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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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 May 1, 2000, 21,489,000 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 MARCH 31, 2000
INDEX
Page
No.
----
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Balance Sheets as of March 31, 2000 (Unaudited)
and December 31, 1999............................. 1
Statements of Income and Comprehensive Income
(Unaudited) for the three months ended
March 31, 2000 and 1999........................... 3
Statements of Cash Flows (Unaudited) for the three
months ended March 31, 2000 and 1999.............. 4
Notes to Condensed Consolidated Financial
Statements (Unaudited)............................ 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk....................................... 17
Part II. Other Information
Item 1. Legal Proceedings..................................... 18
Item 4. Submission of Matters to a Vote of Shareowners........ 18
Item 5. Other Information..................................... 18
Item 6. Exhibits and Reports on Form 8-K...................... 18
(a)
<PAGE>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Corporate
Cash and cash equivalents................................................... $ 10,377 $ 33,637
Property and equipment, net................................................. 3,326 2,909
Deferred income taxes....................................................... 24,204 21,201
Deferred debt issue costs, net.............................................. 2,342 2,393
Other assets, net........................................................... 6,040 6,771
---------- -----------
46,289 66,911
Homebuilding
Cash and cash equivalents................................................... 5,913 4,935
Home sales and other accounts receivable.................................... 12,291 3,496
Inventories, net
Housing completed or under construction................................... 393,384 337,029
Land and land under development........................................... 301,219 308,680
Prepaid expenses and other assets, net...................................... 60,952 58,156
---------- -----------
773,759 712,296
Financial Services
Cash and cash equivalents................................................... 401 358
Mortgage loans held in inventory............................................ 65,227 89,953
Other assets, net........................................................... 7,493 7,490
---------- -----------
73,121 97,801
Total Assets.......................................................... $ 893,169 $ 877,008
========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-1-
<PAGE>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
LIABILITIES (Unaudited)
<S> <C> <C>
Corporate
Accounts payable and accrued expenses....................................... $ 36,046 $ 46,721
Income taxes payable........................................................ 28,460 18,291
Senior notes, net........................................................... 174,402 174,389
----------- -----------
238,908 239,401
Homebuilding
Accounts payable and accrued expenses....................................... 154,867 152,488
Line of credit.............................................................. 60,000 40,000
----------- -----------
214,867 192,488
Financial Services
Accounts payable and accrued expenses....................................... 12,930 5,862
Line of credit.............................................................. 35,560 50,234
----------- -----------
48,490 56,096
Total Liabilities..................................................... 502,265 487,985
----------- -----------
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; 28,477,000 and
28,166,000 shares issued, respectively, at March 31, 2000 and
December 31, 1999......................................................... 285 282
Additional paid-in capital.................................................. 182,256 179,094
Retained earnings........................................................... 264,902 245,235
Accumulated comprehensive income............................................ 211 3,623
----------- -----------
447,654 428,234
Less treasury stock, at cost; 6,929,000 and 5,850,000 shares, respectively,
at March 31, 2000 and December 31, 1999................................... (56,750) (39,211)
----------- -----------
Total Stockholders' Equity............................................ 390,904 389,023
----------- -----------
Total Liabilities and Stockholders' Equity............................ $ 893,169 $ 877,008
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-2-
<PAGE>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Statements of Income and Comprehensive Income
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
2000 1999
----------- -----------
REVENUES
<S> <C> <C>
Homebuilding............................................................... $ 341,009 $ 289,880
Financial Services......................................................... 5,874 6,914
Corporate.................................................................. 275 331
----------- -----------
Total Revenues......................................................... 347,158 297,125
----------- -----------
COSTS AND EXPENSES
Homebuilding............................................................... 295,538 264,726
Financial Services......................................................... 3,425 3,366
Corporate general and administrative....................................... 8,554 6,305
