M.D.C. Holdings, Inc.
"We are pleased to announce growth in our net income and earnings per share for the 15th consecutive quarter," said Larry A. Mizel, MDC's chairman and chief executive officer. "During our 2006 first quarter, we again were recognized as one of America's premier companies. We achieved a ranking of #437 on the FORTUNE 500 list, up 29 spots from the prior year, we were included for the first time in the S&P MidCap 400 Index, and we were named to the Forbes Platinum 400 as one of 'America's Best Big Companies' for the eighth consecutive year."
Mizel continued, "Our disciplined approach to managing homes under construction and a relatively short lot supply has contributed to our continued high level of cash and borrowing capacity, which reached its highest level ever of $1.27 billion at the end of the 2006 first quarter. We reached this capacity by increasing the commitment under our five-year, unsecured credit facility by nearly 20% to $1.25 billion, with the ability to further increase this amount by $500 million, subject to increases in bank commitments. This gives us flexibility to allocate capital between alternative investments that we expect to produce the highest risk-adjusted returns for our Company. Consistent with this objective, during the first quarter, we continued to reallocate our financial and human capital away from Texas to markets such as Salt Lake City, where recently we acquired certain assets of Salisbury Homes to strengthen our position as a leading builder in one of our fastest growing markets."
Mizel concluded, "Our record first quarter financial performance has positioned us for another successful year in 2006. While proud of these accomplishments, we are keenly aware that the homebuilding environment has weakened. Because the level of our success in 2006 will hinge largely on our ability to generate net home orders in this environment over the balance of the year, we are not in a position to predict whether our revenues and earnings for the full year 2006 will exceed our 2005 performance. Nevertheless, we are optimistic that generally strong economic conditions will help our more challenged markets return to sustainable, healthy levels of demand for new homes. At the same time, we are confident that we have the right disciplines and strategy to make the most of the opportunities presented by this changing homebuilding environment to further our primary objective of maximizing long-term value for our shareowners."
Please refer to the last paragraph of this release for a discussion of factors that may impact the Company's estimates of revenue and earnings.
Growth in Homebuilding Profits
Homebuilding operating profits for the quarter ended March 31, 2006 were $173.8 million, representing an increase of 7% over profits of $162.5 million for the same period in 2005. This increase primarily resulted from higher average selling prices, which reached an average of $350,000 for the quarter ended March 31, 2006, up $59,700 from the first quarter of 2005. The Company closed 3,198 homes in the 2006 first quarter, compared with 3,158 home closings in the same period in 2005, and home gross margins were 27.2%, compared with 28.4% for the comparable period in 2005.
Paris G. Reece III, MDC's executive vice president and chief financial officer, said, "During the first quarter of 2006, we once again improved our homebuilding profits, realizing year-over-year increases in many of our markets, most notably in Arizona, Florida and Maryland. Each of these markets benefited from increased average selling prices and home gross margins, though none experienced a year-over-year increase in home closings. The first quarter home gross margin increases recorded in these markets, as well as in Utah and Virginia, were more than offset by lower home gross margins in Nevada and California. As in the prior three quarters, our home gross margins eased in Nevada from the extraordinary levels realized in the comparable periods of the previous year. In addition, our home gross margins in California moderated from the levels achieved in the first quarter of 2005, due in part to the earlier close-out of certain high margin subdivisions in both Los Angeles and the Bay Area."
Improved Financial Services Results
Operating profits from the Company's financial services business for the first quarter of 2006 nearly tripled from the 2005 first quarter, increasing to $8.3 million. The profit improvement primarily was due to higher gains on sales of mortgage loans, compared with the same period in 2005. Increased volumes of mortgage loan originations and mortgage loans sold drove the higher gains. The Company achieved these increased originations by expanding the offering of mortgage loan products that it could originate directly for its customers, thereby decreasing the need for less profitable loans brokered to outside lenders.
Home Orders and Backlog
MDC received orders, net of cancellations, for 3,800 homes with a sales value of $1.36 billion during the 2006 first quarter, compared with net orders for 4,546 homes with a sales value of $1.48 billion during the same period in 2005. The Company ended the first quarter of 2006 with a backlog of 7,134 homes, compared with a backlog of 7,893 homes at March 31, 2005. The estimated sales value of backlog at the end of the 2006 first quarter was $2.70 billion, 11% higher than the $2.43 billion estimated sales value of backlog at March 31, 2005.
