FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 1-8951
M.D.C. HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 84-0622967
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
3600 South Yosemite Street, Suite 900 80237
Denver, Colorado (Zip code)
(Address of principal executive offices)
(303) 773-1100
(Registrant's telephone number, including area code)
|
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
As of May 2, 2003, approximately 25,950,000 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 MARCH 31, 2003
INDEX
Page
No.
----
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Balance Sheets as of March 31, 2003
(Unaudited) and December 31, 2002............. 1
Statements of Income (Unaudited) for the three
months ended March 31, 2003 and 2002.......... 3
Statements of Cash Flows (Unaudited) for the
three months ended March 31, 2003 and 2002.... 4
Notes to Condensed Consolidated Financial
Statements (Unaudited)........................ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk...................................23
Item 4. Controls and Procedures.........................24
Part II. Other Information
Item 1. Legal Proceedings...............................25
Item 4. Submission of Matters to a Vote of Shareowners..25
Item 5. Other Information...............................25
Item 6. Exhibits and Reports on Form 8-K................25
Signatures...................................................26
Certifications...............................................27
(a)
|
M.D.C. HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands)
March 31, December 31,
2003 2002
------------- -------------
ASSETS (Unaudited)
Corporate
Cash and cash equivalents................................................... $ 51,832 $ 23,164
Property and equipment, net................................................. 10,683 10,851
Deferred income taxes....................................................... 24,986 25,980
Deferred debt issue costs, net.............................................. 3,210 3,305
Other assets, net........................................................... 6,386 6,708
------------- -------------
97,097 70,008
------------- -------------
Homebuilding
Cash and cash equivalents................................................... 4,690 4,686
Home sales and other accounts receivable.................................... 23,592 3,519
Inventories, net
Housing completed or under construction................................... 634,677 578,475
Land and land under development........................................... 643,698 656,843
Prepaid expenses and other assets, net...................................... 70,182 65,936
------------- -------------
1,376,839 1,309,459
Financial Services
Cash and cash equivalents................................................... 1,551 1,092
Mortgage loans held in inventory............................................ 133,891 207,938
Other assets, net........................................................... 7,861 6,683
------------- -------------
143,303 215,713
------------- -------------
Total Assets.......................................................... $ 1,617,239 $ 1,595,180
============= =============
|
See notes to condensed consolidated financial statements.
M.D.C. HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
March 31, December 31,
2003 2002
------------- -------------
LIABILITIES (Unaudited)
Corporate
Accounts payable and accrued expenses........................................ $ 48,235 $ 63,871
Income taxes payable......................................................... 26,031 21,571
Senior notes, net............................................................ 323,035 322,990
------------- -------------
397,301 408,432
------------- -------------
Homebuilding
Accounts payable and accrued expenses........................................ 204,650 210,601
Line of credit............................................................... 90,000 - -
------------- -------------
294,650 210,601
------------- -------------
Financial Services
Accounts payable and accrued expenses........................................ 20,541 21,506
Line of credit............................................................... 88,552 154,074
------------- -------------
109,093 175,580
------------- -------------
Total Liabilities...................................................... 801,044 794,613
------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTE H).......................................... - - - -
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 25,000,000 shares authorized; none issued... - - - -
Common stock, $.01 par value; 100,000,000 shares authorized; 31,823,000 and
31,802,000 shares issued, respectively, at March 31, 2003 and
December 31, 2002.......................................................... 318 318
Additional paid-in capital................................................... 377,015 371,896
Retained earnings............................................................ 536,415 501,498
Unearned restricted stock.................................................... (1,175) (820)
Accumulated other comprehensive income....................................... 129 2
------------- -------------
912,702 872,894
Less treasury stock, at cost; 5,913,000 and 5,373,000 shares, respectively,
at March 31, 2003 and December 31, 2002.................................... (96,507) (72,327)
------------- -------------
Total Stockholders' Equity............................................. 816,195 800,567
------------- -------------
Total Liabilities and Stockholders' Equity............................. $ 1,617,239 $ 1,595,180
============= =============
|
See notes to condensed consolidated financial statements.
M.D.C. HOLDINGS, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
Three Months
Ended March 31,
2003 2002
----------- -----------
REVENUES
Homebuilding............................................................... $ 554,912 $ 446,761
Financial Services......................................................... 14,513 9,381
Corporate.................................................................. 217 232
----------- -----------
Total Revenues......................................................... 569,642 456,374
----------- -----------
COSTS AND EXPENSES
Homebuilding............................................................... 490,454 388,917
Financial Services......................................................... 6,946 4,351
Corporate general and administrative....................................... 11,476 10,060
----------- -----------
Total Costs and Expenses............................................... 508,876 403,328
----------- -----------
Income before income taxes.................................................... 60,766 53,046
Provision for income taxes.................................................... (23,729) (20,710)
----------- -----------
NET INCOME.................................................................... $ 37,037 $ 32,336
=========== ===========
EARNINGS PER SHARE (NOTE I)
Basic...................................................................... $ 1.28 $ 1.10
=========== ===========
Diluted.................................................................... $ 1.24 $ 1.06
=========== ===========
WEIGHTED-AVERAGE SHARES OUTSTANDING (NOTE I)
Basic...................................................................... 28,995 29,385
=========== ===========
Diluted.................................................................... 29,933 30,550
=========== ===========
DIVIDENDS PAID PER SHARE...................................................... $ .08 $ .07
=========== ===========
|
See notes to condensed consolidated financial statements.
M.D.C. HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months
Ended March 31,
2003 2002
----------- -----------
OPERATING ACTIVITIES
Net income........................................................ $ 37,037 $ 32,336
Adjustments to reconcile net income to net cash provided by (used in)
operating activities
Depreciation and amortization................................ 7,028 5,249
Deferred income taxes........................................ 994 2,702
Net changes in assets and liabilities
Home sales and other accounts receivable.............. (20,073) (3,129)
Homebuilding inventories.............................. (43,057) (75,136)
Prepaid expenses and other assets..................... (9,246) (8,455)
Mortgage loans held in inventory...................... 74,047 52,836
Accounts payable and accrued expenses.................. (11,210) (5,969)
Other, net................................................... (885) (4,642)
----------- -----------
Net cash provided by (used in) operating activities............... 34,635 (4,208)
----------- -----------
INVESTING ACTIVITIES
Net purchase of property and equipment............................ (1,565) (428)
----------- -----------
FINANCING ACTIVITIES
Lines of credit
Advances..................................................... 608,800 400,700
Principal payments........................................... (584,322) (405,509)
Dividend payments................................................. (2,120) (1,868)
Stock repurchases................................................. (26,731) - -
Proceeds from exercise of stock options........................... 434 3,622
----------- -----------
Net cash used in financing activities............................. (3,939) (3,055)
----------- -----------
Net increase (decrease) in cash and cash equivalents.............. 29,131 (7,691)
Cash and cash equivalents
Beginning of period.......................................... 28,942 36,600
----------- -----------
End of period................................................ $ 58,073 $ 28,909
=========== ===========
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Three Months
Ended March 31,
2003 2002
----------- -----------
Cash paid during the period for
Interest..................................................... $ 7,973 $ 7,765
Income taxes................................................. $ 18,275 $ 4,004
|
See notes to condensed consolidated financial statements.
M.D.C. HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
A. Presentation of Financial Statements
The condensed consolidated financial statements of M.D.C. Holdings, Inc. ("MDC" or the "Company," which refers to M.D.C. Holdings, Inc. and its subsidiaries) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. These statements reflect all adjustments (including all normal recurring accruals) which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of MDC as of March 31, 2003 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, 2002. Certain reclassifications have been made in the 2002 financial statements to conform to the classifications used in the current year.
The Company historically has experienced, and expects to continue to experience, variability in quarterly results. The condensed consolidated statements of income are not necessarily indicative of the results to be expected for the full year.
B. Earnings Per Share
The basic and diluted earnings per share calculations are shown below (in thousands, except per share amounts). Earnings per share and weighted-average shares outstanding have been restated for all periods presented to reflect the effect of a 10% stock dividend declared on April 28, 2003 (see Note I).
