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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-K
(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF
1934 (NO FEE REQUIRED)
For the Transition period from _________ to _________
Commission file number 1-8951
_________________________
M.D.C. HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 84-0622967
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3600 SOUTH YOSEMITE STREET, SUITE 900 80237
DENVER, COLORADO (Zip code)
(Address of principal executive offices)
(303) 773-1100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, NEW YORK STOCK EXCHANGE, INC.
$.01 PAR VALUE THE PACIFIC STOCK EXCHANGE
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
REGISTERED
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /x/
As of March 6, 1995, 19,280,827 shares of M.D.C. Holdings, Inc. Common
Stock were outstanding, and the aggregate market value of the shares (based upon
the closing price on that date of the shares on the New York Stock Exchange,
Inc. as reported on the Composite Tape) held by non-affiliates was approximately
$74,810,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K is incorporated by reference from the
Registrant's 1995 definitive proxy statement to be filed with the Securities and
Exchange Commission no later than 120 days after the end of the Registrant's
fiscal year.
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M.D.C. HOLDINGS, INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1994
TABLE OF CONTENTS
PAGE
NO.
----
ITEMS 1.
AND 2. BUSINESS AND PROPERTIES. . . . . . . . . . . . . . . . . . .
(a) General Development of Business. . . . . . . . . . . . . 1
(b) Financial Information About Industry Segments. . . . . . 2
(c) Narrative Description of Business. . . . . . . . . . . . 2
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . 12
ITEM 5. MARKET PRICE OF COMMON STOCK AND RELATED SECURITY HOLDER MATTERS 12
ITEM 6. SELECTED FINANCIAL AND OTHER DATA. . . . . . . . . . . . . . 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . 15
ITEM 8. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . F-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . 36
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT . . . . . . . . . . . . . . . . . . . . . . . . . 36
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . 36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . 36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . 36
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . 37
(i)
M.D.C. HOLDINGS, INC.
FORM 10-K
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
(a) GENERAL DEVELOPMENT OF BUSINESS
OVERVIEW.
M.D.C. Holdings, Inc. (the "Company" or "MDC", which, unless otherwise
indicated, refers to M.D.C. Holdings, Inc., a Delaware corporation originally
incorporated in Colorado in 1972, and its subsidiaries) is a national home
builder with operations in (i) metropolitan Denver and Colorado Springs,
Colorado (collectively, "Colorado"); (ii) northern Virginia and suburban
Maryland (collectively, "Mid-Atlantic"); (iii) Northern and Southern California
(collectively, "California"); (iv) Phoenix and Tucson, Arizona (collectively,
"Arizona"); and (v) Las Vegas, Nevada ("Nevada").
In its home building operations, the Company is engaged in the construction
and sale of residential housing (collectively, the "home building segment"). In
its mortgage origination, purchase and sale activities (collectively, the
"mortgage lending segment") HomeAmerican Mortgage Corporation (a wholly owned
subsidiary of M.D.C. Holdings, Inc., "HomeAmerican") provides mortgage loans to
the Company's home buyers and to others.
In its asset management operations (collectively, the "asset management
segment"), Financial Asset Management Corporation (an indirect, wholly owned
subsidiary of M.D.C. Holdings, Inc., "FAMC") manages, by contract, the
operations of two publicly-traded real estate investment trusts (each, a
"REIT").
1994 RICHMOND COMMON STOCK ACQUISITION.
In December 1993, the Company completed an offering (the "1993 Offering")
of $190,000,000 principal amount of 11 1/8% Senior Notes due 2003 (the "Senior
Notes") and $28,000,000 principal amount of 8 3/4% Convertible Subordinated
Notes due 2005 (the "Convertible Subordinated Notes"). Based on, among other
things, advice of the Company's financial advisor, the Company believed the
success of the 1993 Offering was dependent on MDC's ability to acquire the 54.9%
of the common stock of Richmond Homes, Inc. I (the "Richmond Common Stock") that
it did not own. Richmond Homes, Inc. I and its subsidiaries (collectively,
"Richmond Homes") conduct the Company's Colorado home building operations. A
portion of the net proceeds of the 1993 Offering was used to acquire 19.9% of
the Richmond Common Stock from an unaffiliated liquidating trust.
1
In connection with an agreement entered into as part of the 1993 Offering
and in furtherance of the Company's desire to own all of the outstanding
Richmond Common Stock, in December 1993, a special committee of the Board of
Directors of the Company (the "Special Committee") negotiated on behalf of the
Company terms of an option agreement with Larry A. Mizel (Chairman of the Board
and Chief Executive Officer of the Company) and David D. Mandarich (Executive
Vice President - Real Estate, Co-Chief Operating Officer and a director of the
Company) to acquire the shares of Richmond Common Stock owned by them (a total
of 35% of the Richmond Common Stock) in exchange for MDC Common Stock with a
value of up to $3,500,000 in the aggregate. For purposes of the exchange, the
shares of MDC Common Stock were valued at $5.75 per share, the closing price of
MDC Common Stock on the date of the option agreement. The Special Committee
engaged a financial advisor to perform a business enterprise valuation of
Richmond Homes. In February 1994, based on the results of the valuation, the
maximum value of $3,500,000 of MDC Common Stock (an aggregate of 608,695 shares)
was issued to Messrs. Mizel and Mandarich in exchange for their shares of
Richmond Homes Common Stock. As of February 2, 1994, MDC owns 100% of the
equity of Richmond Homes.
The Company believes increasing to 100% its ownership of Richmond Homes
(which, among other things, generated 46% of MDC's revenues on a consolidated
basis in 1993) increased MDC's financial flexibility and simplified its
corporate structure.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Notes A and B to the Consolidated Financial Statements for information
regarding the Company's business segments for each of the three years ended
December 31, 1994, 1993 and 1992.
(c) NARRATIVE DESCRIPTION OF BUSINESS
2
HOME BUILDING SEGMENT.
GENERAL. In its home building segment, the Company (i) principally
acquires finished lots and, to a lesser extent, acquires land and develops it
for use in its home building activities; and (ii) designs, constructs and sells
single-family residential homes.
The Company is the seventh largest publicly-traded home builder in the
United States. In addition, the Company is the largest home builder in
Colorado, ranks among the top five home builders in its Mid-Atlantic and
Sacramento, California markets and ranks among the top ten home builders in
Tucson, Arizona.
In its home building segment, the Company's strategy is to create value by
building quality homes at affordable prices. The Company, as the general
contractor, supervises the development and construction of all of its projects
and employs subcontractors for site development and home construction. The
Company primarily builds single-family detached homes generally for the first-
time and move-up buyer. The Company has not built condominiums for over 15
years. Homes are constructed according to basic designs based on customer
preferences in the location in which they are built.
Homes are built and sold by the Company's subsidiaries using the names
"Richmond American Homes" and "Richmond Homes". The base price for homes sold
by the Company generally ranges from approximately $90,000 to $400,000, although
the Company builds homes in certain of its markets with prices as high as
$700,000. Sales prices averaged $186,800 for the year ended December 31, 1994.
Both the national and regional housing markets are cyclical and are
sensitive to many economic conditions, particularly the strength or weakness of
local economies, changes in interest rates, the number of qualified home
purchasers in the market and the ability of these purchasers to resell their
existing homes.
Other factors affecting the demand for housing include changes in costs
associated with home ownership, such as property taxes and energy costs,
demographic trends and the availability of federally-sponsored and other
mortgage loan financing programs.
HOUSING. MDC builds homes in a number of basic series, each designed to
appeal to a different segment of the home buyer market. Substantially all of
the Company's homes are detached except in its Mid-Atlantic market. In its Mid-
Atlantic market, an area where historically approximately 50% of all new
construction is attached housing, MDC sells a significant number of townhomes in
addition to detached homes. Additionally, MDC builds a limited number of
attached homes in Colorado.
3
Within each basic series of homes, MDC builds numerous models, each with
different floor plans, elevations and standard and optional features. The
differences in the sales prices of similar models in any series depend primarily
upon location and product specifications. The series of homes selected to be
offered at a location is based on customer preference and the area's
demographics.
LAND ACQUISITION AND DEVELOPMENT. MDC purchases platted, raw and finished
lots from others. A significant portion of the lots purchased are finished lots
which require minimal additional development prior to the construction of homes.
During 1994, MDC acquired 3,459 finished or substantially finished lots and 821
unfinished lots for development. In making land purchases, MDC considers a
number of factors, including population and employment growth patterns,
proximity to developed areas, estimated costs of development, demographic
trends and the availability, on acceptable terms, of financing for the
acquisition and development of land and the construction of homes. MDC acquires
finished building sites and land for development only in areas which will have,
among other things, the availability of building permits and utilities and the
zoning of land is suitable for its intended use.
Currently, MDC purchases a portion of the land it will require in future
periods utilizing "rolling" options. Generally, in a rolling option contract,
the Company is able to obtain the right to purchase lots in consideration for an
option deposit. In the event the Company elects not to purchase the required
number of lots within a specified period of time (generally, 10 to 20 lots per
calendar quarter), the option agreement limits the Company's loss to the option
deposit. This limits the Company's risk while preserving its liquidity. At
December 31, 1994, the Company had $6,833,000 in option deposits which enabled
it to control a total of 8,196 lots.
The land not optioned is financed primarily with bank lines of credit,
internally-generated funds and, to a lesser extent, promissory notes and project
loans.
MDC owns various developed and undeveloped parcels of real estate in
certain of its markets. MDC intends to develop most of its undeveloped lots
into finished lots. Substantially all of MDC's land is "cured" (i.e., building
permits and utilities are available and zoning is suitable for its current
intended use). These developed lots will then be used in its home building
activities or will be sold to others. A number of the undeveloped lots also
may be sold to others in their present state.
The table below shows the number of home sites owned and under option in
each of the Company's home building markets (including undeveloped land based on
the number of acres multiplied by the number of home sites permitted per acre
4
according to allowable zoning and the Company's current development plans).
DECEMBER 31,
----------------------------------
1994 1993 1992
------ ------ ------
Home sites owned
Colorado . . . . . . . . . . . . . . 11,299 13,111 14,037
Mid-Atlantic. . . . . . . . . . . . 675 771 1,057
California. . . . . . . . . . . . . 886 835 546
Arizona . . . . . . . . . . . . . . 1,400 1,330 1,359
Nevada. . . . . . . . . . . . . . . 248 206 97
------ ------ ------
Total. . . . . . . . . . . . . .. 14,508 16,253 17,096
------ ------ ------
------ ------ ------
Home sites under option
Colorado . . . . . . . . . . . . . . 4,250 4,921 1,924
Mid-Atlantic . . . . . . . . . . . . 3,092 2,480 1,038
California . . . . . . . . . . . . . 110 325 172
Arizona. . . . . . . . . . . . . . . 744 499 243
Nevada . . . . . . . . . . . . . . . -- 135 --
------ ------ ------
Total. . . . . . . . . . . . . . . 8,196 8,360 3,377
------ ------ ------
------ ------ ------
The Company owns a number of lots which are currently inactive,
substantially all of which are unfinished. The table below shows the number of
inactive lots included in the table above owned by MDC at December 31, 1994,
segregated by the period such properties were acquired.
DIVISION 1992 1991 PRE-1991 TOTAL
-------- ------ ------ -------- ------
Colorado. . . . . . 266 74 9,304 9,644
California. . . . . -- -- 195 195
Arizona . . . . . . -- -- 293 293
------ ----- ------- ------
Totals. . . . . . 266 74 9,792 10,132
------ ----- ------- ------
------ ----- ------- ------
RAW MATERIALS. Generally, all of the raw materials and most of the
components used in MDC's business readily are available in the United States,
and most are standard items carried by major suppliers. Shortages in lumber
supplies due to increased home building activity throughout the nation and to
logging limits imposed by environmental protection laws (i) have increased
significantly the cost of lumber, which has resulted, and could result in the
future, in reduced profits from home sales; and (ii) has led, and could lead in
the future, to delays in the delivery of homes under construction. The Company
generally takes orders only for homes that already are under construction or for
which the Company can contract for materials and labor at a fixed price during
the anticipated construction period. This allows the Company to minimize the
risks associated with increases in material and labor costs between the time a
home is under construction and the time it is closed and delivered. Although
the Company did not experience any significant shortages in the availability of
other raw materials or labor in 1994, the Company could experience shortages and
delays in the future which
5
could result in delays in the delivery of homes under construction.
SEASONAL NATURE OF BUSINESS. MDC's business is seasonal to the extent that
its Colorado and Mid-Atlantic operations encounter weather-related slowdowns
during the winter months, and its California operations are affected by heavy
seasonal rains. Delays in development and construction activities resulting
from these adverse weather conditions increase the Company's risk of cost
increases in, among other things, materials and labor for the Company's projects
in the affected areas. During each of the three years ended December 31, 1994,
approximately 33% of the total homes sold and approximately 20% of the total
homes closed by the Company occurred in the first three months of the year.
WORKING CAPITAL ITEMS. The Company maintains varying levels of inventories
of unimproved land and land held for development or sale, finished home sites
and unsold homes in each of the locations in which it operates. Unsold homes in
various stages of completion aid the Company in meeting the immediate and near-
term demands of its home buyers. In addition, MDC attempts to maintain a supply
of finished home sites sufficient to enable MDC to start homes as soon as
practical once a contract for sale is executed. This tends to minimize the
Company's risk with respect to, among other things, cost increases in labor and
materials.
A portion of MDC's finished home sites are developed by the Company. MDC
develops its land in small parcels (generally less than 100 lots at a time per
given product per subdivision) to limit the Company's risk with regard to a
particular project and to maximize the efficient use of available liquidity.
The Company has entered into option contracts to purchase both finished home
sites and, to a lesser extent, unimproved land to assist in assuring that there
will be an adequate supply of home sites to meet foreseeable future demand and
to better use its available liquidity.
BACKLOG. As of December 31, 1994, MDC's units sold under a contract but
not yet delivered ("Backlog") was 1,334 homes with a sales value of
$241,900,000. MDC expects approximately 70% of its December 31, 1994 Backlog to
settle under existing sales contracts during the first six months of 1995.
Based on its past experience, the Company expects that the remaining 30% of the
homes in Backlog will not close due to cancellations.
MARKETING AND SALES. MDC's homes are sold under various commission
arrangements by its own sales personnel, independent sales agents and through
the realtor community by cooperative broker sales and referrals. In marketing
homes, MDC uses, among other things, on-site model homes, advertisements in
local newspapers, billboards and other signage, magazines and illustrated
brochures. All of MDC's homes are sold with a ten-year limited warranty
provided by independent entities.
6
COMPETITION. The real estate industry is fragmented and highly
competitive. In each of its markets, MDC competes with numerous home builders
(a number of which build nationwide), subdivision developers and land
development companies. Home builders not only compete for customers, but also
for, among other things, desirable financing, land, raw materials and skilled
labor. In its markets, MDC competes with home builders that are substantially
larger and have greater financial resources than the Company. Competition is
based, among other factors, upon price, style, financing provided to prospective
purchasers, location of property, quality of homes built, warranty service and
general reputation in the community.
REGULATION. The Company is subject to continuing compliance requirements
mandated by applicable federal, state and local statutes, ordinances, rules and
regulations, including, among others, zoning and land use ordinances, building,
plumbing and electrical codes, contractors' licensing laws and health and safety
regulations and laws (including, but not limited to, those of the Occupational
Safety and Health Administration). Various localities in which the Company
operates have imposed (or may impose in the future) fees on developers to fund,
among other things, schools, road improvements and low and moderate income
housing.
From time to time, various municipalities in which the Company operates
restrict or place moratoriums on the availability of utilities, including water
and sewer taps. Additionally, certain jurisdictions in which the Company
operates have proposed or enacted growth initiatives which will restrict the
number of building permits available in any given year. Although no assurance
can be given as to future conditions or future governmental action, in general,
MDC believes that it has, or under existing agreements and regulations
ultimately can obtain, an adequate number of water and sewer taps and building
permits for its land inventory and land held for development.
The home building operations of the Company also are affected by
environmental considerations pertaining to, among other things, availability of
water, municipal sewage treatment capacity, land use, hazardous waste disposal,
naturally occurring radioactive materials, building materials, population
density and preservation of the natural terrain and vegetation (collectively,
"Environmental Laws"). The particular Environmental Laws which apply to any
given home building project vary greatly according to the site's location, the
site's environmental conditions and the present and former uses of the site.
These Environmental Laws may result in delays, may cause the Company to incur
substantial compliance and other costs and may prohibit or severely restrict
home building activity in certain environmentally-sensitive regions or areas.
7
MORTGAGE LENDING SEGMENT.
GENERAL. HomeAmerican is a full-service mortgage lender originating
mortgage loans for MDC's home buyers and for others on a "spot" basis through
offices located in each of MDC's markets (except Southern California and
Nevada). As HomeAmerican is the principal originator of mortgage loans for
MDC's home buyers, it is an integral part of MDC's home building operations.
MDC sells its homes to customers who generally finance their purchases through
Federal Housing Administration ("FHA")-insured mortgage loans, Veterans
Administration ("VA")-guaranteed mortgage loans and conventional mortgage loans.
HomeAmerican is a FHA, VA, Federal National Mortgage Association ("FNMA")
and Federal Home Loan Mortgage Corporation ("FHLMC") authorized mortgage loan
originator. HomeAmerican is also an authorized loan servicer for FNMA, FHLMC
and the Government National Mortgage Association ("GNMA") and, as such, is
subject to the rules and regulations of such organizations. HomeAmerican also
purchases loans originated by unaffiliated loan correspondents; the origination
fees for these loans are retained by the correspondents. By purchasing these
loans, HomeAmerican acquires the related servicing rights.
Substantially all of the mortgage loans originated or purchased by
HomeAmerican are sold to private investors within 45 days of origination or
purchase. HomeAmerican uses its secured warehouse line of credit (which is
collateralized by the mortgage loans it originates or purchases), other
collateralized borrowings and internally-generated funds to finance these
mortgage loans until they are sold.
Mortgage loan origination volume is dependent on factors such as the
economy and interest rates. Lower interest rates allows additional first-time
home buyers to enter the market and existing home owners to "move up" to larger
new homes.
PORTFOLIO OF MORTGAGE LOAN SERVICING. HomeAmerican has sold, and intends
to sell in the future, mortgage loan servicing. Servicing involves the
collection of principal, interest, taxes and insurance premiums from the
borrower and the remittance of such funds to the mortgage loan investor, local
taxing authorities and insurance companies, for which the servicer is paid a
fee. HomeAmerican initially retains the servicing rights related to the
mortgage loans it and its correspondents originate. Some of the mortgage loan
servicing is sold "servicing released" (included with the sale of the
corresponding mortgage loans). The servicing on mortgage loans not sold
"servicing released" generally is sold in bulk at a later date.
As a mortgage loan servicer, HomeAmerican generally is required to advance
to the owner of the mortgage, mortgage payments on loans that are delinquent or
in foreclosure. To the extent that these and other advances by HomeAmerican are
not
8
collected or reimbursed by the mortgage loan insurer or guarantor, HomeAmerican
incurs losses, which in the past have not been material.
HomeAmerican's portfolio of mortgage loan servicing at December 31, 1994
consisted of 5,161 single-family loans, 4,774 of which are less than two years
old. These loans are secured by mortgages on properties in eight states across
the country, with interest rates ranging from approximately 4.75% to 11.38% and
averaging 7.7%.
PIPELINE. HomeAmerican's mortgage loans in process which had not closed
("Pipeline") at December 31, 1994 had aggregate principal balances of
$115,058,000. Approximately 75% of the Pipeline at December 31, 1994 is
anticipated to close during the first three months of 1995. If mortgage
interest rates fall, a smaller percentage of these loans will close.
FORWARD SALES COMMITMENTS. HomeAmerican's operations are affected by,
among other things, changes in mortgage interest rates. HomeAmerican utilizes
forward mortgage securities contracts to manage the interest rate risk on its
fixed-rate mortgage loans owned and rate-locked mortgage loans in the Pipeline.
Such contracts are the only significant financial derivative instrument utilized
by HomeAmerican.
COMPETITION. The mortgage industry is fragmented and highly competitive.
In each of the areas in which it originates loans, HomeAmerican competes with
numerous banks, thrifts and other mortgage bankers, many of which are larger and
have greater financial resources than HomeAmerican. Competition is based, among
other factors, on pricing, loan terms and underwriting criteria.
ASSET MANAGEMENT SEGMENT.
GENERAL. In its asset management segment, FAMC advises, for a fee pursuant
to management agreements, Asset Investors Corporation ("Asset Investors") and
Commercial Assets, Inc. ("Commercial Assets") on various facets of each
company's business and manages their day-to-day operations. MDC also owns other
residential mortgage-related assets acquired prior to 1989. The Company
currently does not anticipate acquiring additional mortgage-related investments
in the future. As a result, future income from the asset management segment
substantially will be dependent on management fees.
MANAGEMENT OF ASSET INVESTORS. FAMC advises Asset Investors on various
facets of Asset Investors' business. Asset Investors generates income from: (i)
unrated subordinated bond classes in residential mortgage securitizations
collateralized by pools of non-conforming (non-agency guaranteed) single-family
mortgage loans; (ii) its ownership of shares of Commercial Assets; and
9
(iii) its residual interests in residential mortgage loan and mortgage
certificate securitizations.
FAMC has a management agreement (the "Asset Investors Management
Agreement") with Asset Investors through 1995. The current Asset Investors
Management Agreement (which has been renewed for one year each year since Asset
Investors' inception in 1986) may be terminated by FAMC or by Asset Investors
with or without cause at any time upon 60 days' written notice. FAMC, pursuant
to the Asset Investors Management Agreement, receives compensation for CMO
administration and other management services. FAMC also is entitled to receive
an incentive fee which is based primarily on the level of Asset Investors' cash
distributions to its shareowners.
MANAGEMENT OF COMMERCIAL ASSETS. In August 1993, Asset Investors formed
Commercial Assets to acquire and manage subordinated credit support bond
interests in commercial mortgage loan securitizations. In October 1993, Asset
Investors distributed approximately 70% of the shares of Commercial Assets to
its shareowners as a dividend. Commercial Assets began its operations on October
12, 1993.
FAMC has a management agreement (the "Commercial Assets Management
Agreement") with Commercial Assets through 1995. Pursuant to the Commercial
Assets Management Agreement, FAMC receives (i) compensation which is based on
the level of Commercial Assets' income, as determined under applicable
provisions of the Internal Revenue Code of 1986, as amended ; (ii) acquisition
fees; (iii) administration fees; and (iv) fees for other management services.
The Commercial Assets Management Agreement may be terminated by FAMC or by
Commercial Assets with or without cause at any time upon 60 days' written
notice.
LIMITED-PURPOSE SUBSIDIARIES AND EQUITY CMO INTERESTS. In the past, the
Company utilized limited-purpose subsidiaries to facilitate the financing of
mortgage loans through the issuance of mortgage-backed bonds. Under the
provisions of applicable trust indentures, the bonds are collateralized fully by
mortgage loans and mortgage-backed securities (collectively, "Mortgage
Collateral") and certain funds held by trustees. These bonds represent
obligations solely of the limited-purpose subsidiaries and are not guaranteed by
the Company.
The Company also owns 49.999% ownership interests in seven trusts which
previously issued collateralized mortgage obligations ("CMOs") (hereinafter,
these seven interests are referred to as "Equity CMO Interests"). The Equity
CMO Interests entitle MDC to receive its proportionate share of the excess cash
flow from these seven interests which results from the difference between (i)
the principal and interest received from the mortgage loans or mortgage
certificates which serve as collateral for the
10
CMOs ; and (ii) the principal and interest paid to the CMO bond holders plus
related expenses.
The operations of the limited-purpose subsidiaries and the Equity CMO
Interests are not anticipated to have a material effect on the results of
operations, liquidity or financial position of the Company in the future.
EMPLOYEES.
At December 31, 1994, MDC employed 1,124 persons. MDC considers its
employee relations to be satisfactory.
ITEM 3. LEGAL PROCEEDINGS
SETTLEMENT OF WESTERN SAVINGS CIVIL MATTERS.
