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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2002
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 3, 2002, approximately 27,034,000 shares of M.D.C. Holdings, Inc.
common stock were outstanding.
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M.D.C. HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2002
INDEX
Page
No.
----
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Balance Sheets as of March 31, 2002 (Unaudited)
and December 31, 2001......................... 1
Statements of Income and Other Comprehensive
Income (Unaudited) for the three months
ended March 31, 2002 and 2001................. 3
Statements of Cash Flows (Unaudited) for the
three months ended March 31, 2002 and 2001.... 4
Notes to Condensed Consolidated Financial
Statements (Unaudited)........................ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk................................... 21
Part II. Other Information
Item 1. Legal Proceedings................................. 22
Item 4. Submission of Matters to a Vote of Shareowners.... 22
Item 5. Other Information................................. 22
Item 6. Exhibits and Reports on Form 8-K.................. 22
(a)
M.D.C. HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands)
March 31, December 31,
2002 2001
------------- -------------
ASSETS (Unaudited)
Corporate
Cash and cash equivalents................................................... $ 23,265 $ 31,322
Property and equipment, net................................................. 2,097 2,723
Deferred income taxes....................................................... 27,379 30,081
Deferred debt issue costs, net.............................................. 1,885 1,947
Other assets, net........................................................... 13,555 7,597
------------- -------------
68,181 73,670
------------- -------------
Homebuilding
Cash and cash equivalents................................................... 5,094 4,760
Home sales and other accounts receivable.................................... 5,750 2,621
Inventories, net
Housing completed or under construction................................... 475,854 456,752
Land and land under development........................................... 506,536 450,502
Prepaid expenses and other assets, net...................................... 55,277 49,544
------------- -------------
1,048,511 964,179
------------- -------------
Financial Services
Cash and cash equivalents................................................... 550 518
Mortgage loans held in inventory............................................ 92,135 144,971
Other assets, net........................................................... 4,993 7,618
------------- -------------
97,678 153,107
------------- -------------
Total Assets.......................................................... $ 1,214,370 $ 1,190,956
============= =============
See notes to condensed consolidated financial statements.
-1-
M.D.C. HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
March 31, December 31,
2002 2001
------------- -------------
LIABILITIES (Unaudited)
Corporate
Accounts payable and accrued expenses........................................ $ 41,939 $ 61,135
Income taxes payable......................................................... 22,273 9,953
Senior notes, net............................................................ 174,519 174,503
------------- -------------
238,731 245,591
------------- -------------
Homebuilding
Accounts payable and accrued expenses........................................ 165,043 174,955
Line of credit............................................................... 50,000 - -
------------- -------------
215,043 174,955
------------- -------------
Financial Services
Accounts payable and accrued expenses........................................ 22,235 16,937
Line of credit............................................................... 44,833 99,642
------------- -------------
67,068 116,579
------------- -------------
Total Liabilities...................................................... 520,842 537,125
------------- -------------
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; 31,590,000 and
31,395,000 shares issued, respectively, at March 31, 2002 and
December 31, 2001.......................................................... 316 314
Additional paid-in capital................................................... 365,347 357,037
Retained earnings............................................................ 372,953 342,485
Unearned restricted stock.................................................... (412) (412)
Accumulated other comprehensive loss......................................... (77) (163)
------------- -------------
738,127 699,261
Less treasury stock, at cost; 4,721,000 and 4,809,000 shares, respectively,
at March 31, 2002 and December 31, 2001.................................... (44,599) (45,430)
------------- -------------
Total Stockholders' Equity............................................. 693,528 653,831
------------- -------------
Total Liabilities and Stockholders' Equity............................. $ 1,214,370 $ 1,190,956
============= =============
See notes to condensed consolidated financial statements.
-2-
M.D.C. HOLDINGS, INC.
Condensed Consolidated Statements of Income and Other Comprehensive Income
(In thousands, except per share amounts)
(Unaudited)
Three Months
Ended March 31,
2002 2001
----------- -----------
REVENUES
Homebuilding............................................................... $ 446,761 $ 411,096
Financial Services......................................................... 9,381 8,341
Corporate.................................................................. 232 285
----------- -----------
Total Revenues......................................................... 456,374 419,722
----------- -----------
COSTS AND EXPENSES
Homebuilding............................................................... 388,917 357,165
Financial Services......................................................... 4,351 4,137
Corporate general and administrative....................................... 10,060 10,406
----------- -----------
Total Costs and Expenses............................................... 403,328 371,708
----------- -----------
Income before income taxes.................................................... 53,046 48,014
Provision for income taxes.................................................... (20,710) (18,731)
----------- -----------
NET INCOME.................................................................... 32,336 29,283
Unrealized holding gains (losses) on securities arising during the quarter.... 119 (367)
Less reclassification adjustment for gains included in net income............. (33) (64)
----------- -----------
Net gain (loss) recognized in other comprehensive income during the quarter,
net of deferred income tax expense (benefit) of $64 in 2002 and ($737) in
2001....................................................................... 86 (431)
----------- -----------
OTHER COMPREHENSIVE INCOME.................................................... $ 32,422 $ 28,852
=========== ===========
EARNINGS PER SHARE
Basic...................................................................... $ 1.21 $ 1.13
=========== ===========
Diluted.................................................................... $ 1.16 $ 1.09
=========== ===========
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic...................................................................... 26,714 25,933
=========== ===========
Diluted.................................................................... 27,773 26,938
=========== ===========
DIVIDENDS PAID PER SHARE...................................................... $ .07 $ .06
=========== ===========
See notes to condensed consolidated financial statements.
