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DENVER, July 20 /PRNewswire-FirstCall/ -- M.D.C. Holdings, Inc. (NYSE: MDC; PCX) today announced net income for the quarter ended June 30, 2006 of $76.5 million, or $1.66 per diluted share, compared with net income of $102.6 million, or $2.25 per diluted share, for the same period in 2005. Total revenue for the second quarter reached $1.23 billion, compared with revenue of $1.05 billion for the same period in 2005.
Net income for the six months ended June 30, 2006 was $171.9 million, or $3.74 per diluted share, compared with net income of $187.3 million, or $4.10 per diluted share, for the same period in 2005. Total revenues for the six months ended June 30, 2006 reached $2.38 billion, compared with $1.98 billion for the first six months of 2005.
Larry A. Mizel, MDC's chairman and chief executive officer, stated, "During the first six months of 2006, the generally robust demand characteristics of the last several years have given way to an increasingly competitive environment in many of the country's key markets. Throughout this period, we focused on strengthening our 'investment grade' balance sheet and financial position, and preserving our capital. As a result, we maintained our leverage ratios at levels that rank among the best in our industry. And our cash and available borrowing capacity at quarter-end grew to more than $1.3 billion for the first time."
Mizel continued, "Due in part to the tightening of our underwriting standards for new land acquisition opportunities, we reduced our investment in land in the second quarter. Our continuing efforts to right-size our portfolio of lots controlled in accordance with current market order absorption rates resulted in a 13% year-to-date reduction in the number of lots we own and control, bringing us closer to our two-year lot supply objective. In addition, as we do every quarter, we evaluated the carrying value of the land positions on our balance sheet and determined that no impairments were required."
Mizel concluded, "While the length and severity of the current market adjustment is uncertain, we are hopeful that the fundamental drivers still present in most of our markets will in due course return the homebuilding industry to more healthy levels of demand. Irrespective of the timing of an industry turnaround, we remain committed to our conservative operating model and financial and operational disciplines. The resulting strength of our balance sheet, relatively short supply of lots and substantial cash and borrowing capacity, combined with our continuing efforts to reduce costs and expenses and improve our operating efficiencies, give us flexibility to take advantage of opportunities that may be presented in this challenging environment."
Homebuilding Results
Homebuilding operating profits for the quarter and six months ended June 30, 2006 were $133.3 million and $307.0 million, respectively, compared with profits of $187.6 million and $350.1 million for the same periods in 2005. The Company closed 3,376 homes and produced home gross margins of 23.2% in the 2006 second quarter, compared with 3,512 home closings and home gross margins of 28.6% for the comparable period in 2005. For the six months ended June 30, 2006, the Company closed 6,574 homes and produced home gross margins of 25.2%, compared with 6,670 home closings and home gross margins of 28.5% for the six months ended June 30, 2005. Average selling prices reached $354,000 and $352,100, respectively, for the quarter and six months ended June 30, 2006, up $60,800 and $60,300 from the same periods in 2005.
Homebuilding selling, general and administrative expenses were $148.9 million, or 12.5% of home sales revenue, for the 2006 second quarter, compared with $110.9 million, or 10.8% of home sales revenue, for the 2005 second quarter. For the six months ended June 30, 2006, homebuilding selling, general and administrative expenses were $283.1 million, or 12.2% of home sales revenue, compared with $212.1 million, or 10.9% of home sales revenue, for the same period in 2005.
Paris G. Reece III, MDC's executive vice president and chief financial officer, said, "As was the case in the prior quarter, we experienced significant year-over-year home gross margin decreases in Nevada and California. Our second quarter home gross margin in Nevada continued a year-long decline from extraordinary levels to a margin much closer to our Company average. Reduced margins in California reflect the impact of increased competition and inventory pressures that have been among the greatest in the country."
Reece continued, "A significant portion of the 2006 second quarter decline in home gross margins (120 basis points) and homebuilding profits ($19.4 million) resulted from the net impact of deferring profits related to certain homes closed 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. The Company will recognize the deferred profit at the time these mortgages are sold to a third-party purchaser, which occurs generally within 45 days of loan origination."
Reece concluded, "Our selling costs increased in the 2006 second 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. General and administrative expenses also rose in the quarter, primarily as a result of a $7.9 million increase in write-offs of project costs, which included option deposits and other costs related to lots that we have chosen not to acquire. In addition we experienced higher compensation and other employee benefit related costs and supervisory fees charged by our corporate office to our homebuilding segment."
