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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
Changes in investments and marketable securities.... 1,764 3,272 3,586
Other, net.......................................... - - 192 1,632
----------- ----------- -----------
Net cash provided by (used in) investing activities. (1,878) 15,081 3,513
----------- ----------- -----------
FINANCING ACTIVITIES
Lines of credit
Advances........................................ 1,429,600 1,267,540 1,045,276
Principal payments.............................. (1,389,571) (1,265,083) (1,019,266)
Notes payable
Borrowings...................................... - - 866 192
Principal payments.............................. (1,898) (13,108) (192)
Senior notes
Proceeds from issuance.......................... - - 171,541 - -
Repurchase and defeasance....................... - - (152,000) (38,000)
Premium on repurchase and defeasance............ - - (17,592) (1,520)
Repayment of subordinated notes...................... - - (10,230) - -
Stock repurchases.................................... - - - - (7,349)
Dividend payments.................................... (4,448) (2,775) (2,132)
Proceeds from stock issuance......................... 891 3,361 1,336
----------- ----------- -----------
Net cash provided by (used in) financing activities.. 34,574 (17,480) (21,655)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents. 28,851 (1,599) 374
Cash and cash equivalents
Beginning of year............................... 10,079 11,678 11,304
----------- ----------- -----------
End of year..................................... $ 38,930 $ 10,079 $ 11,678
=========== =========== ===========
F-7
See notes to consolidated financial statements.
M.D.C. HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements of
M.D.C. Holdings, Inc. ("MDC" or the "Company", which, unless otherwise
indicated, refers to M.D.C. Holdings, Inc. and its subsidiaries) include the
accounts of MDC and its wholly owned and majority owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Segment Information - MDC has determined that its reportable segments
are those that are based on the Company's method of internal reporting, which
disaggregates its business by product category. MDC's products come from two
segments, homebuilding and financial services. In its homebuilding segment,
through separate subsidiaries, the Company is engaged in the design,
construction and sale of single-family homes. In its financial services segment,
HomeAmerican Mortgage Corporation (a wholly owned subsidiary of M.D.C. Holdings,
Inc., "HomeAmerican") provides mortgage loans primarily to the Company's home
buyers (the mortgage lending operations). Through September 30, 1996, Financial
Asset Management LLC (an indirect subsidiary of M.D.C. Holdings, Inc.; "FAMC")
managed by contract the operations of two publicly traded real estate investment
trusts (the asset management operations). In September 1996, the Company sold
its 80% interest in FAMC.
Homebuilding.
Inventories - Homebuilding inventories under development and
construction are carried at cost unless facts and circumstances indicate that
the carrying value of the underlying projects may be impaired. Impairment is
determined by comparing the estimated future cash flows (undiscounted and
without interest charges) from an individual project to its carrying value. If
such cash flows are less than the project's carrying value, the carrying value
of the project is written down to its fair value. Homebuilding inventories held
for sale are carried at the lower of cost or fair value, less selling costs, and
are evaluated on a project basis. Fair value is determined by management
estimate and incorporates anticipated future revenues and costs. Cost includes
interest capitalized during the period of active development through completion
of construction. Construction-related overhead and salaries are capitalized and
allocated proportionately to projects being developed. Land and related costs
are transferred to housing inventory when construction commences. See Note H.
Prepaid Expenses and Other Assets, Net - Homebuilding prepaid expenses
and other assets include qualified settlement fund assets which are held for the
processing and disposition of eligible claims made under the warranties created
pursuant to the settlement of litigation commenced in 1994 and settled in
November 1996. The qualified settlement fund assets are recorded on the
Consolidated Balance Sheet at fair value, which is based on quoted prices, with
the related unrealized gain included in accumulated other comprehensive income.
The following table sets forth the information relating to prepaid
expenses and other assets, net (in thousands).
December 31,
-----------------------
1999 1998
--------- ---------
Qualified settlement fund assets............ $ 26,625 $ 21,342
Land option deposits........................ 8,673 12,504
Deferred marketing costs.................... 10,320 7,649
Prepaid tap and system development fees..... 3,472 5,444
Other....................................... 9,066 12,042
--------- ---------
Total................................. $ 58,156 $ 58,981
========= =========
F-8
Deferred Marketing Costs - Certain marketing costs related to model
homes and sales offices are capitalized as prepaid assets and amortized to
selling, general and administrative expenses as the homes in the related
subdivision are closed.
Revenue Recognition - Revenues from real estate sales are recognized
when a sufficient down payment has been received, financing has been arranged,
title, possession and other attributes of ownership have been transferred to the
buyer and the Company is not obligated to perform significant additional
activities after sale and delivery.
Warranty Costs - The Company's homes are sold with limited warranties
issued by an unaffiliated warranty company. Reserves are established by the
Company to cover estimated costs of repairs for which the Company is
responsible. Warranty reserves are included in Homebuilding - Accounts payable
and accrued expenses and totalled $37,500,000 and $35,249,000, respectively, at
December 31, 1999 and 1998.
Financial Services.
Mortgage Loans Held in Inventory - The Company generally purchases
forward commitments to deliver mortgage loans held for sale. Mortgage loans held
in inventory are stated at the lower of aggregate cost or fair value based upon
such commitments for loans to be delivered or prevailing market for uncommitted
loans. Substantially all of the loans originated or purchased by the Company are
sold to private investors within 40 days of origination or purchase. Gains or
losses on mortgage loans held in inventory are realized when the loans are sold.
Revenue Recognition - Loan origination fees in excess of origination
costs incurred and loan commitment fees are deferred until the related loans are
sold. Loan servicing fees are recorded as revenue when the mortgage loan
payments are received. Loan servicing costs are recognized as incurred. Revenues
from the sale of mortgage loan servicing are recognized when title and all risks
and rewards of ownership have irrevocably passed to the buyer and there are no
significant unresolved contingencies.
The mortgage lending operations are affected by, among other things,
changes in mortgage interest rates. The Company utilizes forward mortgage
securities contracts to manage the interest rate risk on its fixed-rate mortgage
loans owned and rate-locked mortgage loans in process which have not closed.
