[THIS PAGE INTENTIONALLY LEFT BLANK]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2014
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 HOMES, INC.
(Exact name of registrant as specified in it charter)
Ohio
(State or other jurisdiction of incorporation or organization)
31-1210837
(I.R.S. Employer Identification No.)
3 Easton Oval, Suite 500, Columbus, Ohio 43219
(Address of principal executive offices) (Zip Code)
(614) 418-8000
(Registrant's telephone number, including area code)
Title of each class
Name of each exchange on which registered
Common Shares, par value $.01
Depositary Shares, each representing 1/1000th
of a 9.75% Series A Preferred Share
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
X
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
X
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
X
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
X
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
X
As of June 30, 2014, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market
value of the registrant's common shares (its only class of common equity) held by non-affiliates (23,842,473 shares) was
approximately $578.7 million. The number of common shares of the registrant outstanding as of February 25, 2015 was
24,512,910.
Portions of the registrant’s definitive proxy statement for the 2015 Annual Meeting of Shareholders to be filed pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended, are incorporated by reference into Part III of this Annual Report on
Form 10-K.
DOCUMENT INCORPORATED BY REFERENCE
TABLE OF CONTENTS
PAGE
NUMBER
PART 1.
Item 1.
Business
Items 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II.
Item 5.
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
Item 9A.
Controls and Procedures
Items 9B.
Other Information
PART III.
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
Item 15.
Exhibits, Financial Statement Schedules
PART IV.
Signatures
2
3
10
19
19
19
19
20
22
23
46
48
86
86
87
89
89
89
89
90
91
Special Note of Caution Regarding Forward-Looking Statements
PART I
Certain information included in this report or in other materials we have filed or will file with the Securities and Exchange
Commission (the “SEC”) (as well as information included in oral statements or other written statements made or to be made by
us) contains or may contain forward-looking statements, including, but not limited to, statements regarding our future financial
performance and financial condition. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,”
“believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking
statements. These statements involve a number of risks and uncertainties. Any forward-looking statements that we make 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 risk factors. Please see “Item 1A. Risk Factors” in Part I of this Annual
Report on Form 10-K for more information regarding those risk factors.
Any forward-looking statement speaks only as of the date made. Except as required by applicable law, we undertake no obligation
to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However,
any further disclosures made on related subjects in our subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted. This
discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995, and all of our forward-looking
statements are expressly qualified in their entirety by the cautionary statements contained or referenced in this section.
Item 1. BUSINESS
General
M/I Homes, Inc. and subsidiaries (the “Company,” “we,” “us” or “our”) is one of the nation’s leading builders of single-family
homes. The Company was incorporated, through predecessor entities, in 1973 and commenced homebuilding activities in 1976.
Since that time, the Company has delivered over 90,000 homes.
The Company consists of two distinct operations: homebuilding and financial services. Our homebuilding operations are aggregated
for reporting purposes into three reporting segments - the Midwest, Mid-Atlantic and Southern regions. Our financial services
operations support our homebuilding operations by providing mortgage loans and title services to the customers of our homebuilding
operations and is reported as its own segment. Please see Note 15 of our Consolidated Financial Statements for additional
information related to the financial and operating results for each of our reporting segments noted above.
Our homebuilding operations comprise the most substantial portion of our business, representing 98% of consolidated revenue in
2014 and 97% in 2013. We design, market, construct and sell single-family homes, attached townhomes, and condominiums to
first-time, move-up, empty-nester and luxury buyers. In addition to home sales, our homebuilding operations generate revenue
from the sale of land and lots. We use the term “home” to refer to a single-family residence, whether it is a single-family home or
other type of residential property, and we use the term “community” to refer to a single development in which homes are constructed
primarily in planned development communities and mixed-use communities. We are currently offering homes for sale in 150
communities within 13 markets located in eight states. Our average sales price of homes delivered during 2014 was $313,000,
and the average sales price of our homes in backlog at December 31, 2014 was $348,000. We believe offering homes at a variety
of price points allows us to attract a wide range of buyers. We believe that we distinguish ourselves from competitors by offering
homes in select areas with a high level of design and construction quality within a given price range, providing superior customer
service and offering mortgage banking and title services in order to fully serve our customers. In our experience, this makes the
homebuying process more efficient for our customers.
Our financial services operations generate revenue primarily from originating and selling mortgages and collecting fees for title
insurance and closing services. We offer mortgage banking services to our homebuyers through our 100%-owned subsidiary,
M/I Financial, LLC (“M/I Financial”). We offer title services through subsidiaries that are either 100% or majority owned by the
Company. See our “Financial Services” section below for further description of our financial services operations. Our financial
services operations accounted for 2% of our consolidated revenues in 2014 and 3% in 2013. See the “Financial Services” section
below for additional information regarding our financial services operations.
Our principal executive offices are located at 3 Easton Oval, Suite 500, Columbus, Ohio 43219. The telephone number of our
corporate headquarters is (614) 418-8000 and our website address is www.mihomes.com. Information on our website is not a part
of and shall not be deemed incorporated by reference in this Form 10-K.
3
Markets
Our 13 homebuilding divisions are aggregated into the following three segments for reporting purposes:
Region
Midwest
Midwest
Midwest
Midwest
Southern
Southern
Southern
Southern
Southern
Southern
Mid-Atlantic
Mid-Atlantic
Mid-Atlantic
Market/Division
Columbus, Ohio
Cincinnati, Ohio
Indianapolis, Indiana
Chicago, Illinois
Tampa, Florida
Orlando, Florida
Houston, Texas
San Antonio, Texas
Austin, Texas
Dallas/Fort Worth, Texas
Charlotte, North Carolina
Raleigh, North Carolina
Washington, D.C.
Year Operations Commenced
1976
1988
1988
2007
1981
1984
2010
2011
2012
2013
1985
1986
1991
We believe we have experienced management teams in each of our divisions with local market expertise. Our business requires
in-depth knowledge of local markets to acquire land in desirable locations and on favorable terms, engage subcontractors, plan
communities that meet local demand, anticipate consumer tastes in specific markets, and assess local regulatory environments.
Although we centralize certain functions (such as accounting, human resources, legal, marketing, product development, purchasing
administration, and risk management) to benefit from economies of scale, our local management, generally under the direction of
an Area President and supervised by a Region President, exercises considerable autonomy in identifying land acquisition
opportunities, developing and implementing product and sales strategies, and controlling costs.
Industry Overview and Current Market Conditions
Housing market conditions in 2014 were choppy as we experienced inconsistent and uneven demand in most of our markets
throughout the year. Although our sales pace per community was similar in 2014 compared to 2013, our aggregate new contracts
and our active community count declined 3% and 4%, respectively, in 2014. In addition, our results in 2014 were negatively
impacted by the significant delays we experienced in opening many of our planned new communities during the year. However,
we believe we are in the midst of a long-term multi-year recovery in the homebuilding industry. Housing market conditions, in
general, remain healthy, and we expect continued modest improvement in the overall housing market driven by a growing population
and accelerating household formations, favorable own-versus-rent dynamics, historically attractive affordability levels, low interest
rates, and slow but steady improvement in job growth. New home sales increased modestly in 2014 with 435,000 new homes sold
in the United States compared to 428,000 sold in 2013 and 367,000 sold in 2012, and we expect new home sales to continue to
increase in 2015. The level of housing permits also increased to an estimated 1,033,000 in 2014 compared to 975,000 in 2013
and 780,000 in 2012.
Business Strategy
We believe that our geographic footprint, opportunities for growth in our Texas markets and other markets, and the quality and
significant number of communities that we plan to open in 2015 position us to further improve our profitability and results in 2015.
Given our expectations with respect to housing market conditions, and consistent with our focus on improving long-term financial
results, we will continue to emphasize the following strategic business objectives in 2015:
profitably growing our presence in our existing markets, including opening new communities;
reviewing new markets for investment opportunities;
•
•
• maintaining a strong balance sheet; and
•
emphasizing customer service, product quality and design, and premier locations.
However, we can provide no assurance that the positive trends reflected in our financial and operating metrics in 2013 and 2014
will continue in 2015.
Sales and Marketing
During 2014, we continued to focus our marketing efforts on first-time and move-up homebuyers, including empty-nester
homebuyers and the age-targeted segment. These latter two segments further expand our luxury segment, which allows us to place
4
more emphasis on the re-emergence of our Showcase Collection. We market and sell our homes under the M/I Homes and Showcase
Collection (exclusively by M/I Homes) brands. Our marketing efforts are directed at driving product preference for the M/I Homes
brand as opposed to other homebuilders or the resale market.
We provide our homebuyers with the following products, programs and services which we believe differentiate our brand: (1)
better built and higher quality homes located in attractive areas and desirable communities that are supported, in the majority of
our markets, by our 30-year transferable structural warranty (we offer a 10-year transferable structural warranty in our Texas
markets); (2) upgraded model homes and highly-trained sales consultants to build the buyer’s confidence and enhance the quality
of the homebuying experience; (3) our StyleSmart Design Centers and suite of home design products and StyleSmart Design
Consultants that assist our homebuyers in selecting product and design options; (4) our Whole Home building standards which
are designed to create a more eco-friendly and energy efficient home that will generally save our customers up to 30% on their
energy costs compared to a home that is built to minimum code requirements; (5) our mortgage financing programs that we offer
through M/I Financial, including competitive 30-year fixed-rate loans; (6) our Ready Now Homes program which offers homebuyers
the opportunity to close on certain new homes in 60 days or less; (7) our Confidence Builder Program, which provides our customers
peace of mind throughout the homebuilding process; and (8) our unwavering focus on customer care and customer satisfaction.
We invest in designing and decorating distinctive model homes intended to create an atmosphere reflecting how people live today
and help our customers imagine the possibilities for a “home of their own -- just the way they dreamed it.” We also carefully select
the interior decorating of our model homes to reflect the lifestyles of our prospective buyers. We believe these models showcase
our homes at their maximum livability and potential and provide ideas and inspiration for our customers to incorporate valuable
design options into their new home.
Our company-employed sales consultants are trained and prepared to meet the buyer’s expectations and build the buyer’s confidence
by fully explaining the features and benefits of our homes, helping each buyer determine which home best suits their needs,
explaining the construction process, and assisting the buyer in choosing the best financing option. Significant attention is given
to the ongoing training of all sales personnel to assure a high level of professionalism and product knowledge. As of December 31,
2014, we employed 143 new home sales consultants.
To further enhance the homebuying process, we operate StyleSmart Design Centers in a majority of our markets. Our design
centers allow our homebuyers to select from thousands of product and design options that are available for purchase as part of the
original construction of their homes. Our centers are staffed with StyleSmart Design Consultants who help our homebuyers select
the right combination of options to meet their budget, lifestyle and design sensibilities. In most of our markets, we offer our
homebuyers the option to consider and make design planning decisions using our Envision online design tool. We believe this
tool is very useful for prospective buyers to use during the planning phase and makes their actual visit to our design centers more
productive and efficient as our consultants are able to view their preliminary design selections and pull samples in advance of the
visit.
By offering energy-efficient homes to our customers, we enable our homebuyers to save on their energy costs (the second largest
cost of homeownership), compared to a home that is built to minimum code requirements. We use independent RESNET-Certified
Raters and the HERS (Home Energy Rating System) Index, the national standard for energy efficiency, to measure the performance
of our homes, including insulation, ventilation, air tightness, and the heating and cooling system. Our divisions’ average scores
are generally better than the EPA’s Energy Star standard of 75, 100 for a home built to the minimum code standard, and 130 or
higher for a resale home.
We also offer specialized mortgage financing programs through M/I Financial to assist our homebuyers. M/I Financial offers
conventional financing options along with Federal Housing Authority (“FHA”), U.S. Veterans Administration (“VA”), the United
States Department of Agriculture (“USDA”) and state housing bond programs. M/I Financial often provides closing cost assistance
and below market interest rates.
Through M/I Financial, we continue to look for opportunities in the market to assist the Company’s home sales efforts. M/I
Financial offers our potential homebuyers “one-stop” shopping by providing financing and title services for the purchase of their
home, which we believe saves our customers both time and money. M/I Financial provides our homebuyers with access to several
of what we believe are the best mortgage programs available through its networks, which include many of the major mortgage
providers in the United States. We aim to offer our homebuyers unique programs with below-market financing options that are
more competitive than what a homebuyer could receive on their own. With respect to title services, M/I Financial works closely
with our homebuilding divisions so that we are able to provide an organized and efficient home delivery process.We also build
inventory homes in most of our communities to support our Ready Now Homes program, which offers homebuyers the opportunity
to close on certain new homes in 60 days or less. These homes enhance our marketing and sales efforts to prospective homebuyers
who require a home delivery within a short time frame. We determine our inventory homes strategy in each market based on local
5
market factors, such as job growth, the number of job relocations, housing demand and supply, seasonality and our past experience
in the market. We maintain a level of inventory homes in each community based on our current and planned sales pace, and we
monitor and adjust inventory homes on an ongoing basis as conditions warrant.
Our Confidence Builder Program allows our homebuyers to be actively involved in the construction of their new home, giving
them increased engagement throughout the design and construction process. This program is designed to put the buyer first and
enhance the total homebuying experience. We believe prompt and courteous responses to homebuyers’ needs throughout the
homebuying process reduce post-delivery repair costs, enhance our reputation for quality and service, and encourage repeat and
referral business from homebuyers and the real estate community.
Finally, we believe our ultimate differentiator comes from one of the principles our company was founded upon -- delivering
superior customer service. We hold our teams to a higher standard when it comes to customer care. Our customer satisfaction
scores are measured by an independent third-party company 30 days and 6 months after delivery to hold us accountable for building
a home of the highest quality.
We market our homes using traditional media such as newspapers, magazines, direct mail, billboards, radio and television. The
particular media used differs from market to market based on area demographics and other competitive factors. In recent years,
we have also significantly increased the reach of our websites through enhanced search engine optimization and search engine
marketing. We also have increased the number of referral sites, like Zillow.com and Trulia.com, that we use to drive incremental
leads to our internet sales associates. We also use email and database marketing, which have become an increasingly important
part of our marketing. We use our social media presence to communicate to our customers the experiences of customers who have
bought an M/I home and to provide social content about our homes and design features. In the last five years, we have experienced
a significant increase in sales demand from buyers who initially identified us online.
Product Lines, Design and Construction
Our residential communities are generally located in suburban areas that are easily accessible through public and personal
transportation. Our communities are designed as neighborhoods that fit existing land characteristics. We strive to achieve diversity
among architectural styles within a community by offering a variety of house models and several exterior design options for each
model and preserve existing trees and foliage whenever practicable. Normally, homes of the same type or color may not be built
next to each other. We believe our communities have attractive entrances with distinctive signage and landscaping and our added
attention to community detail avoids a “development” appearance and gives each community a diversified neighborhood
appearance.
We offer homes ranging from a base sales price of approximately $140,000 to $1,000,000 and from approximately 1,300 to 5,500
square feet. In addition to single-family detached homes, we also offer attached townhomes in most of our markets as well as
condominiums in our Columbus and Washington, D.C. markets. By offering a wide range of homes, we are able to attract first-
time, move-up, empty-nester and luxury homebuyers. It is our goal to sell more than one home to our buyers, and we believe we
have had success in this pursuit.
We devote significant resources to the research, design and development of our homes to meet the demands of our buyers as well
as the changing market requirements. Across all of our divisions, we currently offer over 630 different floor plans designed to
reflect current lifestyles and design trends. In late 2012, we reintroduced our Showcase Collection in the Midwest, which is
designed for our move-up, empty-nester and luxury homebuyers and offers more design options, larger floor plans, and a higher-
end product line of homes in upscale communities. In 2014, our Showcase Collection expanded significantly in several of our
markets. In addition, we are developing new plans and communities specifically for the growing empty-nester market. These
plans (primarily ranch and main floor master bedroom type plans) focus on move-down buyers, are smaller in size, and feature
outdoor living potential, fewer bedrooms, and better community amenities. We have value-engineered all of our product lines to
reduce production costs and construction cycle times while adhering to our quality standards and using materials and construction
techniques that reflect our commitment to more environmentally conscious homebuilding methods. It is a core value of M/I Homes
to offer homes that are current in design and lifestyle trends. As a rule, our homebuilding divisions share successful plans with
other divisions, when appropriate, for use in new markets.
All of our homes are constructed according to proprietary designs that meet the applicable FHA and VA requirements and all local
building codes. We attempt to maintain efficient operations by utilizing standardized materials. Our raw materials consist primarily
of lumber, concrete and similar construction materials, and while these materials are generally available from a variety of sources,
we have reduced construction and administrative costs by executing national purchasing contracts with select vendors. Our homes
are constructed according to standardized prototypes which are designed and engineered to provide innovative product design
while attempting to minimize costs of construction and control product consistency and availability. We generally employ
subcontractors for the installation of site improvements and the construction of homes. The construction of each home is supervised
6
by a Personal Construction Supervisor who reports to a Production Manager, both of whom are employees of the Company. Our
Personal Construction Supervisors manage the scheduling and construction process. Subcontractor work is performed pursuant
to written agreements that require our subcontractors to comply with all applicable laws and labor practices, follow local building
codes and permits, and meet performance, warranty, and insurance requirements. The agreements are generally short-term, with
terms from six to twelve months, and specify a fixed price for labor and materials. The agreements are structured to provide price
protection for a majority of the higher-cost phases of construction for homes in our backlog. In 2014, we have experienced modest
construction delays due to shortage of materials or labor; however, we cannot predict the extent to which shortages in necessary
materials or labor may occur in the future. The materials are substantially comprised of natural resource commodities; therefore,
their cost and availability is subject to national and worldwide price fluctuations and inflation, each of which could be impacted
by legislation or regulation relating to energy and climate change.We generally begin construction in a majority of our homes after
we have obtained a sales contract and preliminary oral confirmation from the buyer’s lender that financing should be approved.
In certain markets, contracts may be accepted contingent upon the sale of an existing home, and construction may be authorized
through a certain phase prior to satisfaction of that contingency. The construction of our homes typically takes approximately four
to six months from the start of construction to completion of the home, depending on the size and complexity of the particular
home being built, weather conditions, and the availability of labor, materials, and supplies.
We also begin construction on inventory homes (i.e., homes started in the absence of an executed contract) to facilitate delivery
of homes on an immediate-need basis under our Ready Now Homes program and to provide presentation of new products. For
some prospective buyers, selling their existing home has become a less predictable process and, as a result, when they sell their
home, they often need to find, buy and move into a new home in 60 days or less. Other buyers simply prefer the certainty provided
by being able to fully visualize a home before purchasing it. Of the total number of homes closed in 2014 and 2013, 55% and
56%, respectively, were inventory homes which include both homes started as inventory homes and homes that started under a
contract that were later cancelled and became inventory homes as a result.
Backlog
We sell our homes under standard purchase contracts, which generally require a homebuyer deposit at the time of signing the
contract. The amount of the deposit varies among markets and communities. Homebuyers are also generally required to pay
additional deposits when they select options or upgrades for their homes. Most of our home purchase contracts stipulate that if a
homebuyer cancels a contract with us, we have the right to retain the homebuyer’s deposits. However, we generally permit our
homebuyers to cancel their obligations and obtain refunds of all or a portion of their deposits, unless home construction has started,
in the event mortgage financing cannot be obtained within the period specified in their contract as a means to maintain goodwill
with the potential buyer.
Backlog consists of homes that are under contract but have not yet been delivered. Ending backlog represents the number of homes
in backlog from the previous period plus the number of net new contracts (new contracts for homes less cancellations) generated
during the current period minus the number of homes delivered during the current period. The backlog at any given time will be
affected by cancellations. Due to the seasonality of the homebuilding industry, the number of homes delivered has historically
increased from the first to the fourth quarter in any year.
As of December 31, 2014, we had a total of 1,222 homes, with $425.2 million aggregate sales value, in backlog in various stages
of completion, including homes that are under contract but for which construction had not yet begun. As of December 31, 2013,
we had a total of 1,280 homes, with $408.0 million aggregate sales value, in backlog. Homes included in year-end backlog are
typically included in homes delivered in the subsequent year.
Warranty
We provide certain warranties in connection with our homes and also have a program to perform multiple inspections on each
home that we sell. Immediately prior to delivery and as needed after a home is delivered, we inspect each home with the buyer.
The Company offers a limited warranty program (“Home Builder’s Limited Warranty”) and a ten or thirty-year transferable
structural limited warranty on homes delivered in or after 2007. The Home Builder’s Limited Warranty covers construction defects
for a statutory period based on geographic market and state law (currently ranging from five to ten years for the states in which
the Company operates) and includes a mandatory arbitration clause. To increase the value of the ten or thirty-year structural
warranty, this warranty is transferable in the event of the sale of the home. We also pass along to our homebuyers all warranties
provided by the manufacturers or suppliers of components installed in each home. Although our subcontractors are generally
required to repair and replace any product or labor defects during their respective warranty periods, we are ultimately responsible
to the homeowner for making such repairs during our applicable warranty period. Accordingly, with the assistance of an actuary,
we have estimated and established reserves for future structural warranty costs based on the number of home deliveries and
7
historical data trends for our communities. Our warranty expense was approximately 1.1%, 0.9% and 1.0% of total housing revenue
in 2014, 2013 and 2012, respectively.
Land Acquisition and Development
We continuously evaluate land acquisition opportunities in the normal course of our homebuilding business, and we focus on both
the replenishment of our lot positions and adding to our lot positions in key submarkets to expand our market share. Our goal is
to maintain an approximate five-year supply of lots, including lots controlled under option contracts and purchase agreements,
which we believe provides an appropriate horizon for addressing regulatory matters and land development and the subsequent
build-out of the homes in each community, and allows us to manage our business plan for future home deliveries.
We seek to meet our need for lots by obtaining advantageous land positions in desirable locations in a cost effective manner that
is responsive to market conditions and maintains our financial strength and liquidity. Before entering into a contract to acquire
land, we complete extensive comparative studies and analyses, which assist us in evaluating the economic feasibility of the land
acquisition. We consider a number of factors, including projected rates of return, estimated gross margins, and projected pace of
absorption and sales prices of the homes to be built, all of which are impacted by our evaluation of population and employment
growth patterns, demographic trends and competing new home subdivisions and resales in the relevant sub-market.
We attempt to acquire land with a minimum cash investment and negotiate takedown options where they are available from sellers.
We also restrict the use of guarantees or commitments in our land contracts to limit our financial exposure to the amounts invested
in the property and pre-development costs during the life of the community we are developing. We believe this approach significantly
reduces our risk. In addition, we generally obtain necessary development approvals before we acquire land. We acquire land
primarily through contingent purchase agreements, which typically condition our obligation to purchase land upon approval of
zoning, utilities, soil and subsurface conditions, environmental and wetland conditions, market analysis, development costs, title
matters and other property-related criteria. We only enter into a commitment to purchase land after we complete a thorough market
and financial evaluation. All land purchase agreements and the funding of land purchases require the approval of our land committee.
In 2014, we increased our investments in land acquisition, land development and housing inventory to meet increasing housing
demand and expand our operations in certain markets. In both 2014 and 2013, we developed over 79% of our lots internally,
primarily due to a lack of availability of developed lots in desirable locations in the market. Raw land that requires development
generally remains more available. In order to minimize our investment and risk of large exposure in a single location, we have
periodically partnered with other land developers or homebuilders to share in the cost of land investment and development through
joint ownership and development agreements, joint ventures, and other similar arrangements. For joint venture arrangements
where a special purpose entity is established to own the property, we enter into limited liability company or similar arrangements
(“LLCs”) with the other partners. Further details relating to our unconsolidated joint ventures are included in Note 1 to our
Consolidated Financial Statements.
During the development of lots, we are required by some municipalities and other governmental authorities to provide completion
bonds or letters of credit for sewer, streets and other improvements. The development agreements under which we are required
to provide completion bonds or letters of credit are generally not subject to a required completion date and only require that the
improvements are in place in phases as homes are built and sold. In locations where development has progressed, the amount of
development work remaining to be completed is typically less than the remaining amount of bonds or letters of credit due to timing
delays in obtaining release of the bonds or letters of credit. Our ability to continue development activities over the long-term will
depend upon, among other things, a suitable economic environment and our continued ability to locate suitable parcels of land,
enter into options or agreements to purchase such land, obtain governmental approvals for such land, and consummate the acquisition
and development of such land.
Purchase agreements to acquire developed lots and raw land to be developed are generally contingent upon satisfaction of certain
requirements by us and the sellers, such as zoning approval and availability of building permits. Further details relating to our
land option agreements are included in Note 1 to our Consolidated Financial Statements. All land and lot acquisitions are approved
by our corporate land acquisition committee, which is comprised of our senior management team and key operating and financial
executives.
8
In the normal course of our homebuilding business, we balance the economic risk of owning lots and land with the necessity of
having lots available for construction of our homes. The following table sets forth our land position in lots (including lots held
in unconsolidated joint ventures) at December 31, 2014:
Region
Midwest
Southern
Mid-Atlantic
Total
Lots Owned
Developed
Lots
Lots Under
Development
Undeveloped
Lots (a)
Total
Lots
Owned
Lots Under
Contract
1,455
1,159
836
3,450
352
1,456
542
2,350
1,744
2,401
1,416
5,561
3,551
5,016
2,794
11,361
2,156
4,900
2,308
9,364
Total
5,707
9,916
5,102
20,725
(a)
Includes our interest in raw land held by unconsolidated joint ventures expected to be developed into 1,120 lots.
Financial Services
We sell our homes to customers who generally finance their purchases through mortgages. M/I Financial provides our customers
with competitive financing and coordinates and expedites the loan origination transaction through the steps of loan application,
loan approval, and closing and title services. M/I Financial provides financing services in all of our housing markets. We believe
that our ability to offer financing to customers on competitive terms as a part of the sales process is an important factor in completing
sales. In addition to financing the purchase of new homes, M/I Financial also provides refinance options for both previous M/I
Homes purchasers and the general public.
M/I Financial has been approved by the U.S. Department of Housing and Urban Development, the VA and the USDA to originate
mortgages that are insured and/or guaranteed by these entities. In addition, M/I Financial has been approved by the Federal Home
Loan Mortgage Corporation (“Freddie Mac”) and by the Federal National Mortgage Association (“Fannie Mae”) as a seller and
servicer of mortgages and as a Government National Mortgage Association (“Ginnie Mae”) issuer. Our agency approvals, along
with a sub-servicing relationship, allow us to sell loans on either a servicing released or servicing retained basis. This option
provides flexibility and additional financing options to our customers.
We also provide title and closing services to purchasers of our homes through our 100%-owned subsidiaries, TransOhio Residential
Title Agency Ltd. M/I Title Agency Ltd., and M/I Title LLC and our majority-owned subsidiary, Washington/Metro Residential
Title Agency, LLC. Through these entities, we serve as a title insurance agent by providing title insurance policies and examination
and closing services to purchasers of our homes in Columbus, Tampa, Orlando, San Antonio, Houston and the Washington, D.C.
markets. In addition, TransOhio Residential Title Agency Ltd., provides examination and title insurance services to our housing
markets in Raleigh, Charlotte, Chicago, Indianapolis and Cincinnati. We assume no underwriting risk associated with the title
policies.
Corporate Operations
Our corporate operations and home office are located in Columbus, Ohio, where we perform the following functions at a centralized
level:
establish strategy, goals and operating policies;
ensure brand integrity and consistency across all local and regional communications;
•
•
• monitor and manage the performance of our operations;
•
•
allocate capital resources;
provide financing and perform all cash management functions for the Company, and maintain our relationship with
lenders;
• maintain centralized information and communication systems; and
• maintain centralized financial reporting, internal audit functions, and risk management.
Competition
The homebuilding industry is fragmented and highly competitive. We operate as a top ten builder in the majority of our markets.
We compete with numerous national, regional, and local homebuilders in each of the geographic areas in which we operate. Our
competition ranges from small local builders to larger regional builders to publicly owned builders and developers, some of which
have greater financial, marketing, land acquisition, and sales resources than us. Previously owned homes and the availability of
rental housing provide additional competition. We compete primarily on the basis of price, location, design, quality, service, and
9
reputation. Our financial services operations compete with other mortgage lenders to arrange financings for homebuyers. Principal
competitive factors include interest rates and other features of mortgage loan products available to the consumer.
Government Regulation and Environmental Matters
Our homebuilding and financial services operations are subject to compliance with numerous laws and regulations. Our
homebuilding operations must comply with various federal, state and local statutes, ordinances, rules and regulations concerning
environmental, zoning, building, design, construction, sales, and similar matters. These regulations increase the cost to produce
and market our products, and in some instances, delay our developers’ ability to deliver finished lots to us. Counties and cities in
which we build homes have at times declared moratoriums on the issuance of building permits and imposed other restrictions in
the areas in which sewage treatment facilities and other public facilities do not reach minimum standards. In addition, our
homebuilding operations are regulated in certain areas by restrictive zoning and density requirements that limit the number of
homes that can be built within the boundaries of a particular area.
Our mortgage company and title insurance agencies must comply with various federal and state laws and regulations (including
requirements for participation in programs offered by FHA, VA, USDA, Ginnie Mae, Fannie Mae and Freddie Mac). These laws
and regulations restrict certain activities of our financial services operations as further described in our description of “Risk Factors”
within Item 1 Part 1. In addition, our financial services operations are subject to regulation at the state and federal level, including
regulations issued by the Consumer Financial Protection Bureau (the “CFPB”) with respect to specific origination, selling and
servicing practices.
Seasonality
Our homebuilding operations experience significant seasonality and quarter-to-quarter variability in homebuilding activity levels.
In general, homes delivered increase substantially in the second half of the year. We believe that this seasonality reflects the
tendency of homebuyers to shop for a new home in the spring with the goal of closing in the fall or winter, as well as the scheduling
of construction to accommodate seasonal weather conditions. Our financial services operations also experience seasonality because
their loan originations correspond with the delivery of homes in our homebuilding operations.
Employees
At December 31, 2014, we employed 905 people (including part-time employees), of which 716 were employed in homebuilding
operations, 107 were employed in financial services and 82 were employed in management and administrative services. No
employees are represented by a collective bargaining agreement.
Available Information
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and file
annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission
(“SEC”). These filings are available to the public over the internet on the SEC’s website at www.sec.gov. Our periodic reports
and any other information we file with the SEC may be inspected without charge and copied at the SEC’s Public Reference Room
at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the Public Reference Room.
Our website address is www.mihomes.com. We make available, free of charge, on or through our website, our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or
furnish it to, the SEC. Our website also includes printable versions of our Corporate Governance Guidelines, our Code of Business
Conduct and Ethics, and the charters for each of our Audit, Compensation, and Nominating and Corporate Governance Committees.
The contents of our website are not incorporated by reference in, or otherwise made a part of, this Annual Report on Form 10-K.
Item 1A. RISK FACTORS
Our future results of operations, financial condition and liquidity and the market price for our securities are subject to numerous
risks, many of which are driven by factors that cannot be controlled or predicted. The following cautionary discussion of risks,
uncertainties and assumptions relevant to our business includes factors we believe could cause our actual results to differ materially
from expected and historical results. Other factors beyond those listed below, including factors unknown to us and factors known
to us which we have not currently determined to be material, could also adversely affect our business, results of operations, financial
condition, prospects and cash flows. Also see “Forward-looking Statements” above.
10
Homebuilding Market and Economic Risks
The homebuilding industry is cyclical and affected by changes in general economic, real estate and other business conditions
that could adversely affect our results of operations, financial condition and cash flows.
Certain economic, real estate and other business conditions that have significant effects on the homebuilding industry include:
employment levels and job and personal income growth;
availability and pricing of financing for homebuyers;
short and long-term interest rates;
overall consumer confidence and the confidence of potential homebuyers in particular;
demographic trends;
changes in energy prices;
housing demand from population growth, household formation and other demographic changes, among other factors;
•
•
•
•
•
•
•
• U.S. and global financial system and credit market stability;
•
private party and governmental residential consumer mortgage loan programs, and federal and state regulation of lending
and appraisal practices;
federal and state personal income tax rates and provisions, including provisions for the deduction of residential consumer
mortgage loan interest payments and other expenses;
the supply of and prices for available new or existing homes (including lender-owned homes acquired through foreclosures
and short sales) and other housing alternatives, such as apartments and other residential rental property;
homebuyer interest in our current or new product designs and community locations, and general consumer interest in
purchasing a home compared to choosing other housing alternatives; and
real estate taxes.
•
•
•
•
These above conditions, among others, are complex and interrelated. Adverse changes in such business conditions may have a
significant negative impact on our business. The negative impact may be national in scope but may also negatively affect some
of the regions or markets in which we operate more than others. When such adverse conditions affect any of our larger markets,
those conditions could have a proportionately greater impact on us than on some other homebuilding companies. We cannot predict
their occurrence or severity, nor can we provide assurance that our strategic responses to their impacts would be successful.
Potential customers may be less willing or able to buy our homes if any of these conditions have a negative impact on the
homebuilding industry. In the future, our pricing strategies may be limited by market conditions. We may be unable to change
the mix of our home offerings, reduce the costs of the homes we build or offer more affordable homes to maintain our gross margins
or satisfactorily address changing market conditions in other ways. In addition, cancellations of home sales contracts in backlog
may increase as homebuyers choose to not honor their contracts.
Our financial services business is closely related to our homebuilding business, as it originates mortgage loans principally on
behalf of purchasers of the homes we build. A decrease in the demand for our homes because of the existence of any of the
foregoing conditions could also adversely affect the financial results of this segment of our business.
Increased competition levels in the homebuilding and mortgage lending industries could result in a reduction in our new
contracts and homes delivered, along with decreases in the average sales prices of sold and delivered homes and/or decreased
mortgage originations, which would have a negative impact on our results of operations.
The homebuilding industry is fragmented and highly competitive. We compete with numerous public and private homebuilders,
including a number that are substantially larger than us and may have greater financial resources than we do. We also compete
with community developers and land development companies, some of which are themselves homebuilders or affiliates of
homebuilders. Homebuilders compete for customers, land, building materials, subcontractor labor and financing. Competition
for home orders primarily is based upon home sales price, location of property, home style, financing available to prospective
homebuyers, quality of homes built, customer service and general reputation in the community, and may vary by market, submarket
and even by community. Additionally, competition within the homebuilding industry can be impacted through an excess supply
of new and existing homes available for sale resulting from a number of factors including, among other things, increases in unsold
started homes available for sale and increases in home foreclosures. Increased competition can cause us to decrease our home
sales prices and/or increase home sales incentives in an effort to generate new home sales and maintain homes in backlog until
they close. Increased competition can also result in us selling fewer homes or experiencing a higher number of cancellations by
homebuyers. These competitive pressures may negatively impact our future financial and operating results.
Through our financial services operations, we also compete with numerous banks and other mortgage bankers and brokers, many
of which are larger than us and may have greater financial resources than we do. Competitive factors that affect our consumer
11
services operations include pricing, mortgage loan terms, underwriting criteria and customer service. To the extent that we are
unable to adequately compete with other companies that originate mortgage loans, the results of operations from our mortgage
operations may be negatively impacted.
New government regulations may make it more difficult for potential purchasers to finance home purchases and may reduce
the number of mortgage loans our financial services segment makes.
Further tightening of mortgage lending standards and practices and/or reduced credit availability for mortgages may result from
the implementation or enforcement of regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
“Dodd-Frank Act”). Among other things, the Dodd-Frank Act established several requirements relating to the origination,
securitizing and servicing of, and consumer disclosures for, mortgage loans. Other requirements provided for by the Dodd-Frank
Act have not yet been finalized or implemented. The effect of such provisions on our financial services business, both mortgage
and title operations, will depend on the rules that are ultimately enacted which could have an adverse effect on our business if
certain buyers are unable to obtain mortgage financing. A prolonged tightening of the financial markets could also negatively
impact our business.
In addition, new rules regarding loan estimates, closing disclosures and fees are scheduled to be implemented in August 2015 by
the Consumer Financial Protection Bureau (CFPB). The effect of these rules on our homebuilding and financial services businesses
have yet to be determined, and could affect the availability and cost of mortgage credit.
Standards or requirements provided for by the Dodd-Frank Act or other laws or regulations could make it more difficult for some
potential buyers to finance home purchases and could result in our financial services segment originating fewer mortgages, which,
in turn, could have an adverse effect on our future revenues and earnings.
A reduction in the availability of mortgage financing or an increase in mortgage interest rates or down payment requirements
could adversely affect our business.
Any reduction in the availability of the financing provided by the Federal National Mortgage Association (“Fannie Mae “) and
the Federal Home Loan Mortgage Corporation (“Freddie Mac”) could adversely affect interest rates, mortgage availability and
our sales of new homes and origination of mortgage loans.
FHA and VA mortgage financing support continues to be an important factor in marketing our homes. The increased demands on
the FHA, which have resulted in a reduction of its cash reserves, has led to additional regulations and requirements. Any increases
in down payment requirements, lower maximum loan amounts, or limitations or restrictions on the availability of FHA and VA
financing support could adversely affect interest rates, mortgage availability and our sales of new homes and origination of mortgage
loans.
Even if potential customers do not need financing, changes in the availability of mortgage products may make it harder for them
to sell their current homes to potential buyers who need financing, which may lead to lower demand for new homes.
If interest rates increase, the costs of owning a home will be affected and could reduce the demand for our homes. Similarly,
potential changes to the tax code with respect to deduction of home mortgage interest payments or other changes may decrease
affordability of and demand for homeownership.
