-----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, M7zXMMEq22FcOJ6MR/GT0+huvdlVpqOE4wU4Bo4ndb48b3lMyLRdL9yngTDYoraw B1ybFMAYsrmuQO9VeAb2Pg== 0000773141-95-000005.txt : 19951119 0000773141-95-000005.hdr.sgml : 19951119 ACCESSION NUMBER: 0000773141-95-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NYSE SROS: PSE 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: 95589807 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 STREET STREET 2: SUITE 900 CITY: DENVER STATE: CO ZIP: 80237 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-8951 M.D.C. HOLDINGS, INC. (Exact name of Registrant as specified in its charter) Delaware 84-0622967 (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) 3600 South Yosemite Street, Suite 900 80237 Denver, Colorado (Zip code) (Address of principal executive offices) (303) 773-1100 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of October 31, 1995, 19,467,000 shares of M.D.C. Holdings, Inc. common stock were outstanding. M.D.C. HOLDINGS, INC. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995 INDEX Page No. Part I. Financial Information: Item 1. Condensed Consolidated Financial Statements: Balance Sheets as of September 30, 1995 (Unaudited)and December 31, 1994........... 1 Statements of Income (Unaudited) for the three and nine months ended September 30, 1995 and 1994................ 3 Statements of Cash Flows (Unaudited) for the nine months ended September 30, 1995 and 1994................................... 4 Notes to Financial Statements (Unaudited).... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 18 Part II. Other Information: Item 1. Legal Proceedings........................... 30 Item 4. Submission of Matters to a Vote of Shareowners................................. 31 Item 6. Exhibits and Reports on Form 8-K............ 31 (i)
M.D.C. HOLDINGS, INC. Condensed Consolidated Balance Sheets (In thousands) September 30, December 31, 1995 1994 ------------ ------------ ASSETS (Unaudited) Corporate Cash and cash equivalents.................................................... $ 9,249 $ 31,210 Property and equipment, net.................................................. 9,575 9,962 Deferred income taxes........................................................ 13,929 11,944 Deferred issue costs, net.................................................... 10,111 10,621 Other assets, net............................................................ 4,854 3,270 ------------ ------------ 47,718 67,007 Home Building Cash and cash equivalents.................................................... 6,385 10,162 Home sales and other accounts receivable..................................... 14,385 12,508 Investments and marketable securities, net................................... 6,387 6,089 Inventories, net Housing completed or under construction.................................... 277,873 280,319 Land and land under development............................................ 177,930 183,838 Prepaid expenses and other assets, net....................................... 41,744 43,975 ------------ ------------ 524,704 536,891 Mortgage Lending Cash and cash equivalents.................................................... 1,041 1,607 Restricted cash.............................................................. - - 2,650 Accrued interest and other assets, net....................................... 1,647 1,447 Mortgage loans held in inventory, net........................................ 48,322 44,368 ------------ ------------ 51,010 50,072 Asset Management Cash and cash equivalents.................................................... 490 585 Mortgage Collateral, net, and assets related to mortgage-backed bonds and related liabilities....................................................... 48,677 64,574 Other loans and assets, net.................................................. 3,377 6,316 ------------ ------------ 52,544 71,475 Total Assets........................................................... $ 675,976 $ 725,445 ============ ============
See notes to condensed consolidated financial statements -1-
M.D.C. HOLDINGS, INC. Condensed Consolidated Balance Sheets (In thousands, except share amounts) September 30, December 31, 1995 1994 ----------- ------------ LIABILITIES (Unaudited) Corporate Accounts payable and accrued expenses........................................$ 27,082 $ 34,311 Income taxes payable......................................................... 12,930 11,166 Notes payable................................................................ 3,549 3,583 Senior Notes, net............................................................ 187,480 187,352 Subordinated notes, net...................................................... 38,220 38,217 ------------ ------------ 269,261 274,629 Home Building Accounts payable and accrued expenses........................................ 82,198 75,399 Lines of credit.............................................................. 38,193 62,332 Notes payable................................................................ 12,435 33,585 ------------ ------------ 132,826 171,316 Mortgage Lending Accounts payable and accrued expenses........................................ 5,626 2,450 Line of credit............................................................... 20,647 23,211 ------------ ------------ 26,273 25,661 Asset Management Accounts payable and accrued expenses........................................ 800 670 Mortgage-backed bonds, net, and related liabilities, recourse solely to limited-purpose subsidiary assets......................................... 44,740 60,874 ------------ ----------- 45,540 61,544 Total Liabilities...................................................... 473,900 533,150 ------------ ----------- 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; 22,478,000 and 21,187,000 shares issued, respectively, at September 30, 1995 and December 31, 1994......................................................... 225 212 Additional paid-in capital................................................... 135,633 133,934 Retained earnings............................................................ 84,765 71,502 ------------ ----------- 220,623 205,648 Less treasury stock, at cost; 3,135,000 and 2,314,000 shares, respectively, at September 30, 1995 and December 31, 1994............................... (18,547) (13,353) ------------ ----------- Total Stockholders' Equity............................................. 202,076 192,295 ------------ --------- Total Liabilities and Stockholders' Equity............................. $ 675,976 $ 725,445 ============ ===========
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 Nine Months Ended September 30, Ended September 30, 1995 1994 1995 1994 REVENUES: Home Building.......................................... $ 226,815 $ 208,571 $ 618,683 $ 557,406 Mortgage Lending....................................... 4,407 2,537 13,624 11,927 Asset Management....................................... 2,984 2,808 8,865 10,410 Corporate.............................................. 359 333 1,196 970 ------------- ---------- ----------- ---------- Total Revenues..................................... 234,565 214,249 642,368 580,713 ------------- ---------- ----------- ---------- COSTS AND EXPENSES: Home Building.......................................... 217,493 195,624 593,287 522,820 Mortgage Lending....................................... 2,140 1,964 6,066 6,812 Asset Management....................................... 1,732 2,069 5,485 7,866 Corporate general and administrative.................... 3,185 4,160 9,794 12,059 Corporate and home building interest (Note C)........... 1,584 1,905 6,313 6,912 ------------- ---------- ----------- ---------- Total Expenses..................................... 226,134 205,722 620,945 556,469 ------------- ---------- ----------- ---------- Income before income taxes................................ 8,431 8,527 21,423 24,244 Provision for income taxes................................ 2,886 3,107 7,479 9,314 ------------- ---------- ----------- ---------- Net Income................................................ $ 5,545 $ 5,420 $ 13,944 $ 14,930 ============= ============ ============ ============ EARNINGS PER SHARE Primary................................................ $ .28 $ .26 $ .69 $ .73 ============= ============ ============ ============ Fully-diluted.......................................... $ .25 $ .24 $ .63 $ .67 ============= ============ ============ ============ WEIGHTED-AVERAGE SHARES OUTSTANDING Primary................................................. 20,052 20,499 20,161 20,435 ============= ============ ============ ============ Fully-diluted........................................... 23,736 24,112 24,113 24,099 ============= ============ ============ ============ DIVIDENDS PER SHARE....................................... $ .03 $ .02 $ .08 $ .04 ============= ============ ============ ============
See notes to condensed consolidated financial statements -3-
M.D.C. HOLDINGS, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine months Ended September 30, 1995 1994 OPERATING ACTIVITIES: Net Income........................................................... $ 13,944 $ 14,930 Adjustments To Reconcile Net Income To Net Cash Provided By (Used In) Operating Activities: Depreciation and amortization................................... 7,237 6,592 Inventory valuation adjustments................................. 2,100 - - Deferred income taxes........................................... (1,985) (3,398) Gains on sales of mortgage-related assets....................... (718) (295) ------------- ----------- Net Cash Provided By Operating Activities Before Changes in Operating Assets and Liabilities....................................................... 20,578 17,829 Net Changes In Operating Assets and Liabilities Mortgage loans held in inventory................................ (3,954) 30,668 Home building inventories....................................... 9,056 (93,807) Home sales and other accounts receivable........................ (1,877) (10,427) Prepaid expenses and other assets............................... (7,648) 613 Accounts payable and accrued expenses........................... 6,522 4,553 Other, net...................................................... (170) 2,623 ------------- ---------- Net Cash Provided By (Used In) Operating Activities.................. 22,507 (47,948) ------------- ---------- INVESTING ACTIVITIES: Mortgage Collateral and other loans Principal payments and prepayments.............................. 8,415 32,324 Sales........................................................... 8,630 19,526 Changes in restricted cash, net...................................... 2,650 12,365 Changes in investments and marketable securities, net................ (298) (10,073) Distributions of capital from equity CMO interests................... 3,662 2,705 Redemption of metropolitan district bonds............................ - - 16,395 Other, net........................................................... 1,611 (744) ------------- ---------- Net Cash Provided By Investing Activities............................ 24,670 72,498 ------------- ----------
See notes to condensed consolidated financial statements -4-
M.D.C. HOLDINGS, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine months Ended September 30, 1995 1994 FINANCING ACTIVITIES: Mortgage-backed bonds - principal payments.......................... $ (16,310) $ (57,494) Lines of credit Advances........................................................ 534,484 448,337 Principal payments.............................................. (561,187) (405,876) Notes payable Borrowings...................................................... 1,075 13,561 Principal payments.............................................. (24,695) (37,659) Dividend payments................................................... (1,568) (760) Treasury stock purchases............................................ (5,321) - - Other, net.......................................................... (54) 147 -------------- ----------- Net Cash Used In Financing Activities............................... (73,576) (39,744) ------------- ----------- Net Decrease In Cash and Cash Equivalents........................... (26,399) (15,194) Cash and Cash Equivalents Beginning Of Period............................................. 43,564 63,003 ------------- ----------- End Of Period................................................... $ 17,165 $ 47,809 ============= ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest, net of amounts capitalized........................... $ 2,486 $ 6,020 Income taxes................................................... 7,130 20,326 SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS Home building inventory purchases financed by seller............... $ 3,705 $ 3,759 Home building land inventory sales financed by MDC................. 508 1,219 Disposition of land inventories collateralized by notes payable Inventories.................................................... 1,270 2,864 Notes payable.................................................. 1,270 2,176 Accrued interest and other liabilities......................... - - 688 See notes to condensed consolidated financial statements -5-
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, unless otherwise indicated, refers to M.D.C. Holdings, Inc. and its subsidiaries) have been prepared by MDC, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. These statements reflect all adjustments (including all normal recurring accruals) which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of MDC as of September 30, 1995 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, 1994. Price Waterhouse LLP has performed a review, and not an audit, of the unaudited condensed consolidated financial statements of the Company for the three-month and nine-month periods ended September 30, 1995 and 1994 (based on procedures adopted by the American Institute of Certified Public Accountants) as set forth in their separate report dated October 24, 1995, which is included as an exhibit to this Form 10-Q. This report is not a "report" within the meaning of Sections 7 and 11 of the Securities Act of 1933, and the independent accountant's liability under Section 11 of such act does not extend to it. Certain reclassifications have been made in the 1994 financial statements to conform to the classifications used in the current year. B. Information on Business Segments The Company operates in three business segments: home building, mortgage lending and asset management. A summary of the Company's segment information is shown below (in thousands).
