 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 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 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 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:
YEAR ENTERED MARKETS ------------ ------- 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
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 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:
DATE ACQUIRED ENTITIES ACQUIRED MARKETS -------- ----------------- ------- 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
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 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 MARKETS The Company's homebuilding activities are conducted in five geographic regions, comprised of the following markets:
GEOGRAPHIC REGION MARKETS ----------------- ------- 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
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:
THREE MONTHS YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31, -------------------------- ------------------- 1994 1995 1996 1995 1996 -------- -------- -------- --------- --------- (IN THOUSANDS) 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 ======== ======== ======== ========= =========
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 The following table sets forth a summary of the Company's land/lot positions at December 31, 1996: 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 ======
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 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 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.
NUMBER OF UNDERWRITER SHARES ----------- --------- Smith Barney Inc...................................................... Donaldson, Lufkin & Jenrette Securities Corporation................... Merrill Lynch, Pierce, Fenner & Smith Incorporated..................................................... Salomon Brothers Inc.................................................. --------- Total............................................................... 3,400,000 =========
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 $ per share under the public offering price. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ 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 510,000 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 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 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 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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. ------------ TABLE OF CONTENTS
PAGE ---- 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........................ 28
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3,400,000 SHARES D.R. HORTON, INC. CUSTOM HOMES COMMON STOCK -------- PROSPECTUS , 1997 -------- SMITH BARNEY INC. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH & CO. SALOMON BROTHERS INC - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.* Securities and Exchange Commission registration fee............. $ 18,948.86 NASD filing fee................................................. 6,753.00 Blue Sky fees and expenses...................................... 25,000.00 Printing and engraving fees and expenses........................ 50,000.00 Accountants' fees and expenses.................................. 45,000.00 Legal fees and expenses......................................... 75,000.00 Miscellaneous................................................... 109,298.14 ----------- Total....................................................... $330,000.00 ===========
- -------- * All fees and expenses will be paid by the Company. All fees and expenses other than the Securities and Exchange Commission and NASD filing fees are estimated. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company's Amended and Restated Certificate of Incorporation, as amended, provides that the Company shall, to the full extent permitted by the General Corporation Law of the State of Delaware (the "DGCL") or other applicable laws presently or hereafter in effect, indemnify each person who is or was or had agreed to become a director or officer of the Company, or each such person who is or was serving or who had agreed to serve at the written request of the Board of Directors or an officer of the Company as an employee or agent of the Company or as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, in any such case owned or controlled by the Company, including the heirs, executors, administrators or estate of such person, and eliminates the personal liability of its directors to the full extent permitted by the DGCL or other applicable laws presently or hereafter in effect. The Company has entered into an indemnification agreement with each of its directors and executive officers. Section 145 of the DGCL permits a corporation to indemnify its directors and officers against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by them in connection with any action, suit or proceeding brought by third parties, if such directors or officers acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. In a derivative action, i.e., one by or in the right of the corporation, indemnification may be made only for expenses actually and reasonably incurred by directors and officers in connection with the defense or settlement of an action or suit, and only with respect to a matter as to which they shall have acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made if such person shall have been adjudged liable for negligence or misconduct in the performance of his respective duties to the corporation, although the court in which the action or suit was brought may determine upon application that the defendant officers or directors are fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability. Section 102(b)(7) of the DGCL provides that a corporation may eliminate or limit the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provisions shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. No such provision shall eliminate or limit the liability of a director for any act or omission occurring prior to the date when such provision becomes effective. II-1 The Underwriting Agreement, which is Exhibit 1.1 hereto, provides that the Underwriters named therein will indemnify and hold harmless the Company and each director, officer or controlling person of the Company from and against certain liabilities, including liabilities under the Securities Act. The Company also has obtained Directors and Officers Liability Insurance that provides insurance coverage for certain liabilities which may be incurred by the Company's directors and officers in their capacity as such. ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES. (a) Exhibits:
EXHIBIT NUMBER EXHIBITS ------- -------- 1.1 --Form of Underwriting Agreement 5.1 --Opinion of Gibson, Dunn & Crutcher LLP, Dallas, Texas, as to the validity of the shares of Common Stock being registered 23.1 --Consent of Gibson, Dunn & Crutcher LLP, Dallas, Texas (See Exhibit 5.1) 23.2 --Consent of Ernst & Young LLP, Fort Worth, Texas *24.1 --Powers of Attorney (See signature page of this Registration Statement)
- -------- * Previously filed. ITEM 17. UNDERTAKINGS. (a) The Company hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Company's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The undersigned Company undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as a part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) under the Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS POST EFFECTIVE AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ARLINGTON, STATE OF TEXAS, ON MARCH 6, 1997. D.R. Horton, Inc. By: /s/ Donald R. Horton ----------------------------------- Donald R. Horton Chairman of the Board and President PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST EFFECTIVE AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE Chairman of the Donald R. Horton Board and President - ------------------------------------- (Principal March 6, 1997 DONALD R. HORTON Executive Officer) Richard Beckwitt* Director - ------------------------------------- March 6, 1997 RICHARD BECKWITT Richard I. Galland* Director - ------------------------------------- March 6, 1997 RICHARD I. GALLAND Richard L. Horton* Director - ------------------------------------- March 6, 1997 RICHARD L. HORTON Terrill J. Horton* Director - ------------------------------------- March 6, 1997 TERRILL J. HORTON Treasurer, Chief /s/ David J. Keller* Financial Officer - ------------------------------------- and Director March 6, 1997 DAVID J. KELLER (Principal Accounting and Financial Officer) II-3 SIGNATURE TITLE DATE Director - ------------------------------------- FRANCINE I. NEFF Scott J. Stone* Director - ------------------------------------- March 6, 1997 SCOTT J. STONE Donald J. Tomnitz* Director - ------------------------------------- March 6, 1997 DONALD J. TOMNITZ *By: /s/ Donald R. Horton ---------------------------------- DONALD R. HORTON ATTORNEY-IN-FACT II-4 EXHIBIT INDEX
EXHIBIT SEQUENTIALLY NUMBER EXHIBITS NUMBERED PAGE ------- -------- ------------- 1.1 --Form of Underwriting Agreement 5.1 --Opinion of Gibson, Dunn & Crutcher LLP, Dallas, Texas, as to the validity of the shares of Common Stock being registered 23.1 --Consent of Gibson, Dunn & Crutcher LLP, Dallas, Texas (See Exhibit 5.1) 23.2 --Consent of Ernst & Young LLP, Fort Worth, Texas *24.1 --Powers of Attorney (See signature page of this Registration Statement)
