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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
(MARK ONE)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-8951
M.D.C. HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-0622967
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NO.)
ORGANIZATION)
3600 SOUTH YOSEMITE STREET, 80237
SUITE 900
DENVER, COLORADO (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(303) 773-1100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
AS OF JULY 26, 1995, 19,249,000 SHARES OF M.D.C. HOLDINGS, INC. COMMON STOCK
WERE OUTSTANDING.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
M.D.C. HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1995
INDEX
PAGE
NO.
----
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Consolidated Financial Statements:
Balance Sheets as of June 30, 1995
(Unaudited) and December 31, 1994 . . . . 1
Statements of Income (Unaudited) for the
three and six months ended June 30, 1995 3
and 1994. . . . . . . . . . . . . . . . .
Statements of Cash Flows (Unaudited) for the
six months ended June 30, 1995 and 1994. . 4
Notes to Financial Statements (Unaudited) . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . 18
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings . . . . . . . . . . . . . 30
Item 4. Submission of Matters to a Vote of
Shareowners . . . . . . . . . . . . . . . . 31
Item 6. Exhibits and Reports on Form 8-K. . . . . . 31
(i)
M.D.C. HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1995 1994
-------- -----------
ASSETS (UNAUDITED)
Corporate
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 9,234 $ 31,210
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . 9,661 9,962
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 11,435 11,944
Deferred issue costs, net . . . . . . . . . . . . . . . . . . . . . . 10,286 10,621
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . 3,129 3,270
-------- --------
43,745 67,007
-------- --------
Home Building
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . 5,988 10,162
Home sales and other accounts receivable . . . . . . . . . . . . . . 13,290 12,508
Investments and marketable securities, net . . . . . . . . . . . . . 6,300 6,089
Inventories, net
Housing completed or under construction . . . . . . . . . . . . . . 267,022 280,319
Land and land under development . . . . . . . . . . . . . . . . . . 197,423 183,838
Prepaid expenses and other assets, net . . . . . . . . . . . . . . . 40,877 43,975
-------- --------
530,900 536,891
-------- --------
Mortgage Lending
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . 1,527 1,607
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,900 2,650
Accrued interest and other assets, net . . . . . . . . . . . . . . . 1,168 1,447
Mortgage loans held in inventory, net . . . . . . . . . . . . . . . . 51,064 44,368
-------- --------
55,659 50,072
-------- --------
Asset Management
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . 460 585
Mortgage Collateral, net, and assets related to mortgage-backed bonds
and related liabilities . . . . . . . . . . . . . . . . . . . . . . 51,392 64,574
Other loans and assets, net . . . . . . . . . . . . . . . . . . . . . 6,280 6,316
-------- --------
58,132 71,475
-------- --------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $688,436 $725,445
-------- --------
-------- --------
See notes to condensed consolidated financial statements.
-1-
M.D.C. HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
1995 1994
-------- -----------
LIABILITIES (Unaudited)
Corporate
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . $ 19,238 $ 34,311
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 11,878 11,166
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,560 3,583
Senior Notes, net . . . . . . . . . . . . . . . . . . . . . . . . . . 187,436 187,352
Subordinated notes, net . . . . . . . . . . . . . . . . . . . . . . . 38,219 38,217
-------- --------
260,331 274,629
-------- --------
Home Building
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . 75,862 75,399
Lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,106 62,332
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,449 33,585
-------- --------
153,417 171,316
-------- --------
Mortgage Lending
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . 6,493 2,450
Line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,131 23,211
-------- --------
29,624 25,661
-------- --------
Asset Management
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . 646 670
Mortgage-backed bonds, net, and related liabilities, recourse solely
to limited-purpose subsidiary assets . . . . . . . . . . . . . . . . 47,596 60,874
-------- --------
48,242 61,544
-------- --------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 491,614 533,150
-------- --------
COMMITMENTS AND CONTINGENCIES . . . . . . . . . . . . . . . . . . . . . - - - -
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 25,000,000 shares authorized; none
issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - - -
Common Stock, $.01 par value; 100,000,000 shares authorized;
22,384,000 and 21,187,000 shares issued, respectively, at June 30,
1995 and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . 224 212
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 135,561 133,934
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 79,583 71,502
-------- --------
215,368 205,648
Less treasury stock, at cost; 3,135,000 and 2,314,000 shares,
respectively, at June 30, 1995 and December 31, 1994 . . . . . . . . (18,546) (13,353)
-------- --------
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . 196,822 192,295
-------- --------
Total Liabilities and Stockholders' Equity . . . . . . . . . . . . $688,436 $725,445
-------- --------
-------- --------
See notes to condensed consolidated financial statements.
-2-
M.D.C. HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ ------------------------
1995 1994 1995 1994
-------- -------- -------- --------
REVENUES:
Home Building . . . . . . . . . . . . . . . . . . . . . . $207,339 $190,257 $391,868 $348,835
Mortgage Lending . . . . . . . . . . . . . . . . . . . . 4,550 3,903 9,217 9,390
Asset Management . . . . . . . . . . . . . . . . . . . . 2,972 3,336 5,881 7,602
Corporate . . . . . . . . . . . . . . . . . . . . . . . . 424 275 837 637
-------- -------- -------- --------
Total Revenues . . . . . . . . . . . . . . . . . . . . 215,285 197,771 407,803 366,464
-------- -------- -------- --------
COSTS AND EXPENSES:
Home Building . . . . . . . . . . . . . . . . . . . . . . 199,274 177,931 375,794 327,196
Mortgage Lending . . . . . . . . . . . . . . . . . . . . 2,142 2,265 3,926 4,848
Asset Management . . . . . . . . . . . . . . . . . . . . 1,717 2,553 3,753 5,797
Corporate general and administrative . . . . . . . . . . 3,482 3,966 6,609 7,899
Corporate and home building interest (Note C) . . . . . . 1,890 2,051 4,729 5,007
-------- -------- -------- --------
Total Expenses . . . . . . . . . . . . . . . . . . . . 208,505 188,766 394,811 350,747
-------- -------- -------- --------
Income before income taxes . . . . . . . . . . . . . . . . 6,780 9,005 12,992 15,717
Provision for income taxes . . . . . . . . . . . . . . . . 2,449 3,301 4,593 6,207
-------- -------- -------- --------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 4,331 $ 5,704 $ 8,399 $ 9,510
-------- -------- -------- --------
-------- -------- -------- --------
EARNINGS PER SHARE
Primary . . . . . . . . . . . . . . . . . . . . . . . . . $ .21 $ .28 $ .41 $ .47
-------- -------- -------- --------
-------- -------- -------- --------
Fully-diluted . . . . . . . . . . . . . . . . . . . . . . $ .20 $ .25 $ .38 $ .43
-------- -------- -------- --------
-------- -------- -------- --------
WEIGHTED-AVERAGE SHARES OUTSTANDING
Primary . . . . . . . . . . . . . . . . . . . . . . . . . 20,305 20,480 20,300 20,403
-------- -------- -------- --------
-------- -------- -------- --------
Fully-diluted . . . . . . . . . . . . . . . . . . . . . . 24,006 24,094 24,043 24,045
-------- -------- -------- --------
-------- -------- -------- --------
DIVIDENDS PER SHARE . . . . . . . . . . . . . . . . . . . . $ .03 $ .02 $ .05 $ .02
-------- -------- -------- --------
-------- -------- -------- --------
See notes to condensed consolidated financial statements.
-3-
M.D.C. HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS
ENDED JUNE 30,
---------------------------
1995 1994
-------- --------
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,399 $ 9,510
Adjustments To Reconcile Net Income To Net Cash Used In Operating
Activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 4,531 4,411
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 509 (2,548)
Gains on sales of mortgage-related assets . . . . . . . . . . . . . (270) (358)
-------- --------
Net Cash Provided By Operating Activities Before Changes in Operating
Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . 13,169 11,015
Net Changes In Operating Assets and Liabilities
Mortgage loans held in inventory . . . . . . . . . . . . . . . . . . (6,674) 25,839
Home building inventories . . . . . . . . . . . . . . . . . . . . . 2,092 (61,050)
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . (997) (9,526)
Accounts payable and accrued expenses . . . . . . . . . . . . . . . (8,035) (2,912)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (544) (4,301)
-------- --------
Net Cash Used In Operating Activities . . . . . . . . . . . . . . . . . (989) (40,935)
-------- --------
INVESTING ACTIVITIES:
Mortgage Collateral and other loans
Principal payments and prepayments . . . . . . . . . . . . . . . . . 5,467 28,891
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,630 17,173
Changes in restricted cash, net . . . . . . . . . . . . . . . . . . . . 750 5,522
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 794 1,547
-------- --------
Net Cash Provided By Investing Activities . . . . . . . . . . . . . . . 15,641 53,133
-------- --------
See notes to condensed consolidated financial statements.
