1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2001
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____ to _____
Commission file number 1-12434
M/I SCHOTTENSTEIN HOMES, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1210837
---- ----------
(State of incorporation) (I.R.S. Employer Identification No.)
3 Easton Oval, Suite 500, Columbus, Ohio 43219
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(Address of principal executive offices) (Zip Code)
(614) 418-8000
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(Telephone number)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, par value $.01 per share: 7,625,067 shares
outstanding as of August 13, 2001
2
M/I SCHOTTENSTEIN HOMES, INC.
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
June 30, 2001 (Unaudited) and December 31, 2000 3
Unaudited Consolidated Statements of Income
for the Three Months and Six Months Ended
June 30, 2001 and 2000 4
Unaudited Consolidated Statement of Shareholders'
Equity for the Six Months Ended June 30, 2001 5
Unaudited Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2001 and 2000 6
Notes to Interim Unaudited Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
Exhibit Index 21
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CONSOLIDATED BALANCE SHEETS
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
==========================================================================================================================
JUNE 30, December 31,
(Dollars in thousands, except par values) 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
ASSETS
Cash $ 7,590 $ 8,555
Cash held in escrow 1,850 1,710
Receivables 44,895 49,959
Inventories:
Single-family lots, land and land development costs 283,378 286,461
Houses under construction 217,356 152,184
Model homes and furnishings - at cost (less accumulated depreciation:
June 30, 2001 - $35; December 31, 2000 - $35) 7,428 7,684
Land purchase deposits 2,547 3,105
Building, office furnishings, transportation and construction equipment - at
cost (less accumulated depreciation:
June 30, 2001 - $7,903; December 31, 2000 - $7,353) 17,568 18,165
Investment in unconsolidated joint ventures and limited liability companies 21,266 23,086
Other assets 16,358 16,733
- --------------------------------------------------------------------------------------------------------------------------
TOTAL $620,236 $567,642
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable banks - homebuilding operations $146,000 $115,800
Note payable bank - financial services operations 22,850 26,700
Mortgage notes payable 13,552 16,719
Senior subordinated notes 50,000 50,000
Accounts payable 76,471 67,344
Accrued compensation 7,189 17,542
Other liabilities 48,106 44,648
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 364,168 338,753
- --------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
- --------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock - $.01 par value; authorized 2,000,000 shares; none outstanding - -
Common stock - $.01 par value; authorized 38,000,000 shares; issued 8,813,061 shares 88 88
Additional paid-in capital 62,952 62,747
Retained earnings 212,936 188,184
Treasury stock - at cost - 1,190,094 and 1,322,894 shares, respectively,
held in treasury at June 30, 2001 and December 31, 2000 (19,908) (22,130)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 256,068 228,889
- -------------------------------------------------------------------------------------------------------------------------
TOTAL $620,236 $567,642
- -------------------------------------------------------------------------------------------------------------------------
See Notes to Interim Unaudited Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF INCOME
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
(UNAUDITED)
=================================================================================================================
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Dollars in thousands, except per share amounts) 2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Revenue $222,377 $234,728 $400,532 $408,584
- -----------------------------------------------------------------------------------------------------------------
Costs and expenses:
Land and housing 170,255 185,458 307,677 321,293
General and administrative 12,214 11,728 21,880 20,657
Selling 14,790 14,287 27,163 25,679
Interest 3,711 4,753 6,826 8,937
- -----------------------------------------------------------------------------------------------------------------
Total costs and expenses 200,970 216,226 363,546 376,566
- -----------------------------------------------------------------------------------------------------------------
Income before income taxes 21,407 18,502 36,986 32,018
- -----------------------------------------------------------------------------------------------------------------
Income taxes (credit):
Current 8,074 8,714 13,334 12,917
Deferred 72 (1,544) 828 (510)
- -----------------------------------------------------------------------------------------------------------------
Total income taxes 8,146 7,170 14,162 12,407
- -----------------------------------------------------------------------------------------------------------------
Income before cumulative effect of change
in accounting principle 13,261 11,332 22,824 19,611
Cumulative effect of change in accounting
principle - net of income taxes - - 2,681 -
- -----------------------------------------------------------------------------------------------------------------
Net income $ 13,261 $ 11,332 $ 25,505 $ 19,611
- -----------------------------------------------------------------------------------------------------------------
Earnings per common share - basic:
Income before cumulative effect of
change in accounting principle $ 1.75 $ 1.43 $ 3.02 $ 2.43
Cumulative effect of change in accounting
principle - net of income taxes - - .36 -
Net income $ 1.75 $ 1.43 $ 3.38 $ 2.43
- -----------------------------------------------------------------------------------------------------------------
Earnings per common share - diluted:
Income before cumulative effect of
change in accounting principle $ 1.69 $ 1.40 $ 2.92 $ 2.39
Cumulative effect of change in accounting
principle - net of income taxes - - .35 -
Net income $ 1.69 $ 1.40 $ 3.27 $ 2.39
- -----------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding (in thousands):
Basic 7,597 7,950 7,556 8,063
Diluted 7,833 8,118 7,804 8,209
- -----------------------------------------------------------------------------------------------------------------
See Notes to Interim Unaudited Consolidated Financial Statements.
