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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 September 30, 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
--- ---
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
--- ---
As of November 6, 2002, 26,649,000 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 SEPTEMBER 30, 2002
INDEX
Page
No.
----
Part I. Financial Information:
Item 1. Condensed Consolidated Financial Statements:
Balance Sheets as of September 30, 2002
(Unaudited) and December 31, 2001.......... 1
Statements of Income and Other Comprehensive
Income (Unaudited) for the three and
nine months ended September 30, 2002
and 2001.................................. 3
Statements of Cash Flows (Unaudited) for the
nine months ended September 30, 2002
and 2001.................................. 4
Notes to Financial Statements (Unaudited)... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 15
Item 3. Quantitative and Qualitative Disclosures
About Market Risk......................... 25
Item 4. Controls and Procedures..................... 26
Part II. Other Information:
Item 1. Legal Proceedings........................... 27
Item 4. Submission of Matters to a Vote of
Shareowners............................... 27
Item 5. Other Information........................... 27
Item 6. Exhibits and Reports on Form 8-K............ 27
M.D.C. HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands)
September 30, December 31,
2002 2001
------------- -------------
(Unaudited)
ASSETS
Corporate
Cash and cash equivalents................................................ $ 28,156 $ 31,322
Property and equipment, net.............................................. 10,050 2,723
Deferred income taxes.................................................... 24,430 30,081
Deferred debt issue costs, net........................................... 1,758 1,947
Other assets, net........................................................ 7,929 7,597
------------- -------------
72,323 73,670
------------- -------------
Homebuilding
Cash and cash equivalents................................................ 6,215 4,760
Home sales and other accounts receivable................................. 15,433 2,621
Inventories, net
Housing completed or under construction................................ 675,233 456,752
Land and land under development........................................ 604,717 450,502
Prepaid expenses and other assets, net................................... 61,669 49,544
------------- -------------
1,363,267 964,179
Financial Services
Cash and cash equivalents................................................ 872 518
Mortgage loans held in inventory......................................... 134,708 144,971
Other assets, net........................................................ 5,094 7,618
------------- -------------
140,674 153,107
------------- -------------
Total Assets....................................................... $ 1,576,264 $ 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)
September 30, December 31,
2002 2001
------------- -------------
(Unaudited)
LIABILITIES
Corporate
Accounts payable and accrued expenses........................................ $ 50,842 $ 61,135
Income taxes payable......................................................... 6,261 9,953
Senior notes, net............................................................ 174,551 174,503
------------- -------------
231,654 245,591
------------- -------------
Homebuilding
Accounts payable and accrued expenses........................................ 216,991 174,955
Line of credit............................................................... 255,000 - -
------------- -------------
471,991 174,955
------------- -------------
Financial Services
Accounts payable and accrued expenses........................................ 27,597 16,937
Line of credit............................................................... 90,060 99,642
------------- -------------
117,657 116,579
------------- -------------
Total Liabilities...................................................... 821,302 537,125
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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; 31,781,000 and
31,395,000 shares issued, respectively, at September 30, 2002 and
December 31, 2001.......................................................... 318 314
Additional paid-in capital................................................... 371,039 357,037
Retained earnings............................................................ 446,548 342,485
Unearned restricted stock.................................................... (412) (412)
Accumulated other comprehensive income (loss)................................ 93 (163)
------------- -------------
817,586 699,261
Less treasury stock, at cost; 5,131,000 and 4,809,000 shares, respectively,
at September 30, 2002 and December 31, 2001................................ (62,624) (45,430)
------------- -------------
Total Stockholders' Equity............................................. 754,962 653,831
------------- -------------
Total Liabilities and Stockholders' Equity............................. $ 1,576,264 $ 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 Nine Months
Ended September 30, Ended September 30,
--------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
REVENUES
Homebuilding............................................ $ 570,386 $ 511,008 $ 1,516,318 $ 1,421,114
Financial services...................................... 11,160 10,081 30,437 27,420
Corporate............................................... 152 223 747 735
------------ ------------ ------------ ------------
Total Revenues...................................... 581,698 521,312 1,547,502 1,449,269
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Homebuilding............................................ 494,914 439,094 1,321,787 1,225,283
Financial services...................................... 5,255 4,331 14,317 12,740
Corporate general and administrative.................... 10,498 11,097 30,992 33,013
------------ ------------ ------------ ------------
Total Costs and Expenses............................ 510,667 454,522 1,367,096 1,271,036
------------ ------------ ------------ ------------
Income before income taxes................................. 71,031 66,790 180,406 178,233
Provision for income taxes................................. (27,472) (26,265) (70,175) (69,582)
------------ ------------ ------------ ------------
NET INCOME................................................. 43,559 40,525 110,231 108,651
Unrealized holding losses on securities arising during the
period.................................................. (124) (40) (24) (281)
Less reclassification adjustment for losses (gains) included
in net income........................................... 352 (164) 280 (57)
------------ ------------ ------------ ------------
Net gains (losses) recognized in other comprehensive income
during the period, net of deferred income taxes......... 228 (204) 256 (338)
------------ ------------ ------------ ------------
OTHER COMPREHENSIVE INCOME................................. $ 43,787 $ 40,321 $ 110,487 $ 108,313
============ ============ ============ ============
EARNINGS PER SHARE
Basic................................................... $ 1.63 $ 1.52 $ 4.11 $ 4.12
============ =========== =========== ===========
Diluted................................................. $ 1.57 $ 1.48 $ 3.96 $ 3.99
============ =========== =========== ===========
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic................................................... 26,727 26,654 26,814 26,354
============ ============ ============ ============
Diluted................................................. 27,680 27,370 27,861 27,213
============ ============ ============ ============
DIVIDENDS PAID PER SHARE................................... $ .08 $ .07 $ .23 $ .20
============ =========== =========== ===========
See notes to condensed consolidated financial statements.
- 3 -
M.D.C. HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months
Ended September 30,
2002 2001
------------- -------------
OPERATING ACTIVITIES
Net income.......................................................... $ 110,231 $ 108,651
Adjustments to reconcile net income to net cash used in operating
activities
Depreciation and amortization.................................. 17,366 17,889
Deferred income taxes.......................................... 5,651 (2,898)
Homebuilding asset impairment charges.......................... - - 2,900
Net changes in assets and liabilities
Home sales and other accounts receivable.................... (12,812) (3,646)
Homebuilding inventories.................................... (372,696) (200,867)
Prepaid expenses and other assets........................... (26,318) (12,125)
Mortgage loans held in inventory............................ 10,263 1,109
Accounts payable and accrued expenses....................... 47,713 63,032
Other, net..................................................... 2,330 3,949
------------- -------------
Net cash used in operating activities................................ (218,272) (22,006)
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INVESTING ACTIVITIES
Net purchase of property and equipment............................... (10,145) (1,867)
------------- -------------
Net cash used in investing activities................................ (10,145) (1,867)
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FINANCING ACTIVITIES
Lines of credit
Advances........................................................ 1,937,200 1,381,900
Principal payments.............................................. (1,691,782) (1,353,025)
Dividend payments.................................................... (6,168) (4,761)
Stock repurchases.................................................... (19,029) (3,845)
Proceeds from exercise of stock options.............................. 6,839 7,239
------------- -------------
Net cash provided by financing activities............................ 227,060 27,508
------------- -------------
Net increase (decrease) in cash and cash equivalents................. (1,357) 3,635
Cash and cash equivalents
Beginning of period............................................. 36,600 14,115
------------- -------------
End of period................................................... $ 35,243 $ 17,750
============= =============
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 September 30, 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. Certain reclassifications
have been made in the 2001 financial statements to conform to the
classifications used in the current year.
