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, 1999
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
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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: 8,777,561 shares
outstanding as of August 13, 1999
2
M/I SCHOTTENSTEIN HOMES, INC.
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1999 and
December 31, 1998 3
Consolidated Statements of Income
for the Three Months and Six Months Ended
June 30, 1999 and 1998 4
Consolidated Statement of Stockholders' Equity
for the Six Months Ended
June 30, 1999 5
Consolidated Statements of Cash Flows
for the Six Months Ended
June 30, 1999 and 1998 6
Notes to Interim Unaudited Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
Exhibit Index 25
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CONSOLIDATED BALANCE SHEETS
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------
JUNE 30, December 31,
(Dollars in thousands, except par values) 1999 1998
- -----------------------------------------------------------------------------------------------------------------
(UNAUDITED)
ASSETS
Cash $ 11,654 $ 10,068
Cash held in escrow 1,244 870
Receivables 39,715 42,361
Inventories:
Single-family lots, land and land development costs 199,027 170,115
Houses under construction 190,358 136,965
Model homes and furnishings - at cost (less accumulated depreciation:
June 30, 1999 - $48;
December 31, 1998 - $45) 17,603 15,054
Land purchase deposits 2,113 1,366
Building, office furnishings, transportation and construction equipment - at
cost (less accumulated depreciation:
June 30, 1999 - $5,782;
December 31, 1998 - $4,962) 19,775 20,015
Investment in unconsolidated joint ventures and limited liability companies 14,512 17,850
Other assets 10,943 12,483
- --------------------------------------------------------------------------------------------------------------
TOTAL $506,944 $427,147
==============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable banks - homebuilding operations $131,900 $ 70,000
Note payable bank - financial services operations 17,810 23,500
Mortgage notes payable 11,731 11,793
Senior subordinated notes 50,000 50,000
Accounts payable 64,236 51,364
Accrued compensation 9,226 18,131
Income taxes payable 2,939 4,380
Accrued interest, warranty and other 18,537 19,430
Customer deposits 16,890 11,909
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TOTAL LIABILITIES 323,269 260,507
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Commitments and Contingencies
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 8,813,061 shares 88 88
Additional paid-in capital 61,037 61,067
Retained earnings 122,845 105,485
Treasury stock - at cost - 16,600 shares held in treasury at
June 30, 1999 (295) -
- --------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 183,675 166,640
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TOTAL $506,944 $427,147
==============================================================================================================
See Notes to Interim Unaudited Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF INCOME
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
(UNAUDITED)
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Dollars in thousands, except per share information) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------
Revenue $213,513 $175,606 $362,337 $292,836
- ---------------------------------------------------------------------------------------------------------------
Costs and expenses:
Land and housing 167,212 140,307 281,801 231,578
General and administrative 11,485 9,494 19,585 16,481
Selling 13,769 11,576 24,092 20,397
Interest 3,572 3,011 6,708 5,659
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Total costs and expenses 196,038 164,388 332,186 274,115
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Income before income taxes 17,475 11,218 30,151 18,721
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Income taxes:
Current 6,532 4,570 10,314 6,069
Deferred 372 23 1,597 1,526
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Total income taxes 6,904 4,593 11,911 7,595
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Net income $ 10,571 $ 6,625 $ 18,240 $ 11,126
===============================================================================================================
Per share data:
Basic $ 1.20 $ 0.80 $ 2.07 $ 1.40
Diluted $ 1.19 $ 0.79 $ 2.05 $ 1.38
===============================================================================================================
Weighted average shares outstanding:
Basic 8,796,249 8,323,049 8,804,222 7,965,576
Diluted 8,879,407 8,419,804 8,887,203 8,061,186
===============================================================================================================
See Notes to Interim Unaudited Consolidated Financial Statements.
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
(UNAUDITED)
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SIX MONTHS ENDED JUNE 30, 1999
Common Stock
-------------------------- Additional
(Dollars in thousands, except Shares Paid-In Retained Treasury
per share information) Outstanding Amount Capital Earnings Stock
- ---------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 8,813,061 $88 $61,037 $105,485 -
Net income - - - 18,240 -
Dividends to stockholders,
$0.10 per common share - - - (880) -
- -
Purchase of treasury shares (22,400) - - - ($398)
Stock options exercised 5,800 - (30) - 103
- ---------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 8,796,461 $88 $61,037 $122,845 ($295)
================================================================================================================
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)
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SIX MONTHS ENDED JUNE 30,
(Dollars in thousands) 1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,240 $ 11,126
Adjustments to reconcile net income to net cash
used in operating activities:
Loss from property disposals 7 131
Depreciation and amortization 1,050 804
Deferred income taxes 1,597 1,503
Decrease (increase) in cash held in escrow (374) 2,179
Decrease in receivables 10,838 8,750
Decrease in receivables 2,646 10,838
Increase in inventories (75,312) (61,335)
Decrease (increase) in other assets (138) 346
Increase in accounts payable 12,872 9,463
Decrease in income taxes payable (1,441) (1,710)
Decrease in accrued liabilities (9,798) (8,601)
Equity in undistributed income of unconsolidated joint
ventures and limited liability companies (305) (255)
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (50,956) (35,511)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (733) (515)
Investment in unconsolidated joint ventures and limited liability companies (7,092) (7,556)
Distributions from unconsolidated joint ventures and limited liability companies 443 639
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (7,382) (7,432)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings - net of repayments 56,210 14,160
Mortgage notes payable:
Proceeds from borrowings -- 342
Principal repayments (62) --
Net increase in customer deposits 4,981 5,073
Dividends paid (880) (380)
Proceeds from exercise of stock options 73 164
Proceeds from sale of treasury stock-net of expenses -- 24,559
Payments to acquire treasury stock (398) --
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Net cash provided by financing activities 59,924 43,918
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Net increase in cash 1,586 975
Cash balance at beginning of year 10,068 10,836
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Cash balance at end of period $ 11,654 $ 11,811
=========================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized $ 5,926 $ 4,821
Income taxes $ 12,417 $ 7,761
NON-CASH TRANSACTIONS DURING THE PERIOD:
Land acquired with mortgage notes payable $ -- $ 342
Single-family lots distributed from unconsolidated joint ventures and
limited liability companies $ 10,207 $ 5,856
=========================================================================================================================
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, 1999 and 1998 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, 1998.
