Exhibit 99.1
M.D.C. Holdings, Inc.
401(k) Savings Plan
Financial Statements and Supplemental Schedule
Year Ended December 31, 2002
M.D.C. Holdings, Inc.
401(k) Savings Plan
Year Ended December 31, 2002
Contents
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Page
Report of Independent Auditors 1
Financial Statements:
Statements of Net Assets Available for Benefits 2
Statement 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) 9
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, 2002 and 2001,
and the related statement of changes in net assets available for benefits for
the year ended December 31, 2002. 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, 2002 and 2001, and the changes in its net assets available for
benefits for the year ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States.
Our audits were 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, 2002, 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 audits 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.
April 25, 2003
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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2002 2001
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Assets
Cash $ 171,526 $ -
Investments, at fair value 42,751,789 38,546,684
Receivables:
Employer contributions 3,081,273 2,752,728
Employee contributions 143,310 164,132
Accrued investment income 10,539 -
-------------------- --------------------
Total receivables 3,235,122 2,916,860
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Net assets available for benefits $ 46,158,437 $ 41,463,544
==================== ====================
See accompanying notes to financial statements.
2
M.D.C. Holdings, Inc.
401(k) Savings Plan
Statement of Changes in Net Assets Available for Benefits
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Year Ended
December 31, 2002
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Additions
Investment income (loss):
Interest and dividends $ 572,205
Net depreciation in fair value of investments (2,962,424)
---------------------
Net investment loss (2,390,219)
Contributions:
Employer 3,137,595
Employee 6,714,460
Rollovers 331,214
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Total contributions 10,183,269
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Net additions 7,793,050
Deductions
Benefit payments 2,984,981
Transaction charges and administrative expenses 113,176
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Total deductions 3,098,157
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Net increase in net assets available for benefits 4,694,893
Net assets available for benefits at beginning of year 41,463,544
---------------------
Net assets available for benefits at end of year $ 46,158,437
=====================
See accompanying notes to financial statements.
3
M.D.C. Holdings, Inc.
401(k) Savings Plan
Notes to Financial Statements
December 31, 2002
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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 June 1, 2001. 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 100%, in whole percentages, of
their pretax annual compensation to a maximum amount of $11,000, in
accordance with Internal Revenue Service regulations. Participants over the
age of 55 can contribute an additional pretax $1,000 in 2002.
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 and
losses. Plan earnings and losses are allocated by funds 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 (continued)
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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 5.25% 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, 2002 and 2001 was $366,090 and $279,913,
respectively. During 2002, $113,176 was used to pay for the Plan's
administrative expenses.
2. Summary of Accounting Policies
Method of Accounting
The Plan's financial statements are prepared on the accrual basis of
accounting.
5
M.D.C. Holdings, Inc.
401(k) Savings Plan
Notes to Financial Statements (continued)
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2. Summary of Accounting Policies (continued)
Investments
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 2001 financial statements have been
reclassified to conform with the 2002 presentation.
3. Investments
Investments that represent 5% or more of the Plan's net assets are
separately identified below.
December 31,
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2002 2001
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M.D.C. Holdings, Inc. common stock $ 14,341,799 $ 12,680,748
VDCS Victory Government Reserve Fund G 8,194,060 7,135,863
The Victory Stock Index Fund; Class A Shares 3,148,747 3,614,898
INVESCO Dynamics Fund * 3,322,304
Neuberger Berman Genesis Fund 2,856,390 2,081,509
PIMCO Total Return 2,801,480 *
American Balanced Income Fund 2,582,730 *
* Balance was less than 5% of the Plan's net assets.
6
M.D.C. Holdings, Inc.
401(k) Savings Plan
Notes to Financial Statements (continued)
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3. Investments (continued)
During 2002 and 2001, 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, 2002
---------------------
Common stock $ 720,388
Collective trust 84,142
Mutual funds (3,766,954)
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$ (2,962,424)
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4. 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.
5. Income Taxes
The Plan has received a determination letter from the Internal Revenue
Service dated August 2, 1995, stating that the Plan is qualified under
Section 401(a) of the Internal Revenue Code (the "Code") and, therefore,
the related trust is exempt from taxation. Subsequent to this issuance of
the determination letter, the Plan was amended, however the plan
administrator believes the plan document continues to qualify in form. Once
qualified, the Plan is required to operate in conformity with the Code to
maintain its qualification. The plan administrator believes the Plan is
being operated in compliance with the applicable requirements of the Code
and, therefore, believes that the Plan, as amended, is qualified and the
related trust is tax exempt.
6. 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.
7
M.D.C. Holdings, Inc.
401(k) Savings Plan
Notes to Financial Statements (continued)
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7. Reconciliations of Plan Financial Statements to the Form 5500
The following is a reconciliation of financial information per the
financial statements to the Form 5500:
December 31,
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2002 2001
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Net assets available for benefits, per financial statements $ 46,158,437 $ 41,463,544
Less: Employer contributions receivable (3,081,273) (2,752,728)
Employee contributions receivable (143,310) (164,132)
Deemed distributions (12,577) (1,862)
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Net assets available for benefits, per Form 5500 $ 42,921,277 $ 38,544,822
==================== ====================
Year Ended December 31, 2002
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Employee Employer
Contributions Contributions
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Contributions made to participant accounts per the financial
statements $ 6,714,460 $ 3,137,595
Add: Prior year contribution receivables per the
financial statements 164,132 2,752,728
Less: Current year contribution receivables per the
financial statements (143,310) (3,081,273)
-------------------- --------------------
Contributions made to participant accounts per the Form 5500 $ 6,735,282 $ 2,809,050
==================== ====================
8. Subsequent Events
In 2002, the Company's Board of Directors approved changing trustees from
Key Bank to INVESCO effective January 1, 2003. This does not impact any of
the amounts contained herein.
8
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, 2002
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Description of investment including
Identity of issue, borrower, maturity date, rate of interest, Current
lessor, or similar party collateral, par, or maturity value Value**
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* M.D.C. Holdings, Inc. Common Stock
$38.26/share $14,341,799
* Key Bank VDCS Victory Government Reserve Fund G
$11.34/share 8,194,060
* Key Bank The Victory Stock Index Fund; Class A Shares
$13.01/share 3,148,747
Neuberger Berman Management, Inc. Neuberger Berman Genesis Fund
$16.56/share 2,856,390
PIMCO PIMCO Total Return Fund
$10.67/share 2,801,480
The American Funds Group American Balanced Income Fund
$14.42/share 2,582,730
The American Funds Group American Washington Mutual Investors Fund
$23.51/share 2,296,865
INVESCO Equity, Inc. INVESCO Dynamics Fund
$10.66/share 2,158,407
* Participant Notes Receivable Interest rates of 5.25% - 10.50% and
maturity dates of 8 months to 15 years 1,352,136
The American Funds Group Europacific Growth Fund
$22.97/share 1,031,859
Janus Investment Fund Janus Mutual Fund
$17.82/share 1,005,846
INVESCO Equity, Inc. INVESCO Small Growth Fund
$8.33/share 692,217
* The Victory Portfolios Victory Real Estate Fund
$12.34/share 289,253
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$42,751,789
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* Indicates an identified entity known to be a party-in-interest to the Plan.
** Cost information has been omitted as all investments are participant
directed.
9