The Company historically has experienced, and expects to continue to
experience, variability in quarterly results. The condensed consolidated
statements of income and other comprehensive income are not necessarily
indicative of the results to be expected for the full year.
B. Supplemental Disclosure of Cash Flow Information (in thousands)
Nine Months
Ended September 30,
2002 2001
----------- -----------
Cash paid during the period for
Interest................................ $ 17,937 $ 21,557
Income taxes............................ $ 62,714 $ 62,488
C. Earnings Per Share
The basic and diluted earnings per share calculations are shown below
(in thousands, except per share amounts).
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Basic Earnings Per Share
Net income....................................... $ 43,559 $ 40,525 $ 110,231 $ 108,651
=========== =========== =========== ===========
Basic weighted-average shares outstanding........ 26,727 26,654 26,814 26,354
=========== =========== =========== ===========
Per share amounts................................ $ 1.63 $ 1.52 $ 4.11 $ 4.12
=========== =========== =========== ===========
Diluted Earnings Per Share
Net income....................................... $ 43,559 $ 40,525 $ 110,231 $ 108,651
=========== =========== =========== ===========
Basic weighted-average shares outstanding........ 26,727 26,654 26,814 26,354
Stock options, net............................... 953 716 1,047 859
----------- ----------- ----------- -----------
Diluted weighted-average shares outstanding...... 27,680 27,370 27,861 27,213
=========== =========== =========== ===========
Per share amounts................................ $ 1.57 $ 1.48 $ 3.96 $ 3.99
=========== =========== =========== ===========
- 5 -
D. Interest Activity
The Company capitalizes interest incurred on its corporate and
homebuilding debt during the period of active development and through the
completion of construction of its homebuilding inventories. Corporate and
homebuilding interest incurred but not capitalized is reported as interest
expense. Interest incurred by the financial services segment is charged to
interest expense, which is deducted from interest income and reported as net
interest income in Note H. Interest activity, in total and by business segment,
is shown below (in thousands).
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Total Interest Incurred
Corporate and homebuilding.......................... $ 5,907 $ 5,879 $ 14,863 $ 17,638
Financial services.................................. 424 625 1,105 2,114
---------- ---------- ---------- ----------
Total interest incurred............................. $ 6,331 $ 6,504 $ 15,968 $ 19,752
========== ========== ========== ==========
Corporate/Homebuilding Interest Capitalized
Interest capitalized in homebuilding inventory,
beginning of period............................... $ 17,604 $ 19,503 $ 17,358 $ 19,417
Interest incurred................................... 5,907 5,879 14,863 17,638
Interest expense.................................... - - - - - - - -
Previously capitalized interest included in cost of
sales............................................. (4,568) (5,921) (13,278) (17,594)
---------- ---------- ---------- ----------
Interest capitalized in homebuilding inventory, end
of period......................................... $ 18,943 $ 19,461 $ 18,943 $ 19,461
========== ========== ========== ==========
Financial Services Net Interest Income
Interest income..................................... $ 1,469 $ 1,526 $ 4,099 $ 4,470
Interest expense.................................... (424) (625) (1,105) (2,114)
---------- ---------- ---------- ----------
Net interest income................................. $ 1,045 $ 901 $ 2,994 $ 2,356
========== ========== ========== ==========
E. 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 held in inventory and commitments to
originate mortgage loans. Such contracts are the only significant financial
derivative instruments utilized by MDC. 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.
- 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. During the
third quarter of 2002, the Company repurchased 492,600 shares of MDC common
stock, bringing the total shares repurchased to 2,556,900 and leaving 443,100
shares available to be repurchased as of September 30, 2002 under these
programs. The per share prices, including commissions, for the 2,556,900 shares
repurchased ranged from $13.53 to $40.48 with an average cost of $21.00. At
September 30, 2002, the Company held 5,131,000 shares of treasury stock with an
average purchase price of $12.20.
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 and nine months ended
September 30, 2001 to reflect the effect of the December 2001 stock dividend. No
stock dividends were declared or paid in the nine months ended September 30,
2002.
Stock Contributions - In the first nine months of 2001, the Company
committed to contribute $2,000,000 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 and
June 2001, respectively, 28,145 and 29,744 shares of MDC common stock valued at
a total of $2,000,000 were transferred to the Foundation. No contributions to
the Foundation were made in the first nine months of 2002. 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.
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"). On July 30, 2002, the terms of the Homebuilding Line were
amended and restated (the "Second Amended and Restated Credit Agreement") to
extend the maturity date to July 29, 2006, and increase the maximum amount
available from $450,000,000 to $600,000,000 upon the Company's request, subject
to additional commitments from existing or additional participant lenders.
Lender commitments under the Homebuilding Line increased from $413,000,000 to
$450,000,000 in 2001 and to $538,000,000 in July 2002. Pursuant to the terms of
the Second Amended and Restated Credit Agreement, a term-out of this credit may
commence prior to July 29, 2006 under certain circumstances. At September 30,
2002, $255,000,000 was borrowed and $19,085,000 in letters of credit were
outstanding under the Homebuilding Line.
Mortgage Lending - In June 2002, the Company received $25,000,000 in
additional commitments on its mortgage lending bank line of credit (the
"Mortgage Line"), increasing the borrowing limit to $125,000,000 from
$100,000,000. In August 2002, the terms of the Mortgage Line were amended to
allow for a $50,000,000 increase in the borrowing limit to a maximum of
$175,000,000, subject to concurrence by the participating banks. The terms of
the Mortgage Line are set forth in a Second Amended and Restated Warehousing
Credit Agreement dated as of September 9, 2002. 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
September 30, 2002,
- 7 -
$90,060,000 was borrowed and an additional $16,563,000 was
collateralized and available to be borrowed. The Mortgage Line is cancelable
upon 120 days' notice.
