UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the Transition period from to
Commission file number 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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 par value New York Stock Exchange
The Pacific Stock Exchange
11 1/8% Senior Notes due December 2003
8 3/4% Convertible Subordinated Notes due December 2005
6.64% Subordinated Fixed Rate Notes due April 1998
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
As of March 7, 1996, 19,273,952 shares of M.D.C. Holdings, Inc. Common
Stock were outstanding, and the aggregate market value of the shares (based upon
the closing price on that date of the shares on the New York Stock Exchange,
Inc. as reported on the Composite Tape) held by non-affiliates was approximately
$91,393,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K is incorporated by reference from the
Registrant's 1996 definitive proxy statement to be filed with the
Securities and Exchange Commission no later than 120 days after the end
of the Registrant's fiscal year.
<PAGE>
M.D.C. HOLDINGS, INC.
FORM 10-K
For the Year Ended December 31, 1995
---------------
Table of Contents
Page
No.
----
ITEMS 1.
AND 2. BUSINESS AND PROPERTIES
(a) General Development of Business.................... 1
(b) Financial Information About Industry Segments...... 1
(c) Narrative Description of Business.................. 1
ITEM 3. LEGAL PROCEEDINGS........................................ 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...... 7
ITEM 5. MARKET PRICE OF COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS....................................... 8
ITEM 6. SELECTED FINANCIAL AND OTHER DATA........................ 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 11
ITEM 8. FINANCIAL STATEMENTS..................................... F-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.................. 24
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....... 24
ITEM 11. EXECUTIVE COMPENSATION................................... 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT........................................... 24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........... 24
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.......................................... 24
(i)
<PAGE>
M.D.C. HOLDINGS, INC.
FORM 10-K
PART I
Items 1 and 2. Business and Properties.
(a) General Development of Business
M.D.C. Holdings, Inc. (the "Company" or "MDC", which, unless otherwise
indicated, collectively refers to M.D.C. Holdings, Inc., a Delaware corporation
originally incorporated in Colorado in 1972, and its subsidiaries) is engaged in
the construction and sale of residential housing (the "homebuilding segment") in
(i) metropolitan Denver and Colorado Springs, Colorado; (ii) northern Virginia
and suburban Maryland (the "Mid-Atlantic"); (iii) Northern and Southern
California; (iv) Phoenix and Tucson, Arizona; and (v) Las Vegas, Nevada. M.D.C.
Holdings, Inc.'s. wholly owned subsidiary, HomeAmerican Mortgage Corporation
("HomeAmerican") provides mortgage loans primarily to the Company's home buyers
and, to a lesser extent, to others (the "mortgage lending segment"). In its
asset management operations (the "asset management segment"), Financial Asset
Management LLC (an indirect subsidiary of M.D.C. Holdings, Inc. and the
successor as of April 1, 1996 to Financial Asset Management Corporation, "FAMC")
manages, by contract, the operations of two publicly traded real estate
investment trusts (each, a "REIT").
(b) Financial Information About Industry Segments
See Notes A and B to the Consolidated Financial Statements for
information regarding the Company's business segments for each of the three
years ended December 31, 1995, 1994 and 1993.
(c) Narrative Description of Business
Homebuilding Segment.
General. In the homebuilding segment of its operations, the Company (i)
principally acquires finished lots and, to a lesser extent, acquires land and
develops it for use in its homebuilding activities; and (ii) designs, constructs
and sells single-family residential homes. Such operations are financed
primarily with publicly traded Senior Notes (as hereinafter defined) and
subordinated notes, bank lines of credit, internally-generated funds and, to a
lesser extent, promissory notes and project loans.
The Company believes it is the seventh largest homebuilder in the
United States based on home sales revenues. The Company is the largest
homebuilder in Colorado, the third largest builder in its Mid-Atlantic market
and among the top ten homebuilders in Phoenix and Tucson, Arizona and
Sacramento, Orange County and Riverside County, California. MDC has a
significant presence in each of its markets which the Company believes enables
it to compete more effectively for home sales, land acquisition opportunities
and subcontractor labor.
In its homebuilding segment, the Company's strategy is to build quality
homes at affordable prices. Homes are constructed according to basic designs
based on customer preferences in the location in which they are built. The
Company, as the general contractor, supervises the development and construction
of all of its projects and employs subcontractors for site development and home
construction. The Company primarily builds single-family detached homes, and in
its Mid-Atlantic market builds a significant number of townhomes, generally for
the first-time and move-up buyer. The Company has shifted more emphasis to the
first-time buyer in most of its markets, with approximately 30% of its homes
closed in 1995 targeted to the first-time buyer compared with approximately 25%
in 1994.
Homes are built and sold by subsidiaries of the Company using the names
"Richmond American Homes" and "Richmond Homes". The base prices for homes sold
by the Company generally range from approximately $80,000 to $400,000, although
the Company builds homes in certain of its markets with prices as high as
$700,000. Sales prices averaged $181,100 for the year ended December 31, 1995.
1
<PAGE>
Both the national and regional housing markets are cyclical and are
sensitive to many economic conditions, particularly the strength or weakness of
local economies, changes in interest rates, the number of qualified home
purchasers in the market and the ability of these purchasers to resell their
existing homes. In an effort to reduce the risk of volatility of economic
conditions in any single market, the Company's strategy is to diversify
geographically into markets with high prospects for employment growth and
housing starts. Additionally, the Company monitors each of its markets and
allocates capital based on anticipations for each market. The table below
displays the Company's geographic diversification over the last three years as
represented by the amount of home sales revenues in each of its markets (dollars
in thousands). While the Company has continued to emphasize its Colorado and
Mid-Atlantic markets, the Company has allocated additional capital, beginning in
1993, to its operations in California and Arizona.
<TABLE>
<CAPTION>
Total Home Sales Revenues Percent of Total
1995 1994 1993 1995 1994 1993
---------- --------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Colorado............................ $ 325,834 $ 333,908 $ 290,366 39% 43% 50%
Mid-Atlantic........................ 208,552 226,547 166,803 25% 29% 28%
California.......................... 146,947 119,559 65,769 18% 15% 11%
Arizona............................. 133,625 84,588 35,871 16% 11% 6%
Nevada.............................. 12,490 19,851 29,078 2% 2% 5%
---------- --------- --------- ---------- --------- ----------
Total....................... $ 827,448 $ 784,453 $ 587,887 100% 100% 100%
========== ========= ========= ========== ========= ==========
</TABLE>
Other factors affecting the demand for housing include changes in costs
associated with home ownership, such as property taxes and energy costs,
demographic trends, the availability of federally sponsored and other mortgage
loan financing programs and slow growth initiatives in certain markets.
Housing. MDC builds homes in a number of basic series, each designed to
appeal to a different segment of the home buyer market. Substantially all of the
Company's homes are detached except in its Mid-Atlantic market. In its
Mid-Atlantic market, an area where historically approximately 50% of all new
construction is attached housing, MDC sells a significant number of townhomes in
addition to detached homes. Additionally, MDC builds a limited number of
attached homes in Colorado.
Within each basic series of homes, MDC builds numerous models, each
with different floor plans, elevations and standard and optional features. The
differences in the sales prices of similar models in any series depend primarily
upon location and product specifications. The series of homes selected to be
offered at a location is based on customer preference and the area's
demographics.
The Company maintains varying levels of inventories of unsold homes in
each of the locations in which it operates. Unsold homes in various stages of
completion aid the Company in meeting the immediate and near-term demands of its
home buyers.
Land Acquisition and Development. MDC purchases finished lots using
rolling options, finished lots in phases or in bulk for cash or, if anticipated
potential returns justify risk, land for development into finished lots. A
significant portion of the lots purchased are finished lots which require
minimal additional development prior to the construction of homes. In making
land purchases, MDC considers a number of factors, including population and
employment growth patterns, proximity to developed areas, estimated costs of
development, demographic trends and the availability, on acceptable terms, of
financing for the acquisition and development of land and the construction of
homes. Generally, MDC acquires finished building sites and land for development
only in areas which will have, among other things, the availability of building
permits, all utilities and suitable zoning. MDC attempts to maintain a supply of
finished home sites sufficient to enable it to start homes as soon as practical
once a contract for sale is executed. This tends to minimize the Company's risk
with respect to, among other things, cost increases in labor and materials.
MDC controls a portion of the land it will require in future periods
utilizing "rolling" option contracts. Generally, in a rolling option contract,
the Company obtains the right to purchase finished lots in consideration for an
option deposit (generally $50,000 to $200,000 per contract). In the event the
Company elects not to purchase the finished lots within a specified period of
time (generally, 5 to 20 lots per project per calendar quarter), the
2
<PAGE>
agreements limit the Company's loss to the option deposit, limiting the
Company's risk while preserving its liquidity. At December 31, 1995, MDC
controlled 8,008 lots under option agreements with $7,200,000 in total option
deposits. Because of increased demand for finished lots in certain of the
markets where the Company builds homes, the Company's ability to acquire lots
using rolling options has been reduced or become more expensive.
MDC owns various undeveloped parcels of real estate. MDC intends to
develop most of its undeveloped lots into finished lots. MDC generally develops
its land in small parcels (less than 100 lots at a time per given product per
subdivision) to limit the Company's risk with regard to a particular project and
to maximize the efficient use of available liquidity. Substantially all of MDC's
undeveloped land is "cured" (i.e., building permits and utilities are available
and zoning is suitable for its current intended use). When developed, these lots
generally will be used in the Company's homebuilding activities, although a
limited amount may be be sold to others. Certain undeveloped lots also may be
sold to others in their present state.
The table below shows the number of home sites owned and controlled
under option in each of the Company's homebuilding markets, including the
estimated number of home sites owned on undeveloped land, based on the number of
acres multiplied by the number of home sites permitted per acre according to
allowable zoning and current development plans.
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Home Sites Owned
Finished or currently under development
(active)
Colorado.............................. 1,803 2,015 3,139
Mid-Atlantic.......................... 1,105 675 588
California............................ 369 691 597
Arizona............................... 1,094 1,107 319
Nevada................................ 135 248 206
---------- ---------- ----------
Total.............................. 4,506 4,736 4,849
Held for future development or sale
(inactive)*........................... 7,050 9,772 11,404
---------- ---------- ----------
Total.............................. 11,556 14,508 16,253
========== ========== ==========
*The substantial majority of inactive lots are unfinished and located in Colorado.
Home Sites Under Option
Colorado................................ 2,795 4,250 4,921
Mid-Atlantic............................ 4,019 3,092 2,480
California.............................. 675 110 325
Arizona................................. 519 744 499
Nevada.................................. - - - - 135
---------- ---------- ----------
Total................................. 8,008 8,196 8,360
========== ========== ==========
</TABLE>
Raw Materials. Generally, the raw materials and components used in
MDC's homebuilding operations are standard items carried by major suppliers in
the United States. Periodic shortages in lumber supplies due, among other
things, to homebuilding activity throughout the nation and to logging limits
imposed by environmental protection laws (i) may increase the cost of lumber,
which could result in reduced profits from home sales; and (ii) may lead to
delays in the delivery of homes under construction. The Company generally takes
orders only for homes that already are under construction or for which the
Company can contract for materials and labor at a fixed price during the
anticipated construction period. This allows the Company to minimize the risks
associated with increases in material and labor costs between the time a home is
under construction and the time it is closed and delivered. Although the Company
did not experience any significant shortages in the availability of raw
materials or labor in 1995, the Company may experience shortages and delays in
the future which may result in delays in the delivery of homes under
construction, reduced Home Gross Margins (as hereinafter defined) or both.
3
<PAGE>
Seasonal Nature of Business. MDC's business is seasonal to the extent
that its Colorado and Mid-Atlantic operations encounter weather-related
slowdowns during the winter months, and its California operations are affected
by heavy seasonal rains. Delays in development and construction activities
resulting from these adverse weather conditions increase the Company's risk of
cost increases in, among other things, materials and labor for the Company's
projects in the affected areas. During each of the three years ended December
31, 1995, approximately 31% of the total homes sold and approximately 20% of the
total homes closed by the Company occurred in the first three months of the
year. Adverse weather conditions in the first three months of 1996 have delayed
certain construction activities in the Mid-Atlantic, which will delay the
delivery by the Company of certain homes in this market which were originally
projected to close in the first and second quarters of 1996.
Backlog. As of December 31, 1995, MDC's units under contract but not
yet delivered ("Backlog") totalled 1,355 homes with an estimated sales value of
$243,000,000. Based on its past experience, MDC anticipates approximately 70% of
its December 31, 1995 Backlog to settle under existing sales contracts during
the first six months of 1996, and the remaining 30% of the homes in Backlog will
not close due to cancellations.
Marketing and Sales. MDC's homes are sold under various commission
arrangements by its own sales personnel and through the realtor community by
cooperative broker sales and referrals. In marketing homes, MDC uses, among
other things, on-site model homes, advertisements in local newspapers,
billboards and other signage, magazines and illustrated brochures. All of MDC's
homes are sold with a ten-year limited warranty provided by independent
entities.
Competition. The real estate industry is fragmented and highly
competitive. In each of its markets, MDC competes with numerous homebuilders (a
number of which build nation-wide), subdivision developers and land development
companies. Homebuilders not only compete for customers, but also for, among
other things, desirable financing, land acquisition, raw materials and
subcontractor labor. In its markets, MDC competes with homebuilders that are
substantially larger and have greater financial resources than the Company.
Competition is based, among other factors, upon price, style, financing provided
to prospective purchasers, location of property, quality of homes built,
warranty service and general reputation in the community.
Regulation. The Company is subject to continuing compliance
requirements mandated by applicable federal, state and local statutes,
ordinances, rules and regulations, including, among others, zoning and land use
ordinances, building, plumbing and electrical codes, contractors' licensing laws
and health and safety regulations and laws (including, but not limited to, those
of the Occupational Safety and Health Administration). Various localities in
which the Company operates have imposed (or may impose in the future) fees on
developers to fund, among other things, schools, road improvements and low and
moderate income housing.
From time to time, various municipalities in which the Company operates
restrict or place moratoriums on the availability of utilities, including water
and sewer taps. Additionally, certain jurisdictions in which the Company
operates have proposed or enacted growth initiatives which may restrict the
number of building permits available in any given year. Although no assurances
can be given as to future conditions or governmental actions, MDC believes that
it has, or can obtain, an adequate number of water and sewer taps and building
permits for its land inventory and land held for development.
The homebuilding operations of the Company also are affected by
environmental considerations pertaining to, among other things, availability of
water, municipal sewage treatment capacity, land use, hazardous waste disposal,
naturally occurring radioactive materials, building materials, population
density and preservation of the natural terrain and vegetation (collectively,
"Environmental Laws"). The particular Environmental Laws which apply to any
given homebuilding project vary greatly according to the site's location, the
site's environmental conditions and the present and former uses of the site.
These Environmental Laws may, among other things, (i) result in project delays;
(ii) cause the Company to incur substantial compliance and other costs; and
(iii) prohibit or severely restrict homebuilding activity in certain
environmentally sensitive regions or areas.
4
<PAGE>
Mortgage Lending Segment.
General. HomeAmerican is a full-service mortgage lender originating
mortgage loans primarily for MDC's home buyers and, to a lesser extent, for
others on a "spot" basis through offices located in each of MDC's markets. As
the principal originator of mortgage loans for MDC's home buyers, HomeAmerican
is an integral part of MDC's homebuilding operations. MDC sells its homes to
customers who finance their purchases through Federal Housing Administration
("FHA")-insured mortgage loans, Veterans Administration ("VA")-guaranteed
mortgage loans and conventional mortgage loans.
HomeAmerican is a FHA, VA, Federal National Mortgage Association
("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC") authorized
mortgage loan originator. HomeAmerican is also an authorized loan servicer for
FNMA, FHLMC and the Government National Mortgage Association ("GNMA") and, as
such, is subject to the rules and regulations of such organizations.
HomeAmerican also purchases loans originated by unaffiliated loan
correspondents; the origination fees for these loans are retained by the
correspondents. By purchasing these loans, HomeAmerican acquires the related
servicing rights.
Substantially all of the mortgage loans originated or purchased by
HomeAmerican are sold to private investors within 45 days of origination or
purchase. HomeAmerican uses its secured warehouse line of credit (which is
collateralized by the mortgage loans it originates or purchases), other
collateralized borrowings and internally-generated funds to finance these
mortgage loans until they are sold.
Mortgage loan origination volume is dependent on factors such as
competition, the economy and interest rates. Lower interest rates allow
additional first-time home buyers to enter the market and existing home owners
to "move up" to larger new homes.
Portfolio of Mortgage Loan Servicing. HomeAmerican has sold, and
intends to sell in the future, mortgage loan servicing. Servicing involves the
collection of principal, interest, taxes and insurance premiums from the
borrower and the remittance of such funds to the mortgage loan investor, local
taxing authorities and insurance companies, for which the servicer is paid a
fee. HomeAmerican obtains the servicing rights related to the mortgage loans it
and its correspondents originate. Certain mortgage loan servicing rights are
sold "servicing released" (included with the sale of the corresponding mortgage
loans). The servicing rights on mortgage loans not sold "servicing released"
generally are sold in bulk at a later date.
As a mortgage loan servicer, HomeAmerican generally is required to
advance to the owner of the mortgage, mortgage payments on loans that are
delinquent or in foreclosure. To the extent that these and other advances by
HomeAmerican are not collected or reimbursed by the mortgage loan insurer or
guarantor, HomeAmerican incurs losses, which in the past have not been material.
HomeAmerican's portfolio of mortgage loan servicing at December 31,
1995 consisted of 3,861 single-family loans, approximately 80% of which were
less than two years old. These loans are secured by mortgages on properties in
eight states, with interest rates ranging from approximately 5.5% to 11.5% and
averaging 7.7%. The underlying value of a servicing portfolio generally is
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.
Pipeline. HomeAmerican's mortgage loans in process which had not closed
("Pipeline") at December 31, 1995 had aggregate principal balances of
$131,289,000. Approximately 70% of the Pipeline at December 31, 1995 is
anticipated to close during the first three months of 1996. If mortgage interest
rates fall, in general, a smaller percentage of these loans will close.
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 instrument utilized
by HomeAmerican.
Competition. The mortgage industry is fragmented and highly
competitive. In each of the areas in which it originates loans, HomeAmerican
competes with numerous banks, thrifts and other mortgage bankers, many of
5
<PAGE>
which are larger and have greater financial resources than HomeAmerican.
Competition is based, among other factors, on pricing, loan terms, underwriting
criteria and customer service.
Asset Management Segment.
In its asset management segment, FAMC advises, for a fee pursuant to
management agreements, Asset Investors Corporation ("Asset Investors") and
Commercial Assets, Inc. ("Commercial Assets") on various facets of each
company's business and manages their day-to-day operations.
Asset Investors generates income from (i) unrated credit-support bond
classes backed by pools of non-conforming (non-agency guaranteed) single-family
mortgage loans; and (ii) its ownership of approximately 27% of the shares of
Commercial Assets. FAMC has a management agreement (the "Asset Investors
Management Agreement") with Asset Investors through 1996. The current Asset
Investors Management Agreement (which has been renewed for one year each year
since Asset Investors' inception in 1986) may be terminated by FAMC or by Asset
Investors with or without cause at any time upon 60 days' written notice. FAMC,
pursuant to the Asset Investors Management Agreement, receives compensation
based on the level of invested assets and the financial performance of Asset
Investors.
Commercial Assets generates income from the acquisition and management
of subordinated credit-support bonds backed by mortgage loans on multi-family
properties. FAMC has a management agreement (the "Commercial Assets Management
Agreement") with Commercial Assets through 1996. Pursuant to the Commercial
Assets Management Agreement, FAMC receives compensation based on the level of
(i) Commercial Assets' financial performance; (ii) asset acquisitions; and (iii)
invested assets. The Commercial Assets Management Agreement may be terminated by
FAMC or by Commercial Assets with or without cause at any time upon 60 days'
written notice.
Employees.
At December 31, 1995, MDC employed 1,043 persons. MDC considers its
employee relations to be satisfactory.
6
<PAGE>
Item 3. Legal Proceedings.
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<F1>. 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<F2> and by a homeowner in the Rock Creek development located in
Boulder County, Colorado<F3>. On September 12, 1995, the Company was served with
a similar complaint relating to homeowners in Douglas County, Colorado<F4>. 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.
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. Because of the nature of the
homebuilding business, and in the ordinary course of the Company's operations,
the Company from time to time may be subject to product liability claims,
including claims similar to those discussed under the description of the
Expansive Soils Cases, above. 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 Security Holders.
No meetings of the Company's shareowners were held during the fourth
quarter of 1995.
- --------------------------
[FN]
<F1> 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.
<F2> Moore vs. Richmond Homes Limited, et al. in the District Court, Douglas
County, State of Colorado, Civil Action No. 95 CV 321, Division 2.
<F3> Constantini vs. Richmond Homes Limited, et al. in the District Court,
Boulder County, State of Colorado, Civil Action No. 95 CV 1052, Division 3.
<F4> Rodenburg vs. Richmond Homes Limited, et al. in the District Court, Douglas
County, State of Colorado, Civil Action No. 95 CV 298, Division 1.
7
<PAGE>
PART II
Item 5. Market Price of Common Stock and Related Security Holder Matters.
The shares of MDC Common Stock are traded on the New York and the
Pacific Stock Exchanges. The following table sets forth, for the quarterly
periods indicated, the high and low sale prices of the shares of MDC Common
Stock as reported on the Composite Tape.
High Low
1994
First quarter.................. $ 7.88 $ 5.38
Second quarter................. 6.00 5.00
Third quarter.................. 6.63 5.00
Fourth quarter................. 5.38 4.50
1995
First quarter.................. $ 5.88 $ 4.88
Second quarter................. 6.50 5.00
Third quarter.................. 8.13 6.13
Fourth quarter................. 8.13 6.13
The Company has declared dividends of three cents per share for each
quarter in the year ended December 31, 1995 and two cents per share for each
quarter in the year ended December 31, 1994. Prior to 1994, no dividends had
been declared on the MDC Common Stock since 1988.
In connection with the declaration and payment of dividends, as well as
the purchase, redemption or other acquisition of shares of MDC Common Stock, the
Company is required to comply with certain covenants contained in the Senior
Notes indenture (the "Senior Notes Indenture"). The Senior Notes Indenture
allows the Company to pay dividends on its Common Stock in an amount, on a
cumulative basis, not to exceed 50% of its Consolidated Net Income, as defined,
after December 31, 1993, subject to certain other adjustments such as the value
of MDC Common Stock issued after such date. Pursuant to the Senior Notes
Indenture, the Company had a permitted capacity of approximately $20,473,000 for
the payment of dividends at December 31, 1995.
On March 7, 1996, MDC had approximately 1,734 shareowners of record.
8
<PAGE>
Item 6. Selected Financial and Other Data.
The data in this table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the notes thereto presented
elsewhere herein (dollars in thousands, except per share amounts).
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Year Ended December 31,
1995 1994 1993 1992 1991
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................................ $ 865,856 $ 817,245 $ 634,323 $ 480,177 $ 380,938
=========== =========== =========== =========== ===========
Operating profit (loss)
Homebuilding......................... $ 33,018 $ 44,464 $ 22,496 $ 17,561 $ (434)
Mortgage lending..................... 9,288 6,951 7,508 9,230 2,695
Asset management..................... 4,050 2,796 8,996 8,700 12,860
Net corporate expenses<F1>.............. (19,705) (23,229) (23,968) (28,971) (29,240)
----------- ----------- ----------- ----------- -----------
Income (loss) from operations before
income taxes......................... $ 26,651 $ 30,982 $ 15,032 $ 6,520 $ (14,119)
=========== =========== =========== =========== ===========
Income (loss) from operations........... $ 17,250 $ 19,255 $ 10,056 $ 4,765 $ (12,903)
Primary per common share............. .86 .94 .45 .22 (.62)
Fully diluted per common share....... .79 .87 .45 .22 (.62)
Net income<F2>.......................... 17,250 19,255 25,879 3,852 1,906
Primary per common share............. .86 .94 1.16 .18 .09
Fully diluted per common share....... .79 .87 1.16 .18 .09
Weighted-average shares outstanding
Primary.............................. 20,124 20,406 22,340 21,850 20,985
Fully diluted........................ 23,918 24,021 22,340 21,850 20,985
Dividends per share..................... $ .11 $ .06 $ - - $ - - $ - -
</TABLE>
<TABLE>
<CAPTION>
December 31,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets:
Housing completed or under
construction....................... $ 265,205 $ 280,319 $ 201,023 $ 132,752 $ 105,736
Land and land under development...... 176,960 183,838 192,881 206,583 234,610
Total assets......................... 634,811 664,571 653,366 602,597 614,527
Debt:
Homebuilding:
Lines of credit.................... 43,490 62,332 24,645 28,688 36,694
Notes payable...................... 10,571 33,585 59,641 57,732 59,403
Restructured Notes Payable<F3>..... - - - - 2,854 131,681 133,149
Senior Notes<F3>..................... 187,525 187,352 187,199 - - - -
Subordinated notes<F3>............... 38,221 38,217 38,213 62,958 62,695
Total debt........................... 305,334 348,280 345,676 325,835 350,776
Stockholders' Equity.................... 205,033 192,295 175,854 164,182 160,488
Ratio of Debt to Stockholders' Equity... 1.49 1.81 1.97 1.98 2.19
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Homebuilding:
Home sales revenues.................. $ 827,448 $ 784,453 $ 587,887 $ 417,190 $ 316,229
Homes sales, net (units)............. 4,536 4,177 3,875 2,703 1,933
Homes closed (units)................. 4,570 4,200 3,344 2,414 1,782
Backlog
Units<F4>.......................... 1,355 1,334 1,357 826 537
Estimated sales value<F4>.......... $ 243,000 $ 241,900 $ 250,530 $ 142,800 $ 97,400
Average selling price per home....... $ 181.1 $ 186.8 $ 175.8 $ 172.8 $ 177.5
Home gross margins................... 13.4% 15.4% 14.2% 14.9% 15.6%
Inventory valuation reserves......... $ 3,677 $ 4,000 $ - - $ - - $ 11,000
Corporate General and Administrative
Expenses............................. 13,478 15,132 14,890 18,108 19,121
Corporate and Homebuilding SG&A as a %
of Home Sales Revenues............... 10.9% 11.3% 13.1% 15.1% 18.6%
EBITDA Computation:
Income (loss) from continuing
operations......................... $ 17,250 $ 19,255 $ 10,056 $ 4,765 $ (12,903)
Add:
Income taxes..................... 9,401 11,727 4,976 1,755 (1,216)
Corporate and homebuilding
interest expense............... 7,773 9,454 11,454 13,359 12,905
Interest in cost of sales........ 28,397 26,548 19,810 21,386 17,536
Other fixed charges.............. 2,492 2,872 3,161 1,702 1,724
Depreciation and amortization.... 10,280 10,134 8,038 8,161 8,073
Non-cash charges................. 3,677 4,800 4,120 (17) 16,671
------------ ------------ ------------ ------------ ------------
Total EBITDA............................ $ 79,270 $ 84,790 $ 61,615 $ 51,111 $ 42,790
============ ============ ============ ============ ============
Fixed Charges Incurred.................. $ 36,401 $ 38,671 $ 28,930 $ 26,769 $ 27,509
EBITDA/Fixed Charges.................... 2.18 2.19 2.13 1.91 1.56
EBITDA/Interest Incurred................ 2.34 2.37 2.42 2.06 1.68
- ----------
<FN>
<F1> Net corporate expenses represent, among other items: (i) net gains and
losses on investments and marketable securities; (ii) interest and
dividend income; (iii) corporate general and administrative expense;
and (iv) corporate and homebuilding interest expense.
<F2> Includes the effects of extraordinary after-tax gains on the early
extinguishment of debt resulting principally from: (i) the retirement
and repurchase of debt from use of a portion of the net proceeds of an
offering in December 1993 of $190,000,000 principal amount of 11 1/8%
Senior Notes due 2003 (the "Senior Notes") and $28,000,000 principal
amount of 8 3/4% Convertible Subordinated Notes due 2005 (the
"Convertible Subordinated Notes") (collectively, the "1993 Offering")
which increased net income by $15,823,000 in 1993; (ii) the repurchase
by the Company of $21,850,000 principal amount of the Company's senior
subordinated and subordinated notes in 1991; and (iii) certain other
debt extinguishments in 1992 and 1991. Also includes in 1992 the
cumulative effect, to January 1, 1992, of the adoption of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes."
<F3> All of the Company's notes which had been restructured prior to 1991
from senior subordinated and subordinated notes (the "Restructured
Notes Payable") were retired for $100,701,000 with a portion of the net
proceeds from the 1993 Offering. A portion of the net proceeds also was
used in 1993 to redeem $51,816,000 principal amount of the Company's 11
1/4% senior subordinated notes at par.
<F4> At end of period.
</FN>
</TABLE>
10
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Consolidated Results.
1995 Compared With 1994. MDC's revenues increased 6% for 1995 compared
with 1994 primarily as a result of a 9% increase in home closings which more
than offset a $5,700 decrease in the average selling price per housing unit.
MDC's 1995 revenues of $865,856,000 represent the highest level of revenues in
the Company's history.
Income before income taxes was lower for 1995 compared with 1994
primarily as a result of lower homebuilding segment operating profits, partially
offset by higher mortgage lending and asset management segment operating
profits, lower corporate and homebuilding interest expense and lower corporate
general and administrative expenses. The reduction in homebuilding operating
profits primarily resulted from a 13% decline in Home Gross Margins. The decline
in Home Gross Margins largely was 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 homebuilding markets.
During 1995, the Company continued to strengthen its balance sheet and
improve the efficiency of its operations. MDC reduced its homebuilding
inventories significantly in 1995. Land and land under development inventories
were $6,878,000 and $15,921,000, respectively, lower than the levels at December
31, 1994 and 1993. Land and land under development inventories at December 31,
1995 represented 21.4% of 1995 home sales revenues, the lowest ratio of land to
home sales revenues in more than twelve years. The Company also reduced the
level of its investment in unsold homes under construction to approximately
$95,000,000 at December 31, 1995, an 18% improvement from the level of unsold
homes under construction at December 31, 1994. In addition, the Company reduced
its aggregate indebtedness in 1995 to $305,344,000, a reduction of 12%, from
year-end 1994, and the lowest year-end debt level since 1984. All of these
improvements contributed to a reduction in the Company's debt-to-equity ratio at
December 31, 1995 to 1.49 to 1, its lowest year-end level since 1979.
1994 Compared With 1993. MDC's revenues increased during 1994 compared
with 1993 primarily as a result of a 26% increase in home closings and an
$11,000 higher average selling price per housing unit.
The Company's income before income taxes and extraordinary gains
increased in 1994 compared with 1993 due principally to (i) increased
homebuilding segment operating profits from significantly higher home closings
and higher Home Gross Margins; and (ii) lower corporate and homebuilding
interest expense. These positive income effects partially were offset by lower
operating profit from the asset management segment resulting primarily from
lower mortgage interest rates in 1993 that enabled the Company to sell certain
of its mortgage-related assets at a profit in 1993.
During 1993, the Company recognized net extraordinary gains of
$15,823,000, net of income taxes of $9,967,000, substantially all of which
resulted from the early extinguishment of the Restructured Notes Payable with a
portion of the net proceeds received in the 1993 Offering. No extraordinary
gains or losses were recognized by the Company in 1994.
Impact of Mortgage Interest Rates.
The Company's homebuilding and mortgage lending operations are
dependent upon the availability and cost of mortgage financing. Increases in
home mortgage interest rates (i) may reduce the demand for homes and home
mortgages; and (ii) generally will reduce home mortgage refinancing activity.
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. This weakened demand, along with a general buildup in unsold homes
under construction by the Company and other homebuilders, adversely affected the
Company's home sales and Home Gross Margins in 1995, particularly in the first
quarter. Since December 1994, home
11
<PAGE>
mortgage interest rates generally declined to 7.2% in December 1995 and to as
low as 6.9% in February 1996. The decline during 1995 and early 1996, among
other things, led to improved home sales levels in the last three quarters of
1995 and the first two months of 1996 compared with the same periods in the
prior year. However, Home Gross Margins have not recovered as quickly, as the
Company and other homebuilders in the Company's markets have continued to offer
increased incentives to sell homes, especially unsold homes under construction.
Mortgage interest rates have recently increased to 8%. The Company is
unable to predict the extent to which recent or future increases in home
mortgage rates will affect adversely the Company's operating activities and
results of operations.
12
<PAGE>
Homebuilding Segment.
The table below sets forth certain information with respect to the
Company's homebuilding segment during each of the periods presented and at the
end of such periods (dollars in thousands).
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Home sales revenues......................... $ 827,448 $ 784,453 $ 587,887
Operating profit............................ 33,018 44,464 22,496
Average selling price per housing unit...... 181.1 186.8 175.8
Home Gross Margins.......................... 13.4% 15.4% 14.2%
Homes (units)
Sales contracted, net
Colorado............................... 1,939 1,837 1,895
Mid-Atlantic........................... 996 1,048 1,132
California............................. 770 567 381
Arizona................................ 779 614 338
Nevada................................. 52 111 129
----------- ----------- -----------
Total................................ 4,536 4,177 3,875
=========== =========== ===========
Closed and delivered
Colorado............................... 1,891 1,887 1,708
Mid-Atlantic........................... 1,058 1,136 904
California............................. 751 564 331
Arizona................................ 802 504 239
Nevada................................. 68 109 162
----------- ----------- -----------
Total................................ 4,570 4,200 3,344
=========== =========== ===========
December 31,
1995 1994 1993
----------- ----------- -----------
Backlog
Units
Colorado............................... 658 610 660
Mid-Atlantic........................... 275 337 425
California............................. 175 101 98
Arizona................................ 234 257 147
Nevada................................. 13 29 27
----------- ----------- -----------
Total................................ 1,355 1,334 1,357
=========== =========== ===========
Estimated sales value.................... $ 243,000 $ 241,900 $ 250,530
=========== =========== ===========
Active Subdivisions
Colorado............................... 49 53 49
Mid-Atlantic........................... 48 41 23
California............................. 23 21 14
Arizona................................ 22 16 6
Nevada................................. 2 4 3
----------- ----------- -----------
Total................................ 144 135 95
=========== =========== ===========
</TABLE>
Homebuilding Activities - 1995 Compared With 1994.
Home Sales Revenues, Home Sales and Homes Closed and Delivered. Home
sales revenues increased in 1995 compared with 1994 primarily as a 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 16 at December 31, 1995 from nine at
December 31, 1994;
13
<PAGE>
(ii) California, primarily due to the Company's acquisition and opening of
several new subdivisions in Southern California after December 31, 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 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 1995 compared with 1994. The impact of
lower home sales per active subdivision was partially offset by an increase in
the number of the Company's active subdivisions in that market at December 31,
1995 compared with December 31, 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; (ii) reduced consumer confidence due to reductions
in the number of federal employees and government shutdowns, and the potential
for further reductions in the number of federal employees as a result of deficit
reduction plans; and (iii) a decline in total market home sales.
The Company's home sales in January and February 1996 increased by 38%
(61% in February alone) to a total of 1,045 homes, compared with sales of 757
homes in the same two-month period in 1995. The Company is unable to predict if
this trend of higher comparable sales from 1996 compared with 1995 will continue
in the future, particularly in view of recent increases in mortgage interest
rates.
Average Selling Price Per Housing Unit. The decrease in the average
selling price per housing unit in 1995 compared with 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 Colorado, Maryland and Tucson; and
(ii) beginning 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
Riverside County subdivisions acquired in July 1995. The Company anticipates
that its average selling price will be lower in 1996 than in 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") decreased to 13.4% in 1995 from 15.4%
in 1994. This decline was 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 homebuilding
markets. Based on its estimated Home Gross Margins in Backlog at December 31,
1995, the Company believes that its average Home Gross Margins in the first
quarter of 1996 will be comparable to the Company's average achieved in the year
ended December 31, 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.
Inventory Valuation Reserves. Operating results during the year ended
December 31, 1995 were impacted adversely by $3,677,000 in net realizable value
adjustments. The adjustments primarily were related to certain under-performing
projects in California, Arizona and the Mid-Atlantic region.
Marketing. Marketing expenses (which include, among other things,
amortization of deferred marketing costs, model home expenses and sales
commissions) totalled $49,938,000 for 1995, compared with $44,588,000 for 1994.
The increases reflect the impact of significant additional marketing-related
salary, sales commission and model home operating expenses 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 $26,694,000 in 1995 compared with $29,215,000 for 1994. General and
administrative expenses as a percentage of home sales revenues decreased to 3.2%
in 1995, compared with 3.7% in 1994 as the Company was able to deliver more
homes in 1995 with a reduced level of overhead.
14
<PAGE>
Homebuilding Activities - 1994 Compared With 1993.
Home Sales Revenues, Home Sales and Homes Closed and Delivered. Home
sales revenues for 1994 were 33% higher than home sales revenues for 1993. This
increase primarily was the result of increases in home closings in (i) Colorado,
due to strong market conditions resulting from low interest rates in the second
half of 1993 and the first quarter of 1994; (ii) Arizona, due to a significant
expansion of the Company's operations, and continued strong demand for homes, in
the Tucson and Phoenix markets; (iii) California, due to the Company's
acquisition and opening of several new subdivisions, particularly in Southern
California; and (iv) the Company's Mid-Atlantic market, due to improved market
conditions in the first quarter of 1994 and an increase in the number of active
subdivisions. The Company also realized an $11,000 increase in the average
selling price per housing unit.
Sales increased in the year ended December 31, 1994 compared with 1993
in (i) Arizona (an increase of 82%) due to improved market conditions and an
expansion of the Company's operations in the Phoenix and Tucson markets; and
(ii) California (an increase of 49%) due to an expansion of the Company's
operations in Northern California and the Company's re-entry into the Southern
California market which began in the second half of 1993 and continued through
1994. Sales declined in the year ended December 31, 1994 compared with 1993 in
(i) Colorado (a decline of 3%) as, among other things, new competitors entered
the market and increased mortgage interest rates during the last three quarters
of 1994 affected adversely the demand for new homes; and (ii) the Mid-Atlantic
region (a decline of 7%) due to an overall slowing in this market which began in
the second quarter of 1994 (the overall Mid-Atlantic market declined by
approximately 10% in 1994 compared with 1993).
Average Selling Price Per Housing Unit. The increase in the average
selling price per housing unit in 1994 compared with 1993 primarily was due to
increases in average selling prices in all of the Company's markets except
Phoenix and Northern California. The increases in selling prices principally
were due to (i) the mix of homes closed; (ii) general price increases in most of
the Company's markets to, among other things, offset increases in costs; and
(iii) in certain markets, improved market conditions. These increases partially
were offset by lower average selling prices in (i) Northern California primarily
due to the introduction of more affordable homes during the latter part of 1993
in response to continuing consumer demand for lower-priced housing and softness
in consumer demand for new homes; and (ii) Phoenix primarily due to the opening
of new subdivisions which targeted the first-time and first-time move-up buyer.
Home Gross Margins. The Company achieved higher Home Gross Margins in
1994 compared with 1993 in its Colorado, Southern California and Arizona markets
primarily due to improved market conditions primarily resulting from lower
interest rates. Home Gross Margins also were higher in the Company's
Mid-Atlantic market in 1994 compared with 1993 due to improved market conditions
through the first quarter of 1994 combined with home closings from a more
profitable mix of subdivisions in 1994 compared with 1993. The increases
partially were offset by lower Home Gross Margins in Northern California as the
Company's profitability in this area was affected adversely by softness in
consumer demand for new homes. To a substantially lesser extent, Home Gross
Margins also were impacted negatively by builder competition in Nevada.
Inventory Valuation Reserves. Operating results during the fourth
quarter of 1994 were impacted adversely by $4,000,000 in net realizable value
adjustments related to, among other factors, several projects in Northern
California which experienced significant slowing in sales and reduced selling
prices during the fourth quarter due to softness in consumer demand which led to
a general decline in home sales activity in this market.
Marketing. Marketing expenses totalled $44,588,000 for 1994 compared
with $34,820,000 for 1993. This 28% increase during 1994 principally was due to
the 33% increase in home sales revenue and expanded operations in all of the
Company's major regions.
General and Administrative. General and administrative expenses
totalled $29,215,000 during 1994 compared with $27,497,000 in 1993. General and
administrative expenses during 1993 were affected adversely by non-recurring
charges totalling approximately $2,500,000. While general and administrative
expenses increased in the aggregate primarily due to salary expense for the
additional personnel needed for the Company's expanded operations, general and
administrative expenses as a percentage of home sales revenues decreased to 3.7%
for 1994 compared with 4.7% in 1993 because the Company was able to deliver more
homes without a proportionate increase in overhead.
15
<PAGE>
Land Sales.
Revenue from land sales totalled $10,396,000, $8,296,000 and
$7,441,000, respectively, for the years 1995, 1994 and 1993. The land sales
primarily were in Colorado and, to a lesser extent, in California. Gross profits
(losses) from these land sales were $220,000, $319,000 and $(423,000),
respectively, for the years 1995, 1994 and 1993.
Included in the 1995 land sales was a sale of 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.
Land Inventory.
The table below shows (in thousands) the carrying value of MDC's land
and land under development in each of its homebuilding markets at December 31,
1995, 1994 and 1993.
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Finished or currently under development
(active)
Colorado............................... $ 34,331 $ 43,976 $ 37,560
Mid-Atlantic........................... 47,247 29,076 33,103
California............................. 26,694 30,613 27,097
Arizona................................ 20,586 23,461 4,157
Nevada................................. 4,559 6,766 6,605
----------- ----------- -----------
Total.............................. 133,417 133,892 108,522
Held for future development or sale
(inactive)*.............................. 43,543 49,946 84,359
----------- ----------- -----------
Total.............................. $ 176,960 $ 183,838 $ 192,881
=========== =========== ===========
Inactive land as a percentage of total land. 25% 27% 44%
=========== =========== ===========
Land as a percentage of home sales revenue.. 21% 23% 33%
=========== =========== ===========
*The substantial majority of the inactive land held for future
development or sale consists of unfinished lots located in
Colorado. The majority of such lots are in close proximity to
existing active projects.
</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 land inventories held for future
development or sale (inactive land inventories) and because the inventories do
not earn any return. The decreases in inactive land inventories are due to the
commencement of development and construction activity in certain subdivisions as
well as land sales or other dispositions.
Carrying costs on inactive land inventories are expensed, not
capitalized. The Company is actively pursuing opportunities to further reduce,
through sales, homebuilding activities, or other means, its inactive land
inventories.
16
<PAGE>
Mortgage Lending Segment.
The table below summarizes the results of HomeAmerican's operations
during each of the periods presented (in thousands).
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Gains from sales of mortgage servicing
Bulk............................................ $ 6,374 $ 5,785 $ 3,422
Other........................................... 1,962 985 813
Net interest income.................................. 3,281 2,703 3,138
Origination fees..................................... 5,258 4,671 6,171
Gains (losses) on sales of mortgage loans............ (1,293) (585) 2,864
Mortgage servicing and other......................... 1,846 2,097 1,686
General and administrative expenses.................. (8,140) (8,705) (10,586)
---------- ---------- ----------
Operating profit..................................... $ 9,288 $ 6,951 $ 7,508
========== ========== ==========
Principal amount of originations and purchases:
MDC home buyers................................. $ 413,525 $ 323,079 $ 308,230
Spot............................................ 36,200 69,037 248,757
Correspondent................................... 63,051 64,365 150,341
---------- ---------- ----------
Total....................................... $ 512,776 $ 456,481 $ 707,328
========== ========== ==========
</TABLE>
The table below sets forth certain information regarding HomeAmerican's
portfolio of mortgage loans serviced (in thousands).
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
--------- --------- ----------
<S> <C> <C> <C>
Beginning Servicing Portfolio........................ $ 569,063 $ 653,331 $ 437,220
Servicing retained on loans originated.......... 449,725 392,116 556,987
Purchases from correspondents................... 63,051 64,365 150,341
Bulk servicing sales............................ (417,075) (427,340) (287,669)
Loan sales "servicing released"................. (141,174) (80,884) (77,846)
Loan principal payments and other............... (36,779) (32,525) (125,702)
----------- ---------- ----------
Ending Servicing Portfolio.......................... $ 486,811 $ 569,063 $ 653,331
========== ========== ==========
December 31,
1995 1994 1993
--------- --------- -------
Composition of Servicing Portfolio:
FHA insured/VA guaranteed....................... $ 85,002 $ 203,991 $ 373,716
Conventional.................................... 401,809 365,072 279,615
---------- ---------- ----------
Total Servicing Portfolio............................ $ 486,811 $ 569,063 $ 653,331
========== ========== ==========
Portfolio of Servicing Held for Sale................. $ 429,328 $ 506,098 $ 574,088
========== ========== ==========
</TABLE>
1995 Compared With 1994. HomeAmerican's loan originations and purchases
increased by 12% in 1995 compared with 1994 primarily due to an increase in the
Company's home closings and an increase in the percentage of mortgage
originations for buyers of the Company's homes, partially offset by a 48%
decrease in the dollar amount of spot originations. HomeAmerican originated
mortgages for 61% of MDC's home buyers in 1995 compared with 52% in 1994.
HomeAmerican continues to benefit from the Company's home sales growth as MDC
home buyers were the source of more than 80% of the principal amount of mortgage
loans originated or purchased by HomeAmerican in 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. During late 1995, HomeAmerican opened an
origination facility in Southern California, and in February 1996, HomeAmerican
opened an origination facility in Las Vegas, both of which positively will
affect the percentage of HomeAmerican's originations for MDC's home buyers in
1996.
17
<PAGE>
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 1995 compared with 1994. However, during the second half of
1995, spot and correspondent originations and purchases increased compared with
the same period in 1994, as interest rates in the second half of 1995 averaged
approximately 131 basis points lower than in the second half of 1994.
HomeAmerican's operating profit in 1995 was higher than in 1994
principally due to gains from sales of mortgage servicing totalling $8,336,000
in 1995 compared with gains totalling $6,770,000 in 1994. The Company sold
approximately the same principal amount of servicing in 1995 as in 1994, but
received approximately 10% 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. Gains from mortgage servicing
sales other than bulk sales comprised a larger percentage of total gains (24%
for 1995 compared with 15% for 1994) primarily due to increased originations and
purchases of adjustable rate mortgages, which generally are sold "servicing
released."
1994 Compared With 1993. HomeAmerican's loan originations and purchases
decreased by 35% in 1994 compared with 1993 primarily due to increased mortgage
interest rates which resulted in lower mortgage loan originations market wide.
The decrease partially was offset by a 5% increase in the dollar amount of
originations for MDC's home buyers principally due to increased closings by
MDC's homebuilding segment. HomeAmerican originated mortgages for 52% of MDC's
home buyers in 1994 compared with 63% in 1993. The decline in the percentage of
mortgages originated for MDC's home buyers was the result of, among other
things, increased competition for mortgage loan originations and increases in
closings in Southern California where HomeAmerican did not have an origination
facility.
HomeAmerican's operating profit of $6,951,000 during 1994 was lower
than the operating profit of $7,508,000 for 1993 principally due to losses from
sales of mortgage loans totalling $585,000 in 1994 (when mortgage rates were
increasing) compared with gains totalling $2,864,000 in 1993 (when mortgage
rates were decreasing), partially offset by higher gains from bulk sales of
mortgage servicing in 1994. While loan origination fees were lower in 1994
compared with 1993, this reduction was offset by a decrease in general and
administrative expenses as HomeAmerican was able to reduce its general and
administrative costs in response to the decline in its mortgage lending
operations.
Asset Management Segment.
The table below summarizes the results of the asset management segment
operations during each of the periods presented (in thousands).
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Management fees and other....................... $ 5,299 $ 5,509 $ 5,073
Gains on sales of mortgage-related assets....... 734 295 7,505
Interest revenues............................... 356 441 2,831
----------- ----------- -----------
6,389 6,245 15,409
----------- ----------- -----------
Expenses
General and administrative...................... 2,339 3,449 2,948
Equity in losses of mortgage-related assets..... - - - - 3,100
Interest expense................................ - - - - 365
----------- ----------- -----------
2,339 3,449 6,413
----------- ----------- -----------
Operating profit................................ $ 4,050 $ 2,796 $ 8,996
=========== =========== ===========
</TABLE>
During the three years ended December 31, 1995, the Company has
experienced a significant decrease in the amount of assets in its asset
management segment primarily from (i) refinancing of mortgages by homeowners;
(ii) the sale by the Company of mortgage-related assets; (iii) writedowns of
mortgage-related assets due to
18
<PAGE>
prepayments; and (iv) certain investments reaching the end of their economic
lives. As a result, future income from the asset management segment primarily
will be dependent on management fees earned by FAMC from two publicly traded
REITs, net of general and administrative costs. FAMC earned management fees from
the REITs totalling $3,324,000, $2,780,000 and $2,180,000, respectively, in the
years ending December 31, 1995, 1994 and 1993. See Note A - Summary of
Significant Accounting Policies - Asset Management to the Company's Consolidated
Financial Statements.
At December 31, 1995, FAMC had approximately $150 million in assets
under management for the REITs.
Other Operating Results.
Interest Expense. Corporate and homebuilding interest incurred
decreased by 5% to $33,909,000 in 1995 compared with $35,799,000 in 1994
primarily due to (i) lower average effective interest rates with respect to the
Company's variable-rate bank lines of credit and project loans resulting from a
decrease in the prime rate in 1995; and (ii) lower levels of borrowings
resulting from the Company's reduction in homebuilding inventories and the
increased usage of internally generated funds. Corporate and homebuilding
interest incurred increased by 40% to $35,799,000 for 1994 compared with
$25,505,000 for 1993 due to (i) higher average effective interest rates
associated with the 11 1/8% Senior Notes due 2003 (in part due to the repayment,
in December 1993 and January 1994, of $132,496,000 of Restructured Notes Payable
for approximately $100,701,000) compared with the debt outstanding for 1993;
(ii) higher average effective interest rates with respect to the Company's
variable-rate bank lines of credit and project loans due to an increase in the
prime rate in 1994; and (iii) higher levels of borrowings resulting from the
Company's expanded homebuilding operations.
The portion of corporate and homebuilding interest which was
capitalized (the Company capitalizes interest on its homebuilding inventories
during the period of active development and through the completion of
construction) during 1995 totalled $26,136,000 compared with $26,345,000 and
$14,051,000, respectively, during 1994 and 1993. The increase in interest
capitalized for 1994 compared with 1993 primarily was due to (i) increased
levels of active homebuilding inventories resulting from expanded operations;
and (ii) higher capitalization rates resulting from higher average effective
interest rates on the Company's debt, particularly with respect to Colorado.
Corporate and homebuilding interest incurred but not capitalized is
reflected as interest expense and totalled $7,773,000 for 1995 compared with
$9,454,000 and $11,454,000, respectively, for 1994 and 1993. In addition to the
factors discussed above, the declines in interest expense were attributable to
the decreases in inactive land inventories.
For a reconciliation of interest incurred, capitalized and expensed,
see Note H to the Company's Consolidated Financial Statements.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses totalled $13,478,000 for 1995 compared with $15,132,000
and $14,890,000, respectively, for 1994 and 1993. The 11% decrease in 1995
compared with 1994 primarily was due to a reduction in insurance, legal expenses
and professional fees, partially offset by an increase in salary expense and
financing costs associated with the Company's expanded operations in 1995.
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 rates of 35.3%, 37.9% and 36.6%,
respectively, for 1995, 1994, and 1993, differed from the federal statutory rate
of 35% 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
of prior years' income taxes.
At December 31, 1995, the Company had a net deferred tax asset of
$13,730,000, net of a valuation allowance of $3,000,000. Given present economic
trends, particularly in the homebuilding industry, as evidenced by recent
improvements in the Company's results of operations, management believes the net
deferred tax asset to
19
<PAGE>
be recoverable from future earnings. The valuation allowance has been provided
to offset the related deferred income tax assets due to the uncertainty of
realizing the benefit of certain future tax deductions. See Note I to the
Company's Consolidated Financial Statements.
In April 1995, the Company and the Internal Revenue Service (the "IRS")
reached final agreement on the IRS examinations of (i) the MDC Consolidated
Returns for the years 1984 and 1985; and (ii) 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 adjustments that 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 any
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.
LIQUIDITY AND CAPITAL RESOURCES
MDC uses its liquidity and capital resources to, among other things,
(i) support its operations, including its inventories of homes, home sites and
land; (ii) provide working capital; and (iii) provide mortgage loans for its
home buyers. Liquidity and capital resources are generated internally from
operations and from external sources.
Capital Resources.
The Company's capital structure is a combination of (i) permanent
financing, represented by Stockholders' Equity; (ii) long-term financing,
represented by publicly traded Senior Notes and subordinated notes due primarily
in 2003 and 2005, respectively; 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 1.49 to 1 at December
31, 1995 compared with 1.97 to 1 at December 31, 1993 and 1.81 to 1 at December
31, 1994. The improvement is primarily a result of (i) the earnings of the
Company, which contributed to the increase in the Company's Stockholders' Equity
to $205,033,000 at December 31, 1995; and (ii) the use of internally generated
cash flow to reduce debt.
Based upon its current business plan, MDC anticipates the acquisition
of various parcels of finished lots and partially developed land for use in its
future homebuilding operations during 1996. The Company currently intends to
acquire a portion of the land inventories required in future periods through
takedowns of lots subject to "rolling" options entered into in prior periods and
under new "rolling" options. The use of "rolling" options lessens the Company's
land-related risk and improves liquidity.
Based upon its current capital resources and additional liquidity
available under existing credit relationships, MDC anticipates 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, assuming that no significant adverse changes in the Company's
business occur as a result of the various risk factors described elsewhere
herein, in particular, changes in interest rates.
20
<PAGE>
Lines of Credit and Notes Payable.
Homebuilding. MDC's homebuilding bank line of credit facilities at
December 31, 1995 were $158,149,000 in the aggregate, a substantial increase
over the $65,000,000 of similar facilities at December 31, 1993. Agreements
governing significant portions of the present facilities were entered into
during 1994 and 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). The Company has expanded its
bank lines of credit to, among other things, reduce the levels of its secured
project financing, the cost of which is generally higher than the cost of bank
lines of credit. Borrowings under the bank lines of credit are collateralized by
homebuilding inventories and are limited to the value of "eligible collateral"
(as defined in the credit agreements). At December 31, 1995, $43,490,000 was
borrowed and an additional $112,693,000 was collateralized and available to be
borrowed under the bank lines of credit.
In 1995, the Company modified and extended $105,000,000 in bank line of
credit facilities. The modified agreements include, among other things, lower
interest margins, lower fees and extensions of the final maturities.
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"). These
mortgage loans are pooled into GNMA, FNMA and FHLMC pools or retained as whole
loans and subsequently are sold in the open market on a "spot" basis or pursuant
to mortgage loan sale commitments. During 1995, 1994 and 1993, HomeAmerican sold
$504,109,000, $480,485,000 and $695,635,000, respectively, principal amount of
mortgage loans and mortgage certificates to unaffiliated purchasers.
The aggregate amount available under the Mortgage Line at December 31,
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 December 31,
1995, $21,990,000 was borrowed and an additional $16,580,000 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.
During 1995, the Company generated $28,687,000 in cash from operating
activities. The Company used this cash, other internally generated funds and
$22,769,000 of cash on hand to pay down lines of credit and notes payable by
$46,639,000 and to repurchase, for $5,466,000, 865,600 shares of MDC Common
Stock (at prices ranging from $5.88 to $6.50). The stock repurchases were made
pursuant to an announced program to repurchase up to 1,100,000 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 $19,439,000 of cash in 1994 principally due to increases in
homebuilding inventories as a result of significantly increased levels of
homebuilding 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 homebuilding activities.
In 1993, cash generated of $1,975,000 principally was due to net cash
provided by (i) net proceeds from borrowings in excess of payments made on
notes; (ii) increases in accounts payable and accrued expenses; and (iii)
proceeds from Investments and Marketable Securities, which was partially offset
by cash used to increase homebuilding inventories and mortgage loans held in
inventory and to repurchase MDC Common Stock.
21
<PAGE>
IMPACT OF INFLATION, CHANGING PRICES AND ECONOMIC CONDITIONS
Real estate and residential housing prices are affected by inflation,
which can cause increases in the price of land, raw materials and subcontracted
labor. Unless costs are recovered through higher sales prices, Home Gross
Margins can decrease. If interest rates increase, construction and financing
costs, as well as the cost of borrowings, also increase, which can result in
lower Home Gross Margins. Increases in home mortgage interest rates make it more
difficult for MDC's customers to qualify for home mortgage loans, potentially
decreasing home sales volume. Increases in interest rates also may affect
adversely the volume of mortgage loan originations.
The volatility of interest rates could have an adverse effect on MDC's
future operations and liquidity. Among other things, these conditions may (i)
affect adversely the demand for housing and the availability of mortgage
financing; and (ii) reduce the credit facilities offered to MDC by banks,
investment bankers and mortgage bankers.
MDC's business also is affected significantly by, among other things,
general economic conditions and particularly the demand for new homes in the
areas in which it builds.
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 the first quarter of 1996 is
not anticipated to have a material impact on the results of operations or
financial position of the Company upon 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 the first quarter of 1996 is not anticipated to have a
material adverse impact on the results of operations or financial position of
the Company upon adoption.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", which establishes a fair value based method of accounting for
stock-based compensation plans. The statement allows companies to continue to
use the intrinsic value based approach, supplemented by footnote disclosure of
the pro forma net income and earnings per share of the fair value based
approach. The Company intends to follow this latter method and, as a result,
adoption of this pronouncement in 1996 will have no effect on the Company's
financial statements.
OTHER
Forward-Looking Statements.
Certain statements in this Form 10-K Annual Report, the Company's
Summary Annual Report to Shareowners, as well as statements made by the Company
in periodic press releases, oral statements made by the Company's officials to
analysts and shareowners in the course of presentations about the Company and
conference calls following quarterly earnings releases, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Such factors include,
among other things, (i) general economic and business conditions; (ii) interest
rate changes; (iii) competition; (iv) the availability and cost of land and
other raw materials used by the Company in its homebuilding operations; (v)
unanticipated demographic changes; (vi) shortages of labor; (vii) weather
related slowdowns; (viii) slow growth initiatives; (ix) building moratoria; (x)
governmental regulation including environmental laws; and (xi) other factors
over which the Company has little or no control.
22
<PAGE>
Proposed Tax Plans.
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, are not determinable.
Reorganization of FAMC.
In March 1996, M.D.C. Holdings, Inc.("Holdings"), Mr. Spencer I. Browne
(previously President, Co-Chief Operating Officer and a director of Holdings),
M.D.C. Residual Holdings, Inc., a wholly owned subsidiary of Holdings
("Residual"), and Financial Asset Management Corporation ("Management
Corporation") entered into an agreement (the "Agreement") effective as of April
1, 1996, pursuant to which Mr. Browne, Residual and Management Corporation
formed FAMC. Mr. Browne owns 20% of FAMC, and Management Company and Residual
own the remaining 80% of FAMC.
Pursuant to the Agreement, (i) Mr. Browne resigned as President,
Co-Chief Operating Officer and a director of Holdings; (ii) Mr. Browne and
Holdings entered into an employment agreement (the "Employment Agreement");
(iii) Mr. Browne was appointed President and Chief Executive Officer of FAMC;
and (iv) FAMC assumed Management Corporation's business operations of managing
Asset Investors and Commercial Assets and performing certain other asset
management functions.
Also pursuant to the Agreement, Mr. Browne sold 473,142 shares of
Holdings' Common Stock to the Company for $7.125 per share for a total of
$3,371,137. A portion of the proceeds of this sale was used by Mr. Browne to
repay all outstanding principal and interest borrowed from the Company pursuant
to a Company option purchase program.
Mr. Browne acquired his 20% interest from FAMC by contributing to FAMC
$400,000 cash and a $2,100,000 promissory note (the "Promissory Note"). The
Promissory Note (i) has a maturity date of December 31, 1998; (ii) bears
interest at Holdings' corporate borrowing rate (not to exceed 13% per annum);
(iii) requires principal payments on April 1 of each year as specified in the
Promissory Note; and (iv) is secured by a pledge of Mr. Browne's interest in
FAMC.
The Agreement further provides that from January 1, 1997 through
December 31, 1998, Mr. Browne shall have the right to cause FAMC to purchase his
interest in FAMC at the "Put/Call Price" as defined below. Similarly, at all
times on and after January 1, 1997, FAMC shall have the right to purchase Mr.
Browne's interest in FAMC at the Put/Call Price. The Put/Call Price shall equal
the amount paid by Mr. Browne for his interest in FAMC increased by Mr. Browne's
share of FAMC's earnings subsequent to March 31, 1996 and decreased by (i) Mr.
Browne's share of FAMC's losses during the same period; (ii) all distributions
to Mr. Browne in respect of his interest in FAMC during the same period; and
(iii) the outstanding principal amount of, and accrued interest on, the
Promissory Note described above.
The Employment Agreement provides that Mr. Browne remains an employee
of Holdings. The term of the Employment Agreement is April 1, 1996 through
December 31, 1998, unless terminated earlier, subject to annual renewals
thereafter. The Employment Agreement provides (i) for Mr. Browne's compensation
in the form of a base salary, annual incentive compensation primarily based on
FAMC's pre-tax net income, subject to an annual limitation, and certain fringe
benefits; (ii) severance payments in the event Mr. Browne's employment with the
Company is terminated; and (iii) certain benefits in the event of a "change in
control" as defined in the Employment Agreement.
23
<PAGE>
ITEM 8. Financial Statements.
M.D.C. HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
----
Consolidated Financial Statements:
Report of Independent Accountants ................................ F-2
Consolidated Balance Sheets as of December 31, 1995
and December 31, 1994......................................... F-3
Consolidated Statements of Income for the
Three Years Ended December 31, 1995........................... F-5
Consolidated Statements of Stockholders' Equity for the
Three Years Ended December 31, 1995........................... F-6
Consolidated Statements of Cash Flows for the
Three Years Ended December 31, 1995........................... F-7
Notes to Consolidated Financial Statements........................ F-9
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREOWNERS OF
M.D.C. HOLDINGS, INC.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of M.D.C.
Holdings, Inc. and its subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
Los Angeles, California
February 20, 1996
F-2
<PAGE>
M.D.C. HOLDINGS, INC.
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
December 31,
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Corporate
Cash and cash equivalents........................................... $ 10,290 $ 31,210
Property and equipment, net......................................... 9,550 9,962
Deferred income taxes............................................... 13,730 11,944
Deferred issue costs, net........................................... 9,931 10,621
Other assets, net................................................... 3,830 3,270
----------- -----------
47,331 67,007
----------- -----------
Homebuilding
Cash and cash equivalents........................................... 5,096 10,162
Home sales and other accounts receivable............................ 26,192 12,508
Investments and marketable securities, net.......................... 6,481 6,089
Inventories, net
Housing completed or under construction........................... 265,205 280,319
Land and land under development................................... 176,960 183,838
Prepaid expenses and other assets, net.............................. 42,111 43,975
----------- -----------
522,045 536,891
----------- -----------
Mortgage Lending
Cash and cash equivalents........................................... 4,888 1,607
Restricted cash..................................................... - - 2,650
Accrued interest and other assets, net.............................. 1,145 1,447
Mortgage loans held in inventory, net............................... 53,153 44,368
----------- -----------
59,186 50,072
----------- -----------
Asset Management
Cash and cash equivalents........................................... 521 585
Mortgage Collateral, net of mortgage-backed bonds, and related
assets and liabilities............................................ 3,744 3,700
Other loans and assets, net......................................... 1,984 6,316
----------- -----------
6,249 10,601
----------- -----------
Total Assets.................................................. $ 634,811 $ 664,571
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
M.D.C. HOLDINGS, INC.
Consolidated Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
1995 1994
----------- -----------
<S> <C> <C>
LIABILITIES
Corporate
Accounts payable and accrued expenses............................... $ 18,892 $ 34,981
Income taxes payable................................................ 11,930 11,166
Notes payable....................................................... 3,537 3,583
Senior Notes, net................................................... 187,525 187,352
Subordinated notes, net............................................. 38,221 38,217
----------- -----------
260,105 275,299
----------- -----------
Homebuilding
Accounts payable and accrued expenses............................... 82,164 75,399
Lines of credit..................................................... 43,490 62,332
Notes payable....................................................... 10,571 33,585
----------- -----------
136,225 171,316
----------- -----------
Mortgage Lending
Accounts payable and accrued expenses............................... 11,458 2,450
Line of credit...................................................... 21,990 23,211
----------- -----------
33,448 25,661
----------- -----------
Total Liabilities............................................. 429,778 472,276
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES I, K
AND M).............................................................. - - - -
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 25,000,000 shares authorized; none
issued............................................................ - - - -
Common Stock, $.01 par value; 100,000,000 shares authorized;
22,606,000 and 21,187,000 shares issued, respectively, at
December 31, 1995 and 1994........................................ 226 212
Additional paid-in capital.......................................... 136,022 133,934
Retained earnings................................................... 87,476 71,502
----------- -----------
223,724 205,648
Less treasury stock, at cost, 3,157,000 and 2,314,000 shares,
respectively, at December 31, 1995 and 1994....................... (18,691) (13,353)
----------- -----------
Total Stockholders' Equity.................................... 205,033 192,295
----------- -----------
Total Liabilities and Stockholders' Equity.................... $ 634,811 $ 664,571
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
M.D.C. HOLDINGS, INC.
Consolidated Statements of Income
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Homebuilding............................................... $ 840,362 $ 793,793 $ 596,813
Mortgage Lending........................................... 17,559 15,850 19,725
Asset Management........................................... 6,389 6,245 15,409
Corporate.................................................. 1,546 1,357 2,376
----------- ----------- -----------
Total Revenues....................................... 865,856 817,245 634,323
----------- ----------- -----------
COSTS AND EXPENSES
Homebuilding............................................... 807,344 749,329 574,317
Mortgage Lending........................................... 8,271 8,899 12,217
Asset Management........................................... 2,339 3,449 6,413
Corporate general and administrative....................... 13,478 15,132 14,890
Corporate and homebuilding interest........................ 7,773 9,454 11,454
----------- ----------- -----------
Total Expenses....................................... 839,205 786,263 619,291
----------- ----------- -----------
Income before income taxes and extraordinary gain............. 26,651 30,982 15,032
Provision for income taxes.................................... 9,401 11,727 4,976
----------- ----------- -----------
Income before extraordinary gain.............................. 17,250 19,255 10,056
Extraordinary gain from early extinguishment of debt, net of
income taxes of $9,967..................................... - - - - 15,823
----------- ----------- -----------
NET INCOME.................................................... $ 17,250 $ 19,255 $ 25,879
=========== =========== ===========
EARNINGS PER SHARE
Primary Earnings Per Share
Income before extraordinary gain......................... $ .86 $ .94 $ .45
Extraordinary gain from early extinguishment of debt..... - - - - .71
----------- ----------- -----------
NET INCOME............................................... $ .86 $ .94 $ 1.16
=========== =========== ===========
Fully Diluted Earnings Per Share
Income before extraordinary gain......................... $ .79 $ .87 $ .45
Extraordinary gain from early extinguishment of debt..... - - - - .71
----------- ----------- -----------
NET INCOME............................................... $ .79 $ .87 $ 1.16
=========== =========== ===========
WEIGHTED-AVERAGE SHARES OUTSTANDING
Primary................................................ 20,124 20,406 22,340
=========== =========== ===========
Fully diluted.......................................... 23,918 24,021 22,340
=========== =========== ===========
DIVIDENDS PER SHARE........................................... $ .11 $ .06 $ - -
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
M.D.C. HOLDINGS, INC.
Consolidated Statements of Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock Total
------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES-JANUARY 1, 1993 $ 204 $ 132,332 $ 32,162 $ (516) $ 164,182
Shares issued................................ 5 430 - - - - 435
Shares reacquired............................ - - - - - - (15,173) (15,173)
Net unrealized loss on marketable securities. - - - - (162) - - (162)
Non-qualified stock options exercised........ - - 693 - - - - 693
Net income................................... - - - - 25,879 - - 25,879
------ ----------- ----------- ----------- -----------
BALANCES-DECEMBER 31, 1993...................... 209 133,455 57,879 (15,689) 175,854
Shares issued................................ 3 265 (46) 256 478
Shares reacquired............................ - - - - - - (1,505) (1,505)
Shares issued to acquire Richmond Homes
common stock............................... - - - - (3,585) 3,585 - -
Net unrealized loss on available-for-sale
securities................................. - - - - (860) - - (860)
Non-qualified stock options exercised........ - - 214 - - - - 214
Dividends declared........................... - - - - (1,141) - - (1,141)
Net income................................... - - - - 19,255 - - 19,255
------ ----------- ----------- ----------- -----------
BALANCES-DECEMBER 31, 1994...................... 212 133,934 71,502 (13,353) 192,295
Shares issued................................ 14 1,168 (11) 128 1,299
Shares reacquired............................ - - - - - - (5,466) (5,466)
Net unrealized gain on available-for-sale
securities................................. - - - - 888 - - 888
Non-qualified stock options exercised........ - - 2,281 - - - - 2,281
Notes receivable for stock purchases......... - - (1,361) - - - - (1,361)
Dividends declared........................... - - - - (2,153) - - (2,153)
Net income................................... - - - - 17,250 - - 17,250
------ ----------- ----------- ----------- -----------
BALANCES-DECEMBER 31, 1995...................... $ 226 $ 136,022 $ 87,476 $ (18,691) $ 205,033
====== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
M.D.C. HOLDINGS, INC.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income.......................................... $ 17,250 $ 19,255 $ 25,879
Adjustments To Reconcile Net Income To Net Cash
Provided By (Used In) Operating Activities:
Extraordinary gain from early extinguishment
of debt...................................... - - - - (25,790)
Gains on sale of mortgage-related assets, net.. (734) (295) (7,505)
Depreciation and amortization.................. 10,280 10,134 8,038
Inventory valuation adjustments................ 3,677 4,000 - -
Equity in losses of mortgage-related assets.... - - - - 3,100
Deferred income taxes.......................... (1,786) (3,844) (4,151)
---------- ---------- ----------
Net Cash Provided By (Used In) Operating Activities
Before Changes in Operating Assets and
Liabilities...................................... 28,687 29,250 (429)
Net Changes In Assets and Liabilities:
Receivables.................................... (13,684) (5,462) 3,489
Homebuilding inventories....................... 21,005 (76,991) (45,252)
Mortgage loans held in inventory............... (8,785) 24,076 (8,773)
Accounts payable and accrued expenses.......... 2,458 (8,833) 25,262
Other, net..................................... (7,128) 1,170 (8,534)
---------- ---------- ----------
Net Cash Provided By (Used In) Operating Activities. 22,553 (36,790) (34,237)
---------- ---------- ----------
INVESTING ACTIVITIES:
Net Proceeds From Mortgage-Related Assets and
Liabilities...................................... 4,596 (7,786) 17,128
Changes In Investments and Marketable Securities.... (414) (6,377) 12,000
Redemption of (Investment in) Metropolitan District
Bonds............................................ - - 16,395 (8,700)
Changes In Restricted Cash.......................... 2,650 16,159 13,071
Other, net.......................................... 1,896 877 (4,076)
---------- ---------- ----------
Net Cash Provided By Investing Activities........... 8,728 19,268 29,423
---------- ---------- ----------
(Continued)
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
M.D.C. HOLDINGS, INC.
Consolidated Statements of Cash Flows
(In thousands)
(Continued)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Lines of Credit
Advances........................................ 741,053 641,874 352,410
Principal payments.............................. (761,116) (612,449) (365,387)
Notes Payable
Borrowings...................................... 1,114 15,870 79,329
Principal payments.............................. (27,690) (44,835) (192,940)
Senior and Subordinated Notes
Net proceeds.................................... - - - - 204,013
Payments........................................ - - - - (54,498)
Treasury Stock Purchases............................. (5,466) (1,505) (15,173)
Dividend Payments.................................... (2,153) (1,141) - -
Other, net........................................... 208 269 (965)
---------- ----------- -----------
Net Cash (Used In) Provided By Financing Activities.. (54,050) (1,917) 6,789
---------- ----------- -----------
Net (Decrease) Increase In Cash and Cash Equivalents. (22,769) (19,439) 1,975
Cash and Cash Equivalents
Beginning of Year............................... 43,564 63,003 61,028
---------- ----------- -----------
End of Year..................................... $ 20,795 $ 43,564 $ 63,003
========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Year For:
Interest, net of amounts capitalized........... $ 8,923 $ 15,313 $ 29,499
Income taxes................................... 7,155 32,529 8,245
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Land purchases financed by seller................. $ 4,787 $ 4,164 $ 13,250
Land sales financed by MDC........................ 1,609 1,438 2,835
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 - -
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
M.D.C. HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Summary of Significant Accounting Policies
Principles of Consolidation - The 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) include the
accounts of MDC and its wholly owned and majority-owned subsidiaries.
Investments in 50% or less owned limited partnerships, joint ventures and
ownership interests in trusts are accounted for using the equity method. All
significant intercompany balances and transactions have been eliminated in
consolidation.
General. In the homebuilding segment of its operations, the Company (i)
principally acquires finished lots and, to a lesser extent, acquires land and
develops it for use in its homebuilding activities; and (ii) designs, constructs
and sells single-family residential homes. The Company conducts its homebuilding
operations in (i) metropolitan Denver and Colorado Springs, Colorado; (ii)
northern Virginia and suburban Maryland; (iii) Northern and Southern California;
(iv) Phoenix and Tucson, Arizona; and (v) Las Vegas, Nevada. Such operations are
financed primarily with publicly traded Senior Notes (as hereinafter defined)
and subordinated notes, bank lines of credit, internally-generated funds and, to
a lesser extent, promissory notes and project loans.
MDC's mortgage lending operations are conducted by HomeAmerican
Mortgage Corporation ("HomeAmerican"), which primarily provides mortgage loans
for MDC home buyers and, to a lesser extent, for others. Substantially all of
the mortgage loans originated by HomeAmerican, as well as mortgage loans
purchased from unaffiliated loan correspondents, subsequently are sold to
private investors. Additionally, HomeAmerican sells mortgage loan servicing.
In MDC's asset management segment, Financial Asset Management LLC (an
indirect subsidiary of M.D.C. Holdings, Inc., and the successor as of April 1,
1996 to Financial Asset Management Corporation, "FAMC") manages the operations
of two publicly traded real estate investment trusts (each a "REIT"). MDC also
owns other mortgage-related interests.
Homebuilding.
Inventories - Inventories are stated at the lower of cost or net
realizable value and include interest capitalized during the period of active
development through the completion of construction. Construction-related
overhead and salaries are capitalized and allocated proportionately to projects
actively being developed. Land and related costs are transferred to housing
inventory when construction commences.
Net realizable value is based on the Company's plans for development
and build-out of each project using estimated sales prices less estimated total
costs of the project, which includes interest anticipated to be capitalized
during development and anticipated costs to sell the project. Net realizable
value does not represent, for a specific project, the current sales price that
the Company could obtain from third parties for such properties and projects at
their current stage of development. Management believes that its assumptions as
to projected demand are reasonable based on present economic conditions and that
financing will be available to enable the Company to realize the carrying value
of its homebuilding inventories consistent with its plans for build-out and
development. Depending upon, among other things, conditions in the Company's
markets, it is reasonably possible that the amounts the Company will ultimately
realize could differ materially in the near term from the amounts estimated to
be realizable at December 31, 1995.
Revenue Recognition - Revenues from real estate sales are recognized
when a sufficient down payment has been received, financing has been arranged,
title, possession and other attributes of ownership have been transferred to the
buyer and the Company is not obligated to perform significant additional
activities after sale and delivery.
Warranty Costs - The Company's homes are sold with limited ten-year
warranties from independent entities. Home buyer claims under these warranties
generally are subject to a deductible payable by the Company.
F-9
<PAGE>
Reserves, which are included in home cost of sales, are established by the
Company on a per-house basis to cover anticipated costs of repairs during the
Company's warranty period and a portion of the supplemental warranty deductible.
Mortgage Lending.
Mortgage Loans Held in Inventory - The Company generally purchases
forward commitments to deliver mortgage loans held for sale. Mortgage loans held
in inventory are stated at the lower of aggregate cost or market based upon such
commitments for loans to be delivered into such commitments or prevailing market
for uncommitted loans. Substantially all of the loans originated or purchased by
the Company are sold to private investors within 45 days of origination or
purchase. Gains or losses on mortgage loans held in inventory are realized when
the loans are sold.
Revenue Recognition - Loan origination fees in excess of origination
costs incurred and loan commitment fees are deferred until the related loans are
sold. Loan servicing fees are recorded as revenue when the mortgage loan
payments are received. Revenues from the sale of mortgage loan servicing are
recognized when title and all risks and rewards of ownership have irrevocably
passed to the buyer and there are no significant unresolved contingencies.
Asset Management.
Restricted Cash - Restricted cash represents mortgage loan principal
and interest receipts held pending distribution to holders of mortgage-backed
bonds.
Mortgage Collateral and Mortgage-Backed Bonds - In prior periods,
certain of the Company's ownership interests in Mortgage Collateral (as
hereinafter defined) and the related mortgage-backed bonds were presented on a
gross basis on the balance sheets and statements of income. Accordingly, the
book values of the Mortgage Collateral and mortgage-backed bonds were presented
separately as assets and liabilities, respectively, on the balance sheets, and
interest income on Mortgage Collateral and interest expense on the related
mortgage-backed bonds were presented separately as income and expenses,
respectively, on the statements of income. Substantially all of such interests
are at, or are nearing, the ends of their economic lives. Accordingly, the
Company does not anticipate that such net assets will generate significant
amounts of income or cash flow in the future. Beginning in the fourth quarter of
1995, the Company's balance sheets for all periods presented reflect its
ownership interests in Mortgage Collateral net of the related mortgage-backed
bonds, and the statements of income for all periods presented reflect earnings
from such interests net of the related interest expense.
General.
Cash and Cash Equivalents - The Company periodically invests funds not
immediately required for operating purposes in highly liquid, short-term
investments with an original maturity of 90 days or less such as commercial
paper and repurchase agreements which are included in cash and cash equivalents
in the Consolidated Balance Sheet and Consolidated Statement of Cash Flows.
Property and Equipment - Property and equipment is carried at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets.
Earnings Per Share - Primary earnings per share are based on the
weighted-average number of common and common equivalent shares outstanding
during each period. For the years ended December 31, 1995 and 1994, fully
diluted earnings per share also assumes the conversion into MDC Common Stock of
all of the outstanding Convertible Subordinated Notes (as hereinafter defined)
at the stated conversion price.
Estimates in Financial Statements - The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
F-10
<PAGE>
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassifications - Certain amounts in the 1994 and 1993 consolidated
financial statements have been reclassified to conform to the 1995 presentation.
F-11
<PAGE>
B. Information on Business Segments
The Company operates in three business segments: homebuilding, mortgage
lending and asset management. A summary of the Company's segment information is
shown below (in thousands).
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Homebuilding
Home sales........................................ $ 827,448 $ 784,453 $ 587,887
Land sales........................................ 10,396 8,296 7,441
Other revenues.................................... 2,518 1,044 1,485
----------- ----------- -----------
840,362 793,793 596,813
----------- ----------- -----------
Home cost of sales................................ 716,859 663,549 504,136
Land cost of sales................................ 10,176 7,977 7,864
Inventory valuation reserves...................... 3,677 4,000 - -
Marketing......................................... 49,938 44,588 34,820
General and administrative........................ 26,694 29,215 27,497
----------- ----------- -----------
807,344 749,329 574,317
----------- ----------- -----------
Operating Profit................................ 33,018 44,464 22,496
----------- ----------- -----------
Mortgage Lending
Interest revenues................................. 3,412 2,897 4,769
Origination fees.................................. 5,258 4,671 6,171
Sales of mortgage servicing....................... 8,336 6,770 4,235
Gains (losses) on sales of mortgage loans, net.... (1,293) (585) 2,864
Mortgage servicing and other...................... 1,846 2,097 1,686
----------- ----------- -----------
17,559 15,850 19,725
----------- ----------- -----------
Interest expense.................................. 131 194 1,631
General and administrative........................ 8,140 8,705 10,586
----------- ----------- -----------
8,271 8,899 12,217
----------- ----------- -----------
Operating Profit................................ 9,288 6,951 7,508
----------- ----------- -----------
Asset Management
Management fees and other......................... 5,299 5,509 5,073
Gains on sales of mortgage-related assets......... 734 295 7,505
Interest revenues................................. 356 441 2,831
----------- ----------- -----------
6,389 6,245 15,409
----------- ----------- -----------
General and administrative........................ 2,339 3,449 2,948
Equity in losses of mortgage-related assets....... - - - - 3,100
Interest expense.................................. - - - - 365
----------- ----------- -----------
2,339 3,449 6,413
----------- ----------- -----------
Operating Profit................................ 4,050 2,796 8,996
----------- ----------- -----------
Total Operating Profit............................... 46,356 54,211 39,000
----------- ----------- -----------
Corporate
Other revenues.................................... 1,546 1,357 2,376
----------- ----------- -----------
Interest expense.................................. 7,773 9,454 11,454
General and administrative........................ 13,478 15,132 14,890
----------- ----------- -----------
21,251 24,586 26,344
----------- ----------- -----------
Net Corporate Expenses.......................... (19,705) (23,229) (23,968)
----------- ----------- -----------
Income Before Income Taxes and Extraordinary Gain.... $ 26,651 $ 30,982 $ 15,032
=========== =========== ===========
</TABLE>
Corporate general and administrative expenses consist principally of
salaries and other administrative expenses which are not identifiable to a
specific segment. Transfers between segments are recorded at cost. Capital
F-12
<PAGE>
expenditures and related depreciation and amortization for the years ended
December 31, 1995, 1994 and 1993 were not material. Identifiable segment assets
are shown on the face of the Consolidated Balance Sheet.
C. Mortgage Loans Held in Inventory
Mortgage loans held in inventory consist of (in thousands):
<TABLE>
<CAPTION>
December 31,
1995 1994
---------- ----------
<S> <C> <C>
First mortgage loans
Conventional...................................... $ 33,451 $ 28,857
FHA and VA........................................ 21,272 17,467
---------- ----------
54,723 46,324
Less
Unamortized discounts............................. (469) (1,063)
Deferred fees..................................... (300) (212)
Allowance for loan losses......................... (801) (681)
---------- ----------
Total........................................... $ 53,153 $ 44,368
========== ==========
</TABLE>
Mortgage loans held in inventory consist primarily of loans
collateralized by first mortgages and deeds of trust due over periods of up to
30 years. The weighted-average effective yield on mortgage loans held in
inventory was approximately 7.4% and 8.4%, respectively, at December 31, 1995
and 1994.
D. Mortgage Collateral, net of Mortgage-Backed Bonds, and Related Assets and
Liabilities
In the past, mortgage-backed bonds were issued by limited-purpose
subsidiaries of the asset management segment and other non-related entities.
Payments are made on the bonds on a periodic basis as a result of, and in
amounts related to, corresponding payments received on the underlying mortgage
collateral (the "Mortgage Collateral"). Mortgage Collateral for mortgage-backed
bonds payable consists of fixed-rate mortgage loans and mortgage-backed
securities secured by first liens on single-family residential housing.
Mortgage-backed securities consist of Government National Mortgage Association
("GNMA") certificates, Federal National Mortgage Association ("FNMA") mortgage
pass-through certificates and conventional mortgage loans. All of the Mortgage
Collateral and related assets are held by a trustee. All principal and interest
on the collateral is remitted directly to a trustee and is available for payment
on the bonds, all of which are rated "AAA" by Standard and Poor's Corporation or
other national credit rating agencies. The Company has not guaranteed, nor is it
otherwise obligated with respect to, these mortgage-backed bond issues.
F-13
<PAGE>
The following assets and liabilities are held by trustees (in
thousands):
<TABLE>
<CAPTION>
December 31,
1995 1994
---------- ----------
<S> <C> <C>
Assets
Restricted cash............................................ $ 3,403 $ 3,227
Interest and other receivables............................. 366 640
Mortgage-backed securities
FNMA certificates........................................ 3,312 13,382
GNMA certificates........................................ 26,618 34,164
Conventional mortgage loans................................ 12,148 13,930
Valuation reserve.......................................... (1,233) (2,259)
Unamortized discounts and premiums, net.................... (63) (301)
Other assets............................................... 1,427 1,791
---------- ----------
Total Mortgage Collateral and Related Assets.................. 45,979 64,574
---------- ----------
Liabilities
Accounts payable and accrued interest...................... 813 1,231
Mortgage-backed bonds...................................... 41,499 59,926
Unamortized discounts...................................... (77) (283)
---------- ----------
Total Mortgage-Backed Bonds and Related Liabilities........... 42,235 60,874
---------- ----------
Mortgage Collateral, Net of Mortgage-Backed Bonds and Related
Assets and Liabilities..................................... $ 3,744 $ 3,700
========== ==========
</TABLE>
The weighted-average effective yield on the Mortgage Collateral was
approximately 9.4% and 9.5% at December 31, 1995 and 1994. Mortgage-backed bonds
mature through 2019 and bear interest at weighted-average rates of 9.8% and
9.9%, respectively, at December 31, 1995 and 1994. The negative difference
between the effective yield on the Mortgage Collateral and interest rates on the
mortgage-backed bonds primarily is covered by the overcollateralization of the
bonds.
Because the mortgage-backed bond indentures prohibit liquidation of the
Mortgage Collateral, the Mortgage Collateral cannot be sold unless the
corresponding mortgage-backed bonds payable are redeemed. The mortgage-backed
bonds can be redeemed before maturity by the Company only under certain
prescribed conditions. If those conditions are met, and the Company redeems the
mortgage-backed bonds, the mortgage-backed bonds would be redeemed at par and
any market appreciation or depreciation on the related Mortgage Collateral would
accrue to the Company.
In 1995, 1994 and 1993, MDC sold, at a premium, Mortgage Collateral
totalling $9,618,000, $19,088,000 and $44,735,000, respectively. The proceeds
from these sales were utilized to redeem in full the related outstanding
mortgage-backed bonds which totalled $8,547,000, $19,109,000 and $44,375,000,
respectively. These sales, net of redemptions, resulted in pre-tax gains
totalling $305,000, $295,000 and $2,129,000, respectively.
E. Lines of Credit
Homebuilding - The aggregate amount of MDC's homebuilding bank lines of
credit at December 31, 1995 was $158,149,000 compared with $153,000,000 at
December 31, 1994. Available borrowings under these bank lines of credit are
collateralized by homebuilding inventories and are limited to the value of
"eligible collateral" (as defined in the credit agreements). At December 31,
1995, $43,490,000 was borrowed and an additional $112,693,000 was collateralized
and available to be borrowed. At December 31, 1995, the weighted-average
interest rate of the lines of credit was 8.3%.
Mortgage Lending - The aggregate amount available under MDC's mortgage
lending bank line of credit at December 31, 1995, was $51,000,000. Available
borrowings under this bank line of credit are collateralized by mortgage loans
and mortgage-backed certificates and are limited to the value of "eligible
collateral" (as defined in
F-14
<PAGE>
the credit agreement). At December 31, 1995, $21,990,000 was borrowed and an
additional $16,580,000 was collateralized and available to be borrowed. The
mortgage lending line of credit is cancellable upon 90 days' notice. At December
31, 1995, the weighted-average interest rate of the line was 6.9%.
General - The agreements for the Company's bank lines of credit include
representations, warranties and covenants, the most restrictive of which require
that the Company maintain certain minimum defined stockholders' equity.
Currently, the Company believes that it is in compliance with these covenants,
representations and warranties.
F. Notes Payable
Senior Notes and Subordinated Notes - The Senior Notes (as hereinafter
defined) and the subordinated notes consist of (in thousands):
<TABLE>
<CAPTION>
December 31,
1995 1994
---------- ----------
<S> <C> <C>
Senior Notes
11 1/8% Senior Notes due December 2003 (effective rate 12.3%)....... $ 187,525 $ 187,352
========== ==========
Subordinated notes
8 3/4% Convertible Subordinated Notes due December 2005,
convertible into Common Stock at $7.75 per common share
(effective rate 9.5%)............................................. $ 28,000 $ 28,000
6.64% Subordinated Fixed-Rate Notes due April 1998 (effective rate
6.7%)............................................................. 10,221 10,217
---------- ----------
$ 38,221 $ 38,217
========== ==========
</TABLE>
In December 1993, the Company completed an offering (the "1993
Offering") of $190,000,000 principal amount of 11 1/8% senior notes due 2003
(the "Senior Notes") and $28,000,000 principal amount of 8 3/4% convertible
subordinated notes due 2005 (the "Convertible Subordinated Notes"). The Senior
Notes were sold at 98.525% of par value. The Convertible Subordinated Notes were
sold at par value and are convertible into MDC Common Stock at an initial
conversion price of $7.75 per share, subject to adjustment upon certain events.
A portion of the proceeds of the 1993 Offering was utilized to redeem
$51,816,000 principal amount of 11 1/4% senior subordinated notes due May 1996
at par value, resulting in an extraordinary loss on the early extinguishment of
debt of $885,000, net of an income tax benefit of $559,000. A portion of the
proceeds of the 1993 Offering was also used to repurchase certain notes payable
resulting in an extraordinary gain on the early extinguishment of debt in 1993
of $16,708,000, net of income taxes of $10,526,000.
The Senior Notes are guaranteed, fully and unconditionally, and jointly
and severally on an unsecured subordinated basis (the "Guaranties") by most of
the Company's homebuilding segment subsidiaries (the "Guarantors"). The
Guaranties are subordinated to all Guarantor Senior Indebtedness as defined in
the indenture pursuant to which the Senior Notes are issued (the "Senior Notes
Indenture"). In addition, the Senior Notes are secured by a first priority
pledge of the capital stock of most of the Guarantors plus the capital stock of
HomeAmerican. The Senior Notes Indenture contains certain covenants which, among
other things, limit (i) the incurrence of additional Indebtedness (as defined)
by the Company and Restricted Subsidiaries (as defined); (ii) the payment of
dividends; (iii) the repurchase of capital stock or subordinated indebtedness;
and (iv) the ability to enter into transactions with Affiliates (as defined) or
merge, consolidate or transfer substantially all of the Company's or a
Guarantor's assets. At December 31, 1995, the Company was in compliance with all
covenants.
Other Notes Payable - Notes payable other than the notes discussed
above consist principally of loans collateralized by real estate. These notes
bear interest at rates ranging from 8.0% to 11.0%. The aggregate net carrying
value of the assets collateralizing the other notes payable totalled
approximately $20,000,000 at December 31, 1995.
F-15
<PAGE>
General - The following table sets forth the scheduled principal
payments on the Senior Notes, subordinated notes and notes payable at December
31, 1995 (in thousands).
1996............. $ 3,758
1997............. 4,074
1998............. 10,740
1999............. 516
2000............. 523
Thereafter....... 222,728
G. Stockholders' Equity
Stock Option Plans - In 1993, the Company adopted incentive plans (the
"Plans") to replace the 1983 Incentive Stock Option Plan and the 1983
Non-Qualified Stock Option Plan, each of which expired in January 1993.
A summary of the Plans follows:
Employee Equity Incentive Plan - The Employee Equity Incentive Plan
(the "Employee Plan") provides for an initial authorization of 2,100,000 shares
of MDC Common Stock for issuance thereunder plus an additional annual
authorization equal to 10% of the then authorized shares of MDC Common Stock
under the Employee Plan as of each succeeding annual anniversary of the
effective date of the Employee Plan. Under the Employee Plan, the Company may
grant awards of restricted stock, incentive and non-statutory stock options and
dividend equivalents, or any combination thereof, to officers and employees of
the Company or any of its subsidiaries. The incentive stock options granted
under this plan are exercisable at prices greater than or equal to the market
value on the date of grant over periods of up to six years. Non-statutory
options granted under this plan have discretionary exercise prices and are
exercisable over periods of up to six years.
Director Equity Incentive Plan - Under the Director Equity Incentive
Plan (the "Director Plan"), non-employee directors of the Company will be
entitled to receive stock options. The Director Plan provides for an initial
authorization of 300,000 shares of MDC Common Stock for issuance thereunder plus
an additional annual authorization of shares equal to 10% of the then authorized
shares of MDC Common Stock under the Director Plan. Each option granted under
the Director Plan will expire five years from the date of grant. The option
exercise price must be equal to 100% of the fair market value of the MDC Common
Stock on the date of grant of the option.
F-16
<PAGE>
A summary of the changes in options during each of the three years
ended December 31, 1995 is as follows (in shares of MDC Common Stock):
Outstanding - January 1, 1993 2,598,437
Exercised at prices ranging from $.28 to $1.88............. (489,938)
Granted at prices ranging from $3.88 to $6.60.............. 1,185,000
Cancelled.................................................. (92,125)
-----------
Outstanding - December 31, 1993............................... 3,201,374
Exercised at prices ranging from $.28 to $1.88............. (271,974)
Granted at prices ranging from $4.75 to $6.38.............. 635,000
Cancelled.................................................. (3,000)
-----------
Outstanding - December 31, 1994............................... 3,561,400
Exercised at prices ranging from $.28 to $3.125............ (1,418,900)
Granted at prices ranging from $6.63 to $6.75.............. 105,000
Cancelled.................................................. (100,000)
-----------
Outstanding - December 31, 1995............................... 2,147,500
===========
Exercise prices of outstanding options at December 31, 1995... $3.00 to
$6.75
===========
Exercisable at December 31, 1995.............................. 888,327
===========
Reserved for issuance at December 31, 1995.................... 1,029,000
===========
Executive Option Purchase Program - Pursuant to the terms of the
Executive Option Purchase Program (the "Option Purchase 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 Option Purchase Program. During 1995, certain eligible executives of the
Company exercised options to purchase 824,414 shares of MDC Common Stock and
borrowed $1,361,000 in the aggregate under the Option Purchase Program. Notes
receivable under the Option Purchase Program are recourse and secured by 100% of
the shares of MDC Common Stock issued in connection with options exercised. The
$1,361,000 in notes receivable are deducted from stockholders' equity.
Common Stock Repurchase Plan - During 1995, the Company repurchased
865,600 shares of MDC Common Stock at prices ranging from $5.88 to $6.50 ($6.32
average, including commissions) pursuant to a program authorized by the MDC
Board of Directors to repurchase up to 1,100,000 shares of MDC Common Stock and
up to 1% of the principal amount of each of its outstanding Senior Notes and
Convertible Subordinated Notes. On January 19, 1996, the Company repurchased an
additional 230,000 shares at $7.13 pursuant to such repurchase plan.
Exchange of Common Stock - Prior to February 2, 1994, Larry A. Mizel
(Chairman of the Board, Chief Executive Officer and President of the Company)
and David D. Mandarich (Executive Vice President-Real Estate, Chief Operating
Officer and a director of the Company) owned 35% of the outstanding shares of
Richmond Homes, Inc. I (the Company's consolidated subsidiary which conducts
substantially all of the Company's home building activities in Colorado,
"Richmond Homes") common stock. In furtherance of the Company's desire to own
all of the outstanding shares of Richmond Homes common stock, in December 1993,
a special committee of the Board of Directors of the Company negotiated on
behalf of the Company terms of an option agreement with Messrs. Mizel and
Mandarich to acquire the shares of Richmond Homes common stock owned by them in
exchange for MDC Common Stock with a value of up to $3,500,000 in the aggregate.
For purposes of the exchange, the shares of MDC Common Stock were valued at
$5.75 per share, the closing price of MDC Common Stock on the date of the option
agreement. The special committee engaged a financial advisor to perform a
business enterprise valuation of
F-17
<PAGE>
Richmond Homes. In February 1994, based on the results of the valuation, the
maximum value of $3,500,000 of MDC Common Stock (an aggregate of 608,695 shares)
was issued to Messrs. Mizel and Mandarich in exchange for their shares of
Richmond Homes common stock. As of February 2, 1994, MDC owns 100% of the equity
of Richmond Homes.
As the transaction with Messrs. Mizel and Mandarich was between related
parties, the issuance of the MDC Common Stock was recorded based on the net book
value of Richmond Homes, which had approximately zero common stockholders'
equity at the date of the acquisition. Accordingly, the value of the shares of
MDC Common Stock issued to Messrs. Mizel and Mandarich was recorded at zero.
H. Interest
Interest activity is set forth below (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Interest capitalized in homebuilding inventory, beginning of
year....................................................... $ 42,478 $ 42,681 $ 48,440
Corporate and homebuilding interest incurred.................. 33,909 35,799 25,505
Corporate and homebuilding interest expensed.................. (7,773) (9,454) (11,454)
Previously capitalized interest included in cost of sales..... (28,397) (26,548) (19,810)
----------- ----------- -----------
Interest capitalized in homebuilding inventory, end of year... $ 40,217 $ 42,478 $ 42,681
=========== =========== ===========
Homebuilding inventories, end of year......................... $ 442,165 $ 464,157 $ 393,904
=========== =========== ===========
</TABLE>
I. Income Taxes
Total income taxes has been allocated as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Tax expense on income before income taxes and
extraordinary gains............................... $ 9,401 $ 11,727 $ 4,976
Extraordinary gains.................................. - - - - 9,967
Stockholders' equity, related to exercise of stock
options........................................... (2,281) (214) (693)
---------- ---------- ----------
Total income taxes................................... $ 7,120 $ 11,513 $ 14,250
========== ========== ==========
</TABLE>
F-18
<PAGE>
The significant components of income tax expense on income before
income taxes and extraordinary gain consist of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Current Tax Expense
Federal........................................... $ 9,980 $ 13,970 $ 6,485
State............................................. 1,207 1,603 853
---------- ---------- ----------
Total Current................................... 11,187 15,573 7,338
---------- ---------- ----------
Deferred Tax Expense (Benefit)
Federal........................................... (2,402) (2,540) (1,933)
State............................................. 616 (1,306) (429)
---------- ---------- -----------
Total Deferred.................................. (1,786) (3,846) (2,362)
----------- ---------- ----------
Total Income Tax Expense............................. $ 9,401 $ 11,727 $ 4,976
========== ========== ==========
</TABLE>
The provision for income tax expense differs from the amount which
would be computed by applying the statutory federal income tax rate of 35% to
pre-tax income before extraordinary gain as a result of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Tax expense computed at statutory rate............... $ 9,330 $ 10,844 $ 5,261
Increase (reduction) due to:
Permanent differences between financial
statement income and taxable income........... (513) (1,089) (559)
State income tax, net of federal benefit........ 584 933 274
Adjustments to prior years' income taxes........ - - 978 - -
Other........................................... - - 61 - -
---------- ---------- ----------
Total Income Tax Expense............................. $ 9,401 $ 11,727 $ 4,976
========== ========== ==========
Effective Tax Rate................................... 35.3% 37.9% 36.6%
========== ========== ==========
</TABLE>
F-19
<PAGE>
The tax effects of the temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities are
presented below (in thousands).
<TABLE>
<CAPTION>
December 31,
1995 1994
---------- ----------
<S> <C> <C>
Deferred Tax Assets:
Reserve for losses................................ $ 12,335 $ 10,340
Inventory valuation reserves...................... 5,947 8,092
Accrued liabilities............................... 3,811 4,196
Inventory, additional costs capitalized for tax
purposes........................................ 2,562 - -
Property and equipment............................ 1,113 932
Other assets, additional costs capitalized for
tax purposes.................................... 139 1,565
Mortgage-related asset impairment................. - - 1,610
---------- ----------
Total gross deferred tax assets............... 25,907 26,735
Less valuation allowance.......................... (3,000) (3,000)
---------- ----------
Deferred tax assets........................... 22,907 23,735
---------- ----------
Deferred Tax Liabilities:
Discount on notes receivable...................... 9,086 5,536
Deferred revenue, principally due to installment
sales........................................... 91 902
Inventory, additional costs capitalized for
financial statement purposes.................... - - 5,353
---------- ----------
Total gross deferred tax liabilities.......... 9,177 11,791
---------- ----------
Net Deferred Tax Asset............................ $ 13,730 $ 11,944
========== ==========
</TABLE>
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.
In April 1995, the Company and the Internal Revenue Service (the "IRS")
reached final agreement on the IRS examinations of (i) the MDC Consolidated
Returns for the years 1984 and 1985; and (ii) 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 adjustments to taxable income
reflected in such returns which 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 certain 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; however, it is reasonably
possible that the ultimate resolution could result in amounts which differ
materially in the near term from amounts provided.
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
F-20
<PAGE>
from these examinations; however, it is reasonably possible that the ultimate
resolution could result in amounts which differ materially in the near term from
amounts provided.
J. Earnings Per Share
Primary earnings per share are based on the weighted-average number of
common and common equivalent shares outstanding during each period. In 1995 and
1994, 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 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>
Year Ended December 31,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Primary Earnings Per Share Calculation:
Income before extraordinary gain.................. $ 17,250 $ 19,255 $ 10,056
Extraordinary gain from early extinguishment of
debt, net of income taxes of $9,967............. - - - - 15,823
---------- ---------- ----------
Net Income.................................. $ 17,250 $ 19,255 $ 25,879
========== ========== ==========
Weighted-average shares outstanding.................. 19,362 18,951 20,501
Dilutive stock options............................... 762 1,455 1,839
---------- ---------- ----------
Total Weighted-Average Shares........................ 20,124 20,406 22,340
========== ========== ==========
Primary Earnings Per Share:
Income before extraordinary gain.................. $ .86 $ .94 $ .45
Extraordinary gain from early extinguishment of
debt............................................ - - - - .71
---------- ---------- ----------
Net Income.................................. $ .86 $ .94 $ 1.16
========== ========== ==========
Fully Diluted Earnings Per Share Calculation:
Income before extraordinary gain.................. $ 17,250 $ 19,255 $ 10,056
Adjustment for interest on Convertible
Subordinated Notes, net of income tax benefit;
conversion assumed.............................. 1,565 1,536 - -
---------- ---------- ----------
Adjusted income before extraordinary gain......... 18,815 20,791 10,056
Extraordinary gain from early extinguishment of
debt, net of income taxes of $9,967............. - - - - 15,823
---------- ---------- ----------
Adjusted Net Income......................... $ 18,815 $ 20,791 $ 25,879
========== ========== ==========
Weighted-average shares outstanding.................. 19,362 18,951 20,501
Dilutive stock options............................... 943 1,457 1,839
Shares issuable upon conversion of Convertible
Subordinated Notes; conversion assumed............ 3,613 3,613 - -
---------- ---------- ----------
Total Weighted-Average Shares............... 23,918 24,021 22,340
========== ========== ==========
Fully Diluted Earnings Per Share:
Income before extraordinary gain.................. $ .79 $ .87 $ .45
Extraordinary gain from early extinguishment of
debt............................................ - - - - .71
---------- ---------- ----------
Net Income.................................. $ .79 $ .87 $ 1.16
========== ========== ==========
</TABLE>
F-21
<PAGE>
K. Legal Proceedings
Expansive Soils Cases.
On October 21, 1994, a complaint was served on several of the Company's
subsidiaries in an action initiated by six homeowners in Highlands Ranch,
Colorado. On January 26, 1995, counsel for the Company accepted service of two
additional complaints by a homeowner in the Stonegate subdivision in Douglas
County, Colorado and by a homeowner in the Rock Creek development located in
Boulder County, Colorado. On September 12, 1995, the Company was served with a
similar complaint relating to homeowners in Douglas County, Colorado. The
complaints, each of which seek certification of a class action, purport to
allege substantially identical claims relating to the construction of homes on
lots with expansive soils, including negligence, breach of express and implied
warranties, violation of the Colorado Consumer Protection Act, non-disclosure
and a claim for exemplary damages. The homeowners in each complaint seek,
individually and on behalf of the alleged class, recovery in unspecified amounts
including actual damages, statutory damages, exemplary damages and treble
damages. The Company has filed a response to each of the complaints and to
initial discovery requests in the first filed case. The ultimate outcome of the
cases is uncertain at this time; however, management does not believe that the
outcome of these matters will have a material adverse effect on the financial
condition or results of operations of the Company.
The Company has notified its insurance carriers of these complaints and
currently is reviewing with the carriers how the Company will proceed. The
insurance carriers providing primary coverage have agreed to defend the Company
in the cases subject to reservations of rights.
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. Because of the nature of the
homebuilding business, and in the ordinary course of the Company's operations,
the Company from time to time may be subject to product liability claims,
including claims similar to those discussed under the description of the
Expansive Soils Cases, above. 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.
L. Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate such value.
Cash and Cash Equivalents - For cash and cash equivalents, the
carrying value is a reasonable estimate of fair value.
Investments and Marketable Securities, Net - Investments in marketable
equity securities are carried on the balance sheet at cost, which approximates
market value. Accordingly, the carrying value of the investments is a reasonable
estimate of the fair value.
Mortgage Loans Held in Inventory - The Company generally purchases
forward commitments to deliver mortgage loans held for sale. For loans which
have no forward commitments, loans in inventory are stated at the lower of cost
or market. Accordingly, the carrying value is a reasonable estimate of fair
value.
Notes Payable and Lines of Credit - The Company's notes payable and
lines of credit are at floating rates or at fixed rates which approximate
current market rates and have relatively short-term maturities. Accordingly,
the carrying value is a reasonable estimate of fair value.
F-22
<PAGE>
Senior Notes and Subordinated Notes - Senior Notes and subordinated
notes are valued based on dealer quotes.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
------------------------- ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents....................... $ 20,795 $ 20,795 $ 43,564 $ 43,564
Investments and marketable securities, net...... 6,481 6,481 6,089 6,089
Mortgage loans held in inventory................ 53,153 53,153 44,368 44,368
Financial liabilities:
Notes payable................................... 14,108 14,108 37,168 37,168
Lines of credit................................. 65,480 65,480 85,543 85,543
Senior Notes.................................... 187,525 183,350 187,352 156,750
Subordinated notes.............................. 38,221 38,220 38,217 31,922
</TABLE>
M. Commitments and Contingencies
To reduce exposure to fluctuations in interest rates, HomeAmerican
makes commitments to originate (buy) and sell loans and mortgage-backed
securities. At December 31, 1995, commitments by HomeAmerican to originate
mortgage loans totalled $25,808,000, at market rates of interest. At December
31, 1995, unexpired forward commitments to sell loans totalled $52,448,000.
MDC leases office space, equipment and certain of its model show homes
under noncancellable operating leases. Future minimum rental payments for leases
with initial terms in excess of one year total $1,476,000 in 1996, $1,080,000 in
1997, $940,000 in 1998, $451,000 in 1999 and $183,000 in 2000. Rent expense
under cancellable and noncancellable leases totalled $2,662,000, $3,250,000 and
$2,956,000 in 1995, 1994 and 1993, respectively.
MDC has entered into agreements to guarantee payment of principal and
interest on $30,080,000 principal amount of bonds issued by municipal agencies
to fund the development of project infrastructure for a master-planned community
in Colorado.
N. Supplemental Guarantor Information
The Senior Notes are unconditionally guaranteed on an unsecured
subordinated basis, jointly and severally, by Richmond American Homes of
California, Inc., Richmond American Homes of Maryland, Inc., Richmond American
Homes of Nevada, Inc., Richmond American Homes of Virginia, Inc., Richmond
American Homes, 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.
F-23
<PAGE>
Supplemental Combining Balance Sheet
December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Unconsolidated
----------------------------------------
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Corporate
Cash and cash equivalents.................... $ 10,290 $ - - $ - - $ - - $ 10,290
Investments in subsidiaries.................. 303,694 - - 17,434 (321,128) - -
Advances and notes receivable - Parent and
subsidiaries............................... 210,656 33 21,550 (232,239) - -
Property and equipment, net.................. 9,550 - - - - - - 9,550
Deferred income taxes........................ 13,730 - - - - - - 13,730
Deferred issue costs, net.................... 9,931 - - - - - - 9,931
Other assets, net............................ 3,730 - - 100 - - 3,830
----------- ----------- ----------- ----------- -----------
561,581 33 39,084 (553,367) 47,331
----------- ----------- ----------- ----------- -----------
Homebuilding
Cash and cash equivalents.................... 6 5,054 36 - - 5,096
Home sales and other accounts receivable..... - - 37,726 - - (11,534) 26,192
Investments and marketable securities, net... 6,481 - - - - - - 6,481
Inventories, net
Housing completed or under construction.... - - 265,205 - - - - 265,205
Land and land under development............ - - 150,531 27,676 (1,247) 176,960
Prepaid expenses and other assets, net....... 3,633 38,453 25 - - 42,111
----------- ----------- ----------- ----------- -----------
10,120 496,969 27,737 (12,781) 522,045
----------- ----------- ----------- ----------- -----------
Mortgage Lending
Cash and cash equivalents.................... - - - - 4,888 - - 4,888
Accrued interest and other assets, net....... - - - - 1,145 - - 1,145
Mortgage loans held in inventory, net........ - - - - 53,153 - - 53,153
----------- ----------- ----------- ----------- -----------
- - - - 59,186 - - 59,186
----------- ----------- ----------- ----------- -----------
Asset Management
Cash and cash equivalents.................... - - - - 521 - - 521
Mortgage Collateral, net of mortgage-backed
bonds, and related assets and liabilities.. - - - - 3,744 - - 3,744
Other loans and assets, net.................. - - - - 1,984 - - 1,984
----------- ----------- ----------- ----------- -----------
- - - - 6,249 - - 6,249
----------- ----------- ----------- ----------- -----------
Total Assets........................... $ 571,701 $ 497,002 $ 132,256 $ (566,148) $ 634,811
=========== =========== =========== =========== ===========
</TABLE>
F-24
<PAGE>
Supplemental Combining Balance Sheet
December 31, 1995
(In thousands)
(continued)
<TABLE>
<CAPTION>
Unconsolidated
----------------------------------------
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
LIABILITIES
Corporate
Accounts payable and accrued expenses........ $ 17,897 $ - - $ 995 $ - - $ 18,892
Advances and notes payable - Parent and
subsidiaries............................... 98,525 210,754 20,434 (329,713) - -
Income taxes payable......................... 11,930 - - - - - - 11,930
Notes payable................................ 3,537 - - - - - - 3,537
Senior Notes, net............................ 187,525 - - - - - - 187,525
Subordinated notes, net...................... 38,221 - - - - - - 38,221
----------- ----------- ----------- ----------- -----------
357,635 210,754 21,429 (329,713) 260,105
----------- ----------- ----------- ----------- -----------
Homebuilding
Accounts payable and accrued expenses........ 5,403 75,831 924 6 82,164
Lines of credit.............................. - - 43,490 - - - - 43,490
Notes payable................................ 3,630 3,192 3,749 - - 10,571
----------- ----------- ----------- ----------- -----------
9,033 122,513 4,673 6 136,225
----------- ----------- ----------- ----------- -----------
Mortgage Lending
Accounts payable and accrued expenses........ - - - - 23,021 (11,563) 11,458
Line of credit............................... - - - - 21,990 - - 21,990
----------- ----------- ----------- ----------- -----------
- - - - 45,011 (11,563) 33,448
----------- ----------- ----------- ----------- -----------
Total Liabilities...................... 366,668 333,267 71,113 (341,270) 429,778
----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock.............................. - - - - 10 (10) - -
Common Stock................................. 226 19 82 (101) 226
Additional paid-in capital................... 136,022 144,756 224,914 (369,670) 136,022
Retained earnings............................ 87,476 18,960 (163,854) 144,894 87,476
Less treasury stock.......................... (18,691) - - (9) 9 (18,691)
----------- ----------- ----------- ----------- -----------
Total Stockholders' Equity............. 205,033 163,735 61,143 (224,878) 205,033
----------- ----------- ----------- ----------- -----------
Total Liabilities and Stockholders'
Equity............................... $ 571,701 $ 497,002 $ 132,256 $ (566,148) $ 634,811
=========== =========== =========== =========== ===========
</TABLE>
F-25
<PAGE>
Supplemental Combining Balance Sheet
December 31, 1994
(In thousands)
<TABLE>
<CAPTION>
Unconsolidated
---------------------------------------
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Corporate
Cash and cash equivalents.................... $ 31,210 $ - - $ - - $ - - $ 31,210
Investments in subsidiaries.................. 327,021 12,682 16,948 (356,651) - -
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 12,682 123,687 (609,037) 67,007
----------- ----------- ----------- ----------- -----------
Homebuilding
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.... - - 272,031 8,288 - - 280,319
Land and land under development............ - - 153,315 31,153 (630) 183,838
Prepaid expenses and other assets, net....... 6,601 33,900 3,474 - - 43,975
----------- ----------- ----------- ----------- -----------
12,933 492,474 43,421 (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 of mortgage-backed
bonds, and related assets and liabilities.. - - - - 3,700 - - 3,700
Other loans and assets, net.................. - - - - 6,316 - - 6,316
----------- ----------- ----------- ----------- -----------
- - - - 10,601 - - 10,601
----------- ----------- ----------- ----------- -----------
Total Assets........................... $ 552,608 $ 505,156 $ 227,781 $ (620,974) $ 664,571
=========== =========== =========== =========== ===========
</TABLE>
F-26
<PAGE>
Supplemental Combining Balance Sheet
December 31, 1994
(In thousands)
(continued)
<TABLE>
<CAPTION>
Unconsolidated
----------------------------------------
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
LIABILITIES
Corporate
Accounts payable and accrued expenses........ $ 34,192 $ - - $ 789 $ - - $ 34,981
Advances and notes payable - Parent and
subsidiaries............................... 78,665 175,273 6,992 (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
----------- ----------- ----------- ----------- -----------
353,175 175,273 7,781 (260,930) 275,299
----------- ----------- ----------- ----------- -----------
Homebuilding
Accounts payable and accrued expenses........ 2,562 71,392 1,445 - - 75,399
Lines of credit.............................. - - 62,332 - - - - 62,332
Notes payable................................ 4,576 18,857 10,152 - - 33,585
----------- ----------- ----------- ----------- -----------
7,138 152,581 11,597 - - 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
----------- ----------- ----------- ----------- -----------
Total Liabilities...................... 360,313 327,854 56,346 (272,237) 472,276
----------- ------------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock.............................. - - - - 10 (10) - -
Common Stock................................. 212 18 120 (138) 212
Additional paid-in capital................... 133,934 144,756 234,578 (379,334) 133,934
Retained earnings............................ 71,502 32,528 (63,264) 30,736 71,502
Less treasury stock.......................... (13,353) - - (9) 9 (13,353)
----------- ----------- ----------- ----------- -----------
Total Stockholders' Equity............. 192,295 177,302 171,435 (348,737) 192,295
----------- ----------- ----------- ----------- -----------
Total Liabilities and Stockholders'
Equity............................... $ 552,608 $ 505,156 $ 227,781 $ (620,974) $ 664,571
=========== =========== =========== =========== ===========
</TABLE>
F-27
<PAGE>
Supplemental Combining Statements of Income
(In thousands)
Year Ended December 31, 1995
<TABLE>
<CAPTION>
Unconsolidated
----------------------------------------
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Homebuilding................................. $ 393 $ 839,913 $ 56 $ - - $ 840,362
Mortgage Lending............................. - - - - 17,559 - - 17,559
Asset Management............................. - - - - 6,389 - - 6,389
Corporate.................................... 1,546 - - - - - - 1,546
Equity in earnings of subsidiaries........... 24,353 - - - - (24,353) - -
----------- ----------- ----------- ----------- -----------
Total Revenues......................... 26,292 839,913 24,004 (24,353) 865,856
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES
Homebuilding................................. 555 805,804 685 300 807,344
Mortgage Lending............................. - - - - 8,271 - - 8,271
Asset Management............................. - - - - 2,339 - - 2,339
Corporate general and administrative......... 13,416 - - 62 - - 13,478
Corporate and homebuilding interest.......... (14,330) 20,477 1,512 114 7,773
----------- ----------- ----------- ----------- -----------
Total Expenses......................... (359) 826,281 12,869 414 839,205
----------- ----------- ----------- ----------- -----------
Income before income taxes...................... 26,651 13,632 11,135 (24,767) 26,651
Provision for income taxes...................... 9,401 5,180 3,127 (8,307) 9,401
----------- ----------- ----------- ----------- -----------
NET INCOME...................................... $ 17,250 $ 8,452 $ 8,008 $ (16,460) $ 17,250
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994
Unconsolidated
---------------------------------------
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Homebuilding................................. $ 131 $ 794,542 $ 3,400 $ (4,280) $ 793,793
Mortgage Lending............................. - - - - 15,850 - - 15,850
Asset Management............................. - - - - 6,245 - - 6,245
Corporate.................................... 1,294 - - 63 - - 1,357
Equity in earnings of subsidiaries........... 36,187 4,351 2,230 (42,768) - -
----------- ----------- ----------- ----------- -----------
Total Revenues......................... 37,612 798,893 27,788 (47,048) 817,245
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES
Homebuilding................................. 2,432 746,278 3,122 (2,503) 749,329
Mortgage Lending............................. - - - - 8,899 - - 8,899
Asset Management............................. - - - - 3,449 - - 3,449
Corporate general and administrative......... 14,876 - - 256 - - 15,132
Corporate and homebuilding interest.......... (10,678) 18,144 3,836 (1,848) 9,454
----------- ----------- ----------- ----------- -----------
Total Expenses......................... 6,630 764,422 19,562 (4,351) 786,263
----------- ----------- ----------- ----------- -----------
Income before income taxes...................... 30,982 34,471 8,226 (42,697) 30,982
Provision for income taxes...................... 11,727 13,444 3,208 (16,652) 11,727
----------- ----------- ----------- ----------- -----------
NET INCOME...................................... $ 19,255 $ 21,027 $ 5,018 $ (26,045) $ 19,255
=========== =========== =========== =========== ===========
</TABLE>
F-28
<PAGE>
Supplemental Combining Statements of Income
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 1993
Unconsolidated
---------------------------------------
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Homebuilding............................... $ 244 $ 596,620 $ 17,468 $ (17,519) $ 596,813
Mortgage Lending........................... - - - - 19,725 - - 19,725
Asset Management........................... - - - - 16,782 (1,373) 15,409
Corporate.................................. 2,082 - - 280 14 2,376
Equity in earnings of subsidiaries......... 26,257 5,277 - - (31,534) - -
----------- ----------- ----------- ----------- -----------
Total Revenues....................... 28,583 601,897 54,255 (50,412) 634,323
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES
Homebuilding............................... (1,258) 575,649 12,824 (12,898) 574,317
Mortgage Lending........................... - - - - 12,217 - - 12,217
Asset Management........................... - - - - 6,413 - - 6,413
Corporate general and administrative....... 14,757 - - 133 - - 14,890
Corporate and homebuilding interest........ 52 9,460 3,712 (1,770) 11,454
----------- ----------- ----------- ----------- -----------
Total Expenses....................... 13,551 585,109 35,299 (14,668) 619,291
----------- ----------- ----------- ----------- -----------
Income before income taxes and extraordinary
gain ...................................... 15,032 16,788 18,956 (35,744) 15,032
Provision for income taxes.................... 4,976 6,561 6,673 (13,234) 4,976
----------- ----------- ----------- ----------- -----------
Income before extraordinary gain ............. 10,056 10,227 12,283 (22,510) 10,056
Extraordinary gain from early extinguishment
of debt, net of income taxes .............. 15,823 - - - - - - 15,823
----------- ----------- ----------- ----------- -----------
NET INCOME.................................... $ 25,879 $ 10,227 $ 12,283 $ (22,510) $ 25,879
=========== =========== =========== =========== ===========
</TABLE>
F-29
<PAGE>
Supplemental Combining Statement of Cash Flows
Year Ended December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Unconsolidated
---------------------------------------
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES................................. $ 33,423 $ 921 $ (100,404) $ 88,613 $ 22,553
----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Net proceeds from Mortgage Collateral, net
of mortgage-backed bonds, and
mortgage-related assets and liabilities.. - - - - 4,596 - - 4,596
Changes in Investments and Marketable
Securities, net.......................... (414) - - - - - - (414)
Changes in advances and notes receivable -
Parent and subsidiaries.................. (64,756) (350) 84,936 (19,830) - -
Changes in Restricted Cash................. - - - - 2,650 - - 2,650
Other, net................................. (624) 1,832 688 - - 1,896
----------- ----------- ----------- ----------- -----------
Net Cash Provided By (Used In) Investing
Activities................................. (65,794) 1,482 92,870 (19,830) 8,728
----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Net Increase in Borrowings from Parent and
subsidiaries............................. 19,860 35,874 13,049 (68,783) - -
Lines of Credit
Advances................................. - - 741,053 - - - - 741,053
Principal payments....................... - - (759,895) (1,221) - - (761,116)
Notes Payable
Borrowings............................... - - 1,114 - - - - 1,114
Principal payments....................... (992) (25,151) (1,547) - - (27,690)
Treasury Stock Purchases................... (5,466) - - - - - - (5,466)
Dividend Payments.......................... (2,153) - - - - - - (2,153)
Other, net................................. 208 - - - - - - 208
----------- ----------- ----------- ----------- -----------
Net Cash Provided By (Used In) Financing
Activities................................. 11,457 (7,005) 10,281 (68,783) (54,050)
----------- ----------- ----------- ----------- -----------
Net (Decrease) Increase in Cash and Cash
Equivalents................................ (20,914) (4,602) 2,747 - - (22,769)
Cash and Cash Equivalents
Beginning of Year.......................... 31,210 9,656 2,698 - - 43,564
----------- ----------- ----------- ----------- -----------
End of Year................................ $ 10,296 $ 5,054 $ 5,445 $ - - $ 20,795
=========== =========== =========== =========== ===========
</TABLE>
F-30
<PAGE>
Supplemental Combining Statement of Cash Flows
Year Ended December 31, 1994
(In thousands)
<TABLE>
<CAPTION>
Unconsolidated
---------------------------------------
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES................................. $ (22,467) $ (29,215) $ 3,239 $ 11,653 $ (36,790)
----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Net proceeds from Mortgage Collateral,
net of mortgage-backed bonds, and
mortgage-related assets and liabilities - - 1,679 (9,465) - - (7,786)
Changes in Investments and Marketable
Securities, net.......................... (6,377) - - - - - - (6,377)
Redemption of Metropolitan District Bonds.. 14,000 2,395 - - - - 16,395
Affiliate Notes Receivable................. 13,282 - - 11,097 (24,379) - -
Changes in Restricted Cash................. - - - - 16,159 - - 16,159
Other, net................................. (301) 1,424 (246) - - 877
----------- ----------- ----------- ----------- -----------
Net Cash Provided By Investing Activities..... 20,604 5,498 17,545 (24,379) 19,268
----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Net Increase (Reduction) in Borrowings
from Parent and subsidiaries............. (1,623) 18,905 (12,675) (4,607) - -
Lines of Credit
Advances................................. - - 641,874 - - - - 641,874
Principal payments....................... - - (606,160) (6,289) - - (612,449)
Notes Payable
Borrowings............................... - - 15,870 - - - - 15,870
Principal payments....................... (5,370) (37,575) (1,890) - - (44,835)
Maturity of Affiliate-Owned Debt........... - - (17,333) - - 17,333 - -
Treasury Stock Purchases................... (1,505) - - - - - - (1,505)
Dividend Payments.......................... (1,141) - - - - - - (1,141)
Other, net................................. 269 - - - - - - 269
----------- ----------- ----------- ----------- -----------
Net Cash Provided By (Used In) Financing
Activities................................. (9,370) 15,581 (20,854) 12,726 (1,917)
----------- ----------- ----------- ----------- -----------
Net Decrease in Cash and Cash Equivalents..... (11,233) (8,136) (70) - - (19,439)
Cash and Cash Equivalents
Beginning of Year.......................... 42,443 17,792 2,768 - - 63,003
----------- ----------- ----------- ----------- -----------
End of Year................................ $ 31,210 $ 9,656 $ 2,698 $ - - $ 43,564
=========== =========== =========== =========== ===========
</TABLE>
F-31
<PAGE>
Supplemental Combining Statement of Cash Flows
Year Ended December 31, 1993
(In thousands)
<TABLE>
<CAPTION>
Unconsolidated
---------------------------------------
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES......... $ (5,410) $ (10,084) $ (13,562) $ (5,181) $ (34,237)
----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Net proceeds from Mortgage Collateral, net
of mortgage-backed bonds, and
mortgage-related assets and liabilities.. - - 801 16,327 - - 17,128
Changes in Investments and Marketable
Securities............................... 12,000 - - - - - - 12,000
Investment in Metropolitan District Bonds.. (8,700) - - - - - - (8,700)
Proceeds From Affiliate Debt Maturity...... - - 20 1,750 (1,770) - -
Affiliate Notes Receivable................. 6,406 - - 4,120 (10,526) - -
Changes in Restricted Cash................. - - - - 13,071 - - 13,071
Other, net................................. (3,054) (318) (704) - - (4,076)
----------- ----------- ----------- ----------- -----------
Net Cash Provided By Investing Activities..... 6,652 503 34,564 (12,296) 29,423
----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Net Increase (Reduction) in Borrowings
from Parent and subsidiaries............. (20,758) 26,761 (11,346) 5,343 - -
Lines of Credit
Advances................................. 2,887 349,523 - - - - 352,410
Principal payments....................... (4,921) (351,532) (8,934) - - (365,387)
Notes Payable
Borrowings............................... - - 75,493 3,836 - - 79,329
Principal payments....................... (103,607) (85,010) (4,323) - - (192,940)
Senior and Subordinated Notes
Net proceeds............................. 204,013 - - - - - - 204,013
Payments................................. (54,518) - - - - 20 (54,498)
Maturity of Affiliate-Owned Debt........... (1,750) - - - - 1,750 - -
Affiliate notes payable.................... - - (10,256) - - 10,256 - -
Treasury Stock Purchases................... (15,173) - - - - - - (15,173)
Other, net................................. (965) (108) - - 108 (965)
----------- ----------- ----------- ----------- -----------
Net Cash Provided By (Used In) Financing
Activities................................. 5,208 4,871 (20,767) 17,477 6,789
----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash
Equivalents................................ 6,450 (4,710) 235 - - 1,975
Cash and Cash Equivalents
Beginning of Year.......................... 35,993 22,502 2,533 - - 61,028
----------- ----------- ----------- ----------- -----------
End of Year................................ $ 42,443 $ 17,792 $ 2,768 $ - - $ 63,003
=========== =========== =========== =========== ===========
</TABLE>
F-32
<PAGE>
Summary of Significant Accounting Policies:
Investments in subsidiaries are accounted for on the equity method for
purposes of the supplemental information. The Guarantors follow the accounting
policies set forth in Note A.
Related Parties. The Guarantors are members of a group of affiliated
companies and have transactions and relationships with members of the group.
MDC charges the Guarantors for a share of its general and
administrative expenses, which amounted to $4,332,000, $3,926,000 and
$2,654,000, respectively, in 1995, 1994 and 1993.
MDC pays costs associated with certain litigation and other significant
claims against the Guarantors which it considers to be general corporate
expenses. Amounts paid by MDC on behalf of the Guarantors amounted to
approximately $270,000, $769,000, and $3,481,000, respectively, in 1995, 1994
and 1993. In 1995, MDC recovered a portion of such payments.
Advances and notes receivable/payable - Parent (M.D.C. Holdings, Inc.)
and subsidiaries consists, among other things, of ongoing activities relating to
the Guarantors' participation in MDC's cash management system and current and
deferred income taxes.
Income taxes. The Guarantors report their results of operations as if
they were separate taxpayers. The current tax liabilities and deferred income
tax assets and liabilities of the Guarantors are reported in the financial
statements in the Advances and notes receivable/payable -Parent and subsidiaries
accounts.
O. Related Party Transactions
MDC has transacted business with related or affiliated companies and
with certain officers and directors of the Company.
FAMC has agreements with Asset Investors Corporation and Commercial
Assets, Inc., each a publicly-traded REIT, to advise them on various facets of
their business and to manage their day-to-day operations subject to the
supervision of their respective boards of directors. FAMC earned fees from
management and administration, including from acquisitions and incentives from
these agreements which are included in asset management revenues of $3,324,000,
$2,780,000 and $2,180,000 during 1995, 1994 and 1993 respectively.
The Company acquired certain assets from Messrs. Mizel and Mandarich in
February 1994. See Note G.
On December 28, 1989, MDC granted loans to Messrs. Mizel and Mandarich
for purposes of purchasing shares of common stock of Richmond Homes. On February
2, 1994, in conjunction with MDC's acquisition of Richmond Homes common stock
from Messrs. Mizel and Mandarich as discussed in Note G, MDC exchanged these
loans for new loans of equal amount. Each of the notes evidencing the new loans
now provides that, upon sale of any of the MDC Common Stock acquired by Messrs.
Mizel and Mandarich in exchange for their respective Richmond Homes common
stock, the cash proceeds shall be remitted to the Company in payment of accrued
interest and principal under the notes. The new loans, which mature in 1999,
bear interest at 8.0% and are unsecured. At both December 31, 1995 and 1994,
$840,000 of such loans were outstanding. Interest income of $67,200 was
recognized on these loans in each of 1995, 1994 and 1993.
During 1995, certain eligible executives of the Company exercised
options to purchase 824,414 shares of MDC Common Stock and borrowed $1,361,000
in aggregate under the Option Purchase Program. See Note G.
The Company utilizes the services of companies owned by two former
employees of the Company, one of whom is the brother-in-law of a current officer
and director of the Company. During 1995, 1994 and 1993, the Company paid
$7,372,000, $11,880,000 and $11,557,000, respectively, for plumbing, door and
millwork services provided by these companies.
F-33
<PAGE>
The Company leases office space and furniture to certain organizations
in which certain officers and/or directors of the Company have an ownership
interest. The rental revenue from those leases totalled $320,000 $250,000 and
$259,000, respectively, in 1995, 1994 and 1993.
The Company utilizes in the ordinary course of business the services of
a marketing and communications firm which is owned by the brother-in-law of an
officer and director of the Company. Total fees paid for advertising and
marketing design services were $188,000, $275,000 and $246,000, respectively, in
1995, 1994 and 1993.
P. Summarized Quarterly Consolidated Financial Information (Unaudited)
Unaudited summarized quarterly consolidated financial information for
the two years ended December 31, 1995 is as follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Quarter
Fourth Third Second First
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1995
Revenues........................................ $ 227,174 $ 233,471 $ 214,119 $ 191,092
=========== =========== =========== ===========
Net Income............................... $ 3,306 $ 5,545 $ 4,331 $ 4,068
=========== =========== =========== ===========
Earnings Per Share
Primary................................ $ .17 $ .28 $ .21 $ .20
=========== =========== =========== ===========
Fully Diluted.......................... $ .16 $ .25 $ .20 $ .19
=========== =========== =========== ===========
Weighted-Average Shares Outstanding
Primary................................ 20,021 20,052 20,305 20,323
=========== =========== =========== ===========
Fully Diluted.......................... 23,649 23,736 24,006 23,936
=========== =========== =========== ===========
1994
Revenues........................................ $ 242,652 $ 212,643 $ 195,811 $ 166,139
=========== =========== =========== ===========
Net Income............................... $ 4,325 $ 5,420 $ 5,704 $ 3,806
=========== =========== =========== ===========
Earnings Per Share
Primary................................ $ .21 $ .26 $ .28 $ .19
=========== =========== =========== ===========
Fully Diluted.......................... $ .20 $ .24 $ .25 $ .18
=========== =========== =========== ===========
Weighted-Average Shares Outstanding
Primary................................ 20,320 20,499 20,480 20,326
=========== =========== ============= ===========
Fully Diluted.......................... 23,939 24,111 24,094 23,939
=========== =========== =========== ===========
</TABLE>
F-34
<PAGE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
Information required to be set forth hereunder has been omitted and
will be incorporated by reference, when filed, from the Company's Proxy
Statement for its 1996 Annual Meeting of Shareowners to be held on or about May
3, 1996.
ITEM 11. Executive Compensation.
Information required to be set forth hereunder has been omitted and
will be incorporated by reference, when filed, from the Company's Proxy
Statement for its 1996 Annual Meeting of Shareowners to be held on or about May
3, 1996.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
Information required to be set forth hereunder has been omitted and
will be incorporated by reference, when filed, from the Company's Proxy
Statement for its 1996 Annual Meeting of Shareowners to be held on or about May
3, 1996.
ITEM 13. Certain Relationships and Related Transactions.
Information required to be set forth hereunder has been omitted and
will be incorporated by reference, when filed, from the Company's Proxy
Statement for its 1996 Annual Meeting of Shareowners to be held on or about May
3, 1996.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements.
The following consolidated financial statements of the Company and its
subsidiaries are included in Part II, Item 8:
Page
----
M.D.C. Holdings, Inc. and Subsidiaries
Report of Independent Accountants............................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994.... F-3
Consolidated Statements of Income for the Three Years Ended
December 31, 1995............................................. F-5
Consolidated Statements of Stockholders' Equity for the
Three Years Ended December 31, 1995........................... F-6
Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 1995....................................... F-7
Notes to Consolidated Financial Statements...................... F-9
All schedules are omitted because they are not applicable, not
material, not required or the required information is included in the applicable
financial statements or notes thereto.
24
<PAGE>
Financial statements for certain unconsolidated partnerships and joint
ventures owned 50% or less by the Company or its subsidiaries, which are
accounted for on the equity method, have been omitted because they do not,
individually, or in the aggregate, constitute a significant subsidiary.
(a) 3. Exhibits.
3.1(a) Form of Amendment to the Certificate of Incorporation of
M.D.C. Holdings, Inc. (hereinafter sometimes referred to
as "MDC", the "Company" or the "Registrant") regarding
director liability, filed with the Delaware Secretary of
State on July 1, 1987 (incorporated by reference to
Exhibit 3.1(a) of the Company's Quarterly Report on Form
10-Q dated June 30, 1987). *
3.1(b) Form of Certificate of Incorporation of MDC, as amended
(incorporated herein by reference to Exhibit 3.1(b) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1987).*
3.2(a) Form of Amendment to the Bylaws of MDC regarding
indemnification adopted by its Board of Directors and
effective as of March 20, 1987 (incorporated herein by
reference to Exhibit 3.2(a) of the Company's Quarterly Report
on Form 10-Q dated June 30, 1987). *
3.2(b) Form of Bylaws of MDC, as amended (incorporated herein by
reference to Exhibit 3.2(b) of the Company's Quarterly
Report on Form 10-Q dated June 30, 1987). *
4.1 Form of Certificate for shares of the Company's common stock
(incorporated herein by reference to Exhibit 4.1 of the
Company's Registration Statement on Form S-3,
Registration No. 33-426). *
4.2(a) Form of Indenture, dated as of June 15, 1984, between the
Company and The Royal Bank and Trust Company, with respect to
the Company's Subordinated Exchangeable Variable Rate Notes
(the "1984 RBTC Indenture") (incorporated herein by reference
to Exhibit 4.3 of the Company's Registration Statement on Form
S-2, Registration No. 2-90744). *
4.2(b) First Supplemental Indenture, dated as of June 20, 1985,
to the 1984 RBTC Indenture (incorporated herein by
reference to Exhibit 4.13(a) of the Company's Registration
Statement on Form S-3, Registration No. 33-426). *
4.2(c) Form of the Company's Subordinated Exchangeable Variable
Rate Notes (filed as Exhibits A and B to Exhibit 4.13 and
incorporated herein by reference to Exhibit 4.3 of the
Company's Registration Statement on Form S-2, Registration
No. 2-90744). *
4.3(a) Form of Senior Notes Indenture, dated as of December 15, 1993,
by and among the Company, the Guarantors and Pledgors named
therein and First Bank National Association, a National
Association, as Trustee, with respect to the Company's 11 1/8%
Senior Notes due 2003, including form of Senior Note (the
"Senior Notes Indenture") (incorporated herein by reference to
Exhibit 4.1 of the Company's Form 8-K dated January 11, 1994).
*
4.3(b) First Supplemental Indenture, dated as of February 2, 1994,
to the Senior Notes Indenture (incorporated herein by
reference to Exhibit 4.4(b) of the Company's Annual Report on
Form 10-K for the year ended December 31, 1993). *
4.4 Form of Convertible Notes Indenture, dated as of December 15,
1993, by and between the Company and First Bank National
Association, a National Association, as Trustee, with
respect to the Company's 8 3/4% Convertible Subordinated
Notes due 2005, including form of Convertible Note
(incorporated herein by reference to Exhibit 4.2 of the
Company's Form 8-K dated January 11, 1994). *
25
<PAGE>
4.5 Loan Agreement and related Promissory Note between Richmond
American Homes, Inc., Richmond American Homes of California,
Inc., Richmond Homes, Inc. I, Richmond Homes, Inc. II and
Richmond American Homes of Nevada, Inc., all wholly owned
subsidiaries of the Company and Bank One, Arizona, N.A. ("Bank
One") dated June 13, 1994 (incorporated herein by reference to
Exhibit 4.5 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).*
4.6 Guaranty of Payment between the Company and Bank One dated
June 13, 1994 (incorporated herein by reference to
Exhibit 4.6 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).*
4.9 Guaranty Agreement between the Company as guarantor and Bank
One, Denver, N.A., as Trustee under Indenture of Trust dated
as of June 1, 1994 between it and Superior Metropolitan
District No. 1 dated as of June 1, 1994 (incorporated herein
by reference to Exhibit 10.1 of the Company's Quarterly Report
on Form 10-Q dated September 30, 1994). *
4.10 Guaranty Agreement between the Company as guarantor and Bank
One, Denver, N.A., as Trustee under Indenture of Trust dated
as of June 1, 1994 between it and Superior Metropolitan
District No. 2, dated as of June 1, 1994 (incorporated herein
by reference to Exhibit 10.2 of the Company's Quarterly Report
on Form 10-Q dated September 30, 1994). *
10.1(a) The Company's 1983 Incentive Stock Option Plan
(incorporated herein by reference to Exhibit 10.4 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1982). *
10.1(b) 1987 Amendments to the Incentive Stock Option Plan of MDC
(incorporated herein by reference to Exhibit 10.1(a) of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1986). *
10.1(c) 1988 Amendment to the 1983 Incentive Stock Option Plan of MDC
(incorporated herein by reference to Exhibit 19.3(a) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1988).*
10.2(a) The Company's 1983 Non-Qualified Stock Option Plan
(incorporated herein by reference to Exhibit 10.5 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1983). *
10.2(b) 1988 Amendment to the 1983 Non-Qualified Stock Option
Plan of MDC (incorporated herein by reference to Exhibit
10.2(b) of the Company's Quarterly Report on Form
10-Q dated June 30, 1988). *
10.3 The Company's Employee Equity Incentive Plan (incorporated
herein by reference to Exhibit A of the Company's Proxy
Statement dated May 14, 1993 relating to the 1993 Annual
Meeting of Stockholders).*
10.4 The Company's Director Equity Incentive Plan (incorporated
herein by reference to Exhibit B of the Company's Proxy
Statement dated May 14, 1993 relating to the 1993 Annual
Meeting of Stockholders).*
10.5(a) Amended Management Agreement between Asset Investors
Corporation ("AIC") and Financial Asset Management Corporation
("FAMC") dated as of January 1, 1990 (incorporated herein by
reference to Exhibit 10.8(d) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1989). *
26
<PAGE>
10.5(b) Amended Management Agreement between AIC and FAMC dated as
of January 1, 1991 (incorporated herein by reference to
Exhibit 19 of the Company's Quarterly Report on Form 10-Q
dated June 30, 1991). *
10.5(c) Amended Management Agreement between AIC and FAMC dated as
of January 1, 1992 (incorporated herein by reference to
Exhibit 10.3(c) of the Company's Annual Report on Form 10-K
for the year ended December 31, 1991). *
10.5(d) Management Agreement between AIC and FAMC dated as of January
1, 1993 (incorporated herein by reference to Exhibit 10.5(d)
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).*
10.5(e) Amendment to Management Agreement dated as of January 1, 1993
between AIC and FAMC dated as of October 12, 1993
(incorporated herein by reference to Exhibit 10.5(e) of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994).*
10.5(f) Management Agreement between AIC and FAMC dated as of January
1, 1994 (incorporated herein by reference to Exhibit 10.5(f)
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).*
10.5(g) Management Agreement between Commercial Assets, Inc. ("CAI")
and FAMC dated as of August __, 1993 (incorporated herein by
reference to Exhibit 10.5(g) of the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).*
10.5(h) Management Agreement between CAI and FAMC dated as of October
12, 1993 (incorporated herein by reference to Exhibit 10.5(h)
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).*
10.5(i) Management Agreement Amendment between AIC and FAMC dated as
of January 1, 1996.
10.5(j) Management Agreement Amendment between CAI and FAMC dated as
of January 1, 1996.
10.6 CMO Participation Agreement among the Company, M.D.C.
Asset Investors, Inc. and Yosemite Financial, Inc.
(incorporated herein by reference to Exhibit 10.6 of M.D.C.
Asset Investors, Inc.'s Registration Statement on Form S-11,
Registration No. 33-9557). *
10.7(a) Form of Indemnity Agreement entered into between the
Registrant and each member of its Board of Directors as of
March 20, 1987 (incorporated herein by reference to Exhibit
19.1 of the Company's Quarterly Report on Form 10-Q dated June
30, 1987). *
10.7(b) Form of Indemnity Agreement entered into between the
Registrant and certain officers of the Registrant on various
dates during 1988 and early 1989 (incorporated herein by
reference to Exhibit 10.18(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1988). *
10.7(c) Form of Indemnity Agreement entered into between the
Registrant and John J. Heaney dated as of May 12, 1989
(incorporated herein by reference to Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990). *
10.7(d) Form of Agreement, relating to the advancement of expenses and
indemnification, entered into between the Registrant and each
of its current and former officers and directors named in
certain securities litigation (incorporated herein by
reference to Exhibit 10.18(c) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1988). *
27
<PAGE>
10.8 Indemnification Agreement by and among the Company and
Larry A. Mizel ("Mizel") and David D. Mandarich
("Mandarich") dated December 21, 1989 (incorporated herein
by reference to Exhibit 9 of the Company's Form 8-K dated
December 28, 1989). *
10.9 Promissory Note in the amount of $559,920 from Mizel to the
Company dated February 2, 1994 (incorporated herein by
reference to Exhibit 10.9 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1993). *
10.10 Promissory Note in the amount of $280,080 from Mandarich
to the Company February 2, 1994 (incorporated herein by
reference to Exhibit 10.10 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1993). *
10.11 Fifth Amendment to Piney Creek Development Co. Joint Venture
Agreement dated June 13, 1991 by and between Commercial
Federal Bank and Land (incorporated herein by reference to
Exhibit 10.25 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991). *
10.12 Letter Agreement effective October 1, 1994 by and between
Gilbert Goldstein, P.C. and the Company (incorporated herein
by reference to Exhibit 10.12 of the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).*
10.13 MDC 401(k) Savings Plan (incorporated herein by reference to
Exhibit 10.31(a) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992).*
10.16 M.D.C. Holdings, Inc. Executive Officer Performance-Based
Compensation Plan (incorporated herein by reference to
Exhibit A to the Company's Proxy Statement dated May 25, 1994
related to the 1994 Meeting of Shareowners). *
10.17 Employment Agreement between the Company and Michael Touff
dated December 31, 1994 (incorporated herein by reference to
Exhibit 10.17 of the Company's Form 10-K for the year ended
December 31, 1994).*
10.18 M.D.C. Holdings, Inc. Executive Option Purchase Program,
including form of Promissory Note and Pledge Agreement
(incorporated herein by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q dated
March 31, 1995).*
10.19 (a) Agreement effective April 1, 1996 between M.D.C. Holdings,
Inc., M.D.C. Residual Holdings, Inc., Financial Asset
Management Corporation, Financial Asset Management LLC
and Spencer I. Browne.
10.19 (b) Employment Agreement effective April 1, 1996 between
M.D.C. Holdings, Inc. and Spencer I. Browne.
10.19 (c) Non-Negotiable Promissory Note of Spencer I. Browne
payable to Financial Asset Management LLC dated April 1, 1996.
10.19 (d) Pledge Agreement effective April 1, 1996 between Financial
Asset Management LLC and Spencer I. Browne.
21 Subsidiaries of the Company.
23 Consent of Price Waterhouse LLP.
27 Financial Data Schedule.
- -------------------
* Incorporated herein by reference.
28
<PAGE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the
year ended December 31, 1995.
` SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
this 27th day of March, 1996 on its behalf by the undersigned, thereunto duly
authorized.
M.D.C. HOLDINGS, INC.
(Registrant)
By: /s/ LARRY A. MIZEL
-------------------------
Larry A. Mizel
Chief Executive Officer
By: /s/ PARIS G. REECE III
-------------------------
Paris G. Reece III
Senior Vice President,
Chief Financial Officer
and Principal Accounting Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and/or
directors of the Registrant, by virtue of their signatures to this report,
appearing below, hereby constitute and appoint Larry A. Mizel, Spencer I. Browne
and Paris G. Reece III, or any one of them, with full power of substitution, as
attorneys-in-fact in their names, places and steads to execute any and all
amendments to this report in the capacities set forth opposite their names and
hereby ratify all that said attorneys-in-fact do by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ LARRY A. MIZEL Chairman of the Board of Directors March 27, 1996
- ------------------------ and Chief Executive Officer
Larry A. Mizel
/s/ SPENCER I. BROWNE Director, President and March 27, 1996
- ------------------------ Co-Chief Operating Officer
Spencer I. Browne
/s/ DAVID D. MANDARICH Director, Executive Vice March 27, 1996
- ------------------------ President - Real Estate and
David D. Mandarich Co-Chief Operating Officer
/s/ STEVEN J. BORICK Director March 27, 1996
- ------------------------
Steven J. Borick
/s/ GILBERT GOLDSTEIN Director March 27, 1996
- ------------------------
Gilbert Goldstein
/s/ WILLIAM B. KEMPER Director March 27, 1996
- ------------------------
William B. Kemper
/s/ HERBERT T. BUCHWALD Director March 27, 1996
- ------------------------
Herbert T. Buchwald
(A Majority of the Board of Directors)
29
Exhibit 10.19 (a)
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 1st day of
April, 1996, between M.D.C. Holdings, Inc., a Delaware corporation (the
"Company"), M.D.C. Residual Holdings, Inc., a Delaware corporation and a wholly
owned subsidiary of the Company ("MDC Sub"), Financial Asset Management
Corporation, a Delaware corporation and a wholly owned subsidiary of MDC Sub
("Old FAMC"), Financial Asset Management LLC, a Colorado limited liability
company ("FAMC"), and Spencer I. Browne ("Browne").
RECITALS
--------
1. Browne has resigned effective as of March 31, 1996 from all
of his officer positions with the Company and its
subsidiaries and as a director of the Company and its
subsidiaries.
2. Browne, Old FAMC and MDC Sub are forming FAMC, pursuant
to which Browne is contributing $400,000 in cash and a
promissory note in the amount of $2,100,000 to FAMC, Old
FAMC is transferring an undivided 98.75% interest in
Management Agreements with AIC and CAI (the "Management
Agreements"), and certain other rights and goodwill (the "Old
FAMC Assets") to FAMC and MDC Sub is transferring an undivided
1.25% interest in the Management Agreements and certain other
rights and goodwill (the "MDC Sub Assets") to FAMC in exchange
for Browne's 20% membership interest in FAMC (the "FAMC
Interest"), Old FAMC's 79% membership interest in FAMC and MDC
Sub's 1% membership interest in FAMC, respectively.
3. Browne has agreed to serve as President and Chief Executive
Officer of FAMC pursuant to an Employment Agreement dated as
of the date hereof in the form attached hereto as
Exhibit A (the "Employment Agreement").
4. The Company, in connection with Browne's resignation from his
positions with the Company, has agreed to purchase from Browne
425,642 shares of the Company's common stock, $.01 par value
("MDC Shares"), owned by Browne.
5. MDC Sub, Old FAMC and Browne will enter into an operating
agreement in the form attached hereto as Exhibit B
(the "Operating Agreement").
6. Browne and FAMC desire to have options to sell and purchase,
respectively, the FAMC Interest upon the terms and
conditions set forth herein.
<PAGE>
AGREEMENT
---------
NOW, THEREFORE, the parties hereto agree as follows:
1. Issuance and Acquisition. Simultaneously with the execution
and delivery of this Agreement:
(i) Old FAMC is contributing the Old FAMC Assets to FAMC in
exchange for an 79% membership interest in FAMC. MDC Sub is contributing the MDC
Sub Assets to FAMC in exchange for a 1% membership interest in FAMC. Browne is
contributing $2,500,000 to FAMC, payable $400,000 in cash and $2,100,000 by
delivery of the Promissory Note in the form attached hereto as Exhibit C (the
"Note"), in exchange for the FAMC Interest at the Closing defined herein. In
connection with the Note, the Company shall deliver to Browne at the beginning
of each month during the term of the Note written notice of the most current
M.D.C. Holdings, Inc. Corporate Borrowing Rate applicable under the Note. The
Note shall be secured pursuant to a Pledge Agreement in the form attached hereto
as Exhibit D (the "Pledge Agreement"); and
(ii) The Company is purchasing from Browne, and Browne is
selling to the Company, upon the terms and conditions set forth in this
Agreement, the MDC Shares at a purchase price of $7.125 per share, an aggregate
of $3,032,699.25.
2. Closing; Closing Date; and Delivery of Shares and FAMC
Interest. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place on April 1, 1996, at the offices of the
Company, 3600 South Yosemite Street, Suite 900, Denver, Colorado 80237
(the "Closing Date"). At the Closing:
(a) FAMC is delivering to Browne the FAMC Interest and
the Pledge Agreement;
(b) Browne is delivering to FAMC $400,000 in good funds,
the Note and the Pledge Agreement;
(c) the Company is delivering to Browne in good funds in full
payment for the MDC Shares in the amount of $2,706,114.25 ($3,032,699.25 less
$309,196 outstanding principal and $17,389 accrued interest on Browne's April
14, July 27 and October 26, 1995 Notes (the "Stock Purchase Notes")), together
with the Stock Purchase Notes marked "Cancelled";
(d) Browne is delivering to the Company the MDC Shares;
(e) the Company and Browne are delivering to each other
the Employment Agreement;
2
<PAGE>
(f) each party is delivering to the other parties hereto
a receipt of the documents, instruments or consideration referenced in this
Section 2;
(g) Browne, Old FAMC and MDC Sub are delivering the
Operating Agreement; and
(h) the Company, Old FAMC and FAMC are delivering the
Service Agreement.
3. Options. All options to purchase shares of common stock of
the Company held by Browne as of the date of this Agreement shall remain
outstanding in accordance with their respective terms.
4. Put/Call Agreements.
(a) Put Rights. On and after January 1, 1997, Browne shall
have the option (the "Put Option"), in his sole discretion, exercisable upon 90
days' prior written notice to FAMC, to elect to sell to FAMC, and in such event
FAMC shall purchase from Browne, for cash payable at closing on the closing date
specified in such notice, all of the FAMC Interest at the Put/Call Price as
defined in Section 4(d) below. The Put Option shall expire on December 31, 1998.
At any time during the term of the Put Option, should Browne's employment under
the Employment Agreement terminate pursuant to Section 4(a) or 4(b) thereof,
such termination shall be deemed for purposes hereof an election by Browne to
exercise the Put Option effective as of the date of such termination.
(b) Call Rights. At all times on and after January 1, 1997,
FAMC shall have the option (the "Call Option"), in its sole discretion,
exercisable upon written notice to Browne, to purchase, and in such event Browne
shall sell to FAMC, for cash payable at closing on the closing date specified in
such notice, but not later than 30 days after delivery of such notice, all of
the FAMC Interest at the Put/Call Price.
(c) Change in Control. If a "Change in Control" as defined in
the Employment Agreement is closed at any time after the date of this Agreement
and on or before December 31, 1998, absent any other agreement to the contrary
between Browne and FAMC, Browne shall sell and FAMC shall purchase the FAMC
Interest at the Put/Call Price, payable in cash on the closing date of the
Change in Control.
(d) Put/Call Price. The price at which Browne shall sell, and
FAMC shall purchase the FAMC Interest pursuant to this Section 4 (the "Put/Call
Price") shall equal the following: (i) $2,500,000, as (A) increased for Browne's
proportionate share (20%) of earnings of FAMC for all periods after March 31,
1996 to the end of the calendar month in which the notice of exercise of the Put
Option or the Call Option, as the case may be, was delivered (the "Operative
Period") calculated in accordance with generally accepted accounting principles
as in
3
<PAGE>
effect on the date hereof ("GAAP") and (B) decreased for (1) Browne's
proportionate share (20%) of losses of FAMC for the Operative Period, calculated
in accordance with GAAP, and (2) all distributions in respect of the FAMC
Interest made during the Operative Period less (ii) the outstanding principal
amount of the Note plus accrued interest thereon as of the closing date for such
sale and purchase. Upon payment of the Put/Call Price, the Note shall be
cancelled and returned to Browne. For purposes of this paragraph, the earnings
or losses of FAMC shall exclude (i) the interest paid or accrued to FAMC in
respect of loans from FAMC to the Company or any wholly-owned subsidiary of the
Company and (ii) the amortization, gain or loss, if any, recorded with respect
to the Management Agreements. In the event of any dispute over the Put/Call
Price, the Company's independent public accountants shall be engaged to
calculate and certify the Put/Call Price prior to the scheduled closing.
(e) For purposes hereof, the Company guarantees to Browne
payment of the Put/Call Price in accordance with the terms of this Section 4,
including any amounts for which Browne would be liable to third parties, if any,
caused by FAMC's payment of the Put/Call Price to Browne.
5. Representations and Warranties of the Company. The Company
represents and warrants to Browne as follows:
(a) the Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power to execute, carry out and perform the provisions
of, and transactions set forth in, this Agreement and the Employment Agreement
and to purchase the MDC Shares;
(b) the execution, delivery and performance by the Company of
this Agreement, the Service Agreement and the Employment Agreement and the
purchase from Browne of the MDC Shares have been duly authorized by the Company
as evidenced by the execution of this Agreement, the Service Agreement and the
Employment Agreement by the Chairman of the Board for, and on behalf of, the
Company;
(c) neither the execution, delivery, performance of, or
compliance with, this Agreement or the Employment Agreement will result in any
breach or violation of, or be in conflict with or constitute a default under,
any mortgage, indenture, contract, agreement, lease, instrument, judgment,
decree, order, statute, rule, regulation or restriction by which the Company is
bound or affected;
(d) no consent, authorization, approval, permit, order of, or
registration or filing by, the Company with any governmental or regulatory
authority or any other person will be required in connection with the execution
and delivery of this Agreement and the performance of the transactions
contemplated hereby, except for routine filings or notifications with the United
States Securities and Exchange Commission (the "Commission") and/or the New York
Stock Exchange, Inc. and The Pacific Stock Exchange Incorporated, and except for
the consent
4
<PAGE>
and approval of the Independent Directors of AIC and CAI to the transfer and
contribution of the Management Agreements to FAMC; and
(e) no person, as a result of any action by the Company in
connection with the transactions set forth in this Agreement, has or will have,
to the best of the Company's knowledge, any right, interest or claim against or
upon the Company or Browne for any commission, fee or any other compensation as
a finder or broker or for acting in any similar capacity.
(f) the Company, as the issuer of the MDC Shares, has
available to it all information which it deems necessary and advisable in
connection with its decision to purchase the MDC Shares and has no intention of
disposing of the MDC Shares except in accordance with applicable law.
(g) the Company has not omitted to disclose to Browne or
misrepresented to Browne any material fact known to its senior management
relating to its purchase of the MDC Shares, its employment of Browne pursuant to
the Employment Agreement or the transactions contemplated by this Agreement.
6. Representations and Warranties of MDC Sub. MDC Sub represents
and warrants to Browne as follows:
(a) MDC Sub is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power to execute, carry out and perform the provisions
of, and transactions set forth in, this Agreement and the Operating Agreement;
(b) the execution, delivery and performance by MDC Sub of this
Agreement and the Operating Agreement have been duly authorized by MDC Sub as
evidenced by the execution of this Agreement and the Operating Agreement by the
Chairman of the Board for, and on behalf of, MDC Sub;
(c) neither the execution, delivery, performance of, or
compliance with, this Agreement, the Operating Agreement or the Assignment of
the Management Agreements will result in any breach or violation of, or be in
conflict with or constitute a default under, any mortgage, indenture, contract,
agreement, lease, instrument, judgment, decree, order, statute, rule, regulation
or restriction by which MDC Sub is bound or affected;
(d) no consent, authorization, approval, permit, order of, or
registration or filing by, MDC Sub with any governmental or regulatory authority
or any other person will be required in connection with the execution and
delivery of this Agreement or the Operating Agreement and the performance of the
transactions contemplated hereby or by the Operating
5
<PAGE>
Agreement except for the consent and approval of the Independent Directors of
AIC and CAI to the transfer and contribution of the Management Agreements to
FAMC; and
(e) no person, as a result of any action by MDC Sub in
connection with the transactions set forth in this Agreement or in the Operating
Agreement, has or will have, to the best of MDC Sub's knowledge, any right,
interest or claim against or upon MDC Sub or Browne for any commission, fee or
any other compensation as a finder or broker or for acting in any similar
capacity.
7. Representations and Warranties of Old FAMC. Old FAMC
represents and warrants to Browne as follows:
(a) Old FAMC is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power to execute, carry out and perform the provisions
of, and transactions set forth in, this Agreement;
(b) the execution, delivery and performance by Old FAMC of
this Agreement, the Operating Agreement and the Service Agreement have been duly
authorized by Old FAMC as evidenced by the execution of this Agreement by the
Chairman of the Board for, and on behalf of, Old FAMC;
(c) neither the execution, delivery, performance of, or
compliance with, this Agreement, the Operating Agreement, the Service Agreement
or the Assignment of the Management Agreements will result in any breach or
violation of, or be in conflict with or constitute a default under, any
mortgage, indenture, contract, agreement, lease, instrument, judgment, decree,
order, statute, rule, regulation or restriction by which Old FAMC is bound or
affected;
(d) no consent, authorization, approval, permit, order of, or
registration or filing by, Old FAMC with any governmental or regulatory
authority or any other person will be required in connection with the execution
and delivery of this Agreement and the performance of the transactions
contemplated hereby, except for the consent and approval of the Independent
Directors of AIC and CAI to the transfer and contribution of the Management
Agreements to FAMC; and
(e) no person, as a result of any action by Old FAMC in
connection with the transactions set forth in this Agreement, has or will have,
to the best of Old FAMC's knowledge, any right, interest or claim against or
upon Old FAMC or Browne for any commission, fee or any other compensation as a
finder or broker or for acting in any similar capacity.
8. Representations and Warranties of FAMC. FAMC represents and
warrants to Browne as follows:
6
<PAGE>
(a) FAMC is a limited liability company duly formed, validly
existing and in good standing under the laws of the State of Colorado and has
all requisite company power to execute, carry out and perform the provisions of,
and transactions set forth in, this Agreement, the Service Agreement and the
Pledge Agreement;
(b) the execution, delivery and performance by FAMC of this
Agreement, the Service Agreement and the Pledge Agreement have been duly
authorized by FAMC as evidenced by the execution of this Agreement by the
Manager of, and on behalf of, FAMC;
(c) neither the execution, delivery, performance of, or
compliance with, this Agreement, the Pledge Agreement, the Service Agreement or
the Assignment of the Management Agreements will result in any breach or
violation of, or be in conflict with or constitute a default under, any
mortgage, indenture, contract, agreement, lease, instrument, judgment, decree,
order, statute, rule, regulation or restriction by which FAMC is bound or
affected;
(d) no consent, authorization, approval, permit, order of, or
registration or filing by, FAMC by any governmental or regulatory authority or
any other person will be required in connection with the execution and delivery
of this Agreement, the Pledge Agreement, the Service Agreement or the Assignment
of the Management Agreements and the performance of the transactions
contemplated hereby and thereby, except for the consent and approval of the
Independent Directors of AIC and CAI to the transfer and contribution of the
Management Agreements to FAMC;
(e) no person, as a result of any action by FAMC in connection
with the transactions set forth in this Agreement, has or will have, to the best
of FAMC's knowledge, any right, interest or claim against or upon FAMC or Browne
for any commission, fee or any other compensation as a finder or broker or for
acting in any similar capacity.
9. Representations and Warranties of Browne. Browne represents
and warrants to the Company, MDC Sub, Old FAMC and FAMC as follows:
(a) Browne has all requisite power and authority to enter
into this Agreement and the Operating Agreement, to sell the MDC Shares, and to
acquire the FAMC Interest;
(b) this Agreement and the Operating Agreement have been
duly executed and delivered by Browne;
(c) neither the execution, delivery, performance of, or
compliance with, this Agreement or the Operating Agreement will result in any
breach or violation of, or be in conflict with or constitute a default under,
any mortgage, indenture, contract, agreement, lease, instrument, judgment,
decree, order, statute, rule, regulation or restriction by which Browne is bound
or affected;
7
<PAGE>
(d) no consent, authorization, approval, permit, order of or
registration or filing by Browne with any governmental regulatory authority or
any other person who is or will be required in connection with the execution and
delivery of this Agreement or the Operating Agreement, the sale to the Company
of the MDC Shares except for routine filings with the Commission and/or the New
York Stock Exchange, Inc. and The Pacific Stock Exchange Incorporated;
(e) Browne has good and marketable title to the MDC Shares,
subject to payment by Browne at the Closing of the outstanding principal and all
accrued interest due on: (i) the Promissory Note payable by Browne to the
Company dated April 14, 1995 in the original principal amount of $206,434.00;
(ii) the Promissory Note payable by Browne to the Company dated July 27, 1995 in
the original principal amount of $72,970.00; and (iii) the Promissory Note
payable by Browne to the Company dated October 26, 1995 in the original
principal amount of $29,792.00, all issued pursuant to the Executive Option
Purchase Program and secured by certain of the MDC Shares, free and clear of any
liens, charges, encumbrances or claims of any nature whatsoever, and upon
execution and delivery of this Agreement by Browne to the Company and
consummation of the Closing referenced in Section 2, the Company shall receive
good and marketable title to the MDC Shares, free and clear of any liens,
charges, encumbrances or claims of any nature whatsoever.
(f) no person, as a result of any action by Browne, in
connection with the transactions set forth in this Agreement or in the Operating
Agreement, has or will have, to the best of Browne's knowledge, any right,
interest or claim against or upon the Company for any commission, fee or other
compensation as a finder or broker, or for acting in any similar capacity;
(g) by reason of Browne's employment relationship with the
Company, Old FAMC and their respective affiliates and his experience in
financial and business matters in general, he is capable of evaluating the MDC
Shares and the FAMC Interest and the transactions regarding such securities
contemplated hereby;
(h) Browne has been furnished with all information
relating to the Company and FAMC and their respective prospects as he has
requested, and to ask all questions and receive all answers as he has requested;
(i) Browne has been afforded access to all documents, books,
accounts and records relating to the Company and FAMC and has performed all
investigations, including a careful review of the Operating Agreement, which he
has deemed necessary and advisable in connection with his decision to sell to
the Company the MDC Shares and acquire the FAMC Interest; and
(j) Browne (i) has no present intention to sell or otherwise
dispose of the FAMC Interest, (ii) is acquiring the FAMC Interest for his own
account, (iii) is an "accredited
8
<PAGE>
investor" as that term is defined in Rule 501(a) of Regulation D under the
Securities Act of 1933, and (iv) shall not sell or otherwise transfer the FAMC
Interest except in accordance with Section 4 of this Agreement and the terms of
the Operating Agreement.
(k) Browne has not omitted to disclose or misrepresented
any material fact known to him relating to his sale of the MDC Shares.
(l) Browne has no knowledge that any of the
representations and warranties of the Company, MDC Sub and Old FAMC herein are
inaccurate.
10. Condition to Closing. Closing of this Agreement shall be
conditioned on receipt of the consents of the Independent Directors of AIC and
CAI to the transfer and contribution of the Management Agreements to FAMC.
11. Indemnifications. The Company, MDC Sub, Old FAMC and FAMC shall
indemnify and hold harmless Browne, and Browne shall indemnify and hold harmless
the Company, MDC Sub, Old FAMC and FAMC from any and all losses, costs,
liabilities, damages and expenses (including reasonable attorneys' fees and
reasonable costs of investigation), resulting from any breach of a
representation or warranty made by the indemnifying party in this Agreement.
12. Release. Except as otherwise expressly provided in this Agreement,
the Employment Agreement, the Note and Pledge Agreement, Browne hereby releases
the Company, AIC, CAI and their respective subsidiaries, officers, directors and
employees from any claims, demands and causes of action he has or may have
against any of them arising out of his employment by the Company or such
subsidiaries as of the date of this Agreement.
13. Press Releases. Neither the Company, MDC Sub, Old FAMC, FAMC nor
Browne shall issue any press release or other public statement regarding the
subject matter of this Agreement without affording the other party the
opportunity to review and consent to such disclosure, which consent shall not be
unreasonably withheld; provided however, that the Company, MDC Sub, Old FAMC or
FAMC may issue such press release or other public statement if advised by its
counsel that such disclosure is required by law or stock exchange regulation.
14. Expenses. Browne agrees to pay 50% of the out-of-pocket expenses of
the Company, MDC Sub, Old FAMC and FAMC, including attorney's fees and expenses,
incurred in connection with this Agreement, the Employment Agreement, the Note,
the Pledge Agreement, the Operating Agreement and all other documents
contemplated hereby and thereby, and the transactions contemplated hereby and
thereby.
9
<PAGE>
15. Survival. The respective representations and warranties and
indemnifications of the parties contained in this Agreement shall survive the
Closing and shall remain in full force and effect until December 31, 1998.
16. Miscellaneous. (a) This Agreement and the attached Exhibits
supersede all prior agreements and understandings between the parties with
respect to the subject matter hereof and may not be modified or terminated
orally; and (b) no modification, termination or attempted waiver shall be valid
unless in writing signed by the party against whom the same is thought to be
enforced.
17. Notices. Any notice, consent or other communication made or given
in connection with this Agreement shall be in writing and shall be deemed to
have been duly given when delivered by United States registered or certified
mail, return receipt requested, to the parties at the following addresses or at
such other address as a party may specify by notice to the other.
To Browne:
Spencer I. Browne
1660 Holly Street
Denver, Colorado 80220
To the Company, MDC Sub, Old FAMC or FAMC:
M.D.C. HOLDINGS, INC.
3600 South Yosemite Street, Suite 900
Denver, Colorado 80237
Attention: General Counsel
18. Governing Law. This Agreement shall be governed by and
construed according to the laws of the State of Colorado. As material
consideration for entering into this Agreement, each of Browne, the Company,
MDC Sub, Old FAMC and FAMC agrees that any controversy or claim arising out
of or relating to this Agreement, or the breach thereof, shall be settled by
arbitration administered by the American Arbitration Association in
accordance with the Commercial Arbitration Rules, and judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. All parties expressly agree that costs and attorneys fees related to
any such arbitration shall be awarded to the prevailing party. Any arbitration
commenced pursuant to this paragraph shall be conducted in the Denver
metropolitan area in the State of Colorado.
10
<PAGE>
19. Captions and Paragraph Headings. Captions and paragraph
headings used herein are for convenience of the parties, are not a part of this
Agreement and shall not be used in construing it.
20. Gender; Plural. Where necessary or appropriate to the meaning
of, the use of the singular and plural shall be deemed to include each other,
and the use of any gender shall be deemed to include any other gender where
appropriate to the meaning hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first set forth above.
M.D.C. HOLDINGS, INC.
By:
-----------------------------
Larry A. Mizel,
Chairman of the Board
M.D.C. RESIDUAL HOLDINGS, INC.
By:
-----------------------------
Name: Daniel S. Japha
--------------------
Vice President
FINANCIAL ASSET MANAGEMENT
CORPORATION
By:
-----------------------------
Name: Larry A. Mizel
---------------------
Chairman of the Board
FINANCIAL ASSET MANAGEMENT LLC
By:
-----------------------------
Name: Spencer I. Browne
---------------------
Manager
-------------------------------
Spencer I. Browne
11
Exhibit 10.19 (b)
EXHIBIT A
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of April 1, 1996, by and between M.D.C.
Holdings, Inc. (the "Company"), and Spencer I. Browne (the "Executive").
WHEREAS, the Company desires to assure itself of the services
of the Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of
the Company for such period upon the terms and conditions hereinafter provided;
NOW, THEREFORE, in consideration of the mutual promises and
agreements hereinafter set forth, the Company and the Executive agree as
follows:
1. Employment and Duties. The Company shall employ the
Executive, and the Executive shall be employed by the Company, as Director,
President and Chief Executive Officer of Financial Asset Management LLC
("FAMC"), at the Company's headquarters in Denver, Colorado (or such other
location as the Executive and the Company may agree) for the term of this
Agreement. In this capacity, the Executive shall report to the Chairman of the
Board of the Company and shall perform such services, consistent with his
office, as from time to time shall be assigned to him by the Board of Directors
of the Company. The Executive shall devote substantially all of his business
time and energies to the business of FAMC, provided that he may engage in
outside business activities and render services to other parties so long as such
activities and/or services (i) do not conflict with the principal activity of
the Company, FAMC, Asset Investors
<PAGE>
Corporation ("AIC") or Commercial Assets, Inc. ("CAI") and (ii) have been
disclosed in advance to and approved in writing by the Company's Board of
Directors. Effective as of the date of this Agreement, the Executive shall have
resigned all of his other positions as a director or officer of the Company and
all of its subsidiaries.
2. Term. The term of the Executive's employment hereunder
shall begin on April 1, 1996 and shall continue until the earlier of the date of
termination pursuant to Section 4 below or December 31, 1998; provided, however,
that, unless either party otherwise elects by notice in writing delivered to the
other by November 30, 1997, or at least 90 days prior to December 31 of each
subsequent year, such term automatically shall be renewed for successive
one-year terms ending on December 31 of each successive year (the "Employment
Term"). Notwithstanding the foregoing, the Employment Term shall not extend
beyond the Executive's normal retirement which is his attainment of age 65.
3. Compensation and Benefits.
(a) Prior Period Compensation
(January 1, 1996-March 31, 1996). For his services rendered to the Company
from January 1, 1996 through March 31, 1996, the Executive shall receive on
April 1, 1996 $110,000 reduced by the amount of all installments of base salary
and any other compensation previously paid to the Executive for services
performed during the period January 1, 1996 through March 31, 1996. The
Executive also shall receive 25% of the amount of the bonus determined to be
payable to a Covered Employee (as defined in the Executive Officer Performance
Based Compensation Plan) (hereinafter "Covered
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<PAGE>
Employee") in accordance with such plan for the 1996 calendar year, payable at
such time as such bonus is paid to other Covered Employees in accordance with
the plan. As of April 1, 1996, the Executive shall cease to participate in the
Executive Officer Performance Based Compensation Plan.
(b) Base Salary. During each calendar year of the
Employment Term, the Company shall pay the Executive a base salary at a rate
of $300,000 per year (the "Base Salary") prorated for 1996 and any other partial
year of employment, payable in substantially equal semi-monthly installments.
The Executive's Base Salary for any year may not be reduced below the
Executive's Base Salary for the prior year without the consent of both the
Executive and the Company.
(c) Annual Incentive Compensation. For calendar
year 1997 and the remainder of the Employment Term, the Executive shall receive
a bonus ("Annual Incentive Compensation"), in cash, equal to 15% of the annual
Pre-tax Net Income (as defined below) of FAMC, payable at such time as bonuses
are paid to the Company's division managers. For calendar year 1996, such bonus
shall be calculated to reflect the Executive's employment from April 1, 1996
through December 31, 1996. Pre-Tax Net Income of FAMC shall be determined in
accordance with generally accepted accounting principles in effect on the date
of this Agreement giving effect to the following:
(i) Income shall include fees from AIC and
CAI, fees from CMO bond servicing and all new sources of revenue earned after
March 31, 1996, except for interest income on amounts borrowed by the Company or
any of its wholly owned subsidiaries from FAMC up to $2,000,000. For 1996 only,
income
-3-
<PAGE>
shall include 50% of the pre-tax net income from the remaining CMO
subsidiaries of the Company earned after March 31, 1996.
(ii) Income shall exclude any amounts
accrued by FAMC related to its holding of the promissory note dated April 1,
1996 payable to FAMC by the Executive (the "Note").
(iii) Expenses shall include supervisory
fees for only those services specifically set forth in Schedule 1 attached
hereto in the following amounts: $0 in 1996; $310,000 in 1997; and $315,500 in
1998. Expenses shall also include all other actual direct and indirect costs
attributable to FAMC's operations (a schedule of which shall be furnished to the
Executive monthly in writing), including but not limited to the costs of the
personnel as set forth on Schedule 2 attached hereto (to the extent of their
time attributable to FAMC and its activities), as it may be modified by the
Company from time to time upon notice to the Executive, rent as set forth on
Schedule 2 and expenses associated with new sources of revenue earned after
March 31, 1996. For purposes hereof, expenses shall not include (1) the amount
of Executive's Annual Incentive Compensation, or (2) the bonuses of any of
FAMC's other personnel (provided that the bonus in each case does not exceed 20%
of the base salary), or (3) payment of sick leave, vacation pay or severance
benefits for any of the FAMC personnel in amounts accrued or payable by reason
of their employment by the Company or any of its affiliates prior to the date of
this Agreement, or (4) any amortization, gain or loss recorded with respect to
the Management Agreements with AIC and CAI.
In the event that the shareholders
of either AIC or CAI approve redemption of dividend equivalent
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<PAGE>
rights ("DERs"), one-time DER redemption expense of AIC and/or CAI shall not be
included in AIC's or CAI's net income in connection with determining fees
payable to FAMC for purposes of determining the Executive's Annual Incentive
Compensation.
(d) Annual Limitation on Compensation. The
Executive's Annual Incentive Compensation shall be adjusted so that the sum of
his Base Salary and Annual Incentive Compensation (and prior period compensation
referenced in Section 3(a) with respect to 1996), when added to amounts
distributed to the Executive on account of his ownership of FAMC pursuant to
FAMC's Operating Agreement in effect from time to time, will not exceed the
following amounts with respect to the time periods indicated:
January 1, 1996 - December 31, 1996 $1,150,000
January 1, 1997 - December 31, 1997 $1,250,000
January 1, 1998 - December 31, 1998 $1,350,000
For purposes of this paragraph (d), "amounts distributed to the Executive on
account of his ownership of FAMC" shall exclude any amounts distributed to the
Executive related to interest accrued on the Note.
(e) Medical Insurance Benefits. During the
Employment Term and for 24 months after the date (i) the Executive becomes
Totally Disabled, (ii) the date of the Executive's termination without Cause
(including termination upon a Change in Control) or (iii) the Executive's
election to terminate his employment under Section 4(d), as the case may be, the
Company shall pay for and make available medical insurance coverage for the
Executive and his dependents which provides coverage and benefits that are at
least comparable to post-termination coverage, if any, and benefits provided to
senior officers of the Company as of the
-5-
<PAGE>
operative termination date; provided that the Company shall not be required to
obtain coverage, if any, which is greater than that which is available to
Executive as of the date of this Agreement or which is unavailable to the
Executive as of the operative termination date.
(f) Expense Reimbursement. The Company promptly
shall pay, or reimburse the Executive for, all ordinary and necessary business
expenses incurred by him in the performance of his duties hereunder including
but not limited to expenses and dues associated with the Executive's involvement
with professional and industry organizations, provided that the Executive
properly accounts for all such expenses in accordance with Company policy.
(g) M.D.C. Executive Option Purchase Program.
All outstanding loans made to Executive prior to the date of this Agreement
under the M.D.C. Holdings, Inc. Executive Option Purchase Program are due and
payable on the date of this Agreement. From time to time during the Employment
Term, the Executive may borrow, and the Company shall lend to the Executive, up
to an aggregate of $700,000 for the purpose of (i) exercising options to
purchase the Company's stock, and (ii) payment of any taxes payable by the
Executive arising from the exercise of such options on the terms provided
pursuant to the M.D.C. Holdings, Inc. Executive Option Purchase Program.
(h) Other Benefit Plans, Fringe Benefits, and
Vacations. The Executive shall be eligible to participate in each of the
Company's present employee benefit plans, policies or arrangements and any such
plans, policies or arrangements that the Company may maintain or establish
during the Employment Term and receive all fringe benefits and vacations for
which his position
-6-
<PAGE>
makes him eligible in accordance with the Company's usual policies and the terms
and provisions of such plans, policies or arrangements, including but not
limited to the following:
(i) The Company shall provide the
Executive with a car allowance of $500 per month.
(ii) The Company shall provide the
Executive with an annual allowance of up to $5,000 which may be used for the
reimbursement of expenses associated with the Executive's financial planning
and/or tax preparation services provided by independent outside advisors or
accountants.
(iii) The Company shall reimburse
the Executive for an annual physical exam to be conducted by a qualified medical
physician of the Executive's choice, to a maximum amount of $1,000.
(iv) The Company shall provide the
Executive with office space at its principal place of business that is
comparable to the office space of the Executive as of the date of this
Agreement.
(v) The Company shall provide the
Executive during the Employment Term with long-term disability insurance or
other disability coverage comparable to that provided to him as of the date of
this Agreement at comparable cost to the Executive. In the event that such
insurance and/or coverage is not available without additional cost to the
Company, an appropriate adjustment will be made.
(vi) The Company has indemnified
and shall continue to indemnify the Executive for and hold him harmless from any
action, demand, claims, liabilities or damages and associated expenses
(including attorneys' fees) arising out of or in
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<PAGE>
connection with his conduct, acts or omissions in his capacity as an officer,
director and/or employee of the Company, including its subsidiaries and
affiliates, and any other entity for which the Executive serves or has served in
such capacity for the benefit of or at the request of the Company, and shall
advance or pay on a current basis defense expenses (including attorneys' fees
and costs) reasonably incurred by the Executive in connection with any such
action, demand, claims, liabilities or damages, all to the fullest extent
permitted by applicable law. The Company shall continue to procure insurance
policies which continue executive liability and indemnification insurance
coverage for the Executive to the same extent and providing limits of liability,
deductibles and exclusions as are provided for the Company's principal executive
officers and outside directors. These covenants shall survive termination of
this Agreement for any reason.
(vii) Each year during the
Employment Term, but without carryover from year to year, the Executive shall
be entitled to four weeks vacation.
(viii) The Executive shall be
entitled to participate on the same basis as other senior officers of the
Company in all benefit programs, if any, afforded to such officers by AIC or
CAI.
(i) Special Provision for 1996 Only. For 1996
only, Executive shall receive 10% of the Pre-Tax Net Income from the remaining
CMO subsidiaries of the Company earned after March 31, 1996.
4. Termination.
(a) Death and Disability. The Executive's
employment hereunder and the Employment Term shall terminate upon
-8-
<PAGE>
his death or upon his becoming Totally Disabled. For purposes of this Agreement,
the Executive shall be "Totally Disabled" if he is physically or mentally
incapacitated so as to render him incapable of performing his usual and
customary duties as an executive for more than 150 consecutive days. The
Executive's receipt of social security disability benefits shall be deemed
conclusive evidence of Total Disability for purposes of this Agreement;
provided, however, that in the absence of his receipt of such social security
benefits, the Board of Directors of the Company may, in its reasonable
discretion, but based upon appropriate medical evidence, determine that the
Executive is Totally Disabled. In the event the Executive's employment is
terminated under this Section 4(a), he or his estate, as the case may be, shall
be entitled to the compensation set forth in the second sentence of Section 4(c)
below.
(b) For Cause. The Company may terminate the
Executive's employment hereunder for Cause. For purposes of this Agreement, the
term "Cause" shall mean (i) the Executive's willful refusal to perform material
duties reasonably required or requested of him hereunder (other than as a result
of total or partial incapacity due to physical or mental illness) by the Board
of Directors for 30 days after having received written notice of such refusal
from the Board of Directors and having failed to commence to perform such duties
within such period, (ii) the Executive's commission of material acts of fraud,
dishonesty or misrepresentation in the performance of his duties hereunder,(iii)
any final, non-appealable conviction of the Executive for an act or acts on the
Executive's part constituting a felony under the laws of the United States or
any state thereof, or (iv) any
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<PAGE>
material uncured breach of the provisions of Sections 5(a) and 5(b) hereof which
continues for 30 days after the Executive has received written notice of such
breach. If the Executive's employment hereunder is terminated for Cause, the
Executive shall be entitled only to the amount of his Base Salary earned through
the date of termination and shall not be entitled to any other amounts or
benefits hereunder, including but not limited to incentive compensation or
medical insurance.
(c) Without Cause. The Company may terminate
the Executive's employment hereunder without Cause, which shall include, without
limitation, (i) the Company's election not to renew this Agreement pursuant to
Section 2 hereof, (ii) the Company causing FAMC to exercise its option to
purchase the Executive's interests in FAMC, (iii) removal of the Executive as a
Manager of FAMC without cause, (iv) a significant and overall change in the
business conducted by FAMC or dissolution of FAMC during the Employment Term
without the Executive's consent and (v) any other reason in the Company's sole
discretion. If the Executive's employment is terminated without Cause, as soon
as practicable (but not later than 30 days) after such termination, he shall
receive a lump sum cash payment equal to the sum of: (i) his Base Salary
prorated through the effective date of termination; and (ii) an amount equal to
80% of the prorated Annual Incentive Compensation to which the Executive would
be entitled to be paid pursuant to Section 3(c) hereof through the effective
date of termination for the year in which such termination occurs, calculated by
assuming FAMC's results of operations through the date of such termination
continue for the entire year (the "Incentive Comp Advance"); provided that if
the Incentive Comp Advance is less than the actual
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<PAGE>
prorated portion of the Annual Incentive Compensation, determined in accordance
with Section 3(c) at the end of the calendar year in which the termination
occurred, the Company shall immediately pay the Executive the amount by which
the actual computed prorated Annual Incentive Compensation exceeds the Incentive
Comp Advance or, if the Incentive Comp Advance exceeds the actual prorated
portion of the Annual Incentive Compensation determined as provided above, then
the Executive shall immediately repay the difference to the Company. The
Executive shall also be entitled to the medical insurance benefits available to
him under Section 3(e).
(d) Change in Control. If a Change in Control (as
defined in Appendix A hereto) occurs with respect to the Company or FAMC, such
event shall be deemed a termination without Cause effective on the closing date
of the Change in Control and the Executive shall receive the compensation
provided for in the second sentence of Section 4(c). In addition, all options,
dividend equivalents and other rights granted to the Executive under any Company
plans shall be accelerated and shall become exercisable immediately prior to the
closing of the transaction giving rise to the Change in Control so as to permit
the Executive fully to exercise all outstanding options and rights. In the event
that such transaction fails to be consummated, the Executive's election pursuant
hereto shall be of no effect and the Executive's options shall remain subject to
the restrictions to which they were originally subject.
(e) Voluntary Termination. The Executive may
terminate his employment at any time by giving the Company 30 days prior written
notice. The exercise by the Executive of his right to cause FAMC to purchase his
ownership interest in FAMC shall be
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<PAGE>
deemed a voluntary termination by the Executive. In the event of a voluntary
termination, the Executive shall be entitled to (i) payment of his Base Salary
through the effective date of termination; (ii) payment of Annual Incentive
Compensation for the year in which such termination occurs, pro-rated and paid
as provided in Section 4(c)(ii) above; and (iii) provision of medical insurance
benefits as provided in Section 3(e).
(f) Severance Payments.
(i) If the Executive's employment is
terminated under Section 4(b) above, the Executive shall not receive any
payments other than those provided in Section 4(b). If the Executive's
employment is terminated under Sections 4(c) or 4(d) above, the Executive shall
receive on the effective date of termination a lump-sum payment of $1,220,000.
If the Executive's employment is terminated under Section 4(a) above, or if the
Executive terminates his employment under Section 4(e) above, the Executive, or
his estate as the case may be, shall receive on the effective date of
termination the following payments:
Effective Date Amount
of Termination
On or before December 31, 1996 $ 0
After December 31, 1996 and on or before December 31, 1997 $ 300,000
After December 31, 1997 and on or before December 31, 1998 $ 600,000
After December 31, 1998 $ 900,000
(ii) Notwithstanding anything to the
contrary herein, if the aggregate amounts payable pursuant to
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<PAGE>
Section 4(f)(i) hereof would cause any payment under such Section 4(f)(i) to be
subject to an excise tax as an "excess parachute payment" under Section 4999 of
the Internal Revenue Code, such aggregate amounts payable hereunder shall be
reduced by the smallest amount necessary to ensure that no payment hereunder
shall be so treated under such Section 4999. Prior to effecting such reduction,
the Company shall give the Executive 30 days' written notice of the fact, amount
and basis of such reduction, as well as a determination of the shortest period
of time over which such aggregate amounts may be paid and not be treated as
"excess parachute payments." The Executive shall then have 30 days within which
to elect in writing to (A) receive a lump sum payment, reduced pursuant to the
first sentence hereof, or (B) to receive the aggregate amounts payable pursuant
to Section 4(f)(i) in annual installments over the time period set forth in the
Company's notice. In making the determinations called for in this Section
4(f)(ii), the parties hereto shall rely conclusively on (1) the opinion of Price
Waterhouse LLP or, if such firm is unable to provide an opinion, such other
consulting firm as the Company shall designate (with the written consent of the
Executive which shall not be unreasonably withheld), as to the amount of the
Executive's compensation which constitutes "reasonable compensation" for
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<PAGE>
purposes of Section 280G of the Code, and (2) the opinion of Price Waterhouse
LLP, or, if such firm is unable to provide an opinion, such other actuarial firm
as the Company shall designate (with the written consent of the Executive which
shall not be unreasonably withheld), as to any present value calculations under
Section 280G of the Code. The Company shall bear all costs associated with
obtaining such opinions.
(iii) The amounts payable pursuant to
this Section 4(f) shall be paid (or commence to be paid) to the Executive not
later than 10 days after he notifies the Company under Section 4(f)(ii) above
whether he wishes to receive such amounts in a lump sum or in installments.
5. Covenants.
(a) Confidentiality. The Executive acknowledges
that he has acquired and will acquire confidential information respecting the
business of the Company. Accordingly, the Executive agrees that, without the
written consent of the Company as authorized by its Board of Directors, he shall
not, at any time, willfully disclose any such confidential information to any
unauthorized third party with an intent that such disclosure will result in
financial benefit to the Executive or to any person other than the Company. For
this purpose, information shall be
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<PAGE>
considered confidential only if such information is uniquely proprietary to the
Company and has not been made publicly available prior to its disclosure by the
Executive. The Executive further agrees to give to the Company's General
Counsel, within 90 days after the date of this Agreement, all Company records,
materials and information in his possession, custody or control (or which he has
provided to his representatives) which relate to the business of the Company,
except for such materials and information which relate to FAMC, AIC or CAI. Upon
termination of Executive's employment hereunder he shall deliver to the
Company's General Counsel all Company records, materials and information in his
possession, custody or control (or which he has provided to his representatives)
which relate to the business of the Company, FAMC, AIC or CAI as soon as
reasonably practicable, but in no event more than 30 days after termination of
Executive's employment.
(b) Competitive Activity. Until the end of the
Employment Term, the Executive shall not, without the advance written consent of
the Board of Directors of the Company, directly or indirectly, knowingly engage
or be interested in (as owner, partner, shareholder, employee, director,
officer, agent, consultant or otherwise), with or without compensation, any
business whose principal activities are in competition with any
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<PAGE>
substantial line of business actively being conducted by the Company during the
Employment Term. In the event of Browne's termination of employment hereunder
for any reason, Browne shall resign as an officer and director of AIC and CAI
and each of their respective subsidiaries effective as of the date of
such termination. Additionally, until the end of the Employment Term and for
a period of 24 months after the termination of the Executive's employment
hereunder he shall not interfere with any of the significant, ongoing business
relationships of FAMC, AIC, CAI, the Company or any of its subsidiaries existing
as of the date of such termination. Nothing herein, however, shall prohibit
the Executive from acquiring or holding not more than 5 percent of any class
of publicly-traded securities of any such business.
(c) Remedy for Breach. The Executive acknowledges
that the provisions of this Section 5 are reasonable and necessary for the
protection of the Company and that the Company will be irrevocably damaged if
such covenants are not specifically enforced. Accordingly, the Executive agrees
that, in addition to any other relief to which the Company may be entitled, the
Company shall be entitled to seek and obtain injunctive relief (without the
requirement of any bond) from a court of competent jurisdiction for
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the purposes of restraining the Executive from any actual or threatened breach
of such covenants.
6. Miscellaneous.
(a) Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of Colorado
applicable to agreements made and to be performed in that State.
(b) Notices. Any notice, onsent or other
communication made or given in connection with this Agreement shall be in
writing and shall be deemed to have been duly given when delivered by United
States registered or certified mail, return receipt requested, to the parties at
the following addresses or at such other address as a party may specify by
notice to the other.
To the Executive:
----------------
Spencer I. Browne
1660 Holly Street
Denver, Colorado 80220
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<PAGE>
To the Company:
--------------
M.D.C. HOLDINGS, INC.
3600 South Yosemite Street, Suite 900
Denver, Colorado 80237
Attention: General Counsel
(c) Entire Agreement; Amendment. This Agreement
shall supersede any and all existing agreements between the Executive and the
Company or any of its affiliates or subsidiaries relating to the terms of his
employment. It may not be amended except by a written agreement signed by both
parties.
(d) Waiver. The failure of a party to insist
upon strict adherence to any term of this Agreement on any occasion shall not be
considered a waiver thereof or deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this Agreement.
(e) Assignment. Except as otherwise provided in
this paragraph, this Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, representatives, successors and
assigns. This Agreement shall not be assignable by the Executive, and shall be
assignable by the Company only to any corporation or other entity resulting from
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the reorganization, merger or consolidation of the Company with any other
corporation or entity or any corporation or entity to which the Company may sell
all or substantially all of its assets, and it must be so assigned by the
Company to, and accepted as binding upon it by, such other corporation or entity
in connection with any such reorganization, merger, consolidation or sale.
(f) Arbitration. As material consideration for
entering into this Agreement, each of the Executive and the Company agrees that
any controversy or claim arising out of or relating to this Agreement, or the
breach thereof, shall be settled by arbitration administered by the American
Arbitration Association in accordance with the Commercial Arbitration Rules, and
judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Both parties expressly agree that costs and
attorneys fees related to any such arbitration shall be awarded to the
prevailing party. Any arbitration commenced pursuant to this paragraph shall be
conducted in the Denver metropolitan area in the State of Colorado.
(g) Severability. If any provision of this
Agreement is invalid or unenforceable, the balance of the Agreement shall
remain in effect, and if any provision is inapplicable to any
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person or circumstance, it shall nevertheless remain applicable to all other
persons and circumstances.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement including Appendix A and Schedules 1 and 2 thereto as of the date
first above written.
M.D.C. HOLDINGS, INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
EXECUTIVE
------------------------------
Spencer I. Browne
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APPENDIX A
This Appendix A is attached to and shall form a part of the
Employment Agreement, dated as of April 1, 1996, by and between M.D.C. HOLDINGS,
INC. (the "Company") and Spencer I. Browne (the "Executive").
(a) For purposes of this Agreement, a "Change in Control"
shall occur if:
(i) a report on Schedule 13D is filed with the
Securities and Exchange Commission pursuant to Section 13(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") disclosing that any person
(within the meaning of Section 13(d) of the Exchange Act), other than the
Company (or one of its subsidiaries) or any employee benefit plan sponsored by
the Company (or one of its subsidiaries), or any current director of the
Company (or a member of the family or an affiliate of such director), is the
beneficial owner, directly or indirectly, of 50 percent or more of the
combined voting power of the then-outstanding securities of the Company;
(ii) any person (within the meaning of Section 13(d)
of the Exchange Act), other than the Company (or one of its
-21-
<PAGE>
subsidiaries) or any employee benefit plan sponsored by the Company (or one of
its subsidiaries), or any current director of the Company (or a member of the
family or an affiliate of such director) shall purchase securities pursuant to a
tender offer or exchange offer to acquire any common stock of the Company (or
securities convertible into common stock) for cash, securities or any other
consideration, provided that after consummation of the offer, the person in
question is the beneficial owner (as such term is defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of 50 percent or more of the combined
voting power of the then outstanding securities of the Company (as determined
under paragraph (d) of Rule 13d-3 under the Exchange Act, in the case of rights
to acquire common stock);
(iii) the stockholders of the Company shall approve
(A) any consolidation or merger of the Company (1) in which the Company is not
the continuing or surviving corporation, (2) pursuant to which shares of common
stock of the Company would be converted into cash, securities or other property,
or (3) with a corporation which prior to such consolidation or merger owned 50
percent or more of the cumulative voting power of the then-outstanding
securities of the Company, or (B) any sale, lease, exchange or other transfer
(in one transaction or a series of
-22-
<PAGE>
related transactions) of all or substantially all the assets of the Company;
(iv) there shall have been a change in a majority of
the members of the Board of Directors of the Company within a twelve month
period, unless the election or nomination for election by the Company's
stockholders of each new director during such twelve month period was
approved by the vote of two-thirds of the directors then still in office who
were directors at the beginning of such twelve month period; or
(v) the Chairman of the Board of Directors of the
Company as of April 1, 1996 sells all or substantially all of his shares of
common stock of the Company; or (vi) with respect to FAMC, Financial Asset
Management Corporation or M.D.C. Residual Holdings, Inc., a person or persons
other than the Company or its affiliates shall be entitled to elect a majority
of the directors or Managers (or comparable governing body) of such entity.
(vi) with respect to FAMC, Financial Asset
Management Corporation or M.D.C. Residual Holdings, Inc., a person or persons
other than the Company or its affiliates shall be entitled to elect a majority
of the directors or Managers (or comparable governing body) of such entity.
-23-
<PAGE>
M.D.C. HOLDINGS, INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
EXECUTIVE
------------------------------
Spencer I. Browne
-24-
<PAGE>
SCHEDULE 1
Services for Which Supervisory Fees Are Charged as Referenced in
Section 3(c)(iii)
1. Executive Time
--------------
Larry A. Mizel
David D. Mandarich
Paris G. Reece
John Heaney
Michael Touff
Roger Morgan
2. Treasury Time
-------------
MDC Treasury Department (Including Wire Transfer Function)
3. Risk Management
---------------
MDC Risk Management Department
4. Data Systems
------------
MDC Data Management and Systems, up to $120,000 annually
5. Personnel/Payroll
-----------------
MDC Human Resources and Payroll Departments
-25-
<PAGE>
SCHEDULE 2
Salaries and Personnel as Referenced in
Section 3(c)(iii)
1. All compensation, benefits and expenses of Executive arising under this
Agreement, except Annual Incentive Compensation.
2. Rent at $12.75 per rentable square foot for office space occupied by
FAMC.
3. Personnel:
Amezaga, Rosa
Armstrong, Diane
Ellis, Sue
Fox, Leslie
Glinsky, Michael
Ilges, Ginny
Johnson, Laura
Katz, Elazar
Kellogg, Carol
Nystrom, Kevin
O'Neil, Brian
Owen, Lorri
Purcell, Peggy
Reyes-Williams, Rosa
Rosell, Cheryl
Singer, John
Stiefel, Monna
Executive's Assistant
Allon, Harvey (whether as consultant or employee)
4. Legal
5. Corporate Accounting/Tax
6. Internal Audit
-26-
Exhibit 10.19 (c)
Exhibit C
NON-NEGOTIABLE PROMISSORY NOTE
April 1, 1996
Borrower: Spencer I. Browne
Lender: Financial Asset Management LLC, a Colorado limited
liability company
Amount: $2,100,000.00
Maturity Date: December 31, 1998
For value received, Borrower promises to pay Financial Asset Management
LLC ("Lender") at Lender's office in Denver, Colorado, the sum of Two Million
One Hundred Thousand Dollars ($2,100,000.00) in lawful money of the United
States with simple interest thereon from the date hereof until paid, both before
and after judgment, computed on the basis of a three hundred sixty-five (365)
day year, at a variable rate per annum, adjusted as of the first day of each
calendar month during the term of this Promissory Note, equal to the M.D.C.
Holdings, Inc. Corporate Borrowing Rate, provided that such rate shall not
exceed 13%. Upon default in payment of any principal or interest when due,
whether due at stated maturity, by acceleration, or otherwise, all outstanding
principal shall bear interest at a default rate of eighteen percent (18%) per
annum from the date when due until paid, both before and after judgment.
Payments of accrued interest shall be made on April 1 of each year
during the term of this Promissory Note. Payments of principal shall be made on
April 1 of each year during the term of this Promissory Note if and to the
extent of the positive amount determined under the following equation:
X = .55 (Y - $400,000) - Z
X is the amount of principal to be paid
Y is the amount distributed to Borrower in the
preceding calendar year in respect of his interest in
Financial Asset Management LLC ("FAMC")
<PAGE>
Z is the amount, if any, by which Borrower's
compensation is reduced in any calendar year
pursuant to section 3(d) of his Employment
Agreement with M.D.C. Holdings, Inc. dated as of
April 1, 1996.
The remaining principal and accrued interest shall be payable in full on the
earlier of: (a) December 31, 1998; (b) ninety (90) days after Borrower's
employment with Lender has been terminated for cause; (c) one (1) year after
Borrower's employment with Lender has been terminated other than for cause; or
(d) on the closing date of the exercise by Lender or Borrower of their
respective call or put options under the Agreement dated as of the date hereof
among M.D.C. Holdings, Inc., Financial Asset Management Corporation, M.D.C.
Residual Holdings, Inc., Lender and Borrower (the "Agreement").
All payments shall be applied first to accrued interest and the
remainder, if any, to principal.
This Promissory Note is secured pursuant to a Pledge Agreement dated as
of the date hereof.
If default occurs in the payment of any principal or interest when due
and remains uncured five days after Borrower's receipt of notice thereof, if any
Event of Default (as defined in the Pledge Agreement) occurs under the Pledge
Agreement, time being of the essence, then the entire unpaid balance, with
interest as aforesaid, shall, at the election of the holder hereof and without
notice of such election, become immediately due and payable in full and in any
such event, Borrower agrees to pay to the holder hereof all collection costs,
including reasonable attorney fees and legal expenses, in addition to all other
sums due hereunder.
Borrower:
-----------------------------
Spencer I. Browne
-2-
Exhibit 10.19 (d)
Exhibit D
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Pledge Agreement") is entered into as
of the 1st day of April, 1996, by and between Financial Asset Management LLC, a
Colorado limited liability company ("FAMC"), and Spencer I. Browne ("Pledgor").
RECITALS
--------
1. FAMC has made a loan to Pledgor evidenced by a Promissory Note
dated as of the date hereof from Pledgor to FAMC in the original principal
amount of $2,100,000.00 (the "Note");
2 It is a condition under the Note that Pledgor enter into this
Pledge Agreement with FAMC.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the
mutual promises contained herein, FAMC and Pledgor agree as follows:
1. PLEDGE.
1.1 Security Interest. As security for the Note, including any
renewals or extensions thereof, Pledgor hereby pledges and assigns to FAMC and
creates in FAMC a security interest in all of his right, title and interest in
and to the membership interests of Pledgor in FAMC listed on Schedule 1 to this
Pledge Agreement (the "Pledged Interests") together with all rights and
privileges of Pledgor with respect thereto, all proceeds, income and profits
thereof and all property received in addition thereto, in exchange thereof or in
substitution therefor (the "Collateral").
1.2 Stock Dividends, Options or Other Adjustments. If the Pledged
Interests or any additional membership interests, shares of capital stock,
instruments, or other property distributable on
<PAGE>
or by reason of the Collateral, shall come into the possession or control of
Pledgor, and such property is such that a security interest therein can be
perfected only by possession by FAMC, Pledgor shall hold the same in trust and
forthwith transfer and deliver the same to FAMC subject to the provisions
hereof. Notwithstanding the above, absent an Event of Default, Pledgor shall
retain the right to vote, receive and retain all dividends or other
distributions declared on all interests included in the Collateral.
1.3 Delivery of Share Certificates; Stock Powers. Pledgor shall
promptly deliver to FAMC share certificates, if any, or other documents
representing Collateral acquired or received after the date of this Agreement
with stock powers duly executed by Pledgor. If at any time FAMC notifies Pledgor
that additional stock powers endorsed in blank held by FAMC with respect to the
Collateral or other documents with respect to the Collateral are required,
Pledgor shall promptly execute in blank and deliver such stock powers or other
documents as FAMC may request.
1.4 Power of Attorney. Pledgor hereby constitutes and irrevocably
appoints FAMC, with full power of substitution and revocation by FAMC, as
Pledgor's true and lawful attorney-in-fact, to the full extent permitted by law,
at any time or times when an Event of Default (as defined below) has occurred
and is continuing, to affix to certificates and documents representing the
Collateral the stock powers or other documents delivered with respect thereto,
to transfer or cause the transfer of the Collateral or any part thereof on the
books of FAMC to the name of FAMC or FAMC's nominee and thereafter exercise as
to such Collateral all the rights, powers and remedies of an owner. The power of
attorney granted pursuant to this Agreement and all authority hereby conferred
are granted and conferred solely to protect FAMC's interest in the Collateral
and shall not impose any duty upon FAMC to exercise any power. This power of
attorney shall be irrevocable as one coupled with an interest.
2. REPRESENTATIONS OF PLEDGOR.
Pledgor represents and warrants to FAMC that:
-2-
<PAGE>
2.1 Ownership. Pledgor is the sole legal and beneficial owner of, and
has good and marketable title to, the Pledged Interests listed as being owned by
him on Schedule 1, free and clear of all pledges, liens, security interests and
other encumbrances other than the security interest created by this Agreement,
and Pledgor has the unqualified right and authority to execute this Agreement
and to pledge the Collateral to FAMC as provided for herein.
2.2 Other Rights. There are no outstanding options, warrants or
other agreements with respect to the Pledged Interests, other than this Pledge
Agreement and the Operating Agreement of FAMC.
2.3 Compliance. The execution and delivery of this Agreement by
Pledgor, and the performance by Pledgor of his obligations hereunder, will not
result in a violation of any contract, agreement or other obligation to which
Pledgor is a party or, to the best knowledge of Pledgor, any law or governmental
regulation to which Pledgor is subject.
3. COVENANTS.
Pledgor covenants to FAMC that:
3.1 Sale or Transfer. Unless permitted or required under the terms of
the Agreement, Pledgor will not sell, transfer or convey any interest in, or
suffer or permit any lien or encumbrance to be created upon or with respect to,
any of the Collateral (other than as created under this Pledge Agreement) during
the term of this Pledge Agreement.
3.2 Further Actions. Pledgor will, at his own expense, at any time and
from time to time at FAMC's request, do, make, procure, execute and deliver all
acts, things, writings, assurances and other documents as may be reasonably
proposed by MDC further to enhance, preserve, establish, demonstrate or enforce
MDC's rights, interests and remedies created by, provided in or arising from
this Pledge Agreement.
4. REMEDIES.
-3-
<PAGE>
4.1 Events of Default. "Event of Default" means any one of the
following events:
(A) the occurrence of any event of default under the Note
which has not been cured within the applicable cure period, or
(B) default in the performance, or breach, of any covenant,
representation or warranty of Pledgor in this Pledge Agreement or the Agreement,
and continuance of such default or breach for a period of 30 days after FAMC has
given such Pledgor written notice specifying such default or breach and
requiring it to be remedied.
4.2 Actions by FAMC. If an Event of Default occurs and is continuing,
then and in every such case FAMC may take any one or more of the following
actions:
(A) FAMC may upon two (2) business days' notice cause the
Collateral to be transferred to its name or to the name of its nominee or
nominees and thereafter exercise as to such Collateral all of the rights, powers
and remedies of an owner;
(B) FAMC may upon two (2) business days' notice collect
by legal proceedings or otherwise all dividends, interest, principal payments,
capital distributions and other sums thereafter payable on account of said
Collateral, and hold the same as part of the Collateral, or apply the same to
the Note in such manner as FAMC may decide in its sole and absolute discretion;
(C) FAMC may upon two (2) business days' notice enter into
any extension, subordination, reorganization, deposit, merger, or consolidation
agreement, or any other agreement relating to or affecting the Collateral, and
in connection therewith deposit or surrender control of such Collateral
thereunder, and accept other property in exchange therefor and hold and apply
such property or money so received in accordance with the provisions hereof;
(D) At any time upon two (2) business days' notice, after
Pledgor's failure to pay the same, FAMC may discharge any taxes, liens, security
interests or other encumbrances levied or
-4-
<PAGE>
placed on the Collateral, pay for the maintenance and preservation of the
Collateral, or pay for insurance on the Collateral; the amount of such payments,
plus any and all fees, costs and expenses of FAMC (including reasonable
attorneys' fees and disbursements) in connection therewith, shall, at FAMC's
option, be reimbursed by Pledgor on demand, with interest thereon to be
calculated pursuant to the Note from the date paid by FAMC.
(E) FAMC shall have all the rights and remedies of a secured
party under the Uniform Commercial Code of the State of Colorado.
4.3 Remedies Cumulative and Nonexclusive. All of FAMC's rights and
remedies, including, but not limited to the foregoing, shall be cumulative and
not exclusive and shall be enforceable alternatively, successively or
concurrently as FAMC may deem expedient.
4.4 Consents and Approvals. If any consent, approval or authorization
of any state, municipal or other governmental department, agency or authority
should be necessary to effectuate any sale or other disposition of the
Collateral, or any partial disposition of the Collateral, Pledgor will execute
all such applications and other instruments as may be required in connection
with securing any such consent, approval or authorization and will otherwise use
his best efforts to secure the same. Pledgor further agrees to use his best
efforts to secure such sale or other disposition of the Collateral as FAMC may
deem necessary pursuant to the terms of this Pledge Agreement.
4.5 Assignment and Transfer. Upon any sale or other disposition, FAMC
shall have the right to deliver, assign and transfer to the purchaser thereof
the Collateral so sold or disposed of. Each purchaser at any such sale or other
disposition (including FAMC) shall hold the Collateral free from any claim or
right of whatever kind, including any equity or right of redemption of Pledgor.
Pledgor specifically waives, to the extent permitted by applicable law, all
rights of redemption, stay or appraisal that he had or may have under any rule
of law or statute now existing or hereafter adopted.
-5-
<PAGE>
4.6 No Obligation. FAMC shall not be obligated to make any sale or
other disposition, unless the terms thereof shall be satisfactory to it. FAMC
may, without notice or publication, adjourn any private or public sale, and,
upon five (5) days' prior notice to Pledgor, hold such sale at any time or place
to which the same may be so adjourned. In case of any sale of all or any part of
the Collateral, on credit or for future delivery, the Collateral so sold may be
retained by FAMC until the selling price is paid by the purchaser thereof, but
FAMC shall incur no liability in case of the failure of such purchaser to take
up and pay for the property so sold and, in case of any such failure, such
property may again be sold as herein provided.
4.7 Disposition of Proceeds. The proceeds of any sale or disposition
of all or any part of the Collateral shall be applied by FAMC in the following
order:
(A) to the payment in full of the costs and expenses of
such sale or sales, collections, and the protection, declaration and enforcement
of any security interest granted hereunder including the reasonable compensation
of FAMC's agents and attorneys;
(B) to the payment of the Note in such manner as FAMC may
elect; and
(C) to the payment to Pledgor of any surplus.
4.8 Insufficiency. In the event that the proceeds of any sale or
other disposition are insufficient to cover the principal of, and interest on,
the Note plus the costs and expenses of the sale or other disposition, Pledgor
shall be liable for such deficiency.
5. TERMINATION.
This Pledge Agreement shall continue in full force and effect as long
as any amount remains outstanding under the Note. Subject to any sale or other
disposition by FAMC of the Collateral or any part thereof pursuant to this
Pledge Agreement, the Collateral shall be returned to Pledgor upon full
indefeasible payment, satisfaction and termination of the Note.
-6-
<PAGE>
6. EXPENSES OF FAMC.
All expenses (including reasonable fees and disbursements of counsel)
incurred by FAMC in connection with any actual or attempted sale or exchange of,
or any enforcement, collection, compromise or settlement respecting, the
Collateral, or any other proceeding or action taken by FAMC hereunder whether
directly or as attorney-in-fact pursuant to a power of attorney or other
authorization herein conferred, and regardless of whether any litigation or
proceeding is commenced for the purpose of satisfaction of the liability of
Pledgor for failure to pay his or her obligations or as additional amounts owing
by Pledgor to cover FAMC's costs of acting against the Collateral, shall be
deemed an obligation of Pledgor for all purposes of this Pledge Agreement, and
FAMC may apply the Collateral to payment of or reimbursement of itself for such
liability.
7. MISCELLANEOUS.
7.1 Assignability of Rights. Pledgor may not assign any of his rights
under this Pledge Agreement, and any attempted assignment shall be void and
considered a default under this Pledge Agreement. The provisions of this Pledge
Agreement which are for FAMC's benefit as a holder of the Collateral are also
for the benefit of, and enforceable by any subsequent holder of the Note or the
Collateral.
7.2 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or by registered or certified mail (postage prepaid, return receipt requested)
to the respective parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(A) if to FAMC:
MDC Holdings, Inc.
3600 South Yosemite, Suite 900
Denver, Colorado 80237
Attention: Michael Touff, Esq.
-7-
<PAGE>
(B) if to Pledgor:
Spencer I. Browne
1660 Holly St.
Denver, CO 80220
7.3 Entire Agreement. Except as expressly set forth herein, this
Pledge Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements and
undertakings, both written and oral, between the parties with respect to the
subject matter hereof.
7.4 Governing Law. This Pledge Agreement shall be governed by, and
construed in accordance with, the laws of the State of Colorado regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. No provision of this Pledge Agreement shall be construed against
any party by reason of that party having drafted the same.
7.5 Headings. The descriptive headings contained in this Pledge
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Pledge Agreement.
7.6 Severability; Enforceability. If any term or provision of this
Agreement or any application thereof shall be invalid or enforceable, the
remainder of this Pledge Agreement and any other application of such term or
provision shall not be affected thereby.
7.7 Attorneys' Fees. In the event of any dispute among the parties
hereto relating to the subject matter of this Agreement, the out-of-pocket costs
and reasonable attorneys' fees of the prevailing party shall be paid by the
other party in addition to any other relief.
7.8 Amendment. This Pledge Agreement may not be supplemented,
modified or amended except by an instrument in writing signed by the parties
hereto.
7.9 Counterparts. This Pledge Agreement may be executed in two or
more counterparts, each of which shall be deemed an
-8-
<PAGE>
original, but all of which together shall constitute one and the same
instrument.
7.10 No Obligation. FAMC and its assigns shall use reasonable care
in holding the Collateral and shall hold and dispose of the same in accordance
with the terms of this Pledge Agreement.
IN WITNESS WHEREOF, FAMC has caused this Pledge Agreement to
be executed, and Pledgor has executed this Pledge Agreement, as of the date
first written above.
FINANCIAL ASSET MANAGEMENT LLC
By:
-----------------------------
Name:
-----------------------
Manager
PLEDGOR
--------------------------------
Spencer I. Browne
-9-
<PAGE>
Schedule 1 to Pledge Agreement
------------------------------
PLEDGED INTERESTS
All of Pledgor's Right, Title and Interest to the Membership Interest of
Pledgor Referenced in the Operating Agreement of Financial Asset Management LLC.
-10-
Exhibit 10.5 (i)
AMENDMENT TO MANAGEMENT AGREEMENT
AMENDMENT as of January 1, 1996 to the Management Agreement dated as of
January 1, 1995, between ASSET INVESTORS CORPORATION, a Maryland corporation
(the "Company"), and FINANCIAL ASSET MANAGEMENT CORPORATION, a Delaware
corporation (the "Manager").
RECITALS
A. The Company and the Manager entered into the Management Agreement
pursuant to which the Manager performs the duties and responsibilities set forth
in the Management Agreement, subject to the supervision of the Company's Board
of Directors; and
B. The Company desires to engage the Manager to perform the duties
and responsibilities set forth in the Management Agreement on the terms set
forth in the Management Agreement and this Amendment and the Manager desires
to be so engaged for an additional one-year term.
NOW, THEREFORE, in consideration for the mutual agreements herein set
forth, the parties hereto agree as follows:
1. Section 9(b) of the Management Agreement is amended
and restated hereby as follows:
(b) Incentive Compensation. The Company shall pay the Manager
as incentive compensation a yearly fee, in an amount equal to 20% of
the dollar amount, if any, by which the Company's GAAP Net Income for
each fiscal year, exceeds an amount equal to the Stockholders Equity
multiplied by the Ten Year U.S. Treasury Rate plus one percentage
point. If the GAAP Net Income of the Company is less than the amount
equal to the Stockholders Equity multiplied by the Ten Year U.S.
Treasury Rate plus one percentage point, the Manager shall refund to
the Company the net year-to-date incentive compensation previously paid
to the Manager during the current fiscal year, if any.
The quarterly payment of such amount by the Company to the
Manager, or refund to the Company from the Manager in the event the
incentive compensation for any year-to-date period is less than the
incentive compensation computed and paid to the Manager as of the
previous year-to-date period, shall be computed each fiscal quarter on
a cumulative year-to-date basis in an amount equal to (A) 20% of the
dollar amount, if any, by which the year-to-date GAAP Net Income of the
Company applicable to such fiscal quarter, exceeds an amount equal to
the Stockholders Equity for such year-to-date period multiplied by the
year-to-date Ten Year U.S. Treasury Rate plus one percentage point
multiplied by the number of quarters during such year-to-date period
divided by four; and (B) minus the year-to-
<PAGE>
date incentive compensation for the prior fiscal quarter. If the
year-to-date incentive compensation computed through such fiscal
quarter of the Company is less than the net year-to-date incentive
compensation computed for the previous year-to-date fiscal quarter,
the Manager shall refund to the Company the lesser of (i) the
difference between the net year-to-date incentive compensation
computed for the previous year-to-date fiscal quarter and the net
year-to-date incentive compensation computed for the current fiscal
quarter or (ii) the net year-to-date incentive compensation
computed for the previous year-to-date fiscal quarter, if any. Such
quarterly payment shall be paid to the Manager, or refunded to the
Company, as provided by, and subject to adjustment under,
Section 9(e) of this Agreement. A sample calculation of the incentive
compensation is shown in Exhibit A.
2. The first paragraph of Section 9(d)((iii) of the
Management Agreement is amended and restated hereby as follows:
(iii) for each Series of Non-Agency MBS Bonds issued or owned
by the Company or any subsidiary of the Company with respect to the
first class of such Series, the lesser of (A) $3,500 annually and
(B) an amount equal to $3,500 multiplied by the percentage ownership
of the Company or such subsidiary of the Company in such Non-Agency MBS
Bonds, and for each additional class of such Series (C) $625 annually
and (D) an annual amount equal to $625 multiplied by the percentage
ownership of the Company or such subsidiary of the Company in such
Non-Agency MBS Bond.
3. Section 9(f) is hereby added as follows:
(f) Certain Expenses. If the Company requests any
third party to render services to the Company or provide the Company
with any data or information, other than those services and data
required to be rendered and delivered by the Manager hereunder, such
costs and expenses charged by such third parties, shall be paid by the
Company.
4. Section 16 of the Management Agreement is amended and
restated hereby as follows:
"This Agreement shall continue in force until December 31,
1996 unless otherwise renewed or extended."
5. Except as amended hereby, the Management Agreement shall
remain in full force and effect. In the event of a conflict between this
Amendment and the Management Agreement, the terms of this Amendment shall
control.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
[CORPORATE SEAL] ASSET INVESTORS CORPORATION
ATTEST:
By:
---------------------------
Name: Spencer I. Browne
- -------------------------- Title: President and Chief
Daniel S. Japha, Secretary Executive Officer
FINANCIAL ASSET MANAGEMENT
CORPORATION
By:
---------------------------
Name: Kevin J. Nystrom
Title: Vice President and Chief
Accounting Officer
3
Exhibit 10.5 (j)
AMENDMENT TO MANAGEMENT AGREEMENT
AMENDMENT as of January 1, 1996 to the Management Agreement, dated as
of January 1, 1995, between COMMERCIAL ASSETS, INC., a Maryland corporation (the
"Company"), and FINANCIAL ASSET MANAGEMENT CORPORATION, a Delaware corporation
(the "Manager").
RECITALS
A. The Company and the Manager entered into the Management
Agreement pursuant to which the Manager performs the duties and
responsibilities set forth in the Management Agreement, subject to the
supervision of the Company's Board of Directors; and
B. The Company desires to engage the Manager to perform the duties
and responsibilities set forth in the Management Agreement on the terms set
forth in the Management Agreement and this Amendment and the Manager
desires to be so engaged for an additional one-year term.
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the parties hereto agree as follows:
1. Section 9(g) is hereby added as follows:
(g) Certain Expenses. If the Company requests any third
party to render services to the Company or provide the Company with any
data or information, other than those services and data required to be
rendered and delivered by the Manager hereunder, such costs and
expenses charged by such third parties, shall be paid by the Company.
2. Section 16 of the Management Agreement is amended and
restated hereby as follows:
"This Agreement shall continue in force until December 31,
1996 unless otherwise renewed or extended."
3. Except as amended hereby, the Management Agreement shall
remain in full force and effect. In the event of a conflict between this
Amendment and the Management Agreement, the terms of this Amendment shall
control.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
[CORPORATE SEAL] COMMERCIAL ASSETS, INC.
ATTEST: By:
---------------------------------
Name: Spencer I. Browne
- -------------------------- Title: President and Chief
Daniel S. Japha, Secretary Executive Officer
FINANCIAL ASSET MANAGEMENT
CORPORATION
By:
---------------------------------
Name: Kevin J. Nystrom
Title: Vice President and Chief
Accounting Officer
EXHIBIT 21
SUBSIDIARIES OF M.D.C. HOLDINGS, INC.
ASFC-W, INC.
ASFC-38, INC.
ASSET INVESTORS EQUITY, INC.
ASW FINANCE COMPANY
DESIGNER DOOR & MILLWORK OF CALIFORNIA, INC.
ECM HOLDINGS
ENERWEST, INC.
FICUS CORPORATION
FINANCIAL ASSET MANAGEMENT CORPORATION
FINANCIAL ASSET MANAGEMENT LLC
FLOYD R. "BOB" WOOD ENDOWMENT FUND, INC.
F.V.S. ENTITY, INC.
GREENWAY FARMS DEVELOPMENT CORPORATION
HOMEAMERICAN MORTGAGE CORPORATION
MDC/WOOD, INC.
MDC DEVELOPMENT AND PIPELINE COMPANY (f/k/a/ RAH/CO)
M.D.C. ACCEPTANCE CORPORATION
M.D.C. CONSTRUCTION CO.
M.D.C. EQUITIES, INC.
M.D.C. FINANCIAL CORPORATION
M.D.C. HOLDINGS, INC.
M.D.C. HOME FINANCE CORPORATION
M.D.C. HOME FINANCE MORTGAGE CORPORATION
M.D.C. INSTITUTIONAL RESIDUALS, INC.
M.D.C. LAND CORPORATION
M.D.C. MORTGAGE FINANCE, INC.
M.D.C. MORTGAGE FUNDING CORPORATION II
M.D.C. RESIDUAL HOLDINGS, INC.
PETRO RESOURCES, INC.
RICHMOND AMERICAN CONSTRUCTION, INC.
RICHMOND AMERICAN HOMES OF ARIZONA DBA R.H. HOMES CORP.
RICHMOND AMERICAN HOMES OF CALIFORNIA, INC.
RICHMOND AMERICAN HOMES OF MARYLAND, INC.
RICHMOND AMERICAN HOMES OF NEVADA, INC.
RICHMOND AMERICAN HOMES OF POTOMAC KNOLLS NO. 1, INC.
RICHMOND AMERICAN HOMES OF POTOMAC KNOLLS NO. 2, INC.
RICHMOND AMERCIAN HOMES OF POTOMAC KNOLLS NO. 3, INC.
RICHMOND AMERICAN HOMES OF POTOMAC KNOLLS NO. 4, INC.
RICHMOND AMERICAN HOMES OF POTOMAC KNOLLS NO. 5, INC.
RICHMOND AMERICAN HOMES OF POTOMAC KNOLLS NO. 6, INC.
RICHMOND AMERICAN HOMES OF TEXAS, INC.
<PAGE>
RICHMOND AMERICAN HOMES OF VIRGINIA, INC.
RICHMOND AMERICAN HOMES, INC. (a Delaware corporation)
RICHMOND AMERICAN HOMES, INC. (a Florida corporation)
RICHMOND HOMES, INC. I
RICHMOND HOMES, INC. II
RICHMOND HOMES LIMITED
RICHMOND SHELF, INC.
T.C.V., INC.
THE YEONAS COMPANY
VAN SCHAACK REFERRAL SERVICES
YOSEMITE AMERICAN MORTGAGE CORPORATION
YOSEMITE FINANCIAL, INC.
995 CORPORATION
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in each Prospectus
constituting part of the Registration Statements on Form S-8 (no. 2-96464),
Form S-8 (no. 33-54429), Form S-3 (no. 33-52241), Form S-3 (no. 33-54007),
Form S-4 (no. 33-52245) and Form S-3 (no. 33-59703) of M.D.C. Holdings, Inc.
of our report dated February 20, 1996 appearing on page F-2 of this Form 10-K.
/s/ Price Waterhouse LLP
- ---------------------------
PRICE WATERHOUSE LLP
Los Angeles, California
March 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from MDC
Holdings, Inc. consolidated financial statements included in its Form 10-K for
the year ended December 31, 1995 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 20,795
<SECURITIES> 6,481
<RECEIVABLES> 26,192
<ALLOWANCES> 0
<INVENTORY> 442,165
<CURRENT-ASSETS> 0
<PP&E> 9,550
<DEPRECIATION> 0
<TOTAL-ASSETS> 634,811
<CURRENT-LIABILITIES> 0
<BONDS> 305,334
0
0
<COMMON> 226
<OTHER-SE> 204,807
<TOTAL-LIABILITY-AND-EQUITY> 634,811
<SALES> 840,362
<TOTAL-REVENUES> 865,856
<CGS> 807,344
<TOTAL-COSTS> 817,954
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,773
<INCOME-PRETAX> 26,651
<INCOME-TAX> 9,401
<INCOME-CONTINUING> 17,250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,250
<EPS-PRIMARY> .86
<EPS-DILUTED> .79
</TABLE>