In the opinion of management, the accompanying 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. AMENDED LOAN AGREEMENT
On April 20, 1999, the Company amended its bank loan agreement. The amended
loan agreement modified certain covenants. The remaining terms of the
agreement remain substantially the same as those in the agreement that it
replaces.
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, 1999 and 1998 is as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(Dollars in thousands) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------
Interest capitalized, beginning of period $8,057 $8,307 $7,957 $7,620
Interest incurred 3,903 3,599 7,139 6,934
Interest expensed (3,572) (3,011) (6,708) (5,659)
- --------------------------------------------------------------------------------------------------------------
Interest capitalized, end of period $8,388 $8,895 $8,388 $8,895
=============================================================================================================
NOTE 4. CONTINGENCIES
At June 30, 1999, the Company had options and contingent purchase contracts
to acquire land and developed lots with an aggregate purchase price of
approximately $180.6 million.
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NOTE 5. PER SHARE DATA
Basic EPS is computed by dividing net income available to common shareholders
by the weighted average number of common shares outstanding during each
period. Diluted computations include common share equivalents, when dilutive.
NOTE 6. ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting
for Derivative Instruments and Hedging Activities." In June 1999 FASB issued
Statement of Financial Standards No. 137 (SFAS 137) "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133." SFAS 137 deferred the adoption of SFAS 133
until our 2001 annual financial statements. The Company has not yet
determined what, if any, impact the adoption of this standard will have on
its financial statements.
NOTE 7. DIVIDENDS
On April 22, 1999, the Company paid to the stockholders of record on April 1,
1999, a cash dividend of $0.05 per share (aggregate dividends paid of
$440,000). On April 22, 1999, the Board of Directors approved a $0.05 per
share cash dividend payable to stockholders of record of its common stock on
July 1, 1999, which was paid on July 22, 1999 (aggregate dividends paid of
$440,000).
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M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
FORM 10-Q - PART I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
CONSOLIDATED
Total Revenue. Total revenue for the three months ended June 30, 1999
increased $37.9 million and for the six months ended June 30, 1999 increased
$69.5 million over the comparable periods of 1998. For the three-month period,
homebuilding revenue increased $37.1 million, and financial services revenue
increased $0.8 million. For the six-month period, homebuilding revenue increased
$66.6 million and financial services revenue increased $2.9 million. The
increase in homebuilding for both the three- and six-month periods was
attributable to housing revenue increases of $38.7 million and $67.1 million,
respectively, offset by land revenue decreases of $1.7 million and $0.5 million,
respectively. The increase in housing revenue for both the three- and six-month
periods was attributable to an increase in the number of Homes Delivered of 125
and 205, respectively, and an increase in the average sales price of Homes
Delivered of 7.6% and 8.9%, respectively. For both periods, the increase in
financial services revenue was primarily attributable to increases in the number
of loans originated and the gains recognized from the sale of loans. The
decrease in land revenue for the three and six months ended June 30, 1999 was
primarily due to a decrease in lot sales to outside homebuilders in the
Charlotte division and a lower average sales price on lots sold to third parties
in the Washington, D.C. market from the comparable periods of 1998.
Income Before Income Taxes. Income before income taxes for the three
months ended June 30, 1999 increased 55.8% and for the six months ended June 30,
1999 increased 61.1% over the comparable periods of 1998. The increase for the
three months ended June 30, 1999 related primarily to homebuilding, where income
before income taxes increased from $7.6 million to $12.7 million and financial
services, where income before income taxes increased from $2.1 million to $2.8
million. The increase for the six months ended June 30, 1999 also related
primarily to homebuilding, where income before income taxes increased from $10.6
million to $18.1 million and financial services, where income before income
taxes increased from $4.3 million to $6.9 million. The increase in homebuilding
for both the three- and six-month periods was due to the increase in the number
of Homes Delivered and an increase in the average sales price of Homes
Delivered. The increase in homebuilding was also due to an increase in gross
margin. Housing gross margin increased from 18.9% and 19.4% for the three and
six months ended June 30, 1998 to 20.5% for both the three and six months ended
June 30, 1999. The increase in financial services was primarily due to an
increase in the number of loans originated and the significant increase in
income from the sale of servicing and marketing gains due to increased loan
volume and the favorable interest rate environment during the last half of 1998
and the first half of 1999.