H. 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 Nine Months
Ended September 30, Ended September 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Homebuilding
Home sales......................... $ 568,195 $ 505,995 $ 1,510,224 $ 1,413,121
Land sales......................... 1,485 2,142 2,231 2,901
Other revenues..................... 706 2,871 3,863 5,092
------------ ------------ ------------ ------------
570,386 511,008 1,516,318 1,421,114
------------ ------------ ------------ ------------
Home cost of sales................. 435,041 383,777 1,161,155 1,077,786
Land cost of sales................. 1,237 646 1,741 1,103
Asset impairment charges........... - - 2,900 - - 2,900
Marketing expenses................. 31,794 28,116 85,139 78,033
General and administrative expenses
26,842 23,655 73,752 65,461
------------ ------------ ------------ ------------
494,914 439,094 1,321,787 1,225,283
------------ ------------ ------------ ------------
Homebuilding Operating Profit.. 75,472 71,914 194,531 195,831
------------ ------------ ------------ ------------
Financial Services
Revenues
Net interest income................ 1,045 901 2,994 2,356
Origination fees................... 4,563 4,418 12,784 12,570
Gains on sales of mortgage servicing 408 461 1,360 2,863
Gains on sales of mortgage loans, net 4,902 4,128 12,643 9,638
Mortgage servicing and other....... 242 173 656 (7)
------------ ------------ ------------ ------------
11,160 10,081 30,437 27,420
General and administrative expenses.. 5,255 4,331 14,317 12,740
------------ ------------ ------------ ------------
Financial Services Operating
Profit....................... 5,905 5,750 16,120 14,680
------------ ------------ ------------ ------------
Total Operating Profit................. 81,377 77,664 210,651 210,511
------------ ------------ ------------ ------------
Corporate
Interest and other revenues........ 152 223 747 735
General and administrative expenses (10,498) (11,097) (30,992) (33,013)
------------ ------------ ------------ ------------
Net Corporate Expenses......... (10,346) (10,874) (30,245) (32,278)
------------ ------------ ------------ ------------
Income Before Income Taxes.............. $ 71,031 $ 66,790 $ 180,406 $ 178,233
============ ============ ============ ============
- 8 -
I. Supplemental Guarantor Information
The Company's publicly traded 8 3/8% senior notes due 2008 (the
"Senior Notes") are fully and 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. Richmond American Homes of Colorado, Inc., M.D.C. Land Corporation,
Richmond American Construction, Inc., Richmond American Homes of West Virginia,
Inc., Richmond American Homes of California (Inland Empire), Inc., Richmond
American Homes of Utah, Inc., Richmond American Homes of Texas, Inc., RAH of
Texas, LP and RAH Texas Holdings, LLC (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.
- 9 -
M.D.C. Holdings, Inc.
Supplemental Combining Balance Sheet
September 30, 2002
(In thousands)
(Unaudited)
Non-
Guarantor Guarantor Eliminating
MDC Subsidiaries Subsidiaries Entries Total
----------- ------------ ------------ ----------- -----------
ASSETS
Corporate
Cash and cash equivalents............... $ 28,156 $ - - $ - - $ - - $ 28,156
Investments in and advances to parent
and subsidiaries...................... 269,125 547 9,713 (279,385) - -
Other assets............................ 46,088 - - (1,921) - - 44,167
----------- ----------- ----------- ----------- -----------
343,369 547 7,792 (279,385) 72,323
----------- ----------- ----------- ----------- -----------
Homebuilding
Cash and cash equivalents............... - - 5,861 354 - - 6,215
Home sales and other accounts receivable - - 16,540 181 (1,288) 15,433
Inventories, net
Housing completed or under construction - - 675,233 - - 675,233
Land and land under development....... - - 604,717 - - 604,717
Other assets............................ - - 45,429 16,240 - - 61,669
----------- ----------- ----------- ----------- -----------
- - 1,347,780 16,775 (1,288) 1,363,267
----------- ----------- ----------- ----------- -----------
Financial services......................... - - - - 140,674 - - 140,674
----------- ----------- ----------- ----------- -----------
Total Assets...................... $ 343,369 $ 1,348,327 $ 165,241 $ (280,673) $ 1,576,264
=========== =========== =========== =========== ===========
LIABILITIES
Corporate
Accounts payable and accrued
expenses.............................. $ 50,730 $ - - $ 112 $ - - $ 50,842
Advances and notes payable - parent
and subsidiaries...................... (818,565) 803,886 14,679 - - - -
Income taxes payable.................... (67,401) 71,321 2,341 - - 6,261
Senior Notes, net....................... 174,551 - - - - - - 174,551
----------- ----------- ----------- ----------- -----------
(660,685) 875,207 17,132 - - 231,654
----------- ----------- ----------- ----------- -----------
Homebuilding
Accounts payable and accrued
expenses.............................. - - 212,073 4,918 - - 216,991
Line of credit.......................... 255,000 - - - - - - 255,000
----------- ----------- ----------- ----------- -----------
255,000 212,073 4,918 - - 471,991
----------- ----------- ----------- ----------- -----------
Financial services......................... - - - - 118,960 (1,303) 117,657
----------- ----------- ----------- ----------- -----------
Total Liabilities................. (405,685) 1,087,280 141,010 (1,303) 821,302
----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY....................... 749,054 261,047 24,231 (279,370) 754,962
----------- ----------- ----------- ----------- -----------
Total Liabilities and
Stockholders' Equity............ $ 343,369 $ 1,348,327 $ 165,241 $ (280,673) $ 1,576,264
=========== =========== =========== =========== ===========
- 10 -
M.D.C. Holdings, Inc.
Supplemental Combining Balance Sheet
December 31, 2001
(In thousands)
Non-
Guarantor Guarantor Eliminating
MDC Subsidiaries Subsidiaries Entries Total
----------- ----------- ------------ ----------- ------------
ASSETS
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....... - - 450,502 - - - - 450,502
Other assets............................ - - 32,063 17,481 - - 49,544
----------- ----------- ----------- ----------- ------------
- - 947,413 18,058 (1,292) 964,179
----------- ----------- ----------- ----------- ------------
Financial services......................... - - - - 153,107 - - 153,107
----------- ----------- ----------- ----------- ------------
Total Assets...................... $ 405,135 $ 947,878 $ 168,693 $ (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) 365,801 9,489 - - - -
Income taxes payable.................... (100,585) 102,864 7,674 - - 9,953
Senior Notes, net....................... 174,503 - - - - - - 174,503
----------- ----------- ----------- ----------- ------------
(240,688) 468,665 17,606 8 245,591
----------- ----------- ----------- ----------- ------------
Homebuilding
Accounts payable and accrued
expenses.............................. - - 168,935 6,020 - - 174,955
Line of credit.......................... - - - - - - - - - -
----------- ----------- ----------- ----------- ------------
- - 168,935 6,020 - - 174,955
----------- ----------- ----------- ----------- ------------
Financial services......................... - - - - 117,878 (1,299) 116,579
----------- ----------- ----------- ----------- ------------
Total Liabilities................. (240,688) 637,600 141,504 (1,291) 537,125
----------- ----------- ----------- ----------- ------------
STOCKHOLDERS' EQUITY....................... 645,823 310,278 27,189 (329,459) 653,831
----------- ----------- ----------- ----------- ------------
Total Liabilities and
Stockholders' Equity............ $ 405,135 $ 947,878 $ 168,693 $ (330,750) $ 1,190,956
=========== =========== =========== =========== ============
- 11 -
M.D.C. Holdings, Inc.
