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, 1995
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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 33-44914, 33-68564
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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.)
41 S. High Street, Suite 2410, Columbus, Ohio 43215
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(Address of principal executive offices) (Zip Code)
(614) 221-5700
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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: 8,800,000 shares
outstanding as of August 4, 1995
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M/I SCHOTTENSTEIN HOMES, INC.
FORM 10-Q
INDEX
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PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1995 and
December 31, 1994 3
Consolidated Statements of Income
for the Three Months and Six Months Ended
June 30, 1995 and 1994 4
Consolidated Statement of Stockholders'
Equity for the Six Months Ended
June 30, 1995 5
Consolidated Statements of Cash Flows
for the Six Months Ended
June 30, 1995 and 1994 6
Notes to Interim Consolidated Unaudited Financial
Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security
Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index 17
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CONSOLIDATED BALANCE SHEETS
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
==============================================================================================================
JUNE 30 DECEMBER 31
(DOLLARS IN THOUSANDS) 1995 1994
--------------------------------------------------------------------------------------------------------------
(UNAUDITED)
ASSETS
Cash (including cash in escrow: June 30, 1995 - $208: $ 8,549 $ 14,059
December 31, 1994 - $703)
Receivables 15,064 17,347
Inventories:
Single-family lots, land and land development costs 124,546 122,532
Houses under construction 104,873 85,410
Model homes and furnishings (less accumulated depreciation:
June 30, 1995 - $1,232;
December 31, 1994 - $1,654) 23,463 19,830
Land purchase deposits 498 542
Office furnishings, transportation and construction
equipment - at cost (less accumulated depreciation:
June 30, 1995 - $6,408;
December 31, 1994 - $5,705) 2,937 3,337
Investment in unconsolidated joint ventures and limited partnerships 11,280 8,191
Other assets 6,427 6,366
--------------------------------------------------------------------------------------------------------------
TOTAL $ 297,637 $ 277,614
==============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable banks-home-building operations $ 123,200 $ 97,800
Note payable bank-financial operations 9,425 14,630
Mortgage notes payable 457 335
Subordinated notes 24,513 24,513
Accounts payable 29,375 31,436
Accrued compensation 3,297 5,542
Income taxes payable 534 1,169
Accrued interest, warranty and other 6,000 6,426
Customer deposits 7,957 6,143
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TOTAL LIABILITIES 204,758 187,994
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Commitments and Contingencies
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Stockholders' equity:
Preferred stock - $.01 par value;
authorized 2,000,000 shares;
none outstanding -- --
Common stock - $.01 par value;
authorized 38,000,000 shares;
issued and outstanding - 8,800,000 shares 88 88
Additional paid-in capital 50,573 50,573
Retained earnings 42,218 38,959
--------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 92,879 89,620
--------------------------------------------------------------------------------------------------------------
TOTAL $ 297,637 $ 277,614
==============================================================================================================
<FN>
See Notes to Interim Consolidated Unaudited Financial Statements
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CONSOLIDATED STATEMENTS OF INCOME
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
(Unaudited)
=============================================================================================================
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30 JUNE 30
(DOLLARS IN THOUSANDS, except per share amounts) 1995 1994 1995 1994
-------------------------------------------------------------------------------------------------------------
Revenue $220,881 $214,288 $125,305 $130,367
-------------------------------------------------------------------------------------------------------------
Costs and expenses:
Land and housing 181,186 175,064 102,499 106,463
General and administrative 12,383 12,637 6,930 7,520
Selling 15,319 14,684 8,342 8,200
Interest 6,581 3,739 3,532 2,107
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Total costs and expenses 215,469 206,124 121,303 124,290
-------------------------------------------------------------------------------------------------------------
Income before income taxes 5,412 8,164 4,002 6,077
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Income taxes:
Current 2,061 3,165 1,448 2,450
Deferred 92 205 137 55
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Total income taxes 2,153 3,370 1,585 2,505
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Net income $ 3,259 $ 4,794 $ 2,417 $ 3,572
=============================================================================================================
Net income per common share $ 0.37 $ 0.54 $ 0.27 $ 0.41
=============================================================================================================
Weighted average common shares
outstanding 8,800,000 8,800,000 8,800,000 8,800,000
=============================================================================================================
<FN>
See Notes to Interim Consolidated Unaudited Financial Statements.
