-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FIx9MfEblGB2P6DteYyK7BaD9PWWMazFWE0QRLecaUGvGDMoHCw7m4o73wRmxvO6 9wehDTlpEExpsJStyeqgbA== 0000950152-97-003942.txt : 19970520 0000950152-97-003942.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950152-97-003942 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: M I SCHOTTENSTEIN HOMES INC CENTRAL INDEX KEY: 0000799292 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 311210837 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12434 FILM NUMBER: 97606399 BUSINESS ADDRESS: STREET 1: 41 S HIGH ST STE 2410 CITY: COLUMBUS STATE: OH ZIP: 43215 BUSINESS PHONE: 6142215700 FORMER COMPANY: FORMER CONFORMED NAME: MI SCHOTTENSTEIN HOMES INC DATE OF NAME CHANGE: 19920703 10-Q 1 M/I SCHOTTENSTEIN HOMES, INC. 10-Q 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 March 31, 1997 ---------------- 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 ---------------------------------------- ----- (Address of principal executive offices) (Zip Code) (614) 418-8000 -------------- (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 ___ 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: 8,300,000 shares outstanding as of May 13, 1997 -1- 2 M/I SCHOTTENSTEIN HOMES, INC. FORM 10-Q INDEX
PAGE PART I. FINANCIAL INFORMATION NUMBER Item 1. Financial Statements Consolidated Balance Sheets March 31, 1997 and December 31, 1996 3 Consolidated Statements of Income for the Three Months Ended March 31, 1997 and 1996 4 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996 5 Notes to Interim Consolidated Unaudited Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 18 Signatures 19 Exhibit Index 20
-2- 3 CONSOLIDATED BALANCE SHEETS M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------- MARCH 31, December 31, (Dollars in thousands) 1997 1996 - --------------------------------------------------------------------------------------------------------------- (UNAUDITED) ASSETS Cash, including cash in escrow $ 7,474 $ 6,761 Receivables 15,754 34,447 Inventories: Single-family lots, land and land development costs 139,969 129,025 Houses under construction 113,378 89,696 Model homes and furnishings - at cost (less accumulated depreciation: March 31, 1997 - $58; December 31, 1996 - $56) 17,797 19,482 Land purchase deposits 659 716 Office furnishings, transportation and construction equipment - at cost (less accumulated depreciation: March 31, 1997 - $3,460; December 31, 1996 - $6,668) 8,067 1,635 Investment in unconsolidated joint ventures and limited partnerships 10,789 12,998 Other assets 8,537 10,599 - -------------------------------------------------------------------------------------------------------------- TOTAL $322,424 $305,359 ============================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable banks - home-building operations $117,500 $ 77,000 Note payable bank - financial operations 4,070 23,300 Subordinated notes 25,000 25,000 Accounts payable 39,728 32,016 Accrued compensation 3,120 11,802 Income taxes payable 961 1,502 Accrued interest, warranty and other 13,203 15,349 Customer deposits 8,721 7,071 - -------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 212,303 193,040 - -------------------------------------------------------------------------------------------------------------- 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 8,800,000 shares, of which 500,000 shares are held in Treasury 88 88 Additional paid-in capital 50,573 50,573 Retained earnings 64,710 61,658 Treasury stock - at cost (5,250) - - -------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 110,121 112,319 - -------------------------------------------------------------------------------------------------------------- TOTAL $322,424 $305,359 ==============================================================================================================
See Notes to Interim Unaudited Consolidated Financial Statements. -3- 4 CONSOLIDATED STATEMENTS OF INCOME M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------- Three Months Ended March 31, (Dollars in thousands, except per share information) 1997 1996 - ------------------------------------------------------------------------------------------------------------- Revenue $105,829 $95,858 - -------------------------------------------------------------------------------------------------------------- Costs and expenses: Land and housing 84,073 76,955 General and administrative 6,410 5,959 Selling 7,917 7,795 Interest 2,362 2,931 - -------------------------------------------------------------------------------------------------------------- Total costs and expenses 100,762 93,640 - -------------------------------------------------------------------------------------------------------------- Income before income taxes 5,067 2,218 - -------------------------------------------------------------------------------------------------------------- Income taxes: Current 1,151 308 Deferred 864 587 - -------------------------------------------------------------------------------------------------------------- Total income taxes 2,015 895 - -------------------------------------------------------------------------------------------------------------- Net income $ 3,052 $ 1,323 ============================================================================================================== Net income per common share $ 0.35 $ 0.15 ============================================================================================================== Weighted average common shares outstanding 8,716,667 8,800,000 ==============================================================================================================
See Notes to Interim Unaudited Consolidated Financial Statements. -4- 5 CONSOLIDATED STATEMENTS OF CASH FLOWS M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------- Three Months Ended March 31, (Dollars in thousands) 1997 1996 - ---------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 3,052 $ 1,323 Adjustments to reconcile net income to net cash used by operating activities: Loss from property disposals 102 45 Depreciation and amortization 380 386 Deferred income taxes 864 587 Decrease in receivables 18,693 5,649 Increase in inventories (29,428) (15,225) Decrease (increase) in other assets 1,144 (843) Increase in accounts payable 7,712 5,329 Decrease in income taxes payable (541) (2,307) Decrease in accrued liabilities (10,828) (5,481) Equity in undistributed loss (income) of unconsolidated joint ventures and limited partnerships (79) (32) - ----------------------------------------------------------------------------------------------------------------- Net cash used by operating activities ( 8,929) ( 10,569) - ----------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to model and office furnishings, transportation and construction equipment (6,844) (83) Investment in unconsolidated joint ventures (1,297) (1,470) Distributions from unconsolidated joint ventures and limited partnerships 113 329 - ---------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (8,028) (1,224) - ----------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Notes payable banks: Cash proceeds from borrowings 70,305 58,486 Principal repayments (49,035) (48,806) Principal repayments of mortgage notes payable - (98) Net increase in customer deposits 1,650 2,431 Payments to acquire treasury stock (5,250) - - ---------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 17,670 12,013 - ---------------------------------------------------------------------------------------------------------------- Net increase in cash 713 220 Cash balance at beginning of year 6,761 8,136 - ---------------------------------------------------------------------------------------------------------------- Cash balance at end of period $ 7,474 $ 8,356 ================================================================================================================ SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $ 2,182 $ 2,214 Income taxes $ 2,269 $ 2,630 NON-CASH TRANSACTIONS DURING THE YEAR: Single-family lots distributed from unconsolidated joint ventures $ 3,473 $ 1,762 ================================================================================================================