Three Months Nine Months Ended September 30, Ended September 30, 1995 1994 1995 1994 Home Building Home sales................................... $ 220,770 $ 207,098 $ 608,690 $ 548,711 Land sales................................... 4,954 1,001 7,778 7,712 Other revenues............................... 1,091 472 2,215 983 ------------- ------------ ------------ ------------ 226,815 208,571 618,683 557,406 ------------- ------------ ------------ ------------ Home cost of sales........................... 191,164 176,125 527,080 463,523 Land cost of sales........................... 5,034 1,263 7,445 7,418 Inventory valuation reserves................. 1,200 - - 2,100 - - Marketing.................................... 13,108 11,373 36,735 31,300 General and administrative.................. 6,987 6,863 19,927 20,579 ------------- ------------ ------------ ------------ 217,493 195,624 593,287 522,820 ------------- ------------ ------------ ------------ Operating Profit........................ 9,322 12,947 25,396 34,586 ------------- ------------ ------------ ------------ -6- Three months ended Nine months ended Ended September 30, Ended September 30, 1995 1994 1995 1994 Mortgage Lending Interest revenues............................ $ 869 $ 725 $ 2,539 $ 2,185 Origination fees............................. 1,501 1,110 3,831 3,491 Gains on sale of mortgage servicing.......... 2,001 398 6,643 5,166 Losses on sale of mortgage loans, net........ (405) (166) (845) (347) Mortgage servicing and other................. 441 470 1,456 1,432 ------------- ------------ ------------ ------------ 4,407 2,537 13,624 11,927 ------------- ------------ ------------ ------------ Interest expense............................. 52 - - 127 248 General and administrative................... 2,088 1,964 5,939 6,564 ------------- ------------ ------------ ------------ 2,140 1,964 6,066 6,812 ------------- ------------ ------------ ------------ Operating Profit......................... 2,267 573 7,558 5,115 ------------- ------------ ------------ ------------ Asset Management Interest revenues............................ 1,157 1,717 3,984 6,495 Gains (losses) on sales of mortgage-related assets..................................... 448 (63) 718 295 Management fees and other.................... 1,379 1,154 4,163 3,620 ------------- ------------ ------------ ------------ 2,984 2,808 8,865 10,410 ------------- ------------ ------------ ------------ Interest expense............................. 1,094 1,606 3,686 6,120 General and administrative................... 638 463 1,799 1,746 ------------- ------------ ------------ ------------ 1,732 2,069 5,485 7,866 ------------- ------------ ------------ ------------ Operating Profit......................... 1,252 739 3,380 2,544 ------------- ------------ ------------ ------------ Total Operating Profit...................... 12,841 14,259 36,334 42,245 ------------- ------------ ------------ ------------ Corporate Other revenues............................... 359 333 1,196 970 ------------- ------------ ------------ ------------ Interest expense............................. 1,584 1,905 6,313 6,912 General and administrative................... 3,185 4,160 9,794 12,059 ------------- ------------ ------------ ------------ 4,769 6,065 16,107 18,971 ------------- ------------ ------------ ------------ Net Corporate Expenses .................. (4,410) (5,732) (14,911) (18,001) ------------- ------------ ------------ ------------ Income Before Income Taxes....................... $ 8,431 $ 8,527 $ 21,423 $ 24,244 ============= ============ ============ ============
-7- C.Corporate and Home Building Interest Activity
Three Months Nine Months Ended September 30, Ended September 30, 1995 1994 1995 1994 (In thousands) (In thousands) Interest capitalized in home building inventory, beginning of period.............................. $ 41,559 $ 42,522 $ 42,478 $ 42,681 Corporate and home building interest incurred....... 8,337 9,114 25,809 26,361 Corporate and home building interest expensed....... (1,584) (1,905) (6,313) (6,912) Previously capitalized home building interest included in cost of sales........................ (7,426) (6,918) (21,088) (19,317) ----------- ----------- ------------ ----------- Interest capitalized in home building inventory, end of period.................................... $ 40,886 $ 42,813 $ 40,886 $ 42,813 =========== =========== =========== =========== Home building inventories, end of period............ $ 455,803 $ 484,787 $ 455,803 $ 484,787 =========== =========== =========== ===========
D. Earnings Per Share Primary earnings per share are based on the weighted-average number of common and common equivalent shares outstanding during each period. The computation of fully-diluted earnings per share also assumes the conversion into MDC Common Stock of all of the $28,000,000 outstanding principal amount of the 8 3/4% convertible subordinated notes due December 2005 (the "Convertible Notes") at a conversion price of $7.75 per share of MDC Common Stock. The primary and fully-diluted earnings per share calculations are shown below (in thousands, except per share amounts).
Three Months Nine Months Ended September 30, Ended September 30, 1995 1994 1995 1994 Primary Earnings Per Share Calculation: Net Income................................................... $ 5,545 $ 5,420 $ 13,944 $ 14,930 ========== ========= ========== ========= Weighted-average shares outstanding.......................... 19,310 19,044 19,345 18,938 Dilutive stock options....................................... 742 1,455 816 1,497 ---------- --------- ---------- --------- Total Weighted-Average Shares.......................... 20,052 20,499 20,161 20,435 ========== ========= ========== ========= Primary Earnings Per Share................................... $ .28 $ .26 $ .69 $ .73 ========== ========= ========== ========= Fully-Diluted Earnings Per Share Calculation: Net Income................................................... $ 5,545 $ 5,420 $ 13,944 $ 14,930 Adjustment for interest on Convertible Notes, net of income tax benefit; conversion assumed........................... 391 384 1,173 1,152 ---------- --------- ---------- ---------- Adjusted Net Income.................................... $ 5,936 $ 5,804 $ 15,117 $ 16,082 ========== ========= ========== ========= Weighted-average shares outstanding.......................... 19,310 19,044 19,345 18,938 Dilutive stock options....................................... 813 1,455 1,155 1,548 Shares issuable upon conversion of Convertible Notes; conversion assumed........................................ 3,613 3,613 3,613 3,613 ----- ----- ----- ----- Total Weighted-Average Shares.......................... 23,736 24,112 24,113 24,099 ========== ========= ========== ========= Fully-Diluted Earnings Per Share............................. $ .25 $ .24 $ .63 $ .67 ========== ========= ========== =========
-8- E.Stockholders' Equity During the second and third quarters of 1995, the Company repurchased 843,600 shares of MDC Common Stock at prices ranging from $5.88 to $6.38 ($6.31 average, including commissions) pursuant to a program authorized by the MDC Board of Directors to repurchase up to one million shares of MDC Common Stock and up to 1% of the principal amount of each of its outstanding Senior Notes and Convertible Notes. During the second and third quarters of 1995, certain eligible executives of the Company exercised options to purchase 769,000 shares of MDC Common Stock. Pursuant to the terms of the Executive Option Purchase Program (the "Program"), which was authorized by the MDC Board of Directors, the Company is authorized to lend eligible executives of the Company up to two-thirds of the aggregate exercise price and state and federal taxes payable in connection with their exercise of stock purchase options, subject to certain maximum amounts as set forth under the Program. Notes receivable under the Program, which totalled $1,332,000 at September 30, 1995, are recourse and secured by the shares of MDC Common Stock issued in connection with options exercised. The $1,332,000 in notes are deducted from stockholders' equity. F. Supplemental Guarantor Information The Senior Notes are guaranteed unconditionally on an unsecured subordinated basis, jointly and severally (the "Guaranties"), 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, Inc., Richmond Homes, Inc. I and Richmond Homes, Inc. II (collectively, the "Guarantors"). The Guaranties are subordinated to all Guarantor Senior Indebtedness (as defined in the Senior Notes Indenture). Supplemental combining financial information follows. -9-
