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January 31, 2030 January 31, 2030 6 6 January 31, 2043 January 31,
2043 3 15.0 Includes variable lease costs, which are immaterial.
Financial services operating lease liabilities of $1.1 million are
included as a component of accrued liabilities in the financial
services section of our consolidated balance sheet at March 31,
2020. The pretax gain for the year ended December 31, 2017 was
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
(Mark One)
☒
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
|
For the quarterly period
ended March 31, 2020 |
OR
☐
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
Commission File No. 1-8951
M.D.C. HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware
|
84-0622967
|
(State or other jurisdiction
|
(I.R.S. employer
|
of incorporation or organization)
|
identification no.)
|
4350 South Monaco Street, Suite 500
|
80237
|
Denver, Colorado
|
(Zip code)
|
(Address of principal executive offices)
|
|
(303) 773-1100
(Registrant's telephone number, including area
code)
Securities registered pursuant to Section 12(b) of the
Act:
Title of each class
|
|
Trading Symbol(s)
|
|
Name of each exchange on which registered
|
Common Stock, $.01 par value
|
|
552676108
|
|
New York Stock Exchange
|
6% Senior Notes due January 2043
|
|
552676AQ1
|
|
New York Stock Exchange
|
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports) and (2) has been subject to such filing
requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, a smaller reporting company or an
emerging growth company. See definition of “large
accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large Accelerated Filer
|
|
☒
|
|
Accelerated Filer
|
|
☐
|
Non-Accelerated Filer
|
|
☐
|
|
Smaller Reporting Company
|
|
☐
|
Emerging growth company
|
|
☐
|
|
|
|
|
If an emerging growth company, indicate by check mark if the
registrant has elected to use the extended transition period for
complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the Exchange
Act). Yes ☐ No ☒
As of May 1, 2020,
63,054,495 shares of M.D.C. Holdings, Inc. common
stock were outstanding.
M.D.C.
HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2020
INDEX
PART
I
ITEM 1. Unaudited
Consolidated Financial Statements
M.D.C. HOLDINGS, INC.
Consolidated Balance Sheets
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands, except
|
|
|
|
per share amounts)
|
|
ASSETS |
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
386,704 |
|
|
$ |
424,186 |
|
Restricted cash
|
|
|
15,762 |
|
|
|
14,279 |
|
Trade and other receivables
|
|
|
69,301 |
|
|
|
65,829 |
|
Inventories:
|
|
|
|
|
|
|
|
|
Housing completed or under construction
|
|
|
1,215,214 |
|
|
|
1,036,191 |
|
Land and land under development
|
|
|
1,301,433 |
|
|
|
1,330,384 |
|
Total inventories
|
|
|
2,516,647 |
|
|
|
2,366,575 |
|
Property and equipment, net
|
|
|
62,316 |
|
|
|
60,414 |
|
Deferred tax asset, net
|
|
|
20,660 |
|
|
|
21,768 |
|
Prepaid and other assets
|
|
|
78,002 |
|
|
|
78,358 |
|
Total homebuilding assets
|
|
|
3,149,392 |
|
|
|
3,031,409 |
|
Financial Services:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
22,159 |
|
|
|
35,747 |
|
Marketable securities
|
|
|
43,985 |
|
|
|
56,747 |
|
Mortgage loans held-for-sale, net
|
|
|
133,921 |
|
|
|
197,021 |
|
Other assets
|
|
|
24,255 |
|
|
|
17,432 |
|
Total financial services assets
|
|
|
224,320 |
|
|
|
306,947 |
|
Total Assets
|
|
$ |
3,373,712 |
|
|
$ |
3,338,356 |
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
97,980 |
|
|
$ |
87,364 |
|
Accrued and other liabilities
|
|
|
233,034 |
|
|
|
245,940 |
|
Revolving credit facility
|
|
|
15,000 |
|
|
|
15,000 |
|
Senior notes, net
|
|
|
1,036,900 |
|
|
|
989,422 |
|
Total homebuilding liabilities
|
|
|
1,382,914 |
|
|
|
1,337,726 |
|
Financial Services:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
70,977 |
|
|
|
68,529 |
|
Mortgage repurchase facility
|
|
|
108,744 |
|
|
|
149,616 |
|
Total financial services liabilities
|
|
|
179,721 |
|
|
|
218,145 |
|
Total Liabilities
|
|
|
1,562,635 |
|
|
|
1,555,871 |
|
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; 63,052,495 and
62,574,961 issued and
outstanding at March 31, 2020 and December 31, 2019,
respectively
|
|
|
631 |
|
|
|
626 |
|
Additional paid-in-capital
|
|
|
1,361,362 |
|
|
|
1,348,733 |
|
Retained earnings
|
|
|
449,084 |
|
|
|
433,126 |
|
Total Stockholders' Equity
|
|
|
1,811,077 |
|
|
|
1,782,485 |
|
Total Liabilities and Stockholders' Equity
|
|
$ |
3,373,712 |
|
|
$ |
3,338,356 |
|
The accompanying Notes are an integral part of these Unaudited
Consolidated Financial Statements.
M.D.C. HOLDINGS, INC.
Consolidated Statements of Operations and Comprehensive
Income
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars
in thousands, except per
share
amounts)
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
Home sale revenues
|
|
$ |
697,085 |
|
|
$ |
647,278 |
|
Home cost of sales
|
|
|
(558,647 |
) |
|
|
(524,552 |
) |
Inventory impairments
|
|
|
- |
|
|
|
(610 |
) |
Total cost of sales
|
|
|
(558,647 |
) |
|
|
(525,162 |
) |
Gross profit
|
|
|
138,438 |
|
|
|
122,116 |
|
Selling, general and administrative expenses
|
|
|
(89,321 |
) |
|
|
(82,261 |
) |
Interest and other income
|
|
|
1,889 |
|
|
|
2,391 |
|
Other expense
|
|
|
(1,337 |
) |
|
|
(1,191 |
) |
Homebuilding pretax income
|
|
|
49,669 |
|
|
|
41,055 |
|
|
|
|
|
|
|
|
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
21,886 |
|
|
|
17,404 |
|
Expenses
|
|
|
(10,929 |
) |
|
|
(8,957 |
) |
Other income (expense), net
|
|
|
(12,064 |
) |
|
|
6,104 |
|
Financial services pretax income (loss)
|
|
|
(1,107 |
) |
|
|
14,551 |
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
48,562 |
|
|
|
55,606 |
|
Provision for income taxes
|
|
|
(11,802 |
) |
|
|
(15,056 |
) |
Net income
|
|
$ |
36,760 |
|
|
$ |
40,550 |
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$ |
36,760 |
|
|
$ |
40,550 |
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.58 |
|
|
$ |
0.66 |
|
Diluted
|
|
$ |
0.56 |
|
|
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
62,491,238 |
|
|
|
60,939,364 |
|
Diluted
|
|
|
64,931,225 |
|
|
|
62,708,334 |
|
|
|
|
|
|
|
|
|
|
Dividends declared per share
|
|
$ |
0.33 |
|
|
$ |
0.30 |
|
The accompanying Notes are an integral part of these Unaudited
Consolidated Financial Statements.
M.D.C. HOLDINGS, INC.
Consolidated Statements of Changes in Stockholders’
Equity
(Dollars in thousands, except share amounts)
|
|
Three-Month Period Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Total
|
|
Balance at December 31, 2019
|
|
|
62,574,961 |
|
|
$ |
626 |
|
|
$ |
1,348,733 |
|
|
$ |
433,126 |
|
|
$ |
1,782,485 |
|
Cumulative effect of newly adopted accounting standards (Note
2)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(34 |
) |
|
|
(34 |
) |
Balance at January 1, 2020
|
|
|
62,574,961 |
|
|
|
626 |
|
|
|
1,348,733 |
|
|
|
433,092 |
|
|
|
1,782,451 |
|
Net Income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
36,760 |
|
|
|
36,760 |
|
Shares issued under stock-based compensation programs, net
|
|
|
477,582 |
|
|
|
5 |
|
|
|
8,189 |
|
|
|
- |
|
|
|
8,194 |
|
Cash dividends declared
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(20,768 |
) |
|
|
(20,768 |
) |
Stock-based compensation expense
|
|
|
- |
|
|
|
- |
|
|
|
4,440 |
|
|
|
- |
|
|
|
4,440 |
|
Forfeiture of restricted stock
|
|
|
(48 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balance at March 31, 2020
|
|
|
63,052,495 |
|
|
$ |
631 |
|
|
$ |
1,361,362 |
|
|
$ |
449,084 |
|
|
$ |
1,811,077 |
|
|
|
Three-Month Period Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Total
|
|
Balance at December 31, 2018
|
|
|
56,615,352 |
|
|
$ |
566 |
|
|
$ |
1,168,442 |
|
|
$ |
406,992 |
|
|
$ |
1,576,000 |
|
Cumulative effect of newly adopted accounting standards
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(67 |
) |
|
|
(67 |
) |
Balance at January 1, 2019
|
|
|
56,615,352 |
|
|
|
566 |
|
|
|
1,168,442 |
|
|
|
406,925 |
|
|
|
1,575,933 |
|
Net Income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
40,550 |
|
|
|
40,550 |
|
Shares issued under stock-based compensation programs, net
|
|
|
372,344 |
|
|
|
4 |
|
|
|
7,083 |
|
|
|
- |
|
|
|
7,087 |
|
Cash dividends declared
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(17,019 |
) |
|
|
(17,019 |
) |
Stock dividend declared
|
|
|
4,534,908 |
|
|
|
45 |
|
|
|
138,950 |
|
|
|
(139,091 |
) |
|
|
(96 |
) |
Stock-based compensation expense
|
|
|
- |
|
|
|
- |
|
|
|
4,251 |
|
|
|
- |
|
|
|
4,251 |
|
Forfeiture of restricted stock
|
|
|
(1,714 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balance at March 31, 2019
|
|
|
61,520,890 |
|
|
$ |
615 |
|
|
$ |
1,318,726 |
|
|
$ |
291,365 |
|
|
$ |
1,610,706 |
|
The accompanying Notes are an integral part of these Unaudited
Consolidated Financial Statements.
M.D.C.
HOLDINGS, INC.
Consolidated Statements of Cash Flows
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
36,760 |
|
|
$ |
40,550 |
|
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
4,440 |
|
|
|
4,251 |
|
Depreciation and amortization
|
|
|
5,152 |
|
|
|
4,878 |
|
Inventory impairments
|
|
|
- |
|
|
|
610 |
|
Net (gain) loss on marketable equity securities
|
|
|
13,268 |
|
|
|
(4,840 |
) |
Deferred income tax expense
|
|
|
1,131 |
|
|
|
2,696 |
|
Net changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade and other receivables
|
|
|
(1,611 |
) |
|
|
(13,771 |
) |
Mortgage loans held-for-sale, net
|
|
|
63,100 |
|
|
|
38,401 |
|
Housing completed or under construction
|
|
|
(178,873 |
) |
|
|
2,137 |
|
Land and land under development
|
|
|
29,051 |
|
|
|
(18,496 |
) |
Prepaid and other assets
|
|
|
(8,460 |
) |
|
|
1,085 |
|
Accounts payable and accrued liabilities
|
|
|
(1,131 |
) |
|
|
(3,153 |
) |
Net cash provided by (used in) operating activities
|
|
|
(37,173 |
) |
|
|
54,348 |
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(9,782 |
) |
|
|
(4,785 |
) |
Sales of marketable securities
|
|
|
9,276 |
|
|
|
4,737 |
|
Purchases of property and equipment
|
|
|
(6,512 |
) |
|
|
(6,386 |
) |
Net cash used in investing activities
|
|
|
(7,018 |
) |
|
|
(6,434 |
) |
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Payments on mortgage repurchase facility, net
|
|
|
(40,872 |
) |
|
|
(31,959 |
) |
Repayment of senior notes
|
|
|
(250,000 |
) |
|
|
- |
|
Proceeds from issuance of senior notes
|
|
|
298,050 |
|
|
|
- |
|
Dividend payments
|
|
|
(20,768 |
) |
|
|
(17,115 |
) |
Issuance of shares under stock-based compensation programs, net
|
|
|
8,194 |
|
|
|
7,087 |
|
Net cash used in financing activities
|
|
|
(5,396 |
) |
|
|
(41,987 |
) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash, cash equivalents and restricted
cash
|
|
|
(49,587 |
) |
|
|
5,927 |
|
Cash, cash equivalents and restricted cash:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
474,212 |
|
|
|
470,139 |
|
End of period
|
|
$ |
424,625 |
|
|
$ |
476,066 |
|
|
|
|
|
|
|
|
|
|
Reconciliation of cash, cash equivalents and restricted
cash:
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
386,704 |
|
|
$ |
416,374 |
|
Restricted cash
|
|
|
15,762 |
|
|
|
8,136 |
|
Financial Services:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
22,159 |
|
|
|
51,556 |
|
Total cash, cash equivalents and restricted cash
|
|
$ |
424,625 |
|
|
$ |
476,066 |
|
The accompanying Notes are an integral part of these Unaudited
Consolidated Financial Statements.
The Unaudited Consolidated Financial Statements of M.D.C. Holdings,
Inc. ("MDC," “the Company," “we,” “us,” or “our,” which refers to
M.D.C. Holdings, Inc. and its subsidiaries) have been prepared,
without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Accordingly, they
do not include all information and
footnotes required by U.S. generally accepted accounting principles
(“GAAP”) for complete financial statements. These statements
reflect all normal and recurring adjustments which, in the opinion
of management, are necessary to present fairly the financial
position, results of operations and cash flows of MDC at March 31, 2020 and for all periods presented.
These statements should be read in conjunction with MDC’s
Consolidated Financial Statements and Notes thereto included in
MDC’s Annual Report on Form 10-K
for the year ended December 31,
2019.
Included in these footnotes are certain statements that constitute
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
include statements regarding our business, financial condition,
results of operations, cash flows, strategies and prospects. These
forward-looking statements may be
identified by terminology such as “likely,” “may,” “will,” “should,” “expects,” “plans,”
“anticipates,” “believes,” “estimates,” “predicts,” “potential” or
“continue,” or the negative of such terms and other comparable
terminology. Although we believe that the expectations reflected in
the forward-looking statements contained in this section are
reasonable, we cannot guarantee future results. These 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 those expressed or implied by the forward-looking
statements. We undertake no
obligation 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
subsequent reports on Forms 10-K,
10-Q and 8-K should be considered.
Where necessary, reclassifications have been made to our prior
period financial information to conform to the current year
presentation.
2.
|
Recently Issued Accounting Standards
|
Adoption of New Accounting Standards
In June 2016, the FASB issued
ASU 2016-13, Financial Instruments—Credit
Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments (“ASU 2016-13”),
which requires measurement and recognition of expected credit
losses for financial assets held. The amendments in ASU 2016-13
eliminate the probable threshold for initial recognition of a
credit loss in legacy GAAP and reflect an entity’s current estimate
of all expected credit losses. On January 1, 2020, we adopted ASU 2016-13 using
the modified retrospective transition method, resulting in a
cumulative effect adjustment that decreased the opening balance of
retained earnings by less than $0.1 million. The standard did
not materially impact our
consolidated statements of operations and comprehensive income or
consolidated cash flows.
An operating segment is defined as a component of an enterprise for
which discrete financial information is available and is reviewed
regularly by the Chief Operating Decision Maker (“CODM”), or
decision-making group, to evaluate performance and make operating
decisions. We have identified our CODM as two key executives—the Chief Executive
Officer (“CEO”) and the Chief Operating Officer (“COO”).
We have identified each homebuilding division as an operating
segment. Our homebuilding operating segments have been aggregated
into the reportable segments noted below because they are similar
in the following regards: (1) economic characteristics; (2) housing products; (3) class of homebuyer; (4) regulatory environments; and
(5) methods used to construct
and sell homes. Our homebuilding reportable segments are as
follows:
|
●
|
West (Arizona, California, Nevada, Oregon and Washington)
|
|
●
|
Mountain (Colorado and Utah)
|
|
●
|
East (mid-Atlantic, which includes Maryland and Virginia, and
Florida)
|
Our financial services business consists of the operations of the
following operating segments: (1)
HomeAmerican Mortgage Corporation (“HomeAmerican”); (2) Allegiant Insurance Company, Inc., A Risk
Retention Group (“Allegiant”); (3)
StarAmerican Insurance Ltd. (“StarAmerican”) (collectively our
“Insurance Entities”); (4) American
Home Insurance Agency, Inc.; and (5) American Home Title and Escrow Company.
Due to its contributions to consolidated pretax income, we consider
HomeAmerican to be a reportable segment (“mortgage operations”).
The remaining operating segments have been aggregated into one
reportable segment (“other”) because they do not individually exceed 10 percent of: (1) consolidated revenue; (2) the greater of (a) the combined reported
profit of all operating segments that did not report a loss or (b) the positive value
of the combined reported loss of all operating segments that
reported losses; or (3)
consolidated assets.
Corporate is a non-operating segment that develops and implements
strategic initiatives and supports our operating divisions by
centralizing key administrative functions such as finance,
treasury, information technology, insurance, risk management,
litigation and human resources. Corporate also provides the
necessary administrative functions to support MDC as a publicly
traded company. A portion of the expenses incurred by Corporate are
allocated to the homebuilding operating segments based on their
respective percentages of assets, and to a lesser degree, a portion
of Corporate expenses are allocated to the financial services
operating segments. A majority of Corporate’s personnel and
resources are primarily dedicated to activities relating to the
homebuilding segments, and, therefore, the balance of any
unallocated Corporate expenses is included in the homebuilding
operations section of our consolidated statements of operations and
comprehensive income.
On a periodic basis, we assess our Corporate cost allocation
estimates. Our most recent assessment resulted in increases in
Corporate cost allocations to both our homebuilding and financial
services segments beginning January 1,
2020, to reflect the use of centralized administrative
functions. Applying the most recent cost allocation estimate to the
three months ended March 31, 2019 would have resulted in
decreased pretax income for our homebuilding and financial services
segments of approximately $2.7 million and $0.4 million,
respectively, with corresponding increases in our Corporate segment
pretax income. Additionally, beginning January 1, 2020, we have reflected the
expense associated with all homebuilding employee bonuses in the
respective homebuilding segment to which the employee reports,
consistent with how the CODM is now evaluating homebuilding
division performance and making operating decisions. Had these
bonuses been reflected in a similar manner during the three months ended March 31, 2019, pretax income for our
homebuilding segments would have decreased by an additional $3.0
million with a corresponding increase in our Corporate segment
pretax income.
The following table summarizes revenues for our homebuilding and
financial services operations:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
Homebuilding |
|
|
|
|
|
|
|
|
West
|
|
$ |
405,498 |
|
|
$ |
369,558 |
|
Mountain
|
|
|
222,858 |
|
|
|
209,192 |
|
East
|
|
|
68,729 |
|
|
|
68,528 |
|
Total homebuilding revenues
|
|
$ |
697,085 |
|
|
$ |
647,278 |
|
|
|
|
|
|
|
|
|
|
Financial Services
|
|
|
|
|
|
|
|
|
Mortgage operations
|
|
$ |
14,625 |
|
|
$ |
10,174 |
|
Other
|
|
|
7,261 |
|
|
|
7,230 |
|
Total financial services revenues
|
|
$ |
21,886 |
|
|
$ |
17,404 |
|
The following table summarizes pretax income (loss) for our
homebuilding and financial services operations:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
Homebuilding |
|
|
|
|
|
|
|
|
West
|
|
$ |
36,576 |
|
|
$ |
33,200 |
|
Mountain
|
|
|
21,512 |
|
|
|
21,714 |
|
East
|
|
|
900 |
|
|
|
1,473 |
|
Corporate
|
|
|
(9,319 |
) |
|
|
(15,332 |
) |
Total homebuilding pretax income
|
|
$ |
49,669 |
|
|
$ |
41,055 |
|
|
|
|
|
|
|
|
|
|
Financial Services
|
|
|
|
|
|
|
|
|
Mortgage operations
|
|
$ |
8,243 |
|
|
$ |
4,993 |
|
Other
|
|
|
(9,350 |
) |
|
|
9,558 |
|
Total financial services pretax income (loss)
|
|
$ |
(1,107 |
) |
|
$ |
14,551 |
|
|
|
|
|
|
|
|
|
|
Total pretax income
|
|
$ |
48,562 |
|
|
$ |
55,606 |
|
The following table summarizes total assets for our homebuilding
and financial services operations. The assets in our West, Mountain
and East segments consist primarily of inventory while the assets
in our Corporate segment primarily include our cash and cash
equivalents and deferred tax assets. The assets in our financial
services segment consist primarily of cash and cash equivalents,
marketable securities and mortgage loans held-for-sale.
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
Homebuilding assets |
|
|
|
|
|
|
|
|
West
|
|
$ |
1,559,410 |
|
|
$ |
1,461,645 |
|
Mountain
|
|
|
907,727 |
|
|
|
869,665 |
|
East
|
|
|
216,063 |
|
|
|
194,592 |
|
Corporate
|
|
|
466,192 |
|
|
|
505,507 |
|
Total homebuilding assets
|
|
$ |
3,149,392 |
|
|
$ |
3,031,409 |
|
|
|
|
|
|
|
|
|
|
Financial services assets
|
|
|
|
|
|
|
|
|
Mortgage operations
|
|
$ |
154,546 |
|
|
$ |
209,946 |
|
Other
|
|
|
69,774 |
|
|
|
97,001 |
|
Total financial services assets
|
|
$ |
224,320 |
|
|
$ |
306,947 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
3,373,712 |
|
|
$ |
3,338,356 |
|
Accounting Standards Codification (“ASC”) Topic 260, Earnings per Share (“ASC
260”) requires a company that has
participating security holders (for example, holders of unvested
restricted stock that have non-forfeitable dividend rights) to
utilize the two-class method for
calculating earnings per share (“EPS”) unless the treasury stock
method results in lower EPS. The two-class method is an allocation of
earnings/(loss) between the holders of common stock and a company’s
participating security holders. Under the two-class method, earnings/(loss) for the
reporting period are allocated between common shareholders and
other security holders based on their respective rights to receive
distributed earnings (i.e., dividends) and undistributed earnings
(i.e., net income/(loss)). Our common shares outstanding are
comprised of shareholder owned common stock and shares of unvested
restricted stock held by participating security holders. Basic EPS
is calculated by dividing income or loss attributable to common
stockholders by the weighted average number of shares of common
stock outstanding, excluding participating shares in accordance
with ASC 260. To calculate diluted
EPS, basic EPS is adjusted to include the effect of potentially
dilutive stock options outstanding. The table below shows our basic
and diluted EPS calculations.
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands, except per
|
|
|
|
share amounts)
|
|
Numerator |
|
|
|
|
|
|
|
|
Net income
|
|
$ |
36,760 |
|
|
$ |
40,550 |
|
Less: distributed earnings allocated to participating
securities
|
|
|
(135 |
) |
|
|
(111 |
) |
Less: undistributed earnings allocated to participating
securities
|
|
|
(96 |
) |
|
|
(139 |
) |
Net income attributable to common stockholders (numerator for basic
earnings per share)
|
|
|
36,529 |
|
|
|
40,300 |
|
Add back: undistributed earnings allocated to participating
securities
|
|
|
96 |
|
|
|
139 |
|
Less: undistributed earnings reallocated to participating
securities
|
|
|
(93 |
) |
|
|
(136 |
) |
Numerator for diluted earnings per share under two class method
|
|
$ |
36,532 |
|
|
$ |
40,303 |
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
62,491,238 |
|
|
|
60,939,364 |
|
Add: dilutive effect of stock options
|
|
|
1,862,619 |
|
|
|
1,217,846 |
|
Add: dilutive effect of performance stock units
|
|
|
577,368 |
|
|
|
551,124 |
|
Denominator for diluted earnings per share under two class
method
|
|
|
64,931,225 |
|
|
|
62,708,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Common Share
|
|
$ |
0.58 |
|
|
$ |
0.66 |
|
Diluted Earnings Per Common Share
|
|
$ |
0.56 |
|
|
$ |
0.64 |
|
Diluted EPS for the three months
ended March 31, 2020 and 2019 excluded options to purchase
approximately 0.4 million and 0.5 million shares of common stock,
respectively, because the effect of their inclusion would be
anti-dilutive.
5.
|
Fair Value Measurements
|
ASC Topic 820, Fair Value
Measurements (“ASC 820”),
defines fair value, establishes guidelines for measuring fair value
and expands disclosures regarding fair value measurements. ASC
820 establishes a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value. These tiers
include: Level 1, defined as
observable inputs such as quoted prices in active markets; Level
2, defined as inputs, other than
quoted prices in active markets, that are either directly or
indirectly observable; and Level 3,
defined as unobservable inputs for which little or no market data exists, therefore requiring an
entity to develop its own assumptions.
The following table sets forth the fair values and methods used for
measuring the fair values of financial instruments on a recurring
basis:
|
|
|
|
Fair Value
|
|
Financial Instrument
|
|
Hierarchy
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
(Dollars in thousands)
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
Level 1
|
|
$ |
43,985 |
|
|
$ |
56,747 |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held-for-sale, net
|
|
Level 2
|
|
$ |
133,921 |
|
|
$ |
197,021 |
|
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments as of March 31, 2020 and December 31, 2019.
Cash and cash equivalents (excluding debt securities with
an original maturity of three
months or less), restricted cash, trade and other
receivables, prepaid and other assets, accounts payable, accrued
liabilities and borrowings on our revolving credit facility.
Fair value approximates carrying value.
Equity securities. Our equity
securities consist of holdings in common stock and exchange traded
funds. As of March 31, 2020 and
December 31, 2019, all of our
equity securities were recorded at fair value with all changes in
fair value recorded to other income (expense), net in the financial
services section of our consolidated statements of operations and
comprehensive income.
The following table reconciles the net gain (loss) recognized
during the three months ended
March 31, 2020 and 2019 on equity securities to the unrealized
gain (loss) recognized during the periods on equity securities
still held at the reporting date.
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
Net gain (loss) recognized during the period on equity
securities
|
|
$ |
(13,268 |
) |
|
$ |
4,840 |
|
Less: Net gain (loss) recognized during the period on equity
securities sold during the period
|
|
|
609 |
|
|
|
(237 |
) |
Unrealized gain (loss) recognized during the reporting period on
equity securities still held at the reporting date
|
|
$ |
(13,877 |
) |
|
$ |
4,603 |
|
Mortgage loans held-for-sale, net. Our mortgage
loans held-for-sale, which are measured at fair value on a
recurring basis, include (1) mortgage loans held-for-sale that are
under commitments to sell and (2) mortgage loans held-for-sale that are
not under commitments to sell. At
March 31, 2020 and December 31, 2019, we had $88.1 million and
$136.8 million, respectively, of mortgage loans held-for-sale under
commitments to sell. The fair value for those loans was based on
quoted market prices for those mortgage loans, which are Level
2 fair value inputs. At March 31, 2020 and December 31, 2019, we had $45.8 million and
$60.2 million, respectively, of mortgage loans held-for-sale that
were not under commitments to sell.
The fair value for those loans was primarily based upon the
estimated market price received from an outside party, which is a
Level 2 fair value input.
Gains on sales of mortgage loans, net, are included as a component
of revenues in the financial services section of our consolidated
statements of operations and comprehensive income. For the
three months ended March 31, 2020, we recorded net gains on the
sales of mortgage loans of $16.7 million, compared to $11.7 million
for the same period in the prior year.
Mortgage Repurchase Facility. The debt associated with our
mortgage repurchase facility (see Note 18 for further discussion) is at floating
rates that approximate current market rates and have relatively
short-term maturities, generally within 30 days. The fair value
approximates carrying value and is based on Level 2 inputs.
Senior Notes. The estimated values of the senior notes in
the following table are based on Level 2 inputs, which primarily reflect estimated
prices for our senior notes that were provided by multiple
sources.
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
|
(Dollars in thousands)
|
|
$250 Million 5.625% Senior Notes due
February 2020, net
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
249,909 |
|
|
$ |
250,400 |
|
$250 Million 5.500% Senior Notes due
January 2024, net
|
|
|
249,060 |
|
|
|
228,750 |
|
|
|
249,005 |
|
|
|
272,083 |
|
$300 Million 3.850% Senior Notes due
January 2030, net
|
|
|
297,285 |
|
|
|
270,750 |
|
|
|
- |
|
|
|
- |
|
$500 Million 6.000% Senior Notes due
January 2043, net
|
|
|
490,555 |
|
|
|
466,250 |
|
|
|
490,508 |
|
|
|
528,542 |
|
Total
|
|
$ |
1,036,900 |
|
|
$ |
965,750 |
|
|
$ |
989,422 |
|
|
$ |
1,051,025 |
|
The following table sets forth, by reportable segment, information
relating to our homebuilding inventories:
|
|
March 31, |
|
|
December 31, |
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
Housing completed or under construction:
|
|
|
|
|
|
|
|
|
West
|
|
$ |
699,039 |
|
|
$ |
589,040 |
|
Mountain
|
|
|
411,077 |
|
|
|
358,370 |
|
East
|
|
|
105,098 |
|
|
|
88,781 |
|
Subtotal
|
|
|
1,215,214 |
|
|
|
1,036,191 |
|
Land and land under development:
|
|
|
|
|
|
|
|
|
West
|
|
|
760,606 |
|
|
|
772,189 |
|
Mountain
|
|
|
448,492 |
|
|
|
468,718 |
|
East
|
|
|
92,335 |
|
|
|
89,477 |
|
Subtotal
|
|
|
1,301,433 |
|
|
|
1,330,384 |
|
Total inventories
|
|
$ |
2,516,647 |
|
|
$ |
2,366,575 |
|
Our inventories are primarily associated with communities where we
intend to construct and sell homes, including models and unsold
homes. Costs capitalized to land and land under development
primarily include: (1) land costs;
(2) land development costs;
(3) entitlement costs; (4) capitalized interest; (5) engineering fees; and (6) title insurance, real property taxes and
closing costs directly related to the purchase of the land parcel.
Components of housing completed or under construction primarily
include: (1) land costs transferred
from land and land under development; (2) direct construction costs associated with
a house; (3) real property taxes,
engineering fees, permits and other fees; (4) capitalized interest; and (5) indirect construction costs, which include
field construction management salaries and benefits, utilities and
other construction related costs. Land costs are transferred from
land and land under development to housing completed or under
construction at the point in time that construction of a home on an
owned lot begins.
In accordance with ASC Topic 360,
Property, Plant, and Equipment (“ASC 360”), homebuilding inventories, excluding
those classified as held for sale, are carried at cost unless
events and circumstances indicate that the carrying value of the
underlying subdivision may
not be recoverable. We
evaluate inventories for impairment at each quarter end on a
subdivision level basis as each such subdivision represents the
lowest level of identifiable cash flows. In making this
determination, we review, among other things, the following for
each subdivision:
|
•
|
actual and trending “Operating Margin” (which is defined as home
sale revenues less home cost of sales and all incremental costs
associated directly with the subdivision, including sales
commissions and marketing costs);
|
|
•
|
estimated future undiscounted cash flows and Operating Margin;
|
|
•
|
forecasted Operating Margin for homes in backlog;
|
|
•
|
actual and trending net home orders;
|
|
•
|
homes available for sale;
|
|
•
|
market information for each sub-market, including competition
levels, home foreclosure levels, the size and style of homes
currently being offered for sale and lot size; and
|
|
•
|
known or probable events indicating that the carrying value
may not be recoverable.
|
If events or circumstances indicate that the carrying value of our
inventory may not be recoverable, assets are reviewed for
impairment by comparing the undiscounted estimated future cash
flows from an individual subdivision (including capitalized
interest) to its carrying value. If the undiscounted future cash
flows are less than the subdivision’s carrying value, the carrying
value of the subdivision is written down to its then estimated fair
value. We generally determine the estimated fair value of each
subdivision by determining the present value of the estimated
future cash flows at discount rates, which are Level 3 inputs, that are commensurate with the risk
of the subdivision under evaluation. The evaluation for the
recoverability of the carrying value of the assets for each
individual subdivision can be impacted significantly by our
estimates of future home sale revenues, home construction costs,
and development costs per home, all of which are Level 3 inputs.
If land is classified as held for sale, we measure it in accordance
with ASC 360 at the lower of the
carrying value or fair value less estimated costs to sell. In
determining fair value, we primarily rely upon the most recent
negotiated price, which is a Level 2 input. If a negotiated price is not available, we will consider several
factors including, but not limited
to, current market conditions, recent comparable sales transactions
and market analysis studies, which are considered Level 3 inputs. If the fair value less estimated
costs to sell is lower than the current carrying value, the land is
impaired down to its estimated fair value less costs to sell.
Impairments of homebuilding inventory by segment for the three months ended March 31, 2020 and 2019 are shown in the table below.
|
|
Three Months Ended |
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
West
|
|
$ |
- |
|
|
$ |
- |
|
Mountain
|
|
|
- |
|
|
|
400 |
|
East
|
|
|
- |
|
|
|
210 |
|
Total inventory impairments
|
|
$ |
- |
|
|
$ |
610 |
|
The table below provides quantitative data for the periods
presented, where applicable, used in determining the fair value of
the impaired inventory.
|
|
Impairment Data
|
|
|
Quantitative Data
|
|
Three Months Ended
|
|
Inventory
Impairments
|
|
|
Fair Value of
Inventory After
Impairments
|
|
|
Number of
Subdivisions
Impaired
|
|
|
Discount Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
$ |
610 |
|
|
$ |
10,476 |
|
|
|
2 |
|
|
|
N/A |
|
7.
|
Capitalization of Interest
|
We capitalize interest to inventories during the period of
development in accordance with ASC Topic 835, Interest (“ASC 835”). Homebuilding interest capitalized as a
cost of inventories is included in cost of sales during the period
that related units or lots are delivered. To the extent our
homebuilding debt exceeds our qualified assets as defined in ASC
835, we expense a portion of the
interest incurred. Qualified homebuilding assets consist of all
lots and homes, excluding finished unsold homes or finished models,
within projects that are actively selling or under development. The
table set forth below summarizes homebuilding interest activity.
For all periods presented below, our qualified assets exceeded our
homebuilding debt and as such, all interest incurred has been
capitalized.
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
Homebuilding interest incurred
|
|
$ |
16,534 |
|
|
$ |
16,031 |
|
Less: Interest capitalized
|
|
|
(16,534 |
) |
|
|
(16,031 |
) |
Homebuilding interest expensed
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Interest capitalized, beginning of period
|
|
$ |
55,310 |
|
|
$ |
54,845 |
|
Plus: Interest capitalized during period
|
|
|
16,534 |
|
|
|
16,031 |
|
Less: Previously capitalized interest included in home cost of
sales
|
|
|
(12,767 |
) |
|
|
(13,929 |
) |
Interest capitalized, end of period
|
|
$ |
59,077 |
|
|
$ |
56,947 |
|
We lease certain property, land and equipment, the majority of
which comprise property related leases to provide office space
where we operate our business. Leases with an initial term of
12 months or less are not recorded on the balance sheet. We
recognize lease expense for these leases on a straight-line basis
over the lease term.
Our property related leases typically have terms of between
three and
five years, with the
exception of the lease governing the Company’s headquarters, and
are classified as operating leases. These leases do not contain any residual value guarantees or
restrictive covenants and do not
include variable lease payments, except for the payment of common
area maintenance and real estate taxes. Many of our property
related leases give us the option to extend the lease term for a
period of time, generally consistent with the initial lease term.
These options are excluded from our calculation of the right-of-use
asset and lease liability until such time as we determine it is
reasonably certain that the option will be exercised.
The property related lease for the Company’s headquarters in
Denver, Colorado is ten years in length with an
expiration date of October 31, 2026
and contains a ten
year option to extend the term of the lease through 2036. This option has been excluded from our
calculation of the right-of-use asset and lease liability as it is
not currently considered reasonably
certain that the option will be exercised.
Operating lease expense is included as a component of selling,
general and administrative expenses in the homebuilding and
expenses in the financial services sections of our consolidated
statements of operations and comprehensive income, respectively.
Components of operating lease expense were as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
Operating lease cost 1
|
|
$ |
2,046 |
|
|
$ |
1,980 |
|
Less: Sublease income (Note 19)
|
|
|
(38 |
) |
|
|
(37 |
) |
Net lease cost
|
|
$ |
2,008 |
|
|
$ |
1,943 |
|
__________________________________________________
|
|
|
|
|
|
|
|
|
1 Includes
variable lease costs, which are immaterial.
|
|
|
|
|
|
|
|
|
Supplemental cash flow information related to leases was as
follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
Cash
paid for amounts included in the measurement of lease
liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$ |
1,906 |
|
|
$ |
1,771 |
|
Leased assets obtained in exchange for new operating lease
liabilities
|
|
$ |
2,645 |
|
|
$ |
1,477 |
|
Weighted-average remaining lease term and discount rate for
operating leases were as follows:
|
|
March 31,
2020
|
|
Weighted-average remaining lease term (in years)
|
|
|
6.0 |
|
Weighted-average discount rate
|
|
|
5.5 |
% |
Maturities of operating lease liabilities were as follows:
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
(Dollars in thousands)
|
|
2020 (excluding the three months ended March 31, 2020)
|
|
$ |
5,112 |
|
2021
|
|
|
7,009 |
|
2022
|
|
|
6,670 |
|
2023
|
|
|
5,718 |
|
2024
|
|
|
5,307 |
|
Thereafter
|
|
|
9,529 |
|
Total operating lease payments
|
|
$ |
39,345 |
|
|
|
|
|
|
Less: Interest
|
|
|
6,073 |
|
Present value of operating lease liabilities 1
|
|
$ |
33,272 |
|
__________________________________________________
|
|
|
|
|
1 Homebuilding and financial services
operating lease liabilities of $32.2 million and $1.1 million,
respectively, are included as a component of accrued and other
liabilities and accounts payable and accrued liabilities,
respectively, in the homebuilding and financial services section of
our consolidated balance sheet at March
31, 2020.
|
|
9.
|
Homebuilding Prepaid and Other
Assets
|
The following table sets forth the components of homebuilding
prepaid and other assets:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
Operating lease right-of-use asset (Note 8)
|
|
$ |
31,619 |
|
|
$ |
30,277 |
|
Land option deposits
|
|
|
27,126 |
|
|
|
27,361 |
|
Prepaid expenses
|
|
|
6,997 |
|
|
|
7,294 |
|
Goodwill
|
|
|
6,008 |
|
|
|
6,008 |
|
Deferred debt issuance costs on revolving credit facility, net
|
|
|
5,746 |
|
|
|
6,130 |
|
Other
|
|
|
506 |
|
|
|
1,288 |
|
Total
|
|
$ |
78,002 |
|
|
$ |
78,358 |
|
10.
|
Homebuilding Accrued and Other Liabilities
and Financial Services Accounts Payable and Accrued
Liabilities
|
The following table sets forth information relating to homebuilding
accrued and other liabilities:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
Customer and escrow deposits
|
|
$ |
43,342 |
|
|
$ |
39,001 |
|
Warranty accrual
|
|
|
30,887 |
|
|
|
31,386 |
|
Accrued compensation and related expenses
|
|
|
26,333 |
|
|
|
45,003 |
|
Lease liability (Note 8)
|
|
|
32,182 |
|
|
|
30,830 |
|
Accrued interest
|
|
|
14,018 |
|
|
|
27,734 |
|
Construction defect claim reserves
|
|
|
8,318 |
|
|
|
8,196 |
|
Land development and home construction accruals
|
|
|
8,862 |
|
|
|
9,750 |
|
Other accrued liabilities
|
|
|
69,092 |
|
|
|
54,040 |
|
Total accrued liabilities
|
|
$ |
233,034 |
|
|
$ |
245,940 |
|
The following table sets forth information relating to financial
services accounts payable and accrued liabilities:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
Insurance reserves
|
|
$ |
53,132 |
|
|
$ |
52,219 |
|
Accounts payable and other accrued liabilities
|
|
|
17,845 |
|
|
|
16,310 |
|
Total accounts payable and accrued liabilities
|
|
$ |
70,977 |
|
|
$ |
68,529 |
|
Our homes are sold with limited third-party warranties and, under our
agreement with the issuer of the third-party warranties, we are responsible
for performing all of the work for the first two
years of the warranty coverage and paying for substantially all of
the work required to be performed during years three through ten of the warranties. We record accruals for
general and structural warranty claims, as well as accruals for
known, unusual warranty-related expenditures. Our warranty accrual
is recorded based upon historical payment experience in an amount
estimated to be adequate to cover expected costs of materials and
outside labor during warranty periods. The determination of the
warranty accrual rate for closed homes and the evaluation of our
warranty accrual balance at period end are based on an internally
developed analysis that includes known facts and interpretations of
circumstances, including, among other things, our trends in
historical warranty payment levels and warranty payments for claims
not considered to be normal and
recurring.
Our warranty accrual is included in accrued and other liabilities
in the homebuilding section of our consolidated balance sheets and
adjustments to our warranty accrual are recorded as an increase or
reduction to home cost of sales in the homebuilding section of our
consolidated statements of operations and comprehensive income.
The table set forth below summarizes accrual, adjustment and
payment activity related to our warranty accrual for the three months ended March 31, 2020 and 2019.
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
Balance at beginning of period
|
|
$ |
31,386 |
|
|
$ |
28,262 |
|
Expense provisions
|
|
|
3,165 |
|
|
|
3,348 |
|
Cash payments
|
|
|
(3,664 |
) |
|
|
(2,493 |
) |
Adjustments
|
|
|
- |
|
|
|
875 |
|
Balance at end of period
|
|
$ |
30,887 |
|
|
$ |
29,992 |
|
12.
|
Insurance and Construction Defect Claim
Reserves
|
The establishment of reserves for estimated losses associated with
insurance policies issued by Allegiant and re-insurance agreements
issued by StarAmerican are based on actuarial studies that include
known facts and interpretations of circumstances, including our
experience with similar cases and historical trends involving claim
payment patterns, pending levels of unpaid claims, product mix or
concentration, claim severity, frequency patterns depending on the
business conducted, and changing regulatory and legal environments.
It is possible that changes in the insurance payment experience
used in estimating our ultimate insurance losses could have a
material impact on our insurance reserves.
The establishment of reserves for estimated losses to be incurred
by our homebuilding subsidiaries associated with (1) the self-insured retention (“SIR”) portion
of construction defect claims that are expected to be covered under
insurance policies with Allegiant and (2) the entire cost of any construction defect
claims that are not expected to be
covered by insurance policies with Allegiant are based on actuarial
studies that include known facts similar to those for our insurance
reserves. It is possible that changes in the payment experience
used in estimating our ultimate losses for construction defect
claims could have a material impact on our reserves.
The table set forth below summarizes our insurance and construction
defect claim reserves activity for the three months ended March 31, 2020 and 2019. These reserves are included as a
component of accounts payable and accrued liabilities and accrued
and other liabilities in either the financial services or
homebuilding sections of the consolidated balance sheets,
respectively.
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
Balance at beginning of period
|
|
$ |
60,415 |
|
|
$ |
55,308 |
|
Expense provisions
|
|
|
2,918 |
|
|
|
2,465 |
|
Cash payments, net of recoveries
|
|
|
(1,883 |
) |
|
|
(1,554 |
) |
Balance at end of period
|
|
$ |
61,450 |
|
|
$ |
56,219 |
|
In the ordinary course of business, we make payments from our
insurance and construction defect claim reserves to settle
litigation claims arising from our homebuilding activities. These
payments are irregular in both their timing and their magnitude. As
a result, the cash payments, net of recoveries shown for the
three months ended March 31, 2020 and 2019 are not
necessarily indicative of what future cash payments will be for
subsequent periods.
Our overall effective income tax rates were 24.3% and 27.1% for the
three months ended March 31, 2020 and 2019, respectively, resulting in income tax
expense of $11.8 million and $15.1 million for the same periods,
respectively. The year-over-year decrease in our effective tax rate
for the three months ended
March 31, 2020 was primarily
impacted by a windfall on non-qualifying stock options exercised
and lapsed restricted stock awards during the three months ended March 31, 2020 as well as energy tax credits
related to homes closed during the quarter. These benefits were
partially offset by a decrease in the amount of executive
compensation that is deductible under Internal Revenue Code Section
162(m).
At March 31, 2020 and December 31, 2019, we had deferred tax
assets, net of valuation allowances and deferred tax liabilities,
of $20.7 million and $21.8 million, respectively. The valuation
allowances were primarily related to various state net operating
loss carryforwards where realization is uncertain at this time due
to the limited carryforward periods coupled with minimal activity
that exists in certain states.
The carrying values of our senior notes as of March 31, 2020 and December 31, 2019, net of any unamortized
debt issuance costs or discount, were as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
5.625% Senior Notes due
February 2020, net
|
|
$ |
- |
|
|
$ |
249,909 |
|
5.500% Senior Notes due
January 2024, net
|
|
|
249,060 |
|
|
|
249,005 |
|
3.850% Senior Notes due
January 2030, net
|
|
|
297,285 |
|
|
|
- |
|
6.000% Senior Notes due
January 2043, net
|
|
|
490,555 |
|
|
|
490,508 |
|
Total
|
|
$ |
1,036,900 |
|
|
$ |
989,422 |
|
Our senior notes are not secured
and, while the senior note indentures contain some restrictions on
secured debt and other transactions, they do not contain financial covenants. Our senior
notes are fully and unconditionally guaranteed on an unsecured
basis, jointly and severally, by most of our homebuilding segment
subsidiaries.
15.
|
Stock-Based Compensation
|
We account for share-based awards in accordance with ASC Topic
718 Compensation–Stock
Compensation (“ASC 718”), which
requires the fair value of stock-based compensation awards to be
amortized as an expense over the vesting period. Stock-based
compensation awards are valued at fair value on the date of grant.
The following table sets forth share-based award expense activity
for the three months ended
March 31, 2020 and 2019, which is included as a component of
selling general and administrative expenses and expenses in the
homebuilding and financial services sections of our consolidated
statements of operations and comprehensive income,
respectively:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars in thousands)
|
|
Stock option grants expense
|
|
$ |
495 |
|
|
$ |
255 |
|
Restricted stock awards expense
|
|
|
1,517 |
|
|
|
911 |
|
Performance share units expense
|
|
|
2,428 |
|
|
|
3,085 |
|
Total stock-based compensation
|
|
$ |
4,440 |
|
|
$ |
4,251 |
|
On August 5, 2019, May 23, 2018, June
20, 2017 and July 25, 2016,
the Company granted long term performance share unit awards
(“PSUs”) to each of the CEO, the COO, and the Chief Financial
Officer (“CFO”) under the Company’s 2011 Equity Incentive Plan. The PSUs are
earned based upon the Company’s performance, over a three year period (the
“Performance Period”), measured by increasing home sale revenues
over a “Base Period.” Each award is conditioned upon the Company
achieving an average gross margin from home sales (excluding
impairments) of at least fifteen
percent (15%) over the Performance Period. Target goals will be
earned if the Company’s three year
average home sale revenues over the Performance Period
(“Performance Revenues”) exceed the home sale revenues over the
Base Period (“Base Revenues”) by at least 10% but less than 20%. If
Performance Revenues exceed the Base Revenues by at least 5% but
less than 10%, 50% of the Target Goals will be earned (“Threshold
Goals”). If Performance Revenues exceed the Base Revenues by at
least 20%, 200% of the Target Goals will be earned (“Maximum
Goals”). For the PSUs granted in 2017, 2018
and 2019, the number of PSUs earned
shall be adjusted to be proportional to the partial performance
between the Threshold Goals, Target Goals and Maximum Goals.
Details for each defined term above for each grant has been
provided in the table below.
|
|
|
|
|
|
|
|
Threshold Goal
|
|
Target Goal
|
|
Maximum Goal
|
|
|
|
|
|
Maximum
|
|
|
Maximum
|
|
Date of
Award
|
|
Performance
Period
|
|
Base
Period
|
|
Base
Period
Revenues
|
|
PSUs
|
|
Home
Sale
Revenues
|
|
PSUs
|
|
Home
Sale
Revenues
|
|
PSUs
|
|
Home
Sale
Revenues
|
|
Fair Value
per Share
|
|
|
Potential
Expense
to be
Recognized*
|
|
|
Remaining
Expense
to be
Recognized*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 25, 2016 |
|
July 1, 2016 to
June 30, 2019
|
|
July 1, 2015 to
June 30, 2016
|
|
$1.975 billion |
|
137,781 |
|
$2.074 billion |
|
275,562 |
|
$2.173 billion |
|
551,124 |
|
$2.370 billion |
|
$ |
19.66 |
|
|
$ |
10,834 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 20, 2017
|
|
April 1, 2017 to
March 31, 2020
|
|
April 1, 2016 to
March 31, 2017
|
|
$2.426 billion
|
|
144,342 |
|
$2.547 billion
|
|
288,684 |
|
$2.669 billion
|
|
577,368 |
|
$2.911 billion
|
|
$ |
27.83 |
|
|
$ |
16,070 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 23, 2018
|
|
April 1, 2018 to
March 31, 2021
|
|
April 1, 2017 to
March 31, 2018
|
|
$2.543 billion
|
|
145,800 |
|
$2.670 billion
|
|
291,600 |
|
$2.797 billion
|
|
583,200 |
|
$3.052 billion
|
|
$ |
25.57 |
|
|
$ |
14,915 |
|
|
$ |
7,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 5, 2019
|
|
January 1, 2019 to
December 31, 2021
|
|
January 1, 2018 to
December 31, 2018
|
|
$2.982 billion
|
|
135,000 |
|
$3.131 billion
|
|
270,000 |
|
$3.280 billion
|
|
540,000 |
|
$3.578 billion
|
|
$ |
32.60 |
|
|
$ |
17,604 |
|
|
$ |
17,604 |
|
In accordance with ASC 718, the
PSUs were valued on the date of grant at their fair value. The fair
value of these grants was equal to the closing price of MDC stock
on the date of grant less the discounted cash flows of expected
future dividends over the respective vesting period (as these PSUs
do not participate in dividends).
The grant date fair value and maximum potential expense if the
Maximum Goals were met for these awards has been provided in the
table above. ASC 718 does
not permit recognition of expense
associated with performance-based stock awards until achievement of
the performance targets are probable of occurring.
2016 PSU Grants. The
2016 PSU awards vested on
August 7, 2019 at the Maximum Goal
following the achievement of the Maximum Goals and certification by
the Compensation Committee that the Maximum Goals had been
achieved. For the three months
ended March 31, 2019 the Company
recorded share-based award expense of $0.9 million related to these
awards.
2017 PSU Grants. As of
March 31, 2020, the Company
determined that achievement of the Maximum Goals for these awards
was probable and, as such, the Company recorded share- award
expense related to the awards of $1.4 million for the three months ended March 31, 2020. For the three months ended March 31, 2019, the Company recorded
share-based award expense of $2.2 million related to these
awards.
2018 PSU Grants. As of
March 31, 2020, the Company
determined that achievement between the Target and Maximum Goals
for these awards was probable and, as such, the Company recorded
share-based award expense related to the awards of $1.0 million for
the three months ended March 31, 2020. At March 31, 2019, the Company concluded that
achievement of any of the performance metrics had not met the level of probability required to
record compensation expense, and as such, no expense related to
these awards had been recognized as of March 31, 2019.
2019 PSU Grants. For the
PSUs granted in August of
2019, the Company concluded that
achievement of any of the performance metrics has not met the level of probability required to
record compensation expense and, as such, no expense related to
these awards has been recognized as of March 31, 2020.
16.
|
Commitments and Contingencies
|
Surety Bonds and Letters of Credit. We are required to
obtain surety bonds and letters of credit in support of our
obligations for land development and subdivision improvements,
homeowner association dues, warranty work, contractor license fees
and earnest money deposits. At March 31,
2020, we had outstanding surety bonds and letters of credit
totaling $284.0 million and $96.6 million, respectively, including
$70.9 million in letters of credit issued by HomeAmerican. The
estimated cost to complete obligations related to these bonds and
letters of credit were approximately $152.4 million and $51.2
million, respectively. All letters of credit as of March 31, 2020, excluding those issued by
HomeAmerican, were issued under our unsecured revolving credit
facility (see Note 18 for further
discussion of the revolving credit facility). We expect that the
obligations secured by these performance bonds and letters of
credit generally will be performed in the ordinary course of
business and in accordance with the applicable contractual terms.
To the extent that the obligations are performed, the related
performance bonds and letters of credit should be released and we
should not have any continuing
obligations. However, in the event any such performance bonds or
letters of credit are called, our indemnity obligations could
require us to reimburse the issuer of the performance bond or
letter of credit.
We have made no material guarantees
with respect to third-party
obligations.
Litigation. Due to the nature of the homebuilding
business, we have been named as defendants in various claims,
complaints and other legal actions arising in the ordinary course
of business, including product liability claims and claims
associated with the sale and financing of homes. In the opinion of
management, the outcome of these ordinary course matters will
not have a material adverse effect
upon our financial condition, results of operations or cash
flows.
Lot Option Contracts. In the ordinary course of
business, we enter into lot option purchase contracts (“Option
Contracts”), generally through a deposit of cash or a letter of
credit, for the right to purchase land or lots at a future point in
time with predetermined terms. The use of such land option and
other contracts generally allow us to reduce the risks associated
with direct land ownership and development, reduces our capital and
financial commitments, and minimizes the amount of land inventories
on our consolidated balance sheets. In certain cases, these
contracts will be settled shortly following the end of the period.
Our obligation with respect to Option Contracts is generally
limited to forfeiture of the related deposits. At March 31, 2020, we had cash deposits and
letters of credit totaling $21.4 million and $8.2 million,
respectively, at risk associated with the option to purchase 8,533
lots.
Coronavirus/COVID-19
Pandemic. While the response to the pandemic
continues to rapidly evolve, many state and local governments had
extended and expanded on restrictions that substantially limited
the operations of non-essential businesses and the activities of
individuals. Certain markets in which we do business stopped our
construction and sales of homes and others limited the operations
of sales centers and model homes. We continue to market and sell
homes in all markets, but economic uncertainty and shelter in place
requirements have caused a significant decline in traffic at our
sales centers and model homes, and we have seen a
significant increase in our cancellation rate. The impact of the
decreased traffic and increased cancellation rate was evident in
our net new orders for the month of April, which fell 53% year-over-year. While
the extent to which the pandemic will impact our financial results
in the coming periods depends on future developments, the pandemic
and its associated impact on the U.S. economy and consumer
confidence could have a material impact to the Company’s future
results of operations, financial condition and cash flows.
17.
|
Derivative Financial Instruments
|
The derivative instruments we utilize in the normal course of
business are interest rate lock commitments and forward sales of
mortgage-backed securities, both of which typically are short-term
in nature. Forward sales of mortgage-backed securities are utilized
to hedge changes in fair value of our interest rate lock
commitments as well as mortgage loans held-for-sale not under commitments to sell. For forward
sales of mortgage-backed securities, as well as interest rate lock
commitments that are still outstanding at the end of a reporting
period, we record the changes in fair value of the derivatives in
revenues in the financial services section of our consolidated
statements of operations and comprehensive income with an offset to
other assets or accounts payable and accrued liabilities in the
financial services section of our consolidated balance sheets,
depending on the nature of the change.
At March 31, 2020, we had interest
rate lock commitments with an aggregate principal balance of $221.0
million. Additionally, we had $43.7 million of mortgage loans
held-for-sale at March 31, 2020
that had not yet been committed to
a mortgage purchaser. In order to hedge the changes in fair value
of our interest rate lock commitments and mortgage loans
held-for-sale that had not yet been
committed to a mortgage purchaser, we had forward sales of
securities totaling $162.0 million at March 31, 2020.
For the three months ended
March 31, 2020 and 2019, we recorded net gains on derivatives of
$1.0 million and $0.9 million, respectively, in revenues in the
financial services section of our consolidated statements of
operations and comprehensive income.
.
Revolving Credit Facility. We have an unsecured revolving
credit agreement (“Revolving Credit Facility”) with a group of
lenders which may be used for
general corporate purposes. This agreement was amended on
November 1, 2018 to (1) extend the Revolving Credit Facility
maturity to December 18, 2023,
(2) increase the aggregate
commitment from $700 million to $1.0 billion (the “Commitment”) and
(3) provide that the aggregate
amount of the commitments may
increase to an amount not to exceed
$1.5 billion upon our request, subject to receipt of additional
commitments from existing or additional lenders and, in the case of
additional lenders, the consent of the co-administrative agents. As
defined in the Revolving Credit Facility, interest rates on base
rate borrowings are equal to the highest of (1) 0.0%, (2)
a prime rate, (3) a federal funds
effective rate plus 1.50%, and (4)
a specified eurocurrency rate plus 1.00% and, in each case, plus a
margin that is determined based on our credit ratings and leverage
ratio. Interest rates on eurocurrency borrowings are equal to a
specified eurocurrency rate plus a margin that is determined based
on our credit ratings and leverage ratio. At any time at which our
leverage ratio, as of the last day of the most recent calendar
quarter, exceeds 55%, the aggregate principal amount of all
consolidated senior debt borrowings outstanding may not
exceed the borrowing base. There is no borrowing base requirement if our leverage
ratio, as of the last day of the most recent calendar quarter, is
55% or less.
The Revolving Credit Facility is fully and unconditionally
guaranteed, jointly and severally, by most of our homebuilding
segment subsidiaries. The facility contains various
representations, warranties and covenants that we believe are
customary for agreements of this type. The financial covenants
include a consolidated tangible net worth test and a leverage test,
along with a consolidated tangible net worth covenant, all as
defined in the Revolving Credit Facility. A failure to satisfy the
foregoing tests does not constitute
an event of default, but can trigger a “term-out” of the facility.
A breach of the consolidated tangible net worth covenant (but
not the consolidated tangible net
worth test) or a violation of anti-corruption or sanctions laws
would result in an event of default.
The Revolving Credit Facility is subject to acceleration upon
certain specified events of default, including breach of the
consolidated tangible net worth covenant, a violation of
anti-corruption or sanctions laws, failure to make timely payments,
breaches of certain representations or covenants, failure to pay
other material indebtedness, or another person becoming beneficial
owner of 50% or more of our outstanding common stock. We believe we
were in compliance with the representations, warranties and
covenants included in the Revolving Credit Facility as of
March 31, 2020.
We incur costs associated with unused commitment fees pursuant to
the terms of the Revolving Credit Facility. At March 31, 2020 and December 31, 2019, there were $25.7 million
and $23.5 million, respectively, in letters of credit outstanding,
which reduced the amounts available to be borrowed under the
Revolving Credit Facility. We had $15.0 million outstanding under
the Revolving Credit Facility as of March 31, 2020 and December 31, 2019. As of March 31, 2020, availability under the
Revolving Credit Facility was approximately $959.3 million.
Mortgage Repurchase Facility. HomeAmerican has a Master
Repurchase Agreement (the “Mortgage Repurchase Facility”) with U.S.
Bank National Association (“USBNA”). Effective May 23, 2019, the Mortgage Repurchase
Facility was amended to extend its termination date to May 21, 2020. The Mortgage Repurchase
Facility provides liquidity to HomeAmerican by providing for the
sale of up to an aggregate of $75 million (subject to increase by
up to $75 million under certain conditions) of eligible mortgage
loans to USBNA with an agreement by HomeAmerican to repurchase the
mortgage loans at a future date. Until such mortgage loans are
transferred back to HomeAmerican, the documents relating to such
loans are held by USBNA, as custodian, pursuant to the Custody
Agreement (“Custody Agreement”), dated as of November 12, 2008, by and between
HomeAmerican and USBNA. In the event that an eligible mortgage loan
becomes ineligible, as defined under the Mortgage Repurchase
Facility, HomeAmerican may be
required to repurchase the ineligible mortgage loan immediately.
The maximum aggregate commitment of the Mortgage Repurchase
Facility was temporarily increased on March 30, 2020 from $75 million to $110 million effective through
April 27, 2020. The Mortgage
Repurchase Facility also had a temporary increase in the maximum
aggregate commitment from $75 million to $150 million on December 24, 2019 effective through
January 22, 2020. At March 31, 2020 and December 31, 2019, HomeAmerican had $108.7
million and $149.6 million, respectively, of mortgage loans that
HomeAmerican was obligated to repurchase under the Mortgage
Repurchase Facility. Mortgage loans that HomeAmerican is obligated
to repurchase under the Mortgage Repurchase Facility are accounted
for as a debt financing arrangement and are reported as mortgage
repurchase facility in the consolidated balance sheets. Advances
under the Mortgage Repurchase Facility carry a price range that is
based on a LIBOR rate or successor benchmark rate.
The Mortgage Repurchase Facility contains various representations,
warranties and affirmative and negative covenants that we believe
are customary for agreements of this type. The negative covenants
include, among others, (i) a minimum Adjusted Tangible Net Worth
requirement, (ii) a maximum Adjusted Tangible Net Worth ratio,
(iii) a minimum adjusted net income requirement, and (iv) a minimum
Liquidity requirement. The foregoing capitalized terms are defined
in the Mortgage Repurchase Facility. We believe HomeAmerican was in
compliance with the representations, warranties and covenants
included in the Mortgage Repurchase Facility as of March 31, 2020.
19.
|
Related Party Transactions
|
We contributed $1.5 million in cash to the MDC/Richmond American
Homes Foundation (the “Foundation”) during the three months ended March 31, 2020. The Foundation is a
non-profit organization operated exclusively for charitable,
educational and other purposes beneficial to social welfare within
the meaning of Section 501(c)(3) of
the Internal Revenue Code. The following Directors and/or officers
of the Company served as directors of the Foundation at March 31, 2020, all of whom serve without
compensation:
Name
|
|
MDC Title
|
Larry A. Mizel
|
|
Chairman and CEO
|
David D. Mandarich
|
|
President and COO
|
Three other individuals, who are independent of the Company, also
serve as directors of the Foundation. All directors of the
Foundation serve without compensation.
The Company has a sublease agreement with CVentures, Inc. Larry A.
Mizel, the Chief Executive Officer of the Company, is the President
of CVentures, Inc. The sublease is for office space that CVentures,
Inc. has continuously leased from the Company since 2005. The current sublease term commenced
November 1, 2016 and will continue
through October 31, 2021, with an
option to extend to October 31,
2026. The sublease agreement is for approximately 5,437
rentable square feet at a base rent that increases over the initial
term from $26.50 to $28.68 per rentable square foot per year, and
increasing over the extension term from $29.26 to $31.67 per
rentable square foot per year. The sublease rent is an allocation
of the rent under the master lease agreement based on the sublease
square footage.
20.
|
Supplemental Guarantor Information
|
Our senior notes are fully and unconditionally guaranteed on an
unsecured basis, jointly and severally, by the following
subsidiaries (collectively, the "Guarantor Subsidiaries"), which
are 100%-owned subsidiaries of the Company:
|
●
|
M.D.C. Land Corporation
|
|
●
|
Richmond American Construction, Inc.
|
|
●
|
Richmond American Homes of Arizona, Inc.
|
|
●
|
Richmond American Homes of Colorado, Inc.
|
|
●
|
Richmond American Homes of Florida, LP
|
|
●
|
Richmond American Homes of Illinois, Inc.
|
|
●
|
Richmond American Homes of Maryland, Inc.
|
|
●
|
Richmond American Homes of Nevada, Inc.
|
|
●
|
Richmond American Homes of New Jersey, Inc.
|
|
●
|
Richmond American Homes of Oregon, Inc.
|
|
●
|
Richmond American Homes of Pennsylvania, Inc.
|
|
●
|
Richmond American Homes of Utah, Inc.
|
|
●
|
Richmond American Homes of Virginia, Inc.
|
|
●
|
Richmond American Homes of Washington, Inc.
|
The senior note indentures do not
provide for a suspension of the guarantees, but do provide that any
Guarantor may be released from its
guarantee so long as (1) no default or event of default exists or
would result from release of such guarantee, (2) the Guarantor being released has
consolidated net worth of less than 5% of the Company’s
consolidated net worth as of the end of the most recent fiscal
quarter, (3) the Guarantors
released from their guarantees in any year-end period comprise in
the aggregate less than 10% (or 15% if and to the extent necessary
to permit the cure of a default) of the Company’s consolidated net
worth as of the end of the most recent fiscal quarter, (4) such release would not have a material adverse effect on the
homebuilding business of the Company and its subsidiaries and
(5) the Guarantor is released from
its guarantee(s) under all Specified Indebtedness (other than by
reason of payment under its guarantee of Specified Indebtedness).
Upon delivery of an officers’ certificate and an opinion of counsel
stating that all conditions precedent provided for in the indenture
relating to such transactions have been complied with and the
release is authorized, the guarantee will be automatically and
unconditionally released. “Specified Indebtedness” means
indebtedness under the senior notes, the Company’s Indenture dated
as of December 3, 2002, the
Revolving Credit Facility, and any refinancing, extension, renewal
or replacement of any of the foregoing.
We have determined that separate, full financial statements of the
Guarantor Subsidiaries would not be
material to investors and, accordingly, supplemental financial
information for the Guarantor and Non-Guarantor Subsidiaries is
presented below.
Supplemental Condensed Combining Balance
Sheet
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Eliminating
|
|
|
Consolidated
|
|
|
|
MDC
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Entries
|
|
|
MDC
|
|
|
|
(Dollars in thousands)
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
380,318 |
|
|
$ |
6,386 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
386,704 |
|
Restricted cash
|
|
|
- |
|
|
|
15,762 |
|
|
|
- |
|
|
|
- |
|
|
|
15,762 |
|
Trade and other receivables
|
|
|
694 |
|
|
|
68,607 |
|
|
|
- |
|
|
|
- |
|
|
|
69,301 |
|
Inventories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing completed or under construction
|
|
|
- |
|
|
|
1,215,214 |
|
|
|
- |
|
|
|
- |
|
|
|
1,215,214 |
|
Land and land under development
|
|
|
- |
|
|
|
1,301,433 |
|
|
|
- |
|
|
|
- |
|
|
|
1,301,433 |
|
Total inventories
|
|
|
- |
|
|
|
2,516,647 |
|
|
|
- |
|
|
|
- |
|
|
|
2,516,647 |
|
Intercompany receivables
|
|
|
2,265,553 |
|
|
|
5,919 |
|
|
|
- |
|
|
|
(2,271,472 |
) |
|
|
- |
|
Investment in subsidiaries
|
|
|
279,593 |
|
|
|
- |
|
|
|
- |
|
|
|
(279,593 |
) |
|
|
- |
|
Property and equipment, net
|
|
|
23,033 |
|
|
|
39,283 |
|
|
|
- |
|
|
|
- |
|
|
|
62,316 |
|
Deferred tax asset, net
|
|
|
18,962 |
|
|
|
- |
|
|
|
- |
|
|
|
1,698 |
|
|
|
20,660 |
|
Prepaid and other assets
|
|
|
32,961 |
|
|
|
45,041 |
|
|
|
- |
|
|
|
- |
|
|
|
78,002 |
|
Total homebuilding assets
|
|
|
3,001,114 |
|
|
|
2,697,645 |
|
|
|
- |
|
|
|
(2,549,367 |
) |
|
|
3,149,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
- |
|
|
|
- |
|
|
|
22,159 |
|
|
|
- |
|
|
|
22,159 |
|
Marketable securities
|
|
|
- |
|
|
|
- |
|
|
|
43,985 |
|
|
|
- |
|
|
|
43,985 |
|
Intercompany receivables
|
|
|
- |
|
|
|
- |
|
|
|
64,666 |
|
|
|
(64,666 |
) |
|
|
- |
|
Mortgage loans held-for-sale, net
|
|
|
- |
|
|
|
- |
|
|
|
133,921 |
|
|
|
- |
|
|
|
133,921 |
|
Other assets
|
|
|
- |
|
|
|
- |
|
|
|
25,953 |
|
|
|
(1,698 |
) |
|
|
24,255 |
|
Total financial services assets
|
|
|
- |
|
|
|
- |
|
|
|
290,684 |
|
|
|
(66,364 |
) |
|
|
224,320 |
|
Total Assets
|
|
$ |
3,001,114 |
|
|
$ |
2,697,645 |
|
|
$ |
290,684 |
|
|
$ |
(2,615,731 |
) |
|
$ |
3,373,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
515 |
|
|
$ |
97,465 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
97,980 |
|
Accrued and other liabilities
|
|
|
67,874 |
|
|
|
162,742 |
|
|
|
- |
|
|
|
2,418 |
|
|
|
233,034 |
|
Advances and notes payable to parent and subsidiaries
|
|
|
69,748 |
|
|
|
2,254,742 |
|
|
|
- |
|
|
|
(2,324,490 |
) |
|
|
- |
|
Revolving credit facility
|
|
|
15,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
15,000 |
|
Senior notes, net
|
|
|
1,036,900 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,036,900 |
|
Total homebuilding liabilities
|
|
|
1,190,037 |
|
|
|
2,514,949 |
|
|
|
- |
|
|
|
(2,322,072 |
) |
|
|
1,382,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
|
- |
|
|
|
- |
|
|
|
73,395 |
|
|
|
(2,418 |
) |
|
|
70,977 |
|
Advances and notes payable to parent and subsidiaries
|
|
|
- |
|
|
|
- |
|
|
|
11,648 |
|
|
|
(11,648 |
) |
|
|
- |
|
Mortgage repurchase facility
|
|
|
- |
|
|
|
- |
|
|
|
108,744 |
|
|
|
- |
|
|
|
108,744 |
|
Total financial services liabilities
|
|
|
- |
|
|
|
- |
|
|
|
193,787 |
|
|
|
(14,066 |
) |
|
|
179,721 |
|
Total Liabilities
|
|
|
1,190,037 |
|
|
|
2,514,949 |
|
|
|
193,787 |
|
|
|
(2,336,138 |
) |
|
|
1,562,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity
|
|
|
1,811,077 |
|
|
|
182,696 |
|
|
|
96,897 |
|
|
|
(279,593 |
) |
|
|
1,811,077 |
|
Total Liabilities and Stockholders' Equity
|
|
$ |
3,001,114 |
|
|
$ |
2,697,645 |
|
|
$ |
290,684 |
|
|
$ |
(2,615,731 |
) |
|
$ |
3,373,712 |
|
Supplemental Condensed Combining Balance Sheet
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Eliminating
|
|
|
Consolidated
|
|
|
|
MDC
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Entries
|
|
|
MDC
|
|
|
|
Dollars in thousands
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
418,822 |
|
|
$ |
5,364 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
424,186 |
|
Restricted cash
|
|
|
- |
|
|
|
14,279 |
|
|
|
- |
|
|
|
- |
|
|
|
14,279 |
|
Trade and other receivables
|
|
|
624 |
|
|
|
65,205 |
|
|
|
- |
|
|
|
- |
|
|
|
65,829 |
|
Inventories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing completed or under construction
|
|
|
- |
|
|
|
1,036,191 |
|
|
|
- |
|
|
|
- |
|
|
|
1,036,191 |
|
Land and land under development
|
|
|
- |
|
|
|
1,330,384 |
|
|
|
- |
|
|
|
- |
|
|
|
1,330,384 |
|
Total inventories
|
|
|
- |
|
|
|
2,366,575 |
|
|
|
- |
|
|
|
- |
|
|
|
2,366,575 |
|
Intercompany receivables
|
|
|
1,936,075 |
|
|
|
6,370 |
|
|
|
- |
|
|
|
(1,942,445 |
) |
|
|
- |
|
Investment in subsidiaries
|
|
|
488,993 |
|
|
|
- |
|
|
|
- |
|
|
|
(488,993 |
) |
|
|
- |
|
Property and equipment, net
|
|
|
23,192 |
|
|
|
37,222 |
|
|
|
- |
|
|
|
- |
|
|
|
60,414 |
|
Deferred tax assets, net
|
|
|
22,508 |
|
|
|
- |
|
|
|
- |
|
|
|
(740 |
) |
|
|
21,768 |
|
Other assets
|
|
|
34,728 |
|
|
|
43,630 |
|
|
|
- |
|
|
|
- |
|
|
|
78,358 |
|
Total Homebuilding Assets
|
|
|
2,924,942 |
|
|
|
2,538,645 |
|
|
|
- |
|
|
|
(2,432,178 |
) |
|
|
3,031,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
- |
|
|
|
- |
|
|
|
35,747 |
|
|
|
- |
|
|
|
35,747 |
|
Marketable securities
|
|
|
- |
|
|
|
- |
|
|
|
56,747 |
|
|
|
- |
|
|
|
56,747 |
|
Intercompany receivables
|
|
|
- |
|
|
|
- |
|
|
|
47,753 |
|
|
|
(47,753 |
) |
|
|
- |
|
Mortgage loans held-for-sale, net
|
|
|
- |
|
|
|
- |
|
|
|
197,021 |
|
|
|
- |
|
|
|
197,021 |
|
Other assets
|
|
|
- |
|
|
|
- |
|
|
|
16,692 |
|
|
|
740 |
|
|
|
17,432 |
|
Total Financial Services Assets
|
|
|
- |
|
|
|
- |
|
|
|
353,960 |
|
|
|
(47,013 |
) |
|
|
306,947 |
|
Total Assets
|
|
$ |
2,924,942 |
|
|
$ |
2,538,645 |
|
|
$ |
353,960 |
|
|
$ |
(2,479,191 |
) |
|
$ |
3,338,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
289 |
|
|
$ |
87,075 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
87,364 |
|
Accrued and other liabilities
|
|
|
84,088 |
|
|
|
156,652 |
|
|
|
- |
|
|
|
5,200 |
|
|
|
245,940 |
|
Advances and notes payable to parent and subsidiaries
|
|
|
53,658 |
|
|
|
1,912,969 |
|
|
|
- |
|
|
|
(1,966,627 |
) |
|
|
- |
|
Revolving credit facility
|
|
|
15,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
15,000 |
|
Senior notes, net
|
|
|
989,422 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
989,422 |
|
Total Homebuilding Liabilities
|
|
|
1,142,457 |
|
|
|
2,156,696 |
|
|
|
- |
|
|
|
(1,961,427 |
) |
|
|
1,337,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
- |
|
|
|
- |
|
|
|
73,729 |
|
|
|
(5,200 |
) |
|
|
68,529 |
|
Advances and notes payable to parent and subsidiaries
|
|
|
- |
|
|
|
- |
|
|
|
23,571 |
|
|
|
(23,571 |
) |
|
|
- |
|
Mortgage repurchase facility
|
|
|
- |
|
|
|
- |
|
|
|
149,616 |
|
|
|
- |
|
|
|
149,616 |
|
Total Financial Services Liabilities
|
|
|
- |
|
|
|
- |
|
|
|
246,916 |
|
|
|
(28,771 |
) |
|
|
218,145 |
|
Total Liabilities
|
|
|
1,142,457 |
|
|
|
2,156,696 |
|
|
|
246,916 |
|
|
|
(1,990,198 |
) |
|
|
1,555,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|