Three Months
Ended March 31,
2003 2002
----------- -----------
Basic Earnings Per Share
Net income..................................................... $ 37,037 $ 32,336
=========== ===========
Basic weighted-average shares outstanding...................... 28,995 29,385
=========== ===========
Per share amounts.............................................. $ 1.28 $ 1.10
=========== ===========
Diluted Earnings Per Share
Net income..................................................... $ 37,037 $ 32,336
=========== ===========
Basic weighted-average shares outstanding...................... 28,995 29,385
Stock options, net............................................. 938 1,165
----------- -----------
Diluted weighted-average shares outstanding.................... 29,933 30,550
=========== ===========
Per share amounts.............................................. $ 1.24 $ 1.06
=========== ===========
|
C. Stockholders' Equity
Stock Repurchase Program - On March 24, 2003, the MDC board of directors authorized the repurchase of up to an additional 1,350,000 shares of MDC common stock, bringing the total authorization under this program to 4,350,000 shares. During the first quarter of 2003, the Company repurchased 727,100 shares of MDC common stock, bringing the total shares repurchased to 2,580,400 and leaving 1,769,600 shares available to be repurchased as of March 31, 2003 under this program. The
per share prices, including commissions, for the 727,100 shares repurchased ranged from $35.96 to $39.03 with an average cost of $36.76. At March 31, 2003, the Company held 5,913,000 shares of treasury stock with an average purchase price of approximately $16 per share.
Stock-Based Compensation - The Company has elected to account for stock-based compensation using the intrinsic value method as prescribed by Accounting Principles Board Opinion ("APB") No. 25 and related interpretations and, therefore, recorded no compensation expense in the determination of net income in the first three months of both 2003 and 2002. The following table illustrates the effect on net income and earnings per share if the fair value method had been applied to all outstanding and unvested awards in the quarterly periods ended March 31, 2003 and 2002.
Three Months Ended
March 31,
2003 2002
----------- -----------
Net income, as reported.............................................. $ 37,037 $ 32,336
Deduct stock-based compensation expense determined using the fair
value method, net of related tax effects.......................... (1,535) (1,782)
----------- -----------
Pro forma net income................................................. $ 35,502 $ 30,554
=========== ===========
Earnings per share
Basic as reported................................................. $ 1.28 $ 1.10
=========== ===========
Basic pro forma................................................... $ 1.23 $ 1.04
=========== ===========
Diluted as reported............................................... $ 1.24 $ 1.06
=========== ===========
Diluted pro forma................................................. $ 1.19 $ 1.00
=========== ===========
|
D. Interest Activity
The Company capitalizes interest incurred on its corporate and homebuilding debt during the period of active development and through the completion of construction of its homebuilding inventories. Corporate and homebuilding interest incurred but not capitalized is reported as interest expense. Interest incurred by the financial services segment is charged to interest expense, which is deducted from interest income and reported as net interest income in Note G. Interest activity, in total and by business segment, is shown below (in thousands).
Three Months
Ended March 31,
2003 2002
---------- ----------
Total Interest Incurred
Corporate and homebuilding................................................. $ 7,052 $ 4,041
Financial services......................................................... 570 397
---------- ----------
Total interest incurred.................................................... $ 7,622 $ 4,438
========== ==========
Corporate/Homebuilding Interest Capitalized
Interest capitalized in homebuilding inventory, beginning of period........ $ 17,783 $ 17,358
Interest incurred.......................................................... 7,052 4,041
Interest expense........................................................... - - - -
Previously capitalized interest included in cost of sales.................. (4,803) (4,462)
---------- ----------
Interest capitalized in homebuilding inventory, end of period.............. $ 20,032 $ 16,937
========== ==========
Financial Services Net Interest Income
Interest income............................................................ $ 1,578 $ 1,405
Interest expense........................................................... (570) (397)
---------- ----------
Net interest income........................................................ $ 1,008 $ 1,008
========== ==========
|
E. Lines of Credit
Homebuilding - The Company has an unsecured revolving line of credit with a group of lenders for support of its homebuilding operations (the "Homebuilding Line"). On July 30, 2002, the terms of the Homebuilding Line were amended and restated (the "Second Amended and Restated Credit Agreement") to extend the maturity date to July 29, 2006, and increase the maximum amount available from $450,000,000 to $600,000,000 upon the Company's request, subject to additional commitments from existing or additional participant lenders. Lender commitments under the Homebuilding Line increased from $450,000,000 to $538,000,000 in July 2002 and to $593,000,000 in December 2002. In January 2003, the Company received an additional $7,000,000 lender commitment, bringing total commitments to $600,000,000. Pursuant to the terms of the Second Amended and Restated Credit Agreement, a term-out of this credit may commence prior to July 29, 2006 under certain circumstances. At March 31, 2003, $90,000,000 was borrowed and $20,231,000 in letters of credit were outstanding under the Homebuilding Line.
Mortgage Lending - In June 2002, the Company received $25,000,000 in additional commitments on its mortgage lending bank line of credit (the "Mortgage Line"), increasing the borrowing limit to $125,000,000 from $100,000,000. In August 2002, the terms of the Mortgage Line were amended to allow for a $50,000,000 increase in the borrowing limit to a maximum of $175,000,000, subject to concurrence by the participating banks. The terms of the Mortgage Line are set forth in a Second Amended and Restated Warehousing Credit Agreement dated as of September 9, 2002. In December 2002, the Company received commitments to temporarily increase the borrowing limit to the maximum of $175,000,000. The temporary increase terminated on February 14, 2003. Available borrowings under the Mortgage Line are collateralized by mortgage loans and mortgage-backed certificates and are limited to the value of eligible collateral as defined. At March 31, 2003, $88,552,000 was borrowed and an additional $12,046,000 was collateralized and available to be borrowed. The Mortgage Line is cancelable upon 120 days notice.
F. Warranty Reserves
Warranty reserves are reviewed quarterly, using historical data and other relevant information, to determine the reasonableness and adequacy of both the reserve and the per unit reserve amount originally included in cost of sales, as well as the timing of the reversal of the reserve. Warranty reserves are included in corporate and homebuilding accounts payable and accrued expenses in the condensed consolidated balance sheets and totaled $45,740,000 and $38,384,000, respectively, at March 31, 2003 and 2002. The first quarter 2003 warranty expense increased, compared with the same period in 2002, primarily in Colorado due to costs incurred in connection with moisture intrusion and related mold concerns. Reserves carried over from prior years primarily are the result of the Company's volume of homes closed increasing by over 300% in the last ten years, giving rise to continuing warranty reserves that exceed current expenditures. In addition, the carryover includes additional qualified settlement fund warranty reserves created pursuant to litigation settled in 1996. Warranty activity for the quarters ended March 31, 2003 and 2002 is shown below (in thousands).
Three Months Ended
March 31,
2003 2002
------------ ------------
Warranty reserve balance at beginning of period............ $ 44,743 $ 38,430
Warranty expense provided.................................. 8,045 3,402
Payments................................................... (7,048) (3,448)
------------- -------------
Warranty reserve balance at end of period.................. $ 45,740 $ 38,384
============ ============
|
G. Information on Business Segments
The Company operates in two business segments: homebuilding and financial services. A summary of the Company's segment information is shown below (in thousands).
Three Months
Ended March 31,
2003 2002
----------- -----------
Homebuilding
Revenues
Home sales....................................................... $ 553,575 $ 445,167
Land sales....................................................... 123 - -
Other revenues................................................... 1,214 1,594
----------- -----------
Total Homebuilding Revenues........................................ 554,912 446,761
----------- -----------
Home cost of sales............................................... 427,602 341,061
Land cost of sales............................................... 87 - -
Marketing expenses............................................... 33,600 25,663
General and administrative expenses.............................. 29,165 22,193
----------- -----------
490,454 388,917
Homebuilding Operating Profit................................. 64,458 57,844
----------- -----------
Financial Services
Revenues
Net interest income.............................................. 1,008 1,008
Origination fees................................................. 4,660 4,229
Gains on sales of mortgage servicing............................. 834 471
Gains on sales of mortgage loans, net............................ 7,342 3,461
Mortgage servicing and other..................................... 669 212
----------- -----------
Total Financial Services Revenues.................................. 14,513 9,381
General and Administrative Expenses................................ 6,946 4,351
----------- -----------
Financial Services Operating Profit........................... 7,567 5,030
----------- -----------
Total Operating Profit................................................ 72,025 62,874
----------- -----------
Corporate
Interest and other revenues...................................... 217 232
General and administrative expenses.............................. (11,476) (10,060)
----------- -----------
Net Corporate Expenses........................................ (11,259) (9,828)
----------- -----------
Income Before Income Taxes............................................ $ 60,766 $ 53,046
=========== ===========
|
H. Commitments and Contingencies
The Company is often required to obtain bonds and letters of credit in support of its related obligations with respect to subdivision improvement, homeowners association dues and start-up expenses, warranty work, contractors license fees, earnest money deposits, etc. At March 31, 2003, MDC had outstanding approximately $24,273,000 and $212,743,000 of letters of credit and performance bonds, respectively. In the event any such bonds or letters of credit are called, MDC would be obligated to reimburse the issuer of the bond or letter of credit. However, the Company does not believe that any currently outstanding bonds or letters of credit will be unexpectedly called.