Corporate and homebuilding interest........................................ - - - -
----------- -----------
Total Costs and Expenses............................................... 307,517 274,397
----------- -----------
Income before income taxes.................................................... 39,641 22,728
Provision for income taxes.................................................... (18,620) (8,977)
----------- -----------
NET INCOME.................................................................... 21,021 13,751
Unrealized holding gains (losses) on securities arising during the quarter.... (37) 1,243
Reclassification adjustment for gains included in net income.................. (3,375) (48)
----------- -----------
Net unrealized holding gains (losses) on securities arising during the
quarter, net of a deferred income tax benefit (provision) of $6,003 in 2000
and ($783) in 1999.......................................................... (3,412) 1,195
----------- -----------
COMPREHENSIVE INCOME.......................................................... $ 17,609 $ 14,946
=========== ===========
EARNINGS PER SHARE
Basic...................................................................... $ .95 $ .62
=========== ===========
Diluted.................................................................... $ .94 $ .61
=========== ===========
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic...................................................................... 22,110 22,102
=========== ===========
Diluted.................................................................... 22,352 22,565
=========== ===========
DIVIDENDS PAID PER SHARE...................................................... $ .06 $ .05
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
2000 1999
----------- ------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income........................................................ $ 21,021 $ 13,751
Adjustments to reconcile net income to net cash used in operating
activities
Depreciation and amortization................................ 3,776 3,918
Deferred income taxes........................................ (3,003) 871
Net changes in assets and liabilities
Home sales and other accounts receivable.............. (8,795) (2,365)
Homebuilding inventories.............................. (48,894) (63,481)
Mortgage loans held in inventory...................... 24,726 15,830
Accounts payable and accrued expenses and income taxes
payable............................................ 7,757 4,126
Prepaid expenses and other assets..................... (4,578) 2,490
Other, net................................................... (1,038) 632
----------- -----------
Net cash used in operating activities............................. (9,028) (24,228)
----------- -----------
FINANCING ACTIVITIES
Lines of credit
Advances..................................................... 320,100 293,898
Principal payments........................................... (314,774) (268,271)
Notes payable
Principal payments........................................... - - (435)
Dividend payments................................................. (1,354) (1,103)
Stock repurchases................................................. (19,363) - -
Proceeds from stock issuance...................................... 2,180 560
----------- -----------
Net cash (used in) provided by financing activities............... (13,211) 24,649
----------- -----------
Net increase (decrease) in cash and cash equivalents.............. (22,239) 421
Cash and cash equivalents
Beginning of period.......................................... 38,930 10,079
----------- -----------
End of period................................................ $ 16,691 $ 10,500
=========== ===========
</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 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 March 31, 2000 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, 1999.
B. Corporate and Homebuilding Interest Activity (in thousands)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
2000 1999
----------- -----------
<S> <C> <C>
Interest capitalized in homebuilding inventory, beginning of period..... $ 17,406 $ 26,332
Interest incurred....................................................... 4,781 4,720
Interest expensed....................................................... - - - -
Previously capitalized interest included in cost of sales............... (4,572) (6,519)
----------- -----------
Interest capitalized in homebuilding inventory, end of period........... $ 17,615 $ 24,533
=========== ===========
</TABLE>
C. Earnings Per Share
The basic and diluted earnings per share calculations are shown below
(in thousands, except per share amounts).
<TABLE>
<CAPTION>
Three Months
Ended March 31,
2000 1999
----------- -----------
Basic Earnings Per Share
<S> <C> <C>
Net income.................................................. $ 21,021 $ 13,751
=========== ===========
Basic weighted-average shares outstanding................... 22,110 22,102
=========== ===========
Per share amounts............................................ $ .95 $ .62
=========== ===========
Diluted Earnings Per Share
Net income.................................................. $ 21,021 $ 13,751
=========== ===========
Basic weighted-average shares outstanding................... 22,110 22,102
Stock options, net.......................................... 242 463
----------- -----------
Diluted weighted-average shares outstanding................. 22,352 22,565
=========== ===========
Per share amounts........................................... $ .94 $ .61
