EXHIBIT 99.1
M.D.C. Holdings, Inc.
401(k) Savings Plan
Financial Statements and Supplemental Schedule
Years Ended December 31, 2001 and 2000
M.D.C. Holdings, Inc.
401(k) Savings Plan
Years Ended December 31, 2001 and 2000
Contents
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Page
Report of Independent Auditors 1
Financial Statements:
Statements of Net Assets Available for Benefits 2
Statements of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4
Supplemental Schedule:
Schedule H, Line 4i - Schedule of Assets (Held at End of Year) 10
Report of Independent Auditors
Board of Directors
M.D.C. Holdings, Inc. 401(k) Savings Plan
We have audited the accompanying statements of net assets available for benefits
of M.D.C. Holdings, Inc. 401(k) Savings Plan as of December 31, 2001 and 2000,
and the related statements of changes in net assets available for benefits for
the years then ended. These financial statements are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 2001 and 2000, and the change in its net assets available for
benefits for the years then ended, in conformity with accounting principles
generally accepted in the United States.
Our audit was performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
(held at end of year) as of December 31, 2001, is presented for purposes of
additional analysis and is not a required part of the financial statements but
is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in our audit of the financial statements and, in our opinion,
is fairly stated in all material respects in relation to the financial
statements taken as a whole.
Denver, Colorado /s/ Ernst & Young LLP
April 25, 2002
M.D.C. Holdings, Inc.
401(k) Savings Plan
Statements of Net Assets Available for Benefits
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December 31,
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2001 2000
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Assets
Investments, at fair value $ 38,546,684 $ 30,124,794
Contributions receivable:
Employer 2,752,728 2,474,038
Employee 164,132 141,750
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Total contributions receivable 2,916,860 2,615,788
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Net assets available for benefits $ 41,463,544 $ 32,740,582
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See accompanying notes to financial statements.
2
M.D.C. Holdings, Inc.
401(k) Savings Plan
Statements of Changes in Net Assets Available for Benefits
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Year Ended December 31,
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2001 2000
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Additions
Investment income:
Interest and dividends $ 847,445 $ 310,442
Net appreciation in fair value of investments 610,711 2,108,986
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Total investment income 1,458,156 2,419,428
Contributions:
Employer 2,761,216 2,634,380
Employee 6,583,417 5,568,617
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Total contributions 9,344,633 8,202,997
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Total additions 10,802,789 10,622,425
Deductions
Benefit payments 1,954,523 2,336,691
Transaction charges and administrative expenses 63,410 38,597
Participant notes receivable terminated due to withdrawal of
participants 61,894 129,103
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Total deductions 2,079,827 2,504,391
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Net increase in net assets available for benefits 8,722,962 8,118,034
Net assets available for benefits at beginning of year 32,740,582 24,622,548
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Net assets available for benefits at end of year $ 41,463,544 $ 32,740,582
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See accompanying notes to financial statements.
3
M.D.C. Holdings, Inc.
401(k) Savings Plan
Notes to Financial Statements
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1. Description of Plan
The following description of the M.D.C. Holdings, Inc. 401(k)
Savings Plan (the "Plan") provides only general information.
Participants should refer to the Plan document for a more complete
description of the Plan's provisions.
General
The Plan is a defined contribution plan established effective January 1,
1992 and most recently amended effective July 1, 1998. All employees of
M.D.C. Holdings, Inc. (the "Company") become eligible to participate upon
completing six months of service and attaining the age of 21. The Plan is
subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
Contributions
Participants may contribute an amount up to 15%, in whole percentages, of
their pretax annual compensation to a maximum amount of $10,500, in
accordance with Internal Revenue Service regulations.
The Company may make matching contributions in a discretionary amount to be
determined by resolution of the Company's Board of Directors, on an annual
basis. The Company may make a discretionary profit sharing contribution
without regard to the current or accumulated net profits of the Company for
the taxable year ending with, or within, the plan year. The Company's
matching and profit sharing contributions may be made in cash or in shares
of M.D.C. Holdings, Inc. common stock.
Participant Accounts
Each participant's account is credited with the participant's contribution,
allocations of the Company's contributions, if any, and Plan earnings. Plan
earnings are allocated by fund based on the ratio of a participant's
account invested in a particular fund to all participants' investments in
that fund. Forfeited balances of terminated participants' non-vested
accounts are used first to pay the expenses to administer the Plan, and are
then allocated to reduce future contributions by the Company. The benefit
to which a participant is entitled is the benefit that can be provided from
the participant's account.
Vesting
The interest of any participant in contributions made by the Company, and
earnings thereon, will become vested to the extent of the following
percentages:
Years of Service Vested %
Less than 2 years 0%
After 2 years 40%
After 3 years 60%
After 4 years 80%
After 5 years 100%
4
M.D.C. Holdings, Inc.
401(k) Savings Plan
Notes to Financial Statements
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1. Description of Plan (continued)
If a participant dies, suffers disability or attains the normal retirement
age while still employed by the Company, the participant becomes 100%
vested without regard to length of service.
Investment Options
Upon enrollment in the Plan, a participant may direct contributions among
any of the investment options offered by the Plan. Participants may change
or transfer their investments at any time.
Payment of Benefits
A participant who has attained the age of 59 1/2, or has satisfied the
terms for a financial hardship, may elect to commence distributions
regardless of whether employed by the Company. The participant or
beneficiary may elect to receive a lump-sum distribution, an annuity, or a
combination of both. Distributions are subject to the applicable provisions
of the Plan document.
Participant Notes Receivable
Participants are permitted to borrow a portion of their vested benefits
under the Plan. Participants may borrow up to the lesser of (1) $50,000,
reduced by (a) the applicant's highest outstanding loan balance from the
Plan during the one-year period ending on the day before the loan is made
and (b) the applicant's outstanding loan balance from the Plan on the day
before the loan is made, or (2) 50% of the present value of the
participant's non-forfeitable accrued benefit. Loan transactions are
treated as a transfer between the investment fund and the loan fund. The
loans are secured by the participant's account balance and bear interest at
a fixed rate equal to the current prime rate plus 100 basis points at the
date the application is approved. Interest rates on outstanding loans range
from 5.75% to 10.5%. Principal and interest are paid ratably through
monthly payroll deductions.
Forfeitures
Forfeitures result from non-vested benefit payments remaining in the Plan
for all terminated employees. Upon reaching the break-in-service, as
determined in the Plan document, amounts forfeited are added to the
forfeitures in the Plan. Forfeitures are available to offset contributions
or to pay Plan expenses, which would be otherwise payable by the Company,
in accordance with the Plan document. The balance of forfeited non-vested
accounts at December 31, 2001 was $279,913.
5
M.D.C. Holdings, Inc.
401(k) Savings Plan
Notes to Financial Statements
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2. Summary of Accounting Policies
Method of Accounting
The Plan's financial statements are prepared on the accrual basis of
accounting.
Investments
Shares of the EB Managed Guaranteed Investment Contract are stated at fair
value. Shares of registered investment companies are valued at quoted
market prices, which represent the net asset value of shares held by the
Plan at year-end. Shares of the Company's common stock are valued at their
quoted market price. Participant notes receivable are valued at cost, which
approximates fair value.
Use of Estimates
The preparation of these financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
Payment of Benefits
Benefits are recorded when paid.
Expenses
The Plan's administrative expenses are paid either by the Plan or the
Company, as provided by the Plan document.
Reclassifications
Certain amounts reported in the 2000 financial statements have been
reclassified to conform with the 2001 presentation.
3. Administration of Plan Assets
The Company administers the Plan. Investments of the Plan's assets and
payment of benefits are managed by KeyTrust Company National Association,
the Plan's trustee and recordkeeper.
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M.D.C. Holdings, Inc.
401(k) Savings Plan
Notes to Financial Statements
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4. Investments
Investments that represent 5% or more of the Plan's net assets are
separately identified below.
December 31,
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2001 2000
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M.D.C. Holdings, Inc. common stock $ 12,680,748 $ 7,044,578
VDCS Victory Government Reserve Fund G 7,135,863 -
The Victory Stock Index Fund; Class A Shares 3,614,898 3,855,977
INVESCO Dynamics Fund 3,322,304 4,232,638
NeubergerBerman Genesis Fund 2,081,509 -
Fidelity Advisor Growth Opportunities Fund - 3,474,840
EB Managed Guaranteed Investment Contract - 3,516,480
During 2001 and 2000, the Plan's investments (including investments
purchased and sold as well as held during the year) appreciated
(depreciated) in fair value as follows:
Year Ended December 31,
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2001 2000
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Common stock $ 3,749,876 $ 3,951,771
Collective trust 93,864 288,468
Mutual funds (3,233,029) (2,131,253)
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$ 610,711 $ 2,108,986
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5. Plan Termination
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of Plan
termination, participants will become 100% vested in their accounts.
6. Income Taxes
The Internal Revenue Service has determined and informed the Company by a
letter dated August 2, 1995, that the Plan and related trust are designed
in accordance with applicable sections of the Internal Revenue Code
("IRC"). The Plan has been amended since receiving the determination
letter. However, the Plan's administrator and tax counsel believe that the
Plan is designed and is currently being operated in compliance with the
applicable requirements of the IRC. In addition, the Plan's administrator
and tax counsel are not aware of any actions or series of events which have
occurred that might adversely affect the Plan's
7
M.D.C. Holdings, Inc.
401(k) Savings Plan
Notes to Financial Statements
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6. Income Taxes (continued)
qualified status. Therefore, no provision for income taxes has been
included in the Plan's financial statements.
7. Reconciliations of Plan Financial Statements to the Form 5500
The Annual Return/Report of Employee Benefit Plan (the "Form 5500") is
prepared on the modified cash basis. Accordingly, certain balances included
on Schedule H, Parts I and II, of the Form 5500 differ from those included
in these financial statements. Contributions in the statement of changes in
net assets available for benefits differ from contributions on the Form
5500 by the amount of contributions accrued at December 31. Additionally,
net assets available for benefits include certain delinquent loans at
December 31. When a participant terminates employment, the participant has
90 days from the date of termination to repay any outstanding loan balance
in the participant's account. If the loan is not repaid, the participant
receives a deemed distribution that is reported on Form 1099 and is subject
to federal and state income taxes.
The following is a reconciliation of financial information per the
financial statements to the Form 5500:
December 31,
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2001 2000
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Net assets available for benefits, per financial statements
$ 41,463,544 $ 32,740,582
Less: Employer contributions receivable (2,752,728) (2,474,038)
Employee contributions receivable (164,132) (141,750)
Deemed distributions (1,862) (5,862)
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Net assets available for benefits, per Form 5500 $ 38,544,822 $ 30,118,932
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Year Ended December 31, 2001
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Employee Employer
Contributions Contributions
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Contributions made to participant accounts per the financial
statements $ 6,583,417 $ 2,761,216
Add: Prior year contribution receivables per the
financial statements 141,750 2,474,038
Less: Current year contribution receivables per the
financial statements (164,132) (2,752,728)
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Contributions made to participant accounts per the Form 5500 $ 6,561,035 $ 2,482,526
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8
M.D.C. Holdings, Inc.
401(k) Savings Plan
Notes to Financial Statements
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8. Subsequent Events
At its April 25, 2002 meeting, the Company's Board of Directors approved
changes in the investment options available to the Plan's participants that
will be effective June 1, 2002. Additional fund options include The
American Balanced Fund, American Funds Washington Mutual Fund, Invesco
Small Company Fund and Janus Fund. The Janus Balanced Fund, Income Fund of
America, American Fundamental Investors Fund, Franklin Small Cap Growth
Fund and Janus Twenty Fund will no longer be offered by the Plan.
9
Supplemental Schedule
M.D.C. Holdings, Inc. EIN 84-0622967
401(k) Savings Plan Plan 004
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2001
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Description of investment including
Identity of issue, borrower, maturity date, rate of interest, Fair
lessor, or similar party collateral, par or maturity value Cost Value
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The American Funds Group Europacific Growth Fund
$26.87/unit $ 1,122,680 $ 865,967
The American Funds Group American Fundamental Investors Fund
$27.45/unit 214,825 204,763
Franklin Strategic Series Franklin Small Cap Growth Fund
$31.17/unit 872,794 705,877
The American Funds Group The Income Fund of America
$15.82/unit 1,158,321 1,055,227
INVESCO Equity, Inc. INVESCO Dynamics Fund
$15.93/unit 4,580,257 3,322,304
Janus Investment Fund Janus Twenty Fund
$38.46/unit 1,643,418 1,116,608
Janus Investment Fund Janus Balanced Fund
$19.63/unit 1,273,104 1,173,372
NeubergerBerman Management, Inc. NeubergerBerman Genesis Fund
$17.17/unit 1,854,303 2,081,509
* The Victory Portfolios The Victory Stock Index Fund; Class A Shares
$17.01/unit 4,524,419 3,614,898
Washington Mutual Investors, Inc. Washington Mutual Investor Fund, Inc.
$28.25/unit 1,867,725 1,784,469
PIMCO PIMCO Total Return Fund
$10.46/unit 1,438,297 1,411,813
* Key Bank EB Money Market Fund
$1.00/unit 146,000 146,000
* Key Bank VDCS Victory Government Reserve Fund G
$11.22/unit 7,111,496 7,135,863
* M.D.C. Holdings, Inc. Common Stock
$37.79/share 5,863,735 12,680,748
Participant Notes Receivable Interest rates of 5.75% - 10.5% and maturity
dates of 2 months to 12 years - 1,247,266
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$ 38,546,684
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* Indicates an identified entity known to be a party-in-interest to the Plan.
10