1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NUMBER 1-8951
----------
M.D.C. HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-0622967
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3600 SOUTH YOSEMITE STREET, SUITE 900 80237
DENVER, COLORADO (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(303) 773-1100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE/THE PACIFIC STOCK EXCHANGE
8 3/8% SENIOR NOTES DUE FEBRUARY 2008 NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
AS OF FEBRUARY 5, 2001, 21,447,000 SHARES OF M.D.C. HOLDINGS, INC.
COMMON STOCK WERE OUTSTANDING, AND THE AGGREGATE MARKET VALUE OF THE SHARES
(BASED UPON THE CLOSING PRICE ON THAT DATE OF THE SHARES ON THE NEW YORK STOCK
EXCHANGE, INC. AS REPORTED ON THE COMPOSITE TAPE) HELD BY NON-AFFILIATES WAS
APPROXIMATELY $570,707,000.
DOCUMENTS INCORPORATED BY REFERENCE
PART III OF THIS FORM 10-K IS INCORPORATED BY REFERENCE FROM THE
REGISTRANT'S 2001 DEFINITIVE PROXY STATEMENT TO BE FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION NO LATER THAN 120 DAYS AFTER THE END OF THE
REGISTRANT'S FISCAL YEAR.
================================================================================
2
M.D.C. HOLDINGS, INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2000
----------
TABLE OF CONTENTS
PAGE
NO.
----
PART I
ITEMS 1.
AND 2. BUSINESS AND PROPERTIES
(a) General Development of Business...................................... 1
(b) Financial Information About Industry Segments........................ 1
(c) Narrative Description of Business.................................... 1
ITEM 3. LEGAL PROCEEDINGS.......................................................... 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................ 6
PART II
ITEM 5. MARKET PRICE OF COMMON STOCK AND RELATED SECURITY HOLDER MATTERS........... 7
ITEM 6. SELECTED FINANCIAL AND OTHER DATA.......................................... 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS............................................................ 10
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................. 20
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS.......................................... F-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE..................................................... 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................... 21
ITEM 11. EXECUTIVE COMPENSATION..................................................... 21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............ 22
(i)
3
M.D.C. HOLDINGS, INC.
FORM 10-K
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
(a) General Development of Business
M.D.C. Holdings, Inc. is a Delaware Corporation. We refer to M.D.C.
Holdings, Inc. as the "Company" or as "MDC" in this Form 10-K. The "Company" or
"MDC" includes our subsidiaries unless we state otherwise. MDC's primary
business is owning and managing subsidiary companies that build and sell homes
under the name "Richmond American Homes." We also own and manage HomeAmerican
Mortgage Corporation ("HomeAmerican"), which originates mortgage loans primarily
for MDC's home buyers. In addition, MDC provides title agency services through
American Home Title and Escrow Company ("American Home Title") and offers
insurance through American Home Insurance Agency, Inc. ("American Home
Insurance") to MDC's home buyers.
(b) Financial Information About Industry Segments
Note B to the Consolidated Financial Statements contains information
regarding the Company's business segments for each of the three years ended
December 31, 2000, 1999 and 1998.
(c) Narrative Description of Business
MDC's business consists of two segments, homebuilding and financial
services. In our homebuilding segment, we build and sell single-family homes in
metropolitan Denver, Colorado Springs and Northern Colorado; Northern Virginia
and suburban Maryland; Northern and Southern California; Phoenix and Tucson,
Arizona; and Las Vegas, Nevada. Our financial services segment consists
principally of the operations of HomeAmerican.
Our strategy is to build homes generally for the first-time and move-up
buyer, constituting the largest group of prospective home buyers. The base
prices for these homes generally range from $90,000 to $370,000, although the
Company builds homes with base prices as high as $1,300,000. The average sales
prices of the Company's homes closed in 2000 and 1999 were $227,300 and
$211,400, respectively.
When opening a new homebuilding project, the Company generally acquires
no more than a two year supply of lots to avoid overexposure to any single
sub-market. The Company prefers to acquire finished lots using rolling options
or in phases for cash. If potential returns justify the risk, entitled land is
acquired for development. The Company's Asset Management Committee, composed of
members of the Company's senior management, generally meets weekly to review all
proposed land acquisitions and takedowns of lots under option. Additional
information about MDC's land acquisition practices may be found in the
Homebuilding Segment, Land Acquisition and Development section.
Homes are designed and built to meet local customer preferences. The
Company is the general contractor for all of its projects and employs
subcontractors for site development and home construction. The Company builds
single-family detached homes, except in Virginia and Maryland, where we also
build townhomes.
HomeAmerican is a full service mortgage lender with offices located in
each of MDC's markets. Because it provides mortgage loans to a majority of MDC's
home buyers, HomeAmerican is an integral part of MDC's homebuilding business.
American Home Title provides title agency services to MDC home buyers
in Virginia, Maryland and Colorado. American Home Insurance offers homeowners,
auto and other types of casualty insurance to home buyers in all of our markets.
1
4
HOMEBUILDING SEGMENT.
General. The Company is one of the largest homebuilders in the United
States. MDC is a major regional homebuilder with a significant presence in a
number of selected growth markets. The Company is the largest homebuilder in
metropolitan Denver; among the top five homebuilders in Northern Virginia,
Tucson and Colorado Springs; and among the top ten builders in suburban
Maryland, Northern and Southern California, Phoenix and Las Vegas. MDC believes
a significant presence in its markets enables it to compete effectively for home
buyers, land acquisitions and subcontractor labor.
The Company designs, builds and sells quality single-family homes at
affordable prices, generally for the first-time and move-up buyer. Approximately
79% of its homes closed in 2000 were in subdivisions targeted to first-time and
first-time move-up buyers, compared with approximately 71% and 74% in 1999 and
1998, respectively.
The Company's operations are diversified geographically, as shown in
the following table of home sales revenues by state for the years 1998 through
2000 (dollars in thousands).