=========== ===========
</TABLE>
-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
Ended March 31,
2000 1999
----------- -----------
<S> <C> <C>
Homebuilding
Home sales..................................................... $ 329,451 $ 288,084
Land sales..................................................... 1,493 1,386
Other revenues................................................. 10,065 410
----------- -----------
341,009 289,880
Home cost of sales............................................. 259,827 234,748
Land cost of sales............................................. 999 1,039
Asset impairment charges....................................... - - - -
Marketing...................................................... 18,684 16,883
General and administrative..................................... 16,028 12,056
----------- -----------
295,538 264,726
Homebuilding Operating Profit............................... 45,471 25,154
----------- -----------
Financial Services
Mortgage Lending Revenues
Net interest income............................................ 492 661
Origination fees............................................... 2,796 2,503
Gains on sales of mortgage servicing........................... 457 1,263
Gains on sales of mortgage loans, net.......................... 2,000 2,340
Mortgage servicing and other................................... 129 147
----------- -----------
5,874 6,914
General and Administrative Expenses.............................. 3,425 3,366
----------- -----------
Financial Services Operating Profit......................... 2,449 3,548
----------- -----------
Total Operating Profit.............................................. 47,920 28,702
----------- -----------
Corporate
Interest and other revenues.................................... 275 331
General and administrative..................................... (8,554) (6,305)
----------- -----------
Net Corporate Expenses...................................... (8,279) (5,974)
----------- -----------
Income Before Income Taxes.......................................... $ 39,641 $ 22,728
=========== ===========
</TABLE>
-6-
<PAGE>
E. Supplemental Disclosure of Cash Flow Information (in thousands)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
2000 1999
----------- -----------
<S> <C> <C>
Cash paid during the period for
Interest....................................................... $ 8,387 $ 7,559
Income taxes................................................... 6,319 6,570
Non-cash investing and financing activities
Land purchases financed by seller.............................. - - 745
Land sales financed by MDC..................................... - - 43
</TABLE>
F. Stockholders' Equity
On January 24, 2000, the MDC Board of Directors authorized the
repurchase of up to 1,000,000 shares of MDC common stock. On February 21, 2000,
the MDC Board of Directors authorized the repurchase of up to 2,000,000
additional shares of MDC common stock. The Company repurchased a total of
1,356,200 shares of MDC common stock under these programs through March 31,
2000. The per share prices, including commissions, paid for these share
repurchases range from $13.53 to $16.15 with an average cost of $14.28.
G. Gain on Sale of Investments
During the quarter ended March 31, 2000, net income included realized
pre-tax gains of $9,312,000, less applicable taxes of $5,937,000, from the sale
of certain investments by MDC's captive insurance subsidiary.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
INTRODUCTION
M.D.C. Holdings, Inc. is a Delaware Corporation originally
incorporated in Colorado in 1972. We refer to M.D.C. Holdings, Inc. as the
"Company" or as "MDC" in this Form 10-Q. The "Company" or "MDC" includes our
subsidiaries unless we state otherwise. MDC's primary business is building and
selling homes under the name "Richmond American Homes." We also originate
mortgage loans, primarily for Richmond American Homes' home buyers, through
MDC's subsidiary, HomeAmerican Mortgage Corporation ("HomeAmerican").
RESULTS OF OPERATIONS
The table below summarizes MDC's results of operations (in thousands,
except per share amounts).
<TABLE>
<CAPTION>
Three Months
Ended March 31,
2000 1999
---------- -----------
<S> <C> <C>
Revenues............................................................. $ 347,158 $ 297,125
Income Before Income Taxes........................................... $ 39,641 $ 22,728
Net Income........................................................... $ 21,021 $ 13,751
Earnings Per Share
Basic............................................................. $ .95 $ .62
Diluted........................................................... $ .94 $ .61
</TABLE>
Revenues for the first quarter of 2000 increased by $50,033,000, or
17%, compared with the same period in 1999, primarily due to increased
homebuilding revenues resulting from (1) a 7% increase in home closings to 1,551
units; (2) a higher average selling price per home closed; and (3) gains of
$9,312,000 realized on the sale of certain investments by MDC's captive
insurance subsidiary.
Income before income taxes increased 74% in the first quarter of 2000,
compared with the first quarter of 1999. This increase primarily was a result of
increased operating profit from the Company's homebuilding segment, due to the
increase in homebuilding revenues described above and a 260 basis point increase
in Home Gross Margins (defined below).
-8-
<PAGE>
Homebuilding Segment
The table below sets forth information relating to the Company's
homebuilding segment (dollars in thousands).
