Edgar Filing: M I SCHOTTENSTEIN HOMES INC

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the fiscal year ended December 31, 2001

OR
--

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from to
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Commission File No. 1-12434

M/I SCHOTTENSTEIN HOMES, INC.
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(Exact name of registrant as specified in its charter)

Ohio 31-1210837
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

3 Easton Oval, Suite 500
Columbus, Ohio 43219
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(Address of principal executive offices)(zip code)
Registrant's telephone number, including area code: (614) 418-8000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Name of Each Exchange on
Title of Each Class Which Registered
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Common Stock, par value $.01 New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None
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(Title of Class)

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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

As of February 22, 2002, the aggregate market value of voting common
stock held by non-affiliates of the registrant (5,118,458 shares) was
approximately $282,690,000. The number of shares of common stock of M/I
Schottenstein Homes, Inc. outstanding on February 22, 2002 was 7,530,047.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Shareholders for the year ended December 31,
2001 (Part I, II and IV) Portions of the registrant's Definitive Proxy Statement
for the 2002 Annual Meeting of Shareholders filed pursuant to Regulation 14A
(Part III)

PART I

ITEM 1. BUSINESS

COMPANY

M/I Schottenstein Homes, Inc. and Subsidiaries is one of the nation's
leading homebuilders. In 2000, the latest year for which information is
available, we were the 16th largest U.S. single-family homebuilder (based on
homes delivered) as ranked by Builder Magazine. The Company was incorporated,
through predecessor entities, in 1973 and commenced homebuilding activities in
1976. We sell and construct single-family homes to the first-time, move-up,
empty-nester, and luxury buyer under the M/I Homes and Showcase Homes trade
names. In 2001, our average sales price was $223,000. During the year ended
December 31, 2001, we delivered 4,227 homes and had revenues of $976.8 million
and net income of $55.3 million, the highest in our history.

Our homes are sold in eleven geographic markets including Columbus and
Cincinnati, Ohio; Tampa, Orlando and Palm Beach County, Florida; Charlotte and
Raleigh, North Carolina; Indianapolis, Indiana; the Virginia and Maryland
suburbs of Washington, D.C., and Phoenix, Arizona. We are the leading
homebuilder in the Columbus, Ohio market, based on revenue, and have been the
number one builder of single-family detached homes in this market for each of
the last thirteen years. In addition, we are currently one of the top ten
homebuilders in the majority of our other markets and believe we are well
positioned to further penetrate these markets. Our growth strategy primarily
targets increasing our market position in the selected markets in which we
currently operate. With respect to geographical diversification, we have
expanded into new markets by opening new divisions rather than through
acquisitions. Effective January 2002, we have made the decision to exit the
Phoenix market. We have been in the Phoenix market since 1996, primarily
building custom homes with a current average sales price of over $700,000. The
Phoenix market is a small part of our business with less than 100 home
deliveries annually. The decision to leave Phoenix will allow us to focus on our
core business in our other markets where meaningful growth opportunities exist.
Therefore, we do not anticipate a significant impact on financial results or
financial condition.

We believe that we distinguish ourselves from competitors by offering
homes in select areas with a high level of design and construction quality
within a given price range, and by providing superior customer service. Offering
homes at a variety of price points allows us to attract a wide range of buyers,
including many existing M/I homeowners. We support our homebuilding operations
by providing mortgage financing services through M/I Financial and title-related
services through affiliated entities.

Our financial reporting segments consist of homebuilding and financial
services. Our homebuilding operations comprise the most substantial part of our
business, with more than 98% of consolidated revenues in fiscal 1999, 2000 and
2001. The homebuilding operations segment generates the majority of its revenues
from the sale of completed homes with a lesser amount from the sale of land and
lots. The financial services segment generates its revenues from originating and
selling mortgages and collecting fees for title insurance and closing services.
Financial information, including revenue, pre-tax income and identifiable assets
of both of our reporting segments are included in the consolidated financial
statements.

Our business strategy emphasizes the following key objectives:

Focus on profitability. We focus on improving profitability while
maintaining the high quality of our homes and customer service. We focus on
gross margins by stressing the features, benefits, quality and design of our
homes during the sale process and by minimizing speculative building. We also
value-engineer our homes by working with our subcontractors and suppliers to
provide attractive features while minimizing raw material and construction
costs.