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SEGMENT INFORMATION
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Dollars in thousands) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------
Revenue:
Homebuilding $210,090 $172,969 $354,242 $287,607
Financial services 4,460 3,620 9,959 7,088
Intersegment (1,037) (983) (1,864) (1,859)
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Total Revenue $213,513 $175,606 $362,337 $292,836
================================================================================================================
Income Before Income Taxes:
Homebuilding $ 12,749 $ 7,623 $ 18,074 $ 10,623
Financial Services 2,793 2,081 6,893 4,273
Unallocated amounts 1,933 1,514 5,184 3,825
- ----------------------------------------------------------------------------------------------------------------
Total Income Before Income Taxes $ 17,475 $ 11,218 $ 30,151 $ 18,721
===================================================================================================================
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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) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Revenue:
Housing sales $207,003 $168,333 $347,579 $280,456
Land and lot sales 2,737 4,451 5,853 6,355
Other income 350 185 810 796
- -------------------------------------------------------------------------------------------------------------------
Total Revenue $210,090 $172,969 $354,242 $287,607
===================================================================================================================
Revenue:
Housing sales 98.5% 97.3% 98.1% 97.5%
Land and lot sales 1.3 2.6 1.7 2.2
Other income 0.2 0.1 0.2 0.3
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Total Revenue 100.0 100.0 100.0 100.0
Land and housing costs 80.8 82.2 80.5 81.5
- -------------------------------------------------------------------------------------------------------------------
Gross Margin 19.2 17.8 19.5 18.5
General and administrative expenses 2.4 2.6 2.9 3.0
Selling expenses 6.5 6.7 6.8 7.1
- -------------------------------------------------------------------------------------------------------------------
Operating Income 10.3 8.5 9.8 8.4
Allocated expenses 4.2 4.1 4.7 4.7
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 6.1 4.4 5.1 3.7
===================================================================================================================
MIDWEST REGION
Unit Data:
New contracts, net 760 626 1,515 1,347
Homes delivered 618 535 1,047 911
Backlog at end of period 1,790 1,493 1,790 1,493
Average sales price of homes in backlog $ 184 $ 180 $ 184 $ 180
Aggregate sales value of homes in backlog $330,000 $268,000 $330,000 $268,000
Number of active subdivisions 75 75 75 75
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FLORIDA REGION
Unit Data:
New contracts, net 185 195 360 388
Homes delivered 173 182 290 308
Backlog at end of period 403 335 403 335
Average sales price of homes in backlog $ 202 $ 187 $ 202 $ 187
Aggregate sales value of homes in backlog $ 82,000 $ 63,000 $ 82,000 $ 63,000
Number of active subdivisions 27 35 27 35
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NORTH CAROLINA, VIRGINIA, MARYLAND AND ARIZONA REGION
Unit Data:
New contracts, net 253 218 490 449
Homes delivered 210 159 353 266
Backlog at end of period 505 415 505 415
Average sales price of homes in backlog $ 335 $ 326 $ 335 $ 326
Aggregate sales value of homes in backlog $169,000 $135,000 $169,000 $135,000
Number of active subdivisions 38 35 38 35
- -------------------------------------------------------------------------------------------------------------------
TOTAL
Unit Data:
New contracts, net 1,198 1,039 2,365 2,184
Homes delivered 1,001 876 1,690 1,485
Backlog at end of period 2,698 2,243 2,698 2,243
Average sales price of homes in backlog $ 215 $ 208 $ 215 $ 208
Aggregate sales value of homes in backlog $581,000 $466,000 $581,000 $466,000
Number of active subdivisions 140 145 140 145
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A home is included in "New Contracts" when our standard sales contract
is executed. Our standard contract requires a deposit and generally has no
contingencies other than for buyer financing. In a limited number of markets, we
sometimes accept contracts that are contingent upon the sale of an existing
home. "Homes Delivered" represents homes for which the closing of the sale has
occurred and title has transferred to the buyer. We recognize revenue and cost
of revenue for a home sale at the time of closing.
"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. These cancellations 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 1999, we delivered 1,690 homes, most of which
were homes under contract in Backlog at December 31, 1998. Of the 2,023
contracts in Backlog at December 31, 1998, 11.5% have been canceled as of June
30, 1999. For homes in Backlog at December 31, 1997, 11.7% had been canceled as
of June 30, 1998. For the homes in Backlog at December 31, 1997, the final
cancellation percentage was 12.8%. Unsold speculative homes, which are in
various stages of construction, totaled 121 and 148 at June 30, 1999 and 1998,
respectively.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Total Revenue. Total revenue for the homebuilding segment for the three
months ended June 30, 1999 was $210.1 million, a 21.5% increase over 1998. This
increase was due to a 23.0% increase in housing revenue offset by a 38.5%
decrease in land revenue. The increase in housing revenue was partially due to a
14.3% increase in the number of Homes Delivered. Homes Delivered were higher in
all of our markets with the exception of Palm Beach County, Orlando and Raleigh.
The increase in housing revenue was also due to a 7.6% increase in the average
sales price of Homes Delivered. The increase in the average sales price of Homes
Delivered was primarily due to increased closings in the Washington, D.C. and
Phoenix markets. The average sales price in these markets is substantially
higher than our average sales price. The decrease in land revenue from $4.5
million to $2.7 million was primarily attributable to the Washington, D.C. and
Charlotte markets. Charlotte had a decrease in lot sales to outside homebuilders
in the three months ended June 30, 1999 while Washington, D.C sold lots to
outside homebuilders at a lower average sales price.
Home Sales and Backlog. We recorded a 15.3% increase in the number of
New Contracts in the three months ended June 30, 1999 as compared to the
corresponding period of 1998. New Contracts recorded in the second quarter of
1999 were higher in nearly all of the Company's markets. We believe the increase
in New Contracts was partially due to favorable market conditions and low
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 and interest rates available to potential
home buyers. New Contracts recorded in July 1999 were 18.7% lower than New
Contracts recorded in July 1998. We believe this decrease was mainly due to an
increase in sales prices, as a result of increased material and labor costs, and
a slight increase in interest rates.