Supplemental Combining Balance Sheet September 30, 1995 (In thousands) Unconsolidated -------------------------------------- Non- ASSETS Guarantor Guarantor Eliminating Consolidated MDC Subsidiaries Subsidiaries Entries MDC Corporate Cash and cash equivalents................ $ 9,249 $ - - $ - - $ - - $ 9,249 Investments in subsidiaries.............. 298,364 - - 17,434 (315,798) - - Advances and notes receivable - Parent and subsidiaries...................... 218,038 13 114,688 (332,739) - - Property and equipment, net.............. 9,575 - - - - - - 9,575 Deferred income taxes.................... 13,929 - - - - - - 13,929 Deferred issue costs, net................ 10,111 - - - - - - 10,111 Other assets, net........................ 4,714 - - 140 - - 4,854 ----------- ------------ ------------ ----------- ------------ 563,980 13 132,262 (648,537) 47,718 ----------- ------------ ------------ ----------- ------------ Home Building Cash and cash equivalents................ 5 6,293 87 - - 6,385 Home sales and other accounts receivable - - 28,510 - - (14,125) 14,385 Investments and marketable securities, net................................... 6,387 - - - - - - 6,387 Inventories, net Housing completed or under construction - - 277,873 - - - - 277,873 Land and land under development........ - - 150,928 27,857 (855) 177,930 Prepaid expenses and other assets, net... 3,801 37,567 376 - - 41,744 ----------- ------------ ------------ ----------- ------------ 10,193 501,171 28,320 (14,980) 524,704 ----------- ------------ ------------ ----------- ------------ Mortgage Lending Cash and cash equivalents................ - - - - 1,041 - - 1,041 Accrued interest and other assets, net... - - - - 1,647 - - 1,647 Mortgage loans held in inventory, net.... - - - - 48,322 - - 48,322 ----------- ------------ ------------ ----------- ------------ - - - - 51,010 - - 51,010 ----------- ------------ ------------ ----------- ------------ Asset Management Cash and cash equivalents................ - - - - 490 - - 490 Mortgage Collateral, net, and assets related to mortgage-backed bonds and related liabilities................... - - - - 48,677 - - 48,677 Other loans and assets, net.............. - - - - 3,377 - - 3,377 ----------- ------------ ------------ ----------- ------------ - - - - 52,544 - - 52,544 ----------- ------------ ------------ ----------- ------------ Total Assets....................... $ 574,173 $ 501,184 $ 264,136 $ (663,517) $ 675,976 ============ ============ ============ ============ ===========
-10-
Supplemental Combining Balance Sheet September 30, 1995 (In thousands) (continued) Unconsolidated ------------------------------------ Non- LIABILITIES Guarantor Guarantor Eliminating Consolidated MDC Subsidiaries Subsidiaries Entries MDC Corporate Accounts payable and accrued expenses.... $ 26,797 $ - - $ 285 $ - - $ 27,082 Advances and notes payable - Parent and subsidiaries.......................... 96,858 217,511 20,554 (334,923) - - Income taxes payable..................... 12,930 - - - - - - 12,930 Notes payable............................ 3,549 - - - - - - 3,549 Senior Notes, net........................ 187,480 - - - - - - 187,480 Subordinated notes, net.................. 38,220 - - - - - - 38,220 ----------- ------------ ------------ ----------- ------------ 365,834 217,511 20,839 (334,923) 269,261 ----------- ------------ ------------ ----------- ------------ Home Building Accounts payable and accrued expenses.... 2,179 79,061 958 - - 82,198 Lines of credit.......................... - - 38,193 - - - - 38,193 Notes payable............................ 4,084 4,453 3,898 - - 12,435 ----------- ------------ ------------ ----------- ------------ 6,263 121,707 4,856 - - 132,826 ----------- ------------ ------------ ----------- ------------ Mortgage Lending Accounts payable and accrued expenses.... - - - - 19,777 (14,151) 5,626 Line of credit........................... - - - - 20,647 - - 20,647 ----------- ------------ ------------ ----------- ------------ - - - - 40,424 (14,151) 26,273 ----------- ------------ ------------ ----------- ------------ Asset Management Accounts payable and accrued expenses.... - - - - 800 - - 800 Mortgage-backed bonds, net, and related liabilities, recourse solely to limited-purpose subsidiary assets.. - - - - 44,740 - - 44,740 ----------- ------------ ------------ ----------- ------------ - - - - 45,540 - - 45,540 ----------- ------------ ------------ ----------- ------------ Total Liabilities.................. 372,097 339,218 111,659 (349,074) 473,900 ----------- ------------ ------------ ----------- ----------- STOCKHOLDERS' EQUITY Preferred stock.......................... - - - - 10 (10) - - Common Stock............................. 225 18 82 (100) 225 Additional paid-in capital............... 135,633 144,756 224,914 (369,670) 135,633 Retained earnings........................ 84,765 17,192 (72,520) 55,328 84,765 Less treasury stock...................... (18,547) - - (9) 9 (18,547) ----------- ------------ ------------ ----------- ------------ Total Stockholders' Equity......... 202,076 161,966 152,477 (314,443) 202,076 ----------- ------------ ------------ ----------- ------------ Total Liabilities and Stockholders' Equity............ $ 574,173 $ 501,184 $ 264,136 $ (663,517) $ 675,976 =========== =========== =========== ============ ===========
-11-
Supplemental Combining Balance Sheet December 31, 1994 (In thousands) Unconsolidated ------------------------------------- Non- ASSETS Guarantor Guarantor Eliminating Consolidated MDC Subsidiaries Subsidiaries Entries MDC Corporate Cash and cash equivalents............... $ 31,210 $ - - $ - - $ - - $ 31,210 Investments in subsidiaries............. 327,021 26,822 16,948 (370,791) - - Advances and notes receivable - Parent and subsidiaries..................... 145,900 - - 106,486 (252,386) - - Property and equipment, net............. 9,962 - - - - - - 9,962 Deferred income taxes................... 11,944 - - - - - - 11,944 Deferred issue costs, net............... 10,621 - - - - - - 10,621 Other assets, net....................... 3,017 - - 253 - - 3,270 ----------- ------------ ------------ ----------- ------------ 539,675 26,822 123,687 (623,177) 67,007 ----------- ------------ ------------ ----------- ------------ Home Building Cash and cash equivalents............... - - 9,656 506 - - 10,162 Home sales and other accounts receivable........................... 243 23,572 - - (11,307) 12,508 Investments and marketable securities, net.................................. 6,089 - - - - - - 6,089 Inventories, net Housing completed or under construction....................... - - 258,044 22,275 - - 280,319 Land and land under development....... - - 146,655 37,813 (630) 183,838 Prepaid expenses and other assets, net.. 6,601 33,011 4,363 - - 43,975 ----------- ------------ ------------ ----------- ------------ 12,933 470,938 64,957 (11,937) 536,891 ----------- ------------ ------------ ----------- ------------ Mortgage Lending Cash and cash equivalents............... - - - - 1,607 - - 1,607 Restricted cash......................... - - - - 2,650 - - 2,650 Accrued interest and other assets, net.. - - - - 1,447 - - 1,447 Mortgage loans held in inventory, net... - - - - 44,368 - - 44,368 ----------- ------------ ------------ ----------- ------------ - - - - 50,072 - - 50,072 ----------- ------------ ------------ ----------- ------------ Asset Management Cash and cash equivalents............... - - - - 585 - - 585 Mortgage Collateral, net, and assets related to mortgage-backed bonds and related liabilities.................. - - - - 64,574 - - 64,574 Other loans and assets, net............. - - - - 6,316 - - 6,316 ----------- ------------ ------------ ----------- ------------ - - - - 71,475 - - 71,475 ----------- ------------ ------------ ----------- ------------ Total Assets...................... $ 552,608 $ 497,760 $ 310,191 $ (635,114) $ 725,445 =========== =========== =========== ============= ===========
-12-