I. Subsequent Event
On April 28, 2003, MDC's board of directors approved the payment of a 10% stock dividend, which will be distributed on May 27, 2003 to shareowners of record on May 12, 2003. In accordance with the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 128 "Earnings per Share", basic and diluted net income per share amounts and weighted-average shares outstanding have been restated for all periods presented to reflect the effect of this stock dividend.
J. Supplemental Guarantor Information
The Company's senior notes are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by Richmond American Homes of California, Inc., Richmond American Homes of Maryland, Inc., Richmond American Homes of Nevada, Inc., Richmond American Homes of Virginia, Inc., Richmond American Homes of Arizona, Inc., Richmond American Homes of Colorado, Inc., M.D.C. Land Corporation, Richmond American Construction, Inc., Richmond American Homes of West Virginia, Inc., Richmond American Homes of California (Inland Empire), Inc., Richmond American Homes of Utah, Inc., Richmond American Homes of Texas, Inc., RAH of Texas, LP and RAH Texas Holdings, LLC (collectively, the "Guarantor Subsidiaries"). Non-guarantor subsidiaries primarily consist of HomeAmerican Mortgage Corporation, American Home Title and Escrow Company, American Home Insurance Agency, Inc., Lion Insurance Company and StarAmerican Insurance Ltd. (collectively, the "Non-Guarantor Subsidiaries"). The Company has determined that separate, full financial statements of the Guarantor Subsidiaries would not be material to investors and, accordingly, supplemental financial information for the Guarantor Subsidiaries is presented.
M.D.C. Holdings, Inc. Supplemental Combining Balance Sheet March 31, 2003
(In thousands)
(Unaudited)
Non-
Guarantor Guarantor Eliminating
ASSETS MDC Subsidiaries Subsidiaries Entries Total
----------- ----------- ----------- ----------- -----------
Corporate
Cash and cash equivalents............... $ 51,832 $ - - $ - - $ - - $ 51,832
Investments in and advances to
parent and subsidiaries............... 190,231 242 7,018 (197,491) - -
Other assets............................ 47,315 - - (2,050) - - 45,265
----------- ----------- ----------- ----------- -----------
289,378 242 4,968 (197,491) 97,097
----------- ----------- ----------- ----------- -----------
Homebuilding
Cash and cash equivalents............... - - 4,426 264 - - 4,690
Home sales and other accounts
receivable............................ - - 31,068 157 (7,633) 23,592
Inventories, net
Housing completed or under construction - - 634,677 - - - - 634,677
Land and land under development....... - - 643,698 - - - - 643,698
Other assets............................ - - 52,366 17,816 - - 70,182
----------- ----------- ----------- ----------- -----------
- - 1,366,235 18,237 (7,633) 1,376,839
----------- ----------- ----------- ----------- -----------
Financial Services - - - - 143,303 - - 143,303
----------- ----------- ----------- ----------- -----------
Total Assets...................... $ 289,378 $ 1,366,477 $ 166,508 $ (205,124) $ 1,617,239
=========== =========== =========== =========== ===========
LIABILITIES
Corporate
Accounts payable and accrued expenses. $ 48,123 $ - - $ 112 $ - - $ 48,235
Advances and notes payable - parent and
subsidiaries.......................... (988,212) 973,306 14,906 - - - -
Income taxes payable.................... 5,549 17,749 2,733 - - 26,031
Senior notes, net....................... 323,035 - - - - - - 323,035
----------- ----------- ----------- ------------ -----------
(611,505) 991,055 17,751 - - 397,301
----------- ----------- ----------- ------------ -----------
Homebuilding
Accounts payable and accrued expenses.. - - 199,963 4,687 - - 204,650
Lines of credit......................... 90,000 - - - - - - 90,000
----------- ----------- ----------- ------------ -----------
90,000 199,963 4,687 - - 294,650
----------- ----------- ----------- ------------ -----------
Financial Services - - - - 116,726 (7,633) 109,093
----------- ----------- ----------- ------------ -----------
Total Liabilities................. (521,505) 1,191,018 139,164 (7,633) 801,044
----------- ----------- ----------- ------------ -----------
STOCKHOLDERS' EQUITY...................... 810,883 175,459 27,344 (197,491) 816,195
----------- ----------- ----------- ------------ -----------
Total Liabilities and
Stockholders' Equity............ $ 289,378 $ 1,366,477 $ 166,508 $ (205,124) $ 1,617,239
=========== =========== =========== ============= ===========
|
M.D.C. Holdings, Inc. Supplemental Combining Balance Sheet December 31, 2002
(In thousands)
Non-
Guarantor Guarantor Eliminating
ASSETS MDC Subsidiaries Subsidiaries Entries Total
----------- ----------- ----------- ----------- ------------
Corporate
Cash and cash equivalents............... $ 23,164 $ - - $ - - $ - - $ 23,164
Investments in and advances to parent
and subsidiaries...................... 345,214 774 (2,645) (343,343) - -
Other assets ........................... 49,017 - - (2,173) - - 46,844
----------- ----------- ----------- ----------- ------------
417,395 774 (4,818) (343,343) 70,008
----------- ----------- ----------- ----------- ------------
Homebuilding
Cash and cash equivalents............... - - 4,171 515 - - 4,686
Home sales and other accounts receivable - - 3,317 202 - - 3,519
Inventories, net
Housing completed or under construction - - 578,475 - - - - 578,475
Land and land under development....... - - 656,843 - - - - 656,843
Other assets............................ - - 48,168 17,768 - - 65,936
----------- ----------- ----------- ----------- ------------
- - 1,290,974 18,485 - - 1,309,459
----------- ----------- ----------- ----------- ------------
Financial services......................... - - - - 215,713 - - 215,713
----------- ----------- ----------- ----------- ------------
Total Assets...................... $ 417,395 $ 1,291,748 $ 229,380 $ (343,343) $ 1,595,180
=========== =========== =========== =========== ============
LIABILITIES
Corporate
Accounts payable and accrued expenses. $ 63,772 $ - - $ 99 $ - - $ 63,871
Advances and notes payable - parent and
subsidiaries.......................... (673,479) 658,804 14,675 - - - -
Income taxes payable.................... (90,854) 108,829 3,596 - - 21,571
Senior notes, net....................... 322,990 - - - - - - 322,990
----------- ----------- ----------- ------------ ------------
(377,571) 767,633 18,370 - - 408,432
----------- ----------- ----------- ------------ ------------
Homebuilding
Accounts payable and accrued expenses. - - 204,615 5,986 - - 210,601
Line of credit.......................... - - - - - - - - - -
----------- ----------- ----------- ------------ ------------
- - 204,615 5,986 - - 210,601
----------- ----------- ----------- ------------ ------------
Financial Services........................ - - - - 175,580 - - 175,580
----------- ----------- ----------- ------------ ------------
Total Liabilities................. (377,571) 972,248 199,936 - - 794,613
----------- ----------- ----------- ------------ ------------
STOCKHOLDERS' EQUITY...................... 794,966 319,500 29,444 (343,343) 800,567
----------- ----------- ----------- ------------ ------------
Total Liabilities and
Stockholders' Equity............ $ 417,395 $ 1,291,748 $ 229,380 $ (343,343) $ 1,595,180
=========== =========== =========== ============ ============
|
M.D.C. Holdings, Inc. Supplemental Combining Statements of Income
(In thousands)
(Unaudited)
Three Months Ended March 31, 2003
Non-
Guarantor Guarantor Eliminating
MDC Subsidiaries Subsidiaries Entries Total
----------- ----------- ----------- ----------- ------------
REVENUES
Homebuilding............................. $ - - $ 554,232 $ 756 $ (76) $ 554,912
Financial Services....................... - - - - 14,513 - - 14,513
Corporate................................ 207 - - 10 - - 217
Equity in earnings of subsidiaries....... 32,748 - - - - (32,748) - -
----------- ----------- ----------- ----------- ------------
Total Revenues..................... 32,955 554,232 15,279 (32,824) 569,642
----------- ----------- ----------- ----------- ------------
COSTS AND EXPENSES
Homebuilding............................. (35) 509,324 45 (18,880) 490,454
Financial Services....................... - - - - 6,946 - - 6,946
Corporate general and administrative..... 11,476 - - - - - - 11,476
Corporate and homebuilding interest...... (18,880) - - - - 18,880 - -
----------- ----------- ----------- ----------- ------------
Total Expenses...................... (7,439) 509,324 6,991 - - 508,876
----------- ----------- ----------- ----------- ------------
Income before income taxes............... 40,394 44,908 8,288 (32,824) 60,766
Provision for income taxes............... (2,765) (17,749) (3,215) - - (23,729)
----------- ----------- ----------- ----------- ------------
NET INCOME.................................. $ 37,629 $ 27,159 $ 5,073 $ (32,824) $ 37,037
=========== =========== =========== ===========- ============
|
Three Months Ended March 31, 2002
Non-
Guarantor Guarantor Eliminating
MDC Subsidiaries Subsidiaries Entries Total
----------- ----------- ----------- ----------- ------------
REVENUES
Homebuilding............................. $ - - $ 445,798 $ 1,029 $ (66) $ 446,761
Financial Services....................... - - - - 9,381 - - 9,381
Corporate................................ 226 - - 6 - - 232
Equity in earnings of subsidiaries....... 35,751 - - - - (35,751) - -
----------- ----------- ----------- ----------- ------------
Total Revenues..................... 35,977 445,798 10,416 (35,817) 456,374
----------- ----------- ----------- ----------- ------------
COSTS AND EXPENSES
Homebuilding............................. (67) 393,662 207 (4,885) 388,917
