-----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, RR+PMFYCgUXGS0mq+eQmVas0DgVyXaY2EpHtcwb1ROgDRufzHh5nxn4gucYpM18H KCWj7sga34QC7fz3nemZOg== 0000773141-03-000008.txt : 20030814 0000773141-03-000008.hdr.sgml : 20030814 20030813201102 ACCESSION NUMBER: 0000773141-03-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 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: 03843092 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 final2q03.txt M.D.C. HOLDINGS 2ND QTR 2003 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 June 30, 2003 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 Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No --- --- As of August 12, 2003, 29,024,000 shares of M.D.C. Holdings, Inc. common stock were outstanding. ================================================================================ M.D.C. HOLDINGS, INC. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2003 INDEX Page No. ---- Part I. Financial Information: Item 1. Condensed Consolidated Financial Statements: Balance Sheets as of June 30, 2003 (Unaudited) and December 31, 2002........................ 1 Statements of Income (Unaudited) for the three and six months ended June 30, 2003 and 2002.. 3 Statements of Cash Flows (Unaudited) for the six months ended June 30, 2003 and 2002...... 4 Notes to Condensed Consolidated Financial Statements (Unaudited)....................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 17 Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................. 28 Item 4. Controls and Procedures........................ 29 Part II. Other Information: Item 1. Legal Proceedings.............................. 30 Item 4. Submission of Matters to a Vote of Shareowners. 30 Item 5. Other Information.............................. 30 Item 6. Exhibits and Reports on Form 8-K............... 31 Signatures............................................... 32 (i) M.D.C. HOLDINGS, INC. Condensed Consolidated Balance Sheets (In thousands)
June 30, December 31, 2003 2002 -------------- -------------- ASSETS (Unaudited) Corporate Cash and cash equivalents................................................... $ 20,810 $ 23,164 Property and equipment, net................................................. 10,252 10,851 Deferred income taxes....................................................... 31,441 25,980 Deferred debt issue costs, net.............................................. 2,782 3,305 Other assets, net........................................................... 5,587 6,708 -------------- -------------- 70,872 70,008 -------------- -------------- Homebuilding Cash and cash equivalents................................................... 7,018 4,686 Home sales and other accounts receivable.................................... 26,193 3,519 Inventories, net Housing completed or under construction................................... 718,297 578,475 Land and land under development........................................... 725,311 656,843 Prepaid expenses and other assets, net...................................... 71,980 65,936 -------------- -------------- 1,548,799 1,309,459 Financial Services Cash and cash equivalents................................................... 2,035 1,092 Mortgage loans held in inventory............................................ 150,441 207,938 Other assets, net........................................................... 7,687 6,683 -------------- -------------- 160,163 215,713 -------------- -------------- Total Assets.......................................................... $ 1,779,834 $ 1,595,180 ============== ==============
See notes to condensed consolidated financial statements. - 1 - M.D.C. HOLDINGS, INC. Condensed Consolidated Balance Sheets (In thousands, except share amounts)
June 30, December 31, 2003 2002 -------------- -------------- LIABILITIES (Unaudited) Corporate Accounts payable and accrued expenses........................................ $ 51,511 $ 63,871 Income taxes payable......................................................... 11,541 21,571 Senior notes, net............................................................ 297,075 322,990 -------------- -------------- 360,127 408,432 -------------- -------------- Homebuilding Accounts payable and accrued expenses........................................ 242,890 210,601 Line of credit............................................................... 200,000 - - -------------- -------------- 442,890 210,601 -------------- -------------- Financial Services Accounts payable and accrued expenses........................................ 32,118 21,506 Line of credit............................................................... 75,325 154,074 -------------- -------------- 107,443 175,580 -------------- -------------- Total Liabilities...................................................... 910,460 794,613 -------------- -------------- 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; 32,126,000 and 31,802,000 shares issued, respectively, at June 30, 2003 and December 31, 2002.......................................................... 321 318 Additional paid-in capital................................................... 463,863 371,896 Retained earnings............................................................ 457,734 501,498 Unearned restricted stock.................................................... (1,175) (820) Accumulated other comprehensive income....................................... 168 2 -------------- -------------- 920,911 872,894 Less treasury stock, at cost; 3,158,000 and 5,373,000 shares, respectively, at June 30, 2003 and December 31,2002...................................... (51,537) (72,327) -------------- -------------- Total Stockholders' Equity............................................. 869,374 800,567 -------------- -------------- Total Liabilities and Stockholders' Equity............................. $ 1,779,834 $ 1,595,180 ============== ==============
See notes to condensed consolidated financial statements. - 2 - M.D.C. HOLDINGS, INC. Condensed Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited)
Three Months Six Months Ended June 30, Ended June 30, ------------------------- -------------------------- 2003 2002 2003 2002 ----------- ----------- ----------- ---------- REVENUES Homebuilding......................................... $ 673,420 $ 499,171 $ 1,228,332 $ 945,932 Financial Services................................... 15,813 9,896 30,326 19,277 Corporate............................................ 209 363 426 595 ---------- ---------- ------------ ---------- Total Revenues................................... 689,442 509,430 1,259,084 965,804 ---------- ---------- ------------ ---------- COSTS AND EXPENSES Homebuilding......................................... 588,076 437,956 1,078,530 826,873 Financial services................................... 7,214 4,711 14,160 9,062 Expenses related to debt redemption.................. 9,315 - - 9,315 - - Corporate general and administrative................. 14,832 10,434 26,308 20,494 ---------- ---------- ------------ ---------- Total Costs and Expenses......................... 619,437 453,101 1,128,313 856,429 ---------- ---------- ------------ ---------- Income before income taxes.............................. 70,005 56,329 130,771 109,375 Provision for income taxes.............................. (27,311) (21,993) (51,040) (42,703) ---------- ---------- ------------ ---------- NET INCOME.............................................. $ 42,694 $ 34,336 $ 79,731 $ 66,672 ========== ========== ============ ========== EARNINGS PER SHARE Basic................................................ $ 1.49 $ 1.16 $ 2.77 $ 2.26 ========== ========== ============ ========== Diluted.............................................. $ 1.43 $ 1.11 $ 2.66 $ 2.17 ========== ========== ============ ========== WEIGHTED-AVERAGE SHARES OUTSTANDING Basic................................................ 28,688 29,701 28,823 29,544 ========== ========== ============ ========== Diluted.............................................. 29,917 30,912 29,926 30,744 ========== ========== ============ ========== DIVIDENDS PAID PER SHARE................................ $ .082 $ .073 $ .155 $ .136 ========== ========== ============ ==========
See notes to condensed consolidated financial statements. - 3 - M.D.C. HOLDINGS, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Six Months Ended June 30, 2003 2002 ---------------- ------------ OPERATING ACTIVITIES Net income........................................................... $ 79,731 $ 66,672 Adjustments to reconcile net income to net cash used in operating activities Expenses related to debt redemption............................ 9,315 - - Depreciation and amortization.................................. 16,475 10,818 Deferred income taxes.......................................... (5,461) 412 Net changes in assets and liabilities Home sales and other accounts receivable.................. (22,674) (9,079) Homebuilding inventories.................................. (208,290) (262,699) Prepaid expenses and other assets......................... (17,652) (14,566) Mortgage loans held in inventory.......................... 57,497 40,868 Accounts payable and accrued expenses .................... 32,257 41,098 Other, net..................................................... (452) 3,159 ------------ ------------ Net cash used in operating activities................................ (59,254) (123,317) ------------ ------------ INVESTING ACTIVITIES Net purchase of property and equipment............................... (3,190) (8,789) ------------ ------------ FINANCING ACTIVITIES Lines of credit Advances....................................................... 1,365,300 1,167,200 Principal payments............................................. (1,244,049) (1,050,893) Senior notes Proceeds from issuance......................................... 147,279 - - Repurchase..................................................... (175,000) - - Premium on repurchase.......................................... (7,329) - - Dividend payments.................................................... (4,508) (4,031) Stock repurchases.................................................... (26,731) - - Proceeds from exercise of stock options.............................. 8,403 5,851 ------------ ------------ Net cash provided by financing activities............................ 63,365 118,127 ------------ ------------ Net increase (decrease) in cash and cash equivalents................. 921 (13,979) Cash and cash equivalents Beginning of period............................................ 28,942 36,600 ------------ ------------ End of period.................................................. $ 29,863 $ 22,621 ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Six Months Ended June 30, 2003 2002 ---------------- ------------ Cash paid during the period for Interest....................................................... $ 18,831 $ 8,615 Income taxes................................................... $ 66,531 $ 32,804
See notes to condensed consolidated financial statements. - 4 - M.D.C. HOLDINGS, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) A. Presentation of Financial Statements The condensed consolidated financial statements of M.D.C. Holdings, Inc. ("MDC" or the "Company," which refers to M.D.C. Holdings, Inc. and its subsidiaries) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. These statements reflect all adjustments (including all normal recurring accruals), which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of MDC as of June 30, 2003 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, 2002. Certain reclassifications have been made in the 2002 financial statements to conform to the classifications used in the current year. The Company historically has experienced, and expects to continue to experience, variability in quarterly results. The condensed consolidated statements of income are not necessarily indicative of the results to be expected for the full year. B. Earnings Per Share The basic and diluted earnings per share calculations are shown below (in thousands, except per share amounts). Prior period earnings per share and weighted-average shares outstanding have been restated to reflect the effect of a 10% stock dividend declared on April 28, 2003.