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CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
(UNAUDITED)
==================================================================================================================
SIX MONTHS ENDED JUNE 30, 2001
- ------------------------------------------------------------------------------------------------------------------
Common Stock
------------ Additional
(Dollars in thousands, except Shares Paid-In Retained Treasury
per share amounts) Outstanding Amount Capital Earnings Stock
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 7,490,167 $88 $62,747 $188,184 $(22,130)
Net income - - - 25,505 -
Dividends to shareholders,
$0.10 per common share - - - (753) -
Stock options exercised 132,800 - (528) - 2,222
Deferral of executive and
director stock - - 733 - -
- ------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2001 7,622,967 $88 $62,952 $212,936 $(19,908)
- ------------------------------------------------------------------------------------------------------------------
See Notes to Interim Unaudited Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
(UNAUDITED)
===================================================================================================================
SIX MONTHS ENDED JUNE 30,
(Dollars in thousands) 2001 2000
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $25,505 $19,611
Adjustments to reconcile net income to net cash used in operating activities:
Loss from property disposals 9 48
Depreciation 895 1,060
Deferred income taxes (credit) 828 (510)
Increase in cash held in escrow (140) (289)
Decrease (increase) in receivables 5,064 (1,871)
Increase in inventories (55,346) (40,687)
Increase in other assets (453) (230)
Increase in accounts payable 9,127 17,278
Decrease in other liabilities (6,162) (7,422)
Equity in undistributed income of unconsolidated joint
ventures and limited liability companies (422) (343)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (21,095) (13,355)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (306) (327)
Investment in unconsolidated joint ventures and limited liability companies (4,534) (14,869)
Distributions from unconsolidated joint ventures and limited liability companies 846 438
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,994) (14,758)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings - net of repayments 26,350 45,100
Principal repayments of mortgage notes payable (3,167) (2,306)
Dividends paid (753) (818)
Proceeds from exercise of stock options and deferred stock 1,694 217
Payments to acquire treasury shares - (7,895)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 24,124 34,298
- -------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash (965) 6,185
Cash balance at beginning of year 8,555 5,665
- -------------------------------------------------------------------------------------------------------------------
Cash balance at end of period $ 7,590 $11,850
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized $ 6,603 $ 8,255
Income taxes $ 16,355 $12,363
NON-CASH TRANSACTIONS DURING THE PERIOD:
Land and lots acquired with mortgage notes payable $ - $ 4,990
Distribution of single-family lots from unconsolidated joint ventures and
limited liability companies $ 5,930 $ 9,356
Deferral of executive and director stock $ 733 $ 705
Executive deferred stock distributions $ - $ 18
- -------------------------------------------------------------------------------------------------------------------
See Notes to Interim Unaudited Consolidated Financial Statements.
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M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated financial statements and notes thereto have
been prepared in accordance with the rules and regulations of the Securities
and Exchange Commission for interim financial information. The results of
operations for the six months ended June 30, 2001 and 2000 are not
necessarily indicative of the results for the full year.
It is suggested that these financial statements be read in conjunction with
the consolidated financial statements, accounting policies and financial
notes thereto included in the Company's Annual Report to Shareholders for the
year ended December 31, 2000.
In the opinion of management, the accompanying consolidated financial
statements reflect all adjustments (consisting only of normal recurring
accruals) which are necessary for a fair presentation of financial results
for the interim periods presented.
NOTE 2. LOAN AGREEMENTS
On May 3, 2001, the Company and M/I Financial Corp., our wholly-owned
subsidiary, entered into a new bank loan agreement with a new lender,
replacing the previous loan agreement in its entirety. The Company and M/I
Financial, as co-borrowers, have the ability to borrow up to $30 million at a
rate of interest based on the prime rate or the Eurodollar rate. This new
agreement terminates on May 2, 2002.
NOTE 3. INTEREST
The Company capitalizes interest during development and construction.
Capitalized interest is charged to interest expense as the related inventory
is delivered. The summary of total interest for the three and six months
ended June 30, 2001 and 2000 is as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(Dollars in thousands) 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------------
Interest capitalized, beginning of period $11,631 $9,314 $10,337 $8,886
Interest incurred 4,718 5,082 9,127 9,694
Interest expensed (3,711) (4,753) (6,826) (8,937)
- ---------------------------------------------------------------------------------------------------------------
Interest capitalized, end of period $12,638 $9,643 $12,638 $9,643
===============================================================================================================
NOTE 4. CONTINGENCIES
At June 30, 2001, the Company had options and contingent purchase contracts
to acquire land and developed lots with an aggregate purchase price of
approximately $166 million.
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NOTE 5. PER SHARE DATA
Per share data is calculated based on the weighted average number of common
shares outstanding during each period. The difference between basic and
diluted shares outstanding is due to the effect of dilutive stock options and
deferred stock. There are no adjustments to net income necessary in the
calculation of basic and diluted earnings per share.
NOTE 6. ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The statement, as amended and
interpreted, became effective for the Company's fiscal 2001 first quarter
financial statements. In January 2001, the Company recorded a cumulative
transition adjustment of approximately $2.7 million (net of taxes of $1.6
million) to earnings, primarily related to the recognition of certain loan
commitments and forward sales of mortgage backed securities as derivative
instruments. The loan commitments and forward sales of mortgage backed
securities are recorded at fair value in other assets and other liabilities,
respectively. Changes in fair value are recorded in revenue.
In July 2001, the FASB issued SFAS 141, "Business Combinations." SFAS 141
requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
The Company does not believe that the adoption of SFAS 141 will have a
significant impact on its financial statements.
In July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible
Assets," which is effective January 1, 2002. SFAS 142 requires, among other
things, the discontinuance of goodwill amortization. In addition, the
standard includes provisions for the reclassification of certain existing
recognized intangibles as goodwill, reassessment of the useful lives of
existing recognized intangibles, reclassification of certain intangibles out
of previously reported goodwill and the identification of reporting units for
purposes of assessing potential future impairments of goodwill. The Company
does not believe that the adoption of SFAS 142 will have a significant impact
on its financial statements.
NOTE 7. DIVIDENDS
On April 20, 2001, the Company paid to the shareholders of record on April 2,
2001 a cash dividend of $0.05 per share. On April 19, 2001, the Board of
Directors approved a $0.05 per share cash dividend payable to shareholders of
record of its common stock on July 2, 2001, which was paid on July 26, 2001.
Total dividends paid in 2001 through July 26 were $1.1 million.
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M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
FORM 10-Q - PART I
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
CONSOLIDATED
Total Revenue. Total revenue for the three months ended June 30, 2001
decreased $12.4 million and for the six months ended June 30, 2001 decreased
$8.1 million from the comparable periods of 2000. For the three-month period,
homebuilding revenue decreased $13.6 million and financial services revenue
increased $1.3 million. For the six-month period, homebuilding revenue decreased
$9.4 million and financial services revenue increased $1.5 million. The decrease
in homebuilding for the three-month period consisted of a housing revenue
decrease of $14.9 million offset by a land revenue increase of $1.0 million. The
decrease in homebuilding for the six-month period consisted of a housing revenue
decrease of $10.4 million offset by a land revenue increase of $0.8 million. The
decrease in housing revenue for the three- and six-month period was attributable
to a decrease in the number of Homes Delivered of 60 and 26 units, respectively,
and a decrease in the average sales price of Homes Delivered of .8% and 1.2%,
respectively. The increase in land revenue for the three and six months ended
June 30, 2001 was primarily due to an increase in the number of lots sold in the
Columbus and Phoenix markets. This was partially offset by a decrease in the
number of lots sold in the Virginia market. The increase in financial services
revenue for the three and six months ended June 30, 2001 was primarily
attributable to increases in revenue earned from the sale of loans.
Income Before Income Taxes. Income before income taxes increased 15.7%
for the three months ended June 30, 2001 and 15.5% for the six months ended June
30, 2001 over the comparable periods of 2000. The increase for the three months
ended June 30, 2001 was the result of an increase in homebuilding income before
income taxes from $14.2 million to $14.9 million. In addition, income before
income taxes for financial services increased from $2.8 million to $3.5 million.
The increase for the six months ended June 30, 2001 was also the result of an
increase in homebuilding income before income taxes from $19.6 million to $23.5
million. In addition, income before income taxes for financial services
increased from $6.6 million to $7.4 million. The increase in homebuilding for
the three-month period was due to the increase in housing gross margin from
19.9% to 22.1%. The increase in homebuilding for the six months ended June 30,
2001 was due to the increase in housing gross margin from 19.9% to 21.6%.
Unallocated amounts include interest from other segments along with salaries and
other administrative expenses which are not identifiable with a specific
segment.
The cumulative effect of a change in accounting principle was an
increase in income of approximately $2.7 million, net of income taxes, for the
six months ended June 30, 2001. This accounting change is the result of the
January 1, 2001 adoption of SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which requires recording the value of certain loan
commitments and forward sales of mortgage backed securities at fair value.
