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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the Transition period from to
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Commission file number 1-8951
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M.D.C. HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 84-0622967
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3600 South Yosemite Street, Suite 900 80237
Denver, Colorado (Zip code)
(Address of principal executive offices)
(303) 773-1100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange/
8 3/8% Senior Notes due February 2008 The Pacific Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
As of February 2, 2000, 22,497,000 shares of M.D.C. Holdings, Inc.
common stock were outstanding, and the aggregate market value of the shares
(based upon the closing price on that date of the shares on the New York Stock
Exchange, Inc. as reported on the Composite Tape) held by non-affiliates was
approximately $229,113,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K is incorporated by reference from the
Registrant's 2000 definitive proxy statement to be filed with the
Securities and Exchange Commission no later than 120 days after the end
of the Registrant's fiscal year.
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M.D.C. HOLDINGS, INC.
FORM 10-K
For the Year Ended December 31, 1999
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Table of Contents
Page
No.
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PART I
ITEMS 1.
AND 2. BUSINESS AND PROPERTIES
(a) General Development of Business............. 1
(b) Financial Information About Industry
Segments.................................. 1
(c) Narrative Description of Business........... 1
ITEM 3. LEGAL PROCEEDINGS.................................... 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.. 6
PART II
ITEM 5. MARKET PRICE OF COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS..................................... 7
ITEM 6. SELECTED FINANCIAL AND OTHER DATA.................... 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................ 10
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK........................................ 20
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS.................... F-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................ 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT... 21
ITEM 11. EXECUTIVE COMPENSATION............................... 21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT......................................... 21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....... 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K........................................ 21
(i)
M.D.C. HOLDINGS, INC.
FORM 10-K
PART I
Items 1 and 2. Business and Properties.
(a) General Development of Business
M.D.C. Holdings, Inc. is a Delaware Corporation originally
incorporated in Colorado in 1972. We refer to M.D.C. Holdings, Inc. as the
"Company" or as "MDC" in this Form 10-K. 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.
(b) Financial Information About Industry Segments
Note B to the Consolidated Financial Statements contains information
regarding the Company's business segments for each of the three years ended
December 31, 1999, 1998 and 1997.
(c) Narrative Description of Business
MDC's business consists of two segments, homebuilding and financial
services. In our homebuilding segment, we build and sell single-family homes in
metropolitan Denver, Colorado Springs and Northern Colorado; Northern Virginia
and suburban Maryland; Northern and Southern California; Phoenix and Tucson,
Arizona; and Las Vegas, Nevada. Our financial services segment consists
principally of the operations of HomeAmerican.
Our strategy is to build homes generally for the first-time and move-up
buyer, the largest segments of prospective home buyers. The base prices for
these homes generally range from approximately $80,000 to $520,000, although the
Company builds homes with prices as high as $740,000. The average sales prices
of the Company's homes closed in 1999 and 1998 were $211,400 and $193,700,
respectively.
When opening a new homebuilding project, the Company generally acquires
fewer than 150 lots to avoid overexposure to any single sub-market. The Company
prefers to acquire finished lots using rolling options or in phases for cash. If
potential returns justify the risk, entitled land is acquired for development.
The Company's Asset Management Committee, composed of members of the Company's
senior management, generally meets weekly to review all proposed land
acquisitions and takedowns of lots under option. Additional information about
MDC's land acquisition practices may be found in the Homebuilding Segment, Land
Acquisition and Development section.
Homes are designed and built to meet local customer preferences. The
Company, as general contractor, supervises construction of all of its projects
and employs subcontractors for site development and home construction. The
Company builds single-family detached homes, except in Virginia and Maryland,
where we also build townhomes.
HomeAmerican is a full service mortgage lender with offices located in
each of MDC's markets. Because it provides mortgage loans to a majority of MDC's
home buyers, HomeAmerican is an integral part of MDC's homebuilding business.
Homebuilding Segment.
General. The Company is one of the largest homebuilders in the United
States. MDC is a major regional homebuilder with a significant presence in a
number of selected growth markets. The Company is the largest homebuilder in
metropolitan Denver; among the top five homebuilders in Northern Virginia,
suburban Maryland, Tucson and Colorado Springs; and among the top ten builders
in Northern and Southern California, Phoenix and
1
Las Vegas. MDC believes a significant presence in its markets enables it to
compete effectively for home buyers, land acquisitions and subcontractor labor.
The Company designs, builds and sells quality single-family homes at
affordable prices, generally for the first-time and move-up buyer. Approximately
71% of its homes closed in 1999 were in subdivisions targeted to the first-time
and first-time move-up buyer, compared with approximately 74% and 83% in 1998
and 1997, respectively.
The Company's operations are diversified geographically, as shown in
the following table of home sales revenues by state for the years 1997 through
1999 (dollars in thousands).
Total Home Sales Revenues Percent of Total
--------------------------------------- ------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ---------- ---------- ----------
Colorado................ $ 519,870 $ 439,600 $ 325,466 34% 36% 35%
California.............. 434,553 275,682 188,893 28% 22% 20%
Arizona................. 260,224 218,110 154,875 17% 18% 16%
Nevada.................. 83,342 67,455 55,358 6% 6% 6%
Virginia................ 162,577 145,569 129,128 11% 12% 14%
Maryland................ 65,953 72,243 85,296 4% 6% 9%
----------- ----------- ----------- ---------- ---------- ----------
Total............. $ 1,526,519 $ 1,218,659 $ 939,016 100% 100% 100%
=========== =========== =========== ========== ========== ==========
Housing. MDC builds homes in a number of basic series, each designed to
appeal to a different segment of the home buyer market. Within each series, MDC
builds several models, each with a different floor plan, elevation and standard
and optional features. Differences in sales prices of similar models in any
series depend primarily upon location, optional features and design
specifications. The series of homes offered at a particular location are based
on customer preference, lot size, the area's demographics and, to a lesser
extent, the requirements of local municipalities.
Design centers are located in the Company's Colorado, Phoenix, Southern
California, Nevada and Virginia homebuilding divisions. Home buyers are able to
customize certain features of their homes by selecting options and upgrades on
display at the design centers. Home buyers can select finishes and upgrades soon
after they decide to purchase a Richmond American home. The design centers,
which are also planned for most of MDC's other divisions, not only provide MDC's
customers with a convenient way to select upgrades and options for their new
homes, but also provide the Company with an additional source of revenue and
profit.
The Company maintains limited levels of inventories of unsold homes in
its markets. Unsold homes in various stages of completion allow the Company to
meet the immediate and near-term demands of prospective home buyers. In order to
mitigate the risk of carrying excess inventory, the Company has reduced the
number of its unsold homes under construction.
Land Acquisition and Development. MDC purchases finished lots using
option contracts and in phases or in bulk for cash. When estimated potential
returns justify the risk, the Company acquires entitled land for development
into finished lots. In making land purchases, MDC considers a number of factors,
including projected rates of return, sales prices of the homes to be built on
the lots, population and employment growth patterns, proximity to developed
areas, estimated costs of development and demographic trends. Generally, MDC
acquires finished lots and land for development only in areas which will have,
among other things, available building permits, utilities and suitable zoning.
The Company attempts to maintain a supply of finished lots sufficient to enable
it to start homes as soon as practical after a contract for sale is executed.
This approach is intended to minimize the Company's investment in inventories
and reduce the risk of shortages of labor and building materials. Increases in
the cost of finished lots may reduce Home Gross Margins (as defined below) in
the future to the extent that market conditions would not allow the Company to
recover the higher cost of land through higher sales prices. "Home Gross
Margins" are gross margins (home sales revenues less cost of goods sold, which
primarily includes land and construction costs, capitalized interest, a reserve
for warranty expense, and financing costs) as a percent of home sales revenues.
See "Forward-Looking Statements" below.
MDC has the right to acquire a portion of the land it will require in
the future utilizing option contracts, normally on a "rolling" basis. Generally,
in a rolling option contract, the Company obtains the right to purchase lots
2
in consideration for an option deposit. In the event the Company elects not to
purchase the lots within a specified period of time, the Company relinquishes
the option deposit. This practice limits the Company's risk and avoids a greater
demand on its liquidity. At December 31, 1999, MDC had the right to acquire
8,063 lots under option agreements with approximately $8,700,000 in total option
deposits. Because of increased demand for finished lots in certain of its
markets, the Company's ability to acquire lots using rolling options has been
reduced or has become significantly more expensive.
MDC owns various undeveloped parcels of real estate, most of which it
intends to develop into finished lots. MDC develops its land in phases
(generally fewer than 100 lots at a time for each home series in a subdivision)
in order to limit the Company's risk in a particular project and to maximize the
efficient use of available liquidity. Building permits and utilities are
available and zoning is suitable for the current intended use of substantially
all of MDC's undeveloped land. When developed, these lots generally will be used
in the Company's homebuilding activities, although some lots may be sold to
others. Certain undeveloped land also may be sold to others before it is
developed. See "Forward-Looking Statements" below.