- -------- * Previously filed. EX-1.1 2 UNDERWRITING AGMT. EXHIBIT 1.1 __________ Shares D.R. HORTON, INC. Common Stock UNDERWRITING AGREEMENT -----c----------------- March 10, 1997 SMITH BARNEY INC. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED SALOMON BROTHERS INC c/o SMITH BARNEY INC. 388 Greenwich Street New York, New York 10013 Ladies and Gentlemen: D.R. Horton, Inc., a Delaware corporation (the "Company"), proposes to ------- issue and sell an aggregate of shares of its common stock, $0.01 par value per share (the "Common Stock"), to you ("you" or the "Underwriters"). The shares ------------ --- ------------ of Common Stock to be issued and sold to the Underwriters by the Company are hereinafter referred to as the "Firm Shares". The Company also proposes to sell ----------- to the Underwriters, upon the terms and conditions set forth in Section 2 hereof, up to an additional shares (the "Additional Shares") of Common Stock. ----------------- The Firm Shares and the Additional Shares are hereinafter collectively referred to as the "Shares". ------ The Company wishes to confirm as follows its agreements with you in connection with the several purchases of the Shares by the Underwriters. Registration Statement and Prospectus. The Company has prepared and ------------------------------------- filed with the Securities and Exchange Commission (the "Commission") in ---------- accordance with the provisions of the Securities Act of 1933, as amended, and the published rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-3 under the Act (the --- "registration statement"), including a prospectus subject to completion relating - ----------------------- to the Shares. The term "Registration Statement" as used in this Agreement ---------------------- means the -2- registration statement (including all financial schedules and exhibits), as amended at the time it becomes effective, or, if the registration statement became effective prior to the execution of this Agreement, as amended prior to the execution of this Agreement, and any registration statement filed pursuant to Rule 462(b) under the Act increasing the size of the offering registered under the Act. If it is contemplated, at the time this Agreement is executed, that a post-effective amendment to the registration statement will be filed and must be declared effective before the offering of the Shares may commence, the term "Registration Statement" as used in this Agreement means the registration ---------------------- statement as amended by said post-effective amendment. The term "Prospectus" ---------- as used in this Agreement means the prospectus in the form included in the Registration Statement, or, if the prospectus included in the Registration Statement omits information in reliance on Rule 430A under the Act and such information is included in a prospectus filed with the Commission pursuant to Rule 424(b) under the Act, the term "Prospectus" as used in this ---------- Agreement means the prospectus in the form included in the Registration Statement as supplemented by the addition of the Rule 430A information contained in the prospectus filed with the Commission pursuant to Rule 424(b). The term "Prepricing Prospectus" as used in this Agreement means the prospectus subject - ---------------------- to completion in the form included in the registration statement at the time of the initial filing of the registration statement with the Commission, and as such prospectus shall have been amended from time to time prior to the date of the Prospectus. Any reference in this Agreement to the registration statement, the Registration Statement, any Prepricing Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date of the registration statement, the Registration Statement, such Prepricing Prospectus or the Prospectus, as the case may be, and any reference to any amendment or supplement to the registration statement, the Registration Statement, any Prepricing Prospectus or the Prospectus shall be deemed to refer to and include any documents filed after such date under the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Exchange Act"), which, upon filing, are incorporated by ------------ reference therein, as required by paragraph (b) of Item 12 of Form S-3. As used herein, the term "Incorporated Documents" means the documents which at the time ---------------------- are incorporated by reference in the registration statement, the Registration Statement, any Prepricing Prospectus, the Prospectus, or any amendment or supplement thereto. -3- 2. Agreements to Sell and Purchase. Subject to such adjustments as you ------------------------------- may determine in order to avoid fractional shares, the Company hereby agrees, subject to all the terms and conditions set forth herein, to issue and sell to each Underwriter and, upon the basis of the representations, warranties and agreements of the Company herein contained and subject to all the terms and conditions set forth herein, each Underwriter agrees, severally and not jointly, to purchase from the Company, at a purchase price of $[ ] per Share (the "purchase price per share"), the number of Firm Shares which bears the same - ------------------------- proportion to the aggregate number of Firm Shares to be issued and sold by the Company as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto (or such number of Firm Shares increased as set forth in Section 12 hereof) bears to the aggregate number of Firm Shares to be sold by the Company. The Company also agrees, subject to all the terms and conditions set forth herein, to sell to the Underwriters, and, upon the basis of the representations, warranties and agreements of the Company and subject to all the terms and conditions set forth herein, the Underwriters shall have the right to purchase from the Company, at the purchase price per share, pursuant to an option (the "over-allotment option") which may be exercised at any time and from --------------------- time to time prior to 9:00 P.M., New York City time, on the 30th day after the date of the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday, on the next business day thereafter when the New York Stock Exchange is open for trading), up to an aggregate of Additional Shares from the Company. Additional Shares may be purchased only for the purpose of covering over- allotments made in connection with the offering of the Firm Shares. The number of Additional Shares which the Underwriters elect to purchase upon any exercise of the over-allotment option shall be provided by the Company. Upon any exercise of the over-allotment option, each Underwriter, severally and not jointly, agrees to purchase from the Company the number of Additional Shares (subject to such adjustments as you may determine in order to avoid fractional shares) which bears the same proportion to the number of Additional Shares to be sold by the Company as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto (or such number of Firm Shares increased as set forth in Section 12 hereof) bears to the aggregate number of Firm Shares to be sold by the Company. -4- 3. Terms of Public Offering. The Company has been advised by you that ------------------------ the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable upon the terms set forth in the Prospectus. 4. Delivery of the Shares and Payment Therefor. Delivery to the ------------------------------------------- Underwriters of and payment for the Firm Shares shall be made at the office of Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New York City time, on March [ ], 1997 (the "Closing Date"). The place of closing ------------ for the Firm Shares and the Closing Date may be varied by agreement among you and the Company. Delivery to the Underwriters of and payment for any Additional Shares to be purchased by the Underwriters shall be made at the aforementioned office of Smith Barney Inc. at such time on such date (the "Option Closing Date"), ------------------- which may be the same as the Closing Date but shall in no event be earlier than the Closing Date nor earlier than two nor later than ten business days after the giving of the notice hereinafter referred to, as shall be specified in a written notice from you on behalf of the Underwriters to the Company of the Underwriters' determination to purchase a number, specified in such notice, of Additional Shares. The place of closing for any Additional Shares and the Option Closing Date for such Shares may be varied by agreement between you and the Company. Certificates for the Firm Shares and for any Additional Shares to be purchased hereunder shall be registered in such names and in such denominations as you shall request prior to 9:30 A.M., New York City time, on the second business day preceding the Closing Date or any Option Closing Date, as the case may be. Such certificates shall be made available to you in New York City for inspection and packaging not later than 9:30 A.M., New York City time, on the business day next preceding the Closing Date or the Option Closing Date, as the case may be. The certificates evidencing the Firm Shares and any Additional Shares to be purchased hereunder shall be delivered to you on the Closing Date or the Option Closing Date, as the case may be, against payment of the purchase price therefor by wire transfer of immediately available funds to accounts specified by each of the Company and the Custodian not later than two business days before the Closing Date or the Option Closing Date, as the case may be. -5- 5. Agreements of the Company. The Company agrees with the several ------------------------- Underwriters as follows: (a) If, at the time this Agreement is executed and delivered, it is necessary for the Registration Statement or a post-effective amendment thereto to be declared effective before the offering of the Shares may commence, the Company will endeavor to cause the Registration Statement or such post- effective amendment to become effective as soon as possible and will advise you promptly and, if requested by you, will confirm such advice in writing, when the Registration Statement or such post-effective amendment has become effective. (b) The Company will advise you promptly and, if requested by you, will confirm such advice in writing: (i) of any request by the Commission for amendment of or a supplement to the Registration Statement, any Prepricing Prospectus or the Prospectus or for additional information; (ii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any order preventing or suspending the use of any Prepricing Prospectus or the Prospectus or of the suspension of qualification of the Shares for offering or sale in any jurisdiction or the initiation or the threatening of any proceeding for such