See Notes to Interim Unaudited Consolidated Financial Statements. -5- 6 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 three months ended March 31, 1997 and 1996 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, 1996. 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 May 7, 1997, the Company amended its bank loan agreement. Limits on certain restrictive covenants were increased under the amended agreement. The amount available and other terms of the agreement remain substantially the same as those in the agreement that it amends. 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 months ended March 31, 1997 and 1996 is as follows:
Three Months Ended March 31, (Dollars in Thousands) 1997 1996 - ------------------------------------------------------------------------------------------------------------ Interest capitalized, beginning of period $6,862 $ 7,560 Interest incurred 2,625 3,019 Interest expensed (2,362) (2,931) - ------------------------------------------------------------------------------------------------------------ Interest capitalized, end of period $7,125 $ 7,648 ============================================================================================================
NOTE 4. CONTINGENCIES At March 31, 1997, the Company had options and contingent purchase contracts to acquire land and developed lots with an aggregate purchase price of approximately $152.8 million. -6- 7 NOTE 5. TREASURY STOCK On March 17, 1997, the Company repurchased 500,000 shares of the Company's common stock at $10.50 per share, which represents the closing price of the Company's common stock on March 14, 1997, from the Melvin L. Schottenstein family interests. These shares are held as treasury shares by the Company. The total purchase price was $5,250,000 and was paid from the Company's general working capital. NOTE 6. PER SHARE DATA Per share data for the three months ended March 31, 1997 was computed using the weighted average number of common shares outstanding during the period of 8,716,667. The Company has no common stock equivalents other than outstanding options, which have no significant effect on the calculation. In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share." SFAS 128 replaces the presentation of primary EPS with a presentation of basic EPS. This statement is effective for financial statements for both interim and annual periods ending after December 15, 1997. The Company has determined that the new standard will have no material impact on its EPS calculation. -7- 8 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 ENDED MARCH 31, 1997 AND 1996 CONSOLIDATED Total Revenue. Total revenue for the three months ended March 31, 1997 was $105.8 million, a 10.3% increase over the $95.9 million recorded for the comparable period of 1996. Housing, land and other revenue increased $5.8 million, $3.5 million and $0.6 million, respectively. The increase in housing revenue was attributable to a 4.1% increase in the average sales price of Homes Delivered as the Company delivered only ten more homes for the first quarter of 1997 as compared to the prior year. The increase in land revenue was primarily due to a significant increase in the number of lots sold to third parties in the Maryland division during the first quarter of 1997 in comparison to the first quarter of 1996. The increase in other income was primarily attributable to M/I Financial, where both the number of loans originated and the gains recognized from the sale of loans increased in the current year. Income Before Income Taxes. Income before income taxes for the first quarter of 1997 increased 128.4% over the comparable period of 1996. Income before income taxes reached $5.1 million, a record for the Company's first quarter. The increase related to housing and land, where income before income taxes increased from $1.2 to $3.5 million, and M/I Financial, where income before income taxes increased from $1.0 to $1.6 million. The increase in housing was primarily due to the increase in the average selling price of Homes Delivered. The average selling price increased from $170,000 for the first quarter of 1996 to $177,000 in 1997. The increase in land was primarily due to a significant increase in the number of lots sold to third parties at relatively high margins in the Maryland division during the first quarter of 1997 in comparison to the first quarter of 1996. The increase in M/I Financial was primarily due to 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 1996 and the first quarter of 1997. Income before income taxes also increased due to a decrease in interest expense from $2.9 million in the first quarter of 1996 to $2.4 million in the comparable period of 1997. This decrease was primarily attributable to a decrease in the weighted average interest rate as a result of more favorable terms on the Company's line of credit facilities and due to replacing the 14% Subordinated Notes with a new Subordinated Note at a significantly lower rate. -8- 9 HOME-BUILDING SEGMENT The following table sets forth certain information related to the Company's home-building segment:
Three Months Ended March 31, (Dollars in thousands) 1997 1996 ==================================================================================================================== Revenue: Housing sales $98,680 $92,893 Land and lot sales 4,602 1,105 Other income 296 203 - -------------------------------------------------------------------------------------------------------------------- Total Revenue $103,578 $94,201 ==================================================================================================================== Revenue: Housing sales 95.3% 98.6% Land and lot sales 4.4 1.2 Other income 0.3 0.2 - -------------------------------------------------------------------------------------------------------------------- Total Revenue 100.0 100.0 Land and housing costs 81.6 82.1 - -------------------------------------------------------------------------------------------------------------------- Gross Margin 18.4 17.9 General and administrative expenses 3.5 3.2 Selling expenses 7.6 8.3 - -------------------------------------------------------------------------------------------------------------------- Operating Income 7.3 6.4 ==================================================================================================================== MIDWEST REGION Unit Data: New contracts 587 602 Homes delivered 342 319 Backlog at end of period 1,153 1,220 Average sales price of homes in backlog $174 $161 Aggregate sales value of homes in backlog $200,000 $197,000 Number of active subdivisions 80 80 ==================================================================================================================== FLORIDA