The table below shows the carrying value of land and land under
development, by state, as of December 31, 1997 through 1999 (in thousands).
December 31,
--------------------------------------
1999 1998 1997
----------- ----------- -----------
Colorado............................... $ 74,117 $ 53,720 $ 62,093
California............................. 161,508 100,754 44,423
Arizona................................ 29,426 25,178 32,067
Nevada................................. 27,419 20,027 17,342
Virginia............................... 6,357 11,292 21,081
Maryland............................... 9,853 6,209 16,006
----------- ----------- -----------
Total.............................. $ 308,680 $ 217,180 $ 193,012
=========== =========== ===========
The table below shows the number of lots owned and under option,
by state, as of December 31, 1997 through 1999.
December 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
Lots Owned
Colorado................................ 5,096 3,932 4,948
California.............................. 2,070 1,769 654
Arizona................................. 1,976 1,836 1,531
Nevada.................................. 857 848 586
Virginia................................ 265 309 1,360
Maryland................................ 188 231 387
---------- ---------- ----------
Total............................... 10,452 8,925 9,466
========== ========== ==========
Lots Under Option
Colorado................................ 3,682 4,063 2,925
California.............................. 632 552 787
Arizona................................. 1,724 1,492 435
Nevada.................................. 50 405 - -
Virginia................................ 1,771 903 925
Maryland................................ 204 314 658
---------- ---------- ----------
Total............................... 8,063 7,729 5,730
========== ========== ==========
Labor and Raw Materials. Generally, the materials used in MDC's
homebuilding operations are standard items carried by major suppliers. The
Company generally contracts for most of its materials and labor at a fixed price
during the anticipated construction period of its homes. This allows the Company
to mitigate the risks associated with increases in building materials and labor
costs between the time construction begins on a home and the time it is closed.
Increases in the costs of building materials, particularly lumber, and
subcontracted labor may reduce Home Gross Margins to the extent that market
conditions prevent the recovery of increased costs through higher sales prices.
To varying degrees, the Company experienced shortages in the availability of
building materials
3
and/or labor in 1999 in each of its markets, which resulted in delays in the
delivery of homes under construction. The Company may experience shortages and
delays in the future which may result in delays in the delivery of homes under
construction, reduced Home Gross Margins or both. See "Forward-Looking
Statements" below.
Seasonal Nature of Business. MDC's business is seasonal to the extent
that its Colorado, California, Virginia and Maryland operations encounter
weather-related slowdowns. Delays in development and construction activities
resulting from adverse weather conditions increase the Company's risk of buyer
cancellations and higher costs for interest, materials and labor. In addition,
home buyer preferences and demographics influence the seasonal nature of MDC's
business.
Backlog. As of December 31, 1999 and 1998, homes under contract but not
yet delivered ("Backlog") totalled 2,941 and 2,930, respectively, with estimated
sales values of $600,000,000 and $580,000,000, respectively. Based on its past
experience, assuming no significant change in market conditions and mortgage
interest rates, MDC anticipates that approximately 75% of its December 31, 1999
Backlog will close under existing sales contracts during the first nine months
of 2000. The remaining 25% of the homes in Backlog are not expected to close
under existing contracts due to cancellations. See "Forward-Looking Statements"
below.
Marketing and Sales. MDC's homes are sold under various commission
arrangements by its own sales personnel and by cooperating brokers and referrals
in the realtor community. In marketing homes, MDC primarily uses on-site model
homes, advertisements in local newspapers, radio, billboards and other signage,
magazines and illustrated brochures. In 1998, we also began marketing our homes
through our internet website, www.RichmondAmerican.com. All of MDC's homes are
sold with a ten-year limited warranty issued by an unaffiliated warranty
company.
Title Operations. Since January 1998, the Company has provided title
agency services through its wholly owned subsidiary, American Home Title and
Escrow Company ("American Home Title") to MDC home buyers in Virginia and
Maryland. American Home Title began offering title agency services to MDC's
Colorado home buyers in 1999. The Company is evaluating opportunities to provide
these title agency services in its other markets.
Competition. The homebuilding industry is fragmented and highly
competitive. MDC competes with numerous homebuilders, including a number that
are larger and have greater financial resources. Homebuilders compete for
customers, desirable financing, land, building materials and subcontractor
labor. Competition for home orders primarily is based upon price, style,
financing provided to prospective purchasers, location of property, quality of
homes built, warranty service and general reputation in the community. The
Company also competes with subdivision developers and land development
companies.
Mortgage Interest Rates. The Company's operations are dependent upon
the availability and cost of mortgage financing. Increases in home mortgage
interest rates may reduce the demand for homes and home mortgages and,
generally, will reduce home mortgage refinancing activity. The Company is unable
to predict future changes in home mortgage interest rates or the impact such
changes may have on the Company's operating activities and results of
operations. See "Forward-Looking Statements" below.
Regulation. The Company's operations are subject to continuing
compliance requirements mandated by applicable federal, state and local
statutes, ordinances, rules and regulations, including zoning and land use
ordinances, building, plumbing and electrical codes, contractors' licensing
laws, state insurance laws, federal and state human resources laws and
regulations and health and safety regulations and laws (including, but not
limited to, those of the Occupational Safety and Health Administration). Various
localities in which the Company operates have imposed (or may impose in the
future) fees on developers to fund schools, road improvements and low and
moderate income housing. See "Forward-Looking Statements" below.
4
From time to time, various municipalities in which the Company operates
restrict or place moratoriums on the availability of utilities, including water
and sewer taps. Additionally, certain jurisdictions in which the Company
operates have proposed or enacted growth initiatives which may restrict the
number of building permits available in any given year. Although no assurances
can be given as to future conditions or governmental actions, MDC believes that
it has, or can obtain, water and sewer taps and building permits for its land
inventory and land held for development. See "Forward-Looking Statements" below.
The Company's homebuilding operations also are affected by
environmental laws and regulations pertaining to availability of water,
municipal sewage treatment capacity, land use, hazardous waste disposal,
naturally occurring radioactive materials, building materials, population
density and preservation of endangered species, natural terrain and vegetation.
Due to these considerations, the Company generally obtains an environmental site
assessment for parcels of land which it acquires. The particular environmental
laws and regulations that apply to any given homebuilding project vary greatly
according to the site's location, the site's environmental conditions and the
present and former uses of the site. These environmental laws and regulations
may result in project delays; cause the Company to incur substantial compliance
and other costs; and/or prohibit or severely restrict homebuilding activity in
certain environmentally sensitive regions or areas. See "Forward-Looking
Statements" below.
Financial Services Segment.
Mortgage Lending Operations.
General. HomeAmerican is a full-service mortgage lender. Through office
locations in each of the Company's markets, HomeAmerican originates mortgage
loans primarily for MDC's home buyers and, to a lesser extent, for others on a
"spot" basis. HomeAmerican also brokers mortgage loans for origination by
outside lending institutions for MDC home buyers. HomeAmerican is the principal
originator of mortgage loans for MDC's home buyers.
HomeAmerican is authorized to originate Federal Housing
Administration-insured ("FHA"), Veterans Administration-guaranteed ("VA"),
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation ("FHLMC") and conventional mortgage loans. HomeAmerican is also an
authorized loan servicer for FNMA, FHLMC and the Government National Mortgage
Association ("GNMA") and, as such, is subject to the rules and regulations of
such organizations. Through early 1999, HomeAmerican also purchased loans and
the related servicing rights from unaffiliated loan correspondents. The
origination fees for these loans were retained by the correspondents.
HomeAmerican does not intend to purchase mortgage loans from correspondents in
the future. See "Forward-Looking Statements" below.
Substantially all of the mortgage loans originated by HomeAmerican are
sold to private investors within 40 days of origination. The Company uses
HomeAmerican's secured warehouse line of credit, other borrowings and internally
generated Company funds to finance these mortgage loans until they are sold.
Portfolio of Mortgage Loan Servicing. Mortgage loan servicing involves
the collection of principal, interest, taxes and insurance premiums from the
borrower and the remittance of such funds to the mortgage loan investor, local
taxing authorities and insurance companies, for which the servicer is paid a
fee. HomeAmerican obtains the servicing rights related to the mortgage loans it
originates. Certain mortgage loans are sold "servicing released" (the servicing
rights are included with the sale of the corresponding mortgage loans). The
servicing rights on mortgage loans which are not sold "servicing released"
generally are sold in bulk at a later date. HomeAmerican has sold, and intends
to sell in the future, mortgage loan servicing. See "Forward-Looking Statements"
below.
