M.D.C. Holdings, Inc. this evening (July 25) announced a net loss for the quarter ended June 30, 2007 of $106.1 million, or $2.32 per diluted share, which included pre-tax charges of $161.1 million for asset impairments and$6.4 million for write-offs of deposits and pre-acquisition costs associated with land option contracts the Company does not intend to pursue.
Net income for the second quarter of 2006 was $76.5 million, or $1.66 per diluted share, including pre-tax charges of $12.1 million for write-offs of deposits and pre-acquisition costs. Total revenue for the second quarter was$716.7 million, compared with revenue of $1.23 billion for the same period in 2006.
Home building loss before taxes for the quarter and six months ended June 30, 2007 was $171.3 million and $310.3 million, respectively, compared with income before taxes of $132.5 million and $303.4 million for the same periods in 2006. M.D.C. closed 2,031 homes and produced home gross margins of 14.1% in the 2007 second quarter, compared with 3,376 home closings and home gross margins of 23.3% for the comparable period in 2006. For the six months ended June 30, 2007, the company closed 4,032 homes and produced home gross margins of 15.0%, compared with 6,574 home closings and 25.1% home gross margins for the six months ended June 30, 2006.
Average selling prices were $338,700 and $347,100, respectively, for the quarter and six months ended June 30, 2007, down $13,400 and $3,600 from the same periods in 2006. Home building SG&A decreased to $111.6 million and$224.9 million, respectively, for the three and six months ended June 30, 2007, compared with $147.8 million and $281.3 million for the same periods in the prior year.
M.D.C. received orders, net of cancellations, for 1,970 homes with an estimated sales value of $653 million during the 2007 second quarter, compared with net orders for 2,738 homes with an estimated sales value of$914 million during the same period in 2006. For the six months ended June 30, 2007, the company received net orders for 4,528 homes with a sales value of $1.56 billion, compared with 6,538 homes with a sales value of $2.27 billion for the six months ended June 30, 2006. Net home orders in the 2007 second quarter declined year-over-year in all of the company's markets except Illinois, with the largest unit decreases occurring in the Mountain and West homebuilding segments. During the second quarter and first six months of 2007, the company's approximate order cancellation rates of 44% and 39%, respectively, were consistent with the 43% and 37% rates experienced during the same periods in 2006. The company ended the second quarter of 2007 with a backlog of 4,134 homes with an estimated sales value of $1.48 billion, compared with a backlog of 6,496 homes with an estimated sales value of $2.44 billion at June 30, 2006.
Income before taxes from the the Financial Services and Other segments for the quarter and six months ended June 30, 2007 was $4.2 million and $11.8 million, respectively, compared with $11.0 million and $22.2 million for the same periods in the previous year. The decrease for both periods 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. Additionally, in an effort to reduce its exposure to the risks inherent in holding mortgage loans, the company shifted to a less profitable loan sales strategy during the quarter.
Net loss for the six months ended June 30, 2007 was $200.5 million, or $4.40 per diluted share, which included pre-tax charges of $302.5 million for asset impairments and $10.5 million for write-offs of deposits and pre-acquisition costs associated with land option contracts M.D.C. does not intend to pursue. Net income for the first six months of 2006 was $171.9 million, or $3.74 per diluted share, including pre-tax charges of $15.8 million for write-offs of deposits and pre-acquisition costs. Total revenue for the 2007 first six months was $1.46 billion, compared with revenue of$2.38 billion for the same period in 2006.
Larry A. Mizel, M.D.C.'s CEO, stated, "While industry conditions deteriorated further in all of our markets throughout the 2007 second quarter, we made significant strides, both operationally and financially, in positioning our company to take advantage of opportunities that may be presented when these markets begin to stabilize and recover."
Mizel concluded, "Our continuing focus on conforming our operating and administrative infrastructure to changes in demand levels in each of our markets resulted in a year-over-year reduction in our total second quarter general and administrative expense of more than $35 million. Adding to the strength of our investment grade balance sheet, we reduced our lot supply by 15% in the second quarter alone, which enabled us to generate almost $160 million in cash flow from a decrease in our land inventory. At the same time, we minimized our incremental investment in work-in-process inventory by closely monitoring our supply of unsold homes. The combination of these efforts enabled us to generate $50 million in operating cash flow this quarter, raising our cumulative total over the last twelve months to $675 million. As a result, we ended the quarter with $668 million in cash and no borrowings under our $1.25 billion homebuilding line of credit, contributing to a 44% year-over-year increase in our cash and available borrowing capacity."
Paris G. Reece III, MDC's executive vice president and chief financial officer, said, "In the 2007 second quarter, we recognized impairments to land inventory and work-in-process inventory of $123 million and $38 million, respectively, as the high level of competition for new home orders caused us to reduce prices, increase incentives and, as a result, decrease our performance expectations with respect to certain subdivisions. As in the prior three quarters, the largest impairments occurred in California, which accounted for almost 50% of the total charge. Outside of California, the impairments occurred primarily in Arizona, Nevada, Florida and Colorado. In total, more than 4,400 lots in 83 subdivisions were impaired. The quarter-end book value of the impaired subdivisions after the impairments was $448 million, including $190 million of land and $258 million ofwork-in- process. Over the last twelve months, we have impaired approximately 40% of the 21,000 lots we owned at the end of our 2007 second quarter."
MDC, whose subsidiaries build homes under the Richmond American Homes moniker, is one of the top ten homebuilders in the United States, based on2006 revenue. MDC also owns HomeAmerican Mortgage Corporation. It builds in Colorado, Jacksonville, Las Vegas, Maryland, Northern California, Northern Virginia, Phoenix, Salt Lake City, Southern California and Tucson. MDC also has established operating divisions in Chicago, Philadelphia/Delaware Valley and West Florida.