TOTAL HOME SALES REVENUES PERCENT OF TOTAL
------------------------------------ --------------------------------------
2000 1999 1998 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
Colorado ...... $ 659,549 $ 519,870 $ 439,600 39% 34% 36%
California .... 443,332 434,553 275,682 26% 28% 22%
Arizona ....... 228,550 260,224 218,110 13% 17% 18%
Nevada ........ 111,108 83,342 67,455 7% 6% 6%
Virginia ...... 183,900 162,577 145,569 11% 11% 12%
Maryland ...... 74,669 65,953 72,243 4% 4% 6%
---------- ---------- ---------- ---------- ---------- ----------
Total ... $1,701,108 $1,526,519 $1,218,659 100% 100% 100%
========== ========== ========== ========== ========== ==========
Housing. MDC builds homes in a number of basic series, each designed to
appeal to a different segment of the home buyer market. Within each series, MDC
builds several models, each with a different floor plan, elevation and standard
and optional features. Differences in sales prices of similar models in any
series depend primarily upon location, optional features and design
specifications. The series of homes offered at a particular location are based
on customer preference, lot size, the area's demographics and, to a lesser
extent, the requirements of local municipalities.
Design centers are located in the Company's Denver, Colorado Springs,
Phoenix, Northern California, Southern California, Nevada and Virginia
homebuilding divisions. Home buyers are able to customize certain features of
their homes by selecting options and upgrades on display at the design centers.
Home buyers can select finishes and upgrades soon after they decide to purchase
a Richmond American home. The design centers, which are also planned for MDC's
other divisions, not only provide MDC's customers with a convenient way to
select upgrades and options for their new homes, but also provide the Company
with an additional source of revenue and profit.
The Company maintains limited levels of inventories of unsold homes in
its markets. Unsold homes in various stages of completion allow the Company to
meet the immediate and near-term demands of prospective home buyers. In order to
mitigate the risk of carrying excess inventory, the Company has continued to
reduce the number of its unsold homes under construction.
Land Acquisition and Development. MDC purchases finished lots using
option contracts and in phases or in bulk for cash. When estimated potential
returns justify the risk, the Company acquires entitled land for development
into finished lots. In making land purchases, MDC considers a number of factors,
including projected rates of return, sales prices of the homes to be built on
the lots, population and employment growth patterns, proximity to developed
areas, estimated costs of development and demographic trends. Generally, MDC
acquires finished lots and land for development only in areas that will have,
among other things, available building permits, utilities and suitable zoning.
The Company attempts to maintain a supply of finished lots sufficient to enable
it to start homes as soon as practical after a contract for sale is executed.
This approach is intended to minimize the Company's investment in inventories
and reduce the risk of shortages of labor and building materials. Increases in
the cost of finished lots may reduce Home Gross Margins (as defined below) in
the future to the extent that market conditions would not allow the Company to
recover the higher cost of land through higher sales prices. We define "Home
Gross Margins" to mean home sales revenues less cost of goods sold (which
primarily includes land and construction costs, capitalized interest, a reserve
for warranty expense and financing costs) as a percent of home sales revenues.
See "FORWARD-LOOKING STATEMENTS" below.
2
5
MDC has the right to acquire a portion of the land it will require in
the future utilizing option contracts, in some cases on a "rolling" basis.
Generally, in an option contract, the Company obtains the right to purchase lots
in consideration for an option deposit. In the event the Company elects not to
purchase the lots within a specified period of time, the Company relinquishes
the option deposit. This practice limits the Company's risk and avoids a greater
demand on its liquidity. At December 31, 2000, MDC had the right to acquire
8,131 lots under option agreements with approximately $10,838,000 in total
option deposits. Because of increased demand for finished lots in certain of its
markets, the Company's ability to acquire lots using rolling options has been
reduced or has become significantly more expensive.
MDC owns various undeveloped parcels of real estate, most of which it
intends to develop into finished lots. MDC develops its land in phases
(generally fewer than 100 lots at a time for each home series in a subdivision)
in order to limit the Company's risk in a particular project and to maximize the
efficient use of available liquidity. Building permits and utilities are
available and zoning is suitable for the current intended use of substantially
all of MDC's undeveloped land. When developed, these lots generally will be used
in the Company's homebuilding activities, although some lots may be sold to
others. Certain undeveloped land also may be sold to others before it is
developed. See "FORWARD-LOOKING STATEMENTS" below.
The table below shows the carrying value of land and land under
development, by state, as of December 31, 2000, 1999 and 1998 (in thousands).
DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
Colorado ...... $126,524 $ 74,117 $ 53,720
California .... 149,088 161,508 100,754
Arizona ....... 50,937 29,426 25,178
Nevada ........ 26,546 27,419 20,027
Virginia ...... 29,596 6,357 11,292
Maryland ...... 6,020 9,853 6,209
-------- -------- --------
Total ..... $388,711 $308,680 $217,180
======== ======== ========
The table below shows the number of lots owned and under option, by
state, as of December 31, 2000, 1999 and 1998.
DECEMBER 31,
------------------------
2000 1999 1998
------ ------ ------
Lots Owned
Colorado ............. 5,905 5,096 3,932
California ........... 1,589 2,070 1,769
Arizona .............. 2,298 1,976 1,836
Nevada ............... 680 857 848
Virginia ............. 1,052 265 309
Maryland ............. 109 188 231
------ ------ ------
Total ............ 11,633 10,452 8,925
====== ====== ======
Lots Under Option
Colorado ............. 3,498 3,682 4,063
California ........... 1,030 632 552
Arizona .............. 1,720 1,724 1,492
Nevada ............... 39 50 405
Virginia ............. 1,344 1,771 903
Maryland ............. 500 204 314
------ ------ ------
Total ............ 8,131 8,063 7,729
====== ====== ======
Labor and Raw Materials. Generally, the materials used in MDC's
homebuilding operations are standard items carried by major suppliers. The
Company generally contracts for most of its materials and labor at a fixed price
during the anticipated construction period of its homes. This allows the Company
to mitigate the risks associated with increases in building materials and labor
costs between the time construction begins on a home and the time it is closed.
Increases in the costs of building materials, particularly lumber, and
subcontracted labor may reduce Home Gross Margins to the extent that market
conditions prevent the recovery of increased costs through higher sales
3
6
prices. To varying degrees, the Company experienced shortages in the
availability of building materials and/or labor in 2000 in each of its markets,
which resulted in delays in the delivery of homes under construction. The
Company may experience shortages and delays in the future which may result in
delays in the delivery of homes under construction, reduced Home Gross Margins
or both. See "FORWARD-LOOKING STATEMENTS" below.