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
(Unaudited)
==============================================================================================================
Six Months Ended June 30, 1995
______________________________________________________________________________________________________________
Common Stock
------------
Shares Additional
Issued and Paid-In Retained
(Dollars in thousands) Outstanding Amount Capital Earnings
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Balance,
December 31,
1994 8,800,000 $ 88 $ 50,573 $38,959
Net income -- -- -- 3,259
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BALANCE
JUNE 30,
1995 8,800,000 $ 88 $ 50,573 $42,218
==============================================================================================================
<FN>
See Notes to Interim Consolidated Unaudited Financial Statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
(Unaudited)
==============================================================================================================
SIX MONTHS ENDED JUNE 30
(DOLLARS IN THOUSANDS) 1995 1994
--------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,259 $ 4,794
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 859 695
Deferred income taxes 92 205
Decrease in receivables 2,283 9,247
Increase in inventories (23,755) (34,454)
Decrease (increase) in other assets 547 (443)
Increase (decrease) in accounts payable (2,061) 1,926
Decrease in income taxes payable (1,425) (1,536)
Decrease in accrued liabilities (2,671) (5,313)
Equity in undistributed income of
unconsolidated joint ventures and limited partnerships (9) (151)
--------------------------------------------------------------------------------------------------------------
Net cash used by operating activities (22,881) (25,030)
--------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to model and office furnishings,
transportation and construction equipment (327) (905)
Proceeds from property disposals 42 217
Investment in unconsolidated joint ventures (4,462) (4,665)
Distributions from unconsolidated joint ventures
and limited partnerships 361 359
--------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,386) (4,994)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable banks:
Cash proceeds from borrowings 128,870 294,333
Principal repayments (108,675) (270,108)
Principal repayments of mortgage notes payable (252) (301)
Net increase in customer deposits 1,814 2,604
Distributions paid to former S Corporation stockholders -- (1,082)
--------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 21,757 25,446
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Net decrease in cash (5,510) (4,578)
Cash balance at beginning of year 14,059 10,649
--------------------------------------------------------------------------------------------------------------
Cash balance at end of period $ 8,549 $ 6,071
==============================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 6,518 $ 4,403
Income taxes $ 3,220 $ 4,701
NON-CASH TRANSACTIONS DURING THE YEAR:
Single-family lots distributed from unconsolidated joint ventures $ 1,021 $ 1,573
Land acquired with mortgage notes payable $ 374 $ 519
==============================================================================================================
<FN>
See Notes to Interim Consolidated Unaudited Financial Statements.
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M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED UNAUDITED 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, 1995 and 1994 are not
necessarily indicative of the results for the full year.
It is suggested that these financial statements be read in conjunction with
the financial statements, accounting policies and financial notes thereto
included in the Company's Annual Report to Shareholders for the year ended
December 31, 1994.
In the opinion of management, the accompanying consolidated unaudited
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. NOTES PAYABLE BANKS
On August 7, 1995, M/I Financial entered into a new loan agreement with
its lender. The amount available and other terms of the new agreement
remain substantially the same as the previous agreement. This agreement
terminates on July 19, 1996 and the unpaid balance of such loans are payable
on this date.
NOTE 3. CONTINGENCIES
At June 30, 1995, the Company had options and contingent purchase contracts
to acquire land and developed lots with an aggregate purchase price of
approximately $144.0 million.