-4-
M.D.C. HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS
ENDED JUNE 30,
------------------------------
1995 1994
---------- -----------
FINANCING ACTIVITIES:
Mortgage-backed bonds - principal payments . . . . . . . . . . . . . . $ (13,411) $ (46,378)
Lines of credit
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329,633 301,805
Principal payments . . . . . . . . . . . . . . . . . . . . . . . . . (336,939) (271,797)
Notes payable
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,075 11,070
Principal payments . . . . . . . . . . . . . . . . . . . . . . . . . (14,967) (26,049)
Dividend payments . . . . . . . . . . . . . . . . . . . . . . . . . . . (988) - -
Treasury stock purchases . . . . . . . . . . . . . . . . . . . . . . . (5,321) - -
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (89) 121
---------- -----------
Net Cash Used In Financing Activities . . . . . . . . . . . . . . . . . (41,007) (31,228)
---------- -----------
Net Decrease In Cash and Cash Equivalents . . . . . . . . . . . . . . . (26,355) (19,030)
Cash and Cash Equivalents
Beginning Of Period . . . . . . . . . . . . . . . . . . . . . . . . 43,564 63,003
---------- -----------
End Of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,209 $ 43,973
---------- -----------
---------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest, net of amounts capitalized . . . . . . . . . . . . . . . . $ 6,199 $ 8,951
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,195 16,864
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Home building inventory purchases financed by seller . . . . . . . . . $ 2,733 $ 3,693
Home building land inventory sales financed by MDC . . . . . . . . . . 353 848
Disposition of land inventories collateralized by notes payable
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 2,864
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 2,176
Accrued interest and other liabilities . . . . . . . . . . . . . . . - - 688
See notes to condensed consolidated financial statements.
-5-
M.D.C. HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A.PRESENTATION OF FINANCIAL STATEMENTS
The condensed consolidated financial statements of M.D.C. Holdings, Inc. ("MDC"
or the "Company," which, unless otherwise indicated, refers to M.D.C. Holdings,
Inc. and its subsidiaries) have been prepared by MDC, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. These
statements reflect all adjustments (including all normal recurring accruals)
which, in the opinion of management, are necessary to present fairly the
financial position, results of operations and cash flows of MDC as of June 30,
1995 and for all of the periods presented. These statements are condensed and
do not include all of the information required by generally accepted accounting
principles in a full set of financial statements. These statements should be
read in conjunction with MDC's financial statements and notes thereto included
in MDC's Annual Report on Form 10-K for its fiscal year ended December 31, 1994.
Price Waterhouse LLP has performed a review, and not an audit, of the
unaudited condensed consolidated financial statements of the Company for the
three-month and six-month periods ended June 30, 1995 and 1994 (based on
procedures adopted by the American Institute of Certified Public Accountants) as
set forth in their separate report dated July 25, 1995, which is included as an
exhibit to this Form 10-Q. This report is not a "report" within the meaning of
Sections 7 and 11 of the Securities Act of 1933, and the independent
accountant's liability under Section 11 does not extend to it.
Certain reclassifications have been made in the 1994 financial statements
to conform to the classifications used in the current year.
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).
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1995 1994 1995 1994
-------- -------- -------- --------
Home Building
Home sales . . . . . . . . . . . . . . . . . . . . . . $205,856 $184,878 $387,920 $341,613
Land sales . . . . . . . . . . . . . . . . . . . . . . 511 4,961 2,824 6,711
Other revenues . . . . . . . . . . . . . . . . . . . . 972 418 1,124 511
-------- -------- -------- --------
207,339 190,257 391,868 348,835
-------- -------- -------- --------
Home cost of sales . . . . . . . . . . . . . . . . . . 178,901 155,919 335,916 287,398
Land cost of sales . . . . . . . . . . . . . . . . . . 418 4,118 2,411 6,155
Inventory valuation reserves . . . . . . . . . . . . 900 - - 900 - -
Marketing . . . . . . . . . . . . . . . . . . . . . . 12,510 10,925 23,627 19,927
General and administrative . . . . . . . . . . . . . . 6,545 6,969 12,940 13,716
-------- -------- -------- --------
199,274 177,931 375,794 327,196
-------- -------- -------- --------
Operating Profit . . . . . . . . . . . . . . . . . . 8,065 12,326 16,074 21,639
-------- -------- -------- --------
-6-
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
1995 1994 1995 1994
------- ------- ------- -------
Mortgage Lending
Interest revenues . . . . . . . . . . . . . . . . $ 977 $ 695 $ 1,670 $ 1,460
Origination fees . . . . . . . . . . . . . . . . . 1,256 1,145 2,330 2,381
Gains on sale of mortgage servicing . . . . . . . 1,972 1,896 4,642 4,768
Losses on sale of mortgage loans, net . . . . . . (104) (280) (440) (181)
Mortgage servicing and other . . . . . . . . . . . 449 447 1,015 962
------- ------- ------- -------
4,550 3,903 9,217 9,390
------- ------- ------- -------
Interest expense . . . . . . . . . . . . . . . . . 75 56 75 250
General and administrative . . . . . . . . . . . . 2,067 2,209 3,851 4,598
------- ------- ------- -------
2,142 2,265 3,926 4,848
------- ------- ------- -------
Operating Profit . . . . . . . . . . . . . . . . 2,408 1,638 5,291 4,542
------- ------- ------- -------
Asset Management
Interest revenues . . . . . . . . . . . . . . . . 1,310 2,132 2,827 4,778
Gains on sales of mortgage-related assets . . . . 270 45 270 358
Management fees and other . . . . . . . . . . . . 1,392 1,159 2,784 2,466
------- ------- ------- -------
2,972 3,336 5,881 7,602
------- ------- ------- -------
Interest expense . . . . . . . . . . . . . . . . . 1,166 1,960 2,592 4,514
General and administrative . . . . . . . . . . . . 551 593 1,161 1,283
------- ------- ------- -------
1,717 2,553 3,753 5,797
------- ------- ------- -------
Operating Profit . . . . . . . . . . . . . . . . 1,255 783 2,128 1,805
------- ------- ------- -------
Total Operating Profit . . . . . . . . . . . . . . 11,728 14,747 23,493 27,986
------- ------- ------- -------
Corporate
Other revenues . . . . . . . . . . . . . . . . . . 424 275 837 637
------- ------- ------- -------
Interest expense . . . . . . . . . . . . . . . . . 1,890 2,051 4,729 5,007
General and administrative . . . . . . . . . . . . 3,482 3,966 6,609 7,899
------- ------- ------- -------
5,372 6,017 11,338 12,906
------- ------- ------- -------
Net Corporate Expenses . . . . . . . . . . . . (4,948) (5,742) (10,501) (12,269)
------- ------- ------- -------
Income Before Income Taxes . . . . . . . . . . . . . $ 6,780 $ 9,005 $12,992 $15,717
------- ------- ------- -------
------- ------- ------- -------
-7-
C. CORPORATE AND HOME BUILDING INTEREST ACTIVITY
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------- --------------------------
1995 1994 1995 1994
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
Interest capitalized in home building inventory, beginning
of period . . . . . . . . . . . . . . . . . . . . . . . $ 42,038 $ 41,881 $ 42,478 $ 42,681
Corporate and home building interest incurred . . . . . . 8,483 8,883 17,472 17,247
Corporate and home building interest expensed . . . . . .
(1,890) (2,051) (4,729) (5,007)
Previously capitalized home building interest included in
cost of sales . . . . . . . . . . . . . . . . . . . . . (7,072) (6,191) (13,662) (12,399)
-------- -------- -------- --------
Interest capitalized in home building inventory, end of
period . . . . . . . . . . . . . . . . . . . . . . . . $ 41,559 $ 42,522 $ 41,559 $ 42,522
-------- -------- -------- --------
-------- -------- -------- --------
Home building inventories, end of period . . . . . . . . $464,445 $452,335 $464,445 $452,335
-------- -------- -------- --------
-------- -------- -------- --------
D. EARNINGS PER SHARE
Primary earnings per share are based on the weighted-average number of
common and common equivalent shares outstanding during each period. 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 due December 2005 (the "Convertible 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).