In December 1994, the Company and the Resolution Trust Corporation (the
"RTC"), acting in its corporate capacity as receiver for Western Savings and
Loan Association ("Western"), executed a final settlement agreement providing
for the mutual release of all potential claims between the parties and certain
related persons insofar as such claims relate to any of the Company's past
transactions with Western.
Under the terms of the settlement, MDC paid to the RTC $3,912,000, which
MDC reserved (and set aside the cash) for as of December 31, 1992 when an
agreement in principle for the settlement was executed by the parties. MDC
believes that consummation of the settlement agreement will not result in any
material adverse effect on the Company's operations or financial position. The
settlement remains subject to the entry of a court order determining that the
settlement precludes the filing of cross-claims against MDC by various third
parties, a condition which can be waived or extended by the Company.
EXPANSIVE SOILS CASES.
On October 21, 1994, a complaint was served on several of the Company's
subsidiaries in an action initiated by six homeowners in Highlands Ranch,
Colorado. On January 26, 1995, counsel for the Company accepted service of two
additional complaints by a homeowner in the Stonegate subdivision in Douglas
County, Colorado and by a homeowner in the Rock Creek development located in
Boulder County, Colorado. The complaints, each of which seek certification of a
class action, purport to allege substantially identical claims relating to the
construction of homes on lots with expansive soils, including negligence, breach
of express and implied warranties, violation of the Colorado Consumer Protection
Act, non-disclosure and a claim for exemplary damages. The homeowners in each
complaint seek, individually and on behalf of the alleged class, recovery in
unspecified amounts including actual damages, statutory damages, exemplary
damages
11
and treble damages. The Company has not as yet been required to file a response
to any of the complaints or to any discovery in these cases. While the ultimate
outcome of these matters is uncertain, management does not believe that the
outcome of these matters will have a material adverse effect on the financial
condition or results of operations of the Company.
The Company has notified its insurance carriers of these complaints and
currently is reviewing with the carriers how the Company will proceed. The
insurance carriers providing primary coverage have (i) agreed to defend the
Company in the Highlands Ranch case subject to reservations of rights; and
(ii) not responded, as yet, to the request to defend the Company with respect to
the matters alleged in the two other complaints.
OTHER.
The Company and certain of its subsidiaries and affiliates have been named
as defendants in various other claims, complaints and legal actions arising in
the normal course of business. In the opinion of management, the outcome of
these matters will not have a material adverse effect upon the financial
condition or results of operations of the Company.
The Company is not aware of any litigation, matter or pending claim against
the Company which would result in material contingent liabilities related to
environmental hazards or asbestos.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No meetings of the Company's shareowners were held during the fourth
quarter of 1994.
ITEM 5. MARKET PRICE OF COMMON STOCK AND RELATED SECURITY HOLDER MATTERS.
The shares of MDC Common Stock are traded on the New York and the Pacific
Stock Exchanges. The following table sets forth, for the quarterly periods
indicated, the high and low sale prices of the shares of MDC Common Stock as
reported on the Composite Tape.
1993 HIGH LOW
----- -----
First quarter. . . . . . $5.50 $3.75
Second quarter . . . . . 6.25 4.38
Third quarter. . . . . . 7.00 5.38
Fourth quarter . . . . . 6.88 5.38
1994 HIGH LOW
----- -----
First quarter. . . . . . $7.88 $5.38
Second quarter . . . . . 6.00 5.00
Third quarter. . . . . . 6.63 5.00
Fourth quarter . . . . . 5.38 4.50
12
The Company has declared dividends of two cents per share for each quarter
in the year ended December 31, 1994. Prior to 1994, no dividends had been
declared on the MDC Common Stock since 1988.
In connection with the declaration and payment of dividends, as well as the
purchase, redemption or other acquisition of shares of MDC Common Stock, the
Company is required to comply with certain covenants contained in the Senior
Notes indenture (the "Senior Notes Indenture"). The Senior Notes Indenture
allows the Company to pay dividends on its Common Stock in an amount, on a
cumulative basis, not to exceed 50% of its Consolidated Net Income, as defined,
after December 31, 1993, subject to certain other adjustments such as the value
of MDC Common Stock issued after such date. Pursuant to the Senior Notes
Indenture, the Company had approximately $12,000,000 available for the payment
of dividends at December 31, 1994.
On March 6, 1995, MDC had approximately 1,900 shareowners of record.
ITEM 6. SELECTED FINANCIAL AND OTHER DATA.
The data in this table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the notes thereto presented
elsewhere herein (dollars in thousands, except per share amounts).
SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ----------
INCOME STATEMENT DATA:
Revenues . . . . . . . . . . . . . . . . . . $ 824,869 $ 652,076 $ 511,568 $ 422,232 $ 508,372
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Operating profit (loss)
Home building. . . . . . . . . . . . . . . $ 44,464 $ 22,496 $ 17,561 $ (434) $ 10,116
Mortgage lending . . . . . . . . . . . . . 6,951 7,508 9,230 2,695 2,325
Asset management . . . . . . . . . . . . . 2,796 8,996 8,700 12,860 8,594
Net corporate expenses(1). . . . . . . . . (23,229) (23,968) (28,971) (29,240) (33,600)
--------- --------- --------- --------- ---------
Income (loss) from continuing
operations before income taxes
and minority interest . . . . . . . . . . $ 30,982 $ 15,032 $ 6,520 $ (14,119) $ (12,565)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income (loss) from continuing
operations . . . . . . . . . . . . . . . . $ 19,255 $ 10,056 $ 4,765 $ (12,903) $ (11,954)
Net income (2) . . . . . . . . . . . . . . . 19,255 25,879 3,852 1,906 6,845
Per common share (primary)
Income (loss) from continuing
operations . . . . . . . . . . . . . . . .94 .45 .22 (.62) (.63)
Net income . . . . . . . . . . . . . . . . .94 1.16 .18 .09 .36
Weighted-average shares
outstanding (primary). . . . . . . . . . . 20,406 22,340 21,850 20,985 19,065
Per common share (fully-diluted)
Income (loss) from continuing
operations . . . . . . . . . . . . . . . $ .87 $ .45 $ .22 $ (.62) $ (.63)
Net income . . . . . . . . . . . . . . . . .87 1.16 .18 .09 .36
Weighted-average shares
outstanding (fully-diluted). . . . . . . . 24,021 22,340 21,850 20,985 19,065
Dividends per share. . . . . . . . . . . . . $ .06 $ -- $ -- $ -- $ --
13
DECEMBER 31,
-------------------------------------------------------------------------
BALANCE SHEET DATA: 1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
ASSETS:
Housing completed or under
construction . . . . . . . . . . . . . . $ 280,319 $ 201,023 $ 132,752 $ 105,736 $ 105,971
Land and land under development. . . . . . 183,838 192,881 206,583 234,610 269,774
Mortgage Collateral, net, and
related assets . . . . . . . . . . . . . 64,574 134,166 275,467 731,332 844,953
Total assets . . . . . . . . . . . . . 725,445 776,866 858,944 1,316,793 1,477,146
DEBT:
Home Building:
Lines of credit. . . . . . . . . . . . . 62,332 24,645 28,688 36,694 59,461
Notes payable. . . . . . . . . . . . . . 33,585 59,641 57,732 59,403 64,891
Restructured Notes Payable(3). . . . . . -- 2,854 131,681 133,149 129,970
Senior Notes(3). . . . . . . . . . . . . . 187,352 187,199 -- -- --
Subordinated notes(3). . . . . . . . . . . 38,217 38,213 62,958 62,695 83,225
Total debt(4). . . . . . . . . . . . . 348,280 345,676 325,835 350,776 411,291
STOCKHOLDERS' EQUITY . . . . . . . . . . . . 192,295 175,854 164,182 160,488 157,261
RATIO OF DEBT TO STOCKHOLDERS'
EQUITY(4). . . . . . . . . . . . . . . . . 1.81 1.97 1.98 2.19 2.62
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
OPERATING DATA: 1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
HOME BUILDING:
Revenues
Home sales . . . . . . . . . . . . . . . $ 784,453 $ 587,887 $ 417,190 $ 316,229 $ 377,644
Land sales . . . . . . . . . . . . . . . 8,296 7,441 5,800 2,584 18,441
Homes sales, net (units) . . . . . . . . . 4,177 3,875 2,703 1,933 1,601
Homes closed (units) . . . . . . . . . . . 4,200 3,344 2,414 1,782 2,031
Backlog
Units(5) . . . . . . . . . . . . . . . . 1,334 1,357 826 537 386
Sales value(5) . . . . . . . . . . . . . $ 241,900 $ 250,530 $ 142,800 $ 97,400 $ 69,800
Average selling price per
housing unit . . . . . . . . . . . . . . $ 186.8 $ 175.8 $ 172.8 $ 177.5 $ 185.9
Home gross margins . . . . . . . . . . . . 15.4% 14.2% 14.9% 15.6% 18.8%
Inventory valuation reserves . . . . . . . $ 4,000 $ -- $ -- $ 11,000 $ 12,000
MORTGAGE LENDING:
Total Revenues . . . . . . . . . . . . . . 15,850 19,725 19,344 10,343 9,639
Gains on sales of mortgage
servicing. . . . . . . . . . . . . . . 6,770 4,235 8,359 2,004 1,888
ASSET MANAGEMENT:
Total Revenues . . . . . . . . . . . . . . 13,869 33,162 66,597 89,526 96,901
Gains on sales of Mortgage Collateral. . 295 7,505 8,169 -- --
Management fees and other. . . . . . . . 5,509 5,073 3,399 9,334 5,299
Equity in earnings (losses) of
Equity CMO Interests, net. . . . . . . . -- (3,100) (4,166) 5,856 6,374
CORPORATE GENERAL AND
ADMINISTRATIVE EXPENSES. . . . . . . . . . 15,132 14,890 18,108 19,121 23,193
_______________
<FN>
(1) Net corporate expenses represent, among other items: (i) net gains and
losses on investments and marketable securities; (ii) interest and dividend
income; (iii) corporate general and administrative expense; and
(iv) corporate and home building interest expense.
(2) Includes the effects of extraordinary after-tax gains on the early
extinguishment of debt resulting principally from: (i) the retirement and
repurchase of debt from use of a portion of the Net Proceeds (as
hereinafter defined) of the 1993 Offering, which increased net income by
$15,823,000 in
14
1993; (ii) the repurchase by the Company of $21,850,000 and $53,235,000,
respectively, principal amount of the Company's senior subordinated and
subordinated notes in 1991 and 1990; (iii) the early extinguishment of
certain mortgage-backed bonds in 1992; and (iv) certain other debt
extinguishments in 1992, 1991 and 1990. Also includes in 1992 the
cumulative effect, to January 1, 1992, of the adoption of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes."
(3) In December 1993, the Company completed the 1993 Offering. All of the
Company's notes which had been restructured in 1989 from senior
subordinated and subordinated notes (the "Restructured Notes Payable") were
retired for $100,701,000, with a portion of the Net Proceeds from the 1993
Offering. A portion of the Net Proceeds also was used in 1993 to redeem
$51,816,000 principal amount of the Company's 11 1/4% senior subordinated
notes at par.
(4) The Company's mortgage-backed bond indebtedness and related liabilities are
not included since they are non-recourse except to the Mortgage Collateral
and related assets. See Note E to the Company's Consolidated Financial
Statements presented elsewhere herein.
(5) At end of period.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Beginning in early 1992, demand for homes and the availability of capital
for the construction of homes increased in the areas where the Company has
operations as the economies of these areas improved and mortgage interest rates
declined, reaching a 25-year low in October 1993. During this period, the
Company, among other things, purchased and used "rolling options" to control
additional home sites in both new and existing developments to expand its home
building operations. Home sales and closings have increased in each of the
three years since 1991 due, in part, to these expanded operations, improved
economies and generally lower mortgage interest rates.
Since October 1993, interest rates have generally increased from a 25-year
low of 6.7% on a 30-year, fixed-rate mortgage to as high as 9.25% through
February 1995. While current mortgage interest rates are still low compared
with historical rates for the past 25 years, the general increase in mortgage
interest rates, particularly since April 1994 when rates moved above 8%, has
affected adversely the Company's home building and mortgage lending segments.
15
The increases in mortgage interest rates have affected adversely and may
continue to affect adversely in the future (i) sales of new homes and the level
of Home Gross Margins (as hereinafter defined); and (ii) the Company's mortgage
lending operations by substantially decreasing mortgage loan origination
activity.
The Company is unable to predict the extent to which current or future
increases in mortgage interest rates will affect adversely the Company's
operating activities and results of operations.
CONSOLIDATED RESULTS.
1994 COMPARED WITH 1993. MDC's revenues increased 27% for 1994 compared
with 1993 primarily as a result of a 26% increase in home closings and an
$11,000 increase in the average selling price per housing unit. MDC's 1994
revenues of $824,869,000 represented the second highest level of revenues in the
Company's history and the highest revenue total since 1988.
The Company's income before income taxes and extraordinary gains increased
for 1994 compared with 1993 due principally to (i) increased home building
segment operating profits from significantly higher home closings, primarily
resulting from the opening of new subdivisions in each of the Company's markets,
and higher Home Gross Margins; and (ii) lower corporate and home building
interest expense.
These positive income effects partially were offset by lower operating
profit from the asset management segment primarily resulting from lower mortgage
interest rates in 1993 that enabled the Company to sell certain of its
mortgage-related assets at a profit in 1993.
During 1993, the Company recognized net extraordinary gains of $15,823,000,
net of income taxes of $9,967,000, substantially all of which resulted from the
early extinguishment of the Restructured Notes Payable with a portion of the Net
Proceeds received in the 1993 Offering. No extraordinary gains or losses were
recognized by the Company in 1994.
1993 COMPARED WITH 1992. MDC's revenues increased during 1993 compared
with 1992 primarily as a result of a 39% increase in home closings and a higher
average selling price per housing unit. This increase partially was offset by a
reduction in revenues of the asset management segment. From January 1, 1992
through December 31, 1993, prepayments on, and sales of, Mortgage Collateral
reduced, by $597,166,000 (from $731,332,000 to $134,166,000), the amount of the
Company's Mortgage Collateral and related assets, the asset management segment's
principal interest earning assets.
16
The Company's income before income taxes, extraordinary gain (loss) and the
cumulative effect of an accounting change increased in 1993 compared with 1992
due principally to (i) increased home building segment operating profits from
significantly higher home closings; (ii) lower corporate general and
administrative expenses; and (iii) lower corporate and home building interest
expense. These positive income effects partially were offset by lower mortgage
lending operating profit resulting primarily from management's decision to sell
less mortgage loan servicing in 1993 compared with 1992.
The redemption of mortgage-backed bonds in 1992 in connection with the
sales of portions of the Mortgage Collateral resulted in extraordinary losses on
the early extinguishment of debt of $2,851,000, net of income tax benefits of
$1,469,000. These extraordinary losses partially were offset by extraordinary
gains resulting from the early payoff of certain notes payable at a discount
from their carrying value.
The adoption of SFAS No. 109, "Accounting for Income Taxes," increased net
income for 1992 by $1,700,000, or $.08 per share, for the cumulative effect, as
of January 1, 1992, of the accounting change.
17
HOME BUILDING SEGMENT.
The table below sets forth certain information with respect to the
Company's home building segment during each of the periods presented and at the
end of such periods (dollars in thousands).
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
--------- --------- --------
Home sales revenues. . . . . . . . . . . $ 784,453 $ 587,887 $ 417,190
Operating profit . . . . . . . . . . . . 44,464 22,496 17,561
Average selling price per housing
unit . . . . . . . . . . . . . . . . . 186.8 175.8 172.8
Home Gross Margins . . . . . . . . . . . 15.4% 14.2% 14.9%
Homes (units)
Sales contracted, net
Colorado . . . . . . . . . . . . . . 1,837 1,895 1,432
Mid-Atlantic . . . . . . . . . . . . 1,048 1,132 656
California . . . . . . . . . . . . . 567 381 234
Arizona. . . . . . . . . . . . . . . 614 338 210
Nevada . . . . . . . . . . . . . . . 111 129 171
--------- --------- ---------
Total. . . . . . . . . . . . . . . 4,177 3,875 2,703
--------- --------- ---------
--------- --------- ---------
Closed and delivered
Colorado . . . . . . . . . . . . . . 1,887 1,708 1,221
Mid-Atlantic . . . . . . . . . . . . 1,136 904 589
California . . . . . . . . . . . . . 564 331 284
Arizona. . . . . . . . . . . . . . . 504 239 193
Nevada . . . . . . . . . . . . . . . 109 162 127
--------- --------- ---------
Total. . . . . . . . . . . . . . . 4,200 3,344 2,414
--------- --------- ---------
--------- --------- ---------
DECEMBER 31
-----------------------------------
1994 1993 1992
--------- --------- ---------
Backlog
Units
Colorado . . . . . . . . . . . . . . 610 660 473
Mid-Atlantic . . . . . . . . . . . . 337 425 197
California . . . . . . . . . . . . . 101 98 48
Arizona. . . . . . . . . . . . . . . 257 147 48
Nevada . . . . . . . . . . . . . . . 29 27 60
--------- --------- ---------
Total. . . . . . . . . . . . . . . 1,334 1,357 826
--------- --------- ---------
--------- --------- ---------
Sales value . . . . . . . . . . . . . $241,900 $250,530 $142,800
--------- --------- ---------
--------- --------- ---------
HOME BUILDING ACTIVITIES 1994 COMPARED WITH 1993.
HOME SALES REVENUES AND HOMES CLOSED AND DELIVERED. Home sales revenues
for 1994 were the highest in the Company's history, representing an increase of
33% over home sales revenues for 1993. This increase primarily was the result
of increases in home closings in (i) Colorado, due to strong market conditions
in the first half of 1994; (ii) Arizona, due to a significant
18
expansion of the Company's operations, and continued strong demand for homes, in
the Tucson and Phoenix markets; (iii) California, due to the Company's
acquisition and opening of several new subdivisions in this market, particularly
in Southern California; and (iv) the Company's Mid-Atlantic market, due to
improved market conditions in the first quarter of 1994 and an increase in the
number of active subdivisions in this market. The Company also realized an
$11,000 increase in the average selling price per housing unit.
The Company increased the number of active subdivisions throughout its
markets from 95 at December 31, 1993 to 135 at December 31, 1994. The majority
of the increases in active subdivisions occurred in (i) the Mid-Atlantic market
(a net increase of 18); (ii) California (a net increase of seven); and
(iii) Arizona (a net increase of ten).
AVERAGE SELLING PRICE PER HOUSING UNIT. The increase in the average
selling price per housing unit in 1994 compared with 1993 primarily was due to
increases in average selling prices in all of the Company's markets except
Phoenix and Northern California. The increases in selling prices principally
were due to (i) the mix of homes closed; (ii) general price increases in most of
the Company's markets to, among other things, offset increases in costs; and
(iii) in certain markets, improved market conditions. These increases partially
were offset by lower average selling prices in (i) Northern California primarily
due to the introduction of more affordable homes during the latter part of 1993
in response to continuing consumer demand for lower-priced housing and softness
in consumer demand for new homes; and (ii) Phoenix primarily due to the opening
of new subdivisions which targeted the first-time and first-time move-up buyer.
HOME GROSS MARGINS. Gross margins (home sales revenues less cost of goods
sold, which primarily includes land and construction costs, capitalized
interest, a reserve for warranty expense and financing costs) as a percent of
home sales revenue ("Home Gross Margins") increased during 1994 compared with
1993. The Company achieved higher Home Gross Margins in 1994 compared with 1993
in its Colorado, Southern California and Arizona markets primarily due to
improved market conditions. Home Gross Margins also were higher in the
Company's Mid-Atlantic market in 1994 compared with 1993 due to improved market
conditions through the first quarter of 1994 combined with home closings from a
more profitable mix of subdivisions in 1994 compared with 1993. The increases
partially were offset by lower Home Gross Margins in Northern California as the
Company's profitability in this area continues to be affected adversely by
softness in consumer demand for new homes. To a substantially lesser extent,
Home Gross Margins also were impacted negatively by builder competition in
Nevada.
19
Increases in, among other things, the costs of subcontracted labor,
finished lots and building materials have affected adversely, and may affect
adversely in the future, Home Gross Margins to the extent that market conditions
prevent the recovery of increased costs through higher sales prices. In
addition, increased home building activities in several of the Company's
markets, particularly Colorado, the Mid-Atlantic region and Arizona, have caused
shortages of subcontracted labor that have increased the period of time required
for completing construction and delivery of homes. Longer delivery periods
increase interest costs capitalized during the construction period, which have
affected adversely, and may affect adversely in the future, Home Gross Margins.
HOME SALES AND BACKLOG. Home sales for 1994 reached their highest level
since 1988. "Sales contracted, net" increased 8% during 1994 compared with
1993. Backlog at December 31, 1994 was approximately the same as at
December 31, 1993. MDC expects approximately 70% of its December 31, 1994
Backlog to close under existing sales contracts during the first six months of
1995. The Backlog at December 31, 1994 included 248 homes that had not been
started.
Sales increased in the year ended December 31, 1994 compared with 1993 in
(i) Arizona (an increase of 82%) due to improved market conditions and an
expansion of the Company's operations in the Phoenix and Tucson markets; and
(ii) California (an increase of 49%) due to an expansion of the Company's
operations in Northern California and the Company's re-entry into the Southern
California market which began in the second half of 1993 and continued through
1994.
Sales for 1994 in Colorado declined 3% compared with 1993 sales. While
sales in Colorado increased by 24% in the first quarter of 1994 compared with
the first quarter of 1993, sales declined in each of the three remaining
quarters of 1994 compared with the same periods in 1993 as, among other things,
new competitors entered the market and mortgage rates increased which affected
adversely the demand for new homes.
Sales for 1994 in the Mid-Atlantic market declined 7% compared with 1993
sales. Sales increased by 11% in the first quarter of 1994 compared with the
same period in 1993 but declined in each of the three remaining quarters of 1994
compared with the same periods in 1993 due to an overall slowing in this market
which began in the second quarter of 1994. The overall Mid-Atlantic market
declined by approximately 10% in 1994 compared with 1993.
While total sales for 1994 increased compared with 1993, sales for the
fourth quarter of 1994 decreased by 13% to 714 homes from 822 homes for the same
period in 1993 as the Company, in general, experienced lower sales per active
subdivision in
20
each of its markets in the fourth quarter of 1994 compared with the same period
in the prior year.
In addition, sales for the first two months of 1995 decreased by 18% to 762
homes from 930 homes for the same period in 1994 (which reflected the strong
sales experienced during the first quarter of 1994 prior to the significant
increase in mortgage interest rates). During the first two months of 1993, the
Company sold 725 homes. The Company is unable to predict if these trends will
continue in the future.
INVENTORY VALUATION RESERVES. Operating results during the fourth quarter
of 1994 were impacted adversely by $4,000,000 in net realizable value
adjustments related to, among other factors, several projects in Northern
California which experienced significant slowing in sales and reduced selling
prices during the fourth quarter due to softness in consumer demand which led to
a general decline in home sales activity in this market.
MARKETING. Marketing expenses (which include, among other things,
amortization of deferred marketing, model home expenses and sales commissions)
totalled $44,588,000 for 1994 compared with $34,820,000 for 1993. This 28%
increase during 1994 principally was due to the 33% increase in home sales
revenue and expanded operations in all of the Company's major regions.
Significant additional marketing-related salary, sales commission and model home
operation expenses were incurred to support the Company's expanded operations.
Marketing expenses as a percentage of home sales revenues, however, decreased to
5.7% in 1994, compared with 5.9% in 1993.
GENERAL AND ADMINISTRATIVE. General and administrative expenses totalled
$29,215,000 during 1994 compared with $27,497,000 in 1993. General and
administrative expenses during 1993 were affected adversely by non-recurring
charges totalling approximately $2,500,000. While general and administrative
expenses have increased in the aggregate primarily due to salary expense for the
additional personnel needed for the Company's expanded operations, general and
administrative expenses as a percentage of home sales revenues decreased to 3.7%
for 1994 compared with 4.7% in 1993 because the Company was able to deliver more
homes without a proportionate increase in overhead.