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The information below is presented in conformity with SFAS 131
"Disclosure about Segments of an Enterprise and Related Information" for all
periods presented.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Dollars in thousands) 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Revenue:
Homebuilding $217,863 $231,494 $391,570 $401,003
Financial services 5,631 4,348 11,031 9,528
Intersegment (1,117) (1,114) (2,069) (1,947)
- ------------------------------------------------------------------------------------------------------------------
Total Revenue $222,377 $234,728 $400,532 $408,584
- ------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes:
Homebuilding $ 14,909 $ 14,182 $ 23,455 $ 19,623
Financial services 3,538 2,844 7,359 6,603
Unallocated amounts 2,960 1,476 6,172 5,792
- ------------------------------------------------------------------------------------------------------------------
Total Income Before Income Taxes $ 21,407 $ 18,502 $ 36,986 $ 32,018
==================================================================================================================
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HOMEBUILDING SEGMENT
The following table sets forth certain information related to the homebuilding
segment:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Dollars in thousands) 2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Revenue:
Housing sales $211,481 $226,336 $380,304 $390,665
Land and lot sales 6,031 4,994 10,561 9,753
Other income 351 164 705 585
- -----------------------------------------------------------------------------------------------------------------
Total revenue $217,863 $231,494 $391,570 $401,003
=================================================================================================================
Revenue:
Housing sales 97.1% 97.8% 97.1% 97.4%
Land and lot sales 2.8 2.1 2.7 2.4
Other income 0.1 0.1 0.2 0.2
- -----------------------------------------------------------------------------------------------------------------
Total revenue 100.0 100.0 100.0 100.0
Land and housing costs 78.8 80.7 79.0 80.7
- -----------------------------------------------------------------------------------------------------------------
Gross margin 21.2 19.3 21.0 19.3
General and administrative expenses 2.6 2.4 2.8 2.6
Selling expenses 6.8 6.2 6.9 6.4
- -----------------------------------------------------------------------------------------------------------------
Operating income 11.8 10.7 11.3 10.3
Allocated expenses 5.0 4.6 5.3 5.4
- -----------------------------------------------------------------------------------------------------------------
Income before income taxes 6.8% 6.1% 6.0% 4.9%
=================================================================================================================
OHIO AND INDIANA REGION
Unit Data:
New contracts, net 792 606 1,702 1,331
Homes delivered 624 644 1,064 1,105
Backlog at end of period 1,943 1,617 1,943 1,617
Average sales price of homes in backlog $ 206 $ 201 $ 206 $ 201
Aggregate sales value of homes in backlog $400,000 $325,000 $400,000 $325,000
Number of active subdivisions 85 80 85 80
=================================================================================================================
FLORIDA REGION
Unit Data:
New contracts, net 227 224 479 406
Homes delivered 228 186 424 322
Backlog at end of period 547 451 547 451
Average sales price of homes in backlog $ 214 $ 212 $ 214 $ 212
Aggregate sales value of homes in backlog $117,000 $ 96,000 $117,000 $ 96,000
Number of active subdivisions 28 28 28 28
=================================================================================================================
NORTH CAROLINA, VIRGINIA, MARYLAND AND ARIZONA REGION
Unit Data:
New contracts, net 195 197 409 396
Homes delivered 128 210 269 356
Backlog at end of period 454 436 454 436
Average sales price of homes in backlog $ 387 $ 355 $ 387 $ 355
Aggregate sales value of homes in backlog $176,000 $155,000 $176,000 $155,000
Number of active subdivisions 32 32 32 32
=================================================================================================================
TOTAL
Unit Data:
New contracts, net 1,214 1,027 2,590 2,133
Homes delivered 980 1,040 1,757 1,783
Backlog at end of period 2,944 2,504 2,944 2,504
Average sales price of homes in backlog $ 235 $ 230 $ 235 $ 230
Aggregate sales value of homes in backlog $693,000 $576,000 $693,000 $576,000
Number of active subdivisions 145 140 145 140
=================================================================================================================
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A home is included in "New Contracts" when our standard sales contract
is executed. "Homes Delivered" represents homes for which the closing of the
sale has occurred and title has transferred to the buyer. "Backlog" represents
homes for which the standard sales contract has been executed, but which are not
included in Homes Delivered because closings for these homes have not yet
occurred as of the end of the periods specified. Most cancellations of contracts
for homes in Backlog occur because customers cannot qualify for financing and
usually occur prior to the start of construction. Since we arrange financing
with guaranteed rates for many of our customers, the incidence of cancellations
after the start of construction is low. In the first six months of 2001, we
delivered 1,757 homes, most of which were homes under contract in Backlog at
December 31, 2000. The cancellation rate of homes in Backlog at December 31,
2000 and 1999 was 13% and 11% as of June 30, 2001 and 2000, respectively. For
homes in Backlog at December 31, 1999, the final cancellation percentage was
12%. Unsold speculative homes, which are in various stages of construction,
totaled 97 and 122 at June 30, 2001 and 2000, respectively.