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M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARY
FORM 10-Q - PART I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, total revenue and
certain items from the consolidated statements of income, including costs and
expenses, as percentages of such total revenue:
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30 JUNE 30
-------------------------- ---------------------------
1995 1994 1995 1994
---- ---- ---- ----
Revenue:
Housing sales.................................. $ 210,486 $ 208,558 $ 119,052 $ 127,109
Lot and land sales............................. 7,845 3,380 4,791 2,201
Other income................................... 2,550 2,350 1,462 1,057
---------- ---------- ---------- ----------
Total revenue.................................. $ 220,881 $ 214,288 $ 125,305 $ 130,367
========== ========== ========== ==========
Revenue:
Housing sales.................................. 95.3% 97.3% 95.0% 97.5%
Lot and land sales............................. 3.6 1.6 3.8 1.7
Other income................................... 1.1 1.1 1.2 0.8
---------- ---------- ---------- ----------
Total revenue.................................. 100.0 100.0 100.0 100.0
========== ========== ========== ==========
Costs and Expenses:
Land and housing............................... 82.0 81.7 81.8 81.6
General and administrative..................... 5.6 5.9 5.5 5.8
Selling........................................ 6.9 6.9 6.7 6.3
Interest....................................... 3.0 1.7 2.8 1.6
---------- ---------- ---------- ----------
Total costs and expenses....................... 97.5 96.2 96.8 95.3
---------- ---------- ---------- ----------
Income before income taxes......................... 2.5% 3.8% 3.2% 4.7%
========== ========== ========== ==========
Variations in income from lot and land sales have had a significant impact
on net income as reflected in the revenue and gross profit from lot and land
sales shown below:
Revenue............................................ $ 7,845 $ 3,380 $ 4,791 $ 2,201
Gross profit....................................... $ 1,380 $ 1,176 $ 884 $ 963
Gross margin....................................... 17.6% 34.8% 18.5% 43.8%
The gross margin on lot and land sales varies significantly from property
to property depending upon the Company's cost of the particular property and
the buyers intended use of such property.
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The following table sets forth New Contracts (net of cancellations), Homes
Delivered, and period-end Backlog:
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30 JUNE 30
------------------------ -----------------------
1995 1994 1995 1994
---- ---- ---- ----
(In units)
New Contracts................................ 1,510 1,554 767 622
Homes Delivered.............................. 1,246 1,355 697 813
Backlog...................................... 1,521 1,639 1,521 1,639
Approximate total sales
value of Backlog
(in thousands)........................... $ 268,610 $ 277,679 $ 268,610 $ 277,679
Average sales price
of homes in Backlog...................... $ 176,600 $ 169,400 $ 176,600 $ 169,400
A home is included in "New Contracts" when the Company's standard
sales contract, which requires a deposit and generally has no contingencies
other than for financing, is executed. In the Midwest Region, contracts are
sometimes accepted contingent upon the sale of an existing home. "Homes
Delivered" represents units for which the closing of the sale has occurred and
title has transferred to the buyer. Revenue and cost of revenue for a home
sale are recognized at the time of such closing.
"Backlog" represents homes for which the Company's standard sales
contract has been executed, but which are not included in Homes Delivered
because closings for the sale of such 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. These cancellations
usually occur prior to the start of construction. Since the Company arranges
financing with guaranteed rates for many of its customers, the incidence of
cancellations after the start of construction is low. In the first six months
of 1995, the Company delivered 1,246 homes, most of which were homes under
contract in Backlog at December 31, 1994. Of the 1,257 contracts in Backlog at
December 31, 1994, 14.6% have been canceled as of June 30, 1995. For homes in
Backlog at December 31, 1993, 13.1% had been canceled as of June 30, 1994.
SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1995 AND 1994
Total revenue for the six months ended June 30, 1995 increased 3.1%
and for the three months ended June 30, 1995 decreased 3.9% from the comparable
periods of 1994. The increase recorded for the six-month period resulted from a
significant increase in revenue from lot and land sales as well as a 9.8%
increase in the average sales price of Homes Delivered, partially offset by an
8.0% decrease in the number of Homes Delivered during the period. The decrease
in total revenue for the three-month period resulted from a 14.3% decrease in
the number of Homes Delivered, partially offset by a 9.2% increase in the
average sales price of Homes Delivered and an increase in lot and land revenue.
For both periods, the increase in the average sales price of Homes Delivered
was primarily due to the Palm Beach County and Maryland markets. In Palm Beach
County, the Company has expanded the product lines offered to include higher
priced homes allowing the division to build in more upscale areas of the
market. In Maryland, the increase was primarily due to the opening of a new
subdivision
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where the average sales price is significantly higher than the division's
average and where sales have been particularly strong in 1995. The decreases
in the number of homes delivered was primarily due to the lower number of homes
in backlog at the beginning of the quarter and year due to lower New Contracts
recorded in the last half of 1994 and the first quarter of 1995.
The increase in lot and land revenue for both the three- and six-month
periods ended June 30, 1995 is primarily attributable to the Washington, D.C.
market. Late in 1994, the Company completed development of the first phase of
a six-phase land development project. The Company has entered into contracts to
sell a portion of the lots developed to outside homebuilders. The Company
believes that lot and land revenue will remain at relatively high levels for
the next few years in comparison to historical amounts as the Company continues
to develop this and possibly other projects where a portion of the lots will be
sold to outside homebuilders.
