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STRATEGIC. EXPERIENCED. DISCIPLINED.
These words reflect what it means to be part of MDC. They define our company's past, guide our present and will direct our future-they are the core attributes that have played a significant part in our company's development over the past 36 years. They have sustained us and will continue to pave the way for our future success.
STRATEGIC
THE FOUNDATION OF OUR STRENGTH
Throughout our history, we have recognized the need to identify our strengths and build upon them. And we have done just that. We remain committed to our time-tested approach to the homebuilding business that is at our very foundation. This strategy has helped us balance our desire to grow our business with our responsibility to manage risk. And, it is this approach that has led to our solid financial position - one that we believe is among the strongest in the industry.
POISED FOR OPPORTUNITY
Over a period spanning four decades, we have developed the flexibility to adjust to changing market conditions. We have prospered by turning challenges into opportunities. At the heart of our business model is the strategic objective to hold our land supply to a conservative level, while limiting our investment in unsold homes. This direction has enabled us to achieve and maintain a strong balance sheet with significant levels of cash, low debt and substantial equity, which provides us the ability to seek out opportunities in the current economic environment.
CLEAR VISION, SOLID RESULTS
We know that a strong balance sheet is critical to our long-term success in operating within homebuilding's cyclical nature. At the start of the year, we already considered our financial standing to be among the best in the industry, as evidenced by our "investment-grade" rating-a distinction we have held from all three major rating agencies for more than four years. And yet we continued to make improvements to our financial position in 2007 by many measures, including the following:
- reducing our inventories by $1.3 billion;
- decreasing the number of lots we own by 40% and the number of lots we have under option by 55%;
- generating more than $590 million in cash flow from operations and ended the year with $1 billion in cash; and
- increasing our total cash and available borrowing capacity by 30% to more than $2.2 billion.
EXPERIENCED
36 YEARS OF SUCCESS
The knowledge and confidence that MDC brings to the table stems not only from building homes for more than 150,000 families over the last 36 years, but also from our senior management team. In fact, the experience of our CEO, COO and CFO positions alone span more than 70 years of tenure with MDC. This is more than just a number - it represents our commitment to our company, our shareowners and our employees.
Our understanding of the business has guided our company through significant cyclical downturns in the past. We learned from each cycle and incorporated strategies and solutions into our operations. For example, in the late 1980s when many local and national builders went out of business, we adapted our operating philosophy and were able to reduce our debt by more than $700 million. This experience established the framework for MDC's disciplined approach moving forward and helped us prepare for the inevitable fluctuations in our industry.
Today, we continually look for new ways to better our business. We are focused on increasing cost-efficiencies, while improving our processes and procedures. In doing so, programs are in place to reduce construction cycle times, enhance the homebuying experiences of our customers and provide additional training to our employees.
COMPETITIVE EDGE
We recognize that our success depends on the ability to maintain our competitive advantage, thereby providing added value to our shareowners and our homebuyers. This drive is consistent, regardless of the homebuilding environment.
Our Home Galleries create one such advantage. From their initial debut in 2004 in Denver, to the successful launch of our latest Home Gallery in Utah, we continue to offer homebuyers a unique one-stop shopping experience. In a single visit, our customers have the opportunity to explore various communities, compare floorplans and personalize their homes with a tremendous array of options and upgrades.
Once customers have selected us as their homebuilder, they have access to our subsidiary companies, HomeAmerican Mortgage Corporation, American Home Title and Escrow and American Home Insurance Agency, to complete their homebuying experience. The added resources we offer our customers clearly contribute to the differentiating factors that set us apart from our competitors.
DISCIPLINED
THE CORNERSTONE OF OUR OPERATIONS
Rather than changing our business philosophies in response to fluctuating market cycles, our disciplined approach to homebuilding has remained consistent and steadfast over the past decade. We have taken great pride in the fact that our company has always met its financial commitments - even during the homebuilding industry's most challenging times. We remain focused on strengthening our financial position and enhancing our operating processes in preparation for the industry's recovery.
PRESERVING VALUE
While many of our publicly held peers eliminated cash dividends due to cash flow and debt covenant concerns, we have continued to pay a dividend to our shareowners that ranks among the highest in our industry. Our 2007 dividend payments of $1.00 per share, or nearly $50 million in total, exhibit our confidence in MDC's potential to generate income and cash flow in the future.
Throughout 2007, we closely evaluated our operating structure and made adjustments to match current levels of demand. Our general and administrative costs declined by more than $110 million last year, and we anticipate further savings in 2008. We have continued our efforts to right-size our overhead, unbundle our construction costs and examine our construction processes in order to streamline our materials supply chain, reduce cycle times and improve our inventory turns. These are key examples of our proactive efforts to return our business to profitability.
We have carried the same philosophy to the homebuilding and customer-facing elements of our business as we have to managing our balance sheet. In 2007, we launched a nationwide initiative that focuses on enhancing our customers' homebuying experience. This initiative reinforces our commitment to product and service quality across all our divisions. With a 20% improvement in our customer satisfaction scores in 2007, we believe this initiative will lead to more new and repeat buyers and will reinforce the overall value of our business long-term.
BALANCED FOR SUCCESS
The strength of our balance sheet, coupled with our efforts to streamline our operations and increase efficiencies, will help us capitalize on opportunities that are created in today's difficult environment. All the components are in place. Our success over the past 36 years is far from coincidental. A carefully planned strategy, decades of experience and a disciplined approach to business are the key attributes behind the financial strength and flexibility we enjoy today. We look forward to meeting the future with seasoned confidence.
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