Supplemental Combining Statements of Income
(In thousands)
(Unaudited)
Three Months Ended September 30, 2002
Non-
Guarantor Guarantor Eliminating
MDC Subsidiaries Subsidiaries Entries Total
----------- ----------- ------------ ----------- ------------
REVENUES
Homebuilding............................. $ - - $ 570,405 $ 57 $ (76) $ 570,386
Financial services....................... - - - - 11,160 - - 11,160
Corporate................................ 312 - - 8 (168) 152
Equity in earnings of subsidiaries....... 47,763 - - - - (47,763) - -
----------- ----------- ----------- ----------- ------------
Total Revenues..................... 48,075 570,405 11,225 (48,007) 581,698
----------- ----------- ----------- ----------- ------------
COSTS AND EXPENSES
Homebuilding............................. 187 498,520 225 (4,018) 494,914
Financial services....................... - - - - 5,255 - - 5,255
Corporate general and administrative..... 10,666 - - - - (168) 10,498
Corporate and homebuilding interest...... (4,018) - - - - 4,018 - -
----------- ----------- ----------- ----------- ------------
Total Expenses...................... 6,835 498,520 5,480 (168) 510,667
----------- ----------- ----------- ----------- ------------
Income before income taxes............... 41,240 71,885 5,745 (47,839) 71,031
Provision for income taxes............... 2,942 (28,180) (2,234) - - (27,472)
----------- ----------- ----------- ----------- ------------
NET INCOME.................................. $ 44,182 $ 43,705 $ 3,511 $ (47,839) $ 43,559
=========== =========== =========== =========== ============
Three Months Ended September 30, 2001
Non-
Guarantor Guarantor Eliminating
MDC Subsidiaries Subsidiaries Entries Total
----------- ----------- ------------ ----------- ------------
REVENUES
Homebuilding............................. $ - - $ 509,671 $ 1,397 $ (60) $ 511,008
Financial services....................... - - - - 10,081 - - 10,081
Corporate................................ 213 - - 10 - - 223
Equity in earnings of subsidiaries....... 44,620 - - - - (44,620) - -
----------- ----------- ----------- ----------- ------------
Total Revenues..................... 44,833 509,671 11,488 (44,680) 521,312
----------- ----------- ----------- ----------- ------------
COSTS AND EXPENSES
Homebuilding............................. (37) 442,763 (213) (3,419) 439,094
Financial services....................... - - - - 4,331 - - 4,331
Corporate general and administrative..... 11,097 - - - - - - 11,097
Corporate and homebuilding interest...... (3,419) - - - - 3,419 - -
----------- ----------- ----------- ----------- ------------
Total Expenses..................... 7,641 442,763 4,118 - - 454,522
----------- ----------- ----------- ----------- ------------
Income before income taxes............... 37,192 66,908 7,370 (44,680) 66,790
Provision for income taxes............... 2,418 (26,229) (2,454) - - (26,265)
----------- ----------- ----------- ----------- ------------
NET INCOME.................................. $ 39,610 $ 40,679 $ 4,916 $ (44,680) $ 40,525
=========== =========== =========== =========== ============
- 12 -
M.D.C. Holdings, Inc.
Supplemental Combining Statements of Income
(In thousands)
(Unaudited)
Nine Months Ended September 30, 2002
Non-
Guarantor Guarantor Eliminating
MDC Subsidiaries Subsidiaries Entries Total
----------- ----------- ------------ ----------- ------------
REVENUES
Homebuilding............................. $ - - $ 1,514,439 $ 2,097 $ (218) $ 1,516,318
Financial services....................... - - - - 30,437 - - 30,437
Corporate................................ 831 - - 105 (189) 747
Equity in earnings of subsidiaries....... 121,714 - - - - (121,714) - -
----------- ----------- ----------- ----------- ------------
Total Revenues..................... 122,545 1,514,439 32,639 (122,121) 1,547,502
----------- ----------- ----------- ----------- ------------
COSTS AND EXPENSES
Homebuilding............................. 294 1,334,615 634 (13,756) 1,321,787
Financial services....................... - - - - 14,317 - - 14,317
Corporate general and administrative..... 31,096 - - 85 (189) 30,992
Corporate and homebuilding interest...... (13,756) - - - - 13,756 - -
----------- ----------- ----------- ----------- ------------
Total Expenses...................... 17,634 1,334,615 15,036 (189) 1,367,096
----------- ----------- ----------- ----------- ------------
Income before income taxes............... 104,911 179,824 17,603 (121,932) 180,406
Provision for income taxes............... 7,995 (71,321) (6,849) - - (70,175)
----------- ----------- ----------- ----------- ------------
NET INCOME.................................. $ 112,906 $ 108,503 $ 10,754 $ (121,932) $ 110,231
=========== =========== =========== =========== ============
Nine Months Ended September 30, 2001
Non-
Guarantor Guarantor Eliminating
MDC Subsidiaries Subsidiaries Entries Total
----------- ----------- ------------ ----------- ------------
REVENUES
Homebuilding............................. $ - - $ 1,418,664 $ 2,618 $ (168) $ 1,421,114
Financial services....................... - - - - 27,420 - - 27,420
Corporate................................ 695 - - 40 - - 735
Equity in earnings of subsidiaries....... 121,480 - - - - (121,480) - -
----------- ----------- ----------- ----------- ------------
Total Revenues..................... 122,175 1,418,664 30,078 (121,648) 1,449,269
----------- ----------- ----------- ----------- ------------
COSTS AND EXPENSES
Homebuilding............................. 69 1,236,041 851 (11,678) 1,225,283
Financial services....................... - - - - 12,740 - - 12,740
Corporate general and administrative..... 33,013 - - - - - - 33,013
Corporate and homebuilding interest...... (11,678) - - - - 11,678 - -
----------- ----------- ----------- ----------- ------------
Total Expenses..................... 21,404 1,236,041 13,591 - - 1,271,036
----------- ----------- ----------- ----------- ------------
Income before income taxes............... 100,771 182,623 16,487 (121,648) 178,233
Provision for income taxes............... 8,517 (71,669) (6,430) - - (69,582)
----------- ----------- ----------- ----------- ------------
NET INCOME.................................. $ 109,288 $ 110,954 $ 10,057 $ (121,648) $ 108,651
=========== =========== =========== =========== ============
- 13 -
M.D.C. Holdings, Inc.