<TABLE>
<CAPTION>
Three Months
Ended March 31,
2000 1999
----------- -----------
<S> <C> <C>
Home Sales Revenues............................... $ 329,451 $ 288,084
Operating Profit.................................. $ 45,471 $ 25,154
Average Selling Price Per Home Closed............. $ 212.4 $ 199.1
Home Gross Margins................................ 21.1% 18.5%
Excluding Interest in Home Cost of Sales....... 22.5% 20.7%
Orders For Homes, net (units)
Colorado................................... 851 845
California................................. 412 393
Arizona.................................... 457 525
Nevada..................................... 233 128
Virginia................................... 278 267
Maryland................................... 86 88
------------ ------------
Total................................ 2,317 2,246
============ ============
Homes Closed (units)
Colorado................................... 652 502
California................................. 219 223
Arizona.................................... 325 386
Nevada..................................... 122 141
Virginia................................... 164 120
Maryland................................... 69 75
------------ ------------
Total................................ 1,551 1,447
============ ============
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31, March 31,
2000 1999 1999
----------- ------------ -----------
<S> <C> <C> <C>
Backlog (units)
Colorado................................... 1,825 1,626 1,698
California................................. 450 257 496
Arizona.................................... 584 452 835
Nevada..................................... 248 137 133
Virginia................................... 404 290 401
Maryland................................... 196 179 166
------------ ------------ -----------
Total................................ 3,707 2,941 3,729
============ ============ ===========
Estimated Sales Value................ $ 775,000 $ 600,000 $ 750,000
============ ============ ===========
Active Subdivisions
Colorado................................... 49 50 48
California................................. 22 24 19
Arizona.................................... 26 20 22
Nevada..................................... 12 12 10
Virginia................................... 12 16 16
Maryland................................... 7 9 11
------------ ------------ -----------
Total................................ 128 131 126
============ ============ ===========
</TABLE>
-9-
<PAGE>
Home Sales Revenues and Homes Closed - Home sales revenues for the
quarter ended March 31, 2000 were 14% higher than home sales revenues for the
same period in 1999. The improved revenues were a result of increased home
closings and a higher average selling price per home closed, as further
discussed below.
Home closings in the first quarter of 2000 were 7% higher than the same
period in 1999. Home closings particularly were strong in (1) Virginia and
Colorado, which increased 37% and 30%, respectively, as a result of the
continued strong demand for new homes in these markets; and (2) Northern
California, where the Company opened six new active subdivisions in 1999 in the
San Francisco Bay area. In Phoenix and Southern California, home closings
decreased in the first quarter of 2000, compared with the first quarter of
1999. Record home orders in 1998 and near-record home orders in the first half
of 1999 in Phoenix and Southern California accelerated the sell-out of certain
projects, which caused a temporary decline in the number of active subdivisions
contributing home closings in these markets in the first quarter of 2000,
compared with the first quarter of 1999.
Average Selling Price Per Home Closed - The average selling price per
home closed increased to $212,400 in the first quarter of 2000, compared with
$199,100 in the same period in 1999, primarily as a result of (1) the ability to
increase sales prices due to the strong demand for new homes in most of the
Company's markets; (2) a greater number of homes closed in higher-priced
subdivisions in California, where average selling prices exceeded $300,000; and
(3) increased sales volume per home from the Company's design centers in
Phoenix, Southern California, Nevada and Virginia.
Home Gross Margins - We define "Home Gross Margins" to mean home sales
revenues less cost of goods sold (which primarily includes land and construction
costs, capitalized interest, financing costs, and a reserve for warranty
expense) as a percent of home sales revenues. During the first quarter of 2000,
Home Gross Margins increased 260 basis points, compared with the same period in
1999. The increase largely was due to (1) selling price increases and reduced
incentives offered to home buyers due to the continued strong demand for new
homes in most of the Company's markets; (2) in Maryland, fewer under-performing
subdivisions in 2000 and management's continued efforts to improve
profitability; (3) reduced levels of interest in home cost of sales, as
discussed below; (4) increased rebates collected from suppliers through the
Company's national purchasing program; (5) increases in sales of higher-margin
products through the Company's design centers; and (6) ongoing initiatives in
each of the Company's markets designed to improve operating efficiency, control
costs and increase rates of return.
Future Home Gross Margins may be impacted adversely by (1) increased
competition; (2) increases in the costs of subcontracted labor, finished lots,
building materials and other resources, to the extent that market conditions
prevent the recovery of increased costs through higher selling prices; (3)
adverse weather; and (4) shortages of subcontractor labor. See "Forward Looking
Statements" below.
