MI HOMES INC
For the period ended Dec 31, 2023. Filed Feb 16, 2024.
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FY2023 · Filed Feb 16, 2024
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Item 8. Financial Statements and Supplementary Data
To the shareholders and the Board of Directors of M/I Homes, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of M/I Homes, Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 16, 2024, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Inventory - Refer to Notes 1, 3 and 4 to the financial statements
Critical Audit Matter Description
Inventory includes the costs of land acquisition, land development and home construction, capitalized interest, real estate taxes, direct overhead costs incurred during development and home construction, and common costs that benefit the entire community, less impairments, if any. Inventory is recorded at cost, unless events and circumstances indicate that the carrying value of the inventory is impaired, at which point the inventory is written down to fair value. Management assesses inventory for recoverability on a quarterly basis to determine if events or changes in local or national economic conditions indicate that the carrying amount of an asset may not be recoverable.
In conducting the review for impairment indicators, management evaluates certain qualitative and quantitative factors at the community level. This includes, among other things, margins on sales contracts in backlog; the margins on homes that have been delivered; expected changes in margins with regard to future home sales over the life of the community and with regard to future land sales; the value of the land itself as well as any results from third-party appraisals; selling strategies; or alternative land uses (including disposition of all or a portion of the land owned).
Given the subjectivity in determining whether qualitative or quantitative impairment indicators are present for a community, management exercises significant judgment in the identification of whether impairment indicators are present. Accordingly, auditing management’s assessment of impairment indicators requires a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s identification of impairment indicators for inventory included the following, among others:
We tested the effectiveness of controls over management’s evaluation of impairment indicators.
We evaluated the reasonableness of management’s assessment of impairment indicators by:
Evaluating management's process for identifying qualitative impairment indicators by community and whether management appropriately considered such indicators.
Evaluating management's process for identifying quantitative impairment indicators by community and whether management appropriately considered such indicators.
Conducting a completeness assessment to determine whether additional impairment indicators were present during the period that were not identified by management.
/s/Deloitte & Touche LLP
Columbus, Ohio
February 16, 2024
We have served as the Company’s auditor since 1976.
| Year Ended | |||
|---|---|---|---|
| (In thousands, except per share amounts) | 2023 | 2022 | 2021 |
| Revenue | $4,033,502 | $4,131,393 | $3,745,887 |
| Costs and expenses: | |||
| Land and housing | $3,014,573 | $3,087,551 | $2,836,972 |
| General and administrative | 222,765 | 214,811 | 192,009 |
| Selling | 208,942 | 191,580 | 198,610 |
| Other income | (33) | (6) | (2,046) |
| Interest (income) expense - net | (20,022) | 2,250 | 2,156 |
| Loss on early extinguishment of debt | — | — | 9,072 |
| Total costs and expenses | $3,426,225 | $3,496,186 | $3,236,773 |
| Income before income taxes | 607,277 | 635,207 | 509,114 |
| Provision for income taxes | 141,912 | 144,545 | 112,246 |
| Net income | $465,365 | $490,662 | $396,868 |
| Earnings per common share: | |||
| Basic | $16.76 | $17.60 | $13.64 |
| Diluted | $16.21 | $17.24 | $13.28 |
