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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-8951
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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.)
3600 SOUTH YOSEMITE STREET, SUITE 900 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 NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE/THE PACIFIC STOCK EXCHANGE
8 3/8% SENIOR NOTES DUE FEBRUARY 2008 NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
AS OF FEBRUARY 14, 2002, 26,686,000 SHARES OF M.D.C. HOLDINGS, INC.
COMMON STOCK WERE OUTSTANDING, AND THE AGGREGATE MARKET VALUE OF THE SHARES
(BASED UPON THE CLOSING PRICE ON THAT DATE OF THE SHARES ON THE NEW YORK STOCK
EXCHANGE, INC. AS REPORTED ON THE COMPOSITE TAPE) HELD BY NON-AFFILIATES WAS
APPROXIMATELY $763,460,000.
DOCUMENTS INCORPORATED BY REFERENCE
PART III OF THIS FORM 10-K IS INCORPORATED BY REFERENCE FROM THE
REGISTRANT'S 2002 DEFINITIVE PROXY STATEMENT TO BE FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION NO LATER THAN 120 DAYS AFTER
THE END OF THE REGISTRANT'S FISCAL YEAR.
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M.D.C. HOLDINGS, INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2001
----------
TABLE OF CONTENTS
PAGE
NO.
----
PART I
ITEMS 1.
AND 2. BUSINESS AND PROPERTIES
(a) General Development of Business................................... 1
(b) Financial Information About Industry Segments..................... 1
(c) Narrative Description of Business................................. 1
ITEM 3. LEGAL PROCEEDINGS.......................................................... 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................ 6
PART II
ITEM 5. MARKET PRICE OF COMMON STOCK AND RELATED SECURITY HOLDER MATTERS........... 7
ITEM 6. SELECTED FINANCIAL AND OTHER DATA.......................................... 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................ 10
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................. 20
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS.......................................... F-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE............................................................ 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................... 21
ITEM 11. EXECUTIVE COMPENSATION..................................................... 21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............ 22
(i)
M.D.C. HOLDINGS, INC.
FORM 10-K
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
(a) General Development of Business
M.D.C. Holdings, Inc. is a Delaware Corporation. We refer to M.D.C.
Holdings, Inc. as the "Company" or as "MDC" in this Form 10-K. The "Company" or
"MDC" includes our subsidiaries unless we state otherwise. MDC's primary
business is owning and managing subsidiary companies that build and sell homes
under the name "Richmond American Homes." We also own and manage HomeAmerican
Mortgage Corporation ("HomeAmerican"), which originates mortgage loans primarily
for MDC's home buyers. In addition, MDC provides title agency services through
American Home Title and Escrow Company ("American Home Title") and offers
insurance through American Home Insurance Agency, Inc. ("American Home
Insurance") to MDC's home buyers.
(b) Financial Information About Industry Segments
Note B to the consolidated financial statements contains information
regarding the Company's business segments for each of the three years ended
December 31, 2001, 2000 and 1999.
(c) Narrative Description of Business
MDC's business consists of two segments, homebuilding and financial
services. In our homebuilding segment, we build and sell single-family homes in
metropolitan Denver, Colorado Springs and Northern Colorado; Northern Virginia
and suburban Maryland; Northern and Southern California; Phoenix and Tucson,
Arizona; and Las Vegas, Nevada. Our financial services segment consists
principally of the operations of HomeAmerican.
Our strategy is to build homes generally for the first-time and move-up
buyer, the largest group of prospective home buyers. The base prices for these
homes generally range from $70,000 to $435,000, although the Company also builds
homes with base prices as high as $1,300,000. The average sales prices of the
Company's homes closed in 2001 and 2000 were $254,100 and $227,300,
respectively.
When opening a new homebuilding project, the Company generally acquires
no more than a two-year supply of lots to avoid overexposure to any single
sub-market. The Company prefers to acquire finished lots using rolling options
or in phases for cash. MDC also acquires entitled land for development into
finished lots when the Company determines that the risk is justified. The
Company's Asset Management Committee, composed of members of the Company's
senior management, generally meets weekly to review all proposed land
acquisitions and takedowns of lots under option. Additional information about
MDC's land acquisition practices may be found in the Homebuilding Segment, Land
Acquisition and Development section.
Homes are designed and built to meet local customer preferences. The
Company is the general contractor for all of its projects and retains
subcontractors for site development and home construction. The Company builds
single-family detached homes, except in Virginia and Maryland, where we also
build town homes.
HomeAmerican is a full service mortgage lender with offices located in
each of MDC's markets. Because it provides or brokers mortgage loans for
approximately 85% of MDC's home buyers, HomeAmerican is an integral part of
MDC's homebuilding business.
American Home Title provides title agency services to MDC home buyers
in Virginia, Maryland and Colorado. American Home Insurance offers homeowners,
auto and other types of casualty insurance to home buyers in all of our markets.
1
HOMEBUILDING SEGMENT.
General. The Company is one of the largest homebuilders in the United
States. MDC is a major regional homebuilder with a significant presence in a
number of selected growth markets. The Company is the largest homebuilder in
Colorado; among the top five homebuilders in Northern Virginia, Phoenix and
Tucson; and among the top ten builders in suburban Maryland, Northern California
and Las Vegas; and has a significant presence in Southern California. MDC
believes a significant presence in its markets enables it to compete effectively
for home buyers, land acquisitions and subcontractor labor.
The Company designs, builds and sells quality single-family homes at
affordable prices, generally for the first-time and move-up buyer. Approximately
73% of its homes closed in 2001 were in subdivisions targeted to first-time and
first-time move-up buyers, compared with approximately 79% and 71% in 2000 and
1999, respectively.
The Company's operations are diversified geographically, as shown in
the following table of home sales revenues by state for the years 1999 through
2001 (dollars in thousands).
TOTAL HOME SALES REVENUES PERCENT OF TOTAL
------------------------------------ --------------------------------------
2001 2000 1999 2001 2000 1999
---------- ---------- ---------- ---------- ---------- ----------
Colorado ...... $ 716,313 $ 659,549 $ 519,870 35% 39% 34%
California .... 611,899 443,332 434,553 30% 26% 28%
Arizona ....... 346,582 228,550 260,224 17% 13% 17%
Nevada ........ 133,548 111,108 83,342 6% 7% 6%
Virginia ...... 196,656 183,900 162,577 9% 11% 11%
Maryland ...... 71,809 74,669 65,953 3% 4% 4%
---------- ---------- ---------- ---------- ---------- ----------
Total ... $2,076,807 $1,701,108 $1,526,519 100% 100% 100%
========== ========== ========== ========== ========== ==========
Housing. MDC builds homes in a number of basic series, each designed to
appeal to a different segment of the home buyer market. Within each series, MDC
builds several models, each with a different floor plan, elevation and standard
and optional features. Differences in sales prices of similar models in any
series depend primarily upon location, optional features and design
specifications. The series of homes offered at a particular location are based
on customer preference, lot size, the area's demographics and, in certain cases,
the requirements of local municipalities.
Design centers are located in the Company's Denver, Southern Colorado,
Phoenix, Tucson, Northern California, Southern California, Nevada and Virginia
homebuilding divisions. Home buyers are able to customize certain features of
their homes by selecting options and upgrades on display at the design centers.
Home buyers can select finishes and upgrades soon after they decide to purchase
a Richmond American home. The design centers, which also are planned for MDC's
Maryland and Northern Colorado homebuilding divisions, not only provide MDC's
customers with a convenient way to select upgrades and options for their new
homes, but also provide the Company with an additional source of revenue and
profit.
The Company maintains limited levels of inventories of unsold homes in
its markets. Unsold homes in various stages of completion allow the Company to
meet the immediate and near-term demands of prospective home buyers. In order to
mitigate the risk of carrying excess inventory, the Company has strict controls
and limits on the number of its unsold homes under construction.
Land Acquisition and Development. MDC purchases finished lots using
option contracts and in phases or in bulk for cash. The Company also acquires
entitled land for development into finished lots when the Company determines
that the risk is justified. In making land purchases, MDC considers a number of
factors, including projected rates of return, sales prices of the homes to be
built on the lots, population and employment growth patterns, proximity to
developed areas, estimated costs of development and demographic trends.
Generally, MDC acquires finished lots and land for development only in areas
that will have, among other things, available building permits, utilities and
suitable zoning. The Company attempts to maintain a supply of finished lots
sufficient to enable it to start homes promptly after a contract for sale is
executed. This approach is intended to minimize the Company's investment in
inventories and reduce the risk of shortages of labor and building materials.
Increases in the cost of finished lots may reduce Home Gross Margins (as defined
below) in the future to the extent that market conditions would not allow the
Company to recover the higher cost of land through higher sales prices. We
define "Home Gross Margins" to mean home sales revenues less cost of goods sold
(which primarily includes land and
2
construction costs, capitalized interest, a reserve for warranty expense and
financing and closing costs) as a percent of home sales revenues. See
"FORWARD-LOOKING STATEMENTS" below.
MDC has the right to acquire a portion of the land it will require in
the future utilizing option contracts, in some cases on a "rolling" basis.
Generally, in an option contract, the Company obtains the right to purchase lots
in consideration for an option deposit. In the event the Company elects not to
purchase the lots within a specified period of time, the Company forfeits the
option deposit. This practice limits the Company's risk and avoids a greater
demand on its liquidity. At December 31, 2001, MDC had the right to acquire
6,059 lots under option agreements with approximately $13,500,000 in
non-refundable cash option deposits at risk. Because of increased demand for
finished lots in certain of its markets, the Company's ability to acquire lots
using rolling options has been reduced or has become significantly more
expensive.
MDC owns various undeveloped parcels of real estate, most of which it
intends to develop into finished lots. MDC develops its land in phases
(generally fewer than 100 lots at a time for each home series in a subdivision)
in order to limit the Company's risk in a particular project and to maximize the
efficient use of available liquidity. Building permits and utilities are
available and zoning is suitable for the current intended use of substantially
all of MDC's undeveloped land. When developed, these lots generally will be used
in the Company's homebuilding activities. See "FORWARD-LOOKING STATEMENTS"
below.
The table below shows the carrying value of land and land under
development, by state, as of December 31, 2001, 2000 and 1999 (in thousands).
DECEMBER 31,
------------------------------
2001 2000 1999
-------- -------- --------
Colorado ........... $165,228 $126,524 $ 74,117
California ......... 110,010 149,088 161,508
Arizona ............ 70,602 50,937 29,426
Nevada ............. 44,103 26,546 27,419
Virginia ........... 49,929 29,596 6,357
Maryland ........... 10,630 6,020 9,853
-------- -------- --------
Total .......... $450,502 $388,711 $308,680
======== ======== ========
The table below shows the number of lots owned and under option
(excluding lots in work-in-process), by state, as of December 31, 2001, 2000 and
1999.
DECEMBER 31,
------------------------------
2001 2000 1999
-------- -------- --------
Lots Owned
Colorado .............. 5,777 5,905 5,096
California ............ 1,632 1,589 2,070
Arizona ............... 3,099 2,298 1,976
Nevada ................ 1,380 680 857
Virginia .............. 1,511 1,052 265
Maryland .............. 125 109 188
-------- -------- --------
Total ............. 13,524 11,633 10,452
======== ======== ========
Lots Under Option
Colorado .............. 1,163 3,498 3,682
California ............ 1,374 1,030 632
Arizona ............... 1,558 1,720 1,724
Nevada ................ 517 39 50
Virginia .............. 911 1,344 1,771
Maryland .............. 536 500 204
-------- -------- --------
Total ............. 6,059 8,131 8,063
======== ======== ========
Labor and Raw Materials. Generally, the materials used in MDC's
homebuilding operations are standard items carried by major suppliers. The
Company generally contracts for most of its materials and labor at a fixed price
during the anticipated construction period of its homes. This allows the Company
to mitigate the risks associated with increases in building materials and labor
costs between the time construction begins on a home and the time it is closed.
Increases in the costs of building materials, particularly lumber, and
subcontracted labor may reduce Home
3
Gross Margins to the extent that market conditions prevent the recovery of
increased costs through higher sales prices. To varying degrees, the Company
experienced shortages in the availability of building materials and/or labor in
2001 in each of its markets, which resulted in delays in the delivery of homes
under construction. The Company may experience shortages and delays in the
future that may result in delays in the delivery of homes under construction,
reduced Home Gross Margins or both. See "FORWARD-LOOKING STATEMENTS" below.
Seasonal Nature of Business. MDC's business is seasonal to the extent
that its Colorado, Northern California, Virginia and Maryland operations
encounter weather-related slowdowns. Delays in development and construction
activities resulting from adverse weather conditions increase the Company's risk
of buyer cancellations and higher costs for interest, materials and labor. In
addition, home buyer preferences and demographics influence the seasonal nature
of MDC's business.
Backlog. As of December 31, 2001 and 2000, homes under contract but not
yet delivered ("Backlog") totaled 2,882 and 3,292, respectively, with estimated
sales values of $760,000,000 and $775,000,000, respectively. Based on its past
experience, assuming no significant change in market conditions and mortgage
interest rates, MDC anticipates that 70% to 75% of its December 31, 2001 Backlog
will close under existing sales contracts during the first nine months of 2002.
The remaining 25% to 30% of the homes in Backlog are not expected to close under
existing contracts due to cancellations. See "FORWARD-LOOKING STATEMENTS" below.
Marketing and Sales. MDC's homes are sold under various commission
arrangements by its own sales personnel and by cooperating brokers and referrals
in the realtor community. In marketing homes, MDC primarily uses on-site model
homes, advertisements in local newspapers, radio, billboards and other signage,
magazines and illustrated brochures. We also market our homes on our internet
website, www.richmondamerican.com, and utilize a variety of other internet sites
to advertise our homes and communities. All of MDC's homes are sold with a
ten-year limited warranty issued by an unaffiliated warranty company.
Title Operations. American Home Title provides title agency services to
MDC home buyers in Virginia, Maryland and Colorado. The Company is evaluating
opportunities to provide title agency services in its other markets.
Competition. The homebuilding industry is fragmented and highly
competitive. MDC competes with numerous homebuilders, including a number that
are larger and have greater financial resources. Homebuilders compete for
customers, desirable financing, land, building materials and subcontractor
labor. Competition for home orders primarily is based upon price, style,
financing provided to prospective purchasers, location of property, quality of
homes built, customer service and general reputation in the community. The
Company also competes with subdivision developers and land development companies
when acquiring land.
Mortgage Interest Rates. The Company's operations are dependent upon
the availability and cost of mortgage financing. Increases in home mortgage
interest rates may reduce the demand for homes and home mortgages and,
generally, will reduce home mortgage refinancing activity. The Company is unable
to predict future changes in home mortgage interest rates or the impact such
changes may have on the Company's operating activities and results of
operations. See "FORWARD-LOOKING STATEMENTS" below.
Regulation. The Company's operations are subject to continuing
compliance requirements mandated by applicable federal, state and local
statutes, ordinances, rules and regulations, including zoning and land use
ordinances, building, plumbing and electrical codes, contractors' licensing
laws, state insurance laws, federal and state human resources laws and
regulations and health and safety regulations and laws (including, but not
limited to, those of the Occupational Safety and Health Administration). Various
localities in which the Company operates have imposed (or may impose in the
future) fees on developers to fund schools, road improvements and low and
moderate-income housing. See "FORWARD-LOOKING STATEMENTS" below.
From time to time, various municipalities in which the Company operates
restrict or place moratoriums on the availability of utilities, including water
and sewer taps. Additionally, certain jurisdictions in which the Company
operates have proposed or enacted growth initiatives that may restrict the
number of building permits available in any given year. Although no assurances
can be given as to future conditions or governmental actions, MDC believes that
it has, or can obtain, water and sewer taps and building permits for its land
inventory and land held for development. See "FORWARD-LOOKING STATEMENTS" below.
4
The Company's homebuilding operations also are affected by
environmental laws and regulations pertaining to availability of water,
municipal sewage treatment capacity, land use, hazardous waste disposal,
naturally occurring radioactive materials, building materials, population
density and preservation of endangered species, natural terrain and vegetation.
Due to these considerations, the Company generally obtains an environmental site
assessment for parcels of land that it acquires. The particular environmental
laws and regulations that apply to any given homebuilding project vary greatly
according to the site's location, the site's environmental conditions and the
present and former uses of the site. These environmental laws and regulations
may result in project delays; cause the Company to incur substantial compliance
and other costs; and/or prohibit or severely restrict homebuilding activity in
certain environmentally sensitive regions or areas. See "FORWARD-LOOKING
STATEMENTS" below.
FINANCIAL SERVICES SEGMENT.
Mortgage Lending Operations.
General. HomeAmerican is a full-service mortgage lender. Through office
locations in each of the Company's markets, HomeAmerican originates mortgage
loans primarily for MDC's home buyers and, to a lesser extent, for others on a
"spot" basis. HomeAmerican also brokers mortgage loans for origination by
outside lending institutions for MDC home buyers. HomeAmerican is the principal
originator of mortgage loans for MDC's home buyers.
HomeAmerican is authorized to originate Federal Housing
Administration-insured ("FHA"), Veterans Administration-guaranteed ("VA"),
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation ("FHLMC") and conventional mortgage loans. HomeAmerican is also an
authorized loan servicer for FNMA, FHLMC and the Government National Mortgage
Association ("GNMA") and, as such, is subject to the rules and regulations of
such organizations. Through early 1999, HomeAmerican also purchased loans and
the related servicing rights from unaffiliated loan correspondents. The
origination fees for these loans were retained by the correspondents.
HomeAmerican does not intend to purchase mortgage loans from correspondents in
the future. See "FORWARD-LOOKING STATEMENTS" below.
Substantially all of the mortgage loans originated by HomeAmerican are
sold to private investors within 40 days of origination. The Company uses
HomeAmerican's secured warehouse line of credit, other borrowings and internally
generated Company funds to finance these mortgage loans until they are sold.
Portfolio of Mortgage Loan Servicing. Mortgage loan servicing involves
the collection of principal, interest, taxes and insurance premiums from the
borrower and the remittance of such funds to the mortgage loan investor, local
taxing authorities and insurance companies. The servicer is paid a fee to
perform these services. HomeAmerican obtains the servicing rights related to the
mortgage loans it originates. Certain mortgage loans are sold "servicing
released" (the servicing rights are included with the sale of the corresponding
mortgage loans). In 2001, 45% of the mortgage loans were sold "servicing
released". The servicing rights on the remainder of the mortgage loans were sold
under minibulk contracts within two months of the sale of the mortgage loan.
HomeAmerican intends to sell mortgage loan servicing in the future. See
"FORWARD-LOOKING STATEMENTS" below.
HomeAmerican's portfolio of mortgage loan servicing at December 31,
2001 consisted of servicing rights with respect to approximately 2,320
single-family loans, 92% of which were less than two years old. This includes
1,144 single-family loans for which the servicing rights had been sold but not
transferred to the purchasers as of December 31, 2001. The Company anticipates
transferring these servicing rights in the first quarter of 2002. These loans
are secured by mortgages on properties in eight states, with interest rates on
the loans ranging from approximately 4.63% to 11.5% and averaging 6.77%. The
underlying value of a servicing portfolio generally is determined based on the
interest rates and the annual servicing fee rates (currently .44% for FHA/VA
loans and .25% for conventional loans) applicable to the loans comprising the
portfolio.
Pipeline. HomeAmerican's mortgage loans in process that had not closed
("Pipeline") at December 31, 2001 had aggregate principal balances of
$548,594,000. An estimated 70% to 75% of the Pipeline at December 31, 2001 is
anticipated to close during the first nine months of 2002. If mortgage interest
rates decline, a smaller percentage of these loans would be expected to close.
See "FORWARD-LOOKING STATEMENTS" below.
5
Forward Sales Commitments. HomeAmerican's operations are affected by
changes in mortgage interest rates. HomeAmerican utilizes forward mortgage
securities contracts to manage the price risk related to fluctuations in
interest rates on its fixed-rate mortgage loans owned and rate-locked mortgage
loans in the Pipeline.
Competition. The mortgage industry is fragmented and highly
competitive. In each of the locations in which it originates loans, HomeAmerican
competes with numerous banks, thrifts and other mortgage bankers, many of which
are larger and have greater financial resources. Competitive factors include
pricing, loan terms, underwriting criteria and customer service.
