M.D.C. Holdings Announces 12% Increase in First Quarter Diluted Earnings per Share; Reports Quarterly Home Orders and Quarter-End Backlog22 April 2006
M.D.C. Holdings, Inc. (NYSE: MDC; PCX) today announced net income for the quarter ended March 31, 2006 of $95.4 million, or $2.08 per share, compared with net income of $84.6 million, or $1.86 per share, for the same period in 2005. Total revenue for the first quarter reached $1.14 billion, up 22% from the same period in 2005.
"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 http://www.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; (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: prnewswire
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