At June 30, 1999, the total sales value of our Backlog of 2,698 homes
was approximately $581.0 million. This represented a 24.5% increase in sales
value and a 20.3% increase in units over the levels reported at June 30, 1998.
The increase in units at June 30, 1999 is a result of record high new contracts
recorded in the first half of 1999. The average sales price of homes in Backlog
increased 3.5% from June 30, 1998 to June 30, 1999. This increase was primarily
due to increases in the Washington, D.C. and Phoenix markets where we are
building in more upscale and niche subdivisions.
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Gross Margin. The overall gross margin for the homebuilding segment was
19.2% for the three months ended June 30, 1999 compared to 17.8% for the three
months ended June 30, 1998. The gross margin from housing sales was 20.5% in the
second quarter of 1999 compared to 18.9% in the second quarter of 1998. The
gross margin from lot and land sales decreased from 13.8% to 7.4%. The increase
in housing margin is attributable to favorable market conditions and
management's continued focus on maintaining accurate, up-to-date costing
information so that sales prices can be set to achieve the desired margins. We
have has also focused on acquiring or developing lots in premier locations to
obtain higher margins. The decrease in gross margin from lot and land sales was
due to the Virginia division where there were lot sales to outside homebuilders
at lower margins in the second quarter of 1999 than in the second quarter of
1998. Lot and land gross margins can vary significantly depending on the sales
price, and cost of the subdivision and the phase in which the sale takes place.
General and Administrative Expenses. General and administrative
expenses increased from $4.6 million for the three months ended June 30, 1998 to
$5.1 million for the three months ended June 30, 1999. However, general and
administrative expenses as a percentage of total revenue decreased from 2.6% for
the three months ended June 30, 1998 to 2.4% for the three months ended June 30,
1999. The increase in expense was primarily attributable to the increase in
payroll expense and miscellaneous other expenses related to the increase in
income.
Selling Expenses. Selling expenses increased from $11.5 million for the
three months ended June 30, 1998 to $13.7 million for the three months ended
June 30, 1999. However, selling expenses as a percentage of total revenue
decreased from 6.7% to 6.5%. The increase in expense was primarily due to
increases in sales commissions paid to outside Realtors and internal salespeople
as a result of the increase in sales volume. There were also increases in
advertising and model expenses.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Total Revenue. Total revenue for the homebuilding segment for the six
months ended June 30, 1999 was $354.2 million, a 23.2% increase over 1998. This
increase was due to a 23.9% increase in housing revenue offset by a 7.9%
decrease in land revenue. The increase in housing revenue was partially due to a
13.8% increase in the number of Homes Delivered. Homes Delivered were higher in
all of our markets with the exception of Palm Beach County, Orlando and Raleigh.
The increase in housing revenue was also due to an 8.9% increase in the average
sales price of Homes Delivered. The increase in the average sales price of Homes
Delivered was primarily due to increased closings in the Washington, D.C. and
Phoenix markets. The average sales price in these markets is substantially
higher than our average sales price. The decrease in land revenue from $6.4
million to $5.9 million was primarily attributable to the Washington, D.C. and
Charlotte markets. Charlotte had a decrease in lot sales to outside homebuilders
in the six months ended June 30, 1999 while Washington, D.C. sold lots to
outside homebuilders at a lower average sales price.
Home Sales and Backlog. We recorded an 8.3% increase in the number of
New Contracts recorded in the first half of 1999 compared to the corresponding
period of 1998. New Contracts recorded in the current year were higher than the
prior year in nearly all of the Company's markets. We believe the increase in
New Contracts was partially due to favorable market conditions and low 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 and interest rates available to potential home
buyers.
Gross Margin. The overall gross margin for the homebuilding segment was
19.5% for the six months ended June 30, 1999 compared to 18.5% for the
comparable period of 1998. The gross margin
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from housing sales was 20.5% in the first half of 1999 compared to 19.4% in the
first half of 1998. The gross margin from lot and land sales decreased from
14.5% to 9.6%. The increase in housing margin is attributable to favorable
market conditions and management's continued focus on maintaining accurate,
up-to-date costing information so that sales prices can be set to achieve the
desired margins. We also focused on acquiring or developing lots in premier
locations so that we can obtain higher margins. The decrease in gross margin
from lot and land sales was primarily due to the Washington, D.C. market where
there were more lot sales to outside homebuilders at lower margins in the first
half of 1999 than in the second half of 1998. Lot and land gross margins can
vary significantly depending on the sales price, the cost of the subdivision and
the phase in which the sale takes place.
General and Administrative Expenses. General and administrative
expenses increased from $8.7 million for the six months ended June 30, 1998 to
$10.1 million for the six months ended June 30, 1999. However, general and
administrative expenses as a percentage of total revenue decreased from 3.0% for
the six months ended June 30, 1998 to 2.9% for the comparable period in the
current year. The increase in expense was primarily attributable to the increase
in payroll expense and miscellaneous other expenses related to the increase in
income.
Selling Expenses. Selling expenses increased from $20.3 million for the
six months ended June 30, 1998 to $24.1 million for the six months ended June
30, 1999. However, selling expenses as a percentage of total revenue decreased
from 7.1% to 6.8%. The increase in expense was primarily due to increases in
sales commissions paid to outside Realtors and internal salespeople as a result
of the increase in sales volume. There were also increases in advertising and
model expenses.