| Weighted average shares outstanding: | |||
| Basic | 27,769 | 27,876 | 29,092 |
| Diluted | 28,716 | 28,463 | 29,880 |
| December 31, | ||
|---|---|---|
| (Dollars in thousands, except par values) | 2023 | 2022 |
| ASSETS: | ||
| Cash, cash equivalents and restricted cash | $732,804 | $311,542 |
| Mortgage loans held for sale | 176,329 | 242,539 |
| Inventory | 2,797,151 | 2,828,602 |
| Property and equipment - net | 34,918 | 37,446 |
| Investment in joint venture arrangements | 44,011 | 51,554 |
| Operating lease right-of-use assets | 56,364 | 60,416 |
| Deferred income tax asset | 16,094 | 18,019 |
| Goodwill | 16,400 | 16,400 |
| Other assets | 148,369 | 148,405 |
| TOTAL ASSETS | $4,022,440 | $3,714,923 |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||
| LIABILITIES: | ||
| Accounts payable | $204,678 | $228,597 |
| Customer deposits | 85,128 | 93,118 |
| Operating lease liabilities | 57,566 | 61,310 |
| Other liabilities | 252,303 | 276,217 |
| Community development district obligations | 19,339 | 29,701 |
| Obligation for consolidated inventory not owned | 26,899 | 17,048 |
| Notes payable bank - financial services operations | 165,844 | 245,741 |
| Senior notes due 2028 - net | 396,879 | 396,105 |
| Senior notes due 2030 - net | 296,865 | 296,361 |
| TOTAL LIABILITIES | $1,505,501 | $1,644,198 |
| Commitments and contingencies (Note 8) | — | — |
| SHAREHOLDERS’ EQUITY: | ||
| Common shares - $0.01 par value; authorized 58,000,000 shares at both December 31, 2023 and 2022; issued 30,137,141 shares at both December 31, 2023 and 2022 | $301 | $301 |
| Additional paid-in capital | 349,907 | 352,639 |
| Retained earnings | 2,301,348 | 1,835,983 |
| Treasury shares - at cost - 2,375,842 and 2,697,058 shares at December 31, 2023 and 2022, respectively | (134,617) | (118,198) |
| TOTAL SHAREHOLDERS’ EQUITY | $2,516,939 | $2,070,725 |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $4,022,440 | $3,714,923 |
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
| Common Shares | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Shares Outstanding · Additional Paid-in Capital · Retained Earnings · Treasury Shares · Total Shareholders’ Equity | ||||||||||
| (Dollars in thousands) | Amount | |||||||||
| Balance at December 31, 2020 | 28,813,849 | $301 | $339,001 | $948,453 | $(29,057) | $1,258,698 | ||||
| Net income | — | — | — | 396,868 | — | 396,868 | ||||
| Repurchase of common shares | (842,500) | — | — | — | (51,520) | (51,520) | ||||
| Stock options exercised | 452,100 | — | 1,227 | — | 10,014 | 11,241 | ||||
| Stock-based compensation expense | — | — | 8,559 | — | — | 8,559 | ||||
| Deferral of executive and director compensation | — | — | 338 | — | — | 338 | ||||
| Executive and director deferred compensation distributions | 76,181 | — | (1,673) | — | 1,673 | — | ||||
| Balance at December 31, 2021 | 28,499,630 | $301 | $347,452 | $1,345,321 | $(68,890) | $1,624,184 | ||||
| Net income | — | — | — | 490,662 | — | 490,662 | ||||
| Repurchase of common shares | (1,200,000) | — | — | — | (55,334) | (55,334) | ||||
| Stock options exercised | 49,900 | — | (810) | — | 2,176 | 1,366 | ||||
| Stock-based compensation expense | — | — | 8,787 | — | — | 8,787 | ||||
| Deferral of executive and director compensation | — | — | 1,060 | — | — | 1,060 | ||||
| Executive and director deferred compensation distributions | 90,553 | — | (3,850) | — | 3,850 | — | ||||
| Balance at December 31, 2022 | 27,440,083 | $301 | $352,639 | $1,835,983 | $(118,198) | $2,070,725 | ||||
| Net income | — | — | — | 465,365 | — | 465,365 | ||||
| Repurchase of common shares | (726,000) | — | — | (65,344) | (65,344) | |||||
| Stock options exercised | 944,135 | — | (10,500) | — | 44,295 | 33,795 | ||||
| Stock-based compensation expense | — | — | 11,370 | — | — | 11,370 | ||||
| Deferral of executive and director compensation | — | — | 1,028 | — | — | 1,028 | ||||
| Executive and director deferred compensation distributions | 103,081 | — | (4,630) | — | 4,630 | — | ||||
| Balance at December 31, 2023 | 27,761,299 | $301 | $349,907 | $2,301,348 | $(134,617) | $2,516,939 | ||||
| Year Ended December 31, | |||
|---|---|---|---|
| (In thousands) | 2023 | 2022 | 2021 |
| OPERATING ACTIVITIES: | |||
| Net income | $465,365 | $490,662 | $396,868 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||
| Impairment of inventory and investment in joint venture arrangements | 10,608 | 18,352 | — |
| Equity in income from joint venture arrangements | (33) | (6) | (103) |
| Mortgage loan originations | (2,118,884) | (2,069,615) | (2,239,928) |
| Net gain from property disposals | — | — | (1,943) |
| Proceeds from the sale of mortgage loans | 2,191,832 | 2,103,139 | 2,195,980 |
| Fair value adjustment of mortgage loans held for sale | (6,738) | (408) | 2,586 |
| Capitalization of originated mortgage servicing rights | (6,182) | (8,872) | (16,213) |
| Amortization of mortgage servicing rights | 1,578 | 1,624 | 1,640 |
| (Gain) loss on sale of mortgage servicing rights | (936) | 318 | (1,135) |
| Depreciation | 12,916 | 12,982 | 12,691 |
| Amortization of debt issue costs | 2,875 | 2,568 | 2,584 |
| Loss on early extinguishment of debt | — | — | 2,040 |
| Stock-based compensation expense | 11,370 | 8,787 | 8,559 |
| Deferred income tax expense (benefit) | 2,705 | (7,767) | (4,068) |
| Change in assets and liabilities: | |||
| Inventory | 46,728 | (348,650) | (508,189) |
| Other assets | 3,426 | (31,476) | 2,329 |
| Accounts payable | (23,919) | (15,908) | 58,836 |
| Customer deposits | (7,990) | (14,746) | 35,229 |
| Accrued compensation | 2,644 | 8,745 | 7,732 |
| Other liabilities | (35,234) | 34,342 | 27,682 |
| Net cash provided by (used in) operating activities | 552,131 | 184,071 | (16,823) |
| INVESTING ACTIVITIES: | |||
| Purchase of property and equipment | (5,769) | (9,333) | (25,301) |
| Return of capital from joint venture arrangements | — | 1,892 | 1,213 |
| Investment in and advances to joint venture arrangements | (23,560) | (20,139) | (51,622) |
| Proceeds from sale of mortgage servicing rights | 10,697 | 200 | 15,417 |
| Proceeds from sale of property | — | — | 8,571 |
| Net cash used in investing activities | (18,632) | (27,380) | (51,722) |
| FINANCING ACTIVITIES: | |||
| Repayment of senior notes | — | — | (250,000) |
| Proceeds from issuance of senior notes | — | — | 300,000 |
| Proceeds from bank borrowings - homebuilding operations | — | 362,000 | — |
| Repayments of bank borrowings - homebuilding operations | — | (362,000) | — |
| (Net repayments of) net proceeds from bank borrowings - financial services operations | (79,897) | (20,419) | 40,526 |
| (Principal repayments of) proceeds from notes payable-other and community development district bond obligations | — | (4,549) | 478 |
| Repurchase of common shares | (65,344) | (55,334) | (51,520) |
| Debt issue costs | (791) | (2,581) | (6,622) |
| Proceeds from exercise of stock options | 33,795 | 1,366 | 11,241 |
| Net cash (used in) provided by financing activities | (112,237) | (81,517) | 44,103 |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 421,262 | 75,174 | (24,442) |
| Cash, cash equivalents and restricted cash balance at beginning of period | 311,542 | 236,368 | 260,810 |
| Cash, cash equivalents and restricted cash balance at end of period | $732,804 | $311,542 | $236,368 |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||
| Cash paid during the year for: | |||
| Interest — net of amount capitalized | $1,481 | $1,886 | $1,955 |
| Income taxes | $150,668 | $155,052 | $109,881 |
| NON-CASH TRANSACTIONS DURING THE PERIOD: | |||
| Community development district infrastructure | $(10,362) | $9,612 | $11,893 |
| Consolidated inventory not owned | $9,851 | $14,280 | $(7,146) |
| Distribution of single-family lots from joint venture arrangements | $31,136 | $23,820 | $28,064 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.