Three Months Six Months Ended June 30, Ended June 30, 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Basic Earnings Per Share Net income....................................... $ 42,694 $ 34,336 $ 79,731 $ 66,672 =========== =========== =========== =========== Basic weighted-average shares outstanding........ 28,688 29,701 28,823 29,544 =========== =========== =========== =========== Per share amounts................................ $ 1.49 $ 1.16 $ 2.77 $ 2.26 =========== =========== =========== =========== Diluted Earnings Per Share Net income....................................... $ 42,694 $ 34,336 $ 79,731 $ 66,672 =========== =========== =========== =========== Basic weighted-average shares outstanding........ 28,688 29,701 28,823 29,544 Stock options, net............................... 1,229 1,211 1,103 1,200 ----------- ----------- ----------- ----------- Diluted weighted-average shares outstanding...... 29,917 30,912 29,926 30,744 =========== =========== =========== =========== Per share amounts................................ $ 1.43 $ 1.11 $ 2.66 $ 2.17 =========== =========== =========== ===========
C. Stockholders' Equity Stock Repurchase Program - On March 24, 2003, the MDC board of directors authorized the repurchase of up to an additional 1,350,000 shares of MDC common stock, bringing the total authorization under the Company's stock repurchase program to 4,350,000 shares. The Company repurchased a total of 727,100 shares of MDC common stock in the 2003 first quarter and no shares in - 5 - the second quarter, bringing the total shares repurchased to 2,580,400 and leaving 1,769,600 shares available to be repurchased as of June 30, 2003 under this program. The per share prices, including commissions, for the 727,100 shares repurchased ranged from $35.96 to $39.03 with an average cost of $36.76. At June 30, 2003, the Company held 3,158,000 shares of treasury stock with an average purchase price of approximately $16.32 per share. Stock Dividend - On April 28, 2003, MDC's board of directors declared a 10% stock dividend that was distributed on May 27, 2003 to shareowners of record on May 12, 2003. In accordance with the Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," basic and diluted net income per share amounts, weighted-average shares outstanding, and dividends paid per share have been restated for the quarter and six months ended June 30, 2002 to reflect the effect of this stock dividend. Stock-Based Compensation - The Company has elected to account for stock-based compensation using the intrinsic value method as prescribed by Accounting Principles Board Opinion ("APB") No. 25 and related interpretations. Stock options are granted at an exercise price that is not less than the fair market value of MDC's common stock at the date of grant and, therefore, the Company recorded no compensation expense in the determination of net income for the three and six months ended June 30, 2003 and 2002. The following table illustrates the effect on net income and earnings per share if the fair value method prescribed by SFAS No. 123, as amended by SFAS No. 148, had been applied to all outstanding and unvested awards in the three and six month periods ended June 30, 2003 and 2002.
Three Months Six Months Ended June 30, Ended June 30, 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Net income, as reported.......................... $ 42,694 $ 34,336 $ 79,731 $ 66,672 Deduct stock-based compensation expense determined using the fair value method, net of related tax effects........................... (1,937) (1,647) (3,472) (3,429) ----------- ----------- ----------- ----------- Pro forma net income............................. $ 40,757 $ 32,689 $ 76,259 $ 63,243 =========== =========== =========== =========== Earnings per share Basic as reported............................ $ 1.49 $ 1.16 $ 2.77 $ 2.26 =========== =========== =========== =========== Basic pro forma.............................. $ 1.42 $ 1.10 $ 2.65 $ 2.14 =========== =========== =========== =========== Diluted as reported.......................... $ 1.43 $ 1.11 $ 2.66 $ 2.17 =========== =========== =========== =========== Diluted pro forma............................ $ 1.36 $ 1.06 $ 2.55 $ 2.06 =========== =========== =========== ===========
D. 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"). Lender commitments under the Homebuilding Line total $600,000,000 with a maturity date of July 29, 2006. Pursuant to the terms of the Homebuilding Line, a term-out of this credit may commence prior to July 29, 2006 under certain circumstances. At June 30, 2003, $200,000,000 was borrowed and $23,114,000 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 $125,000,000 with terms that allow for increases of up to $50,000,000 in the borrowing limit to a maximum of $175,000,000, subject to concurrence by the participating banks. In - 6 - June 2003, the Company received a commitment to temporarily increase the borrowing limit to $150,000,000. This temporary increase will terminate on October 2, 2003. The terms of the Mortgage Line are set forth in a Second Amended and Restated Warehousing Credit Agreement dated as of September 9, 2002. 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 June 30, 2003, $75,325,000 was borrowed and an additional $28,846,000 was collateralized and available to be borrowed. The Mortgage Line is cancelable upon 120 days notice. E. Interest Activity The Company capitalizes interest incurred on its corporate and homebuilding debt during the period of active development and through the completion of construction of its homebuilding inventories. Corporate and homebuilding interest incurred but not capitalized is reported as interest expense. Interest incurred by the financial services segment is charged to interest expense, which is deducted from interest income and reported as net interest income in Note F. Interest activity, in total and by business segment, is shown below (in thousands).
Three Months Six Months Ended June 30, Ended June 30, ---------------------------- --------------------------- 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Total Interest Incurred Corporate and homebuilding.......... $ 7,363 $ 4,915 $ 14,415 $ 8,956 Financial services.................. 411 290 981 687 ----------- ----------- ----------- ----------- Total interest incurred............. $ 7,774 $ 5,205 $ 15,396 $ 9,643 =========== =========== =========== =========== Corporate/Homebuilding Interest Capitalized Interest capitalized in homebuilding inventory, beginning of period.... $ 20,032 $ 16,937 $ 17,783 $ 17,358 Interest incurred................... 7,363 4,915 14,415 8,956 Interest expense.................... - - - - - - - - Previously capitalized interest included in cost of sales......... (6,805) (4,248) (11,608) (8,710) ----------- ----------- ----------- ----------- Interest capitalized in homebuilding inventory, end of period.......... $ 20,590 $ 17,604 $ 20,590 $ 17,604 =========== =========== =========== =========== Financial Services Net Interest Income Interest income..................... $ 1,436 $ 1,231 $ 3,014 $ 2,636 Interest expense.................... (411) (290) (981) (687) ----------- ----------- ----------- ----------- Net interest income................. $ 1,025 $ 941 $ 2,033 $ 1,949 =========== =========== =========== ===========
- 7 - F. Information on Business Segments The Company operates in two business segments: homebuilding and financial services. A summary of the Company's segment information is shown below (in thousands).
Three Months Six Months Ended June 30, Ended June 30, ---------------------------- --------------------------- 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Homebuilding Revenues Home sales.......................... $ 672,439 $ 496,862 $ 1,226,014 $ 942,029 Land sales.......................... - - 746 123 746 Other revenues...................... 981 1,563 2,195 3,157 ----------- ----------- ----------- ----------- Total Homebuilding Revenues........... 673,420 499,171 1,228,332 945,932 ----------- ----------- ----------- ----------- Home cost of sales.................. 515,985 385,053 943,587 726,114 Land cost of sales.................. - - 504 87 504 Marketing expenses.................. 39,625 27,682 73,225 53,345 General and administrative expenses. 32,466 24,717 61,631 46,910 ----------- ----------- ----------- ----------- Total Homebuilding Expenses........... 588,076 437,956 1,078,530 826,873 ----------- ----------- ----------- ----------- Homebuilding Operating Profit... 85,344 61,215 149,802 119,059 ----------- ----------- ----------- ----------- Financial Services Revenues Net interest income................. 1,025 941 2,033 1,949 Origination fees.................... 5,234 3,992 9,894 8,221 Gains on sales of mortgage servicing 329 481 1,163 952 Gains on sales of mortgage loans, net 8,755 4,280 16,097 7,741 Mortgage servicing and other........ 470 202 1,139 414 ----------- ----------- ----------- ----------- Total Financial Services Revenues..... 15,813 9,896 30,326 19,277 General and Administrative Expenses... 7,214 4,711 14,160 9,062 ----------- ----------- ----------- ----------- Financial Services Operating Profit........................ 8,599 5,185 16,166 10,215 ----------- ----------- ----------- ----------- Total Operating Profit.................. 93,943 66,400 165,968 129,274 ----------- ----------- ----------- ----------- Corporate Expenses related to debt redemption. (9,315) - - (9,315) - - Interest and other revenues......... 209 363 426 595 General and administrative expenses. (14,832) (10,434) (26,308) (20,494) ----------- ----------- ----------- ----------- Income Before Income Taxes............... $ 70,005 $ 56,329 $ 130,771 $ 109,375 =========== =========== =========== ===========
- 8 - G. Warranty Reserves Warranty reserves are reviewed quarterly, using historical data and other relevant information, to determine the reasonableness and adequacy of both the reserve and the per unit reserve amount originally included in cost of sales, as well as the timing of the reversal of the reserve. Warranty reserves are included in corporate and homebuilding accounts payable and accrued expenses in the condensed consolidated balance sheets, and totaled $48,190,000 and $41,648,000, respectively, at June 30, 2003 and 2002. Warranty expense increased in both the second quarter and first six months of 2003, compared with the same periods in 2002, primarily in Colorado and Northern California due to costs incurred in connection with moisture intrusion and related mold concerns. Reserves carried over from prior years primarily are the result of the Company's volume of homes closed increasing by over 300% in the last ten years, giving rise to continuing warranty reserves that exceed current expenditures. In addition, the carryover includes additional qualified settlement fund warranty reserves created pursuant to litigation settled in 1996. Warranty activity for the quarters and six months ended June 30, 2003 and 2002 is shown below (in thousands).