Many of our homebuyers obtain financing for their home purchases from our M/I Financial subsidiary. If, due to the factors
discussed above, M/I Financial is limited from making or unable to make loan products available to our homebuyers, our home
sales and our homebuilding and financial services results of operations may be adversely affected.
If land is not available at reasonable prices or terms, our homes sales revenue and results of operations could be negatively
impacted and/or we could be required to scale back our operations in a given market.
Our operations depend on our ability to obtain land for the development of our communities at reasonable prices and with terms
that meet our underwriting criteria. Our ability to obtain land for new communities may be adversely affected by changes in the
general availability of land, the willingness of land sellers to sell land at reasonable prices, competition for available land, availability
of financing to acquire land, zoning, regulations that limit housing density and other market conditions. If the supply of land, and
especially developed lots, appropriate for development of communities is limited because of these factors, or for any other reason,
the number of homes that we build and sell may decline. To the extent that we are unable to timely purchase land or enter into
new contracts for the purchase of land at reasonable prices, due to the lag time between the time we acquire land and the time we
begin selling homes, our revenue and results of operations could be negatively impacted and/or we could be required to scale back
our operations in a given market.
12
Our land investment exposes us to significant risks, including potential impairment charges, that could negatively impact our
profits if the market value of our inventory declines.
We must anticipate demand for new homes several years prior to homes being sold to homeowners. There are significant risks
inherent in controlling or purchasing land, especially as the demand for new homes fluctuates. There is often a significant lag
time between when we acquire land for development and when we sell homes in neighborhoods we have planned, developed and
constructed. The value of undeveloped land, building lots and housing inventories can fluctuate significantly as a result of changing
market conditions. In addition, inventory carrying costs can be significant, and fluctuations in value can result in reduced profits.
Economic conditions could require that we sell homes or land at a loss, or hold land in inventory longer than planned, which could
significantly impact our financial condition, results of operations, cash flows and stock performance. Additionally, if conditions
in the homebuilding industry decline in the future, we may be required to evaluate our inventory for potential impairment, which
may result in additional valuation adjustments, which could be significant and could negatively impact our financial results and
condition. We cannot make any assurances that the measures we employ to manage inventory risks and costs will be successful.
Supply shortages and risks related to the demand for skilled labor and building materials could increase costs and delay
deliveries.
The residential construction industry experiences labor and material shortages and risks from time to time, including: work
stoppages; labor disputes; shortages in qualified subcontractors and construction personnel; lack of availability of adequate utility
infrastructure and services; our need to rely on local subcontractors who may not be adequately capitalized or insured; and delays
in availability, or fluctuations in prices, of building materials. These labor and material shortages and risks can be more severe
during periods of strong demand for housing or during periods in which the markets where we operate experience natural disasters
that have a significant impact on existing residential and commercial structures. Any of these circumstances could delay the start
or completion of our communities, increase the cost of developing one or more of our communities and increase the construction
cost of our homes. To the extent that market conditions prevent the recovery of increased costs, including, among other things,
subcontracted labor, developed lots, building materials, and other resources, through higher sales prices, our gross margins from
home sales and results of operations could be adversely affected.
Increased costs of lumber, framing, concrete, steel and other building materials could cause increases in construction costs. We
generally are unable to pass on increases in construction costs to customers who have already entered into sales contracts, as those
sales contracts generally fix the price of the homes at the time the contracts are signed, which may occur before construction
begins. Sustained increases in construction costs may, over time, erode our gross margins from home sales, particularly if pricing
competition restricts our ability to pass on any additional costs of materials or labor, thereby decreasing our gross margins from
home sales.
We depend on the continued availability of and satisfactory performance of subcontracted labor for the construction of our homes
and to provide related materials. As the homebuilding market recovers from the downturn, we have experienced in 2013 and 2014,
and may continue to experience, modest skilled labor shortages. The cost of labor may also be adversely affected by shortages of
qualified subcontractors and construction personnel, changes in laws and regulations relating to union activity and changes in
immigration laws and trends in labor migration. We cannot be assured that there will be a sufficient supply or satisfactory
performance by these unaffiliated third-party subcontractors, which could have a material adverse effect on our business.
Tax law changes could make home ownership more expensive or less attractive.
Under current U.S. tax law and policy, significant expenses of owning a home, including residential consumer mortgage loan
interest costs and real estate taxes, generally are deductible expenses for the purpose of calculating an individual’s federal, and in
some cases state, taxable income, subject to various limitations. If the federal government or a state government changes income
tax laws, as some policy makers and a presidential commission have proposed, by eliminating or substantially reducing these
income tax benefits, the after-tax cost of owning a home could increase substantially. This could adversely impact demand for
and/or sales prices of new homes.
Inflation can adversely affect us, particularly in a period of declining home sale prices.
Inflation can have a long-term impact on us because if the costs of land, materials and labor increase, we would need to attempt
to increase the sale prices of homes in order to maintain satisfactory margins. In a highly inflationary environment, we may be
precluded from raising home prices enough to keep up with the rate of inflation, which could reduce our profit margins. In addition,
significant inflation is often accompanied by higher interest rates, which have a negative impact on demand for our homes.
Moreover, with inflation, the costs of capital will likely increase and the purchasing power of our cash resources can decline.
Although the rate of inflation has been low for the last several years, we have experienced some increases in the prices of labor
13
and materials and some economists predict that government spending programs and other factors could lead to significant inflation
in the future.
Our geographic diversification could adversely affect us if the homebuilding industry in our markets declines.
We have operations in Ohio, Indiana, Illinois, Maryland, Virginia, North Carolina, Florida and Texas. Our limited geographic
diversification could adversely impact us if the homebuilding business in our current markets declines, since there may not be a
balancing opportunity in a stronger market in other geographic regions.
Changes in energy prices may have an adverse effect on the economies in certain markets we operate in and our cost of building
homes.
The economies of some of the markets in which we operate are impacted by the health of the energy industry. To the extent that
energy prices significantly decline, the economies of certain of our markets may be negatively impacted which could have a
material adverse effect on our business. Furthermore, the pricing offered by our suppliers and subcontractors can be adversely
affected by increases in various energy costs resulting in a negative impact on our financial condition, results of operations and
cash flows.
Operational Risks
We may not be successful in integrating acquisitions or implementing our growth strategies.
We may in the future consider growth or expansion of our operations in our current markets or in other areas of the country, whether
through strategic acquisitions of homebuilding companies or otherwise. The magnitude, timing and nature of any future expansion
will depend on a number of factors, including our ability to identify suitable additional markets and/or acquisition candidates, the
negotiation of acceptable terms, our financial capabilities and general economic and business conditions. Our expansion into new
or existing markets, whether through acquisition or otherwise, could have a material adverse effect on our liquidity and/or
profitability, and any future acquisitions could result in the dilution of existing shareholders if we issue our common shares as
consideration. Acquisitions also involve numerous risks, including difficulties in the assimilation of the acquired company's
operations, the incurrence of unanticipated liabilities or expenses, the risk of impairing inventory and other assets related to the
acquisition, the diversion of management's attention and resources from other business concerns, risks associated with entering
markets in which we have limited or no direct experience and the potential loss of key employees of the acquired company.
We have financial needs that we meet through the capital markets, including the debt and secondary mortgage markets, and
disruptions in these markets could have an adverse impact on our results of operations, financial position and/or cash flows.
We have financial needs that we meet through the capital markets, including the debt and secondary mortgage markets. Our
requirements for additional capital, whether to finance operations or to service or refinance our existing indebtedness, fluctuate
as market conditions and our financial performance and operations change. We cannot provide assurances that we will maintain
cash reserves and generate sufficient cash flow from operations in an amount to enable us to service our debt or to fund other
liquidity needs.
The availability of additional capital, whether from private capital sources or the public capital markets, fluctuates as our financial
condition and general market conditions change. There may be times when the private capital markets and the public debt or
equity markets lack sufficient liquidity or when our securities cannot be sold at attractive prices, in which case we would not be
able to access capital from these sources. In addition, a weakening of our financial condition or deterioration in our credit ratings
could adversely affect our ability to obtain necessary funds. Even if financing is available, it could be costly or have other adverse
consequences.
There are a limited number of third-party purchasers of mortgage loans originated by our financial services operations. The exit
of third-party purchasers of mortgage loans from the business, reduced investor demand for mortgage loans and mortgage-backed
securities in the secondary mortgage markets and increased investor yield requirements for those loans and securities may have
an adverse impact on our results of operations, financial position and/or cash flows.
The mortgage warehousing agreement of our financial services segment will expire in March 2015.
M/I Financial is party to a $110 million secured mortgage warehousing agreement, as amended on March 28, 2014, among M/I
Financial, the lenders party thereto and the administrative agent (the “MIF Mortgage Warehousing Agreement”). M/I Financial
uses the MIF Mortgage Warehousing Agreement to finance eligible residential mortgage loans originated by M/I Financial. The
MIF Mortgage Warehousing Agreement will expire on March 27, 2015. If we are unable to renew or replace the MIF Mortgage
14
Warehousing Agreement when it matures, the activities of our financial services segment could be seriously impeded and our home
sales and our homebuilding and financial services results of operations may be adversely affected.
Reduced numbers of home sales may force us to absorb additional carrying costs.
We incur many costs even before we begin to build homes in a community. These include costs of preparing land and installing
roads, sewage and other utilities, as well as taxes and other costs related to ownership of the land on which we plan to build homes.
Reducing the rate at which we build homes extends the length of time it takes us to recover these additional costs. Also, we
frequently enter into contracts to purchase land and make deposits that may be forfeited if we do not fulfill our purchase obligation
within specified periods.
If our ability to resell mortgages to investors is impaired, we may be required to broker loans.
M/I Financial sells a portion of the loans originated on a servicing released, non-recourse basis, although M/I Financial remains
liable for certain limited representations and warranties related to loan sales and for repurchase obligations in certain limited
circumstances. If M/I Financial is unable to sell to viable purchasers in the marketplace, our ability to originate and sell mortgage
loans at competitive prices could be limited which would negatively affect our operations and our profitability. Additionally, if
there is a significant decline in the secondary mortgage market, our ability to sell mortgages could be adversely impacted and we
would be required to make arrangements with banks or other financial institutions to fund our buyers’ closings. If we became
unable to sell loans into the secondary mortgage market or directly to Fannie Mae and Freddie Mac, we would have to modify our
origination model, which, among other things, could significantly reduce our ability to sell homes.
Mortgage investors could seek to have us buy back loans or compensate them for losses incurred on mortgages we have sold
based on claims that we breached our limited representations or warranties.
M/I Financial originates mortgages, primarily for our homebuilding customers. A portion of the mortgage loans originated are
sold on a servicing released, non-recourse basis, although we remain liable for certain limited representations, such as fraud, and
warranties related to loan sales. Accordingly, mortgage investors have in the past and could in the future seek to have us buy back
loans or compensate them for losses incurred on mortgages we have sold based on claims that we breached our limited
representations or warranties. However, there can be no assurance that we will not have significant liabilities in respect of such
claims in the future, which could exceed our reserves, or that the impact of such claims on our results of operations will not be
material.
Our net operating loss (“NOL”) carryforwards could be substantially limited if we do not generate enough taxable income in
the future or if we experience an “ownership change,” as defined in Section 382 of the Internal Revenue Code.
At December 31, 2014, we had federal NOL carryforwards and credits totaling $58.2 million that may be carried forward up to
18 years to offset future taxable income, with losses beginning to expire in 2028, and state tax effected NOL carryforwards totaling
$11.8 million that may be carried forward from one to 18 years, depending on the tax jurisdiction, with losses expiring between
2015 and 2032. If we are unable to use our NOLs, or use of our NOLs is limited, we may have to record charges or reduce our
deferred tax assets, which could have a material adverse effect on our results of operations and financial condition.
Moreover, the rate at which we can utilize our federal NOL carryforwards will be limited (which could result in NOL carryforwards
expiring prior to their use) if we experience an “ownership change,” as determined under Section 382 of the Internal Revenue
Code of 1986, as amended (“Section 382”). A Section 382 ownership change, generally defined as any change in ownership of
more than 50% of a company’s common stock over a three-year period, limits a company’s ability to utilize its NOL carryforwards
and certain built-in losses recognized in years after the ownership change. These rules generally operate by focusing on ownership
changes among shareholders owning, directly or indirectly, 5% or more of the company’s common stock (including changes
involving a shareholder becoming a 5% shareholder) or any change in ownership arising from a new issuance of stock by the
company.
If we undergo an “ownership change” for purposes of Section 382 as a result of future transactions involving our 3.25% Convertible
Senior Subordinated Notes due 2017 (the “2017 Convertible Senior Subordinated Notes”), our 3.0% Convertible Senior
Subordinated Notes due 2018 (the “2018 Convertible Senior Subordinated Notes”) or our common shares, including transactions
initiated by the Company, transactions involving a shareholder becoming an owner of 5% or more of our common shares and
purchases and sales of our common shares by existing 5% shareholders, our ability to use our NOL carryforwards and recognize
certain built-in losses could be limited by Section 382. Depending on the resulting limitation, a significant portion of our NOL
carryforwards could expire before we would be able to use them, which could have a material adverse effect on our financial
condition and results of operations.
15
To preserve the tax treatment of our NOLs and built-in losses in the future without a Section 382 limitation, we amended our code
of regulations in March 2009 to impose certain restrictions on the transfer of our common shares. The transfer restrictions generally
restrict (unless otherwise approved by our board of directors) any direct or indirect transfer if the effect would be to: (1) increase
the direct or indirect ownership of our shares by any person or group of persons from less than 5% to 5% or more of our common
shares; or (2) increase the percentage of our common shares owned directly or indirectly by a person or group of persons owning
or deemed to own 5% or more of our common shares. However, we can provide no assurance that the restrictions on transferability
will prevent all transfers that could result in such an “ownership change”or will be enforceable against all of our shareholders
absent a court determination confirming such enforceability. The transfer restrictions may be subject to challenge on legal or
equitable grounds.
Our results of operations, financial condition and cash flows could be adversely affected if pending or future legal claims
against us are not resolved in our favor.
The Company and certain of its subsidiaries have been named as defendants in claims, complaints and legal actions which are
routine and incidental to our business. While management currently believes that the ultimate resolution of these matters,
individually and in the aggregate, will not have a material adverse effect on our results of operations, financial condition or cash
flows, such matters are subject to inherent uncertainties. We have recorded a liability to provide for the anticipated costs, including
legal defense costs, associated with the resolution of these matters. However, it is possible that the costs to resolve these matters
could differ from the recorded estimates and, therefore, have a material adverse effect on our results of operations, financial
condition and cash flows for the periods in which the matters are resolved. Similarly, if additional claims are filed against us in
the future, the negative outcome of one or more of such matters could have a material adverse effect on our results of operations,
financial condition and cash flows.
The terms of our indebtedness may restrict our ability to operate and, if our financial performance declines, we may be unable
to maintain compliance with the covenants in the documents governing our indebtedness.
The Credit Facility and the indenture governing our 8.625% Senior Notes due 2018 (the “2018 Senior Notes”) impose restrictions
on our operations and activities. These restrictions, and/or our failure to comply with the terms of our indebtedness, could have
a material adverse effect on our results of operations, financial condition and ability to operate our business.
Under the terms of the Credit Facility, we are required, among other things, to maintain compliance with various covenants,
including financial covenants relating to a minimum consolidated tangible net worth requirement, a minimum interest coverage
ratio or liquidity requirement, and a maximum leverage ratio. Failure to comply with these covenants or any of the other restrictions
of the Credit Facility, whether because of a decline in our operating performance or otherwise, could result in a default under the
Credit Facility. If a default occurs, the affected lenders could elect to declare the indebtedness, together with accrued interest and
other fees, to be immediately due and payable, which in turn could cause a default under the documents governing any of our other
indebtedness that is then outstanding if we are not able to repay such indebtedness from other sources. If this happens and we are
unable to obtain waivers from the required lenders, the lenders could exercise their rights under such documents, including forcing
us into bankruptcy or liquidation.
The indenture governing the 2018 Senior Notes also contains covenants that may restrict our ability to operate our business and
may prohibit or limit our ability to enhance our operations or take advantage of potential business opportunities as they arise.
Failure to comply with these covenants or any of the other restrictions or covenants contained in the indenture governing the 2018
Senior Notes could result in a default under such document, in which case holders of the 2018 Senior Notes may be entitled to
cause the sums evidenced by such notes to become due immediately. This acceleration of our obligations under the 2018 Senior
Notes could force us into bankruptcy or liquidation and we may be unable to repay those amounts without selling substantial assets,
which might be at prices well below the long-term fair values and carrying values of the assets. Our ability to comply with the
foregoing restrictions and covenants may be affected by events beyond our control, including prevailing economic, financial and
industry conditions.
In addition, while the indentures governing the 2017 Convertible Senior Subordinated Notes and the 2018 Convertible Senior
Subordinated Notes do not contain any financial or operating covenants relating to or restrictions on the payment of dividends,
the incurrence of indebtedness or the repurchase or issuance of securities by us or any of our subsidiaries, such indentures do
impose certain other requirements on us, such as the requirement to offer to repurchase the 2017 Convertible Senior Subordinated
Notes and the 2018 Convertible Senior Subordinated Notes upon a fundamental change, as defined in the indentures. Our failure
to comply with the requirements contained in the indentures governing the 2017 Convertible Senior Subordinated Notes and/or
the 2018 Convertible Senior Subordinated Notes could result in a default under such indentures, in which case holders of the 2017
Convertible Senior Subordinated Notes or the 2018 Convertible Senior Subordinated Notes, as applicable, may be entitled to cause
the sums evidenced by such notes to become due immediately. The acceleration of our obligations under the 2017 Convertible
16
Senior Subordinated Notes or the 2018 Convertible Senior Subordinated Notes could have the same effect as an acceleration of
the 2018 Senior Notes described above.
Our indebtedness could adversely affect our financial condition, and we and our subsidiaries may incur additional indebtedness,
which could increase the risks created by our indebtedness.
As of December 31, 2014, we had approximately $411.7 million of indebtedness (excluding issuances of letters of credit, the MIF
Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility), and we had $242.8 million of available borrowings
under the Credit Facility. In addition, under the terms of the Credit Facility, the indentures governing the 2018 Senior Notes, the
2017 Convertible Senior Subordinated Notes and the 2018 Convertible Senior Subordinated Notes and the documents governing
our other indebtedness, we have the ability, subject to applicable debt covenants, to incur additional indebtedness. The incurrence
of additional indebtedness could magnify other risks related to us and our business. Our indebtedness and any future indebtedness
we may incur could have a significant adverse effect on our future financial condition.
For example:
•
•
•
•
•
a significant portion of our cash flow may be required to pay principal and interest on our indebtedness, which could
reduce the funds available for working capital, capital expenditures, acquisitions or other purposes;
borrowings under the Credit Facility bear, and borrowings under any new facility could bear, interest at floating rates,
which could result in higher interest expense in the event of an increase in interest rates;
the terms of our indebtedness could limit our ability to borrow additional funds or sell assets to raise funds, if needed,
for working capital, capital expenditures, acquisitions or other purposes;
our debt level and the various covenants contained in the Credit Facility, the indentures governing our 2018 Senior Notes,
the 2017 Convertible Senior Subordinated Notes and the 2018 Convertible Senior Subordinated Notes and the documents
governing our other indebtedness could place us at a relative competitive disadvantage as compared to some of our
competitors; and
the terms of our indebtedness could prevent us from raising the funds necessary to repurchase all of the 2018 Senior Notes
tendered to us upon the occurrence of a change of control or all of the 2017 Convertible Senior Subordinated Notes or
the 2018 Convertible Senior Subordinated Notes tendered to us upon the occurrence of a fundamental change, which, in
each case, would constitute a default under the applicable indenture, which in turn could trigger a default under the Credit
Facility and the documents governing our other indebtedness.
In the ordinary course of business, we are required to obtain performance bonds, the unavailability of which could adversely
affect our results of operations and/or cash flows.
As is customary in the homebuilding industry, we are often required to provide surety bonds to secure our performance under
construction contracts, development agreements and other arrangements. Our ability to obtain surety bonds primarily depends
upon our credit rating, capitalization, working capital, past performance, management expertise and certain external factors,
including the overall capacity of the surety market and the underwriting practices of surety bond issuers. The ability to obtain
surety bonds also can be impacted by the willingness of insurance companies to issue performance bonds. If we were unable to
obtain surety bonds when required, our results of operations and/or cash flows could be adversely impacted.
We can be injured by failures of persons who act on our behalf to comply with applicable regulations and guidelines.
There are instances in which subcontractors or others through whom we do business engage in practices that do not comply with
applicable regulations or guidelines. When we learn of practices relating to homes we build or financing we provide that do not
comply with applicable laws, rules or regulations, we actively move to stop the non-complying practices as soon as possible.
However, regardless of the steps we take after we learn of practices that do not comply with applicable laws, rules or regulations,
we can in some instances be subject to fines or other governmental penalties, and our reputation can be injured, due to the practices
having taken place.
Because of the seasonal nature of our business, our quarterly operating results can fluctuate.
We experience noticeable seasonality and quarter-to-quarter variability in homebuilding activity levels. In general, the number
of homes delivered and associated home sales revenue have increased during the third and fourth quarters, compared with the first
and second quarters. We believe that this type of seasonality reflects the historical tendency of homebuyers to purchase new homes
in the spring and summer with deliveries scheduled in the fall or winter, as well as the scheduling of construction to accommodate
seasonal weather conditions in certain markets. There can be no assurance that this seasonality pattern will continue to exist in
future reporting periods. In addition, as a result of such variability, our historical performance may not be a meaningful indicator
of future results.
17
Product liability litigation and warranty claims that arise in the ordinary course of business may be costly.
As a homebuilder, we are subject to construction defect and home warranty claims, as well as claims associated with the sale and
financing of our homes arising in the ordinary course of business. These types of claims can be costly. The costs of insuring against
construction defect and product liability claims can be high and the amount of coverage offered by insurance companies may be
limited. If we are not able to obtain adequate insurance against these claims, we may incur additional expenses that would have
a negative impact on our results of operations in future reporting periods.
Our subcontractors can expose us to warranty costs and other risks.
We rely on subcontractors to construct our homes, and in many cases, to select and obtain building materials. Despite our detailed
specifications and quality control procedures, subcontractors have in some cases used improper construction processes or defective
materials in the construction of our homes. When we find these issues, we repair them in accordance with our warranty obligations.
Defective products widely used in the homebuilding industry can result in the need to perform extensive repairs to large numbers
of homes. The cost of complying with our warranty obligations in these cases may be significant if we are unable to recover the
cost of repair from subcontractors, materials suppliers and insurers.
Natural disasters and severe weather conditions could delay deliveries, increase costs and decrease demand for homes in
affected areas.
Several of our markets, specifically our operations in Florida, North Carolina, Washington, D.C. and Texas, are situated in
geographical areas that are regularly impacted by severe storms, including hurricanes, flooding and tornadoes. In addition, our
operations in the Midwest can be impacted by severe storms, including tornadoes. The occurrence of these or other natural disasters
can cause delays in the completion of, or increase the cost of, developing one or more of our communities, and as a result could
materially and adversely impact our results of operations.
We are subject to extensive government regulations, which could restrict our business and cause us to incur significant expense.
The homebuilding industry is subject to numerous local, state, and federal statutes, ordinances, rules, and regulations concerning
building, zoning, sales, consumer protection, the environment, and similar matters. This regulation affects construction activities
as well as sales activities, mortgage lending activities, land availability and other dealings with home buyers. These statutes,
ordinances, rules, and regulations, and any failure to comply therewith, could give rise to additional liabilities or expenditures and
have an adverse effect on our results of operations, financial condition or business.
We must also obtain licenses, permits and approvals from various governmental authorities in connection with our development
activities, and these governmental authorities often have broad discretion in exercising their approval authority. Municipalities
may also restrict or place moratoriums on the availability of utilities, such as water and sewer taps. In some areas, municipalities
may enact growth control initiatives, which will restrict the number of building permits available in a given year. In addition, we
may be required to apply for additional approvals or modify our existing approvals because of changes in local circumstances or
applicable law. If municipalities in which we operate take actions like these, it could have an adverse effect on our business by
causing delays, increasing our costs, or limiting our ability to operate in those municipalities.
We incur substantial costs related to compliance with legal and regulatory requirements. Any increase in legal and regulatory
requirements may cause us to incur substantial additional costs or, in some cases, cause us to determine that certain property is
not feasible for development.
Information technology failures and data security breaches could harm our business.
We use information technology, digital communications and other computer resources to carry out important operational and
marketing activities and to maintain our business records. Many of these resources are provided to us and/or maintained on our
behalf by third-party service providers pursuant to agreements that specify to varying degrees certain security and service level
standards. Our ability to conduct our business may be impaired if these resources, including our website, are compromised,
degraded, damaged or fail, whether due to a virus or other harmful circumstance, intentional penetration or disruption of our
information technology resources by a third party, natural disaster, hardware or software corruption or failure or error (including
a failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure, service
provider error or failure or intentional or unintentional personnel actions (including the failure to follow our security protocols),
or lost connectivity to our networked resources. A material breach in the security of our information technology systems or other
data security controls could result in third parties obtaining customer, employee or company data. A significant and extended
disruption in the functioning of these resources, including our website, could damage our reputation and cause us to lose customers,
sales and revenue, result in the unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personal
18
identifying and confidential information (including information about our homebuyers, business partners and employees), and
require us to incur significant expense (that we may not be able to recover in whole or in part from our service providers or
responsible parties, or their or our insurers) to address and remediate or otherwise resolve these kinds of issues. The release of
confidential information may also lead to litigation or other proceedings against us by affected individuals and/or business partners
and/or by regulators, and the outcome of such proceedings could have a material and adverse effect on our financial position,
results of operations and cash flows. In addition, the costs of maintaining adequate protection against such threats, based on
considerations of their evolution, pervasiveness and frequency and/or government-mandated standards or obligations regarding
protective efforts, could be material to our consolidated financial statements in a particular period or over various periods.
We are dependent on the services of certain key employees, and the loss of their services could hurt our business.
Our future success depends, in part, on our ability to attract, train and retain skilled personnel. If we are unable to retain our key
employees or attract, train and retain other skilled personnel in the future, this could materially and adversely impact our operations
and result in additional expenses for identifying and training new personnel.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
We own and operate an approximately 85,000 square foot office building for our home office in Columbus, Ohio and lease all of
our other offices.
Due to the nature of our business, a substantial amount of property is held as inventory in the ordinary course of business. See
“Item 1. BUSINESS – Land Acquisition and Development” and “Item 1. BUSINESS – Backlog.”
Item 3. LEGAL PROCEEDINGS
The Company and certain of its subsidiaries have been named as defendants in certain claims, complaints and legal actions which
are incidental to our business. Certain of the liabilities resulting from these matters are covered by insurance. While management
currently believes that the ultimate resolution of these matters, individually and in the aggregate, will not have a material effect
on the Company’s financial position, results of operations and cash flows, such matters are subject to inherent uncertainties. The
Company has recorded a liability to provide for the anticipated costs, including legal defense costs, associated with the resolution
of these matters. However, the possibility exists that the costs to resolve these matters could differ from the recorded estimates
and, therefore, have a material effect on the Company’s net income for the periods in which the matters are resolved.
Item 4. MINE SAFETY DISCLOSURES
None.
19
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market for Common Shares and Dividends
The Company’s common shares are traded on the New York Stock Exchange under the symbol “MHO.” As of February 25, 2015,
there were approximately 373 record holders of the Company’s common shares. At that date, there were 27,092,723 common
shares issued and 24,512,910 common shares outstanding.
The table below presents the high and low sales prices of the Company’s common shares during each of the quarters presented:
2014
First quarter
Second quarter
Third quarter
Fourth quarter
2013
First quarter
Second quarter
Third quarter
Fourth quarter
HIGH
LOW
$
$
26.30
24.78
24.92
23.47
29.07
27.88
24.75
25.72
$
21.07
21.05
19.71
18.73
$ 20.82
20.14
18.07
17.82
The Company declared and paid a quarterly dividend of $609.375 per share on our 9.75% Series A Preferred Shares (the “Series
A Preferred Shares”) for the second, third and fourth quarters in 2013 (for aggregate dividend payments of $3.7 million) and for
each quarter in 2014 (for aggregate dividend payments of $4.9 million). There were no cash dividends declared or paid to common
shareholders in 2014 or 2013.
The terms of our Series A Preferred Shares prevent us from paying cash dividends on our common shares unless we have paid
cash dividends on our Series A Preferred Shares for the then-current quarterly dividend period. See Note 11 of our Consolidated
Financial Statements for additional information related to the restrictions on our ability to pay dividends on, and repurchase, our
common shares and our Series A Preferred Shares.
20
Performance Graph
The following graph illustrates the Company’s performance in the form of cumulative total return to holders of our common shares
for the last five calendar years through December 31, 2014, assuming a hypothetical investment of $100 and reinvestment of all
dividends paid on such investment, compared to the cumulative total return of the same hypothetical investment in both the Standard
and Poor’s 500 Stock Index and the Standard & Poor’s 500 Homebuilding Index.
Index
M/I Homes, Inc.
S&P 500
S&P 500 Homebuilding Index
Share Repurchases
Period Ending
12/31/2009
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31/2014
$
100.00 $
148.03 $
92.40 $
255.05 $
244.95 $
100.00
100.00
115.06
106.08
117.49
106.11
136.30
216.89
180.44
237.27
220.98
205.14
264.39
During the year ended December 31, 2014, the Company did not repurchase any common shares. See Note 11 of our Consolidated
Financial Statements for more information regarding our ability to repurchase our shares.
21
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected consolidated financial data as of the dates and for the periods indicated. This table
should be read together with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and our Consolidated Financial Statements, including the Notes thereto, contained in this Annual Report on Form 10-K. These
historical results may not be indicative of future results.
(In thousands, except per share amounts)
Income Statement (Year Ended December 31):
Revenue
Gross margin
Net income (loss)
Preferred dividends
Excess of fair value over book value of preferred shares redeemed
Net income (loss) to common shareholders
Earnings (loss) per share to common shareholders:
Basic:
Diluted:
Weighted average shares outstanding:
Basic
Diluted
Balance Sheet (December 31):
Inventory
Total assets
Notes payable banks – homebuilding operations
Notes payable banks – financial services operations
Notes payable - other
Convertible senior subordinated notes due 2017
Convertible senior subordinated notes due 2018
Senior Notes – net of discount
Shareholders’ equity
2014
2013
2012
2011
2010
1,215,180 $
1,036,782 $
761,905 $
566,424 $
616,377
252,732 $
206,469 $
147,863 $
77,301 $
92,431
50,789 $
151,423 $
13,347 $
(33,877) $
(26,269)
4,875 $
— $
3,656 $
2,190 $
— $
— $
— $
— $
—
—
45,914 $
145,577 $
13,347 $
(33,877) $
(26,269)
1.88 $
1.65 $
6.11 $
5.24 $
0.68 $
0.67 $
(1.81) $
(1.81) $
(1.42)
(1.42)
24,463
29,912
23,822
28,763
19,651
19,891
18,698
18,698
18,523
18,523
918,589 $
690,934 $
556,817 $
466,772 $
450,936
1,211,410 $
1,110,176 $
831,300 $
664,485 $
661,894
30,000 $
85,379 $
9,518 $
57,500 $
86,250 $
— $
80,029 $
7,790 $
57,500 $
86,250 $
— $
67,957 $
11,105 $
57,500 $
— $
— $
52,606 $
5,801 $
— $
— $
—
32,197
5,853
—
—
228,469 $
228,070 $
227,670 $
239,016 $
238,610
544,295 $
492,803 $
335,428 $
273,350 $
303,491
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
22
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
M/I Homes, Inc. (the “Company” or “we”) is one of the nation’s leading builders of single-family homes, having delivered over
90,000 homes since we commenced homebuilding activities in 1976. The Company’s homes are marketed and sold under the
M/I Homes brand (M/I Homes and Showcase Collection (exclusively by M/I)). The Company has homebuilding operations in
Columbus and Cincinnati, Ohio; Indianapolis, Indiana; Chicago, Illinois; Tampa and Orlando, Florida; Austin, Dallas/Fort Worth,
Houston and San Antonio, Texas; Charlotte and Raleigh, North Carolina; and the Virginia and Maryland suburbs of Washington,
D.C.
Included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are the following topics
relevant to the Company’s performance and financial condition:
• Our Application of Critical Accounting Estimates and Policies;
• Our Results of Operations;
• Discussion of Our Liquidity and Capital Resources;
•
• Discussion of Our Utilization of Off-Balance Sheet Arrangements; and
•
Summary of Our Contractual Obligations;
Impact of Interest Rates and Inflation.
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES AND POLICIES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. Management bases its estimates and judgments on historical experience and
on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. On an ongoing basis,
management evaluates such estimates and judgments and makes adjustments as deemed necessary. Actual results could differ
from these estimates using different estimates and assumptions, or if conditions are significantly different in the future. See
“Forward - Looking Statements” above in Part I.
Listed below are those estimates and policies that we believe are critical and require the use of complex judgment in their application.
Our critical accounting estimates should be read in conjunction with the Notes to our Consolidated Financial Statements.
Revenue Recognition. Revenue from the sale of a home is recognized when the delivery has occurred, title has passed, the risks
and rewards of ownership are transferred to the buyer, and an adequate initial and continuing investment by the homebuyer is
received, or when the loan has been sold to a third-party investor. Revenue for homes that close to the buyer having a deposit of
5% or greater, home deliveries financed by third parties, and all home deliveries insured under Federal Housing Administration
(“FHA”), U.S. Veterans Administration (“VA”) and other government-insured programs are recorded in the financial statements
on the date of closing.
Revenue related to all other home deliveries initially funded by our 100%-owned subsidiary, M/I Financial, LLC (“M/I Financial”),
is recorded on the date that M/I Financial sells the loan to a third-party investor, because the receivable from the third-party investor
is not subject to future subordination, and the Company has transferred to this investor the usual risks and rewards of ownership
that is in substance a sale and does not have a substantial continuing involvement with the home.
We recognize the majority of the revenue associated with our mortgage loan operations when the mortgage loans are sold and/or
related servicing rights are sold to third party investors or retained and managed under a third party subservice arrangement. The
revenue recognized is reduced by the fair value of the related guarantee provided to the investor. The fair value of the guarantee
is recognized in revenue when the Company is released from its obligation under the guarantee. We recognize financial services
revenue associated with our title operations as homes are delivered, closing services are rendered, and title policies are issued, all
of which generally occur simultaneously as each home is delivered. All of the underwriting risk associated with title insurance
policies is transferred to third-party insurers.
23
Home Cost of Sales. All associated homebuilding costs are charged to cost of sales in the period when the revenues from home
deliveries are recognized. Homebuilding costs include: land and land development costs; home construction costs (including an
estimate of the costs to complete construction); previously capitalized interest; real estate taxes; indirect costs; and estimated
warranty costs. All other costs are expensed as incurred. Sales incentives, including pricing discounts and financing costs paid
by the Company, are recorded as a reduction of revenue in the Company’s Consolidated Statements of Income. Sales incentives
in the form of options or upgrades are recorded in homebuilding costs.
Inventory. Inventory includes the costs of land acquisition, land development and home construction, capitalized interest, real
estate taxes, direct overhead costs incurred during development and home construction, and common costs that benefit the entire
community, less impairments, if any. Land acquisition, land development and common costs (both incurred and estimated to be
incurred) are typically allocated to individual lots based on the total number of lots expected to be closed in each community or
phase or the relative sales value of each lot. Any changes to the estimated total development costs of a community or phase are
allocated proportionately to the homes remaining in the community or phase and homes previously closed. The cost of individual
lots is transferred to homes under construction when home construction begins. Home construction costs are accumulated on a
specific identification basis. Costs of home deliveries include the specific construction cost of the home and the allocated lot costs.
Such costs are charged to cost of sales simultaneously with revenue recognition, as discussed above. When a home is closed, we
typically have not yet paid all incurred costs necessary to complete the home. As homes close, we compare the home construction
budget to actual recorded costs to date to estimate the additional costs to be incurred from our subcontractors related to the home.
We record a liability and a corresponding charge to cost of sales for the amount we estimate will ultimately be paid related to that
home. We monitor the accuracy of such estimates by comparing actual costs incurred in subsequent months to the estimate.
Although actual costs to complete a home in the future could differ from our estimates, our method has historically produced
consistently accurate estimates of actual costs to complete closed homes.
Inventory is recorded at cost, unless events and circumstances indicate that the carrying value of the land is impaired, at which
point the inventory is written down to fair value as required by Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 360-10, Property, Plant and Equipment (“ASC 360”). The Company assesses inventory for
recoverability on a quarterly basis if events or changes in local or national economic conditions indicate that the carrying amount
of an asset may not be recoverable. In conducting our quarterly review for indicators of impairment on a community level, we
evaluate, among other things, margins on sales contracts in backlog, the margins on homes that have been delivered, expected
changes in margins with regard to future home sales over the life of the community, expected changes in margins with regard to
future land sales, the value of the land itself as well as any results from third-party appraisals. From the review of all of these
factors, we identify communities whose carrying values may exceed their estimated undiscounted future cash flows and run a test
for recoverability. For those communities whose carrying values exceed the estimated undiscounted future cash flows and which
are deemed to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the communities
exceeds the estimated fair value. Due to the fact that the Company’s cash flow models and estimates of fair values are based upon
management estimates and assumptions, unexpected changes in market conditions and/or changes in management’s intentions
with respect to the inventory may lead the Company to incur additional impairment charges in the future. For all of the categories
listed below, the key assumptions relating to the valuations are dependent on project-specific local market and/or community
conditions and are inherently uncertain. Because each inventory asset is unique, there are numerous inputs and assumptions used
in our valuation techniques. Market factors that may impact these assumptions include:
•
•
•
•
•
historical project results such as average sales price and sales pace, if deliveries have occurred in the project;
competitors’ market and/or community presence and their competitive actions;
project specific attributes such as location desirability and uniqueness of product offering;
potential for alternative product offerings to respond to local market conditions; and
current economic and demographic conditions and related trends and forecasts.