REGION Unit Data: New contracts 172 181 Homes delivered 112 113 Backlog at end of period 281 293 Average sales price of homes in backlog $171 $172 Aggregate sales value of homes in backlog $48,000 $50,000 Number of active subdivisions 30 35 ==================================================================================================================== NORTH CAROLINA, VIRGINIA AND MARYLAND REGION Unit Data: New contracts 148 173 Homes delivered 103 115 Backlog at end of period 253 317 Average sales price of homes in backlog $237 $219 Aggregate sales value of homes in backlog $60,000 $70,000 Number of active subdivisions 35 35 ==================================================================================================================== TOTAL Unit Data: New contracts 907 956 Homes delivered 557 547 Backlog at end of period 1,687 1,830 Average sales price of homes in backlog $183 $173 Aggregate sales value of homes in backlog $308,000 $317,000 Number of active subdivisions 145 150 ====================================================================================================================
The Phoenix division, which began operations late in 1996, had no activity for the quarter. -9- 10 A home is included in "New Contracts" when the Company's standard sales contract, which requires a deposit and generally has no contingencies other than for buyer financing, is executed. In the Midwest Region, contracts are sometimes accepted contingent upon the sale of an existing home. "Homes Delivered" represents units for which the closing of the sale has occurred and title has transferred to the buyer. Revenue and cost of revenue for a home sale are recognized at the time of such closing. "Backlog" represents homes for which the Company's standard sales contract has been executed, but which are not included in Homes Delivered because closings for the sale of such homes have not yet occurred as of the end of the period 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 the Company arranges financing with guaranteed rates for many of its customers, the incidence of cancellations after the start of construction is low. In the first three months of 1997, the Company delivered 557 homes, most of which were homes under contract in Backlog at December 31, 1996. Of the 1,337 contracts in Backlog at December 31, 1996, 8.9% have been canceled as of March 31, 1997. For homes in Backlog at December 31, 1995, 10.3% had been canceled as of March 31, 1996. For the homes in Backlog at December 31, 1995, the final cancellation percentage was 14.4%. Unsold speculative homes, which are in various stages of construction, totaled 129 and 149 at March 31, 1997 and 1996, respectively. Total Revenue. Total revenue for the three months ended March 31, 1997 increased 10.0% compared to the three months ended March 31, 1996. This increase was due to a 6.2% increase in housing revenue and a 316.5% increase in land revenue. The increase in housing revenue was due to a 4.1% increase in the average sales price of Homes Delivered. The average sales price of Homes Delivered increased in all of the Company's markets with the exception of Tampa, Orlando and Palm Beach County. The largest increases were due to the increase in the number of Homes Delivered in the Columbus Showcase and Maryland divisions, where the average sales prices are significantly higher than the Company's average due to the types of product offered. In addition, these two divisions experienced significant increases in the average sales price of Homes Delivered due to increased closings in various higher priced subdivisions. The increase in land revenue from $1.1 million to $4.6 million was primarily attributable to the Maryland division. The Maryland division had significant lot sales to outside home-builders from its Willows land development project in the three months ended March 31, 1997 which did not occur in the prior year. The Company is developing additional sections of this project and has entered into contracts to sell a portion of the lots developed to certain outside homebuilders. Home Sales and Backlog. The Company recorded a 5.1% decrease in the number of New Contracts recorded in the first quarter of 1997 as compared to the corresponding period of 1996. The number of New Contracts recorded in the current year was lower in all of the Company's regions. The decrease in the number of New Contracts recorded is primarily attributable to a record number of New Contracts recorded in the first quarter of 1996. 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. At March 31, 1997, the total sales value of the Company's Backlog of 1,687 homes was approximately $308.0 million, representing a 2.8% decrease in sales value and a 7.8% decrease in units from the levels reported at March 31, 1996. The decrease in units at March 31, 1997 is a result of record high deliveries in the first quarter of 1997 and a decrease in New Contracts recorded in the second half of 1996 and first quarter of 1997. The average sales price of homes in Backlog increased 5.8% from March 31, 1996 to March 31, 1997. This increase was primarily due to increases in the Columbus, -10- 11 Cincinnati, Charlotte and Maryland divisions where the Company is building in more upscale and certain niche subdivisions. Gross Margin. The overall gross margin for the home-building segment was 18.4% for the three month period ended March 31, 1997 compared to 17.9% for the three month period ended March 31, 1996. The gross margin from housing sales was 18.2% in the first quarter of 1997 as compared to 18.3% in the first quarter of 1996. The overall increase in gross margin was mainly due to lot and land sales, where margins increased from 2.4% to 30.0%. The Maryland division had a significant increase in the number of lots sold to outside homebuilders from its Willows land development project. The division sold 25 lots in the Willows in the first quarter of 1997, while there were no lots sold from this project in the first quarter of 1996. Management continues to focus on maintaining accurate, up-to-date costing information so that sales prices can be set to achieve the desired margins. The Company has also focused on acquiring or developing lots in premier locations so that it can obtain higher margins. The Company's ability to maintain these levels of margins is dependent on a number of factors, some of which are beyond the Company's control. Due to the strong level of sales during the last quarter of 1996 and the first quarter of 1997, some of the Company's divisions are beginning to experience shortages of qualified subcontractors in certain construction trades. This could negatively impact gross margins by requiring the Company to pay premiums to expedite construction work or by delaying construction, thus delaying revenue recognition and increasing carrying costs. In addition, due to the competitive sales environment, the Company is offering promotions in selected cities which could adversely impact gross margins in 1997. General and Administrative Expenses. General and administrative expenses as a percentage of total revenue increased from 3.2% for the three months ended March 31, 1996 to 3.5% for the three months ended March 31, 1997. This increase was primarily attributable to the increase in real estate tax expense and bonuses. Real estate taxes increased in the current year as the Company's investment in developed lots and raw land awaiting development increased over prior year balances. More bonuses were recorded in the first quarter of 1997 as compared to the first quarter of 1996 due to the significant increase in net income. Selling Expenses. Selling Expenses as a percentage of total revenue decreased from 8.3% for the three months ended March 31, 1996 to 7.6% for the three months ended March 31, 1997. This decrease was primarily due to decreases in sales commissions paid to outside Realtors. During 1995, the Company had various Realtor promotions in numerous cities on houses which closed in the first quarter of 1996. Due to a stronger sales environment in 1996, the Company did less of these promotions. FINANCIAL SERVICES SEGMENT - M/I FINANCIAL The following table sets forth certain information related to the Company's financial services segment:
Three Months Ended March 31, (Dollars in thousands) 1997 1996 ==================================================================================================================== Number of loans originated 423 408 Revenue: Loan origination fees $ 561 $ 486 Sale of servicing and marketing gains 1,545 1,080 Other 628 505 - -------------------------------------------------------------------------------------------------------------------- Total Revenue 2,734 2,071 - -------------------------------------------------------------------------------------------------------------------- General and administrative expenses 1,036 1,051 - -------------------------------------------------------------------------------------------------------------------- Operating Income $1,698 $1,020 ====================================================================================================================
-11- 12 Total Revenue. Total revenue for the three months ended March 31, 1997 was $2.7 million, a 28.6% increase over the $2.1 million recorded for the comparable period of the prior year. Loan origination fees increased 15.4% from the first quarter of 1996 to the first quarter of 1997, primarily due to the Company being able to capture a greater market share of the parent Company's business, specifically the higher end product line. Revenue from sale of servicing and marketing gains increased 43.1% from $1.1 million for the three months ended March 31, 1996 to $1.5 million for the three months ended March 31, 1997. The increase in servicing fees was primarily due to more fixed rate mortgages originated during the first three months of 1997 as compared to the comparable period of 1996. The Company earns higher premiums on fixed rate mortgages as opposed to adjustable rate mortgages. The increase in marketing gains was primarily due to favorable market conditions during the last part of 1996 and early part of 1997 which increased marketing gains on loans that closed during the first quarter of 1997. M/I Financial uses hedging methods whereby it has the option, but is not required, to complete the hedging transaction. This allowed the Company to record significant servicing and marketing gains during the period of falling interest rates while limiting its risk of loss from a rising interest rate market. General and Administrative Expenses. General and administrative expenses for the three months ended March 31, 1997 were $1.0 million, a 1.4% decrease from the comparable period of the prior year. The decrease was primarily due to a decrease in applications received. There were 56 fewer applications taken in the first quarter of 1997 as compared to the first quarter of 1996. OTHER OPERATING RESULTS Corporate General and Administrative Expenses. General and administrative expenses remained constant at $1.9 million for the three months ended March 31, 1997 and 1996. As a percentage of total revenue, general and administrative expenses decreased to 1.8% for the three months ended March 31, 1997 from 2.0% for the comparable period in the prior year. This decrease resulted from an increase in total revenue. Interest Expense. Corporate and home-building interest expense for the first quarter of 1997 totaled $2.4 million, a 19.4% decrease from the $2.9 million recorded for the comparable period of the prior year. Interest expense was lower in the current year due to the decreases in the weighted average interest rate and the increase in the net amount of interest capitalized during the first quarter of 1997 as compared to the first quarter of 1996. The weighted average interest rate decreased due to the Company replacing its 14% Subordinated Notes with a new Subordinated Note at a significantly lower rate in December of 1996. In 1996, the Company switched its bank borrowings from prime to LIBOR plus a margin which also reduced the interest rate. LIQUIDITY AND CAPITAL RESOURCES Notes Payable Banks. The Company's financing needs depend upon its sales volume, asset turnover, land acquisition and inventory balances. The Company continues to incur substantial indebtedness, and expects to incur indebtedness in the future, to fund the growth of its homebuilding activities. Historically, the Company's principal source of funds for construction and development activities has been from internally generated cash and from bank borrowings, which are primarily unsecured. At March 31, 1997, the Company had bank borrowings outstanding of $117.5 million under its loan agreement relating to its home-building operations, which permits aggregate borrowings not to exceed the lesser of: (A. $186.0 million in revolving credit loans, and an additional $25.0 million in the form of Letters -12- 13 of Credit, including $4.0 million for joint ventures in which the Company is a partner; or B. the Company's borrowing base, which is calculated based on specified percentages of certain types of assets held by the Company as of each month end.) The loan agreement matures September 30, 2001, at which time the unpaid balance of the revolving credit loans outstanding shall be due and payable. Under the terms of the loan agreement, the banks make an annual determination as to whether or not to extend the maturity date of the commitments by one year. At March 31, 1997, borrowings under the loan agreement were at LIBOR plus a margin of between 1.75% and 2.50% based on the Company's ratio of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) to consolidated interest incurred and were primarily unsecured. The loan agreement contains restrictive covenants which require the Company, among other things, to maintain minimum net worth and working capital amounts, to maintain a minimum ratio of EBITDA to consolidated interest incurred and to maintain certain other financial ratios. The loan agreement also places limitations on the amount of additional indebtedness that may be incurred by the Company, the acquisition of undeveloped land, on dividends that may be paid and on the aggregate cost of certain types of inventory the Company can hold at any one time. On May 7, 1997, the Company amended its bank loan agreement. Limits on certain restrictive covenants were increased under the amended agreement. The amount available and other terms of the agreement remain substantially the same as those in the agreement that it amends. An additional $4.1 million was outstanding as of March 31, 1997 under the M/I Financial loan agreement, which permits borrowings of $25.0 million to finance mortgage loans initially funded by M/I Financial for customers of the Company and a limited amount for loans to others. This agreement limits the borrowings to 95% of the aggregate face amount of the mortgages and contains