Three Months Six Months Ended June 30, Ended June 30, 2003 2002 2003 2002 ----------- ----------- ----------- ------------ Warranty reserve balance at beginning of period.. $ 45,740 $ 38,384 $ 44,743 $ 38,430 Warranty expense provided........................ 10,109 7,056 18,154 10,458 Warranty expenditures............................ (7,659) (3,792) (14,707) (7,240) ----------- ----------- ----------- ----------- Warranty reserve balance at end of period........ $ 48,190 $ 41,648 $ 48,190 $ 41,648 =========== =========== =========== ===========
H. Commitments and Contingencies The Company is often required to obtain bonds and letters of credit in support of its related obligations with respect to subdivision improvement, homeowners association dues and start-up expenses, warranty work, contractors license fees and earnest money deposits. At June 30, 2003, MDC had outstanding approximately $27,131,000 and $223,147,000 of letters of credit and performance bonds, respectively. In the event any such bonds or letters of credit are called, MDC would be obligated to reimburse the issuer of the bond or letter of credit. However, the Company does not currently believe that any outstanding bonds or letters of credit will be called. I. Senior Notes In May 2003, the Company completed a public offering of $150,000,000 principal amount of 5 1/2% senior notes due December 2013 (the "5 1/2% Senior Notes") at a discount, with an effective yield of 5.74%. The principal amount outstanding, net of unamortized discount, at June 30, 2003 was $148,568,000. The 5 1/2% Senior Notes may be redeemed, at the election of the Company, in whole at any time or in part from time to time, at the redemption prices set forth in the 5 1/2% Senior Notes supplemental indenture. Also in May 2003, the Company redeemed $175,000,000 principal amount of its 8 3/8% senior notes due 2008 (the "8 3/8% Senior Notes"). The 8 3/8% Senior Notes were redeemed at 104.188% of their principal amount, or $182,329,000, plus accrued and unpaid interest through the date of redemption. In compliance with SFAS No. 145, the expenses related to this debt redemption of $9,315,000 are no longer treated as an extraordinary loss. - 9 - J. Recent Accounting Pronouncements In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 is effective immediately for instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material effect on the Company's financial position or results of operations. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 provides for more consistent reporting of contracts as either freestanding derivative instruments subject to SFAS No. 133 in its entirety, or as hybrid instruments with debt host contracts and embedded derivative features. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and hedging relationships designated after June 30, 2003. The company anticipates that the adoption of SFAS No. 149 will not have a material effect on the Company's financial position or results of operations. In January 2003, the FASB issued its Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). A variable interest entity ("VIE") is an entity that has (1) an insufficient amount of equity to absorb the entity's expected losses; or (2) equity owners as a group that are not able to make decisions about the entity's activities, do not have the obligation to absorb the entity's expected losses or do not have the right to receive the entity's expected residual returns. FIN 46 requires the consolidation of a VIE by the Company when the Company will absorb a majority of the VIE's expected losses, receive a majority of the VIE's expected residual returns, or both. FIN 46 applies immediately to VIEs created after January 31, 2003, and applies to all VIEs created prior to February 1, 2003 for reporting periods ending after July 1, 2003. In the normal course of business, MDC enters into lot option purchase contracts to acquire land. Option contracts generally require the payment of cash for the right to acquire land during a specified period of time at a specified price. The Company's liability with respect to option contracts generally is limited to forfeiture of the related non-refundable deposits and letters of credit, which aggregated approximately $18,782,000 at June 30, 2003. Under the regulations of FIN 46, certain of these contracts create a variable interest for the Company, with the land seller being the VIE. The Company has evaluated its lot option purchase contracts created after January 31, 2003, which represent over 50% of the lots controlled by the Company under option purchase contracts as of June 30, 2003. Based on this evaluation, MDC has determined that its interests in these VIEs do not result in significant variable interests or require consolidation as the Company's interests do not qualify it as the primary beneficiary of residual returns or losses. The Company is in the process of reviewing its lot option purchase contracts created prior to February 1, 2003, but does not believe that the application of the requirements of FIN 46 to these contracts will result in a material impact on its financial position or results of operations. K. Supplemental Guarantor Information The Company's senior notes are fully and 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., Richmond American Homes of Colorado, Inc., M.D.C. Land Corporation, Richmond American Construction, Inc., Richmond American Homes of West - 10 - Virginia, Inc., Richmond American Homes of California (Inland Empire), Inc., Richmond American Homes of Utah, Inc., Richmond American Homes of Texas, Inc., RAH of Texas, LP and RAH Texas Holdings, LLC (collectively, the "Guarantor Subsidiaries"). Non-guarantor subsidiaries primarily consist of HomeAmerican Mortgage Corporation, American Home Title and Escrow Company, American Home Insurance Agency, Inc., Lion Insurance Company and StarAmerican Insurance Ltd. (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. - 11 - M.D.C. Holdings, Inc. Supplemental Combining Balance Sheet June 30, 2003 (In thousands) (Unaudited)
Non- Guarantor Guarantor Eliminating MDC Subsidiaries Subsidiaries Entries Total ----------- ----------- ----------- ----------- ----------- ASSETS Corporate Cash and cash equivalents............... $ 20,810 $ - - $ - - $ - - $ 20,810 Investments in and advances to parent and subsidiaries...................... 244,676 523 (2,574) (242,625) - - Other assets............................ 52,209 - - (2,147) - - 50,062 ----------- ----------- ----------- ----------- ----------- 317,695 523 (4,721) (242,625) 70,872 ----------- ----------- ----------- ----------- ----------- Homebuilding Cash and cash equivalents............... - - 5,441 1,577 - - 7,018 Home sales and other accounts receivable - - 36,557 188 (10,552) 26,193 Inventories, net Housing completed or under construction - - 718,297 - - - - 718,297 Land and land under development....... - - 725,311 - - - - 725,311 Other assets............................ - - 53,486 18,494 - - 71,980 ----------- ----------- ----------- ----------- ----------- - - 1,539,092 20,259 (10,552) 1,548,799 ----------- ----------- ----------- ----------- ----------- Financial Services - - - - 160,163 - - 160,163 ----------- ----------- ----------- ----------- ----------- Total Assets...................... $ 317,695 $ 1,539,615 $ 175,701 $ (253,177) $ 1,779,834 =========== =========== =========== =========== ===========
LIABILITIES Corporate Accounts payable and accrued expenses.............................. $ 51,401 $ - - $ 110 $ - - $ 51,511 Advances and notes payable - Parent and subsidiaries...................... (1,060,488) 1,045,593 14,895 - - - - Income taxes payable.................... (35,440) 43,161 3,820 - - 11,541 Senior Notes, net....................... 297,075 - - - - - - 297,075 ----------- ----------- ----------- ----------- ----------- (747,452) 1,088,754 18,825 - - 360,127 ----------- ----------- ----------- ----------- ----------- Homebuilding Accounts payable and accrued expenses.............................. - - 236,884 6,006 - - 242,890 Line of credit.......................... 200,000 - - - - - - 200,000 ----------- ----------- ----------- ----------- ----------- 200,000 236,884 6,006 - - 442,890 ----------- ----------- ----------- ----------- ----------- Financial Services - - - - 118,069 (10,626) 107,443 ----------- ----------- ----------- ----------- ----------- Total Liabilities................. (547,452) 1,325,638 142,900 (10,626) 910,460 ----------- ----------- ----------- ----------- ----------- STOCKHOLDERS' EQUITY....................... 865,147 213,977 32,801 (242,551) 869,374 ----------- ----------- ----------- ----------- ----------- Total Liabilities and Stockholders' Equity............ $ 317,695 $ 1,539,615 $ 175,701 $ (253,177) $ 1,779,834 =========== =========== =========== =========== ===========
- 12 - M.D.C. Holdings, Inc. Supplemental Combining Balance Sheet December 31, 2002 (In thousands)
Non- Guarantor Guarantor Eliminating MDC Subsidiaries Subsidiaries Entries Total ----------- ----------- ----------- ----------- ------------ ASSETS Corporate Cash and cash equivalents............... $ 23,164 $ - - $ - - $ - - $ 23,164 Investments in and advances to parent and subsidiaries...................... 345,214 774 (2,645) (343,343) - - Other assets ........................... 49,017 - - (2,173) - - 46,844 ----------- ----------- ----------- ----------- ------------ 417,395 774 (4,818) (343,343) 70,008 ----------- ----------- ----------- ----------- ------------ Homebuilding Cash and cash equivalents............... - - 4,171 515 - - 4,686 Home sales and other accounts receivable - - 3,317 202 - - 3,519 Inventories, net Housing completed or under construction - - 578,475 - - - - 578,475 Land and land under development....... - - 656,843 - - - - 656,843 Other assets............................ - - 48,168 17,768 - - 65,936 ----------- ----------- ----------- ----------- ------------ - - 1,290,974 18,485 - - 1,309,459 ----------- ----------- ----------- ----------- ------------ Financial Services - - - - 215,713 - - 215,713 ----------- ----------- ----------- ----------- ------------ Total Assets...................... $ 417,395 $ 1,291,748 $ 229,380 $ (343,343) $ 1,595,180 =========== =========== =========== =========== ============