Interest in Home Cost of Sales - Interest in home cost of sales as a
percent of home sales revenues decreased to 1.4% in the first quarter of 2000,
compared with 2.2% for the same period in 1999. The reduction primarily resulted
from lower levels of capitalized interest in homebuilding inventories at the
beginning of 2000, compared with the beginning of 1999. Notwithstanding an
increase in the Company's homebuilding inventories, interest capitalized in
homebuilding inventories at the beginning of 2000 decreased to $17,406,000,
compared with $26,332,000 at the beginning of 1999, due to (1) lower levels of
interest incurred in 1999 compared with 1998 resulting from lower effective
interest rates on the Company's lines of credit and lower levels of homebuilding
and corporate debt; and (2) the close-out of older projects with higher levels
of capitalized interest in Colorado, Virginia and Maryland.
-10-
<PAGE>
Orders for Homes and Backlog - The Company received 2,317 orders for
homes during the first quarter of 2000, compared with 2,246 home orders received
in the first quarter of 1999. Home orders in the first three months of 2000
increased, compared with the same period in 1999, in Nevada and Northern
California, due to a higher number of active subdivisions and the continued
strong demand for new homes in these markets. Home orders were lower in the
first quarter of 2000 in Arizona, primarily resulting from fewer active
subdivisions during most of the quarter in Phoenix.
Backlog at March 31, 2000 was 3,707 units with an estimated sales value
of $775,000,000, compared with a Backlog of 3,729 units with an estimated sales
value of $750,000,000 at March 31, 1999. Assuming no significant change in
market conditions or mortgage interest rates, the Company expects approximately
75% of its March 31, 2000 Backlog to close under existing sales contracts during
the remainder of 2000. The remaining 25% of the homes in Backlog are not
expected to close under existing contracts due to cancellations. See
"Forward-Looking Statements" below.
Marketing - Marketing expenses (which include sales commissions,
advertising, amortization of deferred marketing, and other costs) totalled
$18,684,000 for the first quarter of 2000, compared with $16,883,000 for the
same period in 1999. The increase in 2000 primarily was volume related,
resulting from higher sales commissions, product advertising and other costs
incurred in connection with the Company's increased home closings.
Notwithstanding the increased costs, marketing expenses decreased as a
percentage of home sales revenues to 5.7% in the first quarter of 2000 from 5.9%
in the first quarter of 1999.
General and Administrative - General and administrative expenses
increased to $16,028,000 during the first quarter of 2000, compared with
$12,056,000 during the same period in 1999, primarily due to increased
compensation costs resulting from expanded operations in certain of the
Company's markets, most notably Colorado and Southern California.
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>
March 31, December 31, March 31,
2000 1999 1999
----------- ----------- -----------
<S> <C> <C> <C>
Colorado................................ $ 74,407 $ 74,117 $ 49,869
California.............................. 138,834 161,508 121,560
Arizona................................. 36,701 29,426 22,101
Nevada.................................. 31,492 27,419 25,550
Virginia................................ 11,277 6,357 10,962
Maryland................................ 8,508 9,853 8,994
----------- ----------- -----------
Total.............................. $ 301,219 $ 308,680 $ 239,036
=========== =========== ===========
Total Lots Owned (excluding lots in
work-in-process)...................... 10,340 10,452 9,144
Total Lots Controlled Under Option...... 8,727 8,063 6,734
----------- ----------- -----------
Total Lots Owned and Controlled... 19,067 18,515 15,878
=========== =========== ===========
Total Option Deposits................... $ 8,500 $ 8,700 $ 10,907
=========== =========== ===========
</TABLE>
-11-
<PAGE>
Financial Services Segment
The table below sets forth information relating to HomeAmerican's
operations (in thousands).
<TABLE>
<CAPTION>
Three Months
Ended March 31,
2000 1999
----------- -----------
<S> <C> <C>
Loan Origination Fees............................... $ 2,796 $ 2,503
Gains on Sales of Mortgage Loans, net............... $ 2,000 $ 2,340
Gains on Sales of Mortgage Servicing, net........... $ 457 $ 1,263
Operating Profit.................................... $ 2,449 $ 3,548
Principal Amount of Loans Originated and Purchased
MDC home buyers................................ $ 168,968 $ 161,723
Spot........................................... 4,060 12,287
Correspondent.................................. - - 12,074
----------- -----------
Total...................................... $ 173,028 $ 186,084
=========== ===========
Principal Amount of Loans Brokered
MDC home buyers................................ $ 49,746 $ 28,374
Spot........................................... 1,174 1,583
----------- -----------
Total...................................... $ 50,920 $ 29,957
=========== ===========
Capture Rate........................................ 64% 69%
=========== ===========
Including brokered loans....................... 80% 79%
=========== ===========
</TABLE>
HomeAmerican's operating profit for the first quarter of 2000
decreased, compared with the same period in 1999, primarily due to a $930,000
decrease in gains from bulk sales of mortgage servicing rights. HomeAmerican's
originated and brokered loans increased by $19,981,000 in the first quarter of
2000, compared with the same period in 1999. This improvement primarily was due
to increases in the Company's home closings. HomeAmerican continues to benefit
from the Company's homebuilding growth as MDC home buyers were the source of
over 98% of the principal amount of mortgage loans originated and brokered by
HomeAmerican in the first quarter of 2000, compared with 93% for the same period
in 1999.
Mortgage loans originated by HomeAmerican for MDC home buyers as a
percentage of total MDC home closings ("Capture Rate") decreased to 64% for the
first quarter of 2000, compared with 69% for the same period in 1999. However,
the number of mortgage loans brokered by HomeAmerican for origination by outside
lending institutions has increased, primarily due to an increase in the number
of MDC's home buyers with non-agency qualified credit. These brokered loans, for
which HomeAmerican receives a fee, have been excluded from the computation of
the Capture Rate. The Capture Rate including brokered loans was 80% for the
first quarter of 2000, compared with 79% for the same period in 1999.
Forward Sales Commitments - HomeAmerican's operations are affected by
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. These contracts are
the only significant financial derivative instrument utilized by MDC.
-12-
<PAGE>
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 and totalled zero for both the
first quarters of 2000 and 1999.
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 $8,554,000 during the first quarter of 2000,
compared with $6,305,000 during the first quarter of 1999, primarily due to
greater compensation-related costs in 2000 principally resulting from the
Company's higher profitability and increased homebuilding activities.
Income Taxes - MDC's overall effective income tax rate of 47% and 39.5%
for the first quarters of 2000 and 1999, respectively, differed from the federal
statutory rate of 35% partially due to the impact of state income taxes. In
addition, in the first quarter of 2000, the investment gains of $9,312,000
discussed under "Results of Operations" above are subject to taxation at both
the subsidiary level and corporate level, resulting in taxes at an effective
rate of 64%.
The Internal Revenue Service ("IRS") has completed its examination of
the Company's federal income tax returns for the years 1991 through 1995 and has
proposed adjustments to the taxable income reflected in such returns. The
Company is protesting certain of these proposed adjustments. In the opinion of
management, adequate provision has been made for additional income taxes and
interest, if any, which may arise as a result of this examination. In April
2000, the IRS completed its examination of the Company's federal income tax
returns for the years 1996 and 1997. The conclusion of this latter examination
resulted in no material impact to the Company's financial position or results of
operations. See "Forward-Looking Statements" below.
LIQUIDITY AND CAPITAL RESOURCES
MDC uses its liquidity and capital resources to (1) support its
operations, including its inventories of homes, home sites and land; (2) provide
working capital; and (3) 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 (1) permanent
financing, represented by stockholders' equity; (2) long-term financing,
represented by its publicly traded 8 3/8% senior notes due 2008 (the "Senior
Notes") and its homebuilding line of credit; and (3) current financing,
primarily its mortgage lending line of credit. 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.
Based upon its current capital resources and additional liquidity
available under existing credit agreements, MDC anticipates that it has adequate
financial resources to satisfy its current and near-term
-13-
<PAGE>
capital requirements, including the acquisition of land. The Company believes
that it can meet its long-term capital needs (including 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 in this report. See "Forward-Looking Statements"
below.
Lines of Credit and Other
Homebuilding - In October 1999, the homebuilding line of credit was
amended and restated (the "Amended and Restated Credit Agreement") to extend the
maturity date to September 30, 2004 and increase the $300,000,000 maximum amount
available to $450,000,000 upon the Company's request, requiring additional
commitments from existing or additional participant lenders. Pursuant to the
terms of the related credit agreement, a term-out of this credit may commence
earlier under certain circumstances. In April 2000, the maximum amount available
under the homebuilding line was increased to $350,000,000 as a result of
increased participation of two of the Company's participant banks and the
addition of a new bank to the lending group. There is no assurance that existing
or additional lenders will agree to provide additional commitments. At March 31,
2000, $60,000,000 was borrowed and $5,520,000 in letters of credit were
outstanding under this line of credit.
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 sold in the open market on a spot basis or pursuant to
mortgage loan sale commitments, generally within 40 days after origination.
During the first quarters of 2000 and 1999, HomeAmerican sold $198,110,000 and
$201,642,000, respectively, principal amount 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. In December 1999, the Company modified the
terms of the Mortgage Line, increasing the available borrowings from $51,000,000
to $75,000,000. At March 31, 2000, $35,560,000 was borrowed under the Mortgage
Line and an additional $16,538,000 was collateralized and available to be
borrowed. The Mortgage Line is cancelable upon 90 days' notice.
General - The agreements for the Company's Senior Notes and bank lines
of credit require compliance with certain representations, warranties and
covenants. The Company believes that it is in compliance with these
representations, warranties and covenants. The agreements containing these
representations, warranties and covenants, other than the Mortgage Line are on
file with the Securities and Exchange Commission and are listed in the Exhibit
Table in Part IV of MDC's Annual Report on Form 10-K for its fiscal year ended
December 31, 1999.
The financial covenants contained in the Amended and Restated Credit
Agreement include a leverage test and a consolidated tangible net worth test.
Under the leverage test, generally MDC's consolidated indebtedness is not
permitted to exceed 2.15 (subject to downward adjustment in certain
circumstances) times MDC's "adjusted consolidated tangible net worth," as
defined. Under the consolidated tangible net worth test, MDC's "tangible net
worth," as defined, must not be less the sum of $238,000,000 and 50% of
"consolidated net income," as defined, after December 31, 1998. In addition,
"consolidated tangible net worth," as defined, must not be less than
$150,000,000.
-14-
<PAGE>
The Company's Senior Notes indenture does not contain financial
covenants. However, there are covenants that limit transactions with affiliates,
limit the amount of additional indebtedness that MDC may incur, restrict certain
payments on, or the redemptions of the Company's securities, restrict certain
sales of assets and limit incurring liens. In addition, under certain
circumstances, in the event of a change of control (generally a sale, transfer,
merger or acquisition of MDC or substantially all of its assets), MDC may be
required to offer to repurchase the Senior Notes. The Senior Notes are not
secured.
MDC Common Stock Repurchase Programs
On January 24, 2000, MDC's Board of Directors authorized the repurchase
of up to 1,000,000 shares of MDC common stock. On February 21, 2000, MDC's Board
of Directors authorized the repurchase of up to 2,000,000 additional shares of
MDC common stock. The Company repurchased a total of 1,356,200 shares of MDC
common stock under these programs through March 31, 2000. The per share prices,
including commissions, for these repurchases range from $13.53 to $16.15 with an
average cost of $14.28. At March 31, 2000, the Company held 6,929,000 shares of
treasury stock with an average purchase price of $8.19.
Consolidated Cash Flow
During the first quarters of 2000 and 1999, the Company used $9,028,000
and $24,228,000, respectively, of cash in its operating activities, primarily
due to increases in homebuilding and mortgage loan inventories related to its
expanded homebuilding operations. In addition, in the first quarter of 2000, the
Company used $19,363,000 to repurchase 1,356,200 shares of MDC common stock. The
Company financed these operating cash requirements and stock repurchases
primarily through borrowings on its bank lines of credit.
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 these increased costs are recovered through higher sales prices,
Home Gross Margins would decrease. If interest rates increase, construction and
financing costs, as well as the cost of borrowings, also would 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. An increase in interest rates may affect
adversely the demand for housing and the availability of mortgage financing and
may reduce the credit facilities offered to MDC by banks, investment bankers and
mortgage bankers.
See "Forward-Looking Statements" below.
MDC's business also is affected significantly by general economic
conditions and, particularly, the demand for new homes in the markets in which
it builds.
-15-
<PAGE>
ISSUANCE OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was
issued. SFAS 133 addresses the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities. In June 1999, SFAS 137 was issued, deferring the effective date of
SFAS 133 to January 1, 2001. The Company anticipates that the adoption of SFAS
133 as of January 1, 2001, will not have a material affect on its financial
position or results of operations. See "Forward-Looking Statements" below.
