<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
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 APRIL 20, 1994, 19,020,000 SHARES OF M.D.C. HOLDINGS, INC.
COMMON STOCK WERE OUTSTANDING.
===============================================================================
<PAGE>
M.D.C. HOLDINGS, INC. AND SUBSIDIARIES
INDEX
Page
----
Part I. Financial Information:
Item 1. Condensed Consolidated Financial Statements:
Balance Sheets as of March 31, 1994
(Unaudited) and December 31, 1993. . . . . . . . . . 1
Statements of Income for the three months
ended March 31, 1994 and 1993 (Unaudited). . . . . . 3
Statements of Cash Flows for the three months
ended March 31, 1994 and 1993 (Unaudited). . . . . . 4
Notes to Financial Statements (Unaudited). . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation. . . . 18
Part II. Other Information:
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . 33
Item 4. Submission of Matters to a Vote of
Securityholders. . . . . . . . . . . . . . . . . . . 34
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 34
-i-
<PAGE>
M.D.C. HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
----------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Corporate
Cash and cash equivalents $ 25,787 $ 42,443
Investments and marketable
securities, net 805 765
Property and equipment, net 10,380 10,432
Deferred income tax asset, net 8,851 8,100
Deferred issue costs, net 11,087 11,233
Other assets, net 2,425 3,200
-------- --------
59,335 76,173
-------- --------
Home Building
Cash and cash equivalents 15,143 18,479
Home sales and other accounts
receivable 8,560 5,423
Investment in metropolitan district
bonds 16,395 13,795
Inventories, net
Housing completed or under
construction 226,825 201,023
Land and land under development 186,511 192,881
Prepaid expenses and other assets,
net 51,870 48,863
-------- --------
505,304 480,464
-------- --------
Mortgage Lending
Cash and cash equivalents 1,072 1,505
Restricted cash 3,400 3,400
Accrued interest and other assets,
net 2,674 2,571
Mortgage loans held in inventory,
net 48,865 68,065
-------- --------
56,011 75,541
-------- --------
Asset Management
Cash and cash equivalents 570 576
Mortgage Collateral, net, and
related assets 103,553 134,166
Equity CMO Interests, net 5,265 6,427
Other loans and assets, net 3,186 3,519
-------- --------
112,574 144,688
-------- --------
Total Assets $733,224 $776,866
-------- --------
-------- --------
</TABLE>
(continued)
See notes to condensed consolidated financial statements.
-1-
<PAGE>
M.D.C. HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
----------- ------------
LIABILITIES (Unaudited)
<S> <C> <C>
Corporate
Accounts payable and accrued
expenses $ 25,432 $ 20,846
Income taxes payable 18,659 28,711
Notes payable 3,614 3,624
Senior Notes, net 187,235 187,199
Subordinated Notes, net 38,215 38,213
-------- --------
273,155 278,593
-------- --------
Home Building
Accounts payable and accrued
expenses 74,335 70,741
Lines of credit 38,800 24,645
Notes payable 48,856 62,495
-------- --------
161,991 157,881
-------- --------
Mortgage Lending
Accounts payable and accrued
expenses 7,647 8,487
Line of credit 12,850 29,500
-------- --------
20,497 37,987
-------- --------
Asset Management
Accounts payable and accrued
expenses 2,509 3,051
CMO bonds, net, and related
liabilities 96,802 123,500
-------- --------
99,311 126,551
-------- --------
COMMITMENTS AND CONTINGENCIES -- --
-------- --------
Total Liabilities 554,954 601,012
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
25,000,000 shares authorized; none
issued -- --
Common stock, $.01 par value;
100,000,000 shares authorized;
21,684,000 and 20,914,000 shares
issued, respectively, at March 31,
1994 and December 31, 1993 217 209
Additional paid-in capital 133,635 133,455
Retained earnings 60,107 57,879
-------- --------
193,959 191,543
Less treasury stock, at cost;
2,664,000 shares (15,689) (15,689)
-------- --------
Total Stockholders' Equity 178,270 175,854
-------- --------
Total Liabilities and Stockholders'
Equity $733,224 $776,866
-------- --------
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
-2-
<PAGE>
M.D.C. HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1994 1993
---------- ----------
<S> <C> <C>
REVENUES:
Home Building $158,578 $ 98,722
Mortgage Lending 5,487 3,436
Asset Management 4,266 13,169
Corporate 362 558
-------- --------
Total Revenues 168,693 115,885
-------- --------
COSTS AND EXPENSES:
Home Building 149,265 96,863
Mortgage Lending 2,583 2,595
Asset Management 3,244 8,501
Corporate general and administrative 3,933 3,574
Corporate and home building interest
(Note E) 2,956 3,217
-------- --------
Total Expenses 161,981 114,750
-------- --------
Income before income taxes 6,712 1,135
Provision for income taxes 2,906 220
-------- --------
Net Income $ 3,806 $ 915
-------- --------
-------- --------
EARNINGS PER SHARE
Primary $ .19 $ .04
-------- --------
-------- --------
Fully-diluted $ .18 $ .04
-------- --------
-------- --------
WEIGHTED-AVERAGE SHARES OUTSTANDING
Primary 20,326 22,231
-------- --------
-------- --------
Fully-diluted 23,939 22,231
-------- --------
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
M.D.C. HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1994 1993
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 3,806 $ 915
Adjustments To Reconcile Net Income To
Net Cash Used In Operating Activities:
Gains on sales of mortgage-related
assets (313) (5,181)
Depreciation and amortization 1,871 1,538
Equity CMO Interest valuation
adjustments -- 2,000
Net Changes In Assets and Liabilities
Mortgage loans held in inventory 19,236 (20,909)
Home building inventories (22,304) (14,783)
Receivables (3,606) (5,002)
Accounts payable and accrued expenses (1,961) 19,585
Deferred income taxes (751) 153
Other, net (2,993) (1,451)
--------- ---------
Net Cash Used In Operating Activities (7,015) (23,135)
--------- ---------
INVESTING ACTIVITIES:
Mortgage Collateral and other loans
Principal payments and prepayments 17,670 19,718
Sales 4,910 4,923
Distributions of capital from Equity CMO
Interests 1,162 2,265
CMO Bond principal payments -- 491
Changes in investments and marketable
securities, net -- 12,000
Changes in restricted cash, net 6,363 11,532
Other, net (262) (508)
--------- ---------
Net Cash Provided By Investing Activities 29,843 50,421
--------- ---------
</TABLE>
(Continued)
See notes to condensed consolidated financial statements.
-4-
<PAGE>
M.D.C. HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1994 1993
---------- ----------
<S> <C> <C>
FINANCING ACTIVITIES:
CMO bonds - Principal payments $ (26,350) $ (34,049)
Lines of credit
Advances 171,804 48,924
Principal payments (174,299) (39,505)
Notes payable
Borrowings 497 11,070
Principal payments (15,019) (11,980)
Subordinated Note payments -- (355)
Other, net 108 45
--------- ---------
Net Cash Used In Financing Activities (43,259) (25,850)
--------- ---------
Net Increase (Decrease) In Cash and Cash
Equivalents (20,431) 1,436
Cash and Cash Equivalents
Beginning Of Period 63,003 61,028
--------- ---------
End Of Period $ 42,572 $ 62,464
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest, net of amounts capitalized $ 533 $ 6,792
Income taxes 12,620 515
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Home building inventory purchases financed
by seller 3,049 --
Home building land inventory sales
financed by MDC 457 503
Disposition of land inventories
collateralized by notes payable
Inventories 2,864 --
Notes payable 2,176 --
Accrued interest and other liabilities 688 --
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE>
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 consolidated 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 March 31, 1994 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, 1993.
Certain reclassifications have been made in the 1993 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).
