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MDC Holdings, Inc. (NYSE:MDC)

Q2 2007 Earnings Call

July 26, 2007, 12:00 PM ET

Executives

Joseph H. Fretz - Secretary and Corporate Counsel

Larry A. Mizel - Chairman and CEO

Paris G. Reece III - EVP and CFO

Analysts

Michael Rehaut - J.P. Morgan

Alex Barron - Agency Trading Group

Joel Locker - FBN Securities

Daniel Oppenheim - Banc of America Securities

David Einhorn - Greenlight Capital

James Wilson - JMP Securities

Carl Reichardt - Wachovia Securities

Thomas R. Marsico - Marsico Capital Management

Susan Berliner - Bear Stearns

Stephen Kim - Citigroup

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to MDC Holdings 2007 second quarter earnings call. At this time, all participants are in a listen-only mode and later we'll conduct a question and answer session with instructions being given at that time. [Operator Instructions]. And as a reminder, today's conference is being recorded. I would now like to turn the conference over to your host Mr. Joseph Fretz, Secretary and Corporate Counsel. Please go ahead sir

Joseph H. Fretz - Secretary and Corporate Counsel

Before introducing Larry Mizel and Gerry Reece, it should be noted that certain statements made during this conference call, including those related to MDC's anticipated home closings, home gross margins, backlog value, revenues and profits, and responses to questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause the company's actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. These and other factors that could impact the company's actual performance are set forth in the company's 2006 Form 10-K.

It should also be noted that SEC Regulation G requires that certain information accompany the use of non-GAAP financial measures. Any information require by Regulation G will be posted on our website, mdcholdings.com.

I will now introduce Larry Mizel, Chairman of the Board and Chief Executive Officer of MDC Holdings.

Larry A. Mizel - Chairman and Chief Executive Officer

Good morning and welcome to MDC's 2007 second quarter conference call and webcast. As many of you know, our friends at Ryland will be discussing their latest earnings in about an hour. To allow you to participate, we will end our call today no later than 1 pm Eastern Daylight Time.

As you've heard from the number of our peers and various media sources, homebuilding market continues to show little or no improvement in the 2007 second quarter. In an effort to preserve our backlog and generating home orders at a pace consistent with current market conditions, we increased incentives and lowered prices of many of our projects across the country. While our efforts did achieve some success, they also resulted in a substantial additional impairments to our inventories. These impairments comprised the bulk of our operating losses for our 2007 second quarter and for the first six months.

While we are aware that the difficult conditions faced by our industry today, we realize that we cannot single-handedly change the market, nor can we accurately predict when eventual recovery will occur. But we can continue to prepare our company to take advantage of the opportunities that we believe will be present as markets begin to stabilize. Strengthening our investment grade balance sheet remains our primary focus, which is evident in our results.

During the second quarter, we reduced our lot supply by 15%, allowing us to generate $50 million in operating cash flow. We did this during a period which typically requires the use of substantial cash to prepare for higher deliveries later in the year. This quarterly amount increased our total operating cash flow over the last 12 months to $675 million. We ended the quarter with almost $1.9 billion in cash and available borrowing capacity, including $668 million in cash on hand, greatly enhancing our capacity to react to changing markets. Our ability to capitalize on an industry turnaround will depend not only on our financial strength, but also on our success in streamlining our operations and transforming our company into a more efficient customer-oriented business.

In the second quarter, our G&A expenses declined by more than $35 million from the same period in 2006 as we resized our operating and administrative infrastructure. Even as we reduced our overhead, we continue to invest in key initiatives designed to enhance future profitability for our company. These initiatives included un bundling our construction costs to identify opportunities for savings, as well as examining our construction process to streamline the material supply chain, reduce cycle times, and improve inventory turns.

