-----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, MLrvdcrJT+0+THS7/YF0coktbX5oISuZMkztgx2ciGu8en2oEIk/UFxsv05nW9jl 75C+TVsnHdiCtCgIGaijlA== 0000773141-02-000005.txt : 20020507 0000773141-02-000005.hdr.sgml : 20020507 ACCESSION NUMBER: 0000773141-02-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020507 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: 02636299 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 form10q3_02.txt M.D.C. HOLDINGS, INC. - FIRST QUARTER FORM 10-Q ================================================================================ 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 March 31, 2002 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 May 3, 2002, approximately 27,034,000 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 MARCH 31, 2002 INDEX Page No. ---- Part I. Financial Information Item 1. Condensed Consolidated Financial Statements Balance Sheets as of March 31, 2002 (Unaudited) and December 31, 2001......................... 1 Statements of Income and Other Comprehensive Income (Unaudited) for the three months ended March 31, 2002 and 2001................. 3 Statements of Cash Flows (Unaudited) for the three months ended March 31, 2002 and 2001.... 4 Notes to Condensed Consolidated Financial Statements (Unaudited)........................ 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk................................... 21 Part II. Other Information Item 1. Legal Proceedings................................. 22 Item 4. Submission of Matters to a Vote of Shareowners.... 22 Item 5. Other Information................................. 22 Item 6. Exhibits and Reports on Form 8-K.................. 22 (a) M.D.C. HOLDINGS, INC. Condensed Consolidated Balance Sheets (In thousands)
March 31, December 31, 2002 2001 ------------- ------------- ASSETS (Unaudited) Corporate Cash and cash equivalents................................................... $ 23,265 $ 31,322 Property and equipment, net................................................. 2,097 2,723 Deferred income taxes....................................................... 27,379 30,081 Deferred debt issue costs, net.............................................. 1,885 1,947 Other assets, net........................................................... 13,555 7,597 ------------- ------------- 68,181 73,670 ------------- ------------- Homebuilding Cash and cash equivalents................................................... 5,094 4,760 Home sales and other accounts receivable.................................... 5,750 2,621 Inventories, net Housing completed or under construction................................... 475,854 456,752 Land and land under development........................................... 506,536 450,502 Prepaid expenses and other assets, net...................................... 55,277 49,544 ------------- ------------- 1,048,511 964,179 ------------- ------------- Financial Services Cash and cash equivalents................................................... 550 518 Mortgage loans held in inventory............................................ 92,135 144,971 Other assets, net........................................................... 4,993 7,618 ------------- ------------- 97,678 153,107 ------------- ------------- Total Assets.......................................................... $ 1,214,370 $ 1,190,956 ============= =============
See notes to condensed consolidated financial statements. -1- M.D.C. HOLDINGS, INC. Condensed Consolidated Balance Sheets (In thousands, except share amounts)
March 31, December 31, 2002 2001 ------------- ------------- LIABILITIES (Unaudited) Corporate Accounts payable and accrued expenses........................................ $ 41,939 $ 61,135 Income taxes payable......................................................... 22,273 9,953 Senior notes, net............................................................ 174,519 174,503 ------------- ------------- 238,731 245,591 ------------- ------------- Homebuilding Accounts payable and accrued expenses........................................ 165,043 174,955 Line of credit............................................................... 50,000 - - ------------- ------------- 215,043 174,955 ------------- ------------- Financial Services Accounts payable and accrued expenses........................................ 22,235 16,937 Line of credit............................................................... 44,833 99,642 ------------- ------------- 67,068 116,579 ------------- ------------- Total Liabilities...................................................... 520,842 537,125 ------------- ------------- 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; 31,590,000 and 31,395,000 shares issued, respectively, at March 31, 2002 and December 31, 2001.......................................................... 316 314 Additional paid-in capital................................................... 365,347 357,037 Retained earnings............................................................ 372,953 342,485 Unearned restricted stock.................................................... (412) (412) Accumulated other comprehensive loss......................................... (77) (163) ------------- ------------- 738,127 699,261 Less treasury stock, at cost; 4,721,000 and 4,809,000 shares, respectively, at March 31, 2002 and December 31, 2001.................................... (44,599) (45,430) ------------- ------------- Total Stockholders' Equity............................................. 693,528 653,831 ------------- ------------- Total Liabilities and Stockholders' Equity............................. $ 1,214,370 $ 1,190,956 ============= =============