purpose; and (iii) within the period of time referred to in paragraph (f) below, of any change in the Company's condition (financial or other), business, prospects, properties, net worth or results of operations, or of the happening of any event, which makes any statement of a material fact made in the Registration Statement or the Prospectus (as then amended or supplemented) untrue or which requires the making of any additions to or changes in the Registration Statement or the Prospectus (as then amended or supplemented) in order to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, or of the necessity to amend or supplement the Prospectus (as then amended or supplemented) to comply with the Act or any other law. If at any time any stop order suspending the effectiveness of the Registration Statement or any order preventing or suspending the use of any Prepricing Prospectus or the Prospectus or suspending any such qualification, the Company will promptly use its best efforts to obtain the withdrawal of such order at the earliest possible time. -6- (c) The Company will furnish to you, without charge (i) five copies of the registration statement as originally filed with the Commission and of each amendment thereto, including all exhibits thereto, (ii) each PrePricing Prospectus, the Prospectus and any amended or supplemented Prospectus, (iii) such number of copies of the registration statement as originally filed and of each amendment thereto, but without exhibits, as you may request, (iv) such number of copies of the Incorporated Documents, without exhibits, as you may request, and (v) five copies of the exhibits to the Incorporated Documents. (d) The Company will not file any amendment to the Registration Statement or make any amendment or supplement to the Prospectus or, prior to the end of the period of time referred to in paragraph (f) below, file any document which, upon filing becomes an Incorporated Document, of which you shall not previously have been advised or to which, after you shall have received a copy of the document proposed to be filed, you shall reasonably object. (e) Prior to the execution and delivery of this Agreement, the Company has delivered to you, without charge, in such quantities as you have requested, copies of each form of the Prepricing Prospectus. The Company consents to the use, in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by dealers, prior to the date of the Prospectus, of each Prepricing Prospectus so furnished by the Company. (f) As soon after the execution and delivery of this Agreement as possible and thereafter from time to time for such period as in the opinion of counsel for the Underwriters a prospectus is required by the Act to be delivered in connection with sales by any Underwriter or dealer, the Company will expeditiously deliver to each Underwriter and each dealer, without charge, as many copies of the Prospectus (and of any amendment or supplement thereto) as you may reasonably request. The Company consents to the use of the Prospectus (and of any amendment or supplement thereto) in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by all dealers to whom Shares may be sold, both in connection with the offering and sale of the -7- Shares and for such period of time thereafter as the Prospectus is required by the Act to be delivered in connection with sales by any Underwriter or dealer. If during such period of time any event shall occur that in the judgment of the Company or in the opinion of counsel for the Underwriters is required to be set forth in the Prospectus (as then amended or supplemented) or should be set forth therein in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary to supplement or amend the Prospectus (or to file under the Exchange Act any document which, upon filing, becomes an Incorporated Document) in order to comply with the Act or any other law, the Company will forthwith prepare and, subject to the provisions of paragraph (d) above, file with the Commission an appropriate supplement or amendment thereto (or to such document), and will expeditiously furnish to the Underwriters and dealers a reasonable number of copies thereof. In the event that the Company and you agree that the Prospectus should be amended or supplemented, the Company, if requested by you, will promptly issue a press release announcing or disclosing the matters to be covered by the proposed amendment or supplement. (g) The Company will cooperate with you and with counsel for the Underwriters in connection with the registration or qualification of the Shares for offering and sale by the several Underwriters and by dealers under the securities or Blue Sky laws of such jurisdictions as you may designate and will file such consents to service of process or other documents necessary or appropriate in order to effect such registration or qualification; provided -------- that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to service of process in suits, other than those arising out of the offering or sale of the Shares, in any jurisdiction where it is not now so subject. (h) The Company will make generally available to its security holders a consolidated earnings statement, which need not be audited, covering a twelve- month period commencing after the date the Registration Statement is declared effective by the Commission (the "Effective Date") and ending not later than -------------- 15 months thereafter, as soon as practicable after the end of such period, which consolidated -8- earnings statement shall satisfy the provisions of Section ll(a) of the Act. (i) During the period of five years hereafter, the Company will furnish to you as soon as available, a copy of all public materials furnished by the Company to its stockholders and all public reports and financial statements furnished by the Company to the principal national securities exchange upon which the Common Stock may be listed pursuant to requirements of or agreements with such exchange or to the Commission. (j) If, prior to the Closing Date, this Agreement shall be terminated by the Underwriters because of any failure or refusal on the part of the Company to perform any agreement on its part to be performed, or because any condition set forth in Section 8 hereof is not fulfilled, the Company agrees to reimburse you for all reasonable out-of-pocket expenses (including fees and expenses of your counsel) incurred by you in connection herewith (it being understood that the Company shall have no such reimbursement obligation if this Agreement is terminated pursuant to the second paragraph of Section 10 hereof or by notice given by you terminating this Agreement pursuant to Section 10 or Section 11 hereof). (k) The Company will apply the net proceeds from the sale of the Shares to be sold by it hereunder in accordance with the description set forth in the Prospectus. (l) If Rule 430A of the Act is employed, the Company will timely file the Prospectus pursuant to Rule 424(b) under the Act and will advise you of the time and manner of such filing. (m) The Company will not sell, contract to sell or otherwise dispose of any Common Stock (other than the Shares) or any securities convertible into or exercisable or exchangeable for Common Stock, or grant any options, warrants or other rights to purchase Common Stock, for a period of 90 days after the date of the Prospectus, without the prior written consent of Smith Barney Inc.; provided, however, that the foregoing shall not prohibit (i) the grant -------- ------- of options pursuant to stock option plans existing on the date hereof, (ii) the issuance of Common Stock upon exercise of options granted under stock option -9- plans referred to in clause (i) or pursuant to employee benefit plans existing on the date hereof or (iii) the issuance of Common Stock or options, warrants or other rights to purchase Common Stock in connection with the acquisition of a business by the Company, provided that the entity that receives such Common -------- Stock or such options, warrants or rights agrees to be bound by this Section 5(m). (n) The Company has furnished or will furnish to you "lock-up" letters described in the Prospectus in form and substance satisfactory to you, signed by certain of its executive officers and directors previously designated by you. (o) Except as stated in this Agreement and in the Prepricing Prospectus and Prospectus, the Company has not taken, nor will it take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. (p) The Company will take all steps necessary to effect the listing of the Shares, subject to notice of issuance, on the New York Stock Exchange. 6. Representations and Warranties of the Company. The Company represents --------------------------------------------- and warrants to each Underwriter that: (a) Each Prepricing Prospectus included as part of the registration statement as originally filed or as part of any amendment or supplement thereto, or filed pursuant to Rule 424 under the Act, complied when so filed in all material respects with the provisions of the Act. The Commission has not issued any order preventing or suspending the use of any Prepricing Prospectus. (b) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will, when they become effective or are filed with the Commission, as the case may be, conform in all material respects to the requirements of the Act and do not and will not, as of the applicable effective date (as to the Registration Statement and any amendment thereto) and as of the applicable -10- filing date (as to the Prospectus and any amendment or supplement thereto) contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of the Prospectus, in light of the circumstances under which they were made); provided that no representation or warranty is -------- made as to information contained in or omitted from the Registration Statement or the Prospectus in reliance upon and in conformity with written information furnished to the Company through you with respect to any Underwriter specifically for inclusion therein. (c) The Incorporated Documents, when they were or are filed with the Commission, conformed or will conform in all