-3-
M.D.C. HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months
Ended March 31,
2002 2001
----------- -----------
OPERATING ACTIVITIES
Net income........................................................ $ 32,336 $ 29,283
Adjustments to reconcile net income to net cash used in operating
activities
Depreciation and amortization................................ 5,249 5,376
Deferred income taxes........................................ 2,702 (3,863)
Net changes in assets and liabilities
Home sales and other accounts receivable.............. (3,129) (9,019)
Homebuilding inventories.............................. (75,136) (40,700)
Prepaid expenses and other assets..................... (8,455) (9,626)
Mortgage loans held in inventory...................... 52,836 (5,409)
Accounts payable and accrued expenses.................. (5,969) 22,199
Other, net................................................... (5,070) 1,186
----------- -----------
Net cash used in operating activities............................. (4,636) (10,573)
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FINANCING ACTIVITIES
Lines of credit
Advances..................................................... 400,700 378,900
Principal payments........................................... (405,509) (368,666)
Dividend payments................................................. (1,868) (1,308)
Proceeds from exercise of stock options........................... 3,622 2,885
----------- -----------
Net cash provided by (used in) financing activities............... (3,055) 11,811
----------- -----------
Net increase (decrease) in cash and cash equivalents.............. (7,691) 1,238
Cash and cash equivalents
Beginning of period.......................................... 36,600 14,115
----------- -----------
End of period................................................ $ 28,909 $ 15,353
=========== ===========
See notes to condensed consolidated financial statements.
-4-
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, 2002 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, 2001.
B. Corporate and Homebuilding Interest Activity (in thousands)
Three Months
Ended March 31,
2002 2001
----------- -----------
Interest capitalized in homebuilding inventory, beginning of period......... $ 17,358 $ 19,417
Interest incurred........................................................... 4,041 6,032
Interest expensed........................................................... - - - -
Previously capitalized interest included in cost of sales................... (4,462) (5,679)
----------- -----------
Interest capitalized in homebuilding inventory, end of period............... $ 16,937 $ 19,770
=========== ===========
C. Earnings Per Share
The basic and diluted earnings per share calculations are shown below
(in thousands, except per share amounts).
Three Months
Ended March 31,
2002 2001
----------- -----------
Basic Earnings Per Share
Net income..................................................... $ 32,336 $ 29,283
=========== ===========
Basic weighted-average shares outstanding...................... 26,714 25,933
=========== ===========
Per share amounts.............................................. $ 1.21 $ 1.13
=========== ===========
Diluted Earnings Per Share
Net income..................................................... $ 32,336 $ 29,283
=========== ===========
Basic weighted-average shares outstanding...................... 26,714 25,933
Stock options, net............................................. 1,059 1,005
----------- -----------
Diluted weighted-average shares outstanding.................... 27,773 26,938
=========== ===========
Per share amounts.............................................. $ 1.16 $ 1.09
=========== ===========
-5-
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).
Three Months
Ended March 31,
2002 2001
----------- -----------
Homebuilding
Home sales....................................................... $ 445,167 $ 409,720
Land sales....................................................... - - 346
Other revenues................................................... 1,594 1,030
----------- -----------
446,761 411,096
Home cost of sales............................................... 341,061 314,437
Land cost of sales............................................... - - 263
Marketing expenses............................................... 25,663 22,853
General and administrative expenses.............................. 22,193 19,612
----------- -----------
388,917 357,165
Homebuilding Operating Profit................................. 57,844 53,931
----------- -----------
Financial Services
Mortgage Lending Revenues
Interest......................................................... 1,008 541
Origination fees................................................. 4,229 3,685
Gains on sales of mortgage servicing............................. 471 1,683
Gains on sales of mortgage loans, net............................ 3,461 2,574
Mortgage servicing and other..................................... 212 (142)
----------- -----------
9,381 8,341
General and Administrative Expenses................................ 4,351 4,137
----------- -----------
Financial Services Operating Profit........................... 5,030 4,204
----------- -----------
Total Operating Profit................................................ 62,874 58,135
----------- -----------
Corporate
Interest and other revenues...................................... 232 285
General and administrative expenses.............................. (10,060) (10,406)
----------- -----------
Net Corporate Expenses........................................ (9,828) (10,121)
----------- -----------
Income Before Income Taxes............................................ $ 53,046 $ 48,014
=========== ===========
E. Supplemental Disclosure of Cash Flow Information (in thousands)
Three Months
Ended March 31,
2002 2001
----------- -----------
Cash paid during the period for
Interest......................................................... $ 7,765 $ 9,929
Income taxes..................................................... $ 4,004 $ 6,030
-6-
F. Stockholders' Equity
Stock Repurchase Programs - 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 2,064,300 shares of MDC common stock under these programs
through March 31, 2002, leaving 935,700 shares available to be repurchased as of
such date under these programs. No shares were repurchased during each of the
three months ended March 31, 2002 and 2001. The per share prices, including
commissions, for the 2,064,300 shares repurchased ranged from $13.53 to $29.02,
with an average cost of $16.80. At March 31, 2002, the Company held 4,721,000
shares of treasury stock with an average purchase price of $9.45.