Such contracts are the only significant financial derivative instrument utilized
by MDC. Hedging gains or losses are recognized when the hedged mortgage loans
are sold.
Mortgage Servicing Rights - Effective January 1, 1997, the Company
adopted Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"
("SFAS 125"). SFAS 125 requires the Company to allocate the cost of mortgage
loans originated and purchased between the mortgage loans and the right to
service those mortgage loans, based on relative fair value, on the date the loan
is sold. The adoption of SFAS 125 did not have a material impact on the
financial statements.
Mortgage servicing rights ("Servicing Rights") of $8,090,000 and
$8,491,000 were capitalized during 1999 and 1998, respectively, pursuant to SFAS
125. Servicing Rights are amortized over the estimated period of net servicing
revenues. The cost attributed to the Servicing Rights sold and the amortization
of Servicing Rights was $7,920,000 and $8,097,000 for 1999 and 1998,
respectively. Servicing Rights are evaluated for impairment by stratifying the
portfolio based on loan type and interest rate. Impairment of $115,000 was
recognized during 1998 and reversed in 1999.
As of December 31, 1999 and 1998, the Company had unamortized Servicing
Rights of $5,200,000 and $4,915,000, respectively, included in Financial
Services - Other assets, net.
General.
Cash and Cash Equivalents - The Company periodically invests funds not
immediately required for operating purposes in highly liquid, short-term
investments with an original maturity of 90 days or less such as
F-9
commercial paper, money market funds and repurchase agreements which are
included in cash and cash equivalents in the Consolidated Balance Sheet and
Consolidated Statement of Cash Flows.
Property and Equipment - Property and equipment is carried at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets.
Estimates in Financial Statements - The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Such estimates include warranty, other accrued expenses, estimates to
complete land development and construction and estimates related to potential
asset impairment charges.
Additional 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.
B. Information on Business Segments
The Company operates in two business segments - homebuilding and
financial services. A summary of the Company's business segments is shown below
(in thousands).
Year Ended December 31,
----------------------------------------
1999 1998 1997
----------- ----------- -----------
Homebuilding
Home sales............................................... $ 1,526,519 $ 1,218,659 $ 939,016
Land sales............................................... 8,114 13,964 9,978
Other revenues........................................... 2,930 1,649 796
----------- ----------- -----------
1,537,563 1,234,272 949,790
----------- ----------- -----------
Home cost of sales....................................... 1,231,922 1,012,140 802,961
Land cost of sales....................................... 5,767 9,700 7,740
Asset impairment charges................................. 2,242 5,300 5,850
Marketing................................................ 80,545 74,463 61,139
General and administrative............................... 54,829 45,905 30,557
----------- ----------- -----------
1,375,305 1,147,508 908,247
----------- ----------- -----------
Homebuilding Operating Profit........................ 162,258 86,764 41,543
----------- ----------- -----------
F-10
Year Ended December 31,
---------------------------------------
1999 1998 1997
----------- ----------- ----------
Financial Services
Mortgage Lending Revenues
Interest................................................. 2,844 2,270 1,918
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, net.................... 8,456 8,460 6,182
Mortgage servicing and other............................. 587 327 490
Asset Management Revenues................................... - - 4,602 1,477
----------- ----------- -----------
27,460 27,909 18,557
General and Administrative Expenses......................... 14,291 12,121 9,378
----------- ----------- -----------
Financial Services Operating Profit.................. 13,169 15,788 9,179
----------- ----------- -----------
Total Operating Profit.......................................... 175,427 102,552 50,722
----------- ----------- -----------
Corporate
Interest and other revenues.............................. 2,615 1,028 1,215
Interest expense......................................... - - - - (761)
General and administrative............................... (29,589) (19,728) (11,849)
----------- ----------- -----------
Net Corporate Expenses............................... (26,974) (18,700) (11,395)
----------- ----------- -----------
Income Before Income Taxes and Extraordinary Item............... $ 148,453 $ 83,852 $ 39,327
=========== =========== ===========
Corporate general and administrative expenses consist principally of
salaries and other administrative expenses which are not identifiable to a
specific segment. Transfers between segments are recorded at cost. Capital
expenditures and related depreciation and amortization for the years ended
December 31, 1999, 1998 and 1997 were not material. Identifiable segment assets
are shown on the face of the Consolidated Balance Sheets.
C. Mortgage Loans Held in Inventory
The following table sets forth the information relating to mortgage loans
held in inventory (in thousands).
December 31,
-----------------------
1999 1998
--------- ---------
First mortgage loans
Conventional...................................... $ 67,462 $ 59,605
FHA and VA........................................ 24,041 26,618
--------- ---------
91,503 86,223
Less
Unamortized discounts............................. (344) (224)
Deferred fees..................................... (545) (472)
Allowance for loan losses......................... (661) (979)
--------- ---------
Total........................................... $ 89,953 $ 84,548
========= =========
Mortgage loans held in inventory consist primarily of loans
collateralized by first mortgages and deeds of trust due over periods of up to
30 years. The weighted-average effective yield on mortgage loans held in
inventory was approximately 7.7% at December 31, 1999.
F-11
D. Lines of Credit
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 - In December 1999, the Company modified the terms of
its mortgage lending bank line of credit, increasing the available borrowings
from $51,000,000 to $75,000,000. Available borrowings under this line of credit
are collateralized by mortgage loans and mortgage-backed certificates and are
limited to the value of "eligible collateral" (as defined in the credit
agreement). At December 31, 1999, $50,234,000 was borrowed and an additional
$19,714,000 was collateralized and available to be borrowed. The line of credit
is cancellable upon 90 days' notice. At December 31, 1999 and 1998, the interest
rates on the line of credit were 7.0% and 6.2%, respectively.
General - The agreements for the Company's 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 lending line of credit 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.
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.
E. Notes Payable
Senior Notes - The following table sets forth the information relating
to senior notes (in thousands).