LIABILITIES Corporate Accounts payable and accrued expenses. $ 63,772 $ - - $ 99 $ - - $ 63,871 Advances and notes payable - parent and subsidiaries.......................... (673,479) 658,804 14,675 - - - - Income taxes payable.................... (90,854) 108,829 3,596 - - 21,571 Senior notes, net....................... 322,990 - - - - - - 322,990 ----------- ----------- ----------- ------------ ------------ (377,571) 767,633 18,370 - - 408,432 ----------- ----------- ----------- ------------ ------------ Homebuilding Accounts payable and accrued expenses. - - 204,615 5,986 - - 210,601 Line of credit.......................... - - - - - - - - - - ----------- ----------- ----------- ------------ ------------ - - 204,615 5,986 - - 210,601 ----------- ----------- ----------- ------------ ------------ Financial Services - - - - 175,580 - - 175,580 ----------- ----------- ----------- ------------ ------------ Total Liabilities................. (377,571) 972,248 199,936 - - 794,613 ----------- ----------- ----------- ------------ ------------ STOCKHOLDERS' EQUITY...................... 794,966 319,500 29,444 (343,343) 800,567 ----------- ----------- ----------- ------------ ------------ Total Liabilities and Stockholders' Equity............ $ 417,395 $ 1,291,748 $ 229,380 $ (343,343) $ 1,595,180 =========== =========== =========== ============ ============
- 13 - M.D.C. Holdings, Inc. Supplemental Combining Statements of Income (In thousands) (Unaudited) Three Months Ended June 30, 2003
Non- Guarantor Guarantor Eliminating MDC Subsidiaries Subsidiaries Entries Total ----------- ----------- ----------- ----------- ------------ REVENUES Homebuilding............................. $ - - $ 672,573 $ 932 $ (85) $ 673,420 Financial Services....................... - - - - 15,813 - - 15,813 Corporate................................ 204 - - 5 - - 209 Equity in earnings of subsidiaries....... 45,024 - - - - (45,024) - - ----------- ----------- ----------- ----------- ------------ Total Revenues..................... 45,228 672,573 16,750 (45,109) 689,442 ----------- ----------- ----------- ----------- ------------ COSTS AND EXPENSES Homebuilding............................. 30 609,144 (70) (21,028) 588,076 Financial Services....................... - - - - 7,214 - - 7,214 Expenses related to debt redemption...... 9,315 - - - - - - 9,315 Corporate general and administrative..... 14,832 - - - - - - 14,832 Corporate and homebuilding interest...... (21,028) - - - - 21,028 - - ----------- ----------- ----------- ----------- ------------ Total Expenses...................... 3,149 609,144 7,144 - - 619,437 ----------- ----------- ----------- ----------- ------------ Income before income taxes............... 42,079 63,429 9,606 (45,109) 70,005 Provision for income taxes............... 1,848 (25,412) (3,747) - - (27,311) ----------- ----------- ----------- ----------- ------------ NET INCOME.................................. $ 43,927 $ 38,017 $ 5,859 $ (45,109) $ 42,694 =========== =========== =========== =========== ============
Three Months Ended June 30, 2002
Non- Guarantor Guarantor Eliminating MDC Subsidiaries Subsidiaries Entries Total ----------- ----------- ----------- ----------- ------------ REVENUES Homebuilding............................. $ - - $ 493,065 $ 6,182 $ (76) $ 499,171 Financial Services....................... - - - - 9,896 - - 9,896 Corporate................................ 309 - - 54 - - 363 Equity in earnings of subsidiaries....... 38,201 - - - - (38,201) - - ----------- ----------- ----------- ----------- ------------ Total Revenues..................... 38,510 493,065 16,132 (38,277) 509,430 ----------- ----------- ----------- ----------- ------------ COSTS AND EXPENSES Homebuilding............................. 175 437,639 4,995 (4,853) 437,956 Financial Services....................... - - - - 4,711 - - 4,711 Corporate general and administrative..... 10,399 - - 35 - - 10,434 Corporate and homebuilding interest...... (4,853) - - - - 4,853 - - ----------- ----------- ----------- ----------- ------------ Total Expenses...................... 5,721 437,639 9,741 - - 453,101 ----------- ----------- ----------- ----------- ------------ Income before income taxes............... 32,789 55,426 6,391 (38,277) 56,329 Provision for income taxes............... 2,700 (22,211) (2,482) - - (21,993) ----------- ----------- ----------- ----------- ------------ NET INCOME.................................. $ 35,489 $ 33,215 $ 3,909 $ (38,277) $ 34,336 =========== =========== =========== =========== ============
- 14 - M.D.C. Holdings, Inc. Supplemental Combining Statements of Income (In thousands) (Unaudited) Six Months Ended June 30, 2003
Non- Guarantor Guarantor Eliminating MDC Subsidiaries Subsidiaries Entries Total ----------- ----------- ----------- ----------- ------------ REVENUES Homebuilding............................. $ - - $ 1,226,805 $ 1,688 $ (161) $ 1,228,332 Financial Services....................... - - - - 30,326 - - 30,326 Corporate................................ 411 - - 15 - - 426 Equity in earnings of subsidiaries....... 77,772 - - - - (77,772) - - ----------- ----------- ----------- ----------- ------------ Total Revenues..................... 78,183 1,226,805 32,029 (77,933) 1,259,084 ----------- ----------- ----------- ----------- ------------ COSTS AND EXPENSES Homebuilding............................. (5) 1,118,468 (25) (39,908) 1,078,530 Financial Services....................... - - - - 14,160 - - 14,160 Expenses related to debt redemption...... 9,315 - - - - - - 9,315 Corporate general and administrative..... 26,308 - - - - - - 26,308 Corporate and homebuilding interest...... (39,908) - - - - 39,908 - - ----------- ----------- ----------- ----------- ------------ Total Expenses...................... (4,290) 1,118,468 14,135 - - 1,128,313 ----------- ----------- ----------- ----------- ------------ Income before income taxes............... 82,473 108,337 17,894 (77,933) 130,771 Provision for income taxes............... (917) (43,161) (6,962) - - (51,040) ----------- ----------- ----------- ----------- ------------ NET INCOME.................................. $ 81,556 $ 65,176 $ 10,932 $ (77,933) $ 79,731 =========== =========== =========== =========== ============
Six Months Ended June 30, 2002
Non- Guarantor Guarantor Eliminating MDC Subsidiaries Subsidiaries Entries Total ----------- ----------- ----------- ----------- ------------ REVENUES Homebuilding............................. $ - - $ 938,781 $ 7,293 $ (142) $ 945,932 Financial Services....................... - - - - 19,277 - - 19,277 Corporate................................ 497 - - 98 - - 595 Equity in earnings of subsidiaries....... 73,953 - - - - (73,953) - - ----------- ----------- ----------- ----------- ------------ Total Revenues..................... 74,450 938,781 26,668 (74,095) 965,804 ----------- ----------- ----------- ----------- ------------ COSTS AND EXPENSES Homebuilding............................. 107 831,237 5,267 (9,738) 826,873 Financial Services....................... - - - - 9,062 - - 9,062 Corporate general and administrative..... 20,423 - - 71 - - 20,494 Corporate and homebuilding interest...... (9,738) - - - - 9,738 - - ----------- ----------- ----------- ----------- ------------ Total Expenses...................... 10,792 831,237 14,400 - - 856,429 ----------- ----------- ----------- ----------- ------------ Income before income taxes............... 63,658 107,544 12,268 (74,095) 109,375 Provision for income taxes............... 5,054 (42,987) (4,770) - - (42,703) ----------- ----------- ----------- ----------- ------------ NET INCOME.................................. $ 68,712 $ 64,557 $ 7,498 $ (74,095) $ 66,672 =========== =========== =========== =========== ============
- 15 - M.D.C. Holdings, Inc. Supplemental Combining Statements of Cash Flows (In thousands) (Unaudited) Six Months Ended June 30, 2003
Non- Guarantor Guarantor Eliminating Consolidated MDC Subsidiaries Subsidiaries Entries MDC ------------ ------------ ------------ ------------ ------------ Net cash provided by (used in) operating activities..................... $ (2,002) $ (146,415) $ 89,324 $ (161) $ (59,254) ------------ ------------ ------------ ------------ ------------ Net cash used in investing activities....... (771) (1,947) (472) - - (3,190) ------------ ------------ ------------ ------------ ------------ Financing activities Net increase (reduction) in borrowings from parent and subsidiaries.................. (141,534) 149,632 (8,098) - - - - Lines of credit Advances............................... 1,365,300 - - - - - - 1,365,300 Principal payments..................... (1,165,300) - - (78,749) - - (1,244,049) Senior notes Proceeds from issuance................. 147,279 - - - - - - 147,279 Repurchase............................. (175,000) - - - - - - (175,000) Premium on repurchase.................. (7,329) - - - - - - (7,329) Dividend payments........................... (4,669) - - - - 161 (4,508) Stock repurchases........................... (26,731) - - - - - - (26,731) Proceeds from exercise of stock options..... 8,403 - - - - - - 8,403 ------------ ------------ ------------ ------------ ------------ Net cash provided by (used in) financing activities............................... 419 149,632 (86,847) 161 63,365 ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents.............................. (2,354) 1,270 2,005 - - 921 Cash and cash equivalents Beginning of period...................... 23,164 4,171 1,607 - - 28,942 ------------ ------------ ------------ ------------ ------------ End of period............................ $ 20,810 $ 5,441 $ 3,612 $ - - $ 29,863 ============ ============ ============ ============ ============
Six Months Ended June 30, 2002
Non- Guarantor Guarantor Eliminating Consolidated MDC Subsidiaries Subsidiaries Entries MDC ------------ ------------ ------------ ------------ ------------ Net cash provided by (used in) operating activities..................... $ (2,660) $ (171,834) $ 51,319 $ (142) $ (123,317) ------------ ------------ ------------ ------------- ------------ Net cash used in investing activities....... (7,784) (923) (82) - - (8,789) ------------ ------------ ------------ ------------ ------------ Financing activities Net increase (reduction) in borrowings from parent and subsidiaries.................. (171,406) 173,782 (2,376) - - - - Lines of credit Advances............................... 1,167,200 - - - - - - 1,167,200 Principal payments..................... (1,002,200) - - (48,693) - - (1,050,893) Dividend payments........................... (4,173) - - - - 142 (4,031) Proceeds from exercise of stock options..... 5,851 - - - - - - 5,851 ------------ ------------ ------------ ------------ ------------ Net cash provided by (used in) financing activities............................... (4,728) 173,782 (51,069) 142 118,127 ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents.............................. (15,172) 1,025 168 - - (13,979) Cash and cash equivalents Beginning of period...................... 31,322 4,352 926 - - 36,600 ------------ ------------ ------------ ------------ ------------ End of period............................ $ 16,150 $ 5,377 $ 1,094 $ - - $ 22,621 ============ ============ ============ ============ ============
- 16 - 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). Prior period earnings per share have been restated to reflect the effect of a 10% stock dividend declared on April 28, 2003.