Supplemental Combining Statements of Cash Flows
(In thousands)
Nine Months Ended September 30, 2002
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
------------- ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities..................... $ (6,316) $ (246,561) $ 34,832 $ (227) $ (218,272)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities....... (8,783) (1,181) (181) - - (10,145)
------------ ------------ ------------ ------------ ------------
Financing activities
Net increase (reduction) in borrowings from
parent and subsidiaries.................. (224,482) 249,251 (24,769) - - - -
Lines of credit
Advances............................... 1,937,200 - - - - - - 1,937,200
Principal payments..................... (1,682,200) - - (9,582) - - (1,691,782)
Dividend payments........................... (6,395) - - - - 227 (6,168)
Stock repurchases........................... (19,029) - - - - - - (19,029)
Proceeds from exercise of stock options..... 6,839 - - - - - - 6,839
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities............................... 11,933 249,251 (34,351) 227 227,060
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents.............................. (3,166) 1,509 300 - - (1,357)
Cash and cash equivalents
Beginning of year........................ 31,322 4,352 926 - - 36,600
------------ ------------ ------------ ------------ ------------
End of year.............................. $ 28,156 $ 5,861 $ 1,226 $ - - $ 35,243
============ ============ ============ ============ ============
Nine Months Ended September 30, 2001
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
------------- ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities..................... $ 19,018 $ (64,467) $ 23,611 $ (168) $ (22,006)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities....... (1,033) (723) (111) - - (1,867)
------------ ------------ ------------ ------------ ------------
Financing activities
Net increase (reduction) in borrowings from
parent and subsidiaries.................. (68,185) 65,650 2,535 - - - -
Lines of credit
Advances............................... 1,381,900 - - - - - - 1,381,900
Principal payments..................... (1,326,900) - - (26,125) - - (1,353,025)
Dividend payments........................... (4,929) - - - - 168 (4,761)
Stock repurchases........................... (3,845) - - - - - - (3,845)
Proceeds from exercise of stock options..... 7,239 - - - - - - 7,239
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities............................... (14,720) 65,650 (23,590) 168 27,508
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents.............................. 3,265 460 (90) - - 3,635
Cash and cash equivalents
Beginning of year........................ 8,411 4,792 912 - - 14,115
------------ ------------ ------------ ------------ ------------
End of year.............................. $ 11,676 $ 5,252 $ 822 $ - - $ 17,750
============ ============ ============ ============ ============
- 14 -
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; American Home Title and Escrow Company ("American Home
Title"), which provides title agency services; and American Home Insurance
Agency, Inc. ("American Home Insurance"), which offers 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 Nine Months
Ended September 30, Ended September 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues................................ $ 581,698 $ 521,312 $ 1,547,502 $ 1,449,269
Income Before Income Taxes.............. $ 71,031 $ 66,790 $ 180,406 $ 178,233
Net Income.............................. $ 43,559 $ 40,525 $ 110,231 $ 108,651
Earnings Per Share:
Basic.............................. $ 1.63 $ 1.52 $ 4.11 $ 4.12
Diluted............................ $ 1.57 $ 1.48 $ 3.96 $ 3.99
Revenues for the third quarter and first nine months of 2002 increased
$60,386,000 and $98,233,000, respectively, compared with the same periods in
2001. These increases primarily resulted from higher home sales revenues due to
increased home closings and average selling prices per home closed.
Income before income taxes in the third quarter of 2002 was higher than
for the same period in 2001. Most of the increase in operating profits came from
the Company's homebuilding segment. The increase in homebuilding segment profits
primarily resulted from the factors contributing to the increase in revenues
described above, partially offset by lower Home Gross Margins (as defined
below).
- 15 -
Homebuilding Segment
- --------------------
The tables below set forth information relating to the Company's
homebuilding segment (dollars in thousands).
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Home Sales Revenues........................... $ 568,195 $ 505,995 $ 1,510,224 $ 1,413,121
Operating Profit.............................. $ 75,472 $ 71,914 $ 194,531 $ 195,831
Average Selling Price Per Home Closed......... $ 249.6 $ 243.7 $ 255.7 $ 245.4
Home Gross Margins............................ 23.4% 24.2% 23.1% 23.7%
Excluding Interest in Home Cost of Sales.. 24.2% 25.3% 24.0% 25.0%
Orders For Homes, net (units)
Colorado................................ 541 494 2,299 2,101
Utah.................................... 46 - - 77 - -
California.............................. 475 362 1,699 1,217
Arizona................................. 755 433 2,096 1,699
Nevada.................................. 359 161 977 591
Virginia................................ 186 117 604 481
Maryland................................ 75 61 214 239
Texas................................... 2 - - 2 - -
------------ ------------ ------------ ------------
Total............................. 2,439 1,628 7,968 6,328
============ ============ ============ ============
Homes Closed (units)
Colorado................................ 790 688 2,105 1,988
Utah.................................... 39 - - 64 - -
California.............................. 394 433 1,048 1,048
Arizona................................. 550 611 1,434 1,622
Nevada.................................. 306 165 694 493
Virginia................................ 134 107 368 413
Maryland................................ 63 72 193 195
Texas................................... - - - - - - - -
------------ ------------ ------------ ------------
Total............................. 2,276 2,076 5,906 5,759
============ ============ ============ ============
September 30, December 31, September 30,
2002 2001 2001
------------ ------------ ------------
Backlog (units)
Colorado................................ 1,389 1,195 1,498
Utah.................................... 54 - - - -
California.............................. 1,141 490 677
Arizona................................. 1,287 625 887
Nevada.................................. 577 181 296
Virginia................................ 470 234 396
Maryland................................ 178 157 170
Texas................................... 2 - - - -
------------ ------------ ------------
Total............................. 5,098 2,882 3,924
============ ============ ============
Backlog Estimated Sales Value................. $ 1,350,000 $ 760,000 $ 1,050,000
============ ============ ============
- 16 -
September 30, December 31, September 30,
2002 2001 2001
------------ ------------ ------------
Active Subdivisions
Colorado............................... 65 61 64
Utah................................... 4 - - - -
California............................. 24 26 27
Arizona................................ 41 27 27
Nevada................................. 15 7 7
Virginia............................... 19 11 10
Maryland............................... 7 5 6
Texas.................................. - - - - - -
------------ ------------ ------------
Total............................. 175 137 141
============ ============ ============
Home Sales Revenues - Home sales revenues in the third quarter and
first nine months of 2002 were 12% and 7% higher, respectively, than home sales
revenues for the same periods in 2001. The improved revenues were a result of
increased home closings and higher average selling prices per home closed, as
further discussed below.
Homes Closed - Home closings for the three and nine months ended
September 30, 2002 were 10% and 3% higher, respectively, than in the same
periods in 2001. Home closings increased in the third quarter and first nine
months of 2002, compared with the same periods in 2001, in (1) Nevada (increases
of 85% and 41%, respectively) and Utah, primarily due to homes closed in
subdivisions acquired from W.L. Homes LLC (d/b/a John Laing Homes) in April
2002; and (2) Tucson (increases of 6% and 29%, respectively) and Colorado
(increases of 15% and 6%, respectively), as a result of the strong home orders
received in these markets in the fourth quarter of 2001 and first half of 2002.
MDC closed fewer homes in both the third quarter and first nine months of 2002
in Phoenix, primarily due to lower home orders in this market in the fourth
quarter of 2001 and the first quarter of 2002, resulting from fewer active
subdivisions and a significant number of active subdivisions approaching
close-out during these time periods.