December 31,
------------------------
1999 1998
---------- ----------
Senior notes
8 3/8% senior notes due February 2008 (effective rate 8.7%).. $ 174,389 $ 174,339
========== ==========
In December 1993, the Company completed an offering of $190,000,000
principal amount of 11 1/8% senior notes due 2003 (the "Old Senior Notes") and
$28,000,000 principal amount of 8 3/4% convertible subordinated notes due 2005
(the "Convertible Subordinated Notes"). The Convertible Subordinated Notes were
convertible into shares of MDC common stock at an initial conversion price of
$7.75 per share. In March 1997, the Company repurchased $38,000,000 principal
amount of the Old Senior Notes. On January 28, 1998, the remaining Old Senior
Notes either were repurchased or defeased with the proceeds of the issuance of
the Company's 8 3/8% senior notes due 2008 (the "New Senior Notes"). The
Convertible Subordinated Notes were called for redemption by the Company in
December 1998 at a price of 105, resulting in the conversion of all $28,000,000
principal amount of Convertible Subordinated Notes into 3,612,900 shares of MDC
common stock. See Note M.
F-12
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.
Other Notes Payable - Corporate and homebuilding notes payable of
$866,000 at December 31, 1998 consisted principally of loans collateralized by
real estate. These notes incurred interest at rates ranging from 0% to 7.50%.
The aggregate net carrying value of the assets collateralizing the other notes
payable totalled approximately $2,153,000 at December 31, 1998. These notes were
repaid in the third quarter of 1999.
General - The following table sets forth the scheduled principal
payments on the New Senior Notes at December 31, 1999 (in thousands).
2000............. $ - -
2001............. $ - -
2002............. $ - -
2003............. $ - -
2004............. $ - -
Thereafter....... $ 175,000
F. Retirement Plans
In October 1997, the Company established a defined benefit retirement
plan (the "Retirement Plan") for two executive officers of the Company under
which the Company agreed to make future payments which have a projected benefit
obligation of $6,824,000 at December 31, 1999. The Retirement Plan is not funded
and benefits vest in either two or five years from plan inception. Unrecognized
prior service cost of $3,249,000 at December 31, 1999 will be recognized over
the employees' average estimated service periods. Retirement Plan expenses for
the years ended December 31, 1999, 1998 and 1997 were $1,059,000, $869,000 and
$183,000, respectively. Included on the December 31, 1999 Consolidated Balance
Sheet is an intangible asset of $2,690,000 related to unamortized prior service
cost and a corresponding accrued pension liability for the same amount. Accrued
benefit costs as of December 31, 1999, 1998 and 1997 were $2,132,000, $1,073,000
and $204,000, respectively. A summary of the changes in the projected benefit
obligation during each of the three years ended December 31, 1999, is as follows
(in thousands).
Year Ended December 31,
----------------------------------
1999 1998 1997
--------- --------- ---------
Projected benefit obligation - beginning of year.............. $ 4,881 $ 4,103 $ - -
Prior service cost........................................ - - - - 3,980
Service cost.............................................. 245 197 42
Interest cost............................................. 451 347 81
Unrecognized loss due to change in actuarial assumptions.. 1,247 234 - -
--------- --------- ---------
Projected benefit obligation - end of year.................... $ 6,824 $ 4,881 $ 4,103
========= ========= =========
Assumptions used in the calculation of the present value of
the projected benefit obligation
Discount rate............................................. 7.5% 8.0% 8.0%
Future annual compensation rate increase.................. 4.0% 4.0% 3.0%
The Company sponsors a Section 401(k) defined contribution plan
covering all of its eligible employees. At its discretion, the Company may make
annual matching contributions. The expense recorded by the Company
F-13
for its matching contributions for the years ended December 31, 1999, 1998 and
1997 was $2,060,000, $1,377,000 and $696,000, respectively.
G. Stockholders' Equity
Stock Option Plans - A summary of the Company's stock option incentive
plans follows.
Employee Equity Incentive Plan - The Employee Equity Incentive Plan
(the "Employee Plan") provided for an initial authorization of 2,100,000 shares
of MDC common stock for issuance thereunder, plus an additional annual
authorization equal to 10% of the then authorized shares of MDC common stock
under the Employee Plan as of each succeeding annual anniversary of the
effective date of the Employee Plan. Under the Employee Plan, the Company may
grant awards of restricted stock, incentive and non-statutory stock options and
dividend equivalents, or any combination thereof, to officers and employees of
the Company or any of its subsidiaries. The incentive and non-statutory stock
options granted under the Employee Plan are exercisable at prices greater than
or equal to the market value on the date of grant over periods of up to six
years.
Pursuant to the terms of the Executive Option Purchase Program (the
"Option Purchase Program"), the Company is authorized by the MDC Board of
Directors to lend eligible executives of the Company up to two-thirds of the
aggregate exercise price and state and federal taxes payable in connection with
their exercise of stock options under the Employee Plan, subject to certain
maximum amounts as set forth under the Option Purchase Program. Notes receivable
under the Option Purchase Program are recourse and secured by 100% of the shares
of MDC common stock issued in connection with options exercised. During 1999 and
1998, certain eligible executives of the Company exercised options to purchase
150,000 and 175,000 shares, respectively, of MDC common stock under the Employee
Plan. Aggregate notes receivable under the Option Purchase Program of $1,780,000
and $1,620,000, respectively, at December 31, 1999 and 1998 have reduced
stockholders' equity.
Director Equity Incentive Plan - Under the Director Equity Incentive
Plan (the "Director Plan"), non-employee directors of the Company are granted
stock options. The Director Plan provided for an initial authorization of
300,000 shares of MDC common stock for issuance thereunder plus an additional
annual authorization of shares equal to 10% of the then authorized shares of MDC
common stock under the Director Plan. During 1997, the Board of Directors
authorized, and the Company's stockholders approved, an additional 350,000
shares of MDC common stock for issuance under the Director Plan. Pursuant to the
Director Plan, on December 1 of each year, each non-employee director of the
Company is granted options to purchase 25,000 shares of MDC common stock. Each
option granted under the Director Plan vests immediately and expires five years
from the date of grant. The option exercise price must be equal to 100% of the
market value of the MDC common stock on the date of grant of the option.
A summary of the changes in stock options during each of the three
years ended December 31, 1999 is as follows (in shares of MDC common stock).