material respects to the requirements of the Act or the Exchange Act, as applicable, and none of such documents contained or will contain an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (d) The financial statements (including the related notes and supporting schedules) filed as part of the Registration Statement or incorporated by reference in the Prospectus present fairly the consolidated financial position and results of operations of the entities purported to be shown thereby, at the dates and for the periods indicated, and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved. (e) Ernst & Young, LLP, who have reported on the audited financial statements of the Company, whose report is incorporated by reference in the Prospectus and who have delivered the initial letter referred to in Section 10(g) hereof, are independent public accountants as required by the Act. (f) The pro forma financial statements and other pro forma financial information (including the notes thereto) included in the Prospectus have been prepared in all material respects in accordance with applicable requirements of Regulation S-X promulgated under the Exchange Act and have been properly computed on the bases described therein. The material assumptions used in the preparation -11- of the pro forma financial statements and other pro forma information in the Prospectus are set forth therein and are reasonable, and the adjustments used therein are appropriate to give pro forma effect to the transactions or circumstances referred to therein. (g) The Company and each of its subsidiaries (as defined in Section 16) have been duly formed and are validly existing in good standing under the laws of their respective jurisdictions of organization, are duly qualified to do business and are in good standing in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification except where the failure to so qualify would not have a material adverse effect on the financial condition, results of operations, business or prospects of the Company and its subsidiaries taken as a whole (a "Material Adverse Effect"), and have all power and authority ----------------------- necessary to own or hold their respective properties and to conduct the businesses in which they are engaged. (h) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly authorized and validly issued, are fully paid and non-assessable and conform to the description thereof contained in or incorporated by reference in the Prospectus; and all of the issued equity securities of each subsidiary of the Company have been duly authorized and validly issued and, as to shares of capital stock of any corporation constituting a subsidiary, are fully paid and non-assessable and (except for directors' qualifying shares) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims other than restrictions on transfer imposed by applicable securities laws. (i) The unissued shares of the Common Stock to be issued and sold by the Company to the Underwriters hereunder have been duly authorized and, when issued and delivered against payment therefor as provided herein, will be validly issued, fully paid and non-assessable and such shares will conform to the description thereof contained in or incorporated by reference in the Prospectus. (j) The execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated hereby will not conflict with or -12- result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such actions result in any violation of the provisions of the organizational documents of the Company or any of its subsidiaries or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets; and except for such consents, approvals, authorizations, registrations or qualifications as may be required under the Act or applicable state or foreign securities laws in connection with the purchase and distribution of the Shares by the Underwriters, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated hereby. (k) Neither the Company nor any of its subsidiaries has sustained, since the date of the latest audited financial statements incorporated by reference in the Prospectus, any loss or interference with the business of the Company and its subsidiaries taken as a whole from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus, resulting in a Material Adverse Effect; and, since such date, there has not been any change in the capital stock or long- term debt of the Company or any of its subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries taken as a whole, otherwise than as set forth or contemplated in the Prospectus. (l) Other than with respect to the offering contemplated hereby and the shares of Common Stock received in connection with the acquisition (The "Torrey Acquisition") of the Torrey Group of Companies ("Torrey"), there are ------------------ ------ no -13- contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Act. (m) The Company has not sold or issued any shares of Common Stock during the six-month period preceding the date of the Prospectus, including any sales pursuant to an exemption from the registration requirements of the Act other than shares issued pursuant to stock options plans or other employee benefit plans and shares issued in connection with the Torrey Acquisition. (n) This Agreement has been duly authorized, executed and delivered by the Company. (o) The Company and its subsidiaries own the items of real property and personal property purported to be owned by them which are material to the conduct of the business of the Company and its subsidiaries taken as a whole, free and clear of all liens, encumbrances and defects, except such as are described or incorporated by reference in the Prospectus or such as would not have a Material Adverse Effect. All real property held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases, with such exceptions as are described in the Prospectus or such as would not have a Material Adverse Effect. (p) Except as described or incorporated by reference in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property or assets of the Company or any of its subsidiaries is the subject which are reasonably likely to have a Material Adverse Effect; and to the best of the Company's knowledge, no such proceedings are threatened by governmental authorities or by others. The conditions for use of Form S-3, as set forth in the General Instructions thereto, have been satisfied. (q) To the knowledge of the Company, all real property owned (either presently or at any time in the past), or presently leased by the Company and -14- its subsidiaries in connection with the operation of its business, including, without limitation, any subsurface soils and ground water (collectively, the "Realty"), is free of contamination from any substance or material presently known to be toxic or hazardous, including, without limitation, any radioactive substance, methane, volatile hydrocarbons or industrial solvents (each a "Hazardous Substance"), which could reasonably be expected to materially ------------------- impair the beneficial use thereof by the Company and its subsidiaries or constitute or cause a significant health, safety or other environmental hazard to occupants or users (except for contaminations which would not have a Material Adverse Effect); and to the knowledge of the Company, the Realty does not contain any underground storage or treatment tanks, active or abandoned water, gas or oil wells, or any other underground improvements or structures, other than the foundations, footings or other supports for the improvements located thereon, the presence of which would have a Material Adverse Effect. Notwithstanding the foregoing, Hazardous Substances shall be deemed not to include any supplies or substances maintained, used, stored or held on the Realty which are (i) naturally occurring, (ii) installed by public utilities or (iii) used in the ordinary course of the Company's or its subsidiaries' business, provided that such supplies or substances are stored, used, maintained and held in all material respects in accordance with any applicable governmental requirements and with restrictions, conditions and standards suggested by the manufacturer and the Company's insurance carriers. (s) The Company has not taken and shall not take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the Common Stock. (t) The Company and each of its subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses. (u) The Company and each of its subsidiaries own or possess adequate rights to use all material patents, patent -15- applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights and licenses necessary for the conduct of their respective businesses the absence of which would have a Material Adverse Effect and have no reason to believe that the conduct of their respective businesses will conflict with, and have not received any notice of any claim of conflict with, any such rights of others. (v) There are no contracts or other documents which are required to be described in the Prospectus or filed as exhibits to the Registration Statement by the Act which have not been described or incorporated by reference in the Prospectus or filed as exhibits to the Registration Statement or incorporated therein by reference as permitted by the Act. (w) No labor disturbance by the employees of the Company exists or, to the knowledge of the Company, is imminent which could reasonably be expected to have a Material Adverse Effect. (x) The Company has filed all federal, state and local income and franchise tax returns required to be filed through the date hereof and has paid all taxes due thereon, and no tax deficiency has been determined adversely to the Company or any of its subsidiaries which has had (nor does the Company have any knowledge of any tax deficiency which would reasonably likely have) a Material Adverse Effect. (y) Since the date as of which information is given in the Prospectus and through the date hereof, and except as may otherwise be disclosed or incorporated by reference in the Prospectus, the Company has not (i) issued or granted any securities other than shares of Common Stock issued pursuant to stock