SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 1-8951
M.D.C. HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 84-0622967
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
3600 South Yosemite Street, Suite 900 80237
Denver, Colorado (Zip code)
(Address of principal executive offices)
(303) 773-1100
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of October 31, 1995, 19,467,000 shares of M.D.C. Holdings, Inc.
common stock were outstanding.
<PAGE>
M.D.C. HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
INDEX
Page
No.
Part I. Financial Information:
Item 1. Condensed Consolidated Financial Statements:
Balance Sheets as of September 30, 1995
(Unaudited)and December 31, 1994........... 1
Statements of Income (Unaudited) for the
three and nine months ended
September 30, 1995 and 1994................ 3
Statements of Cash Flows (Unaudited) for
the nine months ended September 30, 1995
and 1994................................... 4
Notes to Financial Statements (Unaudited).... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 18
Part II. Other Information:
Item 1. Legal Proceedings........................... 30
Item 4. Submission of Matters to a Vote of
Shareowners................................. 31
Item 6. Exhibits and Reports on Form 8-K............ 31
(i)
<PAGE>
<TABLE>
<CAPTION>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands)
September 30, December 31,
1995 1994
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Corporate
Cash and cash equivalents.................................................... $ 9,249 $ 31,210
Property and equipment, net.................................................. 9,575 9,962
Deferred income taxes........................................................ 13,929 11,944
Deferred issue costs, net.................................................... 10,111 10,621
Other assets, net............................................................ 4,854 3,270
------------ ------------
47,718 67,007
Home Building
Cash and cash equivalents.................................................... 6,385 10,162
Home sales and other accounts receivable..................................... 14,385 12,508
Investments and marketable securities, net................................... 6,387 6,089
Inventories, net
Housing completed or under construction.................................... 277,873 280,319
Land and land under development............................................ 177,930 183,838
Prepaid expenses and other assets, net....................................... 41,744 43,975
------------ ------------
524,704 536,891
Mortgage Lending
Cash and cash equivalents.................................................... 1,041 1,607
Restricted cash.............................................................. - - 2,650
Accrued interest and other assets, net....................................... 1,647 1,447
Mortgage loans held in inventory, net........................................ 48,322 44,368
------------ ------------
51,010 50,072
Asset Management
Cash and cash equivalents.................................................... 490 585
Mortgage Collateral, net, and assets related to mortgage-backed bonds and
related liabilities....................................................... 48,677 64,574
Other loans and assets, net.................................................. 3,377 6,316
------------ ------------
52,544 71,475
Total Assets........................................................... $ 675,976 $ 725,445
============ ============
</TABLE>
See notes to condensed consolidated financial statements
-1-
<PAGE>
<TABLE>
<CAPTION>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
September 30, December 31,
1995 1994
----------- ------------
LIABILITIES (Unaudited)
<S> <C> <C>
Corporate
Accounts payable and accrued expenses........................................$ 27,082 $ 34,311
Income taxes payable......................................................... 12,930 11,166
Notes payable................................................................ 3,549 3,583
Senior Notes, net............................................................ 187,480 187,352
Subordinated notes, net...................................................... 38,220 38,217
------------ ------------
269,261 274,629
Home Building
Accounts payable and accrued expenses........................................ 82,198 75,399
Lines of credit.............................................................. 38,193 62,332
Notes payable................................................................ 12,435 33,585
------------ ------------
132,826 171,316
Mortgage Lending
Accounts payable and accrued expenses........................................ 5,626 2,450
Line of credit............................................................... 20,647 23,211
------------ ------------
26,273 25,661
Asset Management
Accounts payable and accrued expenses........................................ 800 670
Mortgage-backed bonds, net, and related liabilities, recourse solely to
limited-purpose subsidiary assets......................................... 44,740 60,874
------------ -----------
45,540 61,544
Total Liabilities...................................................... 473,900 533,150
------------ -----------
COMMITMENTS AND CONTINGENCIES.................................................. - - - -
------------ -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 25,000,000 shares authorized; none issued... - - - -
Common Stock, $.01 par value; 100,000,000 shares authorized; 22,478,000
and 21,187,000 shares issued, respectively, at September 30, 1995 and
December 31, 1994......................................................... 225 212
Additional paid-in capital................................................... 135,633 133,934
Retained earnings............................................................ 84,765 71,502
------------ -----------
220,623 205,648
Less treasury stock, at cost; 3,135,000 and 2,314,000 shares, respectively,
at September 30, 1995 and December 31, 1994............................... (18,547) (13,353)
------------ -----------
Total Stockholders' Equity............................................. 202,076 192,295
------------ ---------
Total Liabilities and Stockholders' Equity............................. $ 675,976 $ 725,445
============ ===========
</TABLE>
See notes to condensed consolidated financial statements
-2-
<PAGE>
<TABLE>
<CAPTION>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
REVENUES:
Home Building.......................................... $ 226,815 $ 208,571 $ 618,683 $ 557,406
Mortgage Lending....................................... 4,407 2,537 13,624 11,927
Asset Management....................................... 2,984 2,808 8,865 10,410
Corporate.............................................. 359 333 1,196 970
------------- ---------- ----------- ----------
Total Revenues..................................... 234,565 214,249 642,368 580,713
------------- ---------- ----------- ----------
COSTS AND EXPENSES:
Home Building.......................................... 217,493 195,624 593,287 522,820
Mortgage Lending....................................... 2,140 1,964 6,066 6,812
Asset Management....................................... 1,732 2,069 5,485 7,866
Corporate general and administrative.................... 3,185 4,160 9,794 12,059
Corporate and home building interest (Note C)........... 1,584 1,905 6,313 6,912
------------- ---------- ----------- ----------
Total Expenses..................................... 226,134 205,722 620,945 556,469
------------- ---------- ----------- ----------
Income before income taxes................................ 8,431 8,527 21,423 24,244
Provision for income taxes................................ 2,886 3,107 7,479 9,314
------------- ---------- ----------- ----------
Net Income................................................ $ 5,545 $ 5,420 $ 13,944 $ 14,930
============= ============ ============ ============
EARNINGS PER SHARE
Primary................................................ $ .28 $ .26 $ .69 $ .73
============= ============ ============ ============
Fully-diluted.......................................... $ .25 $ .24 $ .63 $ .67
============= ============ ============ ============
WEIGHTED-AVERAGE SHARES OUTSTANDING
Primary................................................. 20,052 20,499 20,161 20,435
============= ============ ============ ============
Fully-diluted........................................... 23,736 24,112 24,113 24,099
============= ============ ============ ============
DIVIDENDS PER SHARE....................................... $ .03 $ .02 $ .08 $ .04
============= ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements
-3-
<PAGE>
<TABLE>
<CAPTION>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine months
Ended September 30,
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income........................................................... $ 13,944 $ 14,930
Adjustments To Reconcile Net Income To Net Cash Provided By (Used
In) Operating Activities:
Depreciation and amortization................................... 7,237 6,592
Inventory valuation adjustments................................. 2,100 - -
Deferred income taxes........................................... (1,985) (3,398)
Gains on sales of mortgage-related assets....................... (718) (295)
------------- -----------
Net Cash Provided By Operating Activities Before Changes in
Operating Assets and
Liabilities....................................................... 20,578 17,829
Net Changes In Operating Assets and Liabilities
Mortgage loans held in inventory................................ (3,954) 30,668
Home building inventories....................................... 9,056 (93,807)
Home sales and other accounts receivable........................ (1,877) (10,427)
Prepaid expenses and other assets............................... (7,648) 613
Accounts payable and accrued expenses........................... 6,522 4,553
Other, net...................................................... (170) 2,623
------------- ----------
Net Cash Provided By (Used In) Operating Activities.................. 22,507 (47,948)
------------- ----------
INVESTING ACTIVITIES:
Mortgage Collateral and other loans
Principal payments and prepayments.............................. 8,415 32,324
Sales........................................................... 8,630 19,526
Changes in restricted cash, net...................................... 2,650 12,365
Changes in investments and marketable securities, net................ (298) (10,073)
Distributions of capital from equity CMO interests................... 3,662 2,705
Redemption of metropolitan district bonds............................ - - 16,395
Other, net........................................................... 1,611 (744)
------------- ----------
Net Cash Provided By Investing Activities............................ 24,670 72,498
------------- ----------
</TABLE>
See notes to condensed consolidated financial statements
-4-
<PAGE>
<TABLE>
<CAPTION>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine months
Ended September 30,
1995 1994
<S> <C> <C>
FINANCING ACTIVITIES:
Mortgage-backed bonds - principal payments.......................... $ (16,310) $ (57,494)
Lines of credit
Advances........................................................ 534,484 448,337
Principal payments.............................................. (561,187) (405,876)
Notes payable
Borrowings...................................................... 1,075 13,561
Principal payments.............................................. (24,695) (37,659)
Dividend payments................................................... (1,568) (760)
Treasury stock purchases............................................ (5,321) - -
Other, net.......................................................... (54) 147
-------------- -----------
Net Cash Used In Financing Activities............................... (73,576) (39,744)
------------- -----------
Net Decrease In Cash and Cash Equivalents........................... (26,399) (15,194)
Cash and Cash Equivalents
Beginning Of Period............................................. 43,564 63,003
------------- -----------
End Of Period................................................... $ 17,165 $ 47,809
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest, net of amounts capitalized........................... $ 2,486 $ 6,020
Income taxes................................................... 7,130 20,326
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Home building inventory purchases financed by seller............... $ 3,705 $ 3,759
Home building land inventory sales financed by MDC................. 508 1,219
Disposition of land inventories collateralized by notes payable
Inventories.................................................... 1,270 2,864
Notes payable.................................................. 1,270 2,176
Accrued interest and other liabilities......................... - - 688
See notes to condensed consolidated financial statements
-5-
</TABLE>
<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 subsidiaries) have been prepared by MDC, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. These statements reflect all adjustments (including all normal
recurring accruals) which, in the opinion of management, are necessary to
present fairly the financial position, results of operations and cash flows of
MDC as of September 30, 1995 and for all of the periods presented. These
statements are condensed and do not include all of the information required by
generally accepted accounting principles in a full set of financial statements.