Improved Financial Services Results
Operating profits from the Company's financial services business for the quarter and six months ended June 30, 2006 increased to $10.2 million and $18.5 million, respectively, compared with $4.1 million and $7.0 million, respectively, during the same periods in the previous year. The profit improvements primarily were due to higher gains on sales of mortgage loans, compared with the same periods in 2005. Increased volumes of mortgage loan originations and mortgage loans sold during the 2006 periods drove the higher gains. The Company achieved these increased originations by, among other things, 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 2,738 homes with a sales value of $914.0 million during the 2006 second quarter, compared with net orders for 4,832 homes with a sales value of $1.70 billion during the same period in 2005. For the six months ended June 30, 2006, the Company received net orders for 6,538 homes with a sales value of $2.27 billion, compared with 9,378 net orders with a sales value of $3.18 billion for the six months ended June 30, 2005. The Company ended the second quarter of 2006 with a backlog of 6,496 homes, compared with a backlog of 9,213 homes at June 30, 2005. The estimated sales value of backlog at the end of the 2006 second quarter was $2.44 billion, compared with $3.14 billion in estimated sales value of backlog at June 30, 2005.
Reece stated, "Each of our markets, with the exception of Utah, experienced a year-over-year decline in net home orders, driven in part by a significant increase in our cancellation rate, which rose to 43% from 19% in the second quarter of 2005. Excluding Utah and Texas, all of our markets saw their cancellation rates rise by more than 1,000 basis points from last year's second quarter, related largely to substantial expansions in the supply of new and previously owned homes available to be purchased in these markets.
These increased sources of competition resulted in, among other things, an elevated number of order cancellations from prospective homebuyers who were unable to sell their existing homes in this more competitive sales environment. In addition to the cancellation impact, given the uncertainty in today's residential real estate market, we believe that many buyers are waiting on the sidelines, choosing to delay home purchases until the market works through this period of transition. We have responded by increasing incentives at a measured pace, with the objective of improving our sales velocity under current market conditions without compromising our commitment to a quality product or our strong financial position."
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 some of the country's best housing markets, including 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, Dallas/Fort Worth, Houston, 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 for the year ended December 31, 2005, and Form 10-Q for the quarter ended March 31, 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.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
REVENUE
Homebuilding $1,213,037 $1,033,294 $2,337,891 $1,954,624
Financial Services 19,716 12,812 37,124 24,410
Corporate 183 234 615 1,222
Total Revenue 1,232,936 1,046,340 2,375,630 1,980,256
COSTS AND EXPENSES
Homebuilding 1,079,763 845,669 2,030,848 1,604,489
Financial Services 9,480 8,685 18,575 17,436
Corporate 21,332 27,946 49,689 58,262
Related Party Expenses 127 63 1,803 163
Total Costs and
Expenses 1,110,702 882,363 2,100,915 1,680,350
Income before income taxes 122,234 163,977 274,715 299,906
Provision for income taxes (45,743) (61,354) (102,803) (112,652)
NET INCOME $76,491 $102,623 $171,912 $187,254
EARNINGS PER SHARE
Basic $1.70 $2.35 $3.83 $4.30
Diluted $1.66 $2.25 $3.74 $4.10
WEIGHTED-AVERAGE SHARES
OUTSTANDING
Basic 44,939 43,718 44,880 43,584
Diluted 45,972 45,703 45,967 45,649
DIVIDENDS DECLARED PER
SHARE $.25 $.18 $.50 $.33
M.D.C. HOLDINGS, INC.
Information on Business Segments
(In thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
HOMEBUILDING
Home sales $1,195,083 $1,029,553 $2,314,391 $1,946,384
Land sales 13,639 -- 15,476 1,296
Other revenue 4,315 3,741 8,024 6,944
Total Homebuilding
Revenue 1,213,037 1,033,294 2,337,891 1,954,624
Home cost of sales 917,414 734,772 1,732,003 1,391,552
Land cost of sales 13,400 -- 15,774 790
Marketing expenses 31,568 25,008 60,603 47,326
Commission expenses 37,394 28,680 70,237 54,526
General and administrative
expenses 79,987 57,209 152,231 110,295
Total Homebuilding
Expenses 1,079,763 845,669 2,030,848 1,604,489
HOMEBUILDING OPERATING
PROFIT 133,274 187,625 307,043 350,135
FINANCIAL SERVICES
Net interest income 1,123 728 1,979 1,255
Broker fees 2,343 2,665 4,423 4,833
Gains on sales of mortgage
loans, net 15,439 8,748 28,466 16,646
Other revenue 811 671 2,256 1,676
Total Financial Services
Revenue 19,716 12,812 37,124 24,410
General and Administrative
Expenses 9,480 8,685 18,575 17,436
FINANCIAL SERVICES
OPERATING PROFIT 10,236 4,127 18,549 6,974
TOTAL OPERATING PROFIT 143,510 191,752 325,592 357,109
CORPORATE
Interest and other revenue 183 234 615 1,222
Related party expenses (127) (63) (1,803) (163)
General and administrative
expenses (21,332) (27,946) (49,689) (58,262)
INCOME BEFORE INCOME TAXES $122,234 $163,977 $274,715 $299,906
M.D.C. HOLDINGS, INC.