Stock Dividends - On January 22, 2001, MDC's Board of Directors
approved a 10% stock dividend that was distributed on February 16, 2001 to
shareowners of record on February 5, 2001. On December 6, 2001, MDC's Board of
Directors approved another 10% stock dividend that was distributed on December
28, 2001 to shareowners of record on December 17, 2001. In accordance with
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," basic and diluted net income per share amounts and weighted-average
shares outstanding have been restated for the quarter ended March 31, 2001 to
reflect the effect of the December 2001 stock dividend. No stock dividends were
declared or paid in the three months ended March 31, 2002.
Stock Contributions - In the first quarter of 2001, the Company
committed to contribute $1,000,000 to the M.D.C. Holdings, Inc. Charitable
Foundation (the "Foundation"), a Delaware not-for-profit corporation that was
incorporated on September 30, 1999. Pursuant to this commitment, in April 2001,
27,817 shares of MDC common stock with a total value of $1,000,000 were
transferred to the Foundation. The Foundation is a charitable organization with
the primary purpose of supporting non-profit charities in communities where the
Company conducts its business. Certain directors and officers of the Company are
the trustees and officers of the Foundation. No stock contributions were made in
the three months ended March 31, 2002.
G. Lines of Credit
Homebuilding - The Company has an unsecured revolving line of credit
with a group of lenders for support of its homebuilding operations (the
"Homebuilding Line"). The maturity date of the Homebuilding Line is September
30, 2004 and the maximum amount available is $450,000,000, subject to
commitments from existing or additional participant banks. Commitments under the
Homebuilding Line increased from $413,000,000 at March 31, 2001 to $438,000,000
in April 2001 and to $450,000,000 in June 2001. Pursuant to the terms of the
Homebuilding Line agreement, a term-out of this credit could commence prior to
September 30, 2004 under certain circumstances. At March 31, 2002, $50,000,000
was borrowed and $16,130,000 in letters of credit were outstanding under the
Homebuilding Line.
Mortgage Lending - The Company's mortgage lending bank line of credit
(the "Mortgage Line") has a borrowing limit of $100,000,000, with the potential
for a $25,000,000 temporary increase, subject to concurrence by the
participating banks. At March 31, 2002 and 2001, the borrowing limit was
$100,000,000. 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. At March 31, 2002, $44,833,000 was borrowed and
an additional $25,333,000 was collateralized and available to be borrowed. The
Mortgage Line is cancelable upon 90 days' notice.
-7-
H. Derivative Instruments and Hedging Activities
The Company's mortgage lending operations are affected by, among other
things, changes in mortgage interest rates. The Company accounts for derivative
instruments and hedging activities in accordance with SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting
for Certain Derivative Instruments and Hedging Activities, an Amendment of SFAS
No. 133." Derivative instruments utilized in the normal course of business by
HomeAmerican Mortgage Corporation, the Company's wholly owned mortgage lending
subsidiary ("HomeAmerican"), include forward sales securities commitments,
private investor sales commitments and commitments to originate mortgage loans.
The Company utilizes these commitments to manage the price risk on fluctuations
in interest rates on its mortgage loans owned and commitments to originate
mortgage loans. Such contracts are the only significant financial derivative
instruments utilized by MDC. Hedging gains or losses are recognized when the
hedged mortgage loans are sold. Gains or losses related to ineffectiveness in
the hedging relationship and gains or losses on derivative instruments that do
not qualify for hedge accounting are recognized immediately.
I. Recent Accounting Pronouncements
In October 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets". SFAS No. 144 provides guidance for the financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." The adoption by MDC of SFAS No. 144 as
of January 1, 2002 did not have a material effect on the Company's financial
position or results of operations.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets" and SFAS No. 141, "Business Combinations". SFAS No. 141
eliminates the pooling-of-interest method of accounting for business
combinations except for qualifying business combinations that were initiated
prior to July 1, 2001, and further clarifies the criteria to recognize
intangible assets separately from goodwill. SFAS No. 141, effective for any
business combination completed after June 30, 2001, did not have any effect on
the Company's financial position or results of operation. Under SFAS No. 142,
goodwill and indefinite lived intangible assets are no longer amortized, but are
reviewed annually for impairment. Separable intangible assets that are not
deemed to have an indefinite life will continue to be amortized over their
useful lives. The amortization provisions of SFAS No. 142 apply to goodwill and
intangible assets acquired after June 30, 2001. For goodwill and intangible
assets acquired prior to July 1, 2001, SFAS No. 142 was required to be adopted
as of January 1, 2002. The adoption by MDC of SFAS No. 142 on January 1, 2002
did not have a material effect on the Company's financial position or results of
operations.
J. Supplemental Guarantor Information
The Senior Notes are unconditionally guaranteed on an unsecured basis,
jointly and severally, by Richmond American Homes of California, Inc., Richmond
American Homes of Maryland, Inc., Richmond American Homes of Nevada, Inc.,
Richmond American Homes of Virginia, Inc., Richmond American Homes of Arizona,
Inc. and Richmond American Homes of Colorado, Inc. (collectively, the "Guarantor
Subsidiaries"). Non-guarantor subsidiaries primarily consist of HomeAmerican,
American Home Title and Escrow Company, American Home Insurance Agency, Inc. and
Lion Insurance Company (collectively, the "Non-Guarantor Subsidiaries"). The
Company has determined that separate, full financial statements of the Guarantor
Subsidiaries would not be material to investors and, accordingly, supplemental
financial information for the Guarantor Subsidiaries is presented. Consolidating
statements of cash flows are not presented because cash flows for the
Non-Guarantor Subsidiaries were not significant for any of the periods
presented.