Superior locations. Our success is largely dependent on the quality of
our subdivision locations; therefore, we focus on locating and controlling land
in the most desirable areas of our markets. We are conservative in our land
acquisition policy by limiting acquisitions to land that is already zoned and
serviceable by utilities. We seek to control a three- to four-year supply of
land. We believe our expertise in developing land gives us a competitive
advantage in controlling attractive locations at competitive costs, and, as a
result, we have developed approximately 70% of our communities as of December
31, 2001. At December 31, 2001, we owned 10,060 lots and controlled an
additional 5,955 lots pursuant to contracts.

Maintain or increase market position in select markets. As the leading
builder of single-family, detached homes in the Columbus market, we seek to
maintain our leading position by continuing to provide high-quality homes and
superior customer service. We also believe there are significant opportunities
to profitably expand in certain of our existing markets, namely Indianapolis,
Cincinnati, Charlotte, Orlando and Tampa. While our primary growth strategy will
focus on increasing our market position in these five markets, we may, on an
opportunistic basis, explore expansion into new markets through internal growth
or acquisition.

Provide superior customer service. Our overriding philosophy is to
provide superior customer service to our homeowners. We involve the homeowner in
virtually every phase of the building process from sale through construction,
financing and closing, and service after delivery. Our selling process focuses
on the homes' features, benefits, quality and design as opposed to merely price
and square footage. In certain markets, we utilize design centers to allow
buyers to visualize options and get assistance with choices. This enhances the
selling process and increases the sale of optional features that typically carry
higher margins. As a result, based on the responses to our customer
questionnaire, for the eleventh year in a row, more than 95% of our customers
would recommend us to a potential buyer.

Offer product breadth and innovative design. We devote significant
resources to the research and design of our homes to better meet the needs of
our customers. We offer a number of distinct product lines and more than 400
different floor plans and elevations. In addition to providing customers with a
wide variety of choices, we believe we offer a high level of design and
construction quality within each of our price ranges.

Maintain decentralized operations with experienced management. Each of
our markets has unique characteristics and, therefore, is managed locally by
dedicated, on-site personnel. Our managers possess intimate knowledge of their
particular market and are encouraged to be entrepreneurial to best meet the
needs of that market. Our incentive compensation structure supports our overall
Company goals by rewarding each manager based on financial performance, income
growth and customer satisfaction.

SALES AND MARKETING

We market and sell our homes exclusively under the M/I Homes trade name
in all markets except Columbus where a limited number of our homes are also
marketed under the Showcase Homes trade name. Company-employed sales personnel
conduct home sales from on-site sales offices within our furnished model homes.
Each sales consultant is trained and prepared to fully explain the features and
benefits of our homes, to determine which home best suits each customer's needs,
to explain the construction process and to assist the customer in choosing the
best financing. Significant attention is given to the ongoing training of all
sales personnel to assure the highest level of professionalism and product
knowledge. We currently employ more than 140 sales consultants and operate
approximately 190 model homes.

We advertise using newspapers, magazines, direct mail, billboards,
radio and television. The particular marketing mediums used differ from division
to division based upon marketing demographics and other competitive factors. We
have also significantly increased advertising on the worldwide web through
expansion of our website at www.mihomes.com and through homebuilder.com. In
addition, we encourage independent broker participation and, from time to time,
utilize various promotions and sales incentives to attract interest from these
brokers. Our commitment to quality design and construction along with our
reputation for superior customer service has resulted in a strong referral base
and numerous repeat buyers.

One way that we enhance the selling process is by operating design
centers in the Cincinnati, Columbus, Tampa and Indianapolis markets. We are
considering opening additional design centers in certain markets. These design
centers are staffed with interior design specialists who assist customers in
selecting interior and exterior colors, standard options and upgrades. In our
other markets, this selection process is handled directly by our sales
consultants. We also add to the selling process by offering financing to our
customers through our wholly owned subsidiary, M/I Financial, which has branches
in all of our markets except Virginia, Maryland and Phoenix. M/I Financial
originates loans for purchasers of our homes. The loans are then sold, along
with the servicing rights, to outside mortgage lenders. Title-related services
are provided to purchasers of our homes in the majority of our markets through
affiliated entities.

