SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2004
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
0-23270
Commission File Number
Dominion Homes, Inc.
(Exact name of registrant as specified in its charter)
| Ohio | 31-1393233 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
5000 Tuttle Crossing Blvd, Dublin, Ohio
(Address of principal executive offices)
43016-5555
(Zip Code)
(614) 356-5000
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
1. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)
Yes x No ¨
Number of common shares outstanding as of May 7, 2004: 8,226,515
PART I – FINANCIAL INFORMATION
| Item 1. | Financial Statements |
Dominion Homes, Inc.
Consolidated Balance Sheets
(In thousands, except share information)
| March 31, 2004 (unaudited) |
December 31, 2003 |
|||||||
| Assets | ||||||||
| Cash and cash equivalents |
$ | 7,634 | $ | 5,025 | ||||
| Accounts receivable |
||||||||
| Trade |
537 | 217 | ||||||
| Due from financial institutions for residential closings |
4,777 | 2,316 | ||||||
| Real estate inventories |
||||||||
| Land and land development costs |
237,132 | 205,543 | ||||||
| Homes under construction |
140,885 | 117,319 | ||||||
| Other |
4,842 | 3,947 | ||||||
| Total real estate inventories |
382,859 | 326,809 | ||||||
| Prepaid expenses and other |
6,441 | 7,220 | ||||||
| Deferred income taxes |
5,814 | 5,781 | ||||||
| Property and equipment, at cost |
19,125 | 18,538 | ||||||
| Less accumulated depreciation |
(10,448 | ) | (9,764 | ) | ||||
| Net property and equipment |
8,677 | 8,774 | ||||||
| Total assets |
$ | 416,739 | $ | 356,142 | ||||
| Liabilities and Shareholders’ Equity | ||||||||
| Accounts payable |
$ | 16,886 | $ | 17,765 | ||||
| Deposits on homes under contract |
3,217 | 2,034 | ||||||
| Accrued liabilities |
42,511 | 30,104 | ||||||
| Note payable, banks |
172,977 | 129,220 | ||||||
| Term debt |
9,266 | 10,958 | ||||||
| Total liabilities |
244,857 | 190,081 | ||||||
| Commitments and contingencies |
||||||||
| Shareholders’ equity |
||||||||
| Common shares, without stated value, 12,000,000 shares authorized, 8,441,011 shares issued and 8,220,465 shares outstanding on March 31, 2004 and 8,430,761 shares issued and 8,211,250 shares outstanding on December 31, 2003 |
68,489 | 66,890 | ||||||
| Deferred compensation |
(5,840 | ) | (5,107 | ) | ||||
| Retained earnings |
113,302 | 108,264 | ||||||
| Accumulated other comprehensive loss |
(1,183 | ) | (1,132 | ) | ||||
| Treasury stock, at cost (220,546 shares at March 31, 2004 and 219,511 shares at December 31, 2003) |
(2,886 | ) | (2,854 | ) | ||||
| Total shareholders’ equity |
171,882 | 166,061 | ||||||
| Total liabilities and shareholders’ equity |
$ | 416,739 | $ | 356,142 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
2
Dominion Homes, Inc.
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
| Three Months Ended March 31, | ||||||
| 2004 |
2003 | |||||
| Revenues |
$ | 115,672 | $ | 103,985 | ||
| Cost of real estate sold |
87,424 | 79,046 | ||||
| Gross profit |
28,248 | 24,939 | ||||
| Selling, general and administrative |
18,710 | 15,380 | ||||
| Income from operations |
9,538 | 9,559 | ||||
| Interest expense |
1,613 | 1,628 | ||||
| Income before income taxes |
7,925 | 7,931 | ||||
| Provision for income taxes |
2,887 | 3,093 | ||||
| Net income |
$ | 5,038 | $ | 4,838 | ||
| Earnings per share |
||||||
| Basic |
$ | 0.63 | $ | 0.61 | ||
| Diluted |
$ | 0.62 | $ | 0.59 | ||
| Weighted average shares outstanding |
||||||
| Basic |
7,961,212 | 7,976,522 | ||||
| Diluted |
8,127,383 | 8,134,770 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
3
Dominion Homes, Inc.
