News
M.D.C. Holdings, Inc.
Net income for the nine months ended September 30, 2006 was $220.6 million, or $4.80 per diluted share, compared with net income of $308.2 million, or $6.70 per diluted share, for the same period in 2005. Total revenues for the nine months ended September 30, 2006 reached $3.46 billion, compared with $3.15 billion for the first nine months of 2005.
Larry A. Mizel, MDC's chairman and chief executive officer, stated, "The challenges experienced by the homebuilding industry during the first half of 2006 remained prevalent during the third quarter, as the operating environment in most markets became increasingly competitive in the face of continued expansion of unsold new and existing home inventories. In meeting these challenges, we have remained committed to the operating and financial disciplines that contributed to the achievement of our 'investment grade' financial position, with a focus on strengthening our balance sheet, generating cash flow and preserving capital for future opportunities to grow when our markets begin to return to more normal conditions."
Mizel continued, "We have continued to reduce the number of our lots controlled to maintain a level more consistent with our two-year supply objective. For more than a year, we have pursued modifications to pricing and terms of proposed and existing land acquisition contracts to comply with our more stringent underwriting guidelines, and we have continued to terminate contracts that do not meet these heightened standards. These actions have enabled us to reduce our lots under control by more than 25% since the beginning of the year, with less than 3% of our stockholders' equity at risk for our 11,000 optioned lots. In addition, our investment in land declined by almost $100 million in the third quarter alone, which contributed to our generating more than $70 million in cash flow from operations during this period. As a result, we ended the quarter with $1.36 billion in available cash and borrowing capacity, up 25% from last September."
Homebuilding Results
Homebuilding income before taxes for the quarter and nine months ended September 30, 2006 was $82.3 million and $385.8 million, respectively, compared with $211.3 million and $559.1 million for the same periods in 2005. The income decreases in the 2006 periods were driven by reduced home closings and significant declines in home gross margins from the all-time high levels achieved during the same periods in 2005, partially offset by the impact of increased average selling prices. In addition, homebuilding income before taxes for both the quarter and nine months ended September 30, 2006 was impacted adversely by non-cash, pre-tax inventory impairment charges of $19.9 million and $20.8 million, respectively, while no impairments were realized for the comparable periods in 2005. The Company closed 2,955 homes and produced home gross margins of 22.7% in the 2006 third quarter, compared with 3,686 home closings and home gross margins of 28.8% for the comparable period in 2005. For the nine months ended September 30, 2006, the Company closed 9,529 homes and produced home gross margins of 24.4%, compared with 10,356 home closings and home gross margins of 28.6% for the nine months ended September 30, 2005. Average selling prices reached $358,200 and $354,000, respectively, for the quarter and nine months ended September 30, 2006, up $46,800 and $55,200 from the same periods in 2005.
Homebuilding commissions, marketing, general and administrative ("SG&A") expenses were $137.0 million, or 12.9% of home sales revenue, for the 2006 third quarter, compared with $118.9 million, or 10.4% of home sales revenue, for the 2005 third quarter. For the nine months ended September 30, 2006, homebuilding SG&A expenses were $418.3 million, or 12.4% of home sales revenue, compared with $329.8 million, or 10.7% of home sales revenue, for the same period in 2005. The SG&A expenses for the three and nine months ended September 30, 2006 included project cost write-offs of $9.5 million and $23.0 million, respectively, compared with $2.5 million and $5.2 million of such costs for the same periods in 2005.
Paris G. Reece III, MDC's executive vice president and chief financial officer, said, "We experienced reduced home gross margins in each of our markets except Utah and Delaware Valley, with the most significant decreases occurring in Nevada and California, as has been the case in the previous 2006 quarters, as well as in Virginia, due to increased competition and extreme inventory pressures in that market. The $19.9 million in inventory impairment charges we recognized during the third quarter, which are not included in our home gross margins, primarily relate to five projects in California where we experienced a much slower than anticipated home order pace and significantly increased sales incentive requirements."