Insurance Operations.
In 1998, American Home Insurance began offering homeowners, auto and
other types of casualty insurance to its Colorado home buyers. In 1999, American
Home Insurance began offering these insurance services to MDC's home buyers in
all states in which the Company operates except California. American Home
Insurance services were made available to MDC's California home buyers beginning
in the first quarter of 2000.
EMPLOYEES.
At December 31, 2001, MDC employed approximately 1,700 persons. MDC
considers its employee relations to be satisfactory.
ITEM 3. LEGAL PROCEEDINGS.
The Company and certain of its subsidiaries have been named as
defendants in various claims, complaints and other legal actions arising in the
normal course of business. In the opinion of management, the outcome of these
matters will not have a material adverse effect on the financial condition,
results of operations or cash flows of the Company. See "FORWARD-LOOKING
STATEMENTS" below.
Because of the nature of the homebuilding business, and in the ordinary
course of its operations, the Company from time to time may be subject to
product liability claims.
The Company is not aware of any litigation, matter or pending claim
against the Company that would result in material contingent liabilities related
to environmental hazards or asbestos.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No meetings of the Company's stockholders were held during the fourth
quarter of 2001.
6
PART II
ITEM 5. MARKET PRICE OF COMMON STOCK AND RELATED SECURITY HOLDER MATTERS.
The shares of MDC common stock are traded on the New York and the
Pacific Stock Exchanges. The following table sets forth, for the periods
indicated, the high and low sale prices of the shares of MDC common stock as
reported on the Composite Tape, adjusted for the effects of the 10% stock
dividends as discussed below.
HIGH LOW
-------- --------
2000
First quarter ........... $ 14.82 $ 11.16
Second quarter .......... $ 16.53 $ 13.17
Third quarter ........... $ 22.31 $ 15.34
Fourth quarter .......... $ 28.72 $ 20.97
2001
First quarter ........... $ 37.68 $ 26.82
Second quarter .......... $ 44.05 $ 28.37
Third quarter ........... $ 41.77 $ 21.32
Fourth quarter .......... $ 38.96 $ 23.09
The following table sets forth the cash dividends declared and paid in
2001 and 2000 (dollars in thousands except per share amounts).
DATE OF DATE OF DIVIDEND
DECLARATION PAYMENT PER SHARE DOLLARS
----------------- ----------------- --------- --------
2000
First quarter ........... January 25, 2000 February 11, 2000 $ 0.06 $ 1,355
Second quarter .......... April 25, 2000 May 19, 2000 0.06 1,315
Third quarter ........... July 25, 2000 August 14, 2000 0.06 1,284
Fourth quarter .......... October 24, 2000 November 21, 2000 0.06 1,266
--------- --------
$ 0.24 $ 5,220
========= ========
2001
First quarter ........... January 23, 2001 February 16, 2001 $ 0.06 $ 1,308
Second quarter .......... April 23, 2001 May 22, 2001 0.07 1,693
Third quarter ........... July 24, 2001 August 22, 2001 0.07 1,704
Fourth quarter .......... October 23, 2001 November 21, 2001 0.07 1,751
--------- --------
$ 0.27 $ 6,456
========= ========
On January 22, 2002, MDC's Board of Directors approved the payment of a
cash dividend of seven cents per share payable February 21, 2002 to shareowners
of record on February 7, 2002.
On January 22, 2001, MDC's Board of Directors approved the payment of a
10% stock dividend, which was distributed on February 16, 2001 to shareowners of
record on February 5, 2001. On December 6, 2001, MDC's Board of Directors
approved the payment of another 10% stock dividend, which was distributed on
December 28, 2001 to shareowners of record on December 17, 2001.
In connection with the declaration and payment of dividends, the
Company is required to comply with certain covenants contained in its
$450,000,000 unsecured revolving line of credit agreement and the indenture
dated January 1998 for its 8 3/8% senior notes due 2008. Pursuant to the terms
of these agreements, dividends may be declared or paid if the Company is in
compliance with certain stockholders' equity and debt coverage tests. At
December 31, 2001, the Company had a permitted dividend capacity of
approximately $226,000,000 pursuant to the most restrictive of these covenants.
On February 14, 2002, MDC had 1,148 shareowners of record.
7
ITEM 6. SELECTED FINANCIAL AND OTHER DATA.
The data in this table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements (in thousands, except per share
and unit amounts).
SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ ------------
INCOME STATEMENT DATA
Revenues .................................... $ 2,125,874 $ 1,751,545 $ 1,567,638 $ 1,263,209 $ 969,562
============ ============ ============ ============ ============
Operating profit
Homebuilding ............................. $ 279,267 $ 227,319 $ 162,258 $ 86,764 $ 41,543
Financial services
Mortgage lending ....................... 21,116 14,282 13,169 11,198 7,745
Asset management ....................... -- -- -- 4,590 1,434
------------ ------------ ------------ ------------ ------------
Total financial services ........... 21,116 14,282 13,169 15,788 9,179
------------ ------------ ------------ ------------ ------------
Net corporate expenses(1) ................ (44,996) (38,400) (26,974) (18,700) (11,395)
------------ ------------ ------------ ------------ ------------
Income before income taxes and
extraordinary item ....................... $ 255,387 $ 203,201 $ 148,453 $ 83,852 $ 39,327
============ ============ ============ ============ ============
Income before extraordinary item ............ $ 155,715 $ 123,303 $ 89,392 $ 51,568 $ 24,205
Basic per common share(2) ................ $ 5.89 $ 4.75 $ 3.32 $ 2.31 $ 1.13
Diluted per common share(2) .............. $ 5.72 $ 4.64 $ 3.26 $ 1.91 $ 0.97
Net income(3) ............................... $ 155,715 $ 123,303 $ 89,392 $ 36,254 $ 22,026
Basic per common share(2) ................ $ 5.89 $ 4.75 $ 3.32 $ 1.62 $ 1.03
Diluted per common share(2) .............. $ 5.72 $ 4.64 $ 3.26 $ 1.35 $ 0.89
Weighted-average shares outstanding(2)
Basic .................................... 26,421 25,974 26,919 22,325 21,384
Diluted .................................. 27,232 26,556 27,414 27,354 26,498
Dividends paid per share .................... $ .27 $ .24 $ .20 $ .15 $ .12
DECEMBER 31,
--------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA
ASSETS
Housing completed or under construction .......... $ 456,752 $ 443,512 $ 337,029 $ 294,104 $ 249,928
Land and land under development .................. $ 450,502 $ 388,711 $ 308,680 $ 217,180 $ 193,012
Total assets ..................................... $1,190,956 $1,061,598 $ 877,008 $ 714,013 $ 621,770
HOMEBUILDING AND CORPORATE DEBT
Homebuilding
Line of credit ................................. $ -- $ 90,000 $ 40,000 $ 21,871 $ 20,766
Notes payable .................................. $ -- $ -- $ -- $ 866 $ 9,676
Senior notes ..................................... $ 174,503 $ 174,444 $ 174,389 $ 174,339 $ 150,354
Subordinated notes ............................... $ -- $ -- $ -- $ -- $ 38,230
Total homebuilding and corporate debt ............ $ 174,503 $ 264,444 $ 214,389 $ 197,076 $ 222,457
STOCKHOLDERS' EQUITY ................................ $ 653,831 $ 482,230 $ 389,023 $ 298,131 $ 229,593
STOCKHOLDERS' EQUITY PER OUTSTANDING SHARE(2)(5) .... $ 24.59 $ 18.81 $ 14.41 $ 11.21 $ 9.95
RATIO OF DEBT TO STOCKHOLDERS' EQUITY(4) ............ .27 .55 .55 .66 .97
RATIO OF DEBT TO CAPITAL(4) ......................... .21 .35 .36 .40 .49
RATIO OF DEBT TO EBITDA, AS ADJUSTED(4) ............. .55 1.04 1.07 1.36 2.47
8
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ ------------
OPERATING DATA
Home sales revenues ......................... $ 2,076,807 $ 1,701,108 $ 1,526,519 $ 1,218,659 $ 939,016
Orders for homes, net (units) ............... 7,701 7,835 7,232 7,191 5,769
Homes closed (units) ........................ 8,174 7,484 7,221 6,293 5,223
Backlog
Units(6) .................................. 2,882 3,292 2,941 2,930 2,032
Estimated sales value(6) .................. $ 760,000 $ 775,000 $ 600,000 $ 580,000 $ 380,000
Average selling price per home closed ....... $ 254.1 $ 227.3 $ 211.4 $ 193.7 $ 179.8
Home Gross Margins .......................... 23.2% 22.3% 19.3% 16.9% 14.5%
Excluding interest in home cost of
sales ................................... 24.4% 23.6% 21.2% 19.5% 17.4%
CASH FLOWS FROM
Operating activities ........................ $ 93,251 $ (63,457) $ (3,845) $ 800 $ 18,516
Investing activities ........................ $ (3,219) $ (3,160) $ (1,878) $ 15,081 $ 3,513
Financing activities ........................ $ (67,547) $ 41,802 $ 34,574 $ (17,480) $ (21,655)
CORPORATE AND HOMEBUILDING SG&A AS A % OF
HOME SALES REVENUES ......................... 12.1% 11.9% 10.8% 11.5% 11.0%
EBITDA, AS ADJUSTED(7)
Income before extraordinary item ............ $ 155,715 $ 123,303 $ 89,392 $ 51,568 $ 24,205
Add
Income taxes ............................ 99,672 79,898 59,061 32,284 15,122
Corporate and homebuilding interest
expense ............................... -- -- -- -- 761
Interest in cost of sales ............... 24,557 22,356 30,187 34,184 28,361
Other fixed charges ..................... 3,618 3,362 1,347 953 797
Depreciation and amortization ........... 27,445 21,792 17,845 20,228 15,050
Non-cash charges
Homebuilding asset impairment
charges .......................... 7,041 4,200 2,242 5,300 5,850
------------ ------------ ------------ ------------ ------------
Total EBITDA, As Adjusted ................... $ 318,048 $ 254,911 $ 200,074 $ 144,517 $ 90,146
============ ============ ============ ============ ============
Interest incurred ........................... $ 22,498 $ 24,367 $ 21,261 $ 22,525 $ 26,368
EBITDA, AS ADJUSTED/INTEREST INCURRED .......... 14.1 10.5 9.4 6.4 3.4
----------
(1) Net corporate expenses represent (a) net realized gains and losses on
corporate investments and marketable securities; (b) interest, dividend
and other income; (c) corporate general and administrative expense; and
(d) corporate and homebuilding interest expense.
(2) Stockholders' equity per share, basic and diluted net income per share
and weighted-average shares outstanding have been restated for 2000,
1999, 1998 and 1997 to reflect the effect of the 10% stock dividends
distributed on February 16, 2001 and December 28, 2001.
(3) Includes the effects of extraordinary after-tax losses on the early
extinguishment of debt resulting principally from (a) in 1998, the
refinancing of MDC's 11 1/8% senior notes due 2003 (the "Old Senior
Notes"); and (b) in 1997, the repurchase of $38,000,000 principal
amount of the Old Senior Notes.
(4) Excludes mortgage lending debt from the calculation.
(5) Pro-forma assuming conversion of the 8 3/4% convertible subordinated
notes for 1997.
(6) At the end of each period.
(7) "EBITDA, as adjusted" has been computed in accordance with the
definition of "Consolidated EBITDA" set forth under the Senior Notes
indenture. Under this definition, EBITDA, as adjusted, is calculated by
adding to net income the provision for income tax, depreciation,
amortization, interest expense, other fixed charges and other non-cash,
extraordinary charges that reduce net income, including asset
impairment charges. EBITDA, as adjusted, should not be considered an
alternative to operating income determined in accordance with generally
accepted accounting principles ("GAAP") as an indicator of operating
performance, nor an alternative to cash flows from operating activities
determined in accordance with GAAP as a measure of liquidity. Because
some analysts and companies may not calculate EBITDA, as adjusted, in
the same manner as MDC, the EBITDA, as adjusted, information presented
above may not be comparable to similar presentations by others. MDC's
management believes that EBITDA, as adjusted, reflects the changes in
the Company's operating results, particularly changes in the Company's
operating income, and is an indication of MDC's ability to generate
funds from operations that are available to pay income taxes, interest
and principal on debt and to meet other cash obligations.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS.
2001 Compared With 2000. Revenues for the year ended December 31, 2001
were $2,126,000,000, the highest in the Company's history and a 21% increase
over 2000. The increase primarily resulted from a 9% increase in the number of
home closings and a $26,800 increase in the average selling price per home
closed.
Income before income taxes increased 26% to $255,387,000 in 2001. The
increase was due to a 23% increase in homebuilding segment operating profit and
a 48% increase in financial services segment operating profit. The homebuilding
segment profit increase principally was a result of the home closing and average
selling price increases described above and an increase of 90 basis points in
Home Gross Margins. The financial services segment profit increase primarily was
due to a 56% increase in gains on sales of mortgage loans and a 26% increase in
loan origination fees.
Throughout 2001, the Company continued to strengthen its balance sheet
and improve the efficiency of its operations. The Company's strong 2001
operating results increased stockholders' equity by 36% to $653,831,000, or
$24.59 per outstanding share, at December 31, 2001. These factors contributed to
a reduction in the Company's December 31, 2001 ratios of corporate and
homebuilding debt-to-capital and debt-to-EBITDA, as adjusted, to .21 and .55,
respectively, the lowest levels achieved in the Company's history. In addition,
the Company's ratio of EBITDA, as adjusted, to interest incurred improved to
14.1 for the year ended December 31, 2001, compared with 10.5 for the same
period in 2000. MDC's 2001 operating returns on revenues and assets and EBIT
return on capital improved to 7.3%, 13.3% and 33.8%, respectively, compared with
the returns of 7.0%, 12.7% and 30.2%, respectively, achieved in 2000.
2000 Compared With 1999. Revenues for the year ended December 31, 2000
were $1,751,545,000, a 12% increase over 1999. The increase primarily resulted
from a 4% increase in the number of home closings and a $15,900 increase in the
average selling price per home closed.
Income before income taxes increased 37% to $203,201,000 in 2000. The
increase was due to a 40% increase in homebuilding segment operating profit and
an 8% increase in financial services segment operating profit. The homebuilding
segment increase principally was a result of the home closing and average
selling price increases described above and an increase of 300 basis points in
Home Gross Margins. The financial services segment increase primarily was due to
a 12% increase in loan origination fees.
10
HOMEBUILDING SEGMENT.
The table below sets forth information relating to the Company's
homebuilding segment (dollars in thousands).
YEAR ENDED DECEMBER 31,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
Home Sales Revenues .............................. $2,076,807 $1,701,108 $1,526,519
Operating Profits ................................ $ 279,267 $ 227,319 $ 162,258
Average Selling Price Per Home Closed ............ $ 254.1 $ 227.3 $ 211.4
Home Gross Margins ............................... 23.2% 22.3% 19.3%
Excluding Interest in Home Cost of Sales .... 24.4% 23.6% 21.2%
Orders For Homes, Net (Units)
Colorado .................................... 2,616 2,607 2,755
California .................................. 1,519 1,614 1,396
Arizona ..................................... 2,038 1,849 1,455
Nevada ...................................... 687 739 552
Virginia .................................... 551 765 738
Maryland .................................... 290 261 336
---------- ---------- ----------
Total ..................................... 7,701 7,835 7,232
========== ========== ==========
Homes Closed (Units)
Colorado .................................... 2,806 2,848 2,484
California .................................. 1,537 1,363 1,465
Arizona ..................................... 2,223 1,554 1,699
Nevada ...................................... 704 678 561
Virginia .................................... 645 727 702
Maryland .................................... 259 314 310
---------- ---------- ----------
Total ..................................... 8,174 7,484 7,221
========== ========== ==========
DECEMBER 31,
------------------------------
2001 2000 1999
-------- -------- --------
Backlog (Units)
Colorado ..................... 1,195 1,385 1,626
California ................... 490 508 257
Arizona ...................... 625 747 452
Nevada ....................... 181 198 137
Virginia ..................... 234 328 290
Maryland ..................... 157 126 179
-------- -------- --------
Total ...................... 2,882 3,292 2,941
======== ======== ========
Estimated Sales Value ...... $760,000 $775,000 $600,000
======== ======== ========
Active Subdivisions
Colorado ..................... 61 48 50
California ................... 26 29 24
Arizona ...................... 27 27 20
Nevada ....................... 7 10 12
Virginia ..................... 11 12 16
Maryland ..................... 5 7 9
-------- -------- --------
Total ...................... 137 133 131
======== ======== ========
11
HOMEBUILDING ACTIVITIES - 2001 COMPARED WITH 2000.
Home Sales Revenues and Homes Closed. Home sales revenues in 2001 were
the highest in the Company's history and represented a 22% increase compared
with home sales revenues in 2000. The increase resulted from record home
closings and a significantly higher average selling price per home closed, as
further discussed below.
Home closings increased 9% in 2001, compared with 2000. Home closings
particularly were strong in (1) Phoenix (a 60% increase), as a result of the
strong demand for new homes in this market and increased active subdivision
levels in the second half of 2000 and first half of 2001; and (2) Northern
California (a 33% increase), where the Company increased the number of active
subdivisions by approximately 50% during 2001, compared with 2000. Home closings
decreased in 2001 in Virginia, Maryland and Colorado, compared with 2000,
primarily due to lower home orders resulting from fewer active subdivisions in
Virginia in the second half of 2000 and the first half of 2001, in Maryland in
the second half of 2000 and all of 2001, and in Colorado in the second half of
2000.
Average Selling Price Per Home Closed. The average selling price per
home closed increased $26,800 in 2001, compared with 2000, as each of the
Company's markets realized higher average selling prices. The increases
primarily were due to (1) the ability to increase sales prices due to the strong
demand for new homes in most of the Company's markets throughout the first six
months of 2001; (2) a greater number of homes closed in higher-priced
subdivisions in California, where average selling prices exceeded $370,000; and
(3) increased sales volume per home from the Company's design centers.
Home Gross Margins. Home Gross Margins were 23.2% for the year ended
December 31, 2001, representing an increase of 90 basis points from Home Gross
Margins in 2000. The increase largely was due to (1) selling price increases in
most of the Company's markets; (2) increased sales of higher-margin products
through the Company's design centers; (3) a reduction in previous estimates of
costs to complete land development and homes in most of the Company's markets;
(4) in Maryland, fewer under-performing subdivisions in 2001 and management's
continued efforts to improve profitability; and (5) ongoing initiatives in each
of the Company's markets designed to improve operating efficiency, control costs
and increase rates of return. The impact of these increases partially was offset
by, among other things, the rising cost of land.
Future Home Gross Margins may be impacted adversely by (1) increased
competition; (2) increases in the costs of subcontracted labor, finished lots,
building materials and other resources, to the extent that market conditions
prevent the recovery of increased costs through higher selling prices; (3)
adverse weather; and (4) shortages of subcontractor labor, finished lots and
other resources.
Orders for Homes and Backlog. The Company received orders for 7,701
homes, net of cancellations, during 2001, compared with net orders for 7,835
homes during 2000. Levels of gross home orders declined by approximately 30%
during the week immediately following September 11th, compared with the weeks
prior, while the absolute number of home order cancellations were consistent.
The Company received net orders for 1,373 homes during the fourth quarter of
2001, compared with net orders for 1,454 homes for the same period in 2000. Home
orders improved each month in the 2001 fourth quarter with December 2001 home
orders exceeding December 2000 home orders by 4%.
Home orders in 2001 particularly were strong in Tucson and Phoenix
(increases of 18% and 8%, respectively), primarily as a result of the strong
demand for new homes in these markets. Home orders were lower in Virginia and
Nevada in 2001, compared with 2000, primarily due to fewer active subdivisions
in each market.
The Company ended 2001 with a Backlog of 2,882 homes with an estimated
sales value of $760,000,000, compared with the Backlog of 3,292 homes with an
estimated sales value of $775,000,000 at December 31, 2000. Assuming no
significant change in market conditions or mortgage interest rates, the Company
expects 70% to 75% of its December 31, 2001 Backlog to close under existing
sales contracts during the first nine months of 2002. The remaining 25% to 30%
of the homes in Backlog are not expected to close under existing contracts due
to cancellations. See "FORWARD-LOOKING STATEMENTS" below.
Other Revenues. Other revenues during the year ended December 31, 2001
included net pre-tax gains realized on the sales of certain investments by MDC's
captive insurance subsidiary of $291,000, compared with gains of a similar
nature of $8,629,000 for the year ended December 31, 2000.
12
Marketing. Marketing expenses (which include sales commissions,
advertising, amortization of deferred marketing costs, model home expenses and
other costs) totaled $114,129,000 in 2001, compared with $94,412,000 in 2000.
The increase in 2001 primarily was volume related, resulting from higher sales
commissions, product advertising and other costs incurred in connection with the
Company's increased home sales revenues.
General and Administrative. General and administrative expenses totaled
$90,390,000 in 2001, compared with $69,150,000 in 2000. The increase primarily
was due to increased compensation, land acquisition and other overhead costs
associated with expanding operations in most of the Company's markets.
HOMEBUILDING ACTIVITIES - 2000 COMPARED WITH 1999.
Home Sales Revenues and Homes Closed. Home sales revenues in 2000 were
11% higher than home sales revenues in 1999. The increase primarily resulted
from an increase in both the number of home closings and average selling price
per home closed, as further discussed below.
Home closings were higher in all of the Company's markets except
Southern California and Phoenix in 2000, compared with 1999. Home closings
particularly were strong in Northern California, Nevada and Colorado, which
increased 29%, 21% and 15%, respectively, primarily as a result of the strong
demand for new homes in these markets. The decrease in home closings in Southern
California and Phoenix primarily was due to fewer active subdivisions in each of
these markets during the latter half of 1999 and the first quarter of 2000.
Active subdivisions subsequently increased to 20 and 21, respectively, in
Southern California and Phoenix at December 31, 2000, compared with 14 and 11,
respectively, at June 30, 1999.
Average Selling Price Per Home Closed. The average selling price per
home closed increased $15,900 in 2000, compared with 1999, as each of the
Company's markets, except Phoenix, realized higher average selling prices. The
increases primarily were due to (1) the ability to increase sales prices due to
the strong demand for new homes in most of the Company's markets; (2) a greater
number of homes closed in higher-priced subdivisions in Northern California and
Southern California, where average selling prices exceeded $300,000; and (3)
increased sales volume per home from the Company's design centers. Average
selling prices were lower in Phoenix due to the division's increased emphasis on
more affordable homes.
Home Gross Margins. Home Gross Margins were 22.3% for the year ended
December 31, 2000, representing an increase of 300 basis points compared with
1999. The increase largely was due to (1) selling price increases and reduced
incentives offered to home buyers due to the continued strong demand in most of
the Company's markets; (2) increased sales of higher-margin products through the
Company's design centers; (3) reduced interest in home cost of sales (as
discussed below); (4) increased rebates collected from suppliers through the
Company's national purchasing programs; (5) a reduction in previous estimates of
costs to complete land development and homes in certain projects in Phoenix,
Southern California and Colorado; (6) in Maryland, fewer under-performing
subdivisions in 2000 and management's continued efforts to improve
profitability; and (7) ongoing initiatives in each of the Company's markets
designed to improve operating efficiency, control costs and increase rates of
return.
Interest in Home Cost of Sales. Interest in home cost of sales as a
percent of home sales revenues decreased to 1.3% in 2000, compared with 1.9% in
1999. This reduction primarily resulted from lower average levels of capitalized
interest in homebuilding inventories during 2000, compared with 1999. Interest
capitalized as a percentage of homebuilding inventories decreased to 2.3% at
December 31, 2000 from 2.7% at December 31, 1999 and 5.2% at December 31, 1998.
This decrease primarily is due to (1) the close-out of older projects with
higher levels of capitalized interest in Colorado, Virginia and Maryland; and
(2) the financing of a greater portion of the Company's expanded homebuilding
operations with cash from current operations.
Orders for Homes and Backlog. Orders for homes increased 8% to 7,835 in
2000, compared with 1999. Home orders in 2000 particularly were strong in (1)
Northern California and Nevada (increases of 42% and 34%, respectively),
primarily as a result of the strong demand for new homes in these markets; and
(2) Phoenix (an increase of 42%), where the average number of active
subdivisions increased to 18 in 2000, compared with 12 in 1999. Home orders were
lower in 2000, compared with 1999, in Colorado and Maryland, primarily as a
result of fewer active subdivisions in each of these markets.
13
The Company ended 2000 with a Backlog of 3,292 homes with an estimated
sales value of $775,000,000, compared with the Backlog of 2,941 homes with an
estimated sales value of $600,000,000 at December 31, 1999.
Other Revenues. Other revenues during the year ended December 31, 2000
included net pre-tax gains realized on the sales of certain investments by MDC's
captive insurance subsidiary of $8,629,000, compared with gains of $787,000 for
the year ended December 31, 1999.
Marketing. Marketing expenses (which include sales commissions,
advertising, amortization of deferred marketing costs, model home expenses and
other costs) totaled $94,412,000 in 2000, compared with $80,545,000 in 1999. The
increase in 2000 primarily was volume related, resulting from higher sales
commissions, product advertising and model home costs incurred in connection
with the Company's increased homebuilding activities.
General and Administrative. General and administrative expenses totaled
$69,150,000 in 2000, compared with $54,829,000 in 1999. The increase primarily
was due to increased compensation costs resulting from MDC's higher
profitability and expanded operations in certain of the Company's markets, most
notably Colorado, Southern California and Northern California.
LAND SALES.
Revenue from land sales totaled $2,909,000, $6,641,000 and $8,114,000,
respectively, in 2001, 2000 and 1999. The land sales in each of these years
primarily were in Colorado. Gross profits from these sales were $1,804,000,
$2,348,000 and $2,347,000, respectively, in 2001, 2000 and 1999.
ASSET IMPAIRMENT CHARGES.
Homebuilding operating results were reduced by asset impairment charges
totaling $7,041,000, $4,200,000 and $2,242,000 in 2001, 2000 and 1999,
respectively. The Company's assets to which these asset impairment charges
relate are summarized as follows (in thousands).
YEAR ENDED DECEMBER 31,
------------------------------
2001 2000 1999
-------- -------- --------
Completed homes and homes under construction ..... $ 1,075 $ -- $ --
Land under development and other ................. 5,966 4,200 2,242
-------- -------- --------
Total ...................................... $ 7,041 $ 4,200 $ 2,242
======== ======== ========
The 2001 asset impairment charges primarily resulted from the
write-down to fair market value of one homebuilding project in Southern
California and three homebuilding projects in the San Francisco Bay area. These
four projects had experienced a much slower than anticipated home order pace and
a significant increase in sales incentive requirements. The three San Francisco
Bay area projects offered homes with prices originally averaging over $650,000,
and each experienced substantial reductions in home selling prices by competing
projects. The 2000 asset impairment charges resulted from the write-down to fair
value of two homebuilding projects in Southern California that experienced a
reduced home order pace and significantly higher sales incentives than
anticipated. The 1999 charge primarily resulted from the write-down to fair
value of one homebuilding project in Southern California that experienced higher
than anticipated development costs, in addition to slower home orders and
increased incentives. See Note A to the Company's consolidated financial
statements.
14
FINANCIAL SERVICES SEGMENT.
MORTGAGE LENDING OPERATIONS.
The table below sets forth information relating to HomeAmerican's
operations (dollars in thousands).
YEAR ENDED DECEMBER 31,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
Loan Origination Fees ................................. $ 17,572 $ 13,951 $ 12,459
Gains on Sales of Mortgage Servicing, net ............. $ 3,288 $ 3,162 $ 3,114
Gains on Sales of Mortgage Loans, net ................. $ 13,923 $ 8,951 $ 8,456
Operating Profits ..................................... $ 21,116 $ 14,282 $ 13,169
Principal Amount of Loan Originations and Purchases
MDC home buyers .................................. $1,195,579 $ 880,692 $ 833,055
Spot ............................................. 55,775 14,942 39,049
Correspondent .................................... -- -- 12,074
---------- ---------- ----------
Total ........................................ $1,251,354 $ 895,634 $ 884,178
========== ========== ==========
Principal Amount of Loans Brokered
MDC home buyers .................................. $ 237,389 $ 244,141 $ 198,965
Spot ............................................. 10,169 7,756 3,285
---------- ---------- ----------
Total ........................................ $ 247,558 $ 251,897 $ 202,250
========== ========== ==========
Capture Rate ......................................... 73% 65% 68%
========== ========== ==========
Including Brokered Loans ......................... 85% 81% 81%
========== ========== ==========
HomeAmerican's operating profits in 2001 were the highest mortgage
lending profits in the Company's history, exceeding HomeAmerican's previous
record set in 2000 by 48%. This increase primarily was due to higher gains on
sales of mortgage loans, as well as higher origination fees received from record
levels of mortgage loans originated and brokered for MDC home buyers. Operating
profits increased 8% in 2000, compared with 1999, primarily as a result of
higher mortgage loan origination volume and increased gains on sales of mortgage
loans. These increases partially were offset by higher general and
administrative expenses resulting from increased mortgage lending activity in
both 2001 and 2000.
Most mortgage loans originated by HomeAmerican are for MDC home buyers.
The portion of mortgage loans originated by HomeAmerican for MDC home buyers as
a percentage of total MDC home closings ("Capture Rate") was 73% for the year
ended December 31, 2001, compared with 65% for the same period in 2000 and 68%
in 1999. Additionally, HomeAmerican brokers mortgage loans originated by outside
lending institutions for MDC home buyers. These brokered mortgage loans, for
which HomeAmerican receives a fee, have been excluded from the computation of
the Capture Rate above. If the Capture Rate had been computed to include
brokered loans, the Capture Rate would have been 85% for the year ended December
31, 2001, compared with 81% for the same periods in 2000 and 1999.
OTHER OPERATING RESULTS.
Interest Expense. The Company capitalizes interest on its homebuilding
inventories during the period of active development and through the completion
of construction. Corporate and homebuilding interest incurred but not
capitalized is reflected as interest expense. All corporate and homebuilding
interest incurred in 2001, 2000 and 1999 was capitalized. Corporate and
homebuilding interest incurred decreased to $22,498,000 in 2001, compared with
$24,367,000 in 2000, primarily due to lower effective interest rates on the
Company's outstanding debt. Corporate and homebuilding interest incurred
increased to $24,367,000 in 2000, compared with $21,261,000 in 1999, primarily
due to higher levels of homebuilding and corporate debt resulting from the
Company's expanded homebuilding activities.
For a reconciliation of interest incurred, capitalized and expensed,
see Note I to the Company's consolidated financial statements.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses totaled $45,960,000 for 2001, compared with $39,461,000
and $29,589,000, respectively, for 2000 and 1999. The increase
15
in 2001, compared with 2000, primarily was due to (1) greater
compensation-related costs in 2001 resulting from the Company's higher
profitability and increased homebuilding activities; and (2) a loss provision of
$1,800,000 recorded as a result of the Company's decision to terminate the lease
of an aircraft prior to the end of the lease term. The increase in 2000,
primarily was due to (1) greater compensation-related costs in 2000 related to
the Company's higher profitability and increased homebuilding activities; and
(2) a $2,000,000 contribution to the MDC Holdings Foundation (see Note P to the
Company's consolidated financial statements).
Income Taxes. MDC's overall effective income tax rates of 39.0%, 39.3%
and 39.8%, respectively, for 2001, 2000, and 1999, differed from the federal
statutory rate of 35% primarily due to the impact of state income taxes. In
2000, the effective rate was impacted by net pre-tax investment gains of
$8,629,000 realized on sales of certain investments by the Company's captive
insurance subsidiary, that are subject to taxation at both the subsidiary and
Company levels. Also in 2000, the Company recognized an income tax benefit
resulting from the resolution of Internal Revenue Service income tax
examinations for the years 1991 through 1997.
LIQUIDITY AND CAPITAL RESOURCES
MDC uses its liquidity and capital resources to, among other things,
(1) support its operations, including its inventories of homes, home sites and
land; (2) provide working capital; and (3) provide mortgage loans for its home
buyers. Liquidity and capital resources are generated internally from operations
and from external sources. The Company currently has an effective registration
statement that would allow the Company to issue up to $300,000,000 of equity,
debt or hybrid securities.
CAPITAL RESOURCES.
The Company's capital structure is a combination of (1) permanent
financing, represented by stockholders' equity; (2) long-term financing,
represented by its publicly traded 8 3/8% senior notes due 2008 (the "Senior
Notes") and its homebuilding line of credit (the "Homebuilding Line"); and (3)
current financing, primarily its mortgage lending line of credit (the "Mortgage
Line"). Based upon its current capital resources and additional liquidity
available under existing credit agreements, the Company believes that its
current financial condition is both balanced to fit its current operating
structure and adequate to satisfy its current and near-term capital
requirements, including the acquisition of land. The Company believes that it
can meet its long-term capital needs (including meeting future debt payments and
refinancing or paying off other long-term debt as it becomes due) from
operations and external financing sources, assuming that no significant adverse
changes in the Company's business or capital and credit market occur as a result
of the various risk factors described elsewhere in this report. See
"FORWARD-LOOKING STATEMENTS" below.
LINES OF CREDIT AND NOTES PAYABLE.
Homebuilding. In October 1999, the terms of the Homebuilding Line were
amended and restated (the "Amended and Restated Credit Agreement") to extend the
maturity date to September 30, 2004 and increase the maximum amount available
from $300,000,000 to $450,000,000 upon the Company's request, requiring
additional commitments from existing or additional participant lenders.
Commitments under the Homebuilding Line increased from $300,000,000 to
$413,000,000 in 2000 and to $438,000,000 in April 2001. Commitments increased to
$450,000,000 in June 2001 with the addition of two new banks to the lending
group. Pursuant to the terms of the Amended and Restated Credit Agreement, a
term-out of this credit may commence prior to September 30, 2004 under certain
circumstances. At December 31, 2001, the Company had no borrowings and
$15,486,000 in letters of credit outstanding under the Homebuilding Line, but
could have borrowed funds at interest rates ranging from 3.08% to 4.75%. At
December 31, 2000, the weighted-average interest rate on amounts outstanding on
the Homebuilding Line was 7.9%.
Mortgage Lending. To provide funds to originate mortgage loans and to
finance these mortgage loans on a short-term basis, HomeAmerican utilizes its
Mortgage Line. These mortgage loans are pooled into GNMA, FNMA and FHLMC pools,
or retained as whole loans, and subsequently are sold in the open market on a
spot basis or pursuant to mortgage loan sale commitments, generally within 40
days after origination. During 2001, 2000 and 1999, HomeAmerican sold
$1,208,597,000, $874,383,000 and $877,362,000, respectively, principal amount of
mortgage loans and mortgage certificates to unaffiliated purchasers.
In 2000, the Company modified the terms of the Mortgage Line to
increase the borrowing limit from $75,000,000 to $100,000,000, with the
potential for a $25,000,000 temporary increase, subject to concurrence by the
16
participating banks. At December 31, 2001 and 2000, the borrowing limit was
$125,000,000 with the temporary increases expiring in February of the subsequent
years. Available borrowings under the Mortgage Line are collateralized by
mortgage loans and mortgage-backed certificates and are limited to the value of
eligible collateral as defined. At December 31, 2001, $99,642,000 was borrowed
and an additional $24,643,000 was collateralized and available to be borrowed.
The Mortgage Line is cancelable upon 90 days' notice. At December 31, 2001 and
2000, the interest rates on the Mortgage Line were 3.0% and 7.7%, respectively.
General. The agreements for the Company's Senior Notes and bank lines
of credit require compliance with certain representations, warranties and
covenants. The Company believes that it is in compliance with these
representations, warranties and covenants. The agreements containing these
representations, warranties and covenants, other than the Mortgage Line, are on
file with the Securities and Exchange Commission and are listed in the Exhibit
Table in Part IV of this Annual Report on Form 10-K.
The financial covenants contained in the Amended and Restated Credit
Agreement include a leverage test and a consolidated tangible net worth test.
Under the leverage test, generally MDC's consolidated indebtedness is not
permitted to exceed the product of 2.15 (subject to downward adjustment in
certain circumstances) times MDC's "adjusted consolidated tangible net worth,"
as defined. Under the consolidated tangible net worth test, MDC's "consolidated
tangible net worth," as defined, must not be less than the sum of $238,000,000
plus 50% of "consolidated net income," as defined, earned after December 31,
1998. In addition, the "consolidated tangible net worth," as defined, must not
be less than $150,000,000.
The Company's Senior Notes indenture does not contain financial
covenants. However, there are covenants that limit transactions with affiliates,
limit the amount of additional indebtedness that MDC may incur, restrict certain
payments on, or the redemptions of, the Company's securities, restrict certain
sales of assets and limit incurring liens. In addition, under certain
circumstances, in the event of a change of control (generally a sale, transfer,
merger or acquisition of MDC or substantially all of its assets), MDC may be
required to offer to repurchase the Senior Notes. The Senior Notes are not
secured. In December 2001, the Company amended its Senior Notes indenture to
provide for the unconditional and joint and several guarantee of the Senior
Notes by most of the Company's homebuilding segment subsidiaries.
As of December 31, 2001, the maximum amount of additional homebuilding
and corporate indebtedness that MDC could have incurred under the most
restrictive of the debt limitations described above was approximately
$1,181,000,000.
MDC COMMON STOCK REPURCHASE PROGRAMS.
On January 24, 2000, MDC's Board of Directors authorized the repurchase
of up to 1,000,000 shares of MDC common stock. On February 21, 2000, MDC's Board
of Directors authorized the repurchase of up to 2,000,000 additional shares of
MDC common stock. The Company repurchased a total of 1,931,800 shares of MDC
common stock under these programs through December 31, 2000. The per share
prices, including commissions, for these repurchases range from $13.53 to $22.02
with an average cost of $15.96. During 2001, the Company repurchased an
additional 132,500 shares of MDC common stock under these programs at per share
prices, including commissions, for the repurchases ranging from $29.00 to $29.02
with an average cost of $29.02. At December 31, 2001 and 2000, the Company held
4,809,000 shares and 7,426,000 shares of treasury stock, respectively, with
average purchase prices of $9.45 and $9.09, respectively.
CONSOLIDATED CASH FLOW.
During 2001, the Company generated $93,251,000 in cash from its
operating activities and received $7,571,000 in proceeds from stock option
exercises. $75,118,000 of this cash was used to reduce borrowings from the lines
of credit, repurchase stock and pay dividends. During 2000, the Company used
$66,617,000 in cash from its operating and investing activities. The Company
also used $36,048,000 in cash to repurchase its common stock and pay dividends.
This cash was provided primarily by reducing available cash on hand by
$24,815,000 and increasing borrowings from the lines of credit by $74,225,000.
The Company used $5,723,000 in cash from its operating and investing activities
and increased its available cash on hand by $28,851,000 during 1999. This cash
was provided primarily by increased borrowings from the lines of credit of
$40,029,000, partially offset by dividend payments and principal payments on
notes payable.
17
Operating activities provided cash of $93,251,000 in 2001, and used
cash of $63,457,000 and $3,845,000 in 2000 and 1999, respectively. The 2001 cash
increase primarily resulted from the increase in income before income taxes,
partially offset by increases in homebuilding and mortgage loan inventories in
conjunction with the Company's expanded homebuilding operations. The 2000 cash
decrease from 1999 primarily was due to increases in homebuilding and mortgage
loan inventories, partially offset by increases in income before income taxes.
Financing activities used cash of $67,547,000 in 2001, and generated
cash of $41,802,000 in 2000 and $34,574,000 in 1999. The 2001 decrease, compared
with 2000, primarily was due to increased payments on the homebuilding and
mortgage lending lines of credit, partially offset by a decrease of $26,983,000
in cash used to repurchase stock. The increase in cash generated in 2000,
compared with 1999, primarily was due to increased borrowings on the
homebuilding and mortgage lending lines of credit, partially offset by
$30,828,000 used to repurchase 1,931,800 shares of MDC common stock.
IMPACT OF INFLATION, CHANGING PRICES AND ECONOMIC CONDITIONS
Real estate and residential housing prices are affected by inflation,
which can cause increases in the price of land, raw materials and subcontracted
labor. Unless these increased costs are recovered through higher sales prices,
Home Gross Margins would decrease. If interest rates increase, construction and
financing costs, as well as the cost of borrowings, also would increase, which
can result in lower Home Gross Margins. Increases in home mortgage interest
rates make it more difficult for MDC's customers to qualify for home mortgage
loans, potentially decreasing home sales volume. Increases in interest rates
also may affect adversely the volume of mortgage loan originations.
The volatility of interest rates could have an adverse effect on MDC's
future operations and liquidity. Among other things, these conditions may affect
adversely the demand for housing and the availability of mortgage financing and
may reduce the credit facilities offered to MDC by banks, investment bankers and
mortgage bankers. See "FORWARD-LOOKING STATEMENTS" below.
MDC's business also is affected significantly by, among other things,
general economic conditions and, particularly, the demand for new homes in the
markets in which it builds.
ISSUANCE OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In October 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 provides
guidance for the financial accounting and reporting for the impairment or
disposal of long-lived assets. SFAS No. 144 supercedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The Company anticipates that the adoption of SFAS No. 144 as of January 1,
2002, will not have a material effect of its financial position or results of
operations.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 eliminates
the pooling-of-interests method of accounting for business combinations except
for qualifying business combinations that were initiated prior to July 1, 2001,
and further clarifies the criteria to recognize intangible assets separately
from goodwill. SFAS No. 141, effective for any business combination completed
after June 30, 2001, did not have any effect on the Company's financial position
or results of operation. Under SFAS No. 142, goodwill and indefinite lived
intangible assets are no longer amortized, but are reviewed annually for
impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. The
amortization provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired after June 30, 2001. For goodwill and intangible assets acquired prior
to July 1, 2001, SFAS No. 142 must be adopted as of January 1, 2002. The Company
has determined that SFAS No. 142 will not have a material effect on the
Company's financial position or results of operations.
18
CRITICAL ACCOUNTING POLICIES
The Company's critical accounting policies are those related to (1)
homebuilding inventory valuation; (2) estimates to complete land development and
construction; (3) warranty costs; and (4) litigation reserves. These policies
are more fully described in the notes to the Company's consolidated financial
statements.
OTHER
FORWARD-LOOKING STATEMENTS.
Certain statements in this Form 10-K Annual Report, the Company's
Annual Report to Shareowners, as well as statements made by the Company in
periodic press releases, oral statements made by the Company's officials to
analysts and shareowners in the course of presentations about the Company and
conference calls following quarterly earnings releases, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. We have identified the forward-looking statements
in this Form 10-K by cross referencing this section at the end of the paragraph
in which the forward-looking statement is located. Such forward-looking
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 any future results, performance or achievements
expressed or implied by the forward-looking statements. Such factors include,
among other things, (1) general economic and business conditions; (2) interest
rate changes; (3) the relative stability of debt and equity markets; (4)
competition; (5) the availability and cost of land and other raw materials used
by the Company in its homebuilding operations; (6) demographic changes; (7)
shortages and the cost of labor; (8) weather related slowdowns; (9) slow growth
initiatives; (10) building moratoria; (11) governmental regulation, including
the interpretation of tax, labor and environmental laws; (12) changes in
consumer confidence and preferences; (13) required accounting changes; (14)
actual or threatened terrorist acts and other acts of war and the results
thereof; and (15) other factors over which the Company has little or no control.
19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risks related to fluctuations in
interest rates on mortgage loans receivable and debt. Derivative instruments
utilized in the normal course of business by HomeAmerican include forward sales
securities commitments, private investor sales commitments and commitments to
originate mortgage loans. The Company utilizes these commitments to manage the
price risk on fluctuations in interest rates on its mortgage loans owned and
commitments to originate mortgage loans. Such contracts are the only significant
financial derivative instruments utilized by MDC.
HomeAmerican provides mortgage loans that generally are sold forward
and subsequently delivered to a third-party purchaser within approximately 40
days. Forward commitments are used for non-trading purposes to sell mortgage
loans and hedge price risk due to fluctuations in interest rates on rate-locked
mortgage loans in process that have not closed. Due to this hedging philosophy,
the market risk associated with these mortgages is limited.
The Company utilizes both short-term and long-term debt in its
financing strategy. For fixed rate debt, changes in interest rates generally
affect the fair value of the debt instrument, but not the Company's earnings or
cash flows. Conversely, for variable rate debt, changes in interest rates
generally do not impact the fair value of the debt instrument, but may affect
the Company's future earnings and cash flows. The Company does not have an
obligation to prepay fixed rate debt prior to maturity and, as a result,
interest rate risk and changes in fair value should not have a significant
impact on the fixed rate debt until the Company would be required to refinance
such debt.
As of December 31, 2001, short-term debt was $99,642,000, which
consisted of amounts outstanding on MDC's Mortgage Line. The Mortgage Line is
collateralized by residential mortgage loans. The Company borrows on a
short-term basis from banks under committed lines of credit, which bear interest
at the prevailing market rates. Long-term debt obligations outstanding, their
maturities and estimated fair value at December 31, 2001 are as follows (in
thousands).
MATURITIES THROUGH DECEMBER 31,
------------------------------------------------------- ESTIMATED
2002 2003 2004 2005 2006 THEREAFTER TOTAL FAIR VALUE
------ ------ ------ ------ ------ ---------- ---------- ----------
Fixed Rate Debt .................... $ -- $ -- $ -- $ -- $ -- $ 175,000 $ 175,000 $ 176,995
Average Interest Rate (units) ... -- -- -- -- -- 8.38% 8.38%
The Company believes that its overall balance sheet structure has
repricing and cash flow characteristics that mitigate the impact of interest
rate changes.
20
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS.
M.D.C. HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Consolidated Financial Statements
Report of Independent Auditors as of December 31, 2001 and December 31, 2000 and for each of
the Two Years in the Period Ended December 31, 2001........................................ F-2
Report of Independent Accountants for the Year Ended December 31, 1999....................... F-3
Consolidated Balance Sheets as of December 31, 2001 and December 31, 2000.................... F-4
Consolidated Statements of Income and Other Comprehensive Income for each of the Three Years
in the Period Ended December 31, 2001...................................................... F-6
Consolidated Statements of Stockholders' Equity for each of the Three Years in the Period
Ended December 31, 2001.................................................................... F-7
Consolidated Statements of Cash Flows for each of the Three Years in the Period Ended
December 31, 2001.......................................................................... F-8
Notes to Consolidated Financial Statements................................................... F-9
F-1
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
M.D.C. HOLDINGS, INC.
We have audited the accompanying consolidated balance sheets of M.D.C.
Holdings, Inc. and subsidiaries (the "Company") as of December 31, 2001 and
2000, and the related consolidated statements of income and other comprehensive
income, stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of M.D.C.
Holdings, Inc. and subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
---------------------
Denver, Colorado
January 9, 2002
F-2
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
M.D.C. HOLDINGS, INC.
In our opinion, the accompanying consolidated statements of income and
other comprehensive income, stockholders' equity and cash flows present fairly,
in all material respects, the results of operations and cash flows of M.D.C.
Holdings, Inc. and its subsidiaries (the "Company") for the year ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
------------------------------
Denver, Colorado
January 17, 2000, except for Note G as to which the date is January 22, 2001
F-3
M.D.C. HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
-----------------------
2001 2000
---------- ----------
ASSETS
Corporate
Cash and cash equivalents ..................... $ 31,322 $ 8,411
Property and equipment, net ................... 2,723 3,069
Deferred income taxes ......................... 30,081 31,821
Deferred debt issue costs, net ................ 1,947 2,180
Other assets, net ............................. 7,597 8,039
---------- ----------
73,670 53,520
---------- ----------
Homebuilding
Cash and cash equivalents ..................... 4,760 5,265
Home sales and other accounts receivable ...... 2,621 4,713
Inventories, net
Housing completed or under construction ..... 456,752 443,512
Land and land under development ............. 450,502 388,711
Prepaid expenses and other assets, net ........ 49,544 51,631
---------- ----------
964,179 893,832
---------- ----------
Financial Services
Cash and cash equivalents ..................... 518 439
Mortgage loans held in inventory .............. 144,971 107,151
Other assets, net ............................. 7,618 6,656
---------- ----------
153,107 114,246
---------- ----------
Total Assets ............................ $1,190,956 $1,061,598
========== ==========
See notes to consolidated financial statements.
F-4
M.D.C. HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
----------------------------
2001 2000
------------ ------------
LIABILITIES
Corporate
Accounts payable and accrued expenses .................................. $ 61,135 $ 50,843
Income taxes payable ................................................... 9,953 9,558
Senior notes, net ...................................................... 174,503 174,444
------------ ------------
245,591 234,845
------------ ------------
Homebuilding
Accounts payable and accrued expenses .................................. 174,955 164,660
Line of credit ......................................................... -- 90,000
------------ ------------
174,955 254,660
------------ ------------
Financial Services
Accounts payable and accrued expenses .................................. 16,937 15,404
Line of credit ......................................................... 99,642 74,459
------------ ------------
116,579 89,863
------------ ------------
Total Liabilities ................................................ 537,125 579,368
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTES L AND N) ............................. -- --
------------ ------------
STOCKHOLDERS' EQUITY (NOTE G)
Preferred stock, $.01 par value; 25,000,000 shares authorized; none
issued ............................................................... -- --
Common stock, $.01 par value; 100,000,000 shares authorized;
31,395,000 and 30,755,000 shares issued, respectively, at
December 31, 2001 and 2000 ........................................... 314 308
Additional paid-in capital ............................................. 357,037 266,337
Retained earnings ...................................................... 342,485 282,893
Unearned restricted stock .............................................. (412) --
Accumulated other comprehensive (loss) income .......................... (163) 167
------------ ------------
699,261 549,705
Less treasury stock, at cost, 4,809,000 and 7,426,000 shares,
respectively, at December 31, 2001 and 2000 .......................... (45,430) (67,475)
------------ ------------
Total Stockholders' Equity ....................................... 653,831 482,230
------------ ------------
Total Liabilities and Stockholders' Equity ....................... $ 1,190,956 $ 1,061,598
============ ============
See notes to consolidated financial statements.
F-5
M.D.C. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
--------------------------------------------
2001 2000 1999
------------ ------------ ------------
REVENUES
Homebuilding ................................................. $ 2,086,344 $ 1,721,559 $ 1,537,563
Financial Services ........................................... 38,566 28,925 27,460
Corporate .................................................... 964 1,061 2,615
------------ ------------ ------------
Total Revenues ......................................... 2,125,874 1,751,545 1,567,638
------------ ------------ ------------
COSTS AND EXPENSES
Homebuilding ................................................. 1,807,077 1,494,240 1,375,305
Financial Services ........................................... 17,450 14,643 14,291
Corporate general and administrative ......................... 45,960 39,461 29,589
------------ ------------ ------------
Total Costs and Expenses ............................... 1,870,487 1,548,344 1,419,185
------------ ------------ ------------
Income before income taxes ...................................... 255,387 203,201 148,453
Provision for income taxes ...................................... (99,672) (79,898) (59,061)
------------ ------------ ------------
NET INCOME ...................................................... 155,715 123,303 89,392
------------ ------------ ------------
Unrealized holding (losses) gains arising during the year ....... (222) (338) 2,123
Less reclassification adjustment for gains included in net
income ....................................................... 108 3,118 285
------------ ------------ ------------
Net (loss) gain recognized in other comprehensive income, net
of a deferred income tax (benefit) provision of ($480) for
2001, ($6,090) for 2000 and $5,204 for 1999 .................. (330) (3,456) 1,838
------------ ------------ ------------
OTHER COMPREHENSIVE INCOME ...................................... $ 155,385 $ 119,847 $ 91,230
============ ============ ============
EARNINGS PER SHARE (NOTES G AND K)
Basic ......................................................... $ 5.89 $ 4.75 $ 3.32
============ ============ ============
Diluted ....................................................... $ 5.72 $ 4.64 $ 3.26
============ ============ ============
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic ......................................................... 26,421 25,974 26,919
============ ============ ============
Diluted ....................................................... 27,232 26,556 27,414
============ ============ ============
DIVIDENDS PAID PER SHARE ........................................ $ .27 $ .24 $ .20
============ ============ ============
See notes to consolidated financial statements.
F-6
M.D.C. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
ACCUMULATED
ADDITIONAL OTHER UNEARNED
COMMON PAID-IN RETAINED COMPREHENSIVE RESTRICTED TREASURY
STOCK CAPITAL EARNINGS INCOME (LOSS) STOCK STOCK TOTAL
------ ----------- -------- ------------- ---------- -------- --------
BALANCES-JANUARY 1, 1999 ................ $ 279 $ 175,160 $160,291 $ 1,785 $ -- $(39,384) $298,131
Shares issued ........................ 3 3,399 -- -- -- 173 3,575
Net gain recognized in other
comprehensive income ............... -- -- -- 1,838 -- -- 1,838
Tax benefit of non-qualified stock
options exercised .................. -- 695 -- -- -- -- 695
Notes receivable for stock
purchases, net of repayments ....... -- (160) -- -- -- -- (160)
Cash dividends paid .................. -- -- (4,448) -- -- -- (4,448)
Net income ........................... -- -- 89,392 -- -- -- 89,392
------ ----------- -------- ------------- ---------- -------- ---------
BALANCES-DECEMBER 31, 1999 .............. 282 179,094 245,235 3,623 -- (39,211) 389,023
Shares issued ........................ 4 5,823 -- -- -- 2,036 7,863
Net loss recognized in other
comprehensive income ............... -- -- -- (3,456) -- -- (3,456)
Tax benefit of non-qualified stock
options exercised .................. -- 1,439 -- -- -- -- 1,439
Notes receivable for stock
purchases, net of repayments ....... -- (1,794) -- -- -- -- (1,794)
Contribution of common stock ......... -- 1,372 -- -- -- 528 1,900
Stock repurchases .................... -- -- -- -- -- (30,828) (30,828)
Cash dividends paid .................. -- -- (5,220) -- -- -- (5,220)
10% stock dividend ................... 22 80,403 (80,425) -- -- -- --
Net income ........................... -- -- 123,303 -- -- -- 123,303
------ ----------- -------- ------------- ---------- -------- --------
BALANCES-DECEMBER 31, 2000 .............. 308 266,337 282,893 167 -- (67,475) 482,230
Shares issued ........................ 7 12,020 -- -- -- 1,717 13,744
Net loss recognized in other
comprehensive income ............... -- -- -- (330) -- -- (330)
Tax benefit of non-qualified stock
options exercised .................. -- 8,541 -- -- -- -- 8,541
Notes receivable for stock
purchases, net of repayments ....... -- 2,644 -- -- -- -- 2,644
Contribution of common stock ......... -- 1,474 -- -- -- 526 2,000
Stock repurchases .................... -- -- -- -- -- (3,845) (3,845)
Cash dividends paid .................. -- -- (6,456) -- -- -- (6,456)
10% stock dividend ................... (1) 66,021 (89,667) -- -- 23,647 --
Restricted stock grants .............. -- -- -- -- (412) -- (412)
Net income ........................... -- -- 155,715 -- -- -- 155,715
------ ----------- -------- ------------- ---------- -------- --------
BALANCES-DECEMBER 31, 2001 .............. $ 314 $ 357,037 $342,485 $ (163) $ (412) $(45,430) $653,831
====== =========== ======== ============= ========== ======== ========
See notes to consolidated financial statements.
F-7
M.D.C. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
--------------------------------------------
2001 2000 1999
------------ ------------ ------------
OPERATING ACTIVITIES
Net income ................................................. $ 155,715 $ 123,303 $ 89,392
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization ......................... 27,445 21,792 17,845
Homebuilding asset impairment charges ................. 7,041 4,200 2,242
Deferred income taxes ................................. 1,740 (10,620) (3,252)
Net changes in operating assets and liabilities
Home sales and other accounts receivable ........... 2,092 (1,217) 9,275
Homebuilding inventories ........................... (82,072) (190,714) (135,678)
Prepaid expenses and other assets .................. (20,685) (11,330) (5,263)
Mortgage loans held in inventory ................... (37,820) (17,198) (5,405)
Accounts payable and accrued expenses .............. 36,817 20,775 27,950
Other, net ............................................ 2,978 (2,448) (951)
------------ ------------ ------------
Net cash provided by (used in) operating activities ........ 93,251 (63,457) (3,845)
------------ ------------ ------------
INVESTING ACTIVITIES
Net purchase of property and equipment ..................... (3,219) (3,160) (3,642)
Changes in investments and marketable securities ........... -- -- 1,764
------------ ------------ ------------
Net cash used in investing activities ...................... (3,219) (3,160) (1,878)
------------ ------------ ------------
FINANCING ACTIVITIES
Lines of credit
Advances .............................................. 1,866,183 1,721,125 1,429,600
Principal payments .................................... (1,931,000) (1,646,900) (1,389,571)
Principal payments on notes payable ........................ -- -- (1,898)
Dividend payments .......................................... (6,456) (5,220) (4,448)
Stock repurchases .......................................... (3,845) (30,828) --
Proceeds from exercise of stock options .................... 7,571 3,625 891
------------ ------------ ------------
Net cash (used in) provided by financing activities ........ (67,547) 41,802 34,574
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ....... 22,485 (24,815) 28,851
Cash and cash equivalents
Beginning of year ..................................... 14,115 38,930 10,079
------------ ------------ ------------
End of year ........................................... $ 36,600 $ 14,115 $ 38,930
============ ============ ============
See notes to consolidated financial statements.
F-8
M.D.C. HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements of
M.D.C. Holdings, Inc. ("MDC" or the "Company", which, unless otherwise
indicated, refers to M.D.C. Holdings, Inc. and its subsidiaries) include the
accounts of MDC and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Segment Information - MDC has determined that its reportable segments
are those that are based on the Company's method of internal reporting, which
disaggregates its business by product category. MDC's products come from two
segments, homebuilding and financial services. In its homebuilding segment,
through separate subsidiaries, the Company is engaged in the design,
construction and sale of single-family homes. In its financial services segment,
HomeAmerican Mortgage Corporation (a wholly owned subsidiary of M.D.C. Holdings,
Inc., "HomeAmerican") provides mortgage loans primarily to the Company's home
buyers (the mortgage lending operations).
HOMEBUILDING.
Inventories - Homebuilding inventories under development and
construction are carried at cost unless facts and circumstances indicate that
the carrying value of the underlying projects may be impaired. Impairment is
determined by comparing the estimated future cash flows (undiscounted and
without interest charges) from an individual project to its carrying value. If
such cash flows are less than the project's carrying value, the carrying value
of the project is written down to its fair value. Homebuilding inventories held
for sale are carried at the lower of cost or fair value, less selling costs, and
are evaluated on a project basis. Fair value is determined by management
estimate and incorporates anticipated future revenues and costs. Cost includes
interest capitalized during the period of active development through completion
of construction. Construction-related overhead and salaries are capitalized and
allocated proportionately to projects being developed. Land and related costs
are transferred to housing inventory when construction commences. See Note H.
Prepaid Expenses and Other Assets, Net - Homebuilding prepaid expenses
and other assets include qualified settlement fund ("QSF") assets that are held
for the processing and disposition of eligible claims made under the warranties
created pursuant to the settlement of litigation commenced in 1994 and settled
in November 1996. The QSF assets are recorded on the consolidated balance sheets
at fair value, which is based on quoted prices, with the related unrealized gain
or loss included in accumulated other comprehensive (loss) income. At December
31, 2001 and 2000, respectively, MDC had intercompany notes payable (including
accrued interest) to the QSF, and the QSF had offsetting intercompany notes
receivable from MDC, of $13,040,000 and $8,028,000 under a borrowing arrangement
that was approved by the Colorado Division of Insurance and the Company's Board
of Directors.
The following table sets forth the information relating to prepaid
expenses and other assets, net (in thousands).
DECEMBER 31,
------------------------
2001 2000
---------- ----------
QSF assets .................................. $ 17,434 $ 19,601
MDC intercompany notes payable to QSF ....... (13,040) (8,028)
Land option deposits ........................ 14,520 10,838
Deferred marketing costs .................... 14,099 14,863
Prepaid tap and system development fees ..... 3,197 4,637
Other ....................................... 13,334 9,720
---------- ----------
Total ................................. $ 49,544 $ 51,631
========== ==========
F-9
Deferred Marketing Costs - Certain marketing costs related to model
homes and sales offices are capitalized as prepaid assets and amortized to
selling, general and administrative expenses as the homes in the related
subdivision are closed. All other marketing costs are expensed as incurred.
Revenue Recognition - Revenues from real estate sales are recognized
when a sufficient down payment has been received, financing has been arranged,
title, possession and other attributes of ownership have been transferred to the
buyer and the Company is not obligated to perform significant additional
activities after sale and delivery.
Warranty Costs - The Company's homes are sold with limited warranties
issued by an unaffiliated warranty company. Reserves are established by the
Company to cover estimated costs of repairs for which the Company is
responsible. Warranty reserves are included in homebuilding accounts payable and
accrued expenses in the consolidated balance sheets and totaled $38,400,000 and
$38,200,000, respectively, at December 31, 2001 and 2000.
FINANCIAL SERVICES.
Mortgage Loans Held in Inventory - The Company generally purchases
forward commitments to deliver mortgage loans held for sale. Mortgage loans held
in inventory are stated at the lower of aggregate cost or fair value based upon
such commitments for loans to be delivered or prevailing market for uncommitted
loans. Substantially all of the loans originated or purchased by the Company are
sold to private investors within 40 days of origination or purchase. Gains or
losses on mortgage loans held in inventory are realized when the loans are sold.
Revenue Recognition - Loan origination fees in excess of origination
costs incurred and loan commitment fees are deferred until the related loans are
sold. Loan servicing fees are recorded as revenue when the mortgage loan
payments are received. Loan servicing costs are recognized as incurred. Revenues
from the sale of mortgage loan servicing are recognized when title and all risks
and rewards of ownership have irrevocably passed to the buyer and there are no
significant unresolved contingencies.
Derivative Financial Instruments - The mortgage lending operations are
affected by, among other things, changes in mortgage interest rates. Derivative
instruments utilized in the normal course of business by HomeAmerican include
forward sales securities commitments, private investor sales commitments and
commitments to originate mortgage loans. The Company utilizes these commitments
to manage the price risk on fluctuations in interest rates on its mortgage loans
owned and commitments to originate mortgage loans. Such contracts are the only
significant financial derivative instruments utilized by MDC. Hedging gains or
losses are recognized when the hedged mortgage loans are sold. Gains or losses
related to ineffectiveness in the hedging relationship and gains or losses on
derivative instruments that do not qualify for hedge accounting are recognized
immediately.
Mortgage Servicing Rights - The Company allocates the cost of mortgage
loans originated between the mortgage loans and the right to service those
mortgage loans, based on relative fair value, on the date the loan is sold.
Mortgage servicing rights ("Servicing Rights") of $8,849,000 and $5,027,000 were
capitalized during 2001 and 2000, respectively. Servicing Rights are amortized
over the estimated period of net servicing revenues. The cost attributed to the
Servicing Rights sold and the amortization of Servicing Rights was $13,788,000
and $5,128,000 for 2001 and 2000, respectively. Servicing Rights are evaluated
for impairment by stratifying the portfolio based on loan type and interest
rate. As of December 31, 2001 and 2000, the Company had unamortized Servicing
Rights of $111,000 and $4,969,000, respectively, net of impairment reserves of
$48,000 and $130,000, respectively, included in financial services other assets,
net in the consolidated balance sheets.
GENERAL.
Cash and Cash Equivalents - The Company periodically invests funds not
immediately required for operating purposes in highly liquid, short-term
investments with an original maturity of 90 days or less such as commercial
paper, money market funds and repurchase agreements which are included in cash
and cash equivalents in the consolidated balance sheets and consolidated
statements of cash flows.
F-10
Property and Equipment - Property and equipment is carried at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets.
Stock-Based Compensation - The Company grants options to certain
employees and directors to acquire a fixed number of shares with an exercise
price not less than the fair market value of the Company's common stock on the
date of grant. MDC has elected to account for the stock option grants in
accordance with Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees" and related interpretations (see Note G).
Restricted stock grants to employees are valued based on the market price of
MDC's common stock at the measurement dates and vest over four years. Unearned
compensation arising from the restricted stock grants is shown as a reduction in
stockholders' equity in the consolidated balance sheets and is amortized to
expense over the vesting period.
Estimates in Financial Statements - The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Such estimates include warranty, other accrued expenses, litigation
reserves, estimates to complete land development and construction and estimates
related to potential asset impairment charges.
New Statements of Financial Accounting Standards - In October 2001, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 provides guidance for the financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 supercedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Company
anticipates that the adoption of SFAS No. 144 as of January 1, 2002 will not
have a material effect of its financial position or results of operations.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 eliminates
the pooling-of-interests method of accounting for business combinations except
for qualifying business combinations that were initiated prior to July 1, 2001,
and further clarifies the criteria to recognize intangible assets separately
from goodwill. SFAS No. 141, effective for any business combination completed
after June 30, 2001, did not have any effect on the Company's financial position
or results of operation. Under SFAS No. 142, goodwill and indefinite lived
intangible assets are no longer amortized, but are reviewed annually for
impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. The
amortization provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired after June 30, 2001. For goodwill and intangible assets acquired prior
to July 1, 2001, SFAS No. 142 must be adopted as of January 1, 2002. The Company
has determined that SFAS No. 142 will not have a material effect on the
Company's financial position or results of operations.
In September 2000, SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" was issued.
SFAS No. 140 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. SFAS No. 140
is effective for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and collateral, for fiscal
years ending after December 15, 2000. SFAS No. 140 is effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. The adoption of SFAS No. 140 did not have a material
impact on the Company's financial position or results of operations.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. In June 2000, SFAS No. 138, "Accounting for
Certain Derivative Instruments and Hedging Activities, an Amendment of SFAS No.
133" was issued. SFAS No. 133 and SFAS No. 138 address the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. The Company adopted SFAS No. 133 and
SFAS No. 138 on January 1, 2001. As a result of the adoption of SFAS No. 133 and
SFAS No. 138, HomeAmerican recognized a net loss of $555,000 that is included in
gains on sales of mortgage loans, net (see Note B).
F-11
B. INFORMATION ON BUSINESS SEGMENTS
The Company operates in two business segments - homebuilding and
financial services. A summary of the Company's business segments is shown below
(in thousands).
YEAR ENDED DECEMBER 31,
--------------------------------------------
2001 2000 1999
------------ ------------ ------------
HOMEBUILDING
Home sales ..................................... $ 2,076,807 $ 1,701,108 $ 1,526,519
Land sales ..................................... 2,909 6,641 8,114
Other revenues ................................. 6,628 13,810 2,930
------------ ------------ ------------
2,086,344 1,721,559 1,537,563
------------ ------------ ------------
Home cost of sales ............................. 1,594,412 1,322,185 1,231,922
Land cost of sales ............................. 1,105 4,293 5,767
Asset impairment charges ....................... 7,041 4,200 2,242
Marketing ...................................... 114,129 94,412 80,545
General and administrative ..................... 90,390 69,150 54,829
------------ ------------ ------------
1,807,077 1,494,240 1,375,305
------------ ------------ ------------
HOMEBUILDING OPERATING PROFIT .............. 279,267 227,319 162,258
------------ ------------ ------------
FINANCIAL SERVICES
Revenues
Interest ....................................... 3,544 2,313 2,844
Origination fees ............................... 17,572 13,951 12,459
Gains on sales of mortgage servicing, net ...... 3,288 3,162 3,114
Gains on sales of mortgage loans, net .......... 13,923 8,951 8,456
Mortgage servicing and other ................... 239 548 587
------------ ------------ ------------
38,566 28,925 27,460
General and Administrative Expenses ............... 17,450 14,643 14,291
------------ ------------ ------------
FINANCIAL SERVICES OPERATING PROFIT ........ 21,116 14,282 13,169
------------ ------------ ------------
TOTAL OPERATING PROFIT ................................ 300,383 241,601 175,427
------------ ------------ ------------
CORPORATE
Interest and other revenues .................... 964 1,061 2,615
General and administrative ..................... (45,960) (39,461) (29,589)
------------ ------------ ------------
NET CORPORATE EXPENSES ..................... (44,996) (38,400) (26,974)
------------ ------------ ------------
INCOME BEFORE INCOME TAXES ............................ $ 255,387 $ 203,201 $ 148,453
============ ============ ============
Corporate general and administrative expenses consist principally of
salaries and other administrative expenses that are not identifiable to a
specific segment. Transfers between segments are recorded at cost. Capital
expenditures and related depreciation and amortization for the years ended
December 31, 2001, 2000 and 1999 were not material. Identifiable segment assets
are shown on the face of the consolidated balance sheets.
F-12
C. MORTGAGE LOANS HELD IN INVENTORY
The following table sets forth the information relating to mortgage loans
held in inventory (in thousands).
DECEMBER 31,
------------------------
2001 2000
---------- ----------
First mortgage loans
Conventional ............................................ $ 117,597 $ 80,517
FHA and VA .............................................. 30,854 27,436
---------- ----------
148,451 107,953
Less
Unamortized discounts ................................... (390) (118)
Deferred fees ........................................... (1,024) (584)
Adjustment for derivatives and hedging activities ....... (1,862) --
Allowance for loan losses ............................... (204) (100)
---------- ----------
Total ................................................. $ 144,971 $ 107,151
========== ==========
Mortgage loans held in inventory consist primarily of loans
collateralized by first mortgages and deeds of trust due over periods of up to
30 years. The weighted-average effective yield on mortgage loans held in
inventory was approximately 6.8% at December 31, 2001.
D. LINES OF CREDIT
Homebuilding - The Company has an unsecured revolving line of credit
with a group of lenders for support of its homebuilding operations (the
"Homebuilding Line"). In October 1999, the terms of the Homebuilding Line were
amended and restated (the "Amended and Restated Credit Agreement") to extend the
maturity date to September 30, 2004 and increase the maximum amount available
from $300,000,000 to $450,000,000 upon the Company's request, requiring
additional commitments from existing or additional participant lenders.
Commitments under the Homebuilding Line increased from $300,000,000 to
$413,000,000 in 2000 and to $438,000,000 in April 2001. Commitments increased to
$450,000,000 in June 2001 with the addition of two new banks to the lending
group. Pursuant to the terms of the Amended and Restated Credit Agreement, a
term-out of this credit may commence prior to September 30, 2004 under certain
circumstances. At December 31, 2001, the Company had no borrowings and
$15,486,000 in letters of credit outstanding under the Homebuilding Line, but
could have borrowed funds at interest rates ranging from 3.08% to 4.75%. At
December 31, 2000, the weighted-average interest rate on amounts outstanding on
the Homebuilding Line was 7.9%.
Mortgage Lending - In 2000, the Company modified the terms of the
Mortgage Line to increase the borrowing limit from $75,000,000 to $100,000,000,
with the potential for a $25,000,000 temporary increase, subject to concurrence
by the participating banks. At December 31, 2001 and 2000, the borrowing limit
was $125,000,000, with the temporary increases expiring in February of the
subsequent years. Available borrowings under the Mortgage Line are
collateralized by mortgage loans and mortgage-backed certificates and are
limited to the value of eligible collateral as defined. At December 31, 2001,
$99,642,000 was borrowed and an additional $24,643,000 was collateralized and
available to be borrowed. The Mortgage Line is cancelable upon 90 days' notice.
At December 31, 2001 and 2000, the interest rates on the Mortgage Line were 3.0%
and 7.7%, respectively.
General - The agreements for the Company's bank lines of credit require
compliance with certain representations, warranties and covenants. The Company
believes that it is in compliance with these representations, warranties and
covenants. The agreements containing these representations, warranties and
covenants, other than the Mortgage Line, are on file with the Securities and
Exchange Commission and are listed in the Exhibit Table in Part IV of this
Annual Report on Form 10-K.
The financial covenants contained in the Amended and Restated Credit
Agreement include a leverage test and a consolidated tangible net worth test.
Under the leverage test, generally MDC's consolidated indebtedness is not
permitted to exceed the product of 2.15 (subject to downward adjustment in
certain circumstances) times MDC's "adjusted consolidated tangible net worth,"
as defined. Under the consolidated tangible net worth test, MDC's "consolidated
tangible net worth," as defined, must not be less than the sum of $238,000,000
plus 50% of "consolidated net income," as defined, earned after December 31,
1998. In addition, the "consolidated tangible net worth," as defined, must not
be less than $150,000,000.
F-13
E. SENIOR NOTES
On January 28, 1998, the Company completed an offering of $175,000,000
principal amount of 8 3/8% senior notes due February 2008 (the "Senior Notes")
at a discount with an effective rate of 8.7%. The principal amounts outstanding,
net of unamortized discount, at December 31, 2001 and 2000 were $174,503,000 and
$174,444,000, respectively. The Senior Notes are callable in February 2003 at
104.188% of principal. The Company's Senior Notes indenture does not contain
financial covenants. However, there are covenants that limit transactions with
affiliates, limit the amount of additional indebtedness that MDC may incur,
restrict certain payments on, or the redemptions of, the Company's securities,
restrict certain sales of assets and limit incurring liens. In addition, under
certain circumstances, in the event of a change of control (generally a sale,
transfer, merger or acquisition of MDC or substantially all of its assets), MDC
may be required to offer to repurchase the Senior Notes. The Senior Notes are
not secured. In December 2001, the Company amended its Senior Notes indenture to
provide for the unconditional and joint and several guarantee of the Senior
Notes by most of the Company's homebuilding segment subsidiaries. See Note R.
F. RETIREMENT PLANS
In October 1997, the Company established a defined benefit retirement
plan (the "Retirement Plan") for two executive officers of the Company under
which the Company agreed to make future payments that have a projected benefit
obligation of $9,667,000 at December 31, 2001. The Retirement Plan is not funded
and benefits vest in either two or five years from plan inception. Unrecognized
prior service cost of $2,600,000 at December 31, 2001 is being recognized over
the officers' average estimated service periods. Included on the December 31,
2001 consolidated balance sheet is an intangible asset of $2,600,000 related to
unamortized prior service cost and a corresponding accrued pension liability of
$2,723,000 and an accumulated other comprehensive loss of $123,000. Accrued
benefit costs as of December 31, 2001, 2000 and 1999 were $4,538,000, $3,247,000
and $2,132,000, respectively. Below is a summary of the changes in the projected
benefit obligation, the assumptions used in its calculation and the components
of Retirement Plan expense for the three years ended December 31, 2001 (dollars
in thousands).
YEAR ENDED DECEMBER 31,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
Projected benefit obligation - beginning of year ..................... $ 7,930 $ 6,824 $ 4,881
Service cost ..................................................... 155 131 245
Interest cost .................................................... 641 544 451
Unrecognized loss due to change in actuarial assumptions ......... 941 431 1,247
---------- ---------- ----------
Projected benefit obligation - end of year ........................... $ 9,667 $ 7,930 $ 6,824
========== ========== ==========
Assumptions used in the calculation of the present value of the
projected benefit obligation
Discount rate .................................................... 7.25% 7.50% 7.50%
Future annual compensation rate increase ......................... 4.00% 4.00% 4.00%
Components of Retirement Plan expense
Service cost ..................................................... $ 155 $ 131 $ 245
Interest cost .................................................... 641 544 451
Prior service cost amortization .................................. 325 325 325
Net loss recognition ............................................. 170 116 38
---------- ---------- ----------
Total Retirement Plan expense ........................................ $ 1,291 $ 1,116 $ 1,059
========== ========== ==========
The Company sponsors a Section 401(k) defined contribution plan that is
available to all of the Company's eligible employees. At its discretion, the
Company may make annual matching contributions. The matching contributions for
2001, 2000 and 1999 were funded with shares of MDC common stock, and the expense
recognized by the Company for these years was $2,577,000, $2,300,000 and
$2,060,000, respectively.
F-14
G. STOCKHOLDERS' EQUITY
Stock Dividends - On January 22, 2001, MDC's Board of Directors
approved the payment of a 10% stock dividend, which was distributed on February
16, 2001 to shareowners of record on February 5, 2001. On December 6, 2001,
MDC's Board of Directors approved the payment of another 10% stock dividend,
which was distributed on December 28, 2001 to shareowners of record on December
17, 2001. In accordance with SFAS No. 128, basic and diluted net income per
share amounts and weighted-average shares outstanding have been restated for
2001, 2000 and 1999 to reflect the effect of these stock dividends.
Equity Incentive Plans - A summary of the Company's equity incentive
plans follows.
Employee Equity Incentive Plans - In June 1993, the Company adopted the
Employee Equity Incentive Plan (the "Employee Plan"). The Employee Plan provided
for an initial authorization of 2,541,000 shares of MDC common stock (restated
for both stock dividends) for issuance thereunder, plus an additional annual
authorization equal to 10% of the then authorized shares of MDC common stock
under the Employee Plan as of each succeeding annual anniversary of the
effective date of the Employee Plan. Under the Employee Plan, the Company may
grant awards of restricted stock, incentive and non-statutory stock options and
dividend equivalents, or any combination thereof, to officers and employees of
the Company or any of its subsidiaries. The incentive and non-statutory stock
options granted under the Employee Plan are exercisable at prices not less than
the market value on the date of grant over periods of up to six years. In the
fourth quarter of 2001, 14,203 shares of restricted stock (restated for the
December 28, 2001 stock dividend) were awarded under the Employee Plan. The
Employee Plan terminates pursuant to its terms on April 20, 2003.
In March 2001, the Company adopted the M.D.C. Holdings, Inc. 2001
Equity Incentive Plan (the "Equity Incentive Plan"). The Equity Incentive Plan
provides for an initial authorization of 2,200,000 shares of MDC common stock
(restated for the December 28, 2001 stock dividend) for issuance thereunder,
plus an additional annual authorization equal to 10% of the authorized shares of
MDC common stock under the Equity Incentive Plan. The Equity Incentive Plan
provides for the grant of non-qualified stock options, incentive stock options,
stock appreciation rights, restricted stock, stock units and other stock grants
to employees of the Company. Incentive stock options granted under the Equity
Incentive Plan must have an exercise price that is at least equal to the fair
market value of the common stock on the date the incentive stock option is
granted.
Executive Option Purchase Program - Pursuant to the terms of the
Executive Option Purchase Program (the "Option Purchase Program"), the Company
is authorized by the MDC Board of Directors to lend eligible executives of the
Company up to two-thirds of the aggregate exercise price and state and federal
taxes payable in connection with their exercise of stock options under the
Employee Equity Incentive Plans, subject to certain maximum amounts as set forth
under the Option Purchase Program. Notes receivable under the Option Purchase
Program are recourse and secured by 100% of the shares of MDC common stock
issued in connection with options exercised. During 2001 and 2000, certain
eligible executives of the Company exercised options to purchase 385,000 and
300,000 shares, respectively, of MDC common stock under the equity incentive
plans. Aggregate notes receivable under the Option Purchase Program of $930,000
and $3,574,000, respectively, at December 31, 2001 and 2000 have reduced
stockholders' equity.
Middle Management Option Purchase Program - Pursuant to the terms of
the Middle Management Option Purchase Program (the "Management Program"),
created on July 1, 2000, the Company is authorized by the MDC Board of Directors
to lend eligible members of middle management of the Company up to two-thirds of
the aggregate exercise price and state and federal taxes payable in connection
with their exercise of stock options under the equity incentive plans, subject
to certain maximum amounts as set forth under the Management Program. Notes
receivable under the Management Program are recourse and secured by 100% of the
shares of MDC common stock issued in connection with options exercised. At
December 31, 2001, there were no loans outstanding under the Management Program.
F-15
Director Equity Incentive Plans - The Director Equity Incentive Plan
was adopted by the Company in June 1993 (the "Director Plan"), to provide for
the grant of stock options to non-employee directors of the Company. The
Director Plan provided for an initial authorization of 363,000 shares of MDC
common stock (restated for both stock dividends) for issuance thereunder plus an
additional annual authorization of shares equal to 10% of the then authorized
shares of MDC common stock under the Director Plan. During 1997, the Board of
Directors authorized, and the Company's stockholders approved, an additional
423,500 shares of MDC common stock (restated for both stock dividends) for
issuance under the Director Plan. Pursuant to the Director Plan, on December 1
of each year, each non-employee director of the Company is granted options to
purchase 25,000 shares of MDC common stock. Each option granted under the
Director Plan vests immediately and expires five years from the date of grant.
The option exercise price must be equal to 100% of the market value of the MDC
common stock on the date of grant of the option. The Director Plan was
terminated in March 2001.
In March 2001, the Company adopted the M.D.C. Holdings, Inc. Stock
Option Plan for Non-Employee Directors (the "Director Stock Option Plan"). Under
the Director Stock Option Plan, non-employee directors of the Company are
granted non-qualified stock options. The Director Stock Option Plan provides for
an initial authorization of 550,000 shares of MDC common stock (restated for the
December 28, 2001 stock dividend) for issuance thereunder, plus an additional
annual authorization of shares equal to 10% of the then authorized shares of MDC
common stock under the Director Stock Option Plan. Pursuant to the Director
Stock Option Plan, on October 1 of each year, each non-employee director of the
Company is granted options to purchase 25,000 shares of MDC common stock. On
October 1, 2001, options to purchase 137,500 shares of MDC common stock
(restated for the December 28, 2001 stock dividend) were granted to directors
pursuant to the Director Stock Option Plan. Each option granted under the
Director Stock Option Plan vests immediately and expires ten years from the date
of grant. The option exercise price must be equal to 100% of the market value of
the MDC common stock on the date of grant of the option.
A summary of the changes in stock options during each of the three
years ended December 31, 2001 is as follows (in shares of MDC common stock).
Shares and weighted average exercise prices have been restated to reflect the
effects of the 10% stock dividends distributed on February 16, 2001 and December
28, 2001.
2001 2000 1999
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ---------- ---------- ---------- ---------- ----------
Options outstanding - beginning of year ..... 3,202,748 $ 15.18 2,886,002 $ 10.69 2,193,124 $ 9.09
Granted ................................... 1,180,520 $ 28.49 1,024,870 $ 23.17 938,960 $ 13.00
Exercised ................................. (811,878) $ 9.33 (532,675) $ 6.74 (225,666) $ 4.66
Cancelled ................................. (62,191) $ 22.17 (175,449) $ 13.78 (20,416) $ 11.01
---------- ---------- ----------
Options outstanding - end of year ........... 3,509,199 $ 20.88 3,202,748 $ 15.18 2,886,002 $ 10.69
Available for future grant .................. 3,088,463 843,083 1,149,133
---------- ---------- ----------
Total shares reserved - end of year ......... 6,597,662 4,045,831 4,035,135
========== ========== ==========
Options exercisable December 31 ............. 1,395,718 $ 16.13 1,367,059 $ 10.40 1,390,077 $ 8.21
========== ========== ==========
The Company has elected to use APB No. 25 and related interpretations
in accounting for its equity incentive plans. If the Company had elected to
recognize compensation cost based on the fair value of the options granted at
grant date and the vesting provisions under the plans in accordance with SFAS
No. 123, "Accounting for Stock Based Compensation", net income in 2001 would
have been reduced by approximately $4,283,000, or $.16 per basic and diluted
share. Net income for 2000 and 1999 would have been reduced by $2,771,000, or
$.11 per basic share and $.10 per diluted share, and $1,786,000, or $.07 per
basic share and $.06 per diluted share, respectively.
F-16
The following table is a summary of the average fair values of options
granted during 2001, 2000 and 1999 on the date of grant using the Black-Scholes
option pricing model with the assumptions used for volatility, risk free
interest rate and dividend yield rate.
YEAR ENDED DECEMBER 31,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
Average fair value of options granted ....... $ 13.77 $ 12.85 $ 7.41
Volatility .................................. 51.9% 44.7% 51.5%
Risk free interest rate ..................... 4.5% 5.7% 6.2%
Dividend yield rate ......................... 0.8% 0.7% 1.6%
Expected lives of options ................... 5-6 yrs. 5-6 yrs. 5-6 yrs.
The following table summarizes information concerning outstanding and
exercisable options at December 31, 2001.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ----------------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACT LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------- ------------ ------------- -------------- ----------- --------------
$ 9.41 - $12.86 1,007,435 2.46 $ 11.74 651,384 $ 11.18
$13.06 - $24.15 580,848 4.05 $ 17.19 436,704 $ 17.86
$24.17 - $24.17 888,896 4.24 $ 24.17 307,630 $ 24.17
$28.23 - $32.68 1,032,020 9.87 $ 29.06 -- --
------------ -----------
3,509,199 $ 20.88 1,395,718 $ 16.13
============ ===========
MDC Common Stock Repurchase Program - On January 24, 2000, MDC's Board
of Directors authorized the repurchase of up to 1,000,000 shares of MDC common
stock. On February 21, 2000, MDC's Board of Directors authorized the repurchase
of up to 2,000,000 additional shares of MDC common stock. The Company
repurchased a total of 1,931,800 shares of MDC common stock under these programs
through December 31, 2000. The per share prices, including commissions, for
these repurchases range from $13.53 to $22.02 with an average cost of $15.96.
During 2001, the Company repurchased an additional 132,500 shares of MDC common
stock under these programs at per share prices, including commissions, for the
repurchases ranging from $29.00 to $29.02, with an average cost of $29.02. At
December 31, 2001 and 2000, the Company held 4,809,000 shares and 7,426,000
shares of treasury stock, respectively, with average purchase prices of $9.45
and $9.09, respectively.
H. HOMEBUILDING ASSET IMPAIRMENT CHARGES
Homebuilding operating results were reduced by asset impairment charges
totaling $7,041,000, $4,200,000 and $2,242,000 in 2001, 2000 and 1999,
respectively. The Company's assets to which these impairment charges relate are
summarized as follows (in thousands).
YEAR ENDED DECEMBER 31,
------------------------------
2001 2000 1999
-------- -------- --------
Completed homes and homes under construction ..... $ 1,075 $ -- $ --
Land under development and other ................. 5,966 4,200 2,242
-------- -------- --------
Total ...................................... $ 7,041 $ 4,200 $ 2,242
======== ======== ========
The 2001 asset impairment charges primarily resulted from the
write-down to fair market value of one homebuilding project in Southern
California and three homebuilding projects in the San Francisco Bay area. These
four projects had experienced a much slower than anticipated home order pace and
a significant increase in sales incentive requirements. The three San Francisco
Bay area projects offered homes with prices originally averaging over $650,000,
and each experienced substantial reductions in home selling prices by competing
projects. The 2000 asset impairment charges resulted from the write-down to fair
value of two homebuilding projects in Southern California that experienced a
reduced home order pace and significantly higher sales incentives than
anticipated. The 1999 charge primarily resulted from the write-down to fair
value of one homebuilding project in Southern
F-17
California that experienced higher than anticipated development costs, in
addition to slower home orders and increased incentives.
I. CORPORATE AND HOMEBUILDING INTEREST ACTIVITY (IN THOUSANDS)
YEAR ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
-------- -------- --------
Interest capitalized in homebuilding inventory,
beginning of year .................................. $ 19,417 $ 17,406 $ 26,332
Interest incurred ..................................... 22,498 24,367 21,261
Previously capitalized interest included in
cost of sales ...................................... (24,557) (22,356) (30,187)
-------- -------- --------
Interest capitalized in homebuilding inventory,
end of year ........................................ $ 17,358 $ 19,417 $ 17,406
======== ======== ========
J. INCOME TAXES
Total income taxes have been allocated as follows (in thousands).
YEAR ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
-------- -------- --------
Provision for income taxes ............................ $ 99,672 $ 79,898 $ 59,061
Stockholders' equity, related to exercise of stock
options ............................................ (8,541) (1,439) (695)
-------- -------- --------
Total income taxes .................................... $ 91,131 $ 78,459 $ 58,366
======== ======== ========
The significant components of the provision for income taxes are as
follows (in thousands).
YEAR ENDED DECEMBER 31,
-------------------------------
2001 2000 1999
-------- -------- --------
Current tax expense
Federal ............................. $ 85,797 $ 79,115 $ 51,192
State ............................... 12,135 11,403 11,121
-------- -------- --------
Total current ..................... 97,932 90,518 62,313
-------- -------- --------
Deferred tax expense (benefit)
Federal ............................. 1,471 (10,159) (1,914)
State ............................... 269 (461) (1,338)
-------- -------- --------
Total deferred .................... 1,740 (10,620) (3,252)
-------- -------- --------
Provision for income taxes ............. $ 99,672 $ 79,898 $ 59,061
======== ======== ========
F-18
The provision for income taxes differs from the amount that would be
computed by applying the statutory federal income tax rate of 35% to income
before income taxes as a result of the following (in thousands).
YEAR ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
-------- -------- --------
Tax expense computed at statutory rate ........... $ 89,385 $ 71,120 $ 51,959
Increase due to
Permanent differences between financial
statement income and taxable income ....... 242 175 158
State income tax, net of federal benefit .... 8,297 7,024 6,601
Other, net .................................. 1,748 1,579 343
-------- -------- --------
Provision for income taxes ....................... $ 99,672 $ 79,898 $ 59,061
======== ======== ========
Effective tax rate ............................... 39.0% 39.3% 39.8%
======== ======== ========
The tax effects of the temporary differences that give rise to the
deferred tax assets and deferred tax liabilities are presented below (in
thousands).
DECEMBER 31,
--------------------
2001 2000
-------- --------
Deferred tax assets
Warranty, litigation and other reserves ............ $ 21,226 $ 19,107
Inventory impairment charges ....................... 4,982 5,130
Accrued liabilities ................................ 4,734 4,145
Inventory, additional costs capitalized for tax
purposes ......................................... 9,134 15,350
Property, equipment and other assets, net .......... 136 172
-------- --------
Total gross deferred tax assets ................ 40,212 43,904
-------- --------
Deferred tax liabilities
Deferred revenue ................................... 7,708 7,500
Inventory, additional costs capitalized for
financial statement purposes ..................... 823 2,472
Subsidiaries not consolidated for tax purposes ..... 1,633 1,038
Other, net ......................................... (33) 1,073
-------- --------
Total gross deferred tax liabilities ........... 10,131 12,083
-------- --------
Net deferred tax asset ............................. $ 30,081 $ 31,821
======== ========
In August 2000, the Company and the Internal Revenue Service (the
"IRS") reached final agreement on the examination of the Company's federal
income tax returns for the years 1991 through 1995. In April 2000, the Company
and the IRS reached final agreement on the examination of the Company's federal
income tax returns for the years 1996 and 1997. The conclusion of these
examinations resulted in no material impact to the Company's financial position
or results of operations. No IRS examinations of the Company's federal income
tax returns currently are in process.
F-19
K. EARNINGS PER SHARE
Pursuant to SFAS No. 128, "Earnings per Share," the computation of
diluted earnings per share takes into account the effect of dilutive stock
options. Weighted-average shares outstanding and per share amounts have been
adjusted for the effects of the 10% stock dividends distributed on February 16,
2001 and December 28, 2001. The basic and diluted earnings per share
calculations are shown below (in thousands, except per share amounts).
YEAR ENDED DECEMBER 31,
------------------------------
2001 2000 1999
-------- -------- --------
BASIC EARNINGS PER SHARE
Net income .................................... $155,715 $123,303 $ 89,392
======== ======== ========
Basic weighted-average shares outstanding ..... 26,421 25,974 26,919
======== ======== ========
Per share amounts ............................. $ 5.89 $ 4.75 $ 3.32
======== ======== ========
DILUTED EARNINGS PER SHARE
Net income .................................... $155,715 $123,303 $ 89,392
======== ======== ========
Basic weighted-average shares outstanding ..... 26,421 25,974 26,919
Stock options, net ............................ 811 582 495
-------- -------- --------
Diluted weighted-average shares outstanding ... 27,232 26,556 27,414
======== ======== ========
Per share amounts ............................. $ 5.72 $ 4.64 $ 3.26
======== ======== ========
L. LEGAL PROCEEDINGS
The Company and certain of its subsidiaries have been named as
defendants in various claims, complaints and other legal actions arising in the
normal course of business. In the opinion of management, the outcome of these
matters will not have a material adverse effect upon the financial condition,
results of operations or cash flows of the Company.
Because of the nature of the homebuilding business, and in the ordinary
course of its operations, the Company from time to time may be subject to
product liability and other types of claims.
The Company is not aware of any litigation, matter or pending claim
against the Company that would result in material contingent liabilities related
to environmental hazards or asbestos.
M. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate such value.
Cash and Cash Equivalents - For cash and cash equivalents, the carrying
value is a reasonable estimate of fair value.
Investments and Marketable Securities, Net - Investments in marketable
equity securities (other than the QSF assets, see Note A) are recorded on the
balance sheet at cost, which approximates market value. Accordingly, the
carrying value of the investment is a reasonable estimate of the fair value.
Mortgage Loans Held in Inventory - The Company generally purchases
forward commitments to deliver mortgage loans held for sale. For loans that have
no forward commitments, loans in inventory are stated at the lower of cost or
market. Accordingly, the carrying value is a reasonable estimate of fair value.
Lines of Credit - The Company's lines of credit are at floating rates
or at fixed rates that approximate current market rates and have relatively
short-term maturities. Accordingly, the carrying value is a reasonable estimate
of fair value.
Senior Notes - The estimated fair value of the Senior Notes in the
following table are based on dealer quotes.
DECEMBER 31, 2001 DECEMBER 31, 2000
----------------------- -----------------------
RECORDED ESTIMATED RECORDED ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
Senior Notes ....... $ 174,503 $ 176,995 $ 174,444 $ 158,813
F-20
N. COMMITMENTS AND CONTINGENCIES
The Company believes that it is subject to risks and uncertainties
common to the homebuilding industry, including (1) cyclical markets sensitive to
changes in general and local economic conditions; (2) volatility of interest
rates, which affects homebuilding demand and may affect credit availability; (3)
seasonal nature of the business due to weather-related factors; (4) significant
fluctuations in the price of building materials, particularly lumber, and of
finished lots and subcontract labor; (5) counter-party non-performance risk
associated with performance bonds; (6) competition; (7) demographic changes; (8)
slow growth initiatives; (9) building moratoria; (10) governmental regulation,
including the interpretation of tax, labor and environmental laws; and (11)
changes in consumer confidence and preferences. The Company's operations are
concentrated in the geographic regions of Colorado, Virginia, Maryland,
California, Arizona and Nevada.
To reduce exposure to fluctuations in interest rates, HomeAmerican
makes commitments to originate (buy) and sell loans and mortgage-backed
securities. At December 31, 2001, commitments by HomeAmerican to originate
mortgage loans totaled $38,353,000 at market rates of interest. At December 31,
2001, unexpired short-term forward commitments to sell loans totaled
$155,854,000 at market rates of interest.
MDC leases office space, equipment and certain of its model show homes
under non-cancelable operating leases. Future minimum rental payments for leases
with initial terms in excess of one year total $6,566,000 in 2002, $4,744,000 in
2003, $3,546,000 in 2004, $2,503,000 in 2005 and $1,955,000 in 2006. Rent
expense under cancelable and non-cancelable leases totaled $6,758,000,
$6,531,000 and $4,846,000 in 2001, 2000, and 1999, respectively.
O. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------------
2001 2000 1999
-------- -------- --------
Cash paid during the year for
Interest .................................... $ 22,881 $ 29,933 $ 17,335
Income taxes ................................ $ 83,227 $ 89,802 $ 63,557
Non-cash investing and financing activities
Land purchases financed by seller ........... $ -- $ -- $ 1,032
Land sales financed by MDC .................. $ -- $ -- $ 43
P. RELATED PARTY TRANSACTIONS
MDC has transacted business with related or affiliated companies and
with certain officers and directors of the Company.
Gilbert Goldstein, P.C., a law firm of which a director of the Company
is the sole shareholder, was paid legal fees of $246,000, $240,000 and $209,000
in 2001, 2000 and 1999, respectively.
The Company utilizes in the ordinary course of business the services of
a marketing and communications firm that is owned by the brother-in-law of an
officer and director of the Company. Total fees paid for advertising and
marketing design services were $246,000, $412,000 and $432,000, respectively,
for 2001, 2000 and 1999.
The spouse of an officer and director of the Company owns a company
that provides consulting services to the Company. Total fees paid for these
services were $240,000, $220,000 and $120,000, respectively, for 2001, 2000 and
1999.
During 2001, the Company contributed 57,889 shares of MDC common stock
valued at $2,000,000 to the MDC Holdings Foundation (the "Foundation"), a
Delaware not-for-profit corporation that was incorporated on September 30, 2000.
During 2000, the Company contributed $2,000,000 to the Foundation, consisting of
58,033 shares of MDC common stock valued at $1,900,000 and $100,000 in cash. The
Foundation is a charitable organization with the primary purpose of supporting
non-profit charities in communities where the Company conducts its business.
Certain directors and officers of the Company are the trustees and officers of
the Foundation.
F-21
Q. SUMMARIZED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
Unaudited summarized quarterly consolidated financial information for
the two years ended December 31, 2001 is as follows (in thousands, except per
share amounts). Weighted-average shares outstanding and earnings per share have
been adjusted for the effects of the 10% stock dividends distributed on February
16, 2001 and December 28, 2001.
QUARTER
-------------------------------------------------
FOURTH THIRD SECOND FIRST
---------- ---------- ---------- ----------
2001
Revenues .................................... $ 676,605 $ 521,312 $ 508,235 $ 419,722
========== ========== ========== ==========
Net income .................................. $ 47,064 $ 40,525 $ 38,843 $ 29,283
========== ========== ========== ==========
Earnings Per Share
Basic ................................... $ 1.77 $ 1.52 $ 1.47 $ 1.13
========== ========== ========== ==========
Diluted ................................. $ 1.73 $ 1.48 $ 1.42 $ 1.09
========== ========== ========== ==========
Weighted-Average Shares Outstanding
Basic ................................... 26,562 26,654 26,468 25,933
========== ========== ========== ==========
Diluted ................................. 27,226 27,370 27,316 26,938
========== ========== ========== ==========
2000
Revenues .................................... $ 538,501 $ 446,239 $ 419,647 $ 347,158
========== ========== ========== ==========
Net income .................................. $ 39,213 $ 34,260 $ 28,809 $ 21,021
========== ========== ========== ==========
Earnings Per Share
Basic ................................... $ 1.54 $ 1.34 $ 1.11 $ 0.79
========== ========== ========== ==========
Diluted ................................. $ 1.49 $ 1.30 $ 1.09 $ 0.78
========== ========== ========== ==========
Weighted-Average Shares Outstanding
Basic ................................... 25,538 25,627 25,987 26,753
========== ========== ========== ==========
Diluted ................................. 26,364 26,257 26,404 27,046
========== ========== ========== ==========
R. SUPPLEMENTAL GUARANTOR INFORMATION
The Senior Notes are unconditionally guaranteed on an unsecured basis,
jointly and severally, by Richmond American Homes of California, Inc., Richmond
American Homes of Maryland, Inc., Richmond American Homes of Nevada, Inc.,
Richmond American Homes of Virginia, Inc., Richmond American Homes of Arizona,
Inc. and Richmond American Homes of Colorado, Inc. (collectively, the "Guarantor
Subsidiaries"). Non-guarantor subsidiaries primarily consist of HomeAmerican,
American Home Title and Escrow Company, American Home Insurance Agency, Inc. and
Lion Insurance Company (collectively, the "Non-Guarantor Subsidiaries"). The
Company has determined that separate, full financial statements of the Guarantor
Subsidiaries would not be material to investors and, accordingly, supplemental
financial information for the Guarantor Subsidiaries is presented. Consolidating
statements of cash flows are not presented because cash flows for the
Non-Guarantor Subsidiaries were not significant for any of the periods
presented.
F-22
M.D.C. HOLDINGS, INC.
SUPPLEMENTAL COMBINING BALANCE SHEET
DECEMBER 31, 2001
(IN THOUSANDS)
NON-
GUARANTOR GUARANTOR ELIMINATING
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------ ------------ ------------ ------------
ASSETS
Corporate
Cash and cash equivalents ..................... $ 31,322 $ -- $ -- $ -- $ 31,322
Investments in and advances to parent
and subsidiaries ............................ 330,944 465 (1,951) (329,458) --
Other assets .................................. 42,869 -- (521) -- 42,348
------------ ------------ ------------ ------------ ------------
405,135 465 (2,472) (329,458) 73,670
------------ ------------ ------------ ------------ ------------
Homebuilding
Cash and cash equivalents ..................... -- 4,352 408 -- 4,760
Home sales and other accounts receivable ...... -- 3,744 169 (1,292) 2,621
Inventories, net
Housing completed or under construction ..... -- 456,752 -- -- 456,752
Land and land under development ............. -- 441,004 9,498 -- 450,502
Other assets .................................. -- 32,063 17,481 -- 49,544
------------ ------------ ------------ ------------ ------------
-- 937,915 27,556 (1,292) 964,179
------------ ------------ ------------ ------------ ------------
Financial Services ............................... -- -- 153,107 -- 153,107
------------ ------------ ------------ ------------ ------------
Total Assets ............................ $ 405,135 $ 938,380 $ 178,191 $ (330,750) $ 1,190,956
============ ============ ============ ============ ============
LIABILITIES
Corporate
Accounts payable and accrued expenses ......... $ 60,684 $ -- $ 443 $ 8 $ 61,135
Advances and notes payable - Parent and
subsidiaries ................................ (375,290) 358,751 16,539 -- --
Income taxes payable .......................... (100,585) 102,494 8,044 -- 9,953
Senior notes, net ............................. 174,503 -- -- -- 174,503
------------ ------------ ------------ ------------ ------------
(240,688) 461,245 25,026 8 245,591
------------ ------------ ------------ ------------ ------------
Homebuilding
Accounts payable and accrued expenses ......... -- 168,247 6,708 -- 174,955
Line of credit ................................ -- -- -- -- --
------------ ------------ ------------ ------------ ------------
-- 168,247 6,708 -- 174,955
------------ ------------ ------------ ------------ ------------
Financial Services .............................. -- -- 117,878 (1,299) 116,579
------------ ------------ ------------ ------------ ------------
Total Liabilities ....................... (240,688) 629,492 149,612 (1,291) 537,125
------------ ------------ ------------ ------------ ------------
STOCKHOLDERS' EQUITY ............................ 645,823 308,888 28,579 (329,459) 653,831
------------ ------------ ------------ ------------ ------------
Total Liabilities and
Stockholders' Equity .................. $ 405,135 $ 938,380 $ 178,191 $ (330,750) $ 1,190,956
============ ============ ============ ============ ============
F-23
M.D.C. HOLDINGS, INC.
SUPPLEMENTAL COMBINING BALANCE SHEET
DECEMBER 31, 2000
(IN THOUSANDS)
NON-
GUARANTOR GUARANTOR ELIMINATING
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------ ------------ ------------ ------------
ASSETS
Corporate
Cash and cash equivalents ..................... $ 8,411 $ -- $ -- $ -- $ 8,411
Investments in and advances to
parent and subsidiaries ..................... 290,493 -- 533 (291,026) --
Other assets .................................. 45,724 -- (615) -- 45,109
------------ ------------ ------------ ------------ ------------
344,628 -- (82) (291,026) 53,520
------------ ------------ ------------ ------------ ------------
Homebuilding
Cash and cash equivalents ..................... -- 4,792 473 -- 5,265
Home sales and other
accounts receivable ......................... -- 6,033 109 (1,429) 4,713
Inventories, net
Housing completed or under construction ..... -- 443,512 -- -- 443,512
Land and land under development ............. -- 387,449 1,262 -- 388,711
Other assets .................................. -- 32,621 19,010 -- 51,631
------------ ------------ ------------ ------------ ------------
-- 874,407 20,854 (1,429) 893,832
------------ ------------ ------------ ------------ ------------
Financial Services ............................... -- -- 114,246 -- 114,246
------------ ------------ ------------ ------------ ------------
Total Assets ............................ $ 344,628 $ 874,407 $ 135,018 $ (292,455) $ 1,061,598
============ ============ ============ ============ ============
LIABILITIES
Corporate
Accounts payable and accrued expenses ......... $ 50,578 $ -- $ 256 $ 9 $ 50,843
Advances and notes payable - Parent and
subsidiaries ................................ (367,491) 359,376 8,115 -- --
Income taxes payable .......................... (71,641) 78,596 2,603 -- 9,558
Senior Notes, net ............................. 174,444 -- -- -- 174,444
------------ ------------ ------------ ------------ ------------
(214,110) 437,972 10,974 9 234,845
------------ ------------ ------------ ------------ ------------
Homebuilding
Accounts payable and accrued expenses ......... -- 155,476 9,184 -- 164,660
Lines of credit ............................... 90,000 -- -- -- 90,000
------------ ------------ ------------ ------------ ------------
90,000 155,476 9,184 -- 254,660
------------ ------------ ------------ ------------ ------------
Financial Services .............................. -- -- 91,292 (1,429) 89,863
------------ ------------ ------------ ------------ ------------
Total Liabilities ....................... (124,110) 593,448 111,450 (1,420) 579,368
------------ ------------ ------------ ------------ ------------
STOCKHOLDERS' EQUITY ............................ 468,738 280,959 23,568 (291,035) 482,230
------------ ------------ ------------ ------------ ------------
Total Liabilities and
Stockholders' Equity .................. $ 344,628 $ 874,407 $ 135,018 $ (292,455) $ 1,061,598
============ ============ ============ ============ ============
F-24
M.D.C. HOLDINGS, INC.
SUPPLEMENTAL COMBINING STATEMENTS OF INCOME
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 2001
NON-
GUARANTOR GUARANTOR ELIMINATING
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------ ------------ ------------ ------------
REVENUES
Homebuilding ............................. $ -- $ 2,081,436 $ 5,136 $ (228) $ 2,086,344
Financial Services ....................... -- -- 38,566 -- 38,566
Corporate ................................ 917 -- 47 -- 964
Equity in earnings of subsidiaries ....... 174,402 -- -- (174,402) --
------------ ------------ ------------ ------------ ------------
Total Revenues ..................... 175,319 2,081,436 43,749 (174,630) 2,125,874
------------ ------------ ------------ ------------ ------------
COSTS AND EXPENSES
Homebuilding ............................. 529 1,821,621 437 (15,510) 1,807,077
Financial Services ....................... -- -- 17,450 -- 17,450
Corporate general and administrative ..... 45,960 -- -- -- 45,960
Corporate and homebuilding interest ...... (15,510) -- -- 15,510 --
------------ ------------ ------------ ------------ ------------
Total Expenses ...................... 30,979 1,821,621 17,887 -- 1,870,487
------------ ------------ ------------ ------------ ------------
Income before income taxes ............... 144,340 259,815 25,862 (174,630) 255,387
Provision for income taxes ............... 13,017 (102,494) (10,195) -- (99,672)
------------ ------------ ------------ ------------ ------------
NET INCOME .................................. $ 157,357 $ 157,321 $ 15,667 $ (174,630) $ 155,715
============ ============ ============ ============ ============
YEAR ENDED DECEMBER 31, 2000
NON-
GUARANTOR GUARANTOR ELIMINATING
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------ ------------ ------------ ------------
REVENUES
Homebuilding ............................. $ -- $ 1,709,695 $ 12,052 $ (188) $ 1,721,559
Financial Services ....................... -- -- 28,925 -- 28,925
Corporate ................................ 1,024 -- 37 -- 1,061
Equity in earnings of subsidiaries ....... 139,090 -- -- (139,090) --
------------ ------------ ------------ ------------ ------------
Total Revenues ..................... 140,114 1,709,695 41,014 (139,278) 1,751,545
------------ ------------ ------------ ------------ ------------
COSTS AND EXPENSES
Homebuilding ............................. 103 1,503,554 881 (10,298) 1,494,240
Financial Services ....................... -- -- 14,643 -- 14,643
Corporate general and administrative ..... 39,461 -- -- 39,461
Corporate and homebuilding interest ...... (10,298) -- -- 10,298 --
------------ ------------ ------------ ------------ ------------
Total Expenses ..................... 29,266 1,503,554 15,524 -- 1,548,344
------------ ------------ ------------ ------------ ------------
Income before income taxes ............... 110,848 206,141 25,490 (139,278) 203,201
Provision for income taxes ............... 4,786 (78,596) (6,088) -- (79,898)
------------ ------------ ------------ ------------ ------------
NET INCOME .................................. $ 115,634 $ 127,545 $ 19,402 $ (139,278) $ 123,303
============ ============ ============ ============ ============
F-25
M.D.C. HOLDINGS, INC.
SUPPLEMENTAL COMBINING STATEMENTS OF INCOME
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1999
NON-
GUARANTOR GUARANTOR ELIMINATING
MDC SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------ ------------ ------------ ------------
REVENUES
Homebuilding ............................. $ -- $ 1,536,609 $ 1,111 $ (157) $ 1,537,563
Financial Services ....................... -- -- 27,460 -- 27,460
Corporate ................................ 2,475 -- 140 -- 2,615
Equity in earnings of subsidiaries ....... 102,222 -- -- (102,222) --
------------ ------------ ------------ ------------ ------------
Total Revenues ..................... 104,697 1,536,609 28,711 (102,379) 1,567,638
------------ ------------ ------------ ------------ ------------
COSTS AND EXPENSES
Homebuilding ............................. 663 1,382,513 137 (8,008) 1,375,305
Financial Services ....................... -- -- 14,291 -- 14,291
Corporate general and administrative ..... 29,589 -- -- -- 29,589
Corporate and homebuilding interest ...... (8,008) -- -- 8,008 --
------------ ------------ ------------ ------------ ------------
Total Expenses ..................... 22,244 1,382,513 14,428 -- 1,419,185
------------ ------------ ------------ ------------ ------------
Income before income taxes ............... 82,453 154,096 14,283 (102,379) 148,453
Provision for income taxes ............... 8,044 (62,023) (5,082) -- (59,061)
------------ ------------ ------------ ------------ ------------
NET INCOME .................................. $ 90,497 $ 92,073 $ 9,201 $ (102,379) $ 89,392
============ ============ ============ ============ ============
F-26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
PricewaterhouseCoopers LLP was the principal accountant for the Company
until May 18, 2000 when the Company selected a new principal accountant,
engaging Ernst & Young LLP upon the recommendation of the Audit Committee after
a competitive selection process. The Audit Committee's recommendation to change
accountants was approved by the Company's Board of Directors on May 18, 2000.
In connection with the audit of the fiscal years ended December 31,
1999, and during the subsequent interim period through May 18, 2000, there had
been no disagreements with PricewaterhouseCoopers LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements if not resolved to their satisfaction
would have caused PricewaterhouseCoopers LLP to make reference thereto in their
report on the financial statements for such years.
The audit report of PricewaterhouseCoopers LLP on the consolidated
financial statements of the Company as of and for the year ended December 31,
1999 did not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope, or accounting principles.
The Company requested that PricewaterhouseCoopers LLP furnish the Company with a
letter addressed to the Securities and Exchange Commission stating whether or
not it agrees with the above statements. A copy of such letter, dated May 18,
2000, was filed as Exhibit 16 to our Form 8-K filed with the Securities and
Exchange Commission on May 18, 2000.
During the fiscal year ended December 31, 1999, and the subsequent
interim period through May 18, 2000, the Company did not consult with Ernst &
Young LLP regarding the application of generally accepted accounting principles
to a specific transaction, either proposed or completed, or the type of audit
opinion that might be rendered on the Company's consolidated financial
statements.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required to be set forth hereunder has been omitted and
will be incorporated by reference, when filed, from the Company's Proxy
Statement for its 2002 Annual Meeting of Shareowners to be held on or about
April 25, 2002.
ITEM 11. EXECUTIVE COMPENSATION.
Information required to be set forth hereunder has been omitted and
will be incorporated by reference, when filed, from the Company's Proxy
Statement for its 2002 Annual Meeting of Shareowners to be held on or about
April 25, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required to be set forth hereunder has been omitted and
will be incorporated by reference, when filed, from the Company's Proxy
Statement for its 2002 Annual Meeting of Shareowners to be held on or about
April 25, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required to be set forth hereunder has been omitted and
will be incorporated by reference, when filed, from the Company's Proxy
Statement for its 2002 Annual Meeting of Shareowners to be held on or about
April 25, 2002.
21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS.
The following consolidated financial statements of the Company and its
subsidiaries are included in Part II, Item 8.
PAGE
----
M.D.C. Holdings, Inc. and Subsidiaries
Report of Independent Auditors as of December 31, 2001 and December 31, 2000 and for each of the
Two Years in the Period Ended December 31, 2001................................................. F-2
Report of Independent Accountants for the Year Ended December 31, 1999............................ F-3
Consolidated Balance Sheets as of December 31, 2001 and 2000...................................... F-4
Consolidated Statements of Income and Other Comprehensive Income for each of the Three Years Ended
December 31, 2001............................................................................... F-6
Consolidated Statements of Stockholders' Equity for each of the Three Years Ended December 31, 2001 F-7
Consolidated Statements of Cash Flows for each of the Three Years Ended December 31, 2001......... F-8
Notes to Consolidated Financial Statements........................................................ F-9
(a) 2. FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because they are not applicable, not
material, not required or the required information is included in the applicable
financial statements or notes thereto.
Financial statements for certain unconsolidated partnerships and joint
ventures owned 50% or less by the Company or its subsidiaries, which are
accounted for on the equity method, have been omitted because they do not,
individually, or in the aggregate, constitute a significant subsidiary.
(a) 3. EXHIBITS.
3.1(a) Form of Amendment to the Certificate of Incorporation of
M.D.C. Holdings, Inc. (hereinafter sometimes referred to as
"MDC", the "Company" or the "Registrant") regarding director
liability, filed with the Delaware Secretary of State on July
1, 1987 (incorporated by reference to Exhibit 3.1(a) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1987).
*
3.1(b) Form of Certificate of Incorporation of MDC, as amended
(incorporated herein by reference to Exhibit 3.1(b) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1987).
*
3.2(a) Form of Amendment to the Bylaws of MDC regarding
indemnification adopted by its Board of Directors and
effective as of March 20, 1987 (incorporated herein by
reference to Exhibit 3.2(a) of the Company's Quarterly Report
on Form 10-Q dated June 30, 1987). *
3.2(b) Form of Bylaws of MDC, as amended (incorporated herein by
reference to Exhibit 3.2(b) of the Company's Quarterly Report
on Form 10-Q dated June 30, 1987). *
4.2 Form of Certificate for shares of the Company's common stock
(incorporated herein by reference to Exhibit 4.1 of the
Company's Registration Statement on Form S-3, Registration No.
33-426). *
4.3 Amended and Restated Credit Agreement dated as of October 8,
1999 among M.D.C. Holdings, Inc. as Borrower and The Banks
Named therein and Bank One, NA as Administrative Agent, Bank
22
United of Texas FSB as Co-Agent and KeyBank, National
Association as Co-Agent (incorporated herein by reference to
Exhibit 10.2 to the Company's Form 10-Q dated September 30,
2000). *
4.4 Form of Guaranty agreement dated as of October 8, 1999 by
certain subsidiaries of M.D.C. Holdings, Inc., including
RICHMOND AMERICAN HOMES OF CALIFORNIA, INC., RICHMOND AMERICAN
HOMES OF MARYLAND, INC., RICHMOND AMERICAN HOMES OF NEVADA,
INC., RICHMOND AMERICAN HOMES OF VIRGINIA, INC., RICHMOND
AMERICAN HOMES OF ARIZONA, INC., RICHMOND AMERICAN HOMES OF
COLORADO, INC., RICHMOND AMERICAN HOMES OF NORTHERN
CALIFORNIA, INC., M.D.C. LAND CORPORATION, and RICHMOND
AMERICAN CONSTRUCTION, INC. (incorporated herein by reference
to Exhibit 10.2 to the Company's Form 10-Q dated September 30,
1999). *
4.5 Form of Promissory Note of M.D.C. Holdings, Inc. as Maker
dated as of October 8, 1999 payable to each of the Banks named
in the Amended and Restated Credit Agreement dated as of
October 8, 1999 among M.D.C. Holdings, Inc. as Borrower and
The Banks Named therein and Bank One, NA as Administrative
Agent, Bank United of Texas FSB as Co-Agent and KeyBank,
National Association as Co-Agent (incorporated herein by
reference to Exhibit 10.2 to the Company's Form 10-Q dated
September 30, 1999). *
4.5(a) Commitment and Acceptance Agreement dated as of August 22,
2000 among the Registrant, Bank One, N.A., as Administrative
Agent and California Bank & Trust as Accepting Bank
(incorporated herein by reference to Exhibit 4.1 to the
Company's Form 10-Q dated September 30, 2000). *
4.5(b) Form of Promissory Note dated August 22, 2000 of the
Registrant as Maker payable to California Bank & Trust
(incorporated herein by reference to Exhibit 4.2 to the
Company's Form 10-Q dated September 30, 2000). *
4.5(c) Consent of Guarantors dated August 22, 2000 (incorporated
herein by reference to Exhibit 4.3 to the Company's Form 10-Q
dated September 30, 2000). *
4.5(d) Commitment and Acceptance Agreement dated as of October 16,
2000 among the Registrant, Bank One, N.A., as Administrative
Agent and U.S. Bank, National Association as Accepting Bank
(incorporated herein by reference to Exhibit 4.4 to the
Company's Form 10-Q dated September 30, 2000). *
4.5(e) Form of Promissory Note dated October 16, 2000 of the
Registrant as Maker payable to U.S. Bank, National Association
as Accepting Bank (incorporated herein by reference to Exhibit
4.5 to the Company's Form 10-Q dated September 30, 2000). *
4.5(f) Consent of Guarantors Dated October 16, 2000 (incorporated
herein by reference to Exhibit 4.6 to the Company's Form 10-Q
dated September 30, 2000). *
4.6 Senior Notes Indenture dated as of January 28, 1998 by and
between the Company and U.S. Bank National Association, as
Trustee (incorporated herein by reference to Exhibit 4.2(a) of
the Company's Post Effective Amendment No. 1 to Form S-3). *
4.7 FIRST SUPPLEMENTAL INDENTURE, dated as of December 7, 2001 by
and among M.D.C. Holdings, Inc., a Delaware corporation (the
"Company"), U.S. Bank National Association (the "Trustee"),
and each of the following wholly owned subsidiaries of the
Company (individually a "Guarantor," and together with any
other Subsidiary of the Company that executes and delivers a
supplemental indenture pursuant to Section 1.04 hereof, the
"Guarantors"): Richmond American Homes of California, Inc., a
Colorado corporation, Richmond American Homes of Maryland,
Inc., a Maryland corporation, Richmond American Homes of
Nevada, Inc., a Colorado corporation, Richmond American Homes
of Virginia, Inc., a Virginia corporation, Richmond American
Homes
23
of Arizona, Inc., a Delaware corporation, and Richmond
American Homes of Colorado, Inc., a Delaware corporation,
including the Form of Guaranty executed by each Guarantor.
10.1 The Company's Employee Equity Incentive Plan (incorporated
herein by reference to Exhibit A of the Company's Proxy
Statement dated May 14, 1993 relating to the 1993 Annual
Meeting of Stockholders). *
10.2 The Company's Director Equity Incentive Plan (incorporated
herein by reference to Exhibit B of the Company's Proxy
Statement dated May 14, 1993 relating to the 1993 Annual
Meeting of Stockholders). *
10.3(a) First Amendment to M.D.C. Holdings, Inc. Director Equity
Incentive Plan (incorporated herein by reference to Exhibit A
of the Company's Proxy Statement dated March 24, 1997 relating
to the 1997 Annual Meeting of Stockholders). *
10.3(b) Second Amendment to M.D.C. Holdings, Inc. Director Equity
Incentive Plan (incorporated herein by reference to Exhibit
4.3 of the Company's Quarterly Report on Form 10-Q dated June
30, 1998). *
10.4(a) Form of Indemnity Agreement entered into between the
Registrant and each member of its Board of Directors as of
March 20, 1987 (incorporated herein by reference to Exhibit
19.1 of the Company's Quarterly Report on Form 10-Q dated June
30, 1987). *
10.4(b) Form of Indemnity Agreement entered into between the
Registrant and certain officers of the Registrant on various
dates during 1988 and early 1989 (incorporated herein by
reference to Exhibit 10.18(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1988). *
10.5 Indemnification Agreements by and among the Company and Larry
A. Mizel ("Mizel") and David D. Mandarich ("Mandarich") dated
December 21, 1989 (incorporated herein by reference to Exhibit
9 of the Company's Form 8-K dated December 28, 1989). *
10.6(a) Consulting Agreement effective October 1, 1998 by and between
Gilbert Goldstein, P.C. and the Company (incorporated herein
by reference to Exhibit 10.1 of the Company's Quarterly Report
on Form 10-Q dated September 30, 1998). *
10.6(b) Letter Agreement between M.D.C. Holdings, Inc. and Gilbert
Goldstein, P.C. dated October 25, 1999 amending the Consulting
Agreement effective October 1, 1998 between M.D.C. Holdings,
Inc. and Gilbert Goldstein, P.C. (incorporated herein by
reference to Exhibit 10.2 to the Company's Form 10-Q dated
September 30, 1999). *
10.6(c) Letter Agreement between the Registrant and Gilbert Goldstein,
P.C. dated October 23, 2000 amending the Consulting Agreement
effective October 1, 1998 between the Registrant and Gilbert
Goldstein, P.C. (incorporated herein by reference to Exhibit
10.1 to the Company's Form 10-Q dated September 30, 2000). *
10.6(d) Letter Agreement between M.D.C. Holdings, Inc. and Gilbert
Goldstein, P.C. dated October 22, 2001 amending the consulting
Agreement effective October 1, 1998 between Registrant and
Gilbert Goldstein, P.C. (incorporated herein by reference to
Exhibit 10.1 to the Company's Form 10-Q dated September 30,
2001). *
24
10.7 Form of Restricted Stock Agreement between the Company and
certain officers and employees of the Company (incorporated
herein by reference to Exhibit 10.10 to the Company's Form
10-K dated December 31, 1998). *
10.8 M.D.C. Holdings, Inc. Executive Officer Performance-Based
Compensation Plan (incorporated herein by reference to Exhibit
A to the Company's Proxy Statement dated May 25, 1994 related
to the 1994 Meeting of Stockholders). *
10.9 M.D.C. Holdings, Inc. 2000 Executive Option Purchase Program,
including form of Promissory Note and Pledge Agreement. *
10.10(a) Forms of Promissory Notes and Pledge Agreements dated December
9, 1996 between M.D.C. Holdings, Inc. and Michael Touff and
Paris G. Reece III related to amounts advanced to such persons
in connection with income taxes due on the portion of their
1996 performance bonuses paid in the form of the Company's
common stock (incorporated herein by reference to Exhibit
10.19 of the Company's Annual Report on Form 10-K dated
December 31, 1996). *
10.10(b) Forms of Promissory Notes and Pledge Agreements dated December
18, 1997 between the Company and Michael Touff and Paris G.
Reece III related to amounts advanced to such persons in
connection with income taxes due and the portion of their 1997
performance bonuses paid in the form of the Company's common
stock (incorporated herein by reference to Exhibit 10.16(b) of
the Company's Annual Report on Form 10-K dated December 31,
1997). *
10.11(a) Employment Agreement between the Company and Larry A. Mizel
dated October 1, 1997 (incorporated herein by reference to
Exhibit 99.1 of the Company's Form 8-K dated January 14,
1998). *
10.11(b) Employment Agreement between the Company and David D.
Mandarich dated October 1, 1997 (incorporated herein by
reference to Exhibit 99.2 of the Company's Form 8-K dated
January 14, 1998). *
10.12(a) Change in Control Agreement between M.D.C. Holdings, Inc. and
Paris G. Reece III effective January 26, 1998 (incorporated
herein by reference to Exhibit 10.1 to the Company's Form 8-K
dated March 27, 1998). *
10.12(b) Change in Control Agreement between M.D.C. Holdings, Inc. and
Michael Touff effective January 26, 1998 (incorporated herein
by reference to Exhibit 10.2 to the Company's Form 8-K dated
March 27, 1998). *
10.12(c) Form of Change in Control Agreement between M.D.C. Holdings,
Inc. and certain employees of M.D.C. Holdings, Inc.
(incorporated herein by reference to Exhibit 10.3 to the
Company's Form 8-K dated March 27, 1998). *
10.13 Independent Contractor Agreement between Mizel Design and
Decorating Company and M.D.C. Holdings, Inc. effective as of
January 1, 2001 (incorporated herein by reference to Exhibit
10.15 to the Company's Form 10-K dated December 31, 2000). *
10.14 M.D.C. Holdings, Inc. 401(k) Savings Plan Prototype Retirement
Plan and Trust (incorporated herein by reference to Exhibit
10.1 to the Company's Form 10-Q dated June 30, 2000). *
10.15 M.D.C. Holdings, Inc. 401(k) Savings Plan Prototype Retirement
Plan & Trust Adoption Agreement between M.D.C. Holdings, Inc.
and Key Trust Company National Association effective as of
July 1, 1998 (incorporated herein by reference to Exhibit 10.2
to the Company's Form 10-Q dated June 30, 1999). *
10.15(a) First Amendment to the M.D.C. Holdings, Inc. 401(k) Savings
Plan effective June 1, 2001.
25
10.16 Third Amendment to the M.D.C. Holdings, Inc. Director
Incentive Plan effective May 21, 2001.
10.17 M.D.C. Holdings, Inc. 2001 Equity Incentive Plan Effective
March 26, 2001 (incorporated herein by reference to Exhibit B
of the Company's Proxy Statement dated March 31, 2001 relating
to the 2001 Annual Meeting of Stockholders). *
10.18 M.D.C. Holdings, Inc. Stock Option Plan for Non-Employee
Directors Effective March 26, 2001 (incorporated herein by
reference to Exhibit C of the Company's Proxy Statement dated
March 31, 2001 relating to the 2001 Annual Meeting of
Stockholders).*
21 Subsidiaries of the Company.
23 Consent of Ernst & Young.
23(a) Consent of PricewaterhouseCoopers
----------
* Incorporated herein by reference.
(b) REPORTS ON FORM 8-K DURING THE FOURTH QUARTER OF 2001:
(1) No reports on Form 8-K were filed during the last
quarter of the year ended December 31, 2001.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
this 18th day of February, 2002 on its behalf by the undersigned, thereunto duly
authorized.
M.D.C. HOLDINGS, INC.
(Registrant)
By: /s/ LARRY A. MIZEL
------------------------------------
Larry A. Mizel
Chief Executive Officer
By: /s/ PARIS G. REECE III
------------------------------------
Paris G. Reece III
Executive Vice President, Chief
Financial Officer and Principal
Accounting Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and/or
directors of the Registrant, by virtue of their signatures to this report,
appearing below, hereby constitute and appoint Larry A. Mizel, David D.
Mandarich and Paris G. Reece III, or any one of them, with full power of
substitution, as attorneys-in-fact in their names, places and steads to execute
any and all amendments to this report in the capacities set forth opposite their
names and hereby ratify all that said attorneys-in-fact do by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LARRY A. MIZEL Chairman of the Board of Directors and Chief February 18, 2002
------------------------------------- Executive Officer
Larry A. Mizel
/s/ DAVID D. MANDARICH Director, President and Chief Operating Officer February 18, 2002
-------------------------------------
David D. Mandarich
/s/ STEVEN J. BORICK Director February 18, 2002
-------------------------------------
Steven J. Borick
/s/ GILBERT GOLDSTEIN Director February 18, 2002
-------------------------------------
Gilbert Goldstein
/s/ WILLIAM B. KEMPER Director February 18, 2002
-------------------------------------
William B. Kemper
/s/ HERBERT T. BUCHWALD Director February 18, 2002
-------------------------------------
Herbert T. Buchwald
/s/ DAVID E. BLACKFORD Director February 18, 2002
-------------------------------------
David E. Blackford
(A Majority of the Board of Directors)
27
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1(a) Form of Amendment to the Certificate of Incorporation of
M.D.C. Holdings, Inc. (hereinafter sometimes referred to as
"MDC", the "Company" or the "Registrant") regarding director
liability, filed with the Delaware Secretary of State on July
1, 1987 (incorporated by reference to Exhibit 3.1(a) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1987).*
3.1(b) Form of Certificate of Incorporation of MDC, as amended
(incorporated herein by reference to Exhibit 3.1(b) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1987).*
3.2(a) Form of Amendment to the Bylaws of MDC regarding
indemnification adopted by its Board of Directors and
effective as of March 20, 1987 (incorporated herein by
reference to Exhibit 3.2(a) of the Company's Quarterly Report
on Form 10-Q dated June 30, 1987).*
3.2(b) Form of Bylaws of MDC, as amended (incorporated herein by
reference to Exhibit 3.2(b) of the Company's Quarterly Report
on Form 10-Q dated June 30, 1987).*
4.2 Form of Certificate for shares of the Company's common stock
(incorporated herein by reference to Exhibit 4.1 of the
Company's Registration Statement on Form S-3, Registration No.
33-426).*
4.3 Amended and Restated Credit Agreement dated as of October 8,
1999 among M.D.C. Holdings, Inc. as Borrower and The Banks
Named therein and Bank One, NA as Administrative Agent, Bank
United of Texas FSB as Co-Agent and KeyBank, National
Association as Co-Agent (incorporated herein by reference to
Exhibit 10.2 to the Company's Form 10-Q dated September 30,
2000).*
4.4 Form of Guaranty agreement dated as of October 8, 1999 by
certain subsidiaries of M.D.C. Holdings, Inc., including
RICHMOND AMERICAN HOMES OF CALIFORNIA, INC., RICHMOND AMERICAN
HOMES OF MARYLAND, INC., RICHMOND AMERICAN HOMES OF NEVADA,
INC., RICHMOND AMERICAN HOMES OF VIRGINIA, INC., RICHMOND
AMERICAN HOMES OF ARIZONA, INC., RICHMOND AMERICAN HOMES OF
COLORADO, INC., RICHMOND AMERICAN HOMES OF NORTHERN
CALIFORNIA, INC., M.D.C. LAND CORPORATION, and RICHMOND
AMERICAN CONSTRUCTION, INC. (incorporated herein by reference
to Exhibit 10.2 to the Company's Form 10-Q dated September 30,
1999).*
4.5 Form of Promissory Note of M.D.C. Holdings, Inc. as Maker
dated as of October 8, 1999 payable to each of the Banks named
in the Amended and Restated Credit Agreement dated as of
October 8, 1999 among M.D.C. Holdings, Inc. as Borrower and
The Banks Named therein and Bank One, NA as Administrative
Agent, Bank United of Texas FSB as Co-Agent and KeyBank,
National Association as Co-Agent (incorporated herein by
reference to Exhibit 10.2 to the Company's Form 10-Q dated
September 30, 1999).*
4.5(a) Commitment and Acceptance Agreement dated as of August 22,
2000 among the Registrant, Bank One, N.A., as Administrative
Agent and California Bank & Trust as Accepting Bank
(incorporated herein by reference to Exhibit 4.1 to the
Company's Form 10-Q dated September 30, 2000).*
4.5(b) Form of Promissory Note dated August 22, 2000 of the
Registrant as Maker payable to California Bank & Trust
(incorporated herein by reference to Exhibit 4.2 to the
Company's Form 10-Q dated September 30, 2000).*
4.5(c) Consent of Guarantors dated August 22, 2000 (incorporated
herein by reference to Exhibit 4.3 to the Company's Form 10-Q
dated September 30, 2000).*
4.5(d) Commitment and Acceptance Agreement dated as of October 16,
2000 among the Registrant, Bank One, N.A., as Administrative
Agent and U.S. Bank, National Association as Accepting Bank
(incorporated herein by reference to Exhibit 4.4 to the
Company's Form 10-Q dated September 30, 2000).*
4.5(e) Form of Promissory Note dated October 16, 2000 of the
Registrant as Maker payable to U.S. Bank, National Association
as Accepting Bank (incorporated herein by reference to Exhibit
4.5 to the Company's Form 10-Q dated September 30, 2000).*
4.5(f) Consent of Guarantors Dated October 16, 2000 (incorporated
herein by reference to Exhibit 4.6 to the Company's Form 10-Q
dated September 30, 2000).*
4.6 Senior Notes Indenture dated as of January 28, 1998 by and
between the Company and U.S. Bank National Association, as
Trustee (incorporated herein by reference to Exhibit 4.2(a) of
the Company's Post Effective Amendment No. 1 to Form S-3).*
4.7 FIRST SUPPLEMENTAL INDENTURE, dated as of December 7, 2001 by
and among M.D.C. Holdings, Inc., a Delaware corporation (the
"Company"), U.S. Bank National Association (the "Trustee"),
and each of the following wholly owned subsidiaries of the
Company (individually a "Guarantor," and together with any
other Subsidiary of the Company that executes and delivers a
supplemental indenture pursuant to Section 1.04 hereof, the
"Guarantors"): Richmond American Homes of California, Inc., a
Colorado corporation, Richmond American Homes of Maryland,
Inc., a Maryland corporation, Richmond American Homes of
Nevada, Inc., a Colorado corporation, Richmond American Homes
of Virginia, Inc., a Virginia corporation, Richmond American
Homes
of Arizona, Inc., a Delaware corporation, and Richmond
American Homes of Colorado, Inc., a Delaware corporation,
including the Form of Guaranty executed by each Guarantor.
10.1 The Company's Employee Equity Incentive Plan (incorporated
herein by reference to Exhibit A of the Company's Proxy
Statement dated May 14, 1993 relating to the 1993 Annual
Meeting of Stockholders).*
10.2 The Company's Director Equity Incentive Plan (incorporated
herein by reference to Exhibit B of the Company's Proxy
Statement dated May 14, 1993 relating to the 1993 Annual
Meeting of Stockholders).*
10.3(a) First Amendment to M.D.C. Holdings, Inc. Director Equity
Incentive Plan (incorporated herein by reference to Exhibit A
of the Company's Proxy Statement dated March 24, 1997 relating
to the 1997 Annual Meeting of Stockholders).*
10.3(b) Second Amendment to M.D.C. Holdings, Inc. Director Equity
Incentive Plan (incorporated herein by reference to Exhibit
4.3 of the Company's Quarterly Report on Form 10-Q dated June
30, 1998).*
10.4(a) Form of Indemnity Agreement entered into between the
Registrant and each member of its Board of Directors as of
March 20, 1987 (incorporated herein by reference to Exhibit
19.1 of the Company's Quarterly Report on Form 10-Q dated June
30, 1987).*
10.4(b) Form of Indemnity Agreement entered into between the
Registrant and certain officers of the Registrant on various
dates during 1988 and early 1989 (incorporated herein by
reference to Exhibit 10.18(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1988).*
10.5 Indemnification Agreements by and among the Company and Larry
A. Mizel ("Mizel") and David D. Mandarich ("Mandarich") dated
December 21, 1989 (incorporated herein by reference to Exhibit
9 of the Company's Form 8-K dated December 28, 1989).*
10.6(a) Consulting Agreement effective October 1, 1998 by and between
Gilbert Goldstein, P.C. and the Company (incorporated herein
by reference to Exhibit 10.1 of the Company's Quarterly Report
on Form 10-Q dated September 30, 1998).*
10.6(b) Letter Agreement between M.D.C. Holdings, Inc. and Gilbert
Goldstein, P.C. dated October 25, 1999 amending the Consulting
Agreement effective October 1, 1998 between M.D.C. Holdings,
Inc. and Gilbert Goldstein, P.C. (incorporated herein by
reference to Exhibit 10.2 to the Company's Form 10-Q dated
September 30, 1999).*
10.6(c) Letter Agreement between the Registrant and Gilbert Goldstein,
P.C. dated October 23, 2000 amending the Consulting Agreement
effective October 1, 1998 between the Registrant and Gilbert
Goldstein, P.C. (incorporated herein by reference to Exhibit
10.1 to the Company's Form 10-Q dated September 30, 2000).*
10.6(d) Letter Agreement between M.D.C. Holdings, Inc. and Gilbert
Goldstein, P.C. dated October 22, 2001 amending the consulting
Agreement effective October 1, 1998 between Registrant and
Gilbert Goldstein, P.C. (incorporated herein by reference to
Exhibit 10.1 to the Company's Form 10-Q dated September 30,
2001).*
10.7 Form of Restricted Stock Agreement between the Company and
certain officers and employees of the Company (incorporated
herein by reference to Exhibit 10.10 to the Company's Form
10-K dated December 31, 1998).*
10.8 M.D.C. Holdings, Inc. Executive Officer Performance-Based
Compensation Plan (incorporated herein by reference to Exhibit
A to the Company's Proxy Statement dated May 25, 1994 related
to the 1994 Meeting of Stockholders).*
10.9 M.D.C. Holdings, Inc. 2000 Executive Option Purchase Program,
including form of Promissory Note and Pledge Agreement.*
10.10(a) Forms of Promissory Notes and Pledge Agreements dated December
9, 1996 between M.D.C. Holdings, Inc. and Michael Touff and
Paris G. Reece III related to amounts advanced to such persons
in connection with income taxes due on the portion of their
1996 performance bonuses paid in the form of the Company's
common stock (incorporated herein by reference to Exhibit
10.19 of the Company's Annual Report on Form 10-K dated
December 31, 1996).*
10.10(b) Forms of Promissory Notes and Pledge Agreements dated December
18, 1997 between the Company and Michael Touff and Paris G.
Reece III related to amounts advanced to such persons in
connection with income taxes due and the portion of their 1997
performance bonuses paid in the form of the Company's common
stock (incorporated herein by reference to Exhibit 10.16(b) of
the Company's Annual Report on Form 10-K dated December 31,
1997).*
10.11(a) Employment Agreement between the Company and Larry A. Mizel
dated October 1, 1997 (incorporated herein by reference to
Exhibit 99.1 of the Company's Form 8-K dated January 14,
1998).*
10.11(b) Employment Agreement between the Company and David D.
Mandarich dated October 1, 1997 (incorporated herein by
reference to Exhibit 99.2 of the Company's Form 8-K dated
January 14, 1998).*
10.12(a) Change in Control Agreement between M.D.C. Holdings, Inc. and
Paris G. Reece III effective January 26, 1998 (incorporated
herein by reference to Exhibit 10.1 to the Company's Form 8-K
dated March 27, 1998).*
10.12(b) Change in Control Agreement between M.D.C. Holdings, Inc. and
Michael Touff effective January 26, 1998 (incorporated herein
by reference to Exhibit 10.2 to the Company's Form 8-K dated
March 27, 1998).*
10.12(c) Form of Change in Control Agreement between M.D.C. Holdings,
Inc. and certain employees of M.D.C. Holdings, Inc.
(incorporated herein by reference to Exhibit 10.3 to the
Company's Form 8-K dated March 27, 1998).*
10.13 Independent Contractor Agreement between Mizel Design and
Decorating Company and M.D.C. Holdings, Inc. effective as of
January 1, 2001 (incorporated herein by reference to Exhibit
10.15 to the Company's Form 10-K dated December 31, 2000). *
10.14 M.D.C. Holdings, Inc. 401(k) Savings Plan Prototype Retirement
Plan and Trust (incorporated herein by reference to Exhibit
10.1 to the Company's Form 10-Q dated June 30, 2000).*
10.15 M.D.C. Holdings, Inc. 401(k) Savings Plan Prototype Retirement
Plan & Trust Adoption Agreement between M.D.C. Holdings, Inc.
and Key Trust Company National Association effective as of
July 1, 1998 (incorporated herein by reference to Exhibit 10.2
to the Company's Form 10-Q dated June 30, 1999).*
10.15(a) First Amendment to the M.D.C. Holdings, Inc. 401(k) Savings
Plan effective June 1, 2001.
10.16 Third Amendment to the M.D.C. Holdings, Inc. Director
Incentive Plan effective May 21, 2001.
10.17 M.D.C. Holdings, Inc. 2001 Equity Incentive Plan Effective
March 26, 2001 (incorporated herein by reference to Exhibit B
of the Company's Proxy Statement dated March 31, 2001 relating
to the 2001 Annual Meeting of Stockholders). *
10.18 M.D.C. Holdings, Inc. Stock Option Plan for Non-Employee
Directors Effective March 26, 2001 (incorporated herein by
reference to Exhibit C of the Company's Proxy Statement dated
March 31, 2001 relating to the 2001 Annual Meeting of
Stockholders).*
21 Subsidiaries of the Company.
23 Consent of Ernst & Young.
23(a) Consent of PricewaterhouseCoopers
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* Incorporated herein by reference.