-8-
M.D.C. Holdings, Inc.
Supplemental Combining Balance Sheet
March 31, 2002
(In thousands)
(Unaudited)
Non-
ASSETS Guarantor Guarantor Eliminating
MDC Subsidiaries Subsidiaries Entries Total
----------- ------------ ------------ ------------ -----------
Corporate
Cash and cash equivalents............... $ 23,265 $ - - $ - - $ - - $ 23,265
Investments in and advances to
parent and subsidiaries............... 199,874 175 (1,511) (198,538) - -
Other assets............................ 39,388 - - 5,528 - - 44,916
----------- ----------- ----------- ----------- -----------
262,527 175 4,017 (198,538) 68,181
----------- ----------- ----------- ----------- -----------
Homebuilding
Cash and cash equivalents............... - - 4,718 376 - - 5,094
Home sales and other
accounts receivable................... - - 6,076 209 (535) 5,750
Inventories, net
Housing completed or under construction - - 475,854 - - - - 475,854
Land and land under development....... - - 501,618 4,918 - - 506,536
Other assets............................ - - 37,417 17,860 - - 55,277
----------- ----------- ----------- ----------- -----------
- - 1,025,683 23,363 (535) 1,048,511
----------- ----------- ----------- ----------- -----------
Financial Services - - - - 97,678 - - 97,678
----------- ----------- ----------- ----------- -----------
Total Assets...................... $ 262,527 $ 1,025,858 $ 125,058 $ (199,073) $ 1,214,370
=========== =========== =========== =========== ===========
LIABILITIES
Corporate
Accounts payable and accrued expenses. $ 39,778 $ - - $ 2,153 $ 8 $ 41,939
Advances and notes payable - Parent and
subsidiaries.......................... (687,448) 665,685 21,763 - - - -
Income taxes payable.................... (593) 20,775 2,091 - - 22,273
Senior Notes, net....................... 174,519 - - - - - - 174,519
----------- ----------- ----------- ------------ -----------
(473,744) 686,460 26,007 8 238,731
----------- ----------- ----------- ------------ -----------
Homebuilding
Accounts payable and accrued expenses... - - 158,938 6,105 - - 165,043
Lines of credit......................... 50,000 - - - - - - 50,000
----------- ----------- ----------- ------------ -----------
50,000 158,938 6,105 - - 215,043
----------- ----------- ----------- ------------ -----------
Financial Services - - - - 67,602 (534) 67,068
----------- ----------- ----------- ------------ -----------
Total Liabilities................. (423,744) 845,398 99,714 (526) 520,842
----------- ----------- ----------- ------------ -----------
STOCKHOLDERS' EQUITY...................... 686,271 180,460 25,344 (198,547) 693,528
----------- ----------- ----------- ------------ -----------
Total Liabilities and
Stockholders' Equity............ $ 262,527 $ 1,025,858 $ 125,058 $ (199,073) $ 1,214,370
=========== =========== =========== ============= ===========
-9-
M.D.C. Holdings, Inc.
Supplemental Combining Balance Sheet
December 31, 2001
(In thousands)
Non-
ASSETS Guarantor Guarantor Eliminating
MDC Subsidiaries Subsidiaries Entries Total
----------- ------------ ------------ ------------ ------------
Corporate
Cash and cash equivalents............... $ 31,322 $ - - $ - - $ - - $ 31,322
Investments in and advances to parent
and subsidiaries...................... 330,944 465 (1,951) (329,458) - -
Other assets ........................... 42,869 - - (521) - - 42,348
----------- ----------- ----------- ----------- ------------
405,135 465 (2,472) (329,458) 73,670
----------- ----------- ----------- ----------- ------------
Homebuilding
Cash and cash equivalents............... - - 4,352 408 - - 4,760
Home sales and other accounts receivable - - 3,744 169 (1,292) 2,621
Inventories, net
Housing completed or under construction - - 456,752 - - - - 456,752
Land and land under development....... - - 441,004 9,498 - - 450,502
Other assets............................ - - 32,063 17,481 - - 49,544
----------- ----------- ----------- ----------- ------------
- - 937,915 27,556 (1,292) 964,179
----------- ----------- ----------- ----------- ------------
Financial Services - - - - 153,107 - - 153,107
----------- ----------- ----------- ----------- ------------
Total Assets...................... $ 405,135 $ 938,380 $ 178,191 $ (330,750) $ 1,190,956
=========== =========== =========== =========== ============
LIABILITIES
Corporate
Accounts payable and accrued expenses... $ 60,684 $ - - $ 443 $ 8 $ 61,135
Advances and notes payable - Parent and
subsidiaries.......................... (375,290) 358,751 16,539 - - - -
Income taxes payable.................... (100,585) 102,494 8,044 - - 9,953
Senior notes, net....................... 174,503 - - - - - - 174,503
----------- ----------- ----------- ------------ ------------
(240,688) 461,245 25,026 8 245,591
----------- ----------- ----------- ------------ ------------
Homebuilding
Accounts payable and accrued expenses. - - 168,247 6,708 - - 174,955
Line of credit.......................... - - - - - - - - - -
----------- ----------- ----------- ------------ ------------
- - 168,247 6,708 - - 174,955
----------- ----------- ----------- ------------ ------------
Financial Services - - - - 117,878 (1,299) 116,579
----------- ----------- ----------- ------------ ------------
Total Liabilities................. (240,688) 629,492 149,612 (1,291) 537,125
----------- ----------- ----------- ------------ ------------
STOCKHOLDERS' EQUITY...................... 645,823 308,888 28,579 (329,459) 653,831
----------- ----------- ----------- ------------ ------------
Total Liabilities and
Stockholders' Equity............ $ 405,135 $ 938,380 $ 178,191 $ (330,750) $ 1,190,956
=========== =========== =========== ============ ============
-10-
M.D.C. Holdings, Inc.