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 Ended March 31, 2002 2001 ----------- ----------- REVENUES Homebuilding............................................................... $ 446,761 $ 411,096 Financial Services......................................................... 9,381 8,341 Corporate.................................................................. 232 285 ----------- ----------- Total Revenues......................................................... 456,374 419,722 ----------- ----------- COSTS AND EXPENSES Homebuilding............................................................... 388,917 357,165 Financial Services......................................................... 4,351 4,137 Corporate general and administrative....................................... 10,060 10,406 ----------- ----------- Total Costs and Expenses............................................... 403,328 371,708 ----------- ----------- Income before income taxes.................................................... 53,046 48,014 Provision for income taxes.................................................... (20,710) (18,731) ----------- ----------- NET INCOME.................................................................... 32,336 29,283 Unrealized holding gains (losses) on securities arising during the quarter.... 119 (367) Less reclassification adjustment for gains included in net income............. (33) (64) ----------- ----------- Net gain (loss) recognized in other comprehensive income during the quarter, net of deferred income tax expense (benefit) of $64 in 2002 and ($737) in 2001....................................................................... 86 (431) ----------- ----------- OTHER COMPREHENSIVE INCOME.................................................... $ 32,422 $ 28,852 =========== =========== EARNINGS PER SHARE Basic...................................................................... $ 1.21 $ 1.13 =========== =========== Diluted.................................................................... $ 1.16 $ 1.09 =========== =========== WEIGHTED-AVERAGE SHARES OUTSTANDING Basic...................................................................... 26,714 25,933 =========== =========== Diluted.................................................................... 27,773 26,938 =========== =========== DIVIDENDS PAID PER SHARE...................................................... $ .07 $ .06 =========== ===========
See notes to condensed consolidated financial statements. -3- M.D.C. HOLDINGS, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Three Months Ended March 31, 2002 2001 ----------- ----------- OPERATING ACTIVITIES Net income........................................................ $ 32,336 $ 29,283 Adjustments to reconcile net income to net cash used in operating activities Depreciation and amortization................................ 5,249 5,376 Deferred income taxes........................................ 2,702 (3,863) Net changes in assets and liabilities Home sales and other accounts receivable.............. (3,129) (9,019) Homebuilding inventories.............................. (75,136) (40,700) Prepaid expenses and other assets..................... (8,455) (9,626) Mortgage loans held in inventory...................... 52,836 (5,409) Accounts payable and accrued expenses.................. (5,969) 22,199 Other, net................................................... (5,070) 1,186 ----------- ----------- Net cash used in operating activities............................. (4,636) (10,573) ----------- ----------- FINANCING ACTIVITIES Lines of credit Advances..................................................... 400,700 378,900 Principal payments........................................... (405,509) (368,666) Dividend payments................................................. (1,868) (1,308) Proceeds from exercise of stock options........................... 3,622 2,885 ----------- ----------- Net cash provided by (used in) financing activities............... (3,055) 11,811 ----------- ----------- Net increase (decrease) in cash and cash equivalents.............. (7,691) 1,238 Cash and cash equivalents Beginning of period.......................................... 36,600 14,115 ----------- ----------- End of period................................................ $ 28,909 $ 15,353 =========== ===========
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 March 31, 2002 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, 2001. B. Corporate and Homebuilding Interest Activity (in thousands)
Three Months Ended March 31, 2002 2001 ----------- ----------- Interest capitalized in homebuilding inventory, beginning of period......... $ 17,358 $ 19,417 Interest incurred........................................................... 4,041 6,032 Interest expensed........................................................... - - - - Previously capitalized interest included in cost of sales................... (4,462) (5,679) ----------- ----------- Interest capitalized in homebuilding inventory, end of period............... $ 16,937 $ 19,770 =========== ===========
C. Earnings Per Share The basic and diluted earnings per share calculations are shown below (in thousands, except per share amounts).
Three Months Ended March 31, 2002 2001 ----------- ----------- Basic Earnings Per Share Net income..................................................... $ 32,336 $ 29,283 =========== =========== Basic weighted-average shares outstanding...................... 26,714 25,933 =========== =========== Per share amounts.............................................. $ 1.21 $ 1.13 =========== =========== Diluted Earnings Per Share Net income..................................................... $ 32,336 $ 29,283 =========== =========== Basic weighted-average shares outstanding...................... 26,714 25,933 Stock options, net............................................. 1,059 1,005 ----------- ----------- Diluted weighted-average shares outstanding.................... 27,773 26,938 =========== =========== Per share amounts.............................................. $ 1.16 $ 1.09 =========== ===========