We generally do not commence construction of a home until we obtain a
sales contract and preliminary oral advice from the customer's lender that
financing should be approved. However, in certain markets, contracts may be
accepted contingent upon the sale of an existing home and construction may be
authorized through a certain stage prior to satisfaction of that contingency. In
addition, a limited, strictly-controlled number of speculative, or "spec", homes
(i.e., homes started in the absence of an executed contract) may be built to
facilitate delivery of homes on an immediate-need basis and to provide
presentation of new products. Spec homes are released for start only after
approval is given by the respective region president and corporate management.

Our inspection and warranty programs further enhance our sales and
marketing efforts. Immediately prior to closing and again three months after a
home is delivered, we inspect each home with the customer. We may also provide a
1-year drywall inspection. We offer a 2-year limited warranty on materials and
workmanship and a 30-year limited warranty against major structural defects. To
increase the value of these warranties, both are transferable in the event of
the sale of the home. We also pass along to our customers all warranties
provided by the manufacturers or suppliers of components installed in each home.
Our warranty expense was approximately 1.0% of total costs and expenses for each
of the years ended December 31, 2001, 2000 and 1999.

DESIGN AND CONSTRUCTION

We devote significant resources to the research, design and development
of our homes in order to fulfill the needs of homebuyers in all of our markets.
Experienced and qualified in-house professionals use modern computer-aided
technology to design virtually all of our floor plans and elevations. We offer
more than 400 different floor plans and elevations that are tailored to meet the
requirements of each of our markets.

The construction of each home is supervised by a construction
supervisor who reports to a production manager, both of whom are employees of
M/I Homes. Customers are introduced to their construction supervisor prior to
commencement of home construction at a pre-construction "buyer/builder
conference." The purpose of this conference is to review the home plans and all
relevant construction details with the customer and to explain the construction
process and schedule. Every customer is given a hard hat at the conference as an
open invitation to visit the site of his or her home at any time during the
course of construction. We want customers to be involved in order to understand
the construction of their home and see the quality being built into their home.
All of this is part of our exclusive "confidence builder program" which,
consistent with our business philosophy, is designed to "put the customer first"
and enhance the total home buying experience.

Homes generally are constructed according to standardized designs and
meet applicable Federal Housing Authority ("FHA") and Veterans Administration
("VA") requirements. To allow maximum design flexibility, we limit the use of
pre-assembled building components. The efficiency of the building process is
enhanced through the use of standardized materials available from a variety of
sources. We utilize independent subcontractors for the installation of site
improvements and the construction of our homes. These subcontractors are
supervised by our on-site construction supervisors. All subcontractor work is
performed pursuant to written agreements. These agreements are generally
short-term, with terms from six to twelve months, and include or specify a fixed
price for labor and materials. The agreements are structured to provide price
protection for a majority of the higher-cost phases of construction for homes in
our Backlog. We seek to build in large volume to reduce the per unit cost of
each home due to advantages achieved by lower unit prices paid to subcontractors
for labor and materials.

MARKETS

Our operations are organized into separate homebuilding divisions to
maximize operating efficiencies and use of local management. Our present
divisional operating structure is as follows:

Year
Operations
State Division Commenced
----- -------- ---------

Ohio........................... Columbus - M/I 1976
Columbus - Showcase 1988
Columbus - Horizon 1994
Cincinnati 1988

Indiana........................ Indianapolis 1988

Florida........................ Tampa 1981
Orlando 1984
Palm Beach County 1984

North Carolina................. Charlotte 1985
Raleigh 1986

Washington, D. C. ............. Virginia and Maryland 1991

Arizona........................ Phoenix (exiting in 2002) 1996

Columbus is the capital of Ohio, with federal, state and local
governments providing significant and stable employment. Columbus is also the
home of The Ohio State University, one of the largest universities in the world.
Columbus continues to be a stable market with diverse economic and employment
bases and strong permit activity in 2001. Since 1994, we have had three separate
operating divisions in Columbus, and for thirteen years we have been the
dominant builder in Columbus. Our market share in Columbus has exceeded 20%
during each of the last seven years.