Supplemental Combining Statements of Income
(In thousands)
(Unaudited)
Three Months Ended March 31, 2002
Non-
Guarantor Guarantor Eliminating
MDC Subsidiaries Subsidiaries Entries Total
----------- ------------ ----------- ----------- -----------
REVENUES
Homebuilding............................. $ - - $ 445,716 $ 1,111 $ (66) $ 446,761
Financial Services....................... - - - - 9,381 - - 9,381
Corporate................................ 189 - - 43 - - 232
Equity in earnings of subsidiaries....... 35,751 - - - - (35,751) - -
----------- ----------- ----------- ----------- ------------
Total Revenues..................... 35,940 445,716 10,535 (35,817) 456,374
----------- ----------- ----------- ----------- ------------
COSTS AND EXPENSES
Homebuilding............................. (67) 393,598 271 (4,885) 388,917
Financial Services....................... - - - - 4,351 - - 4,351
Corporate general and administrative..... 10,023 - - 37 - - 10,060
Corporate and homebuilding interest...... (4,885) - - - - 4,885 - -
----------- ----------- ----------- ----------- ------------
Total Expenses...................... 5,071 393,598 4,659 - - 403,328
----------- ----------- ----------- ----------- ------------
Income before income taxes............... 30,869 52,118 5,876 (35,817) 53,046
Provision for income taxes............... 2,353 (20,775) (2,288) - - (20,710)
----------- ----------- ----------- ----------- ------------
NET INCOME.................................. $ 33,222 $ 31,343 $ 3,588 $ (35,817) $ 32,336
=========== =========== =========== =========== ============
Three Months Ended March 31, 2001
Non-
Guarantor Guarantor Eliminating
MDC Subsidiaries Subsidiaries Entries Total
----------- ------------ ------------ ------------ ------------
REVENUES
Homebuilding............................. $ - - $ 410,187 $ 956 $ (47) $ 411,096
Financial Services....................... - - - - 8,341 - - 8,341
Corporate................................ 267 - - 18 - - 285
Equity in earnings of subsidiaries....... 33,487 - - - - (33,487) - -
----------- ----------- ----------- ----------- ------------
Total Revenues..................... 33,754 410,187 9,315 (33,534) 419,722
----------- ----------- ----------- ----------- ------------
COSTS AND EXPENSES
Homebuilding............................. 96 360,505 75 (3,511) 357,165
Financial Services....................... - - - - 4,137 - - 4,137
Corporate general and administrative..... 10,406 - - - - - - 10,406
Corporate and homebuilding interest...... (3,511) - - - - 3,511 - -
----------- ----------- ----------- ----------- ------------
Total Expenses..................... 6,991 360,505 4,212 - - 371,708
----------- ----------- ----------- ----------- ------------
Income before income taxes............... 26,763 49,682 5,103 (33,534) 48,014
Provision for income taxes............... 2,806 (19,634) (1,903) - - (18,731)
----------- ----------- ----------- ----------- ------------
NET INCOME.................................. $ 29,569 $ 30,048 $ 3,200 $ (33,534) $ 29,283
=========== =========== =========== =========== ============
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
INTRODUCTION
M.D.C. Holdings, Inc. is a Delaware Corporation. 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 owning and managing subsidiary companies that build and sell homes
under the name "Richmond American Homes." We also own and manage HomeAmerican
Mortgage Corporation ("HomeAmerican"), which originates mortgage loans primarily
for MDC's home buyers. In addition, MDC provides title agency services through
American Home Title and Escrow Company ("American Home Title") and offers
insurance through American Home Insurance Agency, Inc. ("American Home
Insurance") to MDC's home buyers.
RESULTS OF OPERATIONS
The table below summarizes MDC's results of operations (in thousands,
except per share amounts).
Three Months
Ended March 31,
2002 2001
---------- -----------
Revenues............................................................... $ 456,374 $ 419,722
Income Before Income Taxes............................................. $ 53,046 $ 48,014
Net Income............................................................. $ 32,336 $ 29,283
Earnings Per Share
Basic............................................................... $ 1.21 $ 1.13
Diluted............................................................. $ 1.16 $ 1.09
Revenues for the first quarter of 2002 increased by $36,652,000, or 9%,
compared with the same period in 2001, primarily due to a $33,000 increase in
the average selling price per home closed, partially offset by 85 fewer homes
closed.
Income before income taxes increased 10% in the first quarter of 2002,
compared with the first quarter of 2001. This increase primarily was a result of
improved operating profit from the increase in revenues described above, and
record first quarter operating profits from the Company's mortgage lending
operations.