1999 1998 1997
---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------- -------- ----------- -------- ---------- --------
Options outstanding - beginning of year 1,805,000 $ 10.96 1,891,000 $ 7.65 2,048,000 $ 5.88
Granted............................. 776,000 $ 15.73 509,000 $ 18.01 461,000 $ 11.46
Exercised........................... (186,500) $ 5.63 (554,000) $ 6.10 (618,000) $ 4.63
Cancelled........................... (19,375) $ 13.07 (41,000) $ 11.79 - - - -
----------- ----------- -----------
Options outstanding - end of year..... 2,375,125 $ 12.92 1,805,000 $ 10.96 1,891,000 $ 7.65
Available for future grant............ 949,697 1,299,105 1,402,965
----------- ----------- -----------
Total shares reserved - end of year... 3,324,822 3,104,105 3,293,965
=========== =========== ===========
Options exercisable December 31....... 1,146,333 $ 9.92 984,332 $ 7.48 1,283,416 $ 6.33
=========== =========== ===========
F-14
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), issued in October 1995, established
financial accounting and reporting standards for stock-based employee
compensation plans. As permitted by SFAS 123, the Company elected to continue to
use Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations, in accounting for its stock option
incentive plans. If the Company had elected to recognize compensation cost based
on the fair value of the options granted at grant date and the vesting
provisions under the plans in accordance with SFAS 123, net income in 1999 would
have been reduced by approximately $1,786,000, or $.08 per basic and diluted
share. Net income for 1998 and 1997 would have been reduced by $1,154,000 and
$520,000, respectively, or $.06 per basic and $.05 per diluted share and $.03
per basic and $.02 per diluted share, respectively.
The following table is a summary of the average fair values of options
granted during 1999, 1998 and 1997 on the date of grant using the Black-Scholes
option pricing model with the assumptions used for volatility, risk free
interest rate and dividend yield rate.
Year Ended December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
Average fair value of options granted............ $ 7.41 $ 7.68 $ 4.55
Volatility....................................... 51.5% 48.6% 35.6%
Risk free interest rate.......................... 6.2% 4.9% 5.9%
Dividend yield rate.............................. 1.6% 1.0% 1.0%
Expected lives of options........................ 5-6 yrs. 5-6 yrs. 5-6 yrs.
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999.
Options Outstanding Options Exercisable
--------------------------------------------- -----------------------------
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Price Outstanding Contract Life Exercise Price Exercisable Exercise Price
-------------- ------------ --------------- -------------- ------------- --------------
$5.62 - $7.38 688,750 1.83 $7.08 688,750 $7.08
$7.50 -$14.94 543,375 3.52 $12.00 259,500 $11.07
$15.56 -$15.56 602,000 5.22 $15.56 - - - -
$16.63 -$20.81 541,000 4.28 $18.34 198,083 $18.32
---------- ----------
2,375,125 3.63 $12.92 1,146,333 $9.92
========== ==========
MDC Common Stock Repurchase Program - On January 25, 2000, the Company
announced a plan to repurchase up to 1,000,000 shares of its common stock in
open market purchases, if price levels warrant. At December 31, 1999 and 1998,
the Company held 5,850,000 and 5,876,000 shares of treasury stock, respectively,
with an average purchase price of $6.70.
H. Homebuilding 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
=========== =========== ===========
F-15
The asset impairment charges described above are included in
homebuilding costs and expenses in the consolidated statements of income. 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 (as defined below); 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. "Home Gross Margins" are gross margins (home sales revenues
less cost of goods sold, which primarily included land and construction costs,
capitalized interest, a reserve for warranty expense and financing costs) as a
percentage of home sales revenues.
I. Corporate and Homebuilding Interest Activity (in thousands)
Year Ended December 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
Interest capitalized in homebuilding inventory,
beginning of year............................... $ 26,332 $ 37,991 $ 40,745
Interest incurred.................................. 21,261 22,525 26,368
Interest expensed.................................. - - - - (761)
Previously capitalized interest included in
cost of sales................................... (30,187) (34,184) (28,361)
---------- ---------- ----------
Interest capitalized in homebuilding inventory,
end of year..................................... $ 17,406 $ 26,332 $ 37,991
========== ========== ==========
J. Sale of FAMC
In September 1996, the Company sold its 80% interest in FAMC for
$11,450,000. The sales proceeds consisted of $6,000,000 cash and $5,450,000 of
promissory notes which were payable at specified dates during the 10 years
following the sale and were convertible, under certain circumstances, into an
equity interest in FAMC. The sale resulted in the recognition of a gain of
$4,042,000 in 1996. An additional gain of $5,450,000 attributable to the
promissory notes was deferred based upon uncertainty regarding the
collectibility of principal on the notes and the expiration of the conversion
features. In 1998 and 1997, the Company received principal payments of
$4,450,000 and $1,000,000, respectively, on the promissory notes, resulting in
the recognition of gains in 1998 and 1997 equal to the amounts received.
K. Income Taxes
Total income taxes have been allocated as follows (in thousands).
Year Ended December 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
Tax expense on income before income taxes and
extraordinary item................................ $ 59,061 $ 32,284 $ 15,122
Extraordinary loss................................... - - (9,587) (1,336)
Stockholders' equity, related to exercise of stock
options........................................... (695) (2,484) (1,012)
---------- ---------- ----------
Total income taxes................................... $ 58,366 $ 20,213 $ 12,774
========== ========== ==========
F-16
The significant components of income tax expense on income before
income taxes and extraordinary item consist of the following (in thousands).
Year Ended December 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
Current tax expense
Federal........................................... $ 51,192 $ 32,875 $ 14,972
State............................................. 11,121 5,082 1,622
---------- ---------- ----------
Total current................................... 62,313 37,957 16,594
---------- ---------- ----------
Deferred tax benefit
Federal........................................... (1,914) (5,095) (1,349)
State............................................. (1,338) (578) (123)
---------- ---------- ----------
Total deferred.................................. (3,252) (5,673) (1,472)
---------- ---------- ----------
Total income tax expense............................. $ 59,061 $ 32,284 $ 15,122
========== ========== ==========
The provision for income tax expense differs from the amount which
would be computed by applying the statutory federal income tax rate of 35% to
income before income taxes and extraordinary item as a result of the following
(in thousands).