Supplemental Combining Balance Sheet December 31, 1994 (In thousands) (continued) Unconsolidated ----------------------------------- Non- LIABILITIES Guarantor Guarantor Eliminating Consolidated MDC Subsidiaries Subsidiaries Entries MDC Corporate Accounts payable and accrued expenses..... $ 34,192 $ - - $ 119 $ - - $ 34,311 Advances and notes payable - Parent and subsidiaries........................... 78,665 174,880 7,385 (260,930) - - Income taxes payable...................... 11,166 - - - - - - 11,166 Notes payable............................. 3,583 - - - - - - 3,583 Senior Notes, net......................... 187,352 - - - - - - 187,352 Subordinated notes, net................... 38,217 - - - - - - 38,217 ----------- ------------ ------------ ----------- ------------ 353,175 174,880 7,504 (260,930) 274,629 ----------- ------------ ------------ ----------- ------------ Home Building Accounts payable and accrued expenses..... 2,562 64,389 8,448 - - 75,399 Lines of credit........................... - - 62,332 - - - - 62,332 Notes payable............................. 4,576 18,857 10,152 - - 33,585 ----------- ------------ ------------ ----------- ------------ 7,138 145,578 18,600 - - 171,316 ----------- ------------ ------------ ----------- ------------ Mortgage Lending Accounts payable and accrued expenses..... - - - - 13,757 (11,307) 2,450 Line of credit............................ - - - - 23,211 - - 23,211 ----------- ------------ ------------ ----------- ------------ - - - - 36,968 (11,307) 25,661 ----------- ------------ ------------ ----------- ------------ Asset Management Accounts payable and accrued expenses..... - - - - 670 - - 670 Mortgage-backed bonds, net, and related liabilities, recourse solely to limited-purpose subsidiary assets...... - - - - 60,874 - - 60,874 ----------- ------------ ------------ ----------- ------------ - - - - 61,544 - - 61,544 ----------- ------------ ------------ ----------- ------------ Total Liabilities................... 360,313 320,458 124,616 (272,237) 533,150 ----------- ------------ ------------ ----------- ------------ STOCKHOLDERS' EQUITY Preferred stock........................... - - - - 10 (10) - - Common Stock.............................. 212 18 121 (139) 212 Additional paid-in capital................ 133,934 144,756 234,578 (379,334) 133,934 Retained earnings......................... 71,502 32,528 (49,125) 16,597 71,502 Less treasury stock....................... (13,353) - - (9) 9 (13,353) ----------- ------------ ------------ ----------- ------------ Total Stockholders' Equity.......... 192,295 177,302 185,575 (362,877) 192,295 ----------- ------------ ------------ ----------- ------------ Total Liabilities and Stockholders' Equity............. $ 552,608 $ 497,760 $ 310,191 $ (635,114) $ 725,445 =========== =========== =========== ============ ===========
-13-
Supplemental Combining Statements of Income (In thousands) Unconsolidated ------------------------------------ Non- Guarantor Guarantor Eliminating Consolidated MDC Subsidiaries Subsidiaries Entries MDC THREE MONTHS ENDED SEPTEMBER 30, 1995 REVENUES: Home Building............................. $ 88 $ 226,688 $ 39 $ - - $ 226,815 Mortgage Lending.......................... - - - - 4,407 - - 4,407 Asset Management.......................... - - - - 2,984 - - 2,984 Corporate................................. 359 - - - - - - 359 Equity in earnings of subsidiaries........ 7,629 - - - - (7,629) - - ----------- ------------ ------------ ----------- ------------ Total Revenues...................... 8,076 226,688 7,430 (7,629) 234,565 ----------- ------------ ------------ ----------- ------------ COSTS AND EXPENSES: Home Building............................. 88 217,111 294 - - 217,493 Mortgage Lending.......................... - - - - 2,140 - - 2,140 Asset Management.......................... - - - - 1,732 - - 1,732 Corporate general and administrative.......................... 3,172 - - 13 - - 3,185 Corporate and home building interest...... (3,615) 4,852 347 - - 1,584 ----------- ------------ ------------ ----------- ------------ Total Expenses...................... (355) 221,963 4,526 - - 226,134 ----------- ------------ ------------ ----------- ------------ Income before income taxes.................. 8,431 4,725 2,904 (7,629) 8,431 Provision for income taxes.................. 2,886 1,796 842 (2,638) 2,886 ----------- ------------ ------------ ----------- ------------ NET INCOME.................................. $ 5,545 $ 2,929 $ 2,062 $ (4,991) $ 5,545 ============ ============ ============ ============ =========== THREE MONTHS ENDED SEPTEMBER 30, 1994 REVENUES: Home Building............................. $ 78 $ 191,122 $ 18,027 $ (656) $ 208,571 Mortgage Lending.......................... - - - - 2,537 - - 2,537 Asset Management.......................... - - - - 3,094 (286) 2,808 Corporate................................. 330 - - 3 - - 333 Equity in earnings of subsidiaries........ 9,925 1,978 - - (11,903) - - ----------- ------------ ------------ ----------- ------------ Total Revenues...................... 10,333 193,100 23,661 (12,845) 214,249 ----------- ------------ ------------ ----------- ------------ COSTS AND EXPENSES: Home Building............................. 344 179,417 15,943 (80) 195,624 Mortgage Lending.......................... - - - - 1,964 - - 1,964 Asset Management.......................... - - - - 2,069 - - 2,069 Corporate general and administrative...... 3,977 - - 183 - - 4,160 Corporate and home building interest...... (2,515) 4,278 894 (752) 1,905 ----------- ------------ ------------ ----------- ----------- Total Expenses...................... 1,806 183,695 21,053 (832) 205,722 ----------- ------------ ------------ ----------- ----------- Income before income taxes.................. 8,527 9,405 2,608 (12,013) 8,527 Provision for income taxes.................. 3,107 3,664 800 (4,464) 3,107 ----------- ------------ ------------ ----------- ------------ NET INCOME.................................. $ 5,420 $ 5,741 $ 1,808 $ (7,549) $ 5,420 ============ ============ =========== ============ ============
-14-
Supplemental Combining Statements of Income (In thousands) Unconsolidated ----------------------------------- Non- Guarantor Guarantor Eliminating Consolidated MDC Subsidiaries Subsidiaries Entries MDC NINE MONTHS ENDED SEPTEMBER 30, 1995 REVENUES: Home Building............................ $ 299 $ 618,221 $ 163 $ - - $ 618,683 Mortgage Lending......................... - - - - 13,624 - - 13,624 Asset Management......................... - - - - 8,865 - - 8,865 Corporate................................ 1,196 - - - - - - 1,196 Equity in earnings of subsidiaries....... 19,303 - - - - (19,303) - - ----------- ------------ ------------ ----------- ------------ Total Revenues..................... 20,798 618,221 22,652 (19,303) 642,368 ----------- ------------ ------------ ----------- ------------ COSTS AND EXPENSES: Home Building............................ 586 592,085 616 - - 593,287 Mortgage Lending......................... - - - - 6,066 - - 6,066 Asset Management......................... - - - - 5,485 - - 5,485 Corporate general and administrative..... 9,740 - - 54 - - 9,794 Corporate and home building interest..... (10,951) 15,500 1,764 - - 6,313 ----------- ------------ ------------ ----------- ------------ Total Expenses..................... (625) 607,585 13,985 - - 620,945 ----------- ------------ ------------ ----------- ------------ Income before income taxes................. 21,423 10,636 8,667 (19,303) 21,423 Provision for income taxes................. 7,479 4,042 2,821 (6,863) 7,479 ----------- ------------ ------------ ----------- ------------ NET INCOME................................. $ 13,944 $ 6,594 $ 5,846 $ (12,440) $ 13,944 ============ ============ ============ ============ ============ NINE MONTHS ENDED SEPTEMBER 30, 1994 REVENUES: Home Building............................ $ 78 $ 516,389 $ 43,119 $ (2,180) $ 557,406 Mortgage Lending......................... - - - - 11,927 - - 11,927 Asset Management......................... - - - - 11,261 (851) 10,410 Corporate................................ 930 - - 40 - - 970 Equity in earnings of subsidiaries....... 29,697 4,490 - - (34,187) - - ----------- ------------ ------------ ----------- ------------ Total Revenues..................... 30,705 520,879 66,347 (37,218) 580,713 ----------- ------------ ------------ ----------- ------------ COSTS AND EXPENSES: Home Building............................ 1,075 484,206 38,128 (589) 522,820 Mortgage Lending......................... - - - - 6,812 - - 6,812 Asset Management......................... 11,825 - - 234 - - 12,059 Corporate and home building interest..... (6,439) 12,713 2,871 (2,233) 6,912 ----------- ------------ ------------ ----------- ------------ Total Expenses..................... 6,461 496,919 55,911 (2,822) 556,469 ----------- ------------ ------------ ----------- ------------ Income before income taxes................. 24,244 23,960 10,436 (34,396) 24,244 Provision for income taxes................. 9,314 9,353 3,420 (12,773) 9,314 ----------- ------------ ------------ ----------- ------------ NET INCOME................................. $ 14,930 $ 14,607 $ 7,016 $ (21,623) $ 14,930 ============ ============ ============ ============ ============
-15-