Cincinnati is characterized by a stable economic environment and a
diverse employment base. Employers include Proctor & Gamble, Kroger, the
University of Cincinnati and General Electric. In addition, Cincinnati has a
vibrant financial services industry. We continue to expand our Horizon product
line in this market and focus on more affordable communities. We have been one
of the leading homebuilders in Cincinnati for the past four years.

Indianapolis is a growth market noted for its diverse industrial
structure and relatively young population. Significant industries include health
and pharmaceutical, distribution and services. Single-family housing permits
reached nearly 15,000 in 2001.

Tampa's housing market is strong, buoyed by financial and other
back-office operations, telecommunications, tourism and conventions.
In-migration remains steady as a result of on-going business expansions and
relocations. Tampa's economy continues to grow; employment levels increased by
4% in 2001. We are currently one of the leading homebuilders in Tampa.

In 2001, Orlando's economy grew at a healthy pace with job growth
increasing nearly 3%. Contributing to this growth was steady performance in the
tourism (both domestic and foreign), high-tech and manufacturing industries.
Single-family permits reached nearly 16,000 in 2001.

Palm Beach County is one of the more affluent markets in the United
States. Job gains of nearly 4% in 2001 were experienced in the construction,
retail and service sectors. Housing activity continued to be stable in 2001 with
nearly 8,000 single-family permits.

Charlotte is home to fast-growing firms in the banking industry, as
well as a small but growing presence of high-tech companies. The demographics
continue to support long-term growth with strong in-migration and an educated
workforce. In 2001, construction activity continued to be steady with over
16,000 single-family permits issued.

The Raleigh-Durham market continues to be strong with state government,
the Research Triangle Park and three major universities contributing to its
significant and stable employment base. Raleigh's economy flourished in 2001
with single-family permits reaching 14,000.

The Washington, D.C. metro economy continues to be favorable with major
contributions from the construction, technology and government sectors. Housing
activity continues to be robust, with over 25,000 single-family permits issued
in 2001. Our operations are located primarily in Fairfax, Prince William and
Loudoun counties in Virginia and Frederick and Montgomery counties in Maryland.

The Phoenix housing market is one of the most active in the United
States, generating over 34,000 single-family permits annually in each of the
last three years. Phoenix is a national leader in employment growth and has a
very diverse economy.

PRODUCT LINES

On a regional basis, we offer homes ranging in base sales price from
approximately $90,000 to $760,000 and ranging in square footage from
approximately 1,100 to 4,000 square feet. There are more than 400 different
floor plans and elevations across all product lines. In addition, we offer a
line of attached townhomes exclusively in the Maryland and Virginia markets that
range from 1,800 to 3,300 square feet of living space. By offering a wide range
of homes, we are able to attract first-time, move-up, empty-nester and luxury
homebuyers. It is our goal to sell more than one home to our customers and we
have been very successful in this area.

In each of our home lines, certain options are available to the
purchaser for an additional charge. Major options include fireplaces, additional
bathrooms and higher quality flooring, cabinets and appliances. The options are
typically more numerous and significant on more expensive homes.

LAND DEVELOPMENT ACTIVITIES

Our land development activities and land holdings have increased in the
past few years. We continue to purchase lots from outside developers under
option contracts, when possible, to limit our risk; however, we constantly
evaluate other alternatives to satisfy the need for lots in the most cost
effective manner. We develop ground internally when we can gain a competitive
advantage by doing so or when shortages of qualified land developers make it
impractical to purchase required lots from outside sources. At the present time,
approximately 70% of our lots are internally developed. We seek to limit our
investment in undeveloped land and lots to the amount reasonably expected to be
sold in the next three to four years. Although we purchase land and engage in
land development activities primarily for the purpose of furthering our
homebuilding activities, we have, on a very select basis, developed land with
the intention of selling a portion of the lots to outside homebuilders in
certain markets.

To limit the risk involved in the development of raw land, we acquire
land primarily through the use of contingent purchase contracts. These contracts
require the approval of our land committee and condition our obligation to
purchase land upon approval of zoning, utilities, soil and subsurface
conditions, environmental and wetland conditions, traffic patterns, market
analysis, development costs, title matters and other property-related criteria.
In addition, careful attention is paid to the quality of the public school
system. Only after this thorough evaluation has been completed do we make a
commitment to purchase undeveloped land. To further reduce the risk involved in
acquiring raw land, we generally do not commence engineering or development
until zoning approvals are secured.