Year Ended December 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
Tax expense computed at statutory rate............... $ 51,959 $ 29,348 $ 13,764
Increase due to
Permanent differences between financial
statement income and taxable income........... 158 293 231
State income tax, net of federal benefit........ 6,601 2,350 864
Other........................................... 343 293 263
---------- ---------- ----------
Total income tax expense............................. $ 59,061 $ 32,284 $ 15,122
========== ========== ==========
Effective tax rate................................... 39.8% 38.5% 38.5%
========== ========== ==========
The tax effects of the temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities are
presented below (in thousands).
December 31,
------------------------
1999 1998
---------- ----------
Deferred tax assets
Warranty, litigation and other reserves.. $ 19,563 $ 14,443
Inventory impairment charges............. 6,305 8,049
Accrued liabilities...................... 3,682 3,160
Inventory, additional costs capitalized
for tax purposes....................... 9,422 5,775
Property, equipment and other assets, net 857 1,146
---------- ----------
Total gross deferred tax assets...... 39,829 32,573
---------- ----------
Deferred tax liabilities
Deferred revenue......................... 5,396 4,391
Inventory, additional costs capitalized
for financial statement purposes....... 5,372 7,721
Subsidiaries not consolidated for tax
purposes............................... 6,567 1,730
Other.................................... 1,293 782
---------- ----------
Total gross deferred tax liabilities. 18,628 14,624
Net deferred tax asset................... $ 21,201 $ 17,949
========== ==========
F-17
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.
L. Extraordinary Item
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 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.
M. Earnings Per Share
Pursuant to SFAS 128, the computation of diluted earnings per share
takes into account the effect of dilutive stock options and, for periods prior
to December 15, 1998, assumes the conversion into MDC common stock of all of the
$28,000,000 outstanding principal amount of the Convertible Subordinated Notes
at a conversion price of $7.75 per share of MDC common stock. The basic and
diluted earnings per share calculations are shown below (in thousands, except
per share amounts).
Year Ended December 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
Basic Earnings Per Share
Income before extraordinary item................. $ 89,392 $ 51,568 $ 24,205
Extraordinary loss, net of taxes................. - - (15,314) (2,179)
---------- ---------- ----------
Net income.................................... $ 89,392 $ 36,254 $ 22,026
========== ========== ==========
Weighted-average shares outstanding.............. 22,247 18,451 17,673
========== ========== ==========
Per share amounts
Income before extraordinary item.............. $ 4.02 $ 2.79 $ 1.37
Extraordinary loss, net of taxes.............. - - (0.83) (0.12)
---------- ---------- ----------
Net income.................................... $ 4.02 $ 1.96 $ 1.25
========== ========== ==========
Diluted Earnings Per Share
Income before extraordinary item................. $ 89,392 $ 51,568 $ 24,205
Conversion of Convertible Subordinated Notes..... - - 783 1,575
---------- ---------- ----------
Adjusted income before extraordinary item..... 89,392 52,351 25,780
Extraordinary loss, net of taxes................. - - (15,314) (2,179)
---------- ---------- ----------
Adjusted net income........................... $ 89,392 $ 37,037 $ 23,601
========== ========== ==========
Weighted-average shares outstanding.............. 22,247 18,451 17,673
Stock options, net............................... 409 866 613
Conversion of Convertible Subordinated Notes..... - - 3,289 3,613
---------- ---------- ----------
Diluted weighted-average shares outstanding... 22,656 22,606 21,899
========== ========== ==========
Per share amounts
Income before extraordinary item.............. $ 3.95 $ 2.32 $ 1.18
Extraordinary loss, net of taxes.............. - - (0.68) (0.10)
---------- ---------- ----------
Net income.................................... $ 3.95 $ 1.64 $ 1.08
========== ========== ==========
F-18
N. 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.
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.
O. Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate such value.
Cash and Cash Equivalents - For cash and cash equivalents,
the carrying value is a reasonable estimate of fair value.
Investments and Marketable Securities, Net - Investments in marketable
equity securities (other than those assets held for eligible claims made under
warranties created pursuant to the 1996 settlement of litigation commenced in
1994, see Note A) are recorded on the balance sheet at cost, which approximates
market value. Accordingly, the carrying value of the investment is a reasonable
estimate of the fair value.
Mortgage Loans Held in Inventory - The Company generally purchases
forward commitments to deliver mortgage loans held for sale. For loans which
have no forward commitments, loans in inventory are stated at the lower of cost
or market. Accordingly, the carrying value is a reasonable estimate of fair
value.
Lines of Credit - The Company's lines of credit are at floating rates
or at fixed rates which approximate current market rates and have relatively
short-term maturities. Accordingly, the carrying value is a reasonable estimate
of fair value.
Senior Notes - The estimated fair value of the New Senior Notes in
the following table are based on dealer quotes.
December 31, 1999 December 31, 1998
------------------------- -------------------------
Recorded Estimated Recorded Estimated
Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------
New Senior Notes................................ $ 174,389 $ 161,000 $ 174,339 $ 172,813
P. Commitments and Contingencies
The Company believes that it is subject to risks and uncertainties
common to the homebuilding industry including (1) cyclical markets sensitive to
changes in general and local economic conditions; (2) volatility of interest
rates, which affects homebuilding demand and may affect credit availability; (3)
seasonal nature of the business due to weather-related factors; (4) significant
fluctuations in the price of building materials, particularly lumber, and of
finished lots and subcontract labor; (5) counterparty non-performance risk
associated with performance bonds; and (6) environmental regulations which vary
significantly according to a site's condition, location and former uses. The
Company's operations are concentrated in the geographic regions of Colorado,
Virginia, Maryland, California, Arizona and Nevada.
To reduce exposure to fluctuations in interest rates, HomeAmerican
makes commitments to originate (buy) and sell loans and mortgage-backed
securities. At December 31, 1999, commitments by HomeAmerican to
F-19
originate mortgage loans totalled $28,360,000 at market rates of interest. At
December 31, 1999, unexpired short-term forward commitments to sell loans
totalled $79,053,000 at market rates of interest.