Reece continued, "Similar to our 2006 second quarter, we deferred $18.5 million in profits related to certain homes closed in the third quarter for which the Company's mortgage subsidiary originated high loan-to-value loans for our homebuyers and still held the loans in inventory at the end of the quarter. However, we more than offset this deferral by recognizing $30.7 million in profits that had been deferred in the second quarter, resulting in a net increase to homebuilding profits for the 2006 third quarter of $12.2 million. This net increase in profits raised third quarter home gross margins by 90 basis points and average selling prices by $4,100."
Reece concluded, "Our SG&A expenses increased year-over-year in the 2006 third quarter, primarily due to higher advertising expenses and commissions to outside brokers required in response to the more competitive home selling environment in most of our markets, as well as higher model home costs. Also, write-offs of project costs, which include option deposits and other costs related to lots that we have chosen not to acquire, increased by $7.0 million from the 2005 third quarter. Nevertheless, we experienced a sequential decline in our general and administrative expenses from the 2006 second quarter of almost $10.0 million, primarily reflecting reduced employee-related costs resulting from our efforts to right-size our homebuilding operations in view of current market conditions."
Improved Financial Services and Other Results
Income before taxes from the Company's financial services and other segment for the quarter and nine months ended September 30, 2006 increased to $13.0 million and $35.2 million, respectively, compared with $9.6 million and $18.9 million, respectively, during the same periods in the previous year. The profit improvements primarily resulted from higher gains on sales of mortgage loans, compared with the same periods in 2005. Increased dollar volumes of mortgage loan originations and mortgage loans sold during the 2006 periods drove the higher gains. The Company achieved these increased volumes by improving its mortgage capture rate, largely as a result of expanding the mortgage loan products that it could originate directly for its customers, and increasing its average loan amounts in connection with the Company's higher average selling prices.
Home Orders and Backlog
MDC received orders, net of cancellations, for 2,120 homes with an estimated sales value of $678.1 million during the 2006 third quarter, compared with net orders for 3,551 homes with an estimated sales value of $1.22 billion during the same period in 2005. For the nine months ended September 30, 2006, the Company received net orders for 8,658 homes with an estimated sales value of $2.95 billion, compared with 12,929 net orders with an estimated sales value of $4.40 billion for the nine months ended September 30, 2005. The Company ended the third quarter of 2006 with a backlog of 5,661 homes, compared with a backlog of 9,078 homes at September 30, 2005. The estimated sales value of backlog at the end of the 2006 third quarter was $2.10 billion, compared with $3.29 billion at September 30, 2005.
MDC, whose subsidiaries build homes under the name "Richmond American Homes," is one of the top ten homebuilders in the United States, based on 2005 revenues. The Company also provides mortgage financing, primarily for MDC's homebuyers, through its wholly owned subsidiary HomeAmerican Mortgage Corporation. MDC, a Fortune 500 Company, is a major regional homebuilder with a significant presence in Colorado, Jacksonville, Las Vegas, Maryland, Northern California, Northern Virginia, Phoenix, Salt Lake City, Southern California and Tucson. MDC also has established operating divisions in Chicago, Philadelphia/Delaware Valley and West Florida. For more information about our Company, please visit RichmondAmerican.com.