Average Selling Price Per Home Closed - The average selling price per
home closed in the 2002 third quarter increased $5,900, compared with the same
period in 2001. The increase primarily was due to a greater number of homes
closed in relatively higher-priced subdivisions in Southern California,
Maryland, Phoenix and Northern California, as well as selling price increases in
Southern California, Maryland and Phoenix, driven by the strong demand for new
homes in these markets. These increases partially were offset by decreases in
average selling prices in the third quarter of 2002 in (1) Tucson, which closed
a greater number of homes in relatively lower-priced subdivisions; (2) Virginia,
where the Company closed a greater number of townhomes, which generally have
lower selling prices than detached homes; and (3) Nevada, where 103 homes were
closed in subdivisions that were acquired from John Laing Homes, which had
selling prices significantly lower than the Company average. For the nine months
ended September 30, 2002, the average selling price per home closed increased
$10,300, compared with the same period in 2001. The increase primarily was due
to a greater number of homes closed in relatively higher-priced subdivisions in
Maryland, Phoenix, Northern California and Virginia, due to a greater number of
homes closed in relatively higher-priced subdivisions, as well as selling price
increases in Southern California, Virginia, Maryland and Phoenix, as a result of
the strong demand for new homes in these markets.
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 were 23.4% and
23.1%, respectively, for the quarter and nine months ended September 30, 2002,
compared
- 17 -
with 24.2% and 23.7% for the same periods in 2001. The decreases in 2002
primarily were due to (1) homes closed in Utah and Nevada that were acquired
from John Laing Homes with a lower Home Gross Margin than the Company average
due, in large part, to purchase accounting adjustments; (2) increased warranty
costs in Colorado and Northern California, including costs incurred in
connection with moisture intrusion and related mold concerns; and (3) the
continued rising cost of land in most of the Company's markets.
Future Home Gross Margins may be impacted adversely by the previously
mentioned factors, as well as (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 - Orders for homes increased 50% and 26%,
respectively, in the three and nine months ended September 30, 2002, compared
with the same periods in 2001. The Company increased the number of active
subdivisions to 175 at September 30, 2002 from 137 at December 31, 2001,
including an additional 14 in Arizona, eight in Nevada and eight in Virginia.
These additional subdivisions, combined with the strong demand for new homes in
these markets, contributed to year-over-year increases in third quarter home
orders of 123% in Nevada, 74% in Arizona and 59% in Virginia. Third quarter 2002
home orders increased a combined 31% in Southern and Northern California,
compared with the 2001 third quarter, primarily resulting from the strong demand
for new homes in these markets.
MDC received orders for 760 homes in October 2002, 65% above the 462
home orders received in October 2001. October 2002 home orders particularly were
strong in Phoenix, Nevada and Virginia (up 132%, 184% and 454%, respectively),
aided by year-over-year increases in the number of active subdivisions in these
markets of 78%, 114% and 90%, respectively. The continued strong demand for new
homes in each of these markets, as well as in California and Maryland (with
orders up 79% and 25%, respectively), also contributed to improved orders in
this period. The Company received orders for 8,728 homes for the ten months
ended October 31, 2002, 29% higher than the 6,790 home orders received for the
same period in 2001.
Homes under contract but not yet delivered ("Backlog") at September 30,
2002 was 5,098 units with an estimated sales value of $1,350,000,000, compared
with a Backlog of 3,924 units with an estimated sales value of $1,050,000,000 at
September 30, 2001. Assuming no significant change in market conditions or
mortgage interest rates, the Company expects approximately 70% to 75% of its
September 30, 2002 Backlog to close under existing sales contracts during the
fourth quarter of 2002 and first quarter of 2003. 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.
Asset Impairment Charges - No asset impairment charges were recorded
during the first nine months of 2002. Operating profits for the three and nine
months ended September 30, 2001 were reduced by asset impairment charges of
$2,900,000, resulting from the write-down to fair market value of two
homebuilding projects in the San Francisco Bay area. These projects have
performed better than expected in 2002, and currently have no homes remaining to
be sold.
Marketing - Marketing expenses (which include sales commissions,
advertising, amortization of deferred marketing costs, model home expenses and
other costs) totaled $31,794,000 and $85,139,000, respectively, for the quarter
and nine months ended September 30, 2002, compared with $28,116,000 and
$78,033,000, respectively, for the same periods in 2001. The increases in 2002
primarily were due to (1) higher product advertising and deferred marketing
amortization in connection with the increased
- 18 -
number of active subdivisions and higher home closings in the 2002 periods; (2)
higher sales commissions resulting from the Company's increased home sales
revenues; and (3) increased sales overhead resulting from the Company's
expanding home sales activities.
General and Administrative - General and administrative expenses
increased to $26,842,000 and $73,752,000, respectively, during the third quarter
and first nine months of 2002, compared with $23,655,000 and $65,461,000,
respectively, for the same periods in 2001, primarily due to increased
compensation costs associated with the expanding operations in certain of the
Company's markets, most notably Phoenix, Virginia, Nevada and Texas. General and
administrative expenses in 2002 also increased in Utah and Nevada as a result of
the Company's acquisition of most of the homebuilding assets, and the hiring of
former employees, of John Laing Homes in these markets.
Title Operations - American Home Title provides title agency services
to MDC home buyers in Virginia, Maryland and Colorado. The Company is evaluating
opportunities to provide title agency services in its other markets. Income
before income taxes from title operations was $633,000 and $1,699,000 for the
quarter and nine months ended September 30, 2002, compared with $523,000 and
$1,643,000 for the same periods in 2001.
Land Inventory
The table below shows the carrying value of land and land under
development, by market, the total number of lots owned (excluding lots in
work-in-process) and lots controlled under option agreements and total cash
option deposits (dollars in thousands).
September 30, December 31, September 30,
2002 2001 2001
----------- ----------- -----------
Colorado................................................. $ 144,332 $ 165,228 $ 162,401
Utah..................................................... 12,866 - - - -
California............................................... 116,855 110,010 119,478
Arizona.................................................. 98,547 70,602 60,379
Nevada................................................... 105,046 44,103 44,361
Virginia................................................. 102,632 49,929 37,540
Maryland................................................. 22,141 10,630 9,731
Texas.................................................... 2,298 - - - -
----------- ----------- -----------
Total.............................................. $ 604,717 $ 450,502 $ 433,890
=========== =========== ===========
Total Lots Owned......................................... 16,975 13,524 13,331
Total Lots Controlled Under Option....................... 6,288 6,059 7,205
----------- ----------- -----------
Total Lots Owned and Controlled.................... 23,263 19,583 20,536
=========== =========== ===========
Total Cash Option Deposits............................... $ 18,545 $ 14,520 $ 13,512
=========== =========== ===========
New Homebuilding Divisions
In February 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. During the 2002 second and third quarters, the Company acquired
control of over 550 lots in six subdivisions in this market, and has started to
receive orders for homes in one of those subdivisions.
In mid-April 2002, an MDC subsidiary acquired most of the homebuilding
assets, and hired former employees, of John Laing Homes in Salt Lake City,
marking the Company's entry into this market. The assets acquired included
approximately 750 lots and 24 homes under construction in five subdivisions, as
well as an option to acquire an additional 61 lots.
- 19 -
Financial Services Segment
- --------------------------
The table below sets forth information relating to HomeAmerican's
operations (in thousands).