MDC leases office space, equipment and certain of its model show homes
under noncancellable operating leases. Future minimum rental payments for leases
with initial terms in excess of one year total $3,903,000 in 2000, $3,693,000 in
2001, $3,350,000 in 2002, $2,519,000 in 2003 and $2,390,000 in 2004. Rent
expense under cancellable and noncancellable leases totalled $4,846,000,
$3,665,000 and $3,091,000 in 1999, 1998, and 1997, respectively.
In May 1998, MDC sold its headquarters office building for net proceeds
of $13,250,000 in a sale-leaseback transaction. The gain on the sale of
$3,715,000 is being recognized ratably over the initial lease term of seven
years.
As of December 31, 1999, MDC had guaranteed payment of principal and
interest on $25,954,000 principal amount of bonds issued by municipal agencies
to fund the development of project infrastructure for a master-planned community
in Colorado. On January 31, 2000, the municipal agencies completed a refunding
and defeasance of these bonds and the Company's guarantee was released.
Q. Supplemental Disclosure of Cash Flow Information (in thousands)
Year Ended December 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
Cash paid during the year for
Interest................................ $ 17,335 $ 15,296 $ 28,526
Income taxes............................ $ 63,557 $ 24,820 $ 14,307
Non-cash investing and financing activities
Land purchases financed by seller....... $ 1,032 $ - - $ 6,750
Land sales financed by MDC.............. $ 43 $ - - $ 1,183
Conversion of Convertible Subordinated
Notes to equity....................... $ - - $ 28,000 $ - -
R. Related Party Transactions
MDC has transacted business with related or affiliated companies and
with certain officers and directors of the Company.
Gilbert Goldstein, P.C., a law firm of which a director of the Company
is the sole shareholder, was paid legal fees of $209,000, $243,000 and $404,000
in 1999, 1998 and 1997, respectively.
The Company utilizes in the ordinary course of business the services of
a marketing and communications firm which is owned by the brother-in-law of an
officer and director of the Company. Total fees paid for advertising and
marketing design services were $432,000, $418,000 and $414,000, respectively, in
1999, 1998 and 1997.
The wife of an officer and director of the Company provides consulting
services to the Company. Total fees paid for her services were $120,000, $80,000
and $98,000, respectively, in 1999, 1998 and 1997.
F-20
S. Summarized Quarterly Consolidated Financial Information (Unaudited)
Unaudited summarized quarterly consolidated financial information for
the two years ended December 31, 1999 is as follows (in thousands, except per
share amounts).
Quarter
-----------------------------------------------------
Fourth Third Second First
----------- ----------- ----------- -----------
1999
Revenues........................................ $ 460,628 $ 410,126 $ 399,759 $ 297,125
=========== =========== =========== ===========
Income before extraordinary item................ $ 26,544 $ 24,140 $ 24,957 $ 13,751
Extraordinary items............................. - - - - - - - -
----------- ----------- ----------- -----------
Net income............................... $ 26,544 $ 24,140 $ 24,957 $ 13,751
=========== =========== =========== ===========
Earnings Per Share
Basic
Income before extraordinary item......... $ 1.19 $ 1.08 $ 1.12 $ .62
=========== =========== =========== ===========
Net income............................... $ 1.19 $ 1.08 $ 1.12 $ .62
=========== =========== =========== ===========
Diluted
Income before extraordinary item......... $ 1.17 $ 1.06 $ 1.10 $ .61
=========== =========== =========== ===========
Net income............................... $ 1.17 $ 1.06 $ 1.10 $ .61
=========== =========== =========== ===========
Weighted-Average Shares Outstanding
Basic.................................... 22,247 22,294 22,274 22,102
=========== =========== =========== ===========
Diluted.................................. 22,656 22,739 22,695 22,565
=========== =========== =========== ===========
1998
Revenues........................................ $ 384,194 $ 331,635 $ 303,879 $ 243,501
=========== =========== =========== ===========
Income before extraordinary item................ $ 16,802 $ 14,257 $ 12,581 $ 7,928
Extraordinary (loss)............................ - - - - - - (15,314)
----------- ----------- ----------- -----------
Net income (loss)........................ $ 16,802 $ 14,257 $ 12,581 $ (7,386)
=========== =========== =========== ===========
Earnings Per Share
Basic
Income before extraordinary item......... $ .86 $ .78 $ .70 $ .44
=========== =========== =========== ===========
Net income (loss)........................ $ .86 $ .78 $ .70 $ (.41)
=========== =========== =========== ===========
Diluted
Income before extraordinary item......... $ .74 $ .65 $ .58 $ .37
=========== =========== =========== ===========
Net income (loss)........................ $ .74 $ .65 $ .58 $ (.31)
=========== =========== =========== ===========
Weighted-Average Shares Outstanding
Basic.................................... 19,620 18,205 18,042 17,919
=========== =========== =========== ===========
Diluted.................................. 22,700 22,673 22,469 22,392
=========== =========== =========== ===========
F-21
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information required to be set forth hereunder has been omitted and
will be incorporated by reference, when filed, from the Company's Proxy
Statement for its 2000 Annual Meeting of Shareowners to be held on or about May
19, 2000.
Item 11. Executive Compensation.
Information required to be set forth hereunder has been omitted and
will be incorporated by reference, when filed, from the Company's Proxy
Statement for its 2000 Annual Meeting of Shareowners to be held on or about May
19, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information required to be set forth hereunder has been omitted and
will be incorporated by reference, when filed, from the Company's Proxy
Statement for its 2000 Annual Meeting of Shareowners to be held on or about May
19, 2000.
Item 13. Certain Relationships and Related Transactions.
Information required to be set forth hereunder has been omitted and
will be incorporated by reference, when filed, from the Company's Proxy
Statement for its 2000 Annual Meeting of Shareowners to be held on or about May
19, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements.
The following consolidated financial statements of the Company and its
subsidiaries are included in Part II, Item 8.
Page
----
M.D.C. Holdings, Inc. and Subsidiaries
Report of Independent Accountants.................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998......... F-3
Consolidated Statements of Income and Comprehensive Income for each
of the Three Years Ended December 31, 1999......................... F-5
Consolidated Statements of Stockholders' Equity for each of the
Three Years Ended December 31, 1999................................ F-6
Consolidated Statements of Cash Flows for each of the Three Years
Ended December 31, 1999............................................ F-7
Notes to Consolidated Financial Statements........................... F-8
(a) 2. Financial Statement Schedules.