These statements should be read in conjunction with MDC's financial statements
and notes thereto included in MDC's Annual Report on Form 10-K for its fiscal
year ended December 31, 1994.
Price Waterhouse LLP has performed a review, and not an audit, of the
unaudited condensed consolidated financial statements of the Company for the
three-month and nine-month periods ended September 30, 1995 and 1994 (based on
procedures adopted by the American Institute of Certified Public Accountants) as
set forth in their separate report dated October 24, 1995, which is included as
an exhibit to this Form 10-Q. This report is not a "report" within the meaning
of Sections 7 and 11 of the Securities Act of 1933, and the independent
accountant's liability under Section 11 of such act does not extend to it.
Certain reclassifications have been made in the 1994 financial
statements to conform to the classifications used in the current year.
B. Information on Business Segments
The Company operates in three business segments: home building, mortgage
lending and asset management. A summary of the Company's segment information is
shown below (in thousands).
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Home Building
Home sales................................... $ 220,770 $ 207,098 $ 608,690 $ 548,711
Land sales................................... 4,954 1,001 7,778 7,712
Other revenues............................... 1,091 472 2,215 983
------------- ------------ ------------ ------------
226,815 208,571 618,683 557,406
------------- ------------ ------------ ------------
Home cost of sales........................... 191,164 176,125 527,080 463,523
Land cost of sales........................... 5,034 1,263 7,445 7,418
Inventory valuation reserves................. 1,200 - - 2,100 - -
Marketing.................................... 13,108 11,373 36,735 31,300
General and administrative.................. 6,987 6,863 19,927 20,579
------------- ------------ ------------ ------------
217,493 195,624 593,287 522,820
------------- ------------ ------------ ------------
Operating Profit........................ 9,322 12,947 25,396 34,586
------------- ------------ ------------ ------------
-6-
<PAGE>
Three months ended Nine months ended
Ended September 30, Ended September 30,
1995 1994 1995 1994
Mortgage Lending
Interest revenues............................ $ 869 $ 725 $ 2,539 $ 2,185
Origination fees............................. 1,501 1,110 3,831 3,491
Gains on sale of mortgage servicing.......... 2,001 398 6,643 5,166
Losses on sale of mortgage loans, net........ (405) (166) (845) (347)
Mortgage servicing and other................. 441 470 1,456 1,432
------------- ------------ ------------ ------------
4,407 2,537 13,624 11,927
------------- ------------ ------------ ------------
Interest expense............................. 52 - - 127 248
General and administrative................... 2,088 1,964 5,939 6,564
------------- ------------ ------------ ------------
2,140 1,964 6,066 6,812
------------- ------------ ------------ ------------
Operating Profit......................... 2,267 573 7,558 5,115
------------- ------------ ------------ ------------
Asset Management
Interest revenues............................ 1,157 1,717 3,984 6,495
Gains (losses) on sales of mortgage-related
assets..................................... 448 (63) 718 295
Management fees and other.................... 1,379 1,154 4,163 3,620
------------- ------------ ------------ ------------
2,984 2,808 8,865 10,410
------------- ------------ ------------ ------------
Interest expense............................. 1,094 1,606 3,686 6,120
General and administrative................... 638 463 1,799 1,746
------------- ------------ ------------ ------------
1,732 2,069 5,485 7,866
------------- ------------ ------------ ------------
Operating Profit......................... 1,252 739 3,380 2,544
------------- ------------ ------------ ------------
Total Operating Profit...................... 12,841 14,259 36,334 42,245
------------- ------------ ------------ ------------
Corporate
Other revenues............................... 359 333 1,196 970
------------- ------------ ------------ ------------
Interest expense............................. 1,584 1,905 6,313 6,912
General and administrative................... 3,185 4,160 9,794 12,059
------------- ------------ ------------ ------------
4,769 6,065 16,107 18,971
------------- ------------ ------------ ------------
Net Corporate Expenses .................. (4,410) (5,732) (14,911) (18,001)
------------- ------------ ------------ ------------
Income Before Income Taxes....................... $ 8,431 $ 8,527 $ 21,423 $ 24,244
============= ============ ============ ============
</TABLE>
-7-
<PAGE>
C.Corporate and Home Building Interest Activity
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Interest capitalized in home building inventory,
beginning of period.............................. $ 41,559 $ 42,522 $ 42,478 $ 42,681
Corporate and home building interest incurred....... 8,337 9,114 25,809 26,361
Corporate and home building interest expensed....... (1,584) (1,905) (6,313) (6,912)
Previously capitalized home building interest
included in cost of sales........................ (7,426) (6,918) (21,088) (19,317)
----------- ----------- ------------ -----------
Interest capitalized in home building inventory,
end of period.................................... $ 40,886 $ 42,813 $ 40,886 $ 42,813
=========== =========== =========== ===========
Home building inventories, end of period............ $ 455,803 $ 484,787 $ 455,803 $ 484,787
=========== =========== =========== ===========
</TABLE>
D. Earnings Per Share
Primary earnings per share are based on the weighted-average number of
common and common equivalent shares outstanding during each period. The
computation of fully-diluted earnings per share also assumes the conversion into
MDC Common Stock of all of the $28,000,000 outstanding principal amount of the 8
3/4% convertible subordinated notes due December 2005 (the "Convertible Notes")
at a conversion price of $7.75 per share of MDC Common Stock. The primary and
fully-diluted earnings per share calculations are shown below (in thousands,
except per share amounts).
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Primary Earnings Per Share Calculation:
Net Income................................................... $ 5,545 $ 5,420 $ 13,944 $ 14,930
========== ========= ========== =========
Weighted-average shares outstanding.......................... 19,310 19,044 19,345 18,938
Dilutive stock options....................................... 742 1,455 816 1,497
---------- --------- ---------- ---------
Total Weighted-Average Shares.......................... 20,052 20,499 20,161 20,435
========== ========= ========== =========
Primary Earnings Per Share................................... $ .28 $ .26 $ .69 $ .73
========== ========= ========== =========
Fully-Diluted Earnings Per Share Calculation:
Net Income................................................... $ 5,545 $ 5,420 $ 13,944 $ 14,930
Adjustment for interest on Convertible Notes, net of income
tax benefit; conversion assumed........................... 391 384 1,173 1,152
---------- --------- ---------- ----------
Adjusted Net Income.................................... $ 5,936 $ 5,804 $ 15,117 $ 16,082
========== ========= ========== =========
Weighted-average shares outstanding.......................... 19,310 19,044 19,345 18,938
Dilutive stock options....................................... 813 1,455 1,155 1,548
Shares issuable upon conversion of Convertible Notes;
conversion assumed........................................ 3,613 3,613 3,613 3,613
----- ----- ----- -----
Total Weighted-Average Shares.......................... 23,736 24,112 24,113 24,099
========== ========= ========== =========
Fully-Diluted Earnings Per Share............................. $ .25 $ .24 $ .63 $ .67
========== ========= ========== =========
</TABLE>
-8-
<PAGE>
E.Stockholders' Equity
During the second and third quarters of 1995, the Company repurchased
843,600 shares of MDC Common Stock at prices ranging from $5.88 to $6.38 ($6.31
average, including commissions) pursuant to a program authorized by the MDC
Board of Directors to repurchase up to one million shares of MDC Common Stock
and up to 1% of the principal amount of each of its outstanding Senior Notes and
Convertible Notes.
During the second and third quarters of 1995, certain eligible
executives of the Company exercised options to purchase 769,000 shares of MDC
Common Stock. Pursuant to the terms of the Executive Option Purchase Program
(the "Program"), which was authorized by the MDC Board of Directors, the Company
is authorized to lend eligible executives of the Company up to two-thirds of the
aggregate exercise price and state and federal taxes payable in connection with
their exercise of stock purchase options, subject to certain maximum amounts as
set forth under the Program. Notes receivable under the Program, which totalled
$1,332,000 at September 30, 1995, are recourse and secured by the shares of MDC
Common Stock issued in connection with options exercised. The $1,332,000 in
notes are deducted from stockholders' equity.
F. Supplemental Guarantor Information
The Senior Notes are guaranteed unconditionally on an unsecured
subordinated basis, jointly and severally (the "Guaranties"), by Richmond
American Homes of California, Inc., Richmond American Homes of Maryland, Inc.,
Richmond American Homes of Nevada, Inc., Richmond American Homes of Virginia,
Inc., Richmond American Homes, Inc., Richmond Homes, Inc. I and Richmond Homes,
Inc. II (collectively, the "Guarantors"). The Guaranties are subordinated to all
Guarantor Senior Indebtedness (as defined in the Senior Notes Indenture).
Supplemental combining financial information follows.