-12-
Homebuilding Segment
The table below sets forth information relating to the Company's
homebuilding segment (dollars in thousands).
Three Months
Ended March 31,
2002 2001
-------------- --------------
Home Sales Revenues............................... $ 445,167 $ 409,720
Operating Profit.................................. $ 57,844 $ 53,931
Average Selling Price Per Home Closed............. $ 265.9 $ 232.9
Home Gross Margins................................ 23.4% 23.3%
Excluding Interest in Home Cost of Sales....... 24.4% 24.6%
Orders For Homes, net (units)
Colorado................................... 1,001 968
California................................. 591 441
Arizona.................................... 670 732
Nevada..................................... 207 268
Virginia................................... 242 220
Maryland................................... 65 98
-------------- --------------
Total................................ 2,776 2,727
============== ==============
Homes Closed (units)
Colorado................................... 609 629
California................................. 292 240
Arizona.................................... 438 498
Nevada..................................... 141 159
Virginia................................... 130 170
Maryland................................... 64 63
-------------- --------------
Total................................ 1,674 1,759
============== ==============
March 31, December 31, March 31,
2002 2001 2001
------------- -------------- -------------
Backlog (units)
Colorado................................... 1,587 1,195 1,724
California................................. 789 490 709
Arizona.................................... 857 625 1,044
Nevada..................................... 247 181 307
Virginia................................... 346 234 378
Maryland................................... 158 157 161
-------------- -------------- --------------
Total................................ 3,984 2,882 4,323
============== ============== ==============
Backlog Estimated Sales Value..................... $ 1,050,000 $ 760,000 $ 1,075,000
============== ============== ==============
Active Subdivisions
Colorado................................... 63 61 60
California................................. 25 26 22
Arizona.................................... 36 27 32
Nevada..................................... 9 7 8
Virginia................................... 13 11 9
Maryland................................... 4 5 7
-------------- -------------- --------------
Total................................ 150 137 138
============== ============== ==============
-13-
Home Sales Revenues and Homes Closed - Home sales revenues for the
quarter ended March 31, 2002 were 9% higher than home sales revenues for the
same period in 2001. The improved revenues primarily were a result of a higher
average selling price per home closed, partially offset by 85 fewer homes
closed, as further discussed below.
Home closings in the first quarter of 2002 were 5% lower than the same
period in 2001. MDC closed 28%, 24% and 11% fewer homes in Phoenix, Virginia and
Nevada, respectively, due to lower home orders in these markets in the second
half of 2001, when these markets had fewer active subdivisions than in the same
period of 2000. Home closings particularly were strong in Tucson and Southern
California, which increased 47% and 22%, respectively, as a result of the
continued strong demand for new homes in these markets.
Average Selling Price Per Home Closed - The average selling price per
home closed increased $33,000 in the first quarter of 2002, compared with the
same period in 2001, as each of the Company's markets except Tucson realized
higher average selling prices. The increases primarily were due to (1) a greater
number of homes closed in relatively higher-priced subdivisions in Southern
California, Northern California, Nevada and Maryland; (2) a higher proportion of
detached homes closed in Virginia, which generally have higher selling prices
than townhomes; (3) selling price increases in Virginia, Maryland and Phoenix;
and (4) increased sales volume per home from the Company's design centers.
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. Home Gross Margins for the 2002
first quarter increased ten basis points, compared with the same period in 2001.
The increase largely was due to a $3,800,000 reduction of previous estimates of
costs to complete land development in Southern California and Virginia,
substantially offset by, among other things, the impact of the rising cost of
land.
Future Home Gross Margins may be impacted adversely by (1) 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, finished lots and other resources. See
"Forward-Looking Statements" below.
Orders for Homes and Backlog - The Company received 2,776 orders for
homes during the first quarter of 2002, compared with 2,727 home orders received
in the first quarter of 2001. Home orders during the first quarter of 2002
particularly were strong in (1) Southern California, Northern California and
Tucson (increases of 36%, 30% and 18%, respectively), resulting from the strong
demand for new homes in these markets; and (2) Virginia (an increase of 10%),
where the number of active subdivisions increased to 13 at March 31, 2002,
compared with nine at March 31, 2001. Home orders were lower in Maryland, Las
Vegas and Phoenix due to a reduced number of active subdivisions in each of
these markets at the beginning of the 2002 first quarter, compared with the
beginning of the 2001 first quarter.
Homes under contract but not yet delivered ("Backlog") at March 31,
2002 was 3,984 units with an estimated sales value of $1,050,000,000, compared
with a Backlog of 4,323 units with an estimated sales value of $1,075,000,000 at
March 31, 2001. Assuming no significant change in market conditions or mortgage
interest rates, the Company expects approximately 70% to 75% of its March 31,
2002 Backlog to close under existing sales contracts during the remainder of
2002. The remaining 25% to 30% of the homes in Backlog are not expected to close
under existing contracts due to cancellations. See "Forward-Looking Statements"
below.
-14-
Marketing - Marketing expenses (which include sales commissions,
advertising, amortization of deferred marketing costs, model home expenses and
other costs) totaled $25,663,000 for the first quarter of 2002, compared with
$22,853,000 for the same period in 2001. The increase in the 2002 first quarter
primarily was due to (1) higher product advertising and deferred marketing
amortization, primarily as a result of the increasing number of active
subdivisions during the first quarter of 2002 compared with the first quarter of
2001; and (2) higher sales commissions resulting from the Company's increased
home sales revenues.