The number of New Contracts recorded during the first six months of
1995 was 2.8% lower than the number recorded for the comparable period in the
prior year, New Contracts recorded for the second quarter were 23.3% higher
than the prior year's amount. The Company believes that New Contracts recorded
during the first quarter were adversely effected by higher interest rates
available to potential homebuyers. In the second quarter, falling interest
rates brought more potential customers back into the market. In addition, the
Company introduced its more affordable Horizon line of homes in several of its
other markets as well as expanding the Horizon line into new subdivisions in
the Columbus market. New Contracts recorded in the second quarter were higher
in the current year in all markets except Tampa, Charlotte and Maryland.
The overall gross margin was 18.0% and 18.2% for the six and three
months ended June 30, 1995 as compared to 18.3% and 18.4% for the comparable
periods of 1994.
The gross margin from housing sales was 17.0% for the six months ended
June 30, 1995, down slightly from the 17.1% recorded for the comparable period
in the prior year. The gross margin from housing sales remained constant at
17.2% for the second quarter of 1995 and 1994.
The gross margin from lot and land sales was significantly lower in
the current year for both the six- and three-month periods ended June 30, 1995
as compared to the same periods of the prior year. The gross margin recorded
in the prior year was unusually high due to the sale of a tract of commercial
real estate which produced a gross margin significantly higher than normal lot
sales. Excluding the commercial land sale from prior amounts, the gross
margins on land sales in the current year are higher than those achieved in
prior years. This is primarily due to the land development project in the
Washington, D.C. market (see above) where development plans included
significant sales of lots to outside homebuilders and demand has allowed the
Company to obtain higher margins.
General and administrative expenses as a percentage of total revenue
decreased from 5.9% and 5.8% for the six and three months ended June 30, 1994
to 5.6% and 5.5% for the comparable periods in the current year. These
decreases were primarily due to cost control efforts throughout the Company in
the face of declining sales during the second half of 1994 in many of our
markets.
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Selling expenses as a percentage of total revenue remained constant at
6.9% for the six months ended June 30, 1995 and 1994 and for the three months
ended June 30, 1995 increased to 6.7% of total revenue compared to 6.3% for the
comparable period of 1994. Additional costs incurred in connection with opening
more new model homes in the current year contributed to this increase.
Interest expense for the six and three months ended June 30, 1995
increased to $6.6 million and $3.5 million from $3.7 million and $2.1 million
for the comparable periods of the prior year. The increase in 1995 resulted
from an increase in the weighted average interest rate and an increase in the
average balance outstanding as well as a decreased portion of interest costs
being capitalized in 1995. The increase in the weighted average interest rate
was due to increases in the prime interest rate on which interest on the notes
payable banks is based. The increase in the average balance outstanding
related to the notes payable banks which increased primarily to fund the
increased investment in single-family lots, land and land development costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financing needs depend upon its sales volume, asset
turnover, land acquisition and inventory balances. The Company has incurred
substantial indebtedness, and expects to incur indebtedness in the future, to
fund the growth of its homebuilding activities. Historically, the Company's
principal source of funds for construction and development activities has been
from internally generated cash and from bank borrowings which are primarily
unsecured.
At June 30, 1995 the Company had bank borrowings outstanding of $123.2
million under its loan agreement which permits aggregate borrowings not to
exceed the lesser of: $141.0 million in revolving credit loans, including $30.0
million of seasonal loans which are available from March 1st through December
31st during each year of the agreement and $25.0 million, including $4.0
million for joint ventures in which the Company is a partner, in the form of
letters of credit; or the Company's borrowing base which is calculated based on
specified percentages of certain types of assets held by the Company as of each
month end. The loan agreement matures September 30, 1999, at which time the
unpaid balance of the revolving credit loans outstanding shall be due and
payable. Under the terms of the loan agreement, the banks make an annual
determination as to whether or not to extend the maturity date of the
commitments by one year. The Company is required to pay interest at the prime
rate of the banks until December 31, 1997, after which the interest rate will
increase to 1/2% over the prime rate of the banks. If the Company fails to
maintain a certain ratio of liabilities to net worth during the term of the
loan agreement, the interest rate will increase 1/4% until the Company
complies with the ratio. The loan agreement contains restrictive covenants
which require the Company, among other things, to maintain minimum net worth
and working capital amounts and to maintain certain financial ratios. The loan
agreement also places limitations on the amount of additional indebtedness that
may be incurred by the Company, the acquisition of undeveloped land, on
dividends that may be paid and on the aggregate cost of certain types of
inventory the Company can hold at any one time.