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- -----------------------
1995 1994 1995 1994
------- ------- ------- -------
PRIMARY EARNINGS PER SHARE CALCULATION:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,331 $ 5,704 $ 8,399 $ 9,510
------- ------- ------- -------
------- ------- ------- -------
Weighted-average shares outstanding . . . . . . . . . . . . . . . . 19,698 19,021 19,407 18,885
Dilutive stock options . . . . . . . . . . . . . . . . . . . . . . 607 1,459 893 1,518
------- ------- ------- -------
Total Weighted-Average Shares . . . . . . . . . . . . . . . . . 20,305 20,480 20,300 20,403
------- ------- ------- -------
------- ------- ------- -------
Primary Earnings Per Share . . . . . . . . . . . . . . . . . . . . $ .21 $ .28 $ .41 $ .47
------- ------- ------- -------
------- ------- ------- -------
FULLY-DILUTED EARNINGS PER SHARE CALCULATION:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,331 $ 5,704 $ 8,399 $ 9,510
Adjustment for interest on Convertible Notes, net of income tax
benefit; conversion assumed . . . . . . . . . . . . . . . . . . . 391 384 782 768
------- ------- ------- -------
Adjusted Net Income . . . . . . . . . . . . . . . . . . . . . . $ 4,722 $ 6,088 $ 9,181 $10,278
------- ------- ------- -------
------- ------- ------- -------
Weighted-average shares outstanding . . . . . . . . . . . . . . . . 19,698 19,021 19,407 18,885
Dilutive stock options . . . . . . . . . . . . . . . . . . . . . . 695 1,460 1,023 1,547
Shares issuable upon conversion of Convertible Notes; conversion
assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,613 3,613 3,613 3,613
------- ------- ------- -------
Total Weighted-Average Shares . . . . . . . . . . . . . . . . . 24,006 24,094 24,043 24,045
------- ------- ------- -------
------- ------- ------- -------
Fully-Diluted Earnings Per Share . . . . . . . . . . . . . . . . . $ .20 $ .25 $ .38 $ .43
------- ------- ------- -------
------- ------- ------- -------
-8-
E. STOCKHOLDERS' EQUITY
During the three months ended June 30, 1995, the Company repurchased
843,600 shares of MDC Common Stock at prices ranging from $5.88 to $6.50 ($6.31
average) pursuant to a program authorized by the MDC Board of Directors to
repurchase up to one million shares of MDC Common Stock and up to 1% of the
principal amount of each of its outstanding Senior Notes and Convertible Notes.
During the three months ended June 30, 1995, certain eligible executives
exercised options to purchase 744,000 shares of MDC Common Stock pursuant to the
terms of the Executive Option Purchase Program (the "Program"). The Program,
which was authorized by the MDC Board of Directors, authorizes the Company to
lend eligible executives of the Company 2/3 of the aggregate exercise price and
state and federal taxes payable in connection with their exercise of stock
purchase options, subject to certain maximum amounts as set forth under the
Program. Notes receivable under the Program, which totalled $1,259,000 at
June 30, 1995, are recourse and secured by the shares of MDC Common Stock issued
in connection with options exercised. The $1,259,000 in notes are deducted from
stockholders' equity.
F. SUPPLEMENTAL GUARANTOR INFORMATION
The Senior Notes are guaranteed unconditionally on an unsecured
subordinated basis, jointly and severally (the "Guaranties"), 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., 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).
Supplemental combining financial information follows.
-9-
SUPPLEMENTAL COMBINING BALANCE SHEET
JUNE 30, 1995
(IN THOUSANDS)
UNCONSOLIDATED
-----------------------------------------
NON-
ASSETS GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
-------- ------------ ------------ ----------- -----------
Corporate
Cash and cash equivalents . . . . . . . . . . $ 9,234 $ - - $ - - $ - - $ 9,234
Investments in subsidiaries . . . . . . . . . 290,219 - - 17,434 (307,653) - -
Advances and notes receivable - Parent and
subsidiaries . . . . . . . . . . . . . . . . 208,679 31 108,225 (316,935) - -
Property and equipment, net . . . . . . . . . 9,661 - - - - - - 9,661
Deferred income taxes . . . . . . . . . . . . 11,435 - - - - - - 11,435
Deferred issue costs, net . . . . . . . . . . 10,286 - - - - - - 10,286
Other assets, net . . . . . . . . . . . . . . 2,969 - - 160 - - 3,129
-------- -------- -------- --------- --------
542,483 31 125,819 (624,588) 43,745
-------- -------- -------- --------- --------
Home Building
Cash and cash equivalents . . . . . . . . . . 5 5,897 86 - - 5,988
Home sales and other accounts receivable . . - - 27,158 - - (13,868) 13,290
Investments and marketable securities, net . 6,300 - - - - - - 6,300
Inventories, net
Housing completed or under construction . . - - 267,022 - - - - 267,022
Land and land under development . . . . . . - - 170,674 27,529 (780) 197,423
Prepaid expenses and other assets, net . . . 3,902 36,764 211 - - 40,877
-------- -------- -------- --------- --------
10,207 507,515 27,826 (14,648) 530,900
-------- -------- -------- --------- --------
Mortgage Lending
Cash and cash equivalents . . . . . . . . . . - - - - 1,527 - - 1,527
Restricted cash . . . . . . . . . . . . . . . - - - - 1,900 - - 1,900
Accrued interest and other assets, net . . . - - - - 1,168 - - 1,168
Mortgage loans held in inventory, net . . . . - - - - 51,064 - - 51,064
-------- -------- -------- --------- --------
- - - - 55,659 - - 55,659
-------- -------- -------- --------- --------
Asset Management
Cash and cash equivalents . . . . . . . . . . - - - - 460 - - 460
Mortgage Collateral, net, and assets related to
mortgage-backed bonds and related liabilities - - - - 51,392 - - 51,392
Other loans and assets, net . . . . . . . . . - - - - 6,280 - - 6,280
-------- -------- -------- --------- --------
- - - - 58,132 - - 58,132
-------- -------- -------- --------- --------
Total Assets . . . . . . . . . . . . . . . $552,690 $507,546 $267,436 $(639,236) $688,436
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
-10-
SUPPLEMENTAL COMBINING BALANCE SHEET
JUNE 30, 1995
(IN THOUSANDS)
(continued)
UNCONSOLIDATED
-----------------------------------------
NON-
LIABILITIES GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
-------- ------------ ------------ ----------- -----------
Corporate
Accounts payable and accrued expenses . . . . . $ 18,924 $ - - $ 314 $ - - $ 19,238
Advances and notes payable - Parent and
subsidiaries . . . . . . . . . . . . . . . . . 88,754 207,334 20,847 (316,935) - -
Income taxes payable . . . . . . . . . . . . . 11,878 - - - - - - 11,878
Notes payable . . . . . . . . . . . . . . . . . 3,560 - - - - - - 3,560
Senior Notes, net . . . . . . . . . . . . . . . 187,436 - - - - - - 187,436
Subordinated notes, net . . . . . . . . . . . . 38,219 - - - - - - 38,219
-------- -------- -------- --------- --------
348,771 207,334 21,161 (316,935) 260,331
-------- -------- -------- --------- --------
Home Building
Accounts payable and accrued expenses . . . . . 2,569 72,389 904 - - 75,862
Lines of credit . . . . . . . . . . . . . . . . - - 55,106 - - - - 55,106
Notes payable . . . . . . . . . . . . . . . . . 4,528 13,742 4,179 - - 22,449
-------- -------- -------- --------- --------
7,097 141,237 5,083 - - 153,417
-------- -------- -------- --------- --------
Mortgage Lending
Accounts payable and accrued expenses . . . . . - - - - 20,382 (13,889) 6,493
Line of credit . . . . . . . . . . . . . . . . - - - - 23,131 - - 23,131
-------- -------- -------- --------- --------
- - - - 43,513 (13,889) 29,624
-------- -------- -------- --------- --------
Asset Management
Accounts payable and accrued expenses . . . . . - - - - 646 - - 646
Mortgage-backed bonds, net, and related
liabilities, recourse solely to limited-purpose
subsidiary assets . . . . . . . . . . . . . . - - - - 47,596 - - 47,596
-------- -------- -------- --------- --------
- - - - 48,242 - - 48,242
-------- -------- -------- --------- --------
Total Liabilities . . . . . . . . . . . . . 355,868 348,571 117,999 (330,824) 491,614
-------- -------- -------- --------- --------
STOCKHOLDERS' EQUITY
Preferred stock . . . . . . . . . . . . . . . . - - 10 (10) - -
Common Stock . . . . . . . . . . . . . . . . . 224 18 82 (100) 224
Additional paid-in capital . . . . . . . . . . 135,561 144,756 224,915 (369,671) 135,561
Retained earnings . . . . . . . . . . . . . . . 79,583 14,201 (75,561) 61,360 79,583
Less treasury stock . . . . . . . . . . . . . . (18,546) - - (9) 9 (18,546)
-------- -------- -------- --------- --------
Total Stockholders' Equity . . . . . . . . . 196,822 158,975 149,437 (308,412) 196,822
-------- -------- -------- --------- --------
Total Liabilities and Stockholders' Equity . $552,690 $507,546 $267,436 $(639,236) $688,436
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
-11-
SUPPLEMENTAL COMBINING BALANCE SHEET
DECEMBER 31, 1994
(IN THOUSANDS)
UNCONSOLIDATED
-----------------------------------------
NON-
ASSETS GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
-------- ------------ ------------ ----------- -----------
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
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
-12-
SUPPLEMENTAL COMBINING BALANCE SHEET
DECEMBER 31, 1994
(IN THOUSANDS)
(continued)
UNCONSOLIDATED
-----------------------------------------
NON-
LIABILITIES GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
-------- ------------ ------------ ----------- -----------
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
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
-13-
SUPPLEMENTAL COMBINING STATEMENTS OF INCOME
(IN THOUSANDS)
UNCONSOLIDATED
--------------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
-------- ------------ ------------ ----------- -----------
THREE MONTHS ENDED JUNE 30, 1995
REVENUES:
Home Building . . . . . . . . . . . . . . . . . $ 95 $ 207,212 $ 32 $ - - $ 207,339
Mortgage Lending . . . . . . . . . . . . . . . - - - - 4,550 - - 4,550
Asset Management . . . . . . . . . . . . . . . - - - - 2,972 - - 2,972
Corporate . . . . . . . . . . . . . . . . . . . 424 - - - - - - 424
Equity in earnings of subsidiaries . . . . . . 5,733 - - - - (5,733) - -
--------- --------- --------- --------- ---------
Total Revenues . . . . . . . . . . . . . . . 6,252 207,212 7,554 (5,733) 215,285
--------- --------- --------- --------- ---------
COSTS AND EXPENSES:
Home Building . . . . . . . . . . . . . . . . . (48) 199,124 198 - - 199,274
Mortgage Lending . . . . . . . . . . . . . . . - - - - 2,142 - - 2,142
Asset Management . . . . . . . . . . . . . . . - - - - 1,717 - - 1,717
Corporate general and administrative . . . . . 3,476 - - 6 - - 3,482
Corporate and home building interest . . . . . (3,956) 5,169 677 - - 1,890
--------- --------- --------- --------- ---------
Total Expenses . . . . . . . . . . . . . . (528) 204,293 4,740 - - 208,505
--------- --------- --------- --------- ---------
Income before income taxes . . . . . . . . . . . 6,780 2,919 2,814 (5,733) 6,780
Provision for income taxes . . . . . . . . . . . 2,449 1,109 1,069 (2,178) 2,449
--------- --------- --------- --------- ---------
NET INCOME . . . . . . . . . . . . . . . . . . . $ 4,331 $ 1,810 $ 1,745 $ (3,555) $ 4,331
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
THREE MONTHS ENDED JUNE 30, 1994
REVENUES:
Home Building . . . . . . . . . . . . . . . . . $ - - $ 177,586 $ 13,436 $ (765) $190,257
Mortgage Lending . . . . . . . . . . . . . . . - - - - 3,903 - - 3,903
Asset Management . . . . . . . . . . . . . . . - - - - 3,620 (284) 3,336
Corporate . . . . . . . . . . . . . . . . . . . 258 - - 17 - - 275
Equity in earnings of subsidiaries . . . . . . 10,603 1,513 - - (12,116) - -
--------- --------- --------- --------- ---------
Total Revenues . . . . . . . . . . . . . . . 10,861 179,099 20,976 (13,165) 197,771
--------- --------- --------- --------- ---------
COSTS AND EXPENSES:
Home Building . . . . . . . . . . . . . . . . . 367 166,246 11,622 (304) 177,931
Mortgage Lending . . . . . . . . . . . . . . . - - - - 2,265 - - 2,265
Asset Management . . . . . . . . . . . . . . . - - - - 2,553 - - 2,553
Corporate general and administrative . . . . . 3,946 - - 20 - - 3,966
Corporate and home building interest . . . . . (2,457) 4,308 945 (745) 2,051
--------- --------- --------- --------- ---------
Total Expenses . . . . . . . . . . . . . . . 1,856 170,554 17,405 (1,049) 188,766
--------- --------- --------- --------- ---------
Income before income taxes . . . . . . . . . . . 9,005 8,545 3,571 (12,116) 9,005
Provision for income taxes . . . . . . . . . . . 3,301 3,341 1,175 (4,516) 3,301
--------- --------- --------- --------- ---------
NET INCOME . . . . . . . . . . . . . . . . . . . $ 5,704 $ 5,204 $ 2,396 $ (7,600) $ 5,704
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
-14-
SUPPLEMENTAL COMBINING STATEMENTS OF INCOME
(IN THOUSANDS)
UNCONSOLIDATED
-----------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
-------- ------------ ------------ ----------- -----------
SIX MONTHS ENDED JUNE 30, 1995
REVENUES:
Home Building . . . . . . . . . . . . . . . . . $ 211 $391,533 $ 124 $ - - $391,868
Mortgage Lending . . . . . . . . . . . . . . . - - - - 9,217 - - 9,217
Asset Management . . . . . . . . . . . . . . . - - - - 5,881 - - 5,881
Corporate other revenues . . . . . . . . . . . 837 - - - - - - 837
Equity in earnings of subsidiaries . . . . . . 11,674 - - - - (11,674) - -
-------- -------- -------- --------- --------
Total Revenues . . . . . . . . . . . . . . . 12,722 391,533 15,222 (11,674) 407,803
-------- -------- -------- --------- --------
COSTS AND EXPENSES:
Home Building . . . . . . . . . . . . . . . . . 498 374,974 322 - - 375,794
Mortgage Lending . . . . . . . . . . . . . . . - - - - 3,926 - - 3,926
Asset Management . . . . . . . . . . . . . . . - - - - 3,753 - - 3,753
Corporate general and administrative . . . . . 6,568 - - 41 - - 6,609
Corporate and home building interest . . . . . (7,336) 10,648 1,417 - - 4,729
-------- -------- -------- --------- --------
Total Expenses . . . . . . . . . . . . . . . (270) 385,622 9,459 - - 394,811
-------- -------- -------- --------- --------
Income before income taxes . . . . . . . . . . . 12,992 5,911 5,763 (11,674) 12,992
Provision for income taxes . . . . . . . . . . . 4,593 2,246 1,979 (4,225) 4,593
-------- -------- -------- --------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . $ 8,399 $ 3,665 $ 3,784 $ (7,449) $ 8,399
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
SIX MONTHS ENDED JUNE 30, 1994
REVENUES:
Home Building . . . . . . . . . . . . . . . . . $ - - $325,267 $ 25,092 $ (1,524) $348,835
Mortgage Lending . . . . . . . . . . . . . . . - - - - 9,390 - - 9,390
Asset Management . . . . . . . . . . . . . . . - - - - 8,167 (565) 7,602
Corporate other revenues . . . . . . . . . . . 600 - - 37 - - 637
Equity in earnings of subsidiaries . . . . . . 19,772 2,512 - - (22,284) - -
-------- -------- -------- --------- --------
Total Revenues . . . . . . . . . . . . . . . 20,372 327,779 42,686 (24,373) 366,464
-------- -------- -------- --------- --------
COSTS AND EXPENSES:
Home Building . . . . . . . . . . . . . . . . . 731 304,789 22,185 (509) 327,196
Mortgage Lending . . . . . . . . . . . . . . . - - - - 4,848 - - 4,848
Asset Management . . . . . . . . . . . . . . . - - - - 5,797 - - 5,797
Corporate general and administrative . . . . . 7,848 - - 51 - - 7,899
Corporate and home building interest . . . . . (3,924) 8,435 1,977 (1,481) 5,007
-------- -------- -------- --------- --------
Total Expenses . . . . . . . . . . . . . . . 4,655 313,224 34,858 (1,990) 350,747
-------- -------- -------- --------- --------
Income before income taxes . . . . . . . . . . . 15,717 14,555 7,828 (22,383) 15,717
Provision for income taxes . . . . . . . . . . . 6,207 5,689 2,620 (8,309) 6,207
-------- -------- -------- --------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . $ 9,510 $ 8,866 $ 5,208 $ (14,074) $ 9,510
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
-15-
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS)
UNCONSOLIDATED
-----------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
-------- ------------ ------------ ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES . . . . . . $ (88,126) $ (16,698) $ (16,719) $ 120,554 $ (989)
--------- --------- ---------- --------- ----------
INVESTING ACTIVITIES:
Mortgage Collateral
Principal payments and prepayments . . . . . . - - - - 5,467 - - 5,467
Sales . . . . . . . . . . . . . . . . . . . . - - - - 8,630 - - 8,630
Changes in restricted cash, net . . . . . . . . . - - - - 750 - - 750
Affiliate notes receivable . . . . . . . . . . . 62,779 31 1,739 (64,549) - -
Other, net . . . . . . . . . . . . . . . . . . . (267) 408 653 - - 794
--------- --------- ---------- --------- ----------
Net Cash Provided By Investing Activities . . . . 62,512 439 17,239 (64,549) 15,641
--------- --------- ---------- --------- ----------
FINANCING ACTIVITIES:
Net increase (reduction) in borrowings from
Parent and subsidiaries . . . . . . . . . . . . 10,089 32,454 13,462 (56,005) - -
Mortgage-backed bonds - principal payments . . . - - - - (13,411) - - (13,411)
Lines of credit
Advances . . . . . . . . . . . . . . . . . . . - - 329,633 - - - - 329,633
Principal payments . . . . . . . . . . . . . . - - (336,859) (80) - - (336,939)
Notes payable
Borrowings . . . . . . . . . . . . . . . . . . - - 1,075 - - - - 1,075
Principal payments . . . . . . . . . . . . . . (48) (13,803) (1,116) - - (14,967)
Dividend payments . . . . . . . . . . . . . . . . (988) - - - - - - (988)
Treasury stock purchases . . . . . . . . . . . . (5,321) - - - - - - (5,321)
Other, net . . . . . . . . . . . . . . . . . . . (89) - - - - - - (89)
--------- --------- ---------- --------- ----------
Net Cash Provided By (Used In) Financing
Activities . . . . . . . . . . . . . . . . . . 3,643 12,500 (1,145) (56,005) (41,007)
--------- --------- ---------- --------- ----------
Net Decrease In Cash And Cash Equivalents . . . . (21,971) (3,759) (625) - - (26,355)
Cash And Cash Equivalents
Beginning Of Period . . . . . . . . . . . . . . 31,210 9,656 2,698 - - 43,564
--------- --------- ---------- --------- ----------
End Of Period . . . . . . . . . . . . . . . . . $ 9,239 $ 5,897 $ 2,073 $ - - $ 17,209
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
-16-
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS)
UNCONSOLIDATED
---------------------------------------
NON-
GUARANTOR GUARANTOR ELIMINATING CONSOLIDATED
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES MDC
-------- ------------ ------------ ----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES . . . . . . . . . . . . . $ (18,479) $ (36,360) $ 5,599 $ 8,305 $ (40,935)
-------- -------- -------- --------- ---------
INVESTING ACTIVITIES:
Mortgage Collateral
Principal payments and prepayments . . . . . . - - 615 28,276 - - 28,891
Sales . . . . . . . . . . . . . . . . . . . . - - - - 17,173 - - 17,173
Changes in restricted cash . . . . . . . . . . . - - - - 5,522 - - 5,522
Affiliate notes receivable . . . . . . . . . . . 13,282 - - 4,053 (17,335) - -
Other, net . . . . . . . . . . . . . . . . . . . (65) (215) 1,827 - - 1,547
-------- -------- -------- --------- ---------
Net Cash Provided By Investing
Activities . . . . . . . . . . . . . . . . . . 13,217 400 56,851 (17,335) 53,133
-------- -------- -------- --------- ---------
FINANCING ACTIVITIES:
Net increase (reduction) in borrowings from Parent
and subsidiaries . . . . . . . . . . . . . . . (5,486) 15,359 (1,568) (8,305) - -
Mortgage-backed bonds - principal payments . . .
- - - - (46,378) - - (46,378)
Lines of credit
Advances . . . . . . . . . . . . . . . . . . . - - 301,805 - - - - 301,805
Principal payments . . . . . . . . . . . . . . - - (258,982) (12,815) - - (271,797)
Notes payable
Borrowings . . . . . . . . . . . . . . . . . . - - 11,070 - - - - 11,070
Principal payments . . . . . . . . . . . . . . (4,037) (20,810) (1,202) - - (26,049)
Affiliate notes payable . . . . . . . . . . . . . - - (17,335) - - 17,335 - -
Other, net . . . . . . . . . . . . . . . . . . . 121 - - - - - - 121
-------- -------- -------- --------- ---------
Net Cash Provided By (Used In) Financing
Activities . . . . . . . . . . . . . . . . . . (9,402) 31,107 (61,963) 9,030 (31,228)
-------- -------- -------- --------- ---------
Net Decrease In Cash And Cash
Equivalents . . . . . . . . . . . . . . . . . (14,664) (4,853) 487 - - (19,030)
Cash And Cash Equivalents
Beginning Of Period . . . . . . . . . . . . . 42,443 17,792 2,768 - - 63,003
-------- -------- -------- --------- ---------
End Of Period . . . . . . . . . . . . . . . . $ 27,779 $ 12,939 $ 3,255 $ - - $ 43,973
-------- -------- -------- --------- ---------
-------- -------- -------- --------- ---------
-17-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
INTRODUCTION
MDC is engaged in the construction and sale of residential housing
(collectively, the "home building segment") 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").
HomeAmerican Mortgage Corporation, M.D.C. Holdings, Inc.'s wholly owned
subsidiary ("HomeAmerican"), provides mortgage loans primarily to the Company's
home buyers and, to a lesser extent, to others (collectively, the "mortgage
lending segment"). 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").
RESULTS OF OPERATIONS
The table below summarizes MDC's results of operations during each of the
periods presented (in thousands, except per share amounts).
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------- -------------------------
1995 1994 1995 1994
-------- -------- -------- --------
Revenues . . . . . . . . . . . . . . . $215,285 $197,771 $407,803 $366,464
Income before income taxes . . . . . . 6,780 9,005 12,992 15,717
Operating and net income . . . . . . . 4,331 5,704 8,399 9,510
Primary Earnings Per Share . . . . . . .21 .28 .41 .47
Revenues for the three and six months ended June 30, 1995 increased 9% and
11%, respectively, compared with revenues during the same periods in 1994,
representing the highest second quarter revenues since 1988 and the highest
first half revenues in the Company's history. The revenue increases in 1995 are
primarily due to significant increases in homes closed. The Company closed
1,121 and 2,129 homes, respectively, during the three and six months ended
June 30, 1995, the highest level of second quarter and first half home closings
since 1988 and 15% and 16% increases, respectively, over the 978 and 1,832 homes
closed, respectively, in the same periods in 1994.
Income before income taxes was lower for the three and six months ended
June 30, 1995 compared with the same periods in 1994 primarily as a result of
lower home building segment operating profits, partially offset by higher
mortgage lending and asset management segment operating profits and lower
corporate general and administrative expenses. The reduction in home building
operating profits primarily resulted from an approximate 17% decline in Home
Gross Margins (as hereinafter defined) for the respective periods. The decline
in Home Gross Margins largely was due to increased incentives offered to home
buyers in order to increase sales and reduce the Company's inventory of unsold
homes under construction as increases in mortgage interest rates resulted in
slower sales activity in the last four months of 1994 and the first three months
of 1995 as compared to sales rates in the comparable periods in 1993 and 1994.
-18-
IMPACT OF HOME MORTGAGE INTEREST RATES.
Beginning in 1992 through October 1993, home mortgage interest rates on a
30-year, fixed-rate mortgage declined to 6.7%, their lowest level in 25 years.
From October 1993 through December 1994, mortgage interest rates steadily
increased to 9.25% primarily as a result of seven interest rate increases by the
Federal Reserve Board. Since December 1994, mortgage interest rates decreased
to as low as 7.4% in July 1995 and currently are approximately 8.0%. While
current mortgage interest rates are low compared with historical rates, the
increases in mortgage interest rates, particularly since April 1994 when rates
moved above 8.0% for the first time since January 1993, have affected adversely,
and may continue to affect adversely in the future, the Company's home building
operations by decreasing demand for new homes.
The Company is unable to predict the extent to which future increases in
mortgage interest rates will affect adversely the Company's operating activities
and results of operations.
HOME BUILDING SEGMENT.
The table below sets forth certain information with respect to the
Company's homes sold, closed and delivered during each of the periods presented
as well as units sold under a contract but not delivered ("Backlog") at each
date shown (dollars in thousands).
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
1995 1994 1995 1994
-------- -------- -------- --------
Home sales revenues . . . . . . . . . . . . $205,856 $184,878 $387,920 $341,613
Operating profits . . . . . . . . . . . . . 8,065 12,326 16,074 21,639
Average selling price per housing unit . . 183.6 189.0 182.2 186.5
Home Gross Margins . . . . . . . . . . . . 13.1% 15.7% 13.4% 15.9%
Homes - units
Sales contracted, net
Colorado . . . . . . . . . . . . . . . 539 441 1,079 1,191
Mid-Atlantic . . . . . . . . . . . . . 317 274 647 686
California . . . . . . . . . . . . . . 218 164 378 310
Arizona . . . . . . . . . . . . . . . 197 133 375 287
Nevada . . . . . . . . . . . . . . . . 10 32 35 62
-------- -------- -------- --------
Total . . . . . . . . . . . . . . . 1,281 1,044 2,514 2,536
-------- -------- -------- --------
-------- -------- -------- --------
Closed and delivered
Colorado . . . . . . . . . . . . . . . 480 473 960 865
Mid-Atlantic . . . . . . . . . . . . . 255 254 446 506
California . . . . . . . . . . . . . . 170 127 296 234
Arizona . . . . . . . . . . . . . . . 201 102 385 188
Nevada . . . . . . . . . . . . . . . . 15 22 42 39
-------- -------- -------- --------
Total . . . . . . . . . . . . . . . 1,121 978 2,129 1,832
-------- -------- -------- --------
-------- -------- -------- --------
-19-
JUNE 30, DECEMBER 31, JUNE 30,
1995 1994 1994
-------- ----------- --------
Backlog
Colorado . . . . . . . 729 610 986
Mid-Atlantic . . . . . 538 337 605
California . . . . . . 183 101 174
Arizona . . . . . . . . 247 257 246
Nevada . . . . . . . . 22 29 50
-------- -------- --------
Total . . . . . . . . 1,719 1,334 2,061
-------- -------- --------
-------- -------- --------
Sales value . . . . . . . . $320,800 $241,900 $390,500
-------- -------- --------
-------- -------- --------
HOME SALES REVENUES AND HOMES CLOSED AND DELIVERED. Home sales revenues
for the three months ended June 30, 1995 increased 11% from home sales revenues
for the same period in 1994. Home sales revenues for the first half of 1995
were the highest in the Company's history and were 14% above home sales revenues
for the first half of 1994. These increases in home sales revenues primarily
were the result of increases in home closings, partially offset by an overall
decrease in the average selling price per home closed as discussed below. Home
closings increased in 1995 in (i) Arizona primarily due to a significant
expansion of the Company's operations in Phoenix; (ii) California primarily due
to the Company's acquisition and opening of several new subdivisions in Southern
California after June 30, 1994; and (iii) for the six-month period, Colorado due
to an active marketing program to reduce the level of unsold homes under
construction, an 11% increase in the average number of active subdivisions, a
continuing emphasis on offering more affordable homes and a strong backlog at
December 31, 1994. The Company's Mid-Atlantic market had lower home closings in
the first half of 1995 compared with the same period in 1994, despite a 35%
increase in the average number of active subdivisions, as softened market
conditions in that market reduced home sales during the latter part of 1994 and
into the first half of 1995.
The Company increased the number of active subdivisions throughout its
markets to 139 at June 30, 1995 from 119 at June 30, 1994.
AVERAGE SELLING PRICE PER HOUSING UNIT. The decrease in the average
selling price per housing unit in the second quarter and first half of 1995
compared with the second quarter and first half of 1994 was the result of
management's decision in 1994 to increase the Company's emphasis on lower-
priced, more affordable homes primarily marketed to first-time and first-time
move-up home buyers. This strategic change in market mix resulted in lower
average sales prices in the first half of 1995 as compared to prices in 1994 in
(i) Southern California, Colorado and Tucson; and (ii) Maryland as the Company
has opened a number of new affordable townhome projects in this market.
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") decreased during the second quarter
and first half of 1995 compared with the same periods in 1994. This decline
largely was due to increased incentives offered to home buyers in order to
increase sales and to assist the Company in its successful ongoing program to
reduce its inventory of unsold homes under construction in view of weakening
conditions in home building markets throughout the nation. See Unsold Homes
Under Construction below. The Company believes that competitive market
conditions and increased incentives will result in lower Home Gross Margins in
the third and the fourth quarters of 1995 compared with
-20-
average margins of 15.0% and 15.2%, respectively, in the same periods in 1994.
In addition, 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.
HOME SALES AND BACKLOG. Home sales for the three months ended June 30,
1995 increased by 23% to 1,281 homes from 1,044 homes for the same period in
1994 as the Company increased the number of active subdivisions in 1995 compared
with the prior year. Sales for the six months ended June 30, 1995 decreased
slightly from the same period in 1994 primarily due to (i) the decrease in sales
in the first quarter of 1995 resulting from lower sales per active subdivision;
and (ii) the high sales trend experienced in the first quarter of 1994 (prior to
the significant increase in mortgage interest rates after March 1994). Sales
per active subdivision in the second quarter of 1995 were comparable to the
second quarters of 1994 and 1993, averaging approximately three units per month.
Home sales increased for the three and six months ended June 30, 1995
compared with the same period in 1994 in (i) Colorado due to, among other
things, increased sales of more affordable homes and an increase in the number
of active subdivisions in this market; (ii) Arizona due to the Company's
continued expansion in Phoenix; and (iii) California primarily due to the
expansion of the Company's operations in Southern California.
In the Mid-Atlantic market, the Company's sales increased 16% for the three
months ended June 30, 1995 compared with the same period in 1994 primarily due
to an increase in the number of active subdivisions, particularly subdivisions
targeted to first-time and first-time move-up buyers. Sales declined 6% for the
six months ended June 30, 1995 compared with the same period in 1994 due to a
20% decline in sales in the first quarter of 1995 which more than offset the
increases in the second quarter of 1995. This first quarter decline resulted
from an overall slowing in the market which began in the second quarter of 1994.
The overall Mid-Atlantic market declined approximately 16% in the first half of
1995 compared with the first half of 1994.
Sales in July 1995 increased by 35% to 473 homes compared with sales of 350
homes in July 1994. The Company is unable to predict if this trend of higher
comparable sales per month in 1995 as compared with 1994, which began in April,
will continue in the future.
Backlog at June 30, 1995 totalled 1,719 units, compared with 1,334 units at
December 31, 1994 and 2,061 units at June 30, 1994. As the Company has been
able to reduce the level of its unsold homes under construction, the book value
of its Backlog as a percentage of the total book value in homes under
construction has increased from 42% at December 31, 1994 to 55% at June 30,
1995. MDC expects approximately 70% of its June 30, 1995 Backlog to close under
existing sales contracts during the third and fourth quarters of 1995.
MARKETING. Marketing expenses (which include, among other things,
amortization of deferred marketing costs, model home expenses and sales
commissions) totalled $12,510,000 and $23,627,000, respectively, for the second
quarter and first half of 1995, compared with $10,925,000 and $19,927,000,
respectively, for the same periods in 1994. The respective 15% and 19%
increases during 1995 compared with 1994 reflect the impact of increased home
sales revenues for the three and six months ended June 30, 1995 compared with
1994, and expanded operations in certain of the Company's significant markets.
Significant additional marketing-related salary, sales commission and model
homes operating expenses were incurred to support the Company's expanded
operations. Additionally, the Company has increased its marketing efforts, in
an effort in most of its markets, to stimulate sales.
-21-
GENERAL AND ADMINISTRATIVE. General and administrative expenses totalled
$6,545,000 and $12,940,000, respectively, during the three and six months ended
June 30, 1995, compared with $6,969,000 and $13,716,000, respectively, for the
same periods in 1994. General and administrative expenses have decreased
primarily due to the Company's continuing efforts to control general and
administrative expenses. General and administrative expenses as a percentage of
home sales revenues decreased to 3.2% and 3.3%, respectively, for the second
quarter and the first half of 1995, compared with 3.8% and 4.0%, respectively,
in the comparable periods in 1994 as the Company was able to deliver more homes
in 1995 without a proportionate increase in overhead.
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 buying down mortgage interest rates, offering
prospective home buyers options and upgrades at reduced prices and, to a
substantially lesser extent, price concessions. Incentives reduce the Company's
Home Gross Margins.
As with all of the Company's 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 and during periods of inactivity. 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, has been, and may in the future be,
extended. The Company's operating income has been, and in the future will be,
affected adversely by additional interest and other carrying costs incurred with
respect to these unsold homes following their completion and during times of
inactivity.
During the first six months of 1995, the Company employed an aggressive
marketing program to sell certain unsold homes under construction which it
considered to be in excess of its near term requirements and is continuing this
program in the third quarter of 1995. As a result of this program, the Company
has reduced the number of unsold homes under construction at June 30, 1995 by
approximately 33% compared with the December 31, 1994 level and the percentage
of the Company's book value in unsold homes under construction to the total book
value in homes under construction was reduced from 41% at December 31, 1994 to
28% at June 30, 1995. The Company is unable to predict the extent to which its
Home Gross Margins and operating income during the remainder of 1995 will be
affected adversely by incentives offered and additional interest and carrying
costs incurred with respect to the Company's unsold homes under construction.
-22-
LAND INVENTORY.
The table below shows (in thousands) the carrying value of MDC's land and
land under development in each of its home building markets at June 30, 1995,
segregated by property acquired or optioned before 1991 ("Pre-1991") and after
1990 ("Other"). The table also shows the carrying value of MDC's inactive land
inventory which is included in the total, most of which was acquired prior to
1991.
TOTAL LAND AND LAND UNDER DEVELOPMENT
------------------------------------- INACTIVE
PRE-1991 OTHER TOTAL LAND
------- -------- -------- --------
Colorado . . . . . $67,417 $ 21,268 $ 88,685 $45,385
Mid-Atlantic . . . 13,531 25,909 39,440 - -
California . . . . 1,175 36,324 37,499 1,360
Arizona . . . . . . 4,984 20,569 25,553 1,810
Nevada . . . . . . - - 6,246 6,246 - -
------- -------- -------- -------
Totals . . . . . $87,107 $110,316 $197,423 $48,555
------- -------- -------- -------
------- -------- -------- -------
The Company's net income and cash flow are affected adversely by the
carrying costs (e.g., interest and property taxes) associated with inactive land
inventories. These inactive land inventories, the majority of which are
adjacent to, or in close proximity with, existing active projects, comprised
approximately 25% of the carrying value of the Company's total land and land
under development at June 30, 1995, compared with approximately 43% of the
$192,881,000 carrying value at December 31, 1993. The decrease in inactive land
inventory, most of which occurred during 1994, is due to the commencement of
development and construction activity in certain subdivisions as well as sales
or other dispositions of inactive land. Carrying costs on inactive land
inventories are expensed, not capitalized. The Company is actively pursuing
opportunities to reduce, through sales or home building activities, its inactive
land inventories.
INVENTORY VALUATION RESERVES.
Operating results during the three and six months ended June 30, 1995 were
impacted adversely by $900,000 in net realizable value adjustments. These
adjustments were related primarily to several projects in Northern California
which experienced significant slowing sales and reduced selling prices during
the first six months of 1995 due to the continued general decline in home sales
activity in the Sacramento market. This decline has been exacerbated by the
recently announced closure of McClellan Air Force Base near Sacramento.
ACQUISITION OF MESA HOMES ASSETS.
On July 7, 1995, the Company purchased, for approximately $12 million, 16
model homes, 63 finished lots and 123 homes under construction from Mesa Homes,
a major Southern California home builder. Sixty-eight of the purchased homes
under construction already had been sold under contracts which were acquired by
the Company.
The acquired assets are located in six subdivisions in Paloma Del Sol, a
master-planned community in the city of Temecula, Riverside County, California,
approximately 55 miles north of San Diego. Homes in these subdivisions range in
price from $105,000 to $170,000 and are targeted for first-time and first-time
move-up buyers.
-23-
In connection with the July 7, 1995 acquisition, the Company also entered
into an option agreement with KRDC, Inc., an affiliate of Mesa Homes, which
permits it to acquire, over a two-year period, approximately 525 additional
finished and graded single-family lots located in and around the acquired
subdivisions in Paloma Del Sol.
MORTGAGE LENDING SEGMENT.
The table below summarizes the results of HomeAmerican's operations during
each of the periods presented (in thousands).
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1995 1994 1995 1994
-------- -------- -------- --------
Gains from sales of mortgage servicing:
Bulk . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,516 $ 1,729 $ 3,734 $ 4,314
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 456 167 908 454
Net interest income . . . . . . . . . . . . . . . . . . . . . 902 639 1,595 1,210
Origination fees . . . . . . . . . . . . . . . . . . . . . . 1,256 1,145 2,330 2,381
Losses on sales of mortgage loans, net . . . . . . . . . . . (104) (280) (440) (181)
Mortgage servicing and other . . . . . . . . . . . . . . . . 449 447 1,015 962
General and administrative expenses . . . . . . . . . . . . . (2,067) (2,209) (3,851) (4,598)
-------- -------- -------- --------
Operating profit . . . . . . . . . . . . . . . . . . . . . $ 2,408 $ 1,638 $ 5,291 $ 4,542
-------- -------- -------- --------
-------- -------- -------- --------
Principal amount of originations and purchases:
MDC home buyers . . . . . . . . . . . . . . . . . . . . . $102,736 $ 75,270 $180,479 $151,530
Spot . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,814 17,121 13,831 48,409
Correspondent . . . . . . . . . . . . . . . . . . . . . . 19,748 17,645 28,878 43,897
-------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $130,298 $110,036 $223,188 $243,836
-------- -------- -------- --------
-------- -------- -------- --------
JUNE 30, DECEMBER 31, JUNE 30,
1995 1994 1994
-------- ------------ --------
Composition of Servicing Portfolio at End of Period:
FHA insured/VA guaranteed . . . . . . . . . . . . . . . . . . . . $113,275 $203,991 $240,868
Conventional . . . . . . . . . . . . . . . . . . . . . . . . . . . 378,968 365,072 252,527
-------- -------- --------
Total Servicing Portfolio . . . . . . . . . . . . . . . . . . . . . . $492,243 $569,063 $493,395
-------- -------- --------
-------- -------- --------
Salable Portion of Servicing Portfolio . . . . . . . . . . . . . . . $431,394 $506,098 $425,363
-------- -------- --------
-------- -------- --------
HomeAmerican's operating profits for the three and six months ended June
30, 1995 exceeded the operating profits for the same periods in 1994 primarily
due to higher interest revenues and lower general and administrative expenses,
which have been reduced since mid-1994 in response to the decline in the level
of the company's refinancing activities.
LOAN ORIGINATIONS AND PURCHASES. HomeAmerican's loan originations and
purchases increased by 18% in the second quarter of 1995 compared with the same
period in 1994, with originations for MDC's home buyers up 36% to their highest
quarterly level in eight years principally due to increased closings by MDC's
home building segment and an increase in the percentage of mortgage originations
for MDC home buyers. The percentage of HomeAmerican mortgage originations for
MDC home buyers increased from 52% for the second quarter of 1994 to 61% for the
same period in 1995 (with a 64%
-24-
capture rate in June 1995). By increasing the percentage of mortgages
originated for MDC home buyers, the Company, primarily through the future sale
of the related mortgage servicing, is able to recover a portion of the cost of
the incentives provided by the Company to its home buyers.
Loan originations and purchases decreased from $243,836,000 in the first
half of 1994 to $223,188,000 in the first half of 1995 due to decreases in spot
and correspondent originations and purchases which more than offset the increase
in originations for MDC home buyers in 1995. This decrease in spot and
correspondent originations primarily was the result of increased mortgage
interest rates, particularly since April 1994, which resulted in a significant
decrease in refinancing activity and lower mortgage originations market wide.
MORTGAGE SERVICING. Total gains from sales of mortgage servicing for the
three and six months ended June 30, 1995 were comparable to total gains
recognized during the same periods in 1994. Gains from mortgage servicing sales
other than "bulk" sales comprised a larger percentage of total gains (20% for
the first half of 1995 compared with 10% for the same period in 1994) primarily
due to increases in adjustable rate mortgages, which generally are sold
"servicing released."
The Company's portfolio of salable servicing increased to $431,394,000 at
June 30, 1995 compared with $425,363,000 at June 30, 1994. The underlying value
of a servicing portfolio is generally determined based on the annual servicing
fee rates applicable to the loans comprising the portfolio, which currently are
.44% for FHA insured/VA guaranteed loans and .25% for conventional loans.
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.
ASSET MANAGEMENT SEGMENT.
The following table summarizes the results of the asset management
segment's operations during each of the periods presented (in thousands).
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
1995 1994 1995 1994
------ ------ ------ ------
Management fees from REITs . . . . . . . . . $ 702 $597 $1,339 $1,351
Gains on sales of mortgage-related assets . . 270 45 270 358
Other, net . . . . . . . . . . . . . . . . . 283 141 519 96
------ ---- ------ ------
Operating profit . . . . . . . . . . . . . . $1,255 $783 $2,128 $1,805
------ ---- ------ ------
------ ---- ------ ------
The Company currently does not anticipate making additional mortgage-
related investments in the future. As a result, future income from the asset
management segment will be substantially dependent on management fees earned
from two publicly traded REITs. At June 30, 1995, the REITs had approximately
$216,800,000 in assets under management by FAMC.
-25-
OTHER OPERATING RESULTS.
INTEREST EXPENSE. Corporate and home building interest incurred decreased
by 4% to $8,483,000 for the three months ended June 30, 1995, compared with
$8,883,000 for the same period in 1994. For the six months ended June 30, 1995,
corporate and home building interest incurred increased slightly to $17,472,000
from $17,247,000 for the same period in 1994. The decrease in the second
quarter of 1995 is primarily due to lower levels of variable-rate bank lines of
credit and project loans outstanding during the period as the Company used the
cash flow generated from, among other things, the reduction of the Company's
inventory of unsold homes under construction to pay down related borrowings.
Interest on home building inventories is capitalized during the period of
active development and through the completion of construction. During the three
and six months ended June 30, 1995, the Company capitalized $6,593,000 and
$12,743,000, respectively, of this interest compared with $6,832,000 and
$12,240,000, respectively, for the same periods in 1994. The decrease in
interest capitalized for the second quarter of 1995 primarily was due to
decreased levels of active home building inventories which more than offset
higher interest capitalization rates resulting from higher average effective
interest rates on the Company's debt. The increase in interest capitalized for
the six months ended June 30, 1995 primarily was due to the impact of increased
levels of active home building inventories in the first quarter of 1995 compared
with the first quarter of 1994 which more than offset the decrease in interest
capitalized in the second quarter of 1995. Capitalized interest in home
building inventory at June 30, 1995 totalled $41,559,000, or 8.9% of total home
building inventories, which decreased from $42,522,000, or 9.4% of total home
building inventories, at June 30, 1994 as the Company continues to relieve more
previously capitalized interest through cost of sales than is being capitalized
currently.
Corporate and home building interest incurred not capitalized is reflected
as interest expense and totalled $1,890,000 and $4,729,000, respectively, for
the second quarter and first half of 1995 compared with $2,051,000 and
$5,007,000, respectively, for the same periods of 1994.
For a reconciliation of interest incurred, capitalized and expensed, see
Note C to the Company's Consolidated Financial Statements.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES. Corporate general and
administrative expenses totalled $3,482,000 and $6,609,000, respectively, during
the three and six months ended June 30, 1995 compared with $3,966,000 and
$7,899,000, respectively, for the same periods of 1994. The decreases in 1995
primarily were due to decreases in professional fees and other expenses as the
Company has continued to streamline its operations.
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 rate during the three and six months
ended June 30, 1995 was 36.1% and 35.4%, respectively, compared with 36.7% and
39.5%, respectively, during 1994. The effective income tax rates differed from
the 35% federal statutory rate primarily due to, among other things, (i) the
impact of state income taxes; (ii) the realization of non-taxable income for
financial
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reporting purposes for which no tax liability was recorded; and (iii) in 1994,
adjustments to prior years' income taxes.
In April 1995, the Company received approval from the Congressional Joint
Committee on Taxation regarding the Company's final agreement with the Internal
Revenue Service (the "IRS") relative to the IRS's examination of the MDC
Consolidated Returns for the years 1984 and 1985. Also in April 1995, the
Company and the IRS reached final agreement on the IRS examinations of the
Richmond Homes Consolidated Returns for the years 1989 and 1990. Such
agreements had no material impact upon the Company's financial position or
results of operations.
The IRS has completed its examination of the MDC Consolidated Returns for
the years 1986 through 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.
In the opinion of management, adequate provision has been made for the
additional income taxes and interest which may result from the proposed
adjustments.
The IRS currently is examining the MDC and Richmond Homes Consolidated
Returns for the years 1991, 1992 and 1993. No reports have been issued by the
IRS in connection with these examinations. In the opinion of management,
adequate provision has been made for additional income taxes and interest which
may result from these examinations.
LIQUIDITY AND CAPITAL RESOURCES
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.
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 facilities at
June 30, 1995 were $155,000,000 in the aggregate, a substantial increase over
the $70,000,000 of similar facilities at December 31, 1993. Agreements
governing $147,000,000 of the present facilities were entered into during 1994
and the first six months of 1995, with terms that provide for final maturities
generally 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 June 30, 1995, $55,106,000 was
borrowed and an additional $85,870,000 was collateralized and available to be
borrowed under the bank lines of credit.
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On August 3, 1995, the Company modified and extended a $75,000,000 bank
line of credit facility. The modified agreement includes, among other things, a
lower interest margin, lower fees, an increase in funding for our expanding
Arizona and California operations and a one year extension of the final maturity
to the third quarter of 1999 (although the term-out periods may commence earlier
under certain circumstances).
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 subsequently sold. During the first half of 1995 and 1994,
HomeAmerican sold $216,927,000 and $269,439,000 respectively, principal amount
of mortgage loans and mortgage certificates.
The aggregate amount available under the Mortgage Line at June 30, 1995 was
$51,000,000. Borrowings under the Mortgage Line are collateralized by mortgage
loans and mortgage-backed certificates and are limited to the value of "eligible
collateral" (as defined in the credit agreement). At June 30, 1995, $23,131,000
was borrowed and an additional $15,771,000 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.
During the first half of 1995, management lowered MDC's operating cash
balances by $26,355,000 from levels at December 31, 1994. Management believes
the Company's significantly improved financial condition enables it to operate
with lower operating cash balances. Pursuant to these objectives, the Company
used this cash to, among other things, pay down lines of credit and notes
payable by $21,198,000 and to repurchase, for $5,321,000, 843,600 shares of MDC
Common Stock (at prices ranging from $5.88 to $6.50). The stock repurchases
were made pursuant to an announced program to repurchase up to one million
shares of MDC Common Stock and up to 1% of the principal amount of each of its
outstanding Senior Notes and Convertible Subordinated Notes. At June 30, 1995,
the Company had $17,209,000 available in cash and cash equivalents.
MDC used $19,030,000 of cash in the first half of 1994 principally due to
increases in home building inventories as a result of significantly increased
levels of home building activity, offset partially by a reduction in mortgage
loans held in inventory and net increases in debt (primarily lines of credit)
necessary to finance the substantial increases in home building activities. At
June 30, 1994, the Company had $43,973,000 available in cash and cash
equivalents.
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ISSUANCE OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). The
Company's adoption of SFAS 121 beginning in 1996 is not anticipated to have a
material impact on the results of operations or financial position of the
Company in the year of adoption.
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122 "Accounting for Mortgage Servicing Rights
an Amendment of FASB Statement No. 65" ("SFAS 122"). The Company's adoption of
SFAS 122 beginning in 1996 is not anticipated to have a material adverse impact
on the results of operations or financial position of the Company in the year of
adoption.
OTHER
Congressional considerations of major reform to the federal tax system have
been increasing over the past year. Revolutionary tax plans, sponsored by
leaders of Congress, include variations of a consumption tax (sales tax) and
flat tax. Under the current tax system, deductions are allowed for mortgage
interest and property taxes. Tax reform may reduce or eliminate these
deductions. The likelihood of major tax reform and the impact such reform would
have on, among other things (i) the demand for, and the value of, new as well as
existing homes; and (ii) the Company's financial position or results of
operations, is not determinable.
29
M.D.C. HOLDINGS, INC.
FORM 10-Q
PART II
ITEM 1. 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 and treble damages. 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 agreed to defend the Company
in the cases subject to reservations of rights.
30
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 SHAREOWNERS.
MDC held its Annual Meeting of Shareowners (the "Meeting") on May 25,
1995. At the Meeting, two nominees, Messrs. Spencer I. Browne and Herbert T.
Buchwald, were elected as Class I Directors to three-year terms expiring in
1998.
The selection of Price Waterhouse LLP as the Company's independent
accountants for 1995 was ratified at the Meeting. A proposal submitted by a
shareowner to eliminate staggered terms for directors was not approved.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit: 4.5(a) 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,
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 (incorporated herein by reference to
Exhibit 4.5 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1994
as previously filed).
4.5(b) Modification Agreement dated June 12, 1995 and
Second Modification Agreement dated July 15,
1995 among Richmond American Homes, Inc.,
Richmond American Homes of California, Inc.,
Richmond Homes, Inc. I, Richmond Homes, Inc.
II, Richmond American Homes of Nevada, Inc.,
all wholly owned subsidiaries of the Company
and Bank One.
4.6(a) Guaranty of Payment between the Company and
Bank One dated June 13, 1994 (incorporated
herein by reference to Exhibit 4.6 of the
Company's Annual Report on Form 10-K for the
year ended December 31, 1994 as previously
filed).
4.6(b) Consent and Agreement of Guarantors dated
June 13, 1995 and July 15, 1995 between
Richmond American Homes, Inc., Richmond
American Homes of California, Inc., Richmond
Homes, Inc. I, Richmond Homes, Inc. II,
Richmond American Homes of Nevada, Inc., all
wholly owned subsidiaries of the Company and
Bank One.
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15 Letter regarding unaudited interim financial
information.
27 Financial Data Schedule.
28 Form of Independent Accountants' Review Report
dated July 25, 1995.
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed by the
Registrant during the period covered by this Quarterly
Report on Form 10-Q.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 11, 1995 M.D.C. HOLDINGS, INC.
--------------- (Registrant)
By: /s/ Paris G. Reece III
----------------------
Paris G. Reece III,
Senior Vice President,
Chief Financial Officer and
Principal Accounting Officer
32