0000773141-01-500010.txt : 20011128 0000773141-01-500010.hdr.sgml : 20011128 ACCESSION NUMBER: 0000773141-01-500010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MDC HOLDINGS INC CENTRAL INDEX KEY: 0000773141 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 840622967 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08951 FILM NUMBER: 1777076 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 form10q9.txt DOCUMENT ================================================================================ 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 September 30, 2001 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 November 6, 2001, 24,138,000 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 SEPTEMBER 30, 2001 INDEX Page No. ---- Part I. Financial Information: Item 1. Condensed Consolidated Financial Statements: Balance Sheets as of September 30, 2001 (Unaudited) and December 31, 2000.......... 1 Statements of Income and Other Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2001 and 2000... 3 Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2001 and 2000................................... 4 Notes to Financial Statements (Unaudited).... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................... 19 Part II. Other Information: Item 1. Legal Proceedings............................ 20 Item 4. Submission of Matters to a Vote of Shareowners................................ 20 Item 5. Other Information............................ 20 Item 6. Exhibits and Reports on Form 8-K............. 20 (i) M.D.C. HOLDINGS, INC. Condensed Consolidated Balance Sheets (In thousands)
September 30, December 31, 2001 2000 ------------- ------------- (Unaudited) ASSETS Corporate Cash and cash equivalents................................................ $ 11,676 $ 8,411 Property and equipment, net.............................................. 2,895 3,069 Deferred income taxes.................................................... 34,719 31,821 Deferred debt issue costs, net........................................... 2,007 2,180 Other assets, net........................................................ 7,908 8,039 ------------- ------------- 59,205 53,520 ------------- ------------- Homebuilding Cash and cash equivalents................................................ 5,546 5,265 Home sales and other accounts receivable................................. 8,359 4,713 Inventories, net Housing completed or under construction................................ 596,300 443,512 Land and land under development........................................ 433,890 388,711 Prepaid expenses and other assets, net................................... 49,587 51,631 ------------- ------------- 1,093,682 893,832 Financial Services Cash and cash equivalents................................................ 528 439 Mortgage loans held in inventory......................................... 106,042 107,151 Other assets, net........................................................ 5,682 6,656 ------------- ------------- 112,252 114,246 ------------- ------------- Total Assets....................................................... $ 1,265,139 $ 1,061,598 ============= =============
See notes to condensed consolidated financial statements. - 1 - M.D.C. HOLDINGS, INC. Condensed Consolidated Balance Sheets (In thousands, except share amounts)
September 30, December 31, 2001 2000 ------------- ------------- (Unaudited) LIABILITIES Corporate Accounts payable and accrued expenses........................................ $ 49,351 $ 50,843 Income taxes payable......................................................... 25,628 9,558 Senior notes, net............................................................ 174,488 174,444 ------------- ------------- 249,467 234,845 ------------- ------------- Homebuilding Accounts payable and accrued expenses........................................ 192,088 164,660 Line of credit............................................................... 145,000 90,000 ------------- ------------- 337,088 254,660 ------------- ------------- Financial Services Accounts payable and accrued expenses........................................ 22,872 15,404 Line of credit............................................................... 48,334 74,459 ------------- ------------- 71,206 89,863 ------------- ------------- Total Liabilities...................................................... 657,761 579,368 ------------- ------------- 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; 31,463,000 and 30,755,000 shares issued, respectively, at September 30, 2001 and December 31, 2000.......................................................... 315 308 Additional paid-in capital................................................... 289,671 266,337 Retained earnings............................................................ 386,783 282,893 Accumulated other comprehensive income (loss)................................ (171) 167 ------------- ------------- 676,598 549,705 Less treasury stock, at cost; 7,325,000 and 7,426,000 shares, respectively, at September 30, 2001 and December 31, 2000................................ (69,220) (67,475) ------------- ------------- Total Stockholders' Equity............................................. 607,378 482,230 ------------- ------------- Total Liabilities and Stockholders' Equity............................. $ 1,265,139 $ 1,061,598 ============= =============
See notes to condensed consolidated financial statements. - 2 - M.D.C. HOLDINGS, INC. Condensed Consolidated Statements of Income and Other Comprehensive Income (In thousands, except per share amounts) (Unaudited)