-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 Ended March 31, 2002 2001 ----------- ----------- Homebuilding Home sales....................................................... $ 445,167 $ 409,720 Land sales....................................................... - - 346 Other revenues................................................... 1,594 1,030 ----------- ----------- 446,761 411,096 Home cost of sales............................................... 341,061 314,437 Land cost of sales............................................... - - 263 Marketing expenses............................................... 25,663 22,853 General and administrative expenses.............................. 22,193 19,612 ----------- ----------- 388,917 357,165 Homebuilding Operating Profit................................. 57,844 53,931 ----------- ----------- Financial Services Mortgage Lending Revenues Interest......................................................... 1,008 541 Origination fees................................................. 4,229 3,685 Gains on sales of mortgage servicing............................. 471 1,683 Gains on sales of mortgage loans, net............................ 3,461 2,574 Mortgage servicing and other..................................... 212 (142) ----------- ----------- 9,381 8,341 General and Administrative Expenses................................ 4,351 4,137 ----------- ----------- Financial Services Operating Profit........................... 5,030 4,204 ----------- ----------- Total Operating Profit................................................ 62,874 58,135 ----------- ----------- Corporate Interest and other revenues...................................... 232 285 General and administrative expenses.............................. (10,060) (10,406) ----------- ----------- Net Corporate Expenses........................................ (9,828) (10,121) ----------- ----------- Income Before Income Taxes............................................ $ 53,046 $ 48,014 =========== ===========
E. Supplemental Disclosure of Cash Flow Information (in thousands)
Three Months Ended March 31, 2002 2001 ----------- ----------- Cash paid during the period for Interest......................................................... $ 7,765 $ 9,929 Income taxes..................................................... $ 4,004 $ 6,030
-6- 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 2,064,300 shares of MDC common stock under these programs through March 31, 2002, leaving 935,700 shares available to be repurchased as of such date under these programs. No shares were repurchased during each of the three months ended March 31, 2002 and 2001. 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 March 31, 2002, the Company held 4,721,000 shares of treasury stock with an average purchase price of $9.45. Stock Dividends - On January 22, 2001, MDC's Board of Directors approved a 10% stock dividend that was distributed on February 16, 2001 to shareowners of record on February 5, 2001. On December 6, 2001, MDC's Board of Directors approved another 10% stock dividend that was distributed on December 28, 2001 to shareowners of record on December 17, 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 ended March 31, 2001 to reflect the effect of the December 2001 stock dividend. No stock dividends were declared or paid in the three months ended March 31, 2002. Stock Contributions - In the first quarter of 2001, the Company committed to contribute $1,000,000 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 2001, 27,817 shares of MDC common stock with a total value of $1,000,000 were transferred to the Foundation. 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. No stock contributions were made in the three months ended March 31, 2002. G. Lines of Credit Homebuilding - The Company has an unsecured revolving line of credit with a group of lenders for support of its homebuilding operations (the "Homebuilding Line"). The maturity date of the Homebuilding Line is September 30, 2004 and the maximum amount available is $450,000,000, subject to commitments from existing or additional participant banks. Commitments under the Homebuilding Line increased from $413,000,000 at March 31, 2001 to $438,000,000 in April 2001 and to $450,000,000 in June 2001. Pursuant to the terms of the Homebuilding Line agreement, a term-out of this credit could commence prior to September 30, 2004 under certain circumstances. At March 31, 2002, $50,000,000 was borrowed and $16,130,000 in letters of credit were outstanding under the Homebuilding Line. Mortgage Lending - The Company's mortgage lending bank line of credit (the "Mortgage Line") has a borrowing limit of $100,000,000, with the potential for a $25,000,000 temporary increase, subject to concurrence by the participating banks. At March 31, 2002 and 2001, the borrowing limit was $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 March 31, 2002, $44,833,000 was borrowed and an additional $25,333,000 was collateralized and available to be borrowed. The Mortgage Line is cancelable upon 90 days' notice. -7- H. Derivative Instruments and Hedging Activities The Company's mortgage lending operations are affected by, among other things, changes in mortgage interest rates. The Company accounts for derivative instruments and hedging activities in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting for Certain Derivative Instruments and Hedging Activities, an Amendment of SFAS No. 133." Derivative instruments utilized in the normal course of business by HomeAmerican Mortgage Corporation, the Company's wholly owned mortgage lending subsidiary ("HomeAmerican"), include forward sales securities commitments, private investor sales commitments and commitments to originate mortgage loans. The Company utilizes these commitments to manage the price risk on fluctuations in interest rates on its mortgage loans owned and commitments to originate mortgage loans. Such contracts are the only significant financial derivative instruments utilized by MDC. Hedging gains or losses are recognized when the hedged mortgage loans are sold. Gains or losses related to ineffectiveness in the hedging relationship and gains or losses on derivative instruments that do not qualify for hedge accounting are recognized immediately. I. Recent Accounting Pronouncements In October 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 provides guidance for the financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The adoption by MDC of SFAS No. 144 as of January 1, 2002 did not have a material effect on the Company's financial position or results of operations. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets" and SFAS No. 141, "Business Combinations". SFAS No. 141 eliminates the pooling-of-interest 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 was required to be adopted as of January 1, 2002. The adoption by MDC of SFAS No. 142 on January 1, 2002 did not have a material effect on the Company's financial position or results of operations. J. Supplemental Guarantor Information The Senior Notes are unconditionally guaranteed on an unsecured basis, jointly and severally, by Richmond American Homes of California, Inc., Richmond American Homes of Maryland, Inc., Richmond American Homes of Nevada, Inc., Richmond American Homes of Virginia, Inc., Richmond American Homes of Arizona, Inc. and Richmond American Homes of Colorado, Inc. (collectively, the "Guarantor Subsidiaries"). Non-guarantor subsidiaries primarily consist of HomeAmerican, American Home Title and Escrow Company, American Home Insurance Agency, Inc. and Lion Insurance Company (collectively, the "Non-Guarantor Subsidiaries"). The Company has determined that separate, full financial statements of the Guarantor Subsidiaries would not be material to investors and, accordingly, supplemental financial information for the Guarantor Subsidiaries is presented. Consolidating statements of cash flows are not presented because cash flows for the Non-Guarantor Subsidiaries were not significant for any of the periods presented. -8- M.D.C. Holdings, Inc. Supplemental Combining Balance Sheet March 31, 2002 (In thousands) (Unaudited)
Non- ASSETS Guarantor Guarantor Eliminating MDC Subsidiaries Subsidiaries Entries Total ----------- ------------ ------------ ------------ ----------- Corporate Cash and cash equivalents............... $ 23,265 $ - - $ - - $ - - $ 23,265 Investments in and advances to parent and subsidiaries............... 199,874 175 (1,511) (198,538) - - Other assets............................ 39,388 - - 5,528 - - 44,916 ----------- ----------- ----------- ----------- ----------- 262,527 175 4,017 (198,538) 68,181 ----------- ----------- ----------- ----------- ----------- Homebuilding Cash and cash equivalents............... - - 4,718 376 - - 5,094 Home sales and other accounts receivable................... - - 6,076 209 (535) 5,750 Inventories, net Housing completed or under construction - - 475,854 - - - - 475,854 Land and land under development....... - - 501,618 4,918 - - 506,536 Other assets............................ - - 37,417 17,860 - - 55,277 ----------- ----------- ----------- ----------- ----------- - - 1,025,683 23,363 (535) 1,048,511 ----------- ----------- ----------- ----------- ----------- Financial Services - - - - 97,678 - - 97,678 ----------- ----------- ----------- ----------- ----------- Total Assets...................... $ 262,527 $ 1,025,858 $ 125,058 $ (199,073) $ 1,214,370 =========== =========== =========== =========== =========== LIABILITIES Corporate Accounts payable and accrued expenses. $ 39,778 $ - - $ 2,153 $ 8 $ 41,939 Advances and notes payable - Parent and subsidiaries.......................... (687,448) 665,685 21,763 - - - - Income taxes payable.................... (593) 20,775 2,091 - - 22,273 Senior Notes, net....................... 174,519 - - - - - - 174,519 ----------- ----------- ----------- ------------ ----------- (473,744) 686,460 26,007 8 238,731 ----------- ----------- ----------- ------------ ----------- Homebuilding Accounts payable and accrued expenses... - - 158,938 6,105 - - 165,043 Lines of credit......................... 50,000 - - - - - - 50,000 ----------- ----------- ----------- ------------ ----------- 50,000 158,938 6,105 - - 215,043 ----------- ----------- ----------- ------------ ----------- Financial Services - - - - 67,602 (534) 67,068 ----------- ----------- ----------- ------------ ----------- Total Liabilities................. (423,744) 845,398 99,714 (526) 520,842 ----------- ----------- ----------- ------------ ----------- STOCKHOLDERS' EQUITY...................... 686,271 180,460 25,344 (198,547) 693,528 ----------- ----------- ----------- ------------ ----------- Total Liabilities and Stockholders' Equity............ $ 262,527 $ 1,025,858 $ 125,058 $ (199,073) $ 1,214,370 =========== =========== =========== ============= ===========
-9- M.D.C. Holdings, Inc. Supplemental Combining Balance Sheet December 31, 2001 (In thousands)
Non- ASSETS Guarantor Guarantor Eliminating MDC Subsidiaries Subsidiaries Entries Total ----------- ------------ ------------ ------------ ------------ Corporate Cash and cash equivalents............... $ 31,322 $ - - $ - - $ - - $ 31,322 Investments in and advances to parent and subsidiaries...................... 330,944 465 (1,951) (329,458) - - Other assets ........................... 42,869 - - (521) - - 42,348 ----------- ----------- ----------- ----------- ------------ 405,135 465 (2,472) (329,458) 73,670 ----------- ----------- ----------- ----------- ------------ Homebuilding Cash and cash equivalents............... - - 4,352 408 - - 4,760 Home sales and other accounts receivable - - 3,744 169 (1,292) 2,621 Inventories, net Housing completed or under construction - - 456,752 - - - - 456,752 Land and land under development....... - - 441,004 9,498 - - 450,502 Other assets............................ - - 32,063 17,481 - - 49,544 ----------- ----------- ----------- ----------- ------------ - - 937,915 27,556 (1,292) 964,179 ----------- ----------- ----------- ----------- ------------ Financial Services - - - - 153,107 - - 153,107 ----------- ----------- ----------- ----------- ------------ Total Assets...................... $ 405,135 $ 938,380 $ 178,191 $ (330,750) $ 1,190,956 =========== =========== =========== =========== ============ LIABILITIES Corporate Accounts payable and accrued expenses... $ 60,684 $ - - $ 443 $ 8 $ 61,135 Advances and notes payable - Parent and subsidiaries.......................... (375,290) 358,751 16,539 - - - - Income taxes payable.................... (100,585) 102,494 8,044 - - 9,953 Senior notes, net....................... 174,503 - - - - - - 174,503 ----------- ----------- ----------- ------------ ------------ (240,688) 461,245 25,026 8 245,591 ----------- ----------- ----------- ------------ ------------ Homebuilding Accounts payable and accrued expenses. - - 168,247 6,708 - - 174,955 Line of credit.......................... - - - - - - - - - - ----------- ----------- ----------- ------------ ------------ - - 168,247 6,708 - - 174,955 ----------- ----------- ----------- ------------ ------------ Financial Services - - - - 117,878 (1,299) 116,579 ----------- ----------- ----------- ------------ ------------ Total Liabilities................. (240,688) 629,492 149,612 (1,291) 537,125 ----------- ----------- ----------- ------------ ------------ STOCKHOLDERS' EQUITY...................... 645,823 308,888 28,579 (329,459) 653,831 ----------- ----------- ----------- ------------ ------------ Total Liabilities and Stockholders' Equity............ $ 405,135 $ 938,380 $ 178,191 $ (330,750) $ 1,190,956 =========== =========== =========== ============ ============
-10- M.D.C. Holdings, Inc. Supplemental Combining Statements of Income (In thousands) (Unaudited) Three Months Ended March 31, 2002
Non- Guarantor Guarantor Eliminating MDC Subsidiaries Subsidiaries Entries Total ----------- ------------ ----------- ----------- ----------- REVENUES Homebuilding............................. $ - - $ 445,716 $ 1,111 $ (66) $ 446,761 Financial Services....................... - - - - 9,381 - - 9,381 Corporate................................ 189 - - 43 - - 232 Equity in earnings of subsidiaries....... 35,751 - - - - (35,751) - - ----------- ----------- ----------- ----------- ------------ Total Revenues..................... 35,940 445,716 10,535 (35,817) 456,374 ----------- ----------- ----------- ----------- ------------ COSTS AND EXPENSES Homebuilding............................. (67) 393,598 271 (4,885) 388,917 Financial Services....................... - - - - 4,351 - - 4,351 Corporate general and administrative..... 10,023 - - 37 - - 10,060 Corporate and homebuilding interest...... (4,885) - - - - 4,885 - - ----------- ----------- ----------- ----------- ------------ Total Expenses...................... 5,071 393,598 4,659 - - 403,328 ----------- ----------- ----------- ----------- ------------ Income before income taxes............... 30,869 52,118 5,876 (35,817) 53,046 Provision for income taxes............... 2,353 (20,775) (2,288) - - (20,710) ----------- ----------- ----------- ----------- ------------ NET INCOME.................................. $ 33,222 $ 31,343 $ 3,588 $ (35,817) $ 32,336 =========== =========== =========== =========== ============
Three Months Ended March 31, 2001
Non- Guarantor Guarantor Eliminating MDC Subsidiaries Subsidiaries Entries Total ----------- ------------ ------------ ------------ ------------ REVENUES Homebuilding............................. $ - - $ 410,187 $ 956 $ (47) $ 411,096 Financial Services....................... - - - - 8,341 - - 8,341 Corporate................................ 267 - - 18 - - 285 Equity in earnings of subsidiaries....... 33,487 - - - - (33,487) - - ----------- ----------- ----------- ----------- ------------ Total Revenues..................... 33,754 410,187 9,315 (33,534) 419,722 ----------- ----------- ----------- ----------- ------------ COSTS AND EXPENSES Homebuilding............................. 96 360,505 75 (3,511) 357,165 Financial Services....................... - - - - 4,137 - - 4,137 Corporate general and administrative..... 10,406 - - - - - - 10,406 Corporate and homebuilding interest...... (3,511) - - - - 3,511 - - ----------- ----------- ----------- ----------- ------------ Total Expenses..................... 6,991 360,505 4,212 - - 371,708 ----------- ----------- ----------- ----------- ------------ Income before income taxes............... 26,763 49,682 5,103 (33,534) 48,014 Provision for income taxes............... 2,806 (19,634) (1,903) - - (18,731) ----------- ----------- ----------- ----------- ------------ NET INCOME.................................. $ 29,569 $ 30,048 $ 3,200 $ (33,534) $ 29,283 =========== =========== =========== =========== ============
-11- 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. In addition, MDC provides title agency services through American Home Title and Escrow Company ("American Home Title") and offers insurance through American Home Insurance Agency, Inc. ("American Home 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 Ended March 31, 2002 2001 ---------- ----------- Revenues............................................................... $ 456,374 $ 419,722 Income Before Income Taxes............................................. $ 53,046 $ 48,014 Net Income............................................................. $ 32,336 $ 29,283 Earnings Per Share Basic............................................................... $ 1.21 $ 1.13 Diluted............................................................. $ 1.16 $ 1.09
Revenues for the first quarter of 2002 increased by $36,652,000, or 9%, compared with the same period in 2001, primarily due to a $33,000 increase in the average selling price per home closed, partially offset by 85 fewer homes closed. Income before income taxes increased 10% in the first quarter of 2002, compared with the first quarter of 2001. This increase primarily was a result of improved operating profit from the increase in revenues described above, and record first quarter operating profits from the Company's mortgage lending operations. -12- Homebuilding Segment The table below sets forth information relating to the Company's homebuilding segment (dollars in thousands).