General and Administrative - General and administrative expenses
increased to $22,193,000 during the first quarter of 2002, compared with
$19,612,000 during the same period in 2001, primarily due to increased
compensation costs associated with expanded operations in certain of the
Company's markets, most notably Colorado, Virginia, Arizona and Nevada.
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 cash option deposits (dollars in thousands).
March 31, December 31, March 31,
2002 2001 2001
----------- ----------- -----------
Colorado........................................ $ 159,007 $ 165,228 $ 147,079
California...................................... 130,772 110,010 117,421
Arizona......................................... 83,700 70,602 49,642
Nevada.......................................... 53,226 44,103 29,345
Virginia........................................ 60,804 49,929 30,879
Maryland........................................ 19,027 10,630 11,941
----------- ----------- -----------
Total...................................... $ 506,536 $ 450,502 $ 386,307
=========== =========== ===========
Total Lots Owned (excluding lots in
work-in-process).............................. 14,354 13,524 11,453
Total Lots Controlled Under Option.............. 5,559 6,059 9,703
----------- ----------- -----------
Total Lots Owned and Controlled (excluding
lots in work-in-process).................. 19,913 19,583 21,156
=========== =========== ===========
Total Cash Option Deposits...................... $ 10,912 $ 14,520 $ 15,574
=========== =========== ===========
New Homebuilding Divisions
On February 18, 2002, the Company announced its intent to expand into
the Dallas/Fort Worth market by hiring a division president to manage the
start-up operation. In addition, in mid-April 2002, an MDC subsidiary acquired
substantially all of the homebuilding operations of W.L. Homes LLC (d/b/a John
Laing Homes) in Salt Lake City, marking the Company's entry into this market.
The operations of these new divisions did not have a material effect on the
Company's financial position or results of operations during the 2002 first
quarter.
-15-
Financial Services Segment
The table below sets forth information relating to HomeAmerican's
operations (in thousands).
Three Months
Ended March 31,
2002 2001
----------- -----------
Loan Origination Fees....................................... $ 4,229 $ 3,685
Gains on Sales of Mortgage Servicing, net................... $ 471 $ 1,683
Gains on Sales of Mortgage Loans, net....................... $ 3,461 $ 2,574
Operating Profit............................................ $ 5,030 $ 4,204
Principal Amount of Loan Originations
MDC home buyers........................................ $ 250,888 $ 230,289
Spot................................................... 9,529 9,204
----------- -----------
Total.............................................. $ 260,417 $ 239,493
=========== ===========
Principal Amount of Loans Brokered
MDC home buyers........................................ $ 43,602 $ 53,562
Spot................................................... 1,608 3,255
----------- -----------
Total.............................................. $ 45,210 $ 56,817
=========== ===========
Capture Rate................................................ 73% 71%
=========== ===========
Including brokered loans............................... 83% 83%
=========== ===========
HomeAmerican's operating profit for the first quarter of 2002
increased, compared with the same period in 2001, primarily due to higher gains
on sales of mortgage loans, increased interest revenues and higher origination
fee income. HomeAmerican's originated loans increased by $20,924,000 in the
first quarter of 2002, compared with the same period in 2001. This improvement
primarily was due to an increase in the average selling price of homes closed by
the Company and an improvement in HomeAmerican's Capture Rate (as defined
below). MDC home buyers were the source of over 96% of the principal amount of
mortgage loans originated and brokered by HomeAmerican in the first quarter of
both 2002 and 2001.
Mortgage loans originated by HomeAmerican for MDC home buyers as a
percentage of total MDC home closings ("Capture Rate") increased to 73% for the
first quarter of 2002, compared with 71% for the same period in 2001.
HomeAmerican also brokers mortgage loans originated by outside lending
institutions for MDC home buyers. 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 83% for both of the quarters ended
March 31, 2002 and 2001. Brokered loans decreased by 20% as a result of
HomeAmerican's efforts to provide the market with a greater variety of mortgage
loan products.
Forward Sales Commitments - HomeAmerican's operations are affected by
changes in mortgage interest rates. HomeAmerican utilizes forward mortgage
securities contracts to manage price risk related to fluctuations in interest
rates on its fixed-rate mortgage loans owned and rate-locked mortgage loans in
the pipeline.
-16-
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 totaled zero for the first
quarters of both 2002 and 2001.
For a reconciliation of interest incurred, capitalized and expensed,
see Note B to the Company's Condensed Consolidated Financial Statements.
Income Taxes - MDC's overall effective income tax rate of 39% for the
first quarter of 2002 and 2001 differed from the federal statutory rate of 35%
primarily due to the impact of state income taxes.
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. The Company currently has an effective registration statement that
would allow the Company to issue up to $300,000,000 of equity, debt or hybrid
securities.
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 (the "Homebuilding Line"); and (3)
current financing, primarily its mortgage lending line of credit (the "Mortgage
Line"). Based upon its current capital resources and additional liquidity
available under existing credit agreements, 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, 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 or capital and credit markets 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 - The maturity date of the Homebuilding Line is September
30, 2004 and the maximum amount available is $450,000,000, subject to
commitments from existing or additional participant banks. Commitments under the
Homebuilding Line increased from $413,000,000 at March 31, 2001 to $438,000,000
in April 2001 and to $450,000,000 in June 2001. Pursuant to the terms of the
Homebuilding Line agreement, a term-out of this credit could commence prior to
September 30, 2004 under certain circumstances. At March 31, 2002, $50,000,000
was borrowed and $16,130,000 in letters of credit were outstanding under the
Homebuilding Line.