option plans or other employee benefit plans existing on the date hereof or the grant of options pursuant to option plans existing on the date hereof, (ii) entered into any material transaction not in the ordinary course of business or (iii) declared or paid any dividend on its capital stock, and, from the date of the Prospectus, the Company has not incurred any material liability other than in the ordinary course of business. (z) The Company is in full compliance with Section 13(b)(2) of the Exchange Act. -16- (aa) Neither the Company nor any of its subsidiaries (i) is in violation of its organizational documents, (ii) is in default in any material respect, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject as a result of which default there would be a Material Adverse Effect or (iii) is in violation of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject or has failed to obtain any license, permit, certificate, franchise or other governmental authorization or permit necessary to the ownership of its property or to the conduct of its business which violation or failure would have a Material Adverse Effect. (bbb) Neither the Company nor any subsidiary is an "investment company" within the meaning of such term under the United States Investment Company Act of 1940 and the rules and regulations of the Commission thereunder. (7) Indemnification and Contribution. (a) The Company agrees to -------------------------------- indemnify and hold harmless each Underwriter, its officers and employees and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Prepricing Prospectus or in the Registration Statement or the Prospectus or in any amendment or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission which has been made therein or omitted therefrom in reliance upon and in conformity with the information relating to such Underwriter furnished in writing to the Company by or on behalf of any Underwriter expressly for use in connection therewith; provided, however, that the indemnification contained in this paragraph (a) with - -------- ------- respect to any Prepricing Prospectus shall not inure to the benefit of any -17- Underwriter (or to the benefit of any officer or employee of such Underwriter or any person controlling such Underwriter) on account of any such loss, claim, damage, liability or expense arising from the sale of the Shares by such Underwriter to any person if a copy of the Prospectus shall not have been delivered or sent to such person within the time required by the Act, and the untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in such Prepricing Prospectus was corrected in the Prospectus, provided that the Company has delivered the Prospectus to the several Underwriters in requisite quantity on a timely basis to permit such delivery or sending. Notwithstanding anything to the contrary herein, no Underwriter shall be obligated to send or give any Incorporated Document, or any amendment or supplement thereto, to any person in order to benefit from the indemnification provisions herein or otherwise. The foregoing indemnity agreement shall be in addition to any liability which the Company may otherwise have. (b) If any action, suit or proceeding shall be brought against any Underwriter or any person controlling any Underwriter in respect of which indemnity may be sought against the Company, such Underwriter or such controlling person shall promptly notify the parties against whom indemnification is being sought (the "indemnifying parties"), and such -------------------- indemnifying parties shall be entitled to assume the defense thereof, including the employment of counsel and payment of all fees and expenses. Such Underwriter or any such controlling person shall have the right to employ separate counsel in any such action, suit or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Underwriter or such controlling person unless (i) the indemnifying parties have agreed in writing to pay such fees and expenses, (ii) the indemnifying parties have failed to assume the defense and employ counsel, or (iii) the named parties to any such action, suit or proceeding (including any impleaded parties) include both such Underwriter or such controlling person and the indemnifying parties and such Underwriter or such controlling person shall have been advised by its counsel that representation of such indemnified party and any indemnifying party by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed) due to actual or potential differing interests between them (in which case the indemnifying party shall not have the right to assume the defense of such action, suit or proceeding on behalf of such Underwriter or such controlling person). -18- is understood, however, that the indemnifying parties shall, in connection with any one such action, suit or proceeding or separate but substantially similar or related actions, suits or proceedings arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of only one separate firm of attorneys (in addition to any local counsel) at any time for all such Underwriters and controlling persons, which firm shall be designated in writing by Smith Barney Inc., and that all such fees and expenses shall be reimbursed as they are incurred. The indemnifying parties shall not be liable for any settlement of any such action, suit or proceeding effected without their written consent, but if settled with such written consent, or if there be a final judgment for the plaintiff in any such action, suit or proceeding, the indemnifying parties agree to indemnify and hold harmless any Underwriter, to the extent provided in the preceding paragraph, and any such controlling person from and against any loss, claim, damage, liability or expense by reason of such settlement or judgment. (c) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement, and any person who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, to the same extent as the foregoing indemnity from the Company to each Underwriter, but only with respect to information relating to such Underwriter furnished in writing by or on behalf of such Underwriter expressly for use in the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto. If any action, suit or proceeding shall be brought against the Company, any of its directors, any such officer, or any such controlling person based on the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto, and in respect of which indemnity may be sought against any Underwriter pursuant to this paragraph (c), such Underwriter shall have the rights and duties given to the Company by paragraph (b) above (except that if the Company shall have assumed the defense thereof such Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, but the fees and expenses of such counsel shall be at such Underwriter's expense), and the Company, its directors, any such officer, and any such controlling person shall have the rights and duties given to the Underwriters by paragraph (b) above. The foregoing indemnity agreement -19- shall be in addition to any liability which any Underwriter may otherwise have. (d) If the indemnification provided for in this Section 7 is unavailable to an indemnified party under paragraphs (a) or (c) hereof in respect of any losses, claims, damages, liabilities or expenses referred to therein, then an indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus; provided that, in the event that the Underwriters shall have purchased any Additional Shares hereunder, any determination of the relative benefits received by the Company or the Underwriters from the offering of the Shares shall include the net proceeds (before deducting expenses) received by the Company, and the underwriting discounts and commissions received by the Underwriters, from the sale of such Additional Shares, in each case computed on the basis of the respective amounts set forth in the notes to the table on the cover page of the Prospectus. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or by the Underwriters on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. -20- (e) The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by a pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating any claim or defending any such action, suit or proceeding. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price of the Shares underwritten by it and distributed to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of paragraph (d) above or this paragraph (e), the Company shall not be required to contribute an amount in excess of the amount for which such party would have been liable if the provision of paragraph (a) had been available. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 7 are several in proportion to the respective numbers of Firm Shares set forth opposite their names in Schedule I hereto (or such numbers of Firm Shares increased as set forth in Section 10 hereof) and not joint. (f) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. (g) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 7 shall be -21- paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, its directors or officers or any person controlling the Company, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to any Underwriter or any person controlling any Underwriter, or to the Company, its directors or officers, or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 7. (h) The Underwriters severally confirm and the Company acknowledges that the statements with respect to the public offering of the Common Stock by the Underwriters set forth on the cover page of, the legend concerning over- allotments on the inside front cover page of, the concession and reallowance figures appearing under the caption "Underwriting" in, the Prospectus are correct and constitute the only information concerning such Underwriters furnished in writing to the Company by or on behalf of the Underwriters specifically for inclusion in the Registration Statement and the Prospectus. 