HOME BUILDING ACTIVITIES 1993 COMPARED WITH 1992.
HOME SALES REVENUES AND HOMES CLOSED AND DELIVERED. Home sales revenues
increased 41% for 1993 compared with 1992 primarily as a result of
(i) significant increases in home closings in all of the Company's markets,
particularly in Colorado and the Mid-Atlantic region; and (ii) a $3,000 increase
in the average selling price per housing unit.
21
AVERAGE SELLING PRICE PER HOUSING UNIT. The increase in the average
selling price per housing unit for 1993 compared with 1992 primarily was due to
(i) increases in average selling prices in the Mid-Atlantic region due
principally to the mix of homes closed; and (ii) price increases in most of the
Company's markets to, among other things, offset increases in costs. These
increases partially were offset by lower average selling prices in Northern
California due to the design and sale of more affordable homes in response to
consumer demand for lower-priced housing.
HOME GROSS MARGINS. Overall, Home Gross Margins declined slightly during
1993 compared with 1992. The Company achieved higher Home Gross Margins in
(i) Colorado due to the improved market conditions; and (ii) Arizona due to
improved market conditions and a reduction in lot costs as the Company
substantially completed in 1992 the sale of homes built on certain higher-priced
lots acquired prior to 1990. These increases largely were offset by lower Home
Gross Margins in Northern California as a result of (i) closings from homes
built on higher-priced lots purchased during the peak of the market in 1990; and
(ii) the inability to recover increased housing costs through increases in home
sales prices due to greater builder competition and a softening in the Northern
California market.
MARKETING. Marketing expenses totalled $34,820,000 for 1993 compared with
$26,203,000 for 1992. The 33% increase in 1993 was due to the 39% increase in
home closings and expanded operations in many of the regions in which the
Company operates. As a result of the increased operations, additional
marketing-related salary, commission and model home operating expenses were
incurred.
GENERAL AND ADMINISTRATIVE. General and administrative expenses of the
home building segment totalled $27,497,000 for 1993 compared with $18,529,000
for 1992. This 48% increase in 1993 was due to, among other things,
(i) increased salary expense; and (ii) increased office and other expenses, both
in response to increased operations. Additionally, property taxes increased in
1993 as market conditions improved, particularly in Colorado. General and
administrative expenses in 1993 were affected adversely by $2,500,000 of
expenses incurred primarily in Northern California because of (i) operational
problems in certain subdivisions; and (ii) costs incurred by the Company with
respect to certain potential project acquisitions which were not consummated by
the Company in view of continuing weak conditions in the Northern California
market.
HOME SALES AND BACKLOG. "Sales contracted, net" increased 43% during 1993
compared with 1992. Backlog at December 31, 1993 increased 64% from
December 31, 1992. These increases principally were due to significant
increases in sales in (i) Colorado (an increase of 32%) due to continued
improvement in
22
this home building market as well as expanded operations; and (ii) the
Mid-Atlantic region (an increase of 73%) due to expansion of the Company's
operations in order to meet increased demand for homes in this market.
UNSOLD HOMES UNDER CONSTRUCTION.
The Company maintains levels of unsold homes in various stages of
completion to assist it in meeting the immediate and near-term demands of its
home buyers. The Company monitors and adjusts its levels of unsold homes under
construction based on, among other factors, its evaluation of market conditions
and in anticipation of seasonal sales patterns and weather.
The Company in the past has offered, and may in the future offer,
incentives to assist in selling certain of its unsold homes under construction.
These incentives include offering prospective home buyers options and upgrades
at a discount, buying down mortgage interest rates and, to a substantially
lesser extent, price concessions. The cost of these incentives is included in
the determination of the Company's Home Gross Margins.
As with all inventories, interest and other carrying costs incurred with
respect to the Company's unsold homes under construction are capitalized during
periods of active construction and expensed following their completion. In view
of the Company's recent sales trends, the period of time required to sell and
close the Company's unsold homes under construction, in some cases, may be
extended. The Company's operating income will be affected adversely by any
additional interest and other carrying costs incurred (most of which will be
expensed) with respect to these unsold homes during this extended period.
The Company is unable to predict the extent to which its Home Gross Margins
and operating income in 1995 will be affected adversely by the incentives
offered and the additional interest and carrying costs incurred with respect to
the Company's unsold homes under construction.
LAND SALES.
Revenue from land sales totalled $8,296,000, $7,441,000 and $5,800,000,
respectively, for the years 1994, 1993 and 1992. The land sales primarily were
in Colorado and, to a lesser extent, in California. Gross profits (losses) from
these land sales were $319,000, $(423,000) and $(26,000), respectively, for the
years 1994, 1993 and 1992.
LAND INVENTORY.
The table below shows the carrying value of MDC's land and land under
development in each of its home building markets at
23
December 31, 1994, segregated by the years in which the property was acquired or
optioned (in thousands).
DIVISION 1994 1993 1992 1991 PRE-1991 TOTAL
-------- -------- -------- -------- -------- -------- --------
Colorado. . . . . $ 3,601 $ 5,038 $ 2,318 $ 7,904 $ 71,758 $ 90,619
Mid-Atlantic. . . 7,181 7,171 183 -- 14,541 29,076
California. . . . 17,762 9,023 358 54 4,909 32,106
Arizona . . . . . 16,560 3,324 277 -- 5,110 25,271
Nevada. . . . . . 1,591 5,175 -- -- -- 6,766
-------- -------- -------- -------- -------- --------
Totals . . . . $ 46,695 $ 29,731 $ 3,136 $ 7,958 $ 96,318 $183,838
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
The Company's net income and cash flow continue to be affected adversely by
the carrying costs (e.g., interest and property taxes) associated with inactive
land inventories. These inactive land inventories comprised approximately 27%
of the carrying value of the Company's total land and land under development at
December 31, 1994 compared with approximately 50% of the $192,881,000 carrying
value at December 31, 1993. The decrease in inactive land inventory in 1994 was
due to the commencement of development and construction activity in certain
subdivisions during 1994 as well as sales of inactive land. Carrying costs on
inactive land inventories are expensed, not capitalized.
The table below shows the total carrying value of the amounts of inactive
land inventories included in the table above owned by MDC in each of its home
building markets at December 31, 1994, segregated by the years in which the
property was acquired (in thousands).
DIVISION 1992 1991 PRE-1991 TOTAL
-------- ------- ------- -------- --------
Colorado $ 1,868 $ 2,164 $ 42,611 $ 46,643
California -- -- 1,493 1,493
Arizona -- -- 1,810 1,810
------- ------- -------- --------
Totals $ 1,868 $ 2,164 $ 45,914 $ 49,946
------- ------- -------- --------
------- ------- -------- --------
The Company is actively pursuing opportunities to reduce, through sales or
home building activities, its inactive land inventories.
MORTGAGE LENDING SEGMENT.
The table below summarizes the results of HomeAmerican's operations during
each of the periods presented (in thousands).
YEAR ENDED DECEMBER 31,
------------------------------------------------
1994 1993 1992
-------- -------- --------
Gains from sales of mortgage
servicing
Bulk . . . . . . . . . . . . . . . . . . $ 5,785 $ 3,422 $ 7,063
Other. . . . . . . . . . . . . . . . . . 985 813 1,296
Net interest income. . . . . . . . . . . . . 2,703 3,138 3,267
24
Origination fees . . . . . . . . . . . . . . 4,671 6,171 4,195
Gains (losses) on sales of mortgage loans. . (585) 2,864 267
Mortgage servicing and other . . . . . . . . 2,097 1,686 1,523
General and administrative expenses. . . . . (8,705) (10,586) (8,381)
-------- -------- --------
Operating profit . . . . . . . . . . . . . . $ 6,951 $ 7,508 $ 9,230
-------- -------- --------
-------- -------- --------
Principal amount of origination
and purchases:
MDC home buyers. . . . . . . . . . . . . $323,079 $308,230 $192,352
Spot . . . . . . . . . . . . . . . . . . 69,037 248,757 182,026
Correspondent. . . . . . . . . . . . . . 64,365 150,341 193,372
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . $456,481 $707,328 $567,750
-------- -------- --------
-------- -------- --------
The table below sets forth certain information regarding HomeAmerican's
portfolio of mortgage loans serviced (in thousands).
YEAR ENDED DECEMBER 31,
------------------------------------------------
1994 1993 1992
-------- -------- --------
Beginning Servicing Portfolio. . . . . . . $ 653,331 $ 437,220 $ 592,402
Servicing retained on loans
originated . . . . . . . . . . . . . . . 392,116 556,987 374,378
Purchases from correspondents. . . . . . . 64,365 150,341 193,372
Bulk servicing sales . . . . . . . . . . . (427,340) (287,669) (579,270)
Loan sales "servicing released". . . . . . (80,884) (77,846) (115,243)
Loan principal reductions and other. . . . (32,525) (125,702) (28,419)
--------- --------- ---------
Ending Servicing Portfolio. . . . . . . . $ 569,063 $ 653,331 $ 437,220
--------- --------- ---------
--------- --------- ---------
DECEMBER 31,
------------------------------------------------
1994 1993 1992
--------- -------- --------
Composition of Servicing Portfolio:
FHA insured/VA guaranteed. . . . . . . . $203,991 $373,716 $189,483
Conventional . . . . . . . . . . . . . . 365,072 279,615 247,737
-------- -------- --------
Total Servicing Portfolio. . . . . . . . . $569,063 $653,331 $437,220
-------- -------- --------
-------- -------- --------
Salable Portion of Servicing Portfolio . . $506,098 $574,088 $212,742
-------- -------- --------
-------- -------- --------
1994 COMPARED WITH 1993. HomeAmerican's loan originations and purchases
decreased by 35% in 1994 compared with 1993 primarily due to increased mortgage
interest rates which resulted in lower mortgage loan originations market wide.
The decrease partially was offset by a 5% increase in the dollar amount of
originations for MDC's home buyers principally due to increased closings by
MDC's home building segment. HomeAmerican originated mortgages for 52% of MDC's
home buyers in 1994 compared with 63%
25
in 1993. The decline in the percentage of mortgages originated for MDC's home
buyers was the result of, among other things, increased competition for mortgage
loan originations and increases in closings in Southern California where
HomeAmerican does not have an origination facility.
HomeAmerican's operating profit of $6,951,000 during 1994 was lower than
the operating profit of $7,508,000 for 1993 principally due to (i) losses from
sales of mortgage loans totalling $585,000 in 1994 (when mortgage rates were
increasing) compared with gains totalling $2,864,000 in 1993 (when mortgage
rates were decreasing), partially offset by higher gains from bulk sales of
mortgage servicing in 1994. While loan origination fees were lower in 1994
compared with 1993, this reduction was offset by a decrease in general and
administrative expenses as HomeAmerican was able to reduce its general and
administrative costs in response to the decline in its mortgage lending
operations.
At December 31, 1994, servicing on approximately $506,098,000 of conforming
mortgage loans (i.e., loans that meet the criteria for the guarantee programs of
GNMA, FNMA or FHLMC) was available for sale, which represents a 12% decrease
from the servicing on $574,088,000 of conforming mortgage loans available for
sale at December 31, 1993.
1993 COMPARED WITH 1992. HomeAmerican's loan originations and purchases
increased 25% in 1993 compared with 1992 to the highest level of mortgage loan
production in HomeAmerican's history. Substantially all of the increase in
originations was due to (i) increased spot originations for others to refinance
mortgage loans in response to record low mortgage interest rates; and (ii) to a
lesser extent, increases in home closings by MDC's home building segment and an
increase from 58% to 63% in the percentage of originations by HomeAmerican for
MDC's home buyers.
HomeAmerican's operating profit for 1993 was lower than operating profit
for 1992 principally due to (i) management's decision to reduce the amount of
bulk sales of servicing; and (ii) an increase in general and administrative
expenses resulting from increased staff levels needed to process the increased
loan originations, partially offset by significantly increased gains on sales of
mortgage loans and an increase in loan origination fees.
ASSET MANAGEMENT SEGMENT.
OVERVIEW. Since 1986, the Company's asset management segment has been a
significant part of the Company's business. From 1992 through early 1994,
mortgage interest rates fell significantly, encouraging millions of homeowners
to refinance their mortgages by paying them off with the proceeds of new lower
interest rate mortgages. This resulted in a significant decrease
26
in the Company's mortgage-related assets (and a significant reduction in
corresponding revenue). As a result of the reduction in rates, the Company also
was able to liquidate, generally at a profit, other portions of its
mortgage-related assets. As a consequence, future income from the asset
management segment primarily will be dependent on management fees earned by
FAMC, from two publicly-traded REITs.
At December 31, 1994, FAMC had approximately $190 million in assets under
management for the REITs.
27
The table below summarizes the results of the asset management segment
operations during each of the periods presented (in thousands).
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
------- ------- -------
FAMC Management fees from the REITs. . . . $ 2,780 $ 2,180 $ 2,566
Equity in losses of Equity CMO
Interests, net of valuation
adjustments. . . . . . . . . . . . . . . -- (3,100) (4,166)
Gains on sales of Mortgage Collateral. . . 295 7,505 8,169
Interest income from CMO Bond. . . . . . . -- 1,490 1,036
Other, net . . . . . . . . . . . . . . . . (279) 921 1,095
------- ------- -------
Operating profit . . . . . . . . . . . . . $2,796 $ 8,996 $ 8,700
------- ------- -------
------- ------- -------
Extraordinary loss related to gains
on sales of Mortgage Collateral, net
of income tax benefit. . . . . . . . . . $ -- $ -- $(2,851)
------- ------- -------
------- ------- -------
The decrease in the Company's asset management segment operating profit for
1994 compared with 1993 and 1992 is due principally to gains on sales of
Mortgage Collateral in 1993 and 1992 as the lower interest rates in those years
enabled the Company to sell portions of its Mortgage Collateral at a profit.
This profit was partially offset by valuation adjustments related to the
Company's Equity CMO Interests recorded in 1993 and 1992 which were not required
in 1994. Also in 1993 and 1992, the Company earned $1,490,000 and $1,036,000,
respectively, in interest on the CMO Bond (as hereinafter defined). The CMO
Bond was fully paid at December 31, 1993.
EQUITY CMO INTERESTS. During 1993 and 1992, MDC recorded $3,100,000 and
$4,166,000, respectively, in valuation adjustments for its Equity CMO Interests
because of permanent declines in the value of the undiscounted projected cash
flow from the Equity CMO Interests. These declines resulted from higher actual
and projected Mortgage Collateral prepayments caused by low interest rates.
During 1994, higher mortgage interest rates slowed both the actual and
anticipated future prepayment speeds and, accordingly, no additional valuation
adjustments were necessary.
SALES OF MORTGAGE COLLATERAL AND RELATED ASSETS. In 1994, MDC completed
various sales of mortgage-related assets which resulted in pre-tax gains
totalling $295,000. In January 1993, MDC completed a sale of mortgage-related
assets which resulted in a pre-tax gain totalling $5,011,000. In addition, MDC
completed various other sales of mortgage-related assets which resulted in net
gains totalling $2,494,000 in 1993.
In 1992, MDC sold, at a premium, Mortgage Collateral which resulted in
pre-tax gains totalling $8,169,000. The proceeds from certain of these sales
were utilized to redeem in full the related outstanding mortgage-backed bonds,
the redemption of
28
which resulted in an aggregate extraordinary loss on the early extinguishment of
debt of $2,851,000, net of an income tax benefit of $1,469,000.
INVESTMENT IN A CMO BOND. On July 31, 1992, MDC purchased a $7,823,000
principal amount mortgage-backed bond (the "CMO Bond") for $7,367,000. For the
years 1993 and 1992, the CMO Bond earned interest totalling $1,490,000 and
$1,036,000, respectively. The principal amount of the CMO Bond was fully paid
at December 31, 1993.
OTHER OPERATING RESULTS.
INTEREST EXPENSE. Corporate and home building interest incurred increased
by 40% to $35,799,000 for 1994 compared with $25,505,000 and $24,802,000,
respectively, for the years 1993 and 1992 due to (i) higher average effective
interest rates associated with the 11 1/8% Senior Notes due 2003 (in part due to
the repayment, in December 1993 and January 1994, of $132,496,000 of
Restructured Notes Payable for approximately $100,701,000) compared with the
debt outstanding for the years 1993 and 1992; (ii) higher average effective
interest rates with respect to the Company's variable-rate bank lines of credit
and project loans due to an increase in the prime rate in 1994; and (iii) higher
levels of borrowings resulting from the Company's expanded home building
operations.
The portion of this corporate and home building interest which was
capitalized (the Company capitalizes interest on its home building inventories
during the period of active development and through the completion of
construction) during 1994 totalled $26,345,000 compared with $14,051,000 and
$11,443,000, respectively, during 1993 and 1992. The increase in interest
capitalized for 1994 primarily was due to (i) increased levels of active home
building inventories resulting from expanded operations; and (ii) higher
capitalization rates resulting from higher average effective interest rates on
the Company's debt, particularly with respect to Colorado.
Corporate and home building interest incurred not capitalized is reflected
as interest expense and totalled $9,454,000 for 1994 compared with $11,454,000
and $13,359,000, respectively, for 1993 and 1992.
For a reconciliation of interest incurred, capitalized and expensed, see
Note I to the Company's Consolidated Financial Statements.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES. Corporate general and
administrative expenses totalled $15,132,000 for 1994 compared with $14,890,000
and $18,108,000, respectively, for 1993 and 1992. The 18% decrease in 1993
compared with 1992 primarily was due to a reduction in insurance and legal
expenses, partially
29
offset by an increase in salary expense and financing costs associated with the
Company's expanded operations in 1993.
INCOME TAXES. M.D.C. Holdings, Inc. and its wholly owned subsidiaries
file a consolidated federal income tax return (an "MDC Consolidated Return").
Richmond Homes and its wholly owned subsidiaries filed a separate consolidated
federal income tax return (each a "Richmond Homes Consolidated Return") from
its inception (December 28, 1989) through February 2, 1994, the date Richmond
Homes became a wholly owned subsidiary of MDC.
MDC's overall effective income tax rates of 38%, 37% and 16%, respectively,
for 1994, 1993, and 1992, differed from the federal statutory rate of 35% in
1994 and 1993 and 34% in 1992. These differences primarily were due to, among
other things, (i) the impact of state income taxes; (ii) the realization of
non-taxable income for financial reporting purposes for which no tax liability
was recorded; (iii) in 1994 and 1992, adjustments of prior years' income taxes;
and (iv) in 1992, the reduction in the deferred tax asset valuation allowance.
At December 31, 1994, the Company had a net deferred tax asset of
$11,944,000, net of a valuation allowance of $3,000,000. Given present economic
trends, particularly in the home building industry, as evidenced by recent
improvements in the Company's results of operations, management believes the net
deferred tax asset to be recoverable from future earnings. The valuation
allowance has been provided to offset the related deferred income tax assets due
to the uncertainty of realizing the benefit of certain future tax deductions.
See Note J to the Company's Consolidated Financial Statements.
The Internal Revenue Service (the "IRS") has completed its examination of
the MDC Consolidated Returns for the years 1986 through 1990 and the Richmond
Homes Consolidated Returns for the years 1989 and 1990 and has proposed certain
adjustments to the taxable income reflected in such returns. In general, the
proposed adjustments would shift the recognition of certain items of income and
expense from one year to another ("Timing Adjustments"). To the extent taxable
income in a prior year is increased by proposed Timing Adjustments, taxable
income may be reduced by a corresponding amount in other years; however, the
Company would incur an interest charge as a result of such adjustment. The
Company currently is protesting many of these proposed adjustments through the
IRS appeals process and believes the amount of these adjustments will be reduced
as a result. In the opinion of management, adequate provision has been made for
the additional income taxes and interest which may arise as a result of the
proposed adjustments.
30
In December 1994, the Company and the IRS appeals officer resolved, subject
to approval of the Congressional Joint Committee on Taxation (the "Joint
Committee"), all outstanding issues with respect to the IRS examination of the
1984 and 1985 MDC Consolidated Returns. In connection with this resolution, the
Company paid the IRS $8,000,000 for the additional taxes and interest due for
1984 and 1985, as computed by the IRS. Adequate provision for these additional
taxes and interest had been made by the Company in prior years. As of March 15,
1995, approval of the Joint Committee had not been received.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL.
MDC uses its capital resources to, among other things, (i) support its
operations, including its inventories of homes, home sites and land;
(ii) provide working capital; and (iii) provide mortgage loans for its home
buyers. Capital resources are generated internally from operations and from
external sources.
In December 1993, the Company completed the 1993 Offering of $190,000,000
principal amount of Senior Notes and $28,000,000 principal amount of Convertible
Subordinated Notes. This 1993 Offering significantly improved the Company's
capital structure and financial condition. The 1993 Offering resulted in net
proceeds, after expenses, of $204,013,000 (the "Net Proceeds"). The Net
Proceeds were used to (i) repurchase, for $100,701,000, the Company's
Restructured Notes Payable with a carrying value on the Company's books of
$132,496,000 at the date of retirement; (ii) redeem, at par ($51,816,000), all
of the Company's then outstanding 11 1/4% senior subordinated notes due
May 1996; (iii) purchase, for $31,211,000, certain assets (including outstanding
shares of MDC Common Stock, investments in metropolitan district bonds and
certain ownership interests in Richmond Homes) from an unaffiliated liquidating
trust; and (iv) pay down existing debt of $14,100,000. The balance of the Net
Proceeds ($6,185,000) was used for general corporate purposes. No principal
payments are required on the Senior Notes or Convertible Subordinated Notes
until 2003 and 2005, respectively.
These repayments and repurchases of debt from the Net Proceeds enabled the
Company to achieve greater operating and financial flexibility by postponing to
2003 significant principal payments which would have otherwise been due in 1994,
1995 and 1996. As a result, the Company has no substantial principal payments
on its publicly-held notes until 2003 except for a $10,230,000 payment due in
1998 to repay in full the Company's subordinated fixed-rate notes.
31
The Company has expanded its bank lines of credit to, among other things,
reduce the levels of its secured project financing, the cost of which is
generally higher than the cost of bank lines of credit.
Based upon its current financial condition and credit relationships, MDC
believes that it has, or can obtain, adequate financial resources to satisfy its
current and near-term capital requirements. The Company believes that it can
meet its long- term capital needs (including, among other things, meeting future
debt payments and refinancing or paying off other long-term debt as it becomes
due) from operations and external financing sources.
LINES OF CREDIT AND NOTES PAYABLE.
HOME BUILDING. MDC's home building bank lines of credit at December 31,
1994 aggregated $153,000,000 compared with $65,000,000 at December 31, 1993.
Agreements governing $140,000,000 of these lines of credit were entered into
during 1994, with terms that provide for final maturities from four to five
years, including scheduled term-out periods (although the term-out periods may
commence earlier under certain circumstances). Borrowings under the bank lines
of credit are collateralized by home building inventories and are limited to the
value of "eligible collateral" (as defined in the credit agreements). At
December 31, 1994, $62,332,000 was borrowed and an additional $64,258,000 was
collateralized and available to be borrowed under the bank lines of credit.
A bank has advised the Company that it will expand an existing $13,000,000
line of credit with an amended $28,000,000 credit facility. The Company
believes that it will be successful in amending this credit facility; however,
there can be no assurance that this credit facility will be amended or, if
amended, at what levels or terms.
MORTGAGE LENDING. To provide funds to originate and purchase mortgage
loans and to finance these mortgage loans on a short-term basis, HomeAmerican
utilizes its mortgage lending bank line of credit (the "Mortgage Line"). These
mortgage loans are pooled into GNMA, FNMA and FHLMC pools or retained as whole
loans and subsequently are sold in the open market on a "spot" basis or pursuant
to mortgage loan sale commitments. During 1994, 1993 and 1992, HomeAmerican
sold $480,485,000, $695,635,000 and $564,800,000, respectively, principal amount
of mortgage loans and mortgage certificates to unaffiliated purchasers.