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
(Unaudited)
June 30, December 31,
2006 2005
ASSETS
Corporate
Cash and cash equivalents $70,665 $196,032
Property and equipment, net 29,238 30,660
Deferred income taxes 71,131 54,319
Deferred debt issue costs, net 6,596 6,937
Other assets, net 11,675 10,792
189,305 298,740
Homebuilding
Cash and cash equivalents 18,851 16,671
Restricted cash 6,855 6,742
Home sales and other accounts
receivable 98,629 134,270
Inventories, net
Housing completed or under
construction 1,512,009 1,320,106
Land and land under development 1,760,077 1,677,948
Prepaid expenses and other assets,
net 131,150 139,529
3,527,571 3,295,266
Financial Services
Cash and cash equivalents 1,968 1,828
Mortgage loans held in inventory 163,373 237,376
Other assets, net 74,719 26,640
240,060 265,844
Total Assets $3,956,936 $3,859,850
M.D.C. HOLDINGS, INC.
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
(Unaudited)
June 30, December 31,
2006 2005
LIABILITIES
Corporate
Accounts payable and accrued
liabilities $93,193 $117,767
Income taxes payable 30,933 102,656
Related party liabilities -- 8,100
Senior notes, net 996,486 996,297
1,120,612 1,224,820
Homebuilding
Accounts payable 226,433 203,592
Accrued liabilities 301,977 291,827
Line of credit -- --
528,410 495,419
Financial Services
Accounts payable and accrued
liabilities 13,518 30,970
Line of credit 168,163 156,532
181,681 187,502
Total Liabilities 1,830,703 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;
44,981,000 and 44,967,000 shares
issued and outstanding, respectively,
at June 30, 2006 and 44,642,000 and
44,630,000 shares issued and
outstanding, respectively, at
December 31, 2005 450 446
Additional paid-in capital 746,637 722,292
Retained earnings 1,382,427 1,232,971
Unearned restricted stock (2,000) (2,478)
Accumulated other comprehensive loss (622) (622)
Less treasury stock, at cost; 14,000
and 12,000 shares, respectively,
at June 30, 2006 and December 31,
2005 (659) (500)
Total Stockholders' Equity 2,126,233 1,952,109
Total Liabilities and Stockholders'
Equity $3,956,936 $3,859,850
M.D.C. HOLDINGS, INC.
Selected Financial Data
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
SELECTED OPERATING DATA
SG&A as a Percent of
Home Sales Revenues
Homebuilding 12.5% 10.8% 12.2% 10.9%
Corporate 1.8% 2.7% 2.3% 3.0%
Total 14.3% 13.5% 14.5% 13.9%
Depreciation and
Amortization $14,881 $11,592 $28,509 $21,586
Home Gross Margins(3) 23.2% 28.6% 25.2% 28.5%
Cash Used in Operating
Activities $(3,828) $(209,711) $(112,271) $(328,044)
Cash Used in Investing
Activities $(2,693) $(7,061) $(4,331) $(11,724)
Cash Provided by
(Used in) Financing
Activities $(67,734) $59,311 $(6,445) $166
Unrestricted Cash
and Available
Borrowing
Capacity $1,311,515 $1,037,502 N/A N/A
After-Tax Return on
Total Revenue(4) 6.2% 9.8% 7.2% 9.5%
After-Tax Return on
Average Assets(4) 13.3% 16.3% N/A N/A
After-Tax Return on
Average Equity 25.8% 31.2% N/A N/A
Interest in Home Cost
of Sales as a Percent
of Home Sales Revenue 1.1% 0.8% 1.0% 0.8%
Corporate and
Homebuilding Interest
Capitalized Interest
Capitalized in
Inventories at
Beginning of Period $47,222 $27,741 $41,999 $24,220
Interest Incurred
During the Period 15,002 11,110 29,843 21,925
Interest in Home and
Land Cost of Sales
for the Period 13,655 8,558 23,273 15,852
Interest Capitalized
in Inventories at End
of Period 48,569 30,293 48,569 30,293
Interest Capitalized
as a Percent of
Inventories 1.5% 1.2% N/A N/A
(3) Home sales revenue less home cost of sales (excluding commissions) 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)
June 30, December 31, June 30,
2006 2005 2005
LOTS OWNED AND CONTROLLED
Lots Owned 22,484 23,445 22,721
Lots Under Option 14,192 18,819 20,327
Homes Completed or Under
Construction (including models) 6,874 6,891 7,891
LOTS OWNED AND CONTROLLED BY MARKET
(excluding homes under
construction)
Arizona 9,983 11,035 11,763
California 4,901 5,372 4,216
Colorado 5,175 5,837 6,541
Delaware Valley 1,338 1,754 1,586
Florida 3,674 4,403 4,259
Illinois 451 616 771
Maryland 1,714 1,852 1,829
Nevada 4,187 5,455 5,143
Utah 1,712 1,382 1,270
Virginia 3,464 4,007 3,795
Subtotal 36,599 41,713 41,173
Texas 77 551 1,875
Total Company 36,676 42,264 43,048
ACTIVE SUBDIVISIONS
Arizona 61 54 44
California 45 34 31
Colorado 45 57 55
Delaware Valley 7 7 5
Florida 28 19 23
Illinois 7 8 5
Maryland 18 11 14
Nevada 35 43 45
Utah 20 18 17
Virginia 23 20 18
Subtotal 289 271 257
Texas 4 21 25
Total Company 293 292 282
Average for Quarter Ended 300 287 275
M.D.C. HOLDINGS, INC.
