UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2005
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 1-8951
M.D.C. HOLDINGS, INC.
| Delaware | 84-0622967 | |
| (State or other jurisdiction | (I.R.S. employer | |
| of incorporation or organization) | identification no.) | |
| 3600 South Yosemite Street, Suite 900 | 80237 | |
| Denver, Colorado | (Zip code) | |
| (Address of principal executive offices) |
(303) 773-1100
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 þ No o
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o
As of April 30, 2005, 43,700,000 shares of M.D.C. Holdings, Inc. common stock were outstanding.
M.D.C. HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2005
INDEX
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PART I. FINANCIAL INFORMATION:
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Item 1. Consolidated Financial Statements:
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| Ratio of Earnings to Fixed Charges Schedule | ||||||||
| Certification of CEO Pursuant to Section 302 | ||||||||
| Certification of CFO Pursuant to Section 302 | ||||||||
| Certification of CEO Pursuant to Section 906 | ||||||||
| Certification of CFO Pursuant to Section 906 | ||||||||
(i)
M.D.C. HOLDINGS, INC.
See notes to consolidated financial statements.
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M.D.C. HOLDINGS, INC.
See notes to consolidated financial statements.
- 2 -
M.D.C. HOLDINGS, INC.
See notes to consolidated financial statements.
- 3 -
M.D.C. HOLDINGS, INC.
See notes to consolidated financial statements.
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M.D.C. HOLDINGS, INC.
A. Presentation of Financial Statements
The consolidated financial statements of M.D.C. Holdings, Inc. (“MDC” or the “Company,” which
refers to M.D.C. Holdings, Inc. and its subsidiaries) have been prepared, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted accounting principles
for complete financial statements. These statements reflect all adjustments (including all normal
recurring accruals) which, in the opinion of management, are necessary to present fairly the
financial position, results of operations and cash flows of MDC as of March 31, 2005 and for all of
the periods presented. These statements should be read in conjunction with MDC’s financial
statements and notes thereto included in MDC’s Annual Report on Form 10-K for its fiscal year ended
December 31, 2004. Certain reclassifications have been made in the 2004 financial statements to
conform to the classifications used in the current year.
The Company historically has experienced, and expects to continue to experience, variability
in quarterly results. The consolidated statements of income are not necessarily indicative of the
results to be expected for the full year.
B. Earnings Per Share
The basic and diluted earnings per share calculations are shown below (in thousands, except
per share amounts). Prior period earnings per share and weighted-average shares outstanding have
been restated to reflect the effect of the January 10, 2005 1.3 for 1 stock split.
C. Stockholders’ Equity
Stock Split
- On December 14, 2004, MDC’s board of directors declared a 1.3 for 1
stock split in the form of a stock dividend that was distributed on January 10, 2005. In accordance
with the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards
(“SFAS”) No. 128, “Earnings per Share,” basic and diluted net income per share amounts,
weighted-average shares outstanding, and dividends declared per share have been restated for all periods presented to
reflect the effect of this stock split.
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Stock-Based Compensation
- The Company has elected to account for stock-based
compensation using the intrinsic value method as prescribed by Accounting Principles Board Opinion
No. 25 and related interpretations. Stock options are granted at an exercise price that is not less
than the fair market value of MDC’s common stock at the date of grant and, therefore, the Company
recorded no compensation expense in the determination of net income for the three months ended
March 31, 2005 and 2004 related to stock option grants. The following table illustrates the effect
on net income and earnings per share if the fair value method prescribed by SFAS No. 123, as
amended by SFAS No. 148, had been applied to all outstanding and unvested awards in the three month
period ended March 31, 2005 and 2004 (in thousands, except per share amounts).
D. Interest Activity
The Company capitalizes interest incurred on its corporate and homebuilding debt during the
period of active development and through the completion of construction of its homebuilding
inventories. Corporate and homebuilding interest incurred but not capitalized is reported as
interest expense. Interest incurred by the financial services segment is charged to interest
expense, which is deducted from interest income and reported as net interest income in Note E.
Interest activity, in total and by business segment, is shown below (in thousands).
- 6 -
E. Information on Business Segments
The Company operates in two business segments: homebuilding and financial services. A summary
of the Company’s segment information is shown below (in thousands).
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F. Warranty Reserves
Warranty reserves are reviewed quarterly, using historical data and other relevant
information, to determine the reasonableness and adequacy of both the reserve and the per unit
reserve amount originally included in cost of sales, as well as the timing of the reversal of the
reserve. Warranty reserves are included in corporate accounts payable and accrued expenses and
homebuilding accrued expenses in the consolidated balance sheets, and totaled $64.1 million and
$64.4 million, respectively, at March 31, 2005 and December 31, 2004. Warranty expense was $9.3
million and $9.0 million for the three months ended March 31, 2005 and 2004, respectively. Reserves
carried over from prior years primarily are the result of the Company’s volume of homes closed
increasing by over 200% in the last ten years, giving rise to continuing warranty reserves that
exceed current expenditures. In addition, the carryover includes qualified settlement fund warranty
reserves created pursuant to litigation settled in 1996. Warranty activity for the three months
ended March 31, 2005 is shown below (in thousands).
G. Commitments and Contingencies
The Company often is required to obtain bonds and letters of credit in support of its related
obligations with respect to subdivision improvement, homeowners association dues and start-up
expenses, warranty work, contractors license fees and earnest money deposits. At March 31, 2005,
MDC had issued and outstanding performance bonds and letters of credit totaling $330.0 million and
$103.2 million, respectively, including $27.9 million in letters of credit issued by HomeAmerican
Mortgage Corporation (“HomeAmerican”). In the event any such bonds or letters of credit issued by
third parties are called, MDC would be obligated to reimburse the issuer of the bond or letter of
credit.
H. Lines of Credit and Total Debt Obligations
Homebuilding
– The Company’s homebuilding line of credit (“Homebuilding Line”) is an
unsecured revolving line of credit with a group of lenders for support of our homebuilding
operations. During January 2005, we modified the Homebuilding Line, increasing the aggregate
commitment amount to $1.058 billion, while maintaining the maturity date of April 7, 2009. In
addition, the facility’s provision for letters of credit is available in the aggregate amount of
$350 million. The modified facility permits an increase in the maximum commitment amount to $1.25
billion upon the Company’s request, subject to receipt of additional commitments from existing or
additional participant lenders. At March 31, 2005, there were no borrowings outstanding, and $73.2
million in letters of credit had been issued under the Homebuilding Line.