From time to time we enter into land joint ventures. At December 31,
2001, we had interests varying from 33% to 50% in each of 27 joint ventures and
limited liability companies ("LLCs"). These joint ventures and LLCs develop raw
ground into lots and, typically, we receive our percentage interest in the form
of a distribution of

developed lots. These joint ventures and LLCs are equity financed except where
seller financing is available on attractive terms.

During the development of lots, we are required by some municipalities
and other governmental authorities to provide completion bonds or letters of
credit for sewer, streets and other improvements. At December 31, 2001, $29.3
million of completion bonds were outstanding for these purposes, as well as
$10.9 million of letters of credit.

AVAILABLE LOTS AND LAND

We seek to balance the economic risk of owning lots and land with the
necessity of having lots available for our homes. At December 31, 2001, we had
3,535 developed lots and 770 lots under development in inventory. We also owned
raw land expected to be developed into approximately 4,390 lots.

In addition, at December 31, 2001, our interest in lots held by joint
ventures and LLCs consisted of 125 lots under development, and raw land zoned
for 1,240 lots. It is anticipated that some of the lots owned will be sold to
others.

At December 31, 2001, we had purchase contracts to acquire 1,835
developed lots and land to be developed into approximately 4,120 lots, for a
total of 5,955 lots, with an aggregate current purchase price of approximately
$140.0 million. Purchase of these properties is contingent upon satisfaction of
certain requirements by us and the sellers, such as zoning approval, completion
of development and availability of building permits.

The following table sets forth our land position in lots (including our
interest in joint ventures and LLCs) at December 31, 2001:

Owned Lots
-----------------------------------------------
Under To Be Total Lots under
State Developed Development Developed Owned Contract Total
-----------------------------------------------------------------------------------------------------

Ohio and Indiana 2,445 460 4,740 7,645 4,030 11,675

Florida 415 210 370 995 1,410 2,405

North Carolina, Virginia,
Maryland and Phoenix 675 225 520 1,420 515 1,935
-----------------------------------------------------------------------------------------------------
Total 3,535 895 5,630 10,060 5,955 16,015
=====================================================================================================

FINANCIAL SERVICES

Through our wholly-owned subsidiary, M/I Financial, we offer fixed and
adjustable rate mortgage loans to buyers of our homes. M/I Financial has
branches in all of our housing markets, with the exception of Virginia, Maryland
and Phoenix. Of the 3,937 Homes Delivered in 2001 in the markets in which M/I
Financial operates, M/I Financial provided financing for 3,428 of these homes
representing approximately $593.8 million of mortgage loans originated. M/I
Financial issues commitments to customers and closes both conventional and
government-insured loans in its own name. Loan commitments that relate to the
origination of mortgage loans that will be held for resale are considered
derivative instruments. To minimize the risk of financing activities, M/I
Financial sells the loans it originates to the secondary market which provides
the funding within several days. We retain a small servicing portfolio which is
currently sub-serviced by a financial institution.

M/I Financial hedges its interest rate risk using optional and
mandatory forward sales of mortgage-backed securities whereby we agree to sell
and later repurchase similar but not identical mortgage-backed securities. These
agreements are considered derivative instruments. Generally, the agreements are
fixed-coupon agreements whereby the interest rate and maturity date of both
transactions are approximately the same and are established to correspond with
the closing of the fixed interest rate mortgage loan commitments. The difference
between the two values of the

mortgage-backed securities in the agreements at settlement provide a hedge on
the interest rate risk exposure in the mortgage loan commitments. Prior to the
adoption of SFAS No. 133 on January 1, 2001, the Company deferred the related
gain or loss until the related loans were closed and sold as the agreements
qualified for hedge accounting.

Additionally, we hedge the interest rate risk relative to unclosed
loans by purchasing commitments from outside investors to acquire the loans at
the interest rate at which the loan will be closed. The cost, if any, of these
purchase commitments is recorded as an asset and is expensed as loans are closed
under the related commitments. Any remaining unused balance is expensed when the
commitment expires or earlier, if we determine that we will be unable to use the
entire commitment prior to its expiration date. At December 31, 2001, we had
approximately $26.7 million of commitments to deliver mortgage loans to outside
investors.