Three Months Ended March 31, 2002 2001 -------------- -------------- Home Sales Revenues............................... $ 445,167 $ 409,720 Operating Profit.................................. $ 57,844 $ 53,931 Average Selling Price Per Home Closed............. $ 265.9 $ 232.9 Home Gross Margins................................ 23.4% 23.3% Excluding Interest in Home Cost of Sales....... 24.4% 24.6% Orders For Homes, net (units) Colorado................................... 1,001 968 California................................. 591 441 Arizona.................................... 670 732 Nevada..................................... 207 268 Virginia................................... 242 220 Maryland................................... 65 98 -------------- -------------- Total................................ 2,776 2,727 ============== ============== Homes Closed (units) Colorado................................... 609 629 California................................. 292 240 Arizona.................................... 438 498 Nevada..................................... 141 159 Virginia................................... 130 170 Maryland................................... 64 63 -------------- -------------- Total................................ 1,674 1,759 ============== ==============
March 31, December 31, March 31, 2002 2001 2001 ------------- -------------- ------------- Backlog (units) Colorado................................... 1,587 1,195 1,724 California................................. 789 490 709 Arizona.................................... 857 625 1,044 Nevada..................................... 247 181 307 Virginia................................... 346 234 378 Maryland................................... 158 157 161 -------------- -------------- -------------- Total................................ 3,984 2,882 4,323 ============== ============== ============== Backlog Estimated Sales Value..................... $ 1,050,000 $ 760,000 $ 1,075,000 ============== ============== ============== Active Subdivisions Colorado................................... 63 61 60 California................................. 25 26 22 Arizona.................................... 36 27 32 Nevada..................................... 9 7 8 Virginia................................... 13 11 9 Maryland................................... 4 5 7 -------------- -------------- -------------- Total................................ 150 137 138 ============== ============== ==============
-13- Home Sales Revenues and Homes Closed - Home sales revenues for the quarter ended March 31, 2002 were 9% higher than home sales revenues for the same period in 2001. The improved revenues primarily were a result of a higher average selling price per home closed, partially offset by 85 fewer homes closed, as further discussed below. Home closings in the first quarter of 2002 were 5% lower than the same period in 2001. MDC closed 28%, 24% and 11% fewer homes in Phoenix, Virginia and Nevada, respectively, due to lower home orders in these markets in the second half of 2001, when these markets had fewer active subdivisions than in the same period of 2000. Home closings particularly were strong in Tucson and Southern California, which increased 47% and 22%, respectively, as a result of the continued strong demand for new homes in these markets. Average Selling Price Per Home Closed - The average selling price per home closed increased $33,000 in the first quarter of 2002, compared with the same period in 2001, as each of the Company's markets except Tucson realized higher average selling prices. The increases primarily were due to (1) a greater number of homes closed in relatively higher-priced subdivisions in Southern California, Northern California, Nevada and Maryland; (2) a higher proportion of detached homes closed in Virginia, which generally have higher selling prices than townhomes; (3) selling price increases in Virginia, Maryland and Phoenix; and (4) increased sales volume 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 2002 first quarter increased ten basis points, compared with the same period in 2001. The increase largely was due to a $3,800,000 reduction of previous estimates of costs to complete land development in Southern California and Virginia, substantially offset by, among other things, the impact of the rising cost of land. Future Home Gross Margins may be impacted adversely by (1) 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. See "Forward-Looking Statements" below. Orders for Homes and Backlog - The Company received 2,776 orders for homes during the first quarter of 2002, compared with 2,727 home orders received in the first quarter of 2001. Home orders during the first quarter of 2002 particularly were strong in (1) Southern California, Northern California and Tucson (increases of 36%, 30% and 18%, respectively), resulting from the strong demand for new homes in these markets; and (2) Virginia (an increase of 10%), where the number of active subdivisions increased to 13 at March 31, 2002, compared with nine at March 31, 2001. Home orders were lower in Maryland, Las Vegas and Phoenix due to a reduced number of active subdivisions in each of these markets at the beginning of the 2002 first quarter, compared with the beginning of the 2001 first quarter. Homes under contract but not yet delivered ("Backlog") at March 31, 2002 was 3,984 units with an estimated sales value of $1,050,000,000, compared with a Backlog of 4,323 units with an estimated sales value of $1,075,000,000 at March 31, 2001. Assuming no significant change in market conditions or mortgage interest rates, the Company expects approximately 70% to 75% of its March 31, 2002 Backlog to close under existing sales contracts during the remainder 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. -14- Marketing - Marketing expenses (which include sales commissions, advertising, amortization of deferred marketing costs, model home expenses and other costs) totaled $25,663,000 for the first quarter of 2002, compared with $22,853,000 for the same period in 2001. The increase in the 2002 first quarter primarily was due to (1) higher product advertising and deferred marketing amortization, primarily as a result of the increasing number of active subdivisions during the first quarter of 2002 compared with the first quarter of 2001; and (2) higher sales commissions resulting from the Company's increased home sales revenues. General and Administrative - General and administrative expenses increased to $22,193,000 during the first quarter of 2002, compared with $19,612,000 during the same period in 2001, primarily due to increased compensation costs associated with expanded operations in certain of the Company's markets, most notably Colorado, Virginia, Arizona and Nevada. 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 cash option deposits (dollars in thousands).