8. Conditions of Underwriters' Obligations. The several obligations of the --------------------------------------- Underwriters to purchase the Firm Shares hereunder are subject to the following conditions: (a) If, at the time this Agreement is executed and delivered, it is necessary for the registration statement or a post-effective amendment thereto to be declared effective before the offering of the Shares may commence, the registration statement or such post-effective amendment shall have become effective not later than 5:30 P.M., New York City time, on the date hereof, or at such later date and time as shall be consented to in writing by you, and all filings, if any, required by Rules 424 and 430A under the Act shall have been timely made; no stop order suspending the effectiveness of the registration statement shall have been issued and no proceeding for that purpose shall have been instituted or, to the knowledge of the Company or any Underwriter, threatened by the Commission, -22- and any request of the Commission for additional information (to be included in the registration statement or the prospectus or otherwise) shall have been complied with to your satisfaction. (b) Subsequent to the effective date of this Agreement, there shall not have occurred (i) any change, or any development involving a prospective change, in or affecting the condition (financial or other), business, properties, net worth, or results of operations of the Company and its Subsidiaries not contemplated by the Prospectus, which in your opinion would materially adversely affect the market for the Shares, or (ii) any event or development relating to or involving the Company which makes any statement made in the Prospectus untrue or which, in the opinion of the Company and its counsel or the Underwriters and their counsel, requires the making of any addition to or change in the Prospectus in order to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, if amending or supplementing the Prospectus to reflect such event or development would, in your opinion materially adversely affect the market for the Shares. (c) You shall have received on the Closing Date, an opinion of Gibson Dunn & Crutcher LLP, special counsel for the Company, dated the Closing Date and addressed to you, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the business, operations or financial condition of the Company and its subsidiaries taken as a whole, and has all corporate power and authority necessary to own or hold its properties and conduct its business as described or incorporated by reference in the Prospectus; (ii) The Company has authorized and outstanding capital stock as set forth in the Prospectus, and all of the issued shares of capital stock of the Company -23- have been duly authorized and validly issued, are fully paid and non- assessable and conform in all material respects to the description thereof incorporated by reference in the Prospectus; the shares of Common Stock being delivered and which are being issued by the Company are duly authorized and, when issued upon payment therefor in accordance with this Agreement, will be validly issued, fully paid and non-assessable; (iii) There are no preemptive rights, nor any restriction upon the voting or transfer of, any shares of the Common Stock provided for in the Company's Certificate of Incorporation or bylaws, or to the knowledge of such counsel, any other agreement to which the Company is a party; (iv) To such counsel's knowledge and other than as described or incorporated by reference in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property or assets of the Company or any of its subsidiaries is the subject which is of a character which is required to be disclosed in the Prospectus; and, to such counsel's knowledge, no such proceedings are threatened by governmental authorities or by others. (v) The Registration Statement was declared effective under the Act as of the date and time specified in such opinion, the Prospectus was filed with the Commission pursuant to the subparagraph of Rule 424(b) under the Act on the date specified therein, and, to such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose is pending or threatened by the Commission; (vi) The Registration Statement and the Prospectus and any further amendments or supplements thereto made by the Company prior to the Closing Date (other than the financial and pro forma data (and the related notes thereto) and statistical data and the financial statements and related schedules therein, as to which such counsel need express no opinion) appear on their face to comply as to form in all material respects with the requirements of the Act; the docu- -24- ments incorporated by reference in the Prospectus and any further amendment or supplement to any such incorporated document made by the Company prior to the Closing Date (other than the financial and pro forma data (and the related notes thereto) and statistical data and the financial statements, and related schedules therein, as to which such counsel need express no opinion), when they were filed with the Commission appear on their face to have been appropriately responsive in all material respects to the requirements of the Act and the Exchange Act; (vii) To such counsel's knowledge, there are no contracts or other documents of a character which are required to be described in the Prospectus or filed as exhibits to the Registration Statement by the Act which have not been described or filed as exhibits to the Registration Statement or incorporated therein by reference as permitted by the Act; (viii) This Agreement has been duly authorized, executed and delivered by the Company; and (ix) The issue and sale of the shares of Common Stock being delivered on the Closing Date by the Company and the compliance by the Company with all of the provisions of this Agreement and the consummation by the Company of the transactions contemplated hereby and thereby will not, to such counsel's knowledge, conflict with or result in a material breach or violation of any of the terms or provisions of, or constitute a material default under, any indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument filed (including by incorporation by reference) by the Company as an Exhibit to its Annual Report on Form 10-K for the fiscal year ended September 30, 1996, nor will such actions result in any violation of the provisions of the Certificate of Incorporation or By-laws of the Company or any statute or, to such counsel's knowledge, any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries set forth on Schedule II hereto or any of their properties or assets; and, except for such consents, approvals, authorizations, registrations or qualifications as may be required under the -25- Act, and applicable state or foreign securities laws in connection with the purchase and distribution of the Common Stock by the Underwriters, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement by the Company and the valid issuance and sale of the Common Stock by the Company. In rendering such opinion, such counsel may state that its opinion is limited to the Federal laws of the United States of America, the laws of the States of Texas and New York and the General Corporation Law of the State of Delaware. Such counsel shall also have furnished to the Underwriters a written statement, addressed to the Underwriters and dated the Closing Date, in form and substance satisfactory to the Underwriters and counsel for the Underwriters, to the effect that (x) such counsel has acted as special counsel to the Company in connection with the preparation of the Registration Statement and during the course of the preparation of the Registration Statement and Prospectus, such counsel participated in conferences with representatives of the Company, the Company's corporate counsel, and its accountants and the representatives of the Underwriters and at which conferences the contents of the Registration Statement and the Prospectus and related matters were discussed, and (y) based on the foregoing, no facts have come to the attention of such counsel which lead it to believe that (I) the Registration Statement (except as to financial and pro forma data (and related notes thereto) and statistical data and the financial statements and related schedules contained or incorporated by reference therein), as of the date the Registration Statement became effective, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, or that the Prospectus (except as to financial and pro forma data (and related notes thereto) and statistical data and the financial statements and related schedules contained or incorporated by reference therein) contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or (II) any Incorporated Document or any amendment or supplement -26- thereto made by the Company prior to such Closing Date, when they were filed with the Commission, as the case may be, contained (except as to financial and pro forma data (and related notes thereto) and statistical data and the financial statements and related schedules contained or incorporated by reference therein) an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The foregoing opinion and statement may be qualified by a statement to the effect that such counsel has not independently verified the accuracy, completeness or fairness of the statements contained in the Registration Statement or Prospectus or incorporated by reference therein, and such counsel is not passing upon and such counsel does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus other than the description of the Company's capital stock incorporated by reference into the Prospectus. (d) You shall have received on the Closing Date, an opinion of Charles N. Warren, Esq., General Counsel of the Company, dated the Closing Date and addressed to you, to the effect that: (i) The issue and sale of the shares of Common Stock being delivered on the Closing Date by the Company and the compliance by the Company with all of the provisions of this Agreement and the consummation by the Company of the transactions contemplated hereby will not, to the knowledge of such counsel, conflict with or result in a material breach or violation of any of the terms or provisions of, or constitute a material default under, any indenture, mortgage, deed