Financial Services....................... - - - - 4,351 - - 4,351
Corporate general and administrative..... 10,060 - - - - - - 10,060
Corporate and homebuilding interest...... (4,885) - - - - 4,885 - -
----------- ----------- ----------- ----------- ------------
Total Expenses...................... 5,108 393,662 4,558 - - 403,328
----------- ----------- ----------- ----------- ------------
Income before income taxes............... 30,869 52,136 5,858 (35,817) 53,046
Provision for income taxes............... 2,353 (20,781) (2,282) - - (20,710)
----------- ----------- ----------- ----------- ------------
NET INCOME.................................. $ 33,222 $ 31,355 $ 3,576 $ (35,817) $ 32,336
=========== =========== =========== =========== ============
|
M.D.C. Holdings, Inc. Supplemental Combining Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended March 31, 2003
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities..................... $ 3,100 $ (51,776) $ 83,387 $ (76) $ 34,635
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities....... (510) (781) (274) - - (1,565)
------------ ------------ ------------ ------------ ------------
Financing activities
Net increase (reduction) in borrowings from
parent and subsidiaries.................. (35,429) 52,812 (17,383) - - - -
Lines of credit
Advances............................... 608,800 - - - - - - 608,800
Principal payments..................... (518,800) - - (65,522) - - (584,322)
Dividend payments........................... (2,196) - - - - 76 (2,120)
Stock repurchases........................... (26,731) - - - - - - (26,731)
Proceeds from exercise of stock options..... 434 - - - - - - 434
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities............................... 26,078 52,812 (82,905) 76 (3,939)
------------ ------------ ------------- ------------ ------------
Net increase in cash and cash equivalents... 28,668 255 208 - - 29,131
Cash and cash equivalents
Beginning of year........................ 23,164 4,171 1,607 - - 28,942
------------ ------------ ------------ ------------ ------------
End of year.............................. $ 51,832 $ 4,426 $ 1,815 $ - - $ 58,073
============ ============ ============ ============ ============
|
Three Months Ended March 31, 2002
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities..................... $ (5,714) $ (60,423) $ 61,995 $ (66) $ (4,208)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) investing
activities............................... 327 (736) (19) - - (428)
------------ ------------ ------------ ------------ ------------
Financing activities
Net increase (reduction) in borrowings from
parent and subsidiaries.................. (54,358) 61,525 (7,167) - - - -
Lines of credit
Advances............................... 400,700 - - - - - - 400,700
Principal payments..................... (350,700) - - (54,809) - - (405,509)
Dividend payments........................... (1,934) - - - - 66 (1,868)
Proceeds from exercise of stock options..... 3,622 - - - - - - 3,622
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities............................... (2,670) 61,525 (61,976) 66 (3,055)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents.............................. (8,057) 366 0 - - (7,691)
Cash and cash equivalents
Beginning of year........................ 31,322 4,352 926 - - 36,600
------------ ------------ ------------ ------------ ------------
End of year.............................. $ 23,265 $ 4,718 $ 926 $ - - $ 28,909
============ ============ ============ ============ ============
|
INTRODUCTION
M.D.C. Holdings, Inc. is a Delaware Corporation. We refer to M.D.C. Holdings, Inc. as the "Company" or as "MDC" in this Form 10-Q. The "Company" or "MDC" includes our subsidiaries unless we state otherwise. MDC's primary business is owning and managing subsidiary companies that build and sell homes under the name "Richmond American Homes." We also own and manage HomeAmerican Mortgage Corporation ("HomeAmerican"), which originates mortgage loans primarily for MDC's home buyers; American Home Title and Escrow Company ("American Home Title"), which provides title agency services; and American Home Insurance Agency, Inc. ("American Home Insurance"), which offers insurance to MDC's home buyers.
RESULTS OF OPERATIONS
The table below summarizes MDC's results of operations (in thousands, except per share amounts). Earnings per share have been restated for all periods presented to reflect the effect of a 10% stock dividend declared on April 28, 2003 (see Note I to the Company's Condensed Consolidated Financial Statements).
Three Months
Ended March 31,
2003 2002
---------- -----------
Revenues............................................................... $ 569,642 $ 456,374
Income Before Income Taxes............................................. $ 60,766 $ 53,046
Net Income............................................................. $ 37,037 $ 32,336
Earnings Per Share
Basic............................................................... $ 1.28 $ 1.10
Diluted............................................................. $ 1.24 $ 1.06
|
Revenues for the first quarter of 2003 increased by $113,268,000, or 25%, compared with the same period in 2002, primarily due to increased home closings. This includes an increase in revenues from the financial services segment of $5,132,000, or 55%, primarily resulting from higher gains on sales of mortgage loans.
Income before income taxes increased 15% in the first quarter of 2003, compared with the first quarter of 2002. This increase was a result of record first quarter operating profits from both the homebuilding and financial services operations. The increase in homebuilding segment profits primarily resulted from the factors contributing to the increase in revenues described above, partially offset by lower Home Gross Margins (as defined below). Financial services segment profits increased primarily due to higher gains on sales of mortgage loans and increased origination fee income, partially offset by higher general and administrative expenses resulting from HomeAmerican's expanded loan origination activity.
Homebuilding Segment
The table below sets forth information relating to the Company's homebuilding segment (dollars in thousands).
Three Months
Ended March 31,
2003 2002
-------------- --------------
Home Sales Revenues............................... $ 553,575 $ 445,167
Operating Profit.................................. $ 64,458 $ 57,844
Average Selling Price Per Home Closed............. $ 263.6 $ 265.9
Home Gross Margins................................ 22.8% 23.4%
Home Gross Margins Excluding Interest............. 23.7% 24.4%
Orders For Homes, net (units)
Colorado................................... 671 1,001
California................................. 530 591
Nevada..................................... 583 207
Arizona.................................... 924 670
Utah....................................... 93 - -
Texas...................................... 50 - -
Virginia................................... 403 242
Maryland................................... 111 65
-------------- --------------
Total................................ 3,365 2,776
============== ==============
Homes Closed (units)
Colorado................................... 609 609
California................................. 428 292
Nevada..................................... 273 141
Arizona.................................... 571 438
Utah....................................... 40 - -
Texas...................................... 10 - -
Virginia................................... 102 130
Maryland................................... 67 64
-------------- --------------
Total................................ 2,100 1,674
============== ==============
|
March 31, December 31, March 31,
2003 2002 2002
------------- -------------- -------------
Backlog (units)
Colorado................................... 1,019 957 1,587
California................................. 1,024 922 789
Nevada..................................... 660 350 247
Arizona.................................... 1,429 1,076 857
Utah....................................... 103 50 - -
Texas...................................... 56 16 - -
Virginia................................... 777 476 346
Maryland................................... 232 188 158
-------------- -------------- --------------
Total................................ 5,300 4,035 3,984
============== ============== ==============
Backlog Estimated Sales Value..................... $ 1,400,000 $ 1,120,000 $ 1,050,000
============== ============== ==============
Average Sales Price in Backlog.................... $ 264.2 $ 277.6 $ 263.6
============== ============== ==============
|
March 31, December 31, March 31,
2003 2002 2002
------------- -------------- -------------
Active Subdivisions
Colorado................................... 62 61 63
California................................. 22 24 25
Nevada..................................... 23 18 9
Arizona.................................... 46 44 36
Utah....................................... 7 4 - -
Texas...................................... 4 1 - -
Virginia................................... 32 20 13
Maryland................................... 8 6 4
-------------- -------------- --------------
Total................................ 204 178 150
============== ============== ==============
|
Home Sales Revenues - Home sales revenues for the quarter ended March 31, 2003 were 24% higher than home sales revenues for the same period in 2002. The improved revenues primarily were a result of increased home closings, partially offset by a decrease in average selling price, as discussed below.