Three Months Nine Months Ended September 30, Ended September 30, --------------------------- --------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ REVENUES Homebuilding............................................ $ 511,008 $ 438,818 $ 1,421,114 $ 1,191,769 Financial services...................................... 10,081 7,203 27,420 20,507 Corporate............................................... 223 218 735 768 ------------ ------------ ------------ ------------ Total Revenues...................................... 521,312 446,239 1,449,269 1,213,044 ------------ ------------ ------------ ------------ COSTS AND EXPENSES Homebuilding............................................ 439,094 377,623 1,225,283 1,032,745 Financial services...................................... 4,331 3,833 12,740 10,708 Corporate general and administrative.................... 11,097 11,168 33,013 28,237 ------------ ------------ ------------ ------------ Total Costs and Expenses............................ 454,522 392,624 1,271,036 1,071,690 ------------ ------------ ------------ ------------ Income before income taxes................................. 66,790 53,615 178,233 141,354 Provision for income taxes................................. (26,265) (19,355) (69,582) (57,264) ------------ ------------ ------------ ------------ NET INCOME................................................. 40,525 34,260 108,651 84,090 Unrealized holding gains (losses) on securities arising during the period....................................... (40) 92 (281) (35) Less reclassification adjustment for gains included in net income.................................................. (164) (81) (57) (3,531) ------------ ------------ ------------ ------------ Net gains (losses) recognized in other comprehensive income during the period, net of deferred income taxes......... (204) 11 (338) (3,566) ------------ ------------ ------------ ------------ OTHER COMPREHENSIVE INCOME................................. $ 40,321 $ 34,271 $ 108,313 $ 80,524 ============ ============ ============ ============ EARNINGS PER SHARE Basic................................................... $ 1.67 $ 1.47 $ 4.54 $ 3.54 ============ =========== =========== =========== Diluted................................................. $ 1.63 $ 1.44 $ 4.39 $ 3.48 ============ =========== =========== =========== WEIGHTED-AVERAGE SHARES OUTSTANDING Basic................................................... 24,231 23,297 23,958 23,746 ============ ============ ============ ============ Diluted................................................. 24,882 23,870 24,739 24,153 ============ ============ ============ ============ DIVIDENDS PAID PER SHARE................................... $ .07 $ .06 $ .20 $ .18 ============ =========== =========== ===========
See notes to condensed consolidated financial statements. - 3 - M.D.C. HOLDINGS, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Nine Months Ended September 30, 2001 2000 ------------- ------------- OPERATING ACTIVITIES Net income.......................................................... $ 108,651 $ 84,090 Adjustments to reconcile net income to net cash used in operating activities Depreciation and amortization.................................. 17,889 14,793 Deferred income taxes.......................................... (2,898) (8,541) Homebuilding asset impairment charges.......................... 2,900 800 Net changes in assets and liabilities Home sales and other accounts receivable.................... (3,646) (7,161) Homebuilding inventories.................................... (200,867) (178,353) Prepaid expenses and other assets........................... (12,125) (15,197) Mortgage loans held in inventory............................ 1,109 (6,299) Accounts payable and accrued expenses....................... 63,032 10,506 Other, net..................................................... 2,082 (2,132) ------------- ------------- Net cash used in operating activities................................ (23,873) (107,494) ------------- ------------- FINANCING ACTIVITIES Lines of credit Advances........................................................ 1,381,900 1,167,881 Principal payments.............................................. (1,353,025) (1,048,300) Dividend payments.................................................... (4,761) (3,954) Stock repurchases.................................................... (3,845) (30,828) Proceeds from exercise of stock options.............................. 7,239 2,704 ------------- ------------- Net cash provided by financing activities............................ 27,508 87,503 ------------- ------------- Net increase (decrease) in cash and cash equivalents................. 3,635 (19,991) Cash and cash equivalents Beginning of period............................................. 14,115 38,930 ------------- ------------- End of period................................................... $ 17,750 $ 18,939 ============= =============
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 September 30, 2001 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, 2000. B. Corporate and Homebuilding Interest Activity (in thousands)
Three Months Nine Months Ended September 30, Ended September 30, --------------------------- --------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Interest capitalized in homebuilding inventory, beginning of period....... $ 19,503 $ 18,037 $ 19,417 $ 17,406 Interest incurred....................... 5,879 6,836 17,638 17,328 Interest expensed....................... - - - - - - - - Previously capitalized interest included in cost of sales..................... (5,921) (6,041) (17,594) (15,902) ----------- ----------- ----------- ----------- Interest capitalized in homebuilding inventory, end of period............. $ 19,461 $ 18,832 $ 19,461 $ 18,832 =========== =========== =========== ===========
C. Earnings Per Share The basic and diluted earnings per share calculations are shown below (in thousands, except per share amounts).