-9-
<PAGE>
<TABLE>
<CAPTION>
Supplemental Combining Balance Sheet
September 30, 1995
(In thousands)
Unconsolidated
--------------------------------------
Non-
ASSETS Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
<S> <C> <C> <C> <C> <C>
Corporate
Cash and cash equivalents................ $ 9,249 $ - - $ - - $ - - $ 9,249
Investments in subsidiaries.............. 298,364 - - 17,434 (315,798) - -
Advances and notes receivable - Parent
and subsidiaries...................... 218,038 13 114,688 (332,739) - -
Property and equipment, net.............. 9,575 - - - - - - 9,575
Deferred income taxes.................... 13,929 - - - - - - 13,929
Deferred issue costs, net................ 10,111 - - - - - - 10,111
Other assets, net........................ 4,714 - - 140 - - 4,854
----------- ------------ ------------ ----------- ------------
563,980 13 132,262 (648,537) 47,718
----------- ------------ ------------ ----------- ------------
Home Building
Cash and cash equivalents................ 5 6,293 87 - - 6,385
Home sales and other accounts receivable - - 28,510 - - (14,125) 14,385
Investments and marketable securities,
net................................... 6,387 - - - - - - 6,387
Inventories, net
Housing completed or under construction - - 277,873 - - - - 277,873
Land and land under development........ - - 150,928 27,857 (855) 177,930
Prepaid expenses and other assets, net... 3,801 37,567 376 - - 41,744
----------- ------------ ------------ ----------- ------------
10,193 501,171 28,320 (14,980) 524,704
----------- ------------ ------------ ----------- ------------
Mortgage Lending
Cash and cash equivalents................ - - - - 1,041 - - 1,041
Accrued interest and other assets, net... - - - - 1,647 - - 1,647
Mortgage loans held in inventory, net.... - - - - 48,322 - - 48,322
----------- ------------ ------------ ----------- ------------
- - - - 51,010 - - 51,010
----------- ------------ ------------ ----------- ------------
Asset Management
Cash and cash equivalents................ - - - - 490 - - 490
Mortgage Collateral, net, and assets
related to mortgage-backed bonds and
related liabilities................... - - - - 48,677 - - 48,677
Other loans and assets, net.............. - - - - 3,377 - - 3,377
----------- ------------ ------------ ----------- ------------
- - - - 52,544 - - 52,544
----------- ------------ ------------ ----------- ------------
Total Assets....................... $ 574,173 $ 501,184 $ 264,136 $ (663,517) $ 675,976
============ ============ ============ ============ ===========
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
Supplemental Combining Balance Sheet
September 30, 1995
(In thousands)
(continued)
Unconsolidated
------------------------------------
Non-
LIABILITIES Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
<S> <C> <C> <C> <C> <C>
Corporate
Accounts payable and accrued expenses.... $ 26,797 $ - - $ 285 $ - - $ 27,082
Advances and notes payable - Parent and
subsidiaries.......................... 96,858 217,511 20,554 (334,923) - -
Income taxes payable..................... 12,930 - - - - - - 12,930
Notes payable............................ 3,549 - - - - - - 3,549
Senior Notes, net........................ 187,480 - - - - - - 187,480
Subordinated notes, net.................. 38,220 - - - - - - 38,220
----------- ------------ ------------ ----------- ------------
365,834 217,511 20,839 (334,923) 269,261
----------- ------------ ------------ ----------- ------------
Home Building
Accounts payable and accrued expenses.... 2,179 79,061 958 - - 82,198
Lines of credit.......................... - - 38,193 - - - - 38,193
Notes payable............................ 4,084 4,453 3,898 - - 12,435
----------- ------------ ------------ ----------- ------------
6,263 121,707 4,856 - - 132,826
----------- ------------ ------------ ----------- ------------
Mortgage Lending
Accounts payable and accrued expenses.... - - - - 19,777 (14,151) 5,626
Line of credit........................... - - - - 20,647 - - 20,647
----------- ------------ ------------ ----------- ------------
- - - - 40,424 (14,151) 26,273
----------- ------------ ------------ ----------- ------------
Asset Management
Accounts payable and accrued expenses.... - - - - 800 - - 800
Mortgage-backed bonds, net, and
related liabilities, recourse solely
to limited-purpose subsidiary assets.. - - - - 44,740 - - 44,740
----------- ------------ ------------ ----------- ------------
- - - - 45,540 - - 45,540
----------- ------------ ------------ ----------- ------------
Total Liabilities.................. 372,097 339,218 111,659 (349,074) 473,900
----------- ------------ ------------ ----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock.......................... - - - - 10 (10) - -
Common Stock............................. 225 18 82 (100) 225
Additional paid-in capital............... 135,633 144,756 224,914 (369,670) 135,633
Retained earnings........................ 84,765 17,192 (72,520) 55,328 84,765
Less treasury stock...................... (18,547) - - (9) 9 (18,547)
----------- ------------ ------------ ----------- ------------
Total Stockholders' Equity......... 202,076 161,966 152,477 (314,443) 202,076
----------- ------------ ------------ ----------- ------------
Total Liabilities and
Stockholders' Equity............ $ 574,173 $ 501,184 $ 264,136 $ (663,517) $ 675,976
=========== =========== =========== ============ ===========
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
Supplemental Combining Balance Sheet
December 31, 1994
(In thousands)
Unconsolidated
-------------------------------------
Non-
ASSETS Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
<S> <C> <C> <C> <C> <C>
Corporate
Cash and cash equivalents............... $ 31,210 $ - - $ - - $ - - $ 31,210
Investments in subsidiaries............. 327,021 26,822 16,948 (370,791) - -
Advances and notes receivable - Parent
and subsidiaries..................... 145,900 - - 106,486 (252,386) - -
Property and equipment, net............. 9,962 - - - - - - 9,962
Deferred income taxes................... 11,944 - - - - - - 11,944
Deferred issue costs, net............... 10,621 - - - - - - 10,621
Other assets, net....................... 3,017 - - 253 - - 3,270
----------- ------------ ------------ ----------- ------------
539,675 26,822 123,687 (623,177) 67,007
----------- ------------ ------------ ----------- ------------
Home Building
Cash and cash equivalents............... - - 9,656 506 - - 10,162
Home sales and other accounts
receivable........................... 243 23,572 - - (11,307) 12,508
Investments and marketable securities,
net.................................. 6,089 - - - - - - 6,089
Inventories, net
Housing completed or under
construction....................... - - 258,044 22,275 - - 280,319
Land and land under development....... - - 146,655 37,813 (630) 183,838
Prepaid expenses and other assets, net.. 6,601 33,011 4,363 - - 43,975
----------- ------------ ------------ ----------- ------------
12,933 470,938 64,957 (11,937) 536,891
----------- ------------ ------------ ----------- ------------
Mortgage Lending
Cash and cash equivalents............... - - - - 1,607 - - 1,607
Restricted cash......................... - - - - 2,650 - - 2,650
Accrued interest and other assets, net.. - - - - 1,447 - - 1,447
Mortgage loans held in inventory, net... - - - - 44,368 - - 44,368
----------- ------------ ------------ ----------- ------------
- - - - 50,072 - - 50,072
----------- ------------ ------------ ----------- ------------
Asset Management
Cash and cash equivalents............... - - - - 585 - - 585
Mortgage Collateral, net, and assets
related to mortgage-backed bonds and
related liabilities.................. - - - - 64,574 - - 64,574
Other loans and assets, net............. - - - - 6,316 - - 6,316
----------- ------------ ------------ ----------- ------------
- - - - 71,475 - - 71,475
----------- ------------ ------------ ----------- ------------
Total Assets...................... $ 552,608 $ 497,760 $ 310,191 $ (635,114) $ 725,445
=========== =========== =========== ============= ===========
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Supplemental Combining Balance Sheet
December 31, 1994
(In thousands)
(continued)
Unconsolidated
-----------------------------------
Non-
LIABILITIES Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
<S> <C> <C> <C> <C> <C>
Corporate
Accounts payable and
accrued expenses..... $ 34,192 $ - - $ 119 $ - - $ 34,311
Advances and notes payable - Parent and
subsidiaries........................... 78,665 174,880 7,385 (260,930) - -
Income taxes payable...................... 11,166 - - - - - - 11,166
Notes payable............................. 3,583 - - - - - - 3,583
Senior Notes, net......................... 187,352 - - - - - - 187,352
Subordinated notes, net................... 38,217 - - - - - - 38,217
----------- ------------ ------------ ----------- ------------
353,175 174,880 7,504 (260,930) 274,629
----------- ------------ ------------ ----------- ------------
Home Building
Accounts payable and accrued expenses..... 2,562 64,389 8,448 - - 75,399
Lines of credit........................... - - 62,332 - - - - 62,332
Notes payable............................. 4,576 18,857 10,152 - - 33,585
----------- ------------ ------------ ----------- ------------
7,138 145,578 18,600 - - 171,316
----------- ------------ ------------ ----------- ------------
Mortgage Lending
Accounts payable and accrued expenses..... - - - - 13,757 (11,307) 2,450
Line of credit............................ - - - - 23,211 - - 23,211
----------- ------------ ------------ ----------- ------------
- - - - 36,968 (11,307) 25,661
----------- ------------ ------------ ----------- ------------
Asset Management
Accounts payable and accrued expenses..... - - - - 670 - - 670
Mortgage-backed bonds, net, and related
liabilities, recourse solely to
limited-purpose subsidiary assets...... - - - - 60,874 - - 60,874
----------- ------------ ------------ ----------- ------------
- - - - 61,544 - - 61,544
----------- ------------ ------------ ----------- ------------
Total Liabilities................... 360,313 320,458 124,616 (272,237) 533,150
----------- ------------ ------------ ----------- ------------
STOCKHOLDERS' EQUITY
Preferred stock........................... - - - - 10 (10) - -
Common Stock.............................. 212 18 121 (139) 212
Additional paid-in capital................ 133,934 144,756 234,578 (379,334) 133,934
Retained earnings......................... 71,502 32,528 (49,125) 16,597 71,502
Less treasury stock....................... (13,353) - - (9) 9 (13,353)
----------- ------------ ------------ ----------- ------------
Total Stockholders' Equity.......... 192,295 177,302 185,575 (362,877) 192,295
----------- ------------ ------------ ----------- ------------
Total Liabilities and
Stockholders' Equity............. $ 552,608 $ 497,760 $ 310,191 $ (635,114) $ 725,445
=========== =========== =========== ============ ===========
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
Supplemental Combining Statements of Income
(In thousands)
Unconsolidated
------------------------------------
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 1995
REVENUES:
Home Building............................. $ 88 $ 226,688 $ 39 $ - - $ 226,815
Mortgage Lending.......................... - - - - 4,407 - - 4,407
Asset Management.......................... - - - - 2,984 - - 2,984
Corporate................................. 359 - - - - - - 359
Equity in earnings of subsidiaries........ 7,629 - - - - (7,629) - -
----------- ------------ ------------ ----------- ------------
Total Revenues...................... 8,076 226,688 7,430 (7,629) 234,565
----------- ------------ ------------ ----------- ------------
COSTS AND EXPENSES:
Home Building............................. 88 217,111 294 - - 217,493
Mortgage Lending.......................... - - - - 2,140 - - 2,140
Asset Management.......................... - - - - 1,732 - - 1,732
Corporate general and
administrative.......................... 3,172 - - 13 - - 3,185
Corporate and home building interest...... (3,615) 4,852 347 - - 1,584
----------- ------------ ------------ ----------- ------------
Total Expenses...................... (355) 221,963 4,526 - - 226,134
----------- ------------ ------------ ----------- ------------
Income before income taxes.................. 8,431 4,725 2,904 (7,629) 8,431
Provision for income taxes.................. 2,886 1,796 842 (2,638) 2,886
----------- ------------ ------------ ----------- ------------
NET INCOME.................................. $ 5,545 $ 2,929 $ 2,062 $ (4,991) $ 5,545
============ ============ ============ ============ ===========
THREE MONTHS ENDED SEPTEMBER 30, 1994
REVENUES:
Home Building............................. $ 78 $ 191,122 $ 18,027 $ (656) $ 208,571
Mortgage Lending.......................... - - - - 2,537 - - 2,537
Asset Management.......................... - - - - 3,094 (286) 2,808
Corporate................................. 330 - - 3 - - 333
Equity in earnings of subsidiaries........ 9,925 1,978 - - (11,903) - -
----------- ------------ ------------ ----------- ------------
Total Revenues...................... 10,333 193,100 23,661 (12,845) 214,249
----------- ------------ ------------ ----------- ------------
COSTS AND EXPENSES:
Home Building............................. 344 179,417 15,943 (80) 195,624
Mortgage Lending.......................... - - - - 1,964 - - 1,964
Asset Management.......................... - - - - 2,069 - - 2,069
Corporate general and administrative...... 3,977 - - 183 - - 4,160
Corporate and home building interest...... (2,515) 4,278 894 (752) 1,905
----------- ------------ ------------ ----------- -----------
Total Expenses...................... 1,806 183,695 21,053 (832) 205,722
----------- ------------ ------------ ----------- -----------
Income before income taxes.................. 8,527 9,405 2,608 (12,013) 8,527
Provision for income taxes.................. 3,107 3,664 800 (4,464) 3,107
----------- ------------ ------------ ----------- ------------
NET INCOME.................................. $ 5,420 $ 5,741 $ 1,808 $ (7,549) $ 5,420
============ ============ =========== ============ ============
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Supplemental Combining Statements of Income
(In thousands)
Unconsolidated
-----------------------------------
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
<S> <C> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1995
REVENUES:
Home Building............................ $ 299 $ 618,221 $ 163 $ - - $ 618,683
Mortgage Lending......................... - - - - 13,624 - - 13,624
Asset Management......................... - - - - 8,865 - - 8,865
Corporate................................ 1,196 - - - - - - 1,196
Equity in earnings of subsidiaries....... 19,303 - - - - (19,303) - -
----------- ------------ ------------ ----------- ------------
Total Revenues..................... 20,798 618,221 22,652 (19,303) 642,368
----------- ------------ ------------ ----------- ------------
COSTS AND EXPENSES:
Home Building............................ 586 592,085 616 - - 593,287
Mortgage Lending......................... - - - - 6,066 - - 6,066
Asset Management......................... - - - - 5,485 - - 5,485
Corporate general and administrative..... 9,740 - - 54 - - 9,794
Corporate and home building interest..... (10,951) 15,500 1,764 - - 6,313
----------- ------------ ------------ ----------- ------------
Total Expenses..................... (625) 607,585 13,985 - - 620,945
----------- ------------ ------------ ----------- ------------
Income before income taxes................. 21,423 10,636 8,667 (19,303) 21,423
Provision for income taxes................. 7,479 4,042 2,821 (6,863) 7,479
----------- ------------ ------------ ----------- ------------
NET INCOME................................. $ 13,944 $ 6,594 $ 5,846 $ (12,440) $ 13,944
============ ============ ============ ============ ============
NINE MONTHS ENDED SEPTEMBER 30, 1994
REVENUES:
Home Building............................ $ 78 $ 516,389 $ 43,119 $ (2,180) $ 557,406
Mortgage Lending......................... - - - - 11,927 - - 11,927
Asset Management......................... - - - - 11,261 (851) 10,410
Corporate................................ 930 - - 40 - - 970
Equity in earnings of subsidiaries....... 29,697 4,490 - - (34,187) - -
----------- ------------ ------------ ----------- ------------
Total Revenues..................... 30,705 520,879 66,347 (37,218) 580,713
----------- ------------ ------------ ----------- ------------
COSTS AND EXPENSES:
Home Building............................ 1,075 484,206 38,128 (589) 522,820
Mortgage Lending......................... - - - - 6,812 - - 6,812
Asset Management......................... 11,825 - - 234 - - 12,059
Corporate and home building interest..... (6,439) 12,713 2,871 (2,233) 6,912
----------- ------------ ------------ ----------- ------------
Total Expenses..................... 6,461 496,919 55,911 (2,822) 556,469
----------- ------------ ------------ ----------- ------------
Income before income taxes................. 24,244 23,960 10,436 (34,396) 24,244
Provision for income taxes................. 9,314 9,353 3,420 (12,773) 9,314
----------- ------------ ------------ ----------- ------------
NET INCOME................................. $ 14,930 $ 14,607 $ 7,016 $ (21,623) $ 14,930
============ ============ ============ ============ ============
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Supplemental Combining Statement of Cash Flows
Nine Months Ended September 30, 1995
(In thousands)
Unconsolidated
------------------------------------
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................... $ 39,856 $ (894) $ (10,095) $ (6,360) $ 22,507
----------- ------------ ------------ ----------- ------------
INVESTING ACTIVITIES:
Mortgage Collateral
Principal payments and prepayments...... - - - - 8,415 - - 8,415
Sales................................... - - - - 8,630 - - 8,630
Changes in restricted cash, net............. - - - - 2,650 - - 2,650
Changes in investments and marketable
securities, net.......................... (298) - - - - - - (298)
Distributions of capital from equity CMO
interests................................ - - - - 3,662 - - 3,662
Affiliate advances and notes receivable..... (72,138) (13) (8,202) 80,353 - -
Other, net.................................. (592) 1,241 962 - - 1,611
----------- ------------ ------------ ----------- ------------
Net Cash Provided By (Used In) Investing
Activities............................... (73,028) 1,228 16,117 80,353 24,670
----------- ------------ ------------ ----------- ------------
FINANCING ACTIVITIES:
Net increase in borrowings from Parent and
subsidiaries............................. 18,193 42,631 13,169 (73,993) - -
Mortgage-backed bonds - principal payments.. - - - - (16,310) - - (16,310)
Lines of credit
Advances................................ - - 534,484 - - - - 534,484
Principal payments...................... - - (558,623) (2,564) - - (561,187)
Notes payable
Borrowings.............................. - - 1,075 - - - - 1,075
Principal payments...................... (34) (23,264) (1,397) - - (24,695)
Dividend payments........................... (1,568) - - - - - - (1,568)
Treasury stock purchases.................... (5,321) - - - - - - (5,321)
Other, net.................................. (54) - - - - - - (54)
----------- ------------ ------------ ----------- ------------
Net Cash Provided By (Used In) Financing
Activities............................... 11,216 (3,697) (7,102) (73,993) (73,576)
----------- ------------ ------------ ----------- ------------
Net Decrease In Cash And Cash Equivalents... (21,956) (3,363) (1,080) - - (26,399)
Cash And Cash Equivalents
Beginning Of Period....................... 31,210 9,656 2,698 - - 43,564
----------- ------------ ------------ ----------- ------------
End Of Period............................. $ 9,254 $ 6,293 $ 1,618 $ - - $ 17,165
============ ============ ============ ============ ============
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
Supplemental Combining Statement of Cash Flows
Nine Months Ended September 30, 1994
(In thousands)
Unconsolidated
---------------------------------------
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................... $ (13,313) $ (58,124) $ 10,749 $ 12,740 $ (47,948)
----------- ------------ ------------ ----------- ------------
INVESTING ACTIVITIES:
Mortgage Collateral
Principal payments and prepayments...... - - 1,093 31,231 - - 32,324
Sales................................... - - - - 19,526 - - 19,526
Changes in restricted cash, net............. - - - - 12,365 - - 12,365
Changes in investments and marketable
securities, net.......................... (10,073) - - - - - - (10,073)
Distribution of capital from Equity
CMO Interests............................ - - - - 2,705 - - 2,705
Redemption of metropolitan district bonds... 14,000 2,395 - - 16,395
Affiliate advances and notes receivable..... 13,282 - - 4,053 (17,335) - -
Other, net.................................. (189) (309) (246) - - (744)
----------- ------------ ------------ ----------- ------------
Net Cash Provided By Investing
Activities............................... 17,020 3,179 69,634 (17,335) 72,498
----------- ------------ ------------ ----------- ------------
FINANCING ACTIVITIES:
Net increase (reduction) in borrowings from
Parent and subsidiaries.................. (11,146) 35,839 (11,923) (12,770) - -
Mortgage-backed bonds - principal payments.. - - - - (57,494) - - (57,494)
Lines of credit
Advances................................ - - 448,337 - - - - 448,337
Principal payments...................... - - (401,375) (4,501) - - (405,876)
Notes payable - -
Borrowings.............................. - - 13,561 - - - - 13,561
Principal payments...................... (4,176) (32,126) (1,357) - - (37,659)
Affiliate notes payable..................... - - (17,335) - - 17,335 - -
Dividend Payments........................... (790) - - - - 30 (760)
Other, net.................................. 147 - - - - - - 147
----------- ------------ ------------ ----------- ------------
Net Cash Provided By (Used In) Financing
Activities............................... (15,965) 46,901 (75,275) 4,595 (39,744)
----------- ------------ ------------ ----------- ------------
Net Increase (Decrease) In Cash And Cash
Equivalents.............................. (12,258) (8,044) 5,108 - - (15,194)
Cash And Cash Equivalents
Beginning Of Period....................... 42,443 17,792 2,768 - - 63,003
----------- ------------ ------------ ----------- ------------
End Of Period............................. $ 30,185 $ 9,748 $ 7,876 $ - - $ 47,809
============ ============ ============ ============ ============
</TABLE>
-17-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
INTRODUCTION
MDC is engaged in the construction and sale of residential housing
(collectively, the "home building segment") in (i) metropolitan Denver and
Colorado Springs, Colorado (collectively, "Colorado"); (ii) northern Virginia
and suburban Maryland (collectively, "Mid-Atlantic"); (iii) Northern and
Southern California (collectively, "California"); (iv) Phoenix and Tucson,
Arizona (collectively, "Arizona"); and (v) Las Vegas, Nevada ("Nevada").
HomeAmerican Mortgage Corporation, M.D.C. Holdings, Inc.'s wholly owned
subsidiary ("HomeAmerican"), provides mortgage loans primarily to the Company's
home buyers and, to a lesser extent, to others (collectively, the "mortgage
lending segment"). In its asset management operations (collectively, the "asset
management segment"), Financial Asset Management Corporation (an indirect,
wholly owned subsidiary of M.D.C. Holdings, Inc.; "FAMC") manages, by contract,
the operations of two publicly traded real estate investment trusts (each, a
"REIT").
RESULTS OF OPERATIONS
The table below summarizes MDC's results of operations during each of the
periods presented (in thousands, except per share amounts).
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues.......................................... $ 234,565 $ 214,249 $ 642,368 $ 580,713
Income before income taxes........................ 8,431 8,527 21,423 24,244
Operating and net income.......................... 5,545 5,420 13,944 14,930
Earnings Per Share:
Primary...................................... .28 .26 .69 .73
Fully-Diluted................................ .25 .24 .63 .67
</TABLE>
Revenues for the three and nine months ended September 30, 1995
increased 9% and 11%, respectively, compared with revenues during the same
periods in 1994 primarily due to a substantial increase in homes closed. The
Company closed 1,235 and 3,364 homes, respectively, during the three and nine
months ended September 30, 1995, representing 12% and 15% increases,
respectively, over the 1,101 and 2,933 homes closed, respectively, in the same
periods in 1994.
Income before income taxes was lower for the three and nine months
ended September 30, 1995 compared with the same periods in 1994 primarily as a
result of lower home building segment operating profits, partially offset by
higher mortgage lending and asset management segment operating profits and lower
corporate general and administrative expenses. The reduction in home building
operating profits primarily resulted from 11% and 14% declines, respectively, in
Home Gross Margins (as hereinafter defined). The decline in Home Gross Margins
largely is due to increased incentives offered to home buyers in order to
counter weakening demand due to higher mortgage interest rates, particularly
during the second half of 1994 and the first quarter of 1995, and increased
competition in MDC's home building markets.
-18-
<PAGE>
Impact of Home Mortgage Interest Rates.
In October 1993, home mortgage interest rates reached their lowest
levels in 25 years, dropping to an average of 6.7% on a 30-year, fixed-rate
mortgage. From October 1993 to December 1994, home mortgage interest rates
increased to as high as 9.25%. During this period of rising interest rates, the
Company experienced a general weakening in demand for new homes in most of its
markets. Weakened demand, along with a general buildup in unsold homes under
construction by the Company and other home builders, gradually began to
adversely affect the Company's home sales and Home Gross Margins. Since December
1994, home mortgage interest rates have generally declined to approximately 7.5%
in October 1995. The decline, among other things, has led to improved home sales
levels compared with the same periods in 1994. However, Home Gross Margins have
not recovered as quickly, as the Company and other home builders in the
Company's markets have continued to offer increased incentives to sell homes,
especially unsold homes under construction.
Home Building Segment.
The table below sets forth certain information with respect to the
Company's homes sold, closed and delivered during each of the periods presented
as well as units sold under a contract but not delivered ("Backlog") at each
date shown (dollars in thousands).
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Home sales revenues................................ $ 220,770 $ 207,098 $ 608,690 $ 548,711
Operating profits.................................. 9,322 12,947 25,396 34,586
Average selling price per housing unit............. 178.8 188.1 180.9 187.1
Home Gross Margins................................. 13.4% 15.0% 13.4% 15.5%
Homes - units
Sales contracted, net
Colorado................................... 483 340 1,562 1,531
Mid-Atlantic............................... 205 211 852 897
California................................. 231 144 609 454
Arizona.................................... 231 207 606 494
Nevada..................................... 15 25 50 87
------------ ------------ ---------- ----------
Total................................. 1,165 927 3,679 3,463
============ ============ ========== ==========
Closed and delivered
Colorado................................... 493 510 1,453 1,375
Mid-Atlantic............................... 288 251 734 757
California................................. 232 156 528 390
Arizona.................................... 201 146 586 334
Nevada..................................... 21 38 63 77
------------ ------------ ---------- ----------
Total................................. 1,235 1,101 3,364 2,933
============ ============ ========== ==========
-19-
<PAGE>
September 30, December 31, September 30,
1995 1994 1994
Backlog
Colorado.................................... 719 610 816
Mid-Atlantic................................ 455 337 565
California.................................. 237 101 162
Arizona..................................... 277 257 307
Nevada...................................... 16 29 37
------------ ------------ ----------
Total................................... 1,704 1,334 1,887
============ ============ ==========
Estimated sales value....................... $ 305,200 $ 241,900 $ 355,835
============ ============ ==========
</TABLE>
Home Sales Revenues, Home Sales and Homes Closed and Delivered. Home
sales revenue increases in 1995 compared with 1994 primarily are the result of
increases in home closings, partially offset by an overall decrease in the
average selling price per home closed, as discussed below. Home sales and
closings increased in 1995 in (i) Arizona primarily due to a significant
expansion of the Company's operations in Phoenix, where the Company has
increased the number of active subdivisions to 22 at September 30, 1995 from 16
at September 30, 1994; (ii) California primarily due to the Company's
acquisition and opening of several new subdivisions in Southern California after
September 30, 1994 and the July 1995 acquisition of five active subdivisions in
Paloma del Sol, a master-planned community in the city of Temecula, Riverside
County; and (iii) Colorado due to, among other things, efforts to reduce the
level of unsold homes under construction, an increase in the average number of
active subdivisions from 50 to 54 and a continuing emphasis on offering more
affordable homes.
In its Mid-Atlantic market, the Company experienced lower home sales
and closings per active subdivision in the first nine months of 1995 compared
with the same period in 1994. This lower home sales level was partially offset
by an increase in the number of active subdivisions to 45 at September 30, 1995
from 39 at September 30, 1994. The lower home sales and closing levels per
active subdivision were primarily the result of the Mid-Atlantic market,
overall, experiencing (i) an increase in active subdivisions due to aggressive
competition in this market; and (ii) a slight decline in total home sales.
Home sales in October 1995 increased by 36% to 337 homes, compared with
sales of 248 homes in October 1994. The Company is unable to predict if this
trend of higher comparable monthly sales in 1995 as compared with 1994, which
began in April, will continue in the future.
The Company increased the number of active subdivisions throughout
its markets to 141 at September 30, 1995 from 132 at September 30, 1994.
Backlog. MDC expects approximately 70% of its September 30, 1995
Backlog to close under existing sales contracts during the fourth quarter of
1995 and the first quarter of 1996.
Average Selling Price Per Housing Unit. The decrease in the average
selling price per housing unit in the third quarter and first nine months of
1995 compared with the same periods in 1994 is the result of management's
decision to increase the Company's emphasis on lower-priced, more affordable
homes primarily marketed to first-time and first-time move-up home buyers. This
strategic change in market mix resulted in lower average sales prices compared
with prices in 1994 (i) in the first nine
-20-
<PAGE>
months of 1995 in Colorado, Maryland and Tucson; and (ii) in the third quarter
of 1995 in Southern California as the Company began offering homes ranging in
price from $105,000 to $170,000 in the subdivisions acquired in July 1995.
Home Gross Margins. Gross margins (home sales revenues less cost of
goods sold, which primarily includes land and construction costs, capitalized
interest, a reserve for warranty expense and financing costs) as a percent of
home sales revenue (" Home Gross Margins") improved to 13.4% in the third
quarter of 1995 from 13.1% in the second quarter of 1995. However, Home Gross
Margins decreased during the third quarter and first nine months of 1995
compared with the same periods in 1994. This decline is due to (i) increased
incentives offered to home buyers in order to counter weakening demand due to
higher mortgage interest rates, particularly during the second half of 1994 and
the first quarter of 1995; (ii) increased incentives used to reduce the
Company's inventory of unsold homes under construction; and (iii) increased
competition in MDC's home building markets. The Company believes that weakened
demand, competitive market conditions and increased incentives will result in
Home Gross Margins in the fourth quarter of 1995 and first quarter of 1996 which
are comparable to those achieved in the third quarter of 1995. In addition,
increases in, among other things, the costs of subcontracted labor, finished
lots and building materials have affected adversely, and may affect adversely in
the future, Home Gross Margins to the extent that market conditions prevent the
recovery of increased costs through higher sales prices.
Marketing. Marketing expenses (which include, among other things,
amortization of deferred marketing costs, model home expenses and sales
commissions) totalled $13,108,000 and $36,735,000, respectively, for the third
quarter and first nine months of 1995, compared with $11,373,000 and
$31,300,000, respectively, for the same periods in 1994. The increases reflect
the impact of increased home sales revenues for the three and nine months ended
September 30, 1995 compared with 1994, and expanded operations in certain of the
Company's markets. Significant additional marketing-related salary, sales
commission and model home operating expenses were incurred to support the
Company's expanded operations. Additionally, the Company has increased its
marketing efforts in its markets to stimulate sales.
General and Administrative. General and administrative expenses
totalled $6,987,000 and $19,927,000, respectively, during the three and nine
months ended September 30, 1995, compared with $6,863,000 and $20,579,000,
respectively, for the same periods in 1994. General and administrative expenses
as a percentage of home sales revenues decreased to 3.2% and 3.3%, respectively,
for the third quarter and the first nine months of 1995, compared with 3.3% and
3.8%, respectively, in the comparable periods in 1994 as the Company was able to
deliver more homes in 1995 without a proportionate increase in overhead.
Unsold Homes Under Construction.
The Company maintains levels of unsold homes in various stages of
completion to assist it in meeting the immediate and near-term demands of its
home buyers.
The Company in the past has offered, and may in the future offer,
incentives to assist in selling its homes, including unsold homes under
construction. These incentives include buying down mortgage interest rates,
offering prospective home buyers options and upgrades at reduced prices and, to
a substantially lesser extent, price concessions. Incentives reduce the
Company's Home Gross Margins.
-21-
<PAGE>
During the first nine months of 1995, the Company increased
substantially the amount of incentives it offered, particularly to (i) counter
slowing sales; and (ii) reduce its inventory of unsold homes under construction
which it considered to be in excess of its near-term requirements. As a result,
the Company succeeded in reducing the number of unsold homes under construction
at September 30, 1995 by approximately 16% compared with the December 31, 1994
level. The percentage of the book value of unsold homes under construction to
the total book value of homes under construction has been reduced to 31% at
September 30, 1995 from 41% at December 31, 1994. The Company is unable to
predict the extent to which its Home Gross Margins and operating income during
the remainder of 1995 and into 1996 will be affected adversely by incentives
offered with respect to the Company's unsold homes under construction.
Land Inventory.
The table below shows (in thousands) the carrying value of MDC's land
and land under development in each of its home building markets at September 30,
1995, segregated by property acquired or optioned before 1991 ("Pre-1991") and
after 1990 ("Other"). The table also shows the carrying value of MDC's inactive
land inventory which is included in the total, most of which was acquired prior
to 1991.
<TABLE>
<CAPTION>
Total Land and Land Under Development Inactive
Pre-1991 Other Total Land
<S> <C> <C> <C> <C>
Colorado.................$ 61,421 $ 21,052 $ 82,473 $ 43,677
Mid-Atlantic............. 13,702 26,606 40,308 - -
California............... 1,328 28,263 29,591 902
Arizona.................. 5,136 15,184 20,320 1,208
Nevada................... - - 5,238 5,238 - -
------------- ------------ ------------ ------------
Totals...............$ 81,587 $ 96,343 $ 177,930 $ 45,787
============= ============ ============ ============
</TABLE>
The Company's net income, cash flow and returns on assets and
stockholders' equity are affected adversely by the carrying costs (e.g.,
interest and property taxes) associated with inactive land inventories and that
the inventories do not earn any return. These inactive land inventories, the
majority of which are in close proximity to existing active projects, comprised
approximately 26% of the carrying value of the Company's total land and land
under development at September 30, 1995, compared with approximately 27% of the
$183,838,000 carrying value at December 31, 1994 and 43% of the $192,881,000
carrying value at December 31, 1993. The decrease in inactive land inventory,
most of which occurred during 1994, is due to the commencement of development
and construction activity in certain subdivisions as well as sales or other
dispositions of inactive land.
In August 1995, the Company sold 45 acres of inactive land in its Rock
Creek Ranch development in Colorado ("Rock Creek") for approximately $4,400,000,
which was approximately equal to its book value. In accordance with the
development plans of the metropolitan districts serving Rock Creek, the
purchaser pre-paid approximately $3,400,000 of development fees to these
districts. In connection with the sale, the purchaser acquired an option from
the Company for the purchase of two adjacent parcels also served by the
districts.
Carrying costs on inactive land inventories are expensed, not
capitalized. The Company is actively pursuing opportunities to reduce, through
sales, home building activities, or other means, its inactive land inventories.
-22-
<PAGE>
Inventory Valuation Reserves.
Operating results during the three and nine months ended September 30,
1995 were impacted adversely by $1,200,000 and $2,100,000, respectively, in net
realizable value adjustments. The adjustments in the three months ended
September 30, 1995 primarily are related to certain under-performing projects in
Arizona and the Mid-Atlantic region. A $900,000 adjustment was taken in the
second quarter of 1995 primarily related to several projects in Northern
California which experienced slowed sales and reduced selling prices due to the
continued general decline in home sales activity in the Sacramento market.
Mortgage Lending Segment.
The table below summarizes the results of HomeAmerican's operations
during each of the periods presented (in thousands).
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Gains from sales of mortgage servicing:
Bulk........................................... $ 1,528 $ 162 $ 5,262 $ 4,476
Other.......................................... 473 236 1,381 690
Net interest income............................... 817 725 2,412 1,937
Origination fees.................................. 1,501 1,110 3,831 3,491
Losses on sales of mortgage loans, net............ (405) (166) (845) (347)
Mortgage servicing and other...................... 441 470 1,456 1,432
General and administrative expenses............... (2,088) (1,964) (5,939) (6,564)
------------- ------------ ------------ ------------
Operating profit................................ $ 2,267 $ 573 $ 7,558 $ 5,115
============= ============ ============ ============
Principal amount of originations and purchases:
MDC home buyers............................... $ 114,642 $ 80,905 $ 295,121 $ 232,435
Spot.......................................... 12,423 11,259 26,254 59,668
Correspondent................................. 20,031 15,063 48,909 58,960
------------- ------------ ------------ ------------
Total..................................... $ 147,096 $ 107,227 $ 370,284 $ 351,063
============= ============ ============ ============
September 30, December 31, September 30,
1995 1994 1994
Composition of Servicing Portfolio at End of Period:
FHA insured/VA guaranteed....................... $ 141,589 $ 203,991 $ 264,046
Conventional.................................... 444,072 365,072 306,860
------------- ------------- ------------
Total Servicing Portfolio........................... $ 585,661 $ 569,063 $ 570,906
============= ============= ============
Servicing Portfolio Held for Sale................... $ 442,817 $ 506,098 $ 502,783
============= ============= ============
</TABLE>
HomeAmerican's operating profits for the three and nine months ended
September 30, 1995 exceeded the operating profits for the same periods in 1994
primarily due to a higher level of mortgage loans closed and higher gains from
sales of mortgage loan servicing.
Loan Originations and Purchases. The increases in HomeAmerican's loan
originations and purchases in the third quarter and first nine months of 1995
compared with the same periods in 1994 principally are due to an increase in
MDC's home closings and an increase in the percentage of mortgage
-23-
<PAGE>
originations for MDC home buyers. The percentage of HomeAmerican mortgage
originations for MDC home buyers increased to 59.3% for the first nine months of
1995 from 53.4% for the same period in 1994, and to 62.4% from 50.2% for the
respective three month periods ended September 30, 1995 and 1994. To serve the
growing number of MDC home buyers in Southern California, HomeAmerican opened a
mortgage origination office during the third quarter of 1995. By originating a
mortgage loan for an MDC home buyer, the Company is able to recover a portion of
the cost of the incentives provided by the Company to its home buyers through
the future sale of the related mortgage servicing.
Spot and correspondent originations mainly result from refinancings.
Increased mortgage interest rates, particularly during the second half of 1994
and the first quarter of 1995, significantly decreased refinancing activity
market-wide and resulted in a decrease in the Company's spot and correspondent
originations in the first nine months of 1995 from the first nine months of
1994. During the third quarter of 1995, spot and correspondent originations and
purchases increased compared with the same period in 1994, as interest rates in
the third quarter of 1995 averaged approximately 75 basis points lower than in
the third quarter of 1994.
Mortgage Servicing. The Company sold approximately the same principal
amount of servicing in the nine months ended September 30, 1995 as in the same
period in 1994, but received approximately 25% more revenues on the sales in
1995 than in 1994 as, among other things, stronger market demand for mortgage
servicing during 1995 resulted in more favorable prices than in 1994. For the
three months ended September 30, 1995, the Company completed one bulk sale of
servicing, whereas no bulk sales of servicing were completed in the same period
in 1994. Gains from mortgage servicing sales other than "bulk" sales comprised a
larger percentage of total gains (21% for the first nine months of 1995 compared
with 13% for the same period in 1994) primarily due to increased originations
and purchases of adjustable rate mortgages, which generally are sold "servicing
released."
The Company's portfolio of servicing held for sale decreased to
$442,817,000 at September 30, 1995, compared with $502,783,000 at September 30,
1994 due primarily to the sales of servicing during 1995 exceeding mortgage
originations and purchases. The underlying value of a servicing portfolio is
generally determined based on the annual servicing fee rates applicable to the
loans comprising the portfolio, which currently are .44% for FHA insured/VA
guaranteed loans and .25% for conventional loans.
Forward Sales Commitments. HomeAmerican's operations are affected by,
among other things, changes in mortgage interest rates. HomeAmerican utilizes
forward mortgage securities contracts to manage the interest rate risk on its
fixed-rate mortgage loans owned and rate-locked mortgage loans in the pipeline.
Such contracts are the only significant financial derivative instruments
utilized by HomeAmerican.
-24-
<PAGE>
Asset Management Segment.
The following table summarizes the results of the asset management
segment's operations during each of the periods presented (in thousands).
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Management fees from REITs......................... $ 778 $ 590 $ 2,143 $ 1,955
Gains on sales of mortgage-related assets.......... 448 (63) 718 295
Other, net......................................... 26 212 519 294
------------- ------------ ------------ ------------
Operating profit................................... $ 1,252 $ 739 $ 3,380 $ 2,544
============= ============ ============ ============
</TABLE>
Gains on sales of mortgage-related assets during the third quarter and
nine months ended September 30, 1995 primarily are the result of the Company's
continuing efforts to liquidate its portfolio of mortgage-related assets as the
current low interest rates enable the Company to sell such assets at profitable
levels.
The Company currently does not anticipate making additional investments
in mortgage-related assets in the future. As a result, future income from the
asset management segment will be substantially dependent on management fees
earned from the REITs. At September 30, 1995, FAMC had approximately
$207,000,000 in assets under management.
Other Operating Results.
Interest Expense. Corporate and home building interest incurred
decreased to $8,337,000 and $25,809,000, respectively, for the three and nine
months ended September 30, 1995, compared with $9,114,000 and $26,361,000,
respectively, for the same periods in 1994. The decreases are the result
primarily of lower levels of home building-related borrowings outstanding.
During 1995, the Company reduced its operating cash balances by approximately
$25 million compared with 1994 by paying down debt.
Interest on home building inventories is capitalized during the period
of active development and through the completion of construction. During the
three and nine months ended September 30, 1995, the Company capitalized
$6,753,000 and $19,496,000, respectively, of this interest compared with
$7,209,000 and $19,449,000, respectively, for the same periods in 1994. The
decrease in interest capitalized for the third quarter of 1995 primarily is due
to decreased home building inventory levels, which more than offset higher
average interest capitalization rates resulting from higher average effective
interest rates on the Company's debt. Capitalized interest in home building
inventory decreased to $40,886,000 at September 30, 1995, compared with
$42,813,000 at September 30, 1994, as the Company continues to relieve more
previously capitalized interest through cost of sales than is being capitalized
currently.
Corporate and home building interest incurred and not capitalized is
reflected as interest expense. For a reconciliation of interest incurred,
capitalized and expensed, see Note C to the Company's Consolidated Financial
Statements.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses totalled $3,185,000 and $9,794,000, respectively, during
the three and nine months ended September 30,
-25-
<PAGE>
1995, compared with $4,160,000 and $12,059,000, respectively, for the same
periods of 1994. The decreases in 1995 primarily are due to certain
non-recurring expense recoveries of approximately $368,000 recorded in the third
quarter of 1995 and decreases in professional fees and other expenses as the
Company has continued to streamline its operations.
Income Taxes. M.D.C. Holdings, Inc. and its wholly owned subsidiaries file
a consolidated federal income tax return (an "MDC Consolidated Return").
Richmond Homes and its wholly owned subsidiaries filed a separate consolidated
federal income tax return (each a "Richmond Homes Consolidated Return") from its
inception (December 28, 1989) through February 2, 1994, the date Richmond Homes
became a wholly owned subsidiary of MDC.
MDC's overall effective income tax rate during the three and nine
months ended September 30, 1995 is 34.2% and 34.9%, respectively, compared with
36.4% and 38.4%, respectively, during 1994. The effective income tax rates
differed from the 35% federal statutory rate primarily due to, among other
things, (i) the impact of state income taxes; (ii) the realization of
non-taxable income for financial reporting purposes for which no tax liability
was recorded; and (iii) in 1994, adjustments to prior years' income taxes.
In April 1995, the Company and the Internal Revenue Service (the "IRS")
reached final agreement on the IRS examinations of the MDC Consolidated Returns
for the years 1984 and 1985. Also in April 1995, the Company and the IRS reached
final agreement on the IRS examinations of the Richmond Homes Consolidated
Returns for the years 1989 and 1990. These agreements had no material impact
upon the Company's financial position or results of operations.
The IRS has completed its examination of the MDC Consolidated Returns
for the years 1986 through 1990 and has proposed certain adjustments to the
taxable income reflected in such returns. In general, the proposed adjustments
would shift the recognition of certain items of income and expense from one year
to another ("Timing Adjustments"). To the extent taxable income in a prior year
is increased by proposed Timing Adjustments, taxable income may be reduced by a
corresponding amount in other years; however, the Company would incur an
interest charge as a result of such adjustment. The Company currently is
protesting many of these proposed adjustments through the IRS appeals process.
In the opinion of management, adequate provision has been made for the
additional income taxes and interest which may result from the proposed
adjustments.
The IRS currently is examining the MDC and Richmond Homes Consolidated
Returns for the years 1991, 1992 and 1993. No reports have been issued by the
IRS in connection with these examinations. In the opinion of management,
adequate provision has been made for additional income taxes and interest, if
any, which may result from these examinations.
-26-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
MDC uses its liquidity and capital resources to, among other things,
(i) support its operations, including its inventories of homes, home sites and
land; (ii) provide working capital; and (iii) provide mortgage loans for its
home buyers. Liquidity and capital resources are generated internally from
operations and from external sources.
Capital Resources.
The Company's capital structure is a combination of (i) permanent
financing, represented by Stockholders' Equity; (ii) long-term financing,
represented by Senior Notes and Subordinated notes due primarily in 2003 and
2005; and (iii) current financing, primarily Lines of Credit, as discussed
below. The Company believes that its current financial condition is both
balanced to fit its current operational structure and adequate to satisfy its
current and near-term capital requirements.
The Company's debt to equity ratio improved to 1.5 to 1 at September
30, 1995 from 2.0 to 1 at December 31, 1993 and 1.8 to 1 at December 31, 1994.
The significant improvement is primarily a result of the earnings of the
Company, which contributed to the increase in the Company's Stockholders' Equity
to $202,076,000 at September 30, 1995, and the reduction in debt related to
management's strategic decision to lower cash balances in the nine months ended
September 30, 1995.
Based upon its current capital resources and additional liquidity
available under existing credit relationships, MDC believes that it has adequate
financial resources to satisfy its current and near-term capital requirements.
The Company believes that it can meet its long-term capital needs (including,
among other things, meeting future debt payments and refinancing or paying off
other long-term debt as it becomes due) from operations and external financing
sources.
Lines of Credit and Notes Payable.
Home Building. MDC's home building bank line of credit facilities at
September 30, 1995 were $156,000,000 in the aggregate, a substantial increase
over the $70,000,000 of similar facilities at December 31, 1993. Agreements
governing significant portions of the present facilities were entered into
during 1994 and the first nine months of 1995, and generally provide for final
maturities from four to five years, including scheduled term-out periods
(although the term-out periods may commence earlier under certain
circumstances). Borrowings under the bank lines of credit are collateralized by
home building inventories and are limited to the value of "eligible collateral"
(as defined in the credit agreements). At September 30, 1995, $38,193,000 was
borrowed and an additional $110,122,000 was collateralized and available to be
borrowed under the bank lines of credit.
In August 1995, the Company modified and extended a $75,000,000 bank
line of credit facility. The modified agreement includes, among other things, a
lower interest margin, lower fees, an increase in funding for the Company's
expanding Arizona and California operations and a one year extension of the
final maturity to the third quarter of 1999 (although the term-out periods may
commence earlier under certain circumstances).
-27-
<PAGE>
Mortgage Lending. To provide funds to originate and purchase mortgage
loans and to finance these mortgage loans on a short-term basis, HomeAmerican
utilizes its mortgage lending bank line of credit (the "Mortgage Line"). During
the first nine months of 1995 and 1994, HomeAmerican sold $366,455,000 and
$382,327,000, respectively, principal amount of mortgage loans and mortgage
certificates.
The aggregate amount available under the Mortgage Line at September 30,
1995 was $51,000,000. Borrowings under the Mortgage Line are collateralized by
mortgage loans and mortgage-backed certificates and are limited to the value of
"eligible collateral" (as defined in the credit agreement). At September 30,
1995, $20,647,000 was borrowed and an additional $16,177,000 was collateralized
and available to be borrowed under the Mortgage Line. The Company also has
additional borrowing capability with available repurchase agreements.
General. The Company's lines of credit and notes payable require
compliance with certain covenants, representations and warranties. Currently,
the Company believes that it is in compliance with these covenants,
representations and warranties.
Consolidated Cash Flow.
Management believes the continuing improvement in the Company's strong
financial condition enables it to operate with lower operating cash balances
than it did in prior periods. During the first nine months of 1995, management
reduced MDC's operating cash balances by $26,399,000 from levels at December 31,
1994. The Company used this cash and $29,245,000 of internally generated funds
to, among other things, pay down lines of credit and notes payable by
$50,323,000 and to repurchase, for $5,321,000, 843,600 shares of MDC Common
Stock (at prices ranging from $5.88 to $6.38). The stock repurchases were made
pursuant to an announced program to repurchase up to one million shares of MDC
Common Stock and up to 1% of the principal amount of each of its outstanding
Senior Notes and Convertible Subordinated Notes.
MDC used $15,194,000 of cash in the first nine months of 1994
principally due to increases in home building inventories as a result of
significantly increased levels of home building activity, offset partially by a
reduction in mortgage loans held in inventory and net increases in debt
(primarily lines of credit) necessary to finance the substantial increases in
home building activities.
-28-
<PAGE>
ISSUANCE OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS 121"). The Company's adoption of SFAS 121 in 1996 is not anticipated to
have a material impact on the results of operations or financial position of the
Company in the year of adoption.
In May 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 122 "Accounting for Mortgage Servicing
Rights an Amendment of FASB Statement No. 65" ("SFAS 122"). The Company's
adoption of SFAS 122 in 1996 is not anticipated to have a material adverse
impact on the results of operations or financial position of the Company in the
year of adoption.
OTHER
Congressional considerations of major reform to the federal tax system
have been increasing over the past year. Proposed tax plans currently being
sponsored by various members of Congress, include variations of a consumption
tax (sales tax) and flat tax. Under the current tax system, deductions are
allowed for mortgage interest and property taxes. Tax reform may reduce or
eliminate these deductions. The likelihood of major tax reform and the impact
such reform would have on, among other things (i) the demand for, and the value
of, new as well as existing homes; and (ii) the Company's financial position or
results of operations, is not determinable.
-29-
<PAGE>
M.D.C. HOLDINGS, INC.
FORM 10-Q
PART II
ITEM 1. LEGAL PROCEEDINGS.
Settlement of Western Savings Civil Matters.
In December 1994, the Company and the Resolution Trust Corporation (the
"RTC"), acting in its corporate capacity as receiver for Western Savings and
Loan Association ("Western"), executed a final settlement agreement providing
for the mutual release of all potential claims between the parties and certain
related persons insofar as such claims relate to any of the Company's past
transactions with Western. On October 16, 1995, the United States District Court
for the District of Arizona entered an order approving the settlement and
determining that the settlement precludes the filing of cross-claims against MDC
by various third parties.
Expansive Soils Cases.
On October 21, 1994, a complaint was served on several of the Company's
subsidiaries in an action initiated by six homeowners in Highlands Ranch,
Colorado<FN1>. On January 26, 1995, counsel for the Company accepted service of
two additional complaints by a homeowner in the Stonegate subdivision in Douglas
County, Colorado<FN2> and by a homeowner in the Rock Creek development located
in Boulder County, Colorado<FN3>. On September 12, 1995, the Company was served
with a similar complaint relating to homeowners in Douglas County,
Colorado<FN4>. The complaints, each of which seek certification of a class
action, purport to allege substantially identical claims relating to the
construction of homes on lots with expansive soils, including negligence, breach
of express and implied warranties, violation of the Colorado Consumer Protection
Act, non-disclosure and a claim for exemplary damages. The homeowners in each
complaint seek, individually and on behalf of the alleged class, recovery in
unspecified amounts including actual damages, statutory damages, exemplary
damages and treble damages. The Company has filed a response to each of the
complaints and to initial discovery requests in the first filed case. The
ultimate outcome of the cases is uncertain at this time, however, management
does not believe that the outcome of these matters will have a material adverse
effect on the financial condition or results of operations of the Company.
The Company has notified its insurance carriers of these complaints and
currently is reviewing with the carriers how the Company will proceed. The
insurance carriers providing primary coverage have agreed to defend the Company
in the cases subject to reservations of rights.
<FN1>1 Colescott, et al vs. Richmond Homes Limited, et al. in the District
Court Douglas County, State of Colorado, Civil Action No. 94 CV 352, Division 2.
<FN2>2 Constantini vs. Richmond Homes Limited, et al. in the District Court,
Douglas County, State of Colorado, Civil Action No. 95 CV 1052, Division 3.
<FN3>3 Moore vs. Richmond Homes Limited et al., in the District Court, Boulder
County, State of Colorado, Civil Action No. CV 221, Division 2.
<FN4>4 Rodenburg vs. Richmond Homes et al. in the District Court, Douglas
County, State of Colorado, Civil Action No. 95 CV 298, Division 1.
-30-
<PAGE>
Other.
The Company and certain of its subsidiaries and affiliates have been
named as defendants in various other claims, complaints and legal actions
arising in the normal course of business. In the opinion of management, the
outcome of these matters will not have a material adverse effect upon the
financial condition or results of operations of the Company.
The Company is not aware of any litigation, matter or pending claim
against the Company which would result in material contingent liabilities
related to environmental hazards or asbestos.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREOWNERS.
No matters were submitted to shareowners during the third quarter of
1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit: 15 Letter regarding unaudited interim
financial information.
27 Financial Data Schedule.
28 Form of Independent Accountants'
Review Report dated October 24, 1995.
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed by the
Registrant during the period covered by this
Quarterly Report on Form 10-Q.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 9, 1995 M.D.C. HOLDINGS, INC.
(Registrant)
By: /s/ Paris G. Reece III
Paris G. Reece III,
Senior Vice President,
Chief Financial Officer and
Principal Accounting Officer
-31-
Exhibit No. 15
October 24, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
We are aware that M.D.C. Holdings, Inc. has included our report dated
October 24, 1995 (issued pursuant to the provisions of Statement on Auditing
Standards No. 71) in its Registration Statements on Forms S-8 filed on or about
March 15, 1985 and July 1, 1994, Forms S-3 filed on or about May 19, 1994,
September 21, 1994 and May 31, 1995, and Form S-4 filed on or about May 19,
1994. We are also aware of our responsibilities under the Securities Act of
1933.
Yours very truly,
/s/ Price Waterhouse LLP
Price Waterhouse LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MDC
Holdings, Inc. condensed consolidated financial statements included in its Form
10-Q for the quarterly period ended September 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 17,165
<SECURITIES> 6,387
<RECEIVABLES> 14,385
<ALLOWANCES> 0
<INVENTORY> 455,803
<CURRENT-ASSETS> 0
<PP&E> 9,575
<DEPRECIATION> 0
<TOTAL-ASSETS> 675,976
<CURRENT-LIABILITIES> 0
<BONDS> 300,524
<COMMON> 225
0
0
<OTHER-SE> 201,851
<TOTAL-LIABILITY-AND-EQUITY> 675,976
<SALES> 618,683
<TOTAL-REVENUES> 642,368
<CGS> 593,287
<TOTAL-COSTS> 11,551
<OTHER-EXPENSES> 9,794
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,313
<INCOME-PRETAX> 21,423
<INCOME-TAX> 7,479
<INCOME-CONTINUING> 13,944
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,944
<EPS-PRIMARY> .69
<EPS-DILUTED> .63
</TABLE>
Exhibit 28
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Stockholders of
M.D.C. Holdings, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of M.D.C.
Holdings, Inc. and subsidiaries (the "Company") as of September 30, 1995, and
the related condensed consolidated statements of income for the three- and
nine-month periods ended September 30, 1995 and 1994 and of cash flows for the
nine-month periods ended September 30, 1995 and 1994. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1994, and the related
consolidated statements of income, of stockholders' equity, and of cash flows
for the year then ended (not presented herein), and in our report dated February
15, 1995 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1994, is fairly stated
in all material respects in relation to the consolidated balance sheet from
which it has been derived.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Los Angeles, California
October 24, 1995