HomeAmerican's portfolio of mortgage loan servicing at December 31,
1999 consisted of servicing rights with respect to approximately 3,500
single-family loans, 93% of which were less than two years old. These loans are
secured by mortgages on properties in eight states, with interest rates on the
loans ranging from approximately 5.5% to 11.5% and averaging 7.4%. The
underlying value of a servicing portfolio generally is determined based on the
interest rates and the annual servicing fee rates (currently .44% for FHA/VA
loans and .25% for conventional loans) applicable to the loans comprising the
portfolio.
As interest rates increased during the course of 1999, the proportion
of HomeAmerican's customers who selected adjustable rate mortgages ("ARMs")
increased to approximately 28% in December 1999, compared with 2% in December
1998. The value of mortgage servicing rights related to ARMs is substantially
less than mortgage servicing rights related to fixed rate mortgage loans.
Pipeline. HomeAmerican's mortgage loans in process which had not closed
("Pipeline") at December 31, 1999 had aggregate principal balances of
$362,376,000. Approximately 75% of the Pipeline at
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December 31, 1999 is anticipated to close during the first six months of 2000.
If mortgage interest rates decline, a smaller percentage of these loans would be
expected to close. See "Forward-Looking Statements" below.
Forward Sales Commitments. HomeAmerican's operations are affected by
changes in mortgage interest rates. HomeAmerican utilizes forward mortgage
securities contracts to manage the interest rate risk on its fixed-rate mortgage
loans owned and rate-locked mortgage loans in the Pipeline. Such contracts are
the only significant financial derivative instrument utilized by MDC.
Competition. The mortgage industry is fragmented and highly
competitive. In each of the locations in which it originates loans, HomeAmerican
competes with numerous banks, thrifts and other mortgage bankers, many of which
are larger and have greater financial resources. Competitive factors include
pricing, loan terms, underwriting criteria and customer service.
Insurance Operations.
In 1998, the Company began offering homeowners, auto and other types of
casualty insurance to its Colorado home buyers through a wholly owned
subsidiary, American Home Insurance Agency, Inc. ("American Home Insurance"). In
1999, American Home Insurance began offering these insurance services to MDC's
home buyers in all states in which the Company operates except California.
American Home Insurance services will be available to MDC's California home
buyers beginning in the first quarter of 2000.
Employees.
At December 31, 1999, MDC employed approximately 1,500 persons. MDC
considers its employee relations to be satisfactory.
Item 3. Legal Proceedings.
The Company and certain of its subsidiaries have been named as
defendants in various claims, complaints and other legal actions arising in the
normal course of business. In the opinion of management, the outcome of these
matters will not have a material adverse effect upon the financial condition,
results of operations or cash flows of the Company. See "Forward-Looking
Statements" below.
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 which would result in material contingent liabilities
related to environmental hazards or asbestos.
Item 4. Submission of Matters to a Vote of Security Holders.
No meetings of the Company's stockholders were held during the fourth
quarter of 1999.
6
PART II
Item 5. Market Price of Common Stock and Related Security Holder Matters.
The shares of MDC common stock are traded on the New York and the
Pacific Stock Exchanges. The following table sets forth, for the periods
indicated, the high and low sale prices of the shares of MDC common stock as
reported on the Composite Tape.
High Low
------- -------
1998
First quarter.................. $ 18.88 $ 14.00
Second quarter................. $ 20.00 $ 13.00
Third quarter.................. $ 24.00 $ 14.63
Fourth quarter................. $ 21.94 $ 13.19
1999
First quarter.................. $ 21.56 $ 13.69
Second quarter................. $ 21.50 $ 15.00
Third quarter.................. $ 22.00 $ 15.00
Fourth quarter................. $ 17.25 $ 13.38
The Company declared and paid dividends of six cents per share in the
first quarter of 2000; five cents per share in each quarter in 1999; four cents
per share in the last three quarters of 1998 and three cents per share in the
first quarter of 1998.
In connection with the declaration and payment of dividends, the
Company is required to comply with certain covenants contained in its
$300,000,000 unsecured revolving line of credit agreement and its 8 3/8% Senior
Notes due 2008 (the "New Senior Notes") indenture dated January 1998. Pursuant
to the terms of these agreements, dividends may be declared or paid if the
Company is in compliance with certain stockholders' equity and debt coverage
tests. At December 31, 1999, the Company had a permitted dividend capacity of
approximately $97,000,000 pursuant to the most restrictive of these covenants.
On February 2, 2000, MDC had 1,282 shareowners of record.
7
Item 6. Selected Financial and Other Data.
The data in this table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the notes thereto presented
elsewhere herein (in thousands, except per share amounts).
SELECTED FINANCIAL DATA
Year Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
INCOME STATEMENT DATA
Revenues................................ $ 1,567,638 $ 1,263,209 $ 969,562 $ 922,595 $ 865,856
=========== =========== =========== =========== ===========
Operating profit
Homebuilding......................... $ 162,258 $ 86,764 $ 41,543 $ 27,967 $ 33,018
Financial services
Mortgage lending................... 13,169 11,198 7,745 12,584 9,288
Asset management................... - - 4,590 1,434 6,073 4,050
----------- ----------- ----------- ----------- -----------
Total financial services....... 13,169 15,788 9,179 18,657 13,338
----------- ----------- ----------- ----------- -----------
Net corporate expenses ............. (26,974) (18,700) (11,395) (13,870) (19,705)
----------- ----------- ----------- ----------- -----------
Income before income taxes and
extraordinary item................... $ 148,453 $ 83,852 $ 39,327 $ 32,754 $ 26,651
=========== =========== =========== =========== ===========
Income before extraordinary item........ $ 89,392 $ 51,568 $ 24,205 $ 20,799 $ 17,250
Basic per common share .......... $ 4.02 $ 2.79 $ 1.37 $ 1.12 $ .89
Diluted per common share ........ $ 3.95 $ 2.32 $ 1.18 $ .98 $ .79
Net income ......................... $ 89,392 $ 36,254 $ 22,026 $ 20,378 $ 17,250
Basic per common share .......... $ 4.02 $ 1.96 $ 1.25 $ 1.09 $ .89
Diluted per common share ........ $ 3.95 $ 1.64 $ 1.08 $ .97 $ .79
Weighted-average shares outstanding
Basic................................ 22,247 18,451 17,673 18,623 19,362
Diluted.............................. 22,656 22,606 21,899 22,763 23,737
Dividends paid per share................ $ .20 $ .15 $ .12 $ .12 $ .11
December 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA
Assets
Housing completed or under
construction....................... $ 337,029 $ 294,104 $ 249,928 $ 251,885 $ 265,205
Land and land under development...... $ 308,680 $ 217,180 $ 193,012 $ 182,927 $ 176,960
Total assets......................... $ 877,008 $ 714,013 $ 621,770 $ 617,303 $ 634,811
Homebuilding and Corporate Debt
Homebuilding
Line of credit..................... $ 40,000 $ 21,871 $ 20,766 $ 11,832 $ 43,490
Notes payable...................... - - 866 9,676 3,063 10,571
Senior notes......................... 174,389 174,339 150,354 187,721 187,525
Subordinated notes................... - - - - 38,230 38,225 38,221
----------- ----------- ----------- ----------- -----------
Total homebuilding and
corporate debt................ $ 214,389 $ 197,076 $ 222,457 $ 244,328 $ 283,344
=========== =========== =========== =========== ===========
Stockholders' Equity.................... $ 389,023 $ 298,131 $ 229,593 $ 213,847 $ 205,033
Ratio of Homebuilding and Corporate
Debt to Stockholders' Equity......... .55 .66 .97 1.14 1.38
Ratio of Homebuilding and Corporate
Debt to Capital (excluding Mortgage
Lending
Debt)................................ .36 .40 .49 .53 .58
8
Year Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
OPERATING DATA
Home sales revenues.................. $ 1,526,519 $ 1,218,659 $ 939,016 $ 880,358 $ 827,448
Orders for homes, net (units)........ 7,232 7,191 5,769 5,049 4,536
Homes closed (units)................. 7,221 6,293 5,223 4,974 4,570
Backlog
Units ......................... 2,941 2,930 2,032 1,486 1,355
Estimated sales value ......... $ 600,000 $ 580,000 $ 380,000 $ 261,000 $ 243,000
Average selling price per home ...... $ 211.4 $ 193.7 $ 179.8 $ 177.0 $ 181.1
Home Gross Margins................... 19.3% 16.9% 14.5% 13.7% 13.4%
Cash Flows From
Operating activities................. $ (3,845) $ 800 $ 18,516 $ 47,925 $ 22,553
Investing activities................. $ (1,878) $ 15,081 $ 3,513 $ 13,998 $ 8,728
Financing activities................. $ 34,574 $ (17,480) $ (21,655) $ (71,414) $ (54,050)
Corporate and Homebuilding SG&A as a %
of Home Sales Revenues............... 10.8% 11.5% 11.0% 11.0% 10.9%
Year Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
EBITDA, AS ADJUSTED
Income before extraordinary item..... $ 89,392 $ 51,568 $ 24,205 $ 20,799 $ 17,250
Add
Income taxes..................... 59,061 32,284 15,122 11,955 9,401
Corporate and homebuilding
interest expense............... - - - - 761 3,773 7,773
Interest in cost of sales........ 30,187 34,184 28,361 25,995 28,397
Other fixed charges.............. 1,347 953 797 1,165 2,492
Depreciation and amortization.... 17,845 20,228 15,050 12,067 10,280
Non-cash charges
Homebuilding asset
impairment charges........ 2,242 5,300 5,850 9,191 3,677
Other........................ - - - - - - 533 - -
----------- ----------- ----------- ----------- -----------
Total EBITDA, as adjusted............ $ 200,074 $ 144,517 $ 90,146 $ 85,478 $ 79,270
=========== =========== =========== =========== ===========
Interest incurred.................... $ 21,261 $ 22,525 $ 26,368 $ 30,296 $ 33,909
EBITDA, as adjusted/Interest Incurred... 9.4 6.4 3.4 2.8 2.3
- ----------
Net corporate expenses represent (a) net realized gains and losses on
investments and marketable securities; (b) interest, dividend and other
income; (c) corporate general and administrative expense; and (d)
corporate and homebuilding interest expense.