Mortgage Lending
– The Company’s mortgage line of credit (“Mortgage Line”) has a
borrowing limit of $175 million with terms that allow for increases of up to $50 million in the
borrowing limit to a maximum of $225 million, subject to concurrence by the participating banks.
Available borrowings under the Mortgage Line are collateralized by mortgage loans and
mortgage-backed securities and are limited to the value of eligible collateral as defined. At March
31, 2005, $74.8 million was borrowed and an additional $12.7 million was collateralized and
available to be borrowed. The Mortgage Line is cancelable upon 120 days notice.
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General
- The agreements for the Company’s bank lines of credit and the indentures for
the Company’s senior notes require compliance with certain representations, warranties and
covenants. The Company believes that it is in compliance with these representations, warranties
and covenants, and the Company is not aware of any covenant violations. The agreements containing
these representations, warranties and covenants for the bank lines of credit and the indentures for
the Company’s senior notes are on file with the Securities and Exchange Commission and are listed
in the Exhibit Table in Part IV of the Company’s 2004 Annual Report on Form 10-K.
The Company’s debt obligations as of March 31, 2005 and December 31, 2004 are as follows (in
thousands):
I. Recent Statements of Financial Accounting Standards
On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), “
Share-Based Payment”
(“SFAS 123(R)”), which is a revision of SFAS No. 123, “
Accounting for Stock-Based Compensation
”
(SFAS 123). SFAS 123(R) supersedes APB Opinion No. 25, “
Accounting for Stock Issued to
Employees
”, and amends SFAS Statement No. 95,
“
Statement of Cash Flows
”. Generally, the approach in
Statement 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires
all share-based payments to employees, including grants of employee stock options, to be recognized
in the income statement based on their fair values. Pro forma disclosure is no longer an
alternative. The provisions of SFAS 123(R) must be adopted no later than January 1, 2006.
Had the Company adopted SFAS 123(R) in prior periods, the impact of that standard would have approximated
the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share as
disclosed above in Note C under “Stock-Based
Compensation” to the Company’s consolidated financial statements.
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J. Supplemental Guarantor Information
The Company’s senior notes are fully and unconditionally guaranteed on an unsecured basis,
jointly and severally, by the following subsidiaries (collectively, the “Guarantor Subsidiaries”).
Subsidiaries that do not guarantee the Company’s senior notes (collectively, the
“Non-Guarantor Subsidiaries”) include:
The Company has determined that separate, full financial statements of the Guarantor
Subsidiaries would not be material to investors and, accordingly, supplemental financial
information for the Guarantor Subsidiaries is presented.
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M.D.C. Holdings, Inc.
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M.D.C. Holdings, Inc.
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M.D.C. Holdings, Inc.
Three Months Ended March 31, 2005
Three Months Ended March 31, 2004
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M.D.C. Holdings, Inc.
Three Months Ended March 31, 2005
Three Months Ended March 31, 2004
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M.D.C. Holdings, Inc. is a Delaware Corporation. We refer to M.D.C. Holdings, Inc. as the
“Company,” “MDC,” “we” or “our” in this Form 10-Q, and these designations include our subsidiaries
unless we state otherwise. Our primary business is owning and managing subsidiary companies that
build and sell homes under the name “Richmond American Homes.” Our financial services segment
consists of HomeAmerican Mortgage Corporation (“HomeAmerican”), which originates mortgage loans
primarily for our homebuyers, and American Home Insurance Agency, Inc. (“American Home Insurance”),
which offers third party insurance products to our homebuyers. In addition, we provide title agency
services through American Home Title and Escrow Company (“American Home Title”) to our homebuyers
in Virginia, Maryland, Colorado, Florida, Texas and Delaware.
RESULTS OF OPERATIONS
Overview
First quarter 2005 operating profits from our homebuilding operations reached a record $162.5
million, representing an increase of 43% from the $113.4 million earned during the same period in
2004. This increase can be attributed to record levels of home closings and home gross margins, as
well as a significant increase in the average selling price of homes closed. We closed 3,158 homes
for the quarter ended March 31, 2005, an increase of 9% from the same period in 2004. Home gross
margins increased 220 basis points to 28.4% for the three months ended March 31, 2005, compared
with 26.2% for the same period in 2004. The average selling price of homes closed increased to
$290,300 for the first quarter of 2005, compared with $256,500 for the same period in 2004.
We realized significant year-over-year improvements in operating results in Nevada, Virginia
and Northern California. Higher home closings, improved home gross margins and increases in average
selling prices of more than $75,000 contributed to increased profits in each of these markets. In
particular, we continued to benefit from home gross margins in Nevada that were significantly
higher than the Company average, primarily due to substantial price increases in the first half of
2004 that resulted from the extraordinary demand for homes in this market during that time. Each of
our homebuilding operations, except Texas, experienced higher year-over-year average home selling
prices during the 2005 first quarter. In addition, we received increased contributions to our
bottom line from our relatively new divisions in Utah, Florida and Texas.
We experienced extreme wet weather conditions in California, Arizona and Nevada during the
2005 first quarter which not only impacted our ability to close homes in the current quarter, but
delayed development activities and community openings which will delay home closings originally
anticipated in the 2005 second quarter. As a result, we do not expect to recover the number of home
closings delayed from the first quarter until the latter half of this year. See “
Forward-Looking Statements
” below.
We anticipate that our active community count will approach 300 by the end of the third
quarter and should exceed 300 by the end of the year, which should support our continued growth.
This anticipated increase in active communities will be aided by the successful increase in our
supply of lots owned and controlled to almost 41,000 at March 31, 2005, up 28% from last year. Our
community growth primarily will be driven by new community openings in Nevada, California, Arizona
and Colorado. Also, we plan to
add communities in each of our newer operations in Utah, Illinois, Florida and the Delaware
Valley. See “
Forward-Looking Statements
” below.
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Consolidated Results.
The following discussion for both consolidated results of operations and segment results
refers to the three-months ended March 31, 2005, compared with the same period in 2004. The table
below summarizes our results of operations (in thousands, except per share amounts). Prior period
earnings per share have been restated to reflect the effect of the January 10, 2005 1.3 for 1 stock
split.
The increase in revenues for the first quarter of 2005 primarily was due to higher
homebuilding revenues resulting from an increase in home closings to 3,158 in 2005, compared with
2,910 in 2004, and an increase of $33,800 in the average selling price of our homes.