On August 7, 1995, M/I Financial entered into a new loan agreement
with its lender which permits borrowings of $25.0 million to finance mortgage
loans initially funded by M/I
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Financial, up to $5.0 million of which can be used to fund loans for borrowers
other than customers of the Company's home-building operations. The agreement
limits the borrowings to 95% of the aggregate face amount of the mortgages and
contains restrictive covenants requiring M/I Financial to maintain certain
minimum net worth and financial ratios. Borrowings under the agreement are at
the lender's prime rate and are unsecured. The agreement terminates on July
19, 1996 and the unpaid balance of such borrowings are payable on this date.
The previous loan agreement also permitted borrowings of $25.0 million and
contained restrictive covenants substantially similar to the new loan
agreement. At June 30, 1995, $9.4 million was outstanding under the previous
loan agreement.
In addition, there were outstanding Subordinated Notes in the
principal amount of $24.5 million at June 30, 1995 and approximately $20.7
million of completion bonds and letters of credit at June 30, 1995. Annual
sinking fund payments for the Subordinated Notes of approximately $3.7 million
commence December 1, 1997 with the remaining balance due at maturity on
December 1, 2001. The Notes are redeemable in whole or in part at the option
of the Company on or after December 1, 1996 at 106% of the principal amount
until December 1, 1997 and declining 1 1/2% annually through 2000.
At June 30, 1995, the Company had $21.7 million of unused borrowing
availability under its loan agreements. At June 30, 1995, the Company had the
right to borrow up to $154.3 million under its credit facilities, including
$30.0 million of seasonal loans, available from March 1st through December 31
during each year of the loan agreement, and $13.3 million under the M/I
Financial Loan Agreement (95% of the aggregate face amount of eligible mortgage
loans). The Company has requested an increase of $25.0 million in the amount
available under its loan agreement. The Company is currently negotiating with
its banks to obtain this increase as well as to modify certain of the
restrictive covenants contained in the agreement. The Company believes that
such increased bank borrowings, together with internally generated funds, will
be adequate for the Company's foreseeable needs for operations, limited
expansion, land investment and interest obligations of outstanding debt. The
Company does not currently have any arrangements for additional financing nor
is there any assurance that it will be able to obtain additional financing.
The $20.2 million increase in notes payable to banks from December 31,
1994 to June 30, 1995 reflects increased borrowings primarily attributable to
the seasonal increase in homes under construction and an increase in
single-family lots, land and land development costs. It is expected that
borrowing needs will increase as the Company continues to increase its
investment in land under development and developed lots.
Net income from housing and lot and land sales are the Company's
primary sources of net cash provided by operating activities. Net cash used by
operating activities in the six months ended June 30, 1995 was $22.9 million
compared to $25.0 million for the comparable period of the prior year. The
decrease in net cash used by operating activities was primarily due to a
smaller increase in inventories, partially offset by a smaller decrease in
receivables.
The Company has reached an agreement in principal with certain
unrelated parties for the construction of an approximately 85,000 square foot
building. The four current office locations in Columbus, Ohio will be
consolidated into one building in an effort to improve operating efficiencies.
It is the Company's intention that the building be built, owned and operated,
by a yet to be formed limited liability company in which the Company would have
a 1/3 interest (the "LLC"). The building will primarily be financed through
borrowings of the LLC
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and the Company intends to sign a long-term operating lease for the premises
with the LLC. The Company anticipates the building would be completed by the
third quarter of 1996. The Company believes that any commitments arising from
this transaction would not significantly affect its liquidity or capital
resources.