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) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
Number of loans originated 825 712 1,393 1,245
Revenue:
Loan origination fees $1,248 $ 999 $2,045 $1,821
Sale of servicing and marketing gains 1,810 1,439 5,412 3,247
Other 1,402 1,182 2,502 2,020
- ----------------------------------------------------------------------------------------------------------
Total Revenue 4,460 3,620 9,959 7,088
- ----------------------------------------------------------------------------------------------------------
General and administrative expenses 1,667 1,539 3,066 2,815
- ----------------------------------------------------------------------------------------------------------
Operating Income $2,793 $ 2,081 $6,893 $4,273
==========================================================================================================
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Total Revenue. Total revenue of our financial services segment for the
three months ended June 30, 1999 was $4.5 million, a 23.2% increase over the
$3.6 million recorded for the comparable period of 1998. Loan origination fees
increased 24.9% from $1.0 million for the three months ended June 30, 1998 to
$1.2 million for the three months ended June 30, 1999. The increase was due to
an increase in the number of loans originated over the comparable period of the
prior year, along with an increase in the average loan amount.
Revenue from the sale of servicing and marketing gains increased 25.8%
from $1.4 million for the three months ended June 30, 1998 to $1.8 million for
the three months ended June 30, 1999. The
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15
increase was primarily due to more mortgages originated during the second three
months of 1999 as compared to the comparable period of 1998. The number of loans
originated increased 15.9% during the period over the prior year.
Revenue from other sources increased 18.6% from $1.2 million for the
three months ended June 30, 1998 to $1.4 million for the three months ended June
30, 1999. This was primarily due to increased earnings from title services. We
expanded into the Washington, D.C. title agency market in early 1999.
General and Administrative Expenses. General and administrative
expenses of our financial services segment for the three months ended June 30,
1999 were $1.7 million, an 8.3% increase from the comparable period of the prior
year. This increase was mainly due to payroll expense, which increased due to a
significant increase in volume related to origination, loan closings, title
services and income.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Total Revenue. Total revenue of our financial services segment for the
six months ended June 30, 1999 was $10.0 million, a 40.5% increase over the $7.1
million recorded for the comparable period of 1998. Loan origination fees
increased 12.3% from $1.8 million for the six months ended June 30, 1998 to $2.0
million for the six months ended June 30, 1999. This increase was due to an
increase in the number of loans originated over the comparable period of the
prior year, along with an increase in the average loan amount. This increase was
partially offset by special financing programs in the first quarter.
Revenue from the sale of servicing and marketing gains increased 66.7%
from $3.2 million for the six months ended June 30, 1998 to $5.4 million for the
six months ended June 30, 1999. The was primarily due to more mortgages
originated during the first six months of 1999 as compared to the comparable
period of 1998. The number of loans originated increased 11.9% during the period
over the prior year. The increase in marketing gains was primarily due to
favorable market conditions during the last part of 1998 and early part of 1999,
which increased marketing gains on loans that closed during the first quarter of
1999. M/I Financial uses hedging methods in which we have the option to complete
the hedging transaction, but in which we are not required to complete the
transaction. We also continued to concentrate on the securitization of loans
with FNMA and FHLMC, and we separate the sale of loans and servicing into two
transactions on this product. This change, along with more favorable terms
negotiated with investors, resulted in an increase in servicing release
premiums.
Revenue from other sources increased 23.9% from $2.0 million
for the six months ended June 30, 1998 to $2.5 million for the six months ended
June 30, 1999. This was primarily due to increased earnings from title services.
We also expanded into the Washington, D.C. title agency market in early 1999.
General and Administrative Expenses. General and administrative
expenses of our financial services segment for the six months ended June 30,
1999 were $3.1 million, an 8.9% increase over the comparable period of the prior
year. This increase was mainly due to payroll expense, which increased due to a
significant increase in volume related to origination, loan closings, title
services and income.
OTHER OPERATING RESULTS
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased to $4.7 million and $6.5 million for the three
and six months ended June 30, 1999, respectively, from $3.5 million and $5.1
million recorded for the comparable periods of 1998. As a percentage of total
revenue, corporate general and administrative expenses for the three and six
months ended June 30, 1999
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increased to 2.2% and 1.8%, respectively, from 2.0% and 1.7% for the comparable
periods in the prior year. These increases were primarily attributable to
increases in incentive compensation, profit sharing and charitable contributions
expensed in the current year due to the significant increase in net income.
Interest Expense. Corporate and homebuilding interest expense for the
three and six months ended June 30, 1999 increased to $3.6 and $6.7 million,
respectively, from $3.0 and $5.7 million recorded for the comparable periods of
the prior year. Interest expense was higher in the current year partially due to
an increase in the average borrowings outstanding. Interest expense was also
higher due to less of an increase in capitalized interest in 1999 compared to
1998 as a result of an increase in the proportion of raw land and developed lots
to total inventory. Average borrowings outstanding increased due to a
significant increase in our backlog and land development activities.