Homes Closed - Home closings in the first quarter of 2003 were 25% higher than the same period in 2002. Closings increased in the first three months of 2003, compared with the same period in 2002, in (1) Nevada and Arizona (increases of 94% and 30%, respectively), where home orders particularly were strong in the second half of 2002 as a result of increases in active subdivisions; and (2) Southern and Northern California (increases of 57% and 28%, respectively), primarily due to the strong demand for new homes in these markets. In addition, the Company closed 50 homes in its new markets in Utah and Texas in the first quarter of 2003.
Average Selling Price Per Home Closed - The average selling price per home closed in the first quarter of 2003 was $263,600, compared with $265,900 for the same period in 2002. The decrease in average selling price primarily was due to a greater percentage of homes closed in Nevada, Phoenix, Utah and Texas, where the average sales price of homes is lower than the Company average.
Home Gross Margins - We define "Home Gross Margins" to mean home sales revenues less cost of goods sold (which primarily includes land and construction costs, capitalized interest, financing costs, and a reserve for warranty expense) as a percent of home sales revenues. Home Gross Margins were 22.8% for the quarter ended March 31, 2003, compared with 23.4% for the same period in 2002. The decrease in 2003 primarily was due to (1) increased warranty costs in Colorado and Northern California, including costs incurred in connection with moisture intrusion and related mold concerns; (2) increased incentives in Colorado due to the more challenging economic conditions experienced in this market; and (3) homes closed in Utah and Texas with a lower Home Gross Margin than the Company average. The impact of these decreases in Home Gross Margins partially was offset by reductions in previous estimates of costs to complete land development in Southern California.
Future Home Gross Margins may be impacted adversely by the previously mentioned factors, as well as (1) competition; (2) increases in the costs of subcontracted labor, finished lots, building materials and other resources, to the extent that market conditions prevent the recovery of increased costs through higher selling prices; (3) adverse weather; and (4) shortages of subcontractor labor, finished lots and other resources. See "Forward-Looking Statements" below.
Orders for Homes and Backlog - The Company received 3,365 orders for homes during the first quarter of 2003, 21% greater than the 2,776 home orders received in the first quarter of 2002. Home
orders during the first quarter of 2003 particularly were strong in Nevada, Maryland, Virginia and Arizona (up 182%, 71%, 67% and 38%, respectively), aided by year-over-year increases in the number of active subdivisions and a continued strong demand for new homes in these markets. In addition, the Company received 143 home orders in its new markets in Utah and Texas in the first quarter of 2003. Home orders were lower in Colorado on a comparable number of active subdivisions, primarily due to the market's more challenging economic environment.
Homes under contract but not yet delivered ("Backlog") at March 31, 2003 was 5,300 units with an estimated sales value of $1,400,000,000, compared with a Backlog of 3,984 units with an estimated sales value of $1,050,000,000 at March 31, 2002. Assuming no significant change in market conditions or mortgage interest rates, the Company expects approximately 80% of its March 31, 2003 Backlog to close under existing sales contracts during the remainder of 2003. The remaining 20% of the homes in Backlog are not expected to close under existing contracts due to cancellations. See "Forward-Looking Statements" below.
Marketing - Marketing expenses (which include sales commissions, advertising, amortization of deferred marketing costs, model home expenses and other costs) totaled $33,600,000 for the first quarter of 2003, compared with $25,663,000 for the same period in 2002. The increase in the 2003 first quarter primarily was due to (1) higher sales commissions resulting from the Company's increased home sales revenues; (2) higher product advertising and deferred marketing amortization, primarily as a result of the increased number of active subdivisions during the first quarter of 2003, compared with the first quarter of 2002; and (3) increased sales overhead resulting from the Company's expanding home sales activities.
General and Administrative - General and administrative expenses increased to $29,165,000 during the first quarter of 2003, compared with $22,193,000 during the same period in 2002, primarily due to increased compensation and other costs associated with expanded operations in most of the Company's markets, most notably Nevada, Phoenix, Virginia, Southern California, Texas and Utah.
Title Operations - American Home Title provides title agency services to MDC home buyers in Virginia, Maryland and Colorado. The Company is evaluating opportunities to provide title agency services in its other markets. Income before income taxes from title operations was $459,000 for the quarter ended March 31, 2003, compared with $469,000 for the same period in 2002.
New Homebuilding Divisions
In February 2002, the Company expanded into the Dallas/Fort Worth market by hiring a division president to manage the start-up operation. During 2002 and the first quarter of 2003, the Company acquired control of over 850 lots in ten subdivisions in this market. In the 2003 first quarter, this division received 50 home orders and closed ten homes.
In April 2002, one of the Company's subsidiaries acquired most of the homebuilding assets, and hired former employees, of John Laing Homes in Salt Lake City, marking the Company's entry into this market. The assets acquired included approximately 750 lots and 24 homes under construction in five subdivisions. In the 2003 first quarter, this division received 93 home orders and closed 40 homes.
Land Inventory
The table below shows the carrying value of land and land under development, by market, the total number of lots owned and lots controlled under option agreements, and total cash option deposits (dollars in thousands).
March 31, December 31, March 31,
2003 2002 2002
----------- ----------- -----------
Colorado........................................ $ 139,499 $ 140,930 $ 159,007
California...................................... 142,516 154,980 130,772
Nevada.......................................... 110,982 114,142 53,226
Arizona......................................... 88,459 92,639 83,700
Utah............................................ 13,083 12,984 - -
Texas........................................... 5,773 5,559 - -
Virginia........................................ 111,756 113,717 60,804
Maryland........................................ 31,630 21,892 19,027
----------- ----------- -----------
Total...................................... $ 643,698 $ 656,843 $ 506,536
=========== =========== ===========
Total Lots Owned (excluding lots in
work-in-process).............................. 16,054 16,962 14,354
Total Lots Controlled Under Option.............. 6,813 6,995 5,559
----------- ----------- -----------
Total Lots Owned and Controlled (excluding
lots in work-in-process).................. 22,867 23,957 19,913
=========== =========== ===========
Total Cash Option Deposits...................... $ 17,078 $ 18,007 $ 10,912
=========== =========== ===========
|
Financial Services Segment
The table below sets forth information relating to the Company's financial services segment (in thousands).
Three Months
Ended March 31,
2003 2002
----------- -----------
Mortgage loan origination fees.............................. $ 4,660 $ 4,229
Gains on sales of mortgage servicing, net................... $ 834 $ 471
Gains on sales of mortgage loans, net....................... $ 7,342 $ 3,461
Operating Profit............................................ $ 7,567 $ 5,030
Principal amount of loan originations
MDC home buyers........................................ $ 315,022 $ 250,888
Spot................................................... 3,749 9,529
----------- -----------
Total.............................................. $ 318,771 $ 260,417
=========== ===========
Principal amount of loans brokered
MDC home buyers........................................ $ 45,325 $ 43,602
Spot................................................... 538 1,608
----------- -----------
Total.............................................. $ 45,863 $ 45,210
=========== ===========
Capture Rate................................................ 71% 73%
=========== ===========
Including brokered loans............................... 81% 83%
=========== ===========
|
Financial services operating profit for the first quarter of 2003 increased, compared with the same period in 2002, primarily due to higher gains on sales of mortgage loans and increased origination fee income, partially offset by higher general and administrative expenses resulting from HomeAmerican's expanded loan origination activity. HomeAmerican's originated loans increased by $58,354,000 in the first quarter of 2003, compared with the same period in 2002. This improvement primarily was due to an increase in homes closed by the homebuilding segment.
Mortgage loans originated by HomeAmerican for MDC home buyers as a percentage of total MDC home closings ("Capture Rate") was 71% for the first quarter of 2003, compared with 73% for the same period in 2002. HomeAmerican also brokers mortgage loans originated by outside lending institutions for MDC home buyers. These brokered loans, for which HomeAmerican receives a fee, have been excluded from the computation of the Capture Rate. The Capture Rate including brokered loans was 81% for the quarter ended March 31, 2003, compared with 83% for the quarter ended March 31, 2002.
Forward Sales Commitments - HomeAmerican's operations are affected by changes in mortgage interest rates. HomeAmerican utilizes forward mortgage securities contracts to manage price risk related to fluctuations in interest rates on its fixed-rate mortgage loans owned and rate-locked mortgage loans in the pipeline.
Insurance Operations - American Home Insurance provides homeowners, auto and other types of casualty insurance in each of MDC's markets. The results of its operations were not material for any of the periods presented.