Due to the current lending environment, developers from whom the
Company customarily obtains lots under either an option or commitment contract
are experiencing continuing difficulty in obtaining land acquisition and
development financing. Consequently, the Company's land development activities
and land holdings have increased. In 1994, the Company entered into two land
purchase contracts which require a greater investment than the Company normally
commits and could significantly impact the Company's liquidity. On January 31,
1994, the Company closed on the first phase of a six phase land purchase
contract in the Washington, D.C. market. This first phase was purchased for
$6.6 million and was developed into 106 single-family and townhouse lots. Based
on the demand for lots in this area and the strong sales in the first phase of
this development, the Company purchased the second phase of this development
through a series of three closings in May, June and July of 1995. The total
purchase price for this phase was approximately $6.4 million and this section
will be developed into 122 single-family and townhouse lots. The Company sold a
portion of the developed lots from the first phase to outside homebuilders and
has entered into similar contracts to sell a portion of the lots in the second
phase to outside homebuilders. The Company has an option to purchase each of
the remaining phases. If the Company purchases all six phases, the total
purchase price will be approximately $38.9 million and the land will be
developed into approximately 710 lots.
In August 1994, the Company completed the purchase of a parcel of land
in the Columbus market for $7.5 million which will be developed into
approximately 375 lots. The Company has completed development of several
phases of this project into a total of 129 lots. Model homes were opened in
this development in April 1995 and sales have remained strong.
The extent of the Company's ability to invest in land development will
be dependent upon its ability to obtain increases in its borrowing availability
from its banks. Investment in additional land will result in increased
interest expense being incurred by the Company and slower turnover of
inventory. To finance land purchases, the Company may also increase its use of
secured purchase money mortgages. At June 30, 1995 mortgage notes payable
outstanding were $457,000 secured by lots and land with a recorded book value
of $1.5 million. The Company has requested an increase in the amounts available
under its line of credit; however, the Company does not currently have any
arrangements for additional capital nor is there any assurance that it will be
able to obtain additional capital. In the event that additional capital is not
obtained, the Company anticipates that it will need to curtail its land
development activities.
INTEREST RATES AND INFLATION
The Company's 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 acceptable to them. Increases in interest rates also would
increase the Company's interest expense as the rate on the revolving loans is
based upon floating rates of interest. The weighted average interest rates on
the Company's
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outstanding debt for the six months ended June 30, 1995 was 10.2% as compared
to 8.4% for the six months ended June 30, 1994.
In conjunction with its mortgage banking operations, the Company uses
hedging methods to reduce its exposure to interest rate fluctuations between
the commitment date of the loan and the time the loan closes.
In recent years, the Company generally has been able to raise prices
by amounts at least equal to its cost increases and, accordingly, has not
experienced any detrimental effect from inflation. Where the Company develops
lots for its own use, inflation may increase the Company's profits because land
costs are fixed well in advance of sales efforts. The Company is generally
able to maintain costs with subcontractors from the date a home sales contract
is accepted; however, in certain situations unanticipated costs may occur
between the time a sales contract is executed and the time a home is
constructed, which result in lower gross profit margins.
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PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
-------------------------------------------------------------
On May 10, 1995, the Company held its 1995 annual meeting of
shareholders. The shareholders voted on the election of three directors to
three-year terms and the approval of the Amended Performance-Based Bonus Plan
(the "Plan") for the Chief Executive Officer. The Plan was submitted to the
shareholders in order to maintain the tax deductibility of any annual
compensation paid to the Chief Executive Officer that exceeds $1,000,000. The
Plan determines the Chief Executive Officer's annual bonus pursuant to two
factors: the percentage of the Company's income before income taxes that
exceeds $10 million, and the Company's customer satisfaction rating. The
results of the voting for the directors and the Plan are as follows:
1. Election of Directors
---------------------
For Against
--- -------
Robert H. Schottenstein 8,350,413 14,180
Eric J. Schottenstein 8,350,363 14,230
Friedrich K.M. Bohm 8,351,013 13,580
2. Amended Performance-Based Bonus Plan
------------------------------------
For Against
--- -------
7,548,928 815,665
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
------ -----------
10.1 Revolving Credit Agreement by and among the Company;
M/I Financial Corp. and Bank One, Columbus, N.A. dated
August 7, 1995.
27 Financial Data Schedule
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16
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 10, 1995 by: /s/ Irving E. Schottenstein
------------------------------
Irving E. Schottenstein
President & Chief Executive Officer
Date: August 10, 1995 by: /s/ Kerrii B. Anderson
------------------------------
Kerrii B. Anderson
Senior Vice President,
Chief Financial Officer
-16-
17
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.1 Revolving Credit Agreement by and among the Company; M.I Financial Corp.
and Bank One, Columbus, N.A. dated
August 7, 1995
27 Financial Data Schedule
-17-