Seasonal Nature of Business. MDC's business is seasonal to the extent
that its Colorado, California, Virginia and Maryland operations encounter
weather-related slowdowns. Delays in development and construction activities
resulting from adverse weather conditions increase the Company's risk of buyer
cancellations and higher costs for interest, materials and labor. In addition,
home buyer preferences and demographics influence the seasonal nature of MDC's
business.
Backlog. As of December 31, 2000 and 1999, homes under contract but not
yet delivered ("Backlog") totalled 3,292 and 2,941, respectively, with estimated
sales values of $775,000,000 and $600,000,000, respectively. Based on its past
experience, assuming no significant change in market conditions and mortgage
interest rates, MDC anticipates that approximately 75% of its December 31, 2000
Backlog will close under existing sales contracts during the first nine months
of 2001. The remaining 25% of the homes in Backlog are not expected to close
under existing contracts due to cancellations. See "FORWARD-LOOKING STATEMENTS"
below.
Marketing and Sales. MDC's homes are sold under various commission
arrangements by its own sales personnel and by cooperating brokers and referrals
in the realtor community. In marketing homes, MDC primarily uses on-site model
homes, advertisements in local newspapers, radio, billboards and other signage,
magazines and illustrated brochures. We also market our homes on our internet
website, www.richmondamerican.com. All of MDC's homes are sold with a ten-year
limited warranty issued by an unaffiliated warranty company.
Title Operations. Since January 1998, American Home Title has provided
title agency services to MDC home buyers in Virginia and Maryland. American Home
Title began offering title agency services to MDC's Colorado home buyers in
1999. The Company is evaluating opportunities to provide title agency services
in its other markets.
Competition. The homebuilding industry is fragmented and highly
competitive. MDC competes with numerous homebuilders, including a number that
are larger and have greater financial resources. Homebuilders compete for
customers, desirable financing, land, building materials and subcontractor
labor. Competition for home orders primarily is based upon price, style,
financing provided to prospective purchasers, location of property, quality of
homes built, warranty service and general reputation in the community. The
Company also competes with subdivision developers and land development
companies.
Mortgage Interest Rates. The Company's operations are dependent upon
the availability and cost of mortgage financing. Increases in home mortgage
interest rates may reduce the demand for homes and home mortgages and,
generally, will reduce home mortgage refinancing activity. The Company is unable
to predict future changes in home mortgage interest rates or the impact such
changes may have on the Company's operating activities and results of
operations. See "FORWARD-LOOKING STATEMENTS" below.
Regulation. The Company's operations are subject to continuing
compliance requirements mandated by applicable federal, state and local
statutes, ordinances, rules and regulations, including zoning and land use
ordinances, building, plumbing and electrical codes, contractors' licensing
laws, state insurance laws, federal and state human resources laws and
regulations and health and safety regulations and laws (including, but not
limited to, those of the Occupational Safety and Health Administration). Various
localities in which the Company operates have imposed (or may impose in the
future) fees on developers to fund schools, road improvements and low and
moderate income housing. See "FORWARD-LOOKING STATEMENTS" below.
From time to time, various municipalities in which the Company operates
restrict or place moratoriums on the availability of utilities, including water
and sewer taps. Additionally, certain jurisdictions in which the Company
operates have proposed or enacted growth initiatives which may restrict the
number of building permits available in any given year. Although no assurances
can be given as to future conditions or governmental actions, MDC believes that
it has, or can obtain, water and sewer taps and building permits for its land
inventory and land held for development. See "FORWARD-LOOKING STATEMENTS" below.
4
7
The Company's homebuilding operations also are affected by
environmental laws and regulations pertaining to availability of water,
municipal sewage treatment capacity, land use, hazardous waste disposal,
naturally occurring radioactive materials, building materials, population
density and preservation of endangered species, natural terrain and vegetation.
Due to these considerations, the Company generally obtains an environmental site
assessment for parcels of land which it acquires. The particular environmental
laws and regulations that apply to any given homebuilding project vary greatly
according to the site's location, the site's environmental conditions and the
present and former uses of the site. These environmental laws and regulations
may result in project delays; cause the Company to incur substantial compliance
and other costs; and/or prohibit or severely restrict homebuilding activity in
certain environmentally sensitive regions or areas. See "FORWARD-LOOKING
STATEMENTS" below.
FINANCIAL SERVICES SEGMENT.
Mortgage Lending Operations.
General. HomeAmerican is a full-service mortgage lender. Through office
locations in each of the Company's markets, HomeAmerican originates mortgage
loans primarily for MDC's home buyers and, to a lesser extent, for others on a
"spot" basis. HomeAmerican also brokers mortgage loans for origination by
outside lending institutions for MDC home buyers. HomeAmerican is the principal
originator of mortgage loans for MDC's home buyers.
HomeAmerican is authorized to originate Federal Housing
Administration-insured ("FHA"), Veterans Administration-guaranteed ("VA"),
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation ("FHLMC") and conventional mortgage loans. HomeAmerican is also an
authorized loan servicer for FNMA, FHLMC and the Government National Mortgage
Association ("GNMA") and, as such, is subject to the rules and regulations of
such organizations. Through early 1999, HomeAmerican also purchased loans and
the related servicing rights from unaffiliated loan correspondents. The
origination fees for these loans were retained by the correspondents.
HomeAmerican does not intend to purchase mortgage loans from correspondents in
the future. See "FORWARD-LOOKING STATEMENTS" below.
Substantially all of the mortgage loans originated by HomeAmerican are
sold to private investors within 40 days of origination. The Company uses
HomeAmerican's secured warehouse line of credit, other borrowings and internally
generated Company funds to finance these mortgage loans until they are sold.
Portfolio of Mortgage Loan Servicing. Mortgage loan servicing involves
the collection of principal, interest, taxes and insurance premiums from the
borrower and the remittance of such funds to the mortgage loan investor, local
taxing authorities and insurance companies, for which the servicer is paid a
fee. HomeAmerican obtains the servicing rights related to the mortgage loans it
originates. Certain mortgage loans are sold "servicing released" (the servicing
rights are included with the sale of the corresponding mortgage loans). The
servicing rights on mortgage loans which are not sold "servicing released"
generally are sold in bulk at a later date. HomeAmerican has sold, and intends
to sell in the future, mortgage loan servicing. See "FORWARD-LOOKING STATEMENTS"
below.