Consolidated Statement of Changes in Shareholders’ Equity
(In thousands)
(Unaudited)
| Common Shares |
Deferred Compensation |
Retained Earnings |
Accumulated Other Comprehensive Loss |
Treasury |
Total |
|||||||||||||||||||||
| Liability |
Trust Shares |
|||||||||||||||||||||||||
| Balance, December 31, 2003 |
$ | 66,890 | $ (3,873) | $ (1,234) | $ | 108,264 | $ | (1,132 | ) | $ | (2,854 | ) | $ | 166,061 | ||||||||||||
| Net income |
5,038 | 5,038 | ||||||||||||||||||||||||
| Unrealized hedging loss, net of deferred taxes of $34 |
(51 | ) | (51 | ) | ||||||||||||||||||||||
| Comprehensive income |
4,987 | |||||||||||||||||||||||||
| Shares awarded and redeemed |
1,599 | (1,505 | ) | 94 | ||||||||||||||||||||||
| Shares distributed from trust for deferred compensation |
(245 | ) | 245 | — | ||||||||||||||||||||||
| Shares repurchased |
(32 | ) | (32 | ) | ||||||||||||||||||||||
| Deferred compensation |
935 | (163 | ) | 772 | ||||||||||||||||||||||
| Balance, March 31, 2004 |
$ | 68,489 | $ | (4,688 | ) | $ | (1,152 | ) | $ | 113,302 | $ | (1,183 | ) | $ | (2,886 | ) | $ | 171,882 | ||||||||
The accompanying notes are an integral part of the consolidated financial statements.
4
Dominion Homes, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 5,038 | $ | 4,838 | ||||
| Adjustments to reconcile net income to cash (used in) provided by operating activities: |
||||||||
| Depreciation and amortization |
1,571 | 823 | ||||||
| Issuance of common shares for compensation |
— | 27 | ||||||
| Reserve for real estate inventories |
— | 120 | ||||||
| Deferred income taxes |
1 | 324 | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
(2,781 | ) | 219 | |||||
| Real estate inventories |
(56,050 | ) | (4,607 | ) | ||||
| Prepaid expenses and other |
750 | (744 | ) | |||||
| Accounts payable |
(879 | ) | 3,666 | |||||
| Deposits on homes under contract |
1,183 | — | ||||||
| Accrued liabilities |
12,339 | (304 | ) | |||||
| Net cash (used in) provided by operating activities |
(38,828 | ) | 4,362 | |||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
(590 | ) | (706 | ) | ||||
| Net cash used in investing activities |
(590 | ) | (706 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Payments on note payable banks |
(93,618 | ) | (86,207 | ) | ||||
| Proceeds from note payable banks |
137,375 | 85,592 | ||||||
| Payments on term debt |
(1,338 | ) | (311 | ) | ||||
| Payments on deferred financing fees |
(100 | ) | (188 | ) | ||||
| Payments on capital lease obligations |
(354 | ) | (332 | ) | ||||
| Proceeds from issuance of common shares |
94 | — | ||||||
| Common shares purchased or redeemed |
(32 | ) | (1,820 | ) | ||||
| Net cash provided by (used in) financing activities |
42,027 | (3,266 | ) | |||||
| Net change in cash and cash equivalents |
2,609 | 390 | ||||||
| Cash and cash equivalents, beginning of period |
5,025 | 4,121 | ||||||
| Cash and cash equivalents, end of period |
$ | 7,634 | $ | 4,511 | ||||
| Supplemental disclosures of cash flow information: |
||||||||
| Interest paid (net of amounts capitalized) |
$ | 255 | $ | 565 | ||||
| Income taxes paid |
$ | 2,572 | $ | 2,253 | ||||
| Land acquired by seller financing |
$ | — | $ | 785 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
5
DOMINION HOMES, INC.
Notes to the Consolidated Financial Statements
(Unaudited)
| 1. | Basis of Presentation |
The accompanying unaudited consolidated financial statements of Dominion Homes, Inc. and its subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The December 31, 2003 balance sheet data were derived from audited financial statements but do not include all disclosures required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with the December 31, 2003 audited annual financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 2003.
The financial information included herein reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the results for interim periods. The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the results of operations to be expected for the full year.
| 2. | Stock Based Compensation |
The Company has elected to follow the intrinsic value method to account for compensation expense related to the award of stock options and to furnish the pro forma disclosures required under SFAS No. 123, “Accounting for Stock-Based Compensation.” Because the Company’s stock option awards are granted at prices not less than the fair-market value of the shares at the date of grant, no compensation expense is recognized for these awards. Compensation expense related to restricted share awards is determined at the date of grant, recorded as unearned compensation expense, updated periodically for changes in fair value and amortized over the vesting period of the awarded shares. The unearned compensation expense related to such awards was $6.0 million at March 31, 2004 and is reflected as a reduction of shareholders’ equity.
6
Had compensation cost for stock options been determined based on the fair value of awards at the grant dates, the Company’s net income and earnings per share for the three months ended March 31, would have been reduced to the pro forma amounts indicated below:
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Net income, as reported |
$ | 5,038,000 | $ | 4,838,000 | ||||
| Add stock based compensation expense included in reported net income, net of related tax effects |
461,000 | 65,000 | ||||||
| Deduct stock-based compensation expense determined using the fair value method, net of related tax effects |
(506,000 | ) | (69,000 | ) | ||||
| Pro forma net income</ | ||||||||