Supplemental Combining Statement of Cash Flows Nine Months Ended September 30, 1995 (In thousands) Unconsolidated ------------------------------------ Non- Guarantor Guarantor Eliminating Consolidated MDC Subsidiaries Subsidiaries Entries MDC NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES............................... $ 39,856 $ (894) $ (10,095) $ (6,360) $ 22,507 ----------- ------------ ------------ ----------- ------------ INVESTING ACTIVITIES: Mortgage Collateral Principal payments and prepayments...... - - - - 8,415 - - 8,415 Sales................................... - - - - 8,630 - - 8,630 Changes in restricted cash, net............. - - - - 2,650 - - 2,650 Changes in investments and marketable securities, net.......................... (298) - - - - - - (298) Distributions of capital from equity CMO interests................................ - - - - 3,662 - - 3,662 Affiliate advances and notes receivable..... (72,138) (13) (8,202) 80,353 - - Other, net.................................. (592) 1,241 962 - - 1,611 ----------- ------------ ------------ ----------- ------------ Net Cash Provided By (Used In) Investing Activities............................... (73,028) 1,228 16,117 80,353 24,670 ----------- ------------ ------------ ----------- ------------ FINANCING ACTIVITIES: Net increase in borrowings from Parent and subsidiaries............................. 18,193 42,631 13,169 (73,993) - - Mortgage-backed bonds - principal payments.. - - - - (16,310) - - (16,310) Lines of credit Advances................................ - - 534,484 - - - - 534,484 Principal payments...................... - - (558,623) (2,564) - - (561,187) Notes payable Borrowings.............................. - - 1,075 - - - - 1,075 Principal payments...................... (34) (23,264) (1,397) - - (24,695) Dividend payments........................... (1,568) - - - - - - (1,568) Treasury stock purchases.................... (5,321) - - - - - - (5,321) Other, net.................................. (54) - - - - - - (54) ----------- ------------ ------------ ----------- ------------ Net Cash Provided By (Used In) Financing Activities............................... 11,216 (3,697) (7,102) (73,993) (73,576) ----------- ------------ ------------ ----------- ------------ Net Decrease In Cash And Cash Equivalents... (21,956) (3,363) (1,080) - - (26,399) Cash And Cash Equivalents Beginning Of Period....................... 31,210 9,656 2,698 - - 43,564 ----------- ------------ ------------ ----------- ------------ End Of Period............................. $ 9,254 $ 6,293 $ 1,618 $ - - $ 17,165 ============ ============ ============ ============ ============
-16-
Supplemental Combining Statement of Cash Flows Nine Months Ended September 30, 1994 (In thousands) Unconsolidated --------------------------------------- Non- Guarantor Guarantor Eliminating Consolidated MDC Subsidiaries Subsidiaries Entries MDC NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES............................... $ (13,313) $ (58,124) $ 10,749 $ 12,740 $ (47,948) ----------- ------------ ------------ ----------- ------------ INVESTING ACTIVITIES: Mortgage Collateral Principal payments and prepayments...... - - 1,093 31,231 - - 32,324 Sales................................... - - - - 19,526 - - 19,526 Changes in restricted cash, net............. - - - - 12,365 - - 12,365 Changes in investments and marketable securities, net.......................... (10,073) - - - - - - (10,073) Distribution of capital from Equity CMO Interests............................ - - - - 2,705 - - 2,705 Redemption of metropolitan district bonds... 14,000 2,395 - - 16,395 Affiliate advances and notes receivable..... 13,282 - - 4,053 (17,335) - - Other, net.................................. (189) (309) (246) - - (744) ----------- ------------ ------------ ----------- ------------ Net Cash Provided By Investing Activities............................... 17,020 3,179 69,634 (17,335) 72,498 ----------- ------------ ------------ ----------- ------------ FINANCING ACTIVITIES: Net increase (reduction) in borrowings from Parent and subsidiaries.................. (11,146) 35,839 (11,923) (12,770) - - Mortgage-backed bonds - principal payments.. - - - - (57,494) - - (57,494) Lines of credit Advances................................ - - 448,337 - - - - 448,337 Principal payments...................... - - (401,375) (4,501) - - (405,876) Notes payable - - Borrowings.............................. - - 13,561 - - - - 13,561 Principal payments...................... (4,176) (32,126) (1,357) - - (37,659) Affiliate notes payable..................... - - (17,335) - - 17,335 - - Dividend Payments........................... (790) - - - - 30 (760) Other, net.................................. 147 - - - - - - 147 ----------- ------------ ------------ ----------- ------------ Net Cash Provided By (Used In) Financing Activities............................... (15,965) 46,901 (75,275) 4,595 (39,744) ----------- ------------ ------------ ----------- ------------ Net Increase (Decrease) In Cash And Cash Equivalents.............................. (12,258) (8,044) 5,108 - - (15,194) Cash And Cash Equivalents Beginning Of Period....................... 42,443 17,792 2,768 - - 63,003 ----------- ------------ ------------ ----------- ------------ End Of Period............................. $ 30,185 $ 9,748 $ 7,876 $ - - $ 47,809 ============ ============ ============ ============ ============
-17- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. INTRODUCTION MDC is engaged in the construction and sale of residential housing (collectively, the "home building segment") in (i) metropolitan Denver and Colorado Springs, Colorado (collectively, "Colorado"); (ii) northern Virginia and suburban Maryland (collectively, "Mid-Atlantic"); (iii) Northern and Southern California (collectively, "California"); (iv) Phoenix and Tucson, Arizona (collectively, "Arizona"); and (v) Las Vegas, Nevada ("Nevada"). HomeAmerican Mortgage Corporation, M.D.C. Holdings, Inc.'s wholly owned subsidiary ("HomeAmerican"), provides mortgage loans primarily to the Company's home buyers and, to a lesser extent, to others (collectively, the "mortgage lending segment"). In its asset management operations (collectively, the "asset management segment"), Financial Asset Management Corporation (an indirect, wholly owned subsidiary of M.D.C. Holdings, Inc.; "FAMC") manages, by contract, the operations of two publicly traded real estate investment trusts (each, a "REIT"). RESULTS OF OPERATIONS The table below summarizes MDC's results of operations during each of the periods presented (in thousands, except per share amounts).
Three Months Nine Months Ended September 30, Ended September 30, 1995 1994 1995 1994 Revenues.......................................... $ 234,565 $ 214,249 $ 642,368 $ 580,713 Income before income taxes........................ 8,431 8,527 21,423 24,244 Operating and net income.......................... 5,545 5,420 13,944 14,930 Earnings Per Share: Primary...................................... .28 .26 .69 .73 Fully-Diluted................................ .25 .24 .63 .67
Revenues for the three and nine months ended September 30, 1995 increased 9% and 11%, respectively, compared with revenues during the same periods in 1994 primarily due to a substantial increase in homes closed. The Company closed 1,235 and 3,364 homes, respectively, during the three and nine months ended September 30, 1995, representing 12% and 15% increases, respectively, over the 1,101 and 2,933 homes closed, respectively, in the same periods in 1994. Income before income taxes was lower for the three and nine months ended September 30, 1995 compared with the same periods in 1994 primarily as a result of lower home building segment operating profits, partially offset by higher mortgage lending and asset management segment operating profits and lower corporate general and administrative expenses. The reduction in home building operating profits primarily resulted from 11% and 14% declines, respectively, in Home Gross Margins (as hereinafter defined). The decline in Home Gross Margins largely is due to increased incentives offered to home buyers in order to counter weakening demand due to higher mortgage interest rates, particularly during the second half of 1994 and the first quarter of 1995, and increased competition in MDC's home building markets. -18- Impact of Home Mortgage Interest Rates. In October 1993, home mortgage interest rates reached their lowest levels in 25 years, dropping to an average of 6.7% on a 30-year, fixed-rate mortgage. From October 1993 to December 1994, home mortgage interest rates increased to as high as 9.25%. During this period of rising interest rates, the Company experienced a general weakening in demand for new homes in most of its markets. Weakened demand, along with a general buildup in unsold homes under construction by the Company and other home builders, gradually began to adversely affect the Company's home sales and Home Gross Margins. Since December 1994, home mortgage interest rates have generally declined to approximately 7.5% in October 1995. The decline, among other things, has led to improved home sales levels compared with the same periods in 1994. However, Home Gross Margins have not recovered as quickly, as the Company and other home builders in the Company's markets have continued to offer increased incentives to sell homes, especially unsold homes under construction. Home Building Segment. The table below sets forth certain information with respect to the Company's homes sold, closed and delivered during each of the periods presented as well as units sold under a contract but not delivered ("Backlog") at each date shown (dollars in thousands).
Three Months Nine Months Ended September 30, Ended September 30, 1995 1994 1995 1994 Home sales revenues................................ $ 220,770 $ 207,098 $ 608,690 $ 548,711 Operating profits.................................. 9,322 12,947 25,396 34,586 Average selling price per housing unit............. 178.8 188.1 180.9 187.1 Home Gross Margins................................. 13.4% 15.0% 13.4% 15.5% Homes - units Sales contracted, net Colorado................................... 483 340 1,562 1,531 Mid-Atlantic............................... 205 211 852 897 California................................. 231 144 609 454 Arizona.................................... 231 207 606 494 Nevada..................................... 15 25 50 87 ------------ ------------ ---------- ---------- Total................................. 1,165 927 3,679 3,463 ============ ============ ========== ========== Closed and delivered Colorado................................... 493 510 1,453 1,375 Mid-Atlantic............................... 288 251 734 757 California................................. 232 156 528 390 Arizona.................................... 201 146 586 334 Nevada..................................... 21 38 63 77 ------------ ------------ ---------- ---------- Total................................. 1,235 1,101 3,364 2,933 ============ ============ ========== ========== -19- September 30, December 31, September 30, 1995 1994 1994 Backlog Colorado.................................... 719 610 816 Mid-Atlantic................................ 455 337 565 California.................................. 237 101 162 Arizona..................................... 277 257 307 Nevada...................................... 16 29 37 ------------ ------------ ---------- Total................................... 1,704 1,334 1,887 ============ ============ ========== Estimated sales value....................... $ 305,200 $ 241,900 $ 355,835 ============ ============ ==========
Home Sales Revenues, Home Sales and Homes Closed and Delivered. Home sales revenue increases in 1995 compared with 1994 primarily are the result of increases in home closings, partially offset by an overall decrease in the average selling price per home closed, as discussed below. Home sales and closings increased in 1995 in (i) Arizona primarily due to a significant expansion of the Company's operations in Phoenix, where the Company has increased the number of active subdivisions to 22 at September 30, 1995 from 16 at September 30, 1994; (ii) California primarily due to the Company's acquisition and opening of several new subdivisions in Southern California after September 30, 1994 and the July 1995 acquisition of five active subdivisions in Paloma del Sol, a master-planned community in the city of Temecula, Riverside County; and (iii) Colorado due to, among other things, efforts to reduce the level of unsold homes under construction, an increase in the average number of active subdivisions from 50 to 54 and a continuing emphasis on offering more affordable homes. In its Mid-Atlantic market, the Company experienced lower home sales and closings per active subdivision in the first nine months of 1995 compared with the same period in 1994. This lower home sales level was partially offset by an increase in the number of active subdivisions to 45 at September 30, 1995 from 39 at September 30, 1994. The lower home sales and closing levels per active subdivision were primarily the result of the Mid-Atlantic market, overall, experiencing (i) an increase in active subdivisions due to aggressive competition in this market; and (ii) a slight decline in total home sales. Home sales in October 1995 increased by 36% to 337 homes, compared with sales of 248 homes in October 1994. The Company is unable to predict if this trend of higher comparable monthly sales in 1995 as compared with 1994, which began in April, will continue in the future. The Company increased the number of active subdivisions throughout its markets to 141 at September 30, 1995 from 132 at September 30, 1994. Backlog. MDC expects approximately 70% of its September 30, 1995 Backlog to close under existing sales contracts during the fourth quarter of 1995 and the first quarter of 1996. Average Selling Price Per Housing Unit. The decrease in the average selling price per housing unit in the third quarter and first nine months of 1995 compared with the same periods in 1994 is the result of management's decision to increase the Company's emphasis on lower-priced, more affordable homes primarily marketed to first-time and first-time move-up home buyers. This strategic change in market mix resulted in lower average sales prices compared with prices in 1994 (i) in the first nine -20- months of 1995 in Colorado, Maryland and Tucson; and (ii) in the third quarter of 1995 in Southern California as the Company began offering homes ranging in price from $105,000 to $170,000 in the subdivisions acquired in July 1995. Home Gross Margins. Gross margins (home sales revenues less cost of goods sold, which primarily includes land and construction costs, capitalized interest, a reserve for warranty expense and financing costs) as a percent of home sales revenue (" Home Gross Margins") improved to 13.4% in the third quarter of 1995 from 13.1% in the second quarter of 1995. However, Home Gross Margins decreased during the third quarter and first nine months of 1995 compared with the same periods in 1994. This decline is due to (i) increased incentives offered to home buyers in order to counter weakening demand due to higher mortgage interest rates, particularly during the second half of 1994 and the first quarter of 1995; (ii) increased incentives used to reduce the Company's inventory of unsold homes under construction; and (iii) increased competition in MDC's home building markets. The Company believes that weakened demand, competitive market conditions and increased incentives will result in Home Gross Margins in the fourth quarter of 1995 and first quarter of 1996 which are comparable to those achieved in the third quarter of 1995. In addition, increases in, among other things, the costs of subcontracted labor, finished lots and building materials have affected adversely, and may affect adversely in the future, Home Gross Margins to the extent that market conditions prevent the recovery of increased costs through higher sales prices. Marketing. Marketing expenses (which include, among other things, amortization of deferred marketing costs, model home expenses and sales commissions) totalled $13,108,000 and $36,735,000, respectively, for the third quarter and first nine months of 1995, compared with $11,373,000 and $31,300,000, respectively, for the same periods in 1994. The increases reflect the impact of increased home sales revenues for the three and nine months ended September 30, 1995 compared with 1994, and expanded operations in certain of the Company's markets. Significant additional marketing-related salary, sales commission and model home operating expenses were incurred to support the Company's expanded operations. Additionally, the Company has increased its marketing efforts in its markets to stimulate sales. General and Administrative. General and administrative expenses totalled $6,987,000 and $19,927,000, respectively, during the three and nine months ended September 30, 1995, compared with $6,863,000 and $20,579,000, respectively, for the same periods in 1994. General and administrative expenses as a percentage of home sales revenues decreased to 3.2% and 3.3%, respectively, for the third quarter and the first nine months of 1995, compared with 3.3% and 3.8%, respectively, in the comparable periods in 1994 as the Company was able to deliver more homes in 1995 without a proportionate increase in overhead. Unsold Homes Under Construction. The Company maintains levels of unsold homes in various stages of completion to assist it in meeting the immediate and near-term demands of its home buyers. The Company in the past has offered, and may in the future offer, incentives to assist in selling its homes, including unsold homes under construction. These incentives include buying down mortgage interest rates, offering prospective home buyers options and upgrades at reduced prices and, to a substantially lesser extent, price concessions. Incentives reduce the Company's Home Gross Margins. -21- During the first nine months of 1995, the Company increased substantially the amount of incentives it offered, particularly to (i) counter slowing sales; and (ii) reduce its inventory of unsold homes under construction which it considered to be in excess of its near-term requirements. As a result, the Company succeeded in reducing the number of unsold homes under construction at September 30, 1995 by approximately 16% compared with the December 31, 1994 level. The percentage of the book value of unsold homes under construction to the total book value of homes under construction has been reduced to 31% at September 30, 1995 from 41% at December 31, 1994. The Company is unable to predict the extent to which its Home Gross Margins and operating income during the remainder of 1995 and into 1996 will be affected adversely by incentives offered with respect to the Company's unsold homes under construction. Land Inventory. The table below shows (in thousands) the carrying value of MDC's land and land under development in each of its home building markets at September 30, 1995, segregated by property acquired or optioned before 1991 ("Pre-1991") and after 1990 ("Other"). The table also shows the carrying value of MDC's inactive land inventory which is included in the total, most of which was acquired prior to 1991.
Total Land and Land Under Development Inactive Pre-1991 Other Total Land Colorado.................$ 61,421 $ 21,052 $ 82,473 $ 43,677 Mid-Atlantic............. 13,702 26,606 40,308 - - California............... 1,328 28,263 29,591 902 Arizona.................. 5,136 15,184 20,320 1,208 Nevada................... - - 5,238 5,238 - - ------------- ------------ ------------ ------------ Totals...............$ 81,587 $ 96,343 $ 177,930 $ 45,787 ============= ============ ============ ============
The Company's net income, cash flow and returns on assets and stockholders' equity are affected adversely by the carrying costs (e.g., interest and property taxes) associated with inactive land inventories and that the inventories do not earn any return. These inactive land inventories, the majority of which are in close proximity to existing active projects, comprised approximately 26% of the carrying value of the Company's total land and land under development at September 30, 1995, compared with approximately 27% of the $183,838,000 carrying value at December 31, 1994 and 43% of the $192,881,000 carrying value at December 31, 1993. The decrease in inactive land inventory, most of which occurred during 1994, is due to the commencement of development and construction activity in certain subdivisions as well as sales or other dispositions of inactive land. In August 1995, the Company sold 45 acres of inactive land in its Rock Creek Ranch development in Colorado ("Rock Creek") for approximately $4,400,000, which was approximately equal to its book value. In accordance with the development plans of the metropolitan districts serving Rock Creek, the purchaser pre-paid approximately $3,400,000 of development fees to these districts. In connection with the sale, the purchaser acquired an option from the Company for the purchase of two adjacent parcels also served by the districts. Carrying costs on inactive land inventories are expensed, not capitalized. The Company is actively pursuing opportunities to reduce, through sales, home building activities, or other means, its inactive land inventories. -22- Inventory Valuation Reserves. Operating results during the three and nine months ended September 30, 1995 were impacted adversely by $1,200,000 and $2,100,000, respectively, in net realizable value adjustments. The adjustments in the three months ended September 30, 1995 primarily are related to certain under-performing projects in Arizona and the Mid-Atlantic region. A $900,000 adjustment was taken in the second quarter of 1995 primarily related to several projects in Northern California which experienced slowed sales and reduced selling prices due to the continued general decline in home sales activity in the Sacramento market. Mortgage Lending Segment. The table below summarizes the results of HomeAmerican's operations during each of the periods presented (in thousands).
Three Months Nine Months Ended September 30, Ended September 30, 1995 1994 1995 1994 Gains from sales of mortgage servicing: Bulk........................................... $ 1,528 $ 162 $ 5,262 $ 4,476 Other.......................................... 473 236 1,381 690 Net interest income............................... 817 725 2,412 1,937 Origination fees.................................. 1,501 1,110 3,831 3,491 Losses on sales of mortgage loans, net............ (405) (166) (845) (347) Mortgage servicing and other...................... 441 470 1,456 1,432 General and administrative expenses............... (2,088) (1,964) (5,939) (6,564) ------------- ------------ ------------ ------------ Operating profit................................ $ 2,267 $ 573 $ 7,558 $ 5,115 ============= ============ ============ ============ Principal amount of originations and purchases: MDC home buyers............................... $ 114,642 $ 80,905 $ 295,121 $ 232,435 Spot.......................................... 12,423 11,259 26,254 59,668 Correspondent................................. 20,031 15,063 48,909 58,960 ------------- ------------ ------------ ------------ Total..................................... $ 147,096 $ 107,227 $ 370,284 $ 351,063 ============= ============ ============ ============ September 30, December 31, September 30, 1995 1994 1994 Composition of Servicing Portfolio at End of Period: FHA insured/VA guaranteed....................... $ 141,589 $ 203,991 $ 264,046 Conventional.................................... 444,072 365,072 306,860 ------------- ------------- ------------ Total Servicing Portfolio........................... $ 585,661 $ 569,063 $ 570,906 ============= ============= ============ Servicing Portfolio Held for Sale................... $ 442,817 $ 506,098 $ 502,783 ============= ============= ============
HomeAmerican's operating profits for the three and nine months ended September 30, 1995 exceeded the operating profits for the same periods in 1994 primarily due to a higher level of mortgage loans closed and higher gains from sales of mortgage loan servicing. Loan Originations and Purchases. The increases in HomeAmerican's loan originations and purchases in the third quarter and first nine months of 1995 compared with the same periods in 1994 principally are due to an increase in MDC's home closings and an increase in the percentage of mortgage -23- originations for MDC home buyers. The percentage of HomeAmerican mortgage originations for MDC home buyers increased to 59.3% for the first nine months of 1995 from 53.4% for the same period in 1994, and to 62.4% from 50.2% for the respective three month periods ended September 30, 1995 and 1994. To serve the growing number of MDC home buyers in Southern California, HomeAmerican opened a mortgage origination office during the third quarter of 1995. By originating a mortgage loan for an MDC home buyer, the Company is able to recover a portion of the cost of the incentives provided by the Company to its home buyers through the future sale of the related mortgage servicing. Spot and correspondent originations mainly result from refinancings. Increased mortgage interest rates, particularly during the second half of 1994 and the first quarter of 1995, significantly decreased refinancing activity market-wide and resulted in a decrease in the Company's spot and correspondent originations in the first nine months of 1995 from the first nine months of 1994. During the third quarter of 1995, spot and correspondent originations and purchases increased compared with the same period in 1994, as interest rates in the third quarter of 1995 averaged approximately 75 basis points lower than in the third quarter of 1994. Mortgage Servicing. The Company sold approximately the same principal amount of servicing in the nine months ended September 30, 1995 as in the same period in 1994, but received approximately 25% more revenues on the sales in 1995 than in 1994 as, among other things, stronger market demand for mortgage servicing during 1995 resulted in more favorable prices than in 1994. For the three months ended September 30, 1995, the Company completed one bulk sale of servicing, whereas no bulk sales of servicing were completed in the same period in 1994. Gains from mortgage servicing sales other than "bulk" sales comprised a larger percentage of total gains (21% for the first nine months of 1995 compared with 13% for the same period in 1994) primarily due to increased originations and purchases of adjustable rate mortgages, which generally are sold "servicing released." The Company's portfolio of servicing held for sale decreased to $442,817,000 at September 30, 1995, compared with $502,783,000 at September 30, 1994 due primarily to the sales of servicing during 1995 exceeding mortgage originations and purchases. The underlying value of a servicing portfolio is generally determined based on the annual servicing fee rates applicable to the loans comprising the portfolio, which currently are .44% for FHA insured/VA guaranteed loans and .25% for conventional loans. Forward Sales Commitments. HomeAmerican's operations are affected by, among other things, changes in mortgage interest rates. HomeAmerican utilizes forward mortgage securities contracts to manage the interest rate risk on its fixed-rate mortgage loans owned and rate-locked mortgage loans in the pipeline. Such contracts are the only significant financial derivative instruments utilized by HomeAmerican. -24- Asset Management Segment. The following table summarizes the results of the asset management segment's operations during each of the periods presented (in thousands).
Three Months Nine Months Ended September 30, Ended September 30, 1995 1994 1995 1994 Management fees from REITs......................... $ 778 $ 590 $ 2,143 $ 1,955 Gains on sales of mortgage-related assets.......... 448 (63) 718 295 Other, net......................................... 26 212 519 294 ------------- ------------ ------------ ------------ Operating profit................................... $ 1,252 $ 739 $ 3,380 $ 2,544 ============= ============ ============ ============
Gains on sales of mortgage-related assets during the third quarter and nine months ended September 30, 1995 primarily are the result of the Company's continuing efforts to liquidate its portfolio of mortgage-related assets as the current low interest rates enable the Company to sell such assets at profitable levels. The Company currently does not anticipate making additional investments in mortgage-related assets in the future. As a result, future income from the asset management segment will be substantially dependent on management fees earned from the REITs. At September 30, 1995, FAMC had approximately $207,000,000 in assets under management. Other Operating Results. Interest Expense. Corporate and home building interest incurred decreased to $8,337,000 and $25,809,000, respectively, for the three and nine months ended September 30, 1995, compared with $9,114,000 and $26,361,000, respectively, for the same periods in 1994. The decreases are the result primarily of lower levels of home building-related borrowings outstanding. During 1995, the Company reduced its operating cash balances by approximately $25 million compared with 1994 by paying down debt. Interest on home building inventories is capitalized during the period of active development and through the completion of construction. During the three and nine months ended September 30, 1995, the Company capitalized $6,753,000 and $19,496,000, respectively, of this interest compared with $7,209,000 and $19,449,000, respectively, for the same periods in 1994. The decrease in interest capitalized for the third quarter of 1995 primarily is due to decreased home building inventory levels, which more than offset higher average interest capitalization rates resulting from higher average effective interest rates on the Company's debt. Capitalized interest in home building inventory decreased to $40,886,000 at September 30, 1995, compared with $42,813,000 at September 30, 1994, as the Company continues to relieve more previously capitalized interest through cost of sales than is being capitalized currently. Corporate and home building interest incurred and not capitalized is reflected as interest expense. For a reconciliation of interest incurred, capitalized and expensed, see Note C to the Company's Consolidated Financial Statements. Corporate General and Administrative Expenses. Corporate general and administrative expenses totalled $3,185,000 and $9,794,000, respectively, during the three and nine months ended September 30, -25- 1995, compared with $4,160,000 and $12,059,000, respectively, for the same periods of 1994. The decreases in 1995 primarily are due to certain non-recurring expense recoveries of approximately $368,000 recorded in the third quarter of 1995 and decreases in professional fees and other expenses as the Company has continued to streamline its operations. Income Taxes. M.D.C. Holdings, Inc. and its wholly owned subsidiaries file a consolidated federal income tax return (an "MDC Consolidated Return"). Richmond Homes and its wholly owned subsidiaries filed a separate consolidated federal income tax return (each a "Richmond Homes Consolidated Return") from its inception (December 28, 1989) through February 2, 1994, the date Richmond Homes became a wholly owned subsidiary of MDC. MDC's overall effective income tax rate during the three and nine months ended September 30, 1995 is 34.2% and 34.9%, respectively, compared with 36.4% and 38.4%, respectively, during 1994. The effective income tax rates differed from the 35% federal statutory rate primarily due to, among other things, (i) the impact of state income taxes; (ii) the realization of non-taxable income for financial reporting purposes for which no tax liability was recorded; and (iii) in 1994, adjustments to prior years' income taxes. In April 1995, the Company and the Internal Revenue Service (the "IRS") reached final agreement on the IRS examinations of the MDC Consolidated Returns for the years 1984 and 1985. Also in April 1995, the Company and the IRS reached final agreement on the IRS examinations of the Richmond Homes Consolidated Returns for the years 1989 and 1990. These agreements had no material impact upon the Company's financial position or results of operations. The IRS has completed its examination of the MDC Consolidated Returns for the years 1986 through 1990 and has proposed certain adjustments to the taxable income reflected in such returns. In general, the proposed adjustments would shift the recognition of certain items of income and expense from one year to another ("Timing Adjustments"). To the extent taxable income in a prior year is increased by proposed Timing Adjustments, taxable income may be reduced by a corresponding amount in other years; however, the Company would incur an interest charge as a result of such adjustment. The Company currently is protesting many of these proposed adjustments through the IRS appeals process. In the opinion of management, adequate provision has been made for the additional income taxes and interest which may result from the proposed adjustments. The IRS currently is examining the MDC and Richmond Homes Consolidated Returns for the years 1991, 1992 and 1993. No reports have been issued by the IRS in connection with these examinations. In the opinion of management, adequate provision has been made for additional income taxes and interest, if any, which may result from these examinations. -26- LIQUIDITY AND CAPITAL RESOURCES MDC uses its liquidity and capital resources to, among other things, (i) support its operations, including its inventories of homes, home sites and land; (ii) provide working capital; and (iii) provide mortgage loans for its home buyers. Liquidity and capital resources are generated internally from operations and from external sources. Capital Resources. The Company's capital structure is a combination of (i) permanent financing, represented by Stockholders' Equity; (ii) long-term financing, represented by Senior Notes and Subordinated notes due primarily in 2003 and 2005; and (iii) current financing, primarily Lines of Credit, as discussed below. The Company believes that its current financial condition is both balanced to fit its current operational structure and adequate to satisfy its current and near-term capital requirements. The Company's debt to equity ratio improved to 1.5 to 1 at September 30, 1995 from 2.0 to 1 at December 31, 1993 and 1.8 to 1 at December 31, 1994. The significant improvement is primarily a result of the earnings of the Company, which contributed to the increase in the Company's Stockholders' Equity to $202,076,000 at September 30, 1995, and the reduction in debt related to management's strategic decision to lower cash balances in the nine months ended September 30, 1995. Based upon its current capital resources and additional liquidity available under existing credit relationships, MDC believes that it has adequate financial resources to satisfy its current and near-term capital requirements. The Company believes that it can meet its long-term capital needs (including, among other things, meeting future debt payments and refinancing or paying off other long-term debt as it becomes due) from operations and external financing sources. Lines of Credit and Notes Payable. Home Building. MDC's home building bank line of credit facilities at September 30, 1995 were $156,000,000 in the aggregate, a substantial increase over the $70,000,000 of similar facilities at December 31, 1993. Agreements governing significant portions of the present facilities were entered into during 1994 and the first nine months of 1995, and generally provide for final maturities from four to five years, including scheduled term-out periods (although the term-out periods may commence earlier under certain circumstances). Borrowings under the bank lines of credit are collateralized by home building inventories and are limited to the value of "eligible collateral" (as defined in the credit agreements). At September 30, 1995, $38,193,000 was borrowed and an additional $110,122,000 was collateralized and available to be borrowed under the bank lines of credit. In August 1995, the Company modified and extended a $75,000,000 bank line of credit facility. The modified agreement includes, among other things, a lower interest margin, lower fees, an increase in funding for the Company's expanding Arizona and California operations and a one year extension of the final maturity to the third quarter of 1999 (although the term-out periods may commence earlier under certain circumstances). -27- Mortgage Lending. To provide funds to originate and purchase mortgage loans and to finance these mortgage loans on a short-term basis, HomeAmerican utilizes its mortgage lending bank line of credit (the "Mortgage Line"). During the first nine months of 1995 and 1994, HomeAmerican sold $366,455,000 and $382,327,000, respectively, principal amount of mortgage loans and mortgage certificates. The aggregate amount available under the Mortgage Line at September 30, 1995 was $51,000,000. Borrowings under the Mortgage Line are collateralized by mortgage loans and mortgage-backed certificates and are limited to the value of "eligible collateral" (as defined in the credit agreement). At September 30, 1995, $20,647,000 was borrowed and an additional $16,177,000 was collateralized and available to be borrowed under the Mortgage Line. The Company also has additional borrowing capability with available repurchase agreements. General. The Company's lines of credit and notes payable require compliance with certain covenants, representations and warranties. Currently, the Company believes that it is in compliance with these covenants, representations and warranties. Consolidated Cash Flow. Management believes the continuing improvement in the Company's strong financial condition enables it to operate with lower operating cash balances than it did in prior periods. During the first nine months of 1995, management reduced MDC's operating cash balances by $26,399,000 from levels at December 31, 1994. The Company used this cash and $29,245,000 of internally generated funds to, among other things, pay down lines of credit and notes payable by $50,323,000 and to repurchase, for $5,321,000, 843,600 shares of MDC Common Stock (at prices ranging from $5.88 to $6.38). The stock repurchases were made pursuant to an announced program to repurchase up to one million shares of MDC Common Stock and up to 1% of the principal amount of each of its outstanding Senior Notes and Convertible Subordinated Notes. MDC used $15,194,000 of cash in the first nine months of 1994 principally due to increases in home building inventories as a result of significantly increased levels of home building activity, offset partially by a reduction in mortgage loans held in inventory and net increases in debt (primarily lines of credit) necessary to finance the substantial increases in home building activities. -28- ISSUANCE OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). The Company's adoption of SFAS 121 in 1996 is not anticipated to have a material impact on the results of operations or financial position of the Company in the year of adoption. In May 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 122 "Accounting for Mortgage Servicing Rights an Amendment of FASB Statement No. 65" ("SFAS 122"). The Company's adoption of SFAS 122 in 1996 is not anticipated to have a material adverse impact on the results of operations or financial position of the Company in the year of adoption. OTHER Congressional considerations of major reform to the federal tax system have been increasing over the past year. Proposed tax plans currently being sponsored by various members of Congress, include variations of a consumption tax (sales tax) and flat tax. Under the current tax system, deductions are allowed for mortgage interest and property taxes. Tax reform may reduce or eliminate these deductions. The likelihood of major tax reform and the impact such reform would have on, among other things (i) the demand for, and the value of, new as well as existing homes; and (ii) the Company's financial position or results of operations, is not determinable. -29- M.D.C. HOLDINGS, INC. FORM 10-Q PART II ITEM 1. LEGAL PROCEEDINGS. Settlement of Western Savings Civil Matters. In December 1994, the Company and the Resolution Trust Corporation (the "RTC"), acting in its corporate capacity as receiver for Western Savings and Loan Association ("Western"), executed a final settlement agreement providing for the mutual release of all potential claims between the parties and certain related persons insofar as such claims relate to any of the Company's past transactions with Western. On October 16, 1995, the United States District Court for the District of Arizona entered an order approving the settlement and determining that the settlement precludes the filing of cross-claims against MDC by various third parties. Expansive Soils Cases. On October 21, 1994, a complaint was served on several of the Company's subsidiaries in an action initiated by six homeowners in Highlands Ranch, Colorado. On January 26, 1995, counsel for the Company accepted service of two additional complaints by a homeowner in the Stonegate subdivision in Douglas County, Colorado and by a homeowner in the Rock Creek development located in Boulder County, Colorado. On September 12, 1995, the Company was served with a similar complaint relating to homeowners in Douglas County, Colorado. The complaints, each of which seek certification of a class action, purport to allege substantially identical claims relating to the construction of homes on lots with expansive soils, including negligence, breach of express and implied warranties, violation of the Colorado Consumer Protection Act, non-disclosure and a claim for exemplary damages. The homeowners in each complaint seek, individually and on behalf of the alleged class, recovery in unspecified amounts including actual damages, statutory damages, exemplary damages and treble damages. The Company has filed a response to each of the complaints and to initial discovery requests in the first filed case. The ultimate outcome of the cases is uncertain at this time, however, management does not believe that the outcome of these matters will have a material adverse effect on the financial condition or results of operations of the Company. The Company has notified its insurance carriers of these complaints and currently is reviewing with the carriers how the Company will proceed. The insurance carriers providing primary coverage have agreed to defend the Company in the cases subject to reservations of rights. 1 Colescott, et al vs. Richmond Homes Limited, et al. in the District Court Douglas County, State of Colorado, Civil Action No. 94 CV 352, Division 2. 2 Constantini vs. Richmond Homes Limited, et al. in the District Court, Douglas County, State of Colorado, Civil Action No. 95 CV 1052, Division 3. 3 Moore vs. Richmond Homes Limited et al., in the District Court, Boulder County, State of Colorado, Civil Action No. CV 221, Division 2. 4 Rodenburg vs. Richmond Homes et al. in the District Court, Douglas County, State of Colorado, Civil Action No. 95 CV 298, Division 1. -30- Other. The Company and certain of its subsidiaries and affiliates have been named as defendants in various other claims, complaints and legal actions arising in the normal course of business. In the opinion of management, the outcome of these matters will not have a material adverse effect upon the financial condition or results of operations of the Company. The Company is not aware of any litigation, matter or pending claim against the Company which would result in material contingent liabilities related to environmental hazards or asbestos. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREOWNERS. No matters were submitted to shareowners during the third quarter of 1995. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibit: 15 Letter regarding unaudited interim financial information. 27 Financial Data Schedule. 28 Form of Independent Accountants' Review Report dated October 24, 1995. (b) Reports on Form 8-K: No Current Reports on Form 8-K were filed by the Registrant during the period covered by this Quarterly Report on Form 10-Q. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 9, 1995 M.D.C. HOLDINGS, INC. (Registrant) By: /s/ Paris G. Reece III Paris G. Reece III, Senior Vice President, Chief Financial Officer and Principal Accounting Officer -31- EX-15 2 Exhibit No. 15 October 24, 1995 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 We are aware that M.D.C. Holdings, Inc. has included our report dated October 24, 1995 (issued pursuant to the provisions of Statement on Auditing Standards No. 71) in its Registration Statements on Forms S-8 filed on or about March 15, 1985 and July 1, 1994, Forms S-3 filed on or about May 19, 1994, September 21, 1994 and May 31, 1995, and Form S-4 filed on or about May 19, 1994. We are also aware of our responsibilities under the Securities Act of 1933. Yours very truly, /s/ Price Waterhouse LLP Price Waterhouse LLP EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MDC Holdings, Inc. condensed consolidated financial statements included in its Form 10-Q for the quarterly period ended September 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 17,165 6,387 14,385 0 455,803 0 9,575 0 675,976 0 300,524 225 0 0 201,851 675,976 618,683 642,368 593,287 11,551 9,794 0 6,313 21,423 7,479 13,944 0 0 0 13,944 .69 .63
EX-28 4 Exhibit 28 INDEPENDENT ACCOUNTANTS' REVIEW REPORT To the Board of Directors and Stockholders of M.D.C. Holdings, Inc. We have reviewed the accompanying condensed consolidated balance sheet of M.D.C. Holdings, Inc. and subsidiaries (the "Company") as of September 30, 1995, and the related condensed consolidated statements of income for the three- and nine-month periods ended September 30, 1995 and 1994 and of cash flows for the nine-month periods ended September 30, 1995 and 1994. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1994, and the related consolidated statements of income, of stockholders' equity, and of cash flows for the year then ended (not presented herein), and in our report dated February 15, 1995 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1994, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP Los Angeles, California October 24, 1995 -----END PRIVACY-ENHANCED MESSAGE-----