restrictive covenants requiring M/I Financial to maintain minimum net worth and certain minimum financial ratios. At March 31, 1997, borrowings under this agreement were slightly less than the bank's prime rate and were unsecured. The agreement terminates on June 20, 1997, and the unpaid balance of such borrowings are payable on this date. At March 31, 1997, the Company had the right to borrow up to $200.5 million under its credit facilities, including $14.5 million under the M/I Financial loan agreement (95% of the aggregate face amount of eligible mortgage loans). At March 31, 1997, the Company had $78.9 million of unused borrowing availability under its loan agreements. The Company also had approximately $24.6 million of completion bonds and letters of credit outstanding at March 31, 1997. Subordinated Note. In addition, there was outstanding a Subordinated Note in the amount of $25.0 million at March 31, 1997. The maturity date is December 15, 2001 and can be extended two additional years at the Company's option. The Subordinated Note is redeemable, in whole or in part, after one year without penalty or premium. Interest on the Subordinated Note can adjust every three months and is based on LIBOR plus 3.50%. In compliance with the terms of the Subordinated Note, the Company purchased a three year, 9% interest rate cap agreement, effective December 2, 1996 through December 2, 1999. The agreement provides that if the interest rate in effect for each three month period is greater than the cap rate, the bank will pay to the Company the excess interest computed. Cash. Net income from housing and lot and land sales is the Company's primary source of net cash provided by operating activities. Net cash used by operating activities in the three months ended March 31, 1997 was $8.9 million compared to $10.6 million for the prior year. The decrease in net cash used by operating activities was primarily due to a large decrease in accounts receivable and an increase in -13- 14 accounts payable. This was partially offset by an increase in inventories and a decrease in accrued liabilities. Land and Land Development. Over the past several years, the Company's land development activities and land holdings have increased significantly, and the Company expects this trend will continue to increase in the foreseeable future. Lots, land and land development costs increased 8.5% in the first quarter of 1997 from December 31, 1996. The Company anticipates that its land holdings in the Columbus market will increase 50% in 1997. These increases are primarily due to the shortage of qualified land developers in certain of the Company's markets as well as the competitive advantages that can be achieved by developing land internally rather than purchasing lots from developers or other competing homebuilders. This is particularly true for the Company's Horizon product line where, due to the price points the Company targets, lots are generally not available from third party developers at economically feasible prices. The Company continues to purchase lots from outside developers under option contracts, when possible, to limit its risk; however, the Company will continue to evaluate all of its alternatives to satisfy the Company's demand for lots in the most cost effective manner. The $21.3 million increase in notes payable to banks from December 31, 1996 to March 31, 1997 reflects increased borrowings primarily attributable to the seasonal increase in homes under construction, along with an increase in single-family lots, land and land development costs. Houses under construction increased $23.7 million in the first quarter while single-family lots, land and land development costs increased $10.9 million. It is expected that borrowing needs will increase as the Company continues to increase its investment in land under development and developed lots and as its investment in houses under construction increases. In 1994, the Company entered into a land purchase contract which required a greater investment than the Company normally commits. As of March 31, 1997, the Company has closed on the first three phases of a six-phase land purchase contract in the Maryland division. The Company sold a portion of the developed lots from the first and second phases to outside homebuilders and is currently selling a portion of the lots in the third phase to outside homebuilders. The Company has an option to purchase each of the remaining three phases. If the Company purchases all six phases, the total purchase price will be approximately $38.9 million and the land will be developed into approximately 710 lots. As its capital requirements increase, the Company may increase its borrowings under its bank line of credit. In addition, the Company continually explores and evaluates alternative sources from which to obtain additional capital. Treasury Stock. On March 17, 1997, the Company repurchased 500,000 shares of the Company's common stock at $10.50 per share, which represents the closing price of the Company's common stock on March 14, 1997, from the Melvin L. Schottenstein family interests. These shares are held as treasury shares by the Company. The total purchase price was $5,250,000 and was paid from the Company's general working capital. In conjunction with this stock transaction, Lenore S. Sagner resigned from the Board of Directors, and Amy D. Schottenstein was elected to fill the resulting vacancy. INTEREST RATES AND INFLATION The Company's 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 the Company's interest expense as the rate on the revolving loans is based upon floating rates of interest. The weighted average -14- 15 interest rates on the Company's outstanding debt for the three months ended March 31, 1997 was 8.4% as compared to 10.0% for the three months ended March 31, 1996. In conjunction with its mortgage banking operations, the Company uses hedging methods to reduce its exposure to interest rate fluctuations between the commitment date of the loan and the time the loan closes. In recent years, the Company generally has been able to raise prices by amounts at least equal to its cost increases and, accordingly, has not experienced any detrimental effect from inflation. Where the Company develops lots for its own use, inflation may increase the Company's profits because land costs are fixed well in advance of sales efforts. The Company is generally able to maintain costs with subcontractors from the date a home sales contract is accepted; however, in certain situations, unanticipated costs may occur between the time a sales contract is executed and the time a home is constructed, which results in lower gross profit margins. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Company wishes 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 and Analysis of Results of Operations and Financial Condition contains certain forward-looking statements, including, but not limited to, statements regarding the Company's future financial performance and financial condition. These statements involve a number of risks and uncertainties. Any forward-looking statements made by the Company 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 home-building industry is significantly affected by changes in national and local economic and other conditions, including employment levels, changing demographic considerations, availability of financing, interest rates, consumer confidence and housing demand. In addition, homebuilders are subject to various risks, many of them outside the control of the homebuilder, including 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. The Company has benefited during the current fiscal year from a relatively strong national economy and strong local economies in its markets. The Company has benefited as well from steadily low interest rates. If such trends do not continue, the Company's business will be adversely affected. Present and Future Subdivisions. The Company intends for its subdivisions to be built out over time. Therefore, the medium- and long-term financial success of the Company will be dependent on the Company's ability to develop and market its subdivisions successfully. Acquiring land and committing the financial and managerial resources to develop a subdivision involves significant risks. Before a subdivision generates any revenue, material expenditures are required for items such as acquiring land; obtaining development approvals; and constructing project infrastructure (such as roads and utilities), model homes and sales facilities. It generally takes several years for subdivisions to achieve cumulative positive cash flow. Long-term Nature of Projects; Period-to-Period Fluctuations. The majority of the Company's subdivisions are long-term projects. Sales activity at the Company's subdivisions varies from period to period, and the ultimate success of any subdivision cannot necessarily be judged by results in any particular -15- 16 period or periods. A subdivision may generate significantly higher sales levels at inception (whether because of local pent-up demand in the area or other reasons) than it does during later periods over the life of the subdivision. Revenues and earnings of the Company will also be affected by period-to-period fluctuations in the mix of product and home closings among the Company's subdivisions. The Company's Markets. The Company's operations are concentrated in the Columbus and Cincinnati, Ohio; Indianapolis, Indiana; Tampa, Orlando and Palm Beach County, Florida; Charlotte and Raleigh, North Carolina; and Virginia and Maryland metropolitan areas. Although these are stable, established markets in which the Company has operated successfully, there can be no assurance that the stability of these markets or the Company's favorable results there will continue. Adverse general economic conditions in these markets could have a material adverse impact on the operations of the Company. For the three months ended March 31, 1997, approximately 45% of the Company's housing revenue and a significant portion of the Company's operating income was derived from operations in its Columbus, Ohio market. The Company's performance could be significantly affected by changes in this market. The Company has also expanded into a new geographic market, Phoenix, Arizona, which could reduce the Company's dependence upon its existing markets. The Company currently has three employees in Phoenix and is actively pursuing land positions in the Phoenix market. A significant amount of selling and general and administrative expenses are incurred when opening a new division, and, as a result, such expenses will increase in 1997. However, any new markets may prove to be less stable and may involve delays, problems and expenses not typically found by the Company in the existing markets with which it is familiar. Such delays, problems, and expenses would be likely to occur in any new market and may include, without limitation, the development of relationships with local contractors and suppliers, land acquisition and development, construction of new model homes, acquiring local office facilities and hiring additional personnel. Competition. The home-building industry is highly competitive. The Company competes in each of its local market areas with numerous national, regional and local homebuilders, some of which have greater financial, marketing, land acquisition, and sales resources than the Company. Builders of new homes compete not only for home buyers, but also for desirable properties, financing, raw materials and skilled subcontractors. The Company also competes with the resale market for existing homes, which provides certain attraction for home buyers over building a new home. The Company attempts to meet this competition from the home resale market by offering benefits which the resale market for existing homes cannot provide: new home warranties and the flexibility to select precise location, style and elevation, and interior and exterior finishes. Governmental Regulation and Environmental Considerations. The home-building 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 homebuyers. The Company must also obtain licenses, permits and approvals from various governmental agencies for its development activities, the granting of which are beyond the Company's control. Furthermore, increasingly stringent requirements may be imposed on homebuilders and developers in the future. Although the Company cannot predict the impact on the Company of compliance with any such requirements, such requirements could result in time consuming and expensive compliance programs. The Company is 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 -16- 17 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 the Company 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 it will be successful in all cases, the Company has 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 the Company's developments. In addition, the Company has 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, 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 operations by the Company without notice to, or recourse by, the Company. Although the Company's practice of resolving such issues before committing to purchase property tends to reduce the Company's exposure to financial risk as a result of such moratoriums, the Company must utilize its resources in dealing with them. Construction. The Company has from time to time experienced shortages of materials or qualified subcontractors and volatile increases in the cost of certain materials (particularly increases in the price of lumber and framing, which are significant components of home construction costs), resulting in longer than normal construction periods and increased costs not reflected in the prices of homes. Generally, the Company's home sales contract does not contain provisions for price increases if the Company's costs of construction increase. -17- 18 PART II - OTHER INFORMATION 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 - ------ ----------- 10.1 Second Amendment to second restated revolving credit loan and standby letter of credit agreement by and among the Company, Bank One, Columbus, N.A.; The Huntington National Bank; The First National Bank of Chicago; National City Bank of Columbus; The First National Bank of Boston, The Fifth Third Bank of Columbus and Bank One, Columbus, N.A. as agent for the banks, dated May 7, 1997.