-17-
Mortgage Lending - The Company's Mortgage Line has a borrowing limit of
$100,000,000, with the potential for a $25,000,000 temporary increase, subject
to concurrence by the participating banks. At March 31, 2002 and 2001, the
borrowing limit was $100,000,000. 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. At March 31, 2002,
$44,833,000 was borrowed and an additional $25,333,000 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, 2001.
The financial covenants contained in the Homebuilding Line 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 than 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.
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. In December 2001, the Company amended its Senior Notes indenture to
provide for the unconditional and joint and several guarantee of the Senior
Notes by most of the Company's homebuilding segment subsidiaries. See Note J to
the Condensed Consolidated Financial Statements.
MDC Common Stock Repurchase Programs
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
2,064,300 shares of MDC common stock under these programs through March 31,
2002, leaving 935,700 shares available to be repurchased as of such date under
these programs. No shares were repurchased during each of the three months ended
March 31, 2002 and 2001. The per share prices, including commissions, for the
2,064,300 shares repurchased ranged from $13.53 to $29.02, with an average cost
of $16.80. At March 31, 2002, the Company held 4,721,000 shares of treasury
stock with an average purchase price of $9.45.
-18-
Consolidated Cash Flow
During the first quarter of 2002, the Company used $4,636,000 of cash
in its operating activities. Cash provided by net income for the period and the
sale of mortgage loans was more than offset by an increase in homebuilding
inventories in support of the Company's expanding homebuilding activities. The
Company financed these net operating cash requirements primarily through a
reduction in cash and cash equivalents on hand.
During the first quarter of 2001, the Company used $10,573,000 of cash
in its operating activities. Cash provided by net income for the period and an
increase in accounts payable and accrued expenses was more than offset by an
increase in homebuilding inventories in support of the Company's expanding
homebuilding activities. The Company financed these operating cash requirements
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.
CRITICAL ACCOUNTING POLICIES
The Company's critical accounting policies are those related to (1)
homebuilding inventory valuation; (2) estimates to complete land development and
construction; (3) warranty costs; and (4) litigation reserves. These policies
are more fully described in the notes to the Company's consolidated financial
statements in MDC's Annual Report on Form 10-K for its fiscal year ended
December 31, 2001.
-19-
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, 2001, 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; (14)
actual or threatened terrorist acts and other acts of war and the results
thereof; and (15) other factors over which the Company has little or no control.
-20-
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. Derivative instruments
utilized in the normal course of business by HomeAmerican include forward sales
securities commitments, private investor sales commitments and commitments to
originate mortgage loans. The Company utilizes these commitments to manage the
price risk on fluctuations in interest rates on its mortgage loans owned and
commitments to originate mortgage loans. Such contracts are the only significant
financial derivative instruments utilized by MDC.
HomeAmerican provides mortgage loans that generally are sold forward
and subsequently delivered to a third-party purchaser within approximately 40
days. Forward commitments are used for non-trading purposes to sell mortgage
loans and hedge price risk due to fluctuations in interest rates on rate-locked
mortgage loans in process that have not closed. Due to this hedging philosophy,
the market risk associated with these mortgages is limited.
The Company utilizes both short-term and long-term debt in its
financing strategy. 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, 2002, short-term debt was $44,833,000, which consisted
of amounts outstanding on 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, which bear interest
at the prevailing market rates. Long-term debt obligations outstanding, their
maturities and estimated fair value at March 31, 2002 are as follows (in
thousands).
Maturities through December 31,
--------------------------------------------------------------- Estimated
2002 2003 2004 2005 2006 Thereafter Total Fair Value
--------- --------- --------- --------- --------- ----------- -------- ----------
Fixed Rate Debt............ $ - - $ - - $ - - $ - - $ - - $ 175,000 $175,000 $ 178,465
Average Interest Rate... - - - - - - - - - - 8.38% 8.38%
Variable Rate Debt......... $ - - $ - - $ 50,000 $ - - $ - - $ - - $ 50,000 $ 50,000
Average Interest Rate... - - - - 3.09% - - - - - - 3.09%
The Company believes that its overall balance sheet structure has
repricing and cash flow characteristics that mitigate the impact of interest
rate changes.
-21-
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 that 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 first quarter of
2002.
ITEM 5. OTHER INFORMATION.
------ -----------------
At the Company's board of directors meeting on April 25, 2002, a
dividend of eight cents per share was declared for the quarter ended March 31,
2002, payable May 23, 2002, to shareowners of record on May 9, 2002. Future
dividend payments are subject to the discretion of the Company's Board of
Directors.
At the Company's shareholders meeting on April 25, 2002, Messrs.
Gilbert Goldstein and William B. Kemper were elected as directors to serve
three-year terms.
In April 2002, the Company acquired approximately 2,400 lots in Las
Vegas, Nevada and Salt Lake City, Utah from John Laing Homes, including
approximately 150 homes in various stages of construction.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
------ --------------------------------
(a) Exhibit:
None.
-22-
(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 7, 2002 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
-23-