Three Months Nine Months Ended September 30, Ended September 30, ------------------------- ------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Basic Earnings Per Share Net income....................................... $ 40,525 $ 34,260 $ 108,651 $ 84,090 =========== =========== =========== =========== Basic weighted-average shares outstanding........ 24,231 23,297 23,958 23,746 =========== =========== =========== =========== Per share amounts................................ $ 1.67 $ 1.47 $ 4.54 $ 3.54 =========== =========== =========== =========== Diluted Earnings Per Share Net income....................................... $ 40,525 $ 34,260 $ 108,651 $ 84,090 =========== =========== =========== =========== Basic weighted-average shares outstanding........ 24,231 23,297 23,958 23,746 Stock options, net............................... 651 573 781 407 ----------- ----------- ----------- ----------- Diluted weighted-average shares outstanding...... 24,882 23,870 24,739 24,153 =========== =========== =========== =========== Per share amounts................................ $ 1.63 $ 1.44 $ 4.39 $ 3.48 =========== =========== =========== ===========
- 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 Nine Months Ended September 30, Ended September 30, ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Homebuilding Home sales......................... $ 505,995 $ 436,174 $ 1,413,121 $ 1,173,084 Land sales......................... 2,142 939 2,901 5,482 Other revenues..................... 2,871 1,705 5,092 13,203 ------------ ------------ ------------ ------------ 511,008 438,818 1,421,114 1,191,769 ------------ ------------ ------------ ------------ Home cost of sales................. 383,777 334,884 1,077,786 911,778 Land cost of sales................. 646 842 1,103 3,197 Asset impairment charges........... 2,900 - - 2,900 800 Marketing expenses................. 28,116 24,230 78,033 66,077 General and administrative expenses 23,655 17,667 65,461 50,893 ------------ ------------ ------------ ------------ 439,094 377,623 1,225,283 1,032,745 ------------ ------------ ------------ ------------ Homebuilding Operating Profit.. 71,914 61,195 195,831 159,024 ------------ ------------ ------------ ------------ Financial Services Revenues Interest........................... 901 651 2,356 1,714 Origination fees................... 4,418 3,535 12,570 9,573 Gains on sales of mortgage servicing 461 706 2,863 2,535 Gains on sales of mortgage loans, net 4,128 2,151 9,638 6,243 Mortgage servicing and other....... 173 160 (7) 442 ------------ ------------ ------------ ------------ 10,081 7,203 27,420 20,507 General and Administrative Expenses.. 4,331 3,833 12,740 10,708 ------------ ------------ ------------ ------------ Financial Services Operating Profit....................... 5,750 3,370 14,680 9,799 ------------ ------------ ------------ ------------ Total Operating Profit................. 77,664 64,565 210,511 168,823 ------------ ------------ ------------ ------------ Corporate Interest and other revenues........ 223 218 735 768 General and administrative expenses (11,097) (11,168) (33,013) (28,237) ------------ ------------ ------------ ------------ Net Corporate Expenses......... (10,874) (10,950) (32,278) (27,469) ------------ ------------ ------------ ------------ Income Before Income Taxes.............. $ 66,790 $ 53,615 $ 178,233 $ 141,354 ============ ============ ============ ============
- 6 - E. Supplemental Disclosure of Cash Flow Information (in thousands)
Nine Months Ended September 30, 2001 2000 ----------- ----------- Cash paid during the period for Interest................................................... $ 21,557 $ 26,102 Income taxes............................................... $ 62,488 $ 65,633
F. Stockholders' Equity Stock Repurchase Programs - On January 24, 2000, the MDC board of directors authorized the repurchase of up to 1,000,000 shares of MDC common stock. On February 21, 2000, the MDC board of directors authorized the repurchase of up to 2,000,000 additional shares of MDC common stock. The Company repurchased a total of 1,931,800 shares of MDC common stock under these programs through December 31, 2000. In September 2001, the Company repurchased 132,500 shares of MDC common stock, bringing the total shares repurchased to 2,064,300 and leaving 935,700 shares available to be repurchased as of September 30, 2001 under these programs. The per share prices, including commissions, for the 2,064,300 shares repurchased ranged from $13.53 to $29.02, with an average cost of $16.80. At September 30, 2001, the Company held 7,325,000 shares of treasury stock with an average purchase price of $9.45. Stock Dividend - On January 22, 2001, MDC's board of directors approved the payment of a 10% stock dividend that was distributed on February 16, 2001 to shareowners of record on February 5, 2001. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," basic and diluted net income per share amounts and weighted-average shares outstanding have been restated for the quarter and the nine months ended September 30, 2000 to reflect the effect of this stock dividend. In addition, stockholders' equity has been adjusted to reflect the stock dividend as if it had been paid on December 31, 2000. Stock Contributions - In the first nine months of 2001, the Company committed to contribute $2,000,000 to the M.D.C. Holdings, Inc. Charitable Foundation (the "Foundation"), a Delaware not-for-profit corporation that was incorporated on September 30, 1999. Pursuant to this commitment, in April and June 2001, respectively, 28,145 and 29,744 shares of MDC common stock valued at a total of $2,000,000 were transferred to the Foundation. In the third quarter of 2000, the Company committed to contribute $1,000,000 to the Foundation. This contribution consisted of 27,489 shares of MDC common stock, valued at $900,000, and $100,000 in cash. The Foundation is a charitable organization with the primary purpose of supporting non-profit charities in communities where the Company conducts its business. Certain directors and officers of the Company are the trustees and officers of the Foundation. G. Sale of Investments During the quarter and nine months