or trust, loan agreement or other material agreement or instrument known to such counsel to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such actions result in any violation of the provisions of the charter or by-laws of any of the Company's subsidiaries set forth on Schedules II and III hereto or any order,------------ ---rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over any -27- of the Company's subsidiaries set forth on Schedule III hereto or any of their properties or assets; and (ii) Each subsidiary of the Company set forth on Schedules II and III ------------ --- which is a corporation has been duly incorporated and is validly existing as a corporation in good standing under the laws of its state of incorporation, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which its ownership or lease of its property or the conduct of its business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the business, operations or financial condition of the Company and its subsidiaries taken as a whole, and has all corporate power and authority necessary to own or hold its properties and conduct its business as described in the Prospectus. The outstanding shares of capital stock of each such subsidiary is duly authorized, validly issued, fully paid and nonassessable and (except for directors' qualifying shares) are owned of record, directly or indirectly by the Company. Each subsidiary of the Company set forth on Schedules II and III which is a limited ------------ --- partnership has been duly formed and is validly existing as a limited partnership in good standing under the laws of the state of its organization, is duly qualified to do business and is in good standing as a foreign limited partnership in each jurisdiction in which its ownership or lease of its property or the conduct of its business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the business, operation or financial condition of the Company and its subsidiaries taken as a whole, and has all partnership power and authority necessary to own or hold its properties and conduct its business as described in the Prospectus. The subsidiaries listed on Schedules II and III constitute all of the material subsidiaries ------------ --- of the Company. (e) The Underwriters shall have received from Cahill Gordon & Reindel, special counsel for the Underwriters, such opinion or opinions, dated the Closing Date, with respect to the issuance and sale of the Common Stock, the Registration Statement, the Prospectus and other re- -28- lated matters as the Underwriters may reasonably require, and the Company shall have furnished to such counsel such documents as they reasonably request for the purpose of enabling them to pass upon such matters. (f) At the time of execution of this Agreement, the Underwriters shall have received from Ernst & Young LLP a letter, in form and substance satisfactory to the Underwriters, addressed to the Underwriters and dated the date hereof (i) confirming that they are independent public accountants within the meaning of the Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date hereof (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than five days prior to the date hereof), the conclusions and findings of such firm with respect to the financial information and other matters ordinarily covered by accountants' "comfort letters" to underwriters in connection with registered public offerings. (g) With respect to the letter of Ernst & Young LLP referred to in the preceding paragraph and delivered to you concurrently with the execution of this Agreement (the "initial letter"), the Company shall have furnished to the -------------- Underwriters a letter (the "bring-down letter") of such accountants, addressed ----------------- to the Underwriters and dated the Closing Date (i) confirming that they are independent public accountants within the meaning of the Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date of the bring-down letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than five days prior to the date of the bring-down letter), the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letter and (iii) confirming in all material respects the conclusions and findings set forth in the initial letter. (h) The Company shall have furnished to the Underwriters its certificate, dated such Closing Date executed -29- by its Chairman of the Board, its President or a Vice President and its chief financial officer stating that: (i) The representations and warranties of the Company in this Agreement are true and correct as of the Closing Date as if made on such date; the Company has complied with all its agreements contained herein to be performed by it at or prior to the Closing Date; and the conditions set forth in Sections 8(a) and 8(i) have been fulfilled; ---- (ii) No stop order suspending the effectiveness of the Registration Statement has been issued, and no proceeding for that purpose has been initiated or threatened; and (iii) All filings required by Rule 424(b) and Rule 430A under the Act have been made. (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus or (ii) since such date there shall not have been any change in the capital stock, net revenues, per share or total amounts of income before extraordinary income or of net income or long-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is, in the judgment of Smith Barney Inc. and/or a majority in interest of the several Underwriters, so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Common Stock being delivered on the Closing Date on the terms and in the manner contemplated in the Prospectus. (j) Subsequent to the execution and delivery of this Agreement (i) no downgrading shall have occurred in the -30- rating accorded the Company's debt securities by any "nationally recognized statistical rating organization", as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's debt securities. (k) The Company shall have furnished to you such other documents and certificates as to the accuracy and completeness of any statement in the Registration Statement or the Prospectus as you reasonably may request. (l) The Company shall have performed such of its obligations under this Agreement as are to be performed by the terms hereof. (m) You shall have been furnished with such additional documents and certificates as you or counsel for the Underwriters may reasonably request. (n) The Common Stock to be purchased on the Closing Date by the Underwriters shall be approved for listing on the New York Stock Exchange. All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are reasonably satisfactory in form and substance to you and your counsel. Any certificate or document signed by any officer of the Company and delivered to you or to your counsel shall be deemed a representation and warranty by the Company to each Underwriter as to the statements made therein. The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the satisfaction on and as of any Option Closing Date of the conditions set forth in this Section 8, except that, if any Option Closing Date is other than the Closing Date, the certificates, opinions and letters referred to in paragraphs (c) through (h) shall be dated the Option Closing Date in question and the opinions called for by paragraphs (c) and (d) --- shall be revised to reflect the sale of Additional Shares. 9. Expenses. As between the Company, on the one hand, and the Underwriters -------- on the other hand, the Company -31- shall pay the following costs and expenses and all other costs and expenses incident to the performance by the Company of their obligations hereunder: (i) the preparation, printing or reproduction, and filing with the Commission of the registration statement (including financial statements and exhibits thereto), each Prepricing Prospectus, the Prospectus, and each amendment or supplement to any of them; (ii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the registration statement, each Prepricing Prospectus, the Prospectus, the Incorporated Documents, and all amendments or supplements to any of them, as may be reasonably requested for use in connection with the offering and sale of the Shares; (iii) the preparation, printing, authentication, issuance and delivery of certificates for the Shares, including any stamp taxes in connection with the original issuance and sale of the Shares; (iv) the printing (or reproduction) and delivery of this Agreement, the preliminary and supplemental Blue Sky Memoranda and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Shares; (v) the listing of the Shares on the New York Stock Exchange; (vi) the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of the several states as provided in Section 5(g) hereof (including the reasonable fees, expenses and disbursements of counsel for the Underwriters relating to the preparation, printing or reproduction, and delivery of the preliminary and supplemental Blue Sky Memoranda and such registration and qualification); (vii) the filing fees and the fees and expenses of counsel for the Underwriters in connection with any filings required to be made with the National Association of Securities Dealers, Inc.; (viii) the transportation and other expenses incurred by or on behalf of Company representatives (but not Underwriters' representatives) in connection with presentations to prospective purchasers of the Shares; and (ix) the fees and expenses of the Company's accountants and the fees and expenses of counsel (including local and special counsel) for the Company. 