-18- 19 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: May 13, 1997 by: /s/ Robert H. Schottenstein ------------------------------ Robert H. Schottenstein President Date: May 13, 1997 by: /s/ Kerrii B. Anderson ------------------------------ Kerrii B. Anderson Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) -19- EX-10.1 2 EXHIBIT 10.1 1 SECOND AMENDMENT TO SECOND RESTATED REVOLVING CREDIT LOAN AND STANDBY LETTER OF CREDIT AGREEMENT This Second Amendment to Second Restated Revolving Credit Loan And Standby Letter Of Credit Agreement (this "Amendment") is made to be effective as of May 7, 1997, by and among M/I SCHOTTENSTEIN HOMES, INC., an Ohio corporation ("Borrower"), BANK ONE, COLUMBUS, N.A., a national banking association ("Bank One"), THE HUNTINGTON NATIONAL BANK, a national banking association ("HNB"), THE FIRST NATIONAL BANK OF CHICAGO, a national banking association ("First Chicago"), NATIONAL CITY BANK OF COLUMBUS, a national banking association ("NCB"), THE FIRST NATIONAL BANK OF BOSTON, a national banking association ("BOB"), THE FIFTH THIRD BANK OF COLUMBUS, an Ohio banking corporation ("Fifth Third") (Bank One, HNB, First Chicago, NCB, BOB and Fifth Third is each a "Bank" and, collectively, "Banks"), and BANK ONE, COLUMBUS, N.A., as agent for Banks ("Agent"). For valuable consideration, the receipt of which is hereby acknowledged, Borrower, Banks and Agent, each intending to be legally bound, hereby recite and agree as follows: BACKGROUND INFORMATION A. Borrower, Bank One, HNB, First Chicago, NCB, BOB, Fifth Third and Agent are parties to a certain Second Restated Revolving Credit Loan and Standby Letter of Credit Agreement effective as of December 30, 1996, as amended by the First Amendment thereto effective as of March 14, 1997 (the "Credit Agreement"). B. Borrower, Banks and Agent want to amend the Credit Agreement by modifying certain obligations of Borrower set forth in Section 6, Affirmative Covenants, and certain limitations on Borrower set forth in Section 7, Negative Covenants. 2 AGREEMENT 1. Subsection 6.13 (Maintenance of Liquidity Ratio) of the Credit Agreement is hereby amended by deleting it in its entirety and replacing it with the following subsection 6.13: 6.13 Maintenance of Liquidity Ratio. Maintain at all times during the Commitment Period a Liquidity Ratio of (a) from May 7, 1997 through and including December 31, 1997, not less than 1.0 to 1.0; and (b) from January 1, 1998 and thereafter, 1.05 to 1.0. 2. Subsection 7.1 (Limitation on Indebtedness) of the Credit Agreement is hereby amended by deleting subparagraph (b) in its entirety and replacing it with the following subparagraph (b): (b) Indebtedness of Borrower and M/I Financial Corp. under the M/I Financial Corp. Loan Agreement, which shall not exceed the aggregate principal amount of $30,000,000 at any time; 3. Subsection 7.2 (Limitation on Liens) of the Credit Agreement is hereby amended by deleting subparagraph (b) in its entirety and replacing it with the following subparagraph (b): (b) Liens granted by M/I Financial Corp. on mortgage notes receivable, which Liens secure Indebtedness permitted under subsection 7.1(b) hereof not in excess of $30,000,000; 4. Subsection 7.3 (Limitation on Contingent Obligations) of the Credit Agreement is hereby amended by deleting subparagraph (b) in its entirety and replacing it with the following subparagraph (b): (b) Contingent Obligations consisting of (i) guaranties by Borrower of M/I Financial Corp.'s lease obligations in an amount not to exceed $1,000,000 in any period of 12 consecutive months, (ii) Borrower's obligations under the M/I Financial Corp. Loan Agreement in a principal amount not to exceed $30,000,000, and (iii) guaranties by any Subsidiary of the obligations of Borrower (including without limitation any guaranty by M/I Financial Corp. of any obligation of Borrower to Banks); 2 3 5. Subsection 7.7 (Limitation on Certain Real Property Expenditures) of the Credit Agreement is hereby amended by deleting it in its entirety and replacing it with the following subsection 7.7: 7.7 Limitation on Certain Real Property Expenditures. Purchase or acquire any Eligible Raw Land and Land Under Development by the expenditure of cash, the incurrence of Indebtedness, as a result of Investment in Joint Venture(s), or otherwise, if as a result of such purchase or acquisition the aggregate cost of all the foregoing then owned by Borrower and its Subsidiaries (including their pro rata share of any undeveloped land that constitutes part of an Investment in Joint Venture) shall exceed (a) as to undeveloped land only, $55,000,000; and (b) as to the sum of undeveloped land and land under development,(i) from May 7, 1997 through and including September 30, 1997, $108,000,000, and (ii) from October 1, 1997 and thereafter, $100,000,000; and, provided further, that the aggregate cost of any individual tract of land acquired by Borrower or any of its Subsidiaries, or their pro rata share of any tract that constitutes part of an Investment in Joint Venture may not exceed $2,000,000 except for land holdings set forth on Exhibit G attached hereto. For purposes of this subsection 7.7, the cost of undeveloped land and land under development shall be determined in accordance with GAAP. Further, for purposes of this subsection 7.7, any tract of land shall cease to be classified as undeveloped land after (i) commencement of the development of such tract into residential lots in good faith and provided the development thereof is completed over a period of not more than one year, or (ii) such tract is the subject of a valid, noncontingent contract of sale with a person who is not an Affiliate or Subsidiary and who is satisfactory to the Required Banks in their sole discretion, provided the sale contemplated by such contract is to be completed not more than two years after the date of the contract. In the event the development of any tract is discontinued for 3 4 a period of 60 days or longer or not completed within one year, such tract shall automatically be deemed to be undeveloped land. 6. Subsection 7.8 (Limitation on Speculative Houses and Eligible Model Houses) of the Credit Agreement is hereby amended by deleting it in its entirety and replacing it with the following subsection 7.8: 7.8 Limitation on Speculative Houses and Eligible Model Houses. Permit the aggregate cost, as determined in accordance with GAAP on a consolidated basis, of (a) Speculative Houses owned by Borrower and its Subsidiaries to exceed $25,000,000 at any one time outstanding, of which not more than $5,000,000 may consist of attached (including townhouse condominiums and condominiums) single family homes, or (b) Eligible Model Houses owned by Borrower and its Subsidiaries to exceed $30,000,000 at any one time outstanding, of which not more than $3,000,000 may consist of attached (including townhouse condominiums and condominiums) single family homes. 7. Subsection 7.9 (Limitation on Investments) of the Credit Agreement is hereby amended by deleting subparagraph (e) in its entirety and replacing it with the following subparagraph (e): (e) any Investments in Joint Ventures, the aggregate cost of which, as determined in accordance with GAAP (excluding, however, Borrower's or its Subsidiaries' equity in the undistributed earnings or losses in each such joint venture, whether such joint venture is a general or limited partnership, a limited liability company, a corporation or any other form of business association), does not at any one time outstanding exceed $20,000,000; provided, however, that with respect to each such joint venture, whether such joint venture is a general partnership, a limited partnership, a limited liability company, a corporation or any other form of business association, Borrower shall have at least a 33 1/3% ownership interest in such joint venture and all decisions with respect to the management and control of each such joint 4 5 venture's business (other than decisions with respect to development of undeveloped land owned by such joint venture) shall require the consent and approval of Borrower; and provided further, however, that no such investment may be made if it causes or results (singly or with other actions or events) in (i) any violation of subsection 7.3 hereof or any other covenant or condition hereof, or (ii) any other Default or Event of Default; 8. Subsection 7.20 (Limitation on Uncommitted Land) of the Credit Agreement is hereby amended by deleting it in its entirety and replacing it with the following subsection 7.20: 7.20 Limitation on Uncommitted Land. Permit the ratio of (a) Uncommitted Land to (b) the sum of Borrower's (i) Shareholders Equity, and (ii) Subordinated Indebtedness to exceed at any one time: (A) from May 7, 1997 through and including December 31, 1997, 1.40 to 1.0; (B) from January 1, 1998 through and including December 31, 1998, 1.35 to 1.0; (C) from January 1, 1999 through and including December 31, 1999, 1.30 to 1.0; and (D) from January 1, 2000 and thereafter, 1.25 to 1.0. 