Forward-Looking Statements
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, including changes in cancellation rates, net home orders, home gross margins, and land and home values; (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 reports on Form 10-K/A for the year ended December 31, 2005, and Form 10-Q/A for the quarter ended June 30, 2006, which were 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. Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited) Three Months Nine Months Ended September 30, Ended September 30, 2006 2005 2006 2005 REVENUE Home sales revenue $1,058,408 $1,147,757 $3,372,799 $3,094,141 Land sales revenue 3,336 1,269 18,812 2,565 Other revenue 21,149 18,786 66,912 51,362 Total Revenue 1,082,893 1,167,812 3,458,523 3,148,068 COSTS AND EXPENSES Home cost of sales 818,015 817,330 2,550,018 2,208,882 Land cost of sales 3,210 706 18,124 1,496 Inventory impairments 19,915 -- 20,775 -- Marketing expenses 31,296 26,106 91,899 73,432 Commission expenses 36,390 30,736 106,627 85,262 General and administrative expenses 97,558 99,557 318,053 285,550 Related party expenses 88 51 1,891 214 Total Costs and Expenses 1,006,472 974,486 3,107,387 2,654,836 Income before income taxes 76,421 193,326 351,136 493,232 Provisions for income taxes (27,715) (72,336) (130,518) (184,988) NET INCOME $48,706 $120,990 $220,618 $308,244 EARNINGS PER SHARE Basic $1.08 $2.73 $4.91 $7.03 Diluted $1.06 $2.62 $4.80 $6.70 WEIGHTED-AVERAGE SHARES Basic 44,972 44,379 44,911 43,849 Diluted 45,868 46,258 45,932 46,006 M.D.C. HOLDINGS, INC. Consolidated Balance Sheets (Dollars in thousands, except per share amounts) (Unaudited) September 30, December 31, 2006 2005 ASSETS Cash and cash equivalents $132,844 $214,531 Restricted cash 5,082 6,742 Home sales receivables 75,120 134,270 Mortgage loans held in inventory 203,375 237,376 Inventories, net Housing completed or under construction 1,578,696 1,320,106 Land and land under development 1,662,034 1,677,948 Property and equipment, net 45,560 49,119 Deferred income taxes 77,259 54,319 Prepaid expenses and other assets, net 176,073 165,439 Total Assets $3,956,043 $3,859,850 LIABILITIES Accounts payable $200,703 $201,747 Accrued liabilities 424,436 442,409 Income taxes payable 14,821 102,656 Related party liabilities -- 8,100 Homebuilding line of credit -- -- Mortgage line of credit 152,369 156,532 Senior notes, net 996,583 996,297 Total Liabilities 1,788,912 1,907,741 COMMITMENTS AND CONTINGENCIES -- -- STOCKHOLDERS' EQUITY Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued or outstanding -- -- Common stock, $0.01 par value; 250,000,000 shares authorized; 44,995,000 and 44,981,000 issued and outstanding, respectively, at September 30, 2006 and 44,642,000 and 44,630,000 issued and outstanding, respectively, at December 31, 2005 450 447 Additional paid-in capital 750,013 722,291 Retained earnings 1,419,886 1,232,971 Unearned restricted stock (1,937) (2,478) Accumulated other comprehensive loss (622) (622) Less treasury stock, at cost; 14,000 and 12,000 shares, respectively, at September 30, 2006 and December 31, 2005 (659) (500) Total Stockholders' Equity 2,167,131 1,952,109 Total Liabilities and Stockholders' Equity $3,956,043 $3,859,850 M.D.C. HOLDINGS, INC. Information on Segments (Dollars in thousands) (Unaudited) Three Months Nine Months Ended September 30, Ended September 30, 2006 2005 2006 2005 