The increase in income before income taxes reflects increased first quarter operating profits
from our homebuilding segment, partially offset by lower operating profits from our financial
services segment and higher corporate general and administrative expenses. The increase in
homebuilding segment profits primarily resulted from the higher home closings and average selling
prices described above, as well as an increase in Home Gross Margins (as defined below) of 220
basis points.
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Homebuilding Segment
The tables below set forth information relating to the Company’s homebuilding segment (dollars
in thousands).
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Home Sales Revenues
- The increase in home sales revenues was the result of increased home
closings and average selling prices, as discussed below, for the three months ended March 31, 2005,
compared with the same period in 2004.
Homes Closed -
Home closings were higher in the first quarter of 2005, compared with the same
period in 2004, in all of our markets except California, Arizona and Colorado. Home closings
increased significantly in Florida, Texas and Utah, primarily due to an increase in our average
active subdivisions and higher year-over-year Backlogs (as defined below) at the beginning of the
2005 first quarter. We closed fewer homes in California and Arizona, primarily due to
weather related delays in construction and, in
California, a lower year-over-year Backlog to start the period.
Average Selling Price Per Home Closed
- The $33,800 rise in average selling prices was
attributable to increases in the average home selling prices of more than $75,000 in Nevada,
Virginia and California. In addition, we experienced an increase in our average home selling price
in all of our other markets except Texas.
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The following table displays our average selling price per home closed, by market (in thousands).
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, closing costs and a reserve for warranty expense) as a percent of home sales revenues. Home
Gross Margins improved in the first quarter of 2005, compared with the same period in 2004,
primarily due to significant year-over-year improvements in Nevada, Virginia and Northern
California. In particular, we continued to benefit from Home Gross Margins in Nevada that were
significantly higher than the Company average, primarily due to substantial price increases in the
first half of 2004 that resulted from the extraordinary demand for homes in this market during that
time. These increases to Home Gross Margins partially were offset by the impact of a greater number
of homes closed in the 2005 first quarter in Utah, Texas and Florida, where Home Gross Margins were
lower than the Company average.
Future Home Gross Margins may be impacted by, among other things: (1) increased competition,
which could affect our ability to raise home prices and maintain lower levels of incentives; (2)
increases in the costs of subcontracted labor, finished lots, building materials (for example,
lumber and steel have significantly increased year-over-year), and other resources, to the extent
that market conditions prevent the recovery of increased costs through higher selling prices; (3)
adverse weather; (4) shortages of subcontractor labor, finished lots and other resources, which can
result in delays in the delivery of homes under construction and increases in related cost of
sales; (5) the impact of changes in demand for housing in our markets, particularly Nevada; and (6)
other general risk factors. See “
Forward-Looking Statements
” below.
Orders for Homes and Backlog
- First quarter home orders particularly were strong in Arizona,
Virginia and Maryland (up 27%, 17% and 17% year-over-year, respectively), primarily due to the
continued strong demand for new homes in these markets. In addition, we received 961 net home
orders in the 2005 first quarter from our newer markets in Utah, Texas, Florida,
Philadelphia/Delaware Valley and Illinois, compared with only 556 home orders from these markets in
the 2004 first quarter. Similar to the 2004 fourth quarter, these increases partially were offset
by lower home orders in Nevada and California, compared with the extraordinary levels experienced
in these markets during the first quarter of 2004.
Record home orders received during the 2005 first quarter contributed to the 11% and 17%
increases, respectively, in homes under contract but not yet delivered (“Backlog”) at March 31,
2005 to 7,893 units with an estimated sales value of $2.43 billion, compared with the Backlog of 7,112
units with an estimated sales value of $2.08 billion at March 31, 2004. Assuming no significant
change in market
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conditions or mortgage interest rates, the Company expects approximately 70% to
75% of its March 31, 2005 Backlog to close under existing sales contracts during 2005 and early
2006. The remaining 25% to 30% of the homes in Backlog are not expected to close under existing
contracts due to cancellations. See “
Forward-Looking Statements
” below.
Marketing
- Marketing expenses (which include sales commissions, advertising, amortization of
deferred marketing costs, model home expenses and other costs) totaled $48.2 million for the
quarter ended March 31, 2005, compared with $43.2 million for the comparable period in 2004. The
increase in 2005 primarily was due to an increase of $4.2 million in sales commissions resulting
from the Company’s increased home sales revenues.
General and Administrative
- General and administrative expenses increased to $53.1 million
during the first quarter of 2005, compared with $41.2 million for the same period in 2004,
primarily due to increases in compensation and related benefits and other costs associated with the
expansion of our operations in the majority of our markets.
Title Operations
American Home Title provides title agency services to our homebuyers in Virginia, Maryland,
Colorado, Florida, Texas and Delaware. We are evaluating opportunities to provide title agency
services in our other markets. Income before income taxes from title operations was $1.0 million
for the quarter ended March 31, 2005, compared with $0.8 million for the same period in 2004.
Land Inventory
The table below shows the carrying value of land and land under development, by market, the
total number of lots owned and lots controlled under option agreements, and total non-refundable
option deposits (dollars in thousands).
- 20 -
Financial Services Segment
The table below sets forth information relating to our financial services operations (dollars
in thousands).
Financial services operating profit for the first quarter of 2005 decreased, compared
with the same period in 2004, primarily due to the more competitive mortgage pricing
environment, which resulted in lower gains on sales of mortgage loans. This competitive
environment contributed to HomeAmerican originating a higher percentage of less-valuable adjustable
rate mortgage loans in the first quarter of 2005, as well as brokering a higher percentage of total
loans processed in the quarter to third party mortgage companies, for which no gains on sales are
realized by HomeAmerican.
The principal amount of originated loans decreased 11% in the first quarter of 2005, compared
with the same period in 2004. This decline primarily was due to the decrease in our Capture Rate,
which resulted from a 34% increase in the amount of loans being
brokered to outside lenders. The Capture Rate is defined as the number of
mortgage loans originated by HomeAmerican for our homebuyers as a percentage of total MDC home
closings. Brokered loans, for which HomeAmerican receives a fee, have been
excluded from the computation of the Capture Rate. Our homebuyers were the source of approximately 99% of the principal amount of mortgage
loans originated and brokered by HomeAmerican in the first quarter of 2005.
Forward Sales Commitments
- HomeAmerican’s operations are affected by changes in mortgage
interest rates. HomeAmerican utilizes forward mortgage securities contracts to manage price risk
related to fluctuations in interest rates on our fixed-rate mortgage loans held in inventory and
rate-locked mortgage loans in process that had not closed. Reported gains on sales of mortgage loans may vary
significantly from period to period depending on the volatility in the interest rate market.