"While our net home orders received in most of our markets have slowed from their strong and, in some cases, unsustainable levels over the past few years, we have been encouraged by the number of gross home order contracts, exclusive of cancellations, that we have taken during the 2006 first quarter," said Reece. "In fact, we received higher year-over-year gross home orders in all markets except Colorado, Virginia and Texas, and our total gross home orders excluding Texas in the 2006 first quarter actually were higher than in the first quarter of 2005. However, almost all of our markets experienced higher home order cancellations, contributing to lower net home orders per active subdivision in every market except Utah, which has continued to show strength."
Similar to the last three quarterly periods, net home orders received in the 2006 first quarter were lower year-over-year in Arizona. This decline primarily resulted from a reduction in the number of gross home orders received per active subdivision from record first quarter order levels in 2005, combined with a significant increase in home order cancellations. The increase in cancellations in this market, as well as in Florida and Virginia, was driven in part by what appears to be the exit of speculators from these markets, along with other factors related to higher mortgage interest rates. In addition, an increased supply of homes available to be purchased in these three markets, as well as in Colorado, resulted in an elevated number of order cancellations from prospective homebuyers who were unable to sell their existing homes in a more competitive sales environment. Home orders in Virginia also were impacted by a decline in the number of active subdivisions during the 2006 first quarter, compared with the same period in 2005. Texas experienced the largest year-over-year decline in net home orders in the 2006 first quarter, as a result of our decision not to purchase additional lots in this market.
The Company realized a 37% year-over-year increase in net home orders received in Utah in the 2006 first quarter, primarily due to the continued strong demand for new homes in this market. MDC also experienced first quarter increases in the number of net home orders received in Nevada and California. In these markets, the declines in the number of net home orders received per active subdivision were more than offset by increases in the number of subdivisions in which the company was actively selling homes during the first quarter of 2006, compared with the same period in 2005.
MDC, whose subsidiaries build homes under the name "Richmond American Homes," is one of the largest homebuilders in the United States. The Company also provides mortgage financing, primarily for MDC's homebuyers, through its wholly owned subsidiary HomeAmerican Mortgage Corporation. MDC is a major regional homebuilder with a significant presence in some of the country's best housing markets. The Company is the largest homebuilder in Colorado; among the top five homebuilders in Northern Virginia, suburban Maryland, Phoenix, Tucson, Las Vegas, Jacksonville and Salt Lake City; and among the top ten homebuilders in Northern California and Southern California. MDC also has established operating divisions in West Florida, Delaware Valley, Chicago, Dallas/Fort Worth and Houston. For more information about our Company, please visit www.richmondamerican.com.
Certain statements in this release, including statements regarding future home closings, revenue and earnings, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward- looking statements. Such factors include, among other things, (1) general economic and business conditions; (2) interest rate changes; (3) the relative stability of debt and equity markets; (4) competition; (5) the availability and cost of land and other raw materials used by the Company in its homebuilding operations; (6) the availability and cost of performance bonds and insurance covering risks associated with our business; (7) shortages and the cost of labor; (8) weather related slowdowns; (9) slow growth initiatives; (10) building moratoria; (11) governmental regulation, including the interpretation of tax, labor and environmental laws; (12) changes in consumer confidence and preferences; (13) required accounting changes; (14) terrorist acts and other acts of war; and (15) other factors over which the Company has little or no control. Additional information about the risks and uncertainties applicable to the Company's business is contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2005, which was filed with the Securities and Exchange Commission. All forward-looking statements made in this press release are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed in this press release will increase with the passage of time. The Company undertakes no duty 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 our subsequent filings, releases or presentations should be consulted.