We focused on enhancing our systems, processes, and procedures and have provided valuable training for our employees. We furthered our efforts to create an extraordinary experience for homebuyers through the wide selection of product offerings at our home galleries across to the country and through the rollout of our customer experience initiatives nationwide. As our industry continues to work through this cycle, we will continue to exercise discipline in running our business every day. Our ongoing efforts to adjust our overhead land supply to current market conditions, develop more efficient, customer-focused operations in each of our markets, and preserve our capital for future growth should further our goal in maximizing long-term shareowner value.

I would like to now turn this call over to Gary Reece, our Chief Financial Officer, who will describe more specific financial highlights of our 2007 second quarter.

Paris G. Reece III - Executive Vice President and Chief Financial Officer

Thank you Larry. During the second quarter, we recognized a net loss of $106.1 million or $2.32 a share on $716.7 million of revenues. This compares to a net income of the second quarter 2006 of $76.5 million or $1.66 a share on $1.232 billion of revenues. Our pre-tax operating loss here in the second quarter of $171 million was essentially comprised of the asset impairment charges and project abandonment costs we've recognized during the period totaling $167.5 million. For the six months period, our pre-tax loss of $314.7 million primarily comprised of impairment charges and abandonment costs totaling $312.9 million for the six-month period.

The decline in earnings from the second quarter of the last year to the current period is essentially due to these impairments as well as lower home closings, lower average selling prices, lower home gross margins, as well as lower profits from Financial Services segment. These were partially offset by lower SG&A costs. I would like to talk briefly about each one of these, impairments I will hold until later.

In terms of closings, we closed 2031 homes in the current quarter, 40% below where were last year. Primarily the decline resulted from lower beginning backlog, which was down 41% from the backlog at the beginning of second quarter of last year. Our conversion rate of that backlog in the current quarter was actually up slightly at 48% of our beginning backlog. We were down in closings in all of our markets with the largest declines coming in our western segments comprised of Nevada, Arizona, and California where we... we were also down in excess of 50% closings in Colorado.

In terms of average selling prices, we saw a decline for the first time in a number of quarters by $13,400 per home to $338,700, down from $352,000 in the second quarter of last year. We saw significantly lower average selling prices again in our western markets, California, Nevada and Arizona, but also saw very large declines in Virginia and Maryland. While these were offset somewhat by prices peaking in the Utah market, up $78,000 per unit, we're also up slightly in Colorado.

In terms of our gross profit margins, we saw margins of 14.1% compared to 23.3% for the second quarter of last year. Margins were actually down in all markets except for our Delaware Valley market, which is starting to percolate a bit there and starting to gain some footage in that market. The decline year-over-year is really due to the higher incentives that are required to be offered in this competitive environment as well as higher land costs relative to land sales... home sales revenue. These increases in costs were partially offset by the fact that we did see an $18.8 million reversal of some of our impairments that we have taken year-to-date, which represents about 270 basis points relative to our margins.

Also contributing to the decline in profits this quarter are the lower financial services and other profits, which were down some 60% from where they were last year, really attributed to lower mortgage lending profits, which resulted from lower gains on sales and mortgage loans. These lower gains were a result of the lower level of closings, as well as a slightly lower capture rate from a year ago. We had a capture rate of 72% this year versus 75% a year ago.

Another contributing factor to the lower gains though is a change in our execution strategy in terms of how we sell our loans. We are selling them faster in order to mitigate some of the risk of holding these loans longer and the gain is a little bit smaller, but also the risk is lower as well. And we did start to see a fairly significant shift in risk with regard to this business during this quarter and particularly from last year. We saw our fixed rate loan originations increase to 83% of the total. This is up from 48% in the second quarter of last year and up from 68% in just the first quarter of this year.

Our prime loans as a percentage of the loans that we originated jumped from 58% in the second quarter to 86% of the total, while our Alt-A product dropped from 35% in the first quarter to only 5% of our total originations during this period of time. And we originated no subprime loans during this period of time, which in the past has been fairly small in any case.

Our loans with second mortgages also dropped from 52% in the first quarter down to 30%, and as a result, our loan to values have been coming down. They were approaching 90% earlier this year and now they are on back into the mid 80s. And FICO scores continue to remain in the 720 to 730 range.

As I mentioned earlier, the largest contributor to our decline in profits is impairments. During this period, here in the second quarter, we recognized impairments of $161.1 million. We also had some project abandonment costs that we recognized for $6.4 million. The impairments were really the result of higher incentives, lowering of selling prices in view of price movements by our competition and also to sell homes at a market pace in each one of our markets. This contributed to a total for the year in impairments of $314.7 million. 82% of our impairments this quarter came in our western segment, which is California, Arizona, and Nevada with California alone being 48% of the total. These impairments in California occurred primarily in outlying areas like the Antelope Valley, the High Desert, Riverside County, and San Diego; up north in the Central Valley, Fairfield, and Brentwood.

We also saw 23% of our impairments in Arizona being the second largest impairment location in the outlying location like Maricopa and Casa Grande. The impairment impacted some 44,00 lots and 83 subdivisions, 22 of these 83 subdivisions have been impaired previously. The assets that were impaired, pre-impairment were in excess of $600 million and after impairment, they represent a total of $448 million of assets on our balance sheet currently. So, our impairment actually resulted in a reduction of impaired inventories of approximately 26%.

So this impairment this quarter brings our total to date to $414 million combined with $35 million in write-offs with the turnaround that we have seen so far, we have turned approximately $28 million of the impairments. And of the total impairments, we have impaired approximately 40% of the 20,600 lots that we currently own.

I would like to, as we talk about this, I want to make it very clear that we do evaluate all of our lots each and every quarter and our evaluations for impairment of the 20,600 lots and homes under construction we owned at June 30th were based upon absorption paces, prices and incentives that reflect our perception of current market conditions. As a result, for purposes of this impairment, none of our lots or subdivisions have been deemed to be held for development of construction at some future period when theoretically market conditions might be improved.

Offsetting these declines in profits, as we mentioned earlier, is a reduction in our SG&A. Our SG&A declined some 22% here in the quarter, which represents $48.1million. The bulk of this decline is actually in the G&A category, as Larry mentioned. Our total G&A in the company declined to $80 million, which is down 31%, primarily due to reduced salaries and bonuses, as well as benefits from our right-sizing efforts as we lowered our headcount from some 3,900 employee at June 30th last year to 2,700 at June 30th this year.

We've also combined a number of divisions and regions during this period to streamline our operations. We have gone from some 26 operating divisions on the homebuilding side to 19 operating divisions as of June 30th.

Turning to other activities during the quarter, orders, we received orders for 1970 homes, which is down 28%. The estimated sales value of those orders is $653 million, which is also down some 28% from last year, giving us an average price, which runs in the low $330,000 range, which is approximately the same as where we were a year ago.

Our orders were down on a net basis in all of our markets, except for Illinois. We saw the largest decline coming in our Utah market as conditions in that market have started to come off all-time highs from a year ago. Arizona was... had a relatively strong quarter, being only down 10%, Maryland being down only 6%.

Our cancel rate... our estimated cancellation rate during the quarter was just under 44%, which is very similar to what it was a year ago. As a percentage of beginning backlog, the estimated cancellation rate was 36.6%, which is down sequentially from the first quarter, which I might add is the first sequential drop, albeit only half a point, still the first time this has dropped since the middle of 2005.

These lower orders contributed to a backlog of 4134 homes, which is 36% below backlog of a year ago with every market again being down in terms of backlog. The estimated price for that backlog also dropped 39% to $1.480 billion.

Our lot supply continues to stand among the industry's lowest. We ended the quarter with 21,000 lots controlled, which is down 15% from the end of the first quarter alone. It's down over 40% from June 30th of 2006. We had... we owned 15,259 lots at the end of the quarter, which is down 32%. We controlled 5747 lots under option, which is down 70% from where we were last year. And with the control of those lots, we only have about $23 million of deposits at risk and only another $4 million or so in other costs that have been capitalized with respect to lots that we're looking at. So, we're in a great position to react to opportunities on the lot acquisition side as they are presented in the future.

The next slide shows a makeup of our cash flow over the quarter. Larry we mentioned the fact that we had produced again positive cash flow from operating activities in the quarter, this time reaching $50 million. We saw really the major contributor being changes in our inventories. And while we did increases our work-in-process inventory by $140 million, we did lower our land inventories irrespective of the impairments by approximately $160 million. So those were... that was a large contributor to this positive cash flow.

Year-to-date we have generated just short of $200 million in positive operating cash flow and over the last 12 months, we've accumulated $675 million in positive operating cash flow. And as Larry mentioned, our balance sheet financial position continue to be a primary focus for us and the results speak for themselves. We ended the quarter with cash and available borrowing capacity of $1.889 billion, which is up 44% from the same time a year ago.

Our debt-to-cap ratio including all debt and capital increased slightly from a year ago to 0.36 from 0.35, but when you... and we have done a reconciliation in the press release to show how this is calculated, the way some of you look at it. And excluding cash and mortgage lending debt from that calculation, that number has dropped to 0.14 in terms of this net debt-to-cap ratio compared to 0.30 at this time in 2006.

That concludes our prepared remarks. We would like to open the floor for questions.

Question And Answer

Operator

Thank you. [Operator Instructions] Our first question will come from the line of Michael Rehaut of JP Morgan. Please go ahead.

Michael Rehaut - J.P. Morgan

Hi, thanks, good morning everyone.

Paris G. Reece III - Executive Vice President and Chief Financial Officer

Good morning, Mike.

Michael Rehaut - J.P. Morgan

Or good afternoon here, good morning for you. First question is on the impairments and then I have a follow-up. Just got off another builders call where in making assumptions for how much to impair land, the builders actually made assumptions that home prices will continue to decline and that the pricing over the next couple of quarters would actually be worse than current. I think you said that in your analysis in terms of how much to impair, you are looking at prices more at current levels. Is there any reason not to get even a little bit more conservative given where we are with the inventory levels still remaining at excessive point?

Paris G. Reece III - Executive Vice President and Chief Financial Officer

Mike, I think we have carved down our position from day one that we will base this analysis on what we know. We don't... what we don't know is how far they may decline if they decline further, and to what extent we will have to raise incentives. There are limited circumstances where we have... in certain subdivisions where we have had difficulty finding the market, and have had difficulty selling houses and in those circumstance we will have to... we will take the conservative view on where we think prices or incentives will have to go in order to sell houses at a market rate. But we believe that this analysis is to be done based upon known pricing and incentives and that's what we have based it on from day one.

Operator

Thank you. Our next question will come from the line Steven Kim of Citigroup

Unidentified Analyst

Hi, this is Johanna Ara [ph] for Steven Kim. I was wondering if you could comment on the trends that you saw through the quarter in terms of sales base or cancellation rate.

Paris G. Reece III - Executive Vice President and Chief Financial Officer

We have not really gotten into those trends. I mean, it would be hard to say what happens in one month is definitive on what's going to happen for the rest of the year or the cycle. This is a... despite what's happening with the cycle itself, this is a slower period of time in general and from a seasonal standpoint, things tend to get slower as they go through the summer time. So I think that to... from our standpoint to comment on it could be really misleading.

Operator

Thank you. Our next question will come from the lines of Alex Barron of Agency Trading Group. Please go ahead.

Alex Barron - Agency Trading Group

Yes, hi Gary, hi Larry.

Larry A. Mizel - Chairman and Chief Executive Officer

Alex, good morning. How are you?

Alex Barron - Agency Trading Group

Good, doing well. Where am I? Now first of all, I wanted to say I think you guys did a very good job with your disclosure and the press release was very helpful. I wanted to ask you though how many... do you have a breakdown of the communities by region how many you impaired this quarter?

Paris G. Reece III - Executive Vice President and Chief Financial Officer

We do, we have not disclosed that information by market, but the... I think it would flow pretty significantly along the lines of where the impairments occurred with the bulk of the communities that were impaired occurring in... or located in the West, California being the most, and then followed by Arizona and Nevada.

Operator

Thank you. Our next question comes from the line of Joel Locker of FBN Securities.

Joel Locker - FBN Securities

Hi guys. You are one of the only builders that actually are looking for land. Just I noticed your land, I know development went down about $280 million sequentially. So I guess it doesn't look like you are finding much to... that actually pencils in at home prices. Is that fair to assume?

Paris G. Reece III - Executive Vice President and Chief Financial Officer

Joel, that is fair. At least $120 million or so of that decline was a result of the impairment, but $157 million, I believe it was, is a result of decline in the land balances. We did buy some land in markets like Utah and Colorado and it's spread throughout the country, but it's very limited in terms of what we are buying. And we are on the active hunt for land, but you can see the net results of our efforts.

Operator

Thank you. And next we will go to the line of Dan Oppenheim of Banc of America Securities.

Daniel Oppenheim - Banc of America Securities

The question is actually related to that, wondering if you look at land and your need for it over the next couple of years, when you have been looking at the deals that are out there at this point, what's the difference in terms of what you will be willing to pay versus what you think sellers are looking for at this point?

Paris G. Reece III - Executive Vice President and Chief Financial Officer

Dan, it varies by market. There is clearly a disconnect between what we would need see to make a purchase versus what the sellers are willing to sell the land for. I think that there is still... in a number of market there is a sentiment among the land sellers that this cycle may be short-lived and in markets such as Las Vegas, which was severely land-constrained, they know it's land-constrained and they have staying power to wait it out. So they are not really willing to come down to levels, but it could vary anywhere from... depending on the market anywhere from 10% to 30% in terms of the gap between what they are willing to sell for and what we would buy it for.

Operator

Thank you. Next we will go to the line of David Einhorn of Greenlight Capital.

David Einhorn - Greenlight Capital

Yes, actually those were my questions. So thanks so much.

Larry A. Mizel - Chairman and Chief Executive Officer

Thank you David.

Operator

And next we will go the line of Jim Nelson of JMP.

James Wilson - JMP Securities

Jim Wilson. Good morning, good morning guys. I was wondering, Gary, thanks again. I know you gave the gross margin you had seen ex the impairments in the quarter. Can you give any thought or color to the orders you have taken recently, particularly the quarter, how much, if different, the gross margins by looking those orders that you have taken recently?

Paris G. Reece III - Executive Vice President and Chief Financial Officer

Jim it is very difficult to use that as a basis to predict. We are finding that cancellations are still very high and we found that a very high percentage of our sales, homes that close and homes that sell during the period are actually on a spec basis and we... you would anticipate that the impairments with everything else held equal that sales of lots, sales of homes on projects that have been impaired, you would expect to see all else held equal for those margins to be higher. It varies very significantly project by project and market by market. So, we would not be able to lay out anything definitively at this time.

Operator

Thank you. Next we will go to the line of Carl Reichardt of Wachovia Securities.

Carl Reichardt - Wachovia Securities

: Good morning guys, how are you?

Paris G. Reece III - Executive Vice President and Chief Financial Officer

Hi Carl.

Carl Reichardt - Wachovia Securities

Hi. Gary, I was a little curious about the Colorado-related impairments, seems like it's a market that's been weak for a substantial period of time. Could you give us more color on that and was there a change in more of your absorption estimations or your selling price estimations that drove that?

Paris G. Reece III - Executive Vice President and Chief Financial Officer

Carl, they kind of go hand in hand, most of these impairments are in the Northern part of our market, in areas that have... are extremely competitive, areas where we have seen other competition dropping prices or rising incentives, and our absorption pace has not been acceptable. So, it's kind of a combination of... really the absorption pace does not in and of itself create the impairment that impacts the discounted cash flow analysis. So, it impacts the decree of the impairment. So it's really the fact that we have had to lower prices or raise incentives in order to achieve a level of absorption that we've deemed to be acceptable in that market.

Operator

Thank you. And next we will go to the line of Tom Marsico of Marsico Capital. Please go ahead.

Thomas R. Marsico - Marsico Capital Management

Thank you. Larry, I was wondering if could take a look at this cycle in comparison to the energy crisis that was experienced in the... through energy build in the '80s, in the RTC period. And at what point do you think the liquidity in the market is causing problems and if the FHA's ability to refinance subprime mortgages might help out the situation, there's an HR bill 1852 going through the House right now that would seem to get at this issue of the ability to refinance subprime mortgages.

Larry A. Mizel - Chairman and Chief Executive Officer

In looking at the last cycle, you might say it's probably defined of the '80s and tailing off to the early '90s. During that period of time, we had a collapse in real market in general throughout the country, not just housing, but whether it is office or retail or warehouses. It didn't matter, there was a implosion of real estate in general. We also had the '86 tax bill, we had the FIRIA [ph] in '89. You had the S&L's growing broke. You had a real implosion and housing just happened to be on of the assets. I think this cycle, we find that at this point the effect is in basically residential for sale, and that it... it's not nearly as difficult as the '80s when it was a broad based implosion of real estate values. And so I see the difference that it's painful now and it will continue that way until we eat through the standing inventory, whether it's new or re-sales, and the financing assistance that may be given through refi-ing some of these subprime and what not, I think is a factor. But I think most important factor of the cycle deals with job creation, employment, basically a decent economy in our country. And even though it may have some liquidity effect now because subprime rolled into may be the... some of the securitization of other debt instruments, I believe it's something that we will work through and as usual, in all of these real estate cycles, those companies that are the strongest will have the greatest opportunity as the market corrects itself.

Operator

Thank you. Next we will go to the line of Susan Berliner of Bear Stearns. Please go ahead

Susan Berliner - Bear Stearns

Hi. I was curious about what you had talked about on the mortgage business about selling loans faster. I was wondering if you could walk through what the timeframe was before and what it is doing... what your doing now, as well as any potential for any loans to come back to MDC.

Paris G. Reece III - Executive Vice President and Chief Financial Officer

Susan, what we were doing previously in order to maximize profitability on the gain on the sales is we would generally accumulate these loans and sell them in bulk. These packages could be $50 million, $100 million or more. Obviously, to achieve those levels, we would have to hold the loans for a longer period of time. The.. which created... it did a number of things. You'd have a greater... it had some risks during the time you are holding the loans and then it would extend if you had an EPD, early payment default period following the sale, it would extend that some period of time as well. So what we have... what we're doing now is selling it more on a flow basis, selling it earlier in the process. And that gets it off our books faster and we are also in many cases able to sell it this way without early payment default exposure. And so, just overall, it's a lower risk proposition.

Operator

Thank you. And we will go back to the line of Michael Rehaut of JP Morgan

Michael Rehaut - J.P. Morgan

Thanks. Actually all my question have been answered.

Operator

Thank you. And we will go back to line of Stephen Kim from Citigroup.

Stephen Kim - Citigroup

Thanks. Basically I wanted to follow up on the response that you guys gave to Johanna, which is basically saying you didn't really want to comment too much on trends and what not from one month's data. But I guess the nature of the question was really that we just got off the call where one of your major competitors was saying that they had taken, and they are obviously a big one, and they have indicated they had made some pretty significant adjustments on pricing. And I guess really what we are asking is whether or not you're seeing some of the competitive pressures in the meaningful way intensify due to pricing, whether you have actually heard any sort of feedback from your local operators along that front?

Paris G. Reece III - Executive Vice President and Chief Financial Officer

Steve, it's Gary. I will respond to that. In terms of talking specifically about orders, that's what I didn't really want to get into, but I will say that we have... that we did see approaching the end of the quarter a kind of as we did approaching the end of the first quarter that competitive pressures did increase. We saw need to move pricing and incentives as we... our process of evaluating levels of impairments is one which we go through, it's very rigorous process in which we talk about every single subdivision with every division President around the country, and talk about what their experience has been and what strategy they may have to deploy in order to pickup the pace if necessary. And we did see in June... it could have been seasonal, it could have been whatever, we did see the need to respond to some movement by some of our competition. We did see a number of subdivisions where we were not selling product, our traffic was low, we needed to do some things to generate traffic. And so, we were going to have to make some changes in pricing, lowering pricing, increasing incentives, and those efforts are very much part of what generated the levels of impairments that we saw here in the second quarter. So we did see competitive pressures increase, and we have responded accordingly and the result was higher level of impairments than perhaps we would have seen had we have done the analysis at the end of May.

Operator

Thank you. And we will go back to the line of Alex Barron Agency Trading Group. Please go ahead. Mr. Barron, your line if open.

Alex Barron - Agency Trading Group

Can you hear me?

Operator

Yes, we can.

Paris G. Reece III - Executive Vice President and Chief Financial Officer

Yes, Alex. We can hear you.

Alex Barron - Agency Trading Group

Okay, great. Thanks. I think the operator cut me off last time. Anyway, I wanted to ask you how many... as a percentage of your communities in these key states, California, Arizona, Nevada, and Florida, how many... what percentage of your communities have been impaired?

Paris G. Reece III - Executive Vice President and Chief Financial Officer

Well, Alex, it has been... I will tell you that in our... it varies market by market and I really can't get into the specifics. I think what I can tell you is something you might anticipate that a very high percentage of our subdivisions and communities in California have been impaired as well as in Florida, and to a lesser degree in the other markets.

Operator

Thank you. And next we will go to the line of Joel Locker of FBN Securities.

Joel Locker - FBN Securities

Yes, just a follow-up question on Utah. Just saw that orders fell 57% and that was kind of one of the remaining strong markets a couple of quarters ago and just wanted see if we can get some color on that.

Paris G. Reece III - Executive Vice President and Chief Financial Officer

Joel, Utah has started to soften a bit this year and it's reflected in orders, it's reflected in all the things we see in other markets, a little bit higher cancellation rate, the slowdown in ability to raise prices, higher incentives, but Utah is still a decent market and it did not experience the high level of price appreciation that most of the other markets did. I am sorry? Go ahead Joel, or did you get cutoff?

Operator

Mr. Locker, your line is open.

Paris G. Reece III - Executive Vice President and Chief Financial Officer

Joel?

Operator

Mr. Locker, your line is open.

Paris G. Reece III - Executive Vice President and Chief Financial Officer

Okay. Anyway, Utah is... its rate of growth is slowing. It's showing some signs of hitting the top there. But... and remember that these comparisons are compared to the highest levels of orders that we have seen in that market. So, we are comparing to all-time records.

Joel Locker - FBN Securities

Alright, thanks a lot.

Operator

[Operator Instructions] And gentlemen, I show no further questions at this time. I will turn it back to you.

Larry A. Mizel - Chairman and Chief Executive Officer

We would like to thank you again for joining our call today. We look forward to having the opportunity to speak with you in October following the announcement of our 2007 third quarter results.

Operator

Thank you. Ladies and gentlemen, this conference will be available for replay after 5 pm Mountain Daylight Time today, until august 23rd at midnight. You may access the AT&T Executive Playback Service at any time by dialing 1-800-475-6701 and entering the access code of 878471. That number again is 1-800-475-6701 and the access code of 878471. It does conclude your conference for today. Thank you for your participation and for using the AT&T Executive Teleconference Service. You may now disconnect.

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Source: MDC Holdings Q2 2007 Earnings Call Transcript
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