LIQUIDITY AND CAPITAL RESOURCES
Our financing needs depend upon our 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, 1999, we had bank borrowings
outstanding of $131.9 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) $204.5 million and (ii) our borrowing
base. The borrowing base is calculated based on specified percentages of certain
types of assets held by us as of each month end, less the sum of (A) outstanding
letters of credit issued for purposes other than to satisfy bonding requirements
and (B) the aggregate amount of outstanding letters of credit, other than
letters of credit issued for the purpose of satisfying bonding requirements, for
joint ventures in which we are a partner and which we guarantee. The Bank Credit
Facility matures September 30, 2003, at which time the unpaid balance of the
revolving credit loans outstanding will be due and payable. Under the terms of
the Bank Credit Facility, the banks will determine annually whether or not to
extend the maturity date of the commitments by one year. At June 30, 1999,
borrowings under the Bank Credit Facility were at the prime rate or, at our
option, LIBOR plus a margin of between 1.60% and 2.35% based on our ratio of
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") to
consolidated interest incurred and were primarily unsecured. The Bank Credit
Facility contains restrictive covenants which require us to maintain minimum net
worth and working capital amounts, to maintain a minimum ratio of EBITDA to
consolidated interest incurred and to maintain other financial ratios. The Bank
Credit Facility also places limitations on the amount of additional indebtedness
that we may incur, the acquisition of undeveloped land, dividends that we may
pay and the aggregate cost of certain types of inventory we can hold at any one
time.
On February 26, 1998 and September 23, 1998, we entered into $50.0
million and $25.0 million interest rate swap agreements with certain banks. The
swap agreements expire February 26, 2001 and September 25, 2000, respectively,
and require us to make fixed interest rate payments to the bank in return for
variable payments. During the six months ended June 30, 1999, these agreements
resulted in an increase in interest expense of $123,000.
An additional $17.8 million was outstanding as of June 30, 1999 under
the M/I Financial loan agreement, which permits borrowings of $30.0 million to
finance mortgage loans initially funded by M/I Financial for our customers and a
limited amount for loans to others. 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
and contains restrictive covenants requiring M/I
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Financial to maintain minimum net worth and certain minimum financial ratios. At
June 30, 1999, borrowings under the M/I Financial loan agreement were at (a) the
prime rate less 0.50%, or (b) LIBOR plus 1.60% or (c) a combination of (a) and
(b). The agreement terminates on June 22, 2001, at which time the unpaid balance
is due.
At June 30, 1999, we had the right to borrow up to $234.5 million under
our credit facilities, including $30.0 million under the M/I Financial loan
agreements. At June 30, 1999, we had $84.8 million of unused borrowing
availability under our loan agreements. We also had approximately $41.0 million
of completion bonds and letters of credit outstanding at June 30, 1999.
Subordinated Notes. At June 30, 1999, there was outstanding $50.0
million of Senior Subordinated Notes. The notes bear interest at a fixed rate of
9.51% and mature August 29, 2004.
Land and Land Development. Over the past several years, our land
development activities and land holdings have increased significantly, and we
expect this trend will continue in the foreseeable future. Single-family lots,
land and land development increased 17.0% from December 31, 1998 to June 30,
1999. These increases are primarily due to the shortage of qualified land
developers in certain of our markets as well as our developing more land due to
the competitive advantages that can be achieved by developing land internally
rather than purchasing lots from developers or competing homebuilders. This is
particularly true for our Horizon product line, in which lots are generally not
available from third party developers at economically feasible prices due to the
price points we target. We continue to purchase lots from outside developers
under option contracts, when possible, to limit our risk; however, we will
continue to evaluate all of our alternatives to satisfy our increasing demand
for lots in the most cost effective manner.
The $61.9 million increase in notes payable banks - homebuilding
operations, from December 31, 1998 to June 30, 1999 reflects increased
borrowings primarily attributable to the increase in houses under construction,
along with an increase in single-family lots, land and land development costs.
Houses under construction increased $53.4 million from December 31, 1998 to June
30, 1999, while single-family lots, land and land development increased $28.9
million. 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, 1999, mortgage notes payable outstanding were $11.7
million, secured by a building, lots and land with a recorded book value of
$15.8 million.
As our capital requirements increase, we may increase our borrowings
under our bank line of credit. In addition, we continually explore and evaluate
alternative sources from which to obtain additional capital. We are currently in
discussions with our lenders to increase the amount of the lines of credit,
increase the amount of letters of credit and modify certain covenants; however,
there is no assurance that such terms can be obtained.
Purchase of Treasury Shares. On February 16, 1999, our Board
of Directors approved the repurchase of up to 500,000 shares of our outstanding
common stock. The purchases may occur in the open market and/or in privately
negotiated transactions as market conditions warrant. As of June 30, 1999 we had
purchased 22,400 shares at an average price of $17.75.
Impact of New Accounting Standards. In June, 1998, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities". In June 1999 FASB issued Statement of Financial Standards No. 137
(SFAS 137) "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133." SFAS 137 deferred the
adoption of SFAS
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133 until our 2001 annual financial statements. We have not yet determined what,
if any, impact the adoption of this standard will have on our financial
statements.
Year 2000 Compliance. We are currently in the process of modifying or
replacing management information systems to address issues regarding the year
2000. In accordance with current accounting guidance, we charge modification
costs for the year 2000 to expense as incurred while we capitalize replacement
costs and amortize them over the asset's useful life. We do not currently
believe that these changes will have an adverse impact on operations or that the
related expenditures will be material to our financial position or results of
operations in any given year.
The "Year 2000" problem arises as a result of many automated
calculations being written in computer code which does not properly recognize
dates after 1999. Problems associated with this issue can occur not only on
"mainframe" applications, but also with such devices as personal computers,
telecommunication equipment and programmable logic controllers associated with
certain manufacturing equipment. Without correction, it is possible that
business and operational functions that rely on this improper code could fail
and cause significant business disruption and loss.
