M.D.C. Holdings, Inc. late on April 26 announced a net loss for the quarter ended March 31, 2007 of $94.4 million, (- $2.07 per diluted share) on revenues of $745 million, a 35.2% drop from $1.15 billion for the same period last year.
The results included pre-tax charges of $141.4 million for asset impairments and $4.0 million for write-offs of deposits and pre-acquisition costs associated with land option contracts the company does not intend to pursue.
Home building loss before taxes for the quarter ended March 31, 2007 was $138.9 million, compared with income before taxes of $170.9 million for the same period in 2006. This pre-tax difference was driven in large part by the asset impairment charges, as well as significant declines in home closings and home gross margins from the first quarter levels achieved during the same period in 2006. These income decreases were offset partially by the impact of reduced home building commissions, marketing, general and administrative expense ("SG&A") in the 2007 first quarter. The Company closed 2,001 homes and produced home gross margins of 15.8% in the 2007 first quarter, compared with 3,198 home closings and home gross margins of 27.1% for the comparable period in 2006. Average selling prices reached $355,700 for the quarter, up $6,400 from the same period in 2006, while SG&A decreased to $113.3 million from $133.6 million for the prior year first quarter.
MDC received orders, net of cancellations, for 2,558 homes with an estimated sales value of $902 million during the 2007 first quarter, compared with net orders for 3,800 homes with an estimated sales value of $1.36 billion during the same period in 2006. Net home orders declined year-over-year in all of the Company's markets except the Delaware Valley, with the largest unit decreases occurring in the West and Mountain homebuilding segments. During the 2007 first quarter, the Company's order cancellation rate rose to approximately 35%, compared with the 31% rate experienced during the same period in 2006. The Company ended the first quarter of 2007 with a backlog of 4,195 homes, compared with a backlog of 7,134 homes at March 31, 2006. The estimated sales value of backlog at the end of the 2007 first quarter was $1.50 billion, compared with $2.70 billion at March 31, 2006.
Income before taxes from the Company's Financial Services and Other segment for the quarter ended March 31, 2007 was $7.5 million, compared with $11.2 million for the same period in the previous year. The decrease primarily resulted from lower gains on sales of mortgage loans, as the dollar volumes of mortgage loan originations and mortgage loans sold declined in line with builder home closings.
Larry A. Mizel, MDC's chairman and CEO, stated, "The weakened demand for new homes experienced in 2006 continued throughout the first quarter of 2007, with most of our markets reporting lower orders for new homes compared to a year earlier. Many prospective home buyers hesitated in making purchase decisions because of uncertainties in the stability of home prices.Competition for new home orders continued at a high level, caused in part by expanding new and existing home inventories. In addition, new issues emerged in the mortgage industry that caused a tightening of sub-prime and Alt-A lending standards, which negatively impacted net home orders in March. The existence of these factors in most of our markets required us and our peers to increase the use of incentives to sell homes, which contributed significantly to our first quarter net loss."
Mizel continued, "In addition to reducing our supply of controlled lots by more than 10% since the beginning of the year, we generated almost $150 million in operating cash flow during the first quarter, contributing to a 47% year-over-year increase in our cash and available borrowing capacity to almost $1.9 billion. We ended the quarter with over $630 million in cash on hand and no borrowings under our home building line of credit, and our debt-to-capital ratio declined year-over-year and continued to rank among the industry's lowest."
Paris G. Reece III, MDC's executive vp and CFO, said, "Because the spring selling season did not materialize as anticipated, we continued to provide incentives and lower prices in many of our markets to encourage home buyer demand, in many cases in response to actions taken by our competitors. As a result, we have reduced our performance expectations with respect to certain subdivisions, leading to $115 million of impairments to land inventory and $26 million of impairments to work in process inventory in the first quarter. Nearly all of the impairments occurred in California, Nevada and Florida, with California alone accounting for over 60% of the total charge. In total, more than 3,200 lots in 52 subdivisions were impaired. The quarter-end book value of these subdivisions after the impairments was $381 million, including $203 million of land and $178 million of work in process."
Reece concluded, "Our general and administrative expenses declined year-over-year in the 2007 first quarter by 19%, reflecting reduced employee-related costs resulting from our continued efforts to right-size our home building operations in view of current market conditions. While commissions declined approximately in line with the decreases in home sales revenue, advertising expenses were almost the same as the 2006 first quarter, as we maintained an intense marketing program designed to improve home buyer traffic in response to the continuing competitive home selling environment in most of our markets."