ended September 30, 2001, net income included realized pre-tax gains of $444,000 and $153,000, respectively, less applicable income taxes of $280,000 and $96,000, respectively, from the sale of certain investments by the Company's captive insurance subsidiary, compared with investment sale gains of $215,000 and $9,736,000, respectively, less applicable taxes of $134,000 and $6,205,000, respectively, for the comparable periods in 2000. - 7 - H. Lines of Credit 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 maximum amount available from $300,000,000 to $450,000,000 upon the Company's request, requiring additional commitments from existing or additional participant lenders. Commitments under the Homebuilding Line increased from $300,000,000 to $413,000,000 in 2000 and to $450,000,000 in the 2001 second quarter. Pursuant to the terms of the Amended and Restated Credit Agreement, a term-out of this credit may commence prior to September 30, 2004 under certain circumstances. At September 30, 2001, $145,000,000 was borrowed and $16,469,000 in letters of credit were outstanding under the Homebuilding Line. Mortgage Lending - In June 2001, the Company modified the terms of its mortgage lending bank line of credit (the "Mortgage Line"), temporarily increasing the available borrowings from $100,000,000 to $125,000,000. In August 2001, the available borrowings were reduced to $100,000,000. 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. At September 30, 2001, $48,334,000 was borrowed and an additional $32,996,000 was collateralized and available to be borrowed. The Mortgage Line is cancelable upon 90 days' notice. I. Derivative Instruments and Hedging Activities HomeAmerican Mortgage Corporation (a wholly owned subsidiary of M.D.C. Holdings, Inc.) originates mortgage loans that generally are sold forward and subsequently are 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 that have not closed. 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. J. Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other Intangible Assets" and SFAS No. 141, "Business Combinations". SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001, and further clarifies the criteria to recognize intangible assets separately from goodwill. SFAS No. 141, effective for any business combination completed after June 30, 2001, did not have any effect on the Company's financial position or results of operation. Under SFAS No. 142, goodwill and indefinite lived intangible assets are no longer amortized, but are reviewed annually for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. For goodwill and intangible assets acquired prior to July 1, 2001, SFAS No. 142 must be adopted as of January 1, 2002. The Company has determined that SFAS No. 142 will not have a material effect on the Company's financial position or results of operations upon adoption. In September 2000, SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" was issued. SFAS No. 140 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. SFAS No. 140 - 8 - is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral, for fiscal years ending after December 15, 2000. SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The adoption of SFAS No. 140 did not have a material impact on the Company's financial position or results of operations. In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued. In June 2000, SFAS No. 138, "Accounting for Certain Derivative Instruments and Hedging Activities, an Amendment of SFAS No. 133" was issued. SFAS No. 133 and SFAS No. 138 address the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. The Company adopted SFAS No. 133 and SFAS No. 138 on January 1, 2001. The adoption of SFAS No. 133 and SFAS No. 138 did not have a material effect on the Company's financial position or results of operations. - 9 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION M.D.C. Holdings, Inc. is a Delaware Corporation. 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 owning and managing subsidiary companies that build and sell homes under the name "Richmond American Homes." We also own and manage HomeAmerican Mortgage Corporation ("HomeAmerican"), which originates mortgage loans primarily for MDC's home buyers; American Home Title and Escrow Company ("American Home Title"), which provides title agency services; and American Home Insurance Agency, Inc. ("American Home Insurance"), which offers insurance to MDC's home buyers. RESULTS OF OPERATIONS The table below summarizes MDC's results of operations (in thousands, except per share amounts).
Three Months Nine Months Ended September 30, Ended September 30, ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Revenues................................ $ 521,312 $ 446,239 $ 1,449,269 $ 1,213,044 Income Before Income Taxes.............. $ 66,790 $ 53,615 $ 178,233 $ 141,354 Net Income.............................. $ 40,525 $ 34,260 $ 108,651 $ 84,090 Earnings Per Share: Basic.............................. $ 1.67 $ 1.47 $ 4.54 $ 3.54 Diluted............................ $ 1.63 $ 1.44 $ 4.39 $ 3.48
Revenues for the third quarter and first nine months of 2001 increased $75,073,000 and $236,225,000 respectively, compared with the same periods in 2000, primarily due to higher home closings and significant increases in average selling prices per home closed. Revenues for the first nine months of 2000 included gains of $9,736,000 realized on sales of certain investments by MDC's captive insurance subsidiary. Income before income taxes increased 25% and 26%, respectively, in the third quarter and first nine months of 2001, compared with the same periods in 2000. These increases primarily were a result of the factors contributing to the increases in revenues described above, as well as 100 and 140 basis point increases, respectively, in Home Gross Margins (as defined below) for the third quarter and first nine months of 2001, compared with the same periods in 2000. These increases partially were offset by the $9,736,000 investment gains in the first nine months of 2000, discussed above. - 10 - Homebuilding Segment The tables below set forth information relating to the Company's homebuilding segment (dollars in thousands).