Other Operating Results
Interest Expense - The Company capitalizes interest incurred on its corporate and homebuilding debt during the period of active development and through the completion of construction of its homebuilding inventories. Corporate and homebuilding interest incurred but not capitalized is reported as interest expense. Interest incurred by the financial services segment is charged to interest expense, which is deducted from interest income and reported as net interest income in Note G to the Company's Condensed Consolidated Financial Statements. For a reconciliation of interest incurred, capitalized and expensed, see Note D to the Company's Condensed Consolidated Financial Statements.
Corporate General and Administrative Expenses - Corporate general and administrative expenses totaled $11,476,000 during the first quarter of 2003, compared with $10,060,000 during the first quarter of 2002. The increase in 2003 primarily was due to increased expenditures for information technology, as the Company is focusing on improving its systems in preparation for the growth of its homebuilding and financial services operations.
Income Taxes - MDC's overall effective income tax rate of 39% for the first quarter of 2003 and 2002 differed from the federal statutory rate of 35% primarily due to the impact of state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
MDC uses its liquidity and capital resources to (1) support its operations, including its homebuilding inventories; (2) provide working capital; and (3) provide mortgage loans for its home buyers. Liquidity and capital resources are generated internally from operations and from external
sources. The Company currently has an effective registration statement that would allow the Company to issue up to $600,000,000 of equity, debt or hybrid securities.
Capital Resources
The Company's capital structure is a combination of (1) permanent financing, represented by stockholders' equity; (2) long-term financing, represented by its publicly traded 8 3/8% senior notes due 2008 (the "8 3/8% Senior Notes"), 7% senior notes due 2012 (the "7% Senior Notes") and its homebuilding line of credit (the "Homebuilding Line"); and (3) current financing, primarily its mortgage lending line of credit (the "Mortgage Line"). Based upon its current capital resources and additional capacity available under existing credit agreements, the Company believes that its current financial condition is both balanced to fit its current operating structure and adequate to satisfy its current and near-term capital requirements, including the acquisition of land and expansion into new markets. The Company believes that it can meet its long-term capital needs (including meeting future debt payments and refinancing or paying off other long-term debt as it becomes due) from operations and external financing sources, assuming that no significant adverse changes in the Company's business or capital and credit markets occur as a result of the various risk factors described elsewhere in this report. See "Forward-Looking Statements" below.
Lines of Credit and Other
Homebuilding - On July 30, 2002, the terms of the Homebuilding Line were amended and restated (the "Second Amended and Restated Credit Agreement") to extend the maturity date to July 29, 2006, and increase the maximum amount available from $450,000,000 to $600,000,000 upon the Company's request, subject to additional commitments from existing or additional participant lenders. Lender commitments under the Homebuilding Line increased from $450,000,000 to $538,000,000 in July 2002 and to $593,000,000 in December 2002. In January 2003, the Company received an additional $7,000,000 lender commitment, bringing total commitments to $600,000,000. Pursuant to the terms of the Second Amended and Restated Credit Agreement, a term-out of this credit may commence prior to July 29, 2006 under certain circumstances. At March 31, 2003, $90,000,000 was borrowed and $20,231,000 in letters of credit were outstanding under the Homebuilding Line.
Mortgage Lending - In June 2002, the Company received $25,000,000 in additional commitments on its Mortgage Line, increasing the borrowing limit to $125,000,000 from $100,000,000. In August 2002, the terms of the Mortgage Line were amended to allow for a $50,000,000 increase in the borrowing limit to a maximum of $175,000,000, subject to concurrence by the participating banks. The terms of the Mortgage Line are set forth in a Second Amended and Restated Warehousing Credit Agreement dated as of September 9, 2002. In December 2002, the Company received commitments to temporarily increase the borrowing limit to the maximum of $175,000,000. The temporary increase terminated on February 14, 2003. Available borrowings under the Mortgage Line are collateralized by mortgage loans and mortgage-backed certificates and are limited to the value of eligible collateral as defined. At March 31, 2003, $88,552,000 was borrowed and an additional $12,046,000 was collateralized and available to be borrowed. The Mortgage Line is cancelable upon 120 days notice.
General - The agreements for the Company's bank lines of credit and the indentures for the Company's senior notes require compliance with certain representations, warranties and covenants. The Company believes that it is in compliance with these representations, warranties and covenants. The agreements for the bank lines of credit and the indentures for the Company's senior notes are on file with the Securities and Exchange Commission and are listed in the Exhibit Table in Part IV of MDC's Annual Report on Form 10-K for its fiscal year ended December 31, 2002.
The financial covenants contained in the Second Amended and Restated Credit Agreement include a leverage test and a consolidated tangible net worth test. Under the leverage test, generally, MDC's consolidated indebtedness is not permitted to exceed 2.15 (subject to downward adjustment in certain circumstances) times MDC's "adjusted consolidated tangible net worth," as defined. Under the adjusted consolidated tangible net worth test, MDC's "adjusted consolidated tangible net worth," as defined, must not be less than the sum of (1) $491,382,000; (2) 50% of "consolidated net income," as defined, of the "borrower," as defined, and the "guarantors," as defined, after December 31, 2001; and (3) 50% of the net proceeds or other consideration received for the issuance of capital stock. In addition, "adjusted consolidated tangible net worth," as defined, must not be less than $307,114,000.
The Company's senior notes indentures do not contain financial covenants. However, there are covenants in the 8 3/8% Senior Notes indenture that limit transactions with affiliates, limit the amount of additional indebtedness that MDC may incur, restrict certain payments on, or the redemptions of, the Company's securities, restrict certain sales of assets and limit incurring liens. In addition, under certain circumstances, in the event of a change of control (generally a sale, transfer, merger or acquisition of MDC or substantially all of its assets), MDC may be required to offer to repurchase the 8 3/8% Senior Notes. The senior notes are not secured. In December 2001, the Company amended its 8 3/8% Senior Notes indenture to provide for the full and unconditional guarantee of the senior notes on an unsecured basis, jointly and severally, by most of the Company's homebuilding segment subsidiaries. The Company's 7% Senior Notes also are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by most of the Company's homebuilding segment subsidiaries.
MDC Common Stock Repurchase Programs
On March 24, 2003, the MDC board of directors authorized the repurchase of up to an additional 1,350,000 shares of MDC common stock, bringing the total authorization under this program to 4,350,000 shares. During the first quarter of 2003, the Company repurchased 727,100 shares of MDC common stock, bringing the total shares repurchased to 2,580,400 and leaving 1,769,600 shares available to be repurchased as of March 31, 2003 under this program. The per share prices, including commissions, for the 727,100 shares repurchased ranged from $35.96 to $39.03 with an average cost of $36.76. At March 31, 2003, the Company held 5,913,000 shares of treasury stock with an average purchase price of approximately $16 per share.
Consolidated Cash Flow
During the first quarter of 2003, the Company generated cash of $34,635,000 from its operating activities, as net income during the period and the sale of mortgage loans provided cash that more than offset increases in net homebuilding assets in conjunction with the Company's expanded homebuilding operations. The net cash provided by operating activities and an increase in the Company's lines of credit provided for the repurchase of MDC common stock for $26,731,000 and the payment of $2,120,000 in dividends and resulted in an increase in cash and cash equivalents on hand by $29,131,000.
During the first quarter of 2002, the Company used $4,208,000 of cash in its operating activities. Cash provided by net income for the period and the sale of mortgage loans was more than offset by an increase in homebuilding inventories in support of the Company's expanding homebuilding activities. The Company financed these net operating cash requirements primarily through a reduction in cash and cash equivalents on hand.
IMPACT OF INFLATION, CHANGING PRICES AND ECONOMIC CONDITIONS
Real estate and residential housing prices are affected by inflation, which can cause increases in the price of land, raw materials and subcontracted labor. Unless these increased costs are recovered through higher sales prices, Home Gross Margins would decrease. If interest rates increase, construction and financing costs, as well as the cost of borrowings, also would increase, which can result in lower Home Gross Margins. Increases in home mortgage interest rates make it more difficult for MDC's customers to qualify for home mortgage loans, potentially decreasing home sales volume. Increases in interest rates also may affect adversely the volume of mortgage loan originations.
The volatility of interest rates could have an adverse effect on MDC's future operations and liquidity. Derivative instruments utilized in the normal course of business by HomeAmerican include forward sales securities commitments, private investor sales commitments and commitments to originate mortgage loans. The Company utilizes these commitments to manage the price risk on fluctuations in interest rates on its mortgage loans held in inventory and commitments to originate mortgage loans. Such contracts are the only significant financial derivative instruments utilized by MDC.