These and other market factors that may impact project assumptions are considered by personnel in our homebuilding divisions
as they prepare or update the forecasts for each community. Quantitative and qualitative factors other than home sales prices could
significantly impact the potential for future impairments. The sales objectives can differ between communities, even within a
given sub-market. For example, facts and circumstances in a given community may lead us to price our homes with the objective
of yielding a higher sales absorption pace, while facts and circumstances in another community may lead us to price our homes
to minimize deterioration in our gross margins, although it may result in a slower sales absorption pace. Furthermore, the key
assumptions included in our estimated future undiscounted cash flows may be interrelated. For example, a decrease in estimated
base sales price or an increase in home sales incentives may result in a corresponding increase in sales absorption pace or a reduction
in base house costs. Changes in our key assumptions, including estimated average selling price, construction and development
costs, absorption pace (reflecting any product mix change strategies implemented or to be implemented), selling strategies,
alternative land uses (including disposition of all or a portion of the land owned), or discount rates, could materially impact future
cash flow and fair value estimates.
24
As of December 31, 2014, our projections generally assume a gradual improvement in market conditions. If communities are not
recoverable based on estimated future undiscounted cash flows, the impairment to be recognized is measured as the amount by
which the carrying amount of the assets exceeds the estimated fair value of the assets. The fair value of a community is estimated
by discounting management’s cash flow projections using an appropriate risk-adjusted interest rate. As of December 31, 2014,
we utilized discount rates ranging from 13% to 16% in our valuations. The discount rate used in determining each asset’s estimated
fair value reflects the inherent risks associated with the related estimated cash flow stream, as well as current risk-free rates available
in the market and estimated market risk premiums.
Our quarterly assessments reflect management’s best estimates. Due to the inherent uncertainties in management’s estimates and
uncertainties related to our operations and our industry as a whole as further discussed in “Item 1A. Risk Factors” in Part I of this
Annual Report on Form 10-K, we are unable to determine at this time if and to what extent continuing future impairments will
occur. Additionally, due to the volume of possible outcomes that can be generated from changes in the various model inputs for
each community, we do not believe it is possible to create a sensitivity analysis that can provide meaningful information for the
users of our financial statements.
Land Option or Purchase Agreements. In accordance with ASC 810-10, Consolidation (“ASC 810”), we analyze our land option
or purchase agreements to determine whether the corresponding land seller is a variable interest entity (“VIE”) and, if so, whether
we are the primary beneficiary (using an analysis similar to that described in Note 1 of our Consolidated Financial Statements
within the description of our significant accounting policy for VIEs). Although we do not have legal title to the optioned land,
ASC 810 requires a company to consolidate a VIE if the company is determined to be the primary beneficiary. In cases where we
are the primary beneficiary, even though we do not have title to such land, we are required to consolidate these purchase/option
agreements and reflect such assets and liabilities as Consolidated Inventory Not Owned on our Consolidated Balance Sheets. At
both December 31, 2014 and 2013, we have concluded that we were not the primary beneficiary of any VIEs from which we are
purchasing under land option or purchase agreements. Please refer to Note 1 of our Consolidated Financial Statements and the
“Off-Balance Sheet Arrangements” section below for additional information related to our off-balance-sheet arrangements.
Warranty Reserves. We record warranty reserves to cover our exposure to the costs for materials and labor not expected to be
covered by our subcontractors to the extent they relate to warranty-type claims. Warranty reserves are established by charging
cost of sales and crediting a warranty reserve for each home closed. The warranty reserves for the Company’s Home Builder’s
Limited Warranty (“HBLW”) are established as a percentage of average sales price and adjusted based on historical payment
patterns determined, generally, by geographic area and recent trends. Factors that are given consideration in determining the
HBLW reserves include: (1) the historical range of amounts paid per average sales price on a home; (2) type and mix of amenity
packages added to the home; (3) any warranty expenditures not considered to be normal and recurring; (4) timing of payments;
(5) improvements in quality of construction expected to impact future warranty expenditures; and (6) conditions that may affect
certain projects and require a different percentage of average sales price for those specific projects. Changes in estimates for
warranties occur due to changes in the historical payment experience and differences between the actual payment pattern
experienced during the period and the historical payment pattern used in our evaluation of the warranty reserve balance at the end
of each quarter. Actual future warranty costs could differ from our current estimated amount.
Our warranty reserves for our 30-year or 10-year transferable structural warranty programs are established on a per-unit basis.
While the structural warranty reserve is recorded as each house closes, the sufficiency of the structural warranty per unit charge
and total reserve is re-evaluated on an annual basis, with the assistance of an actuary, using our own historical data and trends, as
well as industry-wide historical data and trends, and other project specific factors. The reserves are also evaluated quarterly and
adjusted if we encounter activity that is not consistent with the historical experience used in the annual analysis. These reserves
are subject to variability due to uncertainties regarding structural defect claims for products we build, the markets in which we
build, claim settlement history, insurance and legal interpretations, among other factors.
While we believe that our warranty reserves are sufficient to cover our projected costs, there can be no assurances that historical
data and trends will accurately predict our actual warranty costs. Please refer to Note 1 of our Consolidated Financial Statements
for additional information related to our warranty reserves.
Self-insurance Reserves. Self-insurance reserves are made for estimated liabilities associated with employee health care, workers’
compensation, and general liability insurance. The reserves related to employee health care and workers’ compensation are based
on historical experience and open case reserves. Our workers’ compensation claims and our general liability claims are insured
by a third party, except for workers compensation claims made in the state of Ohio where the Company is self-insured. The
Company records a reserve for general liability claims falling below the Company’s deductible. The reserve estimate is based on
an actuarial evaluation of our past history of general liability claims, other industry specific factors and specific event analysis.
Because of the high degree of judgment required in determining these estimated accrual amounts, actual future costs could differ
25
from our current estimated amounts. Please refer to Note 1 of our Consolidated Financial Statements for additional information
related to our self-insurance reserves.
Stock-Based Compensation. We measure and recognize compensation expense associated with our grant of equity-based awards
in accordance with ASC 718, Compensation-Stock Compensation (“ASC 718”), which generally requires that companies measure
and recognize stock-based compensation expense in an amount equal to the fair value of share-based awards granted under
compensation arrangements over the related vesting period. As discussed further in Notes 1 and 2 of our Consolidated Financial
Statements, we have granted share-based awards to certain of our employees and directors in the form of stock options, director
stock units and performance share units (“PSU’s”).
Determining the fair value of share-based awards requires judgment to identify the appropriate valuation model and develop the
assumptions. The grant date fair value for stock option awards and PSU’s with a market condition (as defined in ASC 718) is
estimated using the Black-Scholes option pricing model and the Monte Carlo simulation methodology, respectively. The grant
date fair value for the director stock units and PSU’s with a performance condition (as defined in ASC 718) is based upon the
closing price of our common shares on the date of grant. We recognize stock-based compensation expense for our stock option
awards and PSU’s with a market condition over the requisite service period of the award while stock-based compensation expense
for our director stock units, which vest immediately, is fully recognized in the period of the award. For the portion of the PSU’s
awarded subject to the satisfaction of a performance condition, we recognize compensation expense on a straight-line basis over
the performance period based on the probable outcome of the related performance condition. If satisfaction of the performance
condition is not probable, compensation expense recognition is deferred until probability is attained and a cumulative stock-based
compensation expense adjustment is recorded and recognized ratably over the remaining service period. The Company reevaluates
the probability of the satisfaction of the performance condition on a quarterly basis, and stock-based compensation expense is
adjusted based on the portion of the requisite service period that has passed. If actual results differ significantly from these estimates,
stock-based compensation expense could be higher and have a material impact on our consolidated financial statements. Please
see Note 2 to our Consolidated Financial Statements for more information regarding our stock-based compensation.
Valuation of Deferred Tax Assets. The Company records income taxes under the asset and liability method, under which deferred
tax assets and liabilities are recognized based on future tax consequences attributable to (1) temporary differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and (2) operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect in the years in which those
temporary differences are expected to reverse.
In accordance with ASC 740-10, Income Taxes (“ASC 740”), we evaluate the realizability of our deferred tax assets, including
the benefit from net operating losses (“NOLs”) and tax credit carryforwards, to determine if a valuation allowance is required
based on whether it is more likely than not (a likelihood of more than 50%) that all or any portion of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is primarily dependent upon the generation of future taxable income.
In determining the future tax consequences of events that have been recognized in the financial statements or tax returns, judgment
is required. Please refer to Note 1 of our Consolidated Financial Statements for additional information related to our valuation of
deferred tax assets.
Segment Reporting. The application of segment reporting requires significant judgment in determining our operating segments.
Operating segments are defined as a component of an enterprise for which discrete financial information is available and is reviewed
regularly by the Company’s chief operating decision makers to evaluate performance, make operating decisions and determine
how to allocate resources. The Company’s chief operating decision makers evaluate the Company’s performance in various ways,
including: (1) the results of our 13 individual homebuilding operating segments and the results of our financial services operations;
(2) the results of our three homebuilding regions; and (3) our consolidated financial results.
In accordance with ASC 280, Segment Reporting (“ASC 280”), we have identified each homebuilding division as an operating
segment as each homebuilding division engages in business activities from which it earns revenue, primarily from the sale and
construction of single-family attached and detached homes, acquisition and development of land, and the occasional sale of lots
to third parties. Our financial services operations generate revenue primarily from the origination, sale and servicing of mortgage
loans and title services primarily for purchasers of the Company’s homes and are included in our financial services reportable
segment. Corporate is a non-operating segment that develops and implements strategic initiatives and supports our operating
segments by centralizing key administrative functions such as accounting, finance, treasury, information technology, insurance
and risk management, litigation, marketing and human resources.
In accordance with the aggregation criteria defined in ASC 280, we have determined our reportable segments as follows: Midwest
homebuilding, Southern homebuilding, Mid-Atlantic homebuilding and financial services operations. The homebuilding operating
segments included in each reportable segment have been aggregated because they share similar aggregation characteristics as
26
prescribed in ASC 280 in the following regards: (1) long-term economic characteristics; (2) historical and expected future long-
term gross margin percentages; (3) housing products, production processes and methods of distribution; and (4) geographical
proximity. We may, however, be required to reclassify our reportable segments if markets that currently are being aggregated do
not continue to share these aggregation characteristics.
The homebuilding operating segments that comprise each of our reportable segments are as follows:
Midwest
Columbus, Ohio
Cincinnati, Ohio
Indianapolis, Indiana
Chicago, Illinois
Southern
Tampa, Florida
Orlando, Florida
Houston, Texas
San Antonio, Texas
Austin, Texas
Dallas/Fort Worth, Texas
Mid-Atlantic
Washington, D.C.
Charlotte, North Carolina
Raleigh, North Carolina
RESULTS OF OPERATIONS
Overview
The year ended December 31, 2014 was a year of mixed results, as we improved upon many of our financial and operating metrics
but also experienced a modest decline in our new contract results when compared to 2013. For the year ended December 31, 2014
and 2013, we achieved net income to common shareholders of $45.9 million and $145.6 million, respectively. For the year ended
December 31, 2014, we achieved net income of $41.5 million ($1.34 per diluted share) related to our core profitability and
$9.3 million ($0.31 per diluted share) related to the accounting benefit from income taxes associated with the reversal of our
remaining state deferred tax asset valuation allowance, and paid $4.9 million in dividend payments to holders of our Series A
Preferred Shares. For the year ended December 31, 2013, we achieved net income of $38.6 million ($1.32 per diluted share)
related to our core profitability and $112.8 million ($3.92 per diluted share) related to the accounting benefit from income taxes
associated with the reversal of a majority of our deferred tax asset valuation allowance, paid $3.7 million in dividend payments
to holders of our Series A Preferred Shares and recorded a $2.2 million non-cash equity adjustment resulting from the excess of
fair value over carrying value of the Series A Preferred Shares that we redeemed in the first quarter of 2013.
In addition, when compared to 2013’s results, we experienced the following improvements:
• Homes delivered improved 7%, reaching its highest levels in eight years
• Average price of homes delivered improved 10%
• Gross margin improved 90 basis points
•
•
Pre-tax income improved 69%
Selling, general and administration expense as a percentage of revenue improved 30 basis points
We believe that our results were favorably impacted by (1) our strategic growth and investment in new communities, (2) continued
improvement in our mix of communities and better locations within each of our markets; (3) our continued focus on controlling
overall costs; and (4) the strong performance of our financial services operations.
However in 2014, our new contracts declined 3%, our active communities declined 4% and our units in backlog declined 5% as
a result of a number of factors, including (1) reduced affordability in certain markets due to higher average sales prices, (2) tepid
economic recovery and income growth, (3) delays in the opening of certain of our new communities, (4) a general lengthening of
our community development cycle time, and (5) the imposition of lower loan limits on government-sponsored mortgages beginning
in January 2014. While our new contracts and backlog units declined, our total sales value in backlog increased 4% to $425 million
and the related average sales price in backlog improved 9% to $348,000.
Summary of Company Financial Results in 2014
In 2014, we achieved net income to common shareholders of $45.9 million, or $1.65 per diluted share, which included (1) a
$9.3 million accounting benefit from income taxes associated with the reversal of our remaining state deferred tax asset valuation
allowance, (2) $3.5 million of pre-tax impairment charges and (3) $4.9 million in dividend payments made to holders of our Series
A Preferred Shares. This compares to net income to common shareholders of $145.6 million, or $5.24 per diluted share, in 2013,
which included (1) a $112.8 million accounting benefit from income taxes associated with the reversal of a majority of our deferred
tax asset valuation allowance, (2) $5.8 million of pre-tax impairment charges, (3) a $1.7 million charge related to the early
27
termination of our $140 million secured revolving credit facility (the “Prior Credit Facility”), (4) a $2.2 million non-cash equity
adjustment resulting from the excess of fair value over carrying value of the Series A Preferred Shares we redeemed in the first
quarter of 2013 and (5) $3.7 million in dividend payments made to holders of our Series A Preferred Shares.
In 2014, we recorded total revenue in excess of $1.2 billion, the majority of which was from home deliveries, $20.3 million was
from land sales, and $30.1 million was from our financial services operations. Revenue from homes delivered increased 17%
from 2013 driven primarily by a 9% increase in the average sales price of homes delivered in 2014 ($27,000 per home delivered)
compared to 2013 and the 249 additional homes delivered in 2014 (a 7% increase). Revenue from land sales increased $4.1 million
from 2013 due primarily to land sales in both our Midwest and Southern regions. Revenue from our financial services segment
increased 6% to $30.1 million in 2014 primarily due to the factors discussed below in our “Year Over Year Comparisons” section.
Total gross margin increased $46.3 million in 2014 compared to 2013 as a result of a $44.7 million improvement in the gross
margin of our homebuilding operations and a $1.6 million improvement in the gross margin of our financial services operations.
The improvement in the gross margin of our homebuilding operations was primarily due to a $42.4 million improvement in
homebuilding gross margin compared to 2013 and a $2.3 million decrease in land impairments. The increase in homebuilding
gross margin resulted primarily from the 9% increase in the average sales price of homes delivered ($27,000 per home delivered)
and the 249 unit increase in homes delivered in 2014. The increased sales prices were driven primarily by the performance of our
newer communities, the strategic shift in our geographic footprint, which resulted in more homes delivered in our better performing
markets, and a shift in the mix of homes delivered to higher priced and larger homes. We also experienced better pricing leverage
in select locations and submarkets. The pricing and unit improvements were partially offset by higher average lot and construction
costs related to both the mix of homes delivered as well as cost increases associated with homebuilding industry conditions and
normal supply and demand dynamics. In 2014, we were able to pass a majority of the higher construction costs to our homebuyers
in the form of higher sales prices. However, recent moderation in the pace of improvement in the homebuilding industry may
make it more difficult to continue to offset any additional increases in lot, material, labor and land costs that we may experience
going forward.
Selling, general and administrative expense increased $22.2 million in 2014, which partially offset the increase in our gross margin
discussed above, but improved as a percentage of revenue to 14.0% in 2014 compared to 14.3% in 2013. Selling expense increased
$12.8 million to $81.1 million from $68.3 million in 2013 and increased as a percentage of revenue to 6.7% in 2014 compared to
6.6% in 2013. Variable selling expense for sales commissions contributed $7.3 million to the increase due to the increase in the
number of homes delivered and the higher average sales price. The increase in selling expense was also attributable to a $5.5 million
increase in non-variable selling expense related to expenses associated with our sales offices and models . General and administrative
expense increased $9.3 million, from $79.5 million in 2013 to $88.8 million in 2014 but improved as a percentage of revenue from
7.7% in 2013 to 7.3% in 2014. This dollar increase was primarily due to a $4.2 million increase in payroll-related expense (as our
employee count increased 9% from a year ago), a $0.8 million increase in share based and variable incentive compensation expense
associated with our improved financial performance, a $1.1 million increase in land abandonment charges, a $1.0 million increase
due to the absence of bad debt recoveries that occurred in 2013, $2.2 million in other expenses related to our expansion in two
new markets (Austin and Dallas/Fort Worth, Texas), and various other miscellaneous expense increases. We continue to focus on
cost control and reducing our selling, general and administrative expense at both the division and corporate levels as a percentage
of revenue.
Outlook
We believe that low interest rates, improving consumer confidence, continued improvement in employment levels and recent
announcements by the FHA that should improve mortgage availability, support further improvement in the housing market in
2015. We believe that the homebuilding industry will continue to strengthen modestly, and we expect new home sales to increase,
in 2015. We believe that our geographic footprint, opportunities for growth in our Texas markets and other markets, and the quality
and significant number of communities that we plan to open in 2015, position us to further improve our profitability and results
in 2015.
Given our expectations with respect to housing market conditions, and consistent with our focus on improving long-term results,
we will continue to emphasize the following strategic business objectives in 2015:
profitably growing our presence in our existing markets, including opening new communities;
reviewing new markets for investment opportunities;
•
•
• maintaining a strong balance sheet; and
•
emphasizing customer service, product quality and design, and premier locations.
In accordance with these objectives, we took a number of steps in 2014 to position the Company for continued improvement in
2015 and beyond, including investing $237.7 million in land acquisitions and $144.3 million in land development in 2014 to help
28
grow our presence in our existing markets. We currently estimate that for 2015 we will spend approximately $400 million to
$450 million on land purchases and land development. However, given varying results in each of our local markets, we will
continue to adjust our strategies and investments based on housing demand and our performance in each of our markets.
We ended 2014 with more than 20,700 lots under control, which represents a 5.6 year supply of lots based on 2014 homes delivered,
including certain lots that we anticipate selling to third parties. This is a 5% increase from our approximately 19,800 lots under
control at the end of 2013. We also opened 56 communities and closed 63 communities in 2014, ending the year with a total of
150 communities. By the end of 2015, we expect to increase our community count by 15% from our community count at the end
of 2014 by opening more than 65 communities.
Going forward, we believe our abilities to leverage our fixed costs, obtain land at desired rates of return, and open and grow our
active communities provide our best opportunities for continuing to improve our financial results. However, we can provide no
assurance that the positive trends reflected in our financial and operating metrics in 2013 and 2014 will continue in 2015.
29
The following table shows, by segment: revenue; gross margin; selling, general and administrative expense; operating income;
interest expense; income before income taxes; and depreciation and amortization for the years ended December 31, 2014, 2013
and 2012:
(In thousands)
Revenue:
Midwest homebuilding
Southern homebuilding
Mid-Atlantic homebuilding
Financial services (a)
Total revenue
Gross margin:
Midwest homebuilding
Southern homebuilding
Mid-Atlantic homebuilding
Financial services (a)
Total gross margin
Selling, general and administrative expense:
Midwest homebuilding
Southern homebuilding
Mid-Atlantic homebuilding
Financial services (a)
Corporate
Total selling, general and administrative expense
Operating income (loss):
Midwest homebuilding
Southern homebuilding
Mid-Atlantic homebuilding
Financial services (a)
Corporate
Total operating income
Interest expense:
Midwest homebuilding
Southern homebuilding
Mid-Atlantic homebuilding
Financial services (a)
Total interest expense
Equity in income of unconsolidated joint ventures
Loss on early extinguishment of debt
Income before income taxes
Depreciation and amortization:
Midwest homebuilding
Southern homebuilding
Mid-Atlantic homebuilding
Financial services
Corporate
Total depreciation and amortization
Year Ended
2014
2013
2012
$
426,090
420,901
338,067
30,122
$
336,242
$
324,436
347,565
28,539
$
1,215,180
$
1,036,782
$
$
$
$
$
$
$
$
$
$
$
$
78,124
81,484
63,002
30,122
252,732
40,640
47,143
35,500
14,506
32,189
169,978
37,484
34,341
27,502
15,616
(32,189)
82,754
3,001
5,445
3,480
1,439
13,365
(347)
—
69,736
1,277
1,584
970
201
4,264
8,296
$
$
$
$
$
$
$
$
$
$
$
$
55,967
60,960
61,003
28,539
206,469
34,498
37,307
33,706
12,741
29,524
147,776
21,469
23,653
27,297
15,798
(29,524)
58,693
4,923
6,142
3,491
1,382
15,938
(306)
1,726
41,335
1,063
1,230
995
138
4,885
8,311
$
$
$
$
$
$
$
$
$
$
$
$
$
281,959
189,714
266,976
23,256
761,905
43,488
38,300
42,819
23,256
147,863
32,044
23,770
27,690
10,820
24,709
119,033
11,443
14,530
15,130
12,436
(24,709)
28,830
5,502
3,742
5,406
1,421
16,071
—
—
12,759
2,834
968
975
140
4,825
9,742
(a) Our financial services operational results should be viewed in connection with our homebuilding business as its operations originate loans and provide title
services primarily for our homebuying customers, with the exception of a small amount of mortgage refinancing.
30
The following tables show total assets by segment at December 31, 2014 and 2013:
(In thousands)
Midwest
Southern
Mid-Atlantic
Corporate,
Financial Services
and Unallocated
Deposits on real estate under option or contract
$
4,573
$
14,752
$
4,170
$
Inventory (a)
Investments in unconsolidated joint ventures
Other assets
Total assets
303,037
1,764
7,933
331,938
26,005
16,829
260,119
—
7,536
$
317,307
$
389,524
$
271,825
$
—
—
—
232,754
232,754
At December 31, 2014
(In thousands)
Midwest
Southern
Mid-Atlantic
Corporate,
Financial Services
and Unallocated
Deposits on real estate under option or contract
$
2,003
$
7,107
$
5,255
$
Inventory (a)
Investments in unconsolidated joint ventures
Other assets
Total assets
248,218
5,331
10,571
236,505
29,935
982
191,847
—
11,050
$
266,123
$
274,529
$
208,152
$
—
—
—
361,372
361,372
At December 31, 2013
Total
$
23,495
895,094
27,769
265,052
$ 1,211,410
Total
$
14,365
676,570
35,266
383,975
$ 1,110,176
(a)
Inventory includes: single-family lots, land and land development costs; land held for sale; homes under construction; model homes and furnishings; community
development district infrastructure; and consolidated inventory not owned.
31
Reportable Segments
The following table presents, by reportable segment, selected operating and financial information as of and for the years ended
December 31, 2014, 2013 and 2012:
(Dollars in thousands)
Midwest Region
Homes delivered
New contracts, net
Backlog at end of period
Average sales price per home delivered
Average sales price of homes in backlog
Aggregate sales value of homes in backlog
Revenue homes
Revenue third party land sales
Operating income homes
Operating income (loss) land
Number of average active communities
Number of active communities, end of period
Southern Region
Homes delivered
New contracts, net
Backlog at end of period
Average sales price per home delivered
Average sales price of homes in backlog
Aggregate sales value of homes in backlog
Revenue homes
Revenue third party land sales
Operating income homes
Operating income land
Number of average active communities
Number of active communities, end of period
Mid-Atlantic Region
Homes delivered
New contracts, net
Backlog at end of period
Average sales price per home delivered
Average sales price of homes in backlog
Aggregate sales value of homes in backlog
Revenue homes
Revenue third party land sales
Operating income homes
Operating income land
Number of average active communities
Number of active communities, end of period
Total Homebuilding Regions
Homes delivered
New contracts, net
Backlog at end of period
Average sales price per home delivered
Average sales price of homes in backlog
Aggregate sales value of homes in backlog
Revenue homes
Revenue third party land sales
Operating income homes
Operating income land
Number of average active communities
Number of active communities, end of period
Year Ended December 31,
2013
2012
2014
1,376
1,336
505
306
351
177,280
420,434
5,656
35,914
1,570
64
62
1,332
1,333
450
310
341
153,279
412,438
8,463
33,675
666
51
50
1,013
994
267
328
354
94,628
331,931
6,136
26,119
1,383
36
38
3,721
3,663
1,222
313
348
425,187
1,164,803
20,255
95,708
3,619
151
150
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,237
1,364
545
269
311
169,680
332,858
3,384
22,902
(1,433)
65
70
1,182
1,290
449
272
307
137,942
321,098
3,338
22,273
1,380
42
50
1,053
1,133
286
321
351
100,395
338,122
9,443
25,271
2,026
35
37
3,472
3,787
1,280
286
319
408,017
992,078
16,165
70,446
1,973
142
157
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,113
1,144
418
253
270
112,890
281,334
625
11,508
(65)
56
61
823
966
341
230
280
95,529
189,044
670
14,530
—
33
37
829
910
206
312
360
74,121
258,393
8,582
13,360
1,770
36
33
2,765
3,020
965
264
293
282,540
728,771
9,877
39,398
1,705
125
131
32
(Dollars in thousands)
Financial Services
Number of loans originated
Value of loans originated
Revenue
Less: Selling, general and administrative expenses
Interest expense
Income before income taxes
Year Ended December 31,
2013
2012
2014
2,572
677,418
30,122
14,506
1,439
14,177
$
$
$
2,598
627,509
28,539
12,741
1,382
14,416
$
$
$
2,280
520,708
23,256
10,820
1,421
11,015
$
$
$
A home is included in “new contracts” when our standard sales contract is executed. “Homes delivered” represents homes for
which the closing of the sale has occurred. “Backlog” represents homes for which the standard sales contract has been executed,
but which are not included in homes delivered because deliveries for these homes have not yet occurred as of the end of the period
specified.
The composition of our homes delivered, new contracts, net and backlog is constantly changing and may be based on a dissimilar
mix of communities between periods as new communities open and existing communities wind down. Further, home types and
individual homes within a community can range significantly in price due to differing square footage, option selections, lot sizes
and quality and location of lots. These variations may result in a lack of meaningful comparability between homes delivered, new
contracts, net and backlog due to the changing mix between periods.
Cancellation Rates
The following table sets forth the cancellation rates for each of our homebuilding segments for the years ended December 31,
2014, 2013 and 2012:
Midwest
Southern
Mid-Atlantic
Total cancellation rate
Year Over Year Comparisons
Year Ended December 31,
2014
2013
2012
18.8%
18.1%
10.5%
16.4%
18.7 %
16.2 %
12.4 %
16.1 %
17.4 %
20.0 %
13.3 %
17.1 %
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Midwest Region. For the twelve months ended December 31, 2014, homebuilding revenue in our Midwest region increased
$89.9 million, from $336.2 million in 2013 to $426.1 million in 2014. This 27% increase in homebuilding revenue was the result
of a 14% increase in the average sales price of homes delivered ($37,000 per home delivered), an 11% increase in the number of
homes delivered (139 units), and a $2.3 million increase in land sale revenue. Operating income in our Midwest region increased
$16.0 million, from $21.5 million in 2013 to $37.5 million in 2014. The increase in operating income was primarily the result of
a $22.1 million increase in our gross margin in 2014, offset, in part, by a $6.1 million increase in selling, general, and administrative
expense. Our Midwest region experienced a gross margin percentage of 18.3% for 2014 -- a 170 basis point improvement when
compared to 16.6% for 2013. This gross margin percentage improvement was primarily reflective of the revenue improvements
described above and a $2.4 million decrease in asset impairment charges taken in 2014 compared to 2013, partially offset by higher
lot and construction costs related to both the mix of homes delivered and cost increases in labor and materials associated with
housing market conditions and normal supply and demand dynamics.
Selling, general and administrative expense increased $6.1 million, from $34.5 million in 2013 to $40.6 million in 2014, but
declined as a percentage of revenue to 9.5% in 2014 from 10.3% in 2013. The increase in selling, general and administrative
expense was attributable, in part, to a $5.4 million increase in selling expense, which was primarily due to a $3.2 million increase
in variable selling expenses resulting from increases in sales commissions produced by the higher average sales price of homes
delivered and number of homes delivered and a $2.3 million increase in non-variable selling expense primarily related to our
design centers and sales offices. The increase in selling, general and administrative expense was also attributable to a $0.7 million
increase in general and administrative expense, which was primarily due to an increase in compensation expense resulting primarily
from a 10% increase in employee count and an increase in variable compensation expense associated with the improved operating
performance in this region.
33
Average sales price in backlog increased to $351,000 at December 31, 2014 compared to $311,000 at December 31, 2013 due to
higher-end product offerings, improving sub-market conditions, and more attractive community locations. However, during 2014,
we experienced a 2% decrease in new contracts in our Midwest region, from 1,364 in 2013 to 1,336 in 2014 and backlog decreased
7% from 545 homes at December 31, 2013 to 505 homes at December 31, 2014. We believe the declines in new contracts and
backlog units were attributable to the opening of certain new communities later in the year than we anticipated, and the closing
of certain communities that made significant contributions to the strong pace of new contracts in 2013. Additionally, comparing
new contracts levels for 2014 with 2013 was challenging as a result of our strong level of new contracts in 2013, which represented
a 19% increase compared to 2012. During the twelve months ended December 31, 2014, we opened 13 communities in our
Midwest region compared to 21 during 2013. Our monthly absorption rate in our Midwest region was 1.8 per community in both
2014 and 2013.
Southern Region. For the twelve months ended December 31, 2014, homebuilding revenue in our Southern region increased
$96.5 million, from $324.4 million in 2013 to $420.9 million in 2014. This 30% increase in homebuilding revenue was the result
of a 14% increase in the average sales price of homes delivered ($38,000 per home delivered), a 13% increase in the number of
homes delivered (150 units) and a $5.1 million increase in land sales revenue. Operating income in our Southern region increased
$10.6 million, from $23.7 million in 2013 to $34.3 million in 2014. The increase in operating income was primarily the result of
a $20.4 million increase in our gross margin in 2014, offset, in part, by a $9.8 million increase in selling, general, and administrative
expense. Our Southern region experienced a gross margin percentage of 19.4% for 2014 compared to 18.8% for 2013. The
improvement in our gross margin percentage when compared to 2013 was primarily reflective of the revenue improvements
described above, partially offset by a $0.7 million decrease in profit from the sale of land and higher lot and construction costs
related to both the mix of homes delivered and cost increases in labor and materials associated with housing market conditions
and normal supply and demand dynamics.
Selling, general and administrative expense increased $9.8 million from $37.3 million in 2013 to $47.1 million in 2014 and declined
as a percentage of revenue to 11.2% in 2014 from 11.5% in 2013. The increase in selling, general and administrative expense was
attributable, in part, to a $7.2 million increase in selling expense, which was primarily due to (1) a $4.7 million increase in variable
selling expenses resulting from increases in sales commissions produced by the higher average sales price of homes delivered and
the larger number of homes delivered, and (2) a $2.5 million increase in expenses related to our design centers and sales offices.
The increase in selling, general and administrative expense was also attributable to a $2.6 million increase in general and
administrative expense, which was primarily due to a $1.6 million increase in other start-up expenses related to our new Austin
and Dallas/Fort Worth, Texas divisions and a $0.6 million increase in payroll-related expenses.
During 2014, we experienced a 3% increase in new contracts in our Southern region, from 1,290 in 2013 to 1,333 in 2014. Backlog
units remained flat at December 31, 2014 compared to December 31, 2013, with an average sales price in backlog of $341,000 at
December 31, 2014 compared to $307,000 at December 31, 2013. We believe the lack of growth in backlog units were attributable
to increased competition, the opening of certain new communities later in the year than we anticipated, and the closing of certain
communities that made significant contributions to the strong pace of new contracts during 2013. The increases in new contracts
and average sales price in backlog were primarily due to growth in our Texas operations. During 2014, we opened 25 communities
in our Southern region compared to 28 communities opened during 2013. Our monthly absorption rate in our Southern region
declined to 2.2 per community in 2014 compared to 2.6 per community in 2013.
Mid-Atlantic Region. For the twelve months ended December 31, 2014, homebuilding revenue in our Mid-Atlantic region decreased
$9.5 million from $347.6 million in 2013 to $338.1 million in 2014. This 3% decrease in homebuilding revenue was the result of
a 4% decrease in the number of homes delivered (40 units) and a $3.3 million decrease in land sales revenue. Operating income,
however, increased slightly, from $27.3 million in 2013 to $27.5 million in 2014. The increase in operating income was primarily
the result of a $2.0 million increase in our gross margin in 2014, offset, in part, by a $1.8 million increase in selling, general, and
administrative expense. Our Mid-Atlantic region experienced a gross margin percentage of 18.6% -- a 100 basis point improvement
when compared to 17.6% in 2013. This percentage improvement in gross margin resulted from gains due to a shift in product and
market mix, partially offset by higher construction costs related to both the mix of homes delivered and cost increases in labor and
materials associated with housing market conditions and normal supply/demand dynamics.
Selling, general and administrative expense increased $1.8 million from $33.7 million in 2013 to $35.5 million in 2014 and increased
as a percentage of revenue to 10.5% in 2014 from 9.7% in 2013. The increase in selling, general and administrative expense was
attributable, in part, to a $0.4 million increase in selling expense, which was primarily due to an increase in non-variable selling
expenses associated with our sales offices and models. The increase in selling, general and administrative expense was also
attributable to a $1.4 million increase in general and administrative expense, which was primarily due to a $0.7 million increase
due to the absence of bad debt recoveries that occurred in 2013 and a $0.7 million increase in land abandonment charges.
34
During 2014, we experienced a 12% decrease in new contracts in our Mid-Atlantic region, from 1,133 in 2013 to 994 in 2014 and
a 7% decrease in the number of homes in backlog from 286 homes at December 31, 2013 to 267 homes at December 31, 2014.
These declines were primarily attributable to delayed openings of certain new communities resulting from harsh weather conditions
in the first quarter and the closing of certain communities that made significant contributions to the strong pace of new contracts
during 2013. However, our average sales price in backlog increased slightly from $351,000 at December 31, 2013 to $354,000
at December 31, 2014 due to a change in product mix with a higher percentage of our backlog units being townhomes in 2014
than in 2013. During 2014, we opened 18 communities in our Mid-Atlantic region compared to 16 communities opened during
2013. Our monthly absorption rate in our Mid-Atlantic region declined to 2.3 per community in 2014, compared to 2.7 per
community in the same period in 2013.
Financial Services. Revenue from our mortgage and title operations increased $1.6 million (6%) from $28.5 million in 2013 to
$30.1 million in 2014 as a result of several factors: (1) an 8.7% increase in the average loan amount from $242,000 in 2013 to
$263,000 in 2014; (2) higher average margins on our loans sold than we experienced in 2013; and (3) additional revenue due to
retaining mortgage servicing rights.
We ended 2014 with a $0.2 million decrease in operating income compared to 2013, which was primarily due to an increase in
selling, general and administrative expense in 2014 primarily related to our start-up operations in our new Austin and Dallas/Fort
Worth divisions.
At December 31, 2014, M/I Financial provided financing services in all of our markets. Approximately 79% of our homes delivered
during 2014 were financed through M/I Financial, the same as in 2013. Capture rate is influenced by financing availability and
can fluctuate up or down from quarter to quarter.
Corporate Selling, General and Administrative Expenses. Corporate selling, general and administrative expense increased
$2.7 million, from $29.5 million in 2013 to $32.2 million in 2014. The increase was primarily due to a $2.2 million increase in
share based and variable incentive compensation associated with our improved financial performance and a $0.3 million increase
in professional fees associated with our growth.
Interest Expense - Net. Interest expense for the Company decreased $2.5 million, from $15.9 million in 2013 to $13.4 million in
2014. This decrease was primarily the result of a decline in our weighted average borrowing rate from 7.61% for 2013 to 7.12%
for 2014, as well as an increase in our capitalized interest related to increased land development during 2014 compared to the prior
year. Partially offsetting these decreases was an increase in our weighted average borrowings from $389.7 million in 2013 to
$431.4 million in 2014 primarily related to the increased borrowing under our Credit Facility.
Earnings from Unconsolidated Joint Ventures. Earnings from unconsolidated joint ventures represents our portion of pre-tax
earnings from our joint ownership and development agreements, joint ventures and other similar arrangements. In both 2014 and
2013, the Company earned $0.3 million in equity in income from unconsolidated joint ventures.
Income Taxes. Our overall effective tax rate was 27.2% for the year ended December 31, 2014 and (266.3)% for the same period
in 2013. Our 2014 effective tax rate primarily reflects the reversal of our remaining state deferred tax asset valuation allowance
(please see Note 14 to our Consolidated Financial Statements for more information). The effective rates are not reflective of our
historical tax rate or our effective tax rate in future periods due to our deferred tax asset valuation allowance. We expect our 2015
effective tax rate to more closely reflect a combined federal and state rate of around 38.5% barring any changes in tax status.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Midwest Region. Our Midwest region had operating income of $21.5 million in 2013, a $10.1 million increase from our operating
income of $11.4 million in 2012. The increase in operating income was primarily the result of a $54.2 million improvement in
our homebuilding revenue, offset, in part, by a $2.5 million increase in selling, general, and administrative expense and a
$2.3 million increase in asset impairment charges taken in 2013 compared to 2012.
For the twelve months ended December 31, 2013, homebuilding revenue in our Midwest region increased $54.2 million, from
$282.0 million in 2012 to $336.2 million in 2013. This 19% increase in homebuilding revenue was the result of an 11% increase
in the number of homes delivered (124 units), a 6% increase in the average sales price of homes delivered ($16,000 per home
delivered) and a $2.8 million increase in land sale revenue. Our homebuilding gross margin in our Midwest region increased
$12.5 million, in 2013 and yielded a gross margin percentage of 16.6% for 2013 - a 120 basis point improvement when compared
to 15.4% for 2012. This gross margin percentage improvement resulted from the increase in our average sales price described
above, partially offset by a $2.3 million increase in asset impairment charges taken in 2013 compared to 2012 and higher lot and
construction costs related to both the mix of homes delivered and cost increases in labor and materials associated with improving
housing market conditions and normal supply and demand dynamics.
35
Selling, general and administrative expense increased $2.5 million, from $32.0 million in 2012 to $34.5 million in 2013, but
declined as a percentage of revenue to 10.3% in 2013 from 11.4% in 2012. The increase in selling, general and administrative
expense was attributable, in part, to a $0.4 million increase in selling expense, which was primarily due to a $2.3 million increase
in variable selling expenses resulting from increases in sales commissions produced by the higher average sales price of homes
delivered and number of homes delivered, partially offset by a $1.9 million decrease in non-variable selling expense primarily
related to the absence of the $1.6 million charge taken in 2012 for the acceleration of leasehold improvement depreciation for
rental space we exited early. The increase in selling, general and administrative expense was also attributable to a $2.1 million
increase in general and administrative expense, which was primarily due to a $0.6 million increase in compensation expense
resulting primarily from a 15% increase in employee count related to our community count and backlog growth; a $0.7 million
increase in other land related expenses; and a $0.7 million increase in variable compensation expense associated with the improved
operating performance in this region.
During 2013, we experienced a 19% increase in new contracts in our Midwest region, from 1,144 in 2012 to 1,364 in 2013. Backlog
increased 30% from 418 homes at December 31, 2012 to 545 homes at December 31, 2013, with an average sales price in backlog
of $311,000 at December 31, 2013 compared to $270,000 at December 31, 2012. These improvements were primarily due to
higher-end product offerings and improving sub-market conditions, as well as more attractive community locations compared to
a year ago. During the twelve months ended December 31, 2013, we opened 21 communities in our Midwest region compared
to 16 during 2012. Our monthly absorption rate in our Midwest region improved slightly to 1.8 per community in 2013 compared
to 1.7 per community in 2012.
Southern Region. Our Southern region had operating income of $23.7 million in 2013, a $9.2 million increase from our operating
income of $14.5 million in 2012. The increase in operating income was primarily the result of a $134.7 million improvement in
our homebuilding revenue and a $1.4 million profit relating to the sale of land to third parties, offset, in part, by a $13.5 million
increase in selling, general, and administrative expense.
For the twelve months ended December 31, 2013, homebuilding revenue in our Southern region increased $134.7 million, from
$189.7 million in 2012 to $324.4 million in 2013. This 71% increase in homebuilding revenue was the result of a 44% increase
in the number of homes delivered (359 units), an 18% increase in the average sales price of homes delivered ($42,000 per home
delivered) and a $2.7 million increase in land sales revenue. Our homebuilding gross margin in our Southern region increased
$22.7 million and yielded a gross margin percentage of 18.8% for 2013 compared to 18.6% for 2012 excluding the $3.0 million
settlement the Company received in the third quarter of 2012 related to defective imported drywall. The improvement in our gross
margin percentage when compared to 2012 is primarily reflective of the improvement in the average sales price of homes delivered
described above as well as from a $1.4 million profit from the sale of land, partially offset by higher lot and construction costs
related to both the mix of homes delivered and cost increases in labor and materials associated with improving housing market
conditions and normal supply and demand dynamics.
Selling, general and administrative expense increased $13.5 million from $23.8 million in 2012 to $37.3 million in 2013 but
declined as a percentage of revenue to 11.5% in 2013 from 12.5% in 2012. The increase in selling, general and administrative
expense was attributable, in part, to a $7.6 million increase in selling expense, which was primarily due to (1) a $5.6 million
increase in variable selling expenses resulting from increases in sales commissions from the higher average sales price of homes
delivered and number of homes delivered, and (2) a $2.0 million increase in expenses related to our design centers and sales offices
related to our increased community count. The increase in selling, general and administrative expense was also attributable to a
$5.9 million increase in general and administrative expense, which was primarily due to a $1.5 million increase in compensation
expenses resulting primarily from a 39% increase in employee count related to our community count and backlog growth; a
$0.8 million increase in other land related expenses; and a $1.6 million increase in variable compensation expense associated with
the improved operating performance in this region. In addition, the Southern region experienced a $0.9 million increase in payroll-
related expenses and a $0.5 million increase in other start-up expenses related to our new Austin and Dallas/Fort Worth, Texas
divisions.
During 2013, we experienced a 34% increase in new contracts in our Southern region, from 966 in 2012 to 1,290 in 2013. Backlog
increased 32% from 341 homes at December 31, 2012 to 449 homes at December 31, 2013, with an average sales price in backlog
of $307,000 at December 31, 2013 compared to $280,000 at December 31, 2012. These improvements were primarily due to an
increased number of active communities at December 31, 2013 compared to prior year as our Texas operations continue to grow.
During 2013, we opened 28 communities in our Southern region compared to 19 communities opened during 2012. Our monthly
absorption rate in our Southern region improved slightly to 2.6 per community in 2013 compared to 2.5 per community in 2012.
Mid-Atlantic Region. Our Mid-Atlantic region had operating income of $27.3 million in 2013, a $12.2 million increase from our
operating income of $15.1 million in 2012. This increase was primarily due to the improvement in our homebuilding revenue,
offset in part, by a $6.0 million increase in selling, general and administrative expense.
36
For the twelve months ended December 31, 2013, homebuilding revenue in our Mid-Atlantic region increased $80.6 million from
$267.0 million in 2012 to $347.6 million in 2013. Our homebuilding gross margin in our Mid-Atlantic region increased
$18.2 million and yielded a gross margin percentage of 17.6% -- a 160 basis point improvement when compared to 16.0% in
2012. This percentage improvement resulted from a 3% increase in the average sales price of homes delivered ($9,000 per home
delivered) and lower average lot costs when compared to 2012 (mix related), partially offset by higher construction costs related
to both the mix of homes delivered as well as cost increases in labor and materials associated with improving housing market
conditions and normal supply/demand dynamics.
Selling, general and administrative expense increased $6.0 million from $27.7 million in 2012 to $33.7 million in 2013 but declined
as a percentage of revenue to 9.7% in 2013 from 10.4% in 2012. The increase in selling, general and administrative expense was
attributable, in part, to a $3.7 million increase in selling expense, which was primarily due to a $3.3 million increase in variable
selling expenses resulting from the increase in sales commissions from the higher average sales price of homes delivered and
number of homes delivered. The increase in selling, general and administrative expense was also attributable to a $2.3 million
increase in general and administrative expense, which was primarily due to a $0.9 million increase in compensation expenses
resulting primarily from a 23% increase in employee count related to our community count and backlog growth as well as due to
a $1.3 million increase in variable compensation expense associated with the improved operating performance in this region.
During 2013, we experienced a 25% increase in new contracts in our Mid-Atlantic region, from 910 in 2012 to 1,133 in 2013 and
a 39% increase in the number of homes in backlog from 206 homes at December 31, 2012 to 286 homes at December 31, 2013.
However, our average sales price in backlog decreased by 3% to $351,000 at December 31, 2013 compared to $360,000 at
December 31, 2012 due to a change in product mix with a higher percentage of our backlog units being townhomes in 2013 than
in 2012. During 2013, we opened 16 communities in our Mid-Atlantic region compared to 11 communities opened during 2012.
Our monthly absorption rate in our Mid-Atlantic region improved to 2.7 per community in 2013, compared to 2.1 per community
in the same period in 2012.
Financial Services. Revenue from our mortgage and title operations increased $5.2 million (23%) from $23.3 million in 2012 to
$28.5 million in 2013 as a result of several factors: (1) a 14% increase in the number of loan originations, from 2,280 in 2012 to
2,598 in 2013; (2) a 6.1% increase in the average loan amount from $228,000 in 2012 to $242,000 in 2013; (3) higher average
margins on our loans sold than we experienced in 2012; and (4) additional revenue due to retaining mortgage servicing rights. We
ended 2013 with a $3.4 million increase in operating income compared to 2012, which was primarily due to the increase in revenue
discussed above. Offsetting these improvements was a $1.9 million increase in selling, general and administrative expense for
2013 compared to 2012, primarily due to an increase in payroll related expenses resulting from a 27% increase in employee count
related to our unit growth and new markets, partially offset by the absence of the $1.0 million increase in reserves related to
mortgage loans sold taken in 2012. During the first half of 2013, we experienced higher profit margins on our loan sales and
servicing retained transactions as supply and demand factors were favorable during that time and we benefited from a strong
refinance market. The impact of both of these market factors on our operating results declined in the second half of 2013, and we
do not expect to benefit as greatly from these factors in 2014 as we did in 2013. On February 1, 2014, M/I Financial Corp. was
converted from an Ohio corporation to an Ohio limited liability company and changed its name to M/I Financial, LLC.
At December 31, 2013, M/I Financial provided financing services in all of our markets. Approximately 79% of our homes delivered
during 2013 were financed through M/I Financial compared to 83% in 2012. The decrease in our overall capture rate was due to
a higher percentage of our homes delivered being in Texas where our financial services operations are not fully in place, as is
typical in newer markets. Capture rate is influenced by financing availability and can fluctuate up or down from quarter to quarter.
Corporate Selling, General and Administrative Expenses. Corporate selling, general and administrative expense increased
$4.8 million, from $24.7 million in 2012 to $29.5 million in 2013. The increase was primarily due to a $4.3 million increase in
share based and variable incentive compensation associated with our improved financial performance (as our pre-tax income more
than tripled from 2012‘s pre-tax income), a $0.7 million increase in professional fees associated with our growth and a $0.8 million
increase related to the absence of our net gain on purchase accounting related to our April 2012 acquisition, offset partially by a
$0.7 million recovery of legal fees in 2013 from our insurance carrier received in connection with our drywall product liability
litigation and a $0.7 million decrease in depreciation charges.
Interest Expense - Net. Interest expense for the Company decreased $0.2 million, from $16.1 million in 2012 to $15.9 million in
2013. This slight decrease was primarily the result of a decline in our weighted average borrowing rate from 8.83% for 2012 to
7.61% for 2013, related to the addition of our two convertible debt issuances, which have significantly lower interest rates compared
to our other debt outstanding in those periods, as well as an increase in our capitalized interest related to increased land development
during 2013 compared to the prior year. Partially offsetting these decreases was an increase in our weighted average borrowings
from $291.8 million in 2012 to $389.7 million in 2013 related to the issuance of $57.5 million aggregate principal amount of 2017
37
Convertible Senior Subordinated Notes in the third quarter of 2012 and the issuance of $86.3 million aggregate principal amount
of 2018 Convertible Senior Subordinated Notes in the first quarter of 2013.
Earnings from Unconsolidated Joint Ventures. Earnings from unconsolidated joint ventures represents our portion of pre-tax
earnings from our joint ownership and development agreements, joint ventures and other similar arrangements. The $0.3 million
increase in 2013 as compared to 2012 is primarily attributable to third party lot sales.
Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt is attributable to the write-off of unamortized debt
issuance costs associated with the termination of our Prior Credit Facility that was scheduled to mature on December 31, 2014.
During the twelve months ended December 31, 2013, we recognized a loss on early extinguishment of debt of $1.7 million.
Income Taxes. Our overall effective tax rate was (266.3)% for the year ended December 31, 2013 and (4.6)% for the same period
in 2012. Our 2013 effective tax rate primarily reflects the reversal of a majority of our beginning of the year deferred tax asset
valuation allowance as we determined during the year that we met the “more likely than not” realization criteria in accordance
with ASC 740-10, Income Taxes (please see Note 14 to our Consolidated Financial Statements for more information). The effective
rates are not reflective of our historical tax rate or our effective tax rate in future periods due to our deferred tax asset valuation
allowance.
LIQUIDITY AND CAPITAL RESOURCES
Overview of Capital Resources and Liquidity
At December 31, 2014, we had $22.5 million of cash, cash equivalents and restricted cash, with $15.5 million of this amount
comprised of unrestricted cash and cash equivalents, which represents a $113.2 million decrease in unrestricted cash and cash
equivalents from December 31, 2013. This decrease was primarily a result of our increased investment in inventory during 2014.
Our principal uses of cash during 2014 were investment in land and land development, construction of homes, mortgage loan
originations, investment in joint ventures, operating expenses, and short-term working capital and debt service requirements,
including the repayment of amounts outstanding under our credit lines. In order to fund these uses of cash, we used proceeds from
home deliveries and the sale of mortgage loans, as well as excess cash balances, borrowings under our credit facilities, and other
sources of liquidity.
We are actively acquiring and developing lots in our markets to replenish and grow our lot supply and active community count.
We expect to continue to expand our business based on the anticipated level of demand for new homes in our markets. Accordingly,
we expect our cash outlays for land purchases, land development, home construction and operating expenses will continue to
exceed our cash generated by operations during some monthly and quarterly periods in 2015, and we expect to continue to utilize
our revolving credit facility in 2015.
During the year ended December 31, 2014, we delivered 3,721 homes, started 3,869 homes, and spent $237.7 million on land
purchases and $144.3 million on land development. Based on our business activity levels, market conditions, and opportunities
for land in our markets, we currently estimate that we will spend approximately $400 million to $450 million on land purchases
and land development during 2015.
We also continue to enter into land option agreements, taking into consideration current and projected market conditions, to secure
land for the construction of homes in the future. Pursuant to these land option agreements, as of December 31, 2014, we had
purchase agreements to acquire 9,364 lots, with an aggregate current purchase price of approximately $452.7 million of land and
lots during 2015 through 2021.
Land transactions are subject to a number of factors, including our financial condition and market conditions, as well as satisfaction
of various conditions related to specific properties. We will continue to monitor market conditions and our ongoing pace of home
deliveries and adjust our land spending accordingly. The planned increase in our land spending in 2015 compared to 2014 is driven
primarily by our growth objectives as we expand our business. In addition, a larger portion of our land investment may continue
to shift from developed lot purchases to acquisition and development of undeveloped land, which would result in increased inventory
levels.
38
Operating Cash Flow Activities. During 2014, we used $132.7 million of cash in our operating activities, compared to $74.0 million
of cash used in our operating activities in 2013. The net increase of $58.7 million in cash used in operating activities during 2014
compared to 2013 was primarily due to a $52.6 million increase in the change in inventory due to our increased investment in land
and houses under construction compared with the prior year, as well as a smaller net increase in accounts payable, offset, in part,
by a $28.4 million increase in pretax income for 2014 compared to the prior year.
Investing Cash Flow Activities. During 2014, we used $12.6 million of cash in investing activities, compared to using $35.6 million
of cash in investing activities in 2013. This $23.0 million decrease in cash usage was partially due to a $12.3 million reduction
in restricted cash from December 31, 2013, as the Company pledged less cash during 2014 as collateral in accordance with our
secured Letter of Credit Facilities (as defined below in “Notes Payable - Homebuilding - Homebuilding Letter of Credit Facilities”).
In addition, we reduced our investment in our unconsolidated joint ventures by $9.1 million during 2014.
Financing Cash Flow Activities. During the twelve months ended December 31, 2014, we generated $32.1 million of cash from
our financing activities, compared to generating $92.8 million of cash during the twelve months ended December 31, 2013. The
change in cash generated from financing activities was primarily due to the absence of any debt or equity capital financing
transactions or preferred share redemptions in 2014, compared with 2013, when $140.9 million of proceeds were received from
equity and convertible debt financings, and $50.4 million of cash was used for the redemption of preferred shares.
At December 31, 2014 and December 31, 2013, our ratio of net debt to net capital was 47% and 39%, respectively, calculated as
total debt minus total cash, cash equivalents and restricted cash, divided by the sum of total debt minus total cash, cash equivalents
and restricted cash plus shareholders' equity. The increase compared to December 31, 2013 was due to higher debt levels and a
decrease in our cash balance compared to December 31, 2013 as a result of our increased investment in inventory during 2014 as
well as an increase in shareholders’ equity, primarily related to our net earnings. We believe that this ratio provides useful information
regarding our financial position, for understanding the leverage employed in our operations and for comparing us with other
homebuilders.
We fund our operations with cash flows from operating activities, including proceeds from home deliveries and the sale of mortgage
loans. We believe that these sources of cash, along with our balance of unrestricted cash and borrowings available under our credit
facilities, will be sufficient to fund our currently anticipated working capital needs, investment in land and land development,
construction of homes, operating expenses, planned capital spending, and debt service requirements for at least the next twelve
months. In order to increase the amount available for borrowings under our credit facilities and enhance our liquidity, in October
2014, we increased the aggregate commitment amount and extended the maturity date of our primary homebuilding credit facility
as described below. In addition, we routinely monitor current operational requirements, financial market conditions, and credit
relationships and we may choose to seek additional capital by issuing new debt and/or equity securities to strengthen our liquidity
or our long-term capital structure. The financing needs of our homebuilding and financial services operations depend on anticipated
sales volume in the current year as well as future years, inventory levels and related turnover, forecasted land and lot purchases,
debt maturity dates, and other factors. If we seek such additional capital, there can be no assurance that we would be able to obtain
such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests
of our existing shareholders and/or increase our interest costs.
The Company is a party to three primary credit agreements: (1) a $300 million unsecured revolving credit facility dated July 18,
2013, as amended by a First Amendment dated October 20, 2014, with M/I Homes, Inc. as borrower and guaranteed by the
Company's wholly owned homebuilding subsidiaries (the “Credit Facility”); (2) a $110 million secured mortgage warehousing
agreement, dated March 29, 2013, with M/I Financial as borrower, as amended on March 28, 2014 (the “MIF Mortgage Warehousing
Agreement”); and (3) a $15 million mortgage repurchase agreement dated November 13, 2012, with M/I Financial as borrower,
as amended most recently on November 4, 2014 (the “MIF Mortgage Repurchase Facility”).
39
Included in the table below is a summary of our available sources of cash from the Credit Facility, the MIF Mortgage Warehousing
Agreement and the MIF Mortgage Repurchase Facility as of December 31, 2014:
(In thousands)
Notes payable – homebuilding (a)
Notes payable – financial services (b)
Expiration
Date
10/20/2018
(b)
Outstanding
Balance
Available
Amount
$
$
30,000 $
85,379 $
242,830
743
(a) The available amount under the Credit Facility is computed in accordance with the borrowing base calculation, which totaled $380.2 million of availability
at December 31, 2014, such that the full $300 million commitment amount of the facility was available, less any borrowings and letters of credit outstanding.
There were $30.0 million borrowings and $27.2 million of letters of credit outstanding at December 31, 2014, leaving $242.8 million available. The
commitment amount can be increased from $300 million up to $400 million in the aggregate, contingent on obtaining additional commitments from lenders.
The Credit Facility has an expiration date of October 20, 2018.
(b) The available amount is computed in accordance with the borrowing base calculations under the MIF Mortgage Warehousing Agreement and the MIF
Mortgage Repurchase Facility, each of which may be increased by pledging additional mortgage collateral. The maximum aggregate commitment amount
of M/I Financial's warehousing agreements as of December 31, 2014 is $125 million. The MIF Mortgage Warehousing Agreement has an expiration date
of March 27, 2015 and the MIF Mortgage Repurchase Facility has an expiration date of November 3, 2015.
Notes Payable - Homebuilding.
Homebuilding Credit Facility. The Credit Facility provides for an aggregate commitment amount of $300 million, including a
$125 million sub-facility for letters of credit. In addition, the Credit Facility has an accordion feature under which the Company
may increase the aggregate commitment amount up to $400 million, subject to certain conditions, including obtaining additional
commitments from existing or new lenders. The Credit Facility matures on October 20, 2018. Interest on amounts borrowed
under the Credit Facility is payable at either the Alternate Base Rate plus an initial margin of 150 basis points, or at the Eurodollar
Rate plus a margin of 250 basis points, in each case subject to adjustment based on the Company’s leverage ratio.
Borrowings under the Credit Facility constitute senior, unsecured indebtedness and availability is subject to, among other things,
a borrowing base calculated using various advance rates for different categories of inventory. The Credit Facility contains various
representations, warranties and affirmative, negative and financial covenants which require, among other things, that the Company
maintain (1) a minimum level of Consolidated Tangible Net Worth of $363.8 million (which amount is subject to increase over
time based on earnings and proceeds from equity offerings), (2) a leverage ratio not in excess of 60%, and (3) either a minimum
Interest Coverage Ratio of 1.5 to 1.0 or a minimum liquidity amount. In addition, the Credit Facility contains covenants that limit
the Company’s number of unsold housing units and model homes, as well as the amount of Investments in Unrestricted Subsidiaries
and Joint Ventures.
The Company’s obligations under the Credit Facility are guaranteed by all of the Company’s subsidiaries, with the exception of
subsidiaries that are primarily engaged in the business of mortgage financing, title insurance or similar financial businesses relating
to the homebuilding and home sales business, certain subsidiaries that are not 100%-owned by the Company or another subsidiary,
and other subsidiaries designated by the Company as Unrestricted Subsidiaries (as defined in Note 16 to our Consolidated Financial
Statements), subject to limitations on the aggregate amount invested in such Unrestricted Subsidiaries. The guarantors for the
Credit Facility are the same subsidiaries that guarantee our 8.625% Senior Notes due 2018 (the “2018 Senior Notes”), 3.25%
Convertible Senior Subordinated Notes due 2017 (the “2017 Convertible Senior Subordinated Notes”), and 3.0% Convertible
Senior Subordinated Notes due 2018 (the “2018 Convertible Senior Subordinated Notes”).
As of December 31, 2014, the Company was in compliance with all covenants of the Credit Facility, including financial covenants.
The following table summarizes the most significant restrictive covenant thresholds under the Credit Facility and our compliance
with such covenants as of December 31, 2014:
Financial Covenant
Consolidated Tangible Net Worth
Leverage Ratio
Interest Coverage Ratio
Investments in Unrestricted Subsidiaries and Joint Ventures
Unsold Housing Units and Model Homes
Covenant
Requirement
Actual
(Dollars in millions)
$
$
363.8
0.6
1.5 to 1.0
149.6
1,463
$
$
498.7
0.47
4.08 to 1.0
15.6
995
Homebuilding Letter of Credit Facilities. The Company is party to three secured credit agreements for the issuance of letters of
credit outside of the Credit Facility (collectively, the “Letter of Credit Facilities”), with maturity dates ranging from June 1, 2015
to September 30, 2015. Under the terms of the Letter of Credit Facilities, letters of credit can be issued for maximum terms ranging
from one year up to three years. The Letter of Credit Facilities contain cash collateral requirements ranging from 101% to 105%.
40
Upon maturity or the earlier termination of the Letter of Credit Facilities, letters of credit that have been issued under the Letter
of Credit Facilities remain outstanding with cash collateral in place through the respective expiration dates.
The agreements governing the Letter of Credit Facilities contain limits for the issuance of letters of credit ranging from $5.0 million
to $10.0 million, for a combined letter of credit capacity of $20.0 million, of which $3.8 million was uncommitted at December 31,
2014 and could be withdrawn at any time. As of December 31, 2014, there was a total of $6.5 million of letters of credit issued
under the Letter of Credit Facilities, which was collateralized with $6.6 million of restricted cash.
Notes Payable - Financial Services.
MIF Mortgage Warehousing Agreement. The MIF Mortgage Warehousing Agreement is used to finance eligible residential
mortgage loans originated by M/I Financial. The Agreement provides a maximum borrowing availability of $110 million and an
accordion feature which allows for an increase of the maximum borrowing availability of up to an additional $20 million (subject
to certain conditions, including obtaining additional commitments from existing or new lenders). The MIF Mortgage Warehousing
Agreement has an expiration date of March 27, 2015. The maximum principal amount permitted to be outstanding at any one
time in aggregate under all warehouse credit lines is $150 million. Effective with the quarter ending September 30, 2014, the
minimum required tangible net worth requirement applicable to M/I Financial increased from $10.0 million to $11.0 million and
the minimum required liquidity requirement applicable to M/I Financial increased from $5.0 million to $5.5 million. M/I Financial
pays interest on each advance under the MIF Mortgage Warehousing Agreement at a per annum rate equal to the greater of (1) the
floating LIBOR rate plus 275 basis points and (2) 3.0%.
As is typical for similar credit facilities in the mortgage origination industry, at closing, the expiration of the MIF Mortgage
Warehousing Agreement was set at approximately one year and is under consideration for extension annually by the participating
lenders. We expect to extend the MIF Mortgage Warehousing Agreement on or prior to the current expiration date of March 27,
2015, but we cannot provide any assurance that we will be able to obtain such an extension.
The MIF Mortgage Warehousing Agreement is secured by certain mortgage loans originated by M/I Financial and that are being
“warehoused” prior to their sale to investors. The MIF Mortgage Warehousing Agreement provides for limits with respect to
certain loan types that can secure outstanding borrowings. There are currently no guarantors of the MIF Mortgage Warehousing
Agreement, although M/I Financial may, at its election, designate from time to time any one or more of its subsidiaries as guarantors.
As of December 31, 2014, there was $70.6 million outstanding under the MIF Mortgage Warehousing Agreement and M/I Financial
was in compliance with all covenants. The financial covenants, as more fully described and defined in the MIF Mortgage
Warehousing Agreement, are summarized in the following table, which also sets forth M/I Financial’s compliance with such
covenants as of December 31, 2014:
Financial Covenant
Leverage Ratio
Liquidity
Adjusted Net Income
Tangible Net Worth
Covenant
Requirement
Actual
(Dollars in millions)
10.0 to 1.0
7.6 to 1.0
>
$
$
$
5.5
0.0
11.0
$
$
$
9.3
6.7
12.6
MIF Mortgage Repurchase Facility. The MIF Mortgage Repurchase Facility is used to finance eligible residential mortgage loans
originated by M/I Financial and is structured as a mortgage repurchase facility with a maximum borrowing availability of $15 million
and an expiration date of November 3, 2015. M/I Financial pays interest on each advance under the MIF Mortgage Repurchase
Facility at a per annum rate equal to the floating LIBOR rate plus 275 or 300 basis points depending on the loan type. The covenants
in the MIF Mortgage Repurchase Facility are substantially similar to the covenants in the MIF Mortgage Warehousing Agreement.
The MIF Mortgage Repurchase Facility provides for limits with respect to certain loan types that can secure outstanding borrowings,
which are substantially similar to the restrictions in the MIF Mortgage Warehousing Agreement. There are currently no guarantors
of the MIF Mortgage Repurchase Facility. As of December 31, 2014, there was $14.8 million outstanding under the MIF Mortgage
Repurchase Facility. M/I Financial was in compliance with all financial covenants as of December 31, 2014.
Senior Notes and Convertible Senior Subordinated Notes.
8.625% Senior Notes. In November 2010, the Company issued $200 million aggregate principal amount of 8.625% Senior Notes
due 2018. In May 2012, we issued an additional $30 million of 2018 Senior Notes under our 2018 Senior Notes indenture for a
total outstanding balance of $230 million. The Company may redeem all or any portion of the 2018 Senior Notes at a stated
41
redemption price, together with accrued and unpaid interest thereon. The redemption price currently equals 104.313% of the
principal amount outstanding, but will decline to 102.156% of the principal amount outstanding if redeemed during the 12-month
period beginning on November 15, 2015, and will further decline to 100.000% of the principal amount outstanding if redeemed
on or after November 15, 2016, but prior to maturity.
The 2018 Senior Notes contain certain covenants, as more fully described and defined in the indenture, which limit the ability of
the Company and the restricted subsidiaries to, among other things: incur additional indebtedness; make certain payments, including
dividends, or repurchase any shares, in an aggregate amount exceeding our “restricted payments basket”; make certain investments;
and create or incur certain liens, consolidate or merge with or into other companies, or liquidate or sell or transfer all or substantially
all of our assets. These covenants are subject to a number of exceptions and qualifications as described in the indenture governing
the 2018 Senior Notes. As of December 31, 2014, the Company was in compliance with all terms, conditions, and covenants
under the indenture.
See Note 11 to the Consolidated Financial Statements for more information regarding the 2018 Senior Notes.
3.0% Convertible Senior Subordinated Notes. In March 2013, the Company issued $86.3 million aggregate principal amount of
3.0% Convertible Senior Subordinated Notes due 2018. The conversion rate initially equals 30.9478 shares per $1,000 of their
principal amount. This corresponds to an initial conversion price of approximately $32.31 per common share, which equates to
approximately 2.7 million common shares. See Note 11 to the Consolidated Financial Statements for more information regarding
the 2018 Convertible Senior Subordinated Notes.
3.25% Convertible Senior Subordinated Notes. In September 2012, the Company issued $57.5 million aggregate principal amount
of 3.25% Convertible Senior Subordinated Notes due 2017. The conversion rate initially equals 42.0159 shares per $1,000 of
principal amount. This corresponds to an initial conversion price of approximately $23.80 per common share which equates to
approximately 2.4 million common shares. See Note 11 to the Consolidated Financial Statements for more information regarding
the 2017 Convertible Senior Subordinated Notes.
Weighted Average Borrowings. In 2014 and 2013, our weighted average borrowings outstanding were $431.4 million and
$389.7 million, respectively, with a weighted average interest rate of 7.12% and 7.61%, respectively. The increase in our weighted
average borrowings related to an increase in bank borrowings during 2014 compared to 2013. The decline in our weighted average
interest rate was primarily due to lower costs on the Credit Facility compared to 2013.
At December 31, 2014, we had $30.0 million outstanding under the Credit Facility. During the twelve months ended December 31,
2014, the average daily amount outstanding under the Credit Facility was $15.1 million and the maximum amount outstanding
under the Credit Facility was $64.6 million. Based on our current anticipated spending on land acquisition and development in
2015, and associated increases in our investment in inventory, including land and houses under construction, we expect to borrow
under the Credit Facility during 2015, with an estimated peak amount outstanding of approximately $150 million. The actual
amount borrowed in 2015 (and the estimated peak amount outstanding) and related timing are subject to numerous factors, including
the timing and amount of land and house construction expenditures, payroll and other general and administrative expenses, cash
receipts from home deliveries, other cash receipts and payments, any capital markets transactions or other additional financings
by the Company and any repayments or redemptions of outstanding debt. The Company may experience significant variation in
cash and Credit Facility balances from week to week due to the timing of such receipts and payments.
There were $27.2 million of letters of credit issued and outstanding under the Credit Facility at December 31, 2014. During 2014,
the average daily amount of letters of credit outstanding under the Credit Facility was $18.2 million and the maximum amount of
letters of credit outstanding under the Credit Facility was $27.2 million.
At December 31, 2014, M/I Financial had $70.6 million outstanding under the MIF Mortgage Warehousing Agreement. During
2014, the average daily amount outstanding under the MIF Mortgage Warehousing Agreement was $28.6 million and the maximum
amount outstanding was $70.6 million.
At December 31, 2014, M/I Financial had $14.8 million outstanding under the MIF Mortgage Repurchase Facility. During 2014,
the average daily amount outstanding under the MIF Mortgage Repurchase Facility was $6.2 million and the maximum amount
outstanding was $14.9 million.
Preferred Shares. On March 15, 2007, we issued 4,000,000 depositary shares, each representing 1/1000th of a Series A Preferred
Share, or 4,000 Series A Preferred Shares in the aggregate, for net proceeds of $96.3 million. The Series A Preferred Shares have
a liquidation preference equal to $25 per depositary share (plus an amount equal to all accrued and unpaid dividends (whether or
not earned or declared) for the then current quarterly dividend period accrued to but excluding the date of final distribution).
Dividends on the Series A Preferred Shares are non-cumulative and, if declared by us, are paid at an annual rate of 9.75%. Dividends
42
are payable quarterly in arrears, if declared by us, on March 15, June 15, September 15 and December 15. If there is a change of
control of the Company and if the Company’s corporate credit rating is withdrawn or downgraded to a certain level (together
constituting a “change of control event”), the dividends on the Series A Preferred Shares will increase to 10.75% per year. We
may redeem the Series A Preferred Shares in whole or in part (provided, that any redemption that would reduce the aggregate
liquidation preference of the Series A Preferred Shares below $25 million in the aggregate would be restricted to a redemption in
whole only) at any time or from time to time at a cash redemption price equal to $25 per depositary share (plus an amount equal
to all accrued and unpaid dividends (whether or not earned or declared) for the then current quarterly dividend period accrued to
but excluding the redemption date). Holders of the Series A Preferred Shares have no right to require redemption of the Series A
Preferred Shares. The Series A Preferred Shares have no stated maturity, are not subject to any sinking fund provisions, are not
convertible into any other securities, and will remain outstanding indefinitely unless redeemed by us. Holders of the Series A
Preferred Shares have no voting rights, except with respect to those specified matters set forth in the Company’s Amended and
Restated Articles of Incorporation or as otherwise required by applicable Ohio law, and no preemptive rights. The outstanding
depositary shares are listed on the New York Stock Exchange under the trading symbol “MHO-PrA.” There is no separate public
trading market for the Series A Preferred Shares except as represented by the depositary shares.
The indenture governing our 2018 Senior Notes limits our ability to pay dividends on, and repurchase, our common shares and
Series A Preferred Shares to the amount of the positive balance in our “restricted payments basket,” as defined in the indenture.
The restricted payments basket was $148.6 million at December 31, 2014. We are permitted by the indenture to pay dividends
on, and repurchase, our common shares and Series A Preferred Shares to the extent of such positive balance in our restricted
payments basket. We declared and paid a quarterly dividend of $609.375 per share on our Series A Preferred Shares for each
quarter in 2014 for aggregate dividend payments of $4.9 million for the year ended December 31, 2014 compared to $3.7 million
in 2013. The determination to pay future dividends on, and make future repurchases of, our common shares and Series A Preferred
Shares will be at the discretion of our board of directors and will depend upon our results of operations, financial condition, capital
requirements and compliance with debt covenants and the terms of our Series A Preferred Shares, and other factors deemed relevant
by our board of directors.
Universal Shelf Registration. In October 2013, the Company filed a $400 million universal shelf registration statement with the
SEC, which registration statement became effective on December 20, 2013. Pursuant to the registration statement, the Company
may, from time to time, offer debt securities, common shares, preferred shares, depositary shares, warrants to purchase debt
securities, common shares, preferred shares, depositary shares or units of two or more of those securities, rights to purchase debt
securities, common shares, preferred shares or depositary shares, stock purchase contracts and units. The timing and amount of
offerings, if any, will depend on market and general business conditions.
43
CONTRACTUAL OBLIGATIONS
Included in the table below is a summary, as of December 31, 2014, of future cash requirements under the Company’s contractual
obligations:
Payments due by period
Total
Less Than
1 year
1 - 3
Years
3 - 5
Years
More than
5 years
Notes payable bank – homebuilding operations (a)
$
30,443 $
443 $
Notes payable bank – financial services (b)
Notes payable – other (including interest)
Senior notes (including interest)
Convertible senior subordinated notes (including interest)
Obligation for consolidated inventory not owned (c)
Operating leases
Purchase obligations (d)
Total
85,502
10,658
309,350
158,413
608
13,117
218,511
85,502
3,115
19,838
4,456
608
3,720
218,511
— $
—
6,086
39,675
66,413
—
5,836
—
30,000 $
—
914
249,837
87,544
—
2,550
—
$
826,602 $
336,193 $
118,010 $
370,845 $
—
—
543
—
—
—
1,011
—
1,554
(a) Borrowings under the Company’s Credit Facility are at the greater of the floating Alternate Base Rate plus 1.50% or at the Eurodollar Rate plus
2.50%. Borrowings outstanding at December 31, 2014 had a weighted average interest rate of 2.7%. Interest payments by period will be based upon the
outstanding borrowings and the applicable interest rate(s) in effect. The above amounts do not reflect interest due and payable at December 31, 2014.
(b) Borrowings under the MIF Mortgage Warehousing Agreement are at the greater of the floating LIBOR rate plus 275 basis points or 3.0%. Borrowings under
the MIF Mortgage Repurchase Facility are at the floating LIBOR rate plus 275 or 300 basis points, depending on the loan type. Total borrowings outstanding
under both agreements at December 31, 2014 had a weighted average interest rate of 3.0%. Interest payments by period will be based upon the outstanding
borrowings and the applicable interest rate(s) in effect. The above amounts do not reflect interest due and payable at December 31, 2014.
(c) The Company is party to two land purchase agreements in which the Company has specific performance requirements. The future amounts payable related
to these two land purchase agreements is the number of lots the Company is obligated to purchase at the lot price set forth in the agreement. The time period
in which these payments will be made is the Company’s best estimate at when these lots will be purchased.
(d) As of December 31, 2014, the Company had obligations with certain subcontractors and suppliers of raw materials in the ordinary course of business to meet
the commitment to deliver 1,222 homes with an aggregate sales price of $425.2 million. Based on our current housing gross margin, excluding the charge
for impairment of inventory, less variable selling costs, less payments to date on homes in backlog, we estimate payments totaling approximately $218.5 million
to be made in 2015 relating to those homes.
OFF-BALANCE SHEET ARRANGEMENTS
Reference is made to Notes 1, 6, 7, and 8 in the accompanying Notes to the Consolidated Financial Statements included in this
Annual Report on Form 10-K. These Notes discuss our off-balance sheet arrangements with respect to land acquisition contracts
and option agreements, and land development joint ventures, including the nature and amounts of financial obligations relating to
these items. In addition, these Notes discuss the nature and amounts of certain types of commitments that arise in the ordinary
course of our land development and homebuilding operations, including commitments of land development joint ventures for
which we might be obligated.
Our off-balance sheet arrangements relating to our homebuilding operations include unconsolidated joint ventures, land option
agreements, guarantees and indemnifications associated with acquiring and developing land, and the issuance of letters of credit
and completion bonds. Our use of these arrangements is for the purpose of securing the most desirable lots on which to build
homes for our homebuyers in a manner that we believe reduces the overall risk to the Company. Additionally, in the ordinary
course of its business, our financial services operations issue guarantees and indemnities relating to the sale of loans to third parties.
INTEREST RATES AND INFLATION
Our business is significantly affected by general economic conditions within the United States and, particularly, by the impact of
interest rates and inflation. Inflation can have a long-term impact on us because increasing costs of land, materials and labor can
result in a need to increase the sales prices of homes. In addition, inflation is often accompanied by higher interest rates, which
can have a negative impact on housing demand and the costs of financing land development activities and housing construction.
Higher interest rates also may decrease our potential market by making it more difficult for homebuyers to qualify for mortgages
or to obtain mortgages at interest rates that are acceptable to them. The impact of increased rates can be offset, in part, by offering
variable rate loans with lower interest rates. In conjunction with our mortgage financing services, hedging methods are used to
reduce our exposure to interest rate fluctuations between the commitment date of the loan and the time the loan closes. Rising
interest rates, as well as increased materials and labor costs, may reduce gross margins. An increase in material and labor costs
is particularly a problem during a period of declining home prices. Conversely, deflation can impact the value of real estate and
44
make it difficult for us to recover our land costs. Therefore, either inflation or deflation could adversely impact our future results
of operations.
Seasonality and Variability in Quarterly Results
Typically, our homebuilding operations experience significant seasonality and quarter-to-quarter variability in homebuilding
activity levels. In general, homes delivered increase substantially in the second half of the year compared to the first half of the
year. We believe that this seasonality reflects the tendency of homebuyers to shop for a new home in the spring with the goal of
closing in the fall or winter, as well as the scheduling of construction to accommodate seasonal weather conditions. Our financial
services operations also experience seasonality because loan originations correspond with the delivery of homes in our homebuilding
operations.
(Dollars in thousands)
Revenue
Unit data:
New contracts
Homes delivered
Backlog at end of period
(Dollars in thousands)
Revenue
Unit data:
New contracts
Homes delivered
Backlog at end of period
Three Months Ended
December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2014
$
367,964 $
330,767 $
281,608 $
234,841
773
1,105
1,222
892
985
1,554
1,016
894
1,647
982
737
1,525
Three Months Ended
December 31,
2013
September 30,
2013
June 30,
2013
March 31,
2013
$
336,307 $
275,195 $
234,553 $
190,727
793
1,120
1,280
869
937
1,607
1,078
788
1,675
1,047
627
1,385
45
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk results from fluctuations in interest rates. We are exposed to interest rate risk through borrowings under
our revolving credit facilities, consisting of the Credit Facility, the MIF Mortgage Warehousing Agreement, and the MIF Mortgage
Repurchase Facility which permit borrowings of up to $425 million, subject to availability constraints. Additionally, M/I Financial
is exposed to interest rate risk associated with its mortgage loan origination services.
Interest Rate Lock Commitments: Interest rate lock commitments (“IRLCs”) are extended to certain homebuying customers who
have applied for a mortgage loan and meet certain defined credit and underwriting criteria. Typically, the IRLCs will have a
duration of less than six months; however, in certain markets, the duration could extend to twelve months.
Some IRLCs are committed to a specific third party investor through the use of best-efforts whole loan delivery commitments
matching the exact terms of the IRLC loan. Uncommitted IRLCs are considered derivative instruments and are fair value adjusted,
with the resulting gain or loss recorded in current earnings.
Forward Sales of Mortgage-Backed Securities: Forward sales of mortgage-backed securities (“FMBSs”) are used to protect
uncommitted IRLC loans against the risk of changes in interest rates between the lock date and the funding date. FMBSs related
to uncommitted IRLCs are classified and accounted for as non-designated derivative instruments and are recorded at fair value,
with gains and losses recorded in current earnings.
Mortgage Loans Held for Sale: Mortgage loans held for sale consist primarily of single-family residential loans collateralized
by the underlying property. During the intervening period between when a loan is closed and when it is sold to an investor, the
interest rate risk is covered through the use of a best-efforts contract or by FMBSs. The FMBSs are classified and accounted for
as non-designated derivative instruments, with gains and losses recorded in current earnings.
The table below shows the notional amounts of our financial instruments at December 31, 2014 and 2013:
Description of Financial Instrument (in thousands)
Best-effort contracts and related committed IRLCs
Uncommitted IRLCs
FMBSs related to uncommitted IRLCs
Best-effort contracts and related mortgage loans held for sale
FMBSs related to mortgage loans held for sale
Mortgage loans held for sale covered by FMBSs
The table below shows the measurement of assets and liabilities at December 31, 2014 and 2013:
Description of Financial Instrument (in thousands)
Mortgage loans held for sale
Forward sales of mortgage-backed securities
Interest rate lock commitments
Best-efforts contracts
Total
December 31,
2014
2013
$
3,072
28,028
41,000
61,233
27,000
26,825
2,494
49,710
48,000
63,386
20,000
19,884
December 31,
2014
2013
92,794
$
81,810
(182)
288
53
745
(319)
479
92,953
$
82,715
$
$
$
The following table sets forth the amount of gain (loss) recognized on assets and liabilities for the years ended December 31, 2014,
2013 and 2012:
Description (in thousands)
Mortgage loans held for sale
Forward sales of mortgage-backed securities
Interest rate lock commitments
Best-efforts contracts
Total gain (loss) recognized
Year Ended December 31,
2014
2013
2012
3,191
$
(2,094)
(1,494)
(927)
607
(426)
492
(320)
482
723
(357)
128
2,445
$
(1,440)
$
(1,000)
$
$
46
The following table provides the expected future cash flows and current fair values of borrowings under our credit facilities and
mortgage loan origination services that are subject to market risk as interest rates fluctuate, as of December 31, 2014. Because
the MIF Mortgage Warehousing Agreement and MIF Mortgage Repurchase Facility are effectively secured by certain mortgage
loans held for sale which are typically sold within 30 to 45 days, their outstanding balances are included in the most current period
presented. The interest rates for our variable rate debt represent the weighted average interest rates in effect at December 31, 2014.
For fixed-rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our earnings or
cash flow. Conversely, for variable-rate debt, changes in interest rates generally do not affect the fair market value of the debt
instrument, but do affect our earnings and cash flow. We do not have the obligation to prepay fixed-rate debt prior to maturity,
and, as a result, interest rate risk and changes in fair market value should not have a significant impact on our fixed-rate debt until
we are required or elect to refinance it.
(Dollars in thousands)
ASSETS:
Mortgage loans held for sale:
Fixed rate
Weighted average interest rate
Variable rate
Weighted average interest rate
LIABILITIES:
Long-term debt — fixed rate
Weighted average interest rate
Short-term debt — variable rate
Weighted average interest rate
2015
2016
2017
2018
2019
Thereafter
Total
12/31/2014
Expected Cash Flows by Period
Fair Value
$90,513
3.91%
$4,782
3.06%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$90,513
$88,079
3.91%
$4,782
3.06%
$4,715
$1,398
3.37%
$115,379
2.21%
$1,180
3.37%
—
—
$57,978
3.25%
$316,728
7.07%
—
—
—
—
$364
3.37%
—
—
$523
3.37%
—
—
$378,171
$398,513
6.44%
$115,379
$115,379
2.21%
47
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of M/I Homes, Inc.
Columbus, Ohio
We have audited the accompanying consolidated balance sheets of M/I Homes, Inc. and subsidiaries (the “Company”) as of
December 31, 2014 and 2013, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of
the three years in the period ended December 31, 2014. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of M/I Homes,
Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United
States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company's internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control-
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated February 27, 2015 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Columbus, Ohio
February 27, 2015
48
M/I HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Revenue
Costs and expenses:
Land and housing
Impairment of inventory and investment in unconsolidated joint ventures
General and administrative
Selling
Equity in income of unconsolidated joint ventures
Interest
Loss on early extinguishment of debt
Total costs and expenses
Income before income taxes
Provision (benefit) from income taxes
Net income
Preferred dividends
Excess of fair value over book value of preferred shares redeemed
Net income to common shareholders
Earnings per common share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
See Notes to Consolidated Financial Statements.
Year Ended
2014
2013
2012
$
1,215,180
$
1,036,782
$
761,905
958,991
824,508
610,540
3,457
88,830
81,148
(347)
13,365
—
5,805
79,494
68,282
(306)
15,938
1,726
3,502
62,627
56,406
—
16,071
—
$
1,145,444
$
995,447
$
749,146
69,736
41,335
12,759
18,947
(110,088)
(588)
$
50,789
$
151,423
$
13,347
$
$
$
$
$
$
4,875
—
45,914
1.88
1.65
24,463
29,912
3,656
2,190
145,577
6.11
5.24
23,822
28,763
$
$
$
—
—
13,347
0.68
0.67
19,651
19,891
49
M/I HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par values)
ASSETS:
Cash and cash equivalents
Restricted cash
Mortgage loans held for sale
Inventory
Property and equipment - net
Investment in unconsolidated joint ventures
Deferred income taxes, net of valuation allowance of $9.3 million at December 31, 2013
Other assets
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Accounts payable
Customer deposits
Other liabilities
Community development district (“CDD”) obligations
Obligation for consolidated inventory not owned
Notes payable bank - homebuilding operations
Notes payable bank - financial services operations
Notes payable - other
Convertible senior subordinated notes due 2017
Convertible senior subordinated notes due 2018
Senior notes
TOTAL LIABILITIES
Commitments and contingencies
SHAREHOLDERS’ EQUITY:
Preferred shares - $.01 par value; authorized 2,000,000 shares; 2,000 shares issued and outstanding at both
December 31, 2014 and 2013
Common shares - $.01 par value; authorized 58,000,000 and 38,000,000 shares at December 31, 2014 and
2013, respectively; issued 27,092,723 shares at both December 31, 2014 and 2013
Additional paid-in capital
Retained earnings
Treasury shares - at cost - 2,579,813 and 2,734,780 shares at December 31, 2014 and 2013, respectively
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
See Notes to Consolidated Financial Statements.
December 31,
2014
2013
$
15,535
$
128,725
6,951
92,794
918,589
11,490
27,769
94,412
43,870
13,902
81,810
690,934
10,536
35,266
110,911
38,092
$
1,211,410
$
1,110,176
$
$
75,338
11,759
79,723
2,571
608
30,000
85,379
9,518
57,500
86,250
228,469
$
667,115
$
—
70,226
11,262
71,341
3,130
1,775
—
80,029
7,790
57,500
86,250
228,070
617,373
—
$
48,163
$
48,163
271
238,560
308,539
(51,238)
544,295
1,211,410
$
$
271
236,060
262,625
(54,316)
492,803
1,110,176
$
$
50
M/I HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
Preferred Shares
Common Shares
(Dollars in thousands)
Shares
Outstanding
Amount
Shares
Outstanding
Amount
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Shares
Total
Shareholders’
Equity
Balance at December 31, 2011
4,000
$ 96,325
18,736,357
$
221
$ 139,943
$ 103,701
$
(66,840) $
273,350
Net income
Common share issuance
Stock options exercised
Stock-based compensation expense
Deferral of executive and director
compensation
Executive and director deferred
compensation distributions
—
—
—
—
—
—
—
—
—
—
—
—
—
2,530,000
378,674
—
—
42,222
—
25
—
—
—
—
—
13,347
42,060
(2,759)
1,734
150
(839)
—
—
—
—
—
—
—
7,521
—
—
839
13,347
42,085
4,762
1,734
150
—
Balance at December 31, 2012
4,000
$ 96,325
21,687,253
$
246
$ 180,289
$ 117,048
$
(58,480) $
335,428
Net income
Fair value over carrying value of
preferred shares redeemed
Dividends declared to preferred
shareholders
Common share issuance
Preferred shares redeemed
Stock options exercised
Stock-based compensation expense
Deferral of executive and director
compensation
Executive and director deferred
compensation distributions
—
—
—
—
—
2,190
—
—
(2,000)
(50,352)
—
—
—
—
—
—
—
—
—
—
—
2,461,000
—
184,832
—
—
24,858
—
—
—
25
—
—
—
—
—
—
—
—
54,592
—
(1,031)
2,344
359
(493)
151,423
(2,190)
(3,656)
—
—
—
—
—
—
—
—
—
—
—
3,671
—
—
493
151,423
—
(3,656)
54,617
(50,352)
2,640
2,344
359
—
Balance at December 31, 2013
2,000
$ 48,163
24,357,943
$
271
$ 236,060
$ 262,625
$
(54,316) $
492,803
Net income
Dividends declared to preferred
shareholders
Stock options exercised
Stock-based compensation expense
Deferral of executive and director
compensation
Executive and director deferred
compensation distributions
—
—
—
—
—
—
—
—
—
—
—
—
—
—
147,619
—
—
7,348
—
—
—
—
—
—
—
—
(988)
3,215
419
(146)
50,789
(4,875)
—
—
—
—
—
—
2,932
—
—
146
50,789
(4,875)
1,944
3,215
419
—
Balance at December 31, 2014
2,000
$ 48,163
24,512,910
$
271
$ 238,560
$ 308,539
$
(51,238) $
544,295
See Notes to Consolidated Financial Statements.
51
M/I HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash used in operating activities:
Inventory valuation adjustments and abandoned land transaction write-offs
Impairment of investment in unconsolidated joint ventures
Equity in income of unconsolidated joint ventures
Bargain purchase gain
Mortgage loan originations
Proceeds from the sale of mortgage loans
Fair value adjustment of mortgage loans held for sale
Capitalization of originated mortgage servicing rights
Amoritzation of mortgage servicing rights
Depreciation
Amortization of debt discount and debt issue costs
Loss on early extinguishment of debt, including transaction costs
Stock-based compensation expense
Deferred income tax expense
Deferred tax asset valuation allowances
Change in assets and liabilities:
Cash held in escrow
Inventory
Other assets
Accounts payable
Customer deposits
Accrued compensation
Other liabilities
Net cash used in operating activities
INVESTING ACTIVITIES:
Change in restricted cash
Purchase of property and equipment
Acquisition, net of cash acquired
Return of capital from unconsolidated joint ventures
Investment in unconsolidated joint ventures
Net proceeds from sale of mortgage servicing rights
Net cash (used in) provided by investing activities
FINANCING ACTIVITIES:
Repayment of senior notes, including transaction costs
Net proceeds from issuance of senior notes
Proceeds from issuance of convertible senior subordinated notes due 2017
Proceeds from issuance of convertible senior subordinated notes due 2018
Net proceeds from issuance of common shares
Proceeds from bank borrowings - homebuilding operations
Repayment of bank borrowings - homebuilding operations
Net proceeds from (repayment of) bank borrowings - financial services operations
(Principal repayments of) proceeds from notes payable-other and CDD bond obligations
Dividends paid on preferred shares
Redemption of preferred shares
Debt issue costs
Proceeds from exercise of stock options
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents balance at beginning of period
Cash and cash equivalents balance at end of period
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest — net of amount capitalized
Income taxes
NON-CASH TRANSACTIONS DURING THE PERIOD:
Community development district infrastructure
Consolidated inventory not owned
Distribution of single-family lots from unconsolidated joint ventures
See Notes to Consolidated Financial Statements.
52
Year Ended December 31,
2013
2012
2014
$
50,789
$
151,423
$
13,347
2,410
1,047
(347)
—
(677,418)
669,625
(3,191)
(4,009)
775
5,175
3,121
—
3,215
25,790
(9,291)
(171)
(209,318)
(5,286)
5,112
497
1,182
7,618
(132,675)
7,122
(2,946)
—
1,523
(20,415)
2,135
(12,581)
—
—
—
—
—
192,600
(162,600)
5,350
1,728
(4,875)
—
(2,081)
1,944
32,066
(113,190)
128,725
15,535
9,730
2,386
(559)
(1,167)
25,689
$
$
$
$
$
$
5,805
—
(306)
—
(627,509)
614,726
2,094
—
—
4,973
3,338
1,726
2,344
15,547
(126,458)
(37)
(156,708)
(10,219)
22,536
1,023
9,753
11,975
(73,974)
(5,185)
(2,382)
—
1,522
(29,509)
—
(35,554)
—
—
—
86,250
54,617
—
—
12,072
(3,315)
(3,656)
(50,352)
(5,501)
2,640
92,755
(16,773)
145,498
128,725
11,834
765
(1,504)
(17,330)
4,800
$
$
$
$
$
$
3,368
390
—
(1,219)
(520,708)
505,368
1,494
—
—
7,158
2,584
—
1,734
5,076
(5,076)
(125)
(73,874)
(8,460)
5,358
5,867
6,421
4,302
(46,995)
32,779
(933)
(4,707)
—
(1,817)
—
25,322
(41,443)
29,700
57,500
—
42,085
—
—
15,351
5,304
—
—
(5,881)
4,762
107,378
85,705
59,793
145,498
13,083
281
(1,349)
16,161
—
$
$
$
$
$
$
M/I HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Summary of Significant Accounting Policies
Business. M/I Homes, Inc. and its subsidiaries (the “Company” or “we”) is engaged primarily in the construction and sale of
single-family residential property in Columbus and Cincinnati, Ohio; Indianapolis, Indiana; Chicago, Illinois; Tampa and Orlando,
Florida; Austin, Dallas/Fort Worth, Houston and San Antonio, Texas; Charlotte and Raleigh, North Carolina; and the Virginia and
Maryland suburbs of Washington, D.C. The Company designs, sells and builds single-family homes on developed lots, which it
develops or purchases ready for home construction. The Company also purchases undeveloped land to develop into developed
lots for future construction of single-family homes and, on a limited basis, for sale to others. Our homebuilding operations operate
across three geographic regions in the United States. Within these regions, our operations have similar economic characteristics;
therefore, they have been aggregated into three reportable homebuilding segments: Midwest homebuilding, Southern homebuilding
and Mid-Atlantic homebuilding.
The Company conducts mortgage financing activities through its 100%-owned subsidiary, M/I Financial, LLC (“M/I Financial”),
which originates mortgage loans primarily for purchasers of the Company’s homes. The loans and the servicing rights are generally
sold to outside mortgage lenders. The Company and M/I Financial also operate 100% and majority-owned subsidiaries that provide
title services to purchasers of the Company’s homes. Our mortgage banking and title service activities have similar economic
characteristics; therefore, they have been aggregated into one reportable segment, the financial services segment. On February 1,
2014, M/I Financial Corp. was converted from an Ohio corporation to an Ohio limited liability company and its name was changed
to M/I Financial, LLC.
Basis of Presentation. The accompanying consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States (“GAAP”) and include the accounts of M/I Homes, Inc. and those of our
consolidated subsidiaries, partnerships and other entities in which we have a controlling financial interest, and of variable interest
entities in which we are deemed the primary beneficiary (collectively, “us”, “we”, “our” and the “Company”). Intercompany
balances and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents. Liquid investments with an initial maturity of three months or less are classified as cash and cash
equivalents. Amounts in transit from title companies for homes delivered of approximately $7.5 million and $18.4 million are
included in cash and cash equivalents at December 31, 2014 and 2013, respectively. Our financial services operations held
$11.7 million and $15.3 million of the Company’s cash and cash equivalents at December 31, 2014 and 2013.
Restricted Cash. At December 31, 2014 and 2013, restricted cash consists primarily of amounts held in restricted accounts as
collateral for letters of credit of $7.0 million and $13.9 million respectively.
Mortgage Loans Held for Sale. Mortgage loans held for sale consists primarily of single-family residential loans collateralized
by the underlying property. Generally, all of the mortgage loans and related servicing rights are sold to third-party investors shortly
after origination. Refer to the Revenue Recognition policy described below for additional discussion.
Inventory. Inventory includes the costs of land acquisition, land development and home construction, capitalized interest, real
estate taxes, direct overhead costs incurred during development and home construction, and common costs that benefit the entire
community, less impairments, if any. Land acquisition, land development and common costs (both incurred and estimated to be
incurred) are typically allocated to individual lots based on total number of lots expected to be closed in each community or phase
or based on relative sales value of each lot. Any changes to the estimated total development costs of a community or phase are
allocated proportionately to homes remaining in the community or phase and homes previously closed. The cost of individual
lots is transferred to homes under construction when home construction begins. Home construction costs are accumulated on a
specific identification basis. Costs of home deliveries include the specific construction cost of the home and the allocated lot costs.
Such costs are charged to cost of sales simultaneously with revenue recognition, as discussed above. When a home is closed, we
typically have not yet paid all incurred costs necessary to complete the home. As homes close, we compare the home construction
budget to actual recorded costs to date to estimate the additional costs to be incurred from our subcontractors related to the home.
We record a liability and a corresponding charge to cost of sales for the amount we estimate will ultimately be paid related to that
home. We monitor the accuracy of such estimates by comparing actual costs incurred in subsequent months to the estimate,
although actual costs to complete a home in the future could differ from our estimates.
53
Inventory is recorded at cost, unless events and circumstances indicate that the carrying value of the land is impaired, at which
point the inventory is written down to fair value as required by Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 360-10, Property, Plant and Equipment (“ASC 360”). The Company assesses inventory for
recoverability on a quarterly basis if events or changes in local or national economic conditions indicate that the carrying amount
of an asset may not be recoverable. In conducting our quarterly review for indicators of impairment on a community level, we
evaluate, among other things, margins on sales contracts in backlog, the margins on homes that have been delivered, expected
changes in margins with regard to future home sales over the life of the community, expected changes in margins with regard to
future land sales, the value of the land itself as well as any results from third party appraisals. We pay particular attention to
communities in which inventory is moving at a slower than anticipated absorption pace, and communities whose average sales
price and/or margins are trending downward and are anticipated to continue to trend downward. We also evaluate communities
where management intends to lower the sales price or offer incentives in order to improve absorptions even if the community’s
historical results do not indicate a potential for impairment. From the review of all of these factors, we identify communities
whose carrying values may exceed their estimated undiscounted future cash flows and run a test for recoverability. For those
communities whose carrying values exceed the estimated undiscounted future cash flows and which are deemed to be impaired,
the impairment recognized is measured by the amount by which the carrying amount of the communities exceeds the estimated
fair value. Due to the fact that the Company’s cash flow models and estimates of fair values are based upon management estimates
and assumptions, unexpected changes in market conditions and/or changes in management’s intentions with respect to the inventory
may lead the Company to incur additional impairment charges in the future.
Our determination of fair value is based on projections and estimates, which are Level 3 measurement inputs. Our analysis is
completed at a phase level within each community; therefore, changes in local conditions may affect one or several of our
communities. For all of the categories listed below, the key assumptions relating to the valuations are dependent on project-specific
local market and/or community conditions and are inherently uncertain. Because each inventory asset is unique, there are numerous
inputs and assumptions used in our valuation techniques. Market factors that may impact these assumptions include:
•
•
•
•
•
historical project results such as average sales price and sales pace, if deliveries have occurred in the project;
competitors’ market and/or community presence and their competitive actions;
project specific attributes such as location desirability and uniqueness of product offering;
potential for alternative product offerings to respond to local market conditions; and
current economic and demographic conditions and related trends and forecasts.
These and other market factors that may impact project assumptions are considered by personnel in our homebuilding divisions
as they prepare or update the forecasts for each community. Quantitative and qualitative factors other than home sales prices could
significantly impact the potential for future impairments. The sales objectives can differ between communities, even within a
given sub-market. For example, facts and circumstances in a given community may lead us to price our homes with the objective
of yielding a higher sales absorption pace, while facts and circumstances in another community may lead us to price our homes
to minimize deterioration in our gross margins, although it may result in a slower sales absorption pace. Furthermore, the key
assumptions included in our estimated future undiscounted cash flows may be interrelated. For example, a decrease in estimated
base sales price or an increase in home sales incentives may result in a corresponding increase in sales absorption pace or a reduction
in base house costs. Changes in our key assumptions, including estimated average selling price, construction and development
costs, absorption pace (reflecting any product mix change strategies implemented or to be implemented), selling strategies,
alternative land uses (including disposition of all or a portion of the land owned), or discount rates, could materially impact future
cash flow and fair value estimates.
As of December 31, 2014, our projections generally assume a gradual improvement in market conditions over time. If communities
are not recoverable based on estimated future undiscounted cash flows, the impairment to be recognized is measured as the amount
by which the carrying amount of the assets exceeds the estimated fair value of the assets. The fair value of a community is estimated
by discounting management’s cash flow projections using an appropriate risk-adjusted interest rate. As of both December 31,
2014 and December 31, 2013, we utilized discount rates ranging from 13% to 16% in our valuations. The discount rate used in
determining each asset’s estimated fair value reflects the inherent risks associated with the related estimated cash flow stream, as
well as current risk-free rates available in the market and estimated market risk premiums. For example, construction in progress
inventory, which is closer to completion, will generally require a lower discount rate than land under development in communities
consisting of multiple phases spanning several years of development.
Our quarterly assessments reflect management’s best estimates. Due to the inherent uncertainties in management’s estimates and
uncertainties related to our operations and our industry as a whole, we are unable to determine at this time if and to what extent
continuing future impairments will occur. Additionally, due to the volume of possible outcomes that can be generated from changes
in the various model inputs for each community, we do not believe it is possible to create a sensitivity analysis that can provide
54
meaningful information for the users of our financial statements. Further details relating to our assessment of inventory for
recoverability are included in Note 3 to our Consolidated Financial Statements.
Capitalized Interest. The Company capitalizes interest during land development and home construction. Capitalized interest is
charged to cost of sales as the related inventory is delivered to a third party. The summary of capitalized interest for the years
ended December 31, 2014, 2013 and 2012 is as follows:
(In thousands)
Capitalized interest, beginning of period
Interest capitalized to inventory
Capitalized interest charged to cost of sales
Capitalized interest, end of year
Interest incurred
Year Ended December 31,
2014
2013
2012
$
$
$
13,802
17,937
(16,443)
15,296
31,302
$
$
$
15,376
13,601
(15,175)
13,802
29,539
$
$
$
18,869
9,975
(13,468)
15,376
26,046
Variable Interest Entities. In order to minimize our investment and risk of land exposure in a single location, we have periodically
partnered with other land developers or homebuilders to share in the land investment and development of a property through joint
ownership and development agreements, joint ventures, and other similar arrangements. During 2014, we decreased our total
investment in such joint venture arrangements by $7.5 million from $35.3 million at December 31, 2013 to $27.8 million at
December 31, 2014 which was driven primarily by our increased lot distributions from unconsolidated joint ventures during 2014
of $25.7 million, offset partially by our increased cash contributions to our unconsolidated joint ventures of $20.4 million in 2014.
For joint venture arrangements where a special purpose entity is established to own the property, we generally enter into limited
liability company or similar arrangements (“LLCs”) with the other partners. The Company’s ownership in these LLCs as of both
December 31, 2014 and December 31, 2013 ranged from 25% to 61%. These entities typically engage in land development
activities for the purpose of distributing or selling developed lots to the Company and its partners in the LLC. With respect to our
investments in these LLCs, we are required, under ASC 810-10, Consolidation (“ASC 810”), to evaluate whether or not such
entities should be consolidated into our financial statements. We initially perform these evaluations when each new entity is created
and upon any events that require reconsideration of the entity. In order to determine if we should consolidate an LLC, we determine
(1) if the LLC is a variable interest entity (“VIE”) and (2) if we are the primary beneficiary of the entity. To determine whether
we are the primary beneficiary of an entity, we consider whether we have the ability to control the activities of the VIE that most
significantly impact its economic performance. This analysis considers, among other things, whether we have the ability to
determine the budget and scope of land development work, if any; the ability to control financing decisions for the VIE; the ability
to acquire additional land into the VIE or dispose of land in the VIE not under contract with M/I Homes; and the ability to change
or amend the existing option contract with the VIE. If we determine that we are not able to control such activities, we are not
considered the primary beneficiary of the VIE.
As of December 31, 2014 and December 31, 2013, we have determined that one of the LLCs in which we have an interest meets
the requirements of a VIE due to a lack of equity at risk in the entity. However, we have determined that we do not have substantive
control over any of the VIE as we do not have the ability to control the activities that most significantly impact its economic
performance. As a result, we are not required to consolidate the VIE into our financial statements, and we instead record the VIE
in Investment in Unconsolidated Joint Ventures on our Consolidated Balance Sheets.
Land Option Agreements. In the ordinary course of business, the Company enters into land option or purchase agreements for
which we generally pay non-refundable deposits. Pursuant to these land option agreements, the Company provides a deposit to
the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. In accordance
with ASC 810, we analyze our land option or purchase agreements to determine whether the corresponding land sellers are VIEs
and, if so, whether we are the primary beneficiary, using an analysis similar to that described above. Although we do not have
legal title to the optioned land, ASC 810 requires a company to consolidate a VIE if the company is determined to be the primary
beneficiary. In cases where we are the primary beneficiary, even though we do not have title to such land, we are required to
consolidate these purchase/option agreements and reflect such assets and liabilities as Consolidated Inventory not Owned in our
Consolidated Balance Sheets. At both December 31, 2014 and 2013, we have concluded that we were not the primary beneficiary
of any VIEs from which we are purchasing under land option or purchase agreements. Other than as described above in
“Consolidated Inventory Not Owned,” the Company currently believes that its maximum exposure as of December 31, 2014 related
to our land option agreements is equal to the amount of the Company’s outstanding deposits and prepaid acquisition costs, which
totaled $34.0 million, including cash deposits of $23.5 million, prepaid acquisition costs of $4.4 million and letters of credit of
$6.1 million.
55
Investment in Unconsolidated Joint Ventures. We use the equity method of accounting for investments in unconsolidated joint
ventures over which we exercise significant influence but do not have a controlling interest. Under the equity method, our share
of the unconsolidated entities’ earnings or loss, if any, is included in our Consolidated Statements of Income. We evaluate our
investments in unconsolidated joint ventures for impairment at least quarterly in accordance with ASC 323, Investments - Equity
Method and Joint Ventures (“ASC 323”) as described below.
If the fair value of the investment is less than the investment’s carrying value, and the Company has determined that the decline
in value is other than temporary, the Company would write down the value of the investment to its estimated fair value. The
determination of whether an investment’s fair value is less than the carrying value requires management to make certain assumptions
regarding the amount and timing of future contributions to the unconsolidated joint venture, the timing of distribution of lots to
the Company from the unconsolidated joint venture, the projected fair value of the lots at the time of distribution to the Company,
and the estimated proceeds from, and timing of, the sale of land or lots to third parties. In determining the fair value of investments
in unconsolidated joint ventures, the Company evaluates the projected cash flows associated with each unconsolidated joint venture.
As of both December 31, 2014 and December 31, 2013, the Company used a discount rate of 16% in determining the fair value
of investments in unconsolidated joint ventures. In addition to the assumptions management must make to determine if the
investment’s fair value is less than the carrying value, management must also use judgment in determining whether the impairment
is other than temporary. The factors management considers are: (1) the length of time and the extent to which the market value
has been less than cost; (2) the financial condition and near-term prospects of the company; and (3) the intent and ability of the
Company to retain its investment in the unconsolidated joint venture for a period of time sufficient to allow for any anticipated
recovery in market value. Due to uncertainties in the estimation process and the significant volatility in demand for new housing,
actual results could differ significantly from such estimates.
We believe that the Company’s maximum exposure related to its investment in these unconsolidated joint ventures as of
December 31, 2014 is the amount invested of $27.8 million (in addition to a $2.5 million note due to the Company from one of
the unconsolidated joint ventures), although we expect to invest further amounts in these unconsolidated joint ventures as
development of the properties progresses. Further details relating to our unconsolidated joint ventures are included in Note 6 to
our Consolidated Financial Statements.
Consolidated Inventory Not Owned and Related Obligation. At December 31, 2014 and December 31, 2013, Consolidated
Inventory Not Owned was $0.8 million and $1.8 million, respectively, all of which related to specific performance obligations.
At December 31, 2014 and 2013, the corresponding liability of $0.6 million and $1.8 million, respectively, has been classified as
Obligation for Consolidated Inventory Not Owned on the Consolidated Balance Sheets.
Property and Equipment-net. The Company records property and equipment at cost and subsequently depreciates the assets using
both straight-line and accelerated methods. Following are the major classes of depreciable assets and their estimated useful lives:
Land, building and improvements
Office furnishings, leasehold improvements, computer equipment and computer software
Transportation and construction equipment
Property and equipment
Accumulated depreciation
Property and equipment, net
Building and improvements
Office furnishings, leasehold improvements, computer equipment and computer software
Transportation and construction equipment
Year Ended December 31,
2014
2013
$
$
11,823
24,281
156
36,260
(24,771)
11,490
$
$
11,823
22,563
163
34,549
(24,013)
10,536
Estimated Useful Lives
35 years
3-7 years
5-7 years
Depreciation expense was $2.0 million, $2.2 million and $4.8 million in 2014, 2013 and 2012, respectively.
Notes Receivable. In certain instances, we may accept consideration for land sales or other transactions in the form of a note
receivable. The counterparties for these transactions are generally land developers, other real estate investors or, in some cases,
affiliated unconsolidated LLCs. We consider the creditworthiness of the counterparty when evaluating the relative risk and return
involved in pursuing the applicable transaction. Due to the unique facts and circumstances surrounding each receivable, we assess
the need for an allowance on an individual basis. Factors considered as part of this assessment include the counterparty’s payment
history, the value of any underlying collateral, communications with the counterparty, knowledge of the counterparty’s financial
condition and plans, and the current and expected economic environment. Such receivables are reported net of allowance for
56
credit losses within other assets. Such receivables are generally reported in Other Assets in our Consolidated Balance Sheets. At
December 31, 2014, Other Assets included notes receivable totaling $4.3 million with interest rates of 0% and 12% and maturities
from 2015 to 2016. At December 31, 2013, Other Assets included notes receivable totaling $3.2 million, with interest rates ranging
from 2% to 12%, both maturing in 2015. With respect to the balance at both December 31, 2014 and 2013, $2.5 million was from
an affiliated unconsolidated joint venture.
Deferred Costs. At December 31, 2014 and 2013, unamortized debt issue costs of $9.3 million and $9.9 million, respectively, are
included in Other Assets on the Consolidated Balance Sheets. The costs are primarily amortized to interest expense using the
straight line method, which approximates the effective interest method.
Other Assets. In addition to notes receivable and deferred costs described above, other assets include assets related to mortgage
servicing rights, deposits, pre-acquisition costs for land and prepaid expenses for our insurance programs and other business related
items.
Warranty Reserves. We use subcontractors for nearly all aspects of home construction. Although our subcontractors are generally
required to repair and replace any product or labor defects, we are, during applicable warranty periods, ultimately responsible to
the homeowner for making such repairs. As such, we record warranty reserves to cover our exposure to the costs for materials
and labor not expected to be covered by our subcontractors to the extent they relate to warranty-type claims. Warranty reserves
are established by charging cost of sales and crediting a warranty reserve for each home closed. The amounts charged are estimated
by management to be adequate to cover expected warranty-related costs described above under the Company’s warranty programs.
Reserves are recorded for warranties under the following warranty programs:
• Home Builder’s Limited Warranty (“HBLW”); and
30-year or 10-year transferable structural warranty
•
The warranty reserves for the HBLW are established as a percentage of average sales price and adjusted based on historical payment
patterns determined, generally, by geographic area and recent trends. Factors that are given consideration in determining the
HBLW reserves include: (1) the historical range of amounts paid per average sales price on a home; (2) type and mix of amenity
packages added to the home; (3) any warranty expenditures not considered to be normal and recurring; (4) timing of payments;
(5) improvements in quality of construction expected to impact future warranty expenditures; and (6) conditions that may affect
certain projects and require a different percentage of average sales price for those specific projects. Changes in estimates for
warranties occur due to changes in the historical payment experience and differences between the actual payment pattern
experienced during the period and the historical payment pattern used in our evaluation of the warranty reserve balance at the end
of each quarter. Actual future warranty costs could differ from our current estimated amount.