Based upon the adoption of Statement of Financial Accounting Standards
No. 128, "Earnings per Share" ("SFAS 128").
Includes the effects of extraordinary after-tax losses on the early
extinguishment of debt resulting principally from (a) in 1998, the
refinancing of MDC's 11 1/8% Senior Notes due 2003 (the "Old Senior
Notes"); (b) in 1997, the repurchase of $38,000,000 principal amount of
the Old Senior Notes; and (c) in 1996, certain other debt extinguishments.
At end of period.
"EBITDA, as adjusted" has been computed in accordance with the definition
of "Consolidated EBITDA" set forth under the New Senior Notes indenture.
Under this definition, EBITDA, as adjusted, is calculated by adding to net
income the provision for income tax, depreciation, amortization, interest
expense and other non-cash, extraordinary charges that reduce net income,
including asset impairment charges. EBITDA, as adjusted, should not be
considered an alternative to operating income determined in accordance
with generally accepted accounting principles ("GAAP") as an indicator of
operating performance, nor an alternative to cash flows from operating
activities determined in accordance with GAAP as a measure of liquidity.
Because some analysts and companies may not calculate EBITDA, as adjusted,
in the same manner as MDC, the EBITDA, as adjusted, information presented
above may not be comparable to similar presentations by others. MDC's
management believes that EBITDA, as adjusted, reflects the changes in the
Company's operating results, particularly changes in the Company's
operating income, and is an indication of MDC's ability to generate funds
from operations that are available to pay income taxes, interest and
principal on debt and to meet other cash obligations.
9
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Consolidated Results.
1999 Compared With 1998. Revenues for the year ended December 31, 1999
were $1,567,638,000, the highest in the Company's history and a 24% increase
over 1998. The increase primarily resulted from a 15% increase in the number of
home closings and a $17,700 increase in the average selling price per home
closed.
Income before income taxes and extraordinary item increased 77% to
$148,453,000 in 1999. The increase primarily was due to an 87% increase in
homebuilding segment operating profit, partially offset by a 17% decrease in
financial services segment operating profit. The homebuilding segment increase
principally was a result of the home closing and average selling price increases
described above and an increase of 240 basis points in Home Gross Margins. The
financial services segment operating profit decreased in 1999 due to a
$4,450,000 gain recognized in 1998 resulting from the receipt of the final
payment for the September 1996 sale of the Company's asset management business.
Operating profit increased 18% in 1999 in the Company's mortgage lending
operations primarily due to a 28% increase in loan origination fees.
Throughout 1999, the Company continued to strengthen its balance sheet
and improve the efficiency of its operations. Homebuilding and corporate debt at
December 31, 1999 increased by only $17,313,000 from December 31, 1998,
notwithstanding a $134,425,000 increase in homebuilding inventories and a
$28,851,000 increase in available cash. The Company's strong 1999 operating
results increased stockholders' equity by 30% to $389,023,000, or $17.43 per
outstanding share, at December 31, 1999. These factors contributed to a
reduction in the Company's corporate and homebuilding debt-to-capital ratio to
.36 at December 31, 1999, compared with .40 at December 31, 1998. In addition,
the Company's ratio of EBITDA, as adjusted, to interest incurred improved to 9.4
for the year ended December 31, 1999, compared with 6.4 for the same period in
1998.
1998 Compared With 1997. Revenues for the year ended December 31, 1998
were $1,263,209,000, a 30% increase from 1997. The increase primarily resulted
from a 20% increase in the number of home closings and a $13,900 increase in the
average selling price per home closed.
Income before income taxes and extraordinary item increased 113% to
$83,852,000 in 1998. The increase primarily was due to the increased
profitability of the homebuilding and financial services segments. The
homebuilding segment increase principally was a result of the home closing and
average selling price increase described above and an increase of 240 basis
points in Home Gross Margins. The financial services segment increase primarily
resulted from increased mortgage lending profits and the gain from the sale of
the Company's asset management business discussed above.
Net income for 1998 included an extraordinary loss of $15,314,000, net
of an income tax benefit of $9,587,000, recognized in connection with the
Company's repurchase and defeasance of the remaining $152,000,000 principal
amount of the Old Senior Notes. Net income for 1997 included an extraordinary
loss of $2,179,000, net of an income tax benefit of $1,336,000, recognized in
connection with the Company's repurchase of $38,000,000 principal amount of Old
Senior Notes.
10
Homebuilding Segment.
The table below sets forth information relating to the Company's
homebuilding segment (dollars in thousands).
Year Ended December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
Home Sales Revenues......................... $ 1,526,519 $ 1,218,659 $ 939,016
Operating Profits........................... $ 162,258 $ 86,764 $ 41,543
Average Selling Price Per Home Closed....... $ 211.4 $ 193.7 $ 179.8
Home Gross Margins.......................... 19.3% 16.9% 14.5%
Excluding Interest in Home Cost of
Sales................................ 21.2% 19.5% 17.5%
Orders For Homes, Net (Units)
Colorado............................... 2,755 2,742 2,039
California............................. 1,396 1,042 938
Arizona................................ 1,455 1,829 1,297
Nevada................................. 552 540 434
Virginia............................... 738 710 650
Maryland............................... 336 328 411
----------- ----------- -----------
Total................................ 7,232 7,191 5,769
=========== =========== ===========
Homes Closed (Units)
Colorado............................... 2,484 2,267 1,735
California............................. 1,465 986 828
Arizona................................ 1,699 1,526 1,135
Nevada................................. 561 489 437
Virginia............................... 702 667 642
Maryland............................... 310 358 446
----------- ----------- -----------
Total................................ 7,221 6,293 5,223
=========== =========== ===========
December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
Backlog (Units)
Colorado............................... 1,626 1,355 880
California............................. 257 326 270
Arizona................................ 452 696 393
Nevada................................. 137 146 95
Virginia............................... 290 254 211
Maryland............................... 179 153 183
----------- ----------- -----------
Total................................ 2,941 2,930 2,032
=========== =========== ===========
Estimated Sales Value................ $ 600,000 $ 580,000 $ 380,000
=========== =========== ===========
Active Subdivisions
Colorado............................... 50 45 48
California............................. 24 21 12
Arizona................................ 20 24 29
Nevada................................. 12 9 6
Virginia............................... 16 20 23
Maryland............................... 9 11 19
----------- ----------- -----------
Total................................ 131 130 137
=========== =========== ===========
11
Homebuilding Activities - 1999 Compared With 1998.
Home Sales Revenues and Homes Closed. Home sales revenues in 1999 were
the highest in the Company's history and represented a 25% increase compared
with home sales revenues in 1998. The increase resulted from an increase in both
the number of home closings and average selling price per home closed, as
further discussed below.
Home closings were higher in all of the Company's markets except
Maryland in 1999, compared with 1998. Home closings particularly were strong in
(1) Southern California, Phoenix and Colorado, which increased 22%, 13% and 10%,
respectively, as a result of the continued strong demand for new homes in these
markets; and (2) Northern California, where the Company opened six new active
subdivisions in 1999 in the San Francisco Bay area. In Maryland, home closings
decreased in 1999, primarily due to a decrease in the number of active
subdivisions to nine at the end of 1999, compared with 11 at the end of 1998.
Average Selling Price Per Home Closed. The average selling price per
home closed increased to $211,400 in 1999, compared with $193,700 in 1998. Each
of the Company's markets realized higher average selling prices in 1999,
compared with 1998. The increases primarily were due to (1) the ability to
increase sales prices due to the strong demand for new homes in most of the
Company's markets; (2) a greater number of homes closed in higher-priced
subdivisions in Southern and Northern California, where average selling prices
approached $300,000; (3) a higher proportion of detached homes closed in
Virginia, which generally have higher selling prices than townhomes; and (4)
increased sales volume per home from the Company's established design centers in
Colorado, Phoenix and Southern California and from its new design centers in Las
Vegas and Virginia.