An increase in interest rates may affect adversely the demand for housing and the availability of mortgage financing and may reduce the credit facilities offered to MDC by banks, investment bankers and mortgage bankers. See "Forward-Looking Statements" below.
MDC's business also is affected significantly by general economic conditions and, particularly, the demand for new homes in the markets in which it builds.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Due to uncertainties in the estimation process, it is at least reasonably possible that actual results could differ from those estimates. The Company has determined that its critical accounting policies, or those policies that require significant use of judgment and estimates in their application, are those related to (1) homebuilding inventory valuation; (2) estimates to complete land development and home construction; (3) warranty costs; and (4) litigation reserves.
Homebuilding Inventory Valuation - Homebuilding inventories under development and construction are carried at cost unless facts and circumstances indicate that the carrying value of the underlying projects may be impaired. Impairment is determined by comparing the estimated future cash flows (undiscounted and without interest charges) from an individual project to its carrying value. If such cash flows are less than the project's carrying value, the carrying value of the project is written down to its fair value. Homebuilding inventories held for sale are carried at the lower of cost or fair value, less selling costs, and are evaluated on an individual asset basis. Fair value is determined by management estimate and incorporates anticipated future revenues and costs.
Estimates to Complete Land Development and Home Construction - Home sales revenue is recognized when a home is closed. In order to properly match revenues with expenses, an estimation must be made by the Company as to certain construction and land development costs incurred but not yet paid at the time of closing. Estimated costs to complete a home are determined for each closed home based upon historical data with respect to similar product types and geographical areas.
Warranty Costs - Warranty reserves are established as homes close on a per-unit basis in an amount estimated to be adequate to cover expected warranty-related costs for materials and outside labor to be incurred during the warranty period. Reserves are determined based upon historical data with respect to similar product types and geographical areas.
Litigation Reserves - The Company and certain of its subsidiaries have been named as defendants in various cases arising in the normal course of business. The Company has reserved for costs to be incurred with respect to these cases based upon information provided by its legal counsel.
OTHER
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q, the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 2002, as well as statements made by the Company in periodic press releases, oral statements made by the Company's officials to analysts and shareowners in the course of presentations about the Company and conference calls following quarterly earnings releases, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among other things, (1) general economic and business conditions; (2) interest rate changes; (3) the relative stability of debt and equity markets; (4) competition; (5) the availability and cost of land and other raw materials used by the Company in its homebuilding operations; (6) the availability and cost of performance bonds and insurance covering risks associated with our business; (7) shortages and the cost of labor; (8) weather related slowdowns; (9) slow growth initiatives; (10) building moratoria; (11) governmental regulation, including the interpretation of tax, labor and environmental laws; (12) changes in consumer confidence and preferences; (13) required accounting changes; (14) terrorist acts and other acts of war; and (15) other factors over which the Company has little or no control.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risks related to fluctuations in interest rates on mortgage loans receivable and debt. Derivative instruments utilized in the normal course of business by HomeAmerican include forward sales securities commitments, private investor sales commitments and commitments to originate mortgage loans. The Company utilizes these commitments to manage the price risk on fluctuations in interest rates on its mortgage loans owned and commitments to originate mortgage loans. Such contracts are the only significant financial derivative instruments utilized by MDC.
HomeAmerican provides mortgage loans that generally are sold forward and subsequently delivered to a third-party purchaser within approximately 40 days. Forward commitments are used for non-trading purposes to sell mortgage loans and hedge price risk due to fluctuations in interest rates on rate-locked mortgage loans in process that have not closed. Due to this hedging philosophy, the market risk associated with these mortgages is limited.
The Company utilizes both short-term and long-term debt in its financing strategy. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not the
Company's earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but may affect the Company's future earnings and cash flows. The Company does not have an obligation to prepay fixed rate debt prior to maturity and, as a result, interest rate risk and changes in fair value should not have a significant impact on the fixed rate debt until the Company would be required to refinance such debt.
As of March 31, 2003, short-term debt was $88,552,000, which consisted of amounts outstanding on MDC's Mortgage Line. The Mortgage Line is collateralized by residential mortgage loans. The Company borrows on a short-term basis from banks under committed lines of credit, which bear interest at the prevailing market rates. Long-term debt obligations outstanding, their maturities and estimated fair value at March 31, 2003 are as follows (in thousands).
Maturities through December 31, Estimated
---------------------------------------------------------------
2003 2004 2005 2006 2007 Thereafter Total Fair Value
------------------------------------------------------------------------------------
Fixed Rate Debt............ $ - - $ - - $ - - $ - - $ - - $ 325,000 $ 325,000 $ 339,489
Average Interest Rate (units) - - - - - - - - - - 7.74% 7.74%
Variable Rate Debt......... $ - - $ - - $ - - $ 90,000 $ - - $ - - $ 90,000 $ 90,000
Average Interest Rate... - - - - - - 2.78% - - - - 2.78%
|
The Company believes that its overall balance sheet structure has repricing and cash flow characteristics that mitigate the impact of interest rate changes.
ITEM 4. CONTROLS AND PROCEDURES.
Management of MDC recognizes its responsibility for maintaining effective and efficient internal controls and disclosure controls (the controls and procedures by which the Company ensures that information disclosed in annual and quarterly reports filed with the Securities and Exchange Commission ("SEC") is accurately processed, summarized and reported within the required time period). MDC has procedures in place for gathering the information that is needed to enable the Company to file required reports with the SEC. The Company has a group of officers who are responsible for reviewing all quarterly and annual SEC reports. This group consists of most of MDC's senior management, including its chief financial officer, general counsel, treasurer, and homebuilding and mortgage lending presidents and vice presidents of finance.
An evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures was performed under the supervision, and with the participation, of the Company's management, including the chief executive officer and the chief financial officer. This evaluation was performed within 90 days of filing this report on Form 10-Q. Based on that evaluation, the Company's management, including the chief executive officer and chief financial officer, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2003. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to March 31, 2003.
M.D.C. HOLDINGS, INC.
FORM 10-Q
PART II
The Company and certain of its subsidiaries and affiliates have been named as defendants in various claims, complaints and other legal actions arising in the normal course of business, including moisture intrusion and related mold claims. In the opinion of management, the outcome of these matters will not have a material adverse effect upon the financial condition, results of operations or cash flows of the Company.
Because of the nature of the homebuilding business, and in the ordinary course of its operations, the Company from time to time may be subject to product liability claims.
The Company is not aware of any litigation, matter or pending claim against the Company that would result in material contingent liabilities related to environmental hazards or asbestos.
At the Company's shareowners meeting on April 28, 2003, Messrs. Steven J. Borick, David D. Mandarich and David E. Blackford were elected as Class III Directors for three-year terms expiring in 2006. Also at the meeting, the shareowners approved an amendment to the M.D.C. Holdings, Inc. 2001 Equity Incentive Plan (the "Equity Incentive Plan") that increased by 1,000,000 the number of shares of MDC common stock authorized for issuance under the Equity Incentive Plan.
At the Company's board of directors meeting on April 28, 2003, a cash dividend of nine cents per share for the quarter ended March 31, 2003 and a 10% stock dividend were declared. The cash dividend will be paid and the stock dividend will be distributed on May 27, 2003 to shareowners of record on May 12, 2003. Future dividends are subject to the discretion of the Company's Board of Directors.
(a) Exhibit:
10.1 Consulting Agreement, effective as of March 1, 2003, by and between Gilbert Goldstein, P.C. and the Company.
10.2 First Amendment to M.D.C. Holdings, Inc. 2001 Equity Incentive Plan, effective April 28, 2003.
12 Ratio of Earnings to Fixed Charges Schedule.
99.1 Certification by Larry A. Mizel, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification by Paris G. Reece III, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
Form 8-K (Item 5) dated February 26, 2003, reporting the Compensation Committee and the Board of Directors of M.D.C. Holdings, Inc. approved restated Employment Agreements for Larry A. Mizel and David D. Mandarich.
Form 8-K (Item 9) dated April 2, 2003, reporting home orders, home closings and quarter-end backlog for the quarterly period ended March 31, 2003 with a copy of the Press Release attached and provided pursuant to Item 12.
Form 8-K (Item 9) dated April 9, 2003, reporting first quarter earnings information with a copy of the Press Release attached and provided pursuant to both Item 9 and Item 12.
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.