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Origination fees.............................. $ 4,563 $ 4,418 $ 12,784 $ 12,570
Gains on sales of mortgage servicing, net..... $ 408 $ 461 $ 1,360 $ 2,863
Gains on sales of mortgage loans, net......... $ 4,902 $ 4,128 $ 12,643 $ 9,638
Operating Profit.............................. $ 5,905 $ 5,750 $ 16,120 $ 14,680
Principal amount of loan originations
MDC home buyers........................... $ 323,021 $ 302,407 $ 844,475 $ 821,571
Spot...................................... 7,385 12,816 22,948 41,246
----------- ----------- ----------- -----------
Total.................................. $ 330,406 $ 315,223 $ 867,423 $ 862,817
=========== =========== =========== ===========
Principal amount of loans brokered
MDC home buyers........................... $ 53,177 $ 56,605 $ 156,476 $ 167,463
Spot...................................... 1,689 1,084 4,807 8,179
----------- ----------- ----------- -----------
Total.................................. $ 54,866 $ 57,689 $ 161,283 $ 175,642
=========== =========== =========== ===========
Capture Rate.................................. 70% 74% 70% 73%
=========== =========== =========== ===========
Including brokered loans.................. 80% 85% 81% 85%
=========== =========== =========== ===========
HomeAmerican's operating profit for the third quarter and first nine
months of 2002 increased, compared with the same periods in 2001, primarily due
to higher gains on sales of mortgage loans, partially offset by lower gains on
sales of mortgage loan servicing. The principal amounts of loans originated and
brokered for MDC home buyers were $376,198,000 and $1,000,951,000, respectively,
in the third quarter and first nine months of 2002, compared with $359,012,000
and $989,034,000, respectively, for the same periods in 2001. The increases in
loans originated and brokered for MDC home buyers primarily resulted from the
higher home closings of MDC's homebuilding segment. MDC home buyers were the
source of approximately 98% and 97%, respectively, of the total principal amount
of mortgage loans originated and brokered by HomeAmerican in the third quarter
and first nine months of 2002.
Mortgage loans originated by HomeAmerican for MDC home buyers as a
percentage of total MDC home closings ("Capture Rate") were 70% for the quarter
and nine months ended September 30, 2002, compared with 74% and 73%,
respectively, for the same periods 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. If brokered loans were included, the
Capture Rate would have been 80% and 81%, respectively, for the third quarter
and first nine months of 2002, compared with 85% for the same periods in 2001.
The decreases in Capture Rate in the 2002 periods primarily were due to homes
closed by MDC in Nevada and Utah that were purchased from John Laing Homes with
mortgage loans already contracted for by other mortgage companies.
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.
- 20 -
Other Operating Results
- -----------------------
Insurance Operations - American Home Insurance provides homeowners,
auto and other types of casualty insurance in each of MDC's markets. The results
of its operations were not material for any of the periods presented.
Interest Expense - The Company capitalizes interest incurred on its
corporate and homebuilding debt during the period of active development and
through the completion of construction of its homebuilding inventories.
Corporate and homebuilding interest incurred but not capitalized is reported as
interest expense. Interest incurred by the financial services segment is charged
to interest expense, which is deducted from interest income and reported as net
interest income in Note H to the Company's Condensed Consolidated Financial
Statements. For a reconciliation of interest incurred, capitalized and expensed,
see Note D to the Company's Condensed Consolidated Financial Statements.
Corporate General and Administrative Expenses - Corporate general and
administrative expenses totaled $10,498,000 and $30,992,000, respectively,
during the third quarter and first nine months of 2002, compared with
$11,097,000 and $33,013,000, respectively, for the same periods of 2001.
Corporate general and administrative expense was lower in the 2002 third quarter
primarily due to a charitable contribution in the 2001 third quarter of
$1,000,000 to a fund established by the large public homebuilders to provide aid
to the victims of the September 11th tragedies. For the nine months ended
September 30, 2002, corporate general and administrative expense was lower than
the same period in 2001 primarily due to the above mentioned contribution, as
well as contributions of $2,000,000 to the M.D.C. Holdings, Inc. Charitable
Foundation in the first half of 2001. See Note F to the Company's Condensed
Consolidated Financial Statements.
Income Taxes - MDC's overall effective income tax rates of 38.7% and
38.9%, respectively, for the third quarter and first nine months of 2002,
compared with 39.3% and 39.0%, respectively, for the same periods in 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. During the 2002 third quarter, the Company filed a registration
statement, which has been declared effective, increasing its capacity to issue
equity, debt or hybrid securities to $750,000,000 from $300,000,000.
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 in the
- 21 -
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 - On July 30, 2002, the terms of the Homebuilding Line
were amended and restated (the "Second Amended and Restated Credit Agreement")
to extend the maturity date to July 29, 2006, and increase the maximum amount
available from $450,000,000 to $600,000,000 upon the Company's request, subject
to additional commitments from existing or additional participant lenders.
Lender commitments under the Homebuilding Line increased from $413,000,000 to
$450,000,000 in 2001 and to $538,000,000 in July 2002. Pursuant to the terms of
the Second Amended and Restated Credit Agreement, a term-out of this credit may
commence prior to July 29, 2006 under certain circumstances. At September 30,
2002, $255,000,000 was borrowed and $19,085,000 in letters of credit were
outstanding under the Homebuilding Line.
Mortgage Lending - In June 2002, the Company received $25,000,000 in
additional commitments on its Mortgage Line, increasing the borrowing limit to
$125,000,000 from $100,000,000. In August 2002, the terms of the Mortgage Line
were amended to allow for a $50,000,000 increase in the borrowing limit to a
maximum of $175,000,000, subject to concurrence by the participating banks. The
terms of the Mortgage Line are set forth in a Second Amended and Restated
Warehousing Credit Agreement dated as of September 9, 2002. 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
September 30, 2002, $90,060,000 was borrowed and an additional $16,563,000 was
collateralized and available to be borrowed. The Mortgage Line is cancelable
upon 120 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 for the Senior Notes 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 Second Amended and Restated Credit Agreement was filed with MDC's
Quarterly Report on Form 10-Q for the quarter period ended June 30, 2002. The
Second Amended and Restated Warehousing Credit Agreement is filed with this
report.
The financial covenants contained in the Second 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 adjusted consolidated tangible net worth test, MDC's
"adjusted consolidated tangible net worth," as defined, must not be less than
the sum of $491,382,000 and 50% of "consolidated net income," as defined, of the
"borrower," as defined, and the "guarantors," as defined, after December 31,
2001. In addition, "adjusted consolidated tangible net worth," as defined, must
not be less than $307,114,000.
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, but are unconditionally guaranteed on an unsecured basis, jointly and
severally, by most of the Company's homebuilding segment subsidiaries. See Note
I to the Condensed Consolidated Financial Statements.
- 22 -
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. During the third quarter of 2002, the
Company repurchased 492,600 shares of MDC common stock, bringing the total
shares repurchased to 2,556,900 and leaving 443,100 shares available to be
repurchased as of September 30, 2002 under these programs. The per share prices,
including commissions, for the 2,556,900 shares repurchased ranged from $13.53
to $40.48, with an average cost of $21.00. At September 30, 2002, the Company
held 5,131,000 shares of treasury stock with an average purchase price of
$12.20.