21
All schedules are omitted because they are not applicable, not
material, not required or the required information is included in the applicable
financial statements or notes thereto.
Financial statements for certain unconsolidated partnerships and joint
ventures owned 50% or less by the Company or its subsidiaries, which are
accounted for on the equity method, have been omitted because they do not,
individually, or in the aggregate, constitute a significant subsidiary.
(a) 3. Exhibits.
3.1(a) Form of Amendment to the Certificate of Incorporation of
M.D.C. Holdings, Inc. (hereinafter sometimes referred to as
"MDC", the "Company" or the "Registrant") regarding director
liability, filed with the Delaware Secretary of State on July
1, 1987 (incorporated by reference to Exhibit 3.1(a) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1987).
*
3.1(b) Form of Certificate of Incorporation of MDC, as amended
(incorporated herein by reference to Exhibit 3.1(b) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1987).
*
3.2(a) Form of Amendment to the Bylaws of MDC regarding
indemnification adopted by its Board of Directors and
effective as of March 20, 1987 (incorporated herein by
reference to Exhibit 3.2(a) of the Company's Quarterly Report
on Form 10-Q dated June 30, 1987). *
3.2(b) Form of Bylaws of MDC, as amended (incorporated herein by
reference to Exhibit 3.2(b) of the Company's Quarterly Report
on Form 10-Q dated June 30, 1987). *
4.2 Form of Certificate for shares of the Company's common stock
(incorporated herein by reference to Exhibit 4.1 of the
Company's Registration Statement on Form S-3, Registration
No. 33-426). *
4.3 Amended and Restated Credit Agreement dated as of October 8,
1999 among M.D.C. Holdings, Inc. as Borrower and The Banks
Named therein and Bank One, NA as Administrative Agent, Bank
United of Texas FSB as Co-Agent and KeyBank, National
Association as Co-Agent (incorporated herein by reference to
Exhibit 10.2 to the Company's Form 10-Q dated September 30,
1999). *
4.4 Form of Guaranty agreement dated as of October 8, 1999 by
certain subsidiaries of M.D.C. Holdings, Inc., including
RICHMOND AMERICAN HOMES OF CALIFORNIA, INC., RICHMOND AMERICAN
HOMES OF MARYLAND, INC., RICHMOND AMERICAN HOMES OF NEVADA,
INC., RICHMOND AMERICAN HOMES OF VIRGINIA, INC., RICHMOND
AMERICAN HOMES OF ARIZONA, INC., RICHMOND AMERICAN HOMES OF
COLORADO, INC., RICHMOND AMERICAN HOMES OF NORTHERN
CALIFORNIA, INC., M.D.C. LAND CORPORATION, and RICHMOND
AMERICAN CONSTRUCTION, INC. (incorporated herein by reference
to Exhibit 10.2 to the Company's Form 10-Q dated September 30,
1999). *
4.5 Form of Promissory Note of M.D.C. Holdings, Inc. as Maker
dated as of October 8, 1999 payable to each of the Banks named
in the Amended and Restated Credit Agreement dated as of
October 8, 1999 among M.D.C. Holdings, Inc. as Borrower and
The Banks Named therein and Bank One, NA as Administrative
Agent, Bank United of Texas FSB as Co-Agent and KeyBank,
National Association as Co-Agent (incorporated herein by
reference to Exhibit 10.2 to the Company's Form 10-Q dated
September 30, 1999). *
4.6 Senior Notes Indenture dated as of January 28, 1998 by and
between the Company and U.S. Bank National Association, as
Trustee (incorporated herein by reference to Exhibit 4.2(a)
of the Company's Post Effective Amendment No. 1 to Form
S-3). *
22
10.1 The Company's Employee Equity Incentive Plan (incorporated
herein by reference to Exhibit A of the Company's Proxy
Statement dated May 14, 1993 relating to the 1993 Annual
Meeting of Stockholders). *
10.2 The Company's Director Equity Incentive Plan (incorporated
herein by reference to Exhibit B of the Company's Proxy
Statement dated May 14, 1993 relating to the 1993 Annual
Meeting of Stockholders). *
10.3(a) First Amendment to M.D.C. Holdings, Inc. Director Equity
Incentive Plan (incorporated herein by reference to Exhibit A
of the Company's Proxy Statement dated March 24, 1997
relating to the 1997 Annual Meeting of Stockholders). *
10.3(b) Second Amendment to M.D.C. Holdings, Inc. Director Equity
Incentive Plan (incorporated herein by reference to Exhibit
4.3 of the Company's Quarterly Report on Form 10-Q
dated June 30, 1998). *
10.4(a) Form of Indemnity Agreement entered into between the
Registrant and each member of its Board of Directors as of
March 20, 1987 (incorporated herein by reference to Exhibit
19.1 of the Company's Quarterly Report on Form 10-Q dated June
30, 1987). *
10.4(b) Form of Indemnity Agreement entered into between the
Registrant and certain officers of the Registrant on various
dates during 1988 and early 1989 (incorporated herein by
reference to Exhibit 10.18(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1988). *
10.5 Indemnification Agreement by and among the Company and Larry
A. Mizel ("Mizel") and David D. Mandarich ("Mandarich") dated
December 21, 1989 (incorporated herein by reference to Exhibit
9 of the Company's Form 8-K dated December 28, 1989). *
10.6 Promissory Note in the amount of $280,080 from Mandarich to
the Company dated February 2, 1994 (incorporated herein by
reference to Exhibit 10.10 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1993). *
10.7 Fifth Amendment to Piney Creek Development Co. Joint Venture
Agreement dated June 13, 1991 by and between Commercial
Federal Bank and Land (incorporated herein by reference to
Exhibit 10.25 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991). *
10.8(a) Consulting Agreement effective October 1, 1998 by and between
Gilbert Goldstein, P.C. and the Company (incorporated herein
by reference to Exhibit 10.1 of the Company's Quarterly Report
on Form 10-Q dated September 30, 1998). *
10.8(b) Letter Agreement between M.D.C. Holdings, Inc. and
Gilbert Goldstein, P.C. dated October 25, 1999 amending
the Consulting Agreement effective October 1, 1998 between
M.D.C. Holdings, Inc. and Gilbert Goldstein, P.C.