By: /s/ Paris G. Reece III
-------------------------------
Paris G. Reece III,
Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer
|
CHIEF EXECUTIVE OFFICER'S CERTIFICATION
I, Larry A. Mizel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of M.D.C. Holdings, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: May 5, 2003 /s/ Larry A. Mizel
--------------------------------------
Larry A. Mizel
Chairman of the Board of Directors
and Chief Executive Officer
|
CHIEF FINANCIAL OFFICER'S CERTIFICATION
I, Paris G. Reece III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of M.D.C. Holdings, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: May 5, 2003 /s/ Paris G. Reece III
-------------------------------
Paris G. Reece III
Executive Vice President,
Chief Financial Officer
and Principal Accounting Officer
|
INDEX TO EXHIBITS
Exhibit Number Description
-------------- ---------------------------------------------------
10.1 Consulting Agreement, effective as of March
1, 2003, by and between Gilbert Goldstein, P.C.
and the Company.
10.2 First Amendment to M.D.C. Holdings, Inc. 2001
Equity Incentive Plan, effective
April 28, 2003.
12 Ratio of Earnings to Fixed Charges Schedule.
99.1 Certification by Larry A. Mizel, Chief
Executive Officer, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
99.2 Certification by Paris G. Reece III, Chief
Financial Officer, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
Exhibit 10.1
Gilbert Goldstein, P.C.
3600 South Yosemite Street, Suite 870
Denver, CO 80237
April 10, 2003
Mr. Larry A. Mizel
Chief Executive Officer
M.D.C. Holdings, Inc.
3600 South Yosemite, Suite 900
Denver, Colorado 80237
Dear Larry:
The purpose of this letter agreement (the "Agreement") is to confirm an understanding reached between us, subject to the approval of the Board of Directors of M.D.C. Holdings, Inc., concerning the retention by M.D.C. Holdings, Inc. ("MDC") of Gilbert Goldstein, P.C. ("GG, P.C.") as a professional consultant on legal matters as follows:
1. GG, P.C. agrees to make Gilbert Goldstein available to perform legal consultation services for MDC on a day-to-day as-needed and directed basis for not less than 30 hours per week commencing March 1, 2003, through February 28, 2005.
2. MDC agrees to compensate GG, P.C. as follows:
a. $252,000 per year payable in equal monthly installments of $21,000 on the first day of each month commencing March 1, 2003, through February 28, 2005.
b. From March 1, 2003, through February 28, 2005, $180.00 per hour for services performed in any month in excess of 120 hours.
c. Provide mutually agreed-upon office space at the office building known as 3600 South Yosemite Street, Denver, Colorado, or such other location as may be mutually agreed upon by GG, P.C. and MDC.
d. Reimburse actual expenses incurred that are directly related to the services provided hereunder.
e. Provide full-time secretarial services of a mutually agreed-upon secretary.
Mr. Larry A. Mizel
April 10, 2003
3. In the event Gilbert Goldstein retires from the practice of law, becomes disabled or dies during the term of this Agreement, MDC shall pay Mr. Goldstein or his estate, as the case may be, in lieu of any payments or other benefits or services to be provided by MDC pursuant to this Agreement, $10,000 per month on the first day of each month during the remaining term of this Agreement following the date of his retirement, disability or death.
4. This Agreement shall be in full force and effect for a period of two years commencing as of March 1, 2003.
5. GG, P.C. is an independent contractor and is not an employee of MDC for any purpose. In that regard, the method or performance of services, the services rendered, and the exact time and hours, GG, P.C. is to perform services on any given day will be entirely in the control and discretion of GG, P.C. MDC will rely on GG, P.C. to perform the services as reasonably necessary to fulfill the spirit and purpose of this Agreement. MDC is supplying office space and secretarial services to GG, P.C. because it is economically more efficient for it to do so because it has these available and because it desires GG, P.C. to be located in close proximity to MDC's headquarters for ease in the consultation process. In consideration thereof, GG, P.C. has substantially lowered the going rate for its services ($300.00 per hour) in order to facilitate the Agreement.
6. GG, P.C. will have the right to continue to perform legal services for other persons and entities.
We have discussed the fact that Gilbert Goldstein is an "outside member of the Board of Directors" of MDC. Each party desires that Gilbert Goldstein continue in that capacity. The consulting Agreement will be performed in such fashion as not to interfere with or change that relationship. In the capacity of a consultant to MDC, GG, P.C. may provide legal counsel and advice to the Audit and Compensation Committees of the MDC Board of Directors. Those services will be provided by Gilbert Goldstein in his capacity as a consultant to MDC, and not in his capacity as a member of the MDC Board of Directors, and shall be included in the calculation of hours spent providing consulting services pursuant to this Agreement.
Effective as of March 1, 2003, this Agreement will supersede all prior Agreements among GG, P.C., MDC and Gilbert Goldstein related to the subject matter hereof, including without limitation, the letter agreements between GG, P.C. and
Mr. Larry A. Mizel
April 10, 2003
MDC dated September 25, 1998, October 25, 1999, October 23, 2000 and October 22, 2001.
This entire Agreement is subject to the approval of the Board of Directors of MDC as confirmed by Board resolution.
If you have any questions, please call me.
Yours truly,
GILBERT GOLDSTEIN, P.C.
By: /s/ Gilbert Goldstein
---------------------------
Gilbert Goldstein
|
M.D.C. HOLDINGS, INC.
By: /s/ Larry A. Mizel
------------------------------
Larry A. Mizel,
Chief Executive Officer
|
Exhibit 10.2
FIRST AMENDMENT TO
M.D.C. HOLDINGS, INC.
2001 EQUITY INCENTIVE PLAN
First Amendment to the M.D.C. Holdings, Inc. 2001 Equity Incentive Plan as approved by the Board of Directors of the Company on January 30, 2003. Capitalized terms used herein shall have the meanings ascribed in the 2001 Equity Incentive Plan, unless otherwise defined herein.
The following amendment was adopted by the Board of Directors on January 30, 2003, and became effective by shareholder approval at the annual meeting on April 28, 2003:
Section 4.1 of the 2001 Equity Incentive Plan is amended to provide that the maximum aggregate number of Shares that may be issued under the Plan pursuant to Awards shall be increased by 1,000,000 shares, subject to adjustment pursuant to the terms of the Plan.
[End of Amendment]
Exhibit 99.1
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer of M.D.C. Holdings, Inc. (the "Company") hereby certifies that the Report on Form 10-Q of the Company for the quarterly period ended March 31, 2003, accompanying this certification, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 5, 2003. /s/ Larry A. Mizel
-----------------------------
Larry A. Mizel
Chief Executive Officer
|
A signed original of this written statement required by Section 906 has been provided to M.D.C. Holdings, Inc. and will be retained by M.D.C. Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 99.2
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Financial Officer of M.D.C. Holdings, Inc. (the "Company") hereby certifies that the Report on Form 10-Q of the Company for the quarterly period ended March 31, 2003, accompanying this certification, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 5, 2003. /s/ Paris G. Reece III
-----------------------------
Paris G. Reece III
Chief Financial Officer
|
A signed original of this written statement required by Section 906 has been provided to M.D.C. Holdings, Inc. and will be retained by M.D.C. Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 12
M.D.C. HOLDINGS, INC.
RATIO OF EARNINGS TO FIXED CHARGES
Three Months to
March 31, Year Ended December 31,
---------------------- -----------------------------------------------------------
2003 2002 2002 2001 2000 1999 1998
-------- --------- --------- --------- --------- -------- ---------
Earnings $67,018 $58,471 $299,250 $283,562 $228,919 $181,602 $118,989
------- ------- -------- -------- -------- -------- --------
Fixed Charges $8,501 $5,004 $25,631 $26,116 $27,729 $24,223 $23,478
Earnings to Fixed Charges 7.88 11.68 11.68 10.86 8.26 7.50 5.07
==== ===== ===== ===== ==== ==== ====
Earnings:
Pretax Earnings from
Continuing Operations 60,766 53,046 274,044 255,387 203,201 148,453 83,852
Add:
Fixed Charges 8,501 5,004 25,631 26,116 27,729 24,223 23,478
Less capitalized interest (7,052) (4,041) (21,116) (22,498) (24,367) (21,261) (22,525)
Add amortization of previously
capitalized interest 4,803 4,462 20,691 24,557 22,356 30,187 34,184
------ ------ ------- ------- ------- ------- ------
Total Earnings 67,018 58,471 299,250 283,562 228,919 181,602 118,989
====== ====== ======= ======= ======= ======= =======
Fixed Charges:
Homebuilidng and corporate
interest expense 0 0 0 0 0 0 0
Interest component of rent expense 796 598 2,812 2,253 2,177 1,615 0
Amortization and expensing of debt
expenses 653 365 1,703 1,365 1,185 1,347 953
Capitalized intreest 7,052 4,041 21,116 22,498 24,367 21,261 22,525
------ ------ ------- ------- ------- ------- -------
Total Fixed Charges 8,501 5,004 25,631 26,116 27,729 24,223 23,478
====== ====== ======= ======= ======= ======= =======
|