Three Months Six Months Ended June 30, Ended June 30, 2003 2002 2003 2002 ----------- ---------- ----------- ----------- Revenues.................................... $ 689,442 $ 509,430 $ 1,259,084 $ 965,804 Income Before Income Taxes.................. $ 70,005 $ 56,329 $ 130,771 $ 109,375 Net Income.................................. $ 42,694 $ 34,336 $ 79,731 $ 66,672 Earnings Per Share Basic.................................. $ 1.49 $ 1.16 $ 2.77 $ 2.26 Diluted................................ $ 1.43 $ 1.11 $ 2.66 $ 2.17
Revenues for the second quarter and first half of 2003 increased by $180,012,000 and $293,280,000 to levels 35% and 30% higher than the respective periods in 2002, primarily due to increased homebuilding revenues resulting from significant increases in home closings. Revenues from the financial services segment for the three and six months ended June 30, 2003 increased by $5,917,000 and $11,049,000, respectively, representing increases of 60% and 57%, respectively, from the same periods in 2002, primarily due to higher gains on sales of mortgage loans and increased origination fee income. Income before income taxes increased 24% and 20%, respectively, in the second quarter and first half of 2003, compared with the same periods in 2002. The increases were the result of record operating profits from both the homebuilding and financial services segments. The increases in homebuilding segment profits primarily resulted from the higher home closings described above and, in the second quarter of 2003, an increase of 80 basis points in Home Gross Margins (as defined below), compared with the same period in 2002. Financial services segment profits increased primarily due to higher gains on sales of mortgage loans and increased origination fee income, partially offset by higher general and administrative expenses resulting from HomeAmerican's expanded loan origination activity. Income before income taxes for the three and six months ended June 30, 2003 included expenses of $9,315,000 related to the redemption of the Company's $175,000,000 principal amount of 8 3/8% Senior Notes. - 17 - Homebuilding Segment The table below sets forth information relating to the Company's homebuilding segment (dollars in thousands).
Three Months Six Months Ended June 30, Ended June 30, ------------------------------- ------------------------------- 2003 2002 2003 2002 ------------- ------------- ------------- ------------- Home Sales Revenues........................... $ 672,439 $ 496,862 $ 1,226,014 $ 942,029 Operating Profit.............................. $ 85,344 $ 61,215 $ 149,802 $ 119,059 Average Selling Price Per Home Closed......... $ 256.3 $ 254.0 $ 259.5 $ 259.5 Home Gross Margins............................ 23.3% 22.5% 23.0% 22.9% Home Gross Margins Excluding Interest......... 24.2% 23.4% 23.9% 23.8% Orders For Homes, net (units) Colorado............................... 812 757 1,483 1,758 California............................. 511 633 1,041 1,224 Nevada................................. 774 411 1,357 618 Arizona................................ 986 671 1,910 1,341 Utah................................... 93 31 186 31 Texas.................................. 69 - - 119 - - Virginia............................... 305 176 708 418 Maryland............................... 115 74 226 139 ------------- ------------- ------------- ------------- Total.............................. 3,665 2,753 7,030 5,529 ============= ============= ============= ============= Homes Closed (units) Colorado............................... 625 706 1,234 1,315 California............................. 487 362 915 654 Nevada................................. 508 247 781 388 Arizona................................ 663 446 1,234 884 Utah................................... 69 25 109 25 Texas.................................. 29 - - 39 - - Virginia............................... 166 104 268 234 Maryland............................... 77 66 144 130 ------------- ------------- ------------- ------------- Total.............................. 2,624 1,956 4,724 3,630 ============= ============= ============= =============
June 30, December 31, June 30, 2003 2002 2002 ------------- ------------- ------------- Backlog (units) Colorado............................... 1,206 957 1,638 California............................. 1,048 922 1,060 Nevada................................. 926 350 524 Arizona................................ 1,752 1,076 1,082 Utah................................... 127 50 47 Texas.................................. 96 16 - - Virginia............................... 916 476 418 Maryland............................... 270 188 166 ------------- ------------- ------------- Total.............................. 6,341 4,035 4,935 ============= ============= ============= Backlog Estimated Sales Value................. $ 1,630,000 $ 1,120,000 $ 1,300,000 ============= ============= ============= Average Sales Price in Backlog................ $ 257.1 $ 277.6 $ 263.4 ============= ============= =============
- 18 -
June 30, December 31, June 30, 2003 2002 2002 ------------- ------------- ------------- Active Subdivisions Colorado............................... 56 61 63 California............................. 20 24 27 Nevada................................. 22 18 15 Arizona................................ 42 44 34 Utah................................... 7 4 4 Texas.................................. 6 1 - - Virginia............................... 30 20 16 Maryland............................... 7 6 6 ------------- ------------- ------------- Total.............................. 190 178 165 ============= ============= ============= Average for the quarter................ 198 176 160 ============= ============= ============= Average for the last six months........ 193 173 152 ============= ============= =============
Home Sales Revenues - Home sales revenues in the second quarter and first half of 2003 were 35% and 30% higher, respectively, than home sales revenues for the same periods in 2002. The improved revenues primarily were a result of increased home closings, as discussed below. Homes Closed - Home closings in the second quarter and first half of 2003 were 34% and 30% higher, respectively, than the same periods in 2002. Home closings in the three and six months ended June 30, 2003 particularly were strong in (1) Nevada (increases of 106% and 101%, respectively), Phoenix (increases of 90% and 74%, respectively) and Virginia (increases of 60% and 15%, respectively), as a result of year-over-year increases in active subdivisions in prior quarters which contributed to higher home orders and larger Backlogs (as defined below) in these markets prior to the 2003 second quarter; and (2) Southern California (increases of 50% and 53%, respectively) primarily due to the strong demand for new homes in this market. In addition, the Company closed 98 and 148 homes, respectively, in Utah and Texas in the second quarter and first half of 2003, new markets in which a total of only 25 homes were closed during comparable periods in 2002. Average Selling Price Per Home Closed - The average selling price per home closed in the second quarter of 2003 was $256,300, compared with $254,000 for the same period in 2002. For the six months ended June 30, 2003, average selling prices were $259,500 for both 2003 and 2002. Average selling price increases in Virginia and Maryland were offset by a greater percentage of homes closed in Nevada, Phoenix, Utah and Texas, where the average selling price of homes closed is lower than the Company average. 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 were 23.3% and 23.0%, respectively, for the second quarter and first six months of 2003, compared with 22.5% and 22.9%, respectively, for the same periods in 2002. Home Gross Margins improved in the second quarter of 2003, compared with the same period in 2002, in Nevada, Southern California and Maryland, primarily due to the ability to increase selling prices as a result of the strong demand for new homes in these markets and, in Southern California, reductions in previous estimates to complete land development. These increases in Home Gross Margins partially were offset by decreased Home Gross Margins in Colorado, due to increased incentives resulting from the more challenging economic conditions experienced in this market, and higher warranty reserves related to water intrusion and related - 19 - mold concerns, as well as a greater number of homes closed in Utah and Texas where Home Gross Margins were lower than the Company average. 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 - Orders for homes increased 33% and 27%, respectively, in the three and six months ended June 30, 2003, compared with the same periods in 2002. Home orders during the quarter and six months ended June 30, 2003 particularly were strong in Nevada (up 88% and 120%, respectively), Virginia (up 73% and 69%, respectively), Maryland (up 55% and 63%, respectively) and Phoenix (up 51% and 45%, respectively), aided by year-over-year increases in the number of active subdivisions and the continued strong demand for new homes in these markets. Home orders also improved in Colorado in the 2003 second quarter, where orders were up 7%, compared with the 2002 second quarter. Colorado home orders were lower in the first six months of 2003, compared with the same period in 2002, due to the market's more challenging economic environment in the 2003 first quarter. The Company also received 162 and 305 home orders, respectively, in the 2003 second quarter and first six months from its new markets in Utah and Dallas/Fort Worth. Home orders were lower in Southern California in the quarter and six months ended June 30, 2003, primarily due to a temporary reduction in the number of active subdivisions resulting from the sell-out of several communities earlier than expected. Record home orders received during the first six months of 2003 contributed to the increase in homes under contract but not yet delivered ("Backlog") at June 30, 2003 to 6,341 units with an estimated sales value of $1,630,000,000, 28% higher than the Backlog of 4,935 units with an estimated sales value of $1,300,000,000 at June 30, 2002. Assuming no significant change in market conditions or mortgage interest rates, the Company expects approximately 80% of its June 30, 2003 Backlog to close under existing sales contracts during the second half of 2003 and first quarter of 2004. The remaining 20% of the homes in Backlog are not expected to close under existing contracts due to cancellations. See "Forward-Looking Statements" below. Marketing - Marketing expenses (which include sales commissions, advertising, amortization of deferred marketing costs, model home expenses and other costs) totaled $39,625,000 and $73,225,000, respectively, for the quarter and six months ended June 30, 2003, compared with $27,682,000 and $53,345,000, respectively, for the same periods in 2002. The increases in 2003 primarily were due to (1) higher sales commissions resulting from the Company's increased home sales revenues; (2) higher product advertising and deferred marketing amortization, primarily as a result of the increased number of active subdivisions during the second quarter and first six months of 2003, compared with the same periods in 2002; and (3) increased sales overhead resulting from the Company's expanding home sales activities. General and Administrative - General and administrative expenses increased to $32,466,000 and $61,631,000, respectively, during the second quarter and first half of 2003, compared with $24,717,000 and $46,910,000, respectively, for the same periods in 2002, primarily due to higher compensation and other costs associated with expanded operations in most of the Company's markets, most notably California, Nevada, Phoenix and Virginia. - 20 - Title Operations - American Home Title provides title agency services to MDC home buyers in Virginia, Maryland and Colorado. The Company is evaluating opportunities to provide title agency services in its other markets. Income before income taxes from title operations was $650,000 and $1,109,000, respectively, for the quarter and six months ended June 30, 2003, compared with $597,000 and $1,066,000, respectively, for the same periods in 2002. New Homebuilding Divisions In February 2002, the Company expanded into the Dallas/Fort Worth market by hiring a division president to manage the start-up operation. During 2002 and the first half of 2003, the Company acquired control of almost 1,200 lots in 14 subdivisions in this market. In the 2003 second quarter and first six months of 2003, this division received 69 and 119 home orders, respectively, and closed 29 and 39 homes, respectively. In April 2002, one of the Company's subsidiaries acquired most of the homebuilding assets, and hired former employees, of John Laing Homes in Salt Lake City, marking the Company's entry into this market. The assets acquired included approximately 750 lots and 24 homes under construction in five subdivisions. The Company now controls almost 1,500 lots in this market. In the second quarter and first six months of 2003, this division received 93 and 186 home orders, respectively, and closed 69 and 109 homes, respectively. The Company expanded into the Houston and Philadelphia/Delaware Valley markets in the 2003 second quarter and into the West Florida and Chicago markets in the third quarter of 2003. Each of these expansion efforts was initiated by hiring a division president to manage start-up operations. As of this filing, no lots had been acquired by the Company in any of these new markets. 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).