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
Total Revenue. Total revenue for the homebuilding segment for the
quarter ended June 30, 2001 was $217.9 million, a 5.9% decrease from 2000's
second quarter. The decrease consisted of a decrease in housing revenue of 6.6%,
offset by an increase in land revenue of 20.8%. Housing revenue decreased as a
result of a 5.8% decrease in Homes Delivered. Homes Delivered were down in all
of our markets with the exception of Indianapolis, Tampa, Orlando and West Palm
Beach. The decrease in housing revenue was also due to a .8% decrease in the
average sales price of Homes Delivered. The decrease in the average sales price
of Homes Delivered was the result of decreases in our Cincinnati, Tampa and
Raleigh markets due to product mix and our focus on delivering more affordable
price points in these markets. The increase in land revenue from $5.0 million to
$6.0 million was primarily attributable to an increase in the number of lots
sold in the Columbus and Phoenix markets, partially offset by a decrease in the
number of lots sold in the Virginia market.
Home Sales and Backlog. New Contracts in the second quarter of 2001
increased 18.2% from 2000's second quarter. New Contracts were higher in all of
our markets except Tampa, Charlotte and Phoenix. We believe the increase was
primarily attributable to lower interest rates. New Contracts recorded in July
2001 were slightly higher than New Contracts recorded in July 2000. The number
of New Contracts recorded in future periods will be dependent on numerous
factors, including future economic conditions, timing of land development,
consumer confidence, number of subdivisions and interest rates available to
potential home buyers.
At June 30, 2001, our Backlog consisted of 2,944 homes, with an
approximate sales value of $693 million. This represents a 17.6% increase in
units and a 20.3% increase in sales value in comparison to the second quarter of
2000. The average sales price of homes in backlog increased by 2.2%, with
increases occurring in the majority of our markets. Sales price increases are
the result of increases to cover increased material and labor costs.
Gross Margin. The overall gross margin for the homebuilding segment was
21.2% for the three-month period ended June 30, 2001 compared to 19.3% for the
three-month period ended June 30, 2000. Housing gross margin increased from
19.9% to 22.1% and land gross margin decreased from 17.4% to 9.9% compared to
2000's second quarter. The increase in housing gross margin was the result of
improved operating efficiencies. We have also focused on acquiring or developing
lots in premier locations to obtain higher margins. The decrease in land gross
margin was primarily the result of decreased quantity and profit from lots sold
in the Virginia division compared to the second three months of 2000.
General and Administrative Expenses. General and administrative
expenses increased to $5.6 million, or 2.6% of revenue, for the three months
ended June 30, 2001 compared to $5.5 million, or 2.4 %
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of revenue, for the same period in 2000. The increase in dollars was primarily
attributable to additional real estate taxes paid as a result of an increase in
our investment in land development activities.
Selling Expenses. Selling expenses increased from $14.3 million, or
6.2% of revenue, for the second quarter of 2000 to $14.7 million, or 6.8% of
revenue, for the second quarter of 2001. The increase in dollars primarily
related to an increase in model expenses.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
Total Revenue. Total revenue for the homebuilding segment for the six
months ended June 30, 2001 was $391.6 million, a 2.4% decrease from the same
period in 2000. The decrease consisted of a decrease in housing revenue of 2.7%,
offset by an increase in land revenue of 8.3%. Housing revenue decreased as a
result of a 1.5% decrease in Homes Delivered. Homes Delivered were down in the
majority of our markets. The decrease in housing revenue was also due to a 1.2%
decrease in the average sales price of Homes Delivered. The decrease in the
average sales price of Homes Delivered was the result of decreases in our
Cincinnati, Tampa, Raleigh and Virginia markets due to product mix and our focus
on delivering more affordable price points in these markets. The increase in
land revenue from $9.8 million to $10.6 million was primarily attributable to
lots sold in the Columbus and Phoenix markets, partially offset by a decrease in
the number of lots sold in the Virginia market.
Home Sales and Backlog. New Contracts in the first six months of 2001
increased 21.4% from the same period in 2000. Increases occurred in virtually
all of our markets. We believe the increase was primarily attributable to lower
interest rates. The number of New Contracts recorded in future periods will be
dependent on numerous factors, including future economic conditions, timing of
land development, consumer confidence, number of subdivisions and interest rates
available to potential home buyers.