- 21 -
Insurance Operations
- American Home Insurance provides homeowners, auto and other types of
casualty insurance in each of our markets. The results of its operations were not material for any
of the periods presented.
Other Operating Results
Interest Expense
- We capitalize interest incurred on our corporate and homebuilding debt
during the period of active development and through the completion of construction of our
homebuilding inventories. Corporate and homebuilding interest incurred but not capitalized is
reported as interest expense. Interest incurred by the financial services segment is charged to
interest expense, which is deducted from interest income and reported as net interest income in
Note E to our consolidated financial statements. For a reconciliation of interest incurred,
capitalized and expensed, see Note D to our consolidated financial statements.
Corporate General and Administrative Expenses
- Corporate general and administrative expenses
totaled $30.4 million during the first quarter of 2005, compared with $18.6 million for the same
period in 2004. The increases in 2005 primarily were due to greater compensation-related costs of
$10.0 million principally resulting from our higher profitability, which included increased
spending on our national programs, such as training and information technology.
Income Taxes
- Our overall effective income tax rate of 37.7% for the first quarter of 2005
differed from the 39% in the first quarter of 2004 primarily due to the impact of the new Internal
Revenue Code Section 199 manufacturing deduction established by the American Jobs Creation Act of
2004, as well as a reduction in our state effective income tax rate.
LIQUIDITY AND CAPITAL RESOURCES
We use our liquidity and capital resources to (1) support our operations, including our
homebuilding inventories; (2) provide working capital; and (3) provide mortgage loans for our
homebuyers. Liquidity and capital resources are generated internally from operations and from
external sources. Additionally, we have an effective registration statement allowing us to issue
equity, debt or hybrid securities up to $1.0 billion. In December 2004, we issued $250 million
principal amount of our 5⅜% Medium-Term Senior Notes, thereby reducing our capacity to issue
equity, debt or hybrid securities to $750 million, with $250 million earmarked for our medium term
notes program.
Capital Resources
Our capital structure is a combination of (1) permanent financing, represented by
stockholders’ equity; (2) long-term financing, represented by our publicly traded 7% senior notes
due 2012 (the “7% Senior Notes”), 5 1/2% senior notes due 2013 (the “5 1/2% Senior Notes”), 5 3/8%
medium-term senior notes due 2014 (the “5 3/8% Medium-Term Senior Notes”) and our homebuilding line of
credit (the “Homebuilding Line”); and (3) current financing, primarily our mortgage lending line of
credit (the “Mortgage Line”). Based upon our current capital resources and additional capacity
available under existing credit agreements, we believe that our current financial condition is both
balanced to fit our current operating structure and adequate to satisfy our current and near-term
capital requirements, including the acquisition
of land and expansion into new markets. We believe that we can meet our 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
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adverse
changes in our business or capital and credit markets occur as a result of the various risk factors
described elsewhere in this report. See “
Forward-Looking Statements
” below.
Lines of Credit and Senior Notes
Homebuilding
- Our Homebuilding Line is an unsecured revolving line of credit with a group of
lenders for support of our homebuilding operations. During January 2005, we modified the
Homebuilding Line, increasing the aggregate commitment amount to $1.058 billion, while maintaining
the maturity date of April 7, 2009. In addition, the facility’s provision for letters of credit is
available in the aggregate amount of $350 million. The modified facility permits an increase in
the maximum commitment amount to $1.25 billion upon our request, subject to receipt of additional
commitments from existing or additional participant lenders. At March 31, 2005, there were no
borrowings outstanding, and $73.2 million in letters of credit had been issued under the
Homebuilding Line.
Mortgage Lending
- Our Mortgage Line has a borrowing limit of $175 million with terms that
allow for increases of up to $50 million in the borrowing limit to a maximum of $225 million,
subject to concurrence by the participating banks. Available borrowings under the Mortgage Line are
collateralized by mortgage loans and mortgage-backed certificates and are limited to the value of
eligible collateral as defined. At March 31, 2005, $74.8 million was borrowed and an additional
$12.7 million was collateralized and available to be borrowed. The Mortgage Line is cancelable
upon 120 days notice.
General -
The agreements for our bank lines of credit and the indentures for our senior notes
require compliance with certain representations, warranties and covenants. We believe that we are
in compliance with these representations, warranties and covenants, and we are not aware of any
covenant violations. The agreements for the bank lines of credit and the indentures for our senior
notes are on file with the Securities and Exchange Commission and are listed in the Exhibit Table
in Part IV of our Annual Report on Form 10-K for our fiscal year ended December 31, 2004.
The financial covenants contained in the Homebuilding Line credit agreement include a leverage
test and a consolidated tangible net worth test. Under the leverage test, generally, our
consolidated indebtedness is not permitted to exceed 55% (subject to adjustment in certain
circumstances) of the sum of consolidated indebtedness and our “adjusted consolidated tangible net
worth,” as defined. Under the consolidated tangible net worth test, our “consolidated tangible net
worth,” as defined, must not be less than the sum of (1) $776 million; (2) 50% of “consolidated net
income,” as defined, of the “borrower,” as defined, and the “guarantors,” as defined, after
December 31, 2003; and (3) 50% of the net proceeds or other consideration received for the issuance
of capital stock after December 31, 2003. Failure to satisfy the financial covenant tests may
result in a scheduled term-out of the facility. In addition, “consolidated tangible net worth,” as
defined, must not be less than the sum of (1) $485 million; (2) 50% of the quarterly consolidated
net income of “borrower” and the “guarantors” earned after December 31, 2003; and (3) 50% of the
net proceeds or other consideration received for the issuance of capital stock after December 31,
2003. Failure to satisfy this covenant could result in a termination of the facility. We believe
that we are in full compliance with these covenants, and we are not aware of any covenant
violations.
Our senior notes are not secured, and the senior notes indentures do not contain financial
covenants. Our senior notes are fully and unconditionally guaranteed on an unsecured basis, jointly
and severally, by most of our homebuilding segment subsidiaries.
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MDC Common Stock Repurchase Programs
In January 2005, our board of directors authorized the repurchase of up to an additional
495,120 shares of MDC common stock, bringing the total authorization under our stock repurchase
program to 5,654,000 shares. We have repurchased 3,509,000 shares of MDC common stock since
inception of this program, leaving 2,145,000 shares available to be repurchased as of March 31,
2005. At March 31, 2005, we held 9,000 shares of treasury stock with an average purchase price of
$36.57. There were no stock repurchases made during the quarter ended March 31, 2005.
