Business Context and Reporting Period
Company: M/I Schottenstein Homes, Inc. (M/I Homes)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 1998
Industry: Single-family homebuilding
Operations: The Company operates in 11 geographic markets across Ohio, Florida, North Carolina, Indiana, Virginia, Maryland, and Arizona. It markets homes under three tradenames: Horizon (entry-level), M/I Homes (move-up), and Showcase Homes (luxury). The Company is the leading homebuilder in the Columbus, Ohio market and ranked 18th nationally by revenue in 1997.
Key Financial Metrics
- Revenue: $740.0 million for the year ended December 31, 1998.
- Net Income: $27.7 million (record high for the Company).
- Units Delivered: 3,629 homes.
- Average Sales Price: $194,000.
- Warranty Expense: Approximately 1.0% of total costs and expenses.
- Land Position (Dec 31, 1998): Owned 7,977 lots; controlled an additional 11,432 lots via contracts/options.
- Financial Services: M/I Financial originated and sold approximately $447.0 million in mortgage loans in 1998.
- Debt/Liquidity Instruments: $9.5 million in letters of credit and $11.8 million in completion bonds outstanding for land development.
Note: Specific gross margin percentages, operating cash flow figures, and total debt balances are incorporated by reference in the Annual Report to Shareholders and are not explicitly detailed in the provided text.
Material Changes and Operational Highlights
- Record Performance: 1998 marked the highest revenue and net income in the Company's history.
- Market Expansion: Continued penetration in existing markets and successful introduction of the Horizon entry-level product line in most markets.
- Land Strategy: The Company developed approximately 70% of its communities internally as of year-end, maintaining a conservative land acquisition policy focused on zoned and serviceable land.
- Joint Ventures: Held interests in 29 joint ventures and LLCs, managing 15 of them, primarily for land development.
- Office Acquisition: Purchased the remaining interest in the limited liability company owning its home office building in September 1998.
Outlook, Risks, and Management Commentary
- Strategy: Focus on profitability through value engineering, minimizing speculative building, and maintaining high customer service standards (95% customer recommendation rate).
- Interest Rate Risk: The Company utilizes hedging methods (forward sales of mortgage-backed securities) to manage interest rate risk on loan commitments. Hedging gains of $2.7 million were deferred at year-end.
- Regulatory Risks: Subject to local zoning, building moratoriums (particularly in Florida regarding water/sewage capacity), and environmental laws which could delay development.
- Competition: Highly competitive industry with national, regional, and local builders competing for land, labor, and buyers.
- Legal Proceedings: Involved in routine litigation incidental to business; management does not believe any litigation is material.
Investor Verification Checklist
- Verify the specific gross margin percentage and operating cash flow figures in the full Annual Report to Shareholders (incorporated by reference).
- Confirm the total debt load and interest coverage ratios, as specific debt balances are not listed in the text provided.
- Review the status of the 11,432 lots under option/contract to assess the risk of price escalation or failure to close.
- Monitor the impact of potential building moratoriums in Florida markets on future delivery schedules.
- Assess the effectiveness of the hedging program given the $107.5 million in committed mortgage loans at year-end.