Gross Margin. The overall gross margin for the homebuilding segment was
21.0% for the six month period ended June 30, 2001 compared to 19.3% for the six
month period ended June 30, 2000. Housing gross margin increased from 19.9% to
21.6% and land gross margin decreased from 14.4% to 9.8% from 2000's first six
months. The increase in housing gross margin was the result of improved
operating efficiencies. We have also focused on acquiring or developing lots in
premier locations to obtain higher margins. The decrease in land gross margin
was the result of decreased quantity and profit from lots sold in the Virginia
division compared to the first six months of 2000.
General and Administrative Expenses. General and administrative
expenses increased to $11.0 million, or 2.8% of revenue, for the six months
ended June 30, 2001 compared to $10.6 million, or 2.7% of revenue, for the same
period in 2000. The increase in dollars was primarily attributable to additional
real estate taxes as a result of an increase in our investment in land
development activities.
Selling Expenses. Selling expenses increased from $25.8 million, or
6.4% of revenue, for the first six months of 2000 to $27.0 million, or 6.9% of
revenue, for the first six months of 2001. The increase primarily related to an
increase in model expenses.
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FINANCIAL SERVICES SEGMENT - M/I FINANCIAL
The following table sets forth certain information related to our financial
services segment:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(Dollars in thousands) 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------------
Number of loans originated 809 805 1,429 1,392
Revenue:
Loan origination fees $1,303 $1,251 $2,313 $2,158
Sale of loans 2,734 1,699 5,746 4,778
Other 1,594 1,398 2,972 2,592
- ---------------------------------------------------------------------------------------------------------------
Total Revenue 5,631 4,348 11,031 9,528
- ---------------------------------------------------------------------------------------------------------------
General and administrative expenses 2,093 1,504 3,672 2,925
- ---------------------------------------------------------------------------------------------------------------
Operating Income $3,538 $2,844 $7,359 $6,603
===============================================================================================================
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
Total Revenue. Total revenue for the three months ended June 30, 2001
was $5.6 million, a 29.5% increase from the $4.3 million recorded for the
comparable period of 2000. Loan origination fees remained constant at $1.3
million for the three months ended June 30, 2001 as compared to the three months
ended June 30, 2000.
Revenue from the sale of loans increased 60.9% from $1.7 million for
the three months ended June 30, 2000 to $2.7 million for the three months ended
June 30, 2001. The increase was due to lower interest rates beginning in the
fourth quarter of 2000 that resulted in a majority of fixed rate mortgages. We
entered into an agreement in late 2000 for the sale of servicing on fixed rate
mortgages that locked in favorable servicing released premiums.
Revenue from other sources increased 14.0% to $1.6 million for the
three months ended June 30, 2001 compared to $1.4 million for the three months
ended June 30, 2000. This was due to increased earnings from title services and
an increase in loan application revenue.
General and Administrative Expenses. General and administrative
expenses for the three months ended June 30, 2001 were $2.1 million, a 39.2%
increase from the comparable period of the prior year. This increase was due to
higher expenses related to the increase in revenue and an increase in loan
application expenses.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
Total Revenue. Total revenue for the six months ended June 30, 2001
was $11.0 million, a 15.8% increase from the $9.5 million recorded for the
comparable period of 2000. Loan origination fees increased 7.2% from $2.2
million for the six months ended June 30, 2000 to $2.3 million for the six
months ended June 30, 2001. This increase was due to a 2.7% increase in loan
originations along with an increase in average loan amounts.
Revenue from the sale of loans increased 20.3% from $4.8 million for
the six months ended June 30, 2000 to $5.7 million for the six months ended June
30, 2001. The increase was due to lower interest rates beginning in the fourth
quarter of 2000 that resulted in a majority of fixed rate mortgages. We entered
into an agreement in late 2000 for the sale of servicing on fixed rate mortgages
that locked in favorable servicing released premiums.
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Revenue from other sources increased 14.7% from $2.6 million for the
six months ended June 30, 2000 to $3.0 million for the six months ended June 30,
2001. This was due to increased earnings from title services and an increase in
loan application revenue.
General and Administrative Expenses. General and administrative
expenses for the six months ended June 30, 2001 were $3.7 million, a 25.5%
increase from the comparable period of the prior year. This increase was due to
higher expenses related to the increase in revenue and an increase in loan
application expenses.
OTHER OPERATING RESULTS
Corporate General and Administrative Expenses. Corporate general and
administrative expenses for the three months ended June 30, 2001 decreased from
$4.7 million to $4.6 million. As a percentage of total revenue, corporate
general and administrative expenses for the three months ended June 30, 2001
increased to 2.1% from 2.0% from the comparable period in the prior year.
Corporate general and administrative expenses increased from $7.1 million, or
1.7% of total revenue for the six months ended June 30, 2000 to $7.4 million, or
1.9% of total revenue, for the six months ended June 30, 2001. The increase was
a result of various general and administrative expenses increasing as a result
of an increase in profitability.
