M.D.C. HOLDINGS, INC. - FORM 8-K - EX-99.1 - PRESS RELEASE

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8-K - FORM 8-K - M.D.C. HOLDINGS, INC.	d342279d8k.htm

Exhibit 99.1

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M.D.C. HOLDINGS, INC.

News Release

M.D.C. HOLDINGS ANNOUNCES 2012 FIRST QUARTER RESULTS

DENVER, COLORADO, Thursday, May 3, 2012. M.D.C. Holdings, Inc. (NYSE: MDC) announced results for the quarter ended March 31, 2012.

2012 First Quarter Highlights and Comparisons to 2011 First Quarter

•

Net income of $2.3 million, or $0.04 per diluted share, vs. net loss of $19.9 million, or $0.43 per diluted share

•

Net new orders of 1,063, up 51%

•

Backlog of 1,487 homes, up 50%

•

Home sale revenues of $184.7 million, up 13%

•

619 homes closed, up 12%

•

Homebuilding SG&A expenses of $34.1 million, a decrease of $13.5 million, or 28%

•

G&A expense included $3.8 million in litigation recoveries

•

SG&A as a percentage of home sale revenues of 18.5%, a 1,070 basis point improvement

•

Interest expense of $0.8 million, a $7.9 million decrease

•

Unrestricted cash and investments of $816 million, which exceeded total homebuilding debt by $72 million

Larry A. Mizel, MDC’s chairman and chief executive officer, stated, “I am pleased to announce our first pretax profit since the 2006 third quarter. This achievement represents the significant progress we have made over the last several quarters in implementing our initiatives to streamline our business, improve our sales, reduce our overhead and cut our capital costs. As a result of these efforts, we have reduced our homebuilding SG&A expenses by over $13 million as compared to the 2011 first quarter and cut our interest expense by nearly $8 million during that same period.”

Mr. Mizel continued, “We recorded our strongest first quarter order level in four years, with net orders up 51% year-over-year to 1,063 homes. The improvement in orders reflects the general improvement in the housing market, the impact of successful changes we have implemented with our sales processes and product offerings, and a reduction in our cancellation rate.”

Mr. Mizel concluded, “We are encouraged by our first quarter results and believe that the recent improvement in sales demand, our ongoing efforts to reduce overhead, and our focus on improving gross margins, coupled with our strong balance sheet and liquidity, will help us pursue our goal of reaching profitability in 2012.”

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M.D.C. HOLDINGS, INC.

For the 2012 first quarter, the Company reported net income of $2.3 million, or $0.04 per diluted share, compared to a net loss of $19.9 million, or $0.43 per diluted share for the year earlier period. The improvement in quarterly performance was driven primarily by a 13% increase in home sale revenues, a $13.5 million decrease in our homebuilding selling, general and administrative expenses, and a $7.9 million decrease in interest expense.

Homebuilding

Home sale revenues for the 2012 first quarter increased 13% to $184.7 million compared to $163.4 million for the prior year period. The increase in revenues resulted primarily from a 12% increase in homes closed to 619 homes as compared to 554 in the prior year. The Company’s average selling price for homes closed was up in most of its markets. However, on a consolidated basis, it was essentially flat at $298,300 for the 2012 first quarter due to a mix shift in closings.

Gross margin from home sales for the 2012 first quarter was 14.1% versus 13.5% for the year earlier period and 14.6% for the 2011 fourth quarter. The 2011 first quarter included $0.3 million in inventory impairments and a $0.4 million benefit related to a warranty accrual reduction, while the 2012 first quarter did not include any inventory impairments or warranty accrual adjustments and the 2011 fourth quarter included $0.8 million in inventory impairments and a $2.3 million benefit related to a warranty accrual reduction.

Excluding inventory impairments, warranty accrual adjustments and previously capitalized interest in cost of sales, adjusted gross margin from home sales was 16.7%* for the 2012 first quarter, higher than the 16.0%* for the 2011 first quarter and relatively flat compared to 16.8%* for the 2011 fourth quarter. The 70 basis point year-over-year improvement in the Company’s adjusted gross margin from home sales was driven by closing a significantly higher percentage of homes started with buyers under contract, which historically have been more profitable than homes started without a buyer under contract.

The Company’s 2012 first quarter homebuilding selling, general and administrative (“SG&A”) expenses (includes Corporate general and administrative expenses) decreased 28% to $34.1 million, compared to $47.7 million for 2011 first quarter. The primary factors contributing to the decrease in SG&A expenses were a $7.0 million reduction in compensation-related expenses and $3.8 million in legal recoveries. SG&A expenses included $0.9 million in restructuring charges related to employee severance costs incurred in connection with further adjusting the size of the Company’s workforce.

Net new orders for the 2012 first quarter increased 51% to 1,063 homes, compared to 705 homes during the same period in 2011. The Company’s monthly sales absorption rate for the 2012 first quarter was 1.9 per community, compared to 1.5 per community for the 2011 first quarter and 0.9 per community for the 2011 fourth quarter. The Company’s cancellation rate for the 2012 first quarter was 21% versus 32% in the prior year first quarter and 43% in the 2011 fourth quarter.

LOGO

M.D.C. HOLDINGS, INC.

The Company ended the 2012 first quarter with 1,487 homes in backlog, its highest backlog level since the 2008 second quarter, with an estimated sales value of $477 million, compared with a backlog of 993 homes with an estimated sales value of $312 million at March 31, 2011.

Financial Services

Income before taxes from our financial services segment for the 2012 first quarter was $4.9 million, compared to $1.8 million for the 2011 first quarter. The increase in pretax income primarily reflected a $2.3 million increase in our mortgage operations pretax income from $1.0 million in the 2011 first quarter to $3.3 million for the 2012 first quarter. The improvement in our mortgage profitability was driven largely by a $1.2 million increase in the gains on sales of mortgage loans due to favorable mortgage market conditions, a decrease in the level of special financing programs that we offered our homebuyers, combined with a $0.6 million decrease in our loan loss reserve and a $0.6 million reduction in other overhead expenses.

Change in Financial Presentation

For the 2012 first quarter, we changed the presentation of our financial statements to provide enhanced disclosure on our homebuilding and financial services segments. Certain items were reclassified to conform to current period presentation.

About MDC

Since 1972, MDC’s subsidiary companies have built and financed the American dream for more than 165,000 homebuyers. MDC’s commitment to customer satisfaction, quality and value is reflected in each home its subsidiaries build. MDC is one of the largest homebuilders in the United States. Its subsidiaries have homebuilding operations across the country, including the metropolitan areas of Denver, Colorado Springs, Salt Lake City, Las Vegas, Phoenix, Tucson, Riverside-San Bernardino, Los Angeles, San Francisco Bay Area, Washington D.C., Baltimore, Philadelphia, Jacksonville and Seattle. The Company’s subsidiaries also provide mortgage financing, insurance and title services, primarily for Richmond American homebuyers, through HomeAmerican Mortgage Corporation, American Home Insurance Agency, Inc. and American Home Title and Escrow Company, respectively. M.D.C. Holdings, Inc. is traded on the New York Stock Exchange under the symbol “MDC.” For more information, visit www.mdcholdings.com.

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M.D.C. HOLDINGS, INC.

Forward-Looking Statements

Certain statements in this release, including statements regarding our business, financial condition, results of operation, cash flows, strategies and prospects, 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 conditions, including changes in consumer confidence, inflation or deflation and employment levels; (2) changes in business conditions experienced by the Company, including cancellation rates, net home orders, home gross margins, and land and home values; (3) changes in interest rates, mortgage lending programs and the availability of credit; (4) changes in the market value of the Company’s investments in marketable securities; (5) uncertainty in the mortgage lending industry, including repurchase requirements associated with HomeAmerican’s sale of mortgage loans (6) the relative stability of debt and equity markets; (7) competition; (8) the availability and cost of land and other raw materials used by the Company in its homebuilding operations; (9) the availability and cost of performance bonds and insurance covering risks associated with our business; (10) shortages and the cost of labor; (11) weather related slowdowns; (12) slow growth initiatives; (13) building moratoria; (14) governmental regulation, including the interpretation of tax, labor and environmental laws; (15) terrorist acts and other acts of war; and (16) 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, 2011. 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 update publicly 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 webcasts should be consulted.

Contact:

Robert N. Martin

Vice President of Finance

(720) 977-3431

bob.martin@mdch.com

*	Please see “Reconciliation of Non-GAAP Financial Measures” on page 12.

M.D.C. HOLDINGS, INC.

Consolidated Statements of Operations and Comprehensive Income


	Three Months Ended March 31,
	2012			2011
	(Dollars in thousands, except per share amounts)
	(Unaudited)
Homebuilding:
Home sale revenues	$	184,678		$	163,383
Land sale revenues		1,590			204

Total home sale and land revenues		186,268			163,587

Home cost of sales		(158,654	)		(140,981	)
Land cost of sales		(1,490	)		(17	)
Inventory impairments		—			(279	)

Total cost of sales		(160,144	)		(141,277	)

Gross margin		26,124			22,310

Selling, general and administrative expenses		(34,124	)		(47,654	)
Interest income		5,913			6,488
Interest expense		(808	)		(8,667	)
Other income (expense)		158			2,039

Homebuilding pretax loss		(2,737	)		(25,484	)

Financial Services:
Revenues		7,720			5,703
Expenses		(2,858	)		(3,923	)

Financial services pretax income		4,862			1,780

Income (loss) before income taxes		2,125			(23,704	)
Benefit (provision) for income taxes		140			3,825

Net income (loss)	$	2,265		$	(19,879	)

Other comprehensive income (loss):
Unrealized gain related to available-for-sale securities		6,548			3,303

Comprehensive income (loss)	$	8,813		$	(16,576	)

Earnings (loss) per share:
Basic	$	0.04		$	(0.43	)
Diluted	$	0.04		$	(0.43	)
Weighted Average Common Shares Outstanding:
Basic		47,311,840			46,716,562
Diluted		47,575,470			46,716,562
Dividends declared per share	$	0.25		$	0.25

M.D.C. HOLDINGS, INC.

Consolidated Balance Sheets


	March 31, 2012			December 31, 2011
	March 31, 2012			December 31, 2011
	(Dollars in thousands, except per share amounts)
	(Unaudited)
ASSETS
Homebuilding:
Cash and cash equivalents	$	263,303		$	316,418
Marketable securities		494,277			485,434
Restricted cash		1,080			667
Trade and other receivables		34,059			21,593
Inventories:
Housing completed or under construction		346,665			300,714
Land and land under development		488,442			505,338
Property and equipment, net		35,373			36,277
Deferred tax asset, net of valuation allowance of $277,185 and $281,178 at March 31, 2012 and December 31, 2011, respectively		—			—
Prepaid expenses and other assets		46,310			50,423

Total homebuilding assets		1,709,509			1,716,864
Financial Services:
Cash and cash equivalents		22,436			26,943
Marketable securities		35,955			34,509
Mortgage loans held-for-sale, net		54,990			78,335
Prepaid expenses and other assets		2,681			2,074

Total financial services assets		116,062			141,861

Total Assets	$	1,825,571		$	1,858,725

LIABILITIES AND EQUITY
Homebuilding:
Accounts payable	$	33,416		$	25,645
Accrued liabilities		104,605			119,188
Senior notes, net		744,288			744,108

Total homebuilding liabilities		882,309			888,941
Financial Services:
Accounts payable and accrued liabilities		49,356			52,446
Mortgage repurchase facility		25,840			48,702

Total financial services liabilities		75,196			101,148

Total liabilities		957,505			990,089

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; 48,043,634 and 47,981,404 issued and outstanding, respectively, at March 31, 2012 and 48,017,108 and 47,957,196 issued and outstanding, respectively, at December 31, 2011		480			480
Additional paid-in-capital		865,739			863,128
Retained earnings		3,198			12,927
Accumulated other comprehensive income (loss)		(692	)		(7,240	)
Treasury stock, at cost; 62,230 shares at March 31, 2012 and 59,912, respectively, at December 31, 2011		(659	)		(659	)

Total Stockholders’ Equity		868,066			868,636

Total Liabilities and Stockholders’ Equity	$	1,825,571		$	1,858,725

M.D.C. HOLDINGS, INC.

Consolidated Statement of Cash Flows


	Three Months Ended March 31,
	2012			2011
	(Dollars in thousands)
	(Unaudited)
Operating Activities:
Net income (loss)	$	2,265		$	(19,879	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Stock-based compensation expense		2,611			3,121
Depreciation and amortization		1,307			1,590
Inventory impairments and write-offs of land option deposits		82			1,061
Amortization of (premium) discount on marketable debt securities		(152	)		436
Net changes in assets and liabilities:
Restricted cash		(413	)		1
Trade and other receivables		(11,062	)		(782	)
Mortgage loans held-for-sale		23,345			27,417
Housing completed or under construction		(45,875	)		26,972
Land and land under development		17,000			(73,507	)
Prepaid expenses and other assets		3,394			844
Accounts payable		7,792			(11,845	)
Accrued liabilities		(19,107	)		(13,130	)

Net cash provided by (used in) operating activities		(18,813	)		(57,701	)

Investing Activities:
Purchase of marketable securities		(185,610	)		(75,426	)
Sale of marketable securities		182,021			74,950
Purchase of property and equipment		(364	)		(483	)
Purchases of held-to-maturity debt securities		—			(40,000	)
Maturities of held-to-maturity debt securities		—			146,000

Net cash provided by (used in) investing activities		(3,953	)		105,041

Financing Activities:
Payments on mortgage repurchase facility		(53,625	)		(25,434	)
Advances on mortgage repurchase facility		30,763			6,736
Dividend payments		(11,994	)		(11,824	)

Net cash provided by (used in) financing activities		(34,856	)		(30,522	)

Net increase (decrease) in cash and cash equivalents		(57,622	)		16,818
Cash and cash equivalents:
Beginning of period		343,361			572,225

End of period	$	285,739		$	589,043

M.D.C. HOLDINGS, INC.

Selected Financial Data


	Three Months Ended March 31,						Change
	2012			2011			Amount			%
	(Dollars in thousands)
HOMEBUILDING
Selling, general and administrative expenses (“SG&A”):
Marketing	$	7,500		$	9,833		$	(2,333	)		-24	%
Commissions		6,358			5,767			591			10	%
General and administrative expenses		20,266			32,054			(11,788	)		-37	%

Total SG&A	$	34,124		$	47,654		$	(13,530	)		-28	%

SG&A as a % of home sale revenues		18.5	%		29.2	%		-10.7	%		N/A
Capitalization of interest:
Interest incurred	$	10,563		$	18,186		$	(7,623	)		-42	%

Interest capitalized, beginning of period	$	58,742		$	38,446		$	20,296			53	%
Interest capitalized during period		9,785			9,519			266			3	%
Less: Previously capitalized interest included in home cost of sales		(4,894	)		(4,203	)		(691	)		16	%

Interest capitalized, end of period	$	63,633		$	43,762		$	19,871			45	%

FINANCIAL SERVICES
Financial services revenues:
Gains on sales of mortgage loans and broker origination fees, net	$	5,456		$	4,323		$	1,133			26	%
Insurance revenue		1,893			988			905			92	%
Title and other revenue		371			392			(21	)		-5	%

Total financial services revenue	$	7,720		$	5,703		$	2,017			35	%

Total originations (including transfer loans):
Loans		410			421			(11	)		-3	%
Principal	$	112,680		$	116,099		$	(3,419	)		-3	%
Capture Rate		64	%		76	%		-12	%		N/A
Loans sold to third parties:
Loans		498			521			-23			-4	%
Principal	$	134,891		$	143,274		$	(8,383	)		-6	%
Mortgage loan origination product mix:
FHA loans		34	%		43	%		-9	%		N/A
Other government loans (VA & USDA)		29	%		27	%		2	%		N/A

Total government loans		63	%		70	%		-7	%		N/A
Conventional loans		37	%		30	%		7	%		N/A
Jumbo loans		0	%		0	%		0	%		N/A

		100	%		100	%		0	%		N/A

Loan type:
Fixed rate		97	%		97	%		0	%		N/A
ARM		3	%		3	%		0	%		N/A
Credit quality:
Average FICO Score		733			735			(2	)		-0.3	%
Other data:
Average Combined LTV ratio		90	%		91	%		-1	%		N/A
Full documentation loans		100	%		100	%		0	%		N/A
Non-full documentation loans		0	%		0	%		0	%		N/A

M.D.C. HOLDINGS, INC.

Homebuilding Operational Data


	Three Months
	Ended March 31,				Change
	2012		2011		Amount			%
Homes closed:
Arizona		88		77		11			14	%
California		55		48		7			15	%
Nevada		106		66		40			61	%
Washington		44		—		44			N/A

West		293		191		102			53	%

Colorado		125		166		(41	)		-25	%
Utah		52		54		(2	)		-4	%

Mountain		177		220		(43	)		-20	%

Maryland		44		57		(13	)		-23	%
Virginia		59		43		16			37	%

East		103		100		3			3	%

Florida		46		43		3			7	%
Illinois		—		—		—			N/A

Other Homebuilding		46		43		3			7	%

Total		619		554		65			12	%


	Three Months
	Ended March 31,				Change
	2012		2011		Amount			%
	(Dollars in thousands)
Average selling price:
Arizona	$	205.7	$	180.0	$	25.7			14	%
California		328.9		317.3		11.6			4	%
Nevada		205.7		201.5		4.2			2	%
Washington		272.9		N/A		N/A			N/A
Colorado		362.5		336.8		25.7			8	%
Utah		273.2		274.9		(1.7	)		-1	%
Maryland		429.6		428.4		1.2			0	%
Virginia		446.2		430.0		16.2			4	%
Florida		243.4		229.0		14.4			6	%
Illinois		N/A		N/A		N/A			N/A

Company Average	$	298.3	$	294.9	$	3.4			1	%

M.D.C. HOLDINGS, INC.

Homebuilding Operational Data


	Three Months
	Ended March 31,				Change
	2012		2011		Amount			%
	(Dollars in thousands)
Net new orders:
Arizona		187		122		65			53	%
California		121		77		44			57	%
Nevada		166		88		78			89	%
Washington		76		—		76			N/A

West		550		287		263			92	%

Colorado		235		181		54			30	%
Utah		68		67		1			1	%

Mountain		303		248		55			22	%

Maryland		83		46		37			80	%
Virginia		90		68		22			32	%

East		173		114		59			52	%

Florida		36		51		(15	)		-29	%
Illinois		1		5		(4	)		-80	%

Other		37		56		(19	)		-34	%

Total		1,063		705		358			51	%

Estimated Value of Orders for Homes, net	$	322,000	$	205,000	$	117,000			57	%
Estimated Average Selling Price of Orders for Homes, net	$	302.9	$	290.8	$	12.1			4	%


	March 31,				Change
	2012		2011		Amount			%
Active Subdivisions:
Arizona		22		29		(7	)		-24	%
California		18		16		2			13	%
Nevada		20		19		1			5	%
Washington		11		—		11			N/A

West		71		64		7			11	%

Colorado		48		42		6			14	%
Utah		17		18		(1	)		-6	%

Mountain		65		60		5			8	%

Maryland		18		14		4			29	%
Virginia		16		10		6			60	%

East		34		24		10			42	%

Florida		16		13		3			23	%
Illinois		—		1		(1	)		-100	%

Other Homebuilding		16		14		2			14	%

Total		186		162		24			15	%

Average for quarter ended		187		155		32			21	%

M.D.C. HOLDINGS, INC.

Homebuilding Operational Data


	March 31,
	2012				2011				% Change
	Homes		$ Value		Homes		$ Value		Homes			$ Value
	(Dollars in thousands)
Backlog:
Arizona		227	$	49,000		129	$	25,100		76	%		95	%
California		184		61,700		108		33,400		70	%		85	%
Nevada		216		42,500		98		19,900		120	%		114	%
Washington		86		25,900		—		—		N/A			N/A

West		713		179,100		335		78,400		113	%		128	%

Colorado		343		127,100		288		99,500		19	%		28	%
Utah		84		23,700		82		22,600		2	%		5	%

Mountain		427		150,800		370		122,100		15	%		24	%

Maryland		152		64,100		115		51,200		32	%		25	%
Virginia		134		67,100		95		41,100		41	%		63	%

East		286		131,200		210		92,300		36	%		42	%

Florida		60		15,700		72		17,500		-17	%		-10	%
Illinois		1		200		6		1,700		-83	%		-88	%

Other Homebuilding		61		15,900		78		19,200		-22	%		-17	%

Total		1,487	$	477,000		993	$	312,000		50	%		53	%

Estimated average selling price of homes in backlog			$	320.8			$	314.2					2	%


	March 31,				Change
	2012		2011		Amount			%
Homes started:
Unsold Started Homes - Completed		147		67		80			119	%
Unsold Started Homes - Frame		222		570		(348	)		-61	%
Unsold Started Homes - Foundation		158		37		121			327	%

Total Unsold Started Homes		527		674		(147	)		-22	%
Sold Homes Started		872		641		231			36	%
Model Homes		236		246		(10	)		-4	%

Total homes started		1,635		1,561		74			5	%


	March 31, 2012						March 31, 2011
	Owned		Optioned		Total		Owned		Optioned		Total
Lots owned and optioned:
Arizona		684		118		802		1,219		241		1,460
California		1,065		—		1,065		1,499		17		1,516
Nevada		778		75		853		1,087		724		1,811
Washington		305		97		402		—		—		—

West		2,832		290		3,122		3,805		982		4,787
Colorado		2,768		363		3,131		2,985		845		3,830
Utah		451		—		451		619		369		988

Mountain		3,219		363		3,582		3,604		1,214		4,818
Maryland		520		400		920		339		822		1,161
Virginia		516		156		672		599		128		727

East		1,036		556		1,592		938		950		1,888
Florida		197		255		452		232		606		838
Illinois		123		—		123		128		—		128

Other		320		255		575		360		606		966

Total		7,407		1,464		8,871		8,707		3,752		12,459

M.D.C. HOLDINGS, INC.

Reconciliation of Non-GAAP Financial Measures

Adjusted gross margin from home sales is a non-GAAP financial measure. We believe this information is meaningful as it isolates the impact that inventory impairments, warranty adjustments and interest have on our Gross Margin from Home Sales and permits investors to make better comparisons with our competitors, who also break out and adjust gross margins in a similar fashion.


	Three Months Ended
	March 31, 2012			Gross Margin %			December 31, 2011			Gross Margin %			March 31, 2011			Gross Margin %
	(Dollars in thousands)
Gross Margin	$	26,124			14.0	%	$	33,827			14.1	%	$	22,310			13.6	%
Less: Land Sales Revenue		(1,590	)					(8,360	)					(204	)
Add: Land Cost of Sales		1,490						8,314						17

Gross Margin from Home Sales	$	26,024			14.1	%	$	33,781			14.6	%	$	22,123			13.5	%
Add: Inventory Impairments		—						811						279
Add: Interest in Cost of Sales		4,895						6,355						4,203
Less: Warranty Adjustments		—						(2,251	)					(431	)

Adjusted gross margin from home sales	$	30,919			16.7	%	$	38,696			16.8	%	$	26,174			16.0	%

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M.D.C. HOLDINGS, INC. Reports