<PAGE> 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
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<PAGE> 2
M/I SCHOTTENSTEIN HOMES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
<S> <C>
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
</TABLE>
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<PAGE> 3
CONSOLIDATED BALANCE SHEETS
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
MARCH 31, December 31,
(Dollars in thousands) 1997 1996
- ---------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
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
==============================================================================================================
</TABLE>
See Notes to Interim Unaudited Consolidated Financial Statements.
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<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
(Dollars in thousands, except per share information) 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
==============================================================================================================
</TABLE>
See Notes to Interim Unaudited Consolidated Financial Statements.
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<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
M/I SCHOTTENSTEIN HOMES, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
================================================================================================================
</TABLE>
See Notes to Interim Unaudited Consolidated Financial Statements.
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<PAGE> 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:
<TABLE>
<CAPTION>
Three Months Ended March 31,
(Dollars in Thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
============================================================================================================
</TABLE>
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.
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 9
HOME-BUILDING SEGMENT
The following table sets forth certain information related to the Company's
home-building segment:
<TABLE>
<CAPTION>
Three Months Ended March 31,
(Dollars in thousands) 1997 1996
====================================================================================================================
<S> <C> <C>
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
====================================================================================================================
</TABLE>
The Phoenix division, which began operations late in 1996, had no
activity for the quarter.
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<PAGE> 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,
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<PAGE> 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:
<TABLE>
<CAPTION>
Three Months Ended March 31,
(Dollars in thousands) 1997 1996
====================================================================================================================
<S> <C> <C>
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
====================================================================================================================
</TABLE>
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<PAGE> 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
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<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
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.
</TABLE>
-18-
<PAGE> 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-
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,474
<SECURITIES> 0
<RECEIVABLES> 15,754
<ALLOWANCES> 0
<INVENTORY> 271,803
<CURRENT-ASSETS> 295,031
<PP&E> 11,527
<DEPRECIATION> 3,460
<TOTAL-ASSETS> 322,424
<CURRENT-LIABILITIES> 65,733
<BONDS> 0
0
0
<COMMON> 88
<OTHER-SE> 110,033
<TOTAL-LIABILITY-AND-EQUITY> 322,424
<SALES> 103,282
<TOTAL-REVENUES> 105,829
<CGS> 84,073
<TOTAL-COSTS> 84,073
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,362
<INCOME-PRETAX> 5,067
<INCOME-TAX> 2,015
<INCOME-CONTINUING> 3,052
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,052
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