The manner of resolving the identified Year 2000 shortcomings has
included strategies such as implementing Year 2000 compliant versions of third
party software, modifying portions of existing software and replacing
non-compliant business systems with new third party software. A combination of
internal and external resources is being used to help identify, implement and
test solutions associated with Year 2000 issues. We believe that quantifying the
extent to which our Year 2000 remediation efforts are complete is not
practicable and could be potentially misleading. However, based on existing
plans, we anticipate that our ongoing efforts to remediate the remaining data
processing systems to be Year 2000 compliant, which we believe are not critical
to our operations, will be completed by December 1999.
Another risk presented by the Year 2000 issue is that some of our
significant customers, regulatory agencies and suppliers could fail to become
fully Year 2000 compliant. This failure, in turn, could result in a significant
adverse effect to our operations. We are in the process of making inquiries of
our significant suppliers as to the state of their Year 2000 readiness. We
believe that these inquiries will become increasingly more meaningful as the
year 2000 approaches. Regardless, we cannot assure you that the data processing
and non-information technology systems utilized by these other companies will
become Year 2000 compliant on a timely basis. We cannot currently estimate the
impact of noncompliance.
Worst case scenarios are being evaluated in relation to our key
business needs. We have not yet adopted a formal contingency plan to address the
possibility that internal, customer, or supplier systems may not become Year
2000 compliant. We will develop such plans which may be required as Fiscal 1999
evolves and the risk of such exposure, if any, becomes better clarified.
Specific timetables and phases will be established for these contingency plans.
We cannot currently estimate the cost, if any, associated with contingency
planning efforts that may be necessary to complete the Year 2000 efforts.
Taken together, we believe that our substantial past and current
investments in information technology initiatives will provide the foundation
necessary to support and enhance operations in the years to come. Nevertheless,
achieving Year 2000 compliance is dependent on many factors, some of which are
not completely within our control. Should either our internal systems or the
internal systems of one or more significant vendors or suppliers fail to achieve
Year 2000 compliance, our business and our results of operations could be
adversely affected.
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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
acceptable to them. Increases in interest rates also would increase our interest
expense as the rate on the revolving loans is based upon floating rates of
interest. The weighted average interest rate on our outstanding debt for the six
months ended June 30, 1999 was 8.2% compared to 8.5 % for the six months ended
June 30, 1998.
In conjunction with our mortgage banking operations, we use hedging
methods 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 generally have been able to raise prices by amounts
at least equal to our cost increases and, accordingly, have not experienced any
detrimental effect from inflation. Where 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 to 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
We wish to take advantage of the safe harbor provisions included in the
Private Securities Litigation Reform Act of 1995. Accordingly, in addition to
historical information, this Management's Discussion & Analysis of Results of
Operations and Financial Condition contains certain forward-looking statements,
including, but not 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.
General Real Estate, Economic and Other Conditions. The homebuilding
industry is significantly affected by changes in national and local economic and
other conditions. The changes include employment levels, changing demographics,
availability of financing, interest rates, consumer confidence and housing
demand. In addition, homebuilders are subject to risks related to competitive
overbuilding, availability and cost of building lots, availability of materials
and labor, adverse weather conditions which can cause delays in construction
schedules, cost overruns, changes in government regulations, and increases in
real estate taxes and other local government fees. Many of these risks are
beyond our control. We cannot predict whether interest rates will be at levels
attractive to prospective home buyers. If interest rates increase, and in
particular mortgage interest rates, our business could be adversely affected.
Land Development Activities. We develop the lots for a majority of our
subdivisions. Therefore, our short- and long-term financial success will be
dependent on our ability to develop these subdivisions successfully. Acquiring
land and committing the financial and managerial resources to develop a
subdivision involves significant risks. Before a subdivision generates any
revenue, we must make material expenditures for items such as acquiring land and
constructing subdivision infrastructure (such as roads and utilities).
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Concentration of the Company's Markets. We have operations in Columbus
and Cincinnati, Ohio; Indianapolis, Indiana; Tampa, Orlando and Palm Beach
County, Florida; Charlotte and Raleigh, North Carolina; the Virginia and
Maryland suburbs of Washington, D.C.; and Phoenix, Arizona. Adverse general
economic conditions in these markets could have a material adverse impact on our
operations. For the six months ended June 30, 1999, approximately 40% of our
housing revenue and a significant portion of our operating income were derived
from operations in the Columbus, Ohio market. Our performance could be
significantly affected by changes in this market.
Competition. The homebuilding industry is highly competitive. We
compete in each of our local market areas with numerous national, regional and
local homebuilders, some of which have greater financial, marketing, land
acquisition, and sales resources than we do. Builders of new homes compete not
only for home buyers, but also for desirable properties, financing, raw
materials and skilled subcontractors. We also compete with the resale market for
existing homes which provides certain attractions for home buyers over building
a new home.
Governmental Regulation and Environmental Considerations. The
homebuilding industry is subject to increasing local, state and Federal
statutes, ordinances, rules and regulations concerning zoning, resource
protection (preservation of woodlands and hillside areas), building design, and
construction and similar matters, including local regulations which impose
restrictive zoning and density requirements in order to limit the number of
homes that can eventually be built within the boundaries of a particular
location. Such regulation affects construction activities, including
construction materials which must be used in certain aspects of building design,
as well as sales activities and other dealings with home buyers. We must also
obtain licenses, permits and approvals from various governmental agencies for
our development activities, the granting of which are beyond our control.