Homebuilding Operational Data
(Dollars in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
AVERAGE SELLING PRICE 2006 2005 2006 2005
PER HOME CLOSED
Arizona $313.6 $219.5 $300.0 $211.7
California 574.5 498.1 552.5 508.4
Colorado 308.3 286.2 302.6 284.6
Delaware Valley 387.5 347.3 398.0 347.3
Florida 293.5 206.4 295.6 196.3
Illinois 374.5 451.6 369.0 439.8
Maryland 573.9 418.2 572.5 420.8
Nevada 320.9 297.7 321.9 293.3
Texas 166.8 158.6 167.9 157.2
Utah 291.5 215.1 277.3 214.2
Virginia 573.3 507.4 584.9 496.3
Company Average $354.0 $293.2 $352.1 $291.8
Company Average
Without Texas $362.8 $302.9 $360.6 $300.4
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
ORDERS FOR HOMES,
NET (UNITS)
Arizona 679 1,090 1,598 2,242
California 392 702 936 1,233
Colorado 291 594 742 1,258
Delaware Valley 35 57 74 100
Florida 177 359 449 679
Illinois 18 31 62 60
Maryland 98 131 250 276
Nevada 519 1,209 1,298 1,959
Utah 326 236 665 484
Virginia 113 234 307 577
Subtotal 2,648 4,643 6,381 8,868
Texas 90 189 157 510
Total 2,738 4,832 6,538 9,378
Estimated Value of
Orders for Homes,
net $914,010 $1,702,759 $2,274,252 $3,178,369
Estimated Average
Selling Price of
Orders for Homes,
net $333.8 $352.4 $347.9 $338.9
Order Cancellation
Rate(5) 43.2% 19.3% 36.7% 19.8%
(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 Six Months Ended
June 30, June 30,
HOMES CLOSED (UNITS) 2006 2005 2006 2005
Arizona 843 859 1,621 1,655
California 405 377 869 763
Colorado 421 568 820 1,016
Delaware Valley 41 1 72 1
Florida 255 285 507 580
Illinois 37 16 73 21
Maryland 112 80 186 154
Nevada 738 626 1,413 1,235
Utah 201 233 374 401
Virginia 171 230 348 442
Subtotal 3,224 3,275 6,283 6,268
Texas 152 237 291 402
Total 3,376 3,512 6,574 6,670
BACKLOG (UNITS) June 30, December 31, June 30,
2006 2005 2005
Arizona 2,076 2,099 2,730
California 832 765 1,277
Colorado 499 577 934
Delaware Valley 183 181 122
Florida 541 599 737
Illinois 69 80 57
Maryland 315 251 347
Nevada 908 1,023 1,470
Utah 629 338 372
Virginia 340 381 803
Subtotal 6,392 6,294 8,849
Texas 104 238 364
Total 6,496 6,532 9,213
Backlog Est. Sales
Value $2,440,000 $2,440,000 $3,140,000
Estimated Average
Selling Price
of Homes in Backlog $375.6 $373.5 $340.8
SOURCE M.D.C. Holdings, Inc.
07/20/2006
CONTACT:
Paris G. Reece III,
Chief Financial Officer,
+1-303-804-7706,
greece@mdch.com,
or
Robert N. Martin,
Investor Relations,
+1-720-977-3431,
bob.martin@mdch.com,
or
Alison Schuller,
Corporate Communications,
+1-720-977-3554,
alison.schuller@mdch.com,
all of M.D.C. Holdings, Inc.
Web site: http://www.richmondamerican.com
(MDC)