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Press release from PR Newswire

M.D.C. Holdings Announces 2012 First Quarter Results

Thursday, May 03, 2012

M.D.C. Holdings Announces 2012 First Quarter Results06:00 EDT Thursday, May 03, 2012DENVER, May 3, 2012 /PRNewswire/ -- 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 QuarterNet 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 improvementInterest 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."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.HomebuildingHome 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 an 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.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 ServicesIncome 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 PresentationFor 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 MDCSince 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  Forward-Looking StatementsCertain 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.* 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 31,20122011(Dollars in thousands, except per share amounts)(Unaudited)Homebuilding:Home sale revenues$               184,678$                163,383Land sale revenues1,590204 Total home sale and land revenues186,268163,587Home 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 margin26,12422,310Selling, general and administrative expenses(34,124)(47,654)Interest income5,9136,488Interest expense(808)(8,667)Other income (expense)1582,039Homebuilding pretax loss(2,737)(25,484)Financial Services:Revenues7,7205,703Expenses(2,858)(3,923)Financial services pretax income4,8621,780Income (loss) before income taxes2,125(23,704)Benefit (provision) for income taxes1403,825Net income (loss)$                   2,265$                (19,879)Other comprehensive income (loss):Unrealized gain related to available-for-salesecurities6,5483,303Comprehensive 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:Basic47,311,84046,716,562Diluted47,575,47046,716,562Dividends declared per share$                     0.25$                      0.25M.D.C. HOLDINGS, INC.Consolidated Balance Sheets March 31, December 31, 20122011(Dollars in thousands, except per share amounts)ASSETS(Unaudited)Homebuilding:Cash and cash equivalents$                  263,303$                  316,418Marketable securities494,277485,434Restricted cash1,080667Trade and other receivables34,05921,593Inventories:Housing completed or under construction346,665300,714Land and land under development488,442505,338Property and equipment, net35,37336,277Deferred tax asset, net of valuation allowance of $277,185 and $281,178at March 31, 2012 and December 31, 2011, respectively--Prepaid expenses and other assets46,31050,423Total homebuilding assets1,709,5091,716,864Financial Services:Cash and cash equivalents22,43626,943Marketable securities35,95534,509Mortgage loans held-for-sale, net54,99078,335Prepaid expenses and other assets2,6812,074Total financial services assets116,062141,861      Total Assets$               1,825,571$               1,858,725LIABILITIES AND EQUITYHomebuilding:Accounts payable $                    33,416$                    25,645Accrued liabilities104,605119,188Senior notes, net744,288744,108Total homebuilding liabilities882,309888,941Financial Services:Accounts payable and accrued liabilities49,35652,446Mortgage repurchase facility25,84048,702Total financial services liabilities75,196101,148      Total liabilities957,505990,089Stockholders' EquityPreferred stock, $0.01 par value; 25,000,000 shares authorized; none issuedor outstanding--Common stock, $0.01 par value; 250,000,000 shares authorized; 48,043,634  and 47,981,404 issued and outstanding, respectively, at March 31, 2012 and 48,017,108 and 47,957,196 issued and outstanding, respectively,at December 31, 2011480480Additional paid-in-capital865,739863,128Retained earnings3,19812,927Accumulated other comprehensive income (loss)(692)(7,240)Treasury stock, at cost; 62,230 shares at March 31, 2012 and 59,912,     respectively, at December 31, 2011(659)(659)Total Stockholders' Equity868,066868,636Total Liabilities and Stockholders' Equity$               1,825,571$               1,858,725M.D.C. HOLDINGS, INC.Consolidated Statement of Cash Flows Three Months Ended March 31,20122011(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 expense2,6113,121Depreciation and amortization 1,3071,590Inventory impairments and write-offs of land option deposits821,061Amortization 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-sale23,34527,417      Housing completed or under construction(45,875)26,972      Land and land under development17,000(73,507)      Prepaid expenses and other assets3,394844      Accounts payable7,792(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 securities182,02174,950Purchase of property and equipment(364)(483)Purchases of held-to-maturity debt securities-(40,000)Maturities of held-to-maturity debt securities-146,000Net cash provided by (used in) investing activities(3,953)105,041Financing Activities:Payments on mortgage repurchase facility(53,625)(25,434)Advances on mortgage repurchase facility30,7636,736Dividend 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)16,818Cash and cash equivalents:      Beginning of period343,361572,225      End of period$        285,739$        589,043M.D.C. HOLDINGS, INC.Selected Financial Data  Three Months  Ended March 31,  Change 20122011 Amount %HOMEBUILDING (Dollars in thousands) Selling, general and administrative expenses ("SG&A"):Marketing$               7,500$              9,833$          (2,333)-24%Commissions6,3585,76759110%General and administrative expenses20,26632,054(11,788)-37%Total SG&A$             34,124$            47,654$        (13,530)-28%SG&A as a % of home sale revenues18.5%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$          20,29653%Interest capitalized during period9,7859,5192663%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$          19,87145%FINANCIAL SERVICESFinancial services revenues:Gains on sales of mortgage loans andbroker origination fees, net$               5,456$              4,323$            1,13326%Insurance revenue1,89398890592%Title and other revenue371392(21)-5%Total financial services revenue$               7,720$              5,703$            2,01735%Total originations (including transfer loans):Loans410421(11)-3%Principal$           112,680$          116,099$          (3,419)-3%Capture Rate64%76%-12%N/ALoans sold to third parties:Loans498521-23-4%Principal$           134,891$          143,274$          (8,383)-6%Mortgage loan origination product mix:FHA loans34%43%-9%N/AOther government loans (VA & USDA)29%27%2%N/ATotal government loans63%70%-7%N/AConventional loans37%30%7%N/AJumbo loans0%0%0%N/A100%100%0%N/ALoan type:Fixed rate97%97%0%N/AARM3%3%0%N/ACredit quality:Average FICO Score733735(2)-0.3%Other data:Average Combined LTV ratio90%91%-1%N/AFull documentation loans100%100%0%N/ANon-full documentation loans0%0%0%N/A M.D.C. HOLDINGS, INC.Homebuilding Operational Data  Three Months    Ended March 31, Change20122011Amount%Homes closed:Arizona 88771114%California 5548715%Nevada 106664061%Washington44-44N/AWest 29319110253%Colorado 125166(41)-25%Utah 5254(2)-4%Mountain 177220(43)-20%Maryland 4457(13)-23%Virginia 59431637%East 10310033%Florida 464337%Illinois ---N/AOther Homebuilding 464337%Total 6195546512% Three Months    Ended March 31, Change20122011Amount%Average selling price: (Dollars in thousands) Arizona $           205.7$         180.0$            25.714%California 328.9317.311.64%Nevada 205.7201.54.22%Washington272.9N/A N/A N/AColorado 362.5336.825.78%Utah 273.2274.9(1.7)-1%Maryland 429.6428.41.20%Virginia 446.2430.016.24%Florida 243.4229.014.46%Illinois  N/A  N/A  N/A N/ACompany Average $           298.3$         294.9$              3.41% M.D.C. HOLDINGS, INC.Homebuilding Operational Data   Three Months    Ended March 31,  Change 20122011 Amount %Net new orders:(Dollars in thousands)Arizona 1871226553%California 121774457%Nevada 166887889%Washington76-76N/AWest 55028726392%Colorado 2351815430%Utah 686711%Mountain 3032485522%Maryland 83463780%Virginia 90682232%East 1731145952%Florida 3651(15)-29%Illinois 15(4)-80%Other 3756(19)-34%Total 1,06370535851%Estimated Value of Orders for Homes, net$       322,000$       205,000$       117,00057%Estimated Average Selling Price of Orders for Homes, net$           302.9$           290.8$             12.14%  March 31,  Change Active Subdivisions:20122011 Amount %Arizona 2229(7)-24%California 1816213%Nevada 201915%Washington11-11N/AWest 7164711%Colorado 4842614%Utah 1718(1)-6%Mountain 656058%Maryland 1814429%Virginia 1610660%East 34241042%Florida 1613323%Illinois -1(1)-100%Other Homebuilding 1614214%Total 1861622415%Average for quarter ended1871553221%M.D.C. HOLDINGS, INC.Homebuilding Operational Data March 31,20122011% Change Homes  $ Value  Homes  $ Value  Homes  $ Value  (Dollars in thousands) Backlog:Arizona 227$    49,000129$    25,10076%95%California 18461,70010833,40070%85%Nevada 21642,5009819,900120%114%Washington8625,900--N/AN/AWest 713179,10033578,400113%128%Colorado 343127,10028899,50019%28%Utah 8423,7008222,6002%5%Mountain 427150,800370122,10015%24%Maryland 15264,10011551,20032%25%Virginia 13467,1009541,10041%63%East 286131,20021092,30036%42%Florida 6015,7007217,500-17%-10%Illinois 120061,700-83%-88%Other Homebuilding 6115,9007819,200-22%-17%Total 1,487$  477,000993$  312,00050%53%Estimated average selling priceof homes in backlog$      320.8$      314.22%March 31,Change20122011 Amount %Homes started:Unsold Started Homes - Completed1476780119%Unsold Started Homes - Frame 222570(348)-61%Unsold Started Homes - Foundation 15837121327%Total Unsold Started Homes 527674(147)-22%Sold Homes Started87264123136%Model Homes 236246(10)-4%Total homes started1,6351,561745% March 31, 2012March 31, 2011Lots owned and optioned:OwnedOptionedTotalOwnedOptionedTotalArizona 6841188021,2192411,460California 1,065-1,0651,499171,516Nevada 778758531,0877241,811Washington30597402---West2,8322903,1223,8059824,787Colorado 2,7683633,1312,9858453,830Utah 451-451619369988Mountain3,2193633,5823,6041,2144,818Maryland 5204009203398221,161Virginia 516156672599128727East1,0365561,5929389501,888Florida 197255452232606838Illinois 123-123128-128Other320255575360606966Total 7,4071,4648,8718,7073,75212,459 M.D.C. HOLDINGS, INC.Reconciliation of Non-GAAP Financial MeasuresAdjusted 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  GrossMargin % December 31, 2011 Gross Margin % March 31, 2011Gross Margin % (Dollars in thousands)Gross Margin$       26,12414.0%$       33,82714.1%$       22,31013.6%Less: Land Sales Revenue(1,590)(8,360)(204)Add: Land Cost of Sales1,4908,31417Gross Margin from Home Sales$       26,02414.1%$       33,78114.6%$       22,12313.5%Add: Inventory Impairments-811279Add: Interest in Cost of Sales4,8956,3554,203Less: Warranty Adjustments-(2,251)(431)Adjusted gross margin from home sales$       30,91916.7%$       38,69616.8%$       26,17416.0% SOURCE M.D.C. Holdings, Inc.For further information: Robert N. Martin, Vice President of Finance, +1-720-977-3431,