Interest Expense. Corporate and homebuilding interest expense for the
three and six months ended June 30, 2001 decreased to $3.6 and $6.6 million,
respectively, from $4.8 and $9.0 million recorded for the comparable periods of
the prior year. Interest expense was lower in the current year due to a decrease
in the average borrowings outstanding and an increase in capitalized interest
due a significant increase in houses under construction and land development
activities.
Income Taxes. The effective tax rate for the three and six months ended
June 30, 2001 decreased to 38.1% and 38.3%, respectively from 38.8% for the
comparable periods of 2000. The decrease is primarily attributable to lower
state taxes as a percentage of revenue.
LIQUIDITY AND CAPITAL RESOURCES
Our financing needs depend on sales volume, asset turnover, land
acquisition and inventory balances. We have incurred substantial indebtedness,
and may incur substantial indebtedness in the future, to fund the growth of our
homebuilding activities. Our principal source of funds for construction and
development activities has been from internally generated cash and from bank
borrowings, which are primarily unsecured.
Notes Payable Banks. At June 30, 2001, we had bank borrowings
outstanding of approximately $146 million under our Bank Credit Facility. The
Bank Credit Facility permits aggregate borrowings, other than for the issuance
of letters of credit, not to exceed the lesser of: (i) $280 million or (ii) our
borrowing base. The Bank Credit Facility matures September 30, 2004.
We also had approximately $23 million outstanding as of June 30, 2001
under the M/I Financial loan agreement which permits borrowings of $30 million
to finance mortgage loans initially funded by M/I Financial for our customers.
The Company and M/I Financial are co-borrowers under the M/I Financial loan
agreement. This agreement limits the borrowings to 95% of the aggregate face
amount of certain qualified mortgages. On May 3, 2001, the Company and M/I
Financial entered into a new bank agreement with a new lender, replacing the
previous loan agreement in its entirety. This new agreement terminates on May 2,
2002.
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At June 30, 2001, we had the right to borrow up to $310 million under
our credit facilities, including $30 million under the M/I Financial loan
agreement. At June 30, 2001, we had $141 million of unused borrowing
availability under our credit facilities. We also had approximately $53 million
of completion bonds and letters of credit outstanding at June 30, 2001.
Subordinated Notes. At June 30, 2001, there was outstanding $50 million
of Senior Subordinated Notes. The notes bear interest at a fixed rate and mature
August 29, 2004.
Land and Land Development. Over the past several years we have
increased our land development activities and land holdings. Single-family lots,
land and land development costs decreased slightly from December 31, 2000 to
June 30, 2001. We continue to purchase some lots from outside developers under
option contracts. We will continue to evaluate all of our alternatives to
satisfy our increasing demand for lots in the most cost effective manner.
The $30 million increase in notes payable banks - homebuilding
operations from December 31, 2000 to June 30, 2001 reflects increased borrowings
primarily attributable to the increase in houses under construction. Houses
under construction increased $65 million from December 31, 2000 to June 30,
2001. Borrowing needs may continue to increase as we invest in land under
development and developed lots, depending upon the market and competition.
At June 30, 2001, mortgage notes payable outstanding were $14 million,
secured by an office building, lots and land with a recorded book value of $18
million.
Purchase of Treasury Shares. On February 15, 2000, our Board of
Directors authorized the repurchase of up to 2 million shares of outstanding
common shares. The purchases may occur in the open market and/or in privately
negotiated transactions as market conditions warrant. As of June 30, 2001 we had
purchased 1.4 million shares at an average price of $17.
INTEREST RATES AND INFLATION
Our business is significantly affected by general economic conditions
of the United States and, particularly, by the impact of interest rates. Higher
interest rates may decrease the potential market by making it more difficult for
home buyers to qualify for mortgages or to obtain mortgages at interest rates
that are acceptable to them. Increases in interest rates would also increase our
interest expense because the rate on the revolving loans is based upon floating
rates of interest. The weighted average interest rate for our outstanding debt
for the six months ended June 30, 2001 and 2000 was 8.6% and 8.2%, respectively.
In conjunction with our mortgage banking operations, hedging methods
are used to reduce our exposure to interest rate fluctuations between the
commitment date of the loan and the time the loan closes.
In recent years, we have generally been able to raise prices by amounts
at least equal to our cost increases and, accordingly, have not experienced any
detrimental effect from inflation. When we develop lots for our own use,
inflation may increase our profits because land costs are fixed well in advance
of sales efforts. We are generally able to maintain costs with subcontractors
from the date a home is started through the date of close. However, in certain
situations, unanticipated costs may occur between the time of start and the time
a home is constructed, resulting in lower gross profit margins.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In addition to historical information, this Management's Discussion &
Analysis of Financial Condition and Results of Operations contains certain
forward-looking statements, including, but not
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limited to, statements regarding our future financial performance and financial
condition. These statements involve a number of risks and uncertainties. Any
forward-looking statements that we make herein and in future reports and
statements are not guarantees of future performance, and actual results may
differ materially from those in such forward-looking statements as a result of
various factors including, but not limited to, those referred to below.
