☒
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐
	~~For the quarterly period ended~~ ~~March~~ 31~~, 20~~20

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~Delaware~~	~~84-0622967~~
Delaware		84-0622967
(State or other jurisdiction		~~(I.R.S. employer~~
of incorporation or organization)	(I.R.S. employer identification no.)

4350 South Monaco Street, Suite 500									80237
Denver, Colorado									(Zip code)
(Address of principal executive offices)

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.01 par value

552676108

New York Stock Exchange

6% Senior Notes due January 2043

552676AQ1

New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer,asmaller reporting companyor an emerging growth ~~company~~.company. See definition of “large accelerated f~~iler,~~filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

M.D.C. HOLDINGS, INC.

FOR THE QUARTER ENDED~~MARCH 31,~~September 30, 2020

ITEM 1. Unaudited Consolidated Financial ~~Statement~~s

Statements

M.D.C. HOLDINGS, INC.

(Dollars in thousands, except

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

~~- 1 -~~-1-

Table of Contents

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

~~- 2 -~~-2-

Table of Contents

Consolidated Statements ofChanges in Stockholders’ Equity

(Dollars in thousands, except share amounts)

Three-Month Period Ended March 31, 2019

Additional

Common Stock

Paid-in

Retained

Shares

Amount

Capital

Earnings

Total

Balance at December 31, 2018
56,615,352 $ 566 $ 1,168,442 $ 406,992 $ 1,576,000
Cumulative effect of newly adopted accounting standards
- - - (67 ) (67 )
Balance at January 1, 2019
56,615,352 566 1,168,442 406,925 1,575,933
Net Income
- - - 40,550 40,550
Shares issued under stock-based compensation programs, net
372,344 4 7,083 - 7,087
Cash dividends declared
- - - (17,019 ) (17,019 )
Stock dividend declared
4,534,908 45 138,950 (139,091 ) (96 )
Stock-based compensation expense
- - 4,251 - 4,251
Forfeiture of restricted stock
(1,714 ) - - - -
Balance at March 31, 2019
61,520,890 $ 615 $ 1,318,726 $ 291,365 $ 1,610,706

~~- 3 -~~-3-

Table of Contents

Consolidated Statements of ~~Cash Flow~~s

Changes in Stockholders’ Equity

Three Months Ended

March 31,

2020

2019

(Dollars in thousands)

Operating Activities:

Net income
$ 36,760 $ 40,550
Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Stock-based compensation expense
4,440 4,251
Depreciation and amortization
5,152 4,878
Inventory impairments
- 610
Net (gain) loss on marketable equity securities
13,268 (4,840 )
Deferred income tax expense
1,131 2,696
Net changes in assets and liabilities:

Trade and other receivables
(1,611 ) (13,771 )
Mortgage loans held-for-sale, net
63,100 38,401
Housing completed or under construction
(178,873 ) 2,137
Land and land under development
29,051 (18,496 )
Prepaid and other assets
(8,460 ) 1,085
Accounts payable and accrued liabilities
(1,131 ) (3,153 )
Net cash provided by (used in) operating activities
(37,173 ) 54,348

Investing Activities:

Purchases of marketable securities
(9,782 ) (4,785 )
Sales of marketable securities
9,276 4,737
Purchases of property and equipment
(6,512 ) (6,386 )
Net cash used in investing activities
(7,018 ) (6,434 )

Financing Activities:

Payments on mortgage repurchase facility, net
(40,872 ) (31,959 )
Repayment of senior notes
(250,000 ) -
Proceeds from issuance of senior notes
298,050 -
Dividend payments
(20,768 ) (17,115 )
Issuance of shares under stock-based compensation programs, net
8,194 7,087
Net cash used in financing activities
(5,396 ) (41,987 )

Net increase (decrease) in cash, cash equivalents and restricted cash
(49,587 ) 5,927
Cash, cash equivalents and restricted cash:

Beginning of period
474,212 470,139
End of period
$ 424,625 $ 476,066

Reconciliation of cash, cash equivalents and restricted cash:

Homebuilding:

Cash and cash equivalents
$ 386,704 $ 416,374
Restricted cash
15,762 8,136
Financial Services:

Cash and cash equivalents
22,159 51,556
Total cash, cash equivalents and restricted cash
$ 424,625 $ 476,066
(Dollars in thousands, except share amounts)


	Nine Months Ended September 30, 2019
	Common Stock			Additional Paid-in Capital		Retained Earnings		Total
	Shares	Amount
Balance at December 31, 2018	56,615,352	$	566	$	1,168,442	$	406,992	$	1,576,000
Cumulative effect of newly adopted accounting standards	—	—		—		(67)		(67)
Balance at January 1, 2019	56,615,352	566		1,168,442		406,925		1,575,933
Net Income	—	—		—		40,550		40,550
Shares issued under stock-based compensation programs, net	372,344	4		7,083		—		7,087
Cash dividends declared	—	—		—		(17,019)		(17,019)
Stock dividend declared	4,534,908	45		138,950		(139,091)		(96)
Stock-based compensation expense	—	—		4,251		—		4,251
Forfeiture of restricted stock	(1,714)	—		—		—		—
Balance at March 31, 2019	61,520,890	$	615	$	1,318,726	$	291,365	$	1,610,706
Net Income	—	—		—		54,593		54,593
Shares issued under stock-based compensation programs, net	405,094	4		10,237		—		10,241
Cash dividends declared	—	—		—		(18,521)		(18,521)
Stock-based compensation expense	—	—		4,132		—		4,132
Forfeiture of restricted stock	(3,578)	—		—		—		—
Balance at June 30, 2019	61,922,406	$	619	$	1,333,095	$	327,437	$	1,661,151
Net Income	—	—		—		50,580		50,580
Shares issued under stock-based compensation programs, net	674,984	7		(1,030)		—		(1,023)
Cash dividends declared	—	—		—		(18,700)		(18,700)
Stock-based compensation expense	—	—		9,793		—		9,793
Balance at September 30, 2019	62,597,390	$	626	$	1,341,858	$	359,317	$	1,701,801

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

~~- 4 -~~-4-

Table of Contents

M.D.C. HOLDINGS, INC.

Consolidated Statements of Cash Flows


	Nine Months Ended September 30,
	2020		2019

	(Dollars in thousands)
Operating Activities:
Net income	$	220,094	$	145,723
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	18,536		18,178
Depreciation and amortization	18,881		15,478
Inventory impairments	0		610
Net (gain) loss on marketable equity securities	8,285		(7,934)
Deferred income tax expense	8,493		9,488
Net changes in assets and liabilities:
Trade and other receivables	(17,512)		(4,682)
Mortgage loans held-for-sale, net	36,515		32,191
Housing completed or under construction	(387,269)		(251,749)
Land and land under development	108,710		(10,461)
Prepaid and other assets	(20,314)		(3,889)
Accounts payable and accrued and other liabilities	35,023		23,929
Net cash provided by (used in) operating activities	29,442		(33,118)

Investing Activities:
Purchases of marketable securities	(10,804)		(10,340)
Sales of marketable securities	59,266		6,277
Purchases of property and equipment	(20,885)		(20,128)
Net cash provided by (used in) investing activities	27,577		(24,191)

Financing Activities:
Payments on mortgage repurchase facility, net	(18,755)		(26,344)
Payments on homebuilding line of credit, net	(5,000)		0
Repayment of senior notes	(250,000)		0
Proceeds from issuance of senior notes	298,050		0
Dividend payments	(63,056)		(54,337)
Issuance of shares under stock-based compensation programs, net	29,974		16,304
Net cash used in financing activities	(8,787)		(64,377)

Net increase (decrease) in cash, cash equivalents and restricted cash	48,232		(121,686)
Cash, cash equivalents and restricted cash:
Beginning of period	474,212		470,139
End of period	$	522,444	$	348,453

Reconciliation of cash, cash equivalents and restricted cash:
Homebuilding:
Cash and cash equivalents	$	432,277	$	285,338
Restricted cash	19,732		16,325
Financial Services:
Cash and cash equivalents	70,435		46,790
Total cash, cash equivalents and restricted cash	$	522,444	$	348,453

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

-5-

Table of Contents

1.	~~Basis of Presentation~~

1. Basis of Presentation

The Unaudited Consolidated Financial Statements of M.D.C. Holdings, Inc. ("MDC," “the Company," “we,” “us,” or “our,” which refers to M.D.C. Holdings, Inc. and its subsidiaries) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Accordingly, they do not include all information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of MDC at ~~March 31,~~September 30, 2020 and for all periods presented. These statements should be read in conjunction with MDC’s Consolidated Financial Statements and Notes thereto included in MDC’s Annual Report on Form 10-K10-K for the year ended December 31, 2019.

Included in these footnotes are certain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects. These forward-looking statements may be identified by terminology such as “likely,” ~~“may,~~“may,” ~~“will,~~“will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this section are reasonable, we cannot guarantee future results. These 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 those expressed or implied by the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10~~-K,~~ 10-Q10-K, 10-Q and 8-K8-K should be considered.

Where necessary, reclassifications have been made to our prior period financial information to conform to the current year presentation.

2.	~~Recently Issued Accounting Standards~~

2. Recently Issued Accounting Standards

Adoption of New Accounting Standards

In June 2016, the FASB issued ASU ~~2016~~-~~13,~~2016-13, Financial Instruments—Credit Losses (Topic 326):Measurement of Credit Losses on Financial Instruments (“ASU ~~2016~~-~~13”~~2016-13”), which requires measurement and recognition of expected credit losses for financial assets held. The amendments in ASU ~~2016~~-132016-13 eliminate the probable threshold for initial recognition of a credit loss in ~~legacy~~current GAAP and reflect an entity’s current estimate of all expected credit losses. On January 1, 2020, we adopted ASU ~~2016~~-132016-13 using the modified retrospective transition method, resulting in a cumulative effect adjustment that decreased the opening balance of retained earnings by less than $0.1 million. The standard did not materially impact our consolidated statements of operations and comprehensive income or consolidated cash flows.

3.	~~Segment Reporting~~

In March 2020, the Securities and Exchange Commission (SEC) adopted amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees, in Rule 3-10 of Regulation S-X. The amended rule focuses on providing material, relevant and decision-useful information regarding guarantees and other credit enhancements, while eliminating certain prescriptive requirements. The rule is effective January 4, 2021 but earlier compliance is permitted. The Company adopted these amendments on June 30, 2020. As the combined assets, liabilities and results of operations of M.D.C. Holdings, Inc. and the Guarantor Subsidiaries (the “Obligor Group”) are not materially different from those in the homebuilding section of our consolidated balance sheets and consolidated statements of operations and comprehensive income, separate summarized financial information of the Obligor Group has not been included. See Note 20 for further information regarding subsidiary guarantees.

3. Segment Reporting

An operating segment is defined as a component of an enterprise for which discrete financial information is available and is reviewed regularly by the Chief Operating Decision Maker (“CODM”), or decision-making group, to evaluate performance and make operating decisions. We have identified our CODM as two key executives—the Chief Executive Officer (“CEO”) and the Chief Operating Officer (“COO”).

-6-

Table of Contents

We have identified each homebuilding division as an operating segment. Our homebuilding operating segments have been aggregated into the reportable segments noted below because they are similar in the following regards: (1)(1) economic characteristics; (2)(2) housing products; (3)(3) class of homebuyer; (4)(4) regulatory environments; and (5)(5) methods used to construct and sell homes. Our homebuilding reportable segments are as ~~follows:~~

●

~~West (Arizona, California, Nevada, Oregon and Washington)~~

●

~~Mountain (Colorado and Utah)~~

●

~~East (mid-Atlantic, which includes Maryland and Virginia, and Florida)~~

follows

•West (Arizona, California, Nevada, Oregon and Washington)

•Mountain (Colorado and Utah)

•East (mid-Atlantic, which includes Maryland and Virginia, and Florida)

- 5 -

~~Table of Contents~~

Corporate is a non-operating segment that develops and implements strategic initiatives and supports our operating divisions by centralizing key administrative functions such as finance, treasury, information technology, insurance, risk management, litigation and human resources. Corporate also provides the necessary administrative functions to support MDC as a publicly traded company. A portion of the expenses incurred by Corporate are allocated to the homebuilding operating segments based on their respective percentages of assets, and to a lesser degree, a portion of Corporate expenses are allocated to the financial services ~~operating~~ segments. A majority of Corporate’s personnel and resources are primarily dedicated to activities relating to the homebuilding segments, and, therefore, the balance of any unallocated Corporate expenses is included in the homebuilding operations section of our consolidated statements of operations and comprehensive income.

On a periodic basis, we assess our Corporate cost allocation estimates. Our most recent assessment resulted in increases in Corporate cost allocations to both our homebuilding and financial services segments beginning January 1, 2020, to reflect the use of centralized administrative functions. Applying the most recent cost allocation estimate to the three and nine months ended ~~March 31,~~September 30, 2019 would have resulted in decreased pretax income for our homebuilding segments of approximately $2.8 million and $8.2 million, respectively, and decreased pretax income for our financial services segments of approximately ~~$2.7~~$0.4 million and ~~$0.4~~$1.2 million, respectively, with corresponding increases in our Corporate segment pretax income. Additionally, beginning January 1, 2020, we have reflected the expense associated with all homebuilding employee bonuses in the respective homebuilding segment to which the employee reports, consistent with how the CODM is now evaluating homebuilding division performance and making operating decisions. Had these bonuses been reflected in a similar manner during the three and nine months ended ~~March 31,~~September 30, 2019, pretax income for our homebuilding segments would have decreased by an additional ~~$3.0~~$3.5 million and $9.5 million, respectively, with a corresponding increase in our Corporate segment pretax income.

The following table summarizes revenues for our homebuilding and financial services ~~operations:~~

Three Months Ended

March 31,

2020

2019

(Dollars in thousands)

Homebuilding
West
$ 405,498 $ 369,558
Mountain
222,858 209,192
East
68,729 68,528
Total homebuilding revenues
$ 697,085 $ 647,278

Financial Services

Mortgage operations
$ 14,625 $ 10,174
Other
7,261 7,230
Total financial services revenues
$ 21,886 $ 17,404

operations


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(Dollars in thousands)
Homebuilding
West	$	552,319	$	410,414	$	1,447,934	$	1,164,502
Mountain	347,095		263,802		886,619		760,470
East	101,135		76,058		249,839		205,424
Total homebuilding revenues	$	1,000,549	$	750,274	$	2,584,392	$	2,130,396

Financial Services
Mortgage operations	$	28,548	$	14,395	$	67,536	$	36,258
Other	8,255		7,993		24,117		22,131
Total financial services revenues	$	36,803	$	22,388	$	91,653	$	58,389

The following table summarizes pretax income (loss) for our homebuilding and financial services operations:

Three Months Ended

March 31,

2020

2019

(Dollars in thousands)

Homebuilding
West
$ 36,576 $ 33,200
Mountain
21,512 21,714
East
900 1,473
Corporate
(9,319 ) (15,332 )
Total homebuilding pretax income
$ 49,669 $ 41,055

Financial Services

Mortgage operations
$ 8,243 $ 4,993
Other
(9,350 ) 9,558
Total financial services pretax income (loss)
$ (1,107 ) $ 14,551

Total pretax income
$ 48,562 $ 55,606


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(Dollars in thousands)
Homebuilding
West	$	59,120	$	34,898	$	144,441	$	103,448
Mountain	48,053		31,391		111,372		89,077
East	6,020		2,136		9,993		5,761
Corporate	(11,543)		(19,734)		(29,566)		(46,926)
Total homebuilding pretax income	$	101,650	$	48,691	$	236,240	$	151,360
Financial Services
Mortgage operations	$	20,809	$	8,468	$	46,558	$	19,700
Other	3,559		5,647		3,420		21,683
Total financial services pretax income	$	24,368	$	14,115	$	49,978	$	41,383

Total pretax income	$	126,018	$	62,806	$	286,218	$	192,743

The following table summarizes total assets for our homebuilding and financial services operations. The assets in our West, Mountain and East segments consist primarily of inventory while the assets in our Corporate segment primarily include our cash and cash equivalents and deferred tax assets. The assets in our financial services segment consist ~~primarily~~mostly of cash and cash equivalents, marketable securities and mortgage loans held-for-sale.

March 31,

December 31,

2020

2019

(Dollars in thousands)

Homebuilding assets
West
$ 1,559,410 $ 1,461,645
Mountain
907,727 869,665
East
216,063 194,592
Corporate
466,192 505,507
Total homebuilding assets
$ 3,149,392 $ 3,031,409

Financial services assets

Mortgage operations
$ 154,546 $ 209,946
Other
69,774 97,001
Total financial services assets
$ 224,320 $ 306,947

Total assets
$ 3,373,712 $ 3,338,356


	September 30, 2020		December 31, 2019

	(Dollars in thousands)
Homebuilding assets
West	$	1,660,583	$	1,461,645
Mountain	927,730		869,665
East	248,028		194,592
Corporate	507,728		505,507
Total homebuilding assets	$	3,344,069	$	3,031,409
Financial services assets
Mortgage operations	$	196,258	$	209,946
Other	72,447		97,001
Total financial services assets	$	268,705	$	306,947

Total assets	$	3,612,774	$	3,338,356

4.Earnings Per Share


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(Dollars in thousands, except per share amounts)
Numerator
Net income	$	98,938	$	50,580	$	220,094	$	145,723
Less: distributed earnings allocated to participating securities	(148)		(122)		(404)		(343)
Less: undistributed earnings allocated to participating securities	(502)		(202)		(952)		(554)
Net income attributable to common stockholders (numerator for basic earnings per share)	98,288		50,256		218,738		144,826
Add back: undistributed earnings allocated to participating securities	502		202		952		554
Less: undistributed earnings reallocated to participating securities	(488)		(195)		(929)		(540)
Numerator for diluted earnings per share under two class method	$	98,302	$	50,263	$	218,761	$	144,840

Denominator
Weighted-average common shares outstanding	63,868,486		61,978,195		63,129,077		61,422,925
Add: dilutive effect of stock options	1,810,624		1,990,020		1,599,722		1,570,194
Add: dilutive effect of performance share units	145,800		0		241,056		367,416
Denominator for diluted earnings per share under two class method	65,824,910		63,968,215		64,969,855		63,360,535

Basic Earnings Per Common Share	$	1.54	$	0.81	$	3.46	$	2.36
Diluted Earnings Per Common Share	$	1.49	$	0.79	$	3.37	$	2.29

Diluted EPS for the three and nine months ended ~~March 31,~~September 30, 2020~~and~~ ~~2019~~ excluded options to purchase ~~approximately 0.4 million~~0 and ~~0.5~~0.8 million shares of common stock, respectively, because the effect of their inclusion would be anti-dilutive.