Three Months Nine Months Ended September 30, Ended September 30, ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Home Sales Revenues........................... $ 505,995 $ 436,174 $ 1,413,121 $ 1,173,084 Operating Profit.............................. $ 71,914 $ 61,195 $ 195,831 $ 159,024 Average Selling Price Per Home Closed......... $ 243.7 $ 224.5 $ 245.4 $ 219.1 Home Gross Margins............................ 24.2% 23.2% 23.7% 22.3% Excluding Interest in Home Cost of Sales.. 25.3% 24.6% 25.0% 23.6% Orders For Homes, net (units) Colorado................................ 494 668 2,101 2,134 California.............................. 362 415 1,217 1,272 Arizona................................. 433 573 1,699 1,486 Nevada.................................. 161 199 591 631 Virginia................................ 117 177 481 641 Maryland................................ 61 60 239 217 ------------ ------------ ------------ ------------ Total............................. 1,628 2,092 6,328 6,381 ============ ============ ============ ============ Homes Closed (units) Colorado................................ 688 702 1,988 2,152 California.............................. 433 369 1,048 887 Arizona................................. 611 405 1,622 1,094 Nevada.................................. 165 212 493 500 Virginia................................ 107 175 413 497 Maryland................................ 72 80 195 225 ------------ ------------ ------------ ------------ Total............................. 2,076 1,943 5,759 5,355 ============ ============ ============ ============
September 30, December 31, September 30, 2001 2000 2000 ------------ ------------ ------------ Backlog (units) Colorado................................ 1,498 1,385 1,608 California.............................. 677 508 642 Arizona................................. 887 747 844 Nevada.................................. 296 198 268 Virginia................................ 396 328 434 Maryland................................ 170 126 171 ------------ ------------ ------------ Total............................. 3,924 3,292 3,967 ============ ============ ============ Backlog Estimated Sales Value................. $ 1,050,000 $ 775,000 $ 930,000 ============ ============ ============ Active Subdivisions Colorado............................... 64 48 44 California............................. 27 29 24 Arizona................................ 27 27 27 Nevada................................. 7 10 9 Virginia............................... 10 12 9 Maryland............................... 6 7 7 ------------ ------------ ------------ Total............................. 141 133 120 ============ ============ ============
- 11 - Home Sales Revenues - Home sales revenues in the third quarter and first nine months of 2001 were 16% and 20% higher, respectively, than home sales revenues for the same periods in 2000. The improved revenues were a result of increased home closings and significantly higher average selling prices per home closed, as further discussed below. Homes Closed - Home closings for the three and nine months ended September 30, 2001 were 7% and 8% higher, respectively, than in the same periods in 2000. Home closings in the third quarter and first nine months of 2001 particularly were strong in (1) Phoenix (increases of 71% and 78%, respectively), as a result of the strong demand for new homes in this market in the fourth quarter of 2000 through the first half of 2001; and (2) Northern California (increases of 50% and 37%, respectively), where the Company has almost doubled the number of active subdivisions since September 2000. Home closings decreased in the third quarter and first nine months of 2001 in Colorado, Nevada and Virginia, compared with the same periods in 2000, primarily due to lower home orders resulting from fewer active subdivisions in Colorado in the second half of 2000, in Nevada in the second and third quarters of 2001, and in Virginia in the second half of 2000 and first nine months of 2001. Average Selling Price Per Home Closed - The average selling prices per home closed in the third quarter and first nine months of 2001 increased $19,200 and $26,300, respectively, compared with the same periods in 2000, as each of the Company's markets realized higher average selling prices. The increases primarily were due to (1) the ability to increase sales prices due to the strong demand for new homes in most of the Company's markets throughout the first six months of 2001; (2) a greater number of homes closed in higher-priced subdivisions in California, where average selling prices approached $400,000; and (3) increased sales per home from the Company's design centers. 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 for the third quarter and first nine months of 2001 increased 100 and 140 basis points, respectively, compared with the same periods in 2000. The increases largely were due to (1) selling price increases in most of the Company's markets; (2) increased sales of higher-margin products through the Company's design centers; (3) a reduction of previous estimates of costs to complete land development and homes in most of the Company's markets; (4) in Maryland, fewer under-performing subdivisions in 2001 and management's continued efforts to improve profitability; and (5) ongoing initiatives in each of the Company's markets designed to improve operating efficiency, control costs and increase rates of return. The impact of these increases partially was offset by, among other things, the rising cost of land. 