Consolidated Cash Flow
During the first quarter of 2005, we used $117.5 million of cash for operating activities. The
2005 operating cash use primarily was the result of a $278.6 million increase in our homebuilding
inventories, other assets and home sales and other accounts receivable in conjunction with our
expanded homebuilding operations, partially offset by income before depreciation and amortization
and deferred income taxes of $93.3 million and an increase of $62.8 million of mortgage loans held
in inventory. We continued to expand our homebuilding operations in existing markets through
increased active subdivisions and controlled lot inventory, thereby expending cash to acquire
additional homebuilding assets.
Financing activities used cash of $59.1 million in the 2005 first quarter, primarily due to
repayments of our lines of credit totaling $60.7 million and dividends paid of $6.5 million,
partially offset by cash proceeds of $8.0 million from the exercise of stock options.
Additionally, we used $4.7 million of cash from investing activities in the first three months
of 2005, primarily due to the purchase of property and equipment.
During the first quarter of 2004, we used $43.2 million of cash for operating activities. Cash
provided by net income before depreciation and amortization, the sale of mortgage loans and an
increase in accounts payable and accrued expenses was more than offset by cash used to build net
homebuilding assets in support of our expanding homebuilding activities. Additionally, we made net
principal payments of $26.6 million on our lines of credit and paid dividends of $3.9 million.
Off-Balance Sheet Arrangements
At March 31, 2005, we had outstanding performance bonds of $330.0 million issued by third
parties to secure our performance under various contracts. We expect that the obligations secured
by these performance bonds generally will be performed in the ordinary course of business and in
accordance with the applicable contractual terms. To the extent that the obligations are performed,
the related performance bonds will be released and we will not have any continuing obligations.
All other off-balance sheet arrangements have not changed materially from those reported in
Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2004
Annual Report on Form 10-K.
Contractual Obligations
Our contractual obligations have not changed materially from those reported in Management’s
Discussion and Analysis of Financial Condition and Results of Operations in our 2004 Annual Report
on Form 10-K.
- 24 -
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 could
increase, which can result in lower Home Gross Margins. Increases in home mortgage interest rates
make it more difficult for our customers to qualify for home mortgage loans, potentially decreasing
home sales revenue. 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 our future operations and
liquidity. Reported gains on sales of mortgage loans may vary significantly from period to period
depending on the volatility in the interest rate market. Derivative instruments utilized in the
normal course of business by HomeAmerican include forward sales securities commitments, private
investor sales commitments and commitments to originate mortgage loans. We utilize these
commitments to manage the price risk on fluctuations in interest rates on our mortgage loans held
in inventory and commitments to originate mortgage loans. Such contracts are the only significant
financial derivative instruments we utilize.
Among other things, an increase in interest rates may affect adversely the demand for housing
and the availability of mortgage financing and may reduce the credit facilities offered to us by
banks, investment bankers and mortgage bankers. See “
Forward-Looking Statements
” below.
Our business also is significantly affected by general economic conditions and, particularly,
the demand for new homes in the markets in which we build. The demand for new homes in Nevada
reached unprecedented levels during the last half of 2003 and the first six months of 2004. This
extraordinary demand resulted in a substantial increase in new home sales and median home prices.
Our average home selling price in Nevada, along with our Home Gross Margins, also increased
significantly in latter half of 2004 and into 2005, without a substantial change in product mix.
We continue to follow our disciplined strategy of controlling approximately a two-year supply
of land in all of our markets. The demand for new homes in Nevada during the first quarter of 2005
was more consistent with levels experienced during the first half of 2003 and 2002. If this demand
declines in the future, our financial results potentially could be
impacted by the recent significant appreciation in land costs, which could adversely affect our
Home Gross Margins if we are unable to recover these costs through increases in home selling
prices. See “
Forward-Looking Statements
” below.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with United States generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenue and expenses during the reporting period. Management bases its
estimates and judgments on historical experience and on various other factors that are believed to
be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent from other
sources. Management evaluates such estimates and judgments on an ongoing basis and makes
adjustments as deemed necessary. Actual results could differ from these estimates using different
estimates and assumptions, or if conditions are significantly different in the future. See
"
Forward-Looking Statements
” below.
- 25 -
The accounting policies, which we believe are critical and require the use of complex judgment
in their application, are those related to (1) homebuilding inventory valuation; (2) estimates to
complete land development and home construction; (3) warranty costs; and (4) litigation reserves.
Our critical accounting policies have not changed from those reported in Management’s Discussion
and Analysis of Financial Condition and Results of Operations in our 2004 Annual Report on Form
10-K.
OTHER
Forward-Looking Statements
Certain statements in this Form 10-Q, as well as statements made by us in periodic
press releases, oral statements made by our 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-Q 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, those listed below:
- 26 -
We undertake no obligation to publicly update any forward-looking statements, whether as a result
of new information, future events or otherwise. However, any further disclosures made on related
subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted.
- 27 -
There have been no material changes from the 2004 Annual Report on Form 10-K related to our
exposure to market risk from interest rates.
(a)
Conclusion regarding the effectiveness of disclosure controls and procedures
-
An evaluation of the effectiveness of the design and operation of our disclosure controls and
procedures was performed under the supervision, and with the participation, of our management,
including the Chief Executive Officer and the Chief Financial Officer. Based on that evaluation,
the Company’s management, including the Chief Executive Officer and Chief Financial Officer,
concluded that our disclosure controls and procedures were effective as of March 31, 2005.
(b)
Changes in internal control over financial reporting
- There were no changes in our
internal control over financial reporting that occurred during the quarter ended March 31, 2005
that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II
The Company and certain of its subsidiaries and affiliates have been named as defendants in
various claims, complaints and other legal actions arising in the normal course of business,
including moisture intrusion and related mold claims. In the opinion of management, the outcome of
these matters will not have a material adverse effect upon the financial condition, results of
operations or cash flows of the Company. See “
Forward-Looking Statements
” above.
The U.S. Environmental Protection Agency (“EPA”) filed an administrative action against
Richmond American Homes of Colorado, Inc. (“Richmond”), alleging that Richmond violated the terms
of Colorado’s general permit for discharges of stormwater from construction activities at two of
Richmond’s development sites. In its complaint, the EPA sought civil penalties against Richmond in
the amount of $122,000. On November 11, 2003, the EPA filed a motion to withdraw the administrative
action so that it could refile the matter in United States District Court as part of a consolidated
action against Richmond for alleged stormwater violations at not only the original two sites, but
also two additional sites. The EPA’s motion to withdraw was granted by the Administrative Law Judge
on February 9, 2004. The EPA has not yet refiled the matter. The EPA has inspected a number of
sites under development by Richmond affiliates in Virginia, Maryland, Arizona, California and again
in Colorado, and claims to have found additional stormwater permit violations. Richmond has
substantial defenses to the allegations made by the EPA and also is exploring methods of resolving
this matter with the EPA.
Because of the nature of the homebuilding business, and in the ordinary course of its
operations, the Company from time to time may be subject to product liability claims.
- 28 -
The Company did not repurchase any shares during the first quarter of 2005. Additionally,
there were no sales of unregistered equity securities during the first quarter of 2005.
None.
The annual meeting of the Company’s shareowners was held on April 21, 2005. The following
members of the Board of Directors were elected as Class II Directors for three-year terms expiring
in 2008:
Larry A. Mizel, Herbert T. Buchwald, Steven J. Borick, David D. Mandarich and David E.
Blackford continued to serve as directors of the Company after the annual meeting.
On April 21, 2005, MDC’s board of directors declared a cash dividend of eighteen cents ($.18)
per share for the quarter ended March 31, 2005. The dividend is to be paid on May 25, 2005 to
shareowners of record on May 11, 2005.
(a) Exhibit:
- 29 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
- 30 -
INDEX TO EXHIBITS
- 31 -
March 31,
December 31,
2005
2004
(Unaudited)
$
205,316
$
389,828
29,164
28,932
42,297
40,963
5,545
5,671
9,240
9,022
291,562
474,416
20,190
16,961
45,033
31,018
904,474
851,628
1,307,240
1,109,953
124,093
115,544
2,401,030
2,125,104
1,328
1,361
116,077
178,925
6,563
10,238
123,968
190,524
$
2,816,560
$
2,790,044
Table of Contents
Consolidated Balance Sheets
(In thousands, except share amounts)
March 31,
December 31,
2005
2004
(Unaudited)
$
78,343
$
94,178
62,714
50,979
746,392
746,310
887,449
891,467
152,356
159,763
167,994
165,705
—
—
320,350
325,468
17,492
18,810
74,811
135,478
92,303
154,288
1,300,102
1,371,223
—
—
—
—
437
433
680,326
660,699
838,902
760,780
(2,577
)
(1,418
)
(301
)
(290
)
1,516,787
1,420,204
(329
)
(1,383
)
1,516,458
1,418,821
$
2,816,560
$
2,790,044
Table of Contents
Three Months
Ended March 31,
2005
2004
$
921,330
$
748,864
11,598
14,448
988
292
933,916
763,604
758,820
635,419
8,751
9,791
30,416
18,576
797,987
663,786
135,929
99,818
(51,298
)
(38,917
)
$
84,631
$
60,901
$
1.95
$
1.44
$
1.86
$
1.38
43,458
42,306
45,564
44,282
$
.150
$
.087
Table of Contents
Three Months
Ended March 31,
2005
2004
$
84,631
$
60,901
9,994
8,930
(1,334
)
(2,083
)
(250,133
)
(148,391
)
(14,456
)
(15,270
)
(14,015
)
(13,527
)
1,328
27,285
62,848
38,223
3,629
712
(117,508
)
(43,220
)
(4,663
)
(2,299
)
—
3,500
(60,667
)
(30,128
)
(6,509
)
(3,851
)
8,031
1,512
(59,145
)
(28,967
)
(181,316
)
(74,486
)
408,150
173,565
$
226,834
$
99,079
Table of Contents
Three Months
Ended March 31,
2005
2004
$
84,631
$
60,901
43,458
42,306
$
1.95
$
1.44
$
84,631
$
60,901
43,458
42,306
2,106
1,976
45,564
44,282
$
1.86
$
1.38
Table of Contents
Three Months
Ended March 31,
2005
2004
$
84,631
$
60,901
(2,421
)
(1,291
)
$
82,210
$
59,610
$
1.95
$
1.44
$
1.89
$
1.41
$
1.86
$
1.38
$
1.80
$
1.35
Three Months
Ended March 31,
2005
2004
$
10,815
$
7,366
484
383
$
11,299
$
7,749
$
24,220
$
20,043
10,815
7,366
—
—
(7,294
)
(6,362
)
$
27,741
$
21,047
Table of Contents
Three Months
Ended March 31,
2005
2004
$
1,011
$
1,313
(484
)
(383
)
$
527
$
930
Three Months
Ended March 31,
2005
2004
$
916,831
$
746,429
1,296
—
3,203
2,435
921,330
748,864
656,780
551,024
790
—
48,164
43,168
53,086
41,227
758,820
635,419
162,510
113,445
527
930
6,141
5,264
678
616
3,247
6,777
1,005
861
11,598
14,448
8,751
9,791
2,847
4,657
165,357
118,102
988
292
(30,416
)
(18,576
)
(29,428
)
(18,284
)
$
135,929
$
99,818
Table of Contents
$
64,424
9,287
(9,609
)
$
64,102
Table of Contents
March 31,
December 31,
2005
2004
$
148,720
$
148,688
349,217
349,197
248,455
248,425
746,392
746,310
—
—
746,392
746,310
74,811
135,478
$
821,203
$
881,788
Table of Contents
•
M.D.C. Land Corporation
•
RAH of Texas, LP
•
RAH Texas Holdings, LLC
•
RAH of Florida, Inc.
•
Richmond American Construction, Inc.
•
Richmond American Homes of Arizona, Inc.
•
Richmond American Homes of California, Inc.
•
Richmond American Homes of Colorado, Inc.
•
Richmond American Homes of Delaware, Inc.
•
Richmond American Homes of Florida, LP.
•
Richmond American Homes of Illinois, Inc.
•
Richmond American Homes of Maryland, Inc.
•
Richmond American Homes of Nevada, Inc.
•
Richmond American Homes of New Jersey, Inc.
•
Richmond American Homes of Pennsylvania, Inc.
•
Richmond American Homes of Texas, Inc.
•
Richmond American Homes of Utah, Inc.
•
Richmond American Homes of Virginia, Inc.
•
Richmond American Homes of West Virginia, Inc.
•
American Home Insurance Agency, Inc.
•
American Home Title and Escrow Company
•
HomeAmerican Mortgage Corporation
•
Lion Insurance Company
•
StarAmerican Insurance Ltd.
