-----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, PlmukN4zp3CiIPUY7VJCAEXYXOd/WUqs801zTnovhiosG+X5wDiok0O+V7LOsBPz TAnIw9TS8hBkzDg0qMsdrQ== 0000773141-98-000007.txt : 19981109 0000773141-98-000007.hdr.sgml : 19981109 ACCESSION NUMBER: 0000773141-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981106 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: SEC FILE NUMBER: 001-08951 FILM NUMBER: 98738864 BUSINESS ADDRESS: STREET 1: 3600 S YOSEMITE ST STE 900 CITY: DENVER STATE: CO ZIP: 80237 BUSINESS PHONE: 3037731100 MAIL ADDRESS: STREET 1: 3600 S YOSEMITE ST STREET 2: SUITE 900 CITY: DENVER STATE: CO ZIP: 80237 10-Q 1 ================================================================================ 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, 1998 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-8951 M.D.C. HOLDINGS, INC. (Exact name of Registrant as specified in its charter) Delaware 84-0622967 (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) 3600 South Yosemite Street, Suite 900 80237 Denver, Colorado (Zip code) (Address of principal executive offices) (303) 773-1100 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of November 2, 1998, 18,344,000 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, 1998 INDEX Page No. ---- Part I. Financial Information: Item 1. Condensed Consolidated Financial Statements: Balance Sheets as of September 30, 1998 (Unaudited) and December 31, 1997.............. 1 Statements of Income (Unaudited) for the three and nine months ended September 30, 1998 and 1997........................................... 3 Statements of Cash Flows (Unaudited) for the nine months ended September 30, 1998 and 1997.. 4 Notes to Financial Statements (Unaudited)...... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 9 Part II. Other Information: Item 1. Legal Proceedings.............................. 19 Item 4. Submission of Matters to a Vote of Shareowners. 19 Item 5. Other Information.............................. 19 Item 6. Exhibits and Reports on Form 8-K............... 19 (i) M.D.C. HOLDINGS, INC. Condensed Consolidated Balance Sheets (In thousands)
September 30, December 31, 1998 1997 ------------ ----------- ASSETS (Unaudited) Corporate Cash and cash equivalents................................................... $ 802 $ 7,110 Property and equipment, net................................................. 1,999 9,709 Deferred income taxes....................................................... 15,875 12,276 Deferred debt issue costs, net.............................................. 3,683 6,851 Other assets, net........................................................... 6,373 2,944 ---------- ----------- 28,732 38,890 Homebuilding Cash and cash equivalents................................................... 8,097 3,867 Home sales and other accounts receivable.................................... 20,366 7,559 Investments and marketable securities, net.................................. 392 1,392 Inventories, net Housing completed or under construction................................... 325,184 249,928 Land and land under development........................................... 190,053 193,012 Prepaid expenses and other assets, net...................................... 56,960 55,788 ---------- ----------- 601,052 511,546 Financial Services Cash and cash equivalents................................................... 331 701 Mortgage loans held in inventory, net....................................... 90,687 65,256 Other assets, net........................................................... 7,187 5,377 ---------- ----------- 98,205 71,334 Total Assets.......................................................... $ 727,989 $ 621,770 ========== =========== 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, 1998 1997 ----------- ----------- LIABILITIES (Unaudited) Corporate Accounts payable and accrued expenses....................................... $ 26,188 $ 14,288 Income taxes payable........................................................ 13,561 11,806 Note payable................................................................ - - 3,432 Senior notes, net........................................................... 174,328 150,354 Subordinated notes, net..................................................... 28,000 38,229 ----------- ----------- 242,077 218,109 Homebuilding Accounts payable and accrued expenses....................................... 123,266 105,485 Line of credit.............................................................. 61,453 20,766 Notes payable............................................................... 574 9,676 ----------- ----------- 185,293 135,927 Financial Services Accounts payable and accrued expenses....................................... 16,482 12,047 Line of credit.............................................................. 32,378 26,094 ----------- ----------- 48,860 38,141 Total Liabilities..................................................... 476,230 392,177 ----------- ----------- 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; 24,120,000 and 23,691,000 shares issued, respectively, at September 30, 1998 and December 31, 1997......................................................... 241 237 Additional paid-in capital.................................................. 146,060 142,429 Retained earnings........................................................... 143,357 125,613 Accumulated comprehensive income............................................ 1,485 881 ----------- ----------- 291,143 269,160 Less treasury stock, at cost; 5,876,000 and 5,903,000 shares, respectively, at September 30, 1998 and December 31, 1997............................... (39,384) (39,567) ----------- ----------- Total Stockholders' Equity............................................ 251,759 229,593 ----------- ----------- Total Liabilities and Stockholders' Equity............................ $ 727,989 $ 621,770 =========== ===========