REVENUE West $653,932 $631,171 $2,061,708 $1,734,412 Mountain 168,19 228,024 519,107 603,756 East 137,050 185,504 444,765 470,220 Other Homebuilding 105,553 105,558 374,299 293,266 Total Homebuilding 1,064,728 1,150,257 3,399,879 3,101,654 Financial Services and Other 18,105 17,318 57,969 44,955 Corporate 60 237 675 1,459 Consolidated $1,082,893 $1,167,812 $3,458,523 $3,148,068 INCOME BEFORE TAXES West $53,762 $135,954 $274,642 $385,522 Mountain 9,320 19,161 25,183 49,496 East 23,911 54,467 85,691 123,009 Other Homebuilding (4,660) 1,732 237 1,099 Total Homebuilding 82,333 211,314 385,753 559,126 Financial Services and Other 12,989 9,600 35,161 18,897 Corporate (18,901) (27,588) (69,778) (84,791) Consolidated $76,421 $193,326 $351,136 $493,232 September 30, December 31, 2006 2005 TOTAL ASSETS West $2,185,038 $2,113,384 Mountain 552,551 466,362 East 395,879 368,848 Other Homebuilding 323,079 359,151 Total Homebuilding 3,456,547 3,307,745 Financial Services and Other 261,610 253,365 Corporate 237,886 298,740 Consolidated $3,956,043 $3,859,850 M.D.C. HOLDINGS, INC. Selected Financial Data (Dollars in thousands) (Unaudited) Three Months Nine Months Ended September 30, Ended September 30, 2006 2005 2006 2005 SELECTED OPERATING DATA General and Administrative Expenses Homebuilding Operations 69,317 62,017 219,820 171,133 Financial Services and Other Operations 9,295 9,765 29,598 28,381 Corporate 18,946 27,775 68,635 86,036 Total 97,558 99,557 318,053 285,550 SG&A as a Percent of Home Sales Revenues Homebuilding Operations 12.9% 10.4% 12.4% 10.7% Corporate 1.8% 2.4% 2.1% 2.7% Total Homebuilding and Corporate 14.7% 12.8% 14.5% 13.4% Depreciation and Amortization $13,028 $12,932 $41,537 $34,518 Home Gross Margins (1) 22.7% 28.8% 24.4% 28.6% Cash Provided by (Used in) Operating Activities $70,928 $(228,992) $(41,343) $(557,036) Cash Used in Investing Activities $(2,893) $(6,394) $(7,224) $(18,118) Cash Provided by (Used in) Financing Activities $(26,675) $293,799 $(33,120) $293,965 Ending Unrestricted Cash and Available Borrowing Capacity $1,356,532 $1,084,347 N/A N/A After-Tax Return on Average Capital (2) 13.1% 18.7% N/A N/A After-Tax Return on Average Assets (2) 10.8% 15.4% N/A N/A After-Tax Return on Average Equity (2) 20.8% 29.8% N/A N/A Interest in Home Cost of Sales as a Percent of Home Sales Revenue 1.2% 0.6% 1.1% 0.7% Corporate and Homebuilding Interest Capitalized Interest Capitalized in Inventories at Beginning of Period $48,569 $30,293 $41,999 $24,220 Interest Capitalized During the Period 14,150 14,615 43,993 36,540 Interest in Home and Land Cost of Sales for the Period 12,574 7,030 35,847 22,882 Interest Capitalized in Inventories at End of Period $50,145 $37,878 $50,145 $37,878 Interest Capitalized as a Percent of Inventories 1.5% 1.3% N/A N/A (1) Home sales revenue less home cost of sales (excluding commissions, amortization of deferred marketing and inventory impairments) as a percent of home sales revenue. (2) Based on last twelve months data. M.D.C. HOLDINGS, INC. Homebuilding Operational Data (Dollars in thousands) (Unaudited) September 30, December 31, September 30, 2006 2005 2005 LOTS OWNED AND CONTROLLED Lots Owned 20,613 23,445 21,660 Lots Under Option 10,952 18,819 22,327 Homes Completed or Under Construction 6,594 6,891 9,217 LOTS OWNED BY MARKET (excluding homes completed or under construction) Arizona 6,958 7,385 7,229 California 