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1994 1993
---------- ----------
<S> <C> <C>
Home Building
Home sales $156,735 $ 97,608
Land sales 1,750 1,056
Other revenues 93 58
-------- --------
158,578 98,722
-------- --------
Home cost of sales 131,479 83,195
Land cost of sales 2,037 1,096
Marketing 9,002 6,356
General and administrative 6,747 6,216
-------- --------
149,265 96,863
-------- --------
Operating Profit 9,313 1,859
-------- --------
</TABLE>
(Continued)
-6-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1994 1993
---------- ----------
<S> <C> <C>
Mortgage Lending
Interest revenues $ 765 $ 898
Origination fees 1,236 1,085
Gains on sale of mortgage servicing 2,872 772
Gains on sales of mortgage loans, net 99 364
Mortgage servicing and other 515 317
-------- --------
5,487 3,436
-------- --------
Interest expense 194 255
General and administrative 2,389 2,340
-------- --------
2,583 2,595
-------- --------
Operating Profit 2,904 841
-------- --------
Asset Management
Interest revenues 2,927 6,928
Gains on sales of mortgage-related assets 313 5,181
Management fees and other 1,307 1,341
-------- --------
4,547 13,450
-------- --------
Interest expense 2,554 5,788
Equity in losses of Equity CMO Interests,
net -- 2,000
General and administrative 690 713
-------- --------
3,244 8,501
-------- --------
Operating Profit 1,303 4,949
-------- --------
Corporate
Other revenues 362 558
-------- --------
Interest expense 3,237 3,498
General and administrative 3,933 3,574
-------- --------
7,170 7,072
-------- --------
Net Corporate Expenses (6,808) (6,514)
-------- --------
Intersegment Eliminations
Asset management interest revenues (281) (281)
-------- --------
Corporate interest expense (281) (281)
-------- --------
-- --
-------- --------
Income Before Income Taxes $ 6,712 $ 1,135
-------- --------
-------- --------
</TABLE>
C. ACQUISITION OF ADDITIONAL SHARES OF RICHMOND HOMES
On February 2, 1994, MDC acquired the balance (35%) of the outstanding
shares of Richmond Homes, Inc. I ("Richmond Homes") common stock which it did
not own from Messrs. Larry A. Mizel (Chairman of the Board and Chief Executive
Officer of the Company) and David D. Mandarich (Executive Vice President - Real
Estate and a director of the Company). Richmond Homes and its subsidiaries
conduct the
-7-
<PAGE>
Company's Colorado home building operations. In exchange for these shares of
Richmond Homes common stock, Messrs. Mizel and Mandarich were issued an
aggregate of 608,695 shares of Common Stock of MDC.
As the transaction was between related parties, the issuance of the MDC
Common Stock was recorded based on the net book value of Richmond Homes, which
had approximately zero common shareholders' equity at the date of the
acquisition. Accordingly, the value of the shares of MDC Common Stock issued to
Messrs. Mizel and Mandarich was recorded at zero.
D. ACCOUNTING CHANGE - ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES
Effective as of January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which supersedes SFAS No.
12. The adoption of SFAS No. 115 had no effect on Net Income and had an
immaterial effect on Stockholders' Equity.
E. INTEREST ACTIVITY
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1994 1993
---------- ----------
(In Thousands)
<S> <C> <C>
Interest capitalized in home building
inventory, beginning of period $ 42,681 $ 48,440
Interest incurred
Corporate and home building 8,364 6,056
Mortgage lending 194 255
Asset management 2,554 5,788
Interest expense
Corporate and home building (2,956) (3,217)
Mortgage lending (194) (255)
Asset management (2,554) (5,788)
Previously capitalized home building
interest included in cost of sales (6,208) (3,761)
-------- --------
Interest capitalized in home building
inventory, end of period $ 41,881 $ 47,518
-------- --------
-------- --------
Home building inventories, end of period $413,336 $351,661
-------- --------
-------- --------
</TABLE>
F. EARNINGS PER SHARE
Primary earnings per share are based on the weighted-average number of
common and common equivalent shares outstanding during each period. In 1994,
the computation of fully-diluted earnings per share further 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.
-8-
<PAGE>
G. EQUITY CMO INTERESTS
MDC owns a 49.999% ownership interest in seven collateralized mortgage
obligation ("CMO") issuances which are accounted for on the equity method
(collectively, "Equity CMO Interests"). The unaudited condensed financial
information of the Equity CMO Interests is set forth below. The information
provided includes 100% of the gross assets and liabilities comprising these
interests (in thousands).
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
---------- ------------
<S> <C> <C>
Condensed Combined Summarized Financial
Condition (100%)
Assets $356,892 $422,338
Liabilities 336,242 398,048
-------- --------
Net Assets $ 20,650 $ 24,290
-------- --------
-------- --------
MDC's Share of Net Assets (Net of
Valuation Allowances of $5,060 and
$5,718, respectively, at March 31,
1994 and December 31, 1993) $ 5,265 $ 6,427
-------- --------
-------- --------
<CAPTION>
Three Months Ended March 31,
----------------------------
1994 1993
---------- ----------
<S> <C> <C>
Condensed Combined Operating Results (100%)
Earnings before premium/discount
amortization
Interest and other revenues $ 8,817 $ 15,528
Interest and other expenses 6,868 12,163
-------- --------
1,949 3,365
Premium/discount amortization (3,265) (7,621)
-------- --------
Net Loss (100%) $ (1,316) $ (4,256)
-------- --------
-------- --------
Equity in losses of Equity CMO
Interests before valuation
adjustments $ -- $ --
Valuation adjustments -- (2,000)
-------- --------
Equity in losses of Equity CMO
Interests, net of valuation
adjustments $ -- $ (2,000)
-------- --------
-------- --------
</TABLE>
MDC's share of net losses for the three months ended March 31, 1994 and
1993 was $658,000 and $2,128,000, respectively, all of which was charged against
valuation allowances.
H. 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
-9-
<PAGE>
American Homes of Virginia, Inc., Richmond American Homes, Inc., Richmond Homes
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.
SUPPLEMENTAL COMBINING BALANCE SHEET
MARCH 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNCONSOLIDATED
---------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
--------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Corporate
Cash and cash equivalents $ 25,787 $ -- $ -- $ -- $ 25,787
Investments and marketable
securities, net 801 -- 4 -- 805
Investments in subsidiaries 210,246 23,549 -- (233,795) --
Advances and notes
receivable - Parent and
subsidiaries 254,894 52 92,695 (347,641) --
Property and equipment, net 10,380 -- -- -- 10,380
Deferred income taxes (349) 9,200 -- -- 8,851
Deferred issue costs, net 11,087 -- -- -- 11,087
Other assets, net 2,110 -- 315 -- 2,425
-------- -------- -------- --------- --------
514,956 32,801 93,014 (581,436) 59,335
-------- -------- -------- --------- --------
Home Building
Cash and cash equivalents -- 14,205 938 -- 15,143
Trade and other accounts
receivable 305 16,482 285 (8,512) 8,560
Investment in metropolitan
district bonds 14,000 2,395 -- -- 16,395
Inventories, net
Housing completed or
under construction -- 212,794 14,031 -- 226,825
Land and land under
development (1,530) 149,300 37,702 1,039 186,511
Prepaid expenses and other
assets, net 1,225 39,652 8,589 2,404 51,870
-------- -------- -------- --------- --------
14,000 434,828 61,545 (5,069) 505,304
-------- -------- -------- --------- --------
Mortgage Lending
Cash and cash equivalents -- -- 1,072 -- 1,072
Restricted cash -- -- 3,400 -- 3,400
Other assets, net -- -- 2,674 -- 2,674
Mortgage loans held in
inventory, net -- -- 48,865 -- 48,865
-------- -------- -------- --------- --------
-- -- 56,011 -- 56,011
-------- -------- -------- --------- --------
Asset Management
Cash and cash equivalents -- -- 570 -- 570