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, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- REVENUES Homebuilding......................................... $ 325,269 $ 261,057 $ 857,286 $ 683,748 Financial Services................................... 6,279 5,337 21,099 13,017 Corporate............................................ 87 224 630 957 ----------- ----------- ----------- ----------- Total Revenues................................... 331,635 266,618 879,015 697,722 ----------- ----------- ----------- ----------- COSTS AND EXPENSES Homebuilding......................................... 300,000 250,826 800,966 656,224 Financial Services................................... 3,069 2,304 8,702 6,700 Corporate general and administrative................. 5,310 1,694 12,862 8,194 Corporate and homebuilding interest.................. - - - - - - 761 ----------- ----------- ----------- ----------- Total Expenses................................... 308,379 254,824 822,530 671,879 ----------- ----------- ----------- ----------- Income before income taxes and extraordinary item...... 23,256 11,794 56,485 25,843 Provision for income taxes.............................. (8,999) (4,492) (21,719) (9,821) ----------- ----------- ----------- ----------- Income before extraordinary item........................ 14,257 7,302 34,766 16,022 Extraordinary loss from early extinguishments of debt, net of income tax benefit of $9,587 for 1998 and $1,336 for 1997....................................... - - - - (15,314) (2,179) ----------- ----------- ----------- ----------- NET INCOME.............................................. $ 14,257 $ 7,302 $ 19,452 $ 13,843 Unrealized holding gains (losses) on securities arising during the period, net............................... (791) 467 604 804 ----------- ----------- ----------- ----------- COMPREHENSIVE INCOME.................................... $ 13,466 $ 7,769 $ 20,056 $ 14,647 =========== =========== =========== =========== EARNINGS PER SHARE Basic Income before extraordinary item................. $ .78 $ .42 $ 1.92 $ .91 =========== =========== =========== =========== Net Income....................................... $ .78 $ .42 $ 1.07 $ .78 =========== =========== =========== =========== Diluted Income before extraordinary item................. $ .65 $ .35 $ 1.59 $ .79 =========== =========== =========== =========== Net Income....................................... $ .65 $ .35 $ .91 $ .69 =========== =========== =========== =========== WEIGHTED-AVERAGE SHARES OUTSTANDING Basic................................................ 18,205 17,569 18,111 17,641 =========== =========== =========== =========== Diluted.............................................. 22,673 21,779 22,598 21,849 =========== =========== =========== =========== DIVIDENDS PER SHARE..................................... $ .04 $ .03 $ .11 $ .09 =========== =========== =========== ===========
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, 1998 1997 ----------- ----------- OPERATING ACTIVITIES Net Income.......................................................... $ 19,452 $ 13,843 Adjustments To Reconcile Net Income To Net Cash Used In Operating Activities: Loss from the early extinguishments of debt.................... 24,901 3,515 Depreciation and amortization.................................. 14,602 10,588 Homebuilding asset impairment charges.......................... 4,500 5,850 Deferred income taxes.......................................... (3,599) (319) Gains on sales of mortgage-related assets...................... (4,509) 20 Net changes in assets and liabilities Home sales and other accounts receivable.................... (12,807) (5,645) Homebuilding inventories.................................... (77,058) (13,658) Prepaid expenses and other assets........................... (15,617) (6,355) Mortgage loans held in inventory............................ (25,431) (13,933) Accounts payable and income taxes payable................... 33,383 4,839 Other, net..................................................... (2,067) (2,679) ----------- ----------- Net Cash Used In Operating Activities................................ (44,250) (3,934) ----------- ----------- INVESTING ACTIVITIES Net Proceeds from Sale of Office Building............................ 13,250 - - Net Proceeds From Mortgage-Related Assets and Liabilities............ 4,636 1,587 Other, net........................................................... (1,952) 278 ----------- ----------- Net Cash Provided By Investing Activities............................ 15,934 1,865 ----------- ----------- FINANCING ACTIVITIES Lines of Credit Advances........................................................ 895,684 767,875 Principal payments.............................................. (849,601) (716,132) Notes Payable Borrowings...................................................... 574 144 Principal payments.............................................. (13,108) (178) Senior Notes Proceeds from issuance......................................... 171,541 - - Repurchase and defeasance...................................... (152,000) (38,000) Premium on repurchase and defeasance........................... (17,592) (1,520) Retirement of Subordinated Notes..................................... (10,230) - - Stock Repurchases.................................................... - - (7,349) Dividend Payments.................................................... (1,988) (1,599) Other, net........................................................... 2,588 1,209 ----------- ----------- Net Cash Provided By Financing Activities............................ 25,868 4,450 ----------- ----------- Net Increase (Decrease) In Cash and Cash Equivalents................. (2,448) 2,381 Cash and Cash Equivalents Beginning of Period............................................. 11,678 11,304 ----------- ----------- End of Period................................................... $ 9,230 $ 13,685 =========== ===========
See notes to condensed consolidated financial statements. -4- M.D.C. HOLDINGS, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) A. Presentation of Financial Statements The condensed consolidated financial statements of M.D.C. Holdings, Inc. ("MDC" or the "Company," which, unless otherwise indicated, refers to M.D.C. Holdings, Inc. and its subsidiaries) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. These statements reflect all adjustments (including all normal recurring accruals) which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of MDC as of September 30, 1998 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, 1997. Certain reclassifications have been made in the 1997 financial statements to conform to the classifications used in the current year. B. Corporate and Homebuilding Interest Activity (in thousands)
Three Months Nine Months Ended September 30, Ended September 30, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Interest capitalized in homebuilding inventory, beginning of period....... $ 33,316 $ 40,659 $ 37,991 $ 40,745 Interest incurred....................... 5,408 6,689 16,907 20,192 Interest expensed....................... - - - - - - (761) Previously capitalized interest included in cost of sales..................... (8,503) (7,529) (24,677) (20,357) ----------- ----------- ----------- ----------- Interest capitalized in homebuilding inventory, end of period............. $ 30,221 $ 39,819 $ 30,221 $ 39,819 =========== =========== =========== ===========
C. Stockholders' Equity On February 26, 1997, the Company repurchased 838,000 shares of MDC common stock at $8.77 per share, including commissions, completing a program authorized by the MDC Board of Directors in October 1996 to repurchase up to 1,000,000 shares of MDC common stock. -5- D. Information on Business Segments The Company operates in two business segments: homebuilding and financial services. A summary of the Company's segment information is shown below (in thousands).
Three Months Nine Months Ended September 30, Ended September 30, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Homebuilding Home sales......................... $ 322,337 $ 259,720 $ 846,852 $ 676,674 Land sales......................... 2,421 1,011 9,224 6,256 Other revenues..................... 511 326 1,210 818 ----------- ----------- ----------- ----------- 325,269 261,057 857,286 683,748 ----------- ----------- ----------- ----------- Home cost of sales................. 265,927 221,912 705,449 577,859 Land cost of sales................. 1,572 744 5,857 5,199 Asset impairment charges........... 1,500 3,500 4,500 5,850 Marketing.......................... 19,384 16,367 52,780 44,467 General and administrative......... 11,617 8,303 32,380 22,849 ----------- ----------- ----------- ----------- 300,000 250,826 800,966 656,224 ----------- ----------- ----------- ----------- Homebuilding Operating Profit.. 25,269 10,231 56,320 27,524 ----------- ----------- ----------- ----------- Financial Services Mortgage Lending Revenues Interest revenues.................. $ 597 $ 465 $ 1,630 $ 1,411 Origination fees................... 2,568 1,795 6,708 4,811 Gains on sales of mortgage servicing 742 1,009 1,669 1,560 Gains on sales of mortgage loans, net.............................. 2,277 1,876 6,293 4,368 Mortgage servicing and other....... 95 140 197 419 Asset Management Revenues............ - - 52 4,602 448 ----------- ----------- ----------- ----------- 6,279 5,337 21,099 13,017 General and Administrative Expenses.. 3,069 2,304 8,702 6,700 ----------- ----------- ----------- ----------- Financial Services Operating Profit....................... 3,210 3,033 12,397 6,317 ----------- ----------- ----------- ----------- Total Operating Profit................. 28,479 13,264 68,717 33,841 ----------- ----------- ----------- ----------- Corporate Interest and other revenues........ 87 224 630 957 Interest expense................... - - - - - - (761) General and administrative......... (5,310) (1,694) (12,862) (8,194) ----------- ----------- ----------- ----------- Net Corporate Expenses......... (5,223) (1,470) (12,232) (7,998) ----------- ----------- ----------- ----------- Income Before Income Taxes and Extraordinary Item................... $ 23,256 $ 11,794 $ 56,485 $ 25,843 =========== =========== =========== ===========
-6- E. Earnings Per Share The computation of diluted earnings per share takes into account the effect of dilutive stock options and 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 (the "Convertible Subordinated Notes") at a conversion price of $7.75 per share of MDC common stock. On November 4, 1998, the price of MDC's common stock closed at $19.8125 on the New York Stock Exchange. The Company has called the Convertible Subordinated Notes for redemption on December 16, 1998. The Convertible Subordinated Notes may be converted on or before December 14, 1998. Pursuant to the Convertible Subordinated Notes Indenture, unless previously converted, the Convertible Subordinated Notes will be redeemed by the Company at 105% of the principal amount of the Notes, plus accrued interest through the date of redemption.
Three Months Nine Months Ended September 30, Ended September 30, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Basic Earnings Per Share Income before extraordinary item................. $ 14,257 $ 7,302 $ 34,766 $ 16,022 Extraordinary loss, net of taxes................. - - - - (15,314) (2,179) ----------- ----------- ----------- ----------- Net Income.................................. $ 14,257 $ 7,302 $ 19,452 $ 13,843 =========== =========== =========== =========== Weighted-Average Shares Outstanding.............. 18,205 17,569 18,111 17,641 =========== =========== =========== =========== Per Share Amounts Income before extraordinary item............ $ .78 $ .42 $ 1.92 $ .91 =========== =========== =========== =========== Net Income.................................. $ .78 $ .42 $ 1.07 $ .78 =========== =========== =========== =========== Diluted Earnings Per Share Income before extraordinary item................. $ 14,257 $ 7,302 $ 34,766 $ 16,022 Conversion of Convertible Subordinated Notes..... 392 394 1,175 1,181 ----------- ----------- ----------- ----------- Adjusted income before extraordinary item........ 14,649 7,696 35,941 17,203 Extraordinary loss, net of taxes................. - - - - (15,314) (2,179) ----------- ----------- ----------- ----------- Adjusted Net Income......................... $ 14,649 $ 7,696 $ 20,627 $ 15,024 =========== =========== =========== =========== Weighted-Average Shares Outstanding.............. 18,205 17,569 18,111 17,641 Stock Options, net............................... 855 597 874 595 Conversion of Convertible Subordinated Notes..... 3,613 3,613 3,613 3,613 ----------- ----------- ----------- ----------- Diluted Weighted-Average Shares Outstanding. 22,673 21,779 22,598 21,849 =========== =========== =========== =========== Per Share Amounts Income before extraordinary item............ $ .65 $ .35 $ 1.59 $ .79 =========== =========== =========== =========== Net Income.................................. $ .65 $ .35 $ .91 $ .69 =========== =========== =========== ===========
F. Extraordinary Item On January 28, 1998, the Company sold $175,000,000 principal amount of 8 3/8% Senior Notes due 2008 (the "8 3/8% Senior Notes") at an issue price of 99.598%. The Company used the proceeds of the sale of the 8 3/8% Senior Notes to repurchase $61,181,000 principal amount of MDC's 11 1/8% Senior Notes due 2003 (the "11 1/8% Senior Notes"), to defease the remaining $90,819,000 principal amount of 11 1/8% Senior Notes outstanding and for general corporate purposes. The repurchase and -7- subsequent cancellation and defeasance of the 11 1/8% Senior Notes resulted in an extraordinary charge to income (including the recognition of unamortized debt discount and write-off of deferred debt issue costs) of $15,314,000, net of an income tax benefit of $9,587,000, in the first nine months of 1998. Net income for the first nine months of 1997 included an extraordinary loss of $2,179,000, net of an income tax benefit of $1,336,000, recognized in connection with the Company's repurchase of $38,000,000 principal amount of the 11 1/8% Senior Notes. The loss resulted from the repurchase of the 11 1/8% Senior Notes at a price above their carrying value and the write-off of unamortized deferred debt issue costs. G. Supplemental Disclosure of Cash Flow Information (in thousands)
Nine Months Ended September 30, 1998 1997 ------------ ----------- Cash paid during the period for: Interest, net of amounts capitalized....................... $ - - $ - - Income taxes............................................... $ 13,234 $ 8,678
-8- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION MDC is a major regional homebuilder and one of the largest homebuilders in the United States. The Company operates in two segments: homebuilding and financial services. In its homebuilding segment, MDC builds and sells homes under the name "Richmond American Homes" in (i) metropolitan Denver and Colorado Springs, Colorado; (ii) Northern Virginia; (iii) suburban Maryland; (iv) Northern and Southern California; (v) Phoenix and Tucson, Arizona; and (vi) Las Vegas, Nevada. The Company's financial services segment consists principally of HomeAmerican Mortgage Corporation (a wholly owned subsidiary of M.D.C. Holdings, Inc., "HomeAmerican"), which provides mortgage loans primarily to the Company's home buyers. RESULTS OF OPERATIONS The table below summarizes MDC's results of operations (in thousands, except per share amounts).
Three Months Nine Months Ended September 30, Ended September 30, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Revenues.................................... $ 331,635 $ 266,618 $ 879,015 $ 697,722 Income before income taxes and extraordinary item...................................... $ 23,256 $ 11,794 $ 56,485 $ 25,843 Income before extraordinary item............ $ 14,257 $ 7,302 $ 34,766 $ 16,022 Net Income.................................. $ 14,257 $ 7,302 $ 19,452 $ 13,843 Earnings Per Share: Basic Income before extraordinary item....... $ .78 $ .42 $ 1.92 $ .91 Net Income............................. $ .78 $ .42 $ 1.07 $ .78 Diluted Income before extraordinary item....... $ .65 $ .35 $ 1.59 $ .79 Net Income............................. $ .65 $ .35 $ .91 $ .69
Revenues for the third quarter and first nine months of 1998 increased 24% and 26%, respectively, compared with the same periods in 1997, primarily due to (i) higher home sales revenues resulting from increases in home closings and average selling prices per home closed; and (ii) increased revenues from the Company's financial services segment, as discussed below. Income before income taxes and extraordinary item increased in the third quarter and first nine months of 1998, compared with the same periods in 1997. These increases primarily were a result of higher operating profits from (i) the Company's homebuilding segment, due to increased home closings, -9- higher average selling prices per home closed and increased Home Gross Margins (as hereinafter defined); and (ii) the Company's financial services segment, primarily due to increased mortgage lending profits and, for the nine month period, a $4,450,000 gain resulting from receipt of the final payments, in the second quarter of 1998, related to the September 1996 sale of the Company's asset management business. Net income for the first nine months of 1998 included an extraordinary after-tax loss of $15,314,000, or $.68 per share, recognized in connection with the January 1998 refinancing of MDC's senior debt. The 1997 first nine-month net income included an extraordinary after-tax loss of $2,179,000, or $.10 per share, from the repurchase of $38 million of the then outstanding 11 1/8% Senior Notes. Homebuilding Segment The tables below set forth information relating to the Company's homebuilding segment (dollars in thousands).
Three Months Nine Months Ended September 30, Ended September 30, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Home Sales Revenues......................... $ 322,337 $ 259,720 $ 846,852 $ 676,674 Operating Profits........................... $ 25,269 $ 10,231 $ 56,320 $ 27,524 Average Selling Price Per Home Closed..... $ 195.5 $ 180.9 $ 189.0 $ 178.4 Home Gross Margins.......................... 17.5% 14.6% 16.7% 14.6% Orders For Homes, net (units) Colorado............................. 603 490 2,200 1,565 California........................... 238 257 858 750 Arizona.............................. 445 349 1,396 964 Nevada............................... 156 116 461 346 Virginia............................. 124 96 551 464 Maryland............................. 84 62 309 310 ----------- ----------- ----------- ----------- Total........................... 1,650 1,370 5,775 4,399 =========== =========== =========== =========== Homes Closed (units) Colorado............................. 588 469 1,699 1,259 California........................... 274 229 649 602 Arizona.............................. 428 314 1,119 824 Nevada............................... 111 122 307 301 Virginia............................. 156 170 441 472 Maryland............................. 92 132 266 334 ----------- ----------- ----------- ----------- Total........................... 1,649 1,436 4,481 3,792 =========== =========== =========== ===========
-10-
September 30, December 31, September 30, 1998 1997 1997 ----------- ------------ ----------- Backlog (units) Colorado............................. 1,381 880 882 California........................... 479 270 308 Arizona.............................. 670 393 371 Nevada............................... 249 95 143 Virginia............................. 321 211 195 Maryland............................. 226 183 194 ----------- ----------- ----------- Total........................... 3,326 2,032 2,093 =========== =========== =========== Estimated Sales Value........... $ 650,000 $ 380,000 $ 382,000 =========== =========== =========== Active Subdivisions Colorado............................. 46 48 45 California........................... 19 12 13 Arizona.............................. 26 29 30 Nevada............................... 11 6 8 Virginia............................. 21 23 26 Maryland............................. 14 19 23 ----------- ----------- ----------- Total........................... 137 137 145 =========== =========== ===========
Home Sales Revenues and Homes Closed - Home sales revenues in the third quarter and first nine months of 1998 represented the highest levels for comparable periods in the Company's history and were 24% and 25% higher, respectively, than home sales revenues for the same periods in 1997. The improved revenues were a result of increased home closings and higher average selling prices per home closed, as further discussed below. Home closings increased 15% and 18%, respectively, in the third quarter and first nine months of 1998, compared with the same periods in 1997. These increases primarily were due to higher home closings in Colorado (increases of 25% and 35%, respectively), Arizona (increases of 36%) and Southern California (increases of 32% and 19%, respectively), as a result of the strong demand for homes in these markets, substantially higher Backlog (as hereinafter defined) levels throughout the first nine months of 1998, compared with the same period in 1997, and in Southern California, a 50% increase in the number of active subdivisions as of September 30, 1998, compared with September 30, 1997. Home closings decreased in the third quarter and first nine months of 1998, compared with the same periods in 1997, in (i) Virginia and Maryland, primarily due to decreases in the number of active subdivisions in these markets in connection with the Company's strategy to eliminate lower-margin subdivisions and redeploy capital to more profitable projects within and outside these markets; and (ii) Northern California, because the Company exited the Sacramento market and its new subdivisions in the San Francisco Bay area are not yet active. While the Company anticipates that it will close more homes in the fourth quarter of 1998 than in the fourth quarter of 1997, the 1998 fourth quarter home closings should represent a lower percentage of September 30 Backlog, compared with 1997, due to a number of factors. These factors include (i) the Company's strategy to reduce the number of unsold homes under construction, which declined 33% at September 30, 1998 compared with September 30, 1997; (ii) a substantially greater number of homes in Backlog which were not started as of September 30, 1998 compared with September 30, 1997; and -11- (iii) shortages of subcontractor labor in most of the Company's markets, which have delayed the development of lots and extended the construction period for a number of homes in these markets. See "Forward-Looking Statements" below. Average Selling Price Per Home Closed - The increases in the average selling prices per home closed of $14,600 and $10,600, respectively, in the third quarter and first nine months of 1998, compared with the same periods in 1997, reflect the impact of (i) a greater number of homes closed in relatively higher-priced subdivisions in Southern California, Phoenix and Nevada; (ii) a higher proportion of detached homes closed in Virginia and Maryland, which generally have higher selling prices than townhomes; and (iii) selling price increases in most of the Company's markets, particularly in Southern California and Colorado. 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 selling incentives) as a percent of home sales revenues ("Home Gross Margins") increased by 290 and 210 basis points, respectively, to 17.5% and 16.7% during the third quarter and first nine months of 1998, compared with 14.6% for the same periods in 1997. Home Gross Margins increased significantly in the third quarter and first nine months of 1998 in Colorado, Virginia and Arizona, largely as a result of (i) in Colorado, selling price increases and reduced incentives offered to home buyers due to the increased demand for new homes in this market; (ii) in Colorado and Arizona, the favorable impact of a number of home closings in several highly profitable subdivisions; (iii) a decrease in the cost of certain raw materials from suppliers and manufacturers pursuant to national purchasing contracts; and (iv) initiatives implemented in each of the Company's markets designed to improve operating efficiency, control costs and increase rates of return. Looking forward, the Company believes that Home Gross Margins for the fourth quarter of 1998 will exceed margins for the fourth quarter in 1997 by more than 200 basis points. Future growth in Home Gross Margins may be impacted adversely by (i) increased competition in most of the Company's markets; (ii) increases in, among other things, the costs of subcontracted labor, finished lots and building materials to the extent that market conditions prevent the recovery of increased costs through higher selling prices; and (iii) increases in carrying costs due to lengthened construction periods resulting from shortages of subcontractor labor, as discussed above. See "Forward Looking Statements" below. Orders for Homes and Backlog - Orders for homes in the third quarter and first nine months of 1998 increased 20% and 31%, respectively, compared with the same periods in 1997, despite a decrease in the number of active subdivisions to 137 at September 30, 1998 from 145 at September 30, 1997. These home order increases resulted from comparatively strong home orders in all of the Company's markets except Northern California and Maryland in response to a robust national economy marked by low unemployment, low mortgage rates, high consumer confidence and home affordability and low inventories of new homes. Third quarter 1998 home orders particularly were strong in Phoenix, Nevada, Virginia and Colorado, which increased 37%, 34%, 29% and 23%, respectively, compared with the same period in 1997, due to the strength of the demand for new homes in these markets. The increased orders for homes in the third quarter and first nine months of 1998 contributed to a 59% increase in the Company's homes under contract but not yet delivered ("Backlog") at September 30, 1998 to 3,326 units, compared with a Backlog of 2,093 units at September 30, 1997. Assuming no significant change in market conditions or mortgage interest rates, the Company expects approximately 70% of its September 30, 1998 Backlog to close under existing sales contracts during the -12- fourth quarter of 1998 and first half of 1999. The remaining 30% of the homes in Backlog are not expected to close due to cancellations. See "Forward-Looking Statements" below. The Company received approximately 570 orders for homes in October 1998, compared with 511 orders in October 1997. The October 1998 year-over-year increase is attributable to improved home orders in most of the Company's markets, with particular strength in Colorado (up 40%) and Phoenix (up 34%), partially offset by decreased orders in Southern California and Maryland. Marketing - Marketing expenses (which include, among other things, amortization of deferred marketing, model home expenses and sales commissions) totalled $19,384,000 and $52,780,000, respectively, for the third quarter and first nine months of 1998, compared with $16,367,000 and $44,467,000, respectively, for the same periods in 1997. The increases in 1998 primarily were volume related, resulting from higher (i) marketing-related salaries, benefits and sales commissions incurred and deferred marketing costs amortized in connection with the increased number of home closings; and (ii) product advertising and other costs incurred in connection with the Company's expanded operations, particularly in Colorado and Southern California. As a result, these expenses actually declined as a percentage of home sales revenues to 6.0% and 6.2%, respectively, for the third quarter and first nine months of 1998, compared with 6.3% and 6.6%, respectively, for the same periods in 1997. General and Administrative - General and administrative expenses were $11,617,000 and $32,380,000, respectively, during the third quarter and first nine months of 1998, compared with $8,303,000 and $22,849,000, respectively, for the same periods in 1997, primarily due to (i) increased compensation costs resulting from expanded operations in each of the Company's markets except Northern California and Maryland; (ii) the write-off of due diligence costs and deposits with respect to certain proposed homebuilding projects which were not acquired; and (iii) additional costs associated with new branch offices in Southern California and design centers in Southern California and Phoenix. Asset Impairment Charges Operating results during the third quarter and first nine months of 1998 were reduced by asset impairment charges of $1,500,000 and $4,500,000, respectively, compared with impairment charges of $3,500,000 and $5,850,000, respectively, for the same periods in 1997, related to certain of the Company's homebuilding assets primarily in suburban Maryland. The asset impairment charges resulted from the (i) recognition of losses anticipated from the closing of certain homes in Backlog and from the reduction of selling prices and the offering of increased incentives to stimulate sales of certain completed unsold homes in inventory; (ii) write-down to fair value of certain subdivisions which have experienced slow sales and negative Home Gross Margins; and (iii) write-off of capitalized costs, primarily deferred marketing and option deposits, related to several low-margin projects. -13- Land Inventory The table below shows the carrying value of land and land under development, by market, the total number of lots owned and lots controlled under option agreements and total option deposits (dollars in thousands).
September 30, December 31, September 30, 1998 1997 1997 ----------- ----------- ----------- Colorado................................ $ 49,678 $ 62,093 $ 58,968 California.............................. 70,334 44,423 28,333 Arizona................................. 26,480 32,067 35,768 Nevada.................................. 24,216 17,342 15,710 Virginia................................ 12,346 21,081 22,866 Maryland................................ 6,999 16,006 17,551 ----------- ----------- ----------- Total.............................. $ 190,053 $ 193,012 $ 179,196 =========== =========== =========== Total Lots Owned........................ 8,896 9,466 9,725 Total Lots Controlled Under Option...... 7,082 5,730 5,249 ----------- ----------- ----------- Total Lots Owned and Controlled... 15,978 15,196 14,974 =========== =========== =========== Total Option Deposits................... $ 10,999 $ 7,545 $ 6,802 =========== =========== ===========
Financial Services Segment Operating profit from the financial services segment was $3,210,000 and $12,397,000, respectively, for the third quarter and first nine months of 1998, compared with $3,033,000 and $6,317,000, respectively, for the same periods in 1997. The operating profit increase in the first nine months of 1998 primarily was due to (i) the recognition of a $4,450,000 previously deferred gain resulting from receipt, in the second quarter of 1998, of the final payments related to the September 1996 sale of the Company's asset management business; and (ii) a 32% increase in mortgage lending profits primarily resulting from significantly higher mortgage origination volume. The table below summarizes the results of HomeAmerican's operations (in thousands).
Three Months Nine Months Ended September 30, Ended September 30, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Gains on Sales of Mortgage Loans, net....... $ 2,277 $ 1,876 $ 6,293 $ 4,368 Operating Profits........................... $ 3,210 $ 2,988 $ 7,807 $ 5,903 Principal Amount of Originations and Purchases MDC home buyers........................ $ 184,715 $ 145,074 $ 499,044 $ 377,325 Spot................................... 10,267 9,516 38,820 24,078 Correspondent.......................... 29,142 19,898 105,816 50,504 ----------- ----------- ----------- ----------- Total.............................. $ 224,124 $ 174,488 $ 643,680 $ 451,907 =========== =========== =========== =========== Capture Rate................................ 69% 68% 71% 68% =========== =========== =========== ===========
-14- HomeAmerican's operating profits for the third quarter and first nine months of 1998 increased, compared with the same periods in 1997, primarily due to (i) $774,000 and $1,897,000 increases, respectively, in origination fees; and (ii) $401,000 and $1,925,000 increases, respectively, in gains from sales of mortgage loans. These increases partially were offset by higher general and administrative expenses resulting from increased mortgage lending activity. The principal amount of HomeAmerican's loan originations and purchases increased 28% and 42%, respectively, in the third quarter and first nine months of 1998, compared with the same periods in 1997. These increases primarily were due to more (i) Company home closings; (ii) mortgage loans originated by HomeAmerican for MDC home buyers as a percentage of total MDC home closings ("Capture Rate"); and (iii) loans purchased from correspondents. HomeAmerican continues to benefit from the Company's homebuilding growth, as MDC home buyers were the source of approximately 82% and 78%, respectively, of the principal amount of mortgage loans originated and purchased by HomeAmerican in the third quarter and first nine months of 1998. 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 the fixed-rate mortgage loans owned and the rate-locked mortgage loans in the pipeline. Such contracts are the only significant financial derivative instrument utilized by MDC. Other Operating Results Interest Expense - The Company capitalizes interest on its homebuilding inventories during the period of active development and through the completion of construction. Corporate and homebuilding interest incurred but not capitalized is reflected as interest expense. No interest expense was recorded in the first nine months of 1998, compared with $761,000 for the same period in 1997. Corporate and homebuilding interest incurred decreased to $5,408,000 and $16,907,000, respectively, for the third quarter and first nine months of 1998, compared with $6,689,000 and $20,192,000, respectively, for the same periods in 1997, primarily due to lower effective interest rates on the Company's outstanding debt. For a reconciliation of interest incurred, capitalized and expensed, see Note B to the Company's Condensed Consolidated Financial Statements. Corporate General and Administrative Expenses - Corporate general and administrative expenses totalled $5,310,000 and $12,862,000, respectively, during the third quarter and first nine months of 1998, compared with $1,694,000 and $8,194,000, respectively, for the same periods in 1997. These increases primarily resulted from (i) higher compensation expenses related to the Company's higher profitability and expanding operations; and (ii) the recognition in the third quarter of 1997 of a $2,032,000 offset to legal expenses for insurance recoveries received during that period and the reversal of insurance-related reserves no longer required. The Company has substantially completed the modification and testing of its computer systems and non-computer systems to accurately process information which includes the Year 2000 date and beyond ("Year 2000 Compliant"). Pursuant to current accounting rules, the cost of such modification and testing has been expensed as incurred. The Company is in the process of surveying certain of its significant vendors and suppliers to determine whether they are Year 2000 Compliant. The Company has little or no control over whether its vendors and suppliers will be Year 2000 Compliant on a timely -15- basis. The Company does not believe that the failure of its significant vendors and suppliers to be Year 2000 Compliant would have a material adverse effect upon the financial condition, results of operations or cash flows of the Company. See "Forward-Looking Statements" below. Income Taxes - M.D.C. Holdings, Inc. and its wholly owned subsidiaries file a consolidated federal income tax return (an "MDC Consolidated Return"). Richmond American Homes of Colorado, Inc. 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 American Homes of Colorado, Inc. became a wholly owned subsidiary of MDC. MDC's overall effective income tax rates of 38.7% and 38.5%, respectively, for the third quarter and first nine months of 1998, differed from the federal statutory rate of 35% primarily due to the impact of state income taxes. The Internal Revenue Service (the "IRS") has completed its examinations of the MDC Consolidated Returns for the years 1991 through 1995 and has proposed adjustments to the taxable income reflected in such returns. The Company currently is protesting certain of these proposed adjustments through the IRS appeals process. In the opinion of management, adequate provision has been made for additional income taxes and interest which may arise as a result of the proposed adjustments. The IRS currently is examining the MDC Consolidated Returns for the years 1996 and 1997 and the Richmond Homes Consolidated Return for the period ended February 2, 1994. No audit 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; however, it is reasonably possible that the ultimate resolution could result in amounts which differ materially in the near term from amounts provided. 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 publicly traded 8 3/8% Senior Notes due in 2008; 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 operating structure and adequate to satisfy its current and near-term capital requirements. See "Forward-Looking Statements" below. MDC anticipates acquiring finished lots and partially developed land for use in its future homebuilding operations during the remainder of 1998 and in 1999. The Company currently intends to acquire a portion of the land inventories required in future periods through takedowns of lots subject to option contracts entered into in prior periods and, to the extent market conditions permit, under new option contracts. The use of option contracts lessens the Company's land-related risk and improves -16- liquidity. Because of increased demand for partially developed and finished lots in certain of the markets where the Company builds homes, the Company's ability to acquire lots using option contracts has been reduced or has become more expensive. See "Forward-Looking Statements" below. The Company anticipates that it has adequate financial resources to satisfy its current and near-term capital requirements based on its current capital resources and additional liquidity available under existing credit agreements. 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, assuming that no significant adverse changes in the Company's business occur as a result of the various risk factors described elsewhere herein, in particular, increases in interest rates. See "Forward-Looking Statements" below. Lines of Credit and Other Homebuilding - In June 1998, the Company modified its agreement with a group of banks for its unsecured revolving line of credit (the "Homebuilding Line"). Under the modified terms, the available borrowings increased to $300,000,000 from $175,000,000, and the maturity date of the agreement was extended for two years to June 30, 2003, although, pursuant to the terms of the related credit agreement, a term-out of this credit may commence earlier under certain circumstances. At September 30, 1998, $61,453,000 was borrowed and $6,989,000 in letters of credit were outstanding under the Homebuilding Line. Mortgage Lending - HomeAmerican utilizes its mortgage lending bank line of credit (the "Mortgage Line") to provide funds to originate and purchase mortgage loans and to finance these mortgage loans on a short-term basis. HomeAmerican's mortgage loans generally are sold within 35 days after origination or purchase. During the first nine months of 1998 and 1997, HomeAmerican sold $617,122,000 and $438,400,000 principal amount, respectively, of mortgage loans and mortgage certificates to unaffiliated purchasers. Available borrowings under the Mortgage Line are collateralized by mortgage loans and mortgage-backed certificates and are limited to the value of eligible collateral, as defined. The aggregate amount available under the Mortgage Line is $51,000,000. At September 30, 1998, $32,378,000 was borrowed and an additional $18,622,000 was collateralized and available to be borrowed. The Mortgage Line is cancelable upon 90 days' notice. Convertible Subordinated Notes - The Company has notified the holders of the $28,000,000 principal amount of Convertible Subordinated Notes that it will redeem the Convertible Subordinated Notes on December 16, 1998. Pursuant to the Convertible Subordinated Notes Indenture, unless previously converted, the Convertible Subordinated Notes will be redeemed by the Company at 105% of the principal amount of the Notes, plus accrued interest through the date of redemption. The Convertible Subordinated Notes may be converted on or before December 14, 1998, at the option of the holders thereof, into shares of MDC common stock at a conversion price of $7.75 per share. On November 4, 1998, the price of MDC's common stock closed at $19.8125 on the New York Stock Exchange. General - The agreements for the Company's 8 3/8% Senior Notes, Convertible Subordinated Notes and bank lines of credit include representations, warranties and covenants. The Company believes that it is in compliance with these representations, warranties and covenants. -17- Consolidated Cash Flow During the first nine months of 1998, the Company used $44,250,000 of cash in its operating activities, primarily due to increases in homebuilding and mortgage loan inventories in conjunction with its expanded homebuilding operations. The Company financed these operating cash requirements primarily through borrowings on its lines of credit, as well as $13,250,000 in proceeds from the sale of the Company's headquarters office building and the collection of $4,450,000 in notes receivable with respect to the September 1996 sale of the Company's asset management business. During the first nine months of 1997, the Company used $46,869,000 of cash to repurchase 838,000 shares of MDC common stock and $38,000,000 of Senior Notes. The Company also used $3,934,000 of cash in its operating activities. The Company financed these activities primarily with internally generated funds and line of credit borrowings. OTHER Forward-Looking Statements Certain statements in this Quarterly Report on Form 10-Q, as well as statements made by the Company in periodic press releases, oral statements made by the Company's officials to analysts and shareowners in the course of presentations about the Company and conference calls following quarterly earnings releases, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among other things, (i) general economic and business conditions; (ii) interest rate changes; (iii) the relative stability of debt and equity markets; (iv) competition; (v) the availability and cost of land and other raw materials used by the Company in its homebuilding operations; (vi) demographic changes; (vii) shortages and the cost of labor; (viii) weather-related slowdowns; (ix) slow growth initiatives; (x) building moratoria; (xi) governmental regulation, including the interpretation of tax, labor and environmental laws; (xii) changes in consumer confidence; (xiii) required accounting changes; and (xiv) other factors over which the Company has little or no control. -18- M.D.C. HOLDINGS, INC. FORM 10-Q PART II ITEM 1. LEGAL PROCEEDINGS The Company and certain of its subsidiaries and affiliates have been named as defendants in various claims, complaints and other legal actions arising in the normal course of business. In the opinion of management, the outcome of these matters will not have a material adverse effect upon the financial condition, results of operations or cash flows of the Company. Because of the nature of the homebuilding business, and in the ordinary course of its operations, the Company from time to time may be subject to product liability claims. The Company is not aware of any litigation, matter or pending claim against the Company which would result in material contingent liabilities related to environmental hazards or asbestos. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREOWNERS No matters were submitted to shareowners during the third quarter of 1998. ITEM 5. OTHER INFORMATION On October 28, 1998, the Company's board of directors declared a dividend of four cents per share for the quarter ended September 30, 1998, payable November 20, 1998, to shareowners of record on November 9, 1998. Future dividend payments are subject to the discretion of the Company's board of directors. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit: 10.1 Consulting agreement between the Company and Gilbert Goldstein, P.C. effective as of October 1, 1998. 27 Financial Data Schedule. -19- (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 5, 1998 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 -20- EX-10 2 EXHIBIT 10.1 Gilbert Goldstein, P.C. 3600 South Yosemite Street, Suite 870 Denver, CO 80237 September 25, 1998 Mr. Larry A. Mizel, President M.D.C. Holdings, Inc. 3600 South Yosemite Suite 900 Denver, Colorado 80237 Dear Larry: The purpose of this letter agreement (the "Agreement") is to confirm an understanding reached between us concerning the retention by M.D.C. Holdings, Inc. ("MDC") of Gilbert Goldstein, P.C. ("GG, P.C.") as a professional consultant on legal matters as follows: 1. GG, P.C. agrees to make Gilbert Goldstein available to perform legal consultation services for MDC on a day-to-day as-needed and directed basis for not less than 25 hours per week commencing October 1, 1998 through September 30, 1999, and for not less than 20 hours per week from October 1, 1999 through September 30, 2000. 2. MDC agrees to compensate GG, P.C. as follows: a. $216,000 per year payable in equal monthly installments of $18,000 on the first day of each month commencing October 1, 1998 through September 30, 1999. b. $180,000 per year payable in equal monthly installments of $15,000 on the first day of each month commencing October 1, 1999 through September 30, 2000. c. From October 1, 1998 through September 30, 1999, $180.00 per hour for services performed in any month in excess of 100 hours and from October 1, 1999 through September 30, 2000, $180.00 per hour for services performed in any month in excess of 80 hours. Mr. Larry A. Mizel September 25, 1998 Page 2 d. Provide mutually agreed-upon office space at the office building known as 3600 South Yosemite Street, Denver, Colorado, or such other location as may be mutually agreed upon by GG, P.C. and MDC. e. Reimburse actual expenses incurred that are directly related to the services provided hereunder. f. Provide full-time secretarial services of a mutually agreed-upon secretary. 3. In the event Gilbert Goldstein retires from the practice of law, becomes disabled or dies during the term of this Agreement, MDC shall pay Mr. Goldstein or his estate, as the case may be, in lieu of any payments or other benefits or services to be provided by MDC pursuant to this Agreement, $7,000 per month on the first day of each month during the remaining term of this Agreement following the date of his retirement, disability or death. 4. This Agreement shall be in full force and effect for a period of two years commencing October 1, 1998. 5. GG, P.C. is an independent contractor and is not an employee of MDC for any purpose. In that regard, the method or performance of services, the services rendered, and the exact time and hours, GG, P.C. is to perform services on any given day will be entirely in the control and discretion of GG, P.C. MDC will rely on GG, P.C. to perform the services as reasonably necessary to fulfill the spirit and purpose of this Agreement. MDC is supplying office space and secretarial services to GG, P.C. because it is economically more efficient for it to do so because it has these available and because it desires GG, P.C. to be located in close proximity to MDC's headquarters for ease in the consultation process. In consideration thereof, GG, P.C. has substantially lowered the going rate for its services ($300.00 per hour) in order to facilitate the Agreement. 6. GG, P.C. will have the right to continue to perform legal services for other persons and entities. Mr. Larry A. Mizel September 25, 1998 Page 3 We have discussed the fact that Gilbert Goldstein is an "outside member of the Board of Directors" of MDC. Each party desires that Gilbert Goldstein continue in that capacity. The consulting Agreement will be performed in such fashion as not to interfere with or change that relationship. In the capacity of a consultant to MDC, GG, P.C. may provide legal counsel and advice to the Audit and Compensation Committees of the MDC Board of Directors. Those services will be provided by Gilbert Goldstein in his capacity as a consultant to MDC, and not in his capacity as a member of the MDC Board of Directors, and shall be included in the calculation of hours spent providing consulting services pursuant to this Agreement. Effective October 1, 1998, this Agreement will supersede all prior Agreements among GG, P.C., MDC and Gilbert Goldstein related to the subject matter hereof, including without limitation, the letter agreements between GG, P.C. and MDC dated September 22, 1994 and July 26, 1996. This entire Agreement has been approved by resolution of the Board of Directors of MDC. If you have any questions, please call me. Yours truly, GILBERT GOLDSTEIN, P.C. By:/s/ Gilbert Goldstein --------------------------- Gilbert Goldstein Approved and agreed to this 5th day of October , 1998 - ---- -------------- M.D.C. HOLDINGS, INC. By:/s/ Larry A. Mizel ------------------------- Larry A. Mizel, President EX-27 3
5 This schedule contains summary financial information extracted from MDC Holdings, Inc. consolidated financial statements included in its Form 10-Q for the quarter ended September 30, 1998 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 9,230 392 20,366 0 515,237 0 1,999 0 727,989 0 264,355 0 0 241 251,518 727,989 857,286 879,015 (800,966) (809,668) (12,862) 0 0 56,485 (21,719) 34,766 0 (15,314) 0 19,452 1.07 .91
-----END PRIVACY-ENHANCED MESSAGE-----