Furthermore, increasingly stringent requirements may be imposed on homebuilders
and developers in the future. Although we cannot predict the impact on us of
compliance with any such requirements, such requirements could result in time
consuming and expensive compliance programs.
We are also subject to a variety of local, state and Federal statutes,
ordinances, rules and regulations concerning the protection of health and the
environment. The particular environmental laws which apply to any given project
vary greatly according to the project site and the present and former uses of
the property. These environmental laws may result in delays, cause us to incur
substantial compliance costs (including substantial expenditures for pollution
and water quality control) and prohibit or severely restrict development in
certain environmentally sensitive regions. Although there can be no assurance
that we will be successful in all cases, we have a general practice of requiring
an environmental audit and resolution of environmental issues prior to
purchasing land in an effort to avoid major environmental issues in our
developments.
In addition, we have been, and in the future may be, subject to
periodic delays or may be precluded from developing certain projects due to
building moratoriums. These moratoriums generally relate to insufficient water
supplies or sewage facilities, delays in utility hook-ups or inadequate road
capacity within the specific market area or subdivision. These moratoriums can
occur prior to, or subsequent to, commencement of our operations without notice
or recourse.
Risk of Material and Labor Shortages. The residential construction
industry in the past has, from time to time, experienced serious material and
labor shortages in insulation, drywall, brick, certain carpentry and framing
work and cement, as well as fluctuating lumber prices and supplies. We have
recently begun to experience some of these material and labor shortages. Delays
in construction of homes due to these shortages could adversely affect our
business.
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Significant Voting Control by Principal Shareholders. As of June 30,
1999, members of the Irving E. Schottenstein family owned approximately 31% of
our outstanding Common Shares. In particular, Irving E. Schottenstein, in his
own name and as trustee of trusts for his children, had the right to vote
2,678,300 Common Shares. Therefore, members of the Irving E. Schottenstein
family have significant voting power with respect to the election of the Board
of Directors of the Company and, in general, the determination of the outcome of
various matters submitted to our shareholders for approval.
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 $234.5 million. To minimize the effect
of the interest rate fluctuation, we have entered into two interest rate swap
arrangements with certain banks for a total notional amount of $75.0 million.
Under these agreements we pay a fixed rate of 5.10% on $25.0 million and 5.50%
on $50.0 million.
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, primarily to buyers of our homes. The loans are granted at current market
interest rates which are guaranteed from the loan commitment date through the
transfer of the title of the home to the buyer (the "Closing"). M/I Financial
hedges its interest rate risk using optional and mandatory forward sales to
hedge risk from the loan commitment date generally to the date a sale commitment
is entered into. At June 30, 1999, the notional principal amount under these
forward sales agreements was approximately $149.0 million and the related fair
value of these agreements was approximately $1.1 million. The hedging agreements
outstanding at June 30, 1999 mature within 90-120 days. Gains or losses on
these agreements are recognized at the time the loan is sold.
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PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings - none.
- -----------------------------------
Item 2. Changes in Securities - none.
- ---------------------------------------
Item 3. Defaults upon Senior Securities - none.
- -----------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
On April 22, 1999, the Company held its 1999 annual meeting of
shareholders. The shareholders voted on the election of three directors to
three-year terms, whether to approve the 1993 Stock Incentive Plan as Amended,
whether to approve the Executive Officers Compensation Plan and whether to
ratify the appointment of Deloitte & Touche LLP as the independent accountants
and auditors for fiscal year 1999. The results of the voting are as follows:
1. Election of Directors
---------------------
For Withheld
--- --------
Irving E. Schottenstein 7,818,040 28,774
Kerrii B. Anderson 7,817,889 28,925
Norman L. Traeger 7,538,565 308,249
2. To approve the 1993 Stock Incentive Plan as Amended
---------------------------------------------------
For 6,383,794
Against 747,405
Abstain 5,997
Broker non-votes 709,618
3. To approve the Executive Officers Compensation Plan.
---------------------------------------------------
For 6,727,352
Against 394,749
Abstain 15,095
Broker non-votes 709,618
4. To ratify the appointment of Deloitte & Touche LLP as the
---------------------------------------------------------
independent accountants and auditors for fiscal year 1999.
----------------------------------------------------------
For 7,814,648
Against 31,158
Abstain 1,008
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Item 5. Other Information
- --------------------------
On April 22, 1999, the Company paid to the stockholders of record on
April 1, 1999, a cash dividend of $0.05 per share (aggregate dividends paid of
$440,000). On April 22, 1999, the Board of Directors approved a $0.05 per share
cash dividend payable to stockholders of record of its common stock on July 1,
1999, which was paid on July 22, 1999 (aggregate dividends paid of $440,000).
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
------ -----------
4 M/I Schottenstein Homes, Inc. 1993 Stock Incentive Plan
as Amended, dated April 22, 1999.
10.1 M/I Schottenstein Homes, Inc. Executives' Deferred
Compensation Plan.
27 Financial Data Schedule.
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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, 1999 by: /s/ Robert H. Schottenstein
---------------------------
Robert H. Schottenstein
Vice Chairman,
President
Date: August 13, 1999 by: /s/ Kerrii B. Anderson
----------------------
Kerrii B. Anderson
Senior Vice President,
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------ ----------- --------
4 M/I Schottenstein Homes, Inc. 1993 Stock
Incentive Plan as Amended, dated April 22, 1999.
10.1 M/I Schottenstein Homes, Inc. Executives' Deferred
Compensation Plan.
27 Financial Data Schedule.
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