(incorporated herein by reference to Exhibit 10.2 to the
Company's Form 10-Q dated September 30, 1999). *
10.9(a) Form of Restricted Stock Agreement between the Company and
certain officers and employees of the Company effective as of
November 20, 1998 (incorporated herein by reference to Exhibit
10.10 to the Company's Form 10-K dated December 31, 1998). *
10.9(b) Form of Restricted Stock Agreement between the Company and
certain officers and employees of the Company effective as of
November 19, 1999.
23
10.10 M.D.C. Holdings, Inc. Executive Officer Performance-Based
Compensation Plan (incorporated herein by reference to Exhibit
A to the Company's Proxy Statement dated May 25, 1994 related
to the 1994 Meeting of Stockholders). *
10.11(a) M.D.C. Holdings, Inc. Executive Option Purchase Program,
including form of Promissory Note and Pledge Agreement
(incorporated herein by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q dated March 31, 1995).
*
10.11(b) Amendment No. 1 to Executive Option Purchase program,
effective November 4, 1997 in part and December 1, 1997 in
part (incorporated herein by reference to Exhibit 10.12(b) of
the Company's Annual Report on Form 10-K dated December 31,
1997). *
10.12(a) Forms of Promissory Notes and Pledge Agreements dated December
9, 1996 between M.D.C. Holdings, Inc. and Michael Touff and
Paris G. Reece III related to amounts advanced to such persons
in connection with income taxes due on the portion of their
1996 performance bonuses paid in the form of the Company's
common stock (incorporated herein by reference to Exhibit
10.19 of the Company's Annual Report on Form 10-K dated
December 31, 1996). *
10.12(b) Forms of Promissory Notes and Pledge Agreements dated December
18, 1997 between the Company and Michael Touff and Paris G.
Reece III related to amounts advanced to such persons in
connection with income taxes due and the portion of their 1997
performance bonuses paid in the form of the Company's common
stock (incorporated herein by reference to Exhibit 10.16(b) of
the Company's Annual Report on Form 10-K dated December 31,
1997). *
10.13(a) Employment Agreement between the Company and Larry A. Mizel
dated October 1, 1997 (incorporated herein by reference to
Exhibit 99.1 of the Company's Form 8-K dated January 14,
1998). *
10.13(b) Employment Agreement between the Company and David D.
Mandarich dated October 1, 1997 (incorporated herein by
reference to Exhibit 99.2 of the Company's Form 8-K dated
January 14, 1998). *
10.14(a) Change in Control Agreement between M.D.C. Holdings, Inc.
and Paris G. Reece III effective January 26, 1998
(incorporated herein by reference to Exhibit 10.1 to the
Company's Form 8-K dated March 27, 1998). *
10.14(b) Change in Control Agreement between M.D.C. Holdings, Inc.
and Michael Touff effective January 26, 1998 (incorporated
herein by reference to Exhibit 10.2 to the Company's Form
8-K dated March 27, 1998). *
10.14(c) Form of Change in Control Agreement between M.D.C. Holdings,
Inc. and certain employees of M.D.C. Holdings, Inc.
(incorporated herein by reference to Exhibit 10.3 to the
Company's Form 8-K dated March 27, 1998). *
10.15 Independent Contractor Agreement between Mizel Design and
Development Company and M.D.C. Holdings, Inc. effective as
of January 1, 1999 (incorporated herein by reference to
Exhibit 10.1 to the Company's Form 10-Q dated
March 31, 1999). *
10.16 M.D.C. Holdings, Inc. 401(k) Savings Plan Prototype
Retirement Plan and Trust (incorporated herein by reference
to Exhibit 10.1 to the Company's Form 10-Q dated June 30,
1999). *
10.17 M.D.C. Holdings, Inc. 401(k) Savings Plan Prototype
Retirement Plan & Trust Adoption Agreement between M.D.C.
Holdings, Inc. and Key Trust Company National Association
effective as of July 1, 1998 (incorporated herein by
reference to Exhibit 10.2 to the Company's Form 10-Q dated
June 30, 1999). *
24
21 Subsidiaries of the Company.
23 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedule.
- -------------------
* Incorporated herein by reference.
(b) Reports on Form 8-K during the fourth quarter of 1999:
(1) Form 8-K dated December 3, 1999 reporting Directors and
Executive Officers who exercised stock options during
1998 and 1999 through September 30, 1999.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
this 9th day of February, 2000 on its behalf by the undersigned, thereunto duly
authorized.
M.D.C. HOLDINGS, INC.
(Registrant)
By: /s/ LARRY A. MIZEL
-----------------------------------------
Larry A. Mizel
Chief Executive Officer
By: /s/ PARIS G. REECE III
-----------------------------------------
Paris G. Reece III
Executive Vice President, Chief Financial
Officer and Principal Accounting Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and/or
directors of the Registrant, by virtue of their signatures to this report,
appearing below, hereby constitute and appoint Larry A. Mizel, David D.
Mandarich and Paris G. Reece III, or any one of them, with full power of
substitution, as attorneys-in-fact in their names, places and steads to execute
any and all amendments to this report in the capacities set forth opposite their
names and hereby ratify all that said attorneys-in-fact do by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ LARRY A. MIZEL Chairman of the Board February 9, 2000
- ---------------------------- of Directors and Chief
Larry A. Mizel Executive Officer
/s/ DAVID D. MANDARICH Director, President February 9, 2000
- ---------------------------- and Chief Operating
David D. Mandarich Officer
/s/ STEVEN J. BORICK Director February 9, 2000
- ----------------------------
Steven J. Borick
/s/ GILBERT GOLDSTEIN Director February 9, 2000
- ----------------------------
Gilbert Goldstein
/s/ WILLIAM B. KEMPER Director February 9, 2000
- ----------------------------
William B. Kemper
/s/ HERBERT T. BUCHWALD Director February 9, 2000
- ----------------------------
Herbert T. Buchwald
(A Majority of the Board of Directors)
26