The aggregate amount available under the Mortgage Line at December 31, 1994
was $51,000,000. This was reduced from $75,000,000 in 1994 at the Company's
request because of a significant reduction in the number of loans originated and
purchased by HomeAmerican. Borrowings under the Mortgage Line
32
are collateralized by mortgage loans and mortgage-backed certificates and are
limited to the value of "eligible collateral" (as defined in the credit
agreement). At December 31, 1994, $23,211,000 was borrowed and an additional
$5,929,000 was collateralized and available to be borrowed under the Mortgage
Line. The Company also has additional borrowing capability with available
repurchase agreements.
GENERAL. The Company's lines of credit and notes payable require
compliance with certain covenants, representations and warranties. Currently,
the Company believes that it is in compliance with these covenants,
representations and warranties.
In the event that MDC's lines of credit are not renewed as they become due
or are renewed at substantially lower levels, the Company believes that it could
meet its financing requirements through a combination of internally-generated
funds and new borrowings.
CONSOLIDATED CASH FLOW.
In 1994, MDC used cash of $19,439,000 compared with cash generated in 1993
and 1992 of $1,975,000 and $12,395,000, respectively. At December 31, 1994, the
Company had $43,564,000 available in cash and cash equivalents.
MDC's $19,439,000 use of cash in 1994 primarily resulted from the Company's
net use of cash in Operating Activities of $36,790,000, partially offset by net
cash generated in Investing Activities of $16,395,000 from the redemption by
payment-in-full on certain metropolitan district bonds owned by the Company.
$76,991,000 of cash was used in Operating Activities to increase MDC's home
building inventories primarily as a result of expanded home building operations.
A portion of this cash required to increase home building inventories was
provided by (i) a $24,076,000 reduction in mortgage loans in inventory; and
(ii) $29,545,000 in net income generated before non-cash expenses such as
depreciation, amortization and valuation adjustments. Cash also was used in
Operating Activities in connection with increases in receivables and reductions
in accounts payable and accrued expenses.
For 1993, MDC's net cash used in Operating Activities of $34,237,000 was
offset by cash generated from (i) Investing Activities of $26,517,000 with
respect to distributions of capital from Equity CMO Interests, cash received
from redemption of marketable securities and principal payments received from
the CMO Bond; and (ii) the 1993 Offering discussed above. Net Cash used in
Operating Activities in 1993 principally resulted from increases in home
building inventories and mortgage loans held in inventory.
33
For 1992, cash generated by MDC of $12,395,000 principally was due to net
cash generated in Operating Activities of $16,361,000 resulting from net income
generated and an increase in accounts payable and accrued expenses, partially
offset by increases in receivables and home building inventories.
As the Company's home building activities have expanded in 1993 and 1994,
the Company has used cash in Operating Activities primarily to expand its level
of home building inventories to meet the increased demand for new homes. To the
extent the Company may continue to expand the home building segment in the
future, and such expansion is not funded by net income, cash flows from
Operating Activities could continue to be negative. The Company generally funds
these negative cash flows through increased borrowings under bank lines of
credit.
Net cash provided by Investing Activities is primarily generated by
principal payments and prepayments on, and sales of, Mortgage Collateral
(collectively, "Mortgage Collateral Reductions") and a reduction in restricted
cash. Mortgage Collateral Reductions were substantial during 1992 through 1994.
During this period, Mortgage Collateral and mortgage-related assets declined
from $731,332,000 to $64,574,000 substantially as a result of (i) the high rate
of prepayments on the Mortgage Collateral; and (ii) sales of Mortgage Collateral
and mortgage-related assets at a premium to carrying value. Most of the cash
generated by the Mortgage Collateral Reductions and changes in restricted cash
was required to be used in Financing Activities to make principal payments on
the mortgage-backed bonds collateralized by the Mortgage Collateral and,
accordingly, had a relatively minor net cash impact. The Company anticipates
that its Mortgage Collateral and related mortgage-backed bonds will continue to
decrease.
CHANGES IN HOME BUILDING ASSETS.
Housing completed or under construction increased to $280,319,000 at
December 31, 1994 compared with $201,023,000 and $132,752,000 at December 31,
1993 and 1992, respectively, principally due to an increase in Backlog and
unsold homes under construction during 1994 and 1993.
Land and land under development totalled $183,838,000 at December 31, 1994
compared with $192,881,000 and $206,583,000 at December 31, 1993 and 1992,
respectively. The net decline in land over these periods is due principally to
(i) increased housing construction activity; and (ii) the increased use of
"rolling" options, with periodic takedowns of lots, to acquire new land
inventories.
The Company's total home building inventories at December 31, 1994 include
$42,478,000 of interest capitalized in the current and prior periods,
representing 9% of the inventory
34
balance on such date. Interest capitalized in home building inventories at
December 31, 1993 and 1992 was $42,681,000 and $48,440,000, respectively,
representing 11% and 14%, respectively, of the inventory balances on such dates.
Based upon its current business plan, MDC anticipates the acquisition of
various parcels of finished lots and partially- developed land for use in its
future home building operations during 1995. The Company currently intends to
acquire a portion of the land inventories required in future periods through
takedowns of lots subject to "rolling" options entered into in prior periods and
under new "rolling" options. The use of "rolling" options lessens the Company's
land-related risk and improves liquidity.
IMPACT OF INFLATION, CHANGING PRICES AND ECONOMIC CONDITIONS
Real estate and residential housing prices are affected by inflation, which
can cause increases in the price of land, raw materials and subcontracted labor.
Unless costs are recovered through higher sales prices, Home Gross Margins can
decrease. If interest rates increase, construction and financing costs, as well
as the cost of borrowings, also increase, which can result in lower Home Gross
Margins. Increases in home mortgage interest rates make it more difficult for
MDC's customers to qualify for home mortgage loans, potentially decreasing home
sales volume. Increases in interest rates also may affect adversely the volume
of mortgage loan originations.
The volatility of interest rates could have an adverse effect on MDC's
future operations and liquidity. Among other things, these conditions may
(i) affect adversely the demand for housing and the availability of mortgage
financing; and (ii) reduce the credit facilities offered to MDC by banks,
investment bankers and mortgage bankers.
MDC's business also is affected significantly by, among other things,
general economic conditions and particularly the demand for new homes in the
areas in which it builds.
PROPOSED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
In November 1993, the Financial Accounting Standards Board issued a
Proposed Statement of Financial Accounting Standards titled "Accounting for the
Impairment of Long-Lived Assets" (the "Proposed Statement"). The Company
understands the standards in the Proposed Statement have been modified such that
the expected standards in the final statement, which is scheduled to be issued
in the near future, will not have a material impact on the results of operations
and financial position of the Company in the year of adoption.
35
ITEM 8. FINANCIAL STATEMENTS
M.D.C. HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
Consolidated Financial Statements:
Report of Independent Accountants . . . . . . . . . . . . . . . . . F- 2
Consolidated Balance Sheets as of December 31, 1994 and December 31, 1993 F- 3
Consolidated Statements of Income for the Three Years
Ended December 31, 1994. . . . . . . . . . . . . . . . . . . . . . F- 5
Consolidated Statements of Stockholders' Equity for the Three Years
Ended December 31, 1994. . . . . . . . . . . . . . . . . . . . . . F- 6
Consolidated Statements of Cash Flows for the Three Years Ended
December 31, 1994. . . . . . . . . . . . . . . . . . . . . . . . . F- 7
Notes to Consolidated Financial Statements. . . . . . . . . . . . . F-10
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREOWNERS OF
M.D.C. HOLDINGS, INC.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of M.D.C.
Holdings, Inc. and its subsidiaries at December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note J to the financial statements, the Company changed its
method of accounting for income taxes in 1992.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Los Angeles, California
February 15, 1995
F-2
M.D.C. HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
---------------------
ASSETS 1994 1993
-------- --------
Corporate
Cash and cash equivalents. . . . . . . . . . . $ 31,210 $ 42,443
Property and equipment, net. . . . . . . . . . 9,962 10,432
Deferred income taxes. . . . . . . . . . . . . 11,944 8,100
Deferred issue costs, net. . . . . . . . . . . 10,621 11,233
Other assets, net. . . . . . . . . . . . . . . 3,270 3,965
-------- --------
67,007 76,173
-------- --------
Home Building
Cash and cash equivalents. . . . . . . . . . . 10,162 18,479
Home sales and other accounts receivable . . . 12,508 5,423
Investments and marketable securities, net . . 6,089 --
Investment in metropolitan district bonds. . . -- 13,795
Inventories, net
Housing completed or under construction. . . 280,319 201,023
Land and land under development. . . . . . . 183,838 192,881
Prepaid expenses and other assets, net . . . . 43,975 48,863
-------- --------
536,891 480,464
-------- --------
Mortgage Lending
Cash and cash equivalents. . . . . . . . . . . 1,607 1,505
Restricted cash. . . . . . . . . . . . . . . . 2,650 3,400
Accrued interest and other assets, net . . . . 1,447 2,571
Mortgage loans held in inventory, net. . . . . 44,368 68,065
-------- --------
50,072 75,541
-------- --------
Asset Management
Cash and cash equivalents. . . . . . . . . . . 585 576
Mortgage Collateral, net, and assets
related to mortgage-backed bonds and
related liabilities. . . . . . . . . . . . . 64,574 134,166
Other loans and assets, net. . . . . . . . . . 6,316 9,946
-------- --------
71,475 144,688
-------- --------
Total Assets. . . . . . . . . . . . . . . $725,445 $776,866
-------- --------
-------- --------
See notes to consolidated financial statements.
F-3
M.D.C. HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
-----------------------
LIABILITIES 1994 1993
-------- --------
Corporate
Accounts payable and accrued expenses. . . . . $ 34,311 $ 20,846
Income taxes payable . . . . . . . . . . . . 11,166 28,711
Notes payable. . . . . . . . . . . . . . . . . 3,583 3,624
Senior Notes, net. . . . . . . . . . . . . . . 187,352 187,199
Subordinated notes, net. . . . . . . . . . . . 38,217 38,213
-------- --------
274,629 278,593
-------- --------
Home Building
Accounts payable and accrued expenses. . . . . 75,399 70,741
Lines of credit. . . . . . . . . . . . . . . . 62,332 24,645
Notes payable. . . . . . . . . . . . . . . . . 33,585 62,495
-------- --------
171,316 157,881
-------- --------
Mortgage Lending
Accounts payable and accrued expenses. . . . . 2,450 8,487
Line of credit . . . . . . . . . . . . . . . . 23,211 29,500
-------- --------
25,661 37,987
-------- --------
Asset Management
Accounts payable and accrued expenses. . . . . 670 3,051
Mortgage-backed bonds, net, and related
liabilities, recourse solely to limited-
purpose subsidiary assets. . . . . . . . . . 60,874 123,500
-------- --------
61,544 126,551
-------- --------
Total Liabilities . . . . . . . . . . . . 533,150 601,012
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTES J,
L AND N) -- --
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 25,000,000
shares authorized; none issued . . . . . . . -- --
Common Stock, $.01 par value; 100,000,000
shares authorized; 21,187,000 and
20,914,000 shares issued, respectively, at
December 31, 1994 and 1993 . . . . . . . . . 212 209
Additional paid-in capital . . . . . . . . . . 133,934 133,455
Retained earnings. . . . . . . . . . . . . . . 71,502 57,879
-------- --------
205,648 191,543
Less treasury stock, at cost; 2,314,000 and
2,664,000 shares, respectively, at
December 31, 1994 and 1993 . . . . . . . . . (13,353) (15,689)
-------- --------
Total Stockholders' Equity . . . . . . . . 192,295 175,854
-------- --------
Total Liabilities and Stockholders'
Equity . . . . . . . . . . . . . . . . . $725,445 $776,866
-------- --------
-------- --------
See notes to consolidated financial statements.
F-4
M.D.C. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992
---------- ---------- ----------
REVENUES:
Home Building. . . . . . . . . . . . . . . . $ 793,793 $ 596,813 $ 423,131
Mortgage Lending . . . . . . . . . . . . . . 15,850 19,725 19,344
Asset Management . . . . . . . . . . . . . . 13,869 33,162 66,597
Corporate. . . . . . . . . . . . . . . . . . 1,357 2,376 2,496
---------- ---------- ----------
Total Revenues. . . . . . . . . . . . . . 824,869 652,076 511,568
---------- ---------- ----------
COSTS AND EXPENSES:
Home Building. . . . . . . . . . . . . . . . 749,329 574,317 405,570
Mortgage Lending . . . . . . . . . . . . . . 8,899 12,217 10,114
Asset Management . . . . . . . . . . . . . . 11,073 24,166 57,897
Corporate general and administrative . . . . 15,132 14,890 18,108
Corporate and home building interest . . . . 9,454 11,454 13,359
---------- ---------- ----------
Total Expenses. . . . . . . . . . . . . . 793,887 637,044 505,048
---------- ---------- ----------
Income before income taxes, extraordinary
gain (loss) and cumulative effect of
accounting change. . . . . . . . . . . . . . 30,982 15,032 6,520
Provision for income taxes . . . . . . . . . . 11,727 4,976 1,755
---------- ---------- ----------
Income before extraordinary gain (loss)
and cumulative effect of accounting
change . . . . . . . . . . . . . . . . . . . 19,255 10,056 4,765
Extraordinary gain (loss) from early
extinguishment of debt, net of income
taxes (benefit) of: 1993, $9,967; 1992,
($1,346) . . . . . . . . . . . . . . . . . . -- 15,823 (2,613)
Cumulative effect of accounting change . . . . -- -- 1,700
---------- ---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . $ 19,255 $ 25,879 $ 3,852
---------- ---------- ----------
---------- ---------- ----------
EARNINGS PER SHARE
PRIMARY EARNINGS PER SHARE
Income before extraordinary gain (loss)
and cumulative effect of accounting change $ .94 $ .45 $ .22
Extraordinary gain (loss) from early
extinguishment of debt . . . . . . . . . . -- .71 (.12)
Cumulative effect of accounting change . . . -- -- .08
---------- ---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . $ .94 $ 1.16 $ .18
---------- ---------- ----------
---------- ---------- ----------
FULLY-DILUTED EARNINGS PER SHARE
Income before extraordinary gain (loss)
and cumulative effect of accounting change $ .87 $ .45 $ .22
Extraordinary gain (loss) from early
extinguishment of debt . . . . . . . . . . -- .71 (.12)
Cumulative effect of accounting change . . . -- -- .08
---------- ---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . $ .87 $ 1.16 $ .18
---------- ---------- ----------
---------- ---------- ----------
WEIGHTED-AVERAGE SHARES OUTSTANDING
Primary. . . . . . . . . . . . . . . . . . 20,406 22,340 21,850
---------- ---------- ----------
---------- ---------- ----------
Fully-diluted. . . . . . . . . . . . . . . 24,021 22,340 21,850
---------- ---------- ----------
---------- ---------- ----------
DIVIDENDS PER SHARE. . . . . . . . . . . . . . $ .06 $ -- $ --
---------- ---------- ----------
---------- ---------- ----------
See notes to consolidated financial statements.
F-5
M.D.C. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------ ---------- --------- ---------- --------
BALANCES-JANUARY 1, 1992 . . . . . . . . $ 202 $131,860 $ 28,922 $ (496) $160,488
Shares issued. . . . . . . . . . . . . 2 241 -- -- 243
Shares reacquired. . . . . . . . . . . -- -- -- (20) (20)
Net unrealized loss on marketable
securities . . . . . . . . . . . . . -- -- (612) -- (612)
Non-qualified stock options
exercised. . . . . . . . . . . . . . -- 231 -- -- 231
Net income . . . . . . . . . . . . . . -- -- 3,852 -- 3,852
------ --------- -------- --------- --------
BALANCES-DECEMBER 31, 1992 . . . . . . . 204 132,332 32,162 (516) 164,182
Shares issued. . . . . . . . . . . . . 5 430 -- -- 435
Shares reacquired. . . . . . . . . . . -- -- -- (15,173) (15,173)
Net unrealized loss on marketable
securities. . . . . . . . . . . . . -- -- (162) -- (162)
Non-qualified stock options
exercised . . . . . . . . . . . . . -- 693 -- -- 693
Net income . . . . . . . . . . . . . . -- -- 25,879 -- 25,879
------ --------- -------- --------- --------
BALANCES-DECEMBER 31, 1993 . . . . . . . 209 133,455 57,879 (15,689) 175,854
Shares issued. . . . . . . . . . . . . 3 265 (46) 256 478
Shares reacquired. . . . . . . . . . . -- -- -- (1,505) (1,505)
Shares issued to acquire Richmond
Homes common stock . . . . . . . . . -- -- (3,585) 3,585 --
Net unrealized loss on available-
for-sale securities. . . . . . . . . -- -- (860) -- (860)
Non-qualified stock options
exercised. . . . . . . . . . . . . . -- 214 -- -- 214
Dividends declared . . . . . . . . . . -- -- (1,141) -- (1,141)
Net income . . . . . . . . . . . . . . -- -- 19,255 -- 19,255
------ --------- -------- --------- --------
BALANCES-DECEMBER 31, 1994 . . . . . . . $212 $133,934 $71,502 $(13,353) $192,295
------ --------- -------- --------- --------
------ --------- -------- --------- --------
See notes to consolidated financial statements.
F-6
M.D.C. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
-------- -------- --------
OPERATING ACTIVITIES:
Net Income. . . . . . . . . . . . $ 19,255 $ 25,879 $ 3,852
Adjustments To Reconcile Net
Income To Net Cash Provided By
(Used In) Operating Activities:
Extraordinary (gain) loss from
early extinguishment of debt . -- (25,790) 3,959
Gains on sale of mortgage-
related assets, net. . . . . . (295) (7,505) (8,169)
Depreciation and amortization . 10,134 8,038 8,161
Inventory valuation
adjustments. . . . . . . . . . 4,000 -- --
Equity CMO Interest valuation
adjustments. . . . . . . . . . -- 3,100 3,529
Deferred income taxes . . . . . (3,844) (4,151) (20,696)
Net Changes In Assets and
Liabilities:
Receivables. . . . . . . . . . . (5,462) 3,489 2,709
Home building inventories. . . . (76,991) (45,252) 4,516
Mortgage loans held in
inventory . . . . . . . . . . . 24,076 (8,773) (1,839)
Accounts payable and accrued
expenses. . . . . . . . . . . . (8,833) 25,262 26,089
Other, net . . . . . . . . . . . 1,170 (8,534) (5,750)
-------- -------- --------
Net Cash Provided By (Used In)
Operating Activities . . . . . . (36,790) (34,237) 16,361
-------- -------- --------
INVESTING ACTIVITIES:
Mortgage Collateral
Principal payments and
prepayments received . . . . . 29,569 95,209 209,996
Sales . . . . . . . . . . . . . 19,526 47,060 82,528
Distributions of Capital From
Equity CMO Interests . . . . . . 3,213 7,403 13,648
CMO Bond
Purchase. . . . . . . . . . . . -- -- (7,367)
Principal payments received . . -- 7,114 709
Changes In Investments and
Marketable Securities, net . . . (6,377) 12,000 (12,000)
Redemption of (Investment in)
Metropolitan District Bonds. . . 16,395 (8,700) (2,700)
Changes In Restricted Cash . . . . 16,159 13,071 7,847
Other, net . . . . . . . . . . . . 877 (4,076) (1,780)
-------- -------- --------
Net Cash Provided By Investing
Activities . . . . . . . . . . . 79,362 169,081 290,881
-------- -------- --------
(Continued)
See notes to consolidated financial statements.
F-7
M.D.C. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Continued)
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992
---------- ---------- -----------
FINANCING ACTIVITIES:
Mortgage-backed Bonds -
Principal Payments . . . . . . . $ (60,094) $ (139,658) $ (281,326)
Lines of Credit
Advances. . . . . . . . . . . . 641,874 352,410 165,911
Principal payments. . . . . . . (612,449) (365,387) (150,462)
Senior and Subordinated Notes
Net proceeds. . . . . . . . . . -- 204,013 --
Payments. . . . . . . . . . . . -- (54,498) --
Notes Payable
Borrowings. . . . . . . . . . . 15,870 79,329 38,960
Principal payments. . . . . . . (44,835) (192,940) (68,153)
Treasury Stock Purchases. . . . . (1,505) (15,173) --
Dividend Payments . . . . . . . . (1,141) -- --
Other, Net. . . . . . . . . . . . 269 (965) 223
---------- ---------- ----------
Net Cash Used In Financing
Activities. . . . . . . . . . . . (62,011) (132,869) (294,847)
---------- ---------- ----------
Net (Decrease) Increase In Cash
and Cash Equivalents. . . . . . . (19,439) 1,975 12,395
Cash and Cash Equivalents
Beginning of Year. . . . . . . . 63,003 (61,028) 48,633
---------- ---------- ----------
End of Year. . . . . . . . . . . $ 43,564 $ 63,003 $ 61,028
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period
For:
Interest, net of amounts
capitalized . . . . . . . . . . $ 15,313 $ 29,499 $ 66,962
Income taxes . . . . . . . . . . 32,529 8,245 4,186
(Continued)
See notes to consolidated financial statements.
F-8
M.D.C. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Continued)
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1993 1992
--------- --------- ---------
Home building land inventory
purchases financed by seller. . $ 4,164 $ 13,250 $ 8,213
Home building land inventory
sales financed by MDC . . . . . 1,438 2,835 2,392
Disposition of land
inventories collateralized by
notes payable
Inventories. . . . . . . . . . 2,864 -- 590
Notes payable. . . . . . . . . 2,176 -- 500
Accrued interest and other
liabilities . . . . . . . . . 688 -- 130
Sale of mortgage-related
assets, subject to related
liabilities
Mortgage Collateral and
related assets. . . . . . . . -- -- 92,305
Mortgage-backed bonds and
related liabilities . . . . . -- -- 91,300
Settlement of civil claims
Mortgage Collateral and
related assets. . . . . . . . -- -- 98,927
Mortgage-backed bonds
and related liabilities . . . -- -- 71,550
Notes payable and other
liabilities . . . . . . . . . -- -- 23,490
Purchase of metropolitan
district bonds in exchange
for reduction in receivables. . -- -- 2,395
See notes to consolidated financial statements.
F-9
M.D.C. HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements of
M.D.C. Holdings, Inc. ("MDC" or the "Company", which, unless otherwise
indicated, refers to M.D.C. Holdings, Inc. and its subsidiaries) include the
accounts of MDC and its wholly owned and majority-owned subsidiaries.
Investments in 50% or less owned limited partnerships, joint ventures and
ownership interests in trusts are accounted for using the equity method. All
significant intercompany balances and transactions have been eliminated in
consolidation.
In the home building segment of its operations, MDC designs, constructs and
sells residential housing and, to a lesser extent, acquires and develops land
for use in its home building operations and for sale to others.
MDC's mortgage lending operations are conducted by HomeAmerican Mortgage
Corporation ("HomeAmerican"), which provides mortgage loans for MDC home buyers
as well as for others. Substantially all of the mortgage loans originated by
HomeAmerican, as well as mortgage loans purchased from unaffiliated loan
correspondents, subsequently are sold to private investors. Additionally,
HomeAmerican sells mortgage loan servicing.
In MDC's asset management segment, Financial Asset Management Corporation
(an indirect, wholly owned subsidiary of M.D.C. Holdings, Inc., "FAMC") manages
the operations of two publicly-traded real estate investment trusts (each a
"REIT"). MDC also owns interests in various other investments.
HOME BUILDING.
INVENTORIES - Inventories are stated at the lower of cost or net realizable
value and include interest capitalized during the period of active development
through the completion of construction. Construction-related overhead and
salaries are capitalized and allocated proportionately to projects actively
being developed. Land and related costs are transferred to housing inventory
when construction commences.
Net realizable value is based on the Company's plans for development and
build-out of each project using estimated sales prices less estimated costs to
complete (which includes interest anticipated to be capitalized during active
development) and sell the project. Net realizable value does not represent, for
a
F-10
specific project, the current sales price that the Company could obtain from
third parties for such properties and projects at their current stage of
development. Management believes that its assumptions as to projected demand
are reasonable based on present economic conditions and that financing will be
available to enable the Company to realize the carrying value of its home
building inventories consistent with its plans for build-out and development.