Mortgage Collateral, net,
and related assets -- -- 103,553 -- 103,553
Equity CMO Interests, net -- -- 5,265 -- 5,265
Other loans and assets, net -- -- 3,186 -- 3,186
-------- -------- -------- --------- --------
-- -- 112,574 -- 112,574
-------- -------- -------- --------- --------
Total Assets $528,956 $467,629 $323,144 $(586,505) $733,224
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
</TABLE>
(continued)
-10-
<PAGE>
SUPPLEMENTAL COMBINING BALANCE SHEET
MARCH 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNCONSOLIDATED
---------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
--------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
LIABILITIES
Corporate
Accounts payable and
accrued expenses $ 25,191 $ -- $ 241 $ -- $ 25,432
Advances and notes payable
- Parent and subsidiaries 73,822 192,887 96,113 (362,822) --
Income taxes payable 15,589 3,070 -- -- 18,659
Notes payable 3,614 -- -- -- 3,614
Senior Notes, net 187,235 -- -- -- 187,235
Subordinated Notes, net 38,215 -- -- -- 38,215
-------- -------- -------- --------- --------
343,666 195,957 96,354 (362,822) 273,155
-------- -------- -------- --------- --------
Home Building
Accounts payable and
accrued expenses 736 63,386 9,890 323 74,335
Lines of credit -- 38,800 -- -- 38,800
Notes payable 6,284 31,457 11,115 -- 48,856
-------- -------- -------- --------- --------
7,020 133,643 21,005 323 161,991
-------- -------- -------- --------- --------
Mortgage Lending
Accounts payable and
accrued expenses -- -- 16,206 (8,559) 7,647
Line of credit -- -- 12,850 -- 12,850
-------- -------- -------- --------- --------
-- -- 29,056 (8,559) 20,497
-------- -------- -------- --------- --------
Asset Management
Accounts payable and
accrued expenses -- -- 2,509 -- 2,509
CMO bonds, net, and related
liabilities -- -- 96,802 -- 96,802
-------- -------- -------- --------- --------
-- -- 99,311 -- 99,311
-------- -------- -------- --------- --------
Total Liabilities 350,686 329,600 245,726 (371,058) 554,954
-------- -------- -------- --------- --------
STOCKHOLDERS' EQUITY
Preferred stock -- -- 10 (10) --
Common Stock 217 18 124 (142) 217
Additional paid-in capital 133,635 120,200 116,589 (236,789) 133,635
Retained earnings 60,107 17,811 (39,296) 21,485 60,107
Less treasury stock (15,689) -- (9) 9 (15,689)
-------- -------- -------- --------- --------
Total Stockholders'
Equity 178,270 138,029 77,418 (215,447) 178,270
-------- -------- -------- --------- --------
Total Liabilities and
Stockholders' Equity $528,956 $467,629 $323,144 $(586,505) $733,224
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
</TABLE>
(continued)
-11-
<PAGE>
SUPPLEMENTAL COMBINING BALANCE SHEET
DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNCONSOLIDATED
---------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
--------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Corporate
Cash and cash equivalents $ 42,443 $ -- $ -- $ -- $ 42,443
Investments and marketable
securities, net 761 -- 4 -- 765
Investments in subsidiaries 191,462 23,009 15,030 (229,501) --
Advances receivable -
Parent and subsidiaries 260,931 37 91,348 (352,316) --
Property and equipment, net 10,432 -- -- -- 10,432
Deferred income taxes -- 8,100 -- -- 8,100
Deferred issue costs, net 11,233 -- -- -- 11,233
Other assets, net 2,715 485 3,200
-------- -------- -------- --------- --------
519,977 31,146 106,867 (581,817) 76,173
-------- -------- -------- --------- --------
Home Building
Cash and cash equivalents -- 17,792 687 -- 18,479
Trade and other accounts receivable 41 9,059 213 (3,890) 5,423
Investment in metropolitan
district bonds 11,400 2,395 -- -- 13,795
Inventories, net
Housing completed or
under construction -- 187,796 13,227 -- 201,023
Land and land under
development (1,530) 153,068 40,252 1,091 192,881
Prepaid expenses and other
assets, net 1,312 39,728 5,400 2,423 48,863
-------- -------- -------- --------- --------
11,223 409,838 59,779 (376) 480,464
-------- -------- -------- --------- --------
Mortgage Lending
Cash and cash equivalents -- -- 1,505 -- 1,505
Restricted cash -- -- 3,400 -- 3,400
Accrued interest and other
assets, net -- -- 2,571 -- 2,571
Mortgage loans held in
inventory, net -- -- 68,065 -- 68,065
-------- -------- -------- --------- --------
-- -- 75,541 -- 75,541
-------- -------- -------- --------- --------
Asset Management
Cash and cash equivalents -- -- 576 -- 576
Mortgage Collateral, net,
and related assets -- -- 134,166 -- 134,166
Equity CMO Interests, net -- -- 6,427 -- 6,427
Other loans and assets, net -- -- 3,519 -- 3,519
-------- -------- -------- --------- --------
-- -- 144,688 -- 144,688
-------- -------- -------- --------- --------
Total Assets $531,200 $440,984 $386,875 $(582,193) $776,866
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
</TABLE>
(continued)
-12
<PAGE>
SUPPLEMENTAL COMBINING BALANCE SHEET
DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNCONSOLIDATED
---------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
--------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
LIABILITIES
Corporate
Accounts payable and
accrued expenses $ 20,564 $ -- $ 282 $ -- $ 20,846
Advances payable - Parent
and subsidiaries 68,342 176,576 120,800 (365,718) --
Income taxes payable 26,635 2,076 -- -- 28,711
Notes payable 3,624 -- -- -- 3,624
Senior Notes, net 187,199 -- -- -- 187,199
Subordinated Notes, net 38,213 -- -- -- 38,213
--------- --------- --------- --------- ---------
344,577 178,652 121,082 (365,718) 278,593
--------- --------- --------- --------- ---------
Home Building
Accounts payable and
accrued expenses 864 62,768 6,800 309 70,741
Lines of credit -- 24,645 -- -- 24,645
Notes payable 9,905 40,548 12,042 -- 62,495
--------- --------- --------- --------- ---------
10,769 127,961 18,842 309 157,881
--------- --------- --------- --------- ---------
Mortgage Lending
Accounts payable and
accrued expenses -- -- 12,375 (3,888) 8,487
Line of credit -- -- 29,500 -- 29,500
--------- --------- --------- --------- ---------
-- -- 41,875 (3,888) 37,987
--------- --------- --------- --------- ---------
Asset Management
Accounts payable and
accrued expenses -- -- 3,051 -- 3,051
CMO bonds, net, and related
liabilities -- -- 123,500 -- 123,500
--------- --------- --------- --------- ---------
-- -- 126,551 -- 126,551
--------- --------- --------- --------- ---------
Total Liabilities 355,346 306,613 308,350 (369,297) 601,012
--------- --------- --------- --------- ---------
STOCKHOLDERS' EQUITY
Preferred stock -- 20,475 10 (20,485) --
Common Stock 209 19 124 (143) 209
Additional paid-in capital 133,455 99,725 116,590 (216,315) 133,455
Retained earnings 57,879 14,152 (38,190) 24,038 57,879
Less treasury stock (15,689) -- (9) 9 (15,689)
--------- --------- --------- --------- ---------
Total Stockholders'
Equity 175,854 134,371 78,525 (212,896) 175,854
--------- --------- --------- --------- ---------
Total Liabilities and
Stockholders' Equity $ 531,200 $ 440,984 $ 386,875 $(582,193) $776,866
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
-13-
<PAGE>
SUPPLEMENTAL COMBINING STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNCONSOLIDATED
---------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
--------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Home Building $ -- $147,681 $11,656 $ (759) $158,578
Mortgage Lending -- -- 5,487 -- 5,487
Asset Management -- -- 4,547 (281) 4,266
Corporate other revenues 342 -- 20 -- 362
Equity in earnings of
subsidiaries 9,169 999 -- (10,168) --
------- -------- ------- -------- --------
Total Revenues 9,511 148,680 21,710 (11,208) 168,693
------- -------- ------- -------- --------
COSTS AND EXPENSES:
Home Building 364 138,543 10,563 (205) 149,265
Mortgage Lending -- -- 2,583 -- 2,583
Asset Management -- -- 3,244 -- 3,244
Corporate general and
administrative 3,902 -- 31 -- 3,933
Corporate and home building
interest (1,467) 4,127 1,032 (736) 2,956
------- -------- ------- -------- --------
Total Expenses 2,799 142,670 17,453 (941) 161,981
------- -------- ------- -------- --------
Income before income taxes 6,712 6,010 4,257 (10,267) 6,712
Provision for income taxes 2,906 2,348 1,445 (3,793) 2,906
------- -------- ------- -------- --------
NET INCOME $ 3,806 $ 3,662 $ 2,812 $ (6,474) $ 3,806
------- -------- ------- -------- --------
------- -------- ------- -------- --------
</TABLE>
-14-
<PAGE>
SUPPLEMENTAL COMBINING STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNCONSOLIDATED
---------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
--------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Home Building $ 14 $93,346 $ 8,741 $ (3,379) $ 98,722
Mortgage Lending -- -- 3,436 -- 3,436
Asset Management -- -- 13,450 (281) 13,169
Corporate other revenues 590 -- (4) (28) 558
Equity in earnings of
subsidiaries 4,770 1,141 -- (5,911) --
------ ------- ------- -------- --------
Total Revenues 5,374 94,487 25,623 (9,599) 115,885
------ ------- ------- -------- --------
COSTS AND EXPENSES:
Home Building 1 90,267 8,088 (1,493) 96,863
Mortgage Lending -- -- 2,595 -- 2,595
Asset Management -- -- 8,501 -- 8,501
Corporate general and
administrative 3,591 -- 3 (20) 3,574
Corporate and home building
interest 647 2,240 1,092 (762) 3,217
------ ------- ------- -------- --------
Total Expenses 4,239 92,507 20,279 (2,275) 114,750
------ ------- ------- -------- --------
Income before income taxes 1,135 1,980 5,344 (7,324) 1,135
Provision for income taxes 220 733 2,167 (2,900) 220
------ ------- ------- -------- --------
NET INCOME $ 915 $ 1,247 $ 3,177 $ (4,424) $ 915
------ ------- ------- -------- --------
------ ------- ------- -------- --------
</TABLE>
-15-
<PAGE>
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNCONSOLIDATED
---------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
--------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED
IN) OPERATING ACTIVITIES $ (9,952) $ (20,598) $ 21,786 $ 1,749 $ (7,015)
-------- --------- -------- -------- ---------
INVESTING ACTIVITIES:
Mortgage Collateral
Principal payments and
prepayments -- 211 17,459 -- 17,670
Sales -- -- 4,910 -- 4,910
Distributions of capital
from Equity CMO Interests -- -- 1,162 -- 1,162
Changes in restricted cash -- -- 6,363 -- 6,363
Affiliate notes receivable 2,108 -- 3,053 (5,161) --
Other, net 22 (110) (174) -- (262)
-------- --------- -------- -------- ---------
Net Cash Provided By (Used
In) Investing Activities 2,130 101 32,773 (5,161) 29,843
-------- --------- -------- -------- ---------
FINANCING ACTIVITIES:
Net increase (reduction) in
borrowings from Parent
and subsidiaries (5,311) 17,880 (10,820) (1,749) --
CMO bonds - principal
payments -- -- (26,350) -- (26,350)
Lines of Credit -- -- -- -- --
Advances -- 171,804 -- -- 171,804
Principal payments -- (157,649) (16,650) -- (174,299)
Notes payable
Borrowings -- 497 -- -- 497
Principal payments (3,631) (10,461) (927) -- (15,019)
Affiliate notes payable -- (5,161) -- 5,161 --
Other, net 108 -- -- -- 108
-------- --------- -------- -------- ---------
Net Cash Provided By (Used
In) Financing Activities (8,834) 16,910 (54,747) 3,412 (43,259)
-------- --------- -------- -------- ---------
Net Decrease In Cash And
Cash Equivalents (16,656) (3,587) (188) -- (20,431)
Cash And Cash Equivalents
Beginning Of Period 42,443 17,792 2,768 -- 63,003
-------- --------- -------- -------- ---------
End Of Period $ 25,787 $ 14,205 $ 2,580 $ -- $ 42,572
-------- --------- -------- -------- ---------
-------- --------- -------- -------- ---------
</TABLE>
-16-
<PAGE>
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNCONSOLIDATED
---------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
--------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED
IN) OPERATING ACTIVITIES $ 926 $(18,041) $(6,616) $ 596 $(23,135)
------- -------- ------- --------- --------
INVESTING ACTIVITIES:
Mortgage Collateral
Principal payments and
prepayments -- 14 19,704 -- 19,718
Sales -- -- 4,923 -- 4,923
Distributions of capital
from Equity CMO Interests -- -- 2,265 -- 2,265
CMO Bond principal payments -- -- 491 -- 491
Changes in investments and
marketable securities, net 12,000 -- -- -- 12,000
Affiliate notes receivable 479 -- 393 (872) --
Changes in restricted cash -- -- 11,532 -- 11,532
Other, net (139) (164) (205) -- (508)
------- -------- ------- --------- --------
Net Cash Provided By (Used
In) Investing Activities 12,340 (150) 39,103 (872) 50,421
------- -------- ------- --------- --------
FINANCING ACTIVITIES:
Net increase (reduction) in
borrowings from Parent
and subsidiaries (2,147) 6,675 (3,932) (596) --
CMO bonds - principal
payments -- -- (34,049) -- (34,049)
Lines of credit
Advances 1,540 41,010 6,374 -- 48,924
Principal payments (1,887) (37,618) -- -- (39,505)
Senior and Subordinated
Notes - payments (355) -- -- -- (355)
Notes payable
Borrowings -- 11,070 -- -- 11,070
Principal payments (2,892) (8,189) (899) -- (11,980)
Affiliate notes payable -- (872) -- 872 --
Other, net 45 -- -- -- 45
------- -------- ------- --------- --------
Net Cash Provided By (Used
In) Financing Activities (5,696) 12,076 (32,506) 276 (25,850)
------- -------- ------- --------- --------
Net Increase (Decrease) In
Cash And Cash Equivalents 7,570 (6,115) (19) -- 1,436
Cash And Cash Equivalents
Beginning Of Period 35,993 22,502 2,533 -- 61,028
------- -------- ------- --------- --------
End Of Period $43,563 $ 16,387 $ 2,514 $ -- $ 62,464
------- -------- ------- --------- --------
------- -------- ------- --------- --------
</TABLE>
-17-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
INTRODUCTION
MDC is a national home builder with major operations in (i) metropolitan
Denver and, to a lesser extent, Colorado Springs, Colorado (collectively,
"Colorado"); (ii) northern Virginia and suburban Maryland (collectively, "Mid-
Atlantic"); (iii) northern California and, to a lesser extent, southern
California (collectively, "California"); (iv) Phoenix and Tucson, Arizona
(collectively, "Arizona"); and (v) Las Vegas, Nevada ("Nevada").
In its home building operations, the Company is engaged in the construction
and sale of residential housing (collectively, the "home building segment") and
mortgage origination, purchase and sale activities (collectively, the "mortgage
lending segment"). MDC's mortgage lending segment enables MDC to provide
mortgage loans to its home buyers and to others.
The Company's asset management operations (collectively, the "asset
management segment"), among other things, enable MDC to (i) manage the day-to-
day operations of Asset Investors Corporation ("Asset Investors"), a New York
Stock Exchange-listed real estate investment trust ("REIT") which generates
income primarily through a portfolio of ownership interests ("CMO Ownership
Interests") in issuances of collateralized mortgage obligations ("CMO bonds");
(ii) manage the day-to-day operations of Commercial Assets, Inc. ("Commercial
Assets"), an American Stock Exchange-listed REIT formed in August 1993 which
generates income by acquiring and managing a portfolio of ownership interests in
commercial securitizations; (iii) own CMO Ownership Interests; and (iv) own
interests in various other investments.
On February 2, 1994, MDC acquired the balance (35%) of the outstanding
shares of Richmond Homes, Inc. I ("Richmond Homes") common stock which it did
not own from Messrs. Larry A. Mizel (Chairman of the Board and Chief Executive
Officer of the Company) and David D. Mandarich (Executive Vice President - Real
Estate and a director of the Company). Richmond Homes and its subsidiaries
conduct the Company's Colorado home building operations. In exchange for these
shares of Richmond Homes common stock, Messrs. Mizel and Mandarich were issued
an aggregate of 608,695 shares of Common Stock of MDC.
-18-
<PAGE>
RESULTS OF OPERATIONS
The table below summarizes MDC's results of operations during each of the
periods presented (in thousands, except per share amounts).
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1994 1993
---------- ----------
<S> <C> <C>
Revenues $168,693 $115,885
Income before income taxes 6,712 1,135
Net Income 3,806 915
Primary Earnings Per Share .19 .04
</TABLE>
MDC's revenues increased during the first three months of 1994 compared
with the same period in 1993 primarily as a result of a 45% increase in home
closings and an $18,100 increase in the average selling price per housing unit.
These increases partially were offset by an $8,903,000 reduction in revenues of
the asset management segment due principally to continued high levels of
prepayments on, and sales of mortgage loans, including the mortgage loans
underlying the Company's mortgage pass-through certificates which are the
collateral for the Company's CMO bonds (mortgage loans or mortgage certificate
collateral for CMO bonds hereafter is referred to as "Mortgage Collateral").
Prepayments on, and sales of, Mortgage Collateral have reduced the amount of the
Company's Mortgage Collateral and mortgage-related assets, the asset management
segment's principal interest earning assets, by more than $171,000,000 from
January 1, 1993 through March 31, 1994.
The Company's income increased for the three months ended March 31, 1994
compared with the same period in 1993 due principally to (i) increased home
building operating profit from significantly higher home closings primarily due
to the opening of new subdivisions in each of the Company's markets and higher
Home Gross Margins (as hereafter defined); and (ii) increased mortgage lending
operating profit primarily due to increased gains from sales of mortgage loan
servicing. These increases partially were offset by higher marketing and
general and administrative expenses due principally to the higher level of home
closings. Operating income in the first quarter of 1993 was impacted positively
by $5,200,000 in one-time gains resulting from sales of Mortgage Collateral,
partially offset by $2,000,000 in valuation adjustments with respect to the
Company's Equity CMO Interests (defined below) during the same period.
IMPACT OF HOME MORTGAGE INTEREST RATES.
Beginning in 1992 through October 1993, home mortgage interest rates
declined to their lowest levels in 25 years to an average of 6.7% on a 30-year,
fixed-rate mortgage. From October 1993 to May 1994, these interest rates have
increased to as high as 9%.
-19-
<PAGE>
Increases in mortgage interest rates adversely affect the Company's home
building and mortgage lending segments. Higher mortgage interest rates (i) may
reduce the demand for homes and home mortgages; and (ii) generally will reduce
home mortgage refinancing activity. With the recent increases in mortgage
interest rates relative to levels in 1993, the Company, consistent with the rest
of the industry in general, has experienced a major decline in refinancing
activity in its mortgage lending operations. These events have affected
adversely the spot mortgage loan originations and the amount of mortgage loans
purchased through correspondents by the Company's mortgage lending segment,
although increased originations from the Company's home building operations have
offset to a significant degree these declines. The Company is unable to predict
the extent to which current or future increases in mortgage interest rates will
adversely affect the Company's operating activities and results of operations.
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).
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1994 1993
---------- ----------
<S> <C> <C>
Home sales revenues $156,735 $97,608
Average selling price per housing unit $183.5 $ 165.4
Home Gross Margins 16.1% 14.8%
Homes - units
Sales contracted, net
Colorado 750 606
Mid-Atlantic 412 370
California 146 107
Arizona 154 53
Nevada 30 51
-------- --------
Total 1,492 1,187
-------- --------
-------- --------
Closed and delivered
Colorado 392 338
Mid-Atlantic 252 163
California 107 23
Arizona 86 43
Nevada 17 23
-------- --------
Total 854 590
-------- --------
-------- --------
</TABLE>
(continued)
-20-
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1994 1993 1993
--------- ------------ ---------
<S> <C> <C> <C>
Backlog
Units
Colorado 1,018 660 741
Mid-Atlantic 585 425 404
California 137 98 132
Arizona 215 147 58
Nevada 40 27 88
-------- -------- --------
Total 1,995 1,357 1,423
-------- -------- --------
-------- -------- --------
Sales value $363,270 $250,530 $248,600
-------- -------- --------
-------- -------- --------
</TABLE>
Home sales revenues increased 61% for the three months ended March 31, 1994
compared with the same period in 1993 primarily as a result of (i) significant
increases in home closings in all of the Company's markets except Nevada due to
improved market conditions and the expansion of the Company's operations in each
of its markets; and (ii) an increase in the average selling price per housing
unit.
The increase in the average selling price per housing unit for the three
months ended March 31, 1994 compared with the same period in 1993 primarily was
due to increases in average selling prices in all of the Company's markets
except northern California. The increases in selling prices were due
principally to (i) the mix of homes closed; (ii) general price increases in most
of the Company's markets to, among other things, offset increases in costs; and
(iii) improved market conditions. These increases partially were offset by
lower average selling prices in northern California due primarily to the
introduction of more affordable homes in response to consumer demand for lower-
priced housing.
Overall, gross profits (which have been reduced for, among other things,
capitalized interest, a reserve for warranty expenses on a per home basis and
financing costs) as a percent of home sales ("Home Gross Margins") increased
substantially during the three months ended March 31, 1994 compared with the
same period in 1993. The Company achieved higher Home Gross Margins in the
first quarter of 1994 in its Colorado, Mid-Atlantic and Arizona markets
primarily due to improved market conditions. These increases partially were
offset by lower Home Gross Margins in northern California as the Company's
profitability in this area continues to be affected adversely by softness in
consumer demand for new homes. To a lesser extent, Home Gross Margins also were
impacted negatively by builder competition and product shifts in Nevada.
Increases in, among other things, the costs of subcontracted labor, finished
lots and building materials, particularly lumber, 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.
In addition, increased home building activities in several of the Company's
markets, particularly Colorado and Arizona, have further extended the available
labor force such that the period of time required for completing construction of
homes has increased. Such
-21-
<PAGE>
increased time periods result in increased interest costs during the
construction period which have affected adversely, and may affect adversely in
the future, Home Gross Margins.
Assisted by improved market conditions and expanded operations in most of
the Company's markets, year-to-date home sales and Backlog at March 31, 1994
reached their highest first quarter levels since 1988 and 1987, respectively.
"Sales contracted, net" increased 26% during the three months ended March 31,
1994 compared with the same period in 1993. Backlog at March 31, 1994 increased
47% from December 31, 1993 and 40% from March 31, 1993. These increases
principally were due to significant increases in sales in (i) Colorado (increase
of 24%) and Arizona (increase of 191%) due to improved market conditions and
expansions of the Company's operations in these markets; (ii) the Mid-Atlantic
region (increase of 11%) due to efforts to increase the Company's market share
through expansion of its operations in that region; and (iii) in California
(increase of 36%) due to expansions of the Company's operations in this market.
Marketing expenses (which include, among other things, deferred marketing,
model home expenses and commissions) totalled $9,002,000 during the three months
ended March 31, 1994 compared with $6,356,000 during the same period in 1993.
The 42% increase during 1994 principally was due to the 45% increase in home
closings and expanded operations in many of the regions in which the Company
operates. As a result of these increased operations, significant additional
marketing-related salary, commission and model home operation expenses were
incurred. However, marketing expenses as a percentage of home building sales
revenues decreased by more than 10% in 1994, relative to 1993, due primarily to
increased efficiencies in the Company's marketing activities relative to the
level of expansion in its existing markets.
General and administrative expenses totalled $6,747,000 during the three
months ended March 31, 1994 compared with $6,216,000 during the same period in
1993. The 9% increase during 1994 partially was due to increased salary, office
and other expenses in response to increased operations. General and
administrative expenses during the first quarter of 1993 also were affected
adversely by non-recurring charges totalling $900,000. General and
administrative expenses as a percentage of home building sales revenues during
the three months ended March 31, 1994 decreased compared with the same period in
1993 due to the Company's ability to build more homes without adding
substantially to existing administrative staffing and overhead.
INACTIVE LAND INVENTORY. Since 1988, MDC has implemented a program to
reduce its inventory of land and land under development in order to, among other
things, maximize and preserve liquidity and reduce the risks inherent in
holding, at any point in time, substantially greater amounts of land than are
necessary to meet the projected requirements of MDC's home building operations
over the succeeding 24 months. As a result, MDC has reduced its land inventory
from $411,500,000 at December 31, 1988 to $186,511,000 at March 31, 1994, while
increasing significantly the number of lots it controls under rolling options.
-22-
<PAGE>
The Company continues to pursue opportunities to reduce its inactive land
inventories. Although the Company has been able to reduce significantly its
inventory of land, the Company's net income and cash flow continue to be
affected adversely by the carrying costs (e.g., property taxes and interest)
associated with inactive land inventories, which were approximately one-half of
the Company's total land and land under development at March 31, 1994. Most of
the inactive land was acquired prior to 1991, and is held principally in
Colorado. Carrying costs on inactive land inventories are expensed, not
capitalized.
The following table shows the carrying value of the land and land under
development owned by MDC in each of its home building markets at March 31, 1994
segregated by the years in which such property was acquired or optioned (in
thousands).
<TABLE>
<CAPTION>
DIVISION 1994 1993 1992 1991 PRE-1991 TOTAL
- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Colorado $ 283 $ 2,891 $4,275 $9,067 $ 77,804 $ 94,320
Mid-Atlantic 7,307 11,850 3,060 -- 20,222 42,439
California 7,453 14,004 2,146 -- 6,326 29,929
Arizona 6,949 1,829 48 -- 4,724 13,550
Nevada -- 6,273 -- -- -- 6,273
------- ------- ------ ------ -------- --------
Totals $21,992 $36,847 $9,529 $9,067 $109,076 $186,511
------- ------- ------ ------ -------- --------
------- ------- ------ ------ -------- --------
</TABLE>
MORTGAGE LENDING SEGMENT.
OVERVIEW. HomeAmerican Mortgage Corporation ("HomeAmerican") is a full-
service mortgage lender originating mortgage loans for MDC's home buyers and for
others on a "spot" basis through offices located in each of MDC's markets
(except southern California). As HomeAmerican is the principal originator of
mortgage loans for MDC's home buyers, it is an integral part of MDC's home
building operations. MDC sells its homes to customers who generally finance
their purchases through Federal Housing Administration ("FHA") insured mortgage
loans, Veterans Administration ("VA") guaranteed mortgage loans and conventional
mortgage loans.
HomeAmerican is an FHA, VA, Federal National Mortgage Association ("FNMA")
and Federal Home Loan Mortgage Corporation ("FHLMC") authorized mortgage loan
originator. HomeAmerican also is an authorized loan servicer for FNMA, FHLMC
and the Government National Mortgage Association ("GNMA") and, as such, is
subject to the rules and regulations of such organizations. Through
correspondents, HomeAmerican purchases loans. The origination fees are retained
by the correspondents on these loans while, by purchasing these loans,
HomeAmerican acquires the servicing rights.
HomeAmerican's operations are affected by, among other things, changes in
mortgage interest rates. HomeAmerican attempts to reduce its exposure to
mortgage interest rate changes by (i) offering mortgage loans at market rates;
(ii) purchasing forward commitments to deliver closed loans held for sale; and
(iii) to a substantially
-23-
<PAGE>
lesser extent, using other hedging techniques in connection with its pipeline of
mortgage loan applications.
The table below summarizes the results of HomeAmerican's operations during
each of the periods presented (in thousands).
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1994 1993
---------- ----------
<S> <C> <C>
Gains from sales of mortgage servicing:
Bulk $ 2,585 $ 585
Other 287 187
Net interest income 571 643
Origination fees 1,236 1,085
Gains on sales of mortgage loans 99 364
Mortgage servicing and other income 515 317
General and administrative expenses (2,389) (2,340)
-------- --------
Operating profit $ 2,904 $ 841
-------- --------
-------- --------
Principal amount of originations and
purchases:
Company home buyers $ 76,260 $ 53,102
Spot 31,288 53,972
Correspondent 26,252 29,898
-------- --------
Total $133,800 $136,972
-------- --------
-------- --------
<CAPTION>
March 31, December 31, March 31,
1994 1993 1993
--------- ------------ ---------
<S> <C> <C> <C>
Composition of Servicing
Portfolio at End of Period:
FHA insured/VA guaranteed $410,057 $373,716 $229,247
Conventional 344,297 279,615 318,529
-------- -------- --------
Total Servicing Portfolio $754,354 $653,331 $547,776
-------- -------- --------
-------- -------- --------
Portion of Servicing Portfolio
Available for Sale $487,331 $574,088 $332,913
-------- -------- --------
-------- -------- --------
</TABLE>
Included in the total servicing portfolio (but excluded from the portion
available for sale) were loans totalling (i) at March 31, 1994, $195,830,000
which were being serviced under an agreement which expired on May 1, 1994; and
(ii) at March 31, 1993, $106,171,000 which were being serviced under an
agreement which expired on April 1, 1993.
HomeAmerican's loan originations decreased by 2% for the three months ended
March 31, 1994 compared with the same period in 1993 primarily as a result of
lower spot originations due primarily to increased mortgage interest rates which
resulted in lower mortgage loan refinancings. These decreases were partially
offset by higher originations for MDC home buyers principally due to increased
closings by MDC's home building segment. HomeAmerican originated mortgages for
-24-
<PAGE>
59% of MDC's total homes closed during the three months ended March 31, 1994
compared with 67% during the same period in 1993.
HomeAmerican's operating profit of $2,904,000 during the three months ended
March 31, 1994 was higher than the operating profit of $841,000 for the same
period in 1993 principally due to increased gains from bulk servicing sales.
During the three months ended March 31, 1994, HomeAmerican sold bulk mortgage
loan servicing on approximately $195,830,000 of mortgage loans which resulted in
pre-tax gains of $2,585,000. During the three months ended March 31, 1993,
HomeAmerican had no bulk sales of servicing; however, $585,000 of income
relating to a December 1992 bulk servicing sale was recognized as the related
mortgage loans, totalling approximately $40,400,000, were certified for sale in
such period.
At March 31, 1994, approximately $487,331,000 of conforming mortgage loan
(i.e., loans that meet the securitization standards of GNMA, FNMA or FHLMC)
servicing was available for sale, which represents a 15% decrease compared with
the $574,088,000 in conforming mortgage loan servicing available for sale at
December 31, 1993 and a 46% increase above the $332,913,000 in conforming
mortgage loan servicing available for sale at March 31, 1993.
ASSET MANAGEMENT SEGMENT.
The following table summarizes the results of the asset management segment
operations during each of the periods presented (in thousands).
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1994 1993
---------- ----------
<S> <C> <C>
Management fees from Asset Investors and
Commercial Assets $ 754 $ 635
Equity in losses of Equity CMO Interests,
net of valuation adjustments -- (2,000)
Gains on sales of Mortgage Collateral 313 5,181
Interest income from CMO Bond and other,
net 236 1,133
------ ------
Operating profit $1,303 $4,949
------ ------
------ ------
</TABLE>
The decrease in the Company's asset management segment operating profit for
the three months ended March 31, 1994 compared with the same period in 1993 is
due principally to lower gains on sales of Mortgage Collateral, partially offset
by valuation adjustments recorded in 1993 related to the Equity CMO Interests
(as hereafter defined) which were not required in 1994.
MANAGEMENT OF ASSET INVESTORS. The Company advises Asset Investors on
various facets of Asset Investors' business. Asset Investors generates
substantially all of its income through a portfolio of CMO Ownership Interests
in residential mortgage loan securitizations.
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<PAGE>
MDC has a management agreement (the "Asset Investors Management Agreement")
with Asset Investors which is currently in the process of being extended through
1994, subject to the possible amendment of certain of the terms on a prospective
basis. The current Asset Investors Management Agreement may be terminated by
the Company or by Asset Investors with or without cause at any time upon 60
days' written notice. MDC, pursuant to the Asset Investors Management
Agreement, receives compensation for CMO administration and other management
services. MDC also is entitled to receive an incentive fee (the "Asset
Investors Incentive Fee") which is based primarily on the level of Asset
Investors dividend distributions.
The high level of prepayments on Asset Investors' portfolio of home-
mortgage related assets in 1992 and 1993 affected adversely the CMO Ownership
Interests owned by Asset Investors and its income, which reduced substantially,
relative to prior years, the management fees earned by the Company from Asset
Investors in 1993 and the first three months of 1994. The Company earned
$434,000 in management fees in the three months ended March 31, 1994 compared
with $635,000 in the same period in 1993. No Asset Investors Incentive Fees
were earned by the Company in the three months ended March 31, 1994 or in the
same period in 1993.
MANAGEMENT OF COMMERCIAL ASSETS. In August 1993, Asset Investors formed
Commercial Assets to acquire and manage a portfolio of ownership interests in
commercial mortgage securitizations. In October 1993, Asset Investors
distributed approximately 70% of the shares of Commercial Assets to its
stockholders as a dividend.
MDC has a management agreement (the "Commercial Assets Management
Agreement") with Commercial Assets which is currently in the process of being
extended through 1994, subject to the possible amendment of certain of the terms
on a prospective basis. Pursuant to the Commercial Assets Management Agreement,
MDC receives (i) compensation based on the level of Commercial Assets income, as
determined under applicable provisions of the Internal Revenue Code of 1986, as
amended; (ii) acquisition fees; (iii) administration fees; and (iv) fees for
other management services. The Commercial Assets Management Agreement may be
terminated by the Company or by Commercial Assets with or without cause at any
time upon 60 days' written notice.
During the three months ended March 31, 1994, MDC earned fees totalling
$320,000 from Commercial Assets.
EQUITY CMO INTERESTS. During the three months ended March 31, 1993 MDC
recorded $2,000,000 in valuation adjustments related to its 49.999% ownership
interest in seven CMO Ownership Interests (these seven interests are referred to
herein as "Equity CMO Interests") related to permanent declines in the value of
the undiscounted projected cash flow of such Equity CMO Interests resulting from
higher actual and projected prepayments caused by low interest rates. During
the three months ended March 31, 1994, higher mortgage interest rates have
slowed both the actual and expected prepayment speeds and, accordingly, no
valuation adjustments were necessary.
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<PAGE>
If the Mortgage Collateral underlying the Equity CMO Interests prepays or
is projected to prepay at higher than current expected rates and/or if short-
term interest rates increase significantly from their present rates, the
Company, in the future, may recognize additional valuation adjustments.
INVESTMENT IN A CMO BOND. On July 31, 1992, MDC purchased a $7,823,000
principal amount CMO bond (the "CMO Bond") for $7,367,000. For the three months
ended March 31, 1993, the CMO Bond earned $583,000 in interest. The CMO Bond
was fully paid at December 31, 1993.
SALES OF MORTGAGE-RELATED ASSETS. In January 1993, MDC completed a sale of
mortgage-related assets which resulted in a pre-tax gain totalling $5,011,000.
In addition, MDC completed various other sales of mortgage-related assets which
resulted in net gains totalling $313,000 and $170,000, respectively, for the
three months ended March 31, 1994 and 1993.
GENERAL. Higher short-term interest rates and/or continued high or higher
levels of mortgage loan prepayments would affect adversely in future periods (i)
the management fees earned from Asset Investors and Commercial Assets; and (ii)
the current value of, and income from, the Company's CMO Ownership Interests.
The Company currently does not expect to acquire additional CMO Ownership
Interests in the future except to the extent attractive opportunities may be
identified. As a result, future income from the asset management segment
primarily will be dependent on management fees.
OTHER OPERATING RESULTS.
CORPORATE AND HOME BUILDING INTEREST. Corporate and home building interest
incurred increased by 38% to $8,364,000 in the first quarter of 1994 compared
with $6,056,000 during the same period in 1993 due to (i) higher interest rates
associated with the 11 1/8% Senior Notes due 2003 compared with the debt
outstanding for the three months ended March 31, 1993; and (ii) higher levels of
borrowings resulting from the Company's expanded home building operations. The
portion of this corporate and home building interest capitalized (the Company
capitalizes interest on its home building inventories during the period of
active development and through the completion of construction) during the three
months ended March 31, 1994 and 1993 totalled $5,408,000 and $2,839,000,
respectively. The increase in interest capitalized for the three months ended
March 31, 1994 was due primarily to (i) increased levels of home building
inventories resulting from increased operations; (ii) higher capitalization
rates related to the higher average effective interest rates on applicable debt,
particularly with respect to Colorado; and (iii) the extended period of time for
completing homes under construction in certain of the Company's markets, which
increased the period of time over which interest on such construction is
capitalized. The corporate and home building interest incurred which was not
capitalized was reflected as interest expense totalling $2,956,000 and
$3,217,000 for the three
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<PAGE>
months ended March 31, 1994 and 1993, respectively. For a reconciliation of
interest incurred, capitalized, expensed and previously capitalized included in
cost of sales, see Note E to the Company's Condensed Consolidated Financial
Statements.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES. Corporate general and
administrative expenses totalled $3,933,000 during the three months ended March
31, 1994 compared with $3,574,000 during the same period in 1993. The increase
in the first three months of 1994 primarily was due to an increase in salary,
professional fees and insurance expense resulting from the Company's expanded
operations.
INCOME TAXES. M.D.C. Holdings, Inc. and its wholly-owned subsidiaries file
a consolidated federal income tax return (the "MDC Consolidated Return").
Richmond Homes filed (or will file) a separate consolidated federal income tax
return (each a "Richmond Homes Consolidated Return") from its inception
(December 28, 1989) through the date Richmond Homes became a wholly-owned
subsidiary of MDC (February 2, 1994).
MDC's overall effective income tax rate during the three months ended March
31, 1994 was 43% compared with 19% during the same period in 1993. The
effective income tax rates differed from the 35% federal statutory rate due
primarily 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. The Company has recorded a net deferred income tax asset of
$8,851,000, net of a valuation allowance of $2,939,000, at March 31, 1994. The
valuation allowance has been provided to offset the related deferred income tax
assets due to the uncertainty of realizing the benefit of future tax deductions.
The Internal Revenue Service (the "IRS") has completed its examination of
the MDC Consolidated Returns for the years 1984 through 1987 and has proposed
certain adjustments to the taxable income reflected in such returns. A
substantial portion of the proposed adjustments relate to the characterization
of $22,000,000 in gains on sales of property held for investment, which were
reported as capital gains. Certain of the other 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 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 and believes that the
amount of these adjustments will be reduced as a result. In the opinion of
management, adequate provision has been made for the 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
1988 through 1990 and the Richmond Homes Consolidated Returns for the years 1989
and 1990. No reports have been issued by
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<PAGE>
the IRS in connection with these examinations. In the opinion of management,
adequate provision has been made for any additional income taxes and interest
which may arise as a result of these examinations.
LIQUIDITY AND CAPITAL RESOURCES
MDC uses its 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.
Capital resources are generated internally from operations and from external
sources.
Based upon its current financial condition and credit relationships, MDC
believes that it has, or can obtain, 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.
CONSOLIDATED CASH FLOW.
For the three months ended March 31, 1994, MDC used $3,414,000 in cash
exclusive of $17,017,000 in cash used to reduce amounts outstanding under lines
of credit and notes payable from amounts outstanding at December 31, 1993. At
March 31, 1994, the Company had $42,572,000 available in cash and cash
equivalents.
MDC's Operating Activities during the first three months of 1994 used net
cash of $7,015,000 compared with net cash used of $23,135,000 during the same
period in 1993. The net cash used in Operating Activities during the first
three months of 1994 principally was 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.
The net cash used by Operating Activities during the first three months of 1993
principally was due to increases in mortgage loans held in inventory, housing
inventories and accounts receivable resulting from increased mortgage lending
and home building activities in such period.
Net cash provided by Investing Activities during the first three months of
1994 and 1993 totalled $29,843,000 and $50,421,000, respectively, and primarily
was generated by (i) principal payments and prepayments on, and sales of,
Mortgage Collateral; and (ii) in 1993, sales of marketable preferred shares used
by the Company in its cash management activities. A substantial portion of the
cash flow generated by these reductions was used to make required principal
payments on the CMO bonds collateralized by these assets, which principally
resulted in the net use of cash in Financing Activities in the first three
months of 1994 and 1993 of $43,259,000 and $25,850,000, respectively. In 1994,
cash used in Financing Activities was increased by net paydowns of notes payable
and lines of credit. The net cash used in Financing Activities in the first
three months of 1993 was partially offset by net advances on lines of credit.
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<PAGE>
NOTES PAYABLE, LINES OF CREDIT AND SUBORDINATED NOTES.
HOME BUILDING. The aggregate amount of MDC's home building bank lines of
credit at March 31, 1994 was $70,000,000. 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 March
31, 1994, $38,800,000 was borrowed and an additional $26,651,000 was
collateralized and available to be borrowed under the bank lines of credit.
As discussed above, the Company, during 1993 and the first three months of
1994, significantly expanded its home building operations and is planning to
continue to expand its home building activities during the remainder of 1994
depending on economic conditions and the availability of attractive
opportunities. The Company intends to finance this expansion primarily with
increased bank lines of credit and through internal sources. However, when
necessary, as has been the case in prior years, MDC may replace or supplement
its bank lines of credit with secured project financing. The cost of secured
project financing generally is higher than the cost of the Company's bank lines
of credit.
MORTGAGE LENDING. The aggregate amount available under MDC's mortgage
lending bank line of credit (the "Mortgage Line") at March 31, 1994 was
$75,000,000. 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 agreements). At March 31, 1994,
$12,850,000 was borrowed and an additional $16,840,000 was collateralized and
available to be borrowed under the Mortgage Line.
To provide funds for mortgage loan financing for MDC's home buyers and
others on a spot basis, HomeAmerican utilizes its Mortgage Line to finance these
mortgage loans on a short-term basis. These mortgage loans are pooled into
GNMA, FNMA and FHLMC pools or retained as whole loans and subsequently are sold
in the open market on a "spot" basis and pursuant to mortgage loan sale
commitments. During the three months ended March 31, 1994 and 1993,
HomeAmerican sold $153,884,000 and $116,190,000, respectively, principal amount
of mortgage loans and mortgage certificates to unaffiliated purchasers.
GENERAL. In the event that MDC's lines of credit are not renewed, or are
renewed as they become due at substantially lower levels, the Company believes
that it could meet its business plan through a combination of internally-
generated funds and new borrowings. Required repayments of its lines of credit
have in the past been, and could in the future be, repaid with, among other
things, (i) available cash and/or the proceeds from the liquidation of available
short-term investments; and/or (ii) the proceeds from the sale or liquidation of
certain other of the Company's home building, mortgage and other assets. The
sale or liquidation of assets could be at prices that are less than the carrying
value of such assets and may affect adversely the Company's future financial
condition and results of operations.
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<PAGE>
ASSET MANAGEMENT SEGMENT ASSETS AND LIABILITIES.
Throughout 1993 and the first three months of 1994, the asset management
segment continued to experience a net liquidation of assets and related
reduction of liabilities. Mortgage Collateral, net, and related assets, has
declined from $275,467,000 at January 1, 1993 to $134,166,000 at December 31,
1993 and to $103,553,000 at March 31, 1994. The proceeds from these reductions
were used primarily to reduce the related CMO bonds, net, and related
liabilities from $256,347,000 at January 1, 1993 to $123,500,000 at
December 31, 1993 and to $96,802,000 at March 31, 1994. These asset and
liability reductions substantially were the result of (i) the high rate of
prepayments on the Mortgage Collateral; and (ii) sales of Mortgage Collateral
and related assets at a premium to face value and related redemptions of CMO
bonds. The Company's Mortgage Collateral and related CMO bonds will continue to
decrease as payments and prepayments are received or Mortgage Collateral is
sold.
The Company's Equity CMO Interests also have declined from $16,930,000 at
January 1, 1993 to $6,427,000 at December 31, 1993 and to $5,265,000 at March
31, 1994 due to the receipt of distributions of capital and, in 1993, valuation
adjustments.
MATERIAL CHANGES IN OTHER ASSETS AND LIABILITIES.
HOME BUILDING RECEIVABLES. Home building receivables consist principally
of receivables from home sales (representing the proceeds from home closings not
yet disbursed by unrelated settlement agents), which usually are collected
within seven days after the sale is closed, and certain other receivables. Such
receivables totalled $8,560,000 at March 31, 1994 compared with $5,423,000 at
December 31, 1993. The increase at March 31, 1994 is due to increased closings
and the timing of such closings.
HOUSING COMPLETED OR UNDER CONSTRUCTION. Housing completed or under
construction increased to $226,825,000 at March 31, 1994 compared with
$201,023,000 at December 31, 1993 principally due to an increase in Backlog
under construction.
LAND AND LAND UNDER DEVELOPMENT. Land and land under development totalled
$186,511,000 at March 31, 1994 compared with $192,881,000 at December 31, 1993.
The decline in land inventories is due principally to (i) increased home
construction activity; (ii) the continued use of "rolling" options, with
periodic takedowns of lots, to acquire new land inventories for use in the
Company's home building activities; and (iii) sales and other dispositions of
land.
Based upon its current business plan, MDC anticipates the acquisition,
during the balance of 1994, of various parcels of finished lots and partially-
developed land for use in its future home building operations. The Company
currently intends to acquire a significant portion of the land inventories
required in future periods through take downs of lots subject to rolling options
entered into in prior periods and under new rolling option agreements. The use
of rolling options lessens the Company's risk and improves liquidity.
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<PAGE>
MORTGAGE LOANS HELD IN INVENTORY. Mortgage loans held in inventory
decreased to $48,865,000 at March 31, 1994 compared with $68,065,000 at December
31, 1993, due to the decreased mortgage loan originations in the first quarter
of 1994 compared with the fourth quarter of 1993.
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<PAGE>
M.D.C. HOLDINGS, INC.
FORM 10-Q
PART II
ITEM 1. LEGAL PROCEEDINGS.
SETTLEMENT OF WESTERN SAVINGS CIVIL MATTERS.
In December 1993, the Resolution Trust Corporation (the "RTC"), acting in
its corporate capacity and as receiver for Western Savings and Loan Association
("Western"), gave its final administrative approval to an agreement-in-principle
executed between MDC and the RTC in February 1993 which provides for a
settlement and mutual release of all potential claims between the parties and
related persons relating to any of the Company's past transactions with Western.
Under the terms of the approved agreement-in-principle, MDC would (i) pay
to the RTC approximately $3,700,000 in cash plus certain interest thereon; and
(ii) release its related potential claims against the RTC and Western. MDC had
fully reserved for this settlement as of December 31, 1992 and does not
anticipate any adverse effect on the Company's operations or financial position.
The settlement remains subject to the negotiation of formal settlement documents
acceptable to both MDC and the RTC and a court order determining that the
settlement precludes the filing of cross-claims against MDC by various third
parties.
THRIFT INDUSTRY INVESTIGATIONS.
The Company understands that investigations are being conducted by Federal
grand juries and other government agencies in various states with regard to the
failures of a number of thrifts with which MDC had business transactions during
the period of 1983 through mid-1988. The Company and its affiliates have
received and responded to subpoenas requesting documents and information in
connection with certain investigations and may in the future receive additional
inquiries or subpoenas. No indictments or charges have been brought against the
Company or any of its officials by any grand jury investigating the failure of
any savings and loan institutions. Although the Company believes there is no
basis for the imposition against the Company or its officials of criminal or
civil liability in connection therewith, were any indictment or charge to be
brought against the Company, there could be a material adverse effect upon the
Company's financial position and liquidity.
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 of the Company.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
No matters were submitted to securityholders during the first quarter of
1994.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit:
28 Form of Independent Accountants' Review Report
dated April 26, 1994.
(b) Reports on Form 8-K:
On March 28, 1994, a Form 8-K was filed for certain
Item 5 events thereunder.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 16, 1994 M.D.C. HOLDINGS, INC.
(Registrant)
By: /s/Paris G. Reece III
---------------------
Paris G. Reece III,
Vice President,
Chief Financial Officer and
Principal Accounting Officer
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<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page #
- ----------- ----------- ------
28 Form of Independent Accountants' Review Report
dated April 26, 1994. 36
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<PAGE>
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 March 31, 1994, and the
related condensed consolidated statements of income and of cash flows for the
three-month periods ended March 31, 1994 and 1993. 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, 1993, 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
10, 1994 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, 1993, is fairly stated
in all material respects in relation to the consolidated balance sheet from
which it has been derived.
/s/ Price Waterhouse
- --------------------------
PRICE WATERHOUSE
Los Angeles, California
April 26, 1994
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