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 19.3% for
the year ended December 31, 1999, representing an increase of 240 basis points
compared with 1998. The increase was due to (1) in Colorado and Phoenix, selling
price increases and reduced incentives offered to home buyers due to the
continued strong demand for new homes in these markets; (2) in Maryland, fewer
under-performing subdivisions in 1999 and management's continued efforts to
improve profitability; (3) a reduction in previous estimates of costs to
complete land development and homes in certain projects in Phoenix; (4) reduced
interest included in home cost of sales, as discussed below; (5) increases in
sales of higher-margin products through the Company's design centers; (6) a
higher proportion of presold homes closed, which generally have higher Home
Gross Margins than closings of spec homes; (7) home order cancellations which
were re-sold at higher average selling prices; and (8) initiatives implemented
in each of the Company's markets designed to improve operating efficiency,
control costs and increase rates of return. These increases in Home Gross
Margins were partially offset by increases in the cost of (1) land; (2) lumber,
insulation, concrete and other raw materials; (3) subcontract labor; and (4)
incurred and estimated future land development costs with respect to certain
projects in Southern California.
Interest in Home Cost of Sales - Interest in home cost of sales as a
percent of home sales revenues in 1999 decreased to 1.9%, compared with 2.6% and
3.0%, respectively, for the same periods in 1998 and 1997. These reductions
primarily resulted from lower levels of capitalized interest in homebuilding
inventories during 1999, compared with 1998 and 1997. Notwithstanding increases
in the Company's homebuilding inventories, interest capitalized in homebuilding
inventories at December 31, 1999 decreased to $17,406,000, compared with
$26,332,000 at December 31, 1998 and $37,991,000 at December 31, 1997. These
reductions in interest capitalized in homebuilding inventories primarily were
due to (1) lower levels of interest incurred resulting from lower effective
interest rates on the Company's lines of credit and lower levels of homebuilding
and corporate debt; and (2) the build-out of older projects with higher levels
of capitalized interest in Colorado, Virginia and Maryland.
Orders for Homes and Backlog. Orders for homes increased to 7,232 in
1999, the highest number of orders in the Company's history. Home orders in 1999
particularly were strong in (1) Southern California, as a result of the
continued strong demand for new homes; and (2) Northern California, where the
Company has added six new active subdivisions in 1999 in the San Francisco Bay
area. In Phoenix, record home orders in 1998 accelerated the close-out of
certain projects which, compounded by delays in land development, caused a
temporary decline in the number of active subdivisions and a corresponding
decrease in home orders in 1999 in this market.
12
The Company ended 1999 with a record Backlog of 2,941 homes with an
estimated sales value of $600,000,000, compared with the Backlog of 2,930 homes
with an estimated sales value of $580,000,000 at December 31, 1998. Assuming no
significant change in market conditions or mortgage interest rates, the Company
expects approximately 75% of its December 31, 1999 Backlog to close under
existing sales contracts during the first nine months of 2000. The remaining 25%
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) totalled $80,545,000 in 1999, compared with $74,463,000 in 1998.
The increase in 1999 primarily was volume related, resulting from higher (1)
sales commissions; (2) marketing-related salaries and benefits; and (3) product
advertising and other costs incurred in connection with the Company's increased
homebuilding activities. Notwithstanding the increased costs, these expenses
declined as a percentage of home sales revenues to 5.3% in 1999, compared with
6.1% for 1998.
General and Administrative. General and administrative expenses
totalled $54,829,000 in 1999, compared with $45,905,000 in 1998. The increase
primarily was due to increased compensation costs resulting from MDC's higher
profitability and increased homebuilding activity. These expenses declined as a
percentage of home sales revenues to 3.6% in 1999 from 3.8% for 1998.
Homebuilding Activities - 1998 Compared With 1997.
Home Sales Revenues and Homes Closed. Home sales revenues in 1998 were
30% higher than home sales revenues in 1997. The increase resulted from an
increase in both home closings and average selling price per home closed, as
further discussed below.
In Colorado and Arizona, home closings increased in 1998 by 31% and
34%, respectively, as a result of the strong demand for homes in these markets
and substantially higher Backlog levels in 1998 compared with 1997. Home
closings increased by 28% and 12% in Southern California and Nevada,
respectively, where the Company increased the number of active subdivisions by
more than 40% as of December 31, 1998 compared with December 31, 1997. In
Maryland, home closings decreased in 1998, primarily due to a decrease in the
number of active subdivisions to 11 at the end of 1998 compared with 19 at the
end of 1997. Home closings also decreased in Northern California in 1998,
because the Company exited the Sacramento market and no homes were closed in the
three new active subdivisions in the San Francisco Bay area.
Average Selling Price Per Home Closed. The average selling price per
home closed increased to $193,700 in 1998, compared with $179,800 in 1997. This
increase primarily resulted from (1) a greater number of homes closed in
relatively higher-priced subdivisions in Southern California, Phoenix and
Nevada; (2) a higher proportion of detached homes closed in Virginia and
Maryland, which generally have higher selling prices than townhomes; and (3)
selling price increases in most of the Company's markets, particularly in
Southern California and Colorado.
Home Gross Margins. Home Gross Margins increased 240 basis points in
1998. The increase largely was due to (1) in Colorado, selling price increases
and reduced incentives offered to home buyers due to the increased demand for
new homes in this market; (2) in Colorado and Arizona, the favorable impact of a
number of home closings in several highly profitable subdivisions; (3) a
decrease in the cost of certain raw materials from suppliers and manufacturers
pursuant to national purchasing contracts; and (4) initiatives implemented in
each of the Company's markets designed to improve operating efficiency, control
costs and increase rates of return.
Orders for Homes and Backlog. Orders for homes increased 25% to 7,191
in 1998. The increase primarily was due to strong home orders experienced in all
of the Company's markets, except Maryland and Northern California, in response
to an improved economy marked by decreasing mortgage interest rates, low
unemployment, high levels of consumer confidence, improved home affordability
and low inventories of new homes.
As a result of the increased orders for homes during 1998, the
Company's Backlog at December 31, 1998 increased 44% from December 31, 1997 to
2,930 units, with an estimated sales value of $580,000,000.
Marketing. Marketing expenses totalled $74,463,000 in 1998, compared
with $61,139,000 in 1997. The increases in 1998 primarily were volume related,
resulting from higher marketing-related salaries, benefits and sales
13
commissions incurred and deferred marketing costs amortized in connection with
the increased number of home closings and product advertising and other costs
incurred in connection with the Company's expanded operations, particularly in
Colorado and Southern California. These expenses declined as a percentage of
home sales revenues to 6.1% in 1998 from 6.5% in 1997.
General and Administrative. General and administrative expenses
totalled $45,905,000 in 1998, compared with $30,557,000 in 1997. The increase
primarily was due to (1) increased compensation costs resulting from expanded
operations in each of the Company's markets except Northern California and
Maryland; (2) the write-off of due diligence costs and deposits with respect to
certain proposed homebuilding projects which were not acquired; and (3)
additional costs associated with new branch offices in Southern California and
design centers in Southern California and Phoenix.
Land Sales.
Revenue from land sales totalled $8,114,000, $13,964,000 and
$9,978,000, respectively, in 1999, 1998 and 1997. The land sales primarily were
in Colorado in 1999 and Colorado and Virginia in 1998 and 1997. Gross profits
from these sales were $2,347,000, $4,264,000 and $2,238,000, respectively, for
the years 1999, 1998 and 1997.
Asset Impairment Charges.
Homebuilding operating results were reduced by asset impairment charges
totalling $2,242,000, $5,300,000 and $5,850,000 in 1999, 1998 and 1997,
respectively. The Company's assets to which these asset impairment charges
relate are summarized as follows (in thousands).
Year Ended December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
Completed homes and homes under
construction....................... $ - - $ 888 $ 1,916
Land under development and other...... 2,242 4,412 3,934
----------- ----------- -----------
Total........................... $ 2,242 $ 5,300 $ 5,850
=========== =========== ===========
The 1999 charge primarily resulted from the write-down to fair value of
one homebuilding project in Southern California which has experienced higher
than anticipated development costs, a slower home order pace and increased sales
incentive requirements. The 1998 and 1997 asset impairment charges described
above related to homebuilding assets primarily in Maryland and principally were
the result of the (1) recognition of losses anticipated from the closing of
certain homes in Backlog and from the reduction of selling prices and the
offering of increased incentives to stimulate sales of certain completed unsold
homes in inventory; (2) write-down to fair value of certain subdivisions which
experienced slow sales and negative Home Gross Margins; and (3) write-off of
other capitalized costs, primarily deferred marketing and option deposits,
related to several low margin projects or projects which the Company terminated.