10. Effective Date of Agreement. This Agreement shall become effective: --------------------------- (i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at the time this Agreement is executed and delivered, it is necessary for the registration statement or a post-effective amendment thereto to be declared effective before the offering of the Shares may commence, when notification of the effectiveness of the registration statement or such post-effective amendment has been released by the Commission. Until such time as this Agreement -32- shall have become effective, it may be terminated by the Company, by notifying you, or by you, by notifying the Company. If any one or more of the Underwriters shall fail or refuse to purchase Shares which it or they are obligated to purchase hereunder on the Closing Date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters are obligated but fail or refuse to purchase is not more than one-tenth of the aggregate number of Shares which the Underwriters are obligated to purchase on the Closing Date, each non-defaulting Underwriter shall be obligated, severally, in the proportion which the number of Firm Shares set forth opposite its name in Schedule I hereto bears to the aggregate number of ---------- Firm Shares set forth opposite the names of all non-defaulting Underwriters or in such other proportion as you may specify in accordance with Section 20 of the Master Agreement Among Underwriters of Smith Barney Inc., to purchase the Shares which such defaulting Underwriter or Underwriters are obligated, but fail or refuse, to purchase. If any one or more of the Underwriters shall fail or refuse to purchase Shares which it or they are obligated to purchase on the Closing Date and the aggregate number of Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Shares which the Underwriters are obligated to purchase on the Closing Date and arrangements satisfactory to you and the Company for the purchase of such Shares by one or more non-defaulting Underwriters or other party or parties approved by you and the Company are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the -- Company. In any such case which does not result in termination of this Agreement, either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any such default of any such Underwriter under this Agreement. The term "Underwriter" as used in this Agreement includes, for all purposes of this Agreement, any party not listed in Schedule I hereto who, with your approval and ---------- the approval of the Company, purchases Shares which a defaulting Underwriter is obligated, but fails or refuses, to purchase. -33- Any notice under this Section 10 may be given by telegram, telecopy or telephone but shall be subsequently confirmed by letter. 11. Termination of Agreement. This Agreement shall be subject to ------------------------ termination in your absolute discretion, without liability on the part of any Underwriter to the Company, by notice to the Company, if prior to the Closing Date or any Option Closing Date (if different from the Closing Date and then only as to the Additional Shares), as the case may be, (i) trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market shall have been suspended or materially limited, (ii) a general moratorium on commercial banking activities in New York or Texas shall have been declared by either federal or state authorities, or (iii) there shall have occurred any outbreak or escalation of hostilities or other international or domestic calamity, crisis or change in political, financial or economic conditions, the effect of which on the financial markets of the United States is such as to make it, in your judgment, impracticable or inadvisable to commence or continue the offering of the Shares at the offering price to the public set forth on the cover page of the Prospectus or to enforce contracts for the resale of the Shares by the Underwriters. Notice of such termination may be given to the Company by telegram, telecopy or telephone and shall be subsequently confirmed by letter. 12. Miscellaneous. Except as otherwise provided in Sections 5, 10 and 11 ------------- hereof, notice given pursuant to any provision of this Agreement shall be in writing and shall be delivered (i) if to the Company, at the office of the Company at 1901 Ascension Blvd., Suite 100, Arlington, TX 76006, Attention: Donald R. Horton; or (ii) if to you, care of Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, Attention: Manager, Investment Banking Division. This Agreement has been and is made solely for the benefit of the several Underwriters, the Company, its directors and officers, and the other controlling persons referred to in Section 7 hereof and their respective successors and assigns, to the extent provided herein, and no other person shall acquire or have any right under or by virtue of this Agreement. Neither the term "successor" nor the term "successors and assigns" as used in this Agreement shall include a purchaser from any Underwriter of any of the Shares in his status as such purchaser. -34- 13. Applicable Law; Counterparts. This Agreement shall be governed by and ---------------------------- construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York. This Agreement may be signed in various counterparts which together constitute one and the same instrument. If signed in counterparts, this Agreement shall not become effective unless at least one counterpart hereof shall have been executed and delivered on behalf of each party hereto. 14. Definition of the Terms "Business Day" and "Subsidiary". For purposes ------------------------------------------------------- of this Agreement, (a) "business day" means any day on which the New York Stock Exchange Inc. is open for trading and (b) "subsidiary" has the meaning set forth in Rule 405 under the Act. -35- Please confirm that the foregoing correctly sets forth the agreement between the Company and the several Underwriters. Very truly yours, D.R. HORTON, INC. By: Name: Title: Confirmed as of the date first above mentioned: SMITH BARNEY INC. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED SALOMON BROTHERS INC By: SMITH BARNEY INC. By: --------------------------------------- Name: Title: SCHEDULE I D.R. HORTON, INC.
Number of Number of Underwriter Firm Shares Additional Shares ----------- ----------- ----------------- Smith Barney Inc. Donaldson, Lufkin & Jenrette Securities Corporation Merrill Lynch, Pierce, Fenner & Smith Incor- porated Salomon Brothers Inc Total ............... _________ _______
2 EX-5.1 3 OPINION OF GIBSON, DUNN & CRUTCHER EXHIBIT 5.1 [LETTERHEAD OF GIBSON, DUNN & CRUTCHER LLP APPEARS HERE] March 7, 1997 D. R. Horton, Inc. 1901 Ascension Blvd., Suite 100 Arlington, Texas 76006 Re: D. R. Horton, Inc. Public Offering of 3,400,000 Shares of Common Stock Ladies and Gentlemen: We have acted as special counsel for D. R. Horton, Inc., a Delaware corporation (the "Company), in connection with the registration under the Securities Act of 1933, as amended (the "Act"), of 3,400,000 shares of common stock, par value $.01 per share, of the Company (the "Common Stock") for sale by the Company (plus up to an additional 510,000 shares of Common Stock (the "Option Shares") issuable upon exercise of the over-allotment option described in the Registration Statement as such term is defined below) pursuant to a Registration Statement on Form S-3 (No. 333-21183) (as amended, the "Registration Statement") filed with the Securities and Exchange Commission (the "Commission") (all of such 3,910,000 shares of Common Stock are herein collectively referred to as the "Shares"). In connection with our examination of documents as hereinafter described, we have assumed the genuineness of all signatures on, and the authenticity of, all documents submitted to us as originals and the conformity to original documents of all documents submitted to us as copies. With respect to agreements and instruments executed by natural persons, we have assumed the legal competency of such persons. For the purpose of rendering this opinion, we have made such factual and legal examination as we deemed necessary under the circumstances, and in that connection we have examined, among other things, originals or copies of the following: GIBSON, DUNN & CRUTCHER LLP D.R. Horton, Inc. March 4, 1997 Page 2 (1) The Certificate of Incorporation of the Company, as amended to date; (2) The Bylaws of the Company, as amended to date; (3) Minutes of meetings of the Company's Board of Directors at which action was taken with respect to the transactions covered by this opinion and minutes of other corporate proceedings; and (4) Such other certificates and assurances from public officials, officers and representatives of the Company and the Selling Stockholders that we considered necessary or appropriate for the purpose of rendering this opinion. On the basis of the foregoing examination, and in reliance thereon, we are of the opinion that, assuming that the Executive Committee of the Board of Directors duly approves the number of shares to be issued and the price of such shares, the Shares when issued and delivered to and paid for by the Underwriters as described in the Registration Statement will be validly issued, fully paid and nonassessable. This opinion is limited to the present corporate laws of the State of Delaware, the present federal laws of the United States and to the present judicial interpretations thereof and to the facts as they presently exist. We undertake no obligation to advise you as a result of developments occurring after the date hereof or as a result of facts or circumstances brought to our attention after the date hereof. This opinion may be filed as an exhibit to the Registration Statement. Consent is also given to the reference to this firm under the caption "Legal Opinions" in the prospectus contained in the Registration Statement. In giving this consent, we do not admit we are included in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission promulgated thereunder. Very truly yours, /s/ Gibson, Dunn & Crutcher LLP GIBSON, DUNN & CRUTCHER LLP EX-23.2 4 CONSENT OF ERNST & YOUNG EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Information" and "Experts" in Post-Effective Amendment No. 1 to the Registration Statement and related Prospectus of D.R. Horton, Inc. for the registration of 3,910,000 shares of its common stock and to the incorporation by reference therein of our report dated November 8, 1996, with respect to the consolidated financial statements of D.R. Horton, Inc. included in its Annual Report (Form 10-K) for the year ended September 30, 1996, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Fort Worth, Texas March 7, 1997 -----END PRIVACY-ENHANCED MESSAGE-----