- We are particularly susceptible to changes in the economy and to
interest rate fluctuation.
- We must risk significant capital to maintain our desired land
position.
- Our operations are located in various markets throughout the
United States, however, a significant portion of our revenues were
derived from operations in the Columbus market.
- We face significant competition for home sales, building materials and
skilled subcontractors.
- Increased levels of zoning, environmental and other regulatory
initiatives can adversely affect our profitability.
- Periodic material and labor shortages can adversely affect our sales
and profitability.
- Our principle shareholders can exercise significant control over
shareholder matters.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk results from fluctuations in interest rates. We
are exposed to interest rate risk through the borrowings under our unsecured
revolving credit facilities which permit borrowings up to $310 million. To
minimize the effect of the interest rate fluctuation, we have interest rate swap
arrangements with certain banks for a total notional amount of $75 million.
Under these agreements, we pay fixed rates of interest.
Assuming a hypothetical 10% change in short-term interest rates,
interest expense would not change significantly, as the interest rate swap
agreements would partially offset the impact.
Additionally, M/I Financial offers fixed and adjustable rate mortgage
loans to buyers of our homes. The loans are granted at current market interest
rates which are guaranteed from the loan lock date through the transfer of the
title of the home to the buyer. At June 30, 2001, the notional principal amount
under these loan commitments was $179 million and the related fair value of
these agreements was a loss of approximately $1.6 million.
M/I Financial hedges its interest rate risk using optional and
mandatory forward sales to hedge risk from the loan lock date generally to the
date a loan is closed. At June 30, 2001, the notional principal amount under
these forward sales agreements was approximately $183 million and the related
fair value of these agreements was approximately $0.5 million. The hedging
agreements outstanding at June 30, 2001 mature within 90-120 days. These
agreements are recorded at fair value on the balance sheet and any gains or
losses are recorded in revenue.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings - none.
Item 2. Changes in Securities and Use of Proceeds - none.
Item 3. Defaults upon Senior Securities - none.
Item 4. Submission of Matters to a Vote of Security Holders
On April 19, 2001, the Company held its 2001 annual meeting of
shareholders. The shareholders voted on the election of three directors to
three-year terms, a proposal to adopt an amendment to Article I(f) of the
Company's Amended and Restated Code of Regulations and a proposal to ratify the
appointment of Deloitte & Touche LLP as the independent accountants and auditors
for fiscal year 2001. The results of the voting are as follows:
1. Election of Directors
For Withheld
--- --------
Friedrich K.M. Bohm 7,318,944 14,894
Jeffrey H. Miro 7,318,984 14,854
Robert H. Schottenstein 7,072,265 261,573
All three directors were re-elected
2. To adopt an amendment to Article I(f) of the M/I Schottenstein
Homes, Inc. Amended and Restated Code of Regulations to permit
shareholders to appoint proxies in any manner permitted by Ohio
law
For 7,308,370
Against 20,417
Abstain 5,051
The proposal was approved
3. To ratify the appointment of Deloitte & Touche LLP as the
independent accountants and auditors for fiscal year 2001
For 7,320,706
Against 10,253
Abstain 2,879
The proposal was approved
Item 5. Other Information - none.
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Item 6. Exhibits and Reports on Form 8-K
The exhibits required to be filed herewith are set forth below. No
reports were filed on Form 8-K for the quarter for which this report is filed.
Exhibit
Number Description
- ------ -----------
3.1 (a) Amended and Restated Regulations of the Company,
hereby incorporated by reference to Exhibit 3.4 of
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
3.1 (b) Amendment to Article I(f) of the Company's Amended
and Restated Code of Regulations to permit
shareholders to appoint proxies in any manner
permitted by Ohio law.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
M/I Schottenstein Homes, Inc.
--------------------------------------
(Registrant)
Date: August 13, 2001 by: /s/ Robert H. Schottenstein
--------------------------------
Robert H. Schottenstein
President and Director
Date: August 13, 2001 by: /s/ Phillip G. Creek
--------------------------------
Phillip G. Creek
Senior Vice President, Treasurer
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------ ----------- --------
3.1 (a) Amended and Restated Regulations of the Company, hereby
incorporated by reference to Exhibit 3.4 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
3.1 (b) Amendment to Article I(f) of the Company's Amended and
Restated Code of Regulations to permit shareholders to appoint
proxies in any manner permitted by Ohio law.
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