See Note A to the Company's Consolidated Financial Statements.
14
Financial Services Segment.
Mortgage Lending Operations.
The table below sets forth information relating to HomeAmerican's
operations (dollars in thousands).
Year Ended December 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
Loan Origination Fees.................................... $ 12,459 $ 9,738 $ 6,751
Gains on Sales of Mortgage Servicing..................... $ 3,114 $ 2,512 $ 1,739
Gains on Sales of Mortgage Loans......................... $ 8,456 $ 8,575 $ 6,182
Operating Profits........................................ $ 13,169 $ 11,198 $ 7,745
Principal Amount of Loan Originations and Purchases
MDC home buyers..................................... $ 833,055 $ 701,679 $ 525,687
Spot................................................ 39,049 54,147 31,841
Correspondent....................................... 12,074 157,107 74,654
--------- --------- ---------
Total........................................... $ 884,178 $ 912,933 $ 632,182
========= ========= =========
Capture Rate............................................ 68% 70% 68%
========= ========= =========
Including Brokered Loans............................ 81% 78% 72%
========= ========= =========
HomeAmerican's operating profits increased 18% in 1999, compared with
1998, primarily due to higher mortgage origination volume. Operating profits
increased 45% in 1998, compared with 1997, primarily as a result of higher
mortgage origination volume and increased gains on sales of mortgage loans.
These increases partially were offset by higher general and administrative
expenses resulting from increased mortgage lending activity in both 1999 and
1998.
Most of HomeAmerican's mortgage loans are originated for MDC home
buyers. Additionally, HomeAmerican brokers mortgage loans originated by outside
lending institutions for MDC home buyers. The portion of mortgage loans
originated by HomeAmerican for MDC home buyers as a percentage of total MDC home
closings ("Capture Rate") was 68% for the year ended December 31, 1999, compared
with 70% for the same period in 1998 and 68% in 1997. Mortgage loans brokered by
HomeAmerican as a percentage of total MDC home closings increased to
approximately 13% for the year ended December 31, 1999, compared with
approximately 8% for 1998 and 4% in 1997. These brokered mortgage loans, for
which HomeAmerican receives a fee, have been excluded from the computation of
the Capture Rate.
Other Operating Results.
Interest Expense. The Company capitalizes interest on its homebuilding
inventories during the period of active development and through the completion
of construction. Corporate and homebuilding interest incurred but not
capitalized is reflected as interest expense, and totalled $0 for 1999 and 1998,
compared with $761,000 for 1997. Corporate and homebuilding interest incurred
decreased to $21,261,000 in 1999, compared with $22,525,000 in 1998 and
$26,368,000 in 1997, primarily due to lower effective interest rates on the
Company's outstanding debt and lower levels of homebuilding and corporate debt.
For a reconciliation of interest incurred, capitalized and expensed,
see Note I to the Company's Consolidated Financial Statements.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses totalled $29,589,000 for 1999, compared with $19,728,000
and $11,849,000, respectively, for 1998 and 1997. The increase in 1999, compared
with 1998, primarily was due to (1) greater compensation expense in 1999 related
to the Company's higher profitability and increased homebuilding activities; (2)
the recognition in 1998 of a credit to health insurance expense related to a
reduction in incurred but not reported liabilities of the employee medical plan
sponsored by the Company; and (3) approximately $2,000,000 in increased expenses
primarily attributable to the development of new processes, controls and
computer systems related to the Company's "best practices" endeavors. The
increase in 1998, compared with 1997, primarily was due to higher compensation
expense related to the
15
Company's higher profitability and expanding operations and the recognition in
1997 of a $2,032,000 offset to legal expense for insurance recoveries received
and the reversal of insurance-related reserves no longer required.
"Year 2000" Issue. The Company began assessing the possible impact of
the Year 2000 ("Y2K") issue on its business operations in 1997. The issue arose
because of information technology ("IT") which utilized a two digit date field.
Y2K introduced the potential for errors and miscalculations related to IT and
non-IT systems which were not designed to accommodate a date of year 2000 and
beyond. As of February 9, 2000, the Company had encountered no significant Y2K
related problems.
The Company identified the following six phases in its Y2K remediation
program: (1) assessment of the Y2K capabilities of its IT and non-IT systems;
(2) acquisition of new IT and non-IT systems or modification of existing IT and
non-IT systems to meet Y2K requirements; (3) testing; (4) evaluation of efforts
to meet Y2K requirements; (5) adjustments as identified in the evaluation phase;
and (6) implementation and integration of modified IT and non-IT systems into
the Company's business operations.
The Company completed all six phases with respect to its homebuilding
and financial services information systems and believes these systems are Y2K
compliant. Given the nature of the homebuilding industry, the Company is only
minimally dependent upon non-IT systems such as telephone, security systems and
time clocks. With respect to such non-IT systems, the Company completed the
implementation phase and believes these systems are Y2K compliant.
The Company evaluated other potential Y2K issues. As part of this
evaluation, the Company requested and received representations from certain
financial institutions and third party vendors that indicated their progress
toward Y2K compliance. The survey responses did not indicate any Y2K compliance
issues that would have resulted in a material adverse effect on the Company's
financial position or results of operations.
The Company incurred costs for outside consultants and capital
expenditures in 1999, 1998 and 1997 related to Y2K which aggregated
approximately $850,000. Future consulting and capital acquisition costs are
expected to be insignificant. These costs, which were expensed as incurred, have
been funded from operations. The costs incurred through December 31, 1999 did
not have a material affect on the Company's financial position or results of
operations.
The most likely worst-case Y2K scenario considered by the Company
includes isolated instances of construction delays caused by the Company's
inability to secure building permits, zoning and utilities as well as closing
delays caused by the inability of home buyers to obtain financing. In addition,
there could be isolated instances of subcontractors experiencing construction
delays due to their inability to secure building materials on a timely basis.
The Company typically uses several subcontractors within a given trade. As a
result, the Company believes that it would be able to replace subcontractors
that would not be able to perform due to Y2K deficiencies.
Income Taxes - MDC's overall effective income tax rates of 39.8%, 38.5%
and 38.5%, respectively, for 1999, 1998, and 1997, differed from the federal
statutory rate of 35% primarily due to the impact of state income taxes.
The Internal Revenue Service (the "IRS") has completed its examinations
of the Company's federal income tax returns for the years 1991 through 1995 and
has proposed adjustments to the taxable income reflected in such returns. The
Company is protesting certain of these proposed adjustments. The IRS currently
is examining the Company's federal income tax returns for the years 1996 and
1997. No audit report has been issued by the IRS in connection with this latter
examination. In the opinion of management, adequate provision has been made for
additional income taxes and interest, if any, that may arise as a result of
these examinations. See "Forward-Looking Statements" below.
16
LIQUIDITY AND CAPITAL RESOURCES
MDC uses its liquidity and capital resources to, among other things,
(1) support its operations, including its inventories of homes, home sites and
land; (2) provide working capital; and (3) provide mortgage loans for its home
buyers. Liquidity and capital resources are generated internally from operations
and from external sources.
Capital Resources.
The Company's capital structure is a combination of (1) permanent
financing, represented by stockholders' equity; (2) long-term financing,
represented by publicly traded 8 3/8 senior notes due 2008 and its homebuilding
line of credit; and (3) current financing, primarily its mortgage lending line
of credit. The Company believes that its current financial condition is both
balanced to fit its current operational structure and adequate to satisfy its
current and near-term capital requirements. See "Forward-Looking Statements"
below.
Based upon its current capital resources and additional liquidity
available under existing credit relationships, MDC anticipates that it has
adequate financial resources to satisfy its current and near-term capital
requirements, including the acquisition of land. The Company believes that it
can meet its long-term capital needs (including meeting future debt payments and
refinancing or paying off other long-term debt as it becomes due) from
operations and external financing sources, assuming that no significant adverse
changes in the Company's business occur as a result of the various risk factors
described elsewhere in this report. See "Forward-Looking Statements" below.
Lines of Credit and Notes Payable.
Homebuilding. In June 1998, the Company modified the terms of its
homebuilding line of credit, increasing available borrowings from $175,000,000
to $300,000,000, and extending the maturity date of this agreement by two years
to June 30, 2003. In October 1999, the line of credit was amended and restated
(the "Amended and Restated Credit Agreement") to extend the maturity date to
September 30, 2004 and increase the maximum amount available to $450,000,000
upon the Company's request, requiring additional commitments from existing or
additional participant lenders. There can be no assurance that existing or
additional lenders would agree to provide the additional commitments. Pursuant
to the terms of the related credit agreement, a term-out of this credit may
commence earlier under certain circumstances. At December 31, 1999, $40,000,000
was borrowed and $11,269,000 in letters of credit were outstanding under this
line of credit. At December 31, 1999 and 1998, the weighted-average interest
rates on the line of credit were 7.8% and 7.4%, respectively.