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, finished lots and other resources. Orders for Homes and Backlog - The Company received orders for 1,628 homes and 6,328 homes, respectively, net of cancellations, during the third quarter and first nine months of 2001, compared with net orders for 2,092 homes and 6,381 homes, respectively, for the same periods in 2000. Levels of gross home orders declined by approximately 30% during the week immediately following the tragic events of September 11th, compared with the weeks prior to such events, while the absolute number of home order cancellations were consistent. During the last two weeks of September, the number of cancellations remained relatively stable and home orders improved on both a gross and net - 12 - basis, although not to weekly levels immediately prior to September 11th. In October 2001, with the number of cancellations actually lower than in September 2001, the Company received net orders for 462 homes, compared with 553 home orders in October 2000. In September and October of 2001, as well as throughout most of the 2001 third quarter, MDC orders continued to be impacted by reduced numbers of active subdivisions in Virginia, Nevada and Phoenix. A significant number of active subdivisions in these markets also were approaching close-out in this period. In addition, while the number of active subdivisions increased in Colorado, many of these new subdivisions have been selling out of trailers with models under construction, contributing to a lower absorption pace. MDC expects to open approximately 35 new model homes in Colorado before the end of 2001. See "Forward-Looking Statements" below. Homes under contract but not yet delivered ("Backlog") at September 30, 2001 was 3,924 units with an estimated sales value of $1,050,000,000, compared with a Backlog of 3,967 units with an estimated sales value of $930,000,000 at September 30, 2000. Assuming no significant change in market conditions or mortgage interest rates, the Company expects approximately 70% to 75% of its September 30, 2001 Backlog to close under existing sales contracts during the fourth quarter of 2001 and first half of 2002. The remaining 25% to 30% 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 of $13,203,000 for the first nine months of 2000 included net pre-tax gains of $9,736,000 realized on the sales of certain investments by MDC's captive insurance subsidiary. Asset Impairment Charges - Operating results for the three and nine months ended September 30, 2001 were reduced by asset impairment charges of $2,900,000, compared with asset impairment charges of zero and $800,000, respectively, for the three and nine months ended September 30, 2000. The 2001 asset impairment charge resulted from the write-down to fair market value of two homebuilding projects in the San Francisco Bay area. Each of these projects offers homes with prices averaging over $750,000, and each has experienced a much slower than anticipated home order pace and significantly increased sales incentive requirements. These subdivisions are the Company's only two subdivisions selling at this high a price point in the San Francisco Bay area market. The 2000 asset impairment charge resulted from the write-down to fair value of a subdivision in Southern California that had experienced slow sales and negative Home Gross Margins. Marketing - Marketing expenses (which include sales commissions, advertising, amortization of deferred marketing costs, model home expenses and other costs) totaled $28,116,000 and $78,033,000, respectively, for the quarter and nine months ended September 30, 2001, compared with $24,230,000 and $66,077,000, respectively, for the same periods in 2000. The increases in 2001 primarily were volume related, resulting from higher sales commissions, product advertising and other costs incurred in connection with the Company's increased home sale revenues. General and Administrative - General and administrative expenses increased to $23,655,000 and $65,461,000, respectively, during the third quarter and first nine months of 2001, compared with $17,667,000 and $50,893,000, respectively, for the same periods in 2000, primarily due to increased compensation, land acquisition and other overhead costs associated with expanding operations in most of the Company's markets. - 13 - 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).
September 30, December 31, September 30, 2001 2000 2000 ----------- ----------- ------------ Colorado........................................ $ 162,401 $ 126,524 $ 90,342 California...................................... 119,478 149,088 159,509 Arizona......................................... 60,379 50,937 43,741 Nevada.......................................... 44,361 26,546 25,600 Virginia........................................ 37,540 29,596 9,089 Maryland........................................ 9,731 6,020 5,248 ----------- ----------- ------------ Total...................................... $ 433,890 $ 388,711 $ 333,529 =========== =========== ============ Total Lots Owned (excluding lots in work-in-process).............................. 13,331 11,633 10,098 Total Lots Controlled Under Option.............. 7,205 8,131 8,567 ----------- ----------- ------------ Total Lots Owned and Controlled (excluding lots in work-in-process)................. 20,536 19,764 18,665 =========== =========== ============ Total Cash Option Deposits...................... $ 13,512 $ 10,838 $ 9,323 =========== =========== ============
Financial Services Segment The table below sets forth information relating to HomeAmerican's operations (in thousands).
Three Months Nine Months Ended September 30, Ended September 30, ------------------------- ------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Loan Origination Fees....................... $ 4,418 $ 3,535 $ 12,570 $ 9,573 Gains on Sales of Mortgage Servicing, net... $ 461 $ 706 $ 2,863 $ 2,535 Gains on Sales of Mortgage Loans, net....... $ 4,128 $ 2,151 $ 9,638 $ 6,243 Operating Profit............................ $ 5,750 $ 3,370 $ 14,680 $ 9,799 Principal Amount of Loan Originations MDC home buyers........................ $ 302,407 $ 229,139 $ 821,571 $ 605,071 Spot................................... 12,816 3,553 41,246 11,390 ----------- ----------- ----------- ----------- Total.............................. $ 315,223 $ 232,692 $ 862,817 $ 616,461 =========== =========== =========== =========== Principal Amount of Loans Brokered MDC home buyers........................ $ 56,605 $ 65,738 $ 167,463 $ 178,360 Spot................................... 1,084 1,911 8,179 4,302 ----------- ----------- ----------- ----------- Total.............................. $ 57,689 $ 67,649 $ 175,642 $ 182,662 =========== =========== =========== =========== Capture Rate................................ 74% 66% 73% 64% =========== =========== =========== =========== Including brokered loans............... 85% 82% 85% 81% =========== =========== =========== ===========
- 14 - HomeAmerican's operating profit for the third quarter and first nine months of 2001 increased, compared with the same periods in 2000, due to higher gains on sales of mortgage loans, as well as higher origination fee income. The principal amount of originated and brokered loans increased by $72,571,000 and $239,336,000, respectively, in the third quarter and first nine months of 2001, compared with the same periods in 2000. These improvements primarily were due to the Company's higher home closings and an increase in HomeAmerican's Capture Rate (as defined below). HomeAmerican continues to benefit from the Company's homebuilding growth, as MDC home buyers were the source of approximately 96% and 95%, respectively, of the principal amount of mortgage loans originated and brokered by HomeAmerican in the third quarter and first nine months of 2001. Mortgage loans originated by HomeAmerican for MDC home buyers as a percentage of total MDC home closings ("Capture Rate") increased to 74% and 73%, respectively, for the quarter and nine months ended September 30, 2001, compared with 66% and 64%, respectively, for the same periods in 2000. HomeAmerican also brokers mortgage loans originated by outside lending institutions for MDC home buyers. These brokered loans, for which HomeAmerican receives a fee, have been excluded from the computation of the Capture Rate. If brokered loans were included, the Capture Rate would have been 85% for both the third quarter and first nine months of 2001, compared with 82% and 81%, respectively, for the same periods in 2000. 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 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 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 totaled zero for the third quarter and first nine months of both 2001 and 2000. 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 totaled $11,097,000 and $33,013,000, respectively, during the third quarter and first nine months of 2001, compared with $11,168,000 and $28,237,000, respectively, for the same periods of 2000. The increase in the 2001 nine-month period primarily was due to greater compensation-related costs in 2001, principally resulting from the Company's higher profitability and increasing homebuilding activities. Income Taxes - MDC's overall effective income tax rates of 39.3% and 39.0% for the third quarter and first nine months of 2001, respectively differed from the federal statutory rate of 35% primarily due to the impact of state income taxes. The Company's overall effective income tax rate decreased to 36.1% for the third quarter of 2000 from 40.1% in the 2000 second quarter, bringing the 2000 nine-month income tax rate down to 40.5% from the 43.2% income tax rate recorded for the first six months of 2000. These decreases in the effective rates primarily were the result of the Company resolving the Internal Revenue Service ("IRS") income tax examination for the years 1991 through 1995 in August 2000. Also affecting the rate in the first nine months of 2000 were investment gains of $9,736,000, discussed under "Results of Operations" above, that were subject to taxation at both the subsidiary and Company levels, resulting in taxes at an effective rate of 64%. - 15 - 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. The Company currently has an effective registration statement that would allow the Company to issue up to $300,000,000 of equity, debt or hybrid securities. 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 unsecured revolving line of credit with a group of lenders for support of its homebuilding operations (the "Homebuilding Line"); and (3) current financing, primarily its mortgage lending line of credit (the "Mortgage Line"). 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. See "Forward-Looking Statements" below. Based upon its current capital resources and additional liquidity available under existing credit agreements, MDC anticipates that it has adequate financial resources 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 terms of the Homebuilding Line were amended and restated (the "Amended and Restated Credit Agreement") to extend the maturity date to September 30, 2004 and increase the maximum amount available from $300,000,000 to $450,000,000 upon the Company's request, requiring additional commitments from existing or additional participant lenders. Commitments under the Homebuilding Line increased from $300,000,000 to $413,000,000 in 2000 and to $438,000,000 in April 2001. Commitments increased to $450,000,000 in June 2001 with the addition of two new banks to the lending group. Pursuant to the terms of the Amended and Restated Credit Agreement, a term-out of this credit may commence prior to September 30, 2004 under certain circumstances. At September 30, 2001, $145,000,000 was borrowed and $16,469,000 in letters of credit were outstanding under the Homebuilding Line. Mortgage Lending - To provide funds to originate mortgage loans and to finance these mortgage loans on a short-term basis, HomeAmerican utilizes its 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 nine months of 2001 and 2000, HomeAmerican sold $862,218,000 and $606,930,000, respectively, principal amount of mortgage loans and mortgage-backed certificates to unaffiliated purchasers. In June 2001, the Company modified the terms of its Mortgage Line, temporarily increasing the available borrowings from $100,000,000 to $125,000,000. Available borrowings were reduced to - 16 - $100,000,000 in August 2001. 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. At September 30, 2001, $48,334,000 was borrowed and an additional $32,996,000 was collateralized and available to be borrowed. The Mortgage Line is cancelable upon 90 days' notice. 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, 2000. 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 than 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, the MDC board of directors authorized the repurchase of up to 1,000,000 shares of MDC common stock. On February 21, 2000, the MDC board of directors authorized the repurchase of up to 2,000,000 additional shares of MDC common stock. The Company repurchased a total of 1,931,800 shares of MDC common stock under these programs through December 31, 2000. In September 2001, the Company repurchased 132,500 shares of MDC common stock, bringing the total shares repurchased under these programs to 2,064,300. The per share prices, including commissions, for these repurchases ranged from $13.53 to $29.02, with an average cost of $16.80. At September 30, 2001, the Company held 7,325,000 shares of treasury stock with an average purchase price of $9.45. Consolidated Cash Flow During the first nine months of 2001 and 2000, the Company used $23,873,000 and $107,494,000, respectively, of cash in its operating activities, primarily to finance increases in homebuilding inventories related to its expanded homebuilding operations. In addition, in the first nine months of 2001 and 2000, the Company used $3,845,000 and $30,828,000, respectively, to repurchase 132,500 and 1,931,800 shares, respectively, of MDC common stock. The Company financed these operating cash requirements and stock repurchases primarily through borrowings on its bank lines of credit. - 17 - 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 would 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. 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, 2000, 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; (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; (14) actual or threatened terrorist acts and other acts of war and the results thereof; and (15) other factors over which the Company has little or no control. - 18 - 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 HomeAmerican's 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 originates mortgage loans that generally are sold forward and subsequently are 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 that 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 in its financing strategy. 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 the Company would be required to refinance such debt. As of September 30, 2001, short-term debt was $48,334,000, 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 September 30, 2001 are as follows (dollars in thousands).
Maturities through December 31, Estimated --------------------------------------------------------------- 2001 2002 2003 2004 2005 Thereafter Total Fair Value --------- ---------- --------- ---------- ---------- ---------- --------- ---------- Fixed Rate Debt............ $ - - $ - - $ - - $ - - $ - - $ 175,000 $ 175,000 $ 170,380 Average Interest Rate... - - - - - - - - - - 8.38% 8.38% Variable Rate Debt......... $ - - $ - - $ - - $ 145,000 $ - - $ - - $ 145,000 $ 145,000 Average Interest Rate... - - - - - - 4.62% - - - - 4.62%
The Company believes that its overall balance sheet structure has repricing and cash flow characteristics that mitigate the impact of interest rate movements. - 19 - 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 that would result in material contingent liabilities related to environmental hazards or asbestos. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREOWNERS ------ ---------------------------------------------- No matters were submitted to shareowners during the third quarter of 2001. ITEM 5. OTHER INFORMATION On October 22, 2001, the Company's board of directors declared a dividend of seven cents per share for the quarter ended September 30, 2001, payable November 21, 2001, to shareowners of record on November 7, 2001. 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: 10.1 Letter Agreement between M.D.C. Holdings, Inc. and Gilbert Goldstein, P.C. dated October 22, 2001 amending the consulting Agreement effective October 1, 1998 between Registrant and Gilbert Goldstein, P.C. (b) Reports on Form 8-K: No Current Reports on Form 8-K were filed by the Registrant during the period covered by this Quarterly Report on Form 10-Q. - 20 - 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: November 7, 2001 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 EX-10 2 exh10_1.txt GOLDSTEIN AGREEMENT Exhibit 10.1 Gilbert Goldstein, P.C. Attorney and Counselor at Law 3600 South Yosemite Street, Suite 870 Dener, Colorado 80237 Gilbert Goldstein FAX (303) 220-8272 (303) 220-8200 October 22, 2001 Mr. Larry A. Mizel, Chairman M.D.C. Holdings, Inc. 3600 S. Yosemite St., Suite 900 Denver, Colorado 80237 Re: Gilbert Goldstein, P.C. - Amendment to Agreement Dear Larry: This letter amends the agreement between Gilbert Goldstein, P.C. ("GGPC") and M.D.C. Holdings, Inc. ("MDC") dated September 25, 1998 (the "Agreement"). Paragraph 4 of the Agreement is hereby amended to extend the term of the Agreement to September 30, 2003. Except as amended hereby, all other terms, conditions, and other provisions of the Agreement, as previously amended on October 25, 1999 and October 23, 2000, are ratified, approved and confirmed. This amendment was approved by the Board of Directors of MDC on October 22, 2001. Please indicate MDC's approval of this Amendment by executing the acknowledgement below. If you have any questions, please call me. Yours truly, GILBERT GOLDSTEIN, P.C. By: /s/ Gilbert Goldstein --------------------------------- Gilbert Goldstein Approved and agreed to this 22nd Day of October, 2001. M.D.C. HOLDINGS, INC. By: /s/ Larry A. Mizel --------------------------------- Larry A. Mizel Chairman of the Board and Chief Executive Officer DSJ/aw