3,051 3,367 2,632 Colorado 3,325 3,639 3,560 Delaware Valley 283 471 367 Florida 1,220 1,201 970 Illinois 300 430 474 Maryland 505 679 734 Nevada 3,096 4,055 3,482 Texas 69 471 569 Utah 1,132 964 881 Virginia 674 783 762 Total Company 20,613 23,445 21,660 LOTS UNDER OPTION BY MARKET Arizona 1,283 3,650 3,830 California 1,053 2,005 3,139 Colorado 1,304 2,198 3,187 Delaware Valley 874 1,283 1,111 Florida 1,999 3,202 3,411 Illinois 47 186 186 Maryland 1,034 1,173 1,156 Nevada 627 1,400 1,639 Texas -- 80 951 Utah 272 418 568 Virginia 2,459 3,224 3,149 Total Company 10,952 18,819 22,327 Non-refundable Option Deposits Cash $34,034 $48,157 $50,050 Letters of Credit 16,069 23,142 25,728 Total Non-refundable Option Deposits $50,103 $71,299 $75,778 M.D.C. HOLDINGS, INC. Homebuilding Operational Data (Dollars in Thousands) (Unaudited) Three Months Nine Months Ended September 30, Ended September 30, 2006 2005 2006 2005 HOMES CLOSED (UNITS) Arizona 716 895 2,337 2,550 California 383 475 1,252 1,238 Colorado 334 599 1,154 1,615 Delaware Valley 50 17 122 18 Florida 195 252 702 832 Illinois 46 19 119 40 Maryland 104 106 290 260 Nevada 696 616 2,109 1,851 Texas 75 214 366 616 Utah 206 239 580 640 Virginia 150 254 498 696 Total Company 2,955 3,686 9,529 10,356 AVERAGE SELLING PRICE PER HOME CLOSED Arizona $311.8 $221.2 $303.6 $215.0 California 520.7 510.5 542.8 509.2 Colorado 301.4 287.7 302.2 285.7 Delaware Valley 394.3 362.2 396.5 361.3 Florida 275.6 226.2 290.1 205.3 Illinois 365.6 411.7 367.7 426.5 Maryland 576.1 513.5 573.8 458.6 Nevada 317.8 307.6 320.6 298.1 Texas 164.0 162.7 167.1 159.1 Utah 321.5 226.9 293.0 219.0 Virginia 486.2 515.9 555.2 503.4 Company Average $358.2 $311.4 $354.0 $298.8 ORDERS FOR HOMES, NET (UNITS) Arizona 680 798 2,278 3,040 California 273 504 1,209 1,737 Colorado 196 469 938 1,727 Delaware Valley 36 56 110 156 Florida 81 238 530 917 Illinois 20 53 82 113 Maryland 70 89 320 365 Nevada 436 829 1,734 2,788 Texas 1 162 158 672 Utah 251 257 916 741 Virginia 76 96 383 673 Total Company 2,120 3,551 8,658 12,929 Estimated Value of Orders for Homes, net $678,110 $1,223,834 $2,952,362 $4,402,203 Estimated Average Selling Price of Orders for Homes, net $319.9 $344.6 $341.0 $340.5 Order Cancellation Rate (3) 48.5% 25.7% 40.1% 21.5% (3) Gross number of cancellations received divided by gross number of orders received. M.D.C. HOLDINGS, INC. Homebuilding Operational Data (Dollars in Thousands) (Unaudited) September 30, December 31, September 30, BACKLOG (UNITS) 2006 2005 2005 Arizona 2,040 2,099 2,633 California 722 765 1,306 Colorado 361 577 804 Delaware Valley 169 181 161 Florida 427 599 723 Illinois 43 80 91 Maryland 281 251 330 Nevada 648 1,023 1,683 Texas 30 238 312 Utah 674 338 390 Virginia 266 381 645 Total Company 5,661 6,532 9,078 Backlog Estimated Sales Value $2,100,000 $2,440,000 $3,290,000 Estimated Average Selling Price of Homes in Backlog $371.0 $373.5 $362.4 ACTIVE SUBDIVISIONS Arizona 65 54 46 California 46 34 28 Colorado 45 57 56 Delaware Valley 7 7 6 Florida 29 19 19 Illinois 7 8 8 Maryland 17 11 10 Nevada 37 43 47 Texas 2 21 24 Utah 21 18 16 Virginia 19 20 20 Total Company 295 292 280 Average for Quarter Ended 296 287 281
First Call Analyst:
FCMN Contact: lynn.gore@mdch.com
SOURCE: M.D.C. Holdings, Inc.
CONTACT: Paris G. Reece III, Chief Financial Officer, +1-303-804-7706,
+1-720-977-3554,
Web site: https://www.richmondamerican.com/