M.D.C. HOLDINGS, INC. Condensed Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited) Three Months Ended March 31, 2006 2005 REVENUE Homebuilding $1,124,854 $921,330 Financial Services 17,408 11,598 Corporate 432 988 Total Revenue 1,142,694 933,916 COSTS AND EXPENSES Homebuilding 951,085 758,820 Financial Services 9,095 8,751 Corporate 28,357 30,316 Related Party Expenses 1,676 100 Total Costs and Expenses 990,213 797,987 Income before income taxes 152,481 135,929 Provision for income taxes (57,060) (51,298) NET INCOME 95,421 84,631 EARNINGS PER SHARE Basic $2.13 $1.95 Diluted $2.08 $1.86 WEIGHTED-AVERAGE SHARES OUTSTANDING Basic 44,820 43,458 Diluted 45,970 45,564 DIVIDENDS DECLARED PER SHARE $.25 $.15 M.D.C. HOLDINGS, INC. Information on Business Segments (In thousands) (Unaudited) Three Months Ended March 31, 2006 2005 HOMEBUILDING Home sales $1,119,308 $916,831 Land sales 1,837 1,296 Other revenue 3,709 3,203 Total Homebuilding Revenue 1,124,854 921,330 Home cost of sales 814,589 656,780 Land cost of sales 2,374 790 Marketing expenses 29,035 22,318 Commission expenses 32,843 25,846 General and administrative expenses 72,244 53,086 Total Homebuilding Expenses 951,085 758,820 HOMEBUILDING OPERATING PROFIT 173,769 162,510 FINANCIAL SERVICES Net interest income 856 527 Broker fees 2,080 2,168 Gains on sales of mortgage loans, net 13,027 7,898 Other revenue 1,445 1,005 Total Financial Services Revenue 17,408 11,598 General and Administrative Expenses 9,095 8,751 FINANCIAL SERVICES OPERATING PROFIT 8,313 2,847 TOTAL OPERATING PROFIT 182,082 165,357 CORPORATE Interest and other revenue 432 988 Related party expenses (1,676) (100) Other general and administrative expenses (28,357) (30,316) INCOME BEFORE INCOME TAXES $152,481 $135,929 M.D.C. HOLDINGS, INC. Selected Financial Data (Dollars in thousands, except per share amounts) (Unaudited) March 31, December 31, March 31, 2006 2005 2005 BALANCE SHEET DATA Calculation of Corporate and Homebuilding Debt (net of cash) Total Debt $1,221,931 $1,152,829 $821,203 Less: Financial Services Debt (125,540) (156,532) (74,811) Corporate and Homebuilding Debt 1,096,391 996,297 746,392 Less: Cash and Cash Equivalents and Restricted Cash (173,388) (221,273) (226,834) Corporate and Homebuilding Debt (net of cash) $923,003 $775,024 $519,558 Calculation of Capital (excluding mortgage lending debt and net of cash) Total Debt $1,221,931 $1,152,829 $821,203 Stockholders' Equity 2,055,208 1,952,109 1,516,458 Total Capital 3,277,139 3,104,938 2,337,661 Less: Financial Services Debt (125,540) (156,532) (74,811) Capital (excluding mortgage lending debt) 3,151,599 2,948,406 2,262,850 Less: Cash and Cash Equivalents and Restricted Cash (173,388) (221,273) (226,834) Capital (excluding mortgage lending debt and net of cash) $2,978,211 $2,727,133 $2,036,016 Stockholders' Equity Per Share Outstanding $45.76 $43.74 $34.72 Cash and Available Borrowing Capacity Under Lines of Credit(1) $1,267,845 $1,245,540 $1,216,362 Ratio of Homebuilding and Corporate Debt to Equity(2) .53 .51 .49 Ratio of Homebuilding and Corporate Debt to Capital(2) .35 .34 .33 Ratio of Homebuilding and Corporate Debt to Equity (net of cash)(2) .45 .40 .34 Ratio of Homebuilding and Corporate Debt to Capital (net of cash)(2) .31 .28 .26 Housing Completed or Under Construction Inventories $1,346,057 $1,266,901 $904,474 Land and Land Under Development Inventories $1,814,612 $1,656,198 $1,307,240 Corporate and Homebuilding Interest Capitalized Quarter Full Year Quarter Interest Capitalized in Inventories at Beginning of Period $41,999 $24,220 $24,220 Interest Incurred During the Period 14,841 51,872 10,815 Interest in Home and Land Cost of Sales for the Period (9,618) (34,093) (7,294) Interest Capitalized in Inventories at End of Period $47,222 $41,999 $27,741 Interest Capitalized as a Percent of Inventories 1.5% 1.4% 1.3% (1) Aggregate commitment amount under our homebuilding and mortgage lines of credit and consolidated cash and cash equivalents less principal amounts outstanding and letters of credit issued under our lines of credit. (2) Corporate and Homebuilding Debt (net of cash) and Capital (excluding mortgage lending debt and net of cash) are non-GAAP measures used to calculate the Ratio of Homebuilding and Corporate Debt to Capital (net of cash) and the Ratio of Homebuilding and Corporate Debt to Equity (net of cash). A reconciliation of these two terms