March 31, December 31, March 31, 2002 2001 2001 ----------- ----------- ----------- Colorado........................................ $ 159,007 $ 165,228 $ 147,079 California...................................... 130,772 110,010 117,421 Arizona......................................... 83,700 70,602 49,642 Nevada.......................................... 53,226 44,103 29,345 Virginia........................................ 60,804 49,929 30,879 Maryland........................................ 19,027 10,630 11,941 ----------- ----------- ----------- Total...................................... $ 506,536 $ 450,502 $ 386,307 =========== =========== =========== Total Lots Owned (excluding lots in work-in-process).............................. 14,354 13,524 11,453 Total Lots Controlled Under Option.............. 5,559 6,059 9,703 ----------- ----------- ----------- Total Lots Owned and Controlled (excluding lots in work-in-process).................. 19,913 19,583 21,156 =========== =========== =========== Total Cash Option Deposits...................... $ 10,912 $ 14,520 $ 15,574 =========== =========== ===========
New Homebuilding Divisions On February 18, 2002, the Company announced its intent to expand into the Dallas/Fort Worth market by hiring a division president to manage the start-up operation. In addition, in mid-April 2002, an MDC subsidiary acquired substantially all of the homebuilding operations of W.L. Homes LLC (d/b/a John Laing Homes) in Salt Lake City, marking the Company's entry into this market. The operations of these new divisions did not have a material effect on the Company's financial position or results of operations during the 2002 first quarter. -15- Financial Services Segment The table below sets forth information relating to HomeAmerican's operations (in thousands).
Three Months Ended March 31, 2002 2001 ----------- ----------- Loan Origination Fees....................................... $ 4,229 $ 3,685 Gains on Sales of Mortgage Servicing, net................... $ 471 $ 1,683 Gains on Sales of Mortgage Loans, net....................... $ 3,461 $ 2,574 Operating Profit............................................ $ 5,030 $ 4,204 Principal Amount of Loan Originations MDC home buyers........................................ $ 250,888 $ 230,289 Spot................................................... 9,529 9,204 ----------- ----------- Total.............................................. $ 260,417 $ 239,493 =========== =========== Principal Amount of Loans Brokered MDC home buyers........................................ $ 43,602 $ 53,562 Spot................................................... 1,608 3,255 ----------- ----------- Total.............................................. $ 45,210 $ 56,817 =========== =========== Capture Rate................................................ 73% 71% =========== =========== Including brokered loans............................... 83% 83% =========== ===========
HomeAmerican's operating profit for the first quarter of 2002 increased, compared with the same period in 2001, primarily due to higher gains on sales of mortgage loans, increased interest revenues and higher origination fee income. HomeAmerican's originated loans increased by $20,924,000 in the first quarter of 2002, compared with the same period in 2001. This improvement primarily was due to an increase in the average selling price of homes closed by the Company and an improvement in HomeAmerican's Capture Rate (as defined below). MDC home buyers were the source of over 96% of the principal amount of mortgage loans originated and brokered by HomeAmerican in the first quarter of both 2002 and 2001. Mortgage loans originated by HomeAmerican for MDC home buyers as a percentage of total MDC home closings ("Capture Rate") increased to 73% for the first quarter of 2002, compared with 71% for the same period in 2001. 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. The Capture Rate including brokered loans was 83% for both of the quarters ended March 31, 2002 and 2001. Brokered loans decreased by 20% as a result of HomeAmerican's efforts to provide the market with a greater variety of mortgage loan products. Forward Sales Commitments - HomeAmerican's operations are affected by changes in mortgage interest rates. HomeAmerican utilizes forward mortgage securities contracts to manage price risk related to fluctuations in interest rates on its fixed-rate mortgage loans owned and rate-locked mortgage loans in the pipeline. -16- 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 first quarters of both 2002 and 2001. For a reconciliation of interest incurred, capitalized and expensed, see Note B to the Company's Condensed Consolidated Financial Statements. Income Taxes - MDC's overall effective income tax rate of 39% for the first quarter of 2002 and 2001 differed from the federal statutory rate of 35% primarily due to the impact of state income taxes. 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 homebuilding line of credit (the "Homebuilding Line"); and (3) current financing, primarily its mortgage lending line of credit (the "Mortgage Line"). 