HomeAmerican's portfolio of mortgage loan servicing at December 31,
2000 consisted of servicing rights with respect to approximately 3,781
single-family loans, 80% of which were less than two years old. These loans are
secured by mortgages on properties in eight states, with interest rates on the
loans ranging from approximately 4.25% to 14.0% and averaging 7.6%. The
underlying value of a servicing portfolio generally is determined based on the
interest rates and the annual servicing fee rates (currently .44% for FHA/VA
loans and .25% for conventional loans) applicable to the loans comprising the
portfolio.
As interest rates decreased during the latter part of 2000, the
proportion of HomeAmerican's customers who selected adjustable rate mortgages
("ARMs") decreased to approximately 4% in December 2000, compared with 28% in
December 1999. The value of mortgage servicing rights related to ARMs is
substantially less than mortgage servicing rights related to fixed rate mortgage
loans.
Pipeline. HomeAmerican's mortgage loans in process which had not closed
("Pipeline") at December 31, 2000 had aggregate principal balances of
$483,332,000. Approximately 75% of the Pipeline at December 31, 2000 is
anticipated to close during the first six months of 2001. If mortgage interest
rates decline, a smaller percentage of these loans would be expected to close.
See "FORWARD-LOOKING STATEMENTS" below.
5
8
Forward Sales Commitments. HomeAmerican's operations are affected by
changes in mortgage interest rates. HomeAmerican utilizes forward mortgage
securities contracts to manage the interest rate risk on its fixed-rate mortgage
loans owned and rate-locked mortgage loans in the Pipeline. Such contracts are
the only significant financial derivative instrument utilized by MDC.
Competition. The mortgage industry is fragmented and highly
competitive. In each of the locations in which it originates loans, HomeAmerican
competes with numerous banks, thrifts and other mortgage bankers, many of which
are larger and have greater financial resources. Competitive factors include
pricing, loan terms, underwriting criteria and customer service.
Insurance Operations.
In 1998, American Home Insurance began offering homeowners, auto and
other types of casualty insurance to its Colorado home buyers. In 1999, American
Home Insurance began offering these insurance services to MDC's home buyers in
all states in which the Company operates except California. American Home
Insurance services were available to MDC's California home buyers beginning in
the first quarter of 2000.
EMPLOYEES.
At December 31, 2000, MDC employed approximately 1,700 persons. MDC
considers its employee relations to be satisfactory.
ITEM 3. LEGAL PROCEEDINGS.
The Company and certain of its subsidiaries have been named as
defendants in various claims, complaints and other legal actions arising in the
normal course of business. In the opinion of management, the outcome of these
matters will not have a material adverse effect on the financial condition,
results of operations or cash flows of the Company. See "FORWARD-LOOKING
STATEMENTS" below.
Because of the nature of the homebuilding business, and in the ordinary
course of its operations, the Company from time to time may be subject to
product liability claims.
The Company is not aware of any litigation, matter or pending claim
against the Company which would result in material contingent liabilities
related to environmental hazards or asbestos.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No meetings of the Company's stockholders were held during the fourth
quarter of 2000.
6
9
PART II
ITEM 5. MARKET PRICE OF COMMON STOCK AND RELATED SECURITY HOLDER MATTERS.
The shares of MDC common stock are traded on the New York and the
Pacific Stock Exchanges. The following table sets forth, for the periods
indicated, the high and low sale prices of the shares of MDC common stock as
reported on the Composite Tape, adjusted for the 10% stock dividend as discussed
below.
HIGH LOW
------ ------
1999
First quarter.................. $19.60 $12.45
Second quarter................. $19.55 $13.64
Third quarter.................. $20.00 $13.64
Fourth quarter................. $15.68 $12.16
2000
First quarter.................. $16.31 $12.27
Second quarter................. $18.18 $14.49
Third quarter.................. $24.55 $16.88
Fourth quarter................. $31.59 $23.07
The Company declared and paid dividends of six cents per share in the
first quarter of 2001, six cents per share in each quarter in 2000 and five
cents per share in each quarter in 1999.
On January 22, 2001, MDC's board of directors approved the payment of a
10% stock dividend, which will be distributed on February 16, 2001 to
shareowners of record on February 5, 2001.
In connection with the declaration and payment of dividends, the
Company is required to comply with certain covenants contained in its
$413,000,000 unsecured revolving line of credit agreement and its 8 3/8% senior
notes due 2008 indenture dated January 1998. Pursuant to the terms of these
agreements, dividends may be declared or paid if the Company is in compliance
with certain stockholders' equity and debt coverage tests. At December 31, 2000,
the Company had a permitted dividend capacity of approximately $130,000,000
pursuant to the most restrictive of these covenants.
On February 5, 2001, MDC had 1,192 shareowners of record.
7
10
ITEM 6. SELECTED FINANCIAL AND OTHER DATA.
The data in this table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements (in thousands, except per share
and unit amounts).
SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
INCOME STATEMENT DATA
Revenues ....................................... $ 1,751,545 $ 1,567,638 $ 1,263,209 $ 969,562 $ 922,595
=========== =========== =========== =========== ===========
Operating profit
Homebuilding ................................ $ 227,319 $ 162,258 $ 86,764 $ 41,543 $ 27,967
Financial services
Mortgage lending .......................... 14,282 13,169 11,198 7,745 12,584
Asset management .......................... -- -- 4,590 1,434 6,073
----------- ----------- ----------- ----------- -----------
Total financial services .............. 14,282 13,169 15,788 9,179 18,657
----------- ----------- ----------- ----------- -----------
Net corporate expenses(1) ................... (38,400) (26,974) (18,700) (11,395) (13,870)
----------- ----------- ----------- ----------- -----------
Income before income taxes and
extraordinary item .......................... $ 203,201 $ 148,453 $ 83,852 $ 39,327 $ 32,754
=========== =========== =========== =========== ===========
Income before extraordinary item ............... $ 123,303 $ 89,392 $ 51,568 $ 24,205 $ 20,799
Basic per common share(2) ................... $ 5.22 $ 3.65 $ 2.54 $ 1.25 $ 1.02
Diluted per common share(2) ................. $ 5.11 $ 3.59 $ 2.11 $ 1.07 $ 0.89
Net income(3) .................................. $ 123,303 $ 89,392 $ 36,254 $ 22,026 $ 20,378
Basic per common share(2) ................... $ 5.22 $ 3.65 $ 1.79 $ 1.14 $ 1.00
Diluted per common share(2) ................. $ 5.11 $ 3.59 $ 1.49 $ 0.98 $ 0.87
Weighted-average shares outstanding(2)
Basic ....................................... 23,613 24,472 20,296 19,440 20,485
Diluted ..................................... 24,142 24,922 24,867 24,089 25,039
Dividends paid per share ....................... $ .24 $ .20 $ .15 $ .12 $ .12
DECEMBER 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA
ASSETS
Housing completed or under construction ..... $ 443,512 $ 337,029 $ 294,104 $ 249,928 $ 251,885
Land and land under development ............. $ 388,711 $ 308,680 $ 217,180 $ 193,012 $ 182,927
Total assets ................................ $ 1,061,598 $ 877,008 $ 714,013 $ 621,770 $ 617,303
HOMEBUILDING AND CORPORATE DEBT
Homebuilding
Line of credit ............................ $ 90,000 $ 40,000 $ 21,871 $ 20,766 $ 11,832
Notes payable ............................. $ -- $ -- $ 866 $ 9,676 $ 3,063
Senior notes ................................ $ 174,444 $ 174,389 $ 174,339 $ 150,354 $ 187,721
Subordinated notes .......................... $ -- $ -- $ -- $ 38,230 $ 38,225
Total homebuilding and corporate debt ....... $ 264,444 $ 214,389 $ 197,076 $ 222,457 $ 244,328
STOCKHOLDERS' EQUITY ........................... $ 482,230 $ 389,023 $ 298,131 $ 229,593 $ 213,847
STOCKHOLDERS' EQUITY PER OUTSTANDING
Share(2)(5) ................................. $ 20.69 $ 15.85 $ 12.33 $ 10.94 $ 10.13
RATIO OF DEBT TO STOCKHOLDERS' EQUITY(4) ....... .55 .55 .66 .97 1.14
RATIO OF DEBT TO CAPITAL(4) .................... .35 .36 .40 .49 .53
8
11
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
OPERATING DATA
Home sales revenues ......................... $ 1,701,108 $ 1,526,519 $ 1,218,659 $ 939,016 $ 880,358
Orders for homes, net (units) ............... 7,835 7,232 7,191 5,769 5,049
Homes closed (units) ........................ 7,484 7,221 6,293 5,223 4,974
Backlog
Units(6) .................................. 3,292 2,941 2,930 2,032 1,486
Estimated sales value(6) .................. $ 775,000 $ 600,000 $ 580,000 $ 380,000 $ 261,000
Average selling price per home .............. $ 227.3 $ 211.4 $ 193.7 $ 179.8 $ 177.0
Home Gross Margins .......................... 22.3% 19.3% 16.9% 14.5% 13.7%
Excluding interest in home cost of
sales ................................... 23.6% 21.2% 19.5% 17.4% 16.7%
CASH FLOWS FROM
Operating activities ........................ $ (63,457) $ (3,845) $ 800 $ 18,516 $ 47,925
Investing activities ........................ $ (3,160) $ (1,878) $ 15,081 $ 3,513 $ 13,998
Financing activities ........................ $ 41,802 $ 34,574 $ (17,480) $ (21,655) $ (71,414)
CORPORATE AND HOMEBUILDING SG&A AS A % OF
HOME SALES REVENUES ......................... 11.9% 10.8% 11.5% 11.0% 11.0%
EBITDA, AS ADJUSTED(7)
Income before extraordinary item ............ $ 123,303 $ 89,392 $ 51,568 $ 24,205 $ 20,799
Add
Income taxes ............................ 79,898 59,061 32,284 15,122 11,955
Corporate and homebuilding interest
expense ............................... -- -- -- 761 3,773
Interest in cost of sales ............... 22,356 30,187 34,184 28,361 25,995
Other fixed charges ..................... 3,362 1,347 953 797 1,165
Depreciation and amortization ........... 21,792 17,845 20,228 15,050 12,067
Non-cash charges
Homebuilding asset impairment
charges .......................... 4,200 2,242 5,300 5,850 9,191
Other ............................... -- -- -- -- 533
----------- ----------- ----------- ----------- -----------
Total EBITDA, As Adjusted ................... $ 254,911 $ 200,074 $ 144,517 $ 90,146 $ 85,478
=========== =========== =========== =========== ===========
Interest incurred ........................... $ 24,367 $ 21,261 $ 22,525 $ 26,368 $ 30,296
EBITDA, AS ADJUSTED/INTEREST INCURRED .......... 10.5 9.4 6.4 3.4 2.8
- ----------
(1) Net corporate expenses represent (a) net realized gains and losses on
corporate investments and marketable securities; (b) interest, dividend and
other income; (c) corporate general and administrative expense; and (d)
corporate and homebuilding interest expense.
(2) Stockholders' equity per share, basic and diluted net income per share and
weighted-average shares outstanding have been restated for all periods
presented to reflect the effect of the 10% stock dividend to be distributed
on February 16, 2001.
(3) Includes the effects of extraordinary after-tax losses on the early
extinguishment of debt resulting principally from (a) in 1998, the
refinancing of MDC's 11 1/8% senior notes due 2003 (the "Old Senior
Notes"); (b) in 1997, the repurchase of $38,000,000 principal amount of the
Old Senior Notes; and (c) in 1996, certain other debt extinguishments.
(4) Excludes mortgage lending debt from the calculation.
(5) Pro-forma assuming conversion of the 8 3/4% convertible subordinated notes
for 1997 and 1996.
(6) At the end of each period.
(7) "EBITDA, as adjusted" has been computed in accordance with the definition
of "Consolidated EBITDA" set forth under the New Senior Notes indenture.
Under this definition, EBITDA, as adjusted, is calculated by adding to net
income the provision for income tax, depreciation, amortization, interest
expense, other fixed charges and other non-cash, extraordinary charges that
reduce net income, including asset impairment charges. EBITDA, as adjusted,
should not be considered an alternative to operating income determined in
accordance with generally accepted accounting principles ("GAAP") as an
indicator of operating performance, nor an alternative to cash flows from
operating activities determined in accordance with GAAP as a measure of
liquidity. Because some analysts and companies may not calculate EBITDA, as
adjusted, in the same manner as MDC, the EBITDA, as adjusted, information
presented above may not be comparable to similar presentations by others.
MDC's management believes that EBITDA, as adjusted, reflects the changes in
the Company's operating results, particularly changes in the Company's
operating income, and is an indication of MDC's ability to generate funds
from operations that are available to pay income taxes, interest and
principal on debt and to meet other cash obligations.
9
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS.
2000 Compared With 1999. Revenues for the year ended December 31, 2000
were $1,751,545,000, the highest in the Company's history and a 12% increase
over 1999. The increase primarily resulted from a 4% increase in the number of
home closings and a $15,900 increase in the average selling price per home
closed.
Income before income taxes increased 37% to $203,201,000 in 2000. The
increase was due to a 40% increase in homebuilding segment operating profit and
an 8% increase in financial services segment operating profit. The homebuilding
segment increase principally was a result of the home closing and average
selling price increases described above and an increase of 300 basis points in
Home Gross Margins. The financial services segment increase primarily was due to
a 12% increase in loan origination fees.
Throughout 2000, the Company continued to strengthen its balance sheet
and improve the efficiency of its operations. The Company's strong 2000
operating results, partially offset by its repurchase of 1,931,800 shares of its
common stock for $30,828,000 during the year, increased stockholders' equity by
24% to $482,230,000, or $20.69 per outstanding share (restated for the 10% stock
dividend), at December 31, 2000. These factors contributed to a reduction in the
Company's corporate and homebuilding debt-to-capital ratio to .35 and its
corporate and homebuilding debt-to-EBITDA, as adjusted, ratio to 1.04 at
December 31, 2000, the lowest levels achieved in the Company's history. In
addition, the Company's ratio of EBITDA, as adjusted, to interest incurred
improved to 10.5 for the year ended December 31, 2000, compared with 9.4 for the
same period in 1999.
1999 Compared With 1998. Revenues for the year ended December 31, 1999
were $1,567,638,000, a 24% increase over 1998. The increase primarily resulted
from a 15% increase in the number of home closings and a $17,700 increase in the
average selling price per home closed.
Income before income taxes and extraordinary item increased 77% to
$148,453,000 in 1999. The increase primarily was due to an 87% increase in
homebuilding segment operating profit, partially offset by a 17% decrease in
financial services segment operating profit. The homebuilding segment increase
principally was a result of the home closing and average selling price increases
described above and an increase of 240 basis points in Home Gross Margins. The
financial services segment operating profit decreased in 1999 due to a
$4,450,000 gain recognized in 1998 resulting from the receipt of the final
payment for the September 1996 sale of the Company's asset management business.
Operating profit from the Company's mortgage lending operations increased 18% in
1999 primarily due to a 28% increase in loan origination fees.
Net income for 1998 included an extraordinary loss of $15,314,000, net
of an income tax benefit of $9,587,000, recognized in connection with the
Company's repurchase and defeasance of the remaining $152,000,000 principal
amount of MDC's 11 1/8% senior notes due 2003 (the "Old Senior Notes").
10
13
HOMEBUILDING SEGMENT.
The table below sets forth information relating to the Company's
homebuilding segment (dollars in thousands).
YEAR ENDED DECEMBER 31,
--------------------------------------
2000 1999 1998
---------- ---------- ----------
Home Sales Revenues ............................. $1,701,108 $1,526,519 $1,218,659
Operating Profits ............................... $ 227,319 $ 162,258 $ 86,764
Average Selling Price Per Home Closed ........... $ 227.3 $ 211.4 $ 193.7
Home Gross Margins .............................. 22.3% 19.3% 16.9%
Excluding Interest in Home Cost of Sales ... 23.6% 21.2% 19.5%
Orders For Homes, Net (Units)
Colorado ................................... 2,607 2,755 2,742
California ................................. 1,614 1,396 1,042
Arizona .................................... 1,849 1,455 1,829
Nevada ..................................... 739 552 540
Virginia ................................... 765 738 710
Maryland ................................... 261 336 328
---------- ---------- ----------
Total .................................... 7,835 7,232 7,191
========== ========== ==========
Homes Closed (Units)
Colorado ................................... 2,848 2,484 2,267
California ................................. 1,363 1,465 986
Arizona .................................... 1,554 1,699 1,526
Nevada ..................................... 678 561 489
Virginia ................................... 727 702 667
Maryland ................................... 314 310 358
---------- ---------- ----------
Total .................................... 7,484 7,221 6,293
========== ========== ==========
DECEMBER 31,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
Backlog (Units)
Colorado ................................... 1,385 1,626 1,355
California ................................. 508 257 326
Arizona .................................... 747 452 696
Nevada ..................................... 198 137 146
Virginia ................................... 328 290 254
Maryland ................................... 126 179 153
----------- ----------- -----------
Total .................................... 3,292 2,941 2,930
=========== =========== ===========
Estimated Sales Value .................... $ 775,000 $ 600,000 $ 580,000
=========== =========== ===========
Active Subdivisions
Colorado ................................... 48 50 45
California ................................. 29 24 21
Arizona .................................... 27 20 24
Nevada ..................................... 10 12 9
Virginia ................................... 12 16 20
Maryland ................................... 7 9 11
----------- ----------- -----------
Total .................................... 133 131 130
=========== =========== ===========
11
14
HOMEBUILDING ACTIVITIES - 2000 COMPARED WITH 1999.
Home Sales Revenues and Homes Closed. Home sales revenues in 2000 were
the highest in the Company's history and represented an 11% increase compared
with home sales revenues in 1999. The increase resulted from an increase in both
the number of home closings and average selling price per home closed, as
further discussed below.
Home closings were higher in all of the Company's markets except
Southern California and Phoenix in 2000, compared with 1999. Home closings
particularly were strong in Northern California, Nevada and Colorado, which
increased 29%, 21% and 15%, respectively, primarily as a result of the strong
demand for new homes in these markets. The decrease in home closings in Southern
California and Phoenix primarily was due to fewer active subdivisions in each of
these markets during the latter half of 1999 and the first quarter of 2000.
Active subdivisions subsequently have increased to 20 and 21, respectively, in
Southern California and Phoenix at December 31, 2000, compared with 14 and 11,
respectively, at June 30, 1999.
Average Selling Price Per Home Closed. The average selling price per
home closed increased $15,900 in 2000, compared with 1999, as each of the
Company's markets, except Phoenix, realized higher average selling prices. The
increases primarily were due to (1) the ability to increase sales prices due to
the strong demand for new homes in most of the Company's markets; (2) a greater
number of homes closed in higher-priced subdivisions in Northern California and
Southern California, where average selling prices exceeded $300,000; and (3)
increased sales volume per home from the Company's established design centers in
Colorado, Virginia, Southern California and Las Vegas, and from its new design
center in Northern California. Average selling prices were lower in Phoenix due
to the division's increased emphasis on more affordable homes.
Home Gross Margins. Home Gross Margins were 22.3% for the year ended
December 31, 2000, representing an increase of 300 basis points compared with
1999. The increase largely was due to (1) selling price increases and reduced
incentives offered to home buyers due to the continued strong demand in most of
the Company's markets; (2) increased sales of higher-margin products through the
Company's design centers; (3) reduced interest in home cost of sales (as
discussed below); (4) increased rebates collected from suppliers through the
Company's national purchasing programs; (5) a reduction in previous estimates of
costs to complete land development and homes in certain projects in Phoenix,
Southern California and Colorado; (6) in Maryland, fewer under-performing
subdivisions in 2000 and management's continued efforts to improve
profitability; and (7) ongoing initiatives in each of the Company's markets
designed to improve operating efficiency, control costs and increase rates of
return.
Interest in Home Cost of Sales. Interest in home cost of sales as a
percent of home sales revenues decreased to 1.3% in 2000, compared with 1.9% and
2.6%, respectively, for the same periods in 1999 and 1998. These reductions
primarily resulted from lower average levels of capitalized interest in
homebuilding inventories during 2000, compared with 1999 and 1998. Interest
capitalized as a percentage of homebuilding inventories continued to decrease to
2.3% at December 31, 2000 from 2.7% at December 31, 1999 and 5.2% at December
31, 1998. This decrease primarily is due to (1) the close-out of older projects
with higher levels of capitalized interest in Colorado, Virginia and Maryland;
and (2) the financing of a greater portion of the Company's expanded
homebuilding operations with cash from current operations.
Orders for Homes and Backlog. Orders for homes increased to 7,835 in
2000, the highest number of annual orders in the Company's history. Home orders
in 2000 particularly were strong in (1) Northern California and Nevada
(increases of 42% and 34%, respectively), primarily as a result of the strong
demand for new homes in these markets; and (2) Phoenix (an increase of 42%),
where the average number of active subdivisions increased to 18 in 2000,
compared with 12 in 1999. Home orders were lower in 2000, compared with 1999, in
Colorado and Maryland, primarily as a result of fewer active subdivisions in
each of these markets.
The Company ended 2000 with a record Backlog of 3,292 homes with an
estimated sales value of $775,000,000, compared with the Backlog of 2,941 homes
with an estimated sales value of $600,000,000 at December 31, 1999. Assuming no
significant change in market conditions or mortgage interest rates, the Company
expects approximately 75% of its December 31, 2000 Backlog to close under
existing sales contracts during the first nine months of 2001. The remaining 25%
of the homes in Backlog are not expected to close under existing contracts due
to cancellations. See "FORWARD-LOOKING STATEMENTS" below.
12
15
Other Revenues. Other revenues during the year ended December 31, 2000
included net pre-tax gains realized on the sales of certain investments by MDC's
captive insurance subsidiary of $8,629,000, compared with gains of $787,000 for
the year ended December 31, 1999.
Marketing. Marketing expenses (which include sales commissions,
advertising, amortization of deferred marketing costs, model home expenses and
other costs) totalled $94,412,000 in 2000, compared with $80,545,000 in 1999.
The increase in 2000 primarily was volume related, resulting from higher sales
commissions, product advertising and model home costs incurred in connection
with the Company's increased homebuilding activities.
General and Administrative. General and administrative expenses
totalled $69,150,000 in 2000, compared with $54,829,000 in 1999. The increase
primarily was due to increased compensation costs resulting from MDC's higher
profitability and expanded operations in certain of the Company's markets, most
notably Colorado, Southern California and Northern California.
HOMEBUILDING ACTIVITIES - 1999 COMPARED WITH 1998.
Home Sales Revenues and Homes Closed. Home sales revenues in 1999 were
25% higher than home sales revenues in 1998. The increase resulted from an
increase in both the number of home closings and average selling price per home
closed, as further discussed below.
Home closings were higher in all of the Company's markets except
Maryland in 1999, compared with 1998. Home closings particularly were strong in
(1) Southern California, Phoenix and Colorado, which increased 22%, 13% and 10%,
respectively, as a result of the strong demand for new homes in these markets;
and (2) Northern California, where the Company opened six new active
subdivisions in 1999 in the San Francisco Bay area. In Maryland, home closings
decreased in 1999, primarily due to a decrease in the number of active
subdivisions to nine at the end of 1999, compared with 11 at the end of 1998.
Average Selling Price Per Home Closed. The average selling price per
home closed increased to $211,400 in 1999, compared with $193,700 in 1998. Each
of the Company's markets realized higher average selling prices in 1999,
compared with 1998. The increases primarily were due to (1) the ability to
increase sales prices due to the strong demand for new homes in most of the
Company's markets; (2) a greater number of homes closed in higher-priced
subdivisions in Southern and Northern California, where average selling prices
approached $300,000; (3) a higher proportion of detached homes closed in
Virginia, which generally have higher selling prices than townhomes; and (4)
increased sales volume per home from the Company's design centers in Colorado,
Phoenix, Southern California, Las Vegas and Virginia.
Home Gross Margins. Home Gross Margins were 19.3% for the year ended
December 31, 1999, representing an increase of 240 basis points compared with
1998. The increase was due to (1) in Colorado and Phoenix, selling price
increases and reduced incentives offered to home buyers due to the continued
strong demand for new homes in these markets; (2) in Maryland, fewer
under-performing subdivisions in 1999 and management's continued efforts to
improve profitability; (3) a reduction in previous estimates of costs to
complete land development and homes in certain projects in Phoenix; (4) reduced
interest included in home cost of sales, as discussed below; (5) increases in
sales of higher-margin products through the Company's design centers; (6) a
higher proportion of presold homes closed, which generally have higher Home
Gross Margins than closings of spec homes; (7) home order cancellations which
were re-sold at higher average selling prices; and (8) initiatives implemented
in each of the Company's markets designed to improve operating efficiency,
control costs and increase rates of return. These increases in Home Gross
Margins were partially offset by increases in the cost of (1) land; (2) lumber,
insulation, concrete and other raw materials; (3) subcontract labor; and (4)
incurred and estimated future land development costs with respect to certain
projects in Southern California.
Interest in Home Cost of Sales. Interest in home cost of sales as a
percent of home sales revenues in 1999 decreased to 1.9%, compared with 2.6% and
3.0%, respectively, for the same periods in 1998 and 1997. These reductions
primarily resulted from lower levels of capitalized interest in homebuilding
inventories during 1999, compared with 1998 and 1997. Notwithstanding increases
in the Company's homebuilding inventories, interest capitalized in homebuilding
inventories at December 31, 1999 decreased to $17,406,000, compared with
$26,332,000 at December 31, 1998 and $37,991,000 at December 31, 1997. These
reductions in interest capitalized in homebuilding inventories primarily were
due to (1) lower levels of interest incurred resulting from lower effective
13
16
interest rates on the Company's lines of credit and lower levels of homebuilding
and corporate debt; and (2) the build-out of older projects with higher levels
of capitalized interest in Colorado, Virginia and Maryland.
Orders for Homes and Backlog. Orders for homes increased to 7,232 in
1999, compared with 7,191 in 1998. Home orders in 1999 particularly were strong
in (1) Southern California, as a result of the strong demand for new homes; and
(2) Northern California, where the Company added six new active subdivisions in
1999 in the San Francisco Bay area. In Phoenix, high levels of home orders in
1998 accelerated the close-out of certain projects which, compounded by delays
in land development, caused a temporary decline in the number of active
subdivisions and a corresponding decrease in home orders in 1999 in this market.
The Company ended 1999 with a Backlog of 2,941 homes with an estimated
sales value of $600,000,000, compared with a Backlog of 2,930 homes with an
estimated sales value of $580,000,000 at December 31, 1998.
Marketing. Marketing expenses totalled $80,545,000 in 1999, compared
with $74,463,000 in 1998. The increase in 1999 primarily was volume related,
resulting from higher (1) sales commissions; (2) marketing-related salaries and
benefits; and (3) product advertising and other costs incurred in connection
with the Company's increased homebuilding activities.
General and Administrative. General and administrative expenses
totalled $54,829,000 in 1999, compared with $45,905,000 in 1998. The increase
primarily was due to increased compensation costs resulting from MDC's higher
profitability and increased homebuilding activity.
LAND SALES.
Revenue from land sales totalled $6,641,000, $8,114,000 and
$13,964,000, respectively, in 2000, 1999 and 1998. The land sales primarily were
in Colorado in 2000 and 1999, and Colorado and Virginia in 1998. Gross profits
from these sales were $2,348,000, $2,347,000 and $4,264,000, respectively, for
the years 2000, 1999 and 1998.
ASSET IMPAIRMENT CHARGES.
Homebuilding operating results were reduced by asset impairment charges
totalling $4,200,000, $2,242,000 and $5,300,000 in 2000, 1999 and 1998,
respectively. The Company's assets to which these asset impairment charges
relate are summarized as follows (in thousands).
YEAR ENDED DECEMBER 31,
------------------------
2000 1999 1998
------ ------ ------
Completed homes and homes under construction ... $ -- $ -- $ 888
Land under development and other ............... 4,200 2,242 4,412
------ ------ ------
Total .................................... $4,200 $2,242 $5,300
====== ====== ======
The 2000 asset impairment charges resulted from the write-down to fair
value of two homebuilding projects in Southern California which experienced a
much slower than anticipated home order pace and significantly increased sales
incentive requirements. The 1999 charge primarily resulted from the write-down
to fair value of one homebuilding project in Southern California which
experienced higher than anticipated development costs, a slower home order pace
and increased sales incentive requirements. The 1998 asset impairment charge
related to homebuilding assets primarily in Maryland and principally were the
result of (1) the recognition of losses anticipated from the closing of certain
homes in Backlog and from the reduction of selling prices and the offering of
increased incentives to stimulate sales of certain completed unsold homes in
inventory; (2) the write-down to fair value of certain subdivisions which
experienced slow sales and negative Home Gross Margins; and (3) the write-off of
other capitalized costs, primarily deferred marketing and option deposits,
related to several low margin projects or projects which the Company terminated.
See Note A to the Company's Consolidated Financial Statements.
14
17
FINANCIAL SERVICES SEGMENT.
MORTGAGE LENDING OPERATIONS.
The table below sets forth information relating to HomeAmerican's
operations (dollars in thousands).
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
Loan Origination Fees ................................. $ 13,951 $ 12,459 $ 9,738
Gains on Sales of Mortgage Servicing, net ............. $ 3,162 $ 3,114 $ 2,512
Gains on Sales of Mortgage Loans, net ................. $ 8,951 $ 8,456 $ 8,575
Operating Profits ..................................... $ 14,282 $ 13,169 $ 11,198
Principal Amount of Loan Originations and Purchases
MDC home buyers .................................. $880,692 $833,055 $701,679
Spot ............................................. 14,942 39,049 54,147
Correspondent .................................... -- 12,074 157,107
-------- -------- --------
Total ........................................ $895,634 $884,178 $912,933
======== ======== ========
Principal Amount of Loans Brokered
MDC home buyers .................................. $244,141 $198,965 $ 88,950
Spot ............................................. 7,756 3,285 1,927
-------- -------- --------
Total ........................................ $251,897 $202,250 $ 90,877
======== ======== ========
Capture Rate ......................................... 65% 68% 70%
======== ======== ========
Including Brokered Loans ......................... 81% 81% 78%
======== ======== ========
HomeAmerican's operating profits increased 8% in 2000, compared with
1999, primarily as a result of higher origination fees received from record
levels of mortgage loans originated for MDC home buyers, and increased gains on
sales of mortgage loans. Operating profits increased 18% in 1999, compared with
1998, primarily due to higher mortgage origination volume. These increases
partially were offset by higher general and administrative expenses resulting
from increased mortgage lending activity in both 2000 and 1999.
Most of HomeAmerican's mortgage loans are originated for MDC home
buyers. Additionally, HomeAmerican brokers mortgage loans originated by outside
lending institutