-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KXVRjuV0KT5+LbboBS8KSUjwmUTyqaDtsKy0fnv5eAX2QOC86BXIXBWRi6vVkLop Mok+WqTpddggnXoviHnTPw== /in/edgar/work/20000804/0000773141-00-000008/0000773141-00-000008.txt : 20000921 0000773141-00-000008.hdr.sgml : 20000921 ACCESSION NUMBER: 0000773141-00-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000804 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MDC HOLDINGS INC CENTRAL INDEX KEY: 0000773141 STANDARD INDUSTRIAL CLASSIFICATION: [1531 ] IRS NUMBER: 840622967 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08951 FILM NUMBER: 685803 BUSINESS ADDRESS: STREET 1: 3600 S YOSEMITE ST STE 900 CITY: DENVER STATE: CO ZIP: 80237 BUSINESS PHONE: 3037731100 MAIL ADDRESS: STREET 1: 3600 S YOSEMITE ST STREET 2: SUITE 900 CITY: DENVER STATE: CO ZIP: 80237 10-Q 1 0001.txt ================================================================================ ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-8951 M.D.C. HOLDINGS, INC. (Exact name of Registrant as specified in its charter) Delaware 84-0622967 (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) 3600 South Yosemite Street, Suite 900 80237 Denver, Colorado (Zip code) (Address of principal executive offices) (303) 773-1100 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) 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 As of August 2, 2000, 21,237,000 shares of M.D.C. Holdings, Inc. common stock were outstanding. ================================================================================ M.D.C. HOLDINGS, INC. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000 INDEX Page No. ---- Part I. Financial Information: Item 1. Condensed Consolidated Financial Statements: Balance Sheets as of June 30, 2000 (Unaudited) and December 31, 1999.......................... 1 Statements of Income (Unaudited) for the three and six months ended June 30, 2000 and 1999....................................... 3 Statements of Cash Flows (Unaudited) for the six months ended June 30, 2000 and 1999............ 4 Notes to Condensed Consolidated Financial Statements (Unaudited)......................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................... 18 Part II. Other Information: Item 1. Legal Proceedings................................ 19 Item 4. Submission of Matters to a Vote of Shareowners... 19 Item 5. Other Information................................ 19 Item 6. Exhibits and Reports on Form 8-K................. 19 (i) M.D.C. HOLDINGS, INC. Condensed Consolidated Balance Sheets (In thousands)
June 30, December 31, 2000 1999 ----------- ----------- ASSETS (Unaudited) Corporate Cash and cash equivalents................................................... $ 12,343 $ 33,637 Property and equipment, net................................................. 3,029 2,909 Deferred income taxes....................................................... 26,841 21,201 Deferred debt issue costs, net.............................................. 2,289 2,393 Other assets, net........................................................... 5,835 6,771 ---------- ----------- 50,337 66,911 Homebuilding Cash and cash equivalents................................................... 5,943 4,935 Home sales and other accounts receivable.................................... 8,039 3,496 Inventories, net Housing completed or under construction................................... 448,519 337,029 Land and land under development........................................... 314,281 308,680 Prepaid expenses and other assets, net...................................... 61,264 58,156 ---------- ----------- 838,046 712,296 Financial Services Cash and cash equivalents................................................... 497 358 Mortgage loans held in inventory, net....................................... 75,903 89,953 Other assets, net........................................................... 7,305 7,490 ---------- ----------- 83,705 97,801 Total Assets.......................................................... $ 972,088 $ 877,008 ========== ===========
See notes to condensed consolidated financial statements. -1- M.D.C. HOLDINGS, INC. Condensed Consolidated Balance Sheets (In thousands, except share amounts)
June 30, December 31, 2000 1999 ----------- ----------- LIABILITIES (Unaudited) Corporate Accounts payable and accrued expenses....................................... $ 44,327 $ 46,721 Income taxes payable........................................................ 22,660 18,291 Senior notes, net........................................................... 174,416 174,389 ----------- ----------- 241,403 239,401 Homebuilding Accounts payable and accrued expenses....................................... 157,902 152,488 Line of credit.............................................................. 90,000 40,000 ----------- ----------- 247,902 192,488 Financial Services Accounts payable and accrued expenses....................................... 10,380 5,862 Line of credit.............................................................. 57,571 50,234 ----------- ----------- 67,951 56,096 Total Liabilities..................................................... 557,256 487,985 ----------- ----------- COMMITMENTS AND CONTINGENCIES.................................................. - - - - ----------- ----------- STOCKHOLDERS' EQUITY Preferred stock, $.01 par value; 25,000,000 shares authorized; none issued.. - - - - Common stock, $.01 par value; 100,000,000 shares authorized; 28,480,000 and 28,166,000 shares issued, respectively, at June 30, 2000 and December 31, 1999......................................................... 285 282 Additional paid-in capital.................................................. 182,307 179,094 Retained earnings........................................................... 292,396 245,235 Accumulated comprehensive income............................................ 46 3,623 ----------- ----------- 475,034 428,234 Less treasury stock, at cost; 7,120,000 and 5,850,000 shares, respectively, at June 30, 2000 and December 31, 1999.................................... (60,202) (39,211) ----------- ----------- Total Stockholders' Equity............................................ 414,832 389,023 ----------- ----------- Total Liabilities and Stockholders' Equity............................ $ 972,088 $ 877,008 =========== ===========
See notes to condensed consolidated financial statements. -2- M.D.C. HOLDINGS, INC. Condensed Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited)
Three Months Six Months Ended June 30, Ended June 30, ------------------------- ------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- REVENUES Homebuilding.......................................... $ 411,942 $ 391,130 $ 752,951 $ 681,010 Financial services.................................... 7,430 7,011 13,304 13,925 Corporate............................................. 275 1,618 550 1,949 ----------- ----------- ----------- ----------- Total Revenues.................................... 419,647 399,759 766,805 696,884 ----------- ----------- ----------- ----------- COSTS AND EXPENSES Homebuilding.......................................... 359,584 347,134 655,122 611,860 Financial services.................................... 3,450 3,714 6,875 7,080 Corporate general and administrative.................. 8,515 7,659 17,069 13,964 ----------- ----------- ----------- ----------- Total Costs and Expenses.......................... 371,549 358,507 679,066 632,904 ----------- ----------- ----------- ----------- Income before income taxes............................... 48,098 41,252 87,739 63,980 Provision for income taxes............................... (19,289) (16,295) (37,909) (25,272) ----------- ----------- ----------- ----------- NET INCOME............................................... 28,809 24,957 49,830 38,708 Unrealized holding gains (losses) on securities arising during the period, net................................ (89) 56 (127) 1,297 Reclassification adjustment for gains included in net income................................................ (76) (35) (3,450) (81) ----------- ----------- ----------- ----------- Net unrealized holding gains (losses) on securities arising during the period, net of deferred income taxes (165) 21 (3,577) 1,216 ----------- ----------- ----------- ----------- COMPREHENSIVE INCOME..................................... $ 28,644 $ 24,978 $ 46,253 $ 39,924 =========== =========== =========== =========== EARNINGS PER SHARE Basic................................................. $ 1.34 $ 1.12 $ 2.29 $ 1.74 =========== =========== =========== =========== Diluted............................................... $ 1.32 $ 1.10 $ 2.26 $ 1.71 =========== =========== =========== =========== WEIGHTED-AVERAGE SHARES OUTSTANDING Basic................................................. 21,477 22,274 21,790 22,189 =========== =========== =========== =========== Diluted............................................... 21,822 22,695 22,084 22,630 =========== =========== =========== =========== DIVIDENDS PAID PER SHARE................................. $ .06 $ .05 $ .12 $ .10 =========== =========== =========== ===========
See notes to condensed consolidated financial statements. -3- M.D.C. HOLDINGS, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Six Months Ended June 30, 2000 1999 ----------- ----------- OPERATING ACTIVITIES Net income........................................................... $ 49,830 $ 38,708 Adjustments to reconcile net income to net cash used in operating activities Depreciation and amortization.................................. 8,691 9,276 Deferred income taxes.......................................... (5,640) (269) Homebuilding asset impairment charge........................... 800 - - Net changes in assets and liabilities Home sales and other accounts receivable.................. (4,543) 957 Homebuilding inventories.................................. (117,891) (102,942) Mortgage loans held in inventory.......................... 14,050 1,147 Accounts payable and accrued expenses and income taxes payable................................................. 11,049 29,479 Prepaid expenses and other assets......................... (8,473) 1,963 Other, net..................................................... (2,068) 2,360 ----------- ----------- Net cash used in operating activities................................ (54,195) (19,321) ----------- ----------- FINANCING ACTIVITIES Lines of credit Advances....................................................... 699,537 718,300 Principal payments............................................. (642,200) (687,429) Notes payable Principal payments............................................. - - (574) Dividend payments.................................................... (2,669) (2,217) Stock repurchases.................................................... (22,851) - - Proceeds from stock issuance......................................... 2,231 781 ----------- ----------- Net cash provided by financing activities............................ 34,048 28,861 ----------- ----------- Net increase (decrease) in cash and cash equivalents................. (20,147) 9,540 Cash and cash equivalents Beginning of period............................................ 38,930 10,079 ----------- ----------- End of period.................................................. $ 18,783 $ 19,619 =========== ===========
See notes to condensed consolidated financial statements. -4- M.D.C. HOLDINGS, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) A. Presentation of Financial Statements The condensed consolidated financial statements of M.D.C. Holdings, Inc. ("MDC" or the "Company," which refers to M.D.C. Holdings, Inc. and its subsidiaries) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. These statements reflect all adjustments (including all normal recurring accruals) which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of MDC as of June 30, 2000 and for all of the periods presented. These statements are condensed and do not include all of the information required by generally accepted accounting principles in a full set of financial statements. These statements should be read in conjunction with MDC's financial statements and notes thereto included in MDC's Annual Report on Form 10-K for its fiscal year ended December 31, 1999. B. Corporate and Homebuilding Interest Activity (in thousands)
Three Months Six Months Ended June 30, Ended June 30, ---------------------------- --------------------------- 2000 1999 2000 1999 ----------- ------------ ----------- ----------- Interest capitalized in homebuilding inventory, beginning of period....... $ 17,615 $ 24,533 $ 17,406 $ 26,332 Interest incurred....................... 5,711 5,231 10,492 9,951 Interest expensed....................... - - - - - - - - Previously capitalized interest included in cost of sales..................... (5,289) (7,581) (9,861) (14,100) ----------- ----------- ----------- ----------- Interest capitalized in homebuilding inventory, end of period............. $ 18,037 $ 22,183 $ 18,037 $ 22,183 =========== =========== =========== ===========
C. Earnings Per Share The basic and diluted earnings per share calculations are shown below (in thousands, except per share amounts).
Three Months Six Months Ended June 30, Ended June 30, ------------------------ ------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Basic Earnings Per Share Net income....................................... $ 28,809 $ 24,957 $ 49,830 $ 38,708 =========== =========== =========== =========== Basic weighted-average shares outstanding........ 21,477 22,274 21,790 22,189 =========== =========== =========== =========== Per share amounts................................ $ 1.34 $ 1.12 $ 2.29 $ 1.74 =========== =========== =========== =========== Diluted Earnings Per Share Net income....................................... $ 28,809 $ 24,957 $ 49,830 $ 38,708 =========== =========== =========== =========== Basic weighted-average shares outstanding........ 21,477 22,274 21,790 22,189 Stock options, net............................... 345 421 294 441 Diluted weighted-average shares outstanding...... 21,822 22,695 22,084 22,630 =========== =========== =========== =========== Per share amounts................................ $ 1.32 $ 1.10 $ 2.26 $ 1.71 =========== =========== =========== ===========
-5- D. Information on Business Segments The Company operates in two business segments: homebuilding and financial services. A summary of the Company's segment information is shown below (in thousands).
Three Months Six Months Ended June 30, Ended June 30, ---------------------------- --------------------------- 2000 1999 2000 1999 ----------- ------------ ----------- ----------- Homebuilding Home sales......................... $ 407,459 $ 389,144 $ 736,910 $ 677,228 Land sales......................... 3,050 1,439 4,543 2,825 Other revenues..................... 1,433 547 11,498 957 ----------- ----------- ----------- ----------- 411,942 391,130 752,951 681,010 ----------- ----------- ----------- ----------- Home cost of sales................. 317,067 312,065 576,894 546,813 Land cost of sales................. 1,356 984 2,355 2,023 Asset impairment charge............ 800 - - 800 - - Marketing.......................... 23,163 21,226 41,847 38,109 General and administrative......... 17,198 12,859 33,226 24,915 ----------- ----------- ----------- ----------- 359,584 347,134 655,122 611,860 ----------- ----------- ----------- ----------- Homebuilding Operating Profit.. 52,358 43,996 97,829 69,150 ----------- ----------- ----------- ----------- Financial Services Mortgage Lending Revenues Net interest income................ 571 616 1,063 1,277 Origination fees................... 3,242 3,217 6,038 5,720 Gains on sales of mortgage servicing, net................... 1,372 1,026 1,829 2,289 Gains on sales of mortgage loans, net.............................. 2,092 2,010 4,092 4,350 Mortgage servicing and other....... 153 142 282 289 ----------- ----------- ----------- ----------- 7,430 7,011 13,304 13,925 General and Administrative Expenses.. 3,450 3,714 6,875 7,080 ----------- ----------- ----------- ----------- Financial Services Operating Profit....................... 3,980 3,297 6,429 6,845 ----------- ----------- ----------- ----------- Total Operating Profit................. 56,338 47,293 104,258 75,995 ----------- ----------- ----------- ----------- Corporate Interest and other revenues........ 275 1,618 550 1,949 General and administrative......... (8,515) (7,659) (17,069) (13,964) ----------- ----------- ----------- ----------- Net Corporate Expenses......... (8,240) (6,041) (16,519) (12,015) ----------- ----------- ----------- ----------- Income Before Income Taxes.............. $ 48,098 $ 41,252 $ 87,739 $ 63,980 =========== =========== =========== ===========
-6- E. Supplemental Disclosure of Cash Flow Information (in thousands)
Six Months Ended June 30, 2000 1999 ------------ ------------ Cash paid during the period for Interest.................................................... $ 5,736 $ 8,324 Income taxes................................................ $ 31,998 $ 23,734 Non-cash investing and financing activities Land purchases financed by seller........................... $ - - $ 752 Land sales financed by MDC.................................. $ - - $ 43
F. Stockholders' Equity On January 24, 2000, MDC's Board of Directors authorized the repurchase of up to 1,000,000 shares of MDC common stock. On February 21, 2000, MDC's Board of Directors authorized the repurchase of up to 2,000,000 additional shares of MDC common stock. The Company has repurchased a total of 1,552,900 shares of MDC common stock under these programs through June 30, 2000 at a total cost of $22,851,000. The per share prices, including commissions, for these repurchases range from $13.53 to $19.15 with an average cost of $14.71. G. Gain on Sale of Investments During the quarter and six months ended June 30, 2000, net income included realized pre-tax gains of $209,000 and $9,521,000, respectively, less applicable taxes of $133,000 and $6,071,000, respectively, from the sale of certain investments by MDC's captive insurance subsidiary. H. Homebuilding Line of Credit Having received increased participations from two of the Company's existing banks and one additional lender, in April 2000, the maximum borrowings available under the Company's homebuilding line of credit was increased to $350,000,000. -7- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. INTRODUCTION M.D.C. Holdings, Inc. is a Delaware Corporation originally incorporated in Colorado in 1972. We refer to M.D.C. Holdings, Inc. as the "Company" or as "MDC" in this Form 10-Q. The "Company" or "MDC" includes our subsidiaries unless we state otherwise. MDC's primary business is building and selling homes under the name "Richmond American Homes." We also originate mortgage loans, primarily for customers of Richmond American Homes, through MDC's subsidiary, HomeAmerican Mortgage Corporation ("HomeAmerican"). RESULTS OF OPERATIONS The table below summarizes MDC's results of operations (in thousands, except per share amounts).
Three Months Six Months Ended June 30, Ended June 30, ------------------------- ------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Revenues.................................... $ 419,647 $ 399,759 $ 766,805 $ 696,884 Income Before Income Taxes.................. $ 48,098 $ 41,252 $ 87,739 $ 63,980 Net Income.................................. $ 28,809 $ 24,957 $ 49,830 $ 38,708 Earnings Per Share Basic.................................. $ 1.34 $ 1.12 $ 2.29 $ 1.74 Diluted................................ $ 1.32 $ 1.10 $ 2.26 $ 1.71
Revenues for the second quarter and first half of 2000 increased $19,888,000 and $69,921,000, respectively, compared with the same periods in 1999, primarily due to higher homebuilding revenues resulting from (1) significant increases in average selling prices per home closed; and (2) for the first six months, gains of $9,521,000 realized on sales of certain investments by MDC's captive insurance subsidiary. Income before income taxes increased 17% and 37%, respectively, in the second quarter and first half of 2000, compared with the same periods in 1999. These increases primarily were a result of increased operating profit from the Company's homebuilding segment, due to the home sales revenue increases described above and 240 basis point increases for both the second quarter and first half of 2000 in Home Gross Margins (defined below). -8- Homebuilding Segment The table below sets forth information relating to the Company's homebuilding segment (dollars in thousands).
Three Months Six Months Ended June 30, Ended June 30, ------------------------- ---------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ------------- Home Sales Revenues......................... $ 407,459 $ 389,144 $ 736,910 $ 677,228 Operating Profit............................ $ 52,358 $ 43,996 $ 97,829 $ 69,150 Average Selling Price Per Home Closed..... $ 218.9 $ 208.8 $ 216.0 $ 204.5 Home Gross Margins.......................... 22.2% 19.8% 21.7% 19.3% Excluding Interest in Home Cost of Sales 23.4% 21.8% 23.0% 21.3% Orders For Homes, net (units) Colorado............................. 615 759 1,466 1,604 California........................... 445 407 857 800 Arizona.............................. 456 413 913 938 Nevada............................... 199 146 432 274 Virginia............................. 186 194 464 461 Maryland............................. 71 110 157 198 ----------- ----------- ----------- ----------- Total........................... 1,972 2,029 4,289 4,275 =========== =========== =========== =========== Homes Closed (units) Colorado............................. 798 691 1,450 1,193 California........................... 299 317 518 540 Arizona.............................. 364 469 689 855 Nevada............................... 166 115 288 256 Virginia............................. 158 190 322 310 Maryland............................. 76 82 145 157 ----------- ----------- ----------- ----------- Total........................... 1,861 1,864 3,412 3,311 =========== =========== =========== ===========
June 30, December 31, June 30, 2000 1999 1999 ----------- ------------ ----------- Backlog (units) Colorado............................. 1,642 1,626 1,766 California........................... 596 257 586 Arizona.............................. 676 452 779 Nevada............................... 281 137 164 Virginia............................. 432 290 405 Maryland............................. 191 179 194 ----------- ----------- ----------- Total........................... 3,818 2,941 3,894 =========== =========== =========== Estimated Sales Value........... $ 840,000 $ 600,000 $ 800,000 =========== =========== ===========
-9-
June 30, December 31, June 30, 2000 1999 1999 ----------- ------------ ----------- Active Subdivisions Colorado............................. 46 50 46 California........................... 25 24 20 Arizona.............................. 28 20 22 Nevada............................... 10 12 9 Virginia............................. 13 16 17 Maryland............................. 7 9 8 ----------- ----------- ----------- Total........................... 129 131 122 =========== =========== ===========
Home Sales Revenues - Home sales revenues in the second quarter and first half of 2000 were 5% and 9% higher, respectively, than home sales revenues for the same periods in 1999. The improved revenues primarily were a result of higher average selling prices per home closed, as further discussed below. Homes Closed - Home closings for the quarter and six months ended June 30, 2000 were approximately the same as for the comparable periods in 1999. Home closings in the second quarter and first half of 2000 were higher in (1) Colorado (increases of 15% and 22%, respectively) and Nevada (increases of 44% and 13%, respectively) as a result of the strong demand for homes in these markets; and (2) Northern California (increases of 41% and 77%, respectively), where the Company opened seven new active subdivisions since June 1999 in the San Francisco Bay area. Home closings decreased in the second quarter and first half of 2000 in Phoenix and Southern California, compared with the same periods in 1999, primarily due to fewer active subdivisions in each of these markets during the latter half of 1999. Active subdivisions subsequently have increased to 19 and 20, respectively, in Southern California and Phoenix at June 30, 2000, compared with 14 and 11, respectively, at June 30, 1999. Average Selling Price Per Home Closed - The average selling prices per home closed in the second quarter and first half of 2000 increased $10,100 and $11,500, respectively, compared with the same periods in 1999, primarily as a result of (1) the ability to increase sales prices due to the strong demand for new homes in most of the Company's markets; (2) a greater number of homes closed in higher-priced subdivisions in California, where average selling prices approached or exceeded $300,000; and (3) increased sales volume per home from the Company's design centers in Southern California, Nevada and Virginia. Home Gross Margins - We define "Home Gross Margins" to mean home sales revenues less cost of goods sold (which primarily includes land and construction costs, capitalized interest, financing costs, and a reserve for warranty expense) as a percent of home sales revenues. Home Gross Margins increased by 240 basis points during both the quarter and six months ended June 30, 2000, compared with the same periods in 1999. The increases largely were due to (1) selling price increases and reduced incentives offered to home buyers due to the continued strong demand for new homes in most of the Company's markets; (2) in Maryland, fewer under-performing subdivisions in 2000 and management's continued efforts to improve profitability; (3) reduced interest in home cost of sales, as discussed below; (4) increased rebates collected from suppliers through the Company's national purchasing programs; (5) increases in sales of higher-margin products through the Company's design centers; (6) a reduction in previous estimates of costs to complete land development and homes in certain projects in Phoenix, Southern California and Colorado; and (7) ongoing initiatives in each of the Company's markets designed to improve operating efficiency, control costs and increase rates of return. -10- Future Home Gross Margins may be impacted adversely by (1) increased competition; (2) increases in the costs of subcontracted labor, finished lots, building materials and other resources, to the extent that market conditions prevent the recovery of increased costs through higher selling prices; (3) adverse weather; and (4) shortages of subcontractor labor. Looking forward to the balance of 2000, we currently anticipate that Home Gross Margins for the third and fourth quarters may be lower than the level realized in the 2000 second quarter, but are expected to exceed margins reported for the comparable periods in 1999. See "Forward Looking Statements" below. Interest in Home Cost of Sales - Interest in home cost of sales as a percent of home sales revenues decreased to 1.2% and 1.3%, respectively, in the second quarter and first half of 2000, compared with 2.0% for the same periods in 1999. These reductions resulted from lower levels of capitalized interest in homebuilding inventories at the beginning of 2000, compared with the beginning of 1999. Interest capitalized as a percentage of homebuilding inventories has continued to decrease to 2.4% at June 30, 2000, from 3.6% at June 30, 1999 and 6.7% at June 30, 1998. This decrease primarily is due to (1) the close-out of older projects with higher levels of capitalized interest in Colorado, Virginia and Maryland; and (2) the financing of expanded homebuilding operations with cash from current operations. Orders for Homes and Backlog - Orders for homes in the second quarter and first half of 2000 were approximately the same as for the comparable periods in 1999. Home orders in the second quarter of 2000 particularly were strong in Southern California, Phoenix and Nevada, as a result of the recent increase in active subdivisions, as discussed above, and the continued strong demand for homes in these markets. Home orders were lower for the three months ended June 30, 2000 in Colorado, primarily resulting from fewer active subdivisions; a greater number of active subdivisions nearing close-out, with fewer homes available for sale; and the close-out of several high-volume subdivisions after the second quarter of 1999. Homes under contract but not yet delivered ("Backlog") at June 30, 2000 was 3,818 units with an estimated sales value of $840,000,000, compared with a Backlog of 3,894 units with an estimated sales value of $800,000,000 at June 30, 1999. Assuming no significant change in market conditions or mortgage interest rates, the Company expects approximately 75% of its June 30, 2000 Backlog to close under existing sales contracts during the second half of 2000 and first quarter of 2001. The remaining 25% of the homes in Backlog are not expected to close under existing contracts due to cancellations. See "Forward-Looking Statements" below. Other Revenues - Other revenues during the first half of 2000 included gains realized on the sales of certain investments by MDC's captive insurance subsidiary of $9,521,000, compared with $134,000 realized in the comparable period of 1999. Asset Impairment Charge - Operating results during the second quarter and first half of 2000 were reduced by an asset impairment charge of $800,000 related to certain of the Company's homebuilding assets in Southern California. The asset impairment charge resulted from the write-down to fair value of a subdivision that experienced slow sales during the second quarter of 2000 and anticipated negative Home Gross Margins. No asset impairment charge was recorded during the first half of 1999. Marketing - Marketing expenses (which include sales commissions, advertising, amortization of deferred marketing and other costs) totalled $23,163,000 and $41,847,000, respectively, for the quarter -11- and six months ended June 30, 2000, compared with $21,226,000 and $38,109,000, respectively, for the same periods in 1999. The increases in 2000 primarily resulted from higher sales commissions, advertising and other costs incurred in connection with the Company's increased home sales revenues. General and Administrative - General and administrative expenses increased to $17,198,000 and $33,226,000, respectively, during the second quarter and first half of 2000, compared with $12,859,000 and $24,915,000, respectively, for the same periods in 1999, primarily due to increased compensation costs resulting from expanded operations in certain of the Company's markets, most notably Colorado and Southern California. Land Inventory The table below shows the carrying value of land and land under development, by market, the total number of lots owned and lots controlled under option agreements, and total option deposits (dollars in thousands).
June 30, December 31, June 30, 2000 1999 1999 ----------- ----------- ----------- Colorado....................................... $ 81,365 $ 74,117 $ 54,012 California..................................... 149,012 161,508 132,838 Arizona........................................ 43,412 29,426 17,358 Nevada......................................... 23,975 27,419 31,771 Virginia....................................... 10,838 6,357 8,734 Maryland....................................... 5,679 9,853 9,892 ----------- ----------- ----------- Total..................................... $ 314,281 $ 308,680 $ 254,605 =========== =========== =========== Lots Owned (excluding lots in work-in-process). 10,400 10,452 9,191 Lots Controlled Under Option................... 8,314 8,063 7,950 ----------- ----------- ----------- Total Lots Owned and Controlled........... 18,714 18,515 17,141 =========== =========== =========== Option Deposits................................ $ 6,922 $ 8,673 $ 8,677 =========== =========== ===========
-12- Financial Services Segment The table below sets forth information relating to HomeAmerican's operations (in thousands).
Three Months Six Months Ended June 30, Ended June 30, ------------------------- ------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Loan Origination Fees....................... $ 3,242 $ 3,217 $ 6,038 $ 5,720 Gains on Sales of Mortgage Loans, net....... $ 2,092 $ 2,010 $ 4,092 $ 4,350 Gains on Sales of Mortgage Servicing, net... $ 1,372 $ 1,026 $ 1,829 $ 2,289 Operating Profit............................ $ 3,980 $ 3,297 $ 6,429 $ 6,845 Principal Amount of Loans Originated and Purchased MDC home buyers.......................... $ 206,964 $ 225,694 $ 375,932 $ 387,417 Spot..................................... 3,777 10,239 7,837 22,526 Correspondent............................ - - - - - - 12,074 ----------- ----------- ----------- ----------- Total.............................. $ 210,741 $ 235,933 $ 383,769 $ 422,017 =========== =========== =========== =========== Principal Amount of Loans Brokered MDC home buyers.......................... $ 62,876 $ 44,915 $ 112,622 $ 73,289 Spot..................................... 1,217 1,256 2,391 2,839 ----------- ----------- ----------- ----------- Total.............................. $ 64,093 $ 46,171 $ 115,013 $ 76,128 =========== =========== =========== =========== Capture Rate................................ 63% 71% 64% 70% =========== =========== =========== =========== Including brokered loans................. 79% 83% 80% 81% =========== =========== =========== ===========
HomeAmerican's operating profits for the second quarter of 2000 increased, compared with the second quarter of 1999, due to higher gains on sales of mortgage servicing and decreased general and administrative expenses. Operating profits for the first half of 2000 decreased, compared with the same period in 1999, primarily due to decreased gains on sales of mortgage loans and bulk sales of mortgage servicing. HomeAmerican continues to benefit from the Company's homebuilding growth as MDC home buyers were the source of approximately 99% and 98%, respectively, of the principal amount of mortgage loans originated and brokered by HomeAmerican in the second quarter and first half of 2000. Mortgage loans originated by HomeAmerican for MDC home buyers as a percentage of total MDC home closings ("Capture Rate") decreased to 63% and 64%, respectively, for the quarter and six months ended June 30, 2000, compared with 71% and 70%, respectively, for the same periods in 1999. However, the number of mortgage loans brokered by HomeAmerican for origination by outside lending institutions has increased, primarily due to an increase in the number of MDC home buyers with non-agency qualified credit. These brokered mortgage loans, for which HomeAmerican receives a fee, have been excluded from the computation of the Capture Rate above. The Capture Rate including brokered loans was 79% and 80%, respectively, for the second quarter and first half of 2000, compared with 83% and 81%, respectively, for the same periods in 1999. Forward Sales Commitments - HomeAmerican's operations are affected by changes in mortgage interest rates. HomeAmerican utilizes forward mortgage securities contracts to manage the interest rate -13- risk on its fixed-rate mortgage loans owned and rate-locked mortgage loans in the pipeline. These contracts are the only significant financial derivative instrument utilized by MDC. Other Operating Results Corporate Other Revenues - In the second quarter of 1999, the Company recognized income of approximately $1,500,000 related to its share of a gain from the sale of substantially all of the assets of a partnership in which it was an investor. Interest Expense - The Company capitalizes interest on its homebuilding inventories during the period of active development and through the completion of construction. Corporate and homebuilding interest incurred but not capitalized is reflected as interest expense and totalled zero for both the second quarter and first half of 2000 and 1999. For a reconciliation of interest incurred, capitalized and expensed, see Note B to the Company's Condensed Consolidated Financial Statements. Corporate General and Administrative Expenses - Corporate general and administrative expenses totalled $8,515,000 and $17,069,000, respectively, during the second quarter and first half of 2000, compared with $7,659,000 and $13,964,000, respectively, for the same periods in 1999, primarily due to greater compensation-related costs in 2000 as a result of the Company's higher profitability and increased homebuilding activities. Income Taxes - MDC's overall effective income tax rate of 40.1% and 43.2% for the second quarter and first half of 2000, respectively, compared with 39.5% for the same periods in 1999, differed from the federal statutory rate of 35% partially due to the impact of state income taxes. In addition, in the first half of 2000, the investment gains of $9,521,000, discussed under "Results of Operations" above, are subject to taxation at both the subsidiary level and corporate level, resulting in taxes at an effective rate of 64%. The Internal Revenue Service ("IRS") has completed its examination of the Company's federal income tax returns for the years 1991 through 1995 and has proposed adjustments to the taxable income reflected in such returns. The Company is protesting certain of these proposed adjustments. In the opinion of management, adequate provision has been made for additional income taxes and interest, if any, which may arise as a result of this examination. In April 2000, the IRS completed its examination of the Company's federal income tax returns for the years 1996 and 1997. The conclusion of this latter examination resulted in no material impact to the Company's financial position or results of operations. See "Forward-Looking Statements" below. -14- LIQUIDITY AND CAPITAL RESOURCES MDC uses its liquidity and capital resources to (1) support its operations, including its inventories of homes, home sites and land; (2) provide working capital; and (3) provide mortgage loans for its home buyers. Liquidity and capital resources are generated internally from operations and from external sources. Capital Resources The Company's capital structure is a combination of (1) permanent financing, represented by stockholders' equity; (2) long-term financing, represented by its publicly traded 8 3/8% senior notes due 2008 (the "Senior Notes") and its homebuilding line of credit; and (3) current financing, primarily its mortgage lending line of credit. Based upon its current capital resources and additional liquidity available under existing credit agreements, the Company believes that its current financial condition is both balanced to fit its current operating structure and adequate to satisfy its current and near-term capital requirements, including the acquisition of land. The Company believes that it can meet its long-term capital needs (including meeting future debt payments and refinancing or paying off other long-term debt as it becomes due) from operations and external financing sources, assuming that no significant adverse changes in the Company's business occur as a result of the various risk factors described elsewhere in this report. See "Forward-Looking Statements" below. Lines of Credit and Other Homebuilding - In October 1999, the homebuilding line of credit (the "Homebuilding Line") was amended and restated (the "Amended and Restated Credit Agreement") to extend the maturity date to September 30, 2004 and increase the $300,000,000 maximum amount available to $450,000,000 upon the Company's request, subject to the receipt of additional commitments from existing or additional participant lenders. Pursuant to the terms of the Amended and Restated Credit Agreement, a term-out of this credit may commence earlier under certain circumstances. Having received increased participations from two of the Company's existing banks and one additional lender, the maximum amount available under the Homebuilding Line was increased to $350,000,000 in April 2000. There is no assurance that existing or additional lenders will agree to provide additional commitments. At June 30, 2000, $90,000,000 was borrowed and $5,312,000 in letters of credit were outstanding under the Homebuilding Line. Mortgage Lending - To provide funds to originate and purchase mortgage loans and to finance these mortgage loans on a short-term basis, HomeAmerican utilizes its mortgage lending bank line of credit (the "Mortgage Line"). These mortgage loans are pooled into GNMA, FNMA and FHLMC pools, or retained as whole loans, and subsequently sold in the open market on a spot basis or pursuant to mortgage loan sale commitments, generally within 40 days after origination. During the first six months of 2000 and 1999, HomeAmerican sold $397,025,000 and $422,279,000, respectively, principal amount of mortgage loans and mortgage-backed certificates to unaffiliated purchasers. Available borrowings under the Mortgage Line are collateralized by mortgage loans and mortgage-backed certificates and are limited to the value of eligible collateral, as defined. In December 1999, the Company modified the terms of the Mortgage Line, increasing the available borrowings from $51,000,000 to $75,000,000. At June 30, 2000, $57,571,000 was borrowed under the Mortgage Line and an additional $12,437,000 was collateralized and available to be borrowed. The Mortgage Line is cancelable upon 90 days' notice. -15- General - The agreements for the Company's Senior Notes and bank lines of credit require compliance with certain representations, warranties and covenants. The Company believes that it is in compliance with these representations, warranties and covenants. The agreements containing these representations, warranties and covenants, other than the Mortgage Line, are on file with the Securities and Exchange Commission and are listed in the Exhibit Table in Part IV of MDC's Annual Report on Form 10-K for its fiscal year ended December 31, 1999. The financial covenants contained in the Amended and Restated Credit Agreement include a leverage test and a consolidated tangible net worth test. Under the leverage test, generally MDC's consolidated indebtedness is not permitted to exceed 2.15 (subject to downward adjustment in certain circumstances) times MDC's "adjusted consolidated tangible net worth," as defined. Under the consolidated tangible net worth test, MDC's "tangible net worth," as defined, must not be less the sum of $238,000,000 and 50% of "consolidated net income," as defined, after December 31, 1998. In addition, "consolidated tangible net worth," as defined, must not be less than $150,000,000. The Company's Senior Notes indenture does not contain financial covenants. However, there are covenants that limit transactions with affiliates, limit the amount of additional indebtedness that MDC may incur, restrict certain payments on, or the redemptions of the Company's securities, restrict certain sales of assets and limit incurring liens. In addition, under certain circumstances, in the event of a change of control (generally a sale, transfer, merger or acquisition of MDC or substantially all of its assets), MDC may be required to offer to repurchase the Senior Notes. The Senior Notes are not secured. MDC Common Stock Repurchase Programs On January 24, 2000, MDC's Board of Directors authorized the repurchase of up to 1,000,000 shares of MDC common stock. On February 21, 2000, MDC's Board of Directors authorized the repurchase of up to 2,000,000 additional shares of MDC common stock. The Company has repurchased a total of 1,552,900 shares of MDC common stock under these programs through June 30, 2000. The per share prices, including commissions, for these repurchases range from $13.53 to $19.15 with an average cost of $14.71. At June 30, 2000, the Company held 7,120,000 shares of treasury stock with an average purchase price of $8.46. Consolidated Cash Flow During the first six months of 2000 and 1999, the Company used $54,195,000 and $19,321,000, respectively, of cash in its operating activities, primarily due to increases in homebuilding inventories related to its expanded homebuilding operations. In addition, in the first half of 2000, the Company used $22,851,000 to repurchase 1,552,900 shares of MDC common stock. The Company financed these operating cash requirements and stock repurchases primarily through borrowings on its bank lines of credit. -16- IMPACT OF INFLATION, CHANGING PRICES AND ECONOMIC CONDITIONS Real estate and residential housing prices are affected by inflation, which can cause increases in the price of land, raw materials and subcontracted labor. Unless these increased costs are recovered through higher sales prices, Home Gross Margins would decrease. If interest rates increase, construction and financing costs, as well as the cost of borrowings, also would increase, which can result in lower Home Gross Margins. Increases in home mortgage interest rates make it more difficult for MDC's customers to qualify for home mortgage loans, potentially decreasing home sales volume. Increases in interest rates also may affect adversely the volume of mortgage loan originations. The volatility of interest rates could have an adverse effect on MDC's future operations and liquidity. An increase in interest rates may affect adversely the demand for housing and the availability of mortgage financing and may reduce the credit facilities offered to MDC by banks, investment bankers and mortgage bankers. See "Forward-Looking Statements" below. MDC's business also is affected significantly by general economic conditions and, particularly, the demand for new homes in the markets in which it builds. ISSUANCE OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was issued. SFAS 133 addresses the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. In June 1999, the effective date of SFAS 133 was deferred until to January 1, 2001. The Company anticipates that the adoption of SFAS 133 as of January 1, 2001 will not have a material effect on its financial position or results of operations. See "Forward-Looking Statements" below. OTHER Forward-Looking Statements Certain statements in this Quarterly Report on Form 10-Q, the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1999, the Company's Annual Report to Shareowners, as well as statements made by the Company in periodic press releases, oral statements made by the Company's officials to analysts and shareowners in the course of presentations about the Company and conference calls following quarterly earnings releases, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among other things, (1) general economic and business conditions; (2) interest rate changes; (3) the relative stability of debt and equity markets; (4) competition; (5) the availability and cost of land and other raw materials used by the Company in its homebuilding operations; (6) demographic changes; (7) shortages and the cost of labor; (8) weather related slowdowns; (9) slow growth initiatives (including initiatives which may be considered in Colorado and Arizona in November 2000); (10) building moratoria; (11) governmental regulation, including the interpretation of tax, labor and environmental laws; (12) changes in consumer confidence and preferences; (13) required accounting changes; and (14) other factors over which the Company has little or no control. -17- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is exposed to market risks related to fluctuations in interest rates on mortgage loans receivable and debt. The Company utilizes forward sale commitments to mitigate some of the risk associated with the mortgage loan portfolio. Other than these forward commitments, the Company does not utilize interest rate swaps, forward option contracts on foreign currencies or commodities, or other types of derivative financial instruments. HomeAmerican provides mortgage loans which generally are sold forward and subsequently delivered to a third-party purchaser within approximately 40 days. Forward commitments are used for non-trading purposes to sell mortgage loans and hedge interest rate risk on rate-locked mortgage loans in process which have not closed. Due to this hedging philosophy, the market risk associated with these mortgages is minimal. The Company utilizes both short-term and long-term debt to finance its operations. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not the Company's earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but may affect the Company's future earnings and cash flows. The Company does not have an obligation to prepay fixed rate debt prior to maturity and, as a result, interest rate risk and changes in fair value should not have a significant impact on the fixed rate debt until such time as the Company is required to refinance such debt. As of June 30, 2000, short-term debt was $57,571,000, which consisted of MDC's Mortgage Line. The Mortgage Line is collateralized by residential mortgage loans. The Company borrows on a short-term basis from banks under committed lines of credit that bear interest at prevailing market rates. Long-term debt obligations outstanding, their maturities and estimated fair value at June 30, 2000 are as follows (in thousands).
Maturities through December 31, Estimated --------------------------------------------------------------- 2000 2001 2002 2003 2004 Thereafter Total Fair Value -------------------- -------------------- ---------- -------------------- ---------- Fixed Rate Debt............ $ - - $ - - $ - - $ - - $ - - $ 175,000 $ 175,000 $ 155,531 Average Interest Rate (units)............... - - - - - - - - - - 8.38% 8.38% Variable Rate Debt......... $ - - $ - - $ - - $ - - $ 90,000 $ - - $ 90,000 $ 90,000 Average Interest Rate... - - - - - - - - 7.73% - - 7.73%
The Company believes that its overall balance sheet structure has repricing and cash flow characteristics that mitigate the impact of interest rate movements. -18- M.D.C. HOLDINGS, INC. FORM 10-Q PART II ITEM 1. LEGAL PROCEEDINGS. - ------ ----------------- The Company and certain of its subsidiaries and affiliates have been named as defendants in various claims, complaints and other legal actions arising in the normal course of business. In the opinion of management, the outcome of these matters will not have a material adverse effect upon the financial condition, results of operations or cash flows of the Company. Because of the nature of the homebuilding business, and in the ordinary course of its operations, the Company from time to time may be subject to product liability claims. The Company is not aware of any litigation, matter or pending claim against the Company which would result in material contingent liabilities related to environmental hazards or asbestos. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREOWNERS. - ------ ---------------------------------------------- MDC held its Annual Meeting of Shareowners (the "Meeting") on May 19, 2000. At the Meeting, Steven J. Borick and David D. Mandarich were re-elected to three-year terms as Class III directors. ITEM 5. OTHER INFORMATION. - ------ ----------------- On July 24, 2000, the Company's board of directors declared a dividend of six cents per share for the quarter ended June 30, 2000, payable August 14, 2000, to shareowners of record on August 3, 2000. Future dividend payments are subject to the discretion of the Company's board of directors. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. - ------ -------------------------------- (a) Exhibit: 27 Financial Data Schedule. (b) Reports on Form 8-K: -19- (1) Form 8-K dated May 11, 2000 reporting the Company's change in independent auditors. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 4, 2000 M.D.C. HOLDINGS, INC. -------------- (Registrant) By: /s/ Paris G. Reece III ---------------------- Paris G. Reece III, Executive Vice President, Chief Financial Officer and Principal Accounting Officer -20- EX-27 2 0002.txt
5 This schedule contains summary financial information extracted from MDC Holdings, Inc. consolidated financial statements included in its Form 10-Q for the quarter ended June 30, 2000 and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 18,783 0 8,039 0 762,800 0 3,029 0 972,088 0 321,987 0 0 285 474,749 972,088 752,951 766,805 (655,122) (661,997) 0 0 0 87,739 (37,909) 49,830 0 0 0 49,830 2.29 2.26
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