At December 31, 1994 and 1993, inventory valuation reserves totalled $34,067,000
and $40,829,000, respectively. The Company charged $4,000,000 in 1994 and
$2,345,000 in 1993 to costs and expenses in connection with such inventory
valuation reserves. Inventory valuation reserves utilized through home sales,
land sales and in connection with the deeding of inactive land inventories,
totalled $10,762,000, $8,616,000 and $11,808,000 for the years ended
December 31, 1994, 1993 and 1992, respectively.
REVENUE RECOGNITION - Revenues from real estate sales are recognized when a
sufficient down payment has been received, financing has been arranged, title,
possession and other attributes of ownership have been transferred to the buyer
and the Company is not obligated to perform significant additional activities
after the sale.
WARRANTY COSTS - The Company's homes are sold with limited ten-year
warranties from independent entities. Home buyer claims under these warranties
generally are subject to a deductible payable by the Company. Reserves, which
are included in home cost of sales, are established by the Company on a
per-house basis to cover anticipated costs of repairs during the Company's
warranty period and a portion of the supplemental warranty deductible.
MORTGAGE LENDING.
RESTRICTED CASH - Restricted cash represents cash pledged to support
certain letters of credit.
MORTGAGE LOANS HELD IN INVENTORY - The Company generally purchases forward
commitments to deliver mortgage loans held for sale. Mortgage loans held in
inventory are stated at the lower of aggregate cost or market based upon such
commitments for loans to be delivered into such commitments or prevailing market
for uncommitted loans. Substantially all of the loans originated or purchased
by the Company are sold to private investors within 45 days of origination or
purchase. Gains or losses on mortgage loans held in inventory are realized when
the loans are sold.
REVENUE RECOGNITION - Loan origination fees in excess of origination costs
incurred and loan commitment fees are deferred
F-11
until the related loans are sold. Loan servicing fees are recorded as revenue
when the mortgage loan payments are received. Revenues from the sale of
mortgage loan servicing are recognized when title and all risks and rewards of
ownership have irrevocably passed to the buyer and there are no significant
unresolved contingencies.
ASSET MANAGEMENT.
RESTRICTED CASH - Restricted cash represents mortgage loan principal and
interest receipts held pending distribution to holders of mortgage-backed bonds.
EQUITY CMO INTERESTS - MDC owns a 49.999% ownership interest in seven
trusts which in 1987 issued collateralized mortgage obligations ("CMOs")
collateralized by fixed-rate agency-guaranteed mortgage certificates. These
interests (collectively, "Equity CMO Interests") are accounted for on the equity
method.
MDC's Equity CMO Interests are carried at the lower of cost or undiscounted
projected excess cash flow ("Projected Excess Cash Flow") and are included in
the line item "Other loans and assets" on the Consolidated Balance Sheet. To
the extent Projected Excess Cash Flow is less than carrying cost, a valuation
adjustment is recorded. These valuation adjustments provide for estimated
losses to be recognized by the related ownership interest in the trusts
subsequent to the date on which the valuation adjustments were taken, and the
Company's share of such losses have been, and will in the future be, charged
against these valuation adjustments as they occur.
MORTGAGE COLLATERAL AND RELATED ASSETS - Effective January 1, 1994, the
Company adopted the provisions of Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The adoption of SFAS No. 115 had no effect on the Company's Net
Income and had an immaterial effect on the Company's Stockholders' Equity. The
adoption of SFAS No. 115 changed the accounting for mortgage certificates
collateralizing mortgage-backed bonds from a cost basis to a market basis.
Accordingly, at December 31, 1994, mortgage certificates collateralizing
mortgage-backed bonds are recorded at market. Mortgage certificates are repaid
through the pass through of principal payments from the mortgage loans
collateralizing these certificates or, in the event of default by the borrower,
proceeds from the sale of the underlying property and/or mortgage insurance
proceeds. Conventional mortgage loans collateralizing mortgage-backed bonds are
carried at cost (outstanding principal
F-12
balance, net of unamortized premium or discount) and have private mortgage
insurance.
AMORTIZATION OF PREMIUMS AND DISCOUNTS - Premiums and discounts on Mortgage
Collateral (as hereinafter defined) and original issue discounts on CMO bonds
are amortized over their respective estimated lives based upon a method which
provides a constant effective yield and assumes an estimated principal
prepayment rate which is adjusted prospectively for actual experience.
GENERAL.
CASH AND CASH EQUIVALENTS - The Company periodically invests funds not
immediately required for operating purposes in highly liquid, short-term
investments with an original maturity of 90 days or less such as commercial
paper and repurchase agreements which are included in cash and cash equivalents
in the Consolidated Balance Sheet and Consolidated Statement of Cash Flows.
PROPERTY AND EQUIPMENT - Property and equipment is carried at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets.
EARNINGS PER SHARE - Primary earnings per share are based on the
weighted-average number of common and common equivalent shares outstanding
during each period. For the year ended December 31, 1994, fully-diluted
earnings per share also assumes the conversion into Common Stock of all of the
outstanding convertible subordinated notes at the stated conversion price.
RECLASSIFICATIONS - Certain amounts in the 1993 and 1992 consolidated
financial statements have been reclassified to conform to the 1994 presentation.
F-13
B. INFORMATION ON BUSINESS SEGMENTS
The Company operates in three business segments: home building, mortgage
lending and asset management. A summary of the Company's segment information is
shown below (in thousands).
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993 1992
-------- -------- --------
Home Building
Home sales. . . . . . . . . . . . . $784,453 $587,887 $417,190
Land sales. . . . . . . . . . . . . 8,296 7,441 5,800
Other revenues. . . . . . . . . . . 1,044 1,485 141
-------- -------- --------
793,793 596,813 423,131
-------- -------- --------
Home cost of sales. . . . . . . . . 663,549 504,136 355,012
Land cost of sales. . . . . . . . . 7,977 7,864 5,826
Inventory valuation reserves. . . . 4,000 -- --
Marketing . . . . . . . . . . . . . 44,588 34,820 26,203
General and administrative. . . . . 29,215 27,497 18,529
-------- -------- --------
749,329 574,317 405,570
-------- -------- --------
Operating Profit . . . . . . . . . 44,464 22,496 17,561
-------- -------- --------
Mortgage Lending
Interest revenues . . . . . . . . . 2,897 4,769 5,000
Origination fees. . . . . . . . . . 4,671 6,171 4,195
Sale of mortgage servicing. . . . . 6,770 4,235 8,359
Gains (losses) on sales of
mortgage loans, net. . . . . . . . (585) 2,864 267
Mortgage servicing and other. . . . 2,097 1,686 1,523
-------- -------- --------
15,850 19,725 19,344
-------- -------- --------
Interest expense. . . . . . . . . . 194 1,631 1,733
General and administrative. . . . . 8,705 10,586 8,381
-------- -------- --------
8,899 12,217 10,114
-------- -------- --------
Operating Profit . . . . . . . . . 6,951 7,508 9,230
-------- -------- --------
Asset Management
Interest revenues . . . . . . . . . 8,065 20,584 55,029
Gains on sales of mortgage-
related assets . . . . . . . . . . 295 7,505 8,169
Management fees and other . . . . . 5,509 5,073 3,399
-------- -------- --------
13,869 33,162 66,597
-------- -------- --------
Interest expense. . . . . . . . . . 7,624 18,118 50,513
Equity in losses of Equity CMO
Interests, net . . . . . . . . . . -- 3,100 4,166
General and administrative. . . . . 3,449 2,948 3,218
-------- -------- --------
11,073 24,166 57,897
-------- -------- --------
Operating Profit . . . . . . . . . 2,796 8,996 8,700
-------- -------- --------
(Continued)
F-14
(Continued)
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
-------- -------- --------
Corporate
Other revenues . . . . . . . . . . $ 1,357 $ 2,376 $ 2,496
-------- -------- --------
Interest expense . . . . . . . . . 9,454 11,454 13,359
General and administrative . . . . 15,132 14,890 18,108
-------- -------- --------
24,586 26,344 31,467
-------- -------- --------
Net Corporate Expenses . . . . . (23,229) (23,968) (28,971)
-------- -------- --------
Income Before Income Taxes,
Extraordinary Gain (Loss) and
Cumulative Effect of Accounting
Change . . . . . . . . . . . . . . $ 30,982 $ 15,032 $ 6,520
-------- -------- --------
-------- -------- --------
Corporate general and administrative expenses consist principally of
salaries and other administrative expenses which are not identifiable to a
specific segment. Transfers between segments are recorded at cost. Capital
expenditures and related depreciation and amortization for the years ended
December 31, 1994, 1993 and 1992 were not material. Identifiable segment assets
are shown on the face of the Consolidated Balance Sheet.
C. PURCHASE OF ASSETS
In December 1993, as part of the use of proceeds in the 1993 Offering
described in Note G, the Company purchased from an unaffiliated liquidating
trust (the "Trust") (i) 1,990 shares (19.9%) of Richmond Homes, Inc. I (the
Company's consolidated subsidiary which conducts substantially all of the
Company's home building activities in Colorado, "Richmond Homes") common stock;
(ii) 1,400 shares of Class A preferred stock of Richmond Homes; (iii) a general
partnership interest in Rock Creek Investment Partnership, a partnership in
which Richmond Homes also was a partner; and (iv) 2,560,866 shares of Common
Stock of MDC ("MDC Common Stock") (collectively, the "Trust Securities").
MDC paid $16,038,000 in cash for the Trust Securities other than the shares
of MDC Common Stock. The purchase price of the Trust Securities, other than the
shares of MDC Common Stock, was allocated to the assets received to the extent
of their fair value. The consideration paid in excess of the fair value was
accounted for as a part of the reacquisition price of the Restructured Notes
Payable (as hereinafter defined) which were repurchased in related transactions.
See Note G. The per share purchase price for the shares of MDC Common Stock was
approximately $5.93 which was based on closing prices of MDC Common Stock
reported on the New York Stock Exchange for certain trading days preceding the
closing date of the 1993 Offering.
F-15
Following the purchase of the Trust Securities, MDC owned 65% of the outstanding
Richmond Homes common stock and all of the Richmond Homes preferred stock.
Prior to February 2, 1994, Larry A. Mizel (Chairman of the Board and
Chief Executive Officer of the Company) and David D. Mandarich (Executive
Vice President-Real Estate, Co-Chief Operating Officer and a director of the
Company) owned 35% of the outstanding shares of Richmond Homes common stock. In
furtherance of the Company's desire to own all of the outstanding shares of
Richmond Homes common stock, in December 1993, a special committee of the Board
of Directors of the Company (the "Special Committee") negotiated on behalf of
the Company terms of an option agreement with Messrs. Mizel and Mandarich to
acquire the shares of Richmond Homes common stock owned by them in exchange for
MDC Common Stock with a value of up to $3,500,000 in the aggregate. For
purposes of the exchange, the shares of MDC Common Stock were valued at $5.75
per share, the closing price of MDC Common Stock on the date of the option
agreement. The Special Committee engaged a financial advisor to perform a
business enterprise valuation of Richmond Homes. In February 1994, based on the
results of the valuation, the maximum value of $3,500,000 of MDC Common Stock
(an aggregate of 608,695 shares) was issued to Messrs. Mizel and Mandarich in
exchange for their shares of Richmond Homes common stock. As of February 2,
1994, MDC owns 100% of the equity of Richmond Homes.
As the transaction with Messrs. Mizel and Mandarich was between related
parties, the issuance of the MDC Common Stock was recorded based on the net book
value of Richmond Homes, which had approximately zero common stockholders'
equity at the date of the acquisition. Accordingly, the value of the shares of
MDC Common Stock issued to Messrs. Mizel and Mandarich was recorded at zero.
D. MORTGAGE LOANS HELD IN INVENTORY
Mortgage loans held in inventory consist of (in thousands):
DECEMBER 31,
-----------------------
1994 1993
-------- --------
First mortgage loans
Conventional . . . . . . . . . . . . . . . . $ 28,857 $ 32,182
FHA and VA . . . . . . . . . . . . . . . . . 17,467 36,913
-------- --------
46,324 69,095
Less
Unamortized discounts. . . . . . . . . . . . (1,063) (177)
Deferred fees. . . . . . . . . . . . . . . . (212) (205)
Allowance for loan losses. . . . . . . . . . (681) (648)
-------- --------
Total. . . . . . . . . . . . . . . . . . . . $44,368 $68,065
-------- --------
-------- --------
F-16
Mortgage loans held in inventory consist primarily of loans collateralized by
first mortgages and deeds of trust due over periods of up to 30 years. The
weighted-average effective yield on mortgage loans held in inventory was
approximately 8.4% and 7.1%, respectively, at December 31, 1994 and 1993.
E. MORTGAGE COLLATERAL AND RELATED ASSETS AND MORTGAGE-BACKED BONDS AND
RELATED LIABILITIES
In the past, mortgage-backed bonds were issued by limited- purpose
subsidiaries of the asset management segment and other non-related entities.
Payments are made on the bonds on a periodic basis as a result of, and in
amounts related to, corresponding payments received on the underlying mortgage
collateral (the "Mortgage Collateral"). Mortgage Collateral for mortgage-backed
bonds payable consists of fixed-rate mortgage loans and mortgage-backed
securities secured by first liens on single-family residential housing.
Mortgage-backed securities consist of Government National Mortgage Association
("GNMA") certificates, Federal National Mortgage Association ("FNMA") mortgage
pass-through certificates and conventional mortgage loans. All of the Mortgage
Collateral and related assets are held by a trustee. All principal and interest
on the collateral is remitted directly to a trustee and is available for payment
on the bonds, all of which are rated "AAA" by Standard and Poor's Corporation or
other national credit rating agencies. The Company has not guaranteed, nor is
it otherwise obligated with respect to, these mortgage-backed bond issues.
F-17
The following assets and liabilities are held by trustees (in thousands):
DECEMBER 31,
---------------------
1994 1993
------- --------
Assets
Restricted cash. . . . . . . . . . . . . . . $ 3,227 $ 15,071
Interest and other receivables . . . . . . . 640 1,428
Mortgage-backed securities
FNMA certificates. . . . . . . . . . . . . 13,382 22,962
GNMA certificates. . . . . . . . . . . . . 34,164 56,590
Conventional mortgage loans. . . . . . . . . 13,930 36,135
Valuation reserve. . . . . . . . . . . . . . (2,259) --
Unamortized discounts and premiums, net. . . (301) (1,189)
Other assets . . . . . . . . . . . . . . . . 1,791 3,169
------- --------
Total Mortgage Collateral and Related Assets . 64,574 134,166
------- --------
Liabilities
Accounts payable and accrued interest. . . . 1,231 3,470
Mortgage-backed bonds. . . . . . . . . . . . 59,926 120,818
Unamortized discounts. . . . . . . . . . . . (283) (788)
------- --------
Total Mortgage-Backed Bonds and Related
Liabilities. . . . . . . . . . . . . . . . . 60,874 123,500
------- --------
Net Assets . . . . . . . . . . . . . . . . . . $ 3,700 $ 10,666
------- --------
------- --------
The weighted-average effective yield on the Mortgage Collateral was
approximately 9.5% and 9.9% at December 31, 1994 and 1993. Mortgage-backed
bonds mature through 2019 and bear interest at weighted-average rates of 9.9%
and 10.0%, respectively, at December 31, 1994 and 1993. The negative difference
between the effective yield on the Mortgage Collateral and interest rates on the
mortgage-backed bonds primarily is covered by the overcollateralization of the
bonds.
Because the mortgage-backed bond indentures prohibit liquidation of the
Mortgage Collateral, the Mortgage Collateral cannot be sold unless the
corresponding mortgage-backed bonds payable are redeemed. The mortgage-backed
bonds can be redeemed before maturity by the Company only under certain
prescribed conditions. If those conditions are met, and the Company redeems the
mortgage-backed bonds, the mortgage-backed bonds would be redeemed at par and
any market appreciation or depreciation on the related Mortgage Collateral would
accrue to the Company.
In 1994 and 1993, MDC sold, at a premium, Mortgage Collateral totalling
$19,088,000 and $44,735,000, respectively. The proceeds from these sales were
utilized to redeem in full the
F-18
related outstanding mortgage-backed bonds which totalled $19,109,000 and
$44,375,000, respectively. These sales, net of redemptions, resulted in pre-tax
gains totalling $295,000 and $2,129,000, respectively.
In 1992, MDC sold, at a premium, Mortgage Collateral totalling $73,345,000.
The proceeds from these sales were utilized to redeem in full the related
outstanding mortgage- backed bonds which totalled $74,021,000. Additionally, in
1992, the Company sold, at a premium, Mortgage Collateral and related assets
totalling $92,305,000 subject to the related mortgage- backed bonds and related
liabilities totalling $91,300,000. The above sales resulted in pre-tax gains
totalling $8,169,000. The redemption of the $74,021,000 of mortgage-backed
bonds resulted in an aggregate extraordinary loss on the early extinguishment of
debt of $2,851,000, net of an income tax benefit of $1,469,000.
F. LINES OF CREDIT
HOME BUILDING - The aggregate amount of MDC's home building bank lines of
credit at December 31, 1994 was $153,000,000 compared with $65,000,000 at
December 31, 1993. Available borrowings under these bank lines of credit are
collateralized by home building inventories and are limited to the value of
"eligible collateral" (as defined in the credit agreements). At December 31,
1994, $62,332,000 was borrowed and an additional $64,258,000 was collateralized
and available to be borrowed. At December 31, 1994, the weighted-average
interest rate of the lines of credit was 8.85%.
MORTGAGE LENDING - The aggregate amount available under MDC's mortgage
lending bank line of credit at December 31, 1994, was $51,000,000. Available
borrowings under this bank line of credit are collateralized by mortgage loans
and mortgage-backed certificates and are limited to the value of "eligible
collateral" (as defined in the credit agreement). At December 31, 1994,
$23,211,000 was borrowed and an additional $5,929,000 was collateralized and
available to be borrowed. The mortgage lending line of credit is cancellable
upon 90 days' notice. At December 31, 1994, the weighted-average interest rate
of the line was 3.42%.
GENERAL - The agreements for the Company's bank lines of credit include
representations, warranties and covenants, the most restrictive of which require
that the Company maintain certain minimum defined stockholders' equity.
Currently, the Company believes that it is in compliance with these covenants,
representations and warranties.
F-19
G. NOTES PAYABLE
SENIOR NOTES AND SUBORDINATED NOTES - The Senior Notes (as hereinafter
defined) and the subordinated notes consist of (in thousands):
DECEMBER 31,
-------------------
1994 1993
-------- ---------
Senior Notes
11 1/8% Senior Notes due December 2003
(effective rate 12.3%). . . . . . . . . $187,352 $187,199
-------- --------
-------- --------
Subordinated notes
8 3/4% Convertible Subordinated Notes
due December 2005, convertible into
Common Stock at $7.75 per common share
(effective rate 9.5%) . . . . . . . . . $ 28,000 $ 28,000
6.64% Subordinated Fixed-Rate Notes
due April 1998(effective rate 6.7%). . . 10,217 10,213
-------- --------
$ 38,217 $ 38,213
-------- --------
-------- --------
In December 1993, the Company completed an offering (the "1993
Offering") of $190,000,000 principal amount of 11 1/8% senior notes due 2003
(the "Senior Notes") and $28,000,000 principal amount of 8 3/4% convertible
subordinated notes due 2005 (the "Convertible Subordinated Notes"). The
Senior Notes were sold at 98.525% of par value. The Convertible Subordinated
Notes were sold at par value and are convertible into MDC Common Stock at an
initial conversion price of $7.75 per share, subject to adjustment upon
certain events. A portion of the proceeds of the 1993 Offering was utilized
to redeem $51,816,000 principal amount of 11 1/4% senior subordinated notes
due May 1996 at par value, resulting in an extraordinary loss on the early
extinguishment of debt of $885,000, net of an income tax benefit of $559,000.
The Senior Notes are guaranteed, fully and unconditionally, and jointly
and severally on an unsecured subordinated basis (the "Guaranties") by most
of the Company's home building segment subsidiaries (the "Guarantors"). The
Guaranties are subordinated to all Guarantor Senior Indebtedness as defined
in the indenture pursuant to which the Senior Notes are issued (the "Senior
Notes Indenture"). In addition, the Senior Notes are secured by a first
priority pledge of the capital stock of most of the Guarantors plus the
capital stock of HomeAmerican. The Senior Notes Indenture contains certain
covenants which, among other things, limit (i) the incurrence of additional
Indebtedness (as defined) by the Company and Restricted Subsidiaries (as
defined);
F-20
(ii) the payment of dividends; (iii) the repurchase of capital stock or
subordinated indebtedness; and (iv) the ability to enter into transactions with
Affiliates (as defined) or merge, consolidate or transfer substantially all of
the Company's or a Guarantor's assets. At December 31, 1994, the Company was in
compliance with all covenants.
The Company, as of April 1, 1993, exchanged its $10,230,000 principal
amount subordinated exchangeable variable-rate notes due July 1994 for
five-year subordinated fixed-rate notes. The new notes bear interest at
6.64%, payable quarterly, and mature on April 1, 1998.
The Company redeemed its remaining $355,000 principal amount 10 1/2%
subordinated notes due April 1995 at par on March 31, 1993. On April 15,
1993, the Company's 7% subordinated notes totalling $1,355,000 matured and
were paid in full.
RESTRUCTURED NOTES PAYABLE - All of the restructured notes payable (the
"Restructured Notes Payable") outstanding were repurchased by the Company in
December 1993 and January 1994 with a portion of the proceeds from the 1993
Offering. The consideration paid for the Restructured Notes Payable plus
certain reacquisition costs described in Note C resulted in an extraordinary
gain on the early extinguishment of debt in 1993 of $16,708,000, net of
income taxes of $10,526,000.
OTHER NOTES PAYABLE - Notes payable other than the notes discussed above
consist principally of loans collateralized by real estate, mortgage loans
and a building. These notes bear interest at rates ranging from 8.0% to
12.0%. The aggregate net carrying value of the assets collateralizing the
other notes payable totalled approximately $70,000,000 at December 31, 1994.
GENERAL - The following table sets forth the scheduled principal
payments on the Senior Notes, subordinated notes and notes payable at
December 31, 1994 (in thousands).
1995.......... $ 14,826
1996.......... 11,381
1997.......... 2,388
1998.......... 13,195
1999.......... 834
Thereafter.... 222,761
H. STOCKHOLDERS' EQUITY
In 1993, the Company adopted incentive plans (the "Plans") to replace
the 1983 Incentive Stock Option Plan and the 1983 Non-
F-21
Qualified Stock Option Plan, each of which expired in January 1993. A summary
of the Plans follows:
EMPLOYEE EQUITY INCENTIVE PLAN - The Employee Equity Incentive Plan (the
"Employee Plan") provides for an initial authorization of 2,100,000 shares of
MDC Common Stock for issuance thereunder plus an additional annual
authorization equal to 10% of the then authorized shares of MDC Common Stock
under the Employee Plan as of each succeeding annual anniversary of the
effective date of the Employee Plan. Under the Employee Plan, the Company
may grant awards of restricted stock, incentive and non-statutory stock
options and dividend equivalents, or any combination thereof, to officers and
employees of the Company or any of its subsidiaries. The incentive stock
options granted under this plan are exercisable at prices greater than or
equal to the market value on the date of grant over periods of up to six
years. Non-statutory options granted under this plan have discretionary
exercise prices and are exercisable over periods of up to six years.
DIRECTOR EQUITY INCENTIVE PLAN - Under the Director Equity Incentive
Plan (the "Director Plan"), non-employee directors of the Company will be
entitled to receive stock options. The Director Plan provides for an initial
authorization of 300,000 shares of MDC Common Stock for issuance thereunder
plus an additional annual authorization of shares equal to 10% of the then
authorized shares of MDC Common Stock under the Director Plan. Each option
granted under the Director Plan will expire five years from the date of
grant. The option exercise price must be equal to 100% of the fair market
value of the MDC Common Stock on the date of grant of the option.
F-22
A summary of the changes in options during each of the three years ended
December 31, 1994 is as follows (in shares of MDC Common Stock):
Outstanding - January 1, 1992. . . . . . . . . . . . . . . . . . . . . 2,545,270
Exercised at prices ranging from $.28 to $1.88. . . . . . . . . . (256,850)
Granted - prices ranging from $3.00 to $3.38. . . . . . . . . . . 490,000
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . (179,983)
---------
Outstanding - December 31, 1992. . . . . . . . . . . . . . . . . . . . 2,598,437
Exercised at prices ranging from $.28 to $1.88. . . . . . . . . . (489,938)
Granted at prices ranging from $3.88 to $6.60 . . . . . . . . . . 1,185,000
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . (92,125)
---------
Outstanding - December 31, 1993. . . . . . . . . . . . . . . . . . . . 3,201,374
Exercised at prices ranging from $.28 to $1.88. . . . . . . . . . (271,974)
Granted at prices ranging from $4.75 to $6.38 . . . . . . . . . . . 635,000
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,000)
---------
Outstanding - December 31, 1994 3,561,400
---------
---------
Exercise prices of outstanding options . . . . . . . . . . . . . . . . $.28 to
at December 31, 1994 $6.60
---------
---------
Exercisable at December 31, 1994 . . . . . . . . . . . . . . . . . . . 1,953,888
---------
---------
Reserved for issuance at December 31, 1994 . . . . . . . . . . . . . . 870,000
---------
---------
I. INTEREST
Interest activity is set forth below (in thousands):
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
Interest capitalized in home
building inventory, beginning
of year . . . . . . . . . . . . . . . $ 42,681 $ 48,440 $ 58,383
Corporate and home building
interest incurred. . . . . . . . . . . 35,799 25,505 24,802
Corporate and home building
interest expensed. . . . . . . . . . . (9,454) (11,454) (13,359)
Previously capitalized home
building interest included in
cost of sales. . . . . . . . . . . . . (26,548) (19,810) (21,386)
-------- -------- --------
Interest capitalized in home
building inventory, end of year . . . $ 42,478 $ 42,681 $ 48,440
-------- -------- --------
-------- -------- --------
Home building inventories, end of
year . . . . . . . . . . . . . . . . . $464,157 $393,904 $339,335
-------- -------- --------
-------- -------- --------
F-23
J. INCOME TAXES
The Company adopted SFAS No. 109, "Accounting for Income Taxes," effective
January 1, 1992. The cumulative effect of this change in accounting for income
taxes was $1,700,000, determined as of January 1, 1992, and is reported
separately in the Consolidated Statements of Income for the year ended
December 31, 1992.
Total income tax expense (benefit) has been allocated as follows (in
thousands):
YEAR ENDED DECEMBER 31,
--------------------------
1994 1993 1992
------- ------- -------
Tax expense on income before
income taxes, extraordinary gain
(loss) and cumulative effect of
accounting change. . . . . . . . . . . . . $11,727 $ 4,976 $ 1,755
Extraordinary gain (loss) . . . . . . . . . . -- 9,967 (1,346)
Stockholders' equity, related to
exercise of stock options. . . . . . . . . (214) (693) (231)
------- ------- -------
$11,513 $14,250 $ 178
------- ------- -------
------- ------- -------
The significant components of income tax expense on income before income
taxes, extraordinary gain (loss) and cumulative effect of accounting change
consist of the following (in thousands):
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------- ------- -------
Current Tax Expense
Federal . . . . . . . . . . . . . . . . . . . $13,970 $ 6,485 $10,371
State . . . . . . . . . . . . . . . . . . . . 1,603 853 1,070
------- ------- -------
Total Current . . . . . . . . . . . . . . 15,573 7,338 11,441
------- ------- -------
Deferred Tax Expense (Benefit)
Federal . . . . . . . . . . . . . . . . . . . (2,540) (1,933) (9,736)
State . . . . . . . . . . . . . . . . . . . . (1,306) (429) 50
------- ------- -------
Total Deferred . . . . . . . . . . . . . . (3,846) (2,362) (9,686)
------- ------- -------
Total Income Tax Expense . . . . . . . . . . . . . $11,727 $4,976 $1,755
------- ------- -------
------- ------- -------
F-24
The provision for income tax expense differs from the amount which would be
computed by applying the statutory federal income tax rate of 35% in 1994 and
1993 and 34% in 1992 to pre-tax income before extraordinary gain (loss) and
cumulative effect of accounting change, as a result of the following (in
thousands):
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993 1992
------- ------ ------
Tax expense computed at statutory
rate . . . . . . . . . . . . . . . . . . . . . $10,844 $5,261 $2,216
Increase (reduction) due to:
Permanent differences between
financial statement income and
taxable income . . . . . . . . . . . . . . (1,089) (559) (621)
State income tax, net of federal benefit. . . 933 274 708
Adjustments to prior years' income
taxes. . . . . . . . . . . . . . . . . . . 978 -- 108
Other . . . . . . . . . . . . . . . . . . . . 61 -- (656)
------- ------ ------
Income Tax Expense . . . . . . . . . . . . . . . . $11,727 $4,976 $1,755
------- ------ ------
------- ------ ------
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (in thousands).
DECEMBER 31,
------- -------
1994 1993
------- -------
Deferred Tax Assets:
Investment in partnerships, Equity CMO
Interests and other non-consolidated
subsidiaries . . . . . . . . . . . . . . . . . . . . $ 655 $ 5,538
Reserve for losses. . . . . . . . . . . . . . . . . . . 10,340 6,845
Inventory valuation reserves. . . . . . . . . . . . . . 8,092 8,200
Equity CMO Interest impairment. . . . . . . . . . . . . 1,610 2,199
Accrued liabilities . . . . . . . . . . . . . . . . . . 4,196 2,594
Property and equipment. . . . . . . . . . . . . . . . . 932 919
Other assets, additional costs
capitalized for tax purposes . . . . . . . . . . . . 910 1,825
------- -------
Total gross deferred tax assets . . . . . . . . . 26,735 28,120
Less valuation allowance. . . . . . . . . . . . . . . . (3,000) (2,939)
------- -------
Deferred tax assets . . . . . . . . . . . . . . . 23,735 25,181
------- -------
Deferred Tax Liabilities:
Inventory, additional costs capitalized
for financial statement purposes. . . . . . . . . . 5,353 12,163
Discount on notes receivable. . . . . . . . . . . . . . 5,536 3,182
Deferred revenue, principally due to
installment sales. . . . . . . . . . . . . . . . . . 902 1,736
------- -------
Total gross deferred tax liabilities. . . . . . . 11,791 17,081
------- -------
Net Deferred Tax Asset. . . . . . . . . . . . . . . . . $11,944 $8,100
------- -------
------- -------
F-25
M.D.C. Holdings, Inc. and its wholly owned subsidiaries file a consolidated
federal income tax return (an "MDC Consolidated Return"). Richmond Homes and
its wholly owned subsidiaries filed separate consolidated federal income tax
returns for the periods from December 28, 1989 through February 2, 1994 (each a
"Richmond Homes Consolidated Return").
The Internal Revenue Service (the "IRS") has completed its examination of
the MDC Consolidated Returns for the years 1986 through 1990 and the Richmond
Homes Consolidated Returns for the years 1989 and 1990 and has proposed certain
adjustments to the taxable income reflected in such returns. In general, the
proposed adjustments would shift the recognition of certain items of income and
expense from one year to another ("Timing Adjustments"). To the extent taxable
income in a prior year is increased by proposed Timing Adjustments, taxable
income may be reduced by a corresponding amount in other years; however, the
Company would incur an interest charge as a result of such adjustment. The
Company currently is protesting many of these proposed adjustments through the
IRS appeals process and believes the amount of these adjustments will be reduced
as a result. In the opinion of management, adequate provision has been made for
the additional income taxes and interest which may arise as a result of the
proposed adjustments.
In December 1994, the Company and the IRS appeals officer resolved, subject
to approval of the Congressional Joint Committee on Taxation, all outstanding
issues with respect to the IRS examination of the 1984 and 1985 MDC Consolidated
Returns. In connection with this resolution, the Company paid the IRS
$8,000,000 for the additional taxes and interest due for 1984 and 1985, as
computed by the IRS. Adequate provision for these additional taxes and interest
had been made by the Company in prior years.
F-26
K. EARNINGS PER SHARE
Primary earnings per share are based on the weighted-average number of
common and common equivalent shares outstanding during each period. In 1994,
the computation of fully-diluted earnings per share also assumes the conversion
into MDC Common Stock of all of the $28,000,000 outstanding principal amount of
the 8 3/4% Convertible Subordinated Notes at a conversion price of $7.75 per
share of MDC Common Stock. The primary and fully-diluted earnings per share
calculations are shown below (in thousands, except per share amounts).
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
--------- --------- --------
PRIMARY EARNINGS PER SHARE CALCULATION:
Income before extraordinary gain (loss) and cumulative effect of
accounting change. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,255 $ 10,056 $ 4,765
Extraordinary gain (loss) from early extinguishment of debt, net of
income taxes (benefit) of: 1993, $9,967; 1992, ($1,346) . . . . . . . . -- 15,823 (2,613)
Cumulative effect of accounting change. . . . . . . . . . . . . . . . . . . -- -- 1,700
--------- --------- --------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,255 $ 25,879 $ 3,852
--------- --------- --------
--------- --------- --------
Weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . . . 18,951 20,501 20,162
Dilutive stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,455 1,839 1,688
--------- --------- --------
Total Weighted-Average Shares . . . . . . . . . . . . . . . . . . . . . . . . . 20,406 22,340 21,850
--------- --------- --------
--------- --------- --------
PRIMARY EARNINGS PER SHARE
Income before extraordinary gain (loss) and cumulative effect of
accounting change. . . . . . . . . . . . . . . . . . . . . . . . . . . $ .94 $ .45 $ .22
Extraordinary gain (loss) from early extinguishment of debt . . . . . . . . -- .71 (.12)
Cumulative effect of accounting change. . . . . . . . . . . . . . . . . . . -- -- .08
--------- --------- --------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .94 $ 1.16 $ .18
--------- --------- --------
--------- --------- --------
F-27
FULLY-DILUTED EARNINGS PER SHARE CALCULATION:
Income before extraordinary gain (loss) and cumulative effect of
accounting change. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,255 $ 10,056 $ 4,765
Adjustment for interest on Convertible Subordinated Notes, net of
income tax benefit; conversion assumed . . . . . . . . . . . . . . . . 1,536 -- --
--------- --------- --------
Adjusted income before extraordinary gain (loss) and cumulative effect
of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . 20,791 10,056 4,765
Extraordinary gain (loss) from early extinguishment of debt, net of
income taxes (benefit) of: 1993, $9,967; 1992, ($1,346). . . . . . . . -- 15,823 (2,613)
Cumulative effect of accounting change. . . . . . . . . . . . . . . . . . . -- -- 1,700
--------- --------- --------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,791 $ 25,879 $ 3,852
--------- --------- --------
--------- --------- --------
Weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . . . 18,951 20,501 20,162
Dilutive stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,457 1,839 1,688
Shares issuable upon conversion of
Convertible Subordinated Notes; conversion assumed. . . . . . . . . . . . . 3,613 -- --
--------- --------- --------
Total Weighted-Average Shares . . . . . . . . . . . . . . . . . . . . . . . . . 24,021 22,340 21,850
--------- --------- --------
--------- --------- --------
FULLY-DILUTED EARNINGS PER SHARE
Income before extraordinary gain (loss) and cumulative effect of
accounting change. . . . . . . . . . . . . . . . . . . . . . . . . . . $ .87 $ .45 $ .22
Extraordinary gain (loss) from early extinguishment of debt . . . . . . . . -- .71 (.12)
Cumulative effect of accounting change. . . . . . . . . . . . . . . . . . . -- -- .08
--------- --------- --------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .87 $ 1.16 $ .18
--------- --------- --------
--------- --------- --------
L. LEGAL PROCEEDINGS
SETTLEMENT OF WESTERN SAVINGS CIVIL MATTERS.
In December 1994, the Company and the Resolution Trust Corporation (the
"RTC"), acting in its corporate capacity as receiver for Western Savings and
Loan Association ("Western"), executed a final settlement agreement providing
for the mutual release of all potential claims between the parties and certain
related persons insofar as such claims relate to any of the Company's past
transactions with Western.
Under the terms of the settlement, MDC paid to the RTC $3,912,000, which
MDC reserved (and set aside the cash) for as of December 31, 1992 when an
agreement in principle for the settlement was executed by the parties. MDC
believes that consummation of the settlement agreement will not result in any
material adverse effect on the Company's operations or financial position. The
settlement remains subject to the entry of a court order determining that the
settlement precludes the filing of
F-28
cross-claims against MDC by various third parties, a condition which can be
waived or extended by the Company.
EXPANSIVE SOILS CASES.
On October 21, 1994, a complaint was served on several of the Company's
subsidiaries in an action initiated by six homeowners in Highlands Ranch,
Colorado. On January 26, 1995, counsel for the Company accepted service of two
additional complaints by a homeowner in the Stonegate subdivision in Douglas
County, Colorado and by a homeowner in the Rock Creek development located in
Boulder County, Colorado. The complaints, each of which seek certification of a
class action, purport to allege substantially identical claims relating to the
construction of homes on lots with expansive soils, including negligence, breach
of express and implied warranties, violation of the Colorado Consumer Protection
Act, non-disclosure and a claim for exemplary damages. The homeowners in each
complaint seek, individually and on behalf of the alleged class, recovery in
unspecified amounts including actual damages, statutory damages, exemplary
damages and treble damages. The Company has not as yet been required to file a
response to any of the complaints or to any discovery in these cases. While the
ultimate outcome of these matters is uncertain, management does not believe that
the outcome of these matters will have a material adverse effect on the
financial condition or results of operations of the Company.
The Company has notified its insurance carriers of these complaints and
currently is reviewing with the carriers how the Company will proceed. The
insurance carriers providing primary coverage have (i) agreed to defend the
Company in the Highlands Ranch case subject to reservations of rights; and
(ii) not responded, as yet, to the request to defend the Company with respect to
the matters alleged in the two other complaints.
OTHER.
The Company and certain of its subsidiaries and affiliates have been named
as defendants in various other claims, complaints and legal actions arising in
the normal course of business. In the opinion of management, the outcome of
these matters will not have a material adverse effect upon the financial
condition or results of operations of the Company.
The Company is not aware of any litigation, matter or pending claim against
the Company which would result in material contingent liabilities related to
environmental hazards or asbestos.
F-29
M. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
such value.
CASH AND CASH EQUIVALENTS - For cash and cash equivalents, the carrying
value is a reasonable estimate of fair value.
INVESTMENTS AND MARKETABLE SECURITIES, NET - Investments in marketable
equity securities are carried on the balance sheet at cost, which approximates
market value. Accordingly, the carrying value of the investments is a
reasonable estimate of the fair value.
INVESTMENT IN METROPOLITAN DISTRICT BONDS - Investments in metropolitan
district bonds are carried on the balance sheet at cost, which approximates
market value. Accordingly, the carrying value of the investments is a
reasonable estimate of the fair value.
MORTGAGE LOANS HELD IN INVENTORY - The Company generally purchases forward
commitments to deliver mortgage loans held for sale. For loans which have no
forward commitments, loans in inventory are stated at the lower of cost or
market. Accordingly, the carrying value is a reasonable estimate of fair value.
MORTGAGE COLLATERAL, NET, AND ASSETS RELATED TO MORTGAGE-BACKED BONDS AND
RELATED LIABILITIES, AND MORTGAGE-BACKED BONDS, NET, AND RELATED LIABILITIES,
RECOURSE SOLELY TO LIMITED-PURPOSE SUBSIDIARY ASSETS - Mortgage Collateral and
related assets which are estimated not to be salable (under terms in indentures
governing the corresponding mortgage-backed bonds) within one year are valued at
par plus (minus) the discounted estimated value of the remaining cash flow (cash
deficit) to be realized (paid) by MDC over the remaining economic life of the
corresponding Mortgage Collateral.
Mortgage Collateral and related assets which are estimated to be salable
(under terms in indentures governing the corresponding mortgage-backed bonds)
within one year, at a profit or to minimize a loss, are valued at the estimated
value of the Mortgage Collateral (less any costs necessary to effect the sale
and subsequent call of the related mortgage-backed bonds) plus (minus) the
discounted estimated value of the remaining cash flow (cash deficit) to be
realized (paid) by MDC from December 31, 1994 to the date of estimated sale.
F-30
Mortgage-backed bonds and related liabilities are valued at call or
settlement value (generally face value).
The cash flow estimates used in determining the fair value for the Mortgage
Collateral and related assets assume the liquidation of the mortgage-backed
bonds and related liabilities at call or settlement dates.
NOTES PAYABLE AND LINES OF CREDIT - The Company's notes payable and lines
of credit are at floating rates or at fixed rates which approximate current
market rates and have relatively short-term maturities. Accordingly, the
carrying value is a reasonable estimate of fair value.
SENIOR NOTES AND SUBORDINATED NOTES - Senior Notes and subordinated notes
are valued based on dealer quotes.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
DECEMBER 31, 1994 DECEMBER 31, 1993
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------- ---------- -------- ----------
Financial assets
Cash and cash equivalents. . . . . . . $ 43,564 $ 43,564 $ 63,003 $ 63,003
Investments and marketable
securities, net. . . . . . . . . . . 6,089 6,089 765 765
Investment in metropolitan
district bonds . . . . . . . . . . . -- -- 13,795 13,795
Mortgage loans held in inventory . . . 44,368 44,368 68,065 68,065
Mortgage Collateral, net, and
assets related to mortgage-
backed bonds and related
liabilities. . . . . . . . . . . . . 64,574 63,380 134,166 128,824
Financial liabilities
Notes payable. . . . . . . . . . . . . 37,168 37,168 66,119 66,119
Lines of credit. . . . . . . . . . . . 85,543 85,543 54,145 54,145
Senior Notes . . . . . . . . . . . . . 187,352 156,750 187,199 195,700
Subordinated notes . . . . . . . . . . 38,217 31,922 38,213 39,011
Mortgage-backed bonds, net, and
related liabilities, recourse
solely to limited-purpose
subsidiary assets. . . . . . . . . . 60,874 60,874 123,500 123,500
N. COMMITMENTS AND CONTINGENCIES
To reduce exposure to fluctuations in interest rates, HomeAmerican makes
commitments to originate (buy) and sell loans and mortgage-backed securities.
At December 31, 1994, commitments by HomeAmerican to originate mortgage loans
totalled $24,125,000, at market rates of interest. At December 31, 1994,
unexpired forward commitments to sell loans totalled $55,700,000.
F-31
MDC leases office space, equipment and certain of its model show homes
under noncancellable operating leases. Future minimum rental payments for
leases with initial terms in excess of one year are $2,294,000 in 1995,
$1,726,000 in 1996, $1,039,000 in 1997, $819,000 in 1998, $397,000 in 1999 and
$194,000 thereafter. Rent expense under cancellable and noncancellable leases
totalled $3,250,000, $2,956,000 and $2,731,000 in 1994, 1993 and 1992,
respectively.
On August 4, 1994, Superior Metropolitan District No. 1 ("District No. 1")
and Superior Metropolitan District No. 2 ("District No. 2") (collectively, the
"Districts") issued $35,730,000 principal amount of bonds (the "Bonds"). The
Districts were organized and are operated to provide, among other things, water
and sanitary sewer services, street improvements and park and recreation
facilities for inhabitants of a master- planned community located northwest of
Denver (the "Project"). A significant portion of the Project served by the
Districts is owned and is being developed by the Company. The Company received
$16,395,000 of the proceeds of the Bond issuances to redeem in full, at par
value, the Districts' outstanding bonds. Additionally, proceeds totalling
approximately $11,000,000 were paid to the Company by District No. 1 to purchase
certain interests in a water supply project (the "Water Project") and to
reimburse the Company for prepaid water taps and for certain other funds
previously advanced to District No. 1.
In connection with the issuance of the Bonds, MDC has guaranteed payment of
principal and interest on $27,500,000 principal amount of District No. 1 Bonds
and has entered into certain agreements with District No. 1 to purchase certain
water and sewer taps and pay certain storm drainage fees in connection with the
Company's home building operations within the Project. In connection with the
guarantee, MDC was required to deposit $6,000,000 into a trust account. The
$6,000,000 will be released in $1,000,000 increments as certain levels of
completed homes are achieved in the Project, provided that if the Water Project
is not completed by January 1, 1997 or if the Water Project is enjoined and such
injunction is not lifted, no withdrawals may occur. In addition, MDC has
guaranteed payment of principal and interest on $2,580,000 principal amount of
District No. 2 Bonds.
O. SUPPLEMENTAL GUARANTOR INFORMATION
The Senior Notes are unconditionally guaranteed on an unsecured
subordinated basis, jointly and severally, by Richmond American Homes of
California, Inc., Richmond American Homes of Maryland, Inc., Richmond American
Homes of Nevada, Inc., Richmond American Homes of Virginia, Inc., Richmond
American Homes, Inc.,
F-32
Richmond Homes, Inc. I and Richmond Homes, Inc. II (collectively, the
"Guarantors"). The Guaranties are subordinated to all Guarantor Senior
Indebtedness (as defined in the Senior Notes Indenture).
In June 1994, MDC (Parent Company) exchanged three notes receivable from a
Guarantor subsidiary with a carrying amount of $104,350,000 for a new note
receivable from the same Guarantor subsidiary with a principal amount of
$69,731,000. Because the exchange was between parties under common control, the
difference between the principal amounts of the notes exchanged, net of income
taxes, was recorded as an additional investment in the Guarantor subsidiary by
the Parent and as additional paid-in-capital by the Guarantor subsidiary.
Supplemental combining financial information follows.
F-33
SUPPLEMENTAL COMBINING BALANCE SHEET
DECEMBER 31, 1994
(IN THOUSANDS)
UNCONSOLIDATED
-----------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
--------- ------------ ------------ ----------- ------------
ASSETS
Corporate. . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents. . . . . . . . . . . . . $ 31,210 $ -- $ -- $ -- $ 31,210
Investments in subsidiaries. . . . . . . . . . . . 327,021 26,822 16,948 (370,791) --
Advances and notes receivable - Parent and
subsidiaries. . . . . . . . . . . . . . . . . . 145,900 -- 106,486 (252,386) --
Property and equipment, net. . . . . . . . . . . . 9,962 -- -- -- 9,962
Deferred income taxes. . . . . . . . . . . . . . . 11,944 -- -- -- 11,944
Deferred issue costs, net. . . . . . . . . . . . . 10,621 -- -- -- 10,621
Other assets, net. . . . . . . . . . . . . . . . . 3,017 -- 253 -- 3,270
-------- -------- -------- --------- --------
539,675 26,822 123,687 (623,177) 67,007
-------- -------- -------- --------- --------
Home Building
Cash and cash equivalents. . . . . . . . . . . . . -- 9,656 506 -- 10,162
Home sales and other accounts receivable . . . . . 243 23,572 -- (11,307) 12,508
Investments and marketable securities, net . . . . 6,089 -- -- -- 6,089
Inventories, net
Housing completed or under construction . . . . -- 258,044 22,275 -- 280,319
Land and land under development . . . . . . . . -- 146,655 37,813 (630) 183,838
Prepaid expenses and other assets, net . . . . . . 6,601 33,011 4,363 -- 43,975
-------- -------- -------- --------- --------
12,933 470,938 64,957 (11,937) 536,891
-------- -------- -------- --------- --------
Mortgage Lending
Cash and cash equivalents. . . . . . . . . . . . . -- -- 1,607 -- 1,607
Restricted cash. . . . . . . . . . . . . . . . . . -- -- 2,650 -- 2,650
Accrued interest and other assets, net . . . . . . -- -- 1,447 -- 1,447
Mortgage loans held in inventory, net. . . . . . . -- -- 44,368 -- 44,368
-------- -------- -------- --------- --------
-- -- 50,072 -- 50,072
-------- -------- -------- --------- --------
Asset Management
Cash and cash equivalents. . . . . . . . . . . . . -- -- 585 -- 585
Mortgage Collateral, net, and assets related
to mortgage-backed bonds and related
liabilities . . . . . . . . . . . . . . . . . . -- -- 64,574 -- 64,574
Other loans and assets, net. . . . . . . . . . . . -- -- 6,316 -- 6,316
-------- -------- -------- --------- --------
-- -- 71,475 -- 71,475
-------- -------- -------- --------- --------
Total Assets. . . . . . . . . . . . . . . . $552,608 $497,760 $310,191 $(635,114) $725,445
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
F-34
SUPPLEMENTAL COMBINING BALANCE SHEET
DECEMBER 31, 1994
(IN THOUSANDS)
(continued)
UNCONSOLIDATED
-----------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
--------- ------------ ------------ ----------- ------------
LIABILITIES
Corporate
Accounts payable and accrued expenses. . . . . . . $ 34,192 $ -- $ 119 $ -- $ 34,311
Advances and notes payable
- Parent and Subsidiaries . . . . . . . . . . . 78,665 174,880 7,385 (260,930) --
Income taxes payable . . . . . . . . . . . . . . . 11,166 -- -- -- 11,166
Notes payable. . . . . . . . . . . . . . . . . . . 3,583 -- -- -- 3,583
Senior Notes, net. . . . . . . . . . . . . . . . . 187,352 -- -- -- 187,352
Subordinated notes, net. . . . . . . . . . . . . . 38,217 -- -- -- 38,217
-------- -------- -------- --------- --------
353,175 174,880 7,504 (260,930) 274,629
-------- -------- -------- --------- --------
Home Building
Accounts payable and accrued expenses. . . . . . . 2,562 64,389 8,448 -- 75,399
Lines of credit. . . . . . . . . . . . . . . . . . -- 62,332 -- -- 62,332
Notes payable. . . . . . . . . . . . . . . . . . . 4,576 18,857 10,152 -- 33,585
-------- -------- -------- --------- --------
7,138 145,578 18,600 -- 171,316
-------- -------- -------- --------- --------
Mortgage Lending
Accounts payable and accrued expenses. . . . . . . -- -- 13,757 (11,307) 2,450
Line of credit . . . . . . . . . . . . . . . . . . -- -- 23,211 -- 23,211
-------- -------- -------- --------- --------
-- -- 36,968 (11,307) 25,661
-------- -------- -------- --------- --------
Asset Management
Accounts payable and accrued expenses. . . . . . . -- -- 670 -- 670
Mortgage-backed bonds, net, and related
liabilities, recourse solely to limited-
purpose subsidiary assets . . . . . . . . . . . -- -- 60,874 -- 60,874
-------- -------- -------- --------- --------
-- -- 61,544 -- 61,544
-------- -------- -------- --------- --------
Total Liabilities . . . . . . . . . . . . . 360,313 320,458 124,616 (272,237) 533,150
-------- -------- -------- --------- --------
STOCKHOLDERS' EQUITY
Preferred stock. . . . . . . . . . . . . . . . . . -- -- 10 (10) --
Common Stock . . . . . . . . . . . . . . . . . . . 212 18 121 (139) 212
Additional paid-in capital . . . . . . . . . . . . 133,934 144,756 234,578 (379,334) 133,934
Retained earnings. . . . . . . . . . . . . . . . . 71,502 32,528 (49,125) 16,597 71,502
Less treasury stock. . . . . . . . . . . . . . . . (13,353) -- (9) 9 (13,353)
-------- -------- -------- --------- --------
Total Stockholders' Equity. . . . . . . . . . . 192,295 177,302 185,575 (362,877) 192,295
-------- -------- -------- --------- --------
Total Liabilities and Stockholders' Equity. . . $552,608 $497,760 $310,191 $(635,114) $725,445
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
F-35
SUPPLEMENTAL COMBINING BALANCE SHEET
DECEMBER 31, 1993
(IN THOUSANDS)
UNCONSOLIDATED
-----------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
--------- ------------ ------------ ----------- ------------
ASSETS
Corporate
Cash and cash equivalents. . . . . . . . . . . . . $ 42,443 $ -- $ -- $ -- $ 42,443
Investments in subsidiaries. . . . . . . . . . . . 191,462 23,009 15,030 (229,501) --
Advances and notes receivable
- Parent and subsidiaries . . . . . . . . . . . 260,931 37 91,348 (352,316) --
Property and equipment, net. . . . . . . . . . . . 10,432 -- -- -- 10,432
Deferred income taxes. . . . . . . . . . . . . . . -- 8,100 -- -- 8,100
Deferred issue costs, net. . . . . . . . . . . . . 11,233 -- -- -- 11,233
Other assets, net. . . . . . . . . . . . . . . . . 3,476 -- 489 -- 3,965
-------- -------- -------- --------- --------
519,977 31,146 106,867 (581,817) 76,173
-------- -------- -------- --------- --------
Home Building
Cash and cash equivalents. . . . . . . . . . . . . -- 17,792 687 -- 18,479
Home sales and other accounts receivable . . . . . 41 9,059 213 (3,890) 5,423
Investment in metropolitan district bonds. . . . . 11,400 2,395 -- -- 13,795
Inventories, net
Housing completed or under construction . . . . -- 187,796 13,227 -- 201,023
Land and land under development . . . . . . . . (1,530) 153,068 40,252 1,091 192,881
Prepaid expenses and other assets, net . . . . . . 1,312 39,728 5,400 2,423 48,863
-------- -------- -------- --------- --------
11,223 409,838 59,779 (376) 480,464
-------- -------- -------- --------- --------
Mortgage Lending
Cash and cash equivalents. . . . . . . . . . . . . -- -- 1,505 -- 1,505
Restricted cash. . . . . . . . . . . . . . . . . . -- -- 3,400 -- 3,400
Accrued interest and other assets, net . . . . . . -- -- 2,571 -- 2,571
Mortgage loans held in inventory, net. . . . . . . -- -- 68,065 -- 68,065
-------- -------- -------- --------- --------
-- -- 75,541 -- 75,541
-------- -------- -------- --------- --------
Asset Management
Cash and cash equivalents. . . . . . . . . . . . . -- -- 576 -- 576
Mortgage Collateral, net, and assets related
to mortgage-backed bonds and related
liabilities . . . . . . . . . . . . . . . . . . -- -- 134,166 -- 134,166
Other loans and assets, net. . . . . . . . . . . . -- -- 9,946 -- 9,946
-------- -------- -------- --------- --------
-- -- 144,688 -- 144,688
-------- -------- -------- --------- --------
Total Assets. . . . . . . . . . . . . . . . . $531,200 $440,984 $386,875 $(582,193) $776,866
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
F-36
SUPPLEMENTAL COMBINING BALANCE SHEET
DECEMBER 31, 1993
(IN THOUSANDS)
(continued)
UNCONSOLIDATED
------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
-------- ------------ ------------ ----------- ------------
LIABILITIES
Corporate
Accounts payable and accrued expenses. . . . . . . . . . . $ 20,564 $ -- $ 282 $ -- $ 20,846
Advances and notes payable - Parent and subsidiaries . . . 68,342 176,576 120,800 (365,718) --
Income taxes payable . . . . . . . . . . . . . . . . . . . 26,635 2,076 -- -- 28,711
Notes payable. . . . . . . . . . . . . . . . . . . . . . . 3,624 -- -- -- 3,624
Senior Notes, net. . . . . . . . . . . . . . . . . . . . . 187,199 -- -- -- 187,199
Subordinated notes, net. . . . . . . . . . . . . . . . . . 38,213 -- -- -- 38,213
--------- --------- --------- ---------- ----------
344,577 178,652 121,082 (365,718) 278,593
--------- --------- --------- ---------- ----------
Home Building
Accounts payable and accrued expenses. . . . . . . . . . . 864 62,768 6,800 309 70,741
Lines of credit. . . . . . . . . . . . . . . . . . . . . . -- 24,645 -- -- 24,645
Notes payable. . . . . . . . . . . . . . . . . . . . . . . 9,905 40,548 12,042 -- 62,495
--------- --------- --------- ---------- ----------
10,769 127,961 18,842 309 157,881
--------- --------- --------- ---------- ----------
Mortgage Lending
Accounts payable and accrued expenses. . . . . . . . . . . -- -- 12,375 (3,888) 8,487
Line of credit . . . . . . . . . . . . . . . . . . . . . . -- -- 29,500 29,500
--------- --------- --------- ---------- ----------
-- -- 41,875 (3,888) 37,987
--------- --------- --------- ---------- ----------
Asset Management
Accounts payable and accrued expenses. . . . . . . . . . . -- -- 3,051 -- 3,051
Mortgage-backed bonds, net, and related liabilities,
recourse solely to limited-purpose subsidiary assets . . . -- -- 123,500 -- 123,500
--------- --------- --------- ---------- ----------
-- -- 126,551 -- 126,551
--------- --------- --------- ---------- ----------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . 355,346 306,613 308,350 (369,297) 601,012
--------- --------- --------- ---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock. . . . . . . . . . . . . . . . . . . . . . -- 20,475 10 (20,485) --
Common Stock . . . . . . . . . . . . . . . . . . . . . . . 209 19 124 (143) 209
Additional paid-in capital . . . . . . . . . . . . . . . . 133,455 99,725 128,075 227,800) 133,455
Retained earnings. . . . . . . . . . . . . . . . . . . . . 57,879 14,152 (49,675) 35,523 57,879
Less treasury stock. . . . . . . . . . . . . . . . . . . . (15,689) -- (9) 9 (15,689)
--------- --------- --------- ---------- ----------
Total Stockholders' Equity . . . . . . . . . .. . . . . 175,854 134,371 78,525 (212,896) 175,854
--------- --------- --------- ---------- ----------
Total Liabilities and Stockholders' Equity . . . . . . $ 531,200 $ 440,984 $ 386,875 $ (582,193) $ 776,866
--------- --------- --------- ---------- ----------
--------- --------- --------- ---------- ----------
F-37
SUPPLEMENTAL COMBINING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
UNCONSOLIDATED
------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
-------- ------------ ------------ ----------- ------------
REVENUES:
Home Building. . . . . . . . . . . . . . . . . . . . . . . $131 $738,400 $59,542 $(4,280) $793,793
Mortgage Lending . . . . . . . . . . . . . . . . . . . . . -- -- 15,850 -- 15,850
Asset Management . . . . . . . . . . . . . . . . . . . . . -- -- 13,869 -- 13,869
Corporate. . . . . . . . . . . . . . . . . . . . . . . . . 1,294 -- 63 -- 1,357
Equity in earnings of subsidiaries . . . . . . . . . . . . 36,187 4,351 2,230 (42,768) --
-------- ------------ ------------ ----------- ------------
Total Revenues . . . . . . . . . . . . . . . . . . . . . 37,612 742,751 91,554 (47,048) 824,869
-------- ------------ ------------ ----------- ------------
COSTS AND EXPENSES:
Home Building. . . . . . . . . . . . . . . . . . . . . . . 2,432 694,487 54,913 (2,503) 749,329
Mortgage Lending . . . . . . . . . . . . . . . . . . . . . -- -- 8,899 -- 8,899
Asset Management . . . . . . . . . . . . . . . . . . . . . -- -- 11,073 -- 11,073
Corporate general and administrative . . . . . . . . . . . 14,876 -- 256 -- 15,132
Corporate and home building interest . . . . . . . . . . . (10,678) 18,144 3,836 (1,848) 9,454
-------- ------------ ------------ ----------- ------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . 6,630 712,631 78,977 (4,351) 793,887
-------- ------------ ------------ ----------- ------------
Income before income taxes . . . . . . . . . . . . . . . . . 30,982 30,120 12,577 (42,697) 30,982
Provision for income taxes . . . . . . . . . . . . . . . . . 11,727 11,747 4,905 (16,652) 11,727
-------- ------------ ------------ ----------- ------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . $19,255 $18,373 $7,672 $(26,045) $19,255
-------- ------------ ------------ ----------- ------------
-------- ------------ ------------ ----------- ------------
F-38
SUPPLEMENTAL COMBINING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
UNCONSOLIDATED
------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
-------- ------------ ------------ ----------- ------------
REVENUES:
Home Building. . . . . . . . . . . . . . . . . . . . . $244 $571,059 $43,029 $ (17,519) $ 596,813
Mortgage Lending . . . . . . . . . . . . . . . . . . . -- -- 19,725 -- 19,725
Asset Management . . . . . . . . . . . . . . . . . . . -- -- 34,535 (1,373) 33,162
Corporate. . . . . . . . . . . . . . . . . . . . . . . 2,082 -- 280 14 2,376
Equity in earnings of subsidiaries . . . . . . . . . . 26,257 5,277 -- (31,534) --
-------- ------------ ------------ ----------- ------------
Total Revenues . . . . . . . . . . . . . . . . . . . 28,583 576,336 97,569 (50,412) 652,076
-------- ------------ ------------ ----------- ------------
COSTS AND EXPENSES:
Home Building. . . . . . . . . . . . . . . . . . . . . (1,258) 552,025 36,448 (12,898) 574,317
Mortgage Lending . . . . . . . . . . . . . . . . . . . -- -- 12,217 -- 12,217
Asset Management . . . . . . . . . . . . . . . . . . . -- -- 24,166 -- 24,166
Corporate general and administrative . . . . . . . . . 14,757 -- 133 -- 14,890
Corporate and home building interest . . . . . . . . . 52 9,460 3,712 (1,770) 11,454
-------- ------------ ------------ ----------- ------------
Total Expenses. . . . . . . . . . . . . . . . . . . 13,551 561,485 76,676 (14,668) 637,044
-------- ------------ ------------ ----------- ------------
Income before income taxes and extraordinary gain. . . . 15,032 14,851 20,893 (35,744) 15,032
Provision for income taxes . . . . . . . . . . . . . . . 4,976 5,806 7,428 (13,234) 4,976
Income before extraordinary gain . . . . . . . . . . . . 10,056 9,045 13,465 (22,510) 10,056
Extraordinary gain from early extinguishment of debt,
net of income taxes. . . . . . . . . . . . . . . . . . . 15,823 -- -- -- 15,823
-------- ------------ ------------ ----------- ------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $ 25,879 $ 9,045 $ 13,465 $ (22,510) $ 25,879
-------- ------------ ------------ ----------- ------------
-------- ------------ ------------ ----------- ------------
F-39
SUPPLEMENTAL COMBINING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS)
UNCONSOLIDATED
----------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
------------ ------------ ------------ ------------ ------------
REVENUES:
Home Building . . . . . . . . . . . . . . . $ -- $403,037 $ 37,338 $(17,244) $423,131
Mortgage Lending. . . . . . . . . . . . . . -- -- 19,344 -- 19,344
Asset Management. . . . . . . . . . . . . . -- -- 67,738 (1,141) 66,597
Corporate . . . . . . . . . . . . . . . . . 2,540 -- 1,831 (1,875) 2,496
Equity in earnings of subsidiaries. . . . . 9,451 4,130 -- (13,581) --
----------- ------------ ----------- ------------ -----------
Total Revenues . . . . . . . . . . . . 11,991 407,167 126,251 (33,841) 511,568
----------- ------------ ----------- ------------ -----------
COSTS AND EXPENSES:
Home Building . . . . . . . . . . . . . . . -- 388,473 33,479 (16,382) 405,570
Mortgage Lending. . . . . . . . . . . . . . -- -- 10,114 -- 10,114
Asset Management. . . . . . . . . . . . . . -- -- 57,897 -- 57,897
Corporate general and administrative. . . . 18,310 -- (89) (113) 18,108
Corporate and home building interest. . . . 698 8,932 4,869 (1,140) 13,359
----------- ------------ ----------- ------------ -----------
Total Expenses . . . . . . . . . . . . 19,008 397,405 106,270 (17,635) 505,048
----------- ------------ ----------- ------------ -----------
Income (loss) before income taxes,
extraordinary gain (loss) and
cumulative effect of accounting change. . . . (7,017) 9,762 19,981 (16,206) 6,520
Provision (benefit) for income taxes. . . . . . (3,426) 3,385 7,780 (5,984) 1,755
----------- ------------ ----------- ------------ -----------
Income (loss) before extraordinary
gain (loss) and cumulative effect of
accounting change . . . . . . . . . . . . . (3,591) 6,377 12,201 (10,222) 4,765
Extraordinary gain (loss) from early
extinguishment of debt, net of income
taxes (benefit) . . . . . . . . . . . . . . 7,443 238 (2,851) (7,443) (2,613)
Cumulative effect of accounting change. . . . . -- 1,700 -- -- 1,700
----------- ------------ ----------- ------------ -----------
NET INCOME. . . . . . . . . . . . . . . . . . . $ 3,852 $ 8,315 $ 9,350 $(17,665) $ 3,852
----------- ------------ ----------- ------------ -----------
----------- ------------ ----------- ------------ -----------
F-40
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
UNCONSOLIDATED
-------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
---------- ------------ ------------ ----------- ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES . . . . . . . $(22,467) $ (29,215) $ 3,239 $ 11,653 $(36,790)
---------- ------------ ------------ ----------- ------------
INVESTING ACTIVITIES:
Mortgage Collateral
Principal payments and
prepayments received . . . . -- 1,679 27,890 -- 29,569
Sales . . . . . . . . . . . . . -- -- 19,526 -- 19,526
Distributions of Capital
From Equity CMO Interests. . . . . -- -- 3,213 -- 3,213
Changes in Investments and
Marketable Securities, net . . . . (6,377) -- -- -- (6,377)
Redemption of (Investment in)
Metropolitan District Bonds. . . . 14,000 2,395 -- -- 16,395
Affiliate Notes Receivable . . . . . 13,282 -- 11,097 (24,379) --
Changes in Restricted Cash . . . . . -- -- 16,159 -- 16,159
Other, net . . . . . . . . . . . . . (301) 1,424 (246) -- 877
---------- ------------ ------------ ----------- ------------
Net Cash Provided By Investing
Activities . . . . . . . . . . . . 20,604 5,498 77,639 (24,379) 79,362
---------- ------------ ------------ ----------- ------------
FINANCING ACTIVITIES:
Net Increase (Reduction) in
Borrowings From Parent and
Subsidiaries . . . . . . . . . . . (1,623) 18,905 (12,675) (4,607) --
Mortgage-backed Bonds -
Principal Payments . . . . . . . . -- -- (60,094) -- (60,094)
Lines of Credit
Advances. . . . . . . . . . . . -- 641,874 -- -- 641,874
Principal payments. . . . . . . -- (606,160) (6,289) -- (612,449)
Notes Payable
Borrowings. . . . . . . . . . . -- 15,870 -- -- 15,870
Principal payments. . . . . . . (5,370) (37,575) (1,890) -- (44,835)
Maturity of Affiliate-Owned
Debt. -- (17,333) -- 17,333 --
Treasury Stock Purchases . . . . . . (1,505) -- -- -- (1,505)
Dividend Payments. . . . . . . . . (1,141) -- -- -- (1,141)
Other, net . . . . . . . . . . . . 269 -- -- -- 269
---------- ------------ ------------ ----------- ------------
Net Cash Provided By (Used In)
Financing Activities . . . . . . . (9,370) 15,581 (80,948) 12,726 (62,011)
---------- ------------ ------------ ----------- ------------
Net Decrease in Cash and Cash
Equivalents. . . . . . . . . . . . (11,233) (8,136) (70) -- (19,439)
Cash and Cash Equivalents
Beginning of Year. . . . . . . . 42,443 17,792 2,768 -- 63,003
---------- ------------ ------------ ----------- ------------
End of Year. . . . . . . . . . . $ 31,210 $ 9,656 $ 2,698 $ -- $ 43,564
========== ============ ============ =========== ============
F-41
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
UNCONSOLIDATED
----------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
------------ ------------ ------------ ------------ -----------
NET CASH USED IN OPERATING ACTIVITIES. . . . . . $ (5,410) $ (10,084) $ (13,562) $ (5,181) $(34,237)
------------ ------------ ------------ ------------ -----------
INVESTING ACTIVITIES:
Mortgage Collateral
Principal payments and
prepayments received. . . . . . . . . . . -- 801 94,408 -- 95,209
Sales . . . . . . . . . . . . . . . . . . . -- -- 47,060 -- 47,060
Distributions of Capital
From Equity CMO Interests. . . . . . . . . . . -- -- 7,403 -- 7,403
CMO Bond Principal Payments Received . . . . . . 7,114 7,114
Changes in Investments and
Marketable Securities, net . . . . . . . . . . 12,000 -- -- -- 12,000
Redemption of (Investment in)
Metropolitan District Bonds. . . . . . . . . . (8,700) -- -- -- (8,700)
Proceeds From Affiliate Debt
Maturity . . . . . . . . . . . . . . . . . . . 20 1,750 (1,770) --
Affiliate Notes Receivable. . . . . . . . . . . 6,406 -- 4,120 (10,526) --
Changes in Restricted Cash . . . . . . . . . . . -- -- 13,071 -- 13,071
Other, net . . . . . . . . . . . . . . . . . . . (3,054) (318) (704) (4,076)
----------- ---------- ----------- ------------ ----------
Net Cash Provided By Investing Activities. . . . 6,652 503 174,222 (12,296) 169,081
----------- ---------- ----------- ------------ ----------
FINANCING ACTIVITIES:
Net Increase (Reduction) in Borrowings
From Parent and Subsidiaries . . . . . . . . . (20,758) 26,761 (11,346) 5,343 --
Mortgage-backed Bonds - Principal
Payments . . . . . . . . . . . . . . . . . . . -- -- (139,658) -- (139,658)
Lines of Credit
Advances. . . . . . . . . . . . . . . . . . 2,887 349,523 -- -- 352,410
Principal payments. . . . . . . . . . . . . (4,921) (351,532) (8,934) -- (365,387)
Senior and Subordinated Notes
Net proceeds. . . . . . . . . . . . . . . . 204,013 -- -- -- 204,013
Payments. . . . . . . . . . . . . . . . . . (54,518) -- -- 20 (54,498)
Notes Payable
Borrowings. . . . . . . . . . . . . . . . . -- 75,493 3,836 -- 79,329
Principal payments. . . . . . . . . . . . . (103,607) (85,010) (4,323) -- (192,940)
Maturity of Affiliate-Owned Debt . . . . . . . . (1,750) -- -- 1,750 --
Affiliate notes payable. . . . . . . . . . . . . -- (10,256) -- 10,256 --
Treasury Stock Purchase. . . . . . . . . . . . . (15,173) -- -- -- (15,173)
Other, net . . . . . . . . . . . . . . . . . . . (965) (108) -- 108 (965)
----------- ---------- ----------- ----------- ----------
Net Cash Provided By (Used In)
Financing Activities . . . . . . . . . . . . . 5,208 4,871 (160,425) 17,477 (132,869)
----------- ---------- ----------- ----------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents. . . . . . . . . . . . . . . . . . 6,450 (4,710) 235 -- 1,975
Cash and Cash Equivalents
Beginning of Year. . . . . . . . . . . . . . 35,993 22,502 2,533 -- 61,028
----------- ---------- ----------- ----------- ----------
End of Year. . . . . . . . . . . . . . . . . $ 42,443 $ 17,792 $ 2,768 $ -- $ 63,003
----------- ---------- ----------- ----------- ----------
----------- ---------- ----------- ----------- ----------
F-42
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS)
UNCONSOLIDATED
-------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
--------- ------------ ------------ ----------- ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES . . . . . . . . . . $(10,657) $ 21,514 $ 3,716 $ 1,788 $ 16,361
INVESTING ACTIVITIES:
Mortgage Collateral
Principal payments
and prepayments received. . . . . -- 833 209,163 -- 209,996
Sales. . . . . . . . . . . . . . . . -- -- 82,528 -- 82,528
Distributions of Capital
From Equity CMO Interests. . . . . . -- -- 13,648 -- 13,648
CMO Bond
Purchase . . . . . . . . . . . . . . -- -- (7,367) -- (7,367)
Principal payments . . . . . . . . . -- -- 709 -- 709
Changes in Investments and
Marketable Securities, net . . . . . (12,000) -- -- -- (12,000)
Investment in Metropolitan
District Bonds . . . . . . . . . . . (2,700) -- -- -- (2,700)
Changes in Restricted Cash. . . . . . . . -- -- 7,847 -- 7,847
Affiliate Notes Receivable
Advances . . . . . . . . . . . . . . -- -- (22,500) 22,500 --
Repayments . . . . . . . . . . . . . 12,298 -- 16,491 (28,789) --
Other, net. . . . . . . . . . . . . . . . (598) (738) (444) -- (1,780)
-------- --------- --------- -------- ---------
Net Cash Provided By (Used In)
Investing Activities . . . . . . . . (3,000) 95 300,075 (6,289) 290,881
-------- --------- --------- -------- ---------
FINANCING ACTIVITIES:
Net Increase (Reduction) in
Borrowings From Parent and
Subsidiaries . . . . . . . . . . . . . 34,959 (1,618) (31,542) (1,799) --
Mortgage-backed Bonds -
Principal Payments. . . . . . . .. . . -- -- (281,326) -- (281,326)
Lines of Credit
Advances . . . . . . . . . . . . . . 16,309 136,608 12,994 -- 165,911
Principal payments . . . . . . . . . (20,228) (129,332) (902) -- (150,462)
Notes Payable
Borrowings . . . . . . . . . . . . . -- 38,604 356 -- 38,960
Principal payments . . . . . . . . . (11,615) (53,795) (2,743) -- (68,153)
Notes Payable - Affiliate
Advances . . . . . . . . . . . . . . -- 22,500 -- (22,500) --
Principal payments . . . . . . . . . -- (28,789) -- 28,789 --
Other . . . . . . . . . . . . . . . . . . 223 -- -- -- 223
-------- --------- ----------- -------- ---------
Net Cash Provided By (Used In)
Financing Activities . . . . . . . . 19,648 (15,822) (303,163) 4,490 (294,847)
-------- --------- --------- -------- ---------
Net Increase in Cash and Cash
Equivalents . . . . . . . . . . . . 5,991 5,787 628 (11) 12,395
Cash and Cash Equivalents
Beginning of Year . . . . . . . . . 30,002 16,715 1,905 11 48,633
-------- --------- --------- -------- ---------
End of Year . . . . . . . . . . . . $ 35,993 $ 22,502 $ 2,533 $ -- $ 61,028
-------- --------- --------- -------- ---------
-------- --------- --------- -------- ---------
F-43
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Investments in subsidiaries are accounted for on the equity method for
purposes of the supplemental information. The Guarantors follow the accounting
policies set forth in Note A.
RELATED PARTIES. The Guarantors are members of a group of affiliated
companies and have transactions and relationships with members of the group.
MDC charges the Guarantors for a share of its general and administrative
expenses, which amounted to $2,846,000, $2,654,000 and $2,552,000, respectively,
in 1994, 1993 and 1992.
MDC pays costs associated with litigation and other significant claims
against the Guarantors as it considers such costs to be a general corporate
expense. Amounts paid by MDC on behalf of the Guarantors amounted to
approximately $769,000, $3,481,000, and $1,620,000, respectively, in 1994, 1993
and 1992.
Advances and notes receivable/payable-Parent (M.D.C. Holdings, Inc.) and
subsidiaries consists, among other things, of ongoing activities relating to the
Guarantors' participation in MDC's cash management system and current and
deferred income taxes.
INCOME TAXES. The Guarantors report their results of operations as if they
were separate taxpayers. The current tax liabilities and deferred income tax
assets and liabilities of the Guarantors are reported in the financial
statements in the Advances and notes receivable/payable--Parent and subsidiaries
accounts.
P. RELATED PARTY TRANSACTIONS
MDC has transacted business with related or affiliated companies and with
certain officers and directors of the Company.
FAMC has agreements with Asset Investors Corporation and Commercial
Assets, Inc., each a publicly-traded REIT, to advise them on various facets of
their business and to manage their day-to-day operations subject to the
supervision of their respective boards of directors. FAMC earned fees from
management and administration, including from acquisitions and incentives from
these agreements which are included in asset management revenues of $2,780,000
during 1994, $2,180,000 during 1993 and $2,566,000 during 1992.
The Company acquired certain assets from Messrs. Mizel and Mandarich in
February 1994. See Note C.
F-44
On December 28, 1989, MDC granted loans to Messrs. Mizel and Mandarich for
purposes of purchasing shares of common stock of Richmond Homes. On February 2,
1994, in conjunction with MDC's acquisition of Richmond Homes common stock from
Messrs. Mizel and Mandarich as discussed in Note C, MDC exchanged these loans
for new loans of equal amount. Each of the notes evidencing the new loans now
provides that, upon sale of any of the MDC Common Stock acquired by
Messrs. Mizel and Mandarich in exchange for their respective Richmond Homes
common stock, the cash proceeds shall be remitted to the Company in payment of
accrued interest and principal under the note. The new loans, which mature in
1999, bear interest at 8.0% and are unsecured. At both December 31, 1994 and
1993, $840,000 of such loans were outstanding. Interest income of $67,000 was
recognized on these loans in each of 1994, 1993 and 1992.
The Company utilizes the services of companies owned by two former
employees of the Company, one of whom is the brother-in-law of a current officer
and director of the Company. During 1994, 1993 and 1992, the Company paid
$11,880,000, $11,557,000 and $9,268,000, respectively, for plumbing, door and
millwork services provided by these companies.
The Company leases office space and furniture to certain organizations in
which certain officers and/or directors of the Company have an ownership
interest. The rental revenue from those leases totalled $250,000, $259,000 and
$200,000, respectively, in 1994, 1993 and 1992.
The Company utilizes in the ordinary course of business the services of a
marketing and communications firm which is owned by the brother-in-law of an
officer and director of the Company. Total fees paid for advertising and
marketing design services were $275,000, $246,000 and $134,000, respectively, in
1994, 1993 and 1992.
F-45
Q. SUMMARIZED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
Unaudited summarized quarterly consolidated financial information for the
two years ended December 31, 1994 is as follows (in thousands, except per share
amounts):
QUARTER
--------------------------------------
FOURTH THIRD SECOND FIRST
-------- -------- -------- --------
1994
Revenues . . . . . . . . . . . . . . . . . . . . $244,156 $214,249 $197,771 $168,693
-------- -------- -------- --------
-------- -------- -------- --------
Net Income. . . . . . . . . . . . . . . . . $ 4,325 $ 5,420 $ 5,704 $ 3,806
-------- -------- -------- --------
-------- -------- -------- --------
Earnings Per Share
Primary . . . . . . . . . . . . . . . . . . $ .21 $ .26 $ .28 $ .19
-------- -------- -------- --------
-------- -------- -------- --------
Fully-Diluted . . . . . . . . . . . . . . . $ .20 $ .24 $ .25 $ .18
-------- -------- -------- --------
-------- -------- -------- --------
Weighted-Average Shares Outstanding
Primary . . . . . . . . . . . . . . . . . . 20,320 20,499 20,480 20,326
-------- -------- -------- --------
-------- -------- -------- --------
Fully-Diluted . . . . . . . . . . . . . . . 23,939 24,111 24,094 23,939
-------- -------- -------- --------
-------- -------- -------- --------
QUARTER
--------------------------------------
FOURTH THIRD SECOND FIRST
-------- -------- -------- --------
1993
Revenues . . . . . . . . . . . . . . . . . . . . $185,343 $191,191 $159,657 $115,885
-------- -------- -------- --------
-------- -------- -------- --------
Income before extraordinary
gain and cumulative effect of
accounting change . . . . . . . . . . . . . $ 2,904 $ 3,223 $ 3,014 $ 915
Extraordinary gain . . . . . . . . . . . . . . . 15,823 -- -- --
-------- -------- -------- --------
Net Income. . . . . . . . . . . . . . . . . $ 18,727 $ 3,223 $ 3,014 $ 915
-------- -------- -------- --------
-------- -------- -------- --------
Earnings Per Share - Primary
and Fully-Diluted
Income before extraordinary gain. . . . . $ .13 $ .14 $ .14 $ .04
Extraordinary gain. . . . . . . . . . . . .71 -- -- --
-------- -------- -------- --------
Net Income. . . . . . . . . . . . . . $ .84 $ .14 $ .14 $ .04
-------- -------- -------- --------
-------- -------- -------- --------
Weighted-Average Shares
Outstanding - Primary and
Fully-Diluted. . . . . . . . . . . . . . . . 22,359 22,431 22,337 22,231
-------- -------- -------- --------
-------- -------- -------- --------
F-46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required to be set forth hereunder has been omitted and will be
incorporated by reference, when filed, from the Company's Proxy Statement for
its 1995 Annual Meeting of Shareowners to be held on or about May 25, 1995.
ITEM 11. EXECUTIVE COMPENSATION.
Information required to be set forth hereunder has been omitted and will be
incorporated by reference, when filed, from the Company's Proxy Statement for
its 1995 Annual Meeting of Shareowners to be held on or about May 25, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required to be set forth hereunder has been omitted and will be
incorporated by reference, when filed, from the Company's Proxy Statement for
its 1995 Annual Meeting of Shareowners to be held on or about May 25, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required to be set forth hereunder has been omitted and will be
incorporated by reference, when filed, from the Company's Proxy Statement for
its 1995 Annual Meeting of Shareowners to be held on or about May 25, 1995.
36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) 1. FINANCIAL STATEMENTS.
The following consolidated financial statements of the Company and its
subsidiaries are included in Part II, Item 8:
PAGE
----
M.D.C. Holdings, Inc. and Subsidiaries
Report of Independent Accountants . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1994 and 1993. . . . . F-3
Consolidated Statements of Income for the three
years ended December 31, 1994 . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Stockholders' Equity for
the three years ended December 31, 1994 . . . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows for the three
years ended December 31, 1994 . . . . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements. . . . . . . . . . . . . .F-10
All schedules are omitted because they are not applicable, not material, not
required or the required information is included in the applicable financial
statements or notes thereto.
Financial statements for certain unconsolidated partnerships and joint
ventures owned 50% or less by the Company or its subsidiaries, which are
accounted for on the equity method, have been omitted because they do not,
individually, or in the aggregate, constitute a significant subsidiary.
37
(A) 3. EXHIBITS.
3.1(a) Form of Amendment to the Certificate of Incorporation of M.D.C.
Holdings, Inc. (hereinafter sometimes referred to as "MDC", the
"Company" or the "Registrant") regarding director liability,
filed with the Delaware Secretary of State on July 1, 1987
(incorporated by reference to Exhibit 3.1(a) of the Company's
Quarterly Report on Form 10-Q dated June 30, 1987). *
3.1(b) Form of Certificate of Incorporation of MDC, as amended
(incorporated herein by reference to Exhibit 3.1(b) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1987). *
3.2(a) Form of Amendment to the Bylaws of MDC regarding indemnification
adopted by its Board of Directors and effective as of March 20,
1987 (incorporated herein by reference to Exhibit 3.2(a) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1987). *
3.2(b) Form of Bylaws of MDC, as amended (incorporated herein by
reference to Exhibit 3.2(b) of the Company's Quarterly Report on
Form 10-Q dated June 30, 1987). *
4.1 Form of Certificate for shares of the Company's common stock
(incorporated herein by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-3, Registration No. 33-426). *
4.2(a) Form of Indenture, dated as of June 15, 1984, between the Company
and The Royal Bank and Trust Company, with respect to the
Company's Subordinated Exchangeable Variable Rate Notes (the
"1984 RBTC Indenture") (incorporated herein by reference to
Exhibit 4.3 of the Company's Registration Statement on Form S-2,
Registration No. 2-90744). *
4.2(b) First Supplemental Indenture, dated as of June 20, 1985, to the
1984 RBTC Indenture (incorporated herein by reference to Exhibit
4.13(a) of the Company's Registration Statement on Form S-3,
Registration No. 33-426). *
4.2(c) Form of the Company's Subordinated Exchangeable Variable Rate
Notes (filed as Exhibits A and B to Exhibit 4.13 and incorporated
herein by reference to
38
Exhibit 4.3 of the Company's Registration Statement on Form S-2,
Registration No. 2-90744). *
4.3(a) Form of Senior Notes Indenture, dated as of December 15, 1993, by
and among the Company, the Guarantors and Pledgors named therein
and First Bank National Association, a National Association, as
Trustee, with respect to the Company's 11 1/8% Senior Notes due
2003, including form of Senior Note (the "Senior Notes
Indenture") (incorporated herein by reference to Exhibit 4.1 of
the Company's Form 8-K dated January 11, 1994). *
4.3(b) First Supplemental Indenture, dated as of February 2, 1994, to
the Senior Notes Indenture (incorporated herein by reference to
Exhibit 4.4(b) of the Company's Annual Report on Form 10-K for
the year ended December 31, 1993). *
4.4 Form of Convertible Notes Indenture, dated as of December 15,
1993, by and between the Company and First Bank National
Association, a National Association, as Trustee, with respect to
the Company's 8 3/4% Convertible Subordinated Notes due 2005,
including form of Convertible Note (incorporated herein by
reference to Exhibit 4.2 of the Company's Form 8-K dated January
11, 1994). *
4.5 Loan Agreement and related Promissory Note between Richmond
American Homes, Inc., Richmond American Homes of California,
Inc., Richmond Homes, Inc. I, Richmond Homes, Inc. II and
Richmond American Homes of Nevada, Inc., all wholly owned
subsidiaries of the Company and Bank One, Arizona, N.A. ("Bank
One") dated June 13, 1994.
4.6 Guaranty of Payment between the Company and Bank One dated June
13, 1994.
4.7 Form of Senior Notes Registration Rights Agreement, dated as of
December 28, 1993, by and among the Company, the Guarantors named
therein and the Purchasers who are signatories thereto, with
respect to the Company's Senior Notes (incorporated herein by
reference to Exhibit 4.3 of the Company's Form 8-K dated January
11, 1994). *
4.8 Form of Convertible Notes Registration Rights Agreement, dated as
of December 28, 1993, by and between the Company and the
Purchasers who are
39
signatories thereto, with respect to the Company's Convertible
Subordinated Notes (incorporated herein by reference to Exhibit
4.4 of the Company's Form 8-K dated January 11, 1994). *
4.9 Guaranty Agreement between the Company as guarantor and Bank One,
Denver, N.A., as Trustee under Indenture of Trust dated as of
June 1, 1994 between it and Superior Metropolitan District No. 1
dated as of June 1, 1994 (incorporated herein by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q dated
September 30, 1994). *
4.10 Guaranty Agreement between the Company as guarantor and Bank One,
Denver, N.A., as Trustee under Indenture of Trust dated as of
June 1, 1994 between it and Superior Metropolitan District No. 2,
dated as of June 1, 1994 (incorporated herein by reference to
Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q dated
September 30, 1994). *
10.1(a) The Company's 1983 Incentive Stock Option Plan (incorporated
herein by reference to Exhibit 10.4 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1982). *
10.1(b) 1987 Amendments to the Incentive Stock Option Plan of MDC
(incorporated herein by reference to Exhibit 10.1(a) of the
Company's Annual Report on Form 10-K for the year ended December
31, 1986). *
10.1(c) 1988 Amendment to the 1983 Incentive Stock Option Plan of MDC
(incorporated herein by reference to Exhibit 19.3(a) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1988). *
10.2(a) The Company's 1983 Non-Qualified Stock Option Plan (incorporated
herein by reference to Exhibit 10.5 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1983). *
10.2(b) 1988 Amendment to the 1983 Non-Qualified Stock Option Plan of MDC
(incorporated herein by reference to Exhibit 10.2(b) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1988). *
10.3 The Company's Employee Equity Incentive Plan (incorporated herein
by reference to Exhibit A of the Company's Proxy Statement dated
May 14, 1993
40
relating to the 1993 Annual Meeting of Stockholders).*
10.4 The Company's Director Equity Incentive Plan (incorporated herein
by reference to Exhibit B of the Company's Proxy Statement dated
May 14, 1993 relating to the 1993 Annual Meeting of
Stockholders).*
10.5(a) Amended Management Agreement between Asset Investors Corporation
("AIC") and Financial Asset Management Corporation ("FAMC") dated
as of January 1, 1990 (incorporated herein by reference to
Exhibit 10.8(d) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1989). *
10.5(b) Amended Management Agreement between AIC and FAMC dated as of
January 1, 1991 (incorporated herein by reference to Exhibit 19
of the Company's Quarterly Report on Form 10-Q dated June 30,
1991). *
10.5(c) Amended Management Agreement between AIC and FAMC dated as of
January 1, 1992 (incorporated herein by reference to Exhibit
10.3(c) of the Company's Annual Report on Form 10-K for the year
ended December 31, 1991). *
10.5(d) Management Agreement between AIC and FAMC dated as of January 1,
1993.
10.5(e) Amendment to Management Agreement dated as of January 1, 1993
between AIC and FAMC dated as of October 12, 1993.
10.5(f) Management Agreement between AIC and FAMC dated as of January 1,
1994.
10.5(g) Management Agreement between Commercial Assets, Inc. ("CAI") and
FAMC dated as of August __, 1993.
10.5(h) Management Agreement between CAI and FAMC dated as of October 12,
1993.
10.6 CMO Participation Agreement among the Company, M.D.C. Asset
Investors, Inc. and Yosemite Financial, Inc. (incorporated herein
by reference to Exhibit 10.6 of M.D.C. Asset Investors, Inc.'s
Registration Statement on Form S-11, Registration No. 33-9557). *
41
10.7(a) Form of Indemnity Agreement entered into between the Registrant
and each member of its Board of Directors as of March 20, 1987
(incorporated herein by reference to Exhibit 19.1 of the
Company's Quarterly Report on Form 10-Q dated June 30, 1987). *
10.7(b) Form of Indemnity Agreement entered into between the Registrant
and certain officers of the Registrant on various dates during
1988 and early 1989 (incorporated herein by reference to
Exhibit 10.18(b) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1988). *
10.7(c) Form of Indemnity Agreement entered into between the Registrant
and John J. Heaney dated as of May 12, 1989 (incorporated herein
by reference to Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990). *
10.7(d) Form of Agreement, relating to the advancement of expenses and
indemnification, entered into between the Registrant and each of
its current and former officers and directors named in certain
securities litigation (incorporated herein by reference to
Exhibit 10.18(c) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1988). *
10.8 Indemnification Agreement by and among the Company and Larry A.
Mizel ("Mizel") and David D. Mandarich ("Mandarich") dated
December 21, 1989 (incorporated herein by reference to Exhibit 9
of the Company's Form 8-K dated December 28, 1989). *
10.9 Promissory Note in the amount of $559,920 from Mizel to the
Company dated February 2, 1994 (incorporated herein by reference
to Exhibit 10.9 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1993). *
10.10 Promissory Note in the amount of $280,080 from Mandarich to the
Company February 2, 1994 (incorporated herein by reference to
Exhibit 10.10 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1993). *
10.11 Fifth Amendment to Piney Creek Development Co. Joint Venture
Agreement dated June 13, 1991 by and between Commercial Federal
Bank and Land (incorporated herein by reference to Exhibit 10.25
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1991). *
10.12 Letter Agreement effective October 1, 1994 by and between Gilbert
Goldstein, P.C. and the Company.
42
10.13 MDC 401(k) Savings Plan (incorporated herein by reference to
Exhibit 10.31(a) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992).*
10.14(a) Purchase Agreement dated as of December 6, 1993 by and between
the Company and the Base Assets Trust (incorporated herein by
reference to Exhibit (c)(2) of the Company's Form 8-K dated
December 6, 1993).*
10.14(b) Amendment to Purchase Agreement dated as of December 10, 1993 by
and between the Company and the Base Assets Trust (incorporated
herein by reference to Exhibit (c)(3) of the Company's Form 8-K
dated December 6, 1993).*
10.15(a) Option Agreement dated as of December 6, 1993 by and among the
Company and Mizel and Mandarich (incorporated herein by reference
to Exhibit (c)(4) of the Company's Form 8-K dated December 6,
1993).*
10.15(b) First Amendment to Option Agreement dated December 20, 1993 by
and among the Company and Mizel and Mandarich (incorporated
herein by reference to Exhibit 10.15(b) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1993).*
10.16 M.D.C. Holdings, Inc. Executive Officer Performance-Based
Compensation Plan (incorporated herein by reference to Exhibit A
to the Company's Proxy Statement dated May 25, 1994 related to
the 1994 Meeting of Shareowners). *
10.17 Employment Agreement between the Company and Michael Touff dated
December 31, 1994.
21 Subsidiaries of the Company.
23 Consent of Price Waterhouse LLP.
27 Financial Data Schedule.
99 Agreement and Plan of Merger dated February 2, 1994 between
Richmond Acquisitions, Inc. and Richmond Homes (incorporated
herein by reference to Exhibit 99 of the Company's Annual Report
on Form 10-K for the year ended December 31, 1993).*
___________________
* Incorporated herein by reference.
(B) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the last quarter of the year ended
December 31, 1994.
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
this 27th day of March, 1995 on its behalf by the undersigned, thereunto duly
authorized.
M.D.C. HOLDINGS, INC.
(Registrant)
By: /s/ Larry A. Mizel
-----------------------
Larry A. Mizel
CHIEF EXECUTIVE OFFICER
By: /s/ Paris G. Reece III
-----------------------
Paris G. Reece III
Senior VICE PRESIDENT, CHIEF
FINANCIAL OFFICER AND PRINCIPAL
ACCOUNTING OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and/or
directors of the Registrant, by virtue of their signatures to this report,
appearing below, hereby constitute and appoint Larry A. Mizel, Spencer I. Browne
and Paris G. Reece III, or any one of them, with full power of substitution, as
attorneys-in-fact in their names, places and steads to execute any and all
amendments to this report in the capacities set forth opposite their names and
hereby ratify all that said attorneys-in-fact do by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Larry A. Mizel Chairman of the Board of March 27, 1995
----------------------- Directors and Chief --------------
Larry A. Mizel Executive Office
/s/ Spencer I. Browne Director, President and March 27, 1995
----------------------- Co-Chief Operating --------------
Spencer I. Browne Officer
44
SIGNATURE TITLE DATE
--------- ----- ----
/s/ David D. Mandarich Director, Executive Vice March 27, 1995
----------------------- --------------
David D. Mandarich President - Real Estate
and Co-Chief Operating
Officer
/s/ Steven J. Borick Director March 27, 1995
----------------------- --------------
Steven J. Borick
/s/ Gilbert Goldstein Director March 27, 1995
----------------------- --------------
Gilbert Goldstein
/s/ William B. Kemper Director March 27, 1995
----------------------- --------------
William B. Kemper
/s/ Herbert T. Buchwald Director March 27, 1995
----------------------- --------------
Herbert T. Buchwald
(A Majority of the Board of Directors)
45
INDEX TO EXHIBITS
4.5 Loan Agreement and related Promissory Note between Richmond
American Homes, Inc., Richmond American Homes of California,
Inc., Richmond Homes, Inc. I, Richmond Homes, Inc. II and
Richmond American Homes of Nevada, Inc., all wholly owned
subsidiaries of the Company and Bank One, Arizona, N.A. ("Bank
One") dated June 13, 1994.
4.6 Guaranty of Payment between the Company and Bank One dated June
13, 1994.
10.5(d) Management Agreement between AIC and FAMC dated as of January 1,
1993.
10.5(e) Amendment to Management Agreement dated as of January 1, 1993
between AIC and FAMC dated as of October 12, 1993.
10.5(f) Management Agreement between AIC and FAMC dated as of January 1,
1994.
10.5(g) Management Agreement between Commercial Assets, Inc. ("CAI") and
FAMC dated as of August __, 1993.
10.5(h) Management Agreement between CAI and FAMC dated as of October 12,
1993.
10.12 Letter Agreement effective October 1, 1994 by and between Gilbert
Goldstein, P.C. and the Company.
10.17 Employment Agreement between the Company and Michael Touff dated
December 31, 1994.
21 Subsidiaries of the Company.
23 Consent of Price Waterhouse LLP.
27 Financial Data Schedule.