Business Context and Reporting Period
Company: M/I Schottenstein Homes, Inc. (M/I Homes)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2002
Business Overview: M/I Homes is a leading U.S. single-family homebuilder, ranked 18th nationally in 2001 based on homes delivered. The company operates in ten geographic markets across Ohio, Florida, North Carolina, Indiana, and the Washington D.C. suburbs. It sells homes under the "M/I Homes" and "Showcase Homes" trade names, targeting first-time, move-up, empty-nester, and luxury buyers. The company also provides mortgage financing through M/I Financial and title services through affiliated entities.
Key Financial Metrics
Revenue: $1.0 billion for the year ended December 31, 2002.
Net Income: $66.6 million (record high for the company).
Homes Delivered: 4,140 units.
Average Sales Price: $238,000.
Financial Services: M/I Financial originated approximately $632.6 million in mortgage loans for 3,388 homes delivered in 2002.
Land Position (as of Dec 31, 2002):
- Owned Lots: 8,593 total (3,129 developed, 1,016 under development, 4,448 raw land).
- Contracted Lots: 9,171 lots under purchase contracts with an aggregate price of approximately $193 million.
- Total Controlled Inventory: 17,764 lots (including joint venture interests).
Debt and Liquidity: The filing text does not provide specific values for total debt, cash on hand, or liquidity ratios. It notes $34.6 million in completion bonds and $6.2 million in letters of credit outstanding for land development.
Warranty Expense: Approximately 1.0% of total costs and expenses.
Material Changes and Operational Highlights
Record Performance: The 2002 fiscal year marked the highest revenue and net income in the company's history.
Market Dominance: M/I Homes remains the leading homebuilder in the Columbus, Ohio market by revenue, holding a market share exceeding 20% for eight consecutive years.
Land Strategy: The company maintains a conservative land acquisition policy, limiting purchases to zoned and serviceable land. Approximately 85% of lots are internally developed. The company seeks to control a three- to four-year supply of land.
Joint Ventures: As of December 31, 2002, the company held interests (33% to 50%) in 25 joint ventures and LLCs, primarily in Columbus, Ohio, to develop raw ground into lots.
Outlook, Risks, and Management Commentary
Management Strategy: The company focuses on profitability through value engineering, minimizing speculative building, and maintaining superior customer service. Growth is targeted primarily through organic expansion in existing markets (Columbus, Indianapolis, Tampa, Orlando, Charlotte) rather than acquisitions.
Customer Satisfaction: For the twelfth consecutive year, over 95% of customers indicated they would recommend the company to a potential buyer.
Risks and Contingencies:
- Competition: The industry is highly competitive with national, regional, and local builders competing for land, financing, and buyers.
- Regulatory: Operations are subject to zoning, building, and environmental regulations. Moratoriums on building due to infrastructure limitations (water, sewage, roads) can occur, though historically they have not been material.
- Interest Rate Risk: M/I Financial hedges interest rate risk using forward sales of mortgage-backed securities and purchase commitments. Changes in fair value of these derivatives are recognized in current earnings.
- Legal: The company is involved in routine litigation incidental to its business, which management does not believe is material.
Investor Verification Checklist
- Verify the specific gross margin percentage and operating expense ratios, as the filing text provides revenue and net income but omits detailed margin calculations.
- Confirm the total debt load and interest coverage ratios, as specific debt figures are not explicitly stated in the provided text.
- Review the "Backlog" value (signed contracts not yet delivered) to assess future revenue visibility, as this specific metric is not quantified in the text.
- Assess the impact of the $193 million in contingent land purchase contracts on future capital requirements and liquidity.
- Monitor the performance of the financial services segment (M/I Financial) relative to the homebuilding segment, given the derivative accounting risks associated with mortgage commitments.