For the same periods in 2019, diluted EPS excluded options to purchase 0.4 million and 0.4 million shares, respectively.

ASC Topic 820, Fair Value Measurements (“ASC 820”), defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. ASC 820 establishes a ~~three~~~~-tier~~three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs, other than quoted prices in active markets, that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following table sets forth the fair values and methods used for measuring the fair values of financial instruments on a recurring basis:

Fair Value

Financial Instrument

Hierarchy

March 31,
2020

December 31,
2019

(Dollars in thousands)

Marketable securities

Equity securities

Level 1
$ 43,985 $ 56,747

Mortgage loans held-for-sale, net

Level 2
$ 133,921 $ 197,021


		Fair Value
Financial Instrument	Hierarchy	September 30, 2020		December 31, 2019

		(Dollars in thousands)
Marketable securities
Equity securities	Level 1	$	0	$	56,747

Mortgage loans held-for-sale, net	Level 2	$	160,506	$	197,021

The following methods and assumptions were used to estimate the fair value of each class of financial instruments as of ~~March 31,~~September 30, 2020 and December 31, 2019.

Cash and cash equivalents ~~(excluding~~(excluding debt securities with an original maturity of three months or less), restricted cash, trade and other receivables, prepaid and other assets, accounts payable, accrued and other liabilities and borrowings on our revolving credit facility. Fair value approximates carrying value.

E~~quity~~ s~~ecurities~~

Equitysecurities. Our equity securities ~~consist~~consisted of holdings in common stock and exchange traded ~~funds. As~~funds as of ~~March 31, 2020~~ ~~and~~ December 31, ~~2019,~~ ~~all of our~~2019. Our equity securities were recorded at fair value with all changes in fair value recorded to other income (expense), net in the financial services section of our consolidated statements of operations and comprehensive income.

The following table reconciles the net gain ~~(loss)~~ recognized during the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 on equity securities to the unrealized gain ~~(loss)~~ recognized during the periods on equity securities still held at the reporting date.

Three Months Ended

March 31,

2020

2019

(Dollars in thousands)

Net gain (loss) recognized during the period on equity securities
$ (13,268 ) $ 4,840
Less: Net gain (loss) recognized during the period on equity securities sold during the period
609 (237 )
Unrealized gain (loss) recognized during the reporting period on equity securities still held at the reporting date
$ (13,877 ) $ 4,603


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(Dollars in thousands)
Net gain (loss) recognized during the period on equity securities	$	0	$	767	$	(8,285)	$	7,934
Less: Net gain (loss) recognized during the period on equity securities sold during the period	0		299		(8,285)		536
Unrealized gain recognized during the reporting period on equity securities still held at the reporting date	$	0	$	468	$	0	$	7,398

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~~Table of Contents~~

Gains on sales of mortgage loans, net, are included as a component of revenues in the financial services section of our consolidated statements of operations and comprehensive income. For the three and nine months ended ~~March 31,~~September 30, 2020, we recorded net gains on the sales of mortgage loans of ~~$16.7~~$26.8 million and $64.3 million, respectively, compared to ~~$11.7~~$14.6 million and $38.9 million for the same ~~period~~periods in the prior ~~year.~~

year, respectively.

Mortgage Repurchase Facility. The debt associated with our mortgage repurchase facility (see Note 18 for further discussion) is at floating rates that approximate current market rates and have relatively short-term maturities, generally within 30 days. The fair value approximates carrying value and is based on Level 2 inputs.

Senior Notes. The estimated values of the senior notes in the following table are based on Level 2 inputs, which primarily reflect estimated prices for our senior notes that were provided by multiple sources.

March 31, 2020

December 31, 2019

Carrying
Amount

Fair Value

Carrying
Amount

Fair Value

(Dollars in thousands)

$250 Million 5.625% Senior Notes due February 2020, net
$ - $ - $ 249,909 $ 250,400
$250 Million 5.500% Senior Notes due January 2024, net
249,060 228,750 249,005 272,083
$300 Million 3.850% Senior Notes due January 2030, net
297,285 270,750 - -
$500 Million 6.000% Senior Notes due January 2043, net
490,555 466,250 490,508 528,542
Total
$ 1,036,900 $ 965,750 $ 989,422 $ 1,051,025


	September 30, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value

	(Dollars in thousands)
$250 million 5.625% Senior Notes due February 2020, net	$	0	$	0	$	249,909	$	250,400
$250 million 5.500% Senior Notes due January 2024, net	249,174		270,388		249,005		272,083
$300 million 3.850% Senior Notes due January 2030, net	297,400		313,505		0		0
$500 million 6.000% Senior Notes due January 2043, net	490,651		605,125		490,508		528,542
Total	$	1,037,225	$	1,189,018	$	989,422	$	1,051,025

- 10 -6. Inventories


	September 30, 2020		December 31, 2019

	(Dollars in thousands)
Housing completed or under construction:
West	$	844,264	$	589,040
Mountain	463,690		358,370
East	115,901		88,781
Subtotal	1,423,855		1,036,191
Land and land under development:
West	698,099		772,189
Mountain	412,299		468,718
East	111,456		89,477
Subtotal	1,221,854		1,330,384
Total inventories	$	2,645,709	$	2,366,575

Our inventories are primarily associated with communities where we intend to construct and sell homes, including models and unsold homes. Costs capitalized to land and land under development primarily include: (1)(1) land costs; (2)(2) land development costs; (3)(3) entitlement costs; (4)(4) capitalized interest; (5)(5) engineering fees; and (6)(6) title insurance, real property taxes and closing costs directly related to the purchase of the land parcel. Components of housing completed or under construction primarily include: (1)(1) land costs transferred from land and land under development; (2)(2) direct construction costs associated with a house; (3)(3) real property taxes, engineering fees, permits and other fees; (4)(4) capitalized interest; and (5)(5) indirect construction costs, which include field construction management salaries and benefits, utilities and other construction related costs. Land costs are transferred from land and land under development to housing completed or under construction at the point in time that construction of a home on an owned lot begins.

In accordance with ASC Topic 360,Property, Plant, and Equipment (“ASC 360”), homebuilding inventories, excluding those classified as held for sale, are carried at cost unless events and circumstances indicate that the carrying value of the underlying subdivision may not be recoverable. We evaluate inventories for impairment at each quarter end on a subdivision level basis as each such subdivision represents the lowest level of identifiable cash flows. In making this determination, we review, among other things, the following for each subdivision:

	•	actual and trending “Operating Margin” (which is defined as home sale revenues less home cost of sales and all incremental costs associated directly with the subdivision, including sales commissions and marketing costs);
	•	~~estimated future undiscounted cash flows and Operating Margin;~~
	•	~~forecasted Operating Margin for homes in backlog;~~
	•	~~actual and trending net home orders;~~
	•	~~homes available for sale;~~
	•	~~market information for each sub-market, including competition levels, home foreclosure levels, the size and style of homes currently being offered for sale and lot size; and~~
	•	~~known or probable events indicating that the carrying value~~ ~~may~~ ~~not~~ ~~be recoverable.~~

•actual and trending “Operating Margin” (which is defined as home sale revenues less home cost of sales and all incremental costs associated directly with the subdivision, including sales commissions and marketing costs);

•estimated future undiscounted cash flows and Operating Margin;

•forecasted Operating Margin for homes in backlog;

•actual and trending net home orders;

•homes available for sale;

•market information for each sub-market, including competition levels, home foreclosure levels, the size and style of homes currently being offered for sale and lot size; and

•known or probable events indicating that the carrying value may not be recoverable.

If events or circumstances indicate that the carrying value of our inventory may not be recoverable, assets are reviewed for impairment by comparing the undiscounted estimated future cash flows from an individual subdivision (including capitalized interest) to its carrying value. If the undiscounted future cash flows are less than the subdivision’s carrying value, the carrying value of the subdivision is written down to its then estimated fair value. We generally determine the estimated fair value of each subdivision by determining the present value of the estimated future cash flows at discount rates, which are Level 3 inputs, that are commensurate with the risk of the subdivision under evaluation. The evaluation for the recoverability of the carrying value of the assets for each individual subdivision can be impacted significantly by our estimates of future home sale revenues, home construction costs, and development costs per home, all of which are Level 3 inputs.

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~~Table of Contents~~

If land is classified as held for sale, we measure it in accordance with ASC 360 at the lower of the carrying value or fair value less estimated costs to sell. In determining fair value, we primarily rely upon the most recent negotiated price, which is a Level 2 input. If a negotiated price is not available, we will consider several factors including, but not limited to, current market conditions, recent comparable sales transactions and market analysis studies, which are considered Level 3 inputs. If the fair value less estimated costs to sell is lower than the current carrying value, the land is impaired down to its estimated fair value less costs to sell.

Impairments of homebuilding inventory by segment for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 are shown in the table below.

Three Months Ended

March 31,

2020

2019

(Dollars in thousands)

West
$ - $ -
Mountain
- 400
East
- 210
Total inventory impairments
$ - $ 610


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(Dollars in thousands)
West	$	0	$	0	$	0	$	0
Mountain	0		0		0		400
East	0		0		0		210
Total inventory impairments	$	0	$	0	$	0	$	610

The table below provides quantitative data, for the periods presented, where applicable, used in determining the fair value of the impaired inventory.

Impairment Data

Quantitative Data

Three Months Ended

Inventory
Impairments

Fair Value of
Inventory After
Impairments

Number of
Subdivisions
Impaired

Discount Rate

March 31, 2019
$ 610 $ 10,476 2 N/A

Impairment Data

Quantitative Data

Three Months Ended

Number of
Subdivisions
Impaired

Inventory

Impairments

Fair Value of

Inventory After Impairments

Discount Rate

(Dollars in thousands)

March 31, 2019

610

10,476

N/A

7.Capitalization of Interest

We capitalize interest to inventories during the period of development in accordance with ASC Topic 835,Interest (“ASC 835”). Homebuilding interest capitalized as a cost of inventories is included in cost of sales during the period that related units or lots are delivered. To the extent our homebuilding debt exceeds our qualified assets as defined in ASC 835, we expense a portion of the interest incurred. Qualified homebuilding assets consist of all lots and homes, excluding finished unsold homes or finished models, within projects that are actively selling or under development. The table set forth below summarizes homebuilding interest activity. For all periods presented below, our qualified assets exceeded our homebuilding debt and as such, all interest incurred has been capitalized.

Three Months Ended

March 31,

2020

2019

(Dollars in thousands)

Homebuilding interest incurred
$ 16,534 $ 16,031
Less: Interest capitalized
(16,534 ) (16,031 )
Homebuilding interest expensed
$ - $ -

Interest capitalized, beginning of period
$ 55,310 $ 54,845
Plus: Interest capitalized during period
16,534 16,031
Less: Previously capitalized interest included in home cost of sales
(12,767 ) (13,929 )
Interest capitalized, end of period
$ 59,077 $ 56,947


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(Dollars in thousands)
Homebuilding interest incurred	$	14,799	$	15,879	$	46,427	$	47,890
Less: Interest capitalized	(14,799)		(15,879)		(46,427)		(47,890)
Homebuilding interest expensed	$	0	$	0	$	0	$	0

Interest capitalized, beginning of period	$	56,929	$	58,193	$	55,310	$	54,845
Plus: Interest capitalized during period	14,799		15,879		46,427		47,890
Less: Previously capitalized interest included in home cost of sales	(16,511)		(14,451)		(46,520)		(43,114)
Interest capitalized, end of period	$	55,217	$	59,621	$	55,217	$	59,621

Our property related leases typically have terms of between three and five years, with the exception of the lease governing the Company’s ~~headquarters, and~~headquarters. All of our property related leases are classified as operating leases. These leases do not contain any residual value guarantees or restrictive covenants and do not include variable lease payments, except for the payment of common area maintenance and real estate taxes. Many of our property related leases give us the option to extend the lease term for a period of time, generally consistent with the initial lease term. These options are excluded from our calculation of the right-of-use asset and lease liability until such time as we determine it is reasonably certain that the option will be exercised.

The property related lease for the Company’s headquarters in Denver, Colorado is ten years in length with an expiration date of October 31, 2026 and contains a ten year option to extend the term of the lease through 2036. This option has been excluded from our calculation of the right-of-use asset and lease liability as it is not currently considered reasonably certain that the option will be exercised.

Operating lease expense is included as a component of selling, general and administrative expenses in the homebuilding and expenses in the financial services sections of our consolidated statements of operations and comprehensive income, respectively. Components of operating lease expense were as follows:

Three Months Ended

March 31,

2020

2019

(Dollars in thousands)

Operating lease cost ¹
$ 2,046 $ 1,980
Less: Sublease income (Note 19)
(38 ) (37 )
Net lease cost
$ 2,008 $ 1,943

¹Includes variable lease costs, which are immaterial.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(Dollars in thousands)
Operating lease cost 1	$	2,083	$	1,841	$	6,249	$	5,811
Less: Sublease income (Note 19)	(38)		(37)		(114)		(112)
Net lease cost	$	2,045	$	1,804	$	6,135	$	5,699

1Includes variable lease costs, which are immaterial.

Supplemental cash flow information related to leases was as follows:

Three Months Ended

March 31,

2020

2019

(Dollars in thousands)

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$ 1,906 $ 1,771
Leased assets obtained in exchange for new operating lease liabilities
$ 2,645 $ 1,477


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(Dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,792	$	1,834	$	5,439	$	5,397
Leased assets obtained in exchange for new operating lease liabilities	$	0	$	646	$	4,050	$	2,676

Weighted-average remaining lease term and discount rate for operating leases were as follows:

	~~March 31,~~ ~~2020~~
		September 30, 2020
Weighted-average remaining lease term (in years)					~~6.0~~	5.6
Weighted-average discount rate		5.5	%	~~5.5~~	%

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~~Table of Contents~~

Maturities of operating lease liabilities were as follows:


	Year Ended December 31,
	(Dollars in thousands)
2020 (excluding the nine months ended September 30, 2020)	$	1,343
2021	7,421
2022	7,115
2023	6,203
2024	5,607
Thereafter	10,096
Total operating lease payments	$	37,785

Less: Interest	5,290
Present value of operating lease liabilities 1	$	32,495

1Homebuilding and financial services operating lease liabilities of $31.6 million and $0.9 million, respectively, are included as a component of accrued and other liabilities and accounts payable and accrued liabilities, respectively, in the homebuilding and financial services section of our consolidated balance sheet at September 30, 2020.

9. HomebuildingPrepaidandOther Assets

The following table sets forth the components of homebuilding prepaid and other assets:

March 31,

December 31,

2020

2019

(Dollars in thousands)

Operating lease right-of-use asset (Note 8)
$ 31,619 $ 30,277
Land option deposits
27,126 27,361
Prepaid expenses
6,997 7,294
Goodwill
6,008 6,008
Deferred debt issuance costs on revolving credit facility, net
5,746 6,130
Other
506 1,288
Total
$ 78,002 $ 78,358


	September 30, 2020		December 31, 2019

	(Dollars in thousands)
Operating lease right-of-use asset (Note 8)	$	30,653	$	30,277
Land option deposits	25,925		27,361
Prepaid expenses	10,070		7,294
Goodwill	6,008		6,008
Deferred debt issuance costs on revolving credit facility, net	4,980		6,130
Other	785		1,288
Total prepaid and other assets	$	78,421	$	78,358

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Table of Contents

10. Homebuilding Accrued and Other Liabilitiesand Financial Services Accounts Payable and Accrued Liabilities

10.	~~Homebuilding Accrued~~ ~~and Other~~ ~~Liabilities~~ ~~and Financial Services Accounts Payable and Accrued Liabilities~~

The following table sets forth information relating to homebuilding accrued and other liabilities:

March 31,

December 31,

2020

2019

(Dollars in thousands)

Customer and escrow deposits
$ 43,342 $ 39,001
Warranty accrual
30,887 31,386
Accrued compensation and related expenses
26,333 45,003
Lease liability (Note 8)
32,182 30,830
Accrued interest
14,018 27,734
Construction defect claim reserves
8,318 8,196
Land development and home construction accruals
8,862 9,750
Other accrued liabilities
69,092 54,040
Total accrued liabilities
$ 233,034 $ 245,940


	September 30, 2020		December 31, 2019

	(Dollars in thousands)
Customer and escrow deposits	$	59,468	$	39,001
Warranty accrual	32,097		31,386
Accrued compensation and related expenses	48,226		45,003
Lease liability (Note 8)	31,637		30,830
Accrued interest	13,825		27,734
Construction defect claim reserves	8,479		8,196
Land development and home construction accruals	8,630		9,750
Other accrued liabilities	56,899		54,040
Total accrued and other liabilities	$	259,261	$	245,940

The following table sets forth information relating to financial services accounts payable and accrued liabilities:

March 31,

December 31,

2020

2019

(Dollars in thousands)

Insurance reserves
$ 53,132 $ 52,219
Accounts payable and other accrued liabilities
17,845 16,310
Total accounts payable and accrued liabilities
$ 70,977 $ 68,529


	September 30, 2020		December 31, 2019

	(Dollars in thousands)
Insurance reserves	$	58,601	$	52,219
Accounts payable and other accrued liabilities	25,567		16,310
Total accounts payable and accrued liabilities	$	84,168	$	68,529

- 15 --15-

Table of Contents

11. Warranty Accrual

11.	~~Warranty Accrual~~

Our homes are sold with limited ~~third~~~~-party~~third-party warranties and, under our agreement with the issuer of the ~~third~~~~-party~~third-party warranties, we are responsible for performing all of the work for the firsttwo years of the warranty coverage and paying for substantially all of the work required to be performed during years three through ten of the warranties. We record accruals for general and structural warranty claims, as well as accruals for known, unusual warranty-related expenditures. Our warranty accrual is recorded based upon historical payment experience in an amount estimated to be adequate to cover expected costs of materials and outside labor during warranty periods. The determination of the warranty accrual rate for closed homes and the evaluation of our warranty accrual balance at period end are based on an internally developed analysis that includes known facts and interpretations of circumstances, including, among other things, our trends in historical warranty payment levels and warranty payments for claims not considered to be normal and recurring.