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 or capital and credit markets 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 - The maturity date of the Homebuilding Line is September 30, 2004 and the maximum amount available is $450,000,000, subject to commitments from existing or additional participant banks. Commitments under the Homebuilding Line increased from $413,000,000 at March 31, 2001 to $438,000,000 in April 2001 and to $450,000,000 in June 2001. Pursuant to the terms of the Homebuilding Line agreement, a term-out of this credit could commence prior to September 30, 2004 under certain circumstances. At March 31, 2002, $50,000,000 was borrowed and $16,130,000 in letters of credit were outstanding under the Homebuilding Line. -17- Mortgage Lending - The Company's Mortgage Line has a borrowing limit of $100,000,000, with the potential for a $25,000,000 temporary increase, subject to concurrence by the participating banks. At March 31, 2002 and 2001, the borrowing limit was $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 March 31, 2002, $44,833,000 was borrowed and an additional $25,333,000 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, 2001. The financial covenants contained in the Homebuilding Line 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. In December 2001, the Company amended its Senior Notes indenture to provide for the unconditional and joint and several guarantee of the Senior Notes by most of the Company's homebuilding segment subsidiaries. See Note J to the Condensed Consolidated Financial Statements. 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 2,064,300 shares of MDC common stock under these programs through March 31, 2002, leaving 935,700 shares available to be repurchased as of such date under these programs. No shares were repurchased during each of the three months ended March 31, 2002 and 2001. 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 March 31, 2002, the Company held 4,721,000 shares of treasury stock with an average purchase price of $9.45. -18- Consolidated Cash Flow During the first quarter of 2002, the Company used $4,636,000 of cash in its operating activities. Cash provided by net income for the period and the sale of mortgage loans was more than offset by an increase in homebuilding inventories in support of the Company's expanding homebuilding activities. The Company financed these net operating cash requirements primarily through a reduction in cash and cash equivalents on hand. During the first quarter of 2001, the Company used $10,573,000 of cash in its operating activities. Cash provided by net income for the period and an increase in accounts payable and accrued expenses was more than offset by an increase in homebuilding inventories in support of the Company's expanding homebuilding activities. The Company financed these operating cash requirements primarily through borrowings on its bank lines of credit. 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. CRITICAL ACCOUNTING POLICIES The Company's critical accounting policies are those related to (1) homebuilding inventory valuation; (2) estimates to complete land development and construction; (3) warranty costs; and (4) litigation reserves. These policies are more fully described in the notes to the Company's consolidated financial statements in MDC's Annual Report on Form 10-K for its fiscal year ended December 31, 2001. -19- 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, 2001, 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. -20- 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. Derivative instruments utilized in the normal course of business by HomeAmerican include forward sales securities commitments, private investor sales commitments and commitments to originate mortgage loans. The Company utilizes these commitments to manage the price risk on fluctuations in interest rates on its mortgage loans owned and commitments to originate mortgage loans. Such contracts are the only significant financial derivative instruments utilized by MDC. HomeAmerican provides mortgage loans that 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 price risk due to fluctuations in interest rates on rate-locked mortgage loans in process that have not closed. Due to this hedging philosophy, the market risk associated with these mortgages is limited. 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 March 31, 2002, short-term debt was $44,833,000, which consisted of amounts outstanding on 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, which bear interest at the prevailing market rates. Long-term debt obligations outstanding, their maturities and estimated fair value at March 31, 2002 are as follows (in thousands).
Maturities through December 31, --------------------------------------------------------------- Estimated 2002 2003 2004 2005 2006 Thereafter Total Fair Value --------- --------- --------- --------- --------- ----------- -------- ---------- Fixed Rate Debt............ $ - - $ - - $ - - $ - - $ - - $ 175,000 $175,000 $ 178,465 Average Interest Rate... - - - - - - - - - - 8.38% 8.38% Variable Rate Debt......... $ - - $ - - $ 50,000 $ - - $ - - $ - - $ 50,000 $ 50,000 Average Interest Rate... - - - - 3.09% - - - - - - 3.09%
The Company believes that its overall balance sheet structure has repricing and cash flow characteristics that mitigate the impact of interest rate changes. -21- 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 first quarter of 2002. ITEM 5. OTHER INFORMATION. - ------ ----------------- At the Company's board of directors meeting on April 25, 2002, a dividend of eight cents per share was declared for the quarter ended March 31, 2002, payable May 23, 2002, to shareowners of record on May 9, 2002. Future dividend payments are subject to the discretion of the Company's Board of Directors. At the Company's shareholders meeting on April 25, 2002, Messrs. Gilbert Goldstein and William B. Kemper were elected as directors to serve three-year terms. In April 2002, the Company acquired approximately 2,400 lots in Las Vegas, Nevada and Salt Lake City, Utah from John Laing Homes, including approximately 150 homes in various stages of construction. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. - ------ -------------------------------- (a) Exhibit: None. -22- (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. 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: May 7, 2002 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 -23- -----END PRIVACY-ENHANCED MESSAGE-----