June 30, December 31, June 30, 2003 2002 2002 ----------- ----------- ----------- Colorado................................... $ 117,460 $ 140,930 $ 141,696 California................................. 225,760 154,980 125,737 Nevada..................................... 124,026 114,142 109,302 Arizona.................................... 84,090 92,639 97,311 Utah....................................... 15,209 12,984 9,744 Texas...................................... 6,389 5,559 - - Virginia................................... 110,619 113,717 79,094 Maryland................................... 41,758 21,892 19,501 ----------- ----------- ----------- Total................................... $ 725,311 $ 656,843 $ 582,385 =========== =========== =========== Total Lots Owned (excluding lots in work-in-process)......................... 16,273 16,962 16,773 Total Lots Controlled Under Option......... 6,608 6,995 6,403 ----------- ----------- ----------- Total Lots Owned and Controlled (excluding lots in work-in-process).... 22,881 23,957 23,176 =========== =========== =========== Total Cash Option Deposits................. $ 15,239 $ 18,007 $ 16,034 =========== =========== ===========
- 21 - Financial Services Segment The table below sets forth information relating to HomeAmerican's operations (in thousands).
Three Months Six Months Ended June 30, Ended June 30, 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Mortgage loan origination fees............... $ 5,234 $ 3,992 $ 9,894 $ 8,221 Gains on sales of mortgage servicing, net.... $ 329 $ 481 $ 1,163 $ 952 Gains on sales of mortgage loans, net........ $ 8,755 $ 4,280 $ 16,097 $ 7,741 Operating Profit............................. $ 8,599 $ 5,185 $ 16,166 $ 10,215 Principal amount of loan originations MDC home buyers........................... $ 364,021 $ 270,566 $ 679,043 $ 521,454 Spot...................................... 6,003 6,034 9,752 15,564 ----------- ----------- ----------- ----------- Total............................... $ 370,024 $ 276,600 $ 688,795 $ 537,018 =========== =========== =========== =========== Principal amount of loans brokered MDC home buyers........................... $ 84,611 $ 59,697 $ 129,936 $ 103,299 Spot...................................... 1,000 1,510 1,538 3,118 ----------- ----------- ----------- ----------- Total.............................. $ 85,611 $ 61,207 $ 131,474 $ 106,417 =========== =========== =========== =========== Capture Rate................................ 66% 69% 68% 71% =========== =========== =========== =========== Including brokered loans................. 81% 81% 81% 82% =========== =========== =========== ===========
Financial services operating profit for the second quarter and first half of 2003 increased, compared with the same periods in 2002, primarily due to higher gains on sales of mortgage loans and increased origination fee income, partially offset by higher general and administrative expenses resulting from HomeAmerican's expanded loan origination activity. The principal amounts of originated and brokered loans were $455,635,000 and $820,269,000, respectively, in the second quarter and first half of 2003, compared with $337,807,000 and $643,435,000, respectively, for the same periods in 2002. These improvements primarily were due to increases in homes closed by the homebuilding segment. MDC home buyers were the source of approximately 99% of the principal amount of mortgage loans originated and brokered by HomeAmerican in the second quarter and first half of 2003. Mortgage loans originated by HomeAmerican for MDC home buyers as a percentage of total MDC home closings ("Capture Rate") were 66% and 68%, respectively, for the quarter and six months ended June 30, 2003, compared with 69% and 71%, respectively, for the same periods in 2002. 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 81% for the second quarter and first half of 2003, compared with 81% and 82%, respectively, for the same periods in 2002. 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. Reported gains on sales of mortgage loans may vary significantly from period to period depending on the volatility in the interest rate market. - 22 - Insurance Operations - American Home Insurance provides homeowners, auto and other types of casualty insurance in each of MDC's markets. The results of its operations were not material for any of the periods presented. Other Operating Results Interest Expense - The Company capitalizes interest incurred on its corporate and homebuilding debt during the period of active development and through the completion of construction of its homebuilding inventories. Corporate and homebuilding interest incurred but not capitalized is reported as interest expense. Interest incurred by the financial services segment is charged to interest expense, which is deducted from interest income and reported as net interest income in Note F to the Company's Condensed Consolidated Financial Statements. For a reconciliation of interest incurred, capitalized and expensed, see Note E to the Company's Condensed Consolidated Financial Statements. Expenses Related to Debt Redemption - In May 2003, the Company redeemed $175,000,000 principal amount of its 8 3/8% senior notes due 2008 (the "8 3/8% Senior Notes"). The 8 3/8% Senior Notes were redeemed at 104.188% of their principal amount, or $182,329,000, plus accrued and unpaid interest through the date of redemption. Expenses for the quarter and six months ended June 30, 2003 related to this debt redemption of $9,315,000 include the above redemption premium of $7,329,000 and the related unamortized discount and debt issuance costs of $1,986,000. In compliance with the Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 145, the expenses related to this debt redemption are no longer treated as an extraordinary loss. Corporate General and Administrative Expenses - Corporate general and administrative expenses totaled $14,832,000 and $26,308,000, respectively, during the second quarter and first half of 2003, from $10,434,000 and $20,494,000, respectively, for the same periods of 2002. The increases in 2003 primarily were due to (1) greater compensation-related costs principally resulting from the Company's higher profitability; and (2) increased compensation and other expenses for information technology, as the Company is focusing on improving its systems in preparation for the growth of its homebuilding and financial services operations. Income Taxes - MDC's overall effective income tax rate of 39% for the second quarter and first half of 2003, compared with 39%, respectively, for the same periods in 2002, 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 homebuilding inventories; (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 $450,000,000 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 7% senior notes due 2012 (the "7% Senior Notes"), 5 1/2% senior notes due 2013 (the "5 1/2% Senior Notes") and its homebuilding - 23 - 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 capacity 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 and expansion into new markets. 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 Company has an unsecured revolving line of credit with a group of lenders for support of its homebuilding operations (the "Homebuilding Line"). Lender commitments under the Homebuilding Line total $600,000,000 with a maturity date of July 29, 2006. Pursuant to the terms of the Homebuilding Line, a term-out of this credit may commence prior to July 29, 2006 under certain circumstances. At June 30, 2003, $200,000,000 was borrowed and $23,114,000 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 $125,000,000 with terms that allow for increases of up to $50,000,000 in the borrowing limit to a maximum of $175,000,000, subject to concurrence by the participating banks. In June 2003, the Company received a commitment to temporarily increase the borrowing limit to $150,000,000. This temporary increase will terminate on October 2, 2003. The terms of the Mortgage Line are set forth in a Second Amended and Restated Warehousing Credit Agreement dated as of September 9, 2002. 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 June 30, 2003, $75,325,000 was borrowed and an additional $28,846,000 was collateralized and available to be borrowed. The Mortgage Line is cancelable upon 120 days notice. General - The agreements for the Company's bank lines of credit and the indentures for the Company's senior notes require compliance with certain representations, warranties and covenants. The Company believes that it is in compliance with these representations, warranties and covenants. The agreements for the bank lines of credit and the indentures for the Company's senior notes 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, 2002. The financial covenants contained in the Homebuilding Line 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 times (subject to downward adjustment in certain circumstances) MDC's "adjusted consolidated tangible net worth," as defined. Under the adjusted consolidated tangible net worth test, MDC's "adjusted consolidated tangible net worth," as defined, must not be less than the sum of (1) $491,382,000; (2) 50% of "consolidated net income," as defined, of the "borrower," as defined, and the "guarantors," as defined, after December 31, 2001; and (3) 50% of the net proceeds or other consideration received for the issuance of capital stock. In addition, "adjusted consolidated tangible net worth," as defined, must not be less than $307,114,000. - 24 - The Company's senior notes are not secured and the senior notes indentures do not contain financial covenants. The Company's senior notes are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by most of the Company's homebuilding segment subsidiaries. MDC Common Stock Repurchase Programs On March 24, 2003, the MDC board of directors authorized the repurchase of up to an additional 1,350,000 shares of MDC common stock, bringing the total authorization under the Company's stock repurchase program to 4,350,000 shares. The Company repurchased a total of 727,100 shares of MDC common stock in the 2003 first quarter and no shares in the second quarter, bringing the total shares repurchased to 2,580,400 and leaving 1,769,600 shares available to be repurchased as of June 30, 2003 under this program. The per share prices, including commissions, for the 727,100 shares repurchased ranged from $35.96 to $39.03 with an average cost of $36.76. At June 30, 2003, the Company held 3,158,000 shares of treasury stock with an average purchase price of approximately $16.32 per share. Consolidated Cash Flow During the first six months of 2003, the Company used $59,254,000 of cash in its operating activities. Cash provided by (1) net income before depreciation, amortization and expenses related to debt redemption; and (2) the sale of mortgage loans was more than offset by cash used to build net homebuilding assets in support of the Company's expanding homebuilding activities. The Company financed these operating cash requirements, as well as the repurchase of 727,100 shares of stock for $26,731,000 and the payment of dividends, primarily through borrowings on its bank lines of credit. Also during the second quarter of 2003, the Company issued the 5 1/2% Senior Notes with a $150,000,000 principal amount at a discount of $2,721,000, and redeemed all $175,000,000 principal amount of its 8 3/8% Senior Notes. The Company paid a premium of $7,329,000 on the redemption. During the first six months of 2002, the Company used $123,317,000 of cash in its operating activities. Cash provided by (1) net income before depreciation and amortization; and (2) the sale of mortgage loans was more than offset by cash used to build net homebuilding assets 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 revenue. 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. Reported gains on sales of mortgage loans may vary significantly from period to period depending on the volatility in the interest rate market. 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 - 25 - manage the price risk on fluctuations in interest rates on its mortgage loans held in inventory and commitments to originate mortgage loans. Such contracts are the only significant financial derivative instruments utilized by MDC. 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 preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Due to uncertainties in the estimation process, it is at least reasonably possible that actual results could differ from those estimates. The Company has determined that its critical accounting policies, or those policies that require significant use of judgment and estimates in their application, are those related to (1) homebuilding inventory valuation; (2) estimates to complete land development and home construction; (3) warranty costs; and (4) litigation reserves. Homebuilding Inventory Valuation - Homebuilding inventories under development and construction are carried at cost unless facts and circumstances indicate that the carrying value of the underlying projects may be impaired. Impairment is determined by comparing the estimated future cash flows (undiscounted and without interest charges) from an individual project to its carrying value. If such cash flows are less than the project's carrying value, the carrying value of the project is written down to its fair value. Homebuilding inventories held for sale are carried at the lower of cost or fair value, less selling costs, and are evaluated on an individual asset basis. Fair value is determined by management estimate and incorporates anticipated future revenues and costs. Estimates to Complete Land Development and Home Construction - Home sales revenue is recognized when a home is closed. In order to properly match revenues with expenses, an estimation must be made by the Company as to certain construction and land development costs incurred but not yet paid at the time of closing. Estimated costs to complete a home are determined for each closed home based upon historical data with respect to similar product types and geographical areas. Warranty Costs - Warranty reserves are established as homes close on a per-unit basis in an amount estimated to be adequate to cover expected warranty-related costs for materials and outside labor to be incurred during the warranty period. Reserves are determined based upon historical data with respect to similar product types and geographical areas. Litigation Reserves - The Company and certain of its subsidiaries have been named as defendants in various cases arising in the normal course of business. The Company has reserved for costs to be incurred with respect to these cases based upon information provided by its legal counsel. - 26 - 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, 2002, 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) the availability and cost of performance bonds and insurance covering risks associated with our business; (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) terrorist acts and other acts of war; and (15) other factors over which the Company has little or no control. - 27 - 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. Reported gains on sales of mortgage loans may vary significantly from period to period depending on the volatility in the interest rate market. 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 June 30, 2003, short-term debt was $75,325,000, 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 values at June 30, 2003 are as follows (in thousands).
Maturities through December 31, --------------------------------------------------------------- Estimated 2003 2004 2005 2006 2007 Thereafter Total Fair Value ---------- --------- ---------- --------- ---------- ---------- --------- ---------- Fixed Rate Debt............ $ - - $ - - $ - - $ - - $ - - $ 300,000 $ 300,000 $ 311,314 Average Interest Rate (units) - - - - - - - - - - 6.25% 6.25% Variable Rate Debt......... $ - - $ - - $ - - $ 200,000 $ - - $ - - $ 200,000 $ 200,000 Average Interest Rate... - - - - - - 2.70% - - - - 2.70%
The Company believes that its overall balance sheet structure has repricing and cash flow characteristics that mitigate the impact of interest rate changes. - 28 - ITEM 4. CONTROLS AND PROCEDURES. Management of MDC recognizes its responsibility for maintaining effective and efficient internal controls, disclosure controls and procedures. The Company has a group of officers who are responsible for reviewing all quarterly and annual SEC reports. This group consists of most of MDC's senior management, including its chief financial officer, general counsel, treasurer, and homebuilding and mortgage lending presidents and vice presidents of finance. An evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures was performed under the supervision, and with the participation, of the Company's management, including the chief executive officer and the chief financial officer. Based on that evaluation, the Company's management, including the chief executive officer and chief financial officer, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2003. The evaluation did not identify any change in the Company's internal control over financial reporting that occurred during the quarter ended June 30, 2003 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. - 29 - 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, including moisture intrusion and related mold claims. 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. The annual meeting of the Company's shareowners was held on April 28, 2003. The following members of the Board of Directors were elected as Class III Directors for three-year terms expiring in 2006: Votes For Votes Withheld Steven J. Borick 24,993,617 302,506 David D. Mandarich 21,897,587 3,398,536 David E. Blackford 25,116,799 179,324 Larry A. Mizel, Herbert T. Buchwald, Gilbert Goldstein and William B. Kemper continued to serve as directors of the Company after the annual meeting. Also at the meeting, the shareowners approved an amendment to the M.D.C. Holdings, Inc. 2001 Equity Incentive Plan (the "Equity Incentive Plan") that increased by 1,000,000 the number of shares of MDC common stock authorized for issuance under the Equity Incentive Plan. The results of the vote were as follows:
Votes For Votes Against Votes Abstaining Broker Non-Votes -------------------- -------------------- -------------------- ------------------ 15,817,457 9,465,747 12,919 0
ITEM 5. OTHER INFORMATION. On July 31, 2003, the Company's board of directors declared a dividend of twelve and one half cents per share for the quarter ended June 30, 2003, payable August 28, 2003 to shareowners of record on - 30 - August 14, 2003. 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) Exhibits: 10.1 Agreement to increase commitment amount dated as of June 27, 2003, by and among HomeAmerican Mortgage Corporation, as borrower, U.S. Bank National Association, as agent, and U.S. Bank National Association, as a bank. 12 Ratio of Earnings to Fixed Charges Schedule 31.1 Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K: Form 8-K (Item 9) dated July 15, 2003, reporting second quarter earnings information with a copy of the Press Release attached and provided pursuant to both Item 9 and Item 12. Form 8-K (Item 9) dated July 2, 2003, reporting home orders, home closings and quarter-end backlog for the quarterly period ended June 30, 2003 with a copy of the Press Release attached and provided pursuant to both Item 9 and Item 12. Form 8-K (Item 5) dated May 19, 2003, reporting the offering of $150,000,000 of the Company's 5 1/2% Senior Notes due 2013. Form 8-K (Item 9) dated April 9, 2003, reporting first quarter earnings information with a copy of the Press Release attached and provided pursuant to both Item 9 and Item 12. Form 8-K (Item 9) dated April 2, 2003, reporting home orders, home closings and quarter-end backlog for the quarterly period ended March 31, 2003 with a copy of the Press Release attached and provided pursuant to Item 12. - 31 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 14, 2003 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 - 31 - INDEX TO EXHIBITS Exhibit Number Description - -------------- ----------------------------- 10.1 Agreement to increase commitment amount dated as of June 27, 2003, by and among HomeAmerican Mortgage Corporation, as borrower, U.S. Bank National Association, as agent, and U.S. Bank National Association, as a bank. 12 Ratio of Earnings to Fixed Charges Schedule 31.1 Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - 33 - EX-10 3 exhibit10_1.txt HMC INCREASE COMMITMENT AMOUNT Exhibit 10.1 AGREEMENT TO INCREASE COMMITMENT AMOUNT THIS AGREEMENT TO INCREASE COMMITMENT AMOUNT (the "Agreement"), dated as of June 27, 2003, is by and among HOMEAMERICAN MORTGAGE CORPORATION, a Colorado corporation ("Borrower"), U.S. BANK NATIONAL ASSOCIATION, as agent (the "Agent") for the Banks party to the Credit Agreement described below, and U.S. BANK NATIONAL ASSOCIATION, as a Bank ("U.S. Bank"). RECITALS -------- 1. The Borrower, the Agent and the Banks entered into a Second Amended and Restated Credit Agreement dated as of September 9, 2002, as amended by an Agreement to Increase Commitment Amount dated as of December 5, 2002 and as amended by an Agreement to Increase Commitment Amount dated as of December 20, 2002 (the "Credit Agreement"); and 2. Pursuant to Section 8.05(c) of the Credit Agreement, the Borrower and U.S. Bank National Association ("U.S. Bank") desire to temporarily increase U.S. Bank's Commitment Amount as herein set forth. AGREEMENT --------- NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby covenant and agree to be bound as follows: Section 1. Capitalized Terms. Capitalized terms used ----------------- herein and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement, unless the context shall otherwise require. Section 2. Temporary Commitment Amount Increase. ------------------------------------ 2.1 Changes in Commitment Amount of U.S. Bank. ----------------------------------------- Effective as of the date first above written (the "Increase Date"), the Commitment Amount of U.S. Bank is hereby increased from $60,000,000 to $85,000,000. Effective as of October 2, 2003 (the "Temporary Increase Termination Date"), the Commitment Amount of U.S. Bank is hereby reduced from $85,000,000 to $60,000,000. Section 3. New Schedule of Commitments. --------------------------- 3.1 Schedule of Warehousing Commitment Amounts. ------------------------------------------ Schedule 1.01(b) of the Credit Agreement is hereby amended and restated in its entirety to read as set forth in Exhibit A hereto. Section 4. Effectiveness of Agreement. This Agreement -------------------------- shall become effective upon delivery by the Borrower to the Agent of, and compliance by the Borrower with, the following: 4.1 This Agreement duly executed by the Borrower and U.S. Bank. 4.2 A certificate of the Secretary or Assistant Secretary of the Borrower (1) certifying that there has been no amendment to the Articles of Incorporation or Bylaws of the Borrower since true and accurate copies of the same were delivered to the Agent with certificate of the Secretary of the Borrower dated as of September 27, 2002, and (ii) confirming that a resolution of the Board of Directors of the Borrower authorizes the execution, delivery and performance of this Agreement and any other document or instrument to be executed by the Borrower in connection with this Amendment (the "Increase Documents"), and identifying the officers of the Borrower authorized to sign the Increase Documents. 4.3 The Borrower shall have satisfied such other conditions as specified by the Agent, including payment of all unpaid legal fees and expenses incurred by the Agent through the date of this Agreement in connection with the Credit Agreement and the Increase Documents. Section 5. Representations, Warranties, Authority, No ------------------------------------------ Adverse Claim. ------------- 5.1 Reassertion of Representations and Warranties, No ------------------------------------------------- Default. -------- The Borrower represents that on and as of the date hereof and after giving effect to this Agreement (a) all of the representations and warranties contained in the Credit Agreement are true, correct and complete in all respects as of the date hereof as though made on and as of such date, except for changes permitted by the terms of the Credit Agreement, and (b) there will exist no Unmatured Event of Default or Event of Default under the Credit Agreement as amended by this Agreement on such date. 5.2 Authority, No Conflict, No Consent Required. The ------------------------------------------- Borrower represents and warrants that it has the power and legal right and authority to enter into the Increase Documents and has duly authorized as appropriate the execution and delivery of the Increase Documents and other agreements and documents executed and delivered by it in connection herewith or therewith by proper corporate action, and none of the Increase Documents nor the agreements contained herein or therein contravenes or constitutes a default under any agreement, instrument or indenture to which the Borrower is a party or a signatory or a provision of the Borrower's Articles of Incorporation, Bylaws or any other agreement or requirement of law, or result in the imposition of any Lien on any property of the Borrower under any agreement binding on or applicable to the Borrower or any of its property except, if any, in favor of the Banks. The Borrower represents and warrants that no consent, approval or authorization of or registration or declaration with any Person, including but not limited to any governmental authority, is required in connection with the execution and delivery by the Borrower of the Increase Documents or other agreements and documents executed and delivered by the Borrower in connection therewith or the performance of obligations of the Borrower therein described, except for those which the Borrower has obtained or provided and as to which -2- the Borrower has delivered certified copies of documents evidencing each such action to the Agent. 5.3 No Adverse Claim. The Borrower warrants, acknowledges ---------------- and agrees that no events have taken place and no circumstances exist at the date hereof that would give the Borrower a basis to assert a defense, offset or counterclaim to any claim of the Banks with respect to the Borrower's obligations under the Loan Documents. Section 6. Affirmation of Credit Agreement, Further ---------------------------------------- References, Affirmation of Security Interest. The Agent and the -------------------------------------------- Borrower each acknowledge and affirm that the Credit Agreement, as hereby amended, is hereby ratified and confirmed in all respects and all terms, conditions and provisions of the Credit Agreement, except as amended by this Agreement, shall remain unmodified and in full force and effect. All references in any document or instrument to the Credit Agreement are hereby amended and shall refer to the Credit Agreement as amended by this Agreement. The Borrower confirms to the Agent and the Banks that the Obligations are and continue to be secured by the security interest granted by the Borrower in favor of the Agent for the benefit of the Banks under the Pledge and Security Agreement, and all of the terms, conditions, provisions, agreements, requirements, promises, obligations, duties, covenants and representations of the Borrower under such documents and any and all other documents and agreements entered into with respect to the Borrower's obligations under the Loan Documents are incorporated herein by reference and are hereby ratified and affirmed in all respects by the Borrower. Section 7. Successors. The Increase Documents shall be ---------- binding upon the Borrower, the Banks and the Agent and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Banks and the Agent and the successors and assigns of the Banks and the Agent. Section 8. Legal Expenses. As provided in Section 8.03 -------------- of the Credit Agreement, the Borrower agrees to reimburse the Agent, upon execution of this Agreement, for all reasonable out-of-pocket expenses (including attorney fees and legal expenses of Dorsey & Whitney LLP, counsel for the Bank) incurred in connection with the Credit Agreement, including in connection with the negotiation, preparation and execution of the Increase Documents and all other documents negotiated, prepared and executed in connection with the Increase Documents, and in enforcing the obligations of the Borrower under the Increase Documents, and to pay and save the Banks harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of the Increase Documents, which obligations of the Borrower shall survive any termination of the Credit Agreement. Section 9. Counterparts. The Increase Documents may be ------------ executed in several counterparts as deemed necessary or convenient, each of which, when so executed, shall be deemed an original, provided that all such counterparts shall be regarded as one and the same document, and either party to the Increase Documents may execute any such agreement by executing a counterpart of such agreement. Section 10. Governing Law. THE INCREASE DOCUMENTS SHALL ------------- BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAW PRINCIPLES THEREOF, BUT -3- GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS, THEIR HOLDING COMPANIES AND THEIR AFFILIATES. [Remainder of this page left blank intentionally] -4- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date and year first above written. HOME AMERICAN MORTGAGE CORPORATION By: /s/ John J. Heaney --------------------------------- Title: Senior Vice President & Treasurer --------------------------------- U.S. BANK NATIONAL ASSOCIATION, as Agent and as a Bank By: /s/ Edwin D. Jenkins --------------------------------- Title: Senior Vice President --------------------------------- EXHIBIT A AGREEMENT TO INCREASE COMMITMENT AMOUNT Schedule 1.01(b) to Second Amended and Restated Credit Agreement WAREHOUSING COMMITMENT AMOUNTS ------------------------------ During the period from the date of this Agreement until but excluding October 2, 2003: Bank Warehousing Commitment Amount ---- ----------------------------- U.S. Bank National Association $85,000,000 Bank One, N.A. $25,000,000 Guaranty Bank, F.S.B. $25,000,000 Comerica Bank $15,000,000 During the period on and after October 2, 2003: Bank Warehousing Commitment Amount ---- ----------------------------- U.S. Bank National Association $60,000,000 Bank One, N.A. $25,000,000 Guaranty Bank, F.S.B. $25,000,000 Comerica Bank $15,000,000 EX-31 4 exhibit31_1.txt CHIEF EXECUTIVE OFFICER'S 302 CERTIFICATION Exhibit 31.1 CHIEF EXECUTIVE OFFICER'S CERTIFICATION I, Larry A. Mizel, certify that: 1. I have reviewed this quarterly report on Form 10-Q of M.D.C. Holdings, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 /s/ Larry A. Mizel ------------------------------ Larry A. Mizel Chairman of the Board of Directors and Chief Executive Officer EX-31 5 exhibit31_2.txt CHIEF FINANCIAL OFFICER'S 302 CERTIFICATION Exhibit 31.2 CHIEF FINANCIAL OFFICER'S CERTIFICATION I, Paris G. Reece III, certify that: 1. I have reviewed this quarterly report on Form 10-Q of M.D.C. Holdings, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 /s/ Paris G. Reece III -------------------------------- Paris G. Reece III Executive Vice President, Chief Financial Officer and Principal Accounting Officer EX-32 6 exhibit32_1.txt CHIEF EXECUTIVE OFFICER 906 CERTIFICATION Exhibit 32.1 CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer of M.D.C. Holdings, Inc. (the "Company") hereby certifies that the Report on Form 10-Q of the Company for the quarterly period ended June 30, 2003, accompanying this certification, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 14, 2003. /s/ Larry A. Mizel ----------------------------- Larry A. Mizel Chief Executive Officer The foregoing certification is being furnished solely pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and Section 1350 of Title 18, United States Code, and is not being filed as part of the Form 10-Q or as a separate disclosure document. EX-32 7 exhibit32_2.txt CHIEF FINANCIAL OFFICER 906 CERTIFICATION Exhibit 32.2 CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Financial Officer of M.D.C. Holdings, Inc. (the "Company") hereby certifies that the Report on Form 10-Q of the Company for the quarterly period ended June 30, 2003, accompanying this certification, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 14, 2003. /s/ Paris G. Reece III ----------------------------- Paris G. Reece III Chief Financial Officer The foregoing certification is being furnished solely pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and Section 1350 of Title 18, United States Code, and is not being filed as part of the Form 10-Q or as a separate disclosure document. EX-12 8 exhibit12.txt RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12 M.D.C. HOLDINGS, INC. RATIO OF EARNINGS TO FIXED CHARGES
Six Months to June 30, Year Ended December 31, ---------------------- ----------------------------------------------------------- 2003 2002 2002 2001 2000 1999 1998 -------- --------- --------- --------- --------- -------- --------- Earnings $154,488 $120,077 $299,250 $283,562 $228,919 $181,602 $118,989 -------- -------- -------- -------- -------- -------- -------- Fixed Charges $26,524 $10,948 $25,631 $26,116 $27,729 $24,223 $48,378 Earnings to Fixed Charges 5.82 10.97 11.68 10.86 8.26 7.50 2.46 ==== ===== ===== ===== ==== ==== ==== Ratio Before Reclassification of Costs Associated with the Early Extinguishment of Debt 10.97 11.68 10.86 8.26 7.50 5.07 ===== ===== ===== ==== ==== ==== Earnings: Pretax Earnings from Continuing Operations 130,771 109,375 274,044 255,387 203,201 148,453 58,952 Add: Fixed Charges 26,524 10,948 25,631 26,116 27,729 24,223 48,378 Less capitalized interest (14,415) (8,956) (21,116) (22,498) (24,367) (21,261) (22,525) Add amortization of previously capitalized interest 11,608 8,710 20,691 24,557 22,356 30,187 34,184 ------- ------- ------- ------- ------- ------- ------ Total Earnings 154,488 120,077 299,250 283,562 228,919 181,602 118,989 ======= ======= ======= ======= ======= ======= ======= Fixed Charges: Homebuilidng and corporate interest expense 0 0 0 0 0 0 0 Interest component of rent expense 1,728 1,317 2,812 2,253 2,177 1,615 0 Amortization and expensing of debt expenses 10,381 675 1,703 1,365 1,185 1,347 25,853 Capitalized intreest 14,415 8,956 21,116 22,498 24,367 21,261 22,525 ------ ------ ------- ------- ------- ------- ------- Total Fixed Charges 26,524 10,948 25,631 26,116 27,729 24,223 48,378 ====== ====== ======= ======= ======= ======= ======= The Company adopted the provisions of SFAS No. 145, with respect to the rescission of SFAS No. 4, in the first quarter of 2003. As a result, $24.9 million of costs in 1998 associated with the early extinguishment of debt, previously classified as an extraordinary item are currently classified as expenses related to debt redemption and are deducted in calculating pre-tax income. In the second quarter of 2003, the Company incurred $9.3 million in expenses related to debt redemption. The effect of the new classification has been reflected in the computation of the 1998 and 2003 ratios.
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