July 31, 2008 8:17 AM

MDC posts $100 million loss

Denver-based M.D.C. Holdings today said it had a net loss of $100.7 million, or $2.18 per share, in the second quarter, slightly better than it did a year earlier.
The loss included pre-tax charges of $88.3 million for asset impairments. The second quarter net loss also was impacted adversely by a $43.4 million increase in its deferred tax asset valuation allowance, which reduced our benefit from income taxes.
The net loss for the second quarter of 2007 was $106.1 million, or $2.32 per diluted share, including pre-tax charges of $161.1 million for asset impairments.
Total revenue for the second quarter of 2008 was $411.9 million, compared with revenue of $716.7 million for the same period in 2007.
Net loss for the six months ended June 30 was $173.5 million, or $3.77 per diluted share, which included pre-tax charges of $143.1 million for asset impairments.
This net loss for the first six months of 2008 also was impacted adversely by a $54.0 million increase in its deferred tax asset valuation allowance, which reduced benefits from income taxes.
The net loss for the first six months of 2007 was $200.5 million, or $4.40 per diluted share, including pre-tax charges of $302.5 million for asset impairments. Total revenue for the first six months of 2008 was $818.0 million, compared with revenue of $1.46 billion for the same period in 2007.
"During the 2008 second quarter, our national economy continued to face a significant headwind, as evidenced by weakness in many homebuilding and general economic measures and a significant year-over-year decline in our own home order results," Larry Mizel, MDC's chairman and CEO said in a statement.
"Therefore, even though we recently saw the approval of housing reform legislation, we remain cautious and defensive in our actions, with our balance sheet remaining a top priority. As a result, we generated $90 million in operating cash flow during the second quarter and reached nearly $1.3 billion in cash on hand as of June 30, with no borrowings outstanding on our homebuilding line of credit. In addition, as we continued to focus on reducing our exposure to performance bonds and letters of credit related to various land development activities during the second quarter, our estimated cost to complete these activities remained below $50 million.
"We believe that our financial position is relatively strong for our industry and that, as a result, we are uniquely positioned to work on initiatives that can create long-term value for our company. Therefore, during the second quarter, we continued to place emphasis on our multi-year, company-wide initiative focused on streamlining our business practices for increased efficiency and standardization across all of our markets. In addition, we continued to develop relationships with investors, banks and other homebuilders to identify opportunities to invest the substantial capital available to us."
Homebuilding loss before taxes for the quarter and six months ended June 30, improved to $94.5 million and $171.7 million, respectively, compared with $171.3 million and $310.3 million for the same periods in 2007.
The improvement in 2008 was driven in large part by declines in asset impairment charges of 45 percent and 53 percent, respectively, for the second quarter and first six months of 2008, and declines in homebuilding commissions, marketing and general and administrative expenses ("SG&A") of 48 percent and 45 percent, respectively, from the comparative 2007 periods. These decreases in expenses and charges were offset partially by the impact of reductions in home closings, average selling prices and home gross margins from the levels achieved during the same periods in 2007.
The company closed 1,292 homes and produced home gross margins of 11.7 percent in the 2008 second quarter, compared with 2,031 home closings and home gross margins of 14.1% for the same period in 2007.
For the six months ended June 30 the company closed 2,428 homes and produced home gross margins of 11.6 percent, compared with 4,032 home closings and 15 percent home gross margins for the six months ended June 30, 2007.
Average selling prices were $295,700 and $303,900, respectively, for the quarter and six months ended June 30, 2008, down $42,900 and $43,200, respectively, from the same periods in 2007. Homebuilding SG&A decreased to $58.6 million and $123.6 million, respectively, for the three and six months ended June 30, 2008, compared with $111.6 million and $224.9 million for the same periods in the prior year.
Paris G. Reece III, MDC's executive vice president and chief financial officer, said: "While our $88 million in asset impairments this quarter was higher than our asset impairment charges in the 2008 first quarter, they were significantly lower than the charges recognized during the same period in 2007. We impaired our land inventory by $63 million and our work-in-process inventory and other assets by $25 million, impacting approximately 3,500 lots in 110 subdivisions. The quarter-end book value of the impaired subdivisions after the impairments was $240 million, consisting of $87 million of land and $153 million of work-in-process. Impairments in the West and Mountain segments accounted for more than 80% of all inventory impairments recorded in the 2008 second quarter, primarily due to the fact that these segments comprised 75% of our total inventories at quarter-end. Over the last eight quarters, we have impaired approximately 70% of the 11,600 lots we owned at June 30. Given the continued weakness in our industry, cash generation and conservation have remained a key management focus thus far in 2008. By selling 1,100 lots during the first half of the year, primarily in our West segment, we not only generated more than $40 million in proceeds, but we triggered related taxable losses of more than $90 million.
"These tax losses furthered our efforts to maximize the tax refund we expect to receive early next year, which could be as much as $164 million. In addition, our continuing focus on conserving cash by right-sizing our operating platform has proven successful, as evidenced by the significant year-over-year reduction of our homebuilding general and administrative expenses."
Income before taxes from the company's financial services and other segment for the quarter and six months ended June 30, was $0.6 million and $4.7 million, respectively, compared with $4.2 million and $11.8 million for the same periods in the previous year. The decreases in the 2008 periods primarily resulted from lower insurance revenue due to lower insurance premiums collected from our homebuilding subcontractors as a result of the decline in home construction levels. The company also realized lower gains on sales of mortgage loans, as the dollar volumes of mortgage loan originations and mortgage loans sold declined in conjunction with builder home closings, which were offset by reductions in general and administrative expenses for our mortgage operations.
Loss before taxes from the company's corporate segment for the quarter and six months ended June 30was $7.6 million and $11.7 million, respectively, compared with $3.9 million and $16.2 million for the same periods in 2007.
The increased loss for the 2008 second quarter primarily resulted from reduced supervisory fees charged to other segments, which were partially offset by year-over-year reductions in compensation-related, travel and depreciation expenses.
In addition, the company experienced decreases in interest income due to a significant reduction in interest rates applicable to our cash investments, which more than offset the impact of significantly higher levels of cash investments.
The improvement for the first six months primarily resulted from an increase in interest income generated from the significantly higher cash balances in 2008, notwithstanding the lower applicable interest rates later in the period, as well as a year-over-year reduction in compensation-related, travel and depreciation expenses, partially offset by reduced supervisory fees received from other segments.
MDC received orders, net of cancellations, for 959 homes with an estimated sales value of $279 million during the 2008 second quarter, compared with net orders for 1,970 homes with an estimated sales value of $653.0 million during the same period in 2007. For the six months ended June 30, the company received net orders for 2,057 homes with a sales value of $604 million, compared with 4,528 homes with a sales value of $1.56 billion for the six months ended June 30, 2007.
During both the second quarter and first six months of 2008, the company's approximate order cancellation rate was 43%, consistent with the 44% and 39% rates experienced during the same periods in 2007. The company ended the second quarter of 2008 with a backlog of 1,576 homes with an estimated sales value of $522.0 million, compared with a backlog of 4,134 homes with an estimated sales value of $1.48 billion at June 30, 2007.
For more information: http://www.mdcholdings.com.

Posted by John Rebchook at 8:17 AM | Comments (0)