Our warranty reserves for our transferable structural warranty programs are established on a per-unit basis. While the structural
warranty reserve is recorded as each house closes, the sufficiency of the structural warranty per unit charge and total reserve is re-
evaluated on an annual basis, with the assistance of an actuary, using our own historical data and trends, industry-wide historical
data and trends, and other project specific factors. The reserves are also evaluated quarterly and adjusted if we encounter activity
that is inconsistent with the historical experience used in the annual analysis. These reserves are subject to variability due to
uncertainties regarding structural defect claims for products we build, the markets in which we build, claim settlement history,
insurance and legal interpretations, among other factors.
While we believe that our warranty reserves are sufficient to cover our projected costs, there can be no assurances that historical
data and trends will accurately predict our actual warranty costs. At December 31, 2014 and 2013, warranty reserves of $12.7 million
and $12.3 million, respectively, are included in Other Liabilities on the Consolidated Balance Sheets.
Self-insurance Reserves. Self-insurance reserves are made for estimated liabilities associated with employee health care, workers’
compensation, and general liability insurance. For 2014, our self-insurance limit for employee health care was $250,000 per claim
per year, with stop loss insurance covering amounts in excess of $250,000. Our workers’ compensation claims are insured by a
third party and carry a deductible of $500,000 per claim, except for workers compensation claims made in the state of Ohio where
the Company is self-insured. Our self-insurance limit for Ohio workers’ compensation is $500,000 per claim, with stop loss
insurance covering all amounts in excess of this limit. The reserves related to employee health care and workers’ compensation
are based on historical experience and open case reserves. Our general liability claims are insured by a third party; the Company
generally has a $7.5 million completed operations/construction defect deductible per occurrence by region and a $20.0 million
deductible in the aggregate, with a $500,000 deductible for all other types of claims. The Company records a reserve for general
liability claims falling below the Company’s deductible. The reserve estimate is based on an actuarial evaluation of our past history
of general liability claims, other industry specific factors and specific event analysis. At December 31, 2014 and 2013, self-
insurance reserves of $1.3 million and $1.0 million, respectively, are included in Other Liabilities on the Consolidated Balance
57
Sheets. The Company recorded expenses totaling $7.8 million, $5.4 million and $4.0 million, respectively, for all self-insured and
general liability claims during the years ended December 31, 2014, 2013 and 2012.
Guarantees and Indemnities. Guarantee and indemnity liabilities are established by charging the applicable income statement
or balance sheet line, depending on the nature of the guarantee or indemnity, and crediting a liability. M/I Financial provides a
limited-life guarantee on loans sold to certain third parties and estimates its actual liability related to the guarantee and any
indemnities subsequently provided to the purchaser of the loans in lieu of loan repurchase based on historical loss experience. Actual
future costs associated with loans guaranteed or indemnified could differ materially from our current estimated amounts. The
Company has also provided certain other guarantees and indemnifications in connection with the purchase and development of
land, including environmental indemnifications, and guarantees of the completion of land development. The Company estimates
these liabilities based on the estimated cost of insurance coverage or estimated cost of acquiring a bond in the amount of the
exposure. Actual future costs associated with these guarantees and indemnifications could differ materially from our current
estimated amounts. At December 31, 2014 and 2013, guarantees and indemnifications of $3.1 million and $3.5 million, respectively,
are included in Other Liabilities on the Consolidated Balance Sheets.
Other Liabilities. In addition to warranty, self-insurance reserves, and reserves for guarantees and indemnities, other liabilities
includes taxes payable, accrued compensation, and various other land related and miscellaneous accrued expenses.
Segment Reporting. The application of segment reporting requires significant judgment in determining our operating segments.
Operating segments are defined as a component of an enterprise for which discrete financial information is available and is reviewed
regularly by the Company’s chief operating decision makers to evaluate performance, make operating decisions and determine
how to allocate resources. The Company’s chief operating decision makers evaluate the Company’s performance in various ways,
including: (1) the results of our 13 individual homebuilding operating segments and the results of our financial services operations;
(2) the results of our three homebuilding regions; and (3) our consolidated financial results.
In accordance with ASC 280, Segment Reporting (“ASC 280”), we have identified each homebuilding division as an operating
segment as each homebuilding division engages in business activities from which it earns revenue, primarily from the sale and
construction of single-family attached and detached homes, acquisition and development of land, and the occasional sale of lots
to third parties. Our financial services operations generate revenue primarily from the origination, sale and servicing of mortgage
loans and title services primarily for purchasers of the Company’s homes and are included in our financial services reportable
segment. Corporate is a non-operating segment that develops and implements strategic initiatives and supports our operating
segments by centralizing key administrative functions such as accounting, finance, treasury, information technology, insurance
and risk management, litigation, marketing and human resources.
In accordance with the aggregation criteria defined in ASC 280, we have determined our reportable segments as follows: Midwest
homebuilding, Southern homebuilding, Mid-Atlantic homebuilding and financial services operations. The homebuilding operating
segments included in each reportable segment have been aggregated because they share similar aggregation characteristics as
prescribed in ASC 280 in the following regards: (1) long-term economic characteristics; (2) historical and expected future long-
term gross margin percentages; (3) housing products, production processes and methods of distribution; and (4) geographical
proximity. We may, however, be required to reclassify our reportable segments if markets that currently are being aggregated do
not continue to share these aggregation characteristics.
Revenue Recognition. Revenue from the sale of a home is recognized when the delivery has occurred, title has passed, the risks
and rewards of ownership are transferred to the buyer, and an adequate initial and continuing investment by the homebuyer is
received, or when the loan has been sold to a third-party investor. Revenue for homes that close to the buyer having a deposit of
5% or greater, home deliveries financed by third parties, and all home deliveries insured under Federal Housing Administration
(“FHA”), U.S. Veterans Administration (“VA”) and other government-insured programs are recorded in the financial statements
on the date of closing.
Revenue related to all other home deliveries initially funded by our 100%-owned subsidiary, M/I Financial, is recorded on the date
that M/I Financial sells the loan to a third-party investor, because the receivable from the third-party investor is not subject to
future subordination, and the Company has transferred to this investor the usual risks and rewards of ownership that is in substance
a sale and does not have a substantial continuing involvement with the home.
We recognize the majority of the revenue associated with our mortgage loan operations when the mortgage loans are sold and/or
related servicing rights are sold to third party investors or set up with the subservicer. The revenue recognized is reduced by the
fair value of the related guarantee provided to the investor. The fair value of the guarantee is recognized in revenue when the
Company is released from its obligation under the guarantee. Generally, all of the financial services mortgage loans and related
servicing rights are sold to third party investors within two to three weeks of origination; however, M/I Financial began retaining
a portion of mortgage loan servicing rights during 2012. As of December 31, 2014 and 2013, we retained mortgage servicing
58
rights of 2,517 and 2,080 loans, respectively, for a total value of $6.9 million and $5.8 million, respectively. We recognize financial
services revenue associated with our title operations as homes are closed, closing services are rendered, and title policies are issued,
all of which generally occur simultaneously as each home is closed. All of the underwriting risk associated with title insurance
policies is transferred to third-party insurers.
Land and Housing Cost of Sales. All associated homebuilding costs are charged to cost of sales in the period when the revenues
from home deliveries are recognized. Homebuilding costs include: land and land development costs; home construction costs
(including an estimate of the costs to complete construction); previously capitalized interest; real estate taxes; indirect costs; and
estimated warranty costs. All other costs are expensed as incurred. Sales incentives, including pricing discounts and financing
costs paid by the Company, are recorded as a reduction of revenue in the Company’s Consolidated Statements of Income. Sales
incentives in the form of options or upgrades are recorded in homebuilding costs.
Income Taxes. The Company records income taxes under the asset and liability method. Under this method, deferred tax assets
and liabilities are recognized based on future tax consequences attributable to (1) temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases and (2) operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect in the years in which those temporary
differences are expected to reverse.
In accordance with ASC 740-10, Income Taxes (“ASC 740”), we evaluate the realizability of our deferred tax assets, including
the benefit from net operating losses (“NOLs”) and tax credit carryforwards, to determine if a valuation allowance is required
based on whether it is more likely than not (a likelihood of more than 50%) that all or any portion of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is primarily dependent upon the generation of future taxable income.
In determining the future tax consequences of events that have been recognized in the financial statements or tax returns, judgment
is required. This assessment gives appropriate consideration to all positive and negative evidence related to the realization of the
deferred tax assets and considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts
of future profitability, the length of statutory carryforward periods, our experience with operating losses and our experience of
utilizing tax credit carryforwards and tax planning alternatives. Based upon a review of all available evidence, we recorded a full
valuation allowance against our deferred tax assets during 2008 due to economic conditions and the weight of negative evidence
at the time.
During 2013, the Company concluded based on its analysis of positive and negative evidence, that the objective positive evidence
outweighed the negative evidence and that the Company will more likely than not realize a majority of its deferred tax assets. As
a result of such determination, we reversed a majority of the valuation allowance against our deferred tax assets in 2013 and the
remainder of the valuation allowance in 2014. Please see Note 14 to our Consolidated Financial Statements for more information
regarding our deferred tax assets.
Earnings Per Share. The Company computes earnings per share in accordance with ASC 260, Earnings per Share, (“ASC 260”).
Basic earnings per share is calculated by dividing income attributable to common shareholders by the weighted average number
of common shares outstanding during each year. Diluted earnings per share gives effect to the potential dilution that could occur
if securities or contracts to issue our common shares that are dilutive were exercised or converted into common shares or resulted
in the issuance of common shares that then shared our earnings. In period of net losses, no dilution is computed. Please see Note
13 to our Consolidated Financial Statements for more information regarding our earnings per share calculation.
Stock-Based Compensation. We measure and recognize compensation expense associated with our grant of equity-based awards
in accordance with ASC 718, Compensation-Stock Compensation (“ASC 718”), which generally requires that companies measure
and recognize stock-based compensation expense in an amount equal to the fair value of share-based awards granted under
compensation arrangements over the related vesting period. We have granted share-based awards to certain of our employees and
directors in the form of stock options, director stock units and performance share units (“PSU’s”). Each PSU represents a contingent
right to receive one common share of the Company if vesting is satisfied at the end of the performance period based on the related
performance conditions and markets conditions.
Determining the fair value of share-based awards requires judgment to identify the appropriate valuation model and develop the
assumptions. The grant date fair value for stock option awards and PSU’s with a market condition (as defined in ASC 718) is
estimated using the Black-Scholes option pricing model and the Monte Carlo simulation methodology, respectively. The grant
date fair value for the director stock units and PSU’s with a performance condition (as defined in ASC 718) is based upon the
closing price of our common shares on the date of grant. We recognize stock-based compensation expense for our stock option
awards and PSU’s with a market condition over the requisite service period of the award while stock-based compensation expense
for our director stock units, which vest immediately, is fully recognized in the period of the award. For the portion of the PSU’s
awarded subject to the satisfaction of a performance condition, we recognize stock-based compensation expense on a straight-line
59
basis over the performance period based on the probable outcome of the related performance condition. If satisfaction of the
performance condition is not probable, stock-based compensation expense recognition is deferred until probability is attained and
a cumulative compensation expense adjustment is recorded and recognized ratably over the remaining service period. The Company
reevaluates the probability of the satisfaction of the performance condition on a quarterly basis, and stock-based compensation
expense is adjusted based on the portion of the requisite service period that has passed. If actual results differ significantly from
these estimates, stock-based compensation expense could be higher and have a material impact on our consolidated financial
statements. Please see Note 2 to our Consolidated Financial Statements for more information regarding our stock-based
compensation.
Letters of Credit and Completion Bonds. The Company provides standby letters of credit and completion bonds for development
work in progress, deposits on land and lot purchase agreements and miscellaneous deposits. As of December 31, 2014, the Company
had outstanding $121.9 million of completion bonds and standby letters of credit, some of which were issued to various local
governmental entities, that expire at various times through December 2019. Included in this total are: (1) $74.0 million of
performance and maintenance bonds and $21.4 million of performance letters of credit that serve as completion bonds for land
development work in progress; (2) $12.2 million of financial letters of credit; and (3) $14.3 million of financial bonds. The
development agreements under which we are required to provide completion bonds or letters of credit are generally not subject
to a required completion date and only require that the improvements are in place in phases as houses are built and sold. In locations
where development has progressed, the amount of development work remaining to be completed is typically less than the remaining
amount of bonds or letters of credit due to timing delays in obtaining release of the bonds or letters of credit.
Impact of New Accounting Standards. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers
(“ASU 2014-09”), which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts
with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the
revenue recognition requirements in ASC 605, Revenue Recognition, and most industry-specific guidance. This ASU also
supersedes some cost guidance included in Subtopic 605-35, “Revenue Recognition-Construction-Type and Production-Type
Contracts.” ASU 2014-09’s core principle is that a company will recognize revenue when it transfers promised goods or services
to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods
or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance,
including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the
transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for the
Company beginning January 1, 2017 and, at that time, the Company may adopt the new standard under the full retrospective
approach or the modified retrospective approach. Early adoption is not permitted. The Company is currently evaluating the method
and impact the adoption of ASU 2014-09 will have on the Company’s Consolidated Financial Statements or disclosures.
In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide
That a Performance Target Could Be Achieved after the Requisite Service Period (“ASU 2014-12”). The amendments in ASU
2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period be treated
as a performance condition. A reporting entity should apply existing guidance in ASC 718, Compensation - Stock Compensation
(“ASC 718”), as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments
in ASU 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15,
2015. Early adoption is permitted. Entities may apply the amendments in ASU 2014-12 either: (a) prospectively to all awards
granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as
of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter.
The adoption of ASU 2014-12 is not expected to have a material effect on the Company’s Consolidated Financial Statements or
disclosures.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40):
Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires
management to perform interim and annual assessments on whether there are conditions or events that raise substantial doubt
about the entity’s ability to continue as a going concern within one year of the date the financial statements are issued and to
provide related disclosures, if required. ASU 2014-15 will be effective for the annual period ending after December 15, 2016, and
for annual and interim periods thereafter. Early adoption is permitted. The adoption of ASU 2014-15 is not expected to have a
material effect on the Company’s Consolidated Financial Statements or disclosures.
60
NOTE 2. Stock-Based and Deferred Compensation
Stock Incentive Plans
The Company has an equity compensation plan, the M/I Homes, Inc. 2009 Long-Term Incentive Plan (the “2009 LTIP”) which
has been amended from time to time. The 2009 LTIP was approved by our shareholders and is administered by the Compensation
Committee of our Board of Directors. Under the 2009 LTIP, the Company is permitted to grant (1) nonqualified stock options to
purchase common shares, (2) incentive stock options to purchase common shares, (3) stock appreciation rights, (4) restricted
common shares, (5) other stock-based awards – awards that are valued in whole or in part by reference to, or otherwise based on,
the fair market value of the common shares, and (6) cash-based awards to its officers, employees, non-employee directors and
other eligible participants. Subject to certain adjustments, the plan authorizes awards to officers, employees, non-employee directors
and other eligible participants for up to 2,600,000 common shares, of which 1,255,171 remain available for grant at December 31,
2014.
The 2009 LTIP replaced the M/I Homes, Inc. 1993 Stock Incentive Plan as Amended (the “1993 Plan”), which expired by its terms
April 22, 2009. Awards outstanding under the 1993 Plan remain in effect in accordance with their respective terms.
Stock Options
Stock options are granted at the market price of the Company’s common shares at the close of business on the date of grant. Options
awarded generally vest 20% annually over five years and expire after ten years. Under the 1993 Plan, in the case of termination
due to death or disability, or in the case of a change in control of the Company, all options will become immediately exercisable.
Under the 2009 LTIP, in the case of termination due to death, disability or retirement, all options will become immediately
exercisable. Shares issued upon option exercise may consist of treasury shares, authorized but unissued common shares or common
shares purchased by or on behalf of the Company in the open market.
Following is a summary of stock option activity for the year ended December 31, 2014, relating to the stock options awarded under
the 2009 LTIP and the 1993 Plan:
Options outstanding at December 31, 2013
Granted
Exercised
Forfeited
Options outstanding at December 31, 2014
Options vested or expected to vest at December 31, 2014
Options exercisable at December 31, 2014
Weighted
Average
Exercise
Price
Weighted Average
Remaining
Contractual Term
(Years)
Aggregate
Intrinsic
Value (a)
(In thousands)
24.91
23.79
13.17
41.07
24.47
24.51
26.23
5.58
$
11,918
5.71
5.67
4.40
$
$
$
7,470
7,407
5,762
Shares
1,901,677
$
397,500
(147,619)
(135,190)
2,016,368
1,990,146
1,331,418
$
$
$
(a)
Intrinsic value is defined as the amount by which the fair value of the underlying common shares exceeds the exercise price of the option.
The aggregate intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was $1.6 million,
$2.2 million and $2.6 million, respectively.
The fair value of our five-year service stock options granted during the years ended December 31, 2014, 2013 and 2012 was
established at the date of grant using the Black-Scholes pricing model, with the weighted average assumptions as follows:
Risk-free interest rate
Expected volatility
Expected term (in years)
Year Ended December 31,
2014
2013
2012
1.75%
57.99%
5.6
0.88%
56.70%
5.5
0.82%
53.08%
5.5
Weighted average grant date fair value of options granted during the period
$
12.64
$
11.97
$ 5.85
The risk-free interest rate was based upon the U.S. Treasury constant maturity rate at the date of the grant. Expected volatility is
based on an average of (1) historical volatility of the Company’s stock and (2) implied volatility from traded options on the
Company’s stock. The risk-free rate for periods within the contractual life of the stock option award is based on the yield curve
of a zero-coupon U.S. Treasury bond on the date the stock option award is granted, with a maturity equal to the expected term of
the stock option award granted. The Company uses historical data to estimate stock option exercises and forfeitures within its
valuation model. The expected life of stock option awards granted is derived from historical exercise experience under the
61
Company’s share-based payment plans, and represents the period of time that stock option awards granted are expected to be
outstanding.
Total stock-based compensation expense related to stock option awards that has been charged against income relating to the 2009
LTIP and the 1993 Plan was $2.7 million, $2.0 million, and $1.6 million for the years ended December 31, 2014, 2013 and 2012,
respectively. As of December 31, 2014, there was a total of $7.5 million of unrecognized compensation expense related to unvested
stock option awards that will be recognized as stock-based compensation expense as the awards vest over a weighted average
period of 2.2 years for the service awards.
Director Stock Units
Under the 2009 LTIP, the Company awarded its non-employee directors 17,500, 10,500 at and 7,000 stock units during the year
ended December 31, 2014, 2013 and 2012, respectively. Each stock unit is the equivalent of one common share, vests immediately
and will be converted to a common share upon termination of service as a director. The Company recognized the full stock-based
compensation expense related to the awards of $0.4 million in 2014, $0.3 million in 2013 and less than $0.1 million in 2012 due
to the immediate vesting provisions of the award.
On May 5, 2009, the Company’s board of directors terminated the M/I Homes, Inc. 2006 Director Equity Incentive Plan (the
“Director Equity Plan”). Awards outstanding under the Director Equity Plan remain in effect in accordance with their respective
terms. At December 31, 2014, there were 16,110 stock units outstanding under the Director Equity Plan with a value of $0.5 million.
Performance Share Unit Awards
On February 18, 2014, the Company awarded its executive officers (in the aggregate) a target number of PSU’s equal to 50,439
PSU’s. Each PSU represents a contingent right to receive one common share of the Company if vesting is satisfied at the end of
a three-year performance period (the “Performance Period”). The ultimate number of PSU’s that will vest and be earned, if any,
after the completion of the Performance Period, is based on (1) (a) the Company’s cumulative pre-tax income from operations,
excluding extraordinary items, over the Performance Period (weighted 80%) (the “Performance Condition”), and (b) the Company’s
relative total shareholder return over the Performance Period compared to the total shareholder return of a peer group of other
publicly-traded homebuilders (weighted 20%) (the “Market Condition”) and (2) the participant’s continued employment through
the end of the Performance Period, except in the case of termination due to death, disability or retirement or involuntary termination
without cause by the Company. The number of PSU’s that vest may increase by up to 50% from the target number based on levels
of achievement of the above criteria as set forth in the applicable award agreements and decrease to zero if the Company fails to
meet the minimum performance levels for both of the above criteria. If the Company achieves the minimum performance levels
for both of the above criteria, 50% of the target number of PSU’s will vest and be earned. Any portion of PSU’s that do not vest
at the end of the Performance Period will be forfeited. Additionally, the PSU’s have no dividend or voting rights during the
Performance Period.
The grant date fair value of the PSU’s with a performance condition component and the PSU’s with a market condition component
was $23.79 and $21.00, respectively. In accordance with ASC 718, for PSU’s awarded with a market condition, stock-based
compensation expense is derived using the Monte Carlo simulation methodology and is recognized ratably over the service period
regardless of whether or not the attainment of the Market Condition is probable. Therefore, the Company recognized $0.1 million
in stock-based compensation expense and recorded $0.2 million in unrecognized stock-based compensation expense related to the
Market Condition component of the 2014 PSU awards as of December 31, 2014. For PSU’s awarded with a performance condition,
we recognize stock-based compensation expense on a straight-line basis over the Performance Period based on the probable
outcome of the related Performance Condition. Otherwise, stock-based compensation expense recognition is deferred until
probability is attained and a cumulative stock-based compensation expense adjustment is recorded and recognized ratably over
the remaining service period. The Company reassesses the probability of the satisfaction of the Performance Condition on a
quarterly basis, and stock-based compensation expense is adjusted based on the portion of the requisite service period that has
passed. As of December 31, 2014, the Company had not recognized any stock-based compensation expense related to the
Performance Condition component of the 2014 PSU awards. If the Company achieves the maximum performance levels for the
Performance Condition, the Company would record unrecognized stock-based compensation expense of $1.4 million as of
December 31, 2014, for which $0.5 million would be immediately recognized had attainment been probable at December 31, 2014.
Deferred Compensation Plans
Effective November 1, 1998, the Company adopted the Executive Plan, a non-qualified deferred compensation plan. The purpose
of the Executive Plan is to provide an opportunity for certain eligible employees of the Company to defer a portion of their
compensation and to invest in the Company’s common shares. In 1997, the Company adopted the Director Plan to provide its
directors with an opportunity to defer their director compensation and to invest in the Company’s common shares.
62
Compensation expense deferred into the Executive Plan and the Director Plan (together the “Plans”) totaled $0.4 million for each
of the years ended December 31, 2014 and December 31, 2013, and $0.1 million for the year ended December 31, 2012. The
portion of cash compensation deferred by employees and directors under the Plans is invested in fully-vested equity units in the
Plans. One equity unit is the equivalent of one common share. Equity units and the related dividends will be converted and
distributed to the employee or director in the form of common shares at the earlier of his or her elected distribution date or
termination of service as an employee or director of the Company. Distributions from the Plans totaled $0.2 million, $0.3 million
and $0.6 million, respectively, during the years ended December 31, 2014, 2013 and 2012. As of December 31, 2014, there were
a total of 88,131 equity units with a value of $1.9 million outstanding under the Plans. The aggregate fair market value of these
units at December 31, 2014, based on the closing price of the underlying common shares, was approximately $2.0 million, and
the associated deferred tax benefit the Company would recognize if the outstanding units were distributed was $1.3 million as of
December 31, 2014. Common shares are issued from treasury shares upon distribution of deferred compensation from the Plans.
Profit Sharing
The Company has a deferred profit-sharing plan that covers substantially all Company employees and permits participants to make
contributions to the plan on a pre-tax basis in accordance with the provisions of Section 401(k) of the Internal Revenue Code of
1986, as amended. Company contributions to the plan are made at the discretion of the Company’s board of directors and resulted
in a $1.0 million, $0.8 million and $0.6 million expense for the years ended December 31, 2014, 2013 and 2012, respectively.
NOTE 3. Fair Value Measurements
There are three measurement input levels for determining fair value: Level 1, Level 2, and Level 3. Fair values determined by
Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets,
and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are
observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations
where there is little, if any, market activity for the asset or liability.
Assets Measured on a Recurring Basis
To meet financing needs of our home-buying customers, M/I Financial is party to interest rate lock commitments (“IRLCs”), which
are extended to customers who have applied for a mortgage loan and meet certain defined credit and underwriting criteria. These
IRLCs are considered derivative financial instruments. M/I Financial manages interest rate risk related to its IRLCs and mortgage
loans held for sale through the use of forward sales of mortgage-backed securities (“FMBSs”), the use of best-efforts whole loan
delivery commitments, and the occasional purchase of options on FMBSs in accordance with Company policy. These FMBSs,
options on FMBSs, and IRLCs covered by FMBSs are considered non-designated derivatives. These amounts are either recorded
in Other Assets or Other Liabilities on the Consolidated Balance Sheets (depending on the respective balance for that year ended
December 31).
The Company measures both mortgage loans held for sale and IRLCs at fair value. Fair value measurement results in a better
presentation of the changes in fair values of the loans and the derivative instruments used to economically hedge them.
In the normal course of business, our financial services segment enters into contractual commitments to extend credit to buyers
of single-family homes with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified
interest rate within established time frames. Market risk arises if interest rates move adversely between the time of the “lock-in”
of rates by the borrower and the sale date of the loan to an investor. To mitigate the effect of the interest rate risk inherent in
providing rate lock commitments to borrowers, the Company enters into optional or mandatory delivery forward sale contracts to
sell whole loans and mortgage-backed securities to broker/dealers. The forward sale contracts lock in an interest rate and price
for the sale of loans similar to the specific rate lock commitments. The Company does not engage in speculative or trading
derivative activities. Both the rate lock commitments to borrowers and the forward sale contracts to broker/dealers or investors
are undesignated derivatives, and accordingly, are marked to fair value through earnings. Changes in fair value measurements are
included in earnings in the accompanying Consolidated Statements of Income.
The fair value of mortgage loans held for sale is estimated based primarily on published prices for mortgage-backed securities
with similar characteristics. To calculate the effects of interest rate movements, the Company utilizes applicable published
mortgage-backed security prices, and multiplies the price movement between the rate lock date and the balance sheet date by the
notional loan commitment amount. The Company sells the majority of its loans on a servicing released basis, and receives a
servicing release premium upon sale. Thus, the value of the servicing rights included in the fair value measurement is based upon
contractual terms with investors and depends on the loan type. The Company applies a fallout rate to IRLCs when measuring the
63
fair value of rate lock commitments. Fallout is defined as locked loan commitments for which the Company does not close a
mortgage loan and is based on management’s judgment and company experience.
The fair value of the Company’s forward sales contracts to broker/dealers solely considers the market price movement of the same
type of security between the trade date and the balance sheet date. The market price changes are multiplied by the notional amount
of the forward sales contracts to measure the fair value.
Interest Rate Lock Commitments. IRLCs are extended to certain home-buying customers who have applied for a mortgage loan
and meet certain defined credit and underwriting criteria. Typically, the IRLCs will have a duration of less than six months;
however, in certain markets, the duration could extend to twelve months.
Some IRLCs are committed to a specific third party investor through the use of best-efforts whole loan delivery commitments
matching the exact terms of the IRLC loan. Uncommitted IRLCs are considered derivative instruments and are fair value adjusted,
with the resulting gain or loss recorded in current earnings.
Forward Sales of Mortgage-Backed Securities. Forward sales of mortgage-backed securities (“FMBSs”) are used to protect
uncommitted IRLC loans against the risk of changes in interest rates between the lock date and the funding date. FMBSs related
to uncommitted IRLCs are classified and accounted for as non-designated derivative instruments and are recorded at fair value,
with gains and losses recorded in current earnings.
Mortgage Loans Held for Sale. Mortgage loans held for sale consist primarily of single-family residential loans collateralized
by the underlying property. During the intervening period between when a loan is closed and when it is sold to an investor, the
interest rate risk is covered through the use of a best-efforts contract or by FMBSs. The FMBSs are classified and accounted for
as non-designated derivative instruments, with gains and losses recorded in current earnings.
The table below shows the notional amounts of our financial instruments at December 31, 2014 and 2013:
Description of Financial Instrument (in thousands)
Best efforts contracts and related committed IRLCs
Uncommitted IRLCs
FMBSs related to uncommitted IRLCs
Best efforts contracts and related mortgage loans held for sale
FMBSs related to mortgage loans held for sale
Mortgage loans held for sale covered by FMBSs
December 31,
2014
2013
$
3,072
$
28,028
41,000
61,233
27,000
26,825
2,494
49,710
48,000
63,386
20,000
19,884
The table below shows the level and measurement of assets and liabilities measured on a recurring basis at December 31, 2014
and 2013:
Description of Financial Instrument (in thousands)
Mortgage loans held for sale
Forward sales of mortgage-backed securities
Interest rate lock commitments
Best-efforts contracts
Total
Fair Value
Measurements
December 31, 2014
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
$
$
92,794
$
— $
92,794
$
(182)
288
53
—
—
—
(182)
288
53
92,953
$
— $
92,953
$
—
—
—
—
—
Description of Financial Instrument (in thousands)
Mortgage loans held for sale
Forward sales of mortgage-backed securities
Interest rate lock commitments
Best-efforts contracts
Total
Fair Value
Measurements
December 31, 2013
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
$
$
81,810
$
— $
81,810
$
745
(319)
479
—
—
—
745
(319)
479
82,715
$
— $
82,715
$
—
—
—
—
—
64
The following table sets forth the amount of gain (loss) recognized, within our revenue in the Consolidated Statements of Income,
on assets and liabilities measured on a recurring basis for the years ended December 31, 2014, 2013 and 2012:
Description (in thousands)
Mortgage loans held for sale
Forward sales of mortgage-backed securities
Interest rate lock commitments
Best-efforts contracts
Total gain (loss) recognized
Year Ended December 31,
2014
2013
2012
3,191
$
(2,094)
$
(1,494)
(927)
607
(426)
492
(320)
482
723
(357)
128
2,445
$
(1,440)
$
(1,000)
$
$
The following tables set forth the fair value of the Company’s derivative instruments and their location within the Consolidated
Balance Sheets for the periods indicated (except for mortgage loans held for sale which is disclosed as a separate line item):
Description of Derivatives
Forward sales of mortgage-backed securities
Interest rate lock commitments
Best-efforts contracts
Total fair value measurements
Description of Derivatives
Forward sales of mortgage-backed securities
Interest rate lock commitments
Best-efforts contracts
Total fair value measurements
Assets Measured on a Non-Recurring Basis
Asset Derivatives
December 31, 2014
Liability Derivatives
December 31, 2014
Balance Sheet
Location
Other assets
Other assets
Other assets
Fair Value
(in thousands)
$
$
—
288
58
346
Balance Sheet
Location
Other liabilities
Other liabilities
Other liabilities
Fair Value
(in thousands)
$
$
182
—
5
187
Asset Derivatives
December 31, 2013
Liability Derivatives
December 31, 2013
Balance Sheet
Location
Other assets
Other assets
Other assets
Fair Value
(in thousands)
$
$
745
—
479
1,224
Balance Sheet
Location
Other liabilities
Other liabilities
Other liabilities
Fair Value
(in thousands)
$
$
—
319
—
319
The Company assesses inventory for recoverability on a quarterly basis if events or changes in local or national economic conditions
indicate that the carrying amount of an asset may not be recoverable. Our determination of fair value is based on projections and
estimates, which are Level 3 measurement inputs. For further explanation on the Company’s policy regarding our assessment of
recoverability for assets measured on a non-recurring basis, please see Note 1 to our Consolidated Financial Statements. The
tables below show the level and measurement of assets measured on a non-recurring basis for the years ended December 31, 2014
and 2013:
Description (in thousands)
Adjusted basis of inventory (1)
Total losses
Initial basis of inventory (3)
Hierarchy
2014
2013 (2)
2012 (2)
Year Ended December 31,
Level 3
$
$
3,730
3,457
7,187
$
$
5,494
5,805
11,299
$
$
6,658
3,502
10,160
(1) The fair values in the table above represent only assets whose carrying values were adjusted in the respective period.
(2) The carrying values for these assets may have subsequently increased or decreased from the fair value reported due to activities that have occurred since the
measurement date.
(3) This amount is inclusive of our investments in unconsolidated joint ventures. The total loss for these unconsolidated joint ventures was $1.0 million for
2014 and $0.4 million for 2012. There were no losses on our investments in unconsolidated joint ventures in 2013. The fair value of our investments in
unconsolidated joint ventures for 2012 was $1.1 million.
Financial Instruments
Counterparty Credit Risk. To reduce the risk associated with accounting losses that would be recognized if counterparties failed
to perform as contracted, the Company limits the entities with whom management can enter into commitments. This risk of
65
accounting loss is the difference between the market rate at the time of non-performance by the counterparty and the rate to which
the Company committed.
The following table presents the carrying amounts and fair values of the Company’s financial instruments at December 31, 2014
and 2013. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (an exit price).
(In thousands)
Assets:
Cash, cash equivalents and restricted cash
$
Mortgage loans held for sale
Split dollar life insurance policies
Notes receivable
Commitments to extend real estate loans
Best-efforts contracts for committed IRLCs and mortgage loans held for sale
Forward sales of mortgage-backed securities
Liabilities:
Notes payable - homebuilding operations
Notes payable - financial services operations
Notes payable - other
Convertible senior subordinated notes due 2017
Convertible senior subordinated notes due 2018
Senior notes due 2018
Commitments to extend real estate loans
Forward sales of mortgage-backed securities
Off-Balance Sheet Financial Instruments:
Letters of credit
December 31, 2014
December 31, 2013
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
$
22,486
92,794
187
4,288
289
58
—
30,000
85,379
9,518
57,500
86,250
22,486
92,794
187
3,793
289
58
—
30,000
85,379
9,089
67,634
87,544
$
142,627
$
142,627
81,810
171
3,151
—
479
745
—
80,029
7,790
57,500
86,250
81,810
171
2,784
—
479
745
—
80,029
7,452
74,391
95,845
228,469
239,488
228,070
248,975
—
182
—
—
182
881
319
—
—
319
—
413
The following methods and assumptions were used by the Company in estimating its fair value disclosures of financial instruments
at December 31, 2014 and 2013:
Cash, Cash Equivalents and Restricted Cash. The carrying amounts of these items approximate fair value because they are short-
term by nature.
Mortgage Loans Held for Sale, Forward Sales of Mortgage-Backed Securities, Commitments to Extend Real Estate Loans,
Best-Efforts Contracts for Committed IRLCs and Mortgage Loans Held for Sale, 2017 Convertible Senior Subordinated Notes,
2018 Convertible Senior Subordinated Notes and 2018 Senior Notes. The fair value of these financial instruments was determined
based upon market quotes at December 31, 2014 and 2013. The market quotes used were quoted prices for similar assets or
liabilities along with inputs taken from observable market data by correlation. The inputs were adjusted to account for the condition
of the asset or liability.
Split Dollar Life Insurance Policies and Notes Receivable. The estimated fair value was determined by calculating the present
value of the amounts based on the estimated timing of receipts using discount rates that incorporate management’s estimate of risk
associated with the corresponding note receivable.
Notes Payable - homebuilding operations. The interest rate available to the Company during the year ended December 31, 2014
fluctuated with the Alternate Base Rate or the Eurodollar Rate for the Company’s $300 million unsecured revolving credit facility
dated July 18, 2013, as amended (the “Credit Facility”), and thus the carrying value is a reasonable estimate of fair value. Refer
to Note 11 for additional information regarding the Credit Facility.
Notes Payable - financial services operations. M/I Financial is a party to two credit agreements: (1) a $110 million secured
mortgage warehousing agreement dated March 29, 2013 and amended on March 28, 2014 (the “MIF Mortgage Warehousing
Agreement”) and (2) a $15 million mortgage repurchase agreement dated November 13, 2012 and amended most recently on
November 4, 2014 (the “MIF Mortgage Repurchase Facility”). For each of these credit facilities, the interest rate is based on a
variable rate index, and thus their carrying value is a reasonable estimate of fair value. The interest rate available to the Company
during 2014 fluctuated with LIBOR. Refer to Note 11 for additional information regarding the MIF Mortgage Warehousing
Agreement and the MIF Mortgage Repurchase Facility.
66
Notes Payable - Other. The estimated fair value was determined by calculating the present value of the future cash flows using
the Company’s current incremental borrowing rate.
Letters of Credit. Letters of credit of $33.6 million and $25.8 million represent potential commitments at December 31, 2014 and
2013, respectively. The letters of credit generally expire within one or two years. The estimated fair value of letters of credit was
determined using fees currently charged for similar agreements.
NOTE 4. Inventory
A summary of the Company’s inventory as of December 31, 2014 and 2013 is as follows:
(In thousands)
December 31,
2014
2013
Single-family lots, land and land development costs
$
463,198
$
Land held for sale
Homes under construction
Model homes and furnishings - at cost (less accumulated depreciation: December 31, 2014 - $7,010;
December 31, 2013 - $5,173)
Community development district infrastructure
Land purchase deposits
Consolidated inventory not owned
Total inventory
10,647
371,119
46,780
2,571
23,495
779
323,673
8,059
305,499
34,433
3,130
14,365
1,775
$
918,589
$
690,934
Single-family lots, land and land development costs include raw land that the Company has purchased to develop into lots, costs
incurred to develop the raw land into lots, and lots for which development has been completed, but which have not yet been used
to start construction of a home.
Homes under construction include homes that are in various stages of construction. As of December 31, 2014 and 2013, we had
979 homes (with a carrying value of $186.7 million) and 798 homes (with a carrying value of $123.3 million), respectively, included
in homes under construction that were not subject to a sales contract.
Model homes and furnishings include homes that are under construction or have been completed and are being used as sales
models. The amount also includes the net book value of furnishings included in our model homes. Depreciation on model home
furnishings is recorded using an accelerated method over the estimated useful life of the assets, typically three years.
The Company assesses inventory for recoverability on a quarterly basis. Refer to Notes 1 and 3 of our Consolidated Financial
Statements for additional details relating to our procedures for evaluating our inventories for impairment.
Land purchase deposits include both refundable and non-refundable amounts paid to third party sellers relating to the purchase of
land. On an ongoing basis, the Company evaluates the land option agreements relating to the land purchase deposits. In the period
during which the Company makes the decision not to proceed with the purchase of land under an agreement, the Company writes
off any deposits and accumulated pre-acquisition costs relating to such agreement.
NOTE 5. Transactions with Related Parties
The Company made a contribution of $0.7 million in 2014 to the M/I Homes Foundation, a charitable organization having certain
officers and directors of the Company on its Board of Trustees.
The Company had a receivable of $0.2 million at both December 31, 2014 and 2013 due from an executive officer, relating to
amounts owed to the Company for split-dollar life insurance policy premiums. The Company will collect the receivable either
directly from the executive officer, if employment terminates other than by death, or from the executive officer’s beneficiary, if
employment terminates due to death of the executive officer. We also have an outstanding loan to one of our unconsolidated joint
ventures for $2.5 million in which we are one of the partners in the joint venture. The receivables are recorded in Other Assets
on the Consolidated Balance Sheets.
NOTE 6. Investment in Unconsolidated Joint Ventures
The Company has periodically partnered with other land developers or homebuilders to share in the cost of land investment and
development through joint ownership and development agreements, joint ventures, and other similar arrangements. For such joint
venture arrangements where a special purpose entity is established to own the property, we have determined that we do not have
substantive control over any of these entities; therefore, they are recorded using the equity method of accounting. The Company’s
67
maximum exposure related to its investment in these joint venture arrangements as of December 31, 2014 is the total amount
invested of $30.3 million, consisting of $27.8 million which is reported as Investment in Unconsolidated Joint Ventures on our
Consolidated Balance Sheets, and a $2.5 million note due to the Company from one of the unconsolidated joint ventures (reported
in Other Assets). Included in the Company’s investment in unconsolidated joint ventures at both December 31, 2014 and December
31, 2013 were $0.2 million and $0.8 million of capitalized interest and other costs, respectively.
The Company evaluates its investment in unconsolidated joint ventures for potential impairment on a quarterly basis. If the fair
value of the investment (see Notes 1 and 3 of our Consolidated Financial Statements) is less than the investment’s carrying value,
and the Company determines the decline in value was other than temporary, the Company would write down the investment to
fair value.
Summarized condensed combined financial information for the unconsolidated joint ventures that are included in the homebuilding
segments as of December 31, 2014 and 2013 and for the years ended December 31, 2014, 2013 and 2012 is as follows:
Summarized Condensed Combined Balance Sheets:
(In thousands)
Assets:
Single-family lots, land and land development costs (a) (b)
Other assets
Total assets
Liabilities and partners’ equity:
Liabilities:
Notes payable
Other liabilities
Total liabilities
Partners’ equity:
Company’s equity (a) (b)
Other equity
Total partners’ equity
Total liabilities and partners’ equity
December 31,
2014
2013
$
$
$
$
$
$
49,987 $
2,917
52,904 $
12,153 $
2,887
15,040
18,728 $
19,136
37,864 $
52,904 $
73,069
2,972
76,041
8,022
4,041
12,063
32,103
31,875
63,978
76,041
(a) For the years ended December 31, 2014 and 2013, impairment expenses and other miscellaneous adjustments totaling $6.0 million and $10.4 million,
respectively, were excluded from the table above.
(b) For the years ended December 31, 2014 and 2013, the table above excludes the Company’s investment in joint development arrangements for which a special
purpose entity was not established, totaling $15.0 million and $13.5 million, respectively.
Summarized Condensed Combined Statements of Operations:
(In thousands)
Revenue
Costs and expenses
Income (loss)
Year Ended December 31,
2014
2013
2012
$
$
2,424 $
1,147
1,277 $
2,909 $
1,763
1,146 $
—
15
(15)
The Company’s total equity in the income (loss) relating to the above homebuilding unconsolidated joint ventures was $0.3 million
for 2014 and 2013 and less than ($0.1 million) for 2012, respectively.
68
NOTE 7. Guarantees and Indemnifications
Warranty
Our warranty reserve amounts are based upon historical experience and geographic location. Our warranty reserves are included
in Other Liabilities in the Company’s Consolidated Balance Sheets. A summary of warranty activity for the years ended December
31, 2014, 2013 and 2012 is as follows:
(In thousands)
Warranty reserves, beginning of period
Warranty expense on homes delivered during the period
Changes in estimates for pre-existing warranties
Settlements made during the period
Warranty reserves, end of period
Guarantees
Year Ended December 31,
2014
2013
2012
$
$
12,291
7,311
5,223
(12,154)
12,671
$
$
10,438
7,023
2,394
(7,564)
12,291
$
$
9,025
5,853
1,690
(6,130)
10,438
In the ordinary course of business, M/I Financial, a 100%-owned subsidiary of M/I Homes, Inc., enters into agreements that
guarantee certain purchasers of its mortgage loans that M/I Financial will repurchase a loan if certain conditions occur, primarily
if the mortgagor does not meet the terms of the loan within the first six months after the sale of the loan. Loans totaling approximately
$33.4 million and $5.2 million were covered under the above guarantees as of December 31, 2014 and 2013, respectively. The
increase in loans covered by these guarantees from December 31, 2013 is a result of a change in the mix of investors and their
related purchase terms. A portion of the revenue paid to M/I Financial for providing the guarantees on the above loans was deferred
at December 31, 2014, and will be recognized in income as M/I Financial is released from its obligation under the guarantees. M/
I Financial did not repurchase any loans under the above agreements during 2014. The risk associated with the guarantees above
is offset by the value of the underlying assets.
M/I Financial has received inquiries concerning underwriting matters from purchasers of its loans regarding certain loans totaling
approximately $9.1 million and $8.2 million at December 31, 2014 and 2013, respectively. The risk associated with the guarantees
above is offset by the value of the underlying assets.
M/I Financial has also guaranteed the collectability of certain loans to third party insurers (U.S. Department of Housing and Urban
Development and U.S. Veterans Administration) of those loans for periods ranging from five to thirty years. As of December 31,
2014 and 2013, the total of all loans indemnified to third party insurers relating to the above agreements was $2.0 million and
$1.5 million, respectively. The maximum potential amount of future payments is equal to the outstanding loan value less the value
of the underlying asset plus administrative costs incurred related to foreclosure on the loans, should this event occur.
The Company has recorded a liability relating to the guarantees described above totaling $2.9 million and $3.1 million at December
31, 2014 and 2013, respectively, which is management’s best estimate of the Company’s liability.
At December 31, 2014, the Company had outstanding $230.0 million aggregate principal amount of 8.625% Senior Notes due
2018 (the “2018 Senior Notes”), $57.5 million aggregate principal amount of 3.25% Convertible Senior Subordinated Notes due
2017 (the “2017 Convertible Senior Subordinated Notes”) and $86.3 million aggregate principal amount of 3.0% Convertible
Senior Subordinated Notes due 2018 (the “2018 Convertible Senior Subordinated Notes”). The Company’s obligations under the
2018 Senior Notes and the Credit Facility are guaranteed jointly and severally on a senior unsecured basis by all of the Company’s
subsidiaries, with the exception of subsidiaries that are primarily engaged in the business of mortgage financing, title insurance
or similar financial businesses relating to the homebuilding and home sales business, certain subsidiaries that are not 100%-owned
by the Company or another subsidiary, and other subsidiaries designated by the Company as Unrestricted Subsidiaries (as defined
in Note 16), subject to limitations on the aggregate amount invested in such Unrestricted Subsidiaries in accordance with the terms
of the Credit Facility and the Indenture for the 2018 Senior Notes. The Company’s obligations under the 2017 Convertible Senior
Subordinated Notes and the 2018 Convertible Senior Subordinated Notes are guaranteed jointly and severally on a senior
subordinated unsecured basis by the same subsidiaries of the Company that are guarantors for the 2018 Senior Notes and the Credit
Facility (the “Guarantor Subsidiaries”). Refer to Note 11 for a description of the guarantees of the Credit Facility.
NOTE 8. Commitments and Contingencies
At December 31, 2014, the Company had outstanding approximately $121.9 million of completion bonds and standby letters of
credit, some of which were issued to various local governmental entities that expire at various times through December 2019.
Included in this total are: (1) $74.0 million of performance and maintenance bonds and $21.4 million of performance letters of
69
credit that serve as completion bonds for land development work in progress; (2) $12.2 million of financial letters of credit, of
which $6.1 million represent deposits on land and lot purchase agreements; and (3) $14.3 million of financial bonds.
At December 31, 2014, the Company also had options and contingent purchase agreements to acquire land and developed lots
with an aggregate purchase price of approximately $452.7 million. Purchase of properties under these agreements is contingent
upon satisfaction of certain requirements by the Company and the sellers.
The Company and certain of its subsidiaries have been named as defendants in certain claims, complaints and legal actions that
are incidental to our business. Certain of the liabilities resulting from these other matters are covered by insurance. While
management currently believes that the ultimate resolution of these matters, individually and in the aggregate, will not have a
material effect on the Company’s financial position, results of operations and cash flows, such matters are subject to inherent
uncertainties. The Company has recorded a liability to provide for the anticipated costs, including legal defense costs, associated
with the resolution of these other matters. However, there exists the possibility that the costs to resolve these other matters could
differ from the recorded estimates and, therefore, have a material effect on the Company’s net income for the periods in which the
matters are resolved. At December 31, 2014 and 2013, we had $0.2 million and $0.3 million reserved for legal expenses, respectively.
NOTE 9. Lease Commitments
Operating Leases The Company leases various office facilities, automobiles, model furnishings, and model homes under operating
leases with remaining terms of one to nine years. The Company sells model homes to investors with the express purpose of leasing
the homes back as sales models for a specified period of time. The Company records the sale of the home at the time of the home
delivery, and defers profit on the sale, which is subsequently recognized over the lease term.
At December 31, 2014, the future minimum rental commitments totaled $13.1 million under non-cancelable operating leases with
initial terms in excess of one year as follows: 2015 - $3.7 million; 2016 - $3.0 million; 2017 - $2.9 million; 2018 - $1.8 million;
2019 - $0.7 million; and $1.0 million thereafter. The Company’s total rental expense was $4.7 million, $3.7 million, and
$4.1 million for 2014, 2013 and 2012, respectively.
NOTE 10. Community Development District Infrastructure and Related Obligations
A Community Development District and/or Community Development Authority (“CDD”) is a unit of local government created
under various state and/or local statutes to encourage planned community development and to allow for the construction and
maintenance of long-term infrastructure through alternative financing sources, including the tax-exempt markets. A CDD is
generally created through the approval of the local city or county in which the CDD is located and is controlled by a Board of
Supervisors representing the landowners within the CDD. CDDs may utilize bond financing to fund construction or acquisition
of certain on-site and off-site infrastructure improvements near or within these communities. CDDs are also granted the power
to levy special assessments to impose ad valorem taxes, rates, fees and other charges for the use of the CDD project. An allocated
share of the principal and interest on the bonds issued by the CDD is assigned to and constitutes a lien on each parcel within the
community evidenced by an assessment (“Assessment”). The owner of each such parcel is responsible for the payment of the
Assessment on that parcel. If the owner of the parcel fails to pay the Assessment, the CDD may foreclose on the lien pursuant to
powers conferred to the CDD under applicable state laws and/or foreclosure procedures. In connection with the development of
certain of the Company’s communities, CDDs have been established and bonds have been issued to finance a portion of the related
infrastructure. Following are details relating to such CDD bond obligations issued and outstanding as of December 31, 2014:
Issue Date
7/15/2004
7/15/2004
7/22/2014
Maturity Date
Interest Rate
12/1/2022
12/1/2036
11/1/2045
6.00%
6.25%
5.28%
Total CDD bond obligations issued and outstanding
Principal Amount
as of December 31,
2014
(in thousands)
Principal Amount
as of December 31,
2013
(in thousands)
$
$
2,922 $
10,060
1,805
14,787 $
3,200
10,060
—
13,260
The Company records a liability for the estimated developer obligations that are probable and estimable and user fees that are
required to be paid or transferred at the time the parcel or unit is sold to an end user. The Company reduces this liability by the
corresponding Assessment assumed by property purchasers and the amounts paid by the Company at the time of closing and the
transfer of the property. The Company recorded a $2.6 million and $3.1 million liability related to these CDD bond obligations
as of December 31, 2014 and December 31, 2013, respectively, along with the related inventory infrastructure.
70
NOTE 11. Debt
Notes Payable - Homebuilding
The Credit Facility, dated July 18, 2013 and amended on October 20, 2014, provides for an aggregate commitment amount of
$300 million, including a $125 million sub-facility for letters of credit. In addition, the Credit Facility has an accordion feature
under which the Company may increase the aggregate commitment amount up to $400 million, subject to certain conditions,
including obtaining additional commitments from existing or new lenders. The Credit Facility matures on October 20, 2018.
Interest on amounts borrowed under the Credit Facility is payable at either the Alternate Base Rate plus an initial margin of 150
basis points, or at the Eurodollar Rate plus a margin of 250 basis points, in each case subject to adjustment based on the Company's
leverage ratio.
Borrowings under the Credit Facility constitute senior, unsecured indebtedness and availability is subject to, among other things,
a borrowing base calculated using various advance rates for different categories of inventory. The Credit Facility contains various
representations, warranties and affirmative, negative and financial covenants which require, among other things, that the Company
maintain (1) a minimum level of Consolidated Tangible Net Worth of $363.8 million (which amount is subject to increase over
time based on earnings and proceeds from equity offerings), (2) a leverage ratio not in excess of 60%, and (3) either a minimum
Interest Coverage Ratio of 1.5 to 1.0 or a minimum liquidity amount. In addition, the Credit Facility contains covenants that limit
the amount of the Company's unsold owned land not to exceed 125% of the sum of tangible net worth and subordinated debt,
secured indebtedness not to exceed $30.0 million, and number of unsold housing units and model homes, as well as the amount
of Investments in Unrestricted Subsidiaries and Joint Ventures. At December 31, 2014, the Company was in compliance with all
financial covenants of the Credit Facility.
At December 31, 2014, borrowing availability under the Credit Facility in accordance with the borrowing base calculation was
$380.2 million, so the full amount of the $300 million facility was available, and there were $30.0 million of borrowings outstanding
and $27.2 million of letters of credit outstanding, leaving net remaining borrowing availability of $242.8 million as of December 31,
2014. The guarantors of the Credit Facility are the same subsidiaries that guarantee the 2018 Senior Notes, the 2017 Convertible
Senior Subordinated Notes and the 2018 Convertible Senior Subordinated Notes.
The Company is party to three secured credit agreements for the issuance of letters of credit outside of the Credit Facility (collectively,
the “Letter of Credit Facilities”), with maturity dates ranging from June 1, 2015 to September 30, 2015. The agreements governing
the Letter of Credit Facilities contain limits for the issuance of letters of credit ranging from $5.0 million to $10.0 million, for a
combined letter of credit capacity of $20.0 million, of which $3.8 million was uncommitted at December 31, 2014 and could be
withdrawn at any time. At December 31, 2014 and December 31, 2013, there was $6.5 million and $13.4 million of outstanding
letters of credit in aggregate under the Company’s three Letter of Credit Facilities, respectively, which were collateralized with
$6.6 million and $13.7 million of the Company’s cash, respectively.
Notes Payable — Financial Services
The MIF Mortgage Warehousing Agreement, dated March 29, 2013 and amended in March 2014, is used to finance eligible
residential mortgage loans originated by M/I Financial and provides a maximum borrowing availability of $110 million and an
accordion feature which allows for an increase of the maximum borrowing availability of up to an additional $20 million (subject
to certain conditions, including obtaining additional commitments from existing or new lenders). The MIF Mortgage Warehousing
Agreement has an expiration date of March 27, 2015. The maximum principal amount permitted to be outstanding at any one
time in aggregate under all warehouse credit lines is $150 million. Effective with the quarter ending September 30, 2014, the
minimum required tangible net worth requirement applicable to M/I Financial increased from $10.0 million to $11.0 million and
the minimum required liquidity requirement applicable to M/I Financial increased from $5.0 million to $5.5 million. M/I Financial
pays interest on each advance under the MIF Mortgage Warehousing Agreement at a per annum rate equal to the greater of (1) the
floating LIBOR rate plus 275 basis points and (2) 3.0%.
As is typical for similar credit facilities in the mortgage origination industry, at closing, the expiration of the MIF Mortgage
Warehousing Agreement was set at approximately one year and is under consideration for extension annually by the participating
lenders. We expect to extend the MIF Mortgage Warehousing Agreement on or prior to the current expiration date of March 27,
2015, but we cannot provide any assurance that we will be able to obtain such an extension.
The MIF Mortgage Repurchase Facility, dated November 2012 and amended on November 4, 2014, is used to finance eligible
residential mortgage loans originated by M/I Financial and is structured as a mortgage repurchase facility with a maximum
borrowing availability of $15 million and an expiration date of November 3, 2015. M/I Financial pays interest on each advance
under the MIF Mortgage Repurchase Facility at a per annum rate equal to the floating LIBOR rate plus 275 or 300 basis points
depending on the loan type.
71
At December 31, 2014, M/I Financial’s total combined maximum borrowing availability under the two credit facilities was
$125.0 million, an increase from $115.0 million at December 31, 2013. At December 31, 2014 and December 31, 2013, M/I
Financial had $85.4 million and $80.0 million outstanding on a combined basis under its credit facilities, respectively, and was in
compliance with all financial covenants of those agreements for both periods.
Convertible Senior Subordinated Notes
In March 2013, the Company issued $86.3 million aggregate principal amount of 2018 Convertible Senior Subordinated Notes.
The 2018 Convertible Senior Subordinated Notes bear interest at a rate of 3.0% per year, payable semiannually in arrears on March
1 and September 1 of each year. The 2018 Convertible Senior Subordinated Notes mature on March 1, 2018. At any time prior
to the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their
2018 Convertible Senior Subordinated Notes into the Company’s common shares. The conversion rate initially equals 30.9478
shares per $1,000 of principal amount. This corresponds to an initial conversion price of approximately $32.31 per common share,
which equates to approximately 2.7 million common shares. The conversion rate is subject to adjustment upon the occurrence of
certain events. The 2018 Convertible Senior Subordinated Notes are fully and unconditionally guaranteed on a senior subordinated
unsecured basis by those subsidiaries of the Company that are guarantors under the Company’s 2018 Senior Notes and 2017
Convertible Senior Subordinated Notes. The 2018 Convertible Senior Subordinated Notes are senior subordinated unsecured
obligations of the Company and the subsidiary guarantors, are subordinated in right of payment to our existing and future senior
indebtedness and are also effectively subordinated to our existing and future secured indebtedness with respect to any assets
comprising security or collateral for such indebtedness. The indenture governing the 2018 Convertible Senior Subordinated Notes
provides that the Company may not redeem the 2018 Convertible Senior Subordinated Notes prior to March 6, 2016, but also
contains provisions requiring the Company to repurchase the notes (subject to certain exceptions), at a holder’s option, upon the
occurrence of a fundamental change (as defined in the indenture).
On or after March 6, 2016, the Company may redeem for cash any or all of the 2018 Convertible Senior Subordinated Notes
(except for any 2018 Convertible Senior Subordinated Notes that the Company is required to repurchase in connection with a
fundamental change), but only if the last reported sale price of the Company’s common shares exceeds 130% of the applicable
conversion price for the notes on each of at least 20 applicable trading days. The 20 trading days do not need to be consecutive,
but must occur during a period of 30 consecutive trading days that ends within 10 trading days immediately prior to the date the
Company provides the notice of redemption. The redemption price for the 2018 Convertible Senior Subordinated Notes to be
redeemed will equal 100% of the principal amount, plus accrued and unpaid interest, if any.
In September 2012, the Company issued $57.5 million aggregate principal amount of 2017 Convertible Senior Subordinated Notes.
The 2017 Convertible Senior Subordinated Notes bear interest at a rate of 3.25% per year, payable semiannually in arrears on
March 15 and September 15 of each year. The 2017 Convertible Senior Subordinated Notes mature on September 15, 2017. At
any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, holders may
convert their 2017 Convertible Senior Subordinated Notes into the Company’s common shares. The conversion rate initially
equals 42.0159 shares per $1,000 of principal amount. This corresponds to an initial conversion price of approximately $23.80
per common share, which equates to approximately 2.4 million common shares. The conversion rate is subject to adjustment upon
the occurrence of certain events. The 2017 Convertible Senior Subordinated Notes are fully and unconditionally guaranteed on
a senior subordinated unsecured basis by those subsidiaries of the Company that are guarantors under the Company’s 2018 Senior
Notes and 2018 Convertible Senior Subordinated Notes. The 2017 Convertible Senior Subordinated Notes are senior subordinated
unsecured obligations of the Company and the subsidiary guarantors, are subordinated in right of payment to our existing and
future senior indebtedness and are also effectively subordinated to our existing and future secured indebtedness with respect to
any assets comprising security or collateral for such indebtedness. The indenture governing the 2017 Convertible Senior
Subordinated Notes provides that we may not redeem the notes prior to their stated maturity date, but also contains provisions
requiring the Company to repurchase the 2017 Convertible Senior Subordinated Notes (subject to certain exceptions), at a holder’s
option, upon the occurrence of a fundamental change (as defined in the indenture).
Senior Notes
As of both December 31, 2014 and December 31, 2013, we had $230.0 million of our 2018 Senior Notes outstanding. The 2018
Senior Notes bear interest at a rate of 8.625% per year, payable semiannually in arrears on May 15 and November 15 of each year,
and mature on November 15, 2018. The 2018 Senior Notes are general, unsecured senior obligations of the Company and the
subsidiary guarantors and rank equally in right of payment with all our existing and future unsecured senior indebtedness. The
2018 Senior Notes are effectively subordinated to our existing and future secured indebtedness with respect to any assets comprising
security or collateral for such indebtedness.
72
The 2018 Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by all of our subsidiaries, with the
exception of subsidiaries that are primarily engaged in the business of mortgage financing, title insurance or similar financial
businesses relating to the homebuilding and home sales business, certain subsidiaries that are not 100%-owned by the Company
or another subsidiary, and other subsidiaries designated by the Company as Unrestricted Subsidiaries, subject to limitations on the
aggregate amount invested in such Unrestricted Subsidiaries in accordance with the terms of the Credit Facility and the indenture
for the 2018 Senior Notes. As of December 31, 2014, the guarantors for the 2018 Senior Notes are the same subsidiaries that
guarantee the Credit Facility, the 2017 Convertible Senior Subordinated Notes, and the 2018 Convertible Senior Subordinated
Notes.
The Company may redeem all or any portion of the 2018 Senior Notes at a stated redemption price, together with accrued and
unpaid interest thereon. The redemption price is currently 104.313% of the principal amount outstanding, but will decline to
102.156% of the principal amount outstanding if redeemed during the 12-month period beginning on November 15, 2015, and
will further decline to 100.000% of the principal amount outstanding if redeemed on or after November 15, 2016, but prior to
maturity.
The indenture governing our 2018 Senior Notes limits our ability to pay dividends on, and repurchase, our common shares and
our 9.75% Series A Preferred Shares (the “Series A Preferred Shares”) to the amount of the positive balance in our “restricted
payments basket,” as defined in the indenture. The “restricted payments basket” is equal to $40.0 million (1) plus 50% of our
aggregate consolidated net income (or minus 100% of our aggregate consolidated net loss) since October 1, 2010, excluding the
income or loss from Unrestricted Subsidiaries, plus (2) 100% of the net cash proceeds from the sale of qualified equity interests,
plus other items and subject to other exceptions. The restricted payments basket was $148.6 million and $132.7 million at
December 31, 2014 and December 31, 2013, respectively. We are permitted to pay dividends on, and repurchase, our common
shares and Series A Preferred Shares to the extent of the positive balance in our restricted payments basket. The determination to
pay future dividends on, or make future repurchases of, our common shares or Series A Preferred Shares will be at the discretion
of our board of directors and will depend upon our results of operations, financial condition, capital requirements and compliance
with debt covenants and the terms of our Series A Preferred Shares, and other factors deemed relevant by our board of directors.
Notes Payable - Other
The Company had other borrowings, which are reported in Notes Payable - Other in our Consolidated Balance Sheets, totaling
$9.5 million and $7.8 million as of December 31, 2014 and 2013, respectively. The balance consists primarily of a mortgage note
payable with a $4.3 million principal balance outstanding at December 31, 2014 (and $4.8 million outstanding at December 31,
2013), which is secured by an office building, matures in 2017 and carries an interest rate of 8.1%. The remaining balance is made
up of other notes payable acquired through normal course of business. These other borrowings are included in the debt maturities
schedule below.
Maturities over the next five years with respect to the Company’s debt as of December 31, 2014 are as follows:
Year Ending December 31,
2015
2016
2017
2018
2019
Thereafter
Total
Debt Maturities
(In thousands)
$
$
87,986
1,678
61,368
346,728
364
523
498,647
NOTE 12. Preferred Shares
The Company’s Articles of Incorporation authorize the issuance of up to 2,000,000 preferred shares, par value $.01 per share. On
March 15, 2007, the Company issued 4,000,000 depositary shares, each representing 1/1000th of a Series A Preferred Share, or
4,000 Series A Preferred Shares in the aggregate. On April 10, 2013, the Company redeemed 2,000 of its Series A Preferred Shares
for $50.4 million in cash. The aggregate liquidation value of the remaining 2,000 Preferred Shares is $50 million. The Company
paid $4.9 million and $3.7 million of dividends in 2014 and 2013, respectively, on the Series A Preferred Shares. Please see Note
11 for additional information related to the restrictions on our ability to pay dividends on and repurchase our Series A Preferred
Shares.
73
NOTE 13. Earnings Per Share
The table below presents a reconciliation between basic and diluted weighted average shares outstanding, net income available to
common shareholders and basic and diluted income per share for the year ended December 31, 2014, 2013 and 2012:
(In thousands, except per share amounts)
NUMERATOR
Net income
Preferred stock dividends
Excess of fair value over book value of preferred shares redeemed
Net income available to common shareholders
Interest on 3.25% convertible senior subordinated notes due 2017
Interest on 3.00% convertible senior subordinated notes due 2018
Diluted income available to common shareholders
DENOMINATOR
Basic weighted average shares outstanding
Effect of dilutive securities:
Stock option awards
Deferred compensation awards
3.25% convertible senior subordinated notes due 2017
3.00% convertible senior subordinated notes due 2018
Diluted weighted average shares outstanding - adjusted for assumed conversions
Earnings per common share
Basic
Diluted
Anti-dilutive equity awards not included in the calculation of diluted earnings per common share
Year Ended December 31,
2013
2012
2014
$
50,789
$
151,423
$
13,347
(4,875)
—
45,914
1,504
2,030
(3,656)
(2,190)
—
—
145,577
13,347
2,443
2,675
—
—
$
49,448
$
150,695
$
13,347
24,463
23,822
19,651
222
142
2,416
2,669
29,912
237
123
2,416
2,165
92
148
—
—
28,763
19,891
$
$
$
$
1.88
1.65
1,250
$
$
6.11
5.24
963
0.68
0.67
1,538
The Company declared and paid a quarterly cash dividend of $609.375 per share on its 2,000 outstanding Series A Preferred Shares
in each quarter of 2014 and during the second, third and fourth quarters of 2013 for an aggregate dividend payment of $4.9 million
and $3.7 million for the year ended December 31, 2014 and 2013, respectively.
For the year ended December 31, 2014 and 2013, the effect of convertible debt was included in the diluted earnings per share
calculations. For the year ended December 31, 2012, the effect of convertible debt was not included in the diluted earnings per
share calculation as it would have been anti-dilutive.
NOTE 14. Income Taxes
The Company records income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized
based on future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and attributable to operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are
expected to be recovered or paid. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings
in the period when the changes are enacted.
In accordance with ASC 740-10, Income Taxes (“ASC 740”), we evaluate our deferred tax assets, including the benefit from net
operating losses (“NOLs”) and tax credit carryforwards, to determine if a valuation allowance is required. Companies must assess,
using significant judgments, whether a valuation allowance should be established based on the consideration of all available
evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified.
This assessment gives appropriate consideration to all positive and negative evidence related to the realization of the deferred tax
assets and considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future
profitability, the length of statutory carryforward periods, our experience with operating losses and our experience of utilizing tax
credit carryforwards and tax planning alternatives. Based upon a review of all available evidence, we recorded a full valuation
allowance against our deferred tax assets during 2008 due to economic conditions and the weight of negative evidence at the time.
However, during 2013, the Company, giving the same consideration to positive and negative evidence described above, concluded
that it was more likely than not that the majority of its deferred tax assets would be utilized. As a result of such determination, the
Company reversed the majority of the valuation allowance against its deferred tax assets during the year ended December 31,
2013, and the remaining $9.3 million valuation allowance during the first two quarters of 2014.
74
At December 31, 2014, the Company’s total deferred tax assets were $96.0 million which is offset by $1.6 million of total deferred
tax liabilities for a $94.4 million net deferred tax asset which is reported on the Company’s Consolidated Balance Sheets.
The tax effects of the significant temporary differences that comprise the deferred tax assets and liabilities are as follows:
(In thousands)
Deferred tax assets:
Warranty, insurance and other accruals
Inventory
State taxes
Net operating loss carryforward
Deferred charges
Total deferred tax assets
Less valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Depreciation
Prepaid expenses
Total deferred tax liabilities
Net deferred tax asset, net of valuation allowance
The provision (benefit) from income taxes consists of the following:
(In thousands)
Current:
Federal
State
(In thousands)
Deferred:
Federal
State
Total
December 31,
2014
2013
13,155 $
11,049
175
69,946
1,711
96,036 $
— $
96,036 $
1,191 $
433
1,624 $
12,003
16,657
106
91,659
897
121,322
(9,291)
112,031
774
346
1,120
94,412 $
110,911
$
$
$
$
$
$
$
Year Ended December 31,
2014
2013
2012
1,766 $
681
2,447 $
2 $
821
823 $
Year Ended December 31,
2014
2013
2012
22,141 $
(5,641)
16,500 $
18,947 $
(102,830) $
(8,081)
(110,911) $
(110,088) $
208
(796)
(588)
—
—
—
(588)
$
$
$
$
$
For 2014, 2013 and 2012, the Company’s effective tax rate was 27.17%, (266.33)%, and (4.61)%, respectively. Reconciliation of
the differences between income taxes computed at the federal statutory tax rate and consolidated benefit from income taxes are
as follows:
(In thousands)
Federal taxes at statutory rate
State and local taxes – net of federal tax benefit
Change in unrecognized tax benefit
Change in valuation allowance
Change in state NOL deferred asset – net of federal tax benefit
Other
Total
Year Ended December 31,
2014
2013
2012
$
$
24,407 $
2,199
—
(9,291)
1,780
(148)
18,947 $
14,467 $
534
—
(126,458)
853
516
(110,088) $
4,466
829
(1,346)
(5,076)
(312)
851
(588)
75
The Company files income tax returns in the U.S. federal jurisdiction, and various states. The Company is no longer subject to
U.S. federal, state or local examinations by tax authorities for years before 2010. The Company is audited from time to time, and
if any adjustments are made, they would be either immaterial or reserved.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. At December 31,
2014, 2013 and 2012, we had no unrecognized tax benefits due to the lapse of the statue of limitations and completion of audits
in prior years. We believe that our current income tax filing positions and deductions will be sustained on audit and do not anticipate
any adjustments that will result in a material change.
At December 31, 2014, the Company had federal NOL carryforwards of approximately $51.3 million and federal credit
carryforwards of $6.9 million. Our federal NOL carryforwards may be carried forward up to 18 years to offset future taxable
income with the federal carryforward benefits beginning to expire in 2028. The Company had $11.8 million of state NOL
carryforwards at December 31, 2014. Our state NOLs may be carried forward from one to 18 years, depending on the tax jurisdiction,
with $5.3 million expiring between 2015 and 2027 and $6.5 million expiring between 2028 and 2032, absent sufficient state taxable
income.
On February 1, 2014, M/I Financial Corp. was converted from a wholly-owned Ohio C corporation to a wholly-owned Ohio limited
liability company, and its name was changed to M/I Financial, LLC.
On December 19, 2014, the President signed The Tax Increase Prevention Act of 2014 which retroactively extends for one year
the bulk of the temporary tax deductions, credits, and incentives that expired at the end of 2013. Among other things, the Act
extended to 2014 the business tax credit under IRC §45L for building new energy efficient homes and bonus depreciation. Under
ASC 740, the effects of a change in tax law are recognized as of the enactment date. In accordance with this guidance, we recorded
a tax benefit of approximately $0.2 million in 2014 related to the extension of the IRC §45L tax credit for qualifying new energy
efficient homes that we sold in 2014.
NOTE 15. Business Segments
The Company’s chief operating decision makers evaluate the Company’s performance in various ways, including: (1) the results
of our 13 individual homebuilding operating segments and the results of our financial services operations; (2) the results of our
three homebuilding regions; and (3) our consolidated financial results.
In accordance with ASC 280, Segment Reporting (“ASC 280”), we have identified each homebuilding division as an operating
segment and have determined our reportable segments as follows: Midwest homebuilding, Southern homebuilding, Mid-Atlantic
homebuilding and financial services operations. The homebuilding operating segments that are included within each reportable
segment have been aggregated because they share similar aggregation characteristics as prescribed in ASC 280 in the following
regards: (1) long-term economic characteristics; (2) historical and expected future long-term gross margin percentages; (3) housing
products, production processes and methods of distribution; and (4) geographical proximity.
The homebuilding operating segments that comprise each of our reportable segments are as follows:
Midwest
Columbus, Ohio
Cincinnati, Ohio
Indianapolis, Indiana
Chicago, Illinois
Southern
Tampa, Florida
Orlando, Florida
Houston, Texas
San Antonio, Texas
Austin, Texas
Dallas/Fort Worth, Texas
Mid-Atlantic
Washington, D.C.
Charlotte, North Carolina
Raleigh, North Carolina
76
The following table shows, by segment, revenue, operating income and interest expense for 2014, 2013 and 2012, as well as the
Company’s income before income taxes for such periods:
(In thousands)
Revenue:
Midwest homebuilding
Southern homebuilding
Mid-Atlantic homebuilding
Financial services (a)
Total revenue
Operating income:
Midwest homebuilding
Southern homebuilding
Mid-Atlantic homebuilding
Financial services (a)
Less: Corporate selling, general and administrative expenses
Total operating income (b)
Interest expense:
Midwest homebuilding
Southern homebuilding
Mid-Atlantic homebuilding
Financial services (a)
Total interest expense
Equity in income of unconsolidated joint ventures
Loss on early extinguishment of debt
Income before income taxes
Depreciation and amortization:
Midwest homebuilding
Southern homebuilding
Mid-Atlantic homebuilding
Financial services
Corporate
Total depreciation and amortization
Year Ended December 31,
2014
2013
2012
$
426,090
$
336,242
$
281,959
420,901
338,067
30,122
324,436
347,565
28,539
$ 1,215,180
$ 1,036,782
$
$
$
$
$
$
$
$
37,484
34,341
27,502
15,616
(32,189)
82,754
3,001
5,445
3,480
1,439
13,365
(347)
—
69,736
1,277
1,584
970
201
4,264
8,296
$
$
$
$
$
$
$
$
21,469
23,653
27,297
15,798
(29,524)
58,693
4,923
6,142
3,491
1,382
15,938
(306)
1,726
41,335
1,063
1,230
995
138
4,885
8,311
$
$
$
$
$
$
$
$
$
189,714
266,976
23,256
761,905
11,443
14,530
15,130
12,436
(24,709)
28,830
5,502
3,742
5,406
1,421
16,071
—
—
12,759
2,834
968
975
140
4,825
9,742
(a) Our financial services operational results should be viewed in connection with our homebuilding business as its operations originate loans and provide title
services primarily for our homebuying customers, with the exception of a small amount of mortgage re-financing.
(b) For the year ended December 31, 2014, 2013 and 2012, total operating income was reduced by $3.5 million, $5.8 million and $3.8 million, respectively,
related to impairment charges taken during the period.
The following tables show total assets by segment at December 31, 2014 and 2013:
(In thousands)
Midwest
Southern
Mid-Atlantic
Corporate,
Financial Services
and Unallocated
Deposits on real estate under option or contract
$
4,573
$
14,752
$
4,170
$
Inventory (a)
Investments in unconsolidated joint ventures
Other assets
Total assets
303,037
1,764
7,933
331,938
26,005
16,829
260,119
—
7,536
$
317,307
$ 389,524
$
271,825
$
—
—
—
232,754
232,754
Total
$
23,495
895,094
27,769
265,052
$ 1,211,410
December 31, 2014
77
(In thousands)
Midwest
Southern
Mid-Atlantic
Corporate,
Financial Services
and Unallocated
Deposits on real estate under option or contract
$
2,003
$
7,107
$
5,255
$
Inventory (a)
Investments in unconsolidated joint ventures
Other assets
Total assets
248,218
5,331
10,571
236,505
29,935
982
191,847
—
11,050
$
266,123
$ 274,529
$
208,152
$
—
—
—
361,372
361,372
Total
$
14,365
676,570
35,266
383,975
$ 1,110,176
December 31, 2013
(a)
Inventory includes single-family lots, land and land development costs; land held for sale; homes under construction; model homes and furnishings; community
development district infrastructure; and consolidated inventory not owned.
NOTE 16. Supplemental Guarantor Information
The Company’s obligations under the 2018 Senior Notes, 2017 Convertible Senior Subordinated Notes and the 2018 Convertible
Senior Subordinated Notes are not guaranteed by all of the Company’s subsidiaries and therefore, the Company has disclosed
condensed consolidating financial information in accordance with SEC Regulation S-X Rule 3-10, Financial Statements of
Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. The subsidiary guarantors of the 2018 Senior
Notes, the 2017 Convertible Senior Subordinated Notes and the 2018 Convertible Senior Subordinated Notes are the same.
The following condensed consolidating financial information includes balance sheets, statements of income and cash flow
information for M/I Homes, Inc. (the parent company and the issuer of the aforementioned guaranteed notes), the Guarantor
Subsidiaries, collectively, and for all other subsidiaries and joint ventures of the Company (the “Unrestricted Subsidiaries”),
collectively. Each Guarantor Subsidiary is a direct or indirect 100%-owned subsidiary of M/I Homes, Inc. and has fully and
unconditionally guaranteed the (a) 2018 Senior Notes, on a joint and several senior unsecured basis, (b) the 2017 Convertible
Senior Subordinated Notes on a joint and several senior subordinated unsecured basis and (c) the 2018 Convertible Senior
Subordinated Notes on a joint and several senior subordinated unsecured basis.
There are no significant restrictions on the parent company’s ability to obtain funds from its Guarantor Subsidiaries in the form
of a dividend, loan, or other means.
As of December 31, 2014, each of the Company’s subsidiaries is a Guarantor Subsidiary, with the exception of subsidiaries that
are primarily engaged in the business of mortgage financing, title insurance or similar financial businesses relating to the
homebuilding and home sales business, certain subsidiaries that are not 100%-owned by the Company or another subsidiary, and
other subsidiaries designated by the Company as Unrestricted Subsidiaries, subject to limitations on the aggregate amount invested
in such Unrestricted Subsidiaries in accordance with the terms of the Credit Facility and the Indenture for the 2018 Senior Notes.
In the condensed financial tables presented below, the parent company presents all of its 100%-owned subsidiaries as if they were
accounted for under the equity method. All applicable corporate expenses have been allocated appropriately among the Guarantor
Subsidiaries and Unrestricted Subsidiaries.
78
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(In thousands)
Revenue
Costs and expenses:
Land and housing
Impairment of inventory and investment in unconsolidated
joint ventures
General and administrative
Selling
Equity in income of unconsolidated joint ventures
Interest
Total costs and expenses
Income before income taxes
Provision for income taxes
Equity in subsidiaries
Net income
Preferred dividends
Year Ended December 31, 2014
M/I Homes, Inc.
Guarantor
Subsidiaries
Unrestricted
Subsidiaries
Eliminations
Consolidated
$
— $
1,185,058 $
30,122 $
— $
1,215,180
—
—
—
—
—
—
—
—
—
50,789
50,789
4,875
958,991
3,457
73,747
81,148
—
11,926
1,129,269
55,789
14,341
—
41,448
—
—
—
15,083
—
(347)
1,439
16,175
13,947
4,606
—
—
—
—
—
—
—
—
—
—
(50,789)
958,991
3,457
88,830
81,148
(347)
13,365
1,145,444
69,736
18,947
—
9,341
(50,789)
50,789
—
—
4,875
Net income to common shareholders
$
45,914 $
41,448 $
9,341 $
(50,789) $
45,914
79
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(In thousands)
Revenue
Costs and expenses:
Land and housing
Impairment of inventory and investment in unconsolidated
joint ventures
General and administrative
Selling
Equity in income of unconsolidated joint ventures
Interest
Loss on early extinguishment of debt
Total costs and expenses
Income before income taxes
(Benefit) provision for income taxes
Equity in subsidiaries
Net income
Year Ended December 31, 2013
M/I Homes, Inc.
Guarantor
Subsidiaries
Unrestricted
Subsidiaries
Eliminations
Consolidated
$
— $
1,008,243 $
28,539 $
— $
1,036,782
—
—
—
—
—
—
—
—
—
—
824,508
5,805
66,249
68,209
—
14,556
1,726
981,053
27,190
(114,866)
—
—
13,245
73
(306)
1,382
—
14,394
14,145
4,778
—
—
—
—
—
—
—
—
—
—
824,508
5,805
79,494
68,282
(306)
15,938
1,726
995,447
41,335
(110,088)
151,423
—
—
(151,423)
—
151,423
142,056
9,367
(151,423)
151,423
Preferred dividends
Excess of fair value over book value of preferred shares
redeemed
3,656
2,190
—
—
—
—
—
—
3,656
2,190
Net income to common shareholders
$
145,577 $
142,056 $
9,367 $
(151,423) $
145,577
(In thousands)
Revenue
Costs and expenses:
Land and housing
Impairment of inventory and investment in unconsolidated
joint ventures
General and administrative
Selling
Interest
Total costs and expenses
Income before income taxes
(Benefit) provision for income taxes
Equity in subsidiaries
Net income
Year Ended December 31, 2012
M/I Homes, Inc.
Guarantor
Subsidiaries
Unrestricted
Subsidiaries
Eliminations
Consolidated
$
— $
738,649 $
23,256 $
— $
761,905
—
—
—
—
—
—
—
—
13,347
610,540
3,502
51,307
56,396
14,650
736,395
2,254
(4,157)
—
—
—
11,320
10
1,421
12,751
10,505
3,569
—
—
—
—
—
—
—
—
—
(13,347)
610,540
3,502
62,627
56,406
16,071
749,146
12,759
(588)
—
$
13,347 $
6,411 $
6,936 $
(13,347) $
13,347
80
CONDENSED CONSOLIDATING BALANCE SHEET
(In thousands)
ASSETS:
Cash and cash equivalents
Restricted cash
Mortgage loans held for sale
Inventory
Property and equipment - net
Investment in unconsolidated joint ventures
Investment in subsidiaries
Deferred income taxes, net of valuation allowances
Intercompany assets
Other assets
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Accounts payable
Customer deposits
Intercompany liabilities
Other liabilities
Community development district obligations
Obligation for consolidated inventory not owned
Notes payable bank - homebuilding operations
Notes payable bank - financial services operations
Notes payable - other
Convertible senior subordinated notes due 2017
Convertible senior subordinated notes due 2018
Senior notes
TOTAL LIABILITIES
Shareholders’ equity
M/I Homes, Inc.
Guarantor
Subsidiaries
Unrestricted
Subsidiaries
Eliminations
Consolidated
December 31, 2014
$
$
$
— $
—
—
—
—
—
576,468
—
330,786
9,260
3,872 $
6,951
11,663 $
—
—
918,589
11,189
15,033
—
94,088
—
24,378
92,794
—
301
12,736
—
324
—
10,232
— $
—
—
—
—
—
(576,468)
—
(330,786)
—
15,535
6,951
92,794
918,589
11,490
27,769
—
94,412
—
43,870
916,514 $
1,074,100 $
128,050 $
(907,254) $
1,211,410
— $
74,344 $
—
—
—
—
—
—
—
—
57,500
86,250
228,469
372,219
11,759
314,946
74,413
2,571
608
30,000
—
9,518
—
—
—
994 $
—
15,840
5,310
—
—
—
85,379
—
—
—
—
— $
—
(330,786)
—
—
—
—
—
—
—
—
—
75,338
11,759
—
79,723
2,571
608
30,000
85,379
9,518
57,500
86,250
228,469
667,115
518,159
107,523
(330,786)
544,295
555,941
20,527
(576,468)
544,295
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
916,514 $
1,074,100 $
128,050 $
(907,254) $
1,211,410
81
CONDENSED CONSOLIDATING BALANCE SHEET
(In thousands)
ASSETS:
Cash and cash equivalents
Restricted cash
Mortgage loans held for sale
Inventory
Property and equipment - net
Investment in unconsolidated joint ventures
Investment in subsidiaries
Deferred income taxes, net of valuation allowances
Intercompany assets
Other assets
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Accounts payable
Customer deposits
Intercompany liabilities
Other liabilities
Community development district obligations
Obligation for consolidated inventory not owned
Notes payable bank - financial services operations
Notes payable - other
Convertible senior subordinated notes due 2017
Convertible senior subordinated notes due 2018
Senior notes
TOTAL LIABILITIES
Shareholders’ equity
M/I Homes, Inc.
Guarantor
Subsidiaries
Unrestricted
Subsidiaries
Eliminations
Consolidated
December 31, 2013
$
— $
113,407 $
15,318 $
— $
128,725
$
$
—
—
—
—
—
535,879
—
318,852
9,892
13,902
—
690,934
10,267
13,525
—
109,763
—
17,180
—
81,810
—
269
21,741
—
1,148
—
11,020
—
—
—
—
—
(535,879)
—
(318,852)
—
13,902
81,810
690,934
10,536
35,266
—
110,911
—
38,092
864,623 $
968,978 $
131,306 $
(854,731) $
1,110,176
— $
69,887 $
—
—
—
—
—
—
—
57,500
86,250
228,070
371,820
11,262
296,229
64,413
3,130
1,775
—
7,790
—
—
—
339 $
—
22,623
6,928
—
—
80,029
—
—
—
—
— $
—
(318,852)
—
—
—
—
—
—
—
—
70,226
11,262
—
71,341
3,130
1,775
80,029
7,790
57,500
86,250
228,070
617,373
454,486
109,919
(318,852)
492,803
514,492
21,387
(535,879)
492,803
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
864,623 $
968,978 $
131,306 $
(854,731) $
1,110,176
82
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Year Ended December 31, 2014
M/I Homes, Inc.
Guarantor
Subsidiaries
Unrestricted
Subsidiaries
Eliminations
Consolidated
Net cash provided by (used in) operating activities
$
10,200 $
(143,672) $
10,997 $
(10,200) $
(132,675)
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash
Purchase of property and equipment
Sale of mortgage servicing rights
Intercompany investing
Investments in and advances to unconsolidated joint ventures
Return of capital from unconsolidated joint ventures
Net cash (used in) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings - homebuilding operations
Principal repayments of bank borrowings - homebuilding
operations
Net proceeds from bank borrowings - financial services
operations
Principal proceeds from notes payable - other and CDD bond
obligations
Dividends paid
Intercompany financing
Debt issue costs
Proceeds from exercise of stock options
Net cash (used in) provided by financing activities
—
—
—
(7,269)
—
—
(7,269)
—
—
—
—
(4,875)
—
—
1,944
(2,931)
7,122
(2,793)
—
—
(14,435)
275
(9,831)
192,600
(162,600)
—
(153)
2,135
—
(5,980)
1,248
(2,750)
—
—
—
5,350
1,728
—
14,244
(2,004)
—
43,968
—
(10,200)
(6,975)
(77)
—
(11,902)
(3,655)
15,318
—
—
—
7,269
—
—
7,269
—
—
—
—
10,200
(7,269)
—
—
2,931
7,122
(2,946)
2,135
—
(20,415)
1,523
(12,581)
192,600
(162,600)
5,350
1,728
(4,875)
—
(2,081)
1,944
32,066
—
—
— $
(113,190)
128,725
15,535
Net decrease in cash and cash equivalents
Cash and cash equivalents balance at beginning of period
—
—
(109,535)
113,407
Cash and cash equivalents balance at end of period
$
— $
3,872 $
11,663 $
83
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Year Ended December 31, 2013
M/I Homes, Inc.
Guarantor
Subsidiaries
Unrestricted
Subsidiaries
Eliminations
Consolidated
Net cash provided by (used in) operating activities
$
7,100 $
(72,633) $
(1,341) $
(7,100) $
(73,974)
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash
Purchase of property and equipment
Investments in and advances to unconsolidated joint ventures
Return of capital from unconsolidated joint ventures
Net cash (used in) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible senior subordinated
notes due 2018
Proceeds from issuance of common shares
Redemption of preferred shares
Net proceeds from bank borrowings - financial services
operations
Principal repayments of notes payable - other and CDD bond
obligations
Dividends paid
Intercompany financing
Debt issue costs
Proceeds from exercise of stock options
Net cash (used in) provided by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents balance at beginning of period
—
—
—
—
—
86,250
54,617
(50,352)
—
—
(3,656)
(96,599)
—
2,640
(7,100)
—
—
(5,185)
(2,146)
(13,525)
—
(20,856)
—
—
—
—
(3,315)
—
89,279
(5,402)
—
80,562
(12,927)
126,334
—
(236)
(15,984)
1,522
(14,698)
—
—
—
12,072
—
(7,100)
7,320
(99)
—
12,193
(3,846)
19,164
Cash and cash equivalents balance at end of period
$
— $
113,407 $
15,318 $
—
—
—
—
—
—
—
—
—
—
7,100
—
—
—
7,100
—
—
— $
(5,185)
(2,382)
(29,509)
1,522
(35,554)
86,250
54,617
(50,352)
12,072
(3,315)
(3,656)
—
(5,501)
2,640
92,755
(16,773)
145,498
128,725
84
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Year Ended December 31, 2012
M/I Homes, Inc.
Guarantor
Subsidiaries
Unrestricted
Subsidiaries
Eliminations
Consolidated
Net cash provided by (used in) operating activities
$
3,500 $
(35,770) $
(11,225) $
(3,500) $
(46,995)
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash
Purchase of property and equipment
Acquisition, net of cash acquired
Investments in and advances to unconsolidated joint ventures
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of senior notes
Proceeds from issuance of senior notes
Proceeds from issuance of convertible senior subordinated
notes due 2017
Proceeds from issuance of common shares
Net proceeds from bank borrowings - financial services
operations
Principal proceeds from note payable - other and CDD bond
obligations
Dividends paid
Intercompany financing
Debt issue costs
Proceeds from exercise of stock options
Net cash (used in) provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents balance at beginning of period
—
—
—
—
—
(41,443)
29,700
57,500
42,085
—
—
—
(96,104)
—
4,762
(3,500)
—
—
32,779
(854)
(4,707)
—
27,218
—
—
—
—
—
5,304
—
91,856
(5,813)
—
91,347
82,795
43,539
—
(79)
—
(1,817)
(1,896)
—
—
—
—
15,351
—
(3,500)
4,248
(68)
—
16,031
2,910
16,254
—
—
—
—
—
—
—
—
—
—
—
3,500
—
—
—
3,500
—
—
32,779
(933)
(4,707)
(1,817)
25,322
(41,443)
29,700
57,500
42,085
15,351
5,304
—
—
(5,881)
4,762
107,378
85,705
59,793
Cash and cash equivalents balance at end of period
$
— $
126,334 $
19,164 $
— $
145,498
85
NOTE 17. Supplementary Financial Data
The following tables set forth our selected consolidated financial and operating data for the quarterly periods indicated.
(In thousands, except per share amounts)
Revenue
Gross margin
Net income to common shareholders
Earnings per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
(In thousands, except per share amounts)
Revenue
Gross margin
Net income to common shareholders
Earnings per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
December 31,
2014
(Unaudited)
September 30,
2014
(Unaudited)
June 30,
2014
(Unaudited)
March 31,
2014
(Unaudited)
$
$
$
$
$
367,964 $
330,767 $
281,608 $
234,841
73,759 $
9,767 $
68,509 $
12,399 $
59,587 $
12,335 $
0.40 $
0.36 $
0.51 $
0.44 $
0.50 $
0.44 $
24,489
29,944
24,474
29,921
24,470
29,913
50,877
11,413
0.47
0.41
24,417
29,870
December 31,
2013
September 30,
2013
June 30, 2013 March 31, 2013
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
$
$
$
$
$
336,307 $
67,030 $
13,043 $
275,195 $
54,909 $
124,092 $
0.54 $
0.48 $
5.09 $
4.22 $
24,358
29,783
24,358
29,745
234,553 $
190,727
46,216 $
6,045 $
0.25 $
0.25 $
24,271
24,646
38,314
2,397
0.11
0.11
22,273
22,688
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
An evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act) was performed by the Company’s management, with the participation of the Company’s principal executive officer
and principal financial officer, as required by Rule 13a-15(b) under the Exchange Act. Based on that evaluation, the Company’s
principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were
effective as of the end of the period covered by this Annual Report on Form 10-K.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting
(as defined in Rule 13a-15(f) under the Exchange Act). The Company’s internal control system was designed to provide reasonable
assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published
financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
The Company’s management, with the participation of the principal executive officer and the principal financial officer, assessed
the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. In making this assessment,
it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
86
Control – Integrated Framework (2013). Based on this assessment, management believes that, as of December 31, 2014, the
Company’s internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of December 31, 2014 has been audited by Deloitte & Touche
LLP, our independent registered public accounting firm, as stated in its attestation report included on page 88 of this Annual Report
on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2014 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
87
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of M/I Homes, Inc.
Columbus, Ohio
We have audited the internal control over financial reporting of M/I Homes, Inc. and subsidiaries (the “Company”) as of
December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal
executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial
statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject
to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2014, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) the
consolidated financial statements as of and for the year ended December 31, 2014 of the Company and our report dated February 27,
2015 expressed an unqualified opinion on those consolidated financial statements.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Columbus, Ohio
February 27, 2015
88
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated herein by reference to our definitive Proxy Statement relating to the 2015
Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the
Exchange Act.
We have adopted a Code of Business Conduct and Ethics that applies to our directors and all employees of the Company. The
Code of Business Conduct and Ethics is posted on our website, www.mihomes.com. We intend to satisfy the requirements under
Item 5.05 of Form 8-K regarding disclosure of amendments to, or waivers from, provisions of our Code of Business Conduct and
Ethics that apply to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons
performing similar functions, by posting such information on our website. Copies of the Code of Business Conduct and Ethics
will be provided free of charge upon written request directed to Investor Relations, M/I Homes, Inc., 3 Easton Oval, Suite 500,
Columbus, OH 43219.
Item 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to our definitive Proxy Statement relating to the 2015
Annual Meeting of Shareholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
Equity Compensation Plan Information
The following table sets forth information as of December 31, 2014 with respect to the common shares issuable under the
Company's equity compensation plans:
Plan Category
Equity compensation plans approved by shareholders (1)
Equity compensation plans not approved by shareholders (2)
Total
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in column (a))
(c)
2,181,617
88,131
2,269,748
$24.47
—
$24.47
1,221,125
—
1,221,125
(1) Consists of the 2009 LTIP (1,388,690 outstanding stock options, 47,000 outstanding stock units and 102,139 PSU’s (assuming the maximum number of PSU’s
will be earned), the 1993 Plan (627,678 outstanding stock options), which plan expired in April 2009, and the Company's 2006 Director Plan (16,110 outstanding
stock units), which plan was terminated in May 2009. The weighted average exercise price relates to the stock options granted under the 2009 LTIP and the
1993 Plan. The stock units granted under the 2009 LTIP and the 2006 Director Plan are “full value awards” that were issued at an average unit price of $18.81
and $28.15, respectively, and will be settled at a future date in Common Shares on a one-for-one basis without the payment of any exercise price. The weighted-
average exercise price does not take the PSU’s into account. As of December 31, 2014, the aggregate number of Common Shares with respect to which awards
may be granted under the 2009 LTIP was 2,600,000 shares plus any shares subject to outstanding awards under the 1993 Plan as of May 5, 2009 that on or
after May 5, 2009 cease for any reason to be subject to such awards other than by reason of exercise or settlement of the awards to the extent they are exercised
for or settled in vested and non-forfeitable shares (444,384 shares at December 31, 2014).
(2) Consists of the Director Deferred Compensation Plan and the Executives' Deferred Compensation Plan. At December 31, 2014, the average unit price of the
outstanding “phantom stock” units granted under these plans was $22.07. Pursuant to these plans, our directors and eligible employees may defer the payment
of all or a portion of their director fees and annual cash bonuses, respectively, and the deferred amount is converted into that number of whole phantom stock
units determined by dividing the deferred amount by the closing price of our Common Shares on the NYSE on the date of such conversion (which is the same
date the fees or bonus is paid) without any discount on the Common Share price or premium applied to the deferred amount. The phantom stock units are
settled at a future date in Common Shares on a one-for-one basis. Neither the Director Deferred Compensation Plan nor the Executives' Deferred Compensation
Plan provides for a specified limit on the number of Common Shares which may be attributable to participants' accounts relating to phantom stock units and
issued under the terms of these plans.
The remaining information required by this item is incorporated herein by reference to our definitive Proxy Statement relating to
the 2015 Annual Meeting of Shareholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference to our definitive Proxy Statement relating to the 2015
Annual Meeting of Shareholders.
89
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated herein by reference to our definitive Proxy Statement relating to the 2015
Annual Meeting of Shareholders.
90
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a) Documents filed as part of this report.
(1) The following financial statements are contained in Item 8:
Financial Statements
Page in this
report
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
48
49
50
51
52
53
(2) Financial Statement Schedules:
None required.
(3) Exhibits:
The following exhibits required by Item 601 of Regulation S-K are filed as part of this report:
Exhibit
Number
3.1
3.2
3.3
Description
Amended and Restated Articles of Incorporation of M/I Homes, Inc., incorporated herein by reference to Exhibit
3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (File No. 1-12434).
Amended and Restated Regulations of M/I Homes, Inc., incorporated herein by reference to Exhibit 3.4 to the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (File No. 1-12434).
Amendment to Article I(f) of the Amended and Restated Regulations of M/I Homes, Inc., incorporated herein
by reference to Exhibit 3.1(b) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2001 (File No. 1-12434).
3.4
Amendment to Article II(f) of the Amended and Restated Regulations of M/I Homes, Inc., incorporated herein
by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 13, 2009.
4.1
4.2
4.3
4.4
Specimen certificate representing M/I Homes, Inc.’s common shares, par value $.01 per share, incorporated
herein by reference to Exhibit 4 to the Company’s Registration Statement on Form S-1, Commission File No.
33-68564.
Specimen certificate representing M/I Homes, Inc.’s 9.75% Series A Preferred Shares, par value $.01 per share,
incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March
15, 2007.
Indenture, dated as of November 12, 2010, by and among M/I Homes, Inc., the guarantors named therein and
U.S. Bank National Association, as trustee of M/I Homes, Inc.’s 8.625% Senior Notes due 2018, incorporated
herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 12, 2010.
Registration Rights Agreement, dated as of November 12, 2010, by and among M/I Homes, Inc., the guarantors
named therein and the initial purchasers named therein, incorporated herein by reference to Exhibit 4.2 to the
Company’s Current Report on Form 8-K filed on November 12, 2010.
91
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
10.1*
10.2*
10.3*
10.4
10.5
10.6
10.7
10.8
Registration Rights Agreement, dated as of May 8, 2012, by and among M/I Homes, Inc., the guarantors named
therein and the initial purchasers named therein, incorporated herein by reference to Exhibit 4.2 to the Company’s
Current Report on Form 8-K filed on May 9, 2012.
Indenture, dated as of September 11, 2012, by and among the Company, the Guarantors and U.S. Bank National
Association, as Trustee, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on
Form 8-K filed on September 11, 2012.
Supplemental Indenture, dated as of September 11, 2012, by and among the Company, the Guarantors and U.S.
Bank National Association, as Trustee, incorporated herein by reference to Exhibit 4.2 to the Company’s Current
Report on Form 8-K filed on September 11, 2012.
Form of 3.25% Convertible Senior Subordinated Note due 2017, incorporated herein by reference to Exhibit
4.3 to the Company’s Current Report on Form 8-K filed on September 11, 2012.
Form of Guarantee of 3.25% Convertible Senior Subordinated Notes due 2017, incorporated herein by reference
to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on September 11, 2012.
Supplemental Indenture, dated as of March 11, 2013, by and among the Company, the Guarantors and U.S. Bank
National Association, as Trustee, incorporated herein by reference to Exhibit 4.2 to the Company’s Current
Report on Form 8-K/A filed March 12, 2013.
Form of 3.0% Convertible Senior Subordinated Note due 2018, incorporated herein by reference to Exhibit 4.3
to the Company’s Current Report on Form 8-K/A filed March 12, 2013.
Form of Guarantee of 3.0% Convertible Senior Subordinated Notes due 2018, incorporated herein by reference
to Exhibit 4.4 to the Company’s Current Report on Form 8-K/A filed March 12, 2013.
M/I Homes, Inc. 401(k) Profit Sharing Plan, as amended and restated on November 20, 2007, incorporated herein
by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed on August 27, 2010
(File No. 333-169074).
Amendment to the M/I Homes, Inc. 401(k) Profit Sharing Plan, dated December 4, 2008, incorporated herein
by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-8 filed on August 27, 2010
(File No. 333-169074).
Amendment to the M/I Homes, Inc. 401(k) Profit Sharing Plan, dated September 14, 2009, incorporated herein
by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-8 filed on August 27, 2010
(File No. 333-169074).
Credit Agreement dated July 18, 2013 by and among M/I Homes, Inc., as borrower, the lenders party thereto
and PNC Bank, National Association, as administrative agent, incorporated herein by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K filed July 19, 2013.
First Amendment to Credit Agreement dated October 20, 2014 by and among M/I Homes, Inc., as borrower, the
lenders party thereto and PNC Bank, National Association, as administrative agent, incorporated herein by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 23, 2014.
Amended and Restated Mortgage Warehousing Agreement dated as of March 29, 2013 by and among M/I
Financial, as borrower, the lenders party thereto and Comerica Bank, as administrative agent, incorporated herein
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 3, 2013.
First Amendment dated March 28, 2014 to the Amended and Restated Mortgage Warehousing Agreement dated
as of March 29, 2013 by and among M/I Financial, as borrower, the lenders party thereto and Comerica Bank,
as administrative agent, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed April 1, 2014.
Master Repurchase Agreement between M/I Financial and Sterling National Bank dated November 13, 2012,
incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December
31, 2012.
92
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21*
10.22*
10.23*
10.24*
Amendment No. 1 to Master Repurchase Agreement dated as of March 18, 2013 by and between M/I Financial
and Sterling National Bank, incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2013.
Amendment No. 2 to Master Repurchase Agreement dated as of November 6, 2013 by and between M/I Financial
Corp. and Sterling National Bank incorporated herein by reference to the Company Annual Report on Form 10-
K for the year ended December 31, 2013.
Amendment No. 3 to Master Repurchase Agreement dated as of November 4, 2014 by and between M/I Financial
Corp. and Sterling National Bank (filed herewith).
Master Letter of Credit Facility Agreement by and between U.S. Bank National Association and M/I Homes,
Inc., dated as of July 27, 2009, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed on July 30, 2009.
Letter of Credit Agreement by and between Regions Bank and M/I Homes, Inc., dated as of July 27, 2009,
incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on July
30, 2009.
Fifth Amended and Restated Master Letter of Credit Facility Agreement by and between U.S. Bank National
Association and M/I Homes, Inc., dated as of September 30, 2014, incorporated herein by reference to Exhibit
10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014.
First Amendment to Letter of Credit Agreement by and between Regions Bank and M/I Homes, Inc., dated as
of August 16, 2010, incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form
8-K filed on August 17, 2010.
Second Amendment to Letter of Credit Agreement by and between Regions Bank and M/I Homes, Inc., dated
as of August 31, 2011, , incorporated herein by reference to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2012.
Third Amendment to Letter of Credit Agreement by and between Regions Bank and M/I Homes, Inc., dated as
of August 31, 2012, incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2012.
Fourth Amendment to Letter of Credit Agreement by and between Regions Bank and M/I Homes, Inc., dated as
of August 31, 2013, incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2013.
Fifth Amendment to Letter of Credit Agreement by and between Regions Bank and M/I Homes, Inc., dated as
of August 31, 2014, incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2014.
Continuing Letter of Credit Agreement by and between Wells Fargo Bank, National Association and M/I Homes,
Inc., dated as of June 4, 2010, incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report
on Form 8-K filed on August 17, 2010.
M/I Homes, Inc. 1993 Stock Incentive Plan as Amended, dated April 22, 1999, incorporated herein by reference
to Exhibit 4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No.
1-12434).
First Amendment to M/I Homes, Inc. 1993 Stock Incentive Plan as Amended, dated August 11, 1999, incorporated
herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 (File No. 1-12434).
Second Amendment to M/I Homes, Inc. 1993 Stock Incentive Plan as Amended, dated February 13, 2001,
incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002 (File No. 1-12434).
Third Amendment to M/I Homes, Inc. 1993 Stock Incentive Plan as Amended, dated April 27, 2006, incorporated
herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2006.
93
10.25*
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
10.32*
10.33*
10.34*
10.35*
10.36*
10.37*
10.38
Fourth Amendment to M/I Homes, Inc. 1993 Stock Incentive Plan as Amended, effective as of August 28, 2008,
incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008.
M/I Homes, Inc. Amended and Restated 2006 Director Equity Incentive Plan, effective as of August 28, 2008,
incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008.
M/I Homes, Inc. Amended and Restated Director Deferred Compensation Plan, effective as of August 28, 2008,
incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008.
M/I Homes, Inc. Amended and Restated Executives’ Deferred Compensation Plan, effective as of August 28,
2008, incorporated herein by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2008.
Collateral Assignment Split-Dollar Agreement, dated as of September 24, 1997, by and among M/I Homes, Inc.,
Robert H. Schottenstein and Steven Schottenstein (as successor to Janice K. Schottenstein), as Trustee of the
Robert H. Schottenstein 1996 Insurance Trust, incorporated herein by reference to Exhibit 10.28 to the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 1-12434).
Collateral Assignment Split-Dollar Agreement, dated as of September 24, 1997, by and between M/I Homes,
Inc. and Phillip Creek, incorporated herein by reference to Exhibit 10.37 to the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2009.
Surrender of Policy and Termination of Agreement with Respect to Collateral Assignment Split-Dollar
Agreement, incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-
Q for the quarter ended September 30, 2013.
Change of Control Agreement between M/I Homes, Inc. and Robert H. Schottenstein, dated as of July 3, 2008,
incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 3,
2008.
Change of Control Agreement between M/I Homes, Inc. and Phillip G. Creek, dated as of July 3, 2008,
incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 3,
2008.
Change of Control Agreement between M/I Homes, Inc. and J. Thomas Mason, dated as of July 3, 2008,
incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on July 3,
2008.
M/I Homes, Inc. 2009 Long-Term Incentive Plan, as amended effective May 6, 2014, incorporated herein by
reference to Appendix A to the Company’s proxy statement on Schedule 14A relating to the 2014 Annual Meeting
of Shareholders of the Company filed on April 2, 2014.
Form of Stock Units Award Agreement for Directors under the M/I Homes, Inc. 2009 Long-Term Incentive Plan,
incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2009.
Form of Nonqualified Stock Option Award Agreement for Employees under the M/I Homes, Inc. 2009 Long-
Term Incentive Plan, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form
8-K filed on February 11, 2010.
Form of Performance Share Unit Award Agreement under the M/I Homes, Inc. 2009 Long-Term Incentive Plan,
incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February
7, 2014.
94
21
23
24
Subsidiaries of M/I Homes, Inc. (Filed herewith.)
Consent of Deloitte & Touche LLP. (Filed herewith.)
Powers of Attorney. (Filed herewith.)
31.1
Certification by Robert H. Schottenstein, Chief Executive Officer, pursuant to Item 601 of Regulation S-K as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
31.2
Certification by Phillip G. Creek, Chief Financial Officer, pursuant to Item 601 of Regulation S-K as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.1
Certification by Robert H. Schottenstein, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.2
Certification by Phillip G. Creek, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
101.INS
XBRL Instance Document. (Furnished herewith.)
101.SCH
XBRL Taxonomy Extension Schema Document. (Furnished herewith.)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document. (Furnished herewith.)
101.LAB
XBRL Taxonomy Extension Label Linkbase Document. (Furnished herewith.)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document. (Furnished herewith.)
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document. (Furnished herewith.)
* Management contract or compensatory plan or arrangement.
(b) Exhibits.
Reference is made to Item 15(a)(3) above for a complete list of exhibits that are filed with this report. The following
is a list of exhibits, included in Item 15(a)(3) above, that are filed concurrently with this report.
95
Exhibit
Number
10.11
21
23
24
Description
Amendment No. 3 to Master Repurchase Agreement dated as of November 4, 2014 by and between M/I Financial
and Sterling National Bank.
Subsidiaries of M/I Homes, Inc.
Consent of Deloitte & Touche LLP.
Powers of Attorney.
31.1
Certification by Robert H. Schottenstein, Chief Executive Officer, pursuant to Item 601 of Regulation S-K as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification by Phillip G. Creek, Chief Financial Officer, pursuant to Item 601 of Regulation S-K as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification by Robert H. Schottenstein, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification by Phillip G. Creek, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document. (Furnished herewith.)
101.SCH
XBRL Taxonomy Extension Schema Document. (Furnished herewith.)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document. (Furnished herewith.)
101.LAB
XBRL Taxonomy Extension Label Linkbase Document. (Furnished herewith.)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document. (Furnished herewith.)
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document. (Furnished herewith.)
(c) Financial statement schedules
None required.
96
Pursuant to the requirements of Section 13 or 15(d) 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, on this 27th day of February 2015.
SIGNATURES
M/I Homes, Inc.
(Registrant)
By:
/s/Robert H. Schottenstein
Robert H. Schottenstein
Chairman of the Board,
Chief Executive Officer and President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated on the 27th day of February 2015.
NAME AND TITLE
/s/Robert H. Schottenstein
Robert H. Schottenstein
Chairman of the Board,
Chief Executive Officer and President
(Principal Executive Officer)
/s/Phillip G. Creek
Phillip G. Creek
Executive Vice President,
Chief Financial Officer and Director
(Principal Financial Officer)
/s/Ann Marie W. Hunker
Ann Marie W. Hunker
Vice President, Corporate Controller
(Principal Accounting Officer)
NAME AND TITLE
JOSEPH A. ALUTTO*
Joseph A. Alutto
Director
FRIEDRICH K. M. BÖHM*
Friedrich K. M. Böhm
Director
WILLIAM H. CARTER*
William H. Carter
Director
MICHAEL P. GLIMCHER*
Michael P. Glimcher
Director
THOMAS D. IGOE*
Thomas D. Igoe
Director
J.THOMAS MASON*
J. Thomas Mason
Executive Vice President, Chief Legal
Officer, Secretary and Director
NORMAN L. TRAEGER*
Norman L. Traeger
Director
SHAREN J. TURNEY*
Sharen J. Turney
Director
*The above-named directors of the registrant execute this report by Phillip G. Creek, their Attorney-in-Fact, pursuant to the powers
of attorney executed by the above-named directors, which powers of attorney are filed as Exhibit 24 to this report.
By:
/s/Phillip G. Creek
Phillip G. Creek, Attorney-In-Fact
97
EXECUTIVE OFFICERS
ROBERT H. SCHOTTENSTEIN
Chairman, Chief Executive Officer
and President
PHILLIP G. CREEK
Executive Vice President and
Chief Financial Officer
J. THOMAS MASON
Executive Vice President,
Chief Legal Officer and Secretary
DIRECTORS
JOSEPH A. ALUTTO PH.D.
Distinguished Professor of Organization Behavior
at The Ohio State University
FRIEDRICH K.M. BÖHM
Senior Partner and Former Chairman
White Oak Partners
WILLIAM H. CARTER
Executive Vice President and Chief Financial Officer
Hexion, Inc.
PHILLIP G. CREEK
Executive Vice President and
Chief Financial Officer
MICHAEL P. GLIMCHER
Vice Chairman and Chief Executive Officer
WP Glimcher
THOMAS D. IGOE
Retired Senior Vice President
Bank One, Columbus, NA
J. THOMAS MASON
Executive Vice President,
Chief Legal Officer and Secretary
ROBERT H. SCHOTTENSTEIN
Chairman, Chief Executive Officer
and President
NORMAN L. TRAEGER
Chairman
The Discovery Group
SHAREN J. TURNEY
Chief Executive Officer and President
Victoria’s Secret
OTHER KEY OFFICERS
PAUL S. ROSEN
President - M/I Financial
FRED J. SIKORSKI
Region President
DAVID L. MATLOCK
Region President
RONALD H. MARTIN
Region President
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
3 Easton Oval
Columbus, Ohio 43219
mihomes.com
STOCK EXCHANGE LISTING
New York Stock Exchange (MHO)
TRANSFER AGENT AND REGISTRAR
Computershare
PO Box 30170
College Station, TX 77842-3170
(800) 446-2617
www.computershare.com
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Columbus, Ohio
ANNUAL MEETING
The Annual Meeting of Shareholders will be held
at 9:00 A.M. on May 5, 2015 at the offices of
the Company, 3 Easton Oval, Columbus, Ohio
NYSE CERTIFICATION
On May 29, 2014, Robert H. Schottenstein, Chief
Executive Officer of the Company, certificated to
the New York Stock Exchange the most recent
Annual CEO certification as required by
Section 303A.12(a) of the New York Stock
Exchange Listed Company Manual.
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
MHO - AR14