Mortgage Lending. To provide funds to originate and purchase mortgage
loans and to finance these mortgage loans on a short-term basis, HomeAmerican
utilizes its mortgage lending bank line of credit (the "Mortgage Line"). These
mortgage loans are pooled into GNMA, FNMA and FHLMC pools, or retained as whole
loans, and subsequently are sold in the open market on a spot basis or pursuant
to mortgage loan sale commitments, generally within 40 days after origination.
During 1999, 1998 and 1997, HomeAmerican sold $877,362,000, $892,040,000 and
$626,174,000, respectively, principal amount of mortgage loans and mortgage
certificates to unaffiliated purchasers.
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. In December 1999, the Company modified the
terms of the Mortgage Line, increasing the available borrowings from $51,000,000
to $75,000,000. At December 31, 1999, $50,234,000 was borrowed under the
Mortgage Line and an additional $19,714,000 was collateralized and available to
be borrowed. The Mortgage Line is cancellable upon 90 days notice.
General. The agreements for the Company's New Senior Notes and bank
lines of credit require compliance with certain representations, warranties and
covenants. The Company believes that it is in compliance with these
representations, warranties and covenants. The agreements containing these
representations, warranties and covenants, other than the Mortgage Line, are on
file with the Securities and Exchange Commission and are listed in the Exhibit
Table in Part IV of this Annual Report on Form 10-K.
17
The financial covenants contained in the 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 the product of 2.15 (subject to downward adjustment in
certain circumstances) times MDC's "adjusted consolidated tangible net worth,"
as defined. Under the consolidated tangible net worth test, MDC's "tangible net
worth," as defined, must not be less than the sum of $238,000,000 and 50% of
"consolidated net income," as defined, after December 31, 1998. In addition, the
"consolidated tangible net worth," as defined, must not be less than
$150,000,000.
The Company's New Senior Notes indenture does not contain financial
covenants. However, there are covenants that limit transactions with affiliates,
limit the amount of additional indebtedness that MDC may incur, restrict certain
payments on, or the redemptions of, the Company's securities, restrict certain
sales of assets and limit incurring liens. In addition, under certain
circumstances, in the event of a change of control (generally a sale, transfer,
merger or acquisition of MDC or substantially all of its assets), MDC may be
required to offer to repurchase the New Senior Notes. The New Senior Notes are
not secured.
As of December 31, 1999, the maximum amount of additional homebuilding
and corporate indebtedness that MDC could have incurred under the most
restrictive of the debt limitations described above was approximately
$542,000,000.
Consolidated Cash Flow.
During 1999, the Company used $5,723,000 in cash from its operating and
investing activities and increased its available cash on hand by $28,851,000.
This cash was provided by increased borrowings from the lines of credit of
$40,029,000 partially offset by dividend payments and principal payments on
notes payable. The Company generated $15,881,000 in cash from its operating and
investing activities during 1998. The Company used this cash and available cash
on hand to reduce notes payable by $22,472,000.
Operating activities used cash of $3,845,000 in 1999, compared with
cash generated of $800,000 and $18,516,000, respectively, in 1998 and 1997. The
1999 cash decrease from 1998 and 1998 cash decrease from 1997 primarily were due
to 1999 and 1998 increases in homebuilding and mortgage loan inventories in
conjunction with the Company's expanded homebuilding operations, partially
offset by increases in income before income taxes and extraordinary item.
Investing activities used cash of $1,878,000 in 1999, compared with
cash generated of $15,081,000 and $3,513,000, respectively, in 1998 and 1997.
Cash generated in 1998 was higher than both 1999 and 1997 primarily due to the
$13,250,000 net proceeds received from the sale of the Company's headquarters
office building in 1998.
Financing activities generated cash of $34,574,000 in 1999, compared
with cash used of $17,480,000 and $21,655,000, respectively, in 1998 and 1997.
The increase in cash generated in 1999 primarily was due to increased borrowings
on the homebuilding and mortgage lending lines of credit, compared with 1998.
The decrease in cash used in 1998 primarily was due to stock repurchases in 1997
in the amount of $7,349,000, partially offset by greater reductions in
outstanding debt in 1997, compared with 1998.
Included in 1998 cash flows from financing activities is the Company's
sale of $175,000,000 principal amount of New Senior Notes (less issue costs of
$3,459,000). The Company used the proceeds from this sale to repurchase
$61,181,000 principal amount of Old Senior Notes, to defease the remaining
$90,819,000 principal amount of Old Senior Notes outstanding and for general
corporate purposes. A premium of $17,592,000 was paid on the repurchase and
defeasance.
18
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. Among other things, these conditions 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, among other things,
general economic conditions and, particularly, the demand for new homes in the
markets in which it builds.
ISSUANCE OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was
issued. SFAS 133 addresses the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities. In June 1999, SFAS 137 was issued, deferring the effective date of
SFAS 133 to January 1, 2001. The Company anticipates that the adoption of SFAS
133 as of January 1, 2001, will not have a material affect on its financial
position or results of operations. See "Forward-Looking Statements" below.
OTHER
Forward-Looking Statements.
Certain statements in this Form 10-K Annual Report, the Company's
Annual Report to Shareowners, 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. We have identified the forward-looking statements
in this Form 10-K by cross referencing this section at the end of the paragraph
in which the forward-looking statement is located. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Such factors include,
among other things, (1) general economic and business conditions; (2) interest
rate changes; (3) the relative stability of debt and equity markets; (4)
competition; (5) the availability and cost of land and other raw materials used
by the Company in its homebuilding operations; (6) demographic changes; (7)
shortages and the cost of labor; (8) weather related slowdowns; (9) slow growth
initiatives; (10) building moratoria; (11) governmental regulation, including
the interpretation of tax, labor and environmental laws; (12) changes in
consumer confidence and preferences; (13) required accounting changes; (14) the
impact on the Company of Y2K compliance by the Company and its vendors,
suppliers and subcontractors and by various governmental and regulatory
agencies; and (15) other factors over which the Company has little or no
control.
19
Item 7A. 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. The Company utilizes
forward sale commitments to mitigate some of the risk associated with the
mortgage loan portfolio. Other than the forward commitments described above, the
Company does not utilize interest rate swaps, forward option contracts on
foreign currencies or commodities, or other types of derivative financial
instruments.
HomeAmerican provides mortgage loans which generally are sold forward
upon closing and subsequently delivered to a third-party purchaser within
approximately 40 days. Due to the frequency of these loan sales, the market risk
associated with these mortgages is minimal.
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 December 31, 1999, short-term debt was $50,234,000, which
consisted of 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 December 31, 1999 are as follows (in thousands).
Maturities through December 31,
----------------------------------------------------------------- Estimated
2000 2001 2002 2003 2004 Thereafter Total Fair Value
---------- --------- --------- ---------- --------- ---------- --------- ----------
Fixed Rate Debt........... $ - - $ - - $ - - $ - - $ - - $ 175,000 $ 175,000 $ 161,000
Average Interest Rate - - - - - - - - - - 8.38% 8.38%
Variable Rate Debt........ $ - - $ - - $ - - $ - - $ 40,000 $ - - $ 40,000 $ 40,000
Average Interest Rate.. - - - - - - - - 7.80% - - 7.80%
The Company believes that its overall balance sheet structure has
repricing and cash flow characteristics that mitigate the impact of interest
rate movements.
20
Item 8. Consolidated Financial Statements.
M.D.C. HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Consolidated Financial Statements
Report of Independent Accountants ..................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and
December 31, 1998.................................................... F-3
Consolidated Statements of Income and Comprehensive Income for each of
the Three Years in the Period Ended December 31, 1999................ F-5
Consolidated Statements of Stockholders' Equity for each of the Three
Years in the Period Ended December 31, 1999.......................... F-6
Consolidated Statements of Cash Flows for each of the Three Years in
the Period Ended December 31, 1999................................... F-7
Notes to Consolidated Financial Statements............................. F-8
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
M.D.C. HOLDINGS, INC.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and comprehensive income,
stockholders' equity and cash flows present fairly, in all material respects,
the financial position of M.D.C. Holdings, Inc. and its subsidiaries (the
"Company") at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
January 17, 2000
F-2
M.D.C. HOLDINGS, INC.
Consolidated Balance Sheets
(In thousands)
December 31,
-------------------------
1999 1998
----------- -----------
ASSETS
Corporate
Cash and cash equivalents........................................... $ 33,637 $ 2,460
Property and equipment, net......................................... 2,909 2,901
Deferred income taxes............................................... 21,201 17,949
Deferred debt issue costs, net...................................... 2,393 2,589
Other assets, net................................................... 6,771 5,670
----------- -----------
66,911 31,569
Homebuilding
Cash and cash equivalents........................................... 4,935 7,279
Home sales and other accounts receivable............................ 3,496 12,771
Inventories, net
Housing completed or under construction........................... 337,029 294,104
Land and land under development................................... 308,680 217,180
Prepaid expenses and other assets, net.............................. 58,156 58,981
----------- -----------
712,296 590,315
Financial Services
Cash and cash equivalents........................................... 358 340
Mortgage loans held in inventory.................................... 89,953 84,548
Other assets, net................................................... 7,490 7,241
----------- -----------
97,801 92,129
Total Assets.................................................. $ 877,008 $ 714,013
=========== ===========
F-3
See notes to consolidated financial statements.