•
Allegiant Insurance Company, Inc., A Risk Retention Group
Table of Contents
Supplemental Combining Balance Sheet
March 31, 2005
(In thousands)
(Unaudited)
Table of Contents
Supplemental Combining Balance Sheet
December 31, 2004
(In thousands)
Table of Contents
Supplemental Combining Statements of Income
(In thousands)
(Unaudited)
Table of Contents
Supplemental Combining Statements of Cash Flows
(In thousands)
(Unaudited)
Non-
Guarantor
Guarantor
Eliminating
Consolidated
MDC
Subsidiaries
Subsidiaries
Entries
MDC
$
200,681
$
(385,998
)
$
68,033
$
(224
)
$
(117,508
)
(1,602
)
(2,953
)
(108
)
—
(4,663
)
(384,889
)
390,441
(5,552
)
—
—
—
—
—
—
—
—
—
(60,667
)
—
(60,667
)
(6,733
)
—
—
224
(6,509
)
8,031
—
—
—
8,031
(383,591
)
390,441
(66,219
)
224
(59,145
)
(184,512
)
1,490
1,706
—
(181,316
)
389,828
12,252
6,070
—
408,150
$
205,316
$
13,742
$
7,776
$
—
$
226,834
Non-
Guarantor
Guarantor
Eliminating
Consolidated
MDC
Subsidiaries
Subsidiaries
Entries
MDC
$
114,803
$
(195,467
)
$
37,575
$
(131
)
$
(43,220
)
(1,316
)
(889
)
(94
)
—
(2,299
)
(189,722
)
201,506
(11,784
)
—
—
3,500
—
—
—
3,500
(3,500
)
—
(26,628
)
—
(30,128
)
(3,982
)
—
—
131
(3,851
)
—
—
—
—
—
1,512
—
—
—
1,512
(192,192
)
201,506
(38,412
)
131
(28,967
)
(78,705
)
5,150
(931
)
—
(74,486
)
163,133
6,335
4,097
—
173,565
$
84,428
$
11,485
$
3,166
$
—
$
99,079
Table of Contents
ITEM 2
.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Table of Contents
Three Months
Ended March 31,
Change
2005
2004
Amount
%
$
933,916
$
763,604
$
170,312
22
%
$
135,929
$
99,818
$
36,111
36
%
$
84,631
$
60,901
$
23,730
39
%
$
1.95
$
1.44
$
0.51
35
%
$
1.86
$
1.38
$
0.48
35
%
Table of Contents
Three Months Ended
March 31,
Change
2005
2004
Amount
%
$
916,831
$
746,429
$
170,402
23
%
$
162,510
$
113,445
$
49,065
43
%
$
290.3
$
256.5
$
33.8
13
%
28.4
%
26.2
%
2.2
%
8
%
1,152
910
242
27
%
531
826
(295
)
-36
%
664
691
(27
)
-4
%
320
109
211
194
%
29
—
29
—
145
124
21
17
%
750
1,030
(280
)
-27
%
43
—
43
—
321
271
50
18
%
248
176
72
41
%
343
292
51
17
%
4,546
4,429
117
3
%
796
870
(74
)
-9
%
386
476
(90
)
-19
%
448
478
(30
)
-6
%
295
71
224
315
%
5
—
5
—
74
70
4
6
%
609
568
41
7
%
165
70
95
136
%
168
104
64
62
%
212
203
9
4
%
3,158
2,910
248
9
%
Table of Contents
March 31,
December 31,
March 31,
2005
2004
2004
2,499
2,143
1,373
952
807
1,469
908
692
947
663
638
142
42
18
—
296
225
323
887
746
1,348
66
23
—
412
256
344
369
289
223
799
668
943
7,893
6,505
7,112
$
2,430,000
$
1,920,000
$
2,080,000
$
307.9
$
295.2
$
292.5
42
32
42
28
22
25
55
53
55
18
18
11
4
1
—
14
11
10
34
31
20
4
2
—
24
24
20
18
22
14
24
26
28
265
242
225
252
237
207
Table of Contents
Three Months Ended March 31,
2005
2004
$
203.3
$
191.0
518.5
386.9
282.5
261.5
186.4
170.6
401.9
—
423.7
419.5
288.8
206.6
155.1
161.6
212.9
174.4
484.2
408.2
$
290.3
$
256.5
Table of Contents
March 31,
December 31,
March 31,
2005
2004
2004
$
258,775
$
168,489
$
117,399
305,283
277,360
251,826
144,068
139,554
115,843
31,321
27,926
11,162
37,096
33,656
7,255
91,589
69,523
48,984
240,809
209,544
161,853
31,392
28,916
—
25,151
19,420
18,765
37,076
35,104
32,832
104,680
100,461
81,363
$
1,307,240
$
1,109,953
$
847,282
Table of Contents
March 31,
December 31,
March 31,
2005
2004
2004
24,021
20,760
18,692
16,895
21,164
13,272
40,916
41,924
31,964
$
39,049
$
41,804
$
18,921
20,525
22,062
11,127
$
59,574
$
63,866
$
30,048
Three Months Ended March 31,
2005 Increase (Decrease)
2005
2004
Amount
%
$
6,141
$
5,264
$
877
17
%
$
678
$
616
$
62
10
%
$
3,247
$
6,777
$
(3,530
)
-52
%
$
2,847
$
4,657
$
(1,810
)
-39
%
$
305,193
$
341,267
$
(36,074
)
-11
%
$
213,352
$
158,829
$
54,523
34
%
41
%
56
%
-15
%
68
%
78
%
-10
%
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
•
General Economic and Business Conditions
- Changes in national, regional and
local economic conditions, as well as changes in consumer confidence and preferences, can
have a negative impact on our business.
•
Interest Rate Changes
- Our homebuilding and mortgage lending operations are
impacted by the availability and cost of mortgage financing.
•
Changes in Federal Lending Programs
- The availability of mortgage financing
under federal lending programs is an important factor in our business. Any change in the
availability of this financing could reduce our home sales and mortgage lending volume.
•
Availability of Capital
- Our ability to grow our business is dependent on our
ability to generate or obtain capital. Increases in interest rates and changes in the
capital markets could increase our costs of borrowing or reduce the availability of funds.
•
Competition
- The real estate industry is fragmented and highly competitive. Our
homebuilding subsidiaries compete with numerous homebuilders, including a number that are
substantially larger and have greater financial resources.
•
The Availability and Cost of Land, Labor and Materials
- Our operations depend
on our ability to continue to obtain land, labor and materials at reasonable prices.