9. Borrower hereby represents and warrants to each Bank and to Agent that it has the corporate power and authority to make, deliver and perform this Amendment and to borrow under the Credit Agreement as amended by this Amendment and has taken all corporate action necessary to be taken by it to authorize the borrowings on the terms and conditions of the Credit Agreement as amended by this Amendment and to authorize the execution, delivery and performance of the Credit Agreement as amended by this Amendment. 10. The Credit Agreement, including without limitation the Borrower's representations, warranties and covenants, as amended by this Amendment, shall remain in full force and effect in accordance with its terms as amended hereby, and upon the effective date of this Amendment, the terms "Agreement" and "this Agreement" shall mean the Credit Agreement as amended by this Amendment. 11. The obligations of the Agent and the Banks pursuant to this Amendment are subject to the satisfaction of the following conditions precedent prior to the effective date of this Amendment: 5 6 (a) Guarantor's Consent and Reaffirmation of Guaranties. Each Bank and Agent shall have received from each of the Subsidiaries of Borrower (which as of the date of this Amendment are M/I Financial Corp., 601RS, Inc., M/I Homes, Inc. and M/I Homes Construction, Inc.) an executed copy of its respective Guarantor's Consent and Reaffirmation of Guaranties (in form and substance satisfactory to each Bank and Agent). (b) Corporate Proceedings of Borrower. Each Bank and Agent shall have received a copy of the resolutions (in form and substance satisfactory to each Bank and Agent) of the Executive Committee of the Board of Directors of Borrower authorizing the execution, delivery and performance of this Amendment, certified by the Secretary or the Assistant Secretary of Borrower as of the date hereof. Such certificate shall state that the resolutions set forth therein have not been amended, modified, revoked or rescinded as of the effective date of this Amendment. (c) Corporate Proceedings of Subsidiaries of Borrower. Each Bank and Agent shall have received a copy of the resolutions (in form and substance satisfactory to each Bank and Agent) of the Sole Shareholder of each the Subsidiaries of Borrower (which as of the date of this Amendment are M/I Financial Corp., 601RS, Inc., M/I Homes, Inc. and M/I Homes Construction, Inc.) authorizing the execution, delivery and performance of its respective Guarantor's Consent and Reaffirmation of Guaranties, each certified by the Secretary or Assistant Secretary of the respective Subsidiary of Borrower as of the date of this Amendment. Such certificate shall state that the resolutions set forth therein have not been amended, modified, revoked or rescinded as of the effective date of this Amendment. (d) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing under the Credit Agreement as of the effective date of this Amendment. 12. This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Amendment shall become effective upon receipt by Agent and each Bank of 6 7 executed counterparts of this Amendment by each of Borrower, Agent and the Required Banks. 13. This Amendment shall be governed by, and construed in accordance with, the local laws of the State of Ohio. IN WITNESS WHEREOF, Borrower, Banks and Agent have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. M/I SCHOTTENSTEIN HOMES, INC. By_________________________________ Robert H. Schottenstein Title: President and Assistant Secretary BANK ONE, COLUMBUS, N.A., as Agent and as a Bank By_________________________________ Thomas D. Igoe Title: Senior Vice President THE HUNTINGTON NATIONAL BANK By_________________________________ James R. Willet Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO By_________________________________ Gregory A. Gilbert Title: Vice President 7 8 NATIONAL CITY BANK OF COLUMBUS By_________________________________ Ralph A. Kaparos Title: Senior Vice President THE FIRST NATIONAL BANK OF BOSTON By_________________________________ Kevin C. Hake Title: Director THE FIFTH THIRD BANK OF COLUMBUS By_________________________________ Mark E. Ransom Title: Vice President 8 9 GUARANTOR'S CONSENT AND REAFFIRMATION OF GUARANTIES The undersigned Guarantor hereby (a) acknowledges that it has read the foregoing Second Amendment to Second Restated Revolving Credit Loan and Standby Letter of Credit Agreement, effective as of May 7, 1997 (the "Second Amendment"), and (b) agrees that each of the undersigned Guarantor's Guaranties dated as of December 30, 1996 of the obligations of M/I Schottenstein Homes, Inc. pursuant to the Second Restated Revolving Credit Loan and Standby Letter of Credit Agreement, as amended by the First Amendment thereto effective as of March 14, 1997 and by the Second Amendment, and all representations, warranties and covenants in each of such Guaranties, continue in full force and effect notwithstanding the Second Amendment. M/I FINANCIAL CORP. By:________________________________ Print Name:_____________________ Title:__________________________ 9 10 GUARANTOR'S CONSENT AND REAFFIRMATION OF GUARANTIES Each of the undersigned Guarantors hereby (a) acknowledges that it has read the foregoing Second Amendment to Second Restated Revolving Credit Loan and Standby Letter of Credit Agreement, effective as of May 7, 1997 (the "Second Amendment"), and (b) agrees that each of the undersigned Guarantor's Guaranties dated as of March 14, 1997 of the obligations of M/I Schottenstein Homes, Inc. pursuant to the Second Restated Revolving Credit Loan and Standby Letter of Credit Agreement, as amended by the First Amendment thereto effective as of March 14, 1997 and by the Second Amendment, and all representations, warranties and covenants in each of such Guaranties, continue in full force and effect notwithstanding the Second Amendment. 601RS, INC. M/I HOMES, INC. M/I HOMES CONSTRUCTION, INC. By:________________________________ Robert H. Schottenstein President and Assistant Secretary of 601RS, Inc.; Vice Chairman of M/I Homes, Inc.; and Vice Chairman of M/I Homes Construction, Inc. 10 EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997 OF M/I SCHOTTENSTEIN HOMES, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 7,474 0 15,754 0 271,803 295,031 11,527 3,460 322,424 65,733 0 0 0 88 110,033 322,424 103,282 105,829 84,073 84,073 0 0 2,362 5,067 2,015 3,052 0 0 0 3,052 0.35 0.35
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