M.D.C. HOLDINGS, INC.
Consolidated Balance Sheets
(In thousands, except share amounts)
December 31,
-------------------------
1999 1998
----------- -----------
LIABILITIES
Corporate
Accounts payable and accrued expenses............................... $ 46,721 $ 32,378
Income taxes payable................................................ 18,291 14,568
Senior notes, net................................................... 174,389 174,339
----------- -----------
239,401 221,285
Homebuilding
Accounts payable and accrued expenses............................... 152,488 131,374
Line of credit...................................................... 40,000 21,871
Notes payable....................................................... - - 866
----------- -----------
192,488 154,111
Financial Services
Accounts payable and accrued expenses............................... 5,862 12,152
Line of credit...................................................... 50,234 28,334
----------- -----------
56,096 40,486
Total Liabilities............................................. 487,985 415,882
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES K, N
AND P).............................................................. - - - -
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 25,000,000 shares authorized; none
issued............................................................ - - - -
Common stock, $.01 par value; 100,000,000 shares authorized;
28,166,000 and 27,858,000 shares issued, respectively, at
December 31, 1999 and 1998........................................ 282 279
Additional paid-in capital.......................................... 179,094 175,160
Retained earnings................................................... 245,235 160,291
Accumulated other comprehensive income.............................. 3,623 1,785
----------- -----------
428,234 337,515
Less treasury stock, at cost, 5,850,000 and 5,876,000 shares,
respectively, at December 31, 1999 and 1998....................... (39,211) (39,384)
----------- -----------
Total Stockholders' Equity.................................... 389,023 298,131
----------- -----------
Total Liabilities and Stockholders' Equity.................... $ 877,008 $ 714,013
=========== ===========
F-4
See notes to consolidated financial statements.
M.D.C. HOLDINGS, INC.
Consolidated Statements of Income and Comprehensive Income
(In thousands, except per share amounts)
Year Ended December 31,
--------------------------------------------
1999 1998 1997
----------- ----------- -----------
REVENUES
Homebuilding.............................................. $ 1,537,563 $ 1,234,272 $ 949,790
Financial Services........................................ 27,460 27,909 18,557
Corporate................................................. 2,615 1,028 1,215
----------- ----------- -----------
Total Revenues...................................... 1,567,638 1,263,209 969,562
----------- ----------- -----------
COSTS AND EXPENSES
Homebuilding.............................................. 1,375,305 1,147,508 908,247
Financial Services........................................ 14,291 12,121 9,378
Corporate general and administrative...................... 29,589 19,728 11,849
Corporate and homebuilding interest....................... - - - - 761
----------- ----------- -----------
Total Costs and Expenses............................ 1,419,185 1,179,357 930,235
----------- ----------- -----------
Income before income taxes and extraordinary item............ 148,453 83,852 39,327
Provision for income taxes................................... (59,061) (32,284) (15,122)
----------- ----------- -----------
Income before extraordinary item............................. 89,392 51,568 24,205
Extraordinary loss from early extinguishments of debt, net
of income tax benefit of $9,587 for 1998 and $1,336 for
1997...................................................... - - (15,314) (2,179)
----------- ----------- -----------
NET INCOME................................................... 89,392 36,254 22,026
----------- ----------- -----------
Unrealized holding gains on securities arising during the
year...................................................... 2,123 1,593 1,246
Less reclassification adjustment for gains (losses) included
in net income............................................. 285 (54) 880
----------- ----------- -----------
Net unrealized holding gains on securities arising during
the year, net of deferred income taxes of $5,204 for
1999, $1,080 for 1998 and $233 for 1997................... 1,838 1,647 366
----------- ----------- -----------
COMPREHENSIVE INCOME......................................... $ 91,230 $ 37,901 $ 22,392
=========== =========== ===========
EARNINGS PER SHARE (NOTES A and M)
Basic
Income before extraordinary item..................... $ 4.02 $ 2.79 $ 1.37
=========== =========== ===========
Net Income........................................... $ 4.02 $ 1.96 $ 1.25
=========== =========== ===========
Diluted
Income before extraordinary item..................... $ 3.95 $ 2.32 $ 1.18
=========== =========== ===========
Net Income........................................... $ 3.95 $ 1.64 $ 1.08
=========== =========== ===========
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic...................................................... 22,247 18,451 17,673
=========== =========== ===========
Diluted.................................................... 22,656 22,606 21,899
=========== =========== ===========
DIVIDENDS PAID PER SHARE..................................... $ .20 $ .15 $ .12
=========== =========== ===========
F-5
See notes to consolidated financial statements.
M.D.C. HOLDINGS, INC.
Consolidated Statements of Stockholders' Equity
(In thousands)
Accumulated
Additional Other
Common Paid-In Retained Comprehensive Treasury
Stock Capital Earnings Income (Loss) Stock Total
------- ----------- ----------- -------------- ----------- -----------
BALANCES-JANUARY 1, 1997............... $ 231 $ 138,705 $ 106,417 $ (228) $ (31,278) $ 213,847
Shares issued....................... 6 3,153 45 - - (940) 2,264
Shares reacquired................... - - - - - - - - (7,349) (7,349)
Unrealized gains on
available-for-sale securities, net - - - - - - 366 - - 366
Non-qualified stock options exercised. - - 1,012 - - - - - - 1,012
Notes receivable for stock purchases,
net of repayments................. - - (441) - - - - - - (441)
Dividends paid...................... - - - - (2,132) - - - - (2,132)
Net income.......................... - - - - 22,026 - - - - 22,026
------ ----------- ----------- ----------- ----------- -----------
BALANCES-DECEMBER 31, 1997............. 237 142,429 126,356 138 (39,567) 229,593
Shares issued....................... 42 30,267 456 - - 183 30,948
Unrealized gains on
available-for-sale securities, net - - - - - - 1,647 - - 1,647
Non-qualified stock options exercised. - - 2,484 - - - - - - 2,484
Notes receivable for stock purchases,
net of repayments................. - - (20) - - - - - - (20)
Dividends paid...................... - - - - (2,775) - - - - (2,775)
Net income.......................... - - - - 36,254 - - - - 36,254
------ ----------- ----------- ----------- ----------- -----------
BALANCES-DECEMBER 31, 1998............. 279 175,160 160,291 1,785 (39,384) 298,131
Shares issued....................... 3 3,399 - - - - 173 3,575
Unrealized gains on
available-for-sale securities, net - - - - - - 1,838 - - 1,838
Non-qualified stock options exercised. - - 695 - - - - - - 695
Notes receivable for stock purchases,
net of repayments................. - - (160) - - - - - - (160)
Dividends paid...................... - - - - (4,448) - - - - (4,448)
Net income.......................... - - - - 89,392 - - - - 89,392
------ ----------- ----------- ----------- ----------- -----------
BALANCES-DECEMBER 31, 1999............. $ 282 $ 179,094 $ 245,235 $ 3,623 $ (39,211) $ 389,023
====== =========== =========== =========== =========== ===========
F-6
See notes to consolidated financial statements.
M.D.C. HOLDINGS, INC.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
---------------------------------------
1999 1998 1997
---------- ---------- ----------
OPERATING ACTIVITIES
Net income.......................................... $ 89,392 $ 36,254 $ 22,026
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Loss from the early extinguishments of debt.... - - 24,901 3,515
Depreciation and amortization.................. 17,845 20,228 15,050
Homebuilding asset impairment charges.......... 2,242 5,300 5,850
Deferred income taxes.......................... (3,252) (5,673) (1,472)
Gains on sales of mortgage related assets...... - - (4,509) (986)
Net changes in operating assets and liabilities
Home sales and other accounts receivable.... 9,275 (5,212) 2,659
Homebuilding inventories.................... (135,678) (76,454) (7,077)
Prepaid expenses and other assets........... (5,263) (18,981) (9,215)
Mortgage loans held in inventory............ (5,405) (19,292) (6,514)
Accounts payable and accrued expenses....... 27,950 45,666 (5,695)
Other, net..................................... (951) (1,428) 375
----------- ----------- -----------
Net cash provided by (used in) operating activities. (3,845) 800 18,516
----------- ----------- -----------
INVESTING ACTIVITIES
Net proceeds from sale of office building........... - - 13,250 - -
Net purchase of property and equipment.............. (3,642) (6,083) (2,705)
Proceeds from the sale of FAMC...................... - - 4,450 1,000
Change