0000799292-14-000026.txt : 20140725 0000799292-14-000026.hdr.sgml : 20140725 20140725152823 ACCESSION NUMBER: 0000799292-14-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20140630 FILED AS OF DATE: 20140725 DATE AS OF CHANGE: 20140725 FILER: COMPANY DATA: COMPANY CONFORMED NAME: M I HOMES INC CENTRAL INDEX KEY: 0000799292 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 311210837 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12434 FILM NUMBER: 14994119 BUSINESS ADDRESS: STREET 1: 3 EASTON OVAL STE 500 CITY: COLUMBUS STATE: OH ZIP: 43219 BUSINESS PHONE: 6144188000 FORMER COMPANY: FORMER CONFORMED NAME: M I SCHOTTENSTEIN HOMES INC DATE OF NAME CHANGE: 19931228 10-Q 1 mho-20140630x10q.htm 10-Q MHO-2014.06.30-10Q


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

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2014
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934
Commission File Number 1-12434

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

 
Ohio
 
31-1210837
 
 
(State or other jurisdiction of incorporation or organization)
 
(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)

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 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
 
 

Smaller reporting company
 
 
 
 (Do not check if a 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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common shares, par value $.01 per share: 24,474,139 shares outstanding as of July 23, 2014.




M/I HOMES, INC.
FORM 10-Q
 
 
 
 
TABLE OF CONTENTS
 
 
 
 
PART 1.
FINANCIAL INFORMATION
 
 
 
 
 
Item 1.
M/I Homes, Inc. and Subsidiaries Unaudited Condensed Consolidated Financial Statements
 
 
 
 
 
 
 
Unaudited Condensed Consolidated Balance Sheets at June 30, 2014 and December 31, 2013
 
 
 
 
 
 
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2014 and 2013
 
 
 
 
 
 
Unaudited Condensed Consolidated Statement of Shareholders' Equity for the Six Months Ended June 30, 2014
 
 
 
 
 
 
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013
 
 
 
 
 
 
Notes to Unaudited Condensed Consolidated Financial Statements
 
 
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
 
 
Item 4.
Controls and Procedures
 
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
 
 
Item 1A.
Risk Factors
 
 
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
 
 
Item 3.
Defaults Upon Senior Securities
 
 
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
 
 
Item 5.
Other Information
 
 
 
 
 
Item 6.
Exhibits
 
 
 
 
Signatures
 
 
 
 
 
 
Exhibit Index
 
 



2





M/I HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par values)
 
June 30,
2014
 
December 31,
2013
 
 
 
 
 
ASSETS:
 
 
 
 
Cash and cash equivalents
 
$
33,643

 
$
128,725

Restricted cash
 
10,076

 
13,902

Mortgage loans held for sale
 
64,782

 
81,810

Inventory
 
816,140

 
690,934

Property and equipment - net
 
11,283

 
10,536

Investment in unconsolidated joint ventures
 
42,182

 
35,266

Deferred income taxes, net of valuation allowance of $9.3 million at December 31, 2013
 
109,558

 
110,911

Other assets
 
39,042

 
38,092

TOTAL ASSETS
 
$
1,126,706

 
$
1,110,176

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
LIABILITIES:
 
 
 
 
Accounts payable
 
$
87,325

 
$
70,226

Customer deposits
 
15,019

 
11,262

Other liabilities
 
59,416

 
71,341

Community development district (“CDD”) obligations
 
1,884

 
3,130

Obligation for consolidated inventory not owned
 
1,268

 
1,775

Notes payable bank - financial services operations
 
61,914

 
80,029

Notes payable - other
 
7,717

 
7,790

Convertible senior subordinated notes due 2017
 
57,500

 
57,500

Convertible senior subordinated notes due 2018
 
86,250

 
86,250

Senior notes
 
228,269

 
228,070

TOTAL LIABILITIES
 
606,562

 
617,373

 
 
 
 
 
Commitments and contingencies (Note 6)
 

 

 
 
 
 
 
SHAREHOLDERS' EQUITY:
 
 
 
 
Preferred shares - $.01 par value; authorized 2,000,000 shares; 2,000 shares issued and outstanding at both June 30, 2014 and December 31, 2013
 
48,163

 
48,163

Common shares - $.01 par value; authorized 58,000,000 and 38,000,000 shares at June 30, 2014 and December 31, 2013, respectively; issued 27,092,723 shares at both June 30, 2014 and December 31, 2013
 
271

 
271

Additional paid-in capital
 
237,345

 
236,060

Retained earnings
 
286,373

 
262,625

Treasury shares - at cost - 2,618,584 and 2,734,780 shares at June 30, 2014 and December 31, 2013, respectively
 
(52,008
)
 
(54,316
)
TOTAL SHAREHOLDERS' EQUITY
 
520,144

 
492,803

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
$
1,126,706

 
$
1,110,176


See Notes to Unaudited Condensed Consolidated Financial Statements.

3



M/I HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands, except per share amounts)
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Revenue
$
281,608

 
$
234,553

 
$
516,449

 
$
425,280

Costs and expenses:
 
 
 
 
 
 
 
Land and housing
221,217

 
187,136

 
405,181

 
338,649

Impairment of inventory and investment in unconsolidated joint ventures
804

 
1,201

 
804

 
2,101

General and administrative
21,281

 
18,149

 
39,596

 
34,128

Selling
20,251

 
16,275

 
36,220

 
29,384

Equity in loss (income) of unconsolidated joint ventures
22

 

 
(40
)
 

Interest
2,730

 
4,397

 
6,900

 
8,737

Total costs and expenses
266,305

 
227,158

 
488,661

 
412,999

 
 
 
 
 
 
 
 
Income before income taxes
15,303

 
7,395

 
27,788

 
12,281

 
 
 
 
 
 
 
 
Provision for income taxes
1,749

 
131

 
1,602

 
430

 
 
 
 
 
 
 
 
Net income
13,554

 
7,264

 
26,186

 
11,851

 
 
 
 
 
 
 
 
Preferred dividends
1,219

 
1,219

 
2,438

 
1,219

Excess of fair value over book value of preferred shares redeemed

 

 

 
2,190

 
 
 
 
 
 
 
 
Net income to common shareholders
$
12,335

 
$
6,045

 
$
23,748

 
$
8,442

 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.50

 
$
0.25

 
$
0.97

 
$
0.36

Diluted
$
0.44

 
$
0.25

 
$
0.85

 
$
0.36

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
24,470

 
24,271

 
24,444

 
23,278

Diluted
29,913

 
24,646

 
29,891

 
23,671


See Notes to Unaudited Condensed Consolidated Financial Statements.

4



M/I HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

 
Six Months Ended June 30, 2014
 
Preferred Shares
 
Common Shares
 
 
 
 
 
 
 
 
 
Shares Outstanding
 
 
 
Shares Outstanding
 
 
 
Additional Paid-in Capital
 
Retained Earnings
 
Treasury Shares
 
Total Shareholders' Equity
(Dollars in thousands)
 
Amount
 
 
Amount
 
 
 
 
Balance at December 31, 2013
2,000

 
$
48,163

 
24,357,943

 
$
271

 
$
236,060

 
$
262,625

 
$
(54,316
)
 
$
492,803

Net income

 

 

 

 

 
26,186

 

 
26,186

Dividends to shareholders, $609.375 per preferred share

 

 

 

 

 
(2,438
)
 

 
(2,438
)
Stock options exercised

 

 
108,848

 

 
(702
)
 

 
2,162

 
1,460

Stock-based compensation expense

 

 

 

 
1,794

 

 

 
1,794

Deferral of executive and director compensation

 

 

 

 
339

 

 

 
339

Executive and director deferred compensation distributions

 

 
7,348

 

 
(146
)
 

 
146

 

Balance at June 30, 2014
2,000

 
$
48,163

 
24,474,139

 
$
271

 
$
237,345

 
$
286,373

 
$
(52,008
)
 
$
520,144


See Notes to Unaudited Condensed Consolidated Financial Statements.

5



M/I HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Six Months Ended June 30,
(Dollars in thousands)
2014
 
2013
OPERATING ACTIVITIES:
 
 
 
Net income
$
26,186

 
$
11,851

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Inventory valuation adjustments and abandoned land transaction write-offs
804

 
2,101

Equity in income of unconsolidated joint ventures
(40
)
 

Mortgage loan originations
(278,410
)
 
(260,976
)
Proceeds from the sale of mortgage loans
298,953

 
279,023

Fair value adjustment of mortgage loans held for sale
(3,515
)
 
1,583

Capitalization of originated mortgage servicing rights
(2,006
)
 

Amoritzation of mortgage servicing rights
362

 

Depreciation
2,392

 
2,566

Amortization of debt discount and debt issue costs
1,557

 
1,753

Stock-based compensation expense
1,794

 
1,316

Deferred income tax expense
10,644

 
4,462

Deferred tax asset valuation allowances
(9,291
)
 
(4,462
)
Change in assets and liabilities:
 
 
 
Cash held in escrow
7

 
71

Inventory
(122,616
)
 
(78,265
)
Other assets
(2,760
)
 
(5,044
)
Accounts payable
17,099

 
14,198

Customer deposits
3,757

 
5,233

Accrued compensation
(9,991
)
 
(3,646
)
Other liabilities
(1,595
)
 
3,058

Net cash used in operating activities
(66,669
)
 
(25,178
)
 
 
 
 
INVESTING ACTIVITIES:
 
 
 
Change in restricted cash
3,819

 
(3,869
)
Purchase of property and equipment
(1,677
)
 
(1,050
)
Investment in unconsolidated joint ventures
(13,484
)
 
(18,288
)
Net proceeds from sale of mortgage servicing rights
2,135

 

Net cash used in investing activities
(9,207
)
 
(23,207
)
 
 
 
 
FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of convertible senior subordinated notes due 2018

 
86,250

Repayments of bank borrowings - net
(18,115
)
 
(17,515
)
Principal repayments of notes payable-other and CDD bond obligations
(73
)
 
(1,676
)
Dividends paid on preferred shares
(2,438
)
 
(1,219
)
Net proceeds from issuance of common shares

 
54,617

Redemption of preferred shares

 
(50,352
)
Debt issue costs
(40
)
 
(3,605
)
Proceeds from exercise of stock options
1,460

 
2,639

Net cash (used in) provided by financing activities
(19,206
)
 
69,139

Net (decrease) increase in cash and cash equivalents
(95,082
)
 
20,754

Cash and cash equivalents balance at beginning of period
128,725

 
145,498

Cash and cash equivalents balance at end of period
$
33,643

 
$
166,252

 
 
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid during the year for:
 
 
 
Interest — net of amount capitalized
$
5,238

 
$
6,235

Income taxes
$
550

 
$
447

 
 
 
 
NON-CASH TRANSACTIONS DURING THE PERIOD:
 
 
 
Community development district infrastructure
$
(1,246
)
 
$
(764
)
Consolidated inventory not owned
$
(507
)
 
$
(17,224
)
Distribution of single-family lots from unconsolidated joint ventures
$
6,608

 
$
1,366

 
 
 
 

See Notes to Unaudited Condensed Consolidated Financial Statements.

6



M/I HOMES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Basis of Presentation

The accompanying Unaudited Condensed Consolidated Financial Statements (the “financial statements”) of M/I Homes, Inc. and its subsidiaries (the “Company”) and notes thereto have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. The financial statements include the accounts of the Company. All intercompany transactions have been eliminated. Results for the interim period are not necessarily indicative of results for a full year. In the opinion of management, the accompanying financial statements reflect all adjustments (all of which are normal and recurring in nature) necessary for a fair presentation of financial results for the interim periods presented. These financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Form 10-K”).

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during that period. Actual results could differ from these estimates and have a significant impact on the financial condition and results of operations and cash flows. With regard to the Company, estimates and assumptions are inherent in calculations relating to valuation of inventory and investment in unconsolidated joint ventures, property and equipment depreciation, valuation of derivative financial instruments, accounts payable on inventory, accruals for costs to complete inventory, accruals for warranty claims, accruals for self-insured general liability claims, litigation, accruals for health care and workers' compensation, accruals for guaranteed or indemnified loans, stock-based compensation expense, income taxes, and contingencies. Items that could have a significant impact on these estimates and assumptions include the risks and uncertainties listed in “Item 1A. Risk Factors” in Part I of our 2013 Form 10-K, as the same may be updated from time to time in our subsequent filings with the SEC.

Impact of New Accounting Standards

In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 Accounting Standards Codification Topic No. 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 unaudited condensed consolidated financial statements or disclosures.

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 Topic 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 unaudited condensed consolidated financial statements and disclosures.


7



NOTE 2. 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

The Company measures both mortgage loans held for sale and interest rate lock commitments (“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 trading or 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 statements of operations.

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 generally sells 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 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 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.  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.

8



The table below shows the notional amounts of our financial instruments at June 30, 2014 and December 31, 2013:
Description of Financial Instrument (in thousands)
June 30, 2014
 
December 31, 2013
Best efforts contracts and related committed IRLCs
$
3,456

 
$
2,494

Uncommitted IRLCs
62,151

 
49,710

FMBSs related to uncommitted IRLCs
63,000

 
48,000

Best efforts contracts and related mortgage loans held for sale
24,934

 
63,386

FMBSs related to mortgage loans held for sale
38,000

 
20,000

Mortgage loans held for sale covered by FMBSs
38,180

 
19,884

The table below shows the level and measurement of assets and liabilities measured on a recurring basis at June 30, 2014 and December 31, 2013:
Description of Financial Instrument (in thousands)
Fair Value Measurements
June 30, 2014
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Mortgage loans held for sale
$
64,782

 
$

 
$
64,782

 
$

 
Forward sales of mortgage-backed securities
(439
)
 

 
(439
)
 

 
Interest rate lock commitments
578

 

 
578

 

 
Best-efforts contracts
(113
)
 

 
(113
)
 

 
Total
$
64,808

 
$

 
$
64,808

 
$

 
Description of Financial Instrument (in thousands)
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)
Mortgage loans held for sale
$
81,810

 
$

 
$
81,810

 
$

 
Forward sales of mortgage-backed securities
745

 

 
745

 

 
Interest rate lock commitments
(319
)
 

 
(319
)
 

 
Best-efforts contracts
479

 

 
479

 

 
Total
$
82,715

 
$

 
$
82,715

 
$

 

The following table sets forth the amount of gain (loss) recognized, within our revenue in the Unaudited Condensed Consolidated Statements of Operations, on assets and liabilities measured on a recurring basis for the three and six months ended June 30, 2014 and 2013:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Description (in thousands)
2014
 
2013
 
2014
 
2013
Mortgage loans held for sale
$
727

 
$
(2,508
)
 
$
3,515

 
$
(1,584
)
Forward sales of mortgage-backed securities
(619
)
 
3,368

 
(1,184
)
 
3,038

Interest rate lock commitments
176

 
(929
)
 
897

 
(736
)
Best-efforts contracts
(179
)
 
140

 
(592
)
 
17

Total gain recognized
$
105

 
$
71

 
$
2,636

 
$
735



9



The following tables set forth the fair value of the Company's derivative instruments and their location within the Unaudited Condensed Consolidated Balance Sheets for the periods indicated (except for mortgage loans held for sale which is disclosed as a separate line item):
 
 
Asset Derivatives
 
Liability Derivatives
 
 
June 30, 2014
 
June 30, 2014
Description of Derivatives
 
Balance Sheet
Location
 
Fair Value
(in thousands)
 
Balance Sheet Location
 
Fair Value
(in thousands)
Forward sales of mortgage-backed securities
 
Other assets
 
$

 
Other liabilities
 
$
439

Interest rate lock commitments
 
Other assets
 
578

 
Other liabilities
 

Best-efforts contracts
 
Other assets
 

 
Other liabilities
 
113

Total fair value measurements
 
 
 
$
578

 
 
 
$
552

 
 
Asset Derivatives
 
Liability Derivatives
 
 
December 31, 2013
 
December 31, 2013
Description of Derivatives
 
Balance Sheet
Location
 
Fair Value
(in thousands)
 
Balance Sheet Location
 
Fair Value
(in thousands)
Forward sales of mortgage-backed securities
 
Other assets
 
$
745

 
Other liabilities
 
$

Interest rate lock commitments
 
Other assets
 

 
Other liabilities
 
319

Best-efforts contracts
 
Other assets
 
479

 
Other liabilities
 

Total fair value measurements
 
 
 
$
1,224

 
 
 
$
319


Assets Measured on a Non-Recurring Basis

The Company assesses inventory for recoverability on a quarterly basis based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation. Determining the fair value of a community’s inventory involves a number of variables, estimates and projections, which are Level 3 measurement inputs. See Note 1, “Summary of Significant Accounting Policies - Inventory” in the Company's 2013 Form 10-K for additional information regarding the Company’s methodology for determining fair value.

The Company uses significant assumptions to evaluate the recoverability of its inventory. As of June 30, 2014, the Company's projections generally assume a gradual improvement in market conditions over time. The Company assumed no increase in weighted average sales price or assumed weighted average costs to build and deliver homes in 2014, and a 2% increase in both in 2015 and beyond. If communities are not recoverable based on the 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 Company estimates the fair value of each impaired community by determining the present value of the estimated future cash flows and discounting those cash flow projections using an appropriate risk-adjusted interest rate. As of June 30, 2014, we utilized discount rates ranging from 13% to 16% in our valuations.

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. 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.
The table below shows the level and measurement of the Company's assets measured on a non-recurring basis as of and for the three and six months ended June 30, 2014 and 2013:
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Description (in thousands)
 
Hierarchy
2014
 
2013 (2)
 
2014
 
2013 (2)
 
 
 
 
 
 
 
 
 
 
Adjusted basis of inventory (1)
 
Level 3
$
1,529

 
$
1,583

 
$
1,529

 
$
1,901

Total losses
 
 
804

 
1,201

 
804

 
2,101

 
 
 
 
 
 
 
 
 
 
Initial basis of inventory
 
 
$
2,333

 
$
2,784

 
$
2,333

 
$
4,002

(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.

10



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 the six month period ended June 30, 2014, we increased our total investment in such joint venture arrangements from December 31, 2013 by $6.9 million primarily due to a joint investment with another builder in a land development in our Southern region.

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 interest in these LLCs as of June 30, 2014 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 810-10”), 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.

As of June 30, 2014, 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 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 considered the primary beneficiary of the VIE and are not required to consolidate the VIE or any of the LLCs in which we have an interest into our financial statements. We instead recorded the VIE and the LLCs in Investment in Unconsolidated Joint Ventures on our Unaudited Condensed Consolidated Balance Sheets.

We enter into option or purchase agreements to acquire land or lots, for which we generally pay non-refundable deposits. We also analyze these agreements under ASC 810-10 to determine whether we are the primary beneficiary of the VIE, if applicable, using an analysis similar to that described above. If we are deemed to be the primary beneficiary of the VIE, we will consolidate the VIE in our consolidated financial statements. 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 Unaudited Condensed Consolidated Balance Sheets.

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 joint ventures' earnings or loss, if any, is included in our statement of operations. We evaluate our investments in unconsolidated joint ventures for impairment at least quarterly as described in Note 1, “Summary of Significant Accounting Policies - Inventory” in the Company's 2013 Form 10-K. Determining the fair value of investments in unconsolidated joint ventures involves a number of variables, many of which are interrelated and require management to make certain assumptions. As of June 30, 2014, the Company used a discount rate of 16% in determining the fair value of its 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. Because of the high degree of judgment involved in developing these assumptions, it is possible that the Company may determine the investment is not impaired in the current period; however, due to the passage of time, change in market conditions, and/or changes in management's intentions with respect to the investment, a change in assumptions could result and impairment could occur. During the three and six months ended June 30, 2014 and 2013, the Company did not record any impairment charges on its investments in unconsolidated joint ventures.
We believe that the Company's maximum exposure related to its investment in these unconsolidated joint ventures as of June 30, 2014 is the amount invested of $42.2 million, which is reported as Investment in Unconsolidated Joint Ventures on our Unaudited Condensed Consolidated Balance Sheets, in addition to a $2.5 million note due to the Company from one of the unconsolidated joint ventures (reported in Other Assets), although we expect to invest further amounts in these unconsolidated joint ventures as development of the properties progresses. Included in the Company's investment in unconsolidated joint ventures at both June 30, 2014 and December 31, 2013 were $0.8 million of capitalized interest and other costs.
Financial Instruments

Counterparty Credit Risk. To reduce the risk associated with 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 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.

11



The following table presents the carrying amounts and fair values of the Company's financial instruments at June 30, 2014 and December 31, 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).
 
 
June 30, 2014
 
December 31, 2013
(In thousands)
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Assets:
 
 
 
 
 
 
 
 
Cash, cash equivalents and restricted cash
 
$
43,719

 
$
43,719

 
$
142,627

 
$
142,627

Mortgage loans held for sale
 
64,782

 
64,782

 
81,810

 
81,810

Split dollar life insurance policies
 
189

 
189

 
171

 
171

Notes receivable
 
4,495

 
3,740

 
3,151

 
2,784

Commitments to extend real estate loans
 
578

 
578

 

 

Best-efforts contracts for committed IRLCs and mortgage loans held for sale
 

 

 
479

 
479

Forward sales of mortgage-backed securities
 

 

 
745

 
745

Liabilities:
 
 
 
 
 
 
 
 
Notes payable - banks
 
61,914

 
61,914

 
80,029

 
80,029

Notes payable - other
 
7,717

 
7,366

 
7,790

 
7,452

Convertible senior subordinated notes due 2017
 
57,500

 
71,516

 
57,500

 
74,391

Convertible senior subordinated notes due 2018
 
86,250

 
93,150

 
86,250

 
95,845

Senior notes due 2018
 
228,269

 
244,088

 
228,070

 
248,975

Commitments to extend real estate loans
 

 

 
319

 
319

Best-efforts contracts for committed IRLCs and mortgage loans held for sale
 
113

 
113

 

 

Forward sales of mortgage-backed securities
 
439

 
439

 

 

Off-Balance Sheet Financial Instruments:
 
 
 
 
 
 
 
 
Letters of credit
 

 
337

 

 
413

The following methods and assumptions were used by the Company in estimating its fair value disclosures of financial instruments at June 30, 2014 and December 31, 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 June 30, 2014 and December 31, 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 - Banks. The Company is a party to three primary credit agreements: (1) a $200 million unsecured revolving credit facility dated July 18, 2013, 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, with M/I Financial as borrower, amended on March 28, 2014 (the “MIF Mortgage Warehousing Agreement”); and (3) a $15 million mortgage repurchase agreement, with M/I Financial as borrower, amended on November 6, 2013 (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 the second quarter of 2014 fluctuated with the Alternate Base Rate or the Eurodollar Rate (for the Credit Facility) or LIBOR (for the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility).

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.


12



Letters of Credit. Letters of credit of $26.9 million and $25.8 million represent potential commitments at June 30, 2014 and December 31, 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 3. Inventory

A summary of the Company's inventory as of June 30, 2014 and December 31, 2013 is as follows:
(In thousands)
June 30, 2014
 
December 31, 2013
Single-family lots, land and land development costs
$
366,945

 
$
323,673

Land held for sale
3,450

 
8,059

Homes under construction
384,930

 
305,499

Model homes and furnishings - at cost (less accumulated depreciation: June 30, 2014 - $6,186;
   December 31, 2013 - $5,173)
41,115

 
34,433

Community development district infrastructure
1,884

 
3,130

Land purchase deposits
16,548

 
14,365

Consolidated inventory not owned
1,268

 
1,775

Total inventory
$
816,140

 
$
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 June 30, 2014 and December 31, 2013, we had 948 homes (with a carrying value of $133.8 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 Note 2 of our Unaudited Condensed 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 4. Capitalized Interest

The Company capitalizes interest during land development and home construction.  Capitalized interest is charged to land and housing costs and expenses as the related inventory is delivered to a third party.  The summary of capitalized interest for the three and six months ended June 30, 2014 and 2013 is as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
2014
 
2013
 
2014
 
2013
Capitalized interest, beginning of period
$
13,944

 
$
14,625

 
$
13,802

 
$
15,376

Interest capitalized to inventory
4,730

 
3,328

 
7,980

 
6,105

Capitalized interest charged to land and housing costs and expenses
(3,843
)
 
(3,693
)
 
(6,951
)
 
(7,221
)
Capitalized interest, end of period
$
14,831

 
$
14,260

 
$
14,831

 
$
14,260

 
 
 
 
 
 
 
 
Interest incurred
$
7,460

 
$
7,725

 
$
14,880

 
$
14,842



13



NOTE 5. Guarantees and Indemnifications

Warranty

Warranty reserves are recorded for warranties under our Home Builder’s Limited Warranty (“HBLW”) and our 10-year (Texas markets only) and 30-year (all markets excluding Texas) transferable structural warranty in Other Liabilities on the Company's Unaudited Condensed Consolidated Balance Sheets.

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.
A summary of warranty activity for the three and six months ended June 30, 2014 and 2013 is as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
2014
 
2013
 
2014
 
2013
Warranty reserves, beginning of period
$
11,769

 
$
10,400

 
$
12,291

 
$
10,438

Warranty expense on homes delivered during the period
1,680

 
1,667

 
3,039

 
3,005

Changes in estimates for pre-existing warranties
652

 
101

 
890

 
101

Settlements made during the period
(2,881
)
 
(1,780
)
 
(5,000
)
 
(3,156
)
Warranty reserves, end of period
$
11,220

 
$
10,388

 
$
11,220

 
$
10,388


Guarantees

In the ordinary course of business, M/I Financial, LLC (“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 $21.5 million and $5.2 million were covered under these guarantees as of June 30, 2014 and December 31, 2013, respectively.  A portion of the revenue paid to M/I Financial for providing the guarantees on these loans was deferred at June 30, 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 the six months ended June 30, 2014. The risk associated with the guarantees above is partially 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 $7.1 million and $8.2 million at June 30, 2014 and December 31, 2013, respectively. The risk associated with the guarantees above is partially 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. Loans totaling approximately $1.6 million and $1.5 million were covered under these guarantees as of June 30, 2014 and December 31, 2013, 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.

14



The Company has recorded a liability relating to these guarantees to third parties totaling $2.3 million and $3.1 million at June 30, 2014 and December 31, 2013, respectively, which is management's best estimate of the Company's liability.

At June 30, 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 11), 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”).

NOTE 6. Commitments and Contingencies

At June 30, 2014, the Company had outstanding approximately $110.2 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 July 2019. Included in this total are: (1) $76.7 million of performance and maintenance bonds and $13.0 million of performance letters of credit that serve as completion bonds for land development work in progress; (2) $13.8 million of financial letters of credit, of which $8.0 million represent deposits on land and lot purchase agreements; and (3) $6.6 million of financial bonds.

At June 30, 2014, the Company also had options and contingent purchase agreements to acquire land and developed lots with an aggregate purchase price of approximately $441.4 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 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, it is possible 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. At June 30, 2014 and December 31, 2013, we had $0.2 million and $0.3 million reserved for legal expenses, respectively.

NOTE 7. Debt

Notes Payable - Homebuilding

The Credit Facility matures on July 18, 2016, and provides revolving credit financing for the Company with a maximum borrowing availability of $200 million and a sub-limit of $100 million for the issuance of letters of credit. The Credit Facility contains an uncommitted $25 million accordion feature under which its aggregate principal amount can be increased to up to $225 million, subject to certain conditions, including obtaining additional commitments from existing or new lenders. Interest on amounts borrowed under the Credit Facility is payable at a rate based on either the Alternate Base Rate plus 2.25% or at the Eurodollar Rate plus 3.25%. Borrowings under the Credit Facility are unsecured and availability is subject to, among other things, a borrowing base. The Credit Facility also contains certain financial covenants. At June 30, 2014, the Company was in compliance with all financial covenants of the Credit Facility.

At June 30, 2014, borrowing availability under the Credit Facility in accordance with the borrowing base calculation was $326.4 million, so the full amount of the $200 million facility was available. There were no borrowings outstanding and $17.2 million of letters of credit outstanding, leaving net remaining borrowing availability of $182.8 million as of June 30, 2014.

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,

15



and other subsidiaries designated by the Company as Unrestricted Subsidiaries (as defined in Note 11 to our Unaudited Condensed Consolidated Financial Statements), 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 guarantors for 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’s obligations under the Credit Facility 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. Our obligations under the Credit Facility are effectively subordinated to our existing and future secured indebtedness with respect to any assets comprising security or collateral for such indebtedness.
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 maturities ranging from August 31, 2014 to June 1, 2015. During the three months ended June 30, 2014, the Company extended the maturity date on one of the Letter of Credit Facilities for an additional year to June 1, 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 $2.2 million was uncommitted at June 30, 2014 and could be withdrawn at any time. At June 30, 2014 and December 31, 2013, there was $9.7 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 $9.9 million and $13.7 million of the Company's cash, respectively.

Notes Payable — Financial Services

In March 2014, M/I Financial entered into an amendment to the MIF Mortgage Warehousing Agreement, which, among other things, increased the maximum borrowing availability to $110.0 million and included an accordion feature which allows for an increase of the maximum borrowing availability of up to an additional $20.0 million (subject to certain conditions, including obtaining additional commitments from existing or new lenders), extended the expiration date to March 27, 2015, increased the maximum principal amount permitted to be outstanding at any one time in aggregate under all warehouse credit lines to $150.0 million, and, effective with the quarter ending September 30, 2014, increased M/I Financial's minimum required tangible net worth requirement from $10.0 million to $11.0 million and the minimum required liquidity requirement from $5.0 million to $5.5 million. The interest rate was also adjusted to a per annum rate equal to the greater of (1) the floating LIBOR rate plus 275 basis points and (2) 3.0%.
In November 2012, M/I Financial entered into the MIF Mortgage Repurchase Facility, an additional mortgage financing agreement structured as a mortgage repurchase facility with a maximum borrowing availability of $15.0 million, to provide the Company with additional financing capacity. The MIF Mortgage Repurchase Facility, as amended on November 6, 2013, has an expiration date of November 5, 2014 and is used to finance eligible residential mortgage loans originated by M/I Financial. 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.

At June 30, 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 June 30, 2014 and December 31, 2013, M/I Financial had $61.9 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.

Senior Notes
In November 2010, the Company issued $200 million aggregate principal amount of 2018 Senior Notes. 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. As of both June 30, 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. 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

16



exceptions and qualifications as described in the indenture governing the 2018 Senior Notes. As of June 30, 2014, the Company was in compliance with all terms, conditions, and financial covenants under the indenture.
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 (as defined in Note 11 to our Unaudited Condensed Consolidated Financial Statements), 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 June 30, 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 on or after November 15, 2014 at a stated redemption price, together with accrued and unpaid interest thereon. The redemption price will initially be 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 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 $141.2 million at June 30, 2014. 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.
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

17



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).
Notes Payable - Other
The Company had other borrowings, which are reported in Notes Payable - Other in our Unaudited Condensed Consolidated Balance Sheets, totaling $7.7 million and $7.8 million as of June 30, 2014 and December 31, 2013, respectively.  The balance consists primarily of a mortgage note payable with a $4.6 million principal balance outstanding at June 30, 2014 (and $4.8 million principal balance 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 incurred through the normal course of business.
NOTE 8. 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 three and six months ended June 30, 2014 and 2013:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
(In thousands, except per share amounts)
 
2014
 
2013
 
2014
 
2013
NUMERATOR
 
 
 
 
 
 
 
 
Net income
 
$
13,554

 
$
7,264

 
$
26,186

 
$
11,851

Preferred stock dividends
 
(1,219
)
 
(1,219
)
 
(2,438
)
 
(1,219
)
Excess of fair value over book value of preferred shares redeemed
 

 

 

 
(2,190
)
Net income to common shareholders
 
12,335

 
6,045

 
23,748

 
8,442

Interest on 3.25% convertible senior subordinated notes due 2017
 
383

 

 
744

 

Interest on 3.00% convertible senior subordinated notes due 2018
 
517

 

 
1,002

 

Diluted income available to common shareholders
 
$
13,235

 
$
6,045

 
$
25,494

 
$
8,442

DENOMINATOR
 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
 
24,470

 
24,271

 
24,444

 
23,278

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock option awards
 
218

 
262

 
228

 
278

Deferred compensation awards
 
140

 
113

 
134

 
115

3.25% convertible senior subordinated notes due 2017
 
2,416

 

 
2,416

 

3.00% convertible senior subordinated notes due 2018
 
2,669

 

 
2,669

 

Diluted weighted average shares outstanding - adjusted for assumed conversions
 
29,913

 
24,646

 
29,891

 
23,671

Earnings per common share:
 
 
 
 
 
 
 
 
Basic
 
$
0.50

 
$
0.25

 
$
0.97

 
$
0.36

Diluted
 
$
0.44

 
$
0.25

 
$
0.85

 
$
0.36

Anti-dilutive equity awards not included in the calculation of diluted earnings per common share
 
1,287

 
998

 
1,221

 
928


For the three and six months ended June 30, 2014, the effect of convertible debt was included in the diluted earnings per share calculations. For the three and six months ended June 30, 2013, the effect of convertible debt was not included in the diluted earnings per share calculations as it would have been anti-dilutive.


18



NOTE 9. Income Taxes

During the three and six months ended June 30, 2014, the Company recorded a tax provision of $1.7 million and $1.6 million, respectively. The amounts reflect income tax expense related to the respective periods' pre-tax earnings as well as a $4.0 million and $9.3 million benefit for the three and six months ended June 30, 2014, respectively, from the reversal of our state deferred tax asset valuation allowance. During the three and six months ended June 30, 2013, the Company recorded a tax provision of $0.1 million and $0.4 million, respectively. The effective tax rate for the three and six months ended June 30, 2014 was 11.4% and 5.8%, respectively, which reflects tax expense of $5.7 million and $10.9 million, respectively, offset by the reversal of our state deferred tax asset valuation allowance. The effective rate for the three and six months ended June 30, 2014 is not reflective of our historical tax rate or our effective tax rate in future periods due to our state deferred tax asset valuation allowance reversals in 2014. The effective tax rate for the same periods in 2013 was not meaningful due to the effects of the deferred tax asset valuation allowance and federal and state tax net operating losses (“NOLs”), and there is no correlation between the effective tax rate and the amount of pre-tax income for those periods.
In accordance with ASC 740-10, Income Taxes, we determine our net deferred tax assets by taxing jurisdiction. We evaluate our net deferred tax assets, including the benefit from NOLs, by jurisdiction to determine if a valuation allowance is required. Companies must assess 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 considers, among other matters, the nature, frequency and severity of 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. We recorded a full valuation allowance against all of our deferred tax assets during 2008 due to economic conditions and the weight of negative evidence at that time.
During the year ended December 31, 2013, we reversed the valuation allowance against our federal deferred tax assets and our deferred tax assets in most of our state jurisdictions because the weight of the positive evidence in those jurisdictions exceeded that of the negative evidence. However, at December 31, 2013, we retained a valuation allowance for certain states which have shorter carryforward periods for utilization of NOL carryovers or lower current earnings relative to their NOL carryforward balance. In 2014, we determined that it is more likely than not that our state NOL carryforwards should be able to be realized and we reversed the remaining state deferred tax valuation allowance of $4.0 million in the second quarter of 2014 for a total of $9.3 million for the six months ended June 30, 2014.
At June 30, 2014, the Company had federal NOL carryforwards of approximately $62.3 million and federal credit carryforwards of $4.4 million. Federal NOL carryforwards may be carried forward up to 20 years to offset future taxable income. Our federal carryforward benefits begin to expire in 2028. The Company had $14.3 million of state NOL carryforwards at June 30, 2014. State NOLs may be carried forward from 5 to 20 years, depending on the tax jurisdiction, with $7.5 million expiring between 2014 and 2027 and $6.8 million expiring between 2028 and 2032, absent sufficient state taxable income.

NOTE 10. Business Segments

The Company’s segment information is presented on the basis that the chief operating decision makers use in evaluating segment performance.  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.  We 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 similar operations and exhibit similar long-term economic characteristics.  Our homebuilding operations include the acquisition and development of land, the sale and construction of single-family attached and detached homes, and the occasional sale of lots to third parties.  The homebuilding operating segments that comprise each of our reportable segments are as follows:
Midwest
Southern
Mid-Atlantic
Columbus, Ohio
Tampa, Florida
Washington, D.C.
Cincinnati, Ohio
Orlando, Florida
Charlotte, North Carolina
Indianapolis, Indiana
Houston, Texas
Raleigh, North Carolina
Chicago, Illinois
San Antonio, Texas
 
 
Austin, Texas
 
 
Dallas/Fort Worth, Texas
 

Our financial services operations include the origination, sale and servicing of mortgage loans and title services primarily for purchasers of the Company's homes.

19




The following table shows, by segment, revenue; operating income; interest expense; and income before income taxes for the three and six months ended June 30, 2014 and 2013:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
2014
 
2013
 
2014
 
2013
Revenue:
 
 
 
 
 
 
 
Midwest homebuilding
$
85,549

 
$
79,498

 
$
165,153

 
$
140,201

Southern homebuilding
101,122

 
68,946

 
181,322

 
119,906

Mid-Atlantic homebuilding
88,467

 
78,857

 
155,639

 
149,511

Financial services (a)
6,470

 
7,252

 
14,335

 
15,662

Total revenue
$
281,608

 
$
234,553

 
$
516,449

 
$
425,280

 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
Midwest homebuilding (b)
$
6,726

 
$
4,381

 
$
13,969

 
$
6,582

Southern homebuilding (b)
8,649

 
3,858

 
14,526

 
6,949

Mid-Atlantic homebuilding (b)
7,584

 
6,184

 
12,377

 
10,529

Financial services (a)
3,374

 
4,169

 
8,400

 
9,625

Less: Corporate selling, general and administrative expense
(8,278
)
 
(6,800
)
 
(14,624
)
 
(12,667
)
Total operating income
$
18,055

 
$
11,792

 
$
34,648

 
$
21,018

 
 
 
 
 
 
 
 
Interest expense:
 
 
 
 
 
 
 
Midwest homebuilding
$
492

 
$
1,356

 
$
1,761

 
$
2,830

Southern homebuilding
1,368

 
1,800

 
2,959

 
3,104

Mid-Atlantic homebuilding
568

 
906

 
1,563

 
2,149

Financial services (a)
302

 
335

 
617

 
654

Total interest expense
$
2,730

 
$
4,397

 
$
6,900

 
$
8,737

 
 
 
 
 
 
 
 
Equity in loss (income) of unconsolidated joint ventures
22

 

 
(40
)
 

 
 
 
 
 
 
 
 
Income before income taxes
$
15,303

 
$
7,395

 
$
27,788

 
$
12,281

(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 three and six months ended June 30, 2014, the impact of charges relating to the impairment of operating communities in the Midwest region reduced operating income by $0.8 million. For the three months ended June 30, 2013, operating income was reduced by $0.6 million related to the impairment of future communities and $0.6 million related to the impairment of land held for sale in the Midwest region. For the six months ended June 30, 2013, the impact of charges relating to the impairment of future communities and land held for sale in the Midwest region reduced operating income by $0.8 million and $1.3 million, respectively. There were no impairment charges in the Mid-Atlantic or Southern regions for the three and six months ended June 30, 2014 and 2013.

The following tables show total assets by segment at June 30, 2014 and December 31, 2013:
 
June 30, 2014
(In thousands)
Midwest
 
Southern
 
Mid-Atlantic
 
Corporate, Financial Services and Unallocated
 
Total
Deposits on real estate under option or contract
$
3,009

 
$
8,364

 
$
5,175

 
$

 
$
16,548

Inventory (a)
274,305

 
295,883

 
229,404

 

 
799,592

Investments in unconsolidated joint ventures
3,671

 
38,511

 

 

 
42,182

Other assets
13,707

 
19,165

 
11,532

 
223,980

 
268,384

Total assets
$
294,692

 
$
361,923

 
$
246,111

 
$
223,980

 
$
1,126,706



20



 
December 31, 2013
(In thousands)
Midwest
 
Southern
 
Mid-Atlantic
 
Corporate, Financial Services and Unallocated
 
Total
Deposits on real estate under option or contract
$
2,003

 
$
7,107

 
$
5,255

 
$

 
$
14,365

Inventory (a)
248,218

 
236,505

 
191,847

 

 
676,570

Investments in unconsolidated joint ventures
5,331

 
29,935

 

 

 
35,266

Other assets
10,571

 
982

 
11,050

 
361,372

 
383,975

Total assets
$
266,123

 
$
274,529

 
$
208,152

 
$
361,372

 
$
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.

NOTE 11. Supplemental Guarantor Information

The Company's obligations under the 2018 Senior Notes, the 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 operations 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 June 30, 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.


21



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2014
(In thousands)
 
M/I Homes, Inc.
Guarantor Subsidiaries
Unrestricted Subsidiaries
Eliminations
Consolidated
 
 
 
 
 
 
 
Revenue
 
$

$
275,138

$
6,470

$

$
281,608

Costs and expenses:
 
 
 
 
 
 
Land and housing
 

221,217



221,217

Impairment of inventory and investment in unconsolidated joint ventures
 

804



804

General and administrative
 

18,057

3,224


21,281

Selling
 

20,251



20,251

Equity in loss of unconsolidated joint ventures
 


22


22

Interest
 

2,428

302


2,730

Total costs and expenses
 

262,757

3,548


266,305

 
 
 
 
 
 
 
Income before income taxes
 

12,381

2,922


15,303

 
 
 
 
 
 
 
Provision for income taxes
 

344

1,405


1,749

 
 
 
 
 
 
 
Equity in subsidiaries
 
13,554



(13,554
)

 
 
 
 
 
 
 
Net income
 
13,554

12,037

1,517

(13,554
)
13,554

 
 
 
 
 
 
 
Preferred dividends
 
1,219




1,219

 
 
 
 
 
 
 
Net income to common shareholders
 
$
12,335

$
12,037

$
1,517

$
(13,554
)
$
12,335

 
 
 
 
 
Three Months Ended June 30, 2013
(In thousands)
 
M/I Homes, Inc.
Guarantor Subsidiaries
Unrestricted Subsidiaries
Eliminations
Consolidated
 
 
 
 
 
 
 
Revenue
 
$

$
227,301

$
7,252

$

$
234,553

Costs and expenses:
 
 
 
 
 
 
Land and housing
 

187,136



187,136

Impairment of inventory and investment in unconsolidated joint ventures
 

1,201



1,201

General and administrative
 

14,953

3,196


18,149

Selling
 

16,246

29


16,275

Interest
 

4,062

335


4,397

Total costs and expenses
 

223,598

3,560


227,158

 
 
 
 
 
 
 
Income before income taxes
 

3,703

3,692


7,395

 
 
 
 
 
 
 
(Benefit) provision for income taxes
 

(1,199
)
1,330


131

 
 
 
 
 
 
 
Equity in subsidiaries
 
7,264



(7,264
)

 
 
 
 
 
 
 
Net income
 
7,264

4,902

2,362

(7,264
)
7,264

 
 
 
 
 
 
 
Preferred dividends
 
1,219




1,219

 
 
 
 
 
 
 
Net income to common shareholders
 
$
6,045

$
4,902

$
2,362

$
(7,264
)
$
6,045


22



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2014
(In thousands)
 
M/I Homes, Inc.
Guarantor Subsidiaries
Unrestricted Subsidiaries
Eliminations
Consolidated
 
 
 
 
 
 
 
Revenue
 
$

$
502,114

$
14,335

$

$
516,449

Costs and expenses:
 
 
 
 
 
 
Land and housing
 

405,181



405,181

Impairment of inventory and investment in unconsolidated joint ventures
 

804



804

General and administrative
 

33,348

6,248


39,596

Selling
 

36,220



36,220

Equity in income of unconsolidated joint ventures
 


(40
)

(40
)
Interest
 

6,282

618


6,900

Total costs and expenses
 

481,835

6,826


488,661

 
 
 
 
 
 
 
Income before income taxes
 

20,279

7,509


27,788

 
 
 
 
 
 
 
(Benefit) provision for income taxes
 

(1,437
)
3,039


1,602

 
 
 
 
 
 
 
Equity in subsidiaries
 
26,186



(26,186
)

 
 
 
 
 
 
 
Net income
 
26,186

21,716

4,470

(26,186
)
26,186

 
 
 
 
 
 
 
Preferred dividends
 
2,438




2,438

 
 
 
 
 
 
 
Net income to common shareholders
 
$
23,748