Our warranty accrual is included in accrued and other liabilities in the homebuilding section of our consolidated balance sheets and adjustments to our warranty accrual are recorded as an increase or reduction to home cost of sales in the homebuilding section of our consolidated statements of operations and comprehensive income.

The table set forth below summarizes accrual, adjustment and payment activity related to our warranty accrual for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019.

Three Months Ended

March 31,

2020

2019

(Dollars in thousands)

Balance at beginning of period
$ 31,386 $ 28,262
Expense provisions
3,165 3,348
Cash payments
(3,664 ) (2,493 )
Adjustments
- 875
Balance at end of period
$ 30,887 $ 29,992

The warranty accrual increased due to the increase in the number of home closings, which was partially offset during the nine months ended September 30, 2020 by adjustments to our per home warranty accrual rate due to lower than expected general warranty related expenditures in certain close of escrow years.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(Dollars in thousands)
Balance at beginning of period	$	30,458	$	29,349	$	31,386	$	28,262
Expense provisions	4,493		3,557		11,595		10,642
Cash payments	(2,683)		(3,425)		(8,713)		(8,894)
Adjustments	(171)		389		(2,171)		(140)
Balance at end of period	$	32,097	$	29,870	$	32,097	$	29,870

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Table of Contents

12.Insuranceand Construction Defect ClaimReserves

12.	~~Insurance~~ ~~and Construction Defect Claim~~ ~~Reserves~~

The establishment of reserves for estimated losses associated with insurance policies issued by Allegiant and re-insurance agreements issued by StarAmerican are based on actuarial studies that include known facts and interpretations of circumstances, including our experience with similar cases and historical trends involving claim payment patterns, pending levels of unpaid claims, product mix or concentration, claim severity, frequency patterns depending on the business conducted, and changing regulatory and legal environments. It is possible that changes in the insurance payment experience used in estimating our ultimate insurance losses could have a material impact on our insurance reserves.

The establishment of reserves for estimated losses to be incurred by our homebuilding subsidiaries associated ~~with (~~1)with: (1) the self-insured retention (“SIR”) portion of construction defect claims that are expected to be covered under insurance policies with Allegiant and (2)(2) the entire cost of any construction defect claims that are not expected to be covered by insurance policies with Allegiant, are based on actuarial studies that include known facts similar to those for our insurance reserves. It is possible that changes in the payment experience used in estimating our ultimate losses for construction defect claims could have a material impact on our reserves.

The table set forth below summarizes our insurance and construction defect claim reserves activity for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019. These reserves are included as a component of accounts payable and accrued liabilities and accrued and other liabilities in ~~either~~ the financial services orand homebuilding sections, respectively, of the consolidated balance ~~sheets, respectively.~~

Three Months Ended

March 31,

2020

2019

(Dollars in thousands)

Balance at beginning of period
$ 60,415 $ 55,308
Expense provisions
2,918 2,465
Cash payments, net of recoveries
(1,883 ) (1,554 )
Balance at end of period
$ 61,450 $ 56,219

sheets.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(Dollars in thousands)
Balance at beginning of period	$	63,881	$	56,817	$	60,415	$	55,308
Expense provisions	4,058		3,102		10,562		8,312
Cash payments, net of recoveries	(859)		(2,614)		(3,897)		(6,315)
Balance at end of period	$	67,080	$	57,305	$	67,080	$	57,305

In the ordinary course of business, we make payments from our insurance and construction defect claim reserves to settle litigation claims arising from our homebuilding activities. These payments are irregular in both their timing and their magnitude. As a result, the cash payments, net of recoveries shown for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 are not necessarily indicative of what future cash payments will be for subsequent periods.

Our overall effective income tax rates were ~~24.3%~~21.5% and ~~27.1%~~23.1% for the three and nine months ended ~~March 31,~~September 30, 2020 and 19.5% and 24.4% for the three and nine months ended September 30, 2019, ~~respectively, resulting~~ respectively. The rates for the three and nine months ended September 30, 2020 resulted in income tax expense of ~~$11.8~~$27.1 million and ~~$15.1~~$66.1 million, respectively, compared to income tax expense of $12.2 million and $47.0 million for the ~~same periods,~~three and nine months ended September 30, 2019, respectively. The year-over-year increase in our effective tax rate for the three months ended September 30, 2020 was primarily due to changes in the estimated amount of energy tax credits to be received. The year-over-year decrease in our effective tax rate for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 was primarily ~~impacted by a windfall on non-qualifying stock options exercised and lapsed restricted stock awards during the~~ ~~three~~ ~~months ended~~ ~~March 31, 2020~~ as well as energy tax credits related to homes closed during the quarter. These benefits were partially offset by a decrease in the amount of executive compensation that is deductible under Internal Revenue Code Section ~~162~~~~(m).~~

At ~~March 31, 2020~~ ~~and~~ ~~December 31, 2019,~~ we had deferred tax assets, net of valuation allowances and deferred tax liabilities, of $20.7 million and $21.8 million, respectively. The valuation allowances were primarily related to various state net operating loss carryforwards where realization is uncertain at this time due to tax windfalls recognized upon the ~~limited carryforward periods coupled with minimal activity that exists in certain states.~~

vesting and exercise of equity awards.


	September 30, 2020		December 31, 2019

	(Dollars in thousands)
5.625% Senior Notes due February 2020, net	$	0	$	249,909
5.500% Senior Notes due January 2024, net	249,174		249,005
3.850% Senior Notes due January 2030, net	297,400		0
6.000% Senior Notes due January 2043, net	490,651		490,508
Total	$	1,037,225	$	989,422

Our senior notes are not secured and, while the senior note indentures contain some restrictions on secured debt and other transactions, they do not contain financial covenants. Our senior notes are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by most of our homebuilding segment subsidiaries.

15. Stock-Based Compensation

We account for share-based awards in accordance with ASC Topic 718Compensation–Stock Compensation(“ (“ASC 718”), which requires the fair value of stock-based compensation awards to be amortized as an expense over the vesting period. Stock-based compensation awards are valued at fair value on the date of grant. The following table sets forth share-based award expense activity for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019, which is included as a component of selling general and administrative expenses and expenses in the homebuilding and financial services sections of our consolidated statements of operations and comprehensive income, respectively:

Three Months Ended

March 31,

2020

2019

(Dollars in thousands)

Stock option grants expense
$ 495 $ 255
Restricted stock awards expense
1,517 911
Performance share units expense
2,428 3,085
Total stock-based compensation
$ 4,440 $ 4,251


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(Dollars in thousands)
Stock option grants expense	$	814	$	429	$	2,026	$	929
Restricted stock awards expense	2,271		1,391		4,841		2,979
Performance share units expense	5,523		7,975		11,669		14,270
Total stock-based compensation	$	8,608	$	9,795	$	18,536	$	18,178

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~~Table of Contents~~


				Threshold Goal		Target Goal		Maximum Goal				Maximum Potential Expense to be Recognized *		Maximum Remaining Expense to be Recognized *
Date of Award	Performance Period	Base Period	Base Period Revenues	PSUs	Home Sale Revenues	PSUs	Home Sale Revenues	PSUs	Home Sale Revenues	Fair Value per Share
Jul 25, 2016	July 1, 2016 - June 30, 2019	July 1, 2015 - June 30, 2016	$1.975 billion	137,781	$2.074 billion	275,562	$2.173 billion	551,124	$2.370 billion	$	19.66	$	10,834	$	0

Jun 20, 2017	April 1, 2017 - March 31, 2020	April 1, 2016 - March 31, 2017	$2.426 billion	144,342	$2.547 billion	288,684	$2.669 billion	577,368	$2.911 billion	$	27.83	$	16,070	$	0

May 23, 2018	April 1, 2018 - March 31, 2021	April 1, 2017 - March 31, 2018	$2.543 billion	145,800	$2.670 billion	291,600	$2.797 billion	583,200	$3.052 billion	$	25.57	$	14,915	$	2,615

Aug 5, 2019	January 1, 2019 - December 31, 2021	January 1, 2018 - December 31, 2018	$2.982 billion	135,000	$3.131 billion	270,000	$3.280 billion	540,000	$3.578 billion	$	32.60	$	17,604	$	13,391

Aug 20, 2020	January 1, 2020 - December 31, 2022	January 1, 2019 - December 31, 2019	$3.205 billion	135,000	$3.366 billion	270,000	$3.526 billion	540,000	$3.846 billion	$	41.89	$	22,618	$	22,618

_______________________

* Dollars in thousands

In accordance with ASC 718, the PSUs were valued on the date of grant at their fair value. The fair value of these grants was equal to the closing price of MDC stock on the date of grant less the discounted cash flows of expected future dividends over the respective vesting period (as these PSUs do not participate in dividends). The grant date fair value and maximum potential expense if the Maximum Goals were met for these awards has been provided in the table above. ASC 718 does not permit recognition of expense associated with performance-based stock awards until achievement of the performance targets are probable of occurring.

2016 PSU ~~Grants~~. Grants.The 2016 PSU awards vested on August 7, 2019 at the Maximum Goal following the achievement of the Maximum Goals and certification by the Compensation Committee that the Maximum Goals had been achieved. For the ~~three~~nine months ended ~~March 31,~~September 30, 2019, the Company recorded share-based award expense of ~~$0.9~~$1.8 million related to these awards.

2017 PSU Grants. ~~As of~~ ~~March 31,~~The 2017 PSU awards vested on May 5, 2020 at the ~~Company determined that~~Maximum Goal following the achievement of the Maximum Goals ~~for these awards was probable~~ and ~~as such,~~certification by the ~~Company recorded share- award expense related to~~Compensation Committee that the ~~awards of $1.4 million for~~Maximum Goals had been achieved. For the ~~three~~nine months ended ~~March 31, 2020.~~ ~~For the~~ ~~three~~ ~~months ended~~ ~~March 31, 2019,~~ September 30, 2020, the Company recorded share-based award expense of ~~$2.2~~$1.4 million related to these awards.

For the three and nine months ended September 30, 2019, the Company recorded share-based award expense of $5.5 million and $10.0 million, respectively, related to these awards.

2018PSU Grants. As of ~~March 31,~~September 30, 2020, the Company determined that achievement ~~between~~of the ~~Target and~~ Maximum Goals for these awards was probable and, as such, the Company recorded share-based award expense related to the awards of ~~$1.0~~$1.3 million and $6.0 million, respectively, for the three and nine months ended September 30, 2020. As of September 30, 2019, the Company determined that achievement between the Threshold and Target Goals for these awards was probable and as such, the Company recorded share-based award expense related to the awards of $2.5 million for both the three and nine months ended ~~March 31,~~September 30, 2019.

2019 PSU Grants. As of September 30, 2020, the Company determined that achievement of the Target Goals for these awards was probable and as such, the Company recorded share-based award expense related to the awards of $4.2 million for both the three and nine months ended September 30, 2020. At ~~March 31,~~As of September 30, 2019, the Company concluded that achievement of any of the performance metrics had not met the level of probability required to record compensation expense and as such, 0 expense related to these awards had been ~~recognized as of~~ ~~March 31, 2019.~~

~~2019~~recognized.

2020 PSU Grants. For the PSUs granted in August of ~~2019,~~2020, the Company concluded that achievement of any of the performance metrics has not met the level of probability required to record compensation expense and, as such, 0 expense related to these awards has been recognized as of ~~March 31,~~September 30, 2020.

16. Commitments and Contingencies

We have made no material guarantees with respect to ~~third~~~~-party~~third-party obligations.

~~Litigation~~.

Litigation. Due to the nature of the homebuilding business, we have been named as defendants in various claims, complaints and other legal actions arising in the ordinary course of business, including product liability claims and claims associated with the sale and financing of homes. In the opinion of management, the outcome of these ordinary course matters will not have a material adverse effect upon our financial condition, results of operations or cash flows.

Lot Option Contracts. In the ordinary course of business, we enter into lot option purchase contracts (“Option Contracts”), generally through a deposit of cash or a letter of credit, for the right to purchase land or lots at a future point in time with predetermined terms. The use of such land option and other contracts generally allow us to reduce the risks associated with direct land ownership and development, reduces our capital and financial commitments, and minimizes the amount of land inventories on our consolidated balance sheets. In certain cases, these contracts will be settled shortly following the end of the period. Our obligation with respect to Option Contracts is generally limited to forfeiture of the related deposits. At ~~March 31,~~September 30, 2020, we had cash deposits and letters of credit totaling ~~$21.4~~$22.1 million and ~~$8.2~~$7.6 million, respectively, at risk associated with the option to purchase ~~8,533~~7,757 lots.

Coronavirus/~~COVID-~~19 ~~Pandemic~~. ~~While the~~COVID-19 Pandemic. In response to the pandemic, ~~continues to rapidly evolve,~~ many state and local governments ~~had extended and expanded on~~instituted restrictions that substantially limited the operations of non-essential businesses and the activities of individuals. ~~Certain markets~~While some of these restrictions have been eased, there is still significant uncertainty around the extent and duration of those still in ~~which we do business stopped our construction~~place and ~~sales of homes and others limited~~ the ~~operations of sales centers and model homes.~~possibility for restrictions to be increased again in the future. We continue to construct, market and sell homes in all markets in which we operate, but ~~economic uncertainty and shelter in place requirements~~increased restrictions could have ~~caused~~ a ~~significant decline in~~negative impact on traffic at our s~~ales~~sales centers and model homes, cancellation rates and ~~we have seen a significant increase in~~ our ~~cancellation rate. The impact of the decreased traffic and increased cancellation rate was evident in our net new orders for the month of~~ ~~April,~~ ~~which fell 53% year-over-year.~~ability to physically construct homes. While the extent to which the pandemic will impact our financial results in the coming periods depends on future developments, including whether there are additional outbreaks of COVID-19 and the actions taken to contain or address the virus, the pandemic and its associated impact on the U.S. economy and consumer confidence could have a material impact to the Company’s future results of operations, financial condition and cash flows.

17. Derivative Financial Instruments

At ~~March 31,~~September 30, 2020, we had interest rate lock commitments with an aggregate principal balance of ~~$221.0~~$254.7 million. Additionally, we had ~~$43.7~~$53.0 million of mortgage loans held-for-sale at ~~March 31,~~September 30, 2020 that had not yet been committed to a mortgage purchaser. In order to hedge the changes in fair value of our interest rate lock commitments and mortgage loans held-for-sale that had not yet been committed to a mortgage purchaser, we had forward sales of securities totaling ~~$162.0~~$201.0 million at ~~March 31,~~September 30, 2020.

For the three and nine months ended ~~March 31,~~September 30, 2020,~~and~~ ~~2019,~~ we recorded net gains on derivatives of ~~$1.0~~$1.6 million and ~~$0.9~~$4.9 million, respectively, in revenues in the financial services section of our consolidated statements of operations and comprehensive ~~income.~~

18.	~~Lines of Credit~~

~~Revolving Credit Facility.~~ ~~We have an unsecured revolving credit agreement (“Revolving Credit Facility”) with a group of lenders which~~ ~~may~~ ~~be used for general corporate purposes. This agreement was amended on~~ ~~November 1, 2018~~ ~~to (~~1~~) extend the Revolving Credit Facility maturity to~~ ~~December 18, 2023, (~~2~~) increase the aggregate commitment from $700 million to $1.0 billion (the “Commitment”) and (~~3~~) provide that the aggregate amount of the commitments~~ ~~may~~ ~~increase to an amount~~ ~~not~~ to exceed $1.5 billion upon our request, subject to receipt of additional commitments from existing or additional lenders and, in the case of additional lenders, the consent of the co-administrative agents. As defined in the Revolving Credit Facility, interest rates on base rate borrowings are equal to the highest of (1~~) 0.0%, (~~2~~) a prime rate, (~~3~~) a federal funds effective rate plus 1.50%, and (~~4) a specified eurocurrency rate plus 1.00% and, in each case, plus a margin that is determined based on our credit ratings and leverage ratio. Interest rates on eurocurrency borrowings are equal to a specified eurocurrency rate plus a margin that is determined based on our credit ratings and leverage ratio. At any time at which our leverage ratio, as of the last day of the most recent calendar quarter, exceeds 55%, the aggregate principal amount of all consolidated senior debt borrowings outstanding ~~may~~ ~~not~~ ~~exceed the borrowing base. There is~~ no ~~borrowing base requirement if our leverage ratio, as of the last day of the most recent calendar quarter, is 55% or less.~~

The Revolving Credit Facility is fully and unconditionally guaranteed, jointly and severally, by most of our homebuilding segment subsidiaries. The facility contains various representations, warranties and covenants that we believe are customary for agreements of this type. The financial covenants include a consolidated tangible net worth test and a leverage test, along with a consolidated tangible net worth covenant, all as defined in the Revolving Credit Facility. A failure to satisfy the foregoing tests does ~~not~~ ~~constitute an event of default, but can trigger a “term-out” of the facility. A breach of the consolidated tangible net worth covenant (but~~ ~~not~~ ~~the consolidated tangible net worth test) or a violation of anti-corruption or sanctions laws would result in an event of default.~~

The Revolving Credit Facility is subject to acceleration upon certain specified events of default, including breach of the consolidated tangible net worth covenant, a violation of anti-corruption or sanctions laws, failure to make timely payments, breaches of certain representations or covenants, failure to pay other material indebtedness, or another person becoming beneficial owner of 50% or more of our outstanding common stock. We believe we were in compliance with the representations, warranties and covenants included in the Revolving Credit Facility as of ~~March 31, 2020.~~

~~We incur costs associated with unused commitment fees pursuant to the terms of the Revolving Credit Facility. At~~ ~~March 31, 2020~~ ~~and~~ ~~December 31, 2019,~~ there were $25.7 million and $23.5 million, respectively, in letters of credit outstanding, which reduced the amounts available to be borrowed under the Revolving Credit Facility. We had $15.0 million outstanding under the Revolving Credit Facility as of ~~March 31, 2020~~ ~~and~~ ~~December 31, 2019.~~ ~~As of~~ ~~March 31, 2020,~~ ~~availability under the Revolving Credit Facility was approximately $959.3 million.~~

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~~Table of Contents~~

~~Mortgage Repurchase Facility.~~ ~~HomeAmerican has a Master Repurchase Agreement (the “Mortgage Repurchase Facility”) with U.S. Bank National Association (“USBNA”). Effective~~ ~~May 23, 2019,~~ ~~the Mortgage Repurchase Facility was amended to extend its termination date to~~ ~~May 21, 2020.~~ The Mortgage Repurchase Facility provides liquidity to HomeAmerican by providing for the sale of up to an aggregate of $75 million (subject to increase by up to $75 million under certain conditions) of eligible mortgage loans to USBNA with an agreement by HomeAmerican to repurchase the mortgage loans at a future date. Until such mortgage loans are transferred back to HomeAmerican, the documents relating to such loans are held by USBNA, as custodian, pursuant to the Custody Agreement (“Custody Agreement”), dated as of ~~November 12, 2008,~~ ~~by and between HomeAmerican and USBNA. In the event that an eligible mortgage loan becomes ineligible, as defined under the Mortgage Repurchase Facility, HomeAmerican~~ ~~may~~ ~~be required to repurchase the ineligible mortgage loan immediately. The maximum aggregate commitment of the Mortgage Repurchase Facility was temporarily increased on~~ ~~March 30, 2020~~ ~~from~~ ~~$75~~ ~~million to $110 million effective through~~ ~~April 27, 2020.~~ ~~The Mortgage Repurchase Facility also had a temporary increase in the maximum aggregate commitment from $75 million to $150 million on~~ ~~December 24, 2019~~ ~~effective through~~ ~~January 22, 2020.~~ At ~~March 31, 2020~~ ~~and~~ ~~December 31, 2019,~~ HomeAmerican had $108.7 million and $149.6 million, respectively, of mortgage loans that HomeAmerican was obligated to repurchase under the Mortgage Repurchase Facility. Mortgage loans that HomeAmerican is obligated to repurchase under the Mortgage Repurchase Facility are accounted for as a debt financing arrangement and are reported as mortgage repurchase facility in the consolidated balance sheets. Advances under the Mortgage Repurchase Facility carry a price range that is based on a LIBOR rate or successor benchmark rate.

The Mortgage Repurchase Facility contains various representations, warranties and affirmative and negative covenants that we believe are customary for agreements of this type. The negative covenants include, among others, (i) a minimum Adjusted Tangible Net Worth requirement, (ii) a maximum Adjusted Tangible Net Worth ratio, (iii) a minimum adjusted net income, requirement, and (iv) a minimum Liquidity requirement. The foregoing capitalized terms are defined in the Mortgage Repurchase Facility. We believe HomeAmerican was in compliance with the representations, warranties and covenants included in the Mortgage Repurchase Facility as of ~~March 31, 2020.~~

19.	~~Related Party Transactions~~

~~We contributed $1.5 million in cash to the MDC/Richmond American Homes Foundation (the “Foundation”) during the~~ ~~three~~ ~~months ended~~ ~~March 31, 2020.~~ ~~The Foundation is a non-profit organization operated exclusively for charitable, educational and other purposes beneficial to social welfare within the meaning of Section~~ ~~501~~~~(c)(~~3~~) of the Internal Revenue Code. The following Directors and/or officers of the Company served as directors of the Foundation at~~ ~~March 31, 2020,~~ ~~all of whom serve without compensation:~~

~~Name~~		~~MDC Title~~
~~Larry A. Mizel~~		~~Chairman and CEO~~
~~David D. Mandarich~~		~~President and COO~~

~~Three other individuals, who are independent of the Company, also serve as directors of the Foundation. All directors of the Foundation serve without compensation.~~

The Company has a sublease agreement with CVentures, Inc. Larry A. Mizel, the Chief Executive Officer of the Company, is the President of CVentures, Inc. The sublease is for office space that CVentures, Inc. has continuously leased from the Company since ~~2005.~~ ~~The current sublease term commenced~~ ~~November 1, 2016~~ ~~and will continue through~~ ~~October 31, 2021,~~ ~~with an option to extend to~~ ~~October 31, 2026.~~ The sublease agreement is for approximately 5,437 rentable square feet at a base rent that increases over the initial term from $26.50 to $28.68 per rentable square foot per year, and increasing over the extension term from $29.26 to $31.67 per rentable square foot per year. The sublease rent is an allocation of the rent under the master lease agreement based on the sublease square footage.

- 22 -

~~Table of Contents~~

20.	~~Supplemental Guarantor Information~~

Our senior notes are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by the following subsidiaries (collectively, the "Guarantor Subsidiaries"), which are 100%-owned subsidiaries of the Company:

●

~~M.D.C. Land Corporation~~

●

~~RAH of Florida, Inc.~~

●

~~Richmond American Construction, Inc.~~

●

~~Richmond American Homes of Arizona, Inc.~~

●

~~Richmond American Homes of Colorado, Inc.~~

●

~~Richmond American Homes of Florida, LP~~

●

~~Richmond American Homes of Illinois, Inc.~~

●

~~Richmond American Homes of Maryland, Inc.~~

●

~~Richmond American Homes of Nevada, Inc.~~

●

~~Richmond American Homes of New Jersey, Inc.~~

●

~~Richmond American Homes of Oregon, Inc.~~

●

~~Richmond American Homes of Pennsylvania, Inc.~~

●

~~Richmond American Homes of Utah, Inc.~~

●

~~Richmond American Homes of Virginia, Inc.~~

●

~~Richmond American Homes of Washington, Inc.~~

~~The senior note indentures do~~ ~~not~~ ~~provide for a suspension of the guarantees, but do provide that any Guarantor~~ ~~may~~ ~~be released from its guarantee so long as (~~1) no ~~default or event of default exists or would result from release of such guarantee, (~~2~~) the Guarantor being released has consolidated net worth of less than 5% of the Company’s consolidated net worth as of the end of the most recent fiscal quarter, (~~3) the Guarantors released from their guarantees in any year-end period comprise in the aggregate less than 10% (or 15% if and to the extent necessary to permit the cure of a default) of the Company’s consolidated net worth as of the end of the most recent fiscal quarter, (4~~) such release would~~ ~~not~~ ~~have a material adverse effect on the homebuilding business of the Company and its subsidiaries and (~~5) the Guarantor is released from its guarantee(s) under all Specified Indebtedness (other than by reason of payment under its guarantee of Specified Indebtedness). Upon delivery of an officers’ certificate and an opinion of counsel stating that all conditions precedent provided for in the indenture relating to such transactions have been complied with and the release is authorized, the guarantee will be automatically and unconditionally released. “Specified Indebtedness” means indebtedness under the senior notes, the Company’s Indenture dated as of ~~December 3, 2002,~~ ~~the Revolving Credit Facility, and any refinancing, extension, renewal or replacement of any of the foregoing.~~

~~We have determined that separate, full financial statements of the Guarantor Subsidiaries would~~ ~~not~~ ~~be material to investors and, accordingly, supplemental financial information for the Guarantor and Non-Guarantor Subsidiaries is presented below.~~

- 23 -

~~Table of Contents~~

~~Supplemental~~ ~~Condensed~~ ~~Combining Balance Sheet~~

March 31, 2020

Non-

Guarantor

Guarantor

Eliminating

Consolidated

MDC

Subsidiaries

Subsidiaries

Entries

MDC

(Dollars in thousands)

ASSETS
Homebuilding:

Cash and cash equivalents
$ 380,318 $ 6,386 $ - $ - $ 386,704
Restricted cash
- 15,762 - - 15,762
Trade and other receivables
694 68,607 - - 69,301
Inventories:

Housing completed or under construction
- 1,215,214 - - 1,215,214
Land and land under development
- 1,301,433 - - 1,301,433
Total inventories
- 2,516,647 - - 2,516,647
Intercompany receivables
2,265,553 5,919 - (2,271,472 ) -
Investment in subsidiaries
279,593 - - (279,593 ) -
Property and equipment, net
23,033 39,283 - - 62,316
Deferred tax asset, net
18,962 - - 1,698 20,660
Prepaid and other assets
32,961 45,041 - - 78,002
Total homebuilding assets
3,001,114 2,697,645 - (2,549,367 ) 3,149,392

Financial Services:

Cash and cash equivalents
- - 22,159 - 22,159
Marketable securities
- - 43,985 - 43,985
Intercompany receivables
- - 64,666 (64,666 ) -
Mortgage loans held-for-sale, net
- - 133,921 - 133,921
Other assets
- - 25,953 (1,698 ) 24,255
Total financial services assets
- - 290,684 (66,364 ) 224,320
Total Assets
$ 3,001,114 $ 2,697,645 $ 290,684 $ (2,615,731 ) $ 3,373,712

LIABILITIES AND EQUITY

Homebuilding:

Accounts payable
$ 515 $ 97,465 $ - $ - $ 97,980
Accrued and other liabilities
67,874 162,742 - 2,418 233,034
Advances and notes payable to parent and subsidiaries
69,748 2,254,742 - (2,324,490 ) -
Revolving credit facility
15,000 - - - 15,000
Senior notes, net
1,036,900 - - - 1,036,900
Total homebuilding liabilities
1,190,037 2,514,949 - (2,322,072 ) 1,382,914

Financial Services:

Accounts payable and other liabilities
- - 73,395 (2,418 ) 70,977
Advances and notes payable to parent and subsidiaries
- - 11,648 (11,648 ) -
Mortgage repurchase facility
- - 108,744 - 108,744
Total financial services liabilities
- - 193,787 (14,066 ) 179,721
Total Liabilities
1,190,037 2,514,949 193,787 (2,336,138 ) 1,562,635

Equity:

Total Stockholders' Equity
1,811,077 182,696 96,897 (279,593 ) 1,811,077
Total Liabilities and Stockholders' Equity
$ 3,001,114 $ 2,697,645 $ 290,684 $ (2,615,731 ) $ 3,373,712

- 24 -

~~Table of Contents~~

~~Supplemental Co~~~~ndensed Combining Balance Sheet~~

December 31, 2019

Non-

Guarantor

Guarantor

Eliminating

Consolidated

MDC

Subsidiaries

Subsidiaries

Entries

MDC

Dollars in thousands

ASSETS
Homebuilding:

Cash and cash equivalents
$ 418,822 $ 5,364 $ - $ - $ 424,186
Restricted cash
- 14,279 - - 14,279
Trade and other receivables
624 65,205 - - 65,829
Inventories:

Housing completed or under construction
- 1,036,191 - - 1,036,191
Land and land under development
- 1,330,384 - - 1,330,384
Total inventories
- 2,366,575 - - 2,366,575
Intercompany receivables
1,936,075 6,370 - (1,942,445 ) -
Investment in subsidiaries
488,993 - - (488,993 ) -
Property and equipment, net
23,192 37,222 - - 60,414
Deferred tax assets, net
22,508 - - (740 ) 21,768
Other assets
34,728 43,630 - - 78,358
Total Homebuilding Assets
2,924,942 2,538,645 - (2,432,178 ) 3,031,409

Financial Services:

Cash and cash equivalents
- - 35,747 - 35,747
Marketable securities
- - 56,747 - 56,747
Intercompany receivables
- - 47,753 (47,753 ) -
Mortgage loans held-for-sale, net
- - 197,021 - 197,021
Other assets
- - 16,692 740 17,432
Total Financial Services Assets
- - 353,960 (47,013 ) 306,947
Total Assets
$ 2,924,942 $ 2,538,645 $ 353,960 $ (2,479,191 ) $ 3,338,356

LIABILITIES AND EQUITY

Homebuilding:

Accounts payable
$ 289 $ 87,075 $ - $ - $ 87,364
Accrued and other liabilities
84,088 156,652 - 5,200 245,940
Advances and notes payable to parent and subsidiaries
53,658 1,912,969 - (1,966,627 ) -
Revolving credit facility
15,000 - - - 15,000
Senior notes, net
989,422 - - - 989,422
Total Homebuilding Liabilities
1,142,457 2,156,696 - (1,961,427 ) 1,337,726

Financial Services:

Accounts payable and accrued liabilities
- - 73,729 (5,200 ) 68,529
Advances and notes payable to parent and subsidiaries
- - 23,571 (23,571 ) -
Mortgage repurchase facility
- - 149,616 - 149,616
Total Financial Services Liabilities
- - 246,916 (28,771 ) 218,145
Total Liabilities
1,142,457 2,156,696 246,916 (1,990,198 ) 1,555,871

Equity:

Total Stockholders' Equity
1,782,485 381,949 107,044 (488,993 ) 1,782,485
Total Liabilities and Stockholders' Equity
$ 2,924,942 $ 2,538,645 $ 353,960 $ (2,479,191 ) $ 3,338,356

- 25 -

~~Table of Contents~~

~~Supplementa~~~~l Condensed Combining Statement~~ ~~of Operations~~

Three Months Ended March 31, 2020

Non-

Guarantor

Guarantor

Eliminating

Consolidated

MDC

Subsidiaries

Subsidiaries

Entries

MDC

Homebuilding:

(Dollars in thousands)

Revenues
$ - $ 697,085 $ - $ - $ 697,085
Cost of sales
- (558,647 ) - - (558,647 )
Inventory impairments
- - - - -
Gross profit
- 138,438 - - 138,438
Selling, general, and administrative expenses
(10,782 ) (78,408 ) - (131 ) (89,321 )
Equity income of subsidiaries
43,236 - - (43,236 ) -
Interest and other income
1,783 291 - (185 ) 1,889
Other expense
8 (1,345 ) - - (1,337 )
Homebuilding pretax income (loss)
34,245 58,976 - (43,552 ) 49,669
Financial Services:

Financial services pretax income
- - (1,423 ) 316 (1,107 )
Income before income taxes
34,245 58,976 (1,423 ) (43,236 ) 48,562
(Provision) benefit for income taxes
2,515 (14,333 ) 16 - (11,802 )
Net income
$ 36,760 $ 44,643 $ (1,407 ) $ (43,236 ) $ 36,760
Other comprehensive income related to available-for-sale securities, net of tax
- - - - -
Comprehensive income
$ 36,760 $ 44,643 $ (1,407 ) $ (43,236 ) $ 36,760

Three Months Ended March 31, 2019

Non-

Guarantor

Guarantor

Eliminating

Consolidated

MDC

Subsidiaries

Subsidiaries

Entries

MDC

Homebuilding:

(Dollars in thousands)

Revenues
$ - $ 647,278 $ - $ - $ 647,278
Cost of sales
- (524,552 ) - - (524,552 )
Inventory impairments
- (610 ) - - (610 )
Gross profit
- 122,116 - - 122,116
Selling, general, and administrative expenses
(17,438 ) (64,701 ) - (122 ) (82,261 )
Equity income of subsidiaries
52,165 - - (52,165 ) -
Interest and other income
2,409 155 - (173 ) 2,391
Other expense
7 (1,198 ) - - (1,191 )
Homebuilding pretax income (loss)
37,143 56,372 - (52,460 ) 41,055
Financial Services:

Financial services pretax income
- - 14,256 295 14,551
Income before income taxes
37,143 56,372 14,256 (52,165 ) 55,606
(Provision) benefit for income taxes
3,407 (15,264 ) (3,199 ) - (15,056 )
Net income
$ 40,550 $ 41,108 $ 11,057 $ (52,165 ) $ 40,550
Other comprehensive income related to available-for-sale securities, net of tax
- - - - -
Comprehensive income
$ 40,550 $ 41,108 $ 11,057 $ (52,165 ) $ 40,550

- 26 -

~~Table of Contents~~

~~Supplementa~~~~l Condensed Combining Statement~~ ~~of Cash Flows~~

Three Months Ended March 31, 2020

Non-

Guarantor

Guarantor

Eliminating

Consolidated

MDC

Subsidiaries

Subsidiaries

Entries

MDC

(Dollars in thousands)

Net cash provided by (used in) operating activities
$ (13,287 ) $ (89,277 ) $ 65,391 $ - $ (37,173 )
Net cash provided by (used in) investing activities
(60,693 ) (6,384 ) (506 ) 60,565 (7,018 )
Financing activities:

Payments from (advances to) subsidiaries
- 98,166 (37,601 ) (60,565 ) -
Mortgage repurchase facility
- - (40,872 ) - (40,872 )
Proceeds from issuance of senior notes
298,050 - - - 298,050
Repayment of senior notes
(250,000 ) - - - (250,000 )
Dividend payments
(20,768 ) - - - (20,768 )
Issuance of shares under stock-based compensation programs, net
8,194 - - - 8,194
Net cash provided by (used in) financing activities
35,476 98,166 (78,473 ) (60,565 ) (5,396 )

Net increase (decrease) in cash and cash equivalents
(38,504 ) �� 2,505 (13,588 ) - (49,587 )
Cash and cash equivalents:

Beginning of period
418,822 19,643 35,747 - 474,212
End of period
$ 380,318 $ 22,148 $ 22,159 $ - $ 424,625

Three Months Ended March 31, 2019

Non-

Guarantor

Guarantor

Eliminating

Consolidated

MDC

Subsidiaries

Subsidiaries

Entries

MDC

(Dollars in thousands)

Net cash provided by (used in) operating activities
$ (18,145 ) $ 31,508 $ 40,985 $ - $ 54,348
Net cash provided by (used in) investing activities
29,796 (6,094 ) (93 ) (30,043 ) (6,434 )
Financing activities:

Payments from (advances to) subsidiaries
- (23,614 ) (6,429 ) 30,043 -
Mortgage repurchase facility
- - (31,959 ) - (31,959 )
Dividend payments
(17,115 ) - - - (17,115 )
Issuance of shares under stock-based compensation programs, net
7,087 - - - 7,087
Net cash provided by (used in) financing activities
(10,028 ) (23,614 ) (38,388 ) 30,043 (41,987 )

Net increase (decrease) in cash and cash equivalents
1,623 1,800 2,504 - 5,927
Cash and cash equivalents:

Beginning of period
410,127 10,960 49,052 - 470,139
End of period
$ 411,750 $ 12,760 $ 51,556 $ - $ 476,066

- 27 -

~~Table of Contents~~

~~ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations~~

The following discussion should be read in conjunction with, and is qualified in its entirety by, the Unaudited Consolidated Financial Statements and Notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This item contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are based upon management’s experiences, observations, and analyses. Actual results may differ materially from those indicated in such forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed in "Item 1A: Risk Factors" of our Annual Report on Form 10-K for the year ended ~~December 31, 201~~9 ~~and this Quarterly Report on Form 10-Q.~~

~~Specifically, as a result of the Coronavirus/COVID-19 pandemic, we experienced increasingly adverse business conditions, especially i~~~~n the latter half of March 2020, w~~~~hich negatively impacted our operating results.~~ ~~These adverse business conditions have continued into the 2020 second quarter.~~ ~~It is unclear how long these adverse conditions will persist or how they will impact our results in future periods.~~

Three Months Ended

March 31,

2020

2019

Homebuilding:

(Dollars in thousands, except per share amounts)

Home sale revenues
$ 697,085 $ 647,278
Home cost of sales
(558,647 ) (524,552 )
Inventory impairments
- (610 )
Total cost of sales
(558,647 ) (525,162 )
Gross profit
138,438 122,116
Gross margin
19.9 % 18.9 %
Selling, general and administrative expenses
(89,321 ) (82,261 )
Interest and other income
1,889 2,391
Other expense
(1,337 ) (1,191 )
Homebuilding pretax income
49,669 41,055

Financial Services:

Revenues
21,886 17,404
Expenses
(10,929 ) (8,957 )
Other income (expense), net
(12,064 ) 6,104
Financial services pretax income (loss)
(1,107 ) 14,551

Income before income taxes
48,562 55,606
Provision for income taxes
(11,802 ) (15,056 )
Net income
$ 36,760 $ 40,550

Earnings per share:

Basic
$ 0.58 $ 0.66
Diluted
$ 0.56 $ 0.64

Weighted average common shares outstanding:

Basic
62,491,238 60,939,364
Diluted
64,931,225 62,708,334

Dividends declared per share
$ 0.33 $ 0.30

Cash provided by (used in):

Operating Activities
$ (37,173 ) $ 54,348
Investing Activities
$ (7,018 ) $ (6,434 )
Financing Activities
$ (5,396 ) $ (41,987 )

~~- 28 -~~

~~Table of Contents~~

O~~verview~~

~~Industry Conditions~~

During the first quarter of 2020, the new Coronavirus/COVID-19 pandemic emerged as a threat to global health and economic conditions. Starting in March 2020, the pandemic dramatically changed the everyday lives of individuals throughout much of the United States. For example, stay at home and shelter in place orders were issued by many state and local governments, including the required closure of non-essential businesses in many areas, which have had a significant impact on not only our industry, but the overall economy. Some state and local governments did not identify residential construction as an essential business, which has impacted our ability to physically construct homes, while others limited the operations of sales centers and model homes. While certain of these restrictions have started to lapse during the second quarter, the extent to which the pandemic will impact our financial results in the coming periods depends on future developments, which are highly uncertain and cannot be predicted at this time.

Our first priority with regard to the pandemic is to address the health and safety of our employees, customers, subcontractors and suppliers, as well as the communities in which we operate. We have implemented work-from-home arrangements for employees where practical, increased sanitization procedures in offices and subdivisions, imposed significant business travel restrictions and otherwise promoted social distancing measures. We have implemented virtual processes for key operational activities that have traditionally been done in-person, such as model home tours, Home Gallery appointments, and pre-closing walk-throughs. While we have continued to see some demand for new housing, overall we have experienced a significant decline in traffic and net home orders during the second half of March and continuing into the second quarter. The decline in activity to start the second quarter was evident in our net new orders for the month of April, which fell 53% year-over-year.

~~Three Months Ended March 31, 2020~~

For the three months ended March 31, 2020, our homebuilding operations generated pretax income of $49.7 million, which was a 21% increase compared to $41.1 million for the same period in the prior year. The increase was the result of an improvement in gross margin from home sales as well as an increase in home sale revenues year-over-year. Gross margin from home sales for the first quarter of 2020 rose 100 basis points to 19.9% compared to 18.9% in the prior year. Home sale revenues increased 8% from $647.3 million in the prior year period to $697.1 million in the first quarter of 2020.

Our financial services business incurred a pretax loss of $1.1 million for the three months ended March 31, 2020 compared to pretax income of $14.6 million for the same period in the prior year. This decrease was the result of unrealized losses on equity securities during the first quarter of 2020 totaling $13.9 million as compared to unrealized gains of $4.6 million during the first quarter of 2019. These equity securities form part of the investment portfolio held by our Insurance Entities and the holding period of these investments is intended to align with the longer-term nature of the underlying insurance reserves held by these entities.

~~For the three months ended March 31, 2020, we reported net income of $36.8 million, or $0.56 per diluted share, a 9% decrease~~ compared to net ~~income~~gains of $40.6 million, or $0.64 per diluted share, for the same period in the prior year. This decrease was the result of the losses incurred on the investment portfolio discussed above, which were partially offset by the growth in homebuilding pretax income as well as tax benefits recognized during the first quarter of 2020 related to vested share-based awards and energy tax credits.

Outlook for MDC*

We remain confident in our ability to manage through the uncertainty created by the pandemic, even though the extent to which it will impact our financial results in the coming periods depends on future developments, which are highly uncertain and cannot be predicted at this time (see discussion above and in Risk Factors below). Our financial position to end the 2020 first quarter remained strong, with cash and investment balances exceeding $450$0.5 million and available borrowing capacity on our Revolving Credit Facility exceeding $950 million, resulting in total liquidity of more than $1.4 billion. We ended the quarter with $2.2 billion dollars of homes in backlog, which was 31% higher than at the end of the 2019 first quarter. However, our ability to convert that backlog into closings has been negatively impacted by a higher rate of cancellations and some limitations that have temporarily been placed on construction and closing activity. We have taken steps to improve cash flow and reduce costs to diminish the future impacts of the pandemic on our business. We have been successful in extending the closing date of some of our planned land purchases and have re-evaluated planned development activities to decrease cash expenditures. Our experienced senior leadership team continues to monitor the impact of the pandemic on a daily basis adjusting day-to-day business operations and our ongoing operating strategy as necessary to adapt to our current environment.

* See ~~"Forward-Looking Statements"~~ ~~below.~~

~~- 29 -~~

~~Table of Contents~~

~~Homebuilding~~

~~Pretax Income~~:

Three Months Ended

March 31,

Change

2020

2019

Amount

%

(Dollars in thousands)

West
$ 36,576 $ 33,200 $ 3,376 10 %
Mountain
21,512 21,714 (202 ) (1) %
East
900 1,473 (573 ) (39) %
Corporate
(9,319 ) (15,332 ) 6,013 39 %
Total Homebuilding pretax income
$ 49,669 $ 41,055 $ 8,614 21 %

As noted above, we generated homebuilding pretax income for the quarter of $49.7 million, an increase of $8.6 million from $41.1 million for the same period in the prior year. The increase was due to a 100 basis point improvement in our gross margin from home sales and an 8% increase in home sale revenues.

Our West segment experienced a $3.4 million year-over-year increase in pretax income, due to an improved gross margin from home sales and a 10% increase in home sales revenue, which was slightly offset by a $3.4 million increase in general and administrative expenses resulting from a change in our Corporate cost allocation discussed below. Our Mountain segment experienced a $0.2 million decrease in pretax income from the prior year, as a result of a $1.6 million increase in general and administrative expenses due to a change in our Corporate cost allocation, which was mostly offset by a 7% increase in home sales revenue. Our East segment experienced a $0.6 million decrease in pretax income from the prior year, due primarily to a $0.7 million increase in general and administrative expenses resulting from a change in our Corporate cost allocation. Our Corporate segment experienced a $6.0 million increase in pretax income, due mostly to the impact of the change in our Corporate cost allocation.

On a periodic basis, we assess our Corporate cost allocation estimates. Our most recent assessment resulted in increases in Corporate cost allocations to both our homebuilding and financial services segments beginning January 1, 2020, to reflect the use of centralized administrative functions. Applying the most recent cost allocation estimate to the three months ended March 31, 2019 would have resulted in decreased pretax income for our homebuilding and financial services segments of approximately $2.7 million and $0.4 million, respectively, with corresponding increases in our Corporate segment pretax income. Additionally, beginning January 1, 2020, we have reflected the expense associated with all homebuilding employee bonuses in the respective homebuilding segment to which the employee reports, consistent with how the CODM is now evaluating homebuilding division performance and making operating decisions. Had these bonuses been reflected in a similar manner during the three months ended March 31, 2019, pretax income for our homebuilding segments would have decreased by an additional $3.0 million with a corresponding increase in our Corporate segment pretax income.

~~Assets~~:

March 31,

December 31,

Change

2020

2019

Amount

%

(Dollars in thousands)

West
$ 1,559,410 $ 1,461,645 $ 97,765 7 %
Mountain
907,727 869,665 38,062 4 %
East
216,063 194,592 21,471 11 %
Corporate
466,192 505,507 (39,315 ) (8) %
Total homebuilding assets
$ 3,149,392 $ 3,031,409 $ 117,983 4 %

Total homebuilding assets increased 4% from December 31, 2019 to March 31, 2020. Homebuilding assets increased in each of our operating segments largely due to a greater number of homes completed or under construction as of March 31, 2020. However, the funds for the construction activity came from our Corporate segment, causing a decline in our Corporate segment’s assets.

~~- 30 -~~

~~Table of Contents~~

~~New Home Deliveries~~ ~~& Home Sale Revenue~~s:

Changes in home sale revenues are impacted by changes in the number of new homes delivered and the average selling price of those delivered homes. Commentary for each of our segments on significant changes in these two metrics is provided below. Our backlog conversion rate has been negatively impacted by the pandemic due to a higher rate of cancellations and some limitations that have temporarily been placed on construction activity.

Three Months Ended March 31,

2020

2019

% Change

Homes

Home Sale Revenues

Average
Price

Homes

Home Sale Revenues

Average
Price

Homes

Home Sale Revenues

Average
Price

(Dollars in thousands)

West
871 $ 405,498 $ 465.6 752 $ 369,558 $ 491.4 16 % 10 % (5) %
Mountain
435 222,858 512.3 409 209,192 511.5 6 % 7 % 0 %
East
241 68,729 285.2 197 68,528 347.9 22 % 0 % (18) %
Total
1,547 $ 697,085 $ 450.6 1,358 $ 647,278 $ 476.6 14 % 8 % (5) %

~~West Segment Commentary~~

For the three months ended March 31, 2020, the increase in new home deliveries was the result of a 33% increase in the number of homes in backlog to begin the period. This increase was partially offset by a decrease in backlog conversion rates in most of our markets within this segment. This decrease was driven by a lower percentage of homes both sold and delivered in the first quarter of 2020 as compared to the 2019 first quarter. The average selling price of homes-delivered decreased as a result of a decline in the percentage of deliveries coming from our higher priced communities in Southern California. In addition, a greater percentage of closings within nearly all of our Western markets during the current period were from our more affordable product offerings.

~~Mountain Segment Commentary~~

For the three months ended March 31, 2020, the increase in new home deliveries was the result of a 16% increase in the number homes in backlog to begin the period. This increase was partially offset by a decrease in backlog conversion rates in our Colorado markets due to a lower percentage of homes in backlog to start the 2020 first quarter that were under construction at that time.

~~East Segment Commentary~~

For the three months ended March 31, 2020, the increase in new home deliveries was the result of a 53% increase in the number of homes in backlog to begin the period. This increase was partially offset by a decrease in backlog conversion rates in most of our markets within this segment due to (1) a lower percentage of homes in backlog to start the 2020 first quarter that were under construction at that time and (2) a lower percentage of homes both sold and delivered in the first quarter of 2020 as compared to the 2019 first quarter. The decrease in the average selling price of homes delivered in our East segment was due to a change in mix resulting from (1) a higher percentage of deliveries in this segment coming from communities that offer more affordable home plans and (2) a higher percentage of our deliveries coming from our Florida markets, which have a lower average selling price than our mid-Atlantic market.

~~- 31 -~~

~~Table of Contents~~

~~Gross~~ ~~Margin~~ ~~from~~ ~~Home Sales~~:

Our gross margin from home sales for the three months ended March 31, 2020, increased 100 basis points year-over-year from 18.9% to 19.9%. During the three months ended March 31, 2019 we recorded inventory impairments of $0.6 million and warranty adjustments of $0.9 million, which negatively impacted gross margin by 20 basis points in the prior year. Gross margins increased in the first quarter of 2020 on both build-to-order and speculative home deliveries driven by price increases implemented across the majority of our communities over the past nine-months. Gross margins were also positively impacted as a result of a lower percentage of speculative home deliveries in the quarter, which typically have a lower gross margin than our build-to-order deliveries.

~~Inventory~~ ~~Impairments~~:

~~Impairments of homebuilding inventory by segment for the three months ended March 31, 2020 and 2019 are shown in the table below:~~

Three Months Ended March 31,

2020

2019

(Dollars in thousands)

West
$ - $ -
Mountain
- 400
East
- 210
Total inventory impairments
$ - $ 610

~~The table below provides quantitative data for the periods presented, where applicable, used in determining the fair value of the impaired inventory.~~

~~- 32 -~~

~~Table of Contents~~

S~~elling, General and Administrative Expenses~~:

Three Months Ended March 31,

2020

2019

Change

(Dollars in thousands)

General and administrative expenses
$ 45,089 $ 42,572 $ 2,517
General and administrative expenses as a percentage of home sale revenues
6.5% 6.6%
(10) bps

Marketing expenses
$ 21,446 $ 18,296 $ 3,150
Marketing expenses as a percentage of home sale revenues
3.1% 2.8%
30 bps

Commissions expenses
$ 22,786 $ 21,393 $ 1,393
Commissions expenses as a percentage of home sale revenues
3.3% 3.3%
0 bps

Total selling, general and administrative expenses
$ 89,321 $ 82,261 $ 7,060
Total selling, general and administrative expenses as a percentage of home sale revenues
12.8% 12.7%
10 bps

For the three months ended March 31, 2020, the increase in our marketing expenses was driven by (1) increased sales office expense and product advertising resulting from an increased number of average active subdivisions and (2) increased compensation expense due to a higher average headcount during the quarter.

~~General and administrative expenses increased for the three months ended March 31, 2020 due to increased compensation-related expenses driven by higher average headcount during the quarter.~~

~~- 33 -~~

~~Table of Contents~~

~~Other Homebuilding Operating Data~~

~~Net New Orders~~ ~~and Active Subdivisions~~:

Changes in the dollar value of net new orders are impacted by changes in the number of net new orders and the average selling price of those homes. Commentary for each of our segments on significant changes in these two metrics is provided below. Our monthly absorption rate has been negatively impacted by the pandemic due to a higher rate of cancellations and a decrease in customer traffic resulting from stay at home and shelter in place orders. The negative impact is shown in net new home orders for the month of March, which decreased 27% year-over-year to 611. Furthermore, to start the 2020 second quarter, April net new orders decreased 53% year-over-year to 357.

Three Months Ended March 31,

2020

2019

% Change

Homes

Dollar
Value

Average
Price

Monthly Absorption
Rate *

Homes

Dollar
Value

Average
Price

Monthly Absorption
Rate *

Homes

Dollar
Value

Average
Price

Monthly Absorption
Rate

(Dollars in thousands)

West
1,382 $ 655,892 $ 474.6 5.13 965 $ 433,307 $ 449.0 3.82 43 % 51 % 6 % 34 %
Mountain
693 339,132 489.4 3.54 719 336,932 468.6 3.52 (4) % 1 % 4 % 1 %
East
324 97,723 301.6 3.66 272 81,179 298.5 4.17 19 % 20 % 1 % (12) %
Total
2,399 $ 1,092,747 $ 455.5 4.33 1,956 $ 851,418 $ 435.3 3.75 23 % 28 % 5 % 16 %

*Calculated as total net new orders in period ÷ average active communities during period ÷ number of months in period

Average Active Subdivisions

Active Subdivisions

Three Months Ended

March 31,

%

March 31,

%

2020

2019

Change

2020

2019

Change

West
92 88 5 % 90 84 7 %
Mountain
64 64 0 % 65 69 (6 )%
East
29 26 12 % 30 22 36 %
Total
185 178 4 % 185 175 6 %

~~West Segment Commentary~~

For the three months ended March 31, 2020, the increase in net new orders was driven by increases in both the monthly sales absorption rate and average active subdivisions. Nearly all markets experienced an improvement in their sales pace year-over-year, with our Nevada, Phoenix and California markets all experiencing a sales pace in excess of five net new orders per community per month. The increase in average selling price was due to price increases implemented over the past nine-months within the majority of our communities as well as a shift in mix of homes sold from Nevada to more expensive Southern California markets.

~~Mountain Segment Commentary~~

For the three months ended March 31, 2020, the decrease in net new orders was the result of (1) a slight decrease in the number of average active subdivisions in Colorado and (2) an increased cancellation rate (see further discussion below). The increase in average selling price was the result of price increases implemented across the majority of our communities over the past nine-months.

~~East Segment Commentary~~

For the three months ended March 31, 2020, the increase in net new orders was driven by an increase in the number of average active subdivisions in each of our Florida and mid-Atlantic markets. This increase was partially offset by a decrease in the monthly sales absorption rate due to (1) a decrease in close out communities in our mid-Atlantic market and (2) an increased cancellation rate (see further discussion below).

~~- 34 -~~

~~Table of Contents~~

~~Cancellation Rate:~~

Cancellations as a Percentage of Homes in
Beginning Backlog

Three Months
Ended March 31,

Change in

2020

2019

Percentage

West
15 % 14 % 1 %
Mountain
22 % 14 % 8 %
East
23 % 11 % 12 %
Total
18 % 14 % 4 %

Our cancellations as a percentage of homes in beginning backlog to start the quarter (“cancellation rate”) increased year-over-year in each of our segments, most notably in our Colorado and Florida markets. In general, we experienced a higher cancellation rate during the month of March due to the pandemic as a result of general economic uncertainty and changes in our homebuyers’ employment status. Additionally, our Florida market was impacted by a shift in mix to include more first-time homebuyers who have a higher likelihood of cancellation. Cancellations as a percentage of homes in beginning backlog for the month of April were 6.6% compared to 4.3% in the prior year.

~~Backlog:~~

March 31,

2020

2019

% Change

Homes

Dollar
Value

Average
Price

Homes

Dollar
Value

Average
Price

Homes

Dollar
Value

Average
Price

(Dollars in thousands)

West
2,534 $ 1,227,996 $ 484.6 1,736 $ 830,703 $ 478.5 46 % 48 % 1 %
Mountain
1,469 754,155 513.4 1,353 690,623 510.4 9 % 9 % 1 %
East
650 191,972 295.3 445 133,140 299.2 46 % 44 % (1) %
Total
4,653 $ 2,174,123 $ 467.3 3,534 $ 1,654,466 $ 468.2 32 % 31 % (0) %

At March 31, 2020, we had 4,653 homes in backlog with a total value of $2.2 billion. This represented a 32% increase in the number of homes in backlog and a 31% increase in the dollar value of homes in backlog from March 31, 2019. The increase in the number of homes in backlog is primarily a result of the year-over-year increase in net new orders during the last six-months, offset slightly by improved cycle times across each of our Segments. However, our ability to convert backlog into closings has been negatively impacted by the pandemic due to a higher rate of cancellations and some limitations that have temporarily been placed on construction activity, and therefore the year-over-year increase in backlog at March 31, 2020 might not result in a year-over-year increase in closings during future periods. At April 30, 2020, we had 4,487 homes in backlog, representing an 18% increase from April 30, 2019

~~- 35 -~~

~~Table of Contents~~

~~Homes Completed or Under Construction (WIP lots):~~

March 31,

%

2020

2019

Change

Unsold:

Completed
160 120 33 %
Under construction
216 177 22 %
Total unsold started homes
376 297 27 %
Sold homes under construction or completed
3,259 2,362 38 %
Model homes under construction or completed
502 459 9 %
Total homes completed or under construction
4,137 3,118 33 %

The increase in sold homes under construction or completed is due to the increased demand we have experienced in recent periods as a result of our increased offering of more affordable home plans. The increase in unsold started homes is due to the increased cancellation rate experienced during the first quarter of 2020, particularly during the month of March as a result of the pandemic. We believe that the higher rate of cancellations is likely to continue during the second quarter, which could result in a continued increase in the number of unsold started homes.

~~Lots Owned and Optioned (including homes completed or under construction):~~

March 31, 2020

March 31, 2019

Lots
Owned

Lots
Optioned

Total

Lots
Owned

Lots
Optioned

Total

Total %
Change

West
9,641 2,393 12,034 7,894 2,462 10,356 16 %
Mountain
6,540 4,007 10,547 6,636 2,612 9,248 14 %
East
2,410 2,133 4,543 1,989 1,294 3,283 38 %
Total
18,591 8,533 27,124 16,519 6,368 22,887 19 %

Our total owned and optioned lots at March 31, 2020 were 27,124, up 19% from March 31, 2019, but down slightly from 27,386 at December 31, 2019, due to a slowdown in land acquisition during the quarter as a result of the pandemic. We believe that our total lot supply, coupled with our planned acquisition activity, can support growth in future periods. However, due to the pandemic, there is also an increased likelihood that planned acquisition activity may be delayed or abandoned. See ~~"Forward-Looking Statements"~~ ~~below.~~

~~- 36 -~~

~~Table of Contents~~

~~Financial Service~~s

Three Months Ended

March 31,

Change

2020

2019

Amount

%

Financial services revenues

(Dollars in thousands)

Mortgage operations
$ 14,625 $ 10,174 $ 4,451 44 %
Other
7,261 7,230 31 0 %
Total financial services revenues
$ 21,886 $ 17,404 $ 4,482 26 %

Financial services pretax income

Mortgage operations
$ 8,243 $ 4,993 $ 3,250 65 %
Other
(9,350 ) 9,558 (18,908 ) (198) %
Total financial services pretax income (loss)
$ (1,107 ) $ 14,551 $ (15,658 ) (108) %

For the three months ended March 31, 2020, our financial services business incurred a pretax loss of $1.1 million compared to pretax income of $14.6 million for the same period in the prior year. This decrease was due to our other financial services segment, which had unrealized losses on equity securities during the first quarter of 2020 totaling $13.9 million as compared to unrealized gains of $4.6 million during the first quarter of 2019.

Based on the size and duration of the liabilities held by our Insurance Entities, as well as regulatory capital requirements, we have historically invested the premiums collected by our Insurance Entities in a portfolio of assets to appropriately match these liabilities in duration and also maintain required levels of capital. Based on our investment policy, this portfolio has historically comprised money market funds, U.S. Government securities and equity securities. Given the expected duration of the underlying insurance liabilities and our current liquidity, we do not anticipate a need to liquidate any investments held by our Insurance Entities in the next twelve months.

For the three months ended March 31, 2020, our mortgage operations pretax income increased $3.2 million due to higher interest rate lock volume driven by the year-over-year increase in homes in beginning backlog and to a lesser extent lower interest rates during the quarter.

Our mortgage operations have not yet experienced a significant slowdown in loan originations due to the pandemic, but a reduction in our home sales activity would directly impact our mortgage lending activities. As a result of the government intervention in the financial markets, including the Federal Reserve’s purchase of mortgage backed securities, we expect to be able to continue making loans that can be readily sold into the secondary mortgage market.

~~- 37 -~~

~~Table of Contents~~

~~The following table sets forth information for our mortgage operations segment relating to mortgage loans originated and capture rate.~~

Three Months Ended

% or

March 31,

Percentage

2020

2019

Change

Total Originations (including transfer loans):

(Dollars in thousands)

Loans
1,029 783 31 %
Principal
$ 379,306 $ 285,525 33 %
Capture Rate Data:

Capture rate as % of all homes delivered
66% 58% 8 %
Capture rate as % of all homes delivered (excludes cash sales)
69% 62% 7 %
Mortgage Loan Origination Product Mix:

FHA loans
22% 17% 5 %
Other government loans (VA & USDA)
22% 20% 2 %
Total government loans
44% 37% 7 %
Conventional loans
56% 63% (7) %
100% 100% 0 %
Loan Type:

Fixed rate
99% 96% 3 %
ARM
1% 4% (3) %
Credit Quality:

Average FICO Score
735 736 (0) %
Other Data:

`

`

Average Combined LTV ratio
85% 81% 4 %
Full documentation loans
100% 100% 0 %
Loans Sold to Third Parties:

Loans
1,199 889 35 %
Principal
$ 438,101 $ 320,414 37 %

~~Income Taxes~~

~~Our overall effective income tax rates were 24.3% and 27.1% for the three months ended March 31, 2020 and 2019, respectively, resulting in income tax expense of $11.8 million and $15.1~~$1.9 million for the same periods ~~respectively. The year-over-year decrease~~ in our effective tax rate for the three months ended March 31, 2020 was primarily impacted by a windfall on non-qualifying stock options exercised and lapsed restricted stock awards during the three months ended March 31, 2020 as well as energy tax credits related to homes closed during the quarter. These benefits were partially offset by a decrease in the amount2019.

18. Lines of ~~executive compensation that is deductible under Internal Revenue Code Section 162(m).~~

Credit

The Revolving Credit Facility is fully and unconditionally guaranteed, jointly and severally, by most of our homebuilding segment subsidiaries. The facility contains various representations, warranties and covenants that we believe are customary for agreements of this type. The financial covenants include a consolidated tangible net worth test and a leverage test, along with a consolidated tangible net worth covenant, all as defined in the Revolving Credit Facility. A failure to satisfy the foregoing tests does not constitute an event of default, but can trigger a “term-out” of the facility. A breach of the consolidated tangible net worth covenant (but not the consolidated tangible net worth test) or a violation of anti-corruption or sanctions laws would result in an event of default.

We incur costs associated with unused commitment fees pursuant to the terms of the Revolving Credit Facility. At ~~March 31,~~September 30, 2020 and December 31, 2019, there were ~~$25.7~~$25.4 million and $23.5 million, respectively, in letters of credit outstanding, which reduced the amounts available to be borrowed under the Revolving Credit Facility. WeAt September 30, 2020 and December 31, 2019, we had $10.0 million and $15.0 million, respectively, outstanding under the Revolving Credit ~~Facility as of March 31, 2020 and December 31, 2019.~~Facility. As of ~~March 31,~~September 30, 2020, availability under the Revolving Credit Facility was approximately ~~$959.3~~$964.6 million.

Mortgage Repurchase Facility.HomeAmerican has a Master Repurchase Agreement (the “Mortgage Repurchase Facility”) with U.S. Bank National Association (“USBNA”). ~~Effective May 23, 2019, the Mortgage Repurchase Facility was amended to extend its termination date to May 21, 2020. We are currently in negotiations to extend the Mortgage Repurchase Facility.~~ The Mortgage Repurchase Facility provides liquidity to HomeAmerican by providing for the sale of up to an aggregate of $75 million (subject to increase by up to $75 million under certain conditions) of eligible mortgage loans to USBNA with an agreement by HomeAmerican to repurchase the mortgage loans at a future date. Until such mortgage loans are transferred back to HomeAmerican, the documents relating to such loans are held by USBNA, as custodian, pursuant to the Custody Agreement (“Custody Agreement”), dated as of November 12, 2008, by and between HomeAmerican and USBNA. In the event that an eligible mortgage loan becomes ineligible, as defined under the Mortgage Repurchase Facility, HomeAmerican may be required to repurchase the ineligible mortgage loan immediately. The Mortgage Repurchase Facility terminates on May 20, 2021. Effective September 24, 2020, the Mortgage Repurchase Facility was amended to adjust the commitments to purchase for specific time periods and increase the Adjusted Tangible Net Worth Ratio from 8.0 to 1.0 to 10.0 to 1.0. As part of the amendment, the commitments to purchase were increased to $100 million for the periods September 24, 2020 through October 23, 2020 and March 25, 2021 through April 23, 2021 and $200 million for the period December 22, 2020 through February 4, 2021.

The maximum aggregate commitment of the Mortgage Repurchase Facility was temporarily increased by $50 million on ~~March 30,~~September 28, 2020 ~~from $75 million to $110 million~~ effective through ~~April~~October 27, 2020. The maximum aggregate commitment of the Mortgage Repurchase Facility ~~also had a temporary increase in~~was temporarily increased by $75 million on December 24, 2019 effective through January 22, 2020, which increased the maximum aggregate commitment from $75 million to $150 ~~million on December 24, 2019 effective through January 22, 2020.~~million. At ~~March 31,~~September 30, 2020 and December 31, 2019 HomeAmerican had ~~$108.7~~$130.9 million and $149.6 million, respectively, of mortgage loans that HomeAmerican was obligated to repurchase under the Mortgage Repurchase Facility. Mortgage loans that HomeAmerican is obligated to repurchase under the Mortgage Repurchase Facility are accounted for as a debt financing arrangement and are reported as mortgage repurchase facility in the consolidated balance sheets. Advances under the Mortgage Repurchase Facility carry a price range that is based on a LIBOR rate or successor benchmark rate.

19. Related Party Transactions

We contributed $1.5 million in cash to the MDC/Richmond American Homes Foundation (the “Foundation”) during the nine months ended September 30, 2020. The Foundation is a non-profit organization operated exclusively for charitable, educational and other purposes beneficial to social welfare within the meaning of Section 501(c)(3) of the Internal Revenue Code. The following Directors and/or officers of the Company served as directors of the Foundation at September 30, 2020, all of whom serve without compensation:


Name						MDC Title
Larry A. Mizel						Chairman and CEO
David D. Mandarich						President and COO

Three other individuals, who are independent of the Company, also serve as directors of the Foundation. All directors of the Foundation serve without compensation.

The Company has a sublease agreement with CVentures, Inc. Larry A. Mizel, the Chief Executive Officer of the Company, is the President of CVentures, Inc. The sublease is for office space that CVentures, Inc. has continuously leased from the Company since 2005. The current sublease term commenced November 1, 2016 and will continue through October 31, 2021, with an option to extend to October 31, 2026. The sublease agreement is for approximately 5,437 rentable square feet at a base rent that increases over the initial term from $26.50 to $28.68 per rentable square foot per year, and increasing over the extension term from $29.26 to $31.67 per rentable square foot per year. The sublease rent is an allocation of the rent under the master lease agreement based on the sublease square footage.

20. Supplemental Guarantor Information

•M.D.C. Land Corporation

•RAH of Florida, Inc.

•Richmond American Construction, Inc.

•Richmond American Homes of Arizona, Inc.

•Richmond American Homes of Colorado, Inc.

•Richmond American Homes of Florida, LP

•Richmond American Homes of Illinois, Inc.

•Richmond American Homes of Maryland, Inc.

•Richmond American Homes of Nevada, Inc.

•Richmond American Homes of New Jersey, Inc.

•Richmond American Homes of Oregon, Inc.

•Richmond American Homes of Pennsylvania, Inc.

•Richmond American Homes of Utah, Inc.

•Richmond American Homes of Virginia, Inc.

•Richmond American Homes of Washington, Inc.

The senior note indentures do not provide for a suspension of the guarantees, but do provide that any Guarantor may be released from its guarantee so long as (1) no default or event of default exists or would result from release of such guarantee, (2) the Guarantor being released has consolidated net worth of less than 5% of the Company’s consolidated net worth as of the end of the most recent fiscal quarter, (3) the Guarantors released from their guarantees in any year-end period comprise in the aggregate less than 10% (or 15% if and to the extent necessary to permit the cure of a default) of the Company’s consolidated net worth as of the end of the most recent fiscal quarter, (4) such release would not have a material adverse effect on the homebuilding business of the Company and its subsidiaries and (5) the Guarantor is released from its guarantee(s) under all Specified Indebtedness (other than by reason of payment under its guarantee of Specified Indebtedness). Upon delivery of an officers’ certificate and an opinion of counsel stating that all conditions precedent provided for in the indenture relating to such transactions have been complied with and the release is authorized, the guarantee will be automatically and unconditionally released. “Specified Indebtedness” means indebtedness under the senior notes, the Company’s Indenture dated as of December 3, 2002, the Revolving Credit Facility, and any refinancing, extension, renewal or replacement of any of the foregoing.

As the combined assets, liabilities and results of operations of M.D.C. Holdings, Inc. and the Guarantor Subsidiaries (the “Obligor Group”) are not materially different from those in the homebuilding section of our consolidated balance sheets and consolidated statements of operations and comprehensive income, separate summarized financial information of the Obligor Group has not been included. As of September 30, 2020 and December 31, 2019, amounts due to non-guarantor subsidiaries from the Obligor Group totaled $65.9 million and $24.2 million, respectively.

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with, and is qualified in its entirety by, the Unaudited Consolidated Financial Statements and Notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This item contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are based upon management’s experiences, observations, and analyses. Actual results may differ materially from those indicated in such forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed in "Item 1A: Risk Factors" of our Annual Report on Form 10-K for the year endedDecember 31, 2019and this Quarterly Report on Form 10-Q.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019

	(Dollars in thousands, except per share amounts)
Homebuilding:
Home sale revenues	$	1,000,549		$	750,274		$	2,584,392		$	2,130,396
Home cost of sales	(795,172)			(609,316)			(2,061,608)			(1,724,040)
Inventory impairments	—			—			—			(610)
Total cost of sales	(795,172)			(609,316)			(2,061,608)			(1,724,650)
Gross profit	205,377			140,958			522,784			405,746
Gross margin	20.5		%	18.8		%	20.2		%	19.0		%
Selling, general and administrative expenses	(103,632)			(92,716)			(285,269)			(257,689)
Interest and other income	756			2,336			3,365			7,491
Other expense	(851)			(1,887)			(4,640)			(4,188)
Homebuilding pretax income	101,650			48,691			236,240			151,360
Financial Services:
Revenues	36,803			22,388			91,653			58,389
Expenses	(13,294)			(10,352)			(36,401)			(28,883)
Other income (expense), net	859			2,079			(5,274)			11,877
Financial services pretax income	24,368			14,115			49,978			41,383
Income before income taxes	126,018			62,806			286,218			192,743
Provision for income taxes	(27,080)			(12,226)			(66,124)			(47,020)
Net income	$	98,938		$	50,580		$	220,094		$	145,723

Earnings per share:
Basic	$	1.54		$	0.81		$	3.46		$	2.36
Diluted	$	1.49		$	0.79		$	3.37		$	2.29

Weighted average common shares outstanding:
Basic	63,868,486			61,978,195			63,129,077			61,422,925
Diluted	65,824,910			63,968,215			64,969,855			63,360,535

Dividends declared per share	$	0.33		$	0.30		$	0.99		$	0.90

Cash provided by (used in):
Operating Activities	$	(26,262)		$	(88,783)		$	29,442		$	(33,118)
Investing Activities	$	(7,917)		$	(10,272)		$	27,577		$	(24,191)
Financing Activities	$	(3,965)		$	(12,293)		$	(8,787)		$	(64,377)

Industry Conditions and Outlook for MDC*

Earlier this year, COVID-19 dampened the outlook for homebuilding, given a significant drop in both consumer confidence and employment levels. However, the demand for new homes surged during the third quarter, driven by low interest rates, a renewed focus on homeownership, and low home inventory levels. We believe that this potentially is the beginning of a period of growth for the homebuilding industry, with homeownership becoming more important due to the increased prominence of remote work and school options and with many consumers migrating away from high cost, densely populated urban areas. While we have seen an increase in certain building costs, most notably lumber, as a result of the pandemic, we have been successful to this point in recouping these increased costs through home price increases.

The dollar value of our homes in backlog was $3.1 billion as of September 30, 2020, which was a 47% increase from the prior year. The higher backlog not only puts us in a position for a strong end to 2020, but also provides us with the opportunity for significant year-over-year increases in home sale revenues and pretax income to start 2021. We are planning to grow community count in 2021, and, to that end, we acquired 3,555 lots during the third quarter, representing a 63% increase over the prior year period. Our liquidity to end the 2020 third quarter was $1.5 billion, which we believe provides us with sufficient resources to fund our continued growth. However, even as we plan for growth, we continue to closely monitor developments related to COVID-19 and the upcoming election cycle, which are highly uncertain and could adversely impact our operations and financial results in future periods.

Three Months Ended September 30, 2020

For the three months ended September 30, 2020, our net income was $98.9 million, or $1.49 per diluted share, a 96% increase compared to net income of $50.6 million, or $0.79 per diluted share, for the same period in the prior year. Both our homebuilding and financial services businesses contributed to these year-over-year improvements, as pretax income from our homebuilding operations increased $53.0 million, or 109%, and our financial services pretax income increased $10.3 million, or 73%. The increase in homebuilding pretax income was the result of a 33% increase in home sale revenues and a 370 basis point increase in our operating margin. The increase in operating margin is the result of our improved pricing over the last twelve months as well as better operating leverage as we continue to grow our homebuilding operations. The increase in financial services pretax income was due to our mortgage business, which experienced a higher interest rate lock volume, an increase in the number of mortgages we originated as a percentage of our total homes delivered ("Capture Rate"), and an increase in net interest income on loans originated during the quarter.

The dollar value of our net new home orders increased 89% from the prior year period, due to a 73% increase in the number of net new orders and a 10% increase in the average selling price of those orders. The increase in the number of net new orders was due to an increase in the monthly sales absorption rate driven by strong demand during the quarter as noted above. The increase in the average selling price was the result of price increases implemented over the past twelve months as well as a shift in geographical mix to some higher priced markets.

Nine Months Ended September 30, 2020

For the nine months ended September 30, 2020, our net income was $220.1 million, or $3.37 per diluted share, a 51% increase compared to net income of $145.7 million, or $2.29 per diluted share, for the same period in the prior year. Similar to the third quarter commentary above, the increase was driven by an $84.9 million increase in homebuilding pretax income and a $26.9 million increase in mortgage operations pretax income. These increases were partially offset by a net loss on equity securities of $8.3 million during the nine months ended September 30, 2020, as compared to a net gain of $7.9 million for the prior year period.

* See "Forward-Looking Statements" below.


	Three Months Ended								Nine Months Ended
	September 30,				Change				September 30,				Change
	2020		2019		Amount		%		2020		2019		Amount		%

	(Dollars in thousands)
West	$	59,120	$	34,898	$	24,222	69	%	$	144,441	$	103,448	$	40,993	40	%
Mountain	48,053		31,391		16,662		53	%	111,372		89,077		22,295		25	%
East	6,020		2,136		3,884		182	%	9,993		5,761		4,232		73	%
Corporate	(11,543)		(19,734)		8,191		42	%	(29,566)		(46,926)		17,360		37	%
Total Homebuilding pretax income	$	101,650	$	48,691	$	52,959	109	%	$	236,240	$	151,360	$	84,880	56	%

For the three months ended September 30, 2020, we recorded homebuilding pretax income of $101.7 million, an increase of 109% from $48.7 million for the same period in the prior year. The increase was due to a 33% increase in home sale revenues, a 170 basis point increase in our gross margin from home sales and a 200 basis point decrease in our selling, general and administrative expenses as a percentage of revenue.

Our West segment experienced a $24.2 million year-over-year increase in pretax income, due to a 35% increase in home sales revenue and an improved gross margin, which were slightly offset by a $3.7 million increase in general and administrative expenses resulting from the change in our Corporate cost allocation discussed below. Our Mountain segment experienced a $16.7 million increase in pretax income from the prior year, as a result of a 32% increase in home sales revenue and an improved gross margin, which were slightly offset by a $1.8 million increase in general and administrative expenses due to the change in our Corporate cost allocation. Our East segment experienced a $3.9 million increase in pretax income from the prior year, due primarily to a 33% increase in home sales revenue and an improved gross margin, which were slightly offset by a $0.8 million increase in general and administrative expenses resulting from the change in our Corporate cost allocation. Our Corporate segment experienced an $8.2 million increase in pretax income, due primarily to the impact of the change in our Corporate cost allocation.

For the nine months ended September 30, 2020, we recorded homebuilding pretax income of $236.2 million , an increase of $84.9 million from $151.4 million for the same period in the prior year. The increase was due to a 21% increase in home sale revenues, a 120 basis point increase in our gross margin from home sales and a 110 basis point decrease in our selling, general and administrative expenses as a percentage of revenue. Commentary on the drivers of the increase in pretax income in our individual homebuilding segments is consistent with the 2020 third quarter discussion above.

On a periodic basis, we assess our Corporate cost allocation estimates. Our most recent assessment resulted in increases in Corporate cost allocations to both our homebuilding and financial services segments beginning January 1, 2020, to reflect the use of centralized administrative functions. Applying the most recent cost allocation estimate to the three and nine months ended September 30, 2019 would have resulted in decreased pretax income for our homebuilding segments of approximately $2.8 million and $8.2 million, respectively, and decreased pretax income for our financial services segments of approximately $0.4 million and $1.2 million, respectively, with corresponding increases in our Corporate segment pretax income. Additionally, beginning January 1, 2020, we have reflected the expense associated with all homebuilding employee bonuses in the respective homebuilding segment to which the employee reports, consistent with how the CODM is now evaluating homebuilding division performance and making operating decisions. Had these bonuses been reflected in a similar manner during the three and nine months ended September 30, 2019, pretax income for our homebuilding segments would have decreased by an additional $3.5 million and $9.5 million, respectively, with a corresponding increase in our Corporate segment pretax income.


	September 30, 2020		December 31, 2019		Change
					Amount		%

	(Dollars in thousands)
West	$	1,660,583	$	1,461,645	198,938		14	%
Mountain	927,730		869,665		58,065		7	%
East	248,028		194,592		53,436		27	%
Corporate	507,728		505,507		2,221		0	%
Total homebuilding assets	$	3,344,069	$	3,031,409	$	312,660	10	%

Total homebuilding assets increased 10% from December 31, 2019 to September 30, 2020. Homebuilding assets increased in each of our operating segments largely due to a greater number of homes completed or under construction as of period-end. This increase was slightly offset by a decrease in land and land under development in our West and Mountain Segments, where the total number of lots owned, excluding those currently under construction, has decreased slightly from December 31, 2019.

New Home Deliveries& Home Sale Revenues:


	Three Months Ended September 30,
	2020					2019					% Change
	Homes	Home Sale Revenues		Average Price		Homes	Home Sale Revenues		Average Price		Homes		Home Sale Revenues		Average Price

	(Dollars in thousands)
West	1,135	$	552,319	$	486.6	927	$	410,414	$	442.7	22	%	35	%	10	%
Mountain	677	347,095		512.7		537	263,802		491.2		26	%	32	%	4	%
East	335	101,135		301.9		249	76,058		305.5		35	%	33	%	(1)	%
Total	2,147	$	1,000,549	$	466.0	1,713	$	750,274	$	438.0	25	%	33	%	6	%


	Nine Months Ended September 30,
	2020					2019					% Change
	Homes	Home Sale Revenues		Average Price		Homes	Home Sale Revenues		Average Price		Homes		Home Sale Revenues		Average Price

	(Dollars in thousands)
West	3,023	$	1,447,934	$	479.0	2,464	$	1,164,502	$	472.6	23	%	24	%	1	%
Mountain	1,720	886,619		515.5		1,480	760,470		513.8		16	%	17	%	0	%
East	851	249,839		293.6		641	205,424		320.5		33	%	22	%	(8)	%
Total	5,594	$	2,584,392	$	462.0	4,585	$	2,130,396	$	464.6	22	%	21	%	(1)	%

GrossMarginfromHome Sales:

Our gross margin from home sales for the three months ended September 30, 2020, increased 170 basis points year-over-year from 18.8% to 20.5%. Gross margin from home sales increased across each of our segments on both build-to-order and speculative home deliveries driven by price increases implemented across nearly all of our communities over the past twelve months.

Our gross margin from home sales for the nine months ended September 30, 2020, increased 120 basis points year-over-year from 19.0% to 20.2%. The primary drivers of the improved gross margin from home sales for the nine months ended September 30, 2020 are consistent with those noted above for the three months ended September 30, 2020.

Inventory Impairments:

Impairments of homebuilding inventory by segment for the three and nine months ended September 30, 2020 and 2019 are shown in the table below:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

	(Dollars in thousands)
West	$	—	$	—	$	—	$	—
Mountain	—		—		—		400
East	—		—		—		210
Total inventory impairments	—		—		—		610

The table below provides quantitative data, for the periods presented, where applicable, used in determining the fair value of the impaired inventory.

Impairment Data

Three Months Ended

Number of
Subdivisions
Impaired

Inventory
Impairments

Fair Value of
Inventory After Impairments

Discount Rate

(Dollars in thousands)

March 31, 2019

610

10,476

N/A

Selling, General and Administrative Expenses:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2020			2019			Change		2020			2019			Change

	(Dollars in thousands)
General and administrative expenses	$	45,980		$	46,951		$	(971)	$	131,488		$	128,849		$	2,639
General and administrative expenses as a percentage of home sale revenues	4.6		%	6.3		%	-170 bps		5.1		%	6.0		%	-90 bps
Marketing expenses	$	24,725		$	20,457		$	4,268	$	68,828		$	58,266		$	10,562
Marketing expenses as a percentage of home sale revenues	2.5		%	2.7		%	-20 bps		2.7		%	2.7		%	0 bps
Commissions expenses	$	32,927		$	25,308		$	7,619	$	84,953		$	70,574		$	14,379
Commissions expenses as a percentage of home sale revenues	3.3		%	3.4		%	-10 bps		3.3		%	3.3		%	0 bps
Total selling, general and administrative expenses	$	103,632		$	92,716		$	10,916	$	285,269		$	257,689		$	27,580
Total selling, general and administrative expenses as a percentage of home sale revenues	10.4		%	12.4		%	-200 bps		11.0		%	12.1		%	-110 bps

General and administrative expenses decreased slightly for the three months ended September 30, 2020, primarily due to a decrease in stock-based compensation expense that was largely offset by an increase in salaries and other compensation-related expenses due to higher average headcount and strong operating results.

For the nine months ended September 30, 2020, the increase in general and administrative expenses was the result of increased compensation-related expenses due to increased bonus expense as a result of strong operating results.

For both the three and nine months ended September 30, 2020, the increase in our marketing expenses was driven by increased deferred selling amortization and master marketing fees resulting from increased closings as well as increased compensation expense due to a higher average headcount during the respective periods.

Other Homebuilding Operating Data

Net New Ordersand Active Subdivisions:


	Three Months Ended September 30,
	2020						2019						% Change
	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes		Dollar Value		Average Price		Monthly Absorption Rate

	(Dollars in thousands)
West	1,955	$	932,111	$	476.8	6.58	1,168	$	516,000	$	441.8	4.09	67	%	81	%	8	%	61	%
Mountain	1,051	542,375		516.1		5.70	565	271,800		481.1		2.86	86	%	100	%	7	%	99	%
East	509	176,896		347.5		5.39	303	83,896		276.9		3.58	68	%	111	%	26	%	50	%
Total	3,515	$	1,651,382	$	469.8	6.10	2,036	$	871,696	$	428.1	3.59	73	%	89	%	10	%	70	%


	Nine Months Ended September 30,
	2020						2019						% Change
	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes		Dollar Value		Average Price		Monthly Absorption Rate

	(Dollars in thousands)
West	4,646	$	2,265,557	$	487.6	5.47	3,379	$	1,543,584	$	456.8	4.14	37	%	47	%	7	%	32	%
Mountain	2,502	1,309,176		523.3		4.39	1,974	960,109		486.4		3.30	27	%	36	%	8	%	33	%
East	1,156	393,913		340.8		4.23	912	268,578		294.5		4.02	27	%	47	%	16	%	5	%
Total	8,304	$	3,968,646	$	477.9	4.91	6,265	$	2,772,271	$	442.5	3.82	33	%	43	%	8	%	28	%

	~~Page~~ ~~No.~~
			Page No.
Part I. Financial Information:

	Item 1.	Unaudited Consolidated Financial Statements:

			Consolidated Balance Sheets at ~~March 31,~~September 30 , 2020 and December 31, 2019	1

			Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019	2

			Consolidated Statements of Changes in Stockholders’ Equity for the ~~three~~ nine months ended ~~March 31,~~ September 30, 2020 and 2019	3

			Consolidated Statements of Cash Flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019	4		5

			Notes to Unaudited Consolidated Financial Statements	5		6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28		24

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		42		39

	Item 4.	Controls and Procedures		43		40

Part II. Other Information:

	Item 1.	Legal Proceedings		44		41

	Item 1A.	Risk Factors		44		41

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		44		41

	Item 6.	Exhibits		45		42

Signature			~~Signature~~43		45

	Year Ended
	December 31,
	(Dollars in thousands)
2020 (excluding the three months ended March 31, 2020)	$	5,112
2021		7,009
2022		6,670
2023		5,718
2024		5,307
Thereafter		9,529
Total operating lease payments	$	39,345

Less: Interest		6,073
Present value of operating lease liabilities ¹	$	33,272

	March 31,		December 31,
	2020		2019			September 30, 2020		December 31, 2019
	(Dollars in thousands, except
	per share amounts)					(Dollars in thousands, except per share amounts)
ASSETS					ASSETS
Homebuilding:					Homebuilding:
Cash and cash equivalents	$	386,704	$	424,186	Cash and cash equivalents	$	432,277	$	424,186
Restricted cash		15,762		14,279	Restricted cash	19,732		14,279
Trade and other receivables		69,301		65,829	Trade and other receivables	90,609		65,829
Inventories:					Inventories:
Housing completed or under construction		1,215,214		1,036,191	Housing completed or under construction	1,423,855		1,036,191
Land and land under development		1,301,433		1,330,384	Land and land under development	1,221,854		1,330,384
Total inventories		2,516,647		2,366,575	Total inventories	2,645,709		2,366,575
Property and equipment, net		62,316		60,414	Property and equipment, net	64,024		60,414
Deferred tax asset, net		20,660		21,768	Deferred tax asset, net	13,297		21,768
Prepaid and other assets		78,002		78,358	Prepaid and other assets	78,421		78,358
Total homebuilding assets		3,149,392		3,031,409	Total homebuilding assets	3,344,069		3,031,409
Financial Services:					Financial Services:
Cash and cash equivalents		22,159		35,747	Cash and cash equivalents	70,435		35,747
Marketable securities		43,985		56,747	Marketable securities	0		56,747
Mortgage loans held-for-sale, net		133,921		197,021	Mortgage loans held-for-sale, net	160,506		197,021
Other assets		24,255		17,432	Other assets	37,764		17,432
Total financial services assets		224,320		306,947	Total financial services assets	268,705		306,947
Total Assets	$	3,373,712	$	3,338,356	Total Assets	$	3,612,774	$	3,338,356
LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Homebuilding:					Homebuilding:
Accounts payable	$	97,980	$	87,364	Accounts payable	$	103,260	$	87,364
Accrued and other liabilities		233,034		245,940	Accrued and other liabilities	259,261		245,940
Revolving credit facility		15,000		15,000	Revolving credit facility	10,000		15,000
Senior notes, net		1,036,900		989,422	Senior notes, net	1,037,225		989,422
Total homebuilding liabilities		1,382,914		1,337,726	Total homebuilding liabilities	1,409,746		1,337,726
Financial Services:					Financial Services:
Accounts payable and accrued liabilities		70,977		68,529	Accounts payable and accrued liabilities	84,168		68,529
Mortgage repurchase facility		108,744		149,616	Mortgage repurchase facility	130,861		149,616
Total financial services liabilities		179,721		218,145	Total financial services liabilities	215,029		218,145
Total Liabilities		1,562,635		1,555,871	Total Liabilities	1,624,775		1,555,871
Stockholders' Equity					Stockholders' Equity
Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued or outstanding		-		-
Common stock, $0.01 par value; 250,000,000 shares authorized; 63,052,495 and 62,574,961 issued and outstanding at March 31, 2020 and December 31, 2019, respectively		631		626
Preferred stock, $0.01 par value; 25,000,000 shares authorized; NaN issued or outstanding					Preferred stock, $0.01 par value; 25,000,000 shares authorized; NaN issued or outstanding	0		0
Common stock, $0.01 par value; 250,000,000 shares authorized; 64,865,577 and 62,574,961 issued and outstanding at September 30, 2020 and December 31, 2019, respectively					Common stock, $0.01 par value; 250,000,000 shares authorized; 64,865,577 and 62,574,961 issued and outstanding at September 30, 2020 and December 31, 2019, respectively	649		626
Additional paid-in-capital		1,361,362		1,348,733	Additional paid-in-capital	1,397,220		1,348,733
Retained earnings		449,084		433,126	Retained earnings	590,130		433,126
Total Stockholders' Equity		1,811,077		1,782,485	Total Stockholders' Equity	1,987,999		1,782,485
Total Liabilities and Stockholders' Equity	$	3,373,712	$	3,338,356	Total Liabilities and Stockholders' Equity	$	3,612,774	$	3,338,356

	Three-Month Period Ended March 31, 2020

						Additional									Nine Months Ended September 30, 2020
	Common Stock					Paid-in		Retained							Common Stock			Additional Paid-in Capital				Retained Earnings				Total
	Shares			Amount		Capital		Earnings			Total				Shares	Amount
Balance at December 31, 2019		62,574,961		$	626	$	1,348,733	$	433,126		$	1,782,485		Balance at December 31, 2019	62,574,961	$	626			$	1,348,733			$	433,126			$	1,782,485
Cumulative effect of newly adopted accounting standards (Note 2)		-			-		-		(34	)		(34	)	Cumulative effect of newly adopted accounting standards (Note 2)	—	—		—				(34)				(34)
Balance at January 1, 2020		62,574,961			626		1,348,733		433,092			1,782,451		Balance at January 1, 2020	62,574,961	626		1,348,733				433,092				1,782,451
Net Income		-			-		-		36,760			36,760		Net Income	—	—		—				36,760				36,760
Shares issued under stock-based compensation programs, net		477,582			5		8,189		-			8,194		Shares issued under stock-based compensation programs, net	477,582	5		8,189				0				8,194
Cash dividends declared		-			-		-		(20,768	)		(20,768	)	Cash dividends declared	—	—		—				(20,768)				(20,768)
Stock-based compensation expense		-			-		4,440		-			4,440		Stock-based compensation expense	—	—		4,440				—				4,440
Forfeiture of restricted stock		(48	)		-		-		-			-		Forfeiture of restricted stock	(48)	—		—				—				—
Balance at March 31, 2020		63,052,495		$	631	$	1,361,362	$	449,084		$	1,811,077		Balance at March 31, 2020	63,052,495	$	631	$	1,361,362			$	449,084			$	1,811,077
Net Income														Net Income	—	0		0				84,396				84,396
Shares issued under stock-based compensation programs, net														Shares issued under stock-based compensation programs, net	334,178	3		(6,865)				0				(6,862)
Cash dividends declared														Cash dividends declared	—	—		—				(20,914)				(20,914)
Stock-based compensation expense														Stock-based compensation expense	—	—		5,488				—				5,488
Forfeiture of restricted stock														Forfeiture of restricted stock	(1,807)	—		—				—				—
Balance at June 30, 2020														Balance at June 30, 2020	63,384,866	$	634	$	1,359,985			$	512,566			$	1,873,185
Net Income														Net Income	—	—		—				98,938				98,938
Shares issued under stock-based compensation programs, net														Shares issued under stock-based compensation programs, net	1,480,711	15		28,627				—				28,642
Cash dividends declared														Cash dividends declared	—	—		—				(21,374)				(21,374)
Stock-based compensation expense														Stock-based compensation expense	—	—		8,608				—				8,608
Balance at September 30, 2020														Balance at September 30, 2020	64,865,577	$	649	$	1,397,220			$	590,130			$	1,987,999

	Three-Month Period Ended March 31, 2019

						Additional
	Common Stock					Paid-in		Retained
	Shares			Amount		Capital		Earnings			Total
Balance at December 31, 2018		56,615,352		$	566	$	1,168,442	$	406,992		$	1,576,000
Cumulative effect of newly adopted accounting standards		-			-		-		(67	)		(67	)
Balance at January 1, 2019		56,615,352			566		1,168,442		406,925			1,575,933
Net Income		-			-		-		40,550			40,550
Shares issued under stock-based compensation programs, net		372,344			4		7,083		-			7,087
Cash dividends declared		-			-		-		(17,019	)		(17,019	)
Stock dividend declared		4,534,908			45		138,950		(139,091	)		(96	)
Stock-based compensation expense		-			-		4,251		-			4,251
Forfeiture of restricted stock		(1,714	)		-		-		-			-
Balance at March 31, 2019		61,520,890		$	615	$	1,318,726	$	291,365		$	1,610,706

	March 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
$250 Million 5.625% Senior Notes due February 2020, net	$	-	$	-	$	249,909	$	250,400
$250 Million 5.500% Senior Notes due January 2024, net		249,060		228,750		249,005		272,083
$300 Million 3.850% Senior Notes due January 2030, net		297,285		270,750		-		-
$500 Million 6.000% Senior Notes due January 2043, net		490,555		466,250		490,508		528,542
Total	$	1,036,900	$	965,750	$	989,422	$	1,051,025


¹Homebuilding and financial services operating lease liabilities of $32.2 million and $1.1 million, respectively, are included as a component of accrued and other liabilities and accounts payable and accrued liabilities, respectively, in the homebuilding and financial services section of our consolidated balance sheet at ~~March 31, 2020.~~

	March 31, 2020
					Non-
			Guarantor		Guarantor		Eliminating			Consolidated
	MDC		Subsidiaries		Subsidiaries		Entries			MDC
	(Dollars in thousands)
ASSETS
Homebuilding:
Cash and cash equivalents	$	380,318	$	6,386	$	-	$	-		$	386,704
Restricted cash		-		15,762		-		-			15,762
Trade and other receivables		694		68,607		-		-			69,301
Inventories:
Housing completed or under construction		-		1,215,214		-		-			1,215,214
Land and land under development		-		1,301,433		-		-			1,301,433
Total inventories		-		2,516,647		-		-			2,516,647
Intercompany receivables		2,265,553		5,919		-		(2,271,472	)		-
Investment in subsidiaries		279,593		-		-		(279,593	)		-
Property and equipment, net		23,033		39,283		-		-			62,316
Deferred tax asset, net		18,962		-		-		1,698			20,660
Prepaid and other assets		32,961		45,041		-		-			78,002
Total homebuilding assets		3,001,114		2,697,645		-		(2,549,367	)		3,149,392

Financial Services:
Cash and cash equivalents		-		-		22,159		-			22,159
Marketable securities		-		-		43,985		-			43,985
Intercompany receivables		-		-		64,666		(64,666	)		-
Mortgage loans held-for-sale, net		-		-		133,921		-			133,921
Other assets		-		-		25,953		(1,698	)		24,255
Total financial services assets		-		-		290,684		(66,364	)		224,320
Total Assets	$	3,001,114	$	2,697,645	$	290,684	$	(2,615,731	)	$	3,373,712

LIABILITIES AND EQUITY
Homebuilding:
Accounts payable	$	515	$	97,465	$	-	$	-		$	97,980
Accrued and other liabilities		67,874		162,742		-		2,418			233,034
Advances and notes payable to parent and subsidiaries		69,748		2,254,742		-		(2,324,490	)		-
Revolving credit facility		15,000		-		-		-			15,000
Senior notes, net		1,036,900		-		-		-			1,036,900
Total homebuilding liabilities		1,190,037		2,514,949		-		(2,322,072	)		1,382,914

Financial Services:
Accounts payable and other liabilities		-		-		73,395		(2,418	)		70,977
Advances and notes payable to parent and subsidiaries		-		-		11,648		(11,648	)		-
Mortgage repurchase facility		-		-		108,744		-			108,744
Total financial services liabilities		-		-		193,787		(14,066	)		179,721
Total Liabilities		1,190,037		2,514,949		193,787		(2,336,138	)		1,562,635

Equity:
Total Stockholders' Equity		1,811,077		182,696		96,897		(279,593	)		1,811,077
Total Liabilities and Stockholders' Equity	$	3,001,114	$	2,697,645	$	290,684	$	(2,615,731	)	$	3,373,712

	Three Months Ended March 31, 2020
							Non-
				Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC
Homebuilding:	(Dollars in thousands)
Revenues	$	-		$	697,085		$	-		$	-		$	697,085
Cost of sales		-			(558,647	)		-			-			(558,647	)
Inventory impairments		-			-			-			-			-
Gross profit		-			138,438			-			-			138,438
Selling, general, and administrative expenses		(10,782	)		(78,408	)		-			(131	)		(89,321	)
Equity income of subsidiaries		43,236			-			-			(43,236	)		-
Interest and other income		1,783			291			-			(185	)		1,889
Other expense		8			(1,345	)		-			-			(1,337	)
Homebuilding pretax income (loss)		34,245			58,976			-			(43,552	)		49,669
Financial Services:
Financial services pretax income		-			-			(1,423	)		316			(1,107	)
Income before income taxes		34,245			58,976			(1,423	)		(43,236	)		48,562
(Provision) benefit for income taxes		2,515			(14,333	)		16			-			(11,802	)
Net income	$	36,760		$	44,643		$	(1,407	)	$	(43,236	)	$	36,760
Other comprehensive income related to available-for-sale securities, net of tax		-			-			-			-			-
Comprehensive income	$	36,760		$	44,643		$	(1,407	)	$	(43,236	)	$	36,760

	Three Months Ended March 31, 2019
							Non-
				Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC
Homebuilding:	(Dollars in thousands)
Revenues	$	-		$	647,278		$	-		$	-		$	647,278
Cost of sales		-			(524,552	)		-			-			(524,552	)
Inventory impairments		-			(610	)		-			-			(610	)
Gross profit		-			122,116			-			-			122,116
Selling, general, and administrative expenses		(17,438	)		(64,701	)		-			(122	)		(82,261	)
Equity income of subsidiaries		52,165			-			-			(52,165	)		-
Interest and other income		2,409			155			-			(173	)		2,391
Other expense		7			(1,198	)		-			-			(1,191	)
Homebuilding pretax income (loss)		37,143			56,372			-			(52,460	)		41,055
Financial Services:
Financial services pretax income		-			-			14,256			295			14,551
Income before income taxes		37,143			56,372			14,256			(52,165	)		55,606
(Provision) benefit for income taxes		3,407			(15,264	)		(3,199	)		-			(15,056	)
Net income	$	40,550		$	41,108		$	11,057		$	(52,165	)	$	40,550
Other comprehensive income related to available-for-sale securities, net of tax		-			-			-			-			-
Comprehensive income	$	40,550		$	41,108		$	11,057		$	(52,165	)	$	40,550

	Three Months Ended March 31,
	2020						2019						% Change
	Homes		Home Sale Revenues		Average Price		Homes		Home Sale Revenues		Average Price		Homes			Home Sale Revenues			Average Price
	(Dollars in thousands)
West		871	$	405,498	$	465.6		752	$	369,558	$	491.4		16	%		10	%		(5)	%
Mountain		435		222,858		512.3		409		209,192		511.5		6	%		7	%		0	%
East		241		68,729		285.2		197		68,528		347.9		22	%		0	%		(18)	%
Total		1,547	$	697,085	$	450.6		1,358	$	647,278	$	476.6		14	%		8	%		(5)	%

					Average Active Subdivisions
	Active Subdivisions				Three Months Ended
	March 31,		%		March 31,		%
	2020	2019	Change		2020	2019	Change
West	92	88	5	%	90	84	7	%
Mountain	64	64	0	%	65	69	(6	)%
East	29	26	12	%	30	22	36	%
Total	185	178	4	%	185	175	6	%

	Cancellations as a Percentage of Homes in Beginning Backlog
	Three Months Ended March 31,				Change in
	2020		2019		Percentage
West	15	%	14	%	1	%
Mountain	22	%	14	%	8	%
East	23	%	11	%	12	%
Total	18	%	14	%	4	%

	March 31, 2020						March 31, 2019
	Lots Owned		Lots Optioned		Total		Lots Owned		Lots Optioned		Total		Total % Change
West		9,641		2,393		12,034		7,894		2,462		10,356		16	%
Mountain		6,540		4,007		10,547		6,636		2,612		9,248		14	%
East		2,410		2,133		4,543		1,989		1,294		3,283		38	%
Total		18,591		8,533		27,124		16,519		6,368		22,887		19	%

	Three Months Ended				% or
	March 31,				Percentage
	2020		2019		Change
Total Originations (including transfer loans):	(Dollars in thousands)
Loans		1,029		783		31	%
Principal	$	379,306	$	285,525		33	%
Capture Rate Data:
Capture rate as % of all homes delivered		66%		58%		8	%
Capture rate as % of all homes delivered (excludes cash sales)		69%		62%		7	%
Mortgage Loan Origination Product Mix:
FHA loans		22%		17%		5	%
Other government loans (VA & USDA)		22%		20%		2	%
Total government loans		44%		37%		7	%
Conventional loans		56%		63%		(7)	%
		100%		100%		0	%
Loan Type:
Fixed rate		99%		96%		3	%
ARM		1%		4%		(3)	%
Credit Quality:
Average FICO Score		735		736		(0)	%
Other Data:	`		`
Average Combined LTV ratio		85%		81%		4	%
Full documentation loans		100%		100%		0	%
Loans Sold to Third Parties:
Loans		1,199		889		35	%
Principal	$	438,101	$	320,414		37	%


	September 30, 2020			September 30, 2019
	Lots Owned	Lots Optioned	Total	Lots Owned	Lots Optioned	Total	Total % Change
West	10,140	3,280	13,420	9,128	2,203	11,331	18	%
Mountain	6,217	2,708	8,925	6,456	3,139	9,595	(7)	%
East	2,716	1,769	4,485	2,014	2,003	4,017	12	%
Total	19,073	7,757	26,830	17,598	7,345	24,943	8	%


	Three Months Ended						% or Percentage		Nine Months Ended						% or Percentage
	September 30,								September 30,
	2020			2019			Change		2020			2019			Change

	(Dollars in thousands)
Total Originations (including transfer loans):
Loans	1,476			1,095			35	%	3,841			2,809			37	%
Principal	$	563,047		$	386,613		46	%	$	1,439,918		$	1,023,287		41	%
Capture Rate Data:
Capture rate as % of all homes delivered	68		%	64		%	4	%	68		%	61		%	7	%
Capture rate as % of all homes delivered (excludes cash sales)	71		%	68		%	3	%	71		%	66		%	5	%
Mortgage Loan Origination Product Mix:
FHA loans	20		%	20		%	—	%	21		%	17		%	4	%
Other government loans (VA & USDA)	22		%	20		%	2	%	22		%	20		%	2	%
Total government loans	42		%	40		%	2	%	43		%	37		%	6	%
Conventional loans	58		%	60		%	(2)	%	57		%	63		%	(6)	%
	100		%	100		%	—	%	100		%	100		%	—	%
Loan Type:
Fixed rate	100		%	98		%	2	%	99		%	97		%	2	%
ARM	—		%	2		%	(2)	%	1		%	3		%	(2)	%
Credit Quality:
Average FICO Score	736			738			—	%	736			739			—	%
Other Data:	`			`
Average Combined LTV ratio	85		%	84		%	1	%	85		%	82		%	3	%
Full documentation loans	100		%	100		%	—	%	100		%	100		%	—	%
Loans Sold to Third Parties:
Loans	1,530			1,064			44	%	3,958			2,882			37	%
Principal	$	574,239		$	377,213		52	%	$	1,472,452		$	1,047,637		41	%

Period:	Total Number of Shares Purchased ⁽¹⁾		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan or Program⁽²⁾		Maximum Number of Shares that may yet be Purchased under the Plan or Program ⁽²⁾
January 1 to January 31, 2020		-		N/A		-		4,000,000
February 1 to February 29, 2020		14,376	$	42.14		-		4,000,000
March 1 to March 31, 2020		-		N/A		-		4,000,000

~~31.1~~10.2			M.D.C. Holdings, Inc. 2018 Executive Officer Performance-Based Compensation Plan (amended September 4, 2020).
10.3			Fifth Amendment to Amended and Restated Master Repurchase Agreement between HomeAmerican Mortgage Corporation, as Seller, and U.S. Bank National Association, as Agent and Buyer, dated as of September 24, 2020 (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed September 25, 2020). *
22			Subsidiary Guarantors (incorporated by reference to Exhibit 22 of the Company's Quarterly Report on Form 10-Q dated June 30, 2020). *
31.1			Certification of Chief Executive Officer required by 17 CFR 240.13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


Date: ~~May 5,~~October 29, 2020			M.D.C. HOLDINGS, INC.
			(Registrant)


	By:	~~/s/~~ /s/ Robert N. Martin
				Robert N. Martin
		Senior Vice ~~Preside~~~~nt,~~President, Chief Financial Officer ~~and~~ ~~Principal Accounting Officer~~ (~~principal~~(principal financial officer andduly authorized o~~fficer)~~ officer)

			By: /s/ Staci M. Woolsey
			Staci M. Woolsey Vice President, Controller and Chief Accounting Officer (principal accounting officer andduly authorized officer)