is provided above. MDC's management tracks these terms, and their associated ratios, on a regular basis in order to assess its debt and capital positions. The presentation of this additional information is not meant to be considered in isolation or as a substitute for total debt or total capital determined in accordance with GAAP. M.D.C. HOLDINGS, INC. Selected Financial Data (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended March 31, 2006 2005 OPERATING DATA Interest in Home Cost of Sales as a Percent of Home Sales Revenue 0.9% 0.8% Homebuilding and Corporate SG&A as a Percent of Home Sales Revenue 14.7% 14.4% Depreciation and Amortization $13,628 $9,994 Home Gross Margins(3) 27.2% 28.4% Cash Used in Operating Activities $(108,443) $(118,333) Cash Used in Investing Activities $(1,638) $(4,663) Cash Provided by (Used in) Financing Activities $61,289 $(59,145) After-Tax Return on Total Revenue 8.4% 9.1% After-Tax Return on Average Assets(4) 15.1% 16.8% After-Tax Return on Average Equity(4) 29.0% 32.3% (3) Home sales revenue less home cost of sales as a percent of home sales revenue. (4) Based on last twelve months data. M.D.C. HOLDINGS, INC. Homebuilding Operational Data (Dollars in thousands) (Unaudited) March 31, December 31, March 31, 2006 2005 2005 LOTS OWNED AND CONTROLLED Lots Owned 24,263 23,445 24,021 Lots Under Option 17,304 18,819 16,895 Homes Completed or Under Construction (including models) 6,781 6,891 6,056 LOTS OWNED AND CONTROLLED BY MARKET (excluding homes under construction) Arizona 11,278 11,035 10,814 California 5,543 5,372 4,064 Colorado 5,572 5,837 5,581 Delaware Valley 1,679 1,754 923 Florida 4,144 4,403 3,979 Illinois 566 616 873 Maryland 1,772 1,852 1,803 Nevada 4,804 5,455 5,464 Utah 1,749 1,382 1,385 Virginia 4,015 4,007 3,880 Subtotal 41,122 41,713 38,766 Texas 445 551 2,150 Total Company 41,567 42,264 40,916 ACTIVE SUBDIVISIONS Arizona 58 54 42 California 42 34 28 Colorado 50 57 55 Delaware Valley 8 7 4 Florida 26 19 18 Illinois 7 8 4 Maryland 15 11 14 Nevada 41 43 34 Utah 21 18 18 Virginia 25 20 24 Subtotal 293 271 241 Texas 18 21 24 Total Company 311 292 265 Average for Quarter Ended 299 287 252 M.D.C. HOLDINGS, INC. Homebuilding Operational Data (Dollars in Thousands) (Unaudited) Three Months Ended March 31, AVERAGE SELLING PRICE 2006 2005 PER HOME CLOSED Arizona $285.2 $203.3 California 533.3 518.5 Colorado 296.5 282.5 Delaware Valley 412.0 -- Florida 297.7 186.4 Illinois 363.3 401.9 Maryland 570.3 423.7 Nevada 323.1 288.8 Texas 169.0 155.1 Utah 260.7 212.9 Virginia 596.2 484.2 Company Average $350.0 $290.3 Company Average (Without Texas) $358.2 $297.8 Three Months Ended March 31, 2006 2005 ORDERS FOR HOMES, NET (UNITS) Arizona 919 1,152 California 544 531 Colorado 451 664 Delaware Valley 39 43 Florida 272 320 Illinois 44 29 Maryland 152 145 Nevada 779 750 Utah 339 248 Virginia 194 343 Subtotal 3,733 4,225 Texas 67 321 Total 3,800 4,546 Estimated Value of Orders for Homes, net $1,360,000 $1,480,000 Estimated Average Selling Price of Orders for Homes, net $357.9 $325.6 Orders for Homes, Gross Before Cancellations (Units) 5,504 5,700 Orders for Homes, Gross Before Cancellations (Units, Without Texas) 5,360 5,212 Order Cancellation Rate(5) 31.0% 20.2% (5) Order Cancellation Rate is calculated as total cancelled home order contracts during a specified period of time as a percent of total home orders received during such time period. M.D.C. HOLDINGS, INC. Homebuilding Operational Data (Dollars in Thousands) (Unaudited) Three Months Ended March 31, HOMES CLOSED (UNITS) 2006 2005 Arizona 778 796 California 464 386 Colorado 399 448 Delaware Valley 31 -- Florida 252 295 Illinois 36 5 Maryland 74 74 Nevada 675 609 Utah 173 168 Virginia 177 212 Subtotal 3,059 2,993 Texas 139 165 Total 3,198 3,158 March 31, December 31, March 31, BACKLOG (UNITS) 2006 2005 2005 Arizona 2,240 2,099 2,499 California 845 765 952 Colorado 629 577 908 Delaware Valley 189 181 66 Florida 619 599 663 Illinois 88 80 42 Maryland 329 251 296 Nevada 1,127 1,023 887 Utah 504 338 369 Virginia 398 381 799 Subtotal 6,968 6,294 7,481 Texas 166 238 412 Total 7,134 6,532 7,893 Backlog Est. Sales Value $2,700,000 $2,440,000 $2,430,000 Estimated Average Selling Price of Homes in Backlog $378.5 $373.5 $307.9
SOURCE: M.D.C. Holdings, Inc.
CONTACT: Paris G. Reece III, Chief Financial Officer, +1-303-804-7706,
Web site: https://www.richmondamerican.com/