Consolidated Cash Flow
During the first nine months of 2002, the Company used $218,272,000 of
cash in its operating activities. Cash provided by net income for the period,
the sale of mortgage loans and an increase in accounts payable and accrued
expenses, collectively, was more than offset by cash used to build homebuilding
inventories in support of the Company's expanding homebuilding activities. The
Company financed these operating cash requirements and repurchased MDC common
stock primarily through borrowings on its bank lines of credit.
During the first nine months of 2001, the Company used $22,006,000 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 would 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.
- 23 -
CRITICAL ACCOUNTING POLICIES
The Company's critical accounting policies are those related to (1)
homebuilding inventory valuation; (2) estimates to complete land development and
home construction; (3) warranty costs; and (4) litigation reserves.
Homebuilding Inventory Valuation - Homebuilding inventories under
development and construction are carried at cost unless facts and circumstances
indicate that the carrying value of the underlying projects may be impaired.
Impairment is determined by comparing the estimated future cash flows
(undiscounted and without interest charges) from an individual project to its
carrying value. If such cash flows are less than the project's carrying value,
the carrying value of the project is written down to its fair value.
Homebuilding inventories held for sale are carried at the lower of cost or fair
value, less selling costs, and are evaluated on an individual asset basis. Fair
value is determined by management estimate and incorporates anticipated future
revenues and costs. Due to uncertainties in the estimation process, it is at
least reasonably possible that actual results could differ from those estimates.
Estimates to Complete Land Development and Home Construction - Home
sales revenue is recognized when a home is closed. In order to properly match
revenues with expenses, an estimation must be made by the Company as to certain
construction and land development costs incurred but not yet paid at the time of
closing. Estimated costs to complete a home are determined for each closed home
based upon historical data with respect to similar product types and
geographical areas. Actual results could differ from such estimates.
Warranty Costs - Warranty reserves are established as homes close on a
per-unit basis in an amount estimated to be adequate to cover expected
warranty-related costs for materials and outside labor to be incurred during a
2-year warranty period and a 10-year home owner's warranty. Reserves are
determined based upon historical data with respect to similar product types and
geographical areas. Actual amounts could differ from estimated amounts.
Litigation Reserves - The Company and certain of its subsidiaries have
been named as defendants in various cases arising in the normal course of
business. The Company has reserved for costs to be incurred with respect to
these cases based upon information provided by its legal counsel. Actual amounts
could differ from estimated amounts.
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) the availability and cost of
insurance covering risks associated with our business; (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
- 24 -
environmental laws; (12) changes in consumer confidence and
preferences; (13) required accounting changes; (14) terrorist acts and other
acts of war; and (15) other factors over which the Company has little or no
control.
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 held in inventory 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
held in inventory 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 from origination. 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 pay off or
refinance such debt.
As of September 30, 2002, short-term debt was $90,060,000, 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 values at September 30, 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 $ 179,953
Average Interest Rate... - - - - - - - - - - 8.38% 8.38%
Variable Rate Debt......... $ - - $ - - $ - - $ - - $ 255,000 $ - - $ 255,000 $ 255,000
Average Interest Rate... - - - - - - - - 3.4% - - 3.4%
The Company believes that its overall balance sheet structure has
repricing and cash flow characteristics that mitigate the impact of interest
rate changes.
- 25 -
ITEM 4. CONTROLS AND PROCEDURES.
- ------- ------------------------
Management of MDC recognizes their responsibility for maintaining
effective and efficient internal controls and disclosure controls (the controls
and procedures by which the Company ensures that information disclosed in annual
and quarterly reports filed with the Securities and Exchange Commission ("SEC")
is accurately processed, summarized and reported within the required time
period). MDC has procedures in place for gathering the information that is
needed to enable the Company to file required reports with the SEC. The Company
has an informal committee that is responsible for reviewing all quarterly and
annual SEC reports. This informal committee consists of most of MDC's senior
management, including its chief financial officer, general counsel, treasurer,
and all homebuilding and mortgage lending presidents and vice presidents of
finance.
An evaluation of the effectiveness of the design and operation of
the Company's disclosure controls and procedures was performed under the
supervision, and with the participation, of the Company's management, including
the chief executive officer and the chief financial officer. This evaluation was
performed within 90 days of filing this report on Form 10-Q. Based on that
evaluation, the Company's management, including the chief executive officer and
chief financial officer, concluded that the Company's disclosure controls and
procedures were effective as of September 30, 2002. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to September 30, 2002.
- 26 -
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, including moisture intrusion and
related mold claims. 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 third quarter of
2002.
ITEM 5. OTHER INFORMATION
- ------- -----------------
On August 19, 2002, the Company's audit committee pre-approved
additional services to be performed by the Company's outside auditors, up to an
aggregate amount of $100,000, in connection with the filing and implementation
of the Company's shelf registration statement.
On October 21, 2002, the Company's board of directors declared a
dividend of eight cents per share for the quarter ended September 30, 2002,
payable November 15, 2002, to shareowners of record on November 1, 2002. Future
dividend payments are subject to the discretion of the Company's board of
directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
(a) Exhibit:
10.1 Second Amended and Restated Warehousing Credit
Agreement dated as of September 9, 2002, among
HomeAmerican Mortgage Corporation and the Banks
which are signatories thereto and U.S. Bank
National Association, as Administrative Agent.
- 27 -
99.1 Certification by Larry A. Mizel, Chief
Executive Officer, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification by Paris G. Reece III, Chief
Financial Officer, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
Form 8-K (Item 9) dated August 9, 2002,
reporting Larry A. Mizel, Chief Executive
Officer of M.D.C. Holdings, Inc., and Paris
G. Reece III, Chief Financial Officer of
M.D.C. Holdings, Inc., each submitted to the
Securities and Exchange Commission Statements
under Oath in compliance with the SEC's
June 27, 2002 Order No. 4-460 requiring the
filing of sworn statements pursuant to
Section 21(a) (1) of the Securities and
Exchange Act of 1934.
Form 8-K (Item 5) dated September 19, 2002,
reporting 2002 third quarter earnings press
release.
Form 8-K (Item 5) dated October 3, 2002,
reporting the Company's third quarter 2002 home
orders, home closings and backlog press
release.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 8, 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
- 28 -
CHIEF EXECUTIVE OFFICER'S CERTIFICATION
I, Larry A. Mizel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of M.D.C. Holdings, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Securities Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 8, 2002 /s/ Larry A. Mizel
--------------------------------------
Larry A. Mizel
Chairman of the Board of Directors
and Chief Executive Officer
- 29 -
CHIEF FINANCIAL OFFICER'S CERTIFICATION
I, Paris G. Reece III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of M.D.C. Holdings, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Securities Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 8, 2002 /s/ Paris G. Reece III
-------------------------------
Paris G. Reece III
Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer
- 30 -