Changes in the general availability or cost of these items may hurt our ability to build
homes and develop new residential communities.
•
The Availability and Cost of Performance Bonds and Insurance
- Our operations
also are affected by our ability to obtain performance bonds and insurance at reasonable
prices. Changes in the availability and cost of bonds and insurance can adversely impact
our business operations.
Table of Contents
•
Weather and Geology
- The climates and geology of many of the states in which we
operate present increased risks of natural disasters and adverse weather. To the extent
that such events occur, our business may be adversely affected.
•
Governmental Regulation and Environmental Matters
- Our operations are subject
to continuing compliance requirements mandated by applicable federal, state and local
statutes, ordinances, rules and regulations, including environmental laws, moratoriums on
utility availability, growth restrictions, 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.
•
Product Liability Litigation and Warranty Claims
- As a homebuilder, we are
subject to construction defect and home warranty claims, including moisture intrusion and
related mold claims that can be costly and adversely affect our business.
•
Other Factors
- Other factors over which we have little or no control, such as
required accounting changes and terrorist acts and other acts of war, can also adversely
affect us.
Table of Contents
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
.
Item 4.
Controls and Procedures
.
Item 1
.
Legal Proceedings.
Table of Contents
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3.
Defaults Upon Senior Securities.
Item 4
.
Submission of Matters to a Vote of Security Holders.
Votes For
Votes Withheld
39,222,713
2,086,886
37,958,970
3,350,629
Item 5
.
Other Information.
Item 6
.
Exhibits.
12
Ratio of Earnings to Fixed Charges Schedule.
31.1
Certification of Chief Executive Officer required by 17 CFR
240.13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer required by 17 CFR
240.13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer required by 17 CFR
240.13a-14(b), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer required by 17 CFR
240.13a-14(b), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Table of Contents
Date: May 6, 2005
M.D.C. HOLDINGS, INC.
(Registrant)
By:
/s/ Paris G. Reece III
Paris G. Reece III,
Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer
Table of Contents
Exhibit Number
Description
Ratio of Earnings to Fixed Charges Schedule.
Certification of Chief Executive Officer required by 17 CFR
240.13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer required by 17 CFR
240.13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer required by 17 CFR
240.13a-14(b), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer required by 17 CFR
240.13a-14(b), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 12
M.D.C. HOLDINGS, INC.
RATIO OF EARNINGS TO FIXED CHARGES
| Three Months to March 31, | Year Ended December 31, | |||||||||||||||||||||||||||
| (dollars in thousands) | 2005 | 2004 | 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||||||||||
|
Earnings
|
$ | 146,114 | $ | 108,372 | $ | 675,748 | $ | 389,940 | $ | 301,072 | $ | 286,228 | $ | 232,034 | ||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Fixed Charges
|
$ | 13,706 | $ | 9,558 | $ | 43,011 | $ | 43,977 | $ | 27,453 | $ | 28,782 | $ | 30,844 | ||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Earnings to Fixed Charges
|
10.66 | 11.34 | 15.71 | 8.87 | 10.97 | 9.94 | 7.52 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Earnings:
|
||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Pretax Earnings from Continuing Operations
|
135,929 | 99,818 | 636,914 | 348,223 | 274,044 | 255,387 | 203,201 | |||||||||||||||||||||
|
Add Fixed Charges
|
13,706 | 9,558 | 43,011 | 43,977 | 27,453 | 28,782 | 30,844 | |||||||||||||||||||||
|
Less capitalized interest
|
(10,815 | ) | (7,366 | ) | (32,879 | ) | (26,779 | ) | (21,116 | ) | (22,498 | ) | (24,367 | ) | ||||||||||||||
|
Add amortization of previously capitalized interest
|
7,294 | 6,362 | 28,702 | 24,519 | 20,691 | 24,557 | 22,356 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total Earnings
|
146,114 | 108,372 | 675,748 | 389,940 | 301,072 | 286,228 | 232,034 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Fixed Charges:
|
||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Homebuilding and corporate interest expense
|
0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
|
Mortgage lending interest expense
|
484 | 383 | 1,946 | 1,967 | 1,822 | 2,666 | 3,115 | |||||||||||||||||||||
|
Interest component of rent expense
|
1,516 | 1,075 | 5,462 | 3,897 | 2,812 | 2,253 | 2,177 | |||||||||||||||||||||
|
Amortization and expensing of debt expenses (1)
|
891 | 734 | 2,724 | 11,334 | 1,703 | 1,365 | 1,185 | |||||||||||||||||||||
|
Capitalized interest
|
10,815 | 7,366 | 32,879 | 26,779 | 21,116 | 22,498 | 24,367 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total Fixed Charges
|
13,706 | 9,558 | 43,011 | 43,977 | 27,453 | 28,782 | 30,844 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
| (1) | 2003 includes $9,315 of expenses related to debt redemption. |
Exhibit 31.1
CERTIFICATIONS
I, Larry A. Mizel, certify that:
1.
I have reviewed this report on Form 10-Q of M.D.C. Holdings, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b)
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: May 6, 2005
/s/ Larry A. Mizel
Chairman of the Board of Directors
and Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS
I, Paris G. Reece III, certify that:
1.
I have reviewed this report on Form 10-Q of M.D.C. Holdings, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b)
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: May 6, 2005
/s/ Paris G. Reece III
Executive Vice President,
Chief Financial Officer and Principal Accounting Officer
Exhibit 32.1
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive
Officer of M.D.C. Holdings, Inc. (the “Company”) hereby certifies that the Report on Form 10-Q of
the Company for the period ended March 31, 2005, accompanying this certification, fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that
information contained in the periodic report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
The foregoing certification is being furnished solely pursuant to Rule 13a-14(b) under the
Securities Exchange Act of 1934 and Section 1350 of Title 18, United States Code, and is not being
filed as part of the report or as a separate disclosure document.
Date: May 6, 2005.
/s/ Larry A. Mizel
Larry A. Mizel
Chief Executive Officer
Exhibit 32.2
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Financial
Officer of M.D.C. Holdings, Inc. (the “Company”) hereby certifies that the Report on Form 10-Q of
the Company for the period ended March 31, 2005, accompanying this certification, fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that
information contained in the periodic report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
The foregoing certification is being furnished solely pursuant to Rule 13a-14(b) under the
Securities Exchange Act of 1934 and Section 1350 of Title 18, United States Code, and is not being
filed as part of the report or as a separate disclosure document.
Date: May 6, 2005
/s/ Paris G. Reece III
Paris G. Reece III
Chief Financial Officer