OTHER
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q, the Company's
Annual Report on Form 10-K for its fiscal year ended December 31, 1999, the
Company's 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. 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, (1)
general economic and business conditions; (2) interest rate changes; (3) the
relative stability of debt and equity markets; (4) competition; (5) the
availability and cost of land and other raw materials used by the Company in its
homebuilding operations; (6) demographic changes; (7) shortages and the cost of
labor; (8) weather related slowdowns; (9) slow growth initiatives; (10) building
moratoria; (11) governmental regulation, including the interpretation of tax,
labor and environmental laws; (12) changes in consumer confidence and
preferences; (13) required accounting changes; and (14) other factors over which
the Company has little or no control.
-16-
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risks related to fluctuations in
interest rates on mortgage loans receivable and debt. The Company utilizes
forward sale commitments to mitigate some of the risk associated with the
mortgage loan portfolio. Other than these forward commitments, the Company does
not utilize interest rate swaps, forward option contracts on foreign currencies
or commodities, or other types of derivative financial instruments.
HomeAmerican provides mortgage loans which generally are sold forward
upon closing and subsequently delivered to a third-party purchaser within
approximately 40 days. Due to the frequency of these loan sales, the market risk
associated with these mortgages is minimal.
The Company utilizes both short-term and long-term debt to finance its
operations. For fixed rate debt, changes in interest rates generally affect the
fair value of the debt instrument, but not the Company's earnings or cash flows.
Conversely, for variable rate debt, changes in interest rates generally do not
impact the fair value of the debt instrument, but may affect the Company's
future earnings and cash flows. The Company does not have an obligation to
prepay fixed rate debt prior to maturity and, as a result, interest rate risk
and changes in fair value should not have a significant impact on the fixed rate
debt until the Company would be required to refinance such debt.
As of March 31, 2000, short-term debt was $35,560,000, which consisted
of MDC's Mortgage Line. The Mortgage Line is collateralized by residential
mortgage loans. The Company borrows on a short-term basis from banks under
committed lines of credit that bear interest at prevailing market rates.
Long-term debt obligations outstanding, their maturities and estimated
fair value at March 31, 2000 are as follows (in thousands).
<TABLE>
<CAPTION>
Maturities through December 31, Estimated
2000 2001 2002 2003 2004 Thereafter Total Fair Value
--------- --------- --------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Debt........... $ - - $ - - $ - - $ - - $ - - $ 175,000 $ 175,000 $ 145,250
Average Interest Rate
(units) - - - - - - - - - - 8.38% 8.38%
Variable Rate Debt........ $ - - $ - - $ - - $ - - $ 60,000 $ - - $ 60,000 $ 60,000
Average Interest Rate.. - - - - - - - - 7.5% - - 7.5%
</TABLE>
The Company believes that its overall balance sheet structure has
repricing and cash flow characteristics that mitigate the impact of interest
rate movements.
-17-
<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 meetings of the Company's stockholders were held during the first
quarter of 2000.
ITEM 5. OTHER INFORMATION.
On April 24, 2000, the Company's board of directors declared a dividend
of six cents per share for the quarter ended March 31, 2000. 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:
27 Financial Data Schedule.
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<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: May 5, 2000 M.D.C. HOLDINGS, INC.
-----------
(Registrant)
By: /s/ Paris G. Reece III
----------------------------
Paris G. Reece III,
Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer
-19-
<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 March 31, 2000 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 16,691
<SECURITIES> 0
<RECEIVABLES> 12,291
<ALLOWANCES> 0
<INVENTORY> 694,603
<CURRENT-ASSETS> 0
<PP&E> 3,326
<DEPRECIATION> 0
<TOTAL-ASSETS> 893,169
<CURRENT-LIABILITIES> 0
<BONDS> 269,962
0
0
<COMMON> 285
<OTHER-SE> 447,369
<TOTAL-LIABILITY-AND-EQUITY> 893,169
<SALES> 341,009
<TOTAL-REVENUES> 347,158
<CGS> 295,538
<TOTAL-COSTS> 307,517
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 39,641
<INCOME-TAX> 18,620
<INCOME-CONTINUING> 21,021
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,021
<EPS-BASIC> .95
<EPS-DILUTED> .94
</TABLE>