Under SFAS No. 133, derivative instruments designated in a hedge
relationship to mitigate exposure to changes in the fair value of an asset,
liability, or firm commitment attributable to a particular risk, such as
interest rate risk, are considered fair value hedges. The fair values of the
loan commitments and forward sale agreements of mortgage-backed securities are
recorded as derivative assets or derivative liabilities on the Company's balance
sheet and any changes in the value of these derivative instruments are
recognized in current earnings.

To reduce the credit risk associated with accounting losses, which
would be recognized if the counterparties failed to completely perform as
contracted, we limit the entities with which management can enter into a
commitment to the primary dealers in the market. The risk of accounting loss is
the difference between the market rate at the time a counterparty fails and the
rate to which we committed for the mortgage loans and any purchase commitments
recorded with the counterparty.

M/I Financial has been approved by the Department of Housing and Urban
Development and the VA to originate loans insured by the FHA and the VA,
respectively, and has been approved by the Federal Home Loan Mortgage
Corporation ("FHLMC") and by the Federal National Mortgage Association ("FNMA")
as a seller and servicer of mortgages sold to FHLMC and FNMA.

We provide title services to purchasers of our homes through affiliated
entities in the Columbus, Indianapolis, Tampa, Orlando, Cincinnati, Virginia and
Maryland markets.

COMPETITION

The homebuilding industry is highly competitive. In each of our
markets, we compete with numerous national, regional and local homebuilders,
some of which have greater financial, marketing, land acquisition and sales
resources. Builders of new homes compete not only for homebuyers, but also for
desirable properties, financing, raw materials and skilled subcontractors. In
addition, there is competition with the resale market for existing homes.

REGULATION AND ENVIRONMENTAL MATTERS

The homebuilding industry, including M/I Homes, is subject to various
local, state and federal (including FHA and VA) statutes, ordinances, rules and
regulations concerning zoning, building, design, construction, sales and similar
matters. These regulations affect construction activities, including types of
construction materials which may be used, certain aspects of building design,
sales activities and dealings with consumers. We are required to obtain
licenses, permits and approvals from various governmental authorities for
development activities. In many areas, we are subject to local regulations which
impose restrictive zoning and density requirements in order to limit the number
of homes within the boundaries of a particular locality. We strive to reduce the
risks of restrictive zoning and density requirements by using contingent land
purchase contracts which state that land must meet various requirements,
including zoning, prior to our purchase.

Development may be subject to periodic delays or precluded entirely due
to building moratoriums. Generally, these moratoriums relate to insufficient
water or sewage facilities or inadequate road capacity within specific market
areas or subdivisions. The moratoriums we have experienced have not been of long
duration and have not had a material effect on our business.

Each of the states in which we operate has a wide variety of
environmental protection laws. These laws generally regulate developments which
are of substantial size and which are in or near certain specified geographic
areas. Furthermore, these laws impose requirements for development approvals
which are more stringent than those which land developers would have to meet
outside of these geographic areas.

Additional requirements may be imposed on homebuilders and developers
in the future which could have a significant impact on us and the industry.
Although we cannot predict the effect, such requirements could result in
time-consuming and expensive compliance programs. In addition, the continued
effectiveness of current licenses, permits or development approvals is dependent
upon many factors, some of which may be beyond our control.

EMPLOYEES

At March 25, 2002, we employed 960 people (including part-time
employees), of which 275 were employed in sales, 390 in construction and 295 in
management, administrative and clerical positions. We consider our employee
relations to be very good. No employees are represented by a collective
bargaining agreement.

ITEM 2. PROPERTIES

We own and operate an approximately 85,000 square foot office building
used for our home office and lease all of our other offices.

Due to the nature of our business, a substantial amount of property is
held as inventory in the ordinary course of business. See "ITEM 1. BUSINESS -
Available Lots and Land."

ITEM 3. LEGAL PROCEEDINGS

We are involved in routine litigation incidental to our business.
Management does not believe that any of this litigation is material to our
consolidated financial statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of 2001, no matters were submitted to a vote
of security holders.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS