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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-8951
M.D.C. HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 84-0622967
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
3600 South Yosemite Street, Suite 900 80237
Denver, Colorado (Zip code)
(Address of principal executive offices)
(303) 773-1100
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of November 2, 1998, 18,344,000 shares of M.D.C. Holdings,
Inc. Common Stock were outstanding.
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<PAGE>
M.D.C. HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
Page
No.
----
Part I. Financial Information:
Item 1. Condensed Consolidated Financial Statements:
Balance Sheets as of September 30, 1998
(Unaudited) and December 31, 1997.............. 1
Statements of Income (Unaudited) for the three
and nine months ended September 30, 1998 and
1997........................................... 3
Statements of Cash Flows (Unaudited) for the
nine months ended September 30, 1998 and 1997.. 4
Notes to Financial Statements (Unaudited)...... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 9
Part II. Other Information:
Item 1. Legal Proceedings.............................. 19
Item 4. Submission of Matters to a Vote of Shareowners. 19
Item 5. Other Information.............................. 19
Item 6. Exhibits and Reports on Form 8-K............... 19
(i)
<PAGE>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ -----------
ASSETS (Unaudited)
<S> <C> <C>
Corporate
Cash and cash equivalents................................................... $ 802 $ 7,110
Property and equipment, net................................................. 1,999 9,709
Deferred income taxes....................................................... 15,875 12,276
Deferred debt issue costs, net.............................................. 3,683 6,851
Other assets, net........................................................... 6,373 2,944
---------- -----------
28,732 38,890
Homebuilding
Cash and cash equivalents................................................... 8,097 3,867
Home sales and other accounts receivable.................................... 20,366 7,559
Investments and marketable securities, net.................................. 392 1,392
Inventories, net
Housing completed or under construction................................... 325,184 249,928
Land and land under development........................................... 190,053 193,012
Prepaid expenses and other assets, net...................................... 56,960 55,788
---------- -----------
601,052 511,546
Financial Services
Cash and cash equivalents................................................... 331 701
Mortgage loans held in inventory, net....................................... 90,687 65,256
Other assets, net........................................................... 7,187 5,377
---------- -----------
98,205 71,334
Total Assets.......................................................... $ 727,989 $ 621,770
========== ===========
See notes to condensed consolidated financial statements.
-1-
</TABLE>
<PAGE>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- -----------
LIABILITIES (Unaudited)
<S> <C> <C>
Corporate
Accounts payable and accrued expenses....................................... $ 26,188 $ 14,288
Income taxes payable........................................................ 13,561 11,806
Note payable................................................................ - - 3,432
Senior notes, net........................................................... 174,328 150,354
Subordinated notes, net..................................................... 28,000 38,229
----------- -----------
242,077 218,109
Homebuilding
Accounts payable and accrued expenses....................................... 123,266 105,485
Line of credit.............................................................. 61,453 20,766
Notes payable............................................................... 574 9,676
----------- -----------
185,293 135,927
Financial Services
Accounts payable and accrued expenses....................................... 16,482 12,047
Line of credit.............................................................. 32,378 26,094
----------- -----------
48,860 38,141
Total Liabilities..................................................... 476,230 392,177
----------- -----------
COMMITMENTS AND CONTINGENCIES.................................................. - - - -
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 25,000,000 shares authorized; none issued..
- - - -
Common Stock, $.01 par value; 100,000,000 shares authorized; 24,120,000 and
23,691,000 shares issued, respectively, at September 30, 1998 and
December 31, 1997......................................................... 241 237
Additional paid-in capital.................................................. 146,060 142,429
Retained earnings........................................................... 143,357 125,613
Accumulated comprehensive income............................................ 1,485 881
----------- -----------
291,143 269,160
Less treasury stock, at cost; 5,876,000 and 5,903,000 shares, respectively,
at September 30, 1998 and December 31, 1997............................... (39,384) (39,567)
----------- -----------
Total Stockholders' Equity............................................ 251,759 229,593
----------- -----------
Total Liabilities and Stockholders' Equity............................ $ 727,989 $ 621,770
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
REVENUES
<S> <C> <C> <C> <C>
Homebuilding......................................... $ 325,269 $ 261,057 $ 857,286 $ 683,748
Financial Services................................... 6,279 5,337 21,099 13,017
Corporate............................................ 87 224 630 957
----------- ----------- ----------- -----------
Total Revenues................................... 331,635 266,618 879,015 697,722
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Homebuilding......................................... 300,000 250,826 800,966 656,224
Financial Services................................... 3,069 2,304 8,702 6,700
Corporate general and administrative................. 5,310 1,694 12,862 8,194
Corporate and homebuilding interest.................. - - - - - - 761
----------- ----------- ----------- -----------
Total Expenses................................... 308,379 254,824 822,530 671,879
----------- ----------- ----------- -----------
Income before income taxes and extraordinary item......
23,256 11,794 56,485 25,843
Provision for income taxes.............................. (8,999) (4,492) (21,719) (9,821)
----------- ----------- ----------- -----------
Income before extraordinary item........................ 14,257 7,302 34,766 16,022
Extraordinary loss from early extinguishments of debt,
net of income tax benefit of $9,587 for 1998 and
$1,336 for 1997....................................... - - - - (15,314) (2,179)
----------- ----------- ----------- -----------
NET INCOME.............................................. $ 14,257 $ 7,302 $ 19,452 $ 13,843
Unrealized holding gains (losses) on securities arising
during the period, net............................... (791) 467 604 804
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME.................................... $ 13,466 $ 7,769 $ 20,056 $ 14,647
=========== =========== =========== ===========
EARNINGS PER SHARE
Basic
Income before extraordinary item................. $ .78 $ .42 $ 1.92 $ .91
=========== =========== =========== ===========
Net Income....................................... $ .78 $ .42 $ 1.07 $ .78
=========== =========== =========== ===========
Diluted
Income before extraordinary item................. $ .65 $ .35 $ 1.59 $ .79
=========== =========== =========== ===========
Net Income....................................... $ .65 $ .35 $ .91 $ .69
=========== =========== =========== ===========
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic................................................ 18,205 17,569 18,111 17,641
=========== =========== =========== ===========
Diluted.............................................. 22,673 21,779 22,598 21,849
=========== =========== =========== ===========
DIVIDENDS PER SHARE..................................... $ .04 $ .03 $ .11 $ .09
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income.......................................................... $ 19,452 $ 13,843
Adjustments To Reconcile Net Income To Net Cash Used In Operating
Activities:
Loss from the early extinguishments of debt.................... 24,901 3,515
Depreciation and amortization.................................. 14,602 10,588
Homebuilding asset impairment charges.......................... 4,500 5,850
Deferred income taxes.......................................... (3,599) (319)
Gains on sales of mortgage-related assets...................... (4,509) 20
Net changes in assets and liabilities
Home sales and other accounts receivable.................... (12,807) (5,645)
Homebuilding inventories.................................... (77,058) (13,658)
Prepaid expenses and other assets........................... (15,617) (6,355)
Mortgage loans held in inventory............................ (25,431) (13,933)
Accounts payable and income taxes payable................... 33,383 4,839
Other, net..................................................... (2,067) (2,679)
----------- -----------
Net Cash Used In Operating Activities................................ (44,250) (3,934)
----------- -----------
INVESTING ACTIVITIES
Net Proceeds from Sale of Office Building............................ 13,250 - -
Net Proceeds From Mortgage-Related Assets and Liabilities............ 4,636 1,587
Other, net........................................................... (1,952) 278
----------- -----------
Net Cash Provided By Investing Activities............................ 15,934 1,865
----------- -----------
FINANCING ACTIVITIES
Lines of Credit
Advances........................................................ 895,684 767,875
Principal payments.............................................. (849,601) (716,132)
Notes Payable
Borrowings...................................................... 574 144
Principal payments.............................................. (13,108) (178)
Senior Notes
Proceeds from issuance......................................... 171,541 - -
Repurchase and defeasance...................................... (152,000) (38,000)
Premium on repurchase and defeasance........................... (17,592) (1,520)
Retirement of Subordinated Notes..................................... (10,230) - -
Stock Repurchases.................................................... - - (7,349)
Dividend Payments.................................................... (1,988) (1,599)
Other, net........................................................... 2,588 1,209
----------- -----------
Net Cash Provided By Financing Activities............................ 25,868 4,450
----------- -----------
Net Increase (Decrease) In Cash and Cash Equivalents................. (2,448) 2,381
Cash and Cash Equivalents
Beginning of Period............................................. 11,678 11,304
----------- -----------
End of Period................................................... $ 9,230 $ 13,685
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
M.D.C. HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
A. Presentation of Financial Statements
The condensed consolidated financial statements of M.D.C. Holdings,
Inc. ("MDC" or the "Company," which, unless otherwise indicated, refers to
M.D.C. Holdings, Inc. and its subsidiaries) have been prepared, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
These statements reflect all adjustments (including all normal recurring
accruals) which, in the opinion of management, are necessary to present fairly
the financial position, results of operations and cash flows of MDC as of
September 30, 1998 and for all of the periods presented. These statements are
condensed and do not include all of the information required by generally
accepted accounting principles in a full set of financial statements. These
statements should be read in conjunction with MDC's financial statements and
notes thereto included in MDC's Annual Report on Form 10-K for its fiscal year
ended December 31, 1997.
Certain reclassifications have been made in the 1997 financial
statements to conform to the classifications used in the current year.
B. Corporate and Homebuilding Interest Activity (in thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest capitalized in homebuilding
inventory, beginning of period....... $ 33,316 $ 40,659 $ 37,991 $ 40,745
Interest incurred....................... 5,408 6,689 16,907 20,192
Interest expensed....................... - - - - - - (761)
Previously capitalized interest included
in cost of sales..................... (8,503) (7,529) (24,677) (20,357)
----------- ----------- ----------- -----------
Interest capitalized in homebuilding
inventory, end of period............. $ 30,221 $ 39,819 $ 30,221 $ 39,819
=========== =========== =========== ===========
</TABLE>
C. Stockholders' Equity
On February 26, 1997, the Company repurchased 838,000 shares of MDC
common stock at $8.77 per share, including commissions, completing a program
authorized by the MDC Board of Directors in October 1996 to repurchase up to
1,000,000 shares of MDC common stock.
-5-
<PAGE>
D. Information on Business Segments
The Company operates in two business segments: homebuilding and
financial services. A summary of the Company's segment information is shown
below (in thousands).
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Homebuilding
Home sales......................... $ 322,337 $ 259,720 $ 846,852 $ 676,674
Land sales......................... 2,421 1,011 9,224 6,256
Other revenues..................... 511 326 1,210 818
----------- ----------- ----------- -----------
325,269 261,057 857,286 683,748
----------- ----------- ----------- -----------
Home cost of sales................. 265,927 221,912 705,449 577,859
Land cost of sales................. 1,572 744 5,857 5,199
Asset impairment charges........... 1,500 3,500 4,500 5,850
Marketing.......................... 19,384 16,367 52,780 44,467
General and administrative......... 11,617 8,303 32,380 22,849
----------- ----------- ----------- -----------
300,000 250,826 800,966 656,224
----------- ----------- ----------- -----------
Homebuilding Operating Profit.. 25,269 10,231 56,320 27,524
----------- ----------- ----------- -----------
Financial Services
Mortgage Lending Revenues
Interest revenues.................. $ 597 $ 465 $ 1,630 $ 1,411
Origination fees................... 2,568 1,795 6,708 4,811
Gains on sales of mortgage servicing 742 1,009 1,669 1,560
Gains on sales of mortgage loans,
net.............................. 2,277 1,876 6,293 4,368
Mortgage servicing and other....... 95 140 197 419
Asset Management Revenues............ - - 52 4,602 448
----------- ----------- ----------- -----------
6,279 5,337 21,099 13,017
General and Administrative Expenses.. 3,069 2,304 8,702 6,700
----------- ----------- ----------- -----------
Financial Services Operating
Profit....................... 3,210 3,033 12,397 6,317
----------- ----------- ----------- -----------
Total Operating Profit................. 28,479 13,264 68,717 33,841
----------- ----------- ----------- -----------
Corporate
Interest and other revenues........ 87 224 630 957
Interest expense................... - - - - - - (761)
General and administrative......... (5,310) (1,694) (12,862) (8,194)
----------- ----------- ----------- -----------
Net Corporate Expenses......... (5,223) (1,470) (12,232) (7,998)
----------- ----------- ----------- -----------
Income Before Income Taxes and
Extraordinary Item................... $ 23,256 $ 11,794 $ 56,485 $ 25,843
=========== =========== =========== ===========
</TABLE>
-6-
<PAGE>
E. Earnings Per Share
The computation of diluted earnings per share takes into account the
effect of dilutive stock options and assumes the conversion into MDC common
stock of all of the $28,000,000 outstanding principal amount of the 8 3/4%
convertible subordinated notes (the "Convertible Subordinated Notes") at a
conversion price of $7.75 per share of MDC common stock. On November 4, 1998,
the price of MDC's common stock closed at $19.8125 on the New York Stock
Exchange. The Company has called the Convertible Subordinated Notes for
redemption on December 16, 1998. The Convertible Subordinated Notes may be
converted on or before December 14, 1998. Pursuant to the Convertible
Subordinated Notes Indenture, unless previously converted, the Convertible
Subordinated Notes will be redeemed by the Company at 105% of the principal
amount of the Notes, plus accrued interest through the date of redemption.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic Earnings Per Share
Income before extraordinary item................. $ 14,257 $ 7,302 $ 34,766 $ 16,022
Extraordinary loss, net of taxes................. - - - - (15,314) (2,179)
----------- ----------- ----------- -----------
Net Income.................................. $ 14,257 $ 7,302 $ 19,452 $ 13,843
=========== =========== =========== ===========
Weighted-Average Shares Outstanding.............. 18,205 17,569 18,111 17,641
=========== =========== =========== ===========
Per Share Amounts
Income before extraordinary item............ $ .78 $ .42 $ 1.92 $ .91
=========== =========== =========== ===========
Net Income.................................. $ .78 $ .42 $ 1.07 $ .78
=========== =========== =========== ===========
Diluted Earnings Per Share
Income before extraordinary item................. $ 14,257 $ 7,302 $ 34,766 $ 16,022
Conversion of Convertible Subordinated Notes..... 392 394 1,175 1,181
----------- ----------- ----------- -----------
Adjusted income before extraordinary item........ 14,649 7,696 35,941 17,203
Extraordinary loss, net of taxes................. - - - - (15,314) (2,179)
----------- ----------- ----------- -----------
Adjusted Net Income......................... $ 14,649 $ 7,696 $ 20,627 $ 15,024
=========== =========== =========== ===========
Weighted-Average Shares Outstanding.............. 18,205 17,569 18,111 17,641
Stock Options, net............................... 855 597 874 595
Conversion of Convertible Subordinated Notes..... 3,613 3,613 3,613 3,613
----------- ----------- ----------- -----------
Diluted Weighted-Average Shares Outstanding. 22,673 21,779 22,598 21,849
=========== =========== =========== ===========
Per Share Amounts
Income before extraordinary item............ $ .65 $ .35 $ 1.59 $ .79
=========== =========== =========== ===========
Net Income.................................. $ .65 $ .35 $ .91 $ .69
=========== =========== =========== ===========
</TABLE>
F. Extraordinary Item
On January 28, 1998, the Company sold $175,000,000 principal amount of
8 3/8% Senior Notes due 2008 (the "8 3/8% Senior Notes") at an issue price of
99.598%. The Company used the proceeds of the sale of the 8 3/8% Senior Notes to
repurchase $61,181,000 principal amount of MDC's 11 1/8% Senior Notes due 2003
(the "11 1/8% Senior Notes"), to defease the remaining $90,819,000 principal
amount of 11 1/8% Senior Notes outstanding and for general corporate purposes.
The repurchase and
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<PAGE>
subsequent cancellation and defeasance of the 11 1/8% Senior Notes resulted in
an extraordinary charge to income (including the recognition of unamortized debt
discount and write-off of deferred debt issue costs) of $15,314,000, net of an
income tax benefit of $9,587,000, in the first nine months of 1998.
Net income for the first nine months of 1997 included an extraordinary
loss of $2,179,000, net of an income tax benefit of $1,336,000, recognized in
connection with the Company's repurchase of $38,000,000 principal amount of the
11 1/8% Senior Notes. The loss resulted from the repurchase of the 11 1/8%
Senior Notes at a price above their carrying value and the write-off of
unamortized deferred debt issue costs.
G. Supplemental Disclosure of Cash Flow Information (in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1998 1997
------------ -----------
<S> <C> <C>
Cash paid during the period for:
Interest, net of amounts capitalized....................... $ - - $ - -
Income taxes............................................... $ 13,234 $ 8,678
</TABLE>
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
MDC is a major regional homebuilder and one of the largest homebuilders
in the United States. The Company operates in two segments: homebuilding and
financial services. In its homebuilding segment, MDC builds and sells homes
under the name "Richmond American Homes" in (i) metropolitan Denver and Colorado
Springs, Colorado; (ii) Northern Virginia; (iii) suburban Maryland; (iv)
Northern and Southern California; (v) Phoenix and Tucson, Arizona; and (vi) Las
Vegas, Nevada. The Company's financial services segment consists principally of
HomeAmerican Mortgage Corporation (a wholly owned subsidiary of M.D.C. Holdings,
Inc., "HomeAmerican"), which provides mortgage loans primarily to the Company's
home buyers.
RESULTS OF OPERATIONS
The table below summarizes MDC's results of operations (in thousands,
except per share amounts).
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.................................... $ 331,635 $ 266,618 $ 879,015 $ 697,722
Income before income taxes and extraordinary
item...................................... $ 23,256 $ 11,794 $ 56,485 $ 25,843
Income before extraordinary item............ $ 14,257 $ 7,302 $ 34,766 $ 16,022
Net Income.................................. $ 14,257 $ 7,302 $ 19,452 $ 13,843
Earnings Per Share:
Basic
Income before extraordinary item....... $ .78 $ .42 $ 1.92 $ .91
Net Income............................. $ .78 $ .42 $ 1.07 $ .78
Diluted
Income before extraordinary item....... $ .65 $ .35 $ 1.59 $ .79
Net Income............................. $ .65 $ .35 $ .91 $ .69
</TABLE>
Revenues for the third quarter and first nine months of 1998 increased
24% and 26%, respectively, compared with the same periods in 1997, primarily due
to (i) higher home sales revenues resulting from increases in home closings and
average selling prices per home closed; and (ii) increased revenues from the
Company's financial services segment, as discussed below.
Income before income taxes and extraordinary item increased in the
third quarter and first nine months of 1998, compared with the same periods in
1997. These increases primarily were a result of higher operating profits from
(i) the Company's homebuilding segment, due to increased home closings,
-9-
<PAGE>
higher average selling prices per home closed and increased Home Gross Margins
(as hereinafter defined); and (ii) the Company's financial services segment,
primarily due to increased mortgage lending profits and, for the nine month
period, a $4,450,000 gain resulting from receipt of the final payments, in the
second quarter of 1998, related to the September 1996 sale of the Company's
asset management business.
Net income for the first nine months of 1998 included an extraordinary
after-tax loss of $15,314,000, or $.68 per share, recognized in connection with
the January 1998 refinancing of MDC's senior debt. The 1997 first nine-month net
income included an extraordinary after-tax loss of $2,179,000, or $.10 per
share, from the repurchase of $38 million of the then outstanding 11 1/8% Senior
Notes.
Homebuilding Segment
The tables below set forth information relating to the Company's
homebuilding segment (dollars in thousands).
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Home Sales Revenues......................... $ 322,337 $ 259,720 $ 846,852 $ 676,674
Operating Profits........................... $ 25,269 $ 10,231 $ 56,320 $ 27,524
Average Selling Price Per Home Closed..... $ 195.5 $ 180.9 $ 189.0 $ 178.4
Home Gross Margins.......................... 17.5% 14.6% 16.7% 14.6%
Orders For Homes, net (units)
Colorado............................. 603 490 2,200 1,565
California........................... 238 257 858 750
Arizona.............................. 445 349 1,396 964
Nevada............................... 156 116 461 346
Virginia............................. 124 96 551 464
Maryland............................. 84 62 309 310
----------- ----------- ----------- -----------
Total........................... 1,650 1,370 5,775 4,399
=========== =========== =========== ===========
Homes Closed (units)
Colorado............................. 588 469 1,699 1,259
California........................... 274 229 649 602
Arizona.............................. 428 314 1,119 824
Nevada............................... 111 122 307 301
Virginia............................. 156 170 441 472
Maryland............................. 92 132 266 334
----------- ----------- ----------- -----------
Total........................... 1,649 1,436 4,481 3,792
=========== =========== =========== ===========
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
----------- ------------ -----------
<S> <C> <C> <C>
Backlog (units)
Colorado............................. 1,381 880 882
California........................... 479 270 308
Arizona.............................. 670 393 371
Nevada............................... 249 95 143
Virginia............................. 321 211 195
Maryland............................. 226 183 194
----------- ----------- -----------
Total........................... 3,326 2,032 2,093
=========== =========== ===========
Estimated Sales Value........... $ 650,000 $ 380,000 $ 382,000
=========== =========== ===========
Active Subdivisions
Colorado............................. 46 48 45
California........................... 19 12 13
Arizona.............................. 26 29 30
Nevada............................... 11 6 8
Virginia............................. 21 23 26
Maryland............................. 14 19 23
----------- ----------- -----------
Total........................... 137 137 145
=========== =========== ===========
</TABLE>
Home Sales Revenues and Homes Closed - Home sales revenues in the third
quarter and first nine months of 1998 represented the highest levels for
comparable periods in the Company's history and were 24% and 25% higher,
respectively, than home sales revenues for the same periods in 1997. The
improved revenues were a result of increased home closings and higher average
selling prices per home closed, as further discussed below.
Home closings increased 15% and 18%, respectively, in the third quarter
and first nine months of 1998, compared with the same periods in 1997. These
increases primarily were due to higher home closings in Colorado (increases of
25% and 35%, respectively), Arizona (increases of 36%) and Southern California
(increases of 32% and 19%, respectively), as a result of the strong demand for
homes in these markets, substantially higher Backlog (as hereinafter defined)
levels throughout the first nine months of 1998, compared with the same period
in 1997, and in Southern California, a 50% increase in the number of active
subdivisions as of September 30, 1998, compared with September 30, 1997. Home
closings decreased in the third quarter and first nine months of 1998, compared
with the same periods in 1997, in (i) Virginia and Maryland, primarily due to
decreases in the number of active subdivisions in these markets in connection
with the Company's strategy to eliminate lower-margin subdivisions and redeploy
capital to more profitable projects within and outside these markets; and (ii)
Northern California, because the Company exited the Sacramento market and its
new subdivisions in the San Francisco Bay area are not yet active.
While the Company anticipates that it will close more homes in the
fourth quarter of 1998 than in the fourth quarter of 1997, the 1998 fourth
quarter home closings should represent a lower percentage of September 30
Backlog, compared with 1997, due to a number of factors. These factors include
(i) the Company's strategy to reduce the number of unsold homes under
construction, which declined 33% at September 30, 1998 compared with September
30, 1997; (ii) a substantially greater number of homes in Backlog which were not
started as of September 30, 1998 compared with September 30, 1997; and
-11-
<PAGE>
(iii) shortages of subcontractor labor in most of the Company's markets, which
have delayed the development of lots and extended the construction period for a
number of homes in these markets. See "Forward-Looking Statements" below.
Average Selling Price Per Home Closed - The increases in the average
selling prices per home closed of $14,600 and $10,600, respectively, in the
third quarter and first nine months of 1998, compared with the same periods in
1997, reflect the impact of (i) a greater number of homes closed in relatively
higher-priced subdivisions in Southern California, Phoenix and Nevada; (ii) a
higher proportion of detached homes closed in Virginia and Maryland, which
generally have higher selling prices than townhomes; and (iii) selling price
increases in most of the Company's markets, particularly in Southern California
and Colorado.
Home Gross Margins - Gross margins (home sales revenues less cost of
goods sold, which primarily includes land and construction costs, capitalized
interest, a reserve for warranty expense and selling incentives) as a percent of
home sales revenues ("Home Gross Margins") increased by 290 and 210 basis
points, respectively, to 17.5% and 16.7% during the third quarter and first nine
months of 1998, compared with 14.6% for the same periods in 1997. Home Gross
Margins increased significantly in the third quarter and first nine months of
1998 in Colorado, Virginia and Arizona, largely as a result of (i) in Colorado,
selling price increases and reduced incentives offered to home buyers due to the
increased demand for new homes in this market; (ii) in Colorado and Arizona, the
favorable impact of a number of home closings in several highly profitable
subdivisions; (iii) a decrease in the cost of certain raw materials from
suppliers and manufacturers pursuant to national purchasing contracts; and (iv)
initiatives implemented in each of the Company's markets designed to improve
operating efficiency, control costs and increase rates of return.
Looking forward, the Company believes that Home Gross Margins for the
fourth quarter of 1998 will exceed margins for the fourth quarter in 1997 by
more than 200 basis points. Future growth in Home Gross Margins may be impacted
adversely by (i) increased competition in most of the Company's markets; (ii)
increases in, among other things, the costs of subcontracted labor, finished
lots and building materials to the extent that market conditions prevent the
recovery of increased costs through higher selling prices; and (iii) increases
in carrying costs due to lengthened construction periods resulting from
shortages of subcontractor labor, as discussed above. See "Forward Looking
Statements" below.
Orders for Homes and Backlog - Orders for homes in the third quarter
and first nine months of 1998 increased 20% and 31%, respectively, compared with
the same periods in 1997, despite a decrease in the number of active
subdivisions to 137 at September 30, 1998 from 145 at September 30, 1997. These
home order increases resulted from comparatively strong home orders in all of
the Company's markets except Northern California and Maryland in response to a
robust national economy marked by low unemployment, low mortgage rates, high
consumer confidence and home affordability and low inventories of new homes.
Third quarter 1998 home orders particularly were strong in Phoenix, Nevada,
Virginia and Colorado, which increased 37%, 34%, 29% and 23%, respectively,
compared with the same period in 1997, due to the strength of the demand for new
homes in these markets.
The increased orders for homes in the third quarter and first nine
months of 1998 contributed to a 59% increase in the Company's homes under
contract but not yet delivered ("Backlog") at September 30, 1998 to 3,326 units,
compared with a Backlog of 2,093 units at September 30, 1997. Assuming no
significant change in market conditions or mortgage interest rates, the Company
expects approximately 70% of its September 30, 1998 Backlog to close under
existing sales contracts during the
-12-
<PAGE>
fourth quarter of 1998 and first half of 1999. The remaining 30% of the homes in
Backlog are not expected to close due to cancellations. See "Forward-Looking
Statements" below.
The Company received approximately 570 orders for homes in October
1998, compared with 511 orders in October 1997. The October 1998 year-over-year
increase is attributable to improved home orders in most of the Company's
markets, with particular strength in Colorado (up 40%) and Phoenix (up 34%),
partially offset by decreased orders in Southern California and Maryland.
Marketing - Marketing expenses (which include, among other things,
amortization of deferred marketing, model home expenses and sales commissions)
totalled $19,384,000 and $52,780,000, respectively, for the third quarter and
first nine months of 1998, compared with $16,367,000 and $44,467,000,
respectively, for the same periods in 1997. The increases in 1998 primarily were
volume related, resulting from higher (i) marketing-related salaries, benefits
and sales commissions incurred and deferred marketing costs amortized in
connection with the increased number of home closings; and (ii) product
advertising and other costs incurred in connection with the Company's expanded
operations, particularly in Colorado and Southern California. As a result, these
expenses actually declined as a percentage of home sales revenues to 6.0% and
6.2%, respectively, for the third quarter and first nine months of 1998,
compared with 6.3% and 6.6%, respectively, for the same periods in 1997.
General and Administrative - General and administrative expenses were
$11,617,000 and $32,380,000, respectively, during the third quarter and first
nine months of 1998, compared with $8,303,000 and $22,849,000, respectively, for
the same periods in 1997, primarily due to (i) increased compensation costs
resulting from expanded operations in each of the Company's markets except
Northern California and Maryland; (ii) the write-off of due diligence costs and
deposits with respect to certain proposed homebuilding projects which were not
acquired; and (iii) additional costs associated with new branch offices in
Southern California and design centers in Southern California and Phoenix.
Asset Impairment Charges
Operating results during the third quarter and first nine months of
1998 were reduced by asset impairment charges of $1,500,000 and $4,500,000,
respectively, compared with impairment charges of $3,500,000 and $5,850,000,
respectively, for the same periods in 1997, related to certain of the Company's
homebuilding assets primarily in suburban Maryland. The asset impairment charges
resulted from the (i) recognition of losses anticipated from the closing of
certain homes in Backlog and from the reduction of selling prices and the
offering of increased incentives to stimulate sales of certain completed unsold
homes in inventory; (ii) write-down to fair value of certain subdivisions which
have experienced slow sales and negative Home Gross Margins; and (iii) write-off
of capitalized costs, primarily deferred marketing and option deposits, related
to several low-margin projects.
-13-
<PAGE>
Land Inventory
The table below shows the carrying value of land and land under
development, by market, the total number of lots owned and lots controlled under
option agreements and total option deposits (dollars in thousands).
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Colorado................................ $ 49,678 $ 62,093 $ 58,968
California.............................. 70,334 44,423 28,333
Arizona................................. 26,480 32,067 35,768
Nevada.................................. 24,216 17,342 15,710
Virginia................................ 12,346 21,081 22,866
Maryland................................ 6,999 16,006 17,551
----------- ----------- -----------
Total.............................. $ 190,053 $ 193,012 $ 179,196
=========== =========== ===========
Total Lots Owned........................ 8,896 9,466 9,725
Total Lots Controlled Under Option...... 7,082 5,730 5,249
----------- ----------- -----------
Total Lots Owned and Controlled... 15,978 15,196 14,974
=========== =========== ===========
Total Option Deposits................... $ 10,999 $ 7,545 $ 6,802
=========== =========== ===========
</TABLE>
Financial Services Segment
Operating profit from the financial services segment was $3,210,000 and
$12,397,000, respectively, for the third quarter and first nine months of 1998,
compared with $3,033,000 and $6,317,000, respectively, for the same periods in
1997. The operating profit increase in the first nine months of 1998 primarily
was due to (i) the recognition of a $4,450,000 previously deferred gain
resulting from receipt, in the second quarter of 1998, of the final payments
related to the September 1996 sale of the Company's asset management business;
and (ii) a 32% increase in mortgage lending profits primarily resulting from
significantly higher mortgage origination volume.
The table below summarizes the results of HomeAmerican's operations (in
thousands).
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gains on Sales of Mortgage Loans, net....... $ 2,277 $ 1,876 $ 6,293 $ 4,368
Operating Profits........................... $ 3,210 $ 2,988 $ 7,807 $ 5,903
Principal Amount of Originations and
Purchases
MDC home buyers........................ $ 184,715 $ 145,074 $ 499,044 $ 377,325
Spot................................... 10,267 9,516 38,820 24,078
Correspondent.......................... 29,142 19,898 105,816 50,504
----------- ----------- ----------- -----------
Total.............................. $ 224,124 $ 174,488 $ 643,680 $ 451,907
=========== =========== =========== ===========
Capture Rate................................ 69% 68% 71% 68%
=========== =========== =========== ===========
</TABLE>
-14-
<PAGE>
HomeAmerican's operating profits for the third quarter and first nine
months of 1998 increased, compared with the same periods in 1997, primarily due
to (i) $774,000 and $1,897,000 increases, respectively, in origination fees; and
(ii) $401,000 and $1,925,000 increases, respectively, in gains from sales of
mortgage loans. These increases partially were offset by higher general and
administrative expenses resulting from increased mortgage lending activity.
The principal amount of HomeAmerican's loan originations and purchases
increased 28% and 42%, respectively, in the third quarter and first nine months
of 1998, compared with the same periods in 1997. These increases primarily were
due to more (i) Company home closings; (ii) mortgage loans originated by
HomeAmerican for MDC home buyers as a percentage of total MDC home closings
("Capture Rate"); and (iii) loans purchased from correspondents. HomeAmerican
continues to benefit from the Company's homebuilding growth, as MDC home buyers
were the source of approximately 82% and 78%, respectively, of the principal
amount of mortgage loans originated and purchased by HomeAmerican in the third
quarter and first nine months of 1998.
Forward Sales Commitments - HomeAmerican's operations are affected by,
among other things, changes in mortgage interest rates. HomeAmerican utilizes
forward mortgage securities contracts to manage the interest rate risk on the
fixed-rate mortgage loans owned and the rate-locked mortgage loans in the
pipeline. Such contracts are the only significant financial derivative
instrument utilized by MDC.
Other Operating Results
Interest Expense - The Company capitalizes interest on its homebuilding
inventories during the period of active development and through the completion
of construction. Corporate and homebuilding interest incurred but not
capitalized is reflected as interest expense. No interest expense was recorded
in the first nine months of 1998, compared with $761,000 for the same period in
1997.
Corporate and homebuilding interest incurred decreased to $5,408,000
and $16,907,000, respectively, for the third quarter and first nine months of
1998, compared with $6,689,000 and $20,192,000, respectively, for the same
periods in 1997, primarily due to lower effective interest rates on the
Company's outstanding debt.
For a reconciliation of interest incurred, capitalized and expensed,
see Note B to the Company's Condensed Consolidated Financial Statements.
Corporate General and Administrative Expenses - Corporate general and
administrative expenses totalled $5,310,000 and $12,862,000, respectively,
during the third quarter and first nine months of 1998, compared with $1,694,000
and $8,194,000, respectively, for the same periods in 1997. These increases
primarily resulted from (i) higher compensation expenses related to the
Company's higher profitability and expanding operations; and (ii) the
recognition in the third quarter of 1997 of a $2,032,000 offset to legal
expenses for insurance recoveries received during that period and the reversal
of insurance-related reserves no longer required.
The Company has substantially completed the modification and testing of
its computer systems and non-computer systems to accurately process information
which includes the Year 2000 date and beyond ("Year 2000 Compliant"). Pursuant
to current accounting rules, the cost of such modification and testing has been
expensed as incurred. The Company is in the process of surveying certain of its
significant vendors and suppliers to determine whether they are Year 2000
Compliant. The Company has little or no control over whether its vendors and
suppliers will be Year 2000 Compliant on a timely
-15-
<PAGE>
basis. The Company does not believe that the failure of its significant vendors
and suppliers to be Year 2000 Compliant would have a material adverse effect
upon the financial condition, results of operations or cash flows of the
Company. See "Forward-Looking Statements" below.
Income Taxes - M.D.C. Holdings, Inc. and its wholly owned
subsidiaries file a consolidated federal income tax return (an "MDC Consolidated
Return"). Richmond American Homes of Colorado, Inc. and its wholly owned
subsidiaries filed a separate consolidated federal income tax return (each a
"Richmond Homes Consolidated Return") from its inception (December 28, 1989)
through February 2, 1994, the date Richmond American Homes of Colorado, Inc.
became a wholly owned subsidiary of MDC.
MDC's overall effective income tax rates of 38.7% and 38.5%,
respectively, for the third quarter and first nine months of 1998, differed from
the federal statutory rate of 35% primarily due to the impact of state income
taxes.
The Internal Revenue Service (the "IRS") has completed its examinations
of the MDC Consolidated Returns for the years 1991 through 1995 and has proposed
adjustments to the taxable income reflected in such returns. The Company
currently is protesting certain of these proposed adjustments through the IRS
appeals process. In the opinion of management, adequate provision has been made
for additional income taxes and interest which may arise as a result of the
proposed adjustments.
The IRS currently is examining the MDC Consolidated Returns for the
years 1996 and 1997 and the Richmond Homes Consolidated Return for the period
ended February 2, 1994. No audit reports have been issued by the IRS in
connection with these examinations. In the opinion of management, adequate
provision has been made for additional income taxes and interest, if any, which
may result from these examinations; however, it is reasonably possible that the
ultimate resolution could result in amounts which differ materially in the near
term from amounts provided.
LIQUIDITY AND CAPITAL RESOURCES
MDC uses its liquidity and capital resources to, among other things,
(i) support its operations, including its inventories of homes, home sites and
land; (ii) provide working capital; and (iii) provide mortgage loans for its
home buyers. Liquidity and capital resources are generated internally from
operations and from external sources.
Capital Resources
The Company's capital structure is a combination of (i) permanent
financing, represented by stockholders' equity; (ii) long-term financing,
represented by publicly traded 8 3/8% Senior Notes due in 2008; and (iii)
current financing, primarily lines of credit, as discussed below. The Company
believes that its current financial condition is both balanced to fit its
current operating structure and adequate to satisfy its current and near-term
capital requirements. See "Forward-Looking Statements" below.
MDC anticipates acquiring finished lots and partially developed land
for use in its future homebuilding operations during the remainder of 1998 and
in 1999. The Company currently intends to acquire a portion of the land
inventories required in future periods through takedowns of lots subject to
option contracts entered into in prior periods and, to the extent market
conditions permit, under new option contracts. The use of option contracts
lessens the Company's land-related risk and improves
-16-
<PAGE>
liquidity. Because of increased demand for partially developed and finished lots
in certain of the markets where the Company builds homes, the Company's ability
to acquire lots using option contracts has been reduced or has become more
expensive. See "Forward-Looking Statements" below.
The Company anticipates that it has adequate financial resources to
satisfy its current and near-term capital requirements based on its current
capital resources and additional liquidity available under existing credit
agreements. The Company believes that it can meet its long-term capital needs
(including, among other things, meeting future debt payments and refinancing or
paying off other long-term debt as it becomes due) from operations and external
financing sources, assuming that no significant adverse changes in the Company's
business occur as a result of the various risk factors described elsewhere
herein, in particular, increases in interest rates. See "Forward-Looking
Statements" below.
Lines of Credit and Other
Homebuilding - In June 1998, the Company modified its agreement with a
group of banks for its unsecured revolving line of credit (the "Homebuilding
Line"). Under the modified terms, the available borrowings increased to
$300,000,000 from $175,000,000, and the maturity date of the agreement was
extended for two years to June 30, 2003, although, pursuant to the terms of the
related credit agreement, a term-out of this credit may commence earlier under
certain circumstances. At September 30, 1998, $61,453,000 was borrowed and
$6,989,000 in letters of credit were outstanding under the Homebuilding Line.
Mortgage Lending - HomeAmerican utilizes its mortgage lending bank line
of credit (the "Mortgage Line") to provide funds to originate and purchase
mortgage loans and to finance these mortgage loans on a short-term basis.
HomeAmerican's mortgage loans generally are sold within 35 days after
origination or purchase. During the first nine months of 1998 and 1997,
HomeAmerican sold $617,122,000 and $438,400,000 principal amount, respectively,
of mortgage loans and mortgage certificates to unaffiliated purchasers.
Available borrowings under the Mortgage Line are collateralized by
mortgage loans and mortgage-backed certificates and are limited to the value of
eligible collateral, as defined. The aggregate amount available under the
Mortgage Line is $51,000,000. At September 30, 1998, $32,378,000 was borrowed
and an additional $18,622,000 was collateralized and available to be borrowed.
The Mortgage Line is cancelable upon 90 days' notice.
Convertible Subordinated Notes - The Company has notified the holders
of the $28,000,000 principal amount of Convertible Subordinated Notes that it
will redeem the Convertible Subordinated Notes on December 16, 1998. Pursuant to
the Convertible Subordinated Notes Indenture, unless previously converted, the
Convertible Subordinated Notes will be redeemed by the Company at 105% of the
principal amount of the Notes, plus accrued interest through the date of
redemption. The Convertible Subordinated Notes may be converted on or before
December 14, 1998, at the option of the holders thereof, into shares of MDC
common stock at a conversion price of $7.75 per share. On November 4, 1998, the
price of MDC's common stock closed at $19.8125 on the New York Stock Exchange.
General - The agreements for the Company's 8 3/8% Senior Notes,
Convertible Subordinated Notes and bank lines of credit include representations,
warranties and covenants. The Company believes that it is in compliance with
these representations, warranties and covenants.
-17-
<PAGE>
Consolidated Cash Flow
During the first nine months of 1998, the Company used $44,250,000 of
cash in its operating activities, primarily due to increases in homebuilding and
mortgage loan inventories in conjunction with its expanded homebuilding
operations. The Company financed these operating cash requirements primarily
through borrowings on its lines of credit, as well as $13,250,000 in proceeds
from the sale of the Company's headquarters office building and the collection
of $4,450,000 in notes receivable with respect to the September 1996 sale of the
Company's asset management business.
During the first nine months of 1997, the Company used $46,869,000 of
cash to repurchase 838,000 shares of MDC common stock and $38,000,000 of Senior
Notes. The Company also used $3,934,000 of cash in its operating activities. The
Company financed these activities primarily with internally generated funds and
line of credit borrowings.
OTHER
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q, as well as
statements made by the Company in periodic press releases, oral statements made
by the Company's officials to analysts and shareowners in the course of
presentations about the Company and conference calls following quarterly
earnings releases, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Such factors include,
among other things, (i) general economic and business conditions; (ii) interest
rate changes; (iii) the relative stability of debt and equity markets; (iv)
competition; (v) the availability and cost of land and other raw materials used
by the Company in its homebuilding operations; (vi) demographic changes; (vii)
shortages and the cost of labor; (viii) weather-related slowdowns; (ix) slow
growth initiatives; (x) building moratoria; (xi) governmental regulation,
including the interpretation of tax, labor and environmental laws; (xii) changes
in consumer confidence; (xiii) required accounting changes; and (xiv) other
factors over which the Company has little or no control.
-18-
<PAGE>
M.D.C. HOLDINGS, INC.
FORM 10-Q
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company and certain of its subsidiaries and affiliates have been
named as defendants in various claims, complaints and other legal actions
arising in the normal course of business. In the opinion of management, the
outcome of these matters will not have a material adverse effect upon the
financial condition, results of operations or cash flows of the Company.
Because of the nature of the homebuilding business, and in the ordinary
course of its operations, the Company from time to time may be subject to
product liability claims.
The Company is not aware of any litigation, matter or pending claim
against the Company which would result in material contingent liabilities
related to environmental hazards or asbestos.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREOWNERS
No matters were submitted to shareowners during the third quarter of
1998.
ITEM 5. OTHER INFORMATION
On October 28, 1998, the Company's board of directors declared a
dividend of four cents per share for the quarter ended September 30, 1998,
payable November 20, 1998, to shareowners of record on November 9, 1998. Future
dividend payments are subject to the discretion of the Company's board of
directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit:
10.1 Consulting agreement between the
Company and Gilbert Goldstein, P.C.
effective as of October 1, 1998.
27 Financial Data Schedule.
-19-
<PAGE>
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed by the
Registrant during the period covered by this
Quarterly Report on Form 10-Q.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 5, 1998 M.D.C. HOLDINGS, INC.
---------------- (Registrant)
By: /s/ Paris G. Reece III
---------------------------
Paris G. Reece III,
Senior Vice President,
Chief Financial Officer and
Principal Accounting Officer
-20-
EXHIBIT 10.1
Gilbert Goldstein, P.C.
3600 South Yosemite Street, Suite 870
Denver, CO 80237
September 25, 1998
Mr. Larry A. Mizel, President
M.D.C. Holdings, Inc.
3600 South Yosemite
Suite 900
Denver, Colorado 80237
Dear Larry:
The purpose of this letter agreement (the "Agreement") is to confirm an
understanding reached between us concerning the retention by M.D.C. Holdings,
Inc. ("MDC") of Gilbert Goldstein, P.C. ("GG, P.C.") as a professional
consultant on legal matters as follows:
1. GG, P.C. agrees to make Gilbert Goldstein available to perform legal
consultation services for MDC on a day-to-day as-needed and directed
basis for not less than 25 hours per week commencing October 1, 1998
through September 30, 1999, and for not less than 20 hours per week
from October 1, 1999 through September 30, 2000.
2. MDC agrees to compensate GG, P.C. as follows:
a. $216,000 per year payable in equal monthly installments of
$18,000 on the first day of each month commencing October 1,
1998 through September 30, 1999.
b. $180,000 per year payable in equal monthly installments of
$15,000 on the first day of each month commencing October 1,
1999 through September 30, 2000.
c. From October 1, 1998 through September 30, 1999, $180.00 per
hour for services performed in any month in excess of 100
hours and from October 1, 1999 through September 30, 2000,
$180.00 per hour for services performed in any month in excess
of 80 hours.
<PAGE>
Mr. Larry A. Mizel
September 25, 1998
Page 2
d. Provide mutually agreed-upon office space at the office
building known as 3600 South Yosemite Street, Denver,
Colorado, or such other location as may be mutually agreed
upon by GG, P.C. and MDC.
e. Reimburse actual expenses incurred that are directly related
to the services provided hereunder.
f. Provide full-time secretarial services of a mutually
agreed-upon secretary.
3. In the event Gilbert Goldstein retires from the practice of law,
becomes disabled or dies during the term of this Agreement, MDC shall
pay Mr. Goldstein or his estate, as the case may be, in lieu of any
payments or other benefits or services to be provided by MDC pursuant
to this Agreement, $7,000 per month on the first day of each month
during the remaining term of this Agreement following the date of his
retirement, disability or death.
4. This Agreement shall be in full force and effect for a period of two
years commencing October 1, 1998.
5. GG, P.C. is an independent contractor and is not an employee of MDC for
any purpose. In that regard, the method or performance of services,
the services rendered, and the exact time and hours, GG, P.C. is to
perform services on any given day will be entirely in the control and
discretion of GG, P.C. MDC will rely on GG, P.C. to perform the
services as reasonably necessary to fulfill the spirit and purpose of
this Agreement. MDC is supplying office space and secretarial services
to GG, P.C. because it is economically more efficient for it to do so
because it has these available and because it desires GG, P.C. to be
located in close proximity to MDC's headquarters for ease in the
consultation process. In consideration thereof, GG, P.C. has
substantially lowered the going rate for its services ($300.00 per
hour) in order to facilitate the Agreement.
6. GG, P.C. will have the right to continue to perform legal services for
other persons and entities.
<PAGE>
Mr. Larry A. Mizel
September 25, 1998
Page 3
We have discussed the fact that Gilbert Goldstein is an "outside member
of the Board of Directors" of MDC. Each party desires that Gilbert Goldstein
continue in that capacity. The consulting Agreement will be performed in such
fashion as not to interfere with or change that relationship. In the capacity of
a consultant to MDC, GG, P.C. may provide legal counsel and advice to the Audit
and Compensation Committees of the MDC Board of Directors. Those services will
be provided by Gilbert Goldstein in his capacity as a consultant to MDC, and not
in his capacity as a member of the MDC Board of Directors, and shall be included
in the calculation of hours spent providing consulting services pursuant to this
Agreement.
Effective October 1, 1998, this Agreement will supersede all prior
Agreements among GG, P.C., MDC and Gilbert Goldstein related to the subject
matter hereof, including without limitation, the letter agreements between GG,
P.C. and MDC dated September 22, 1994 and July 26, 1996.
This entire Agreement has been approved by resolution of the Board of
Directors of MDC.
If you have any questions, please call me.
Yours truly,
GILBERT GOLDSTEIN, P.C.
By:/s/ Gilbert Goldstein
---------------------------
Gilbert Goldstein
Approved and agreed to this
5th day of October , 1998
- ---- --------------
M.D.C. HOLDINGS, INC.
By:/s/ Larry A. Mizel
-------------------------
Larry A. Mizel, President
<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-Q for
the quarter ended September 30, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,230
<SECURITIES> 392
<RECEIVABLES> 20,366
<ALLOWANCES> 0
<INVENTORY> 515,237
<CURRENT-ASSETS> 0
<PP&E> 1,999
<DEPRECIATION> 0
<TOTAL-ASSETS> 727,989
<CURRENT-LIABILITIES> 0
<BONDS> 264,355
0
0
<COMMON> 241
<OTHER-SE> 251,518
<TOTAL-LIABILITY-AND-EQUITY> 727,989
<SALES> 857,286
<TOTAL-REVENUES> 879,015
<CGS> (800,966)
<TOTAL-COSTS> (809,668)
<OTHER-EXPENSES> (12,862)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 56,485
<INCOME-TAX> (21,719)
<INCOME-CONTINUING> 34,766
<DISCONTINUED> 0
<EXTRAORDINARY> (15,314)
<CHANGES> 0
<NET-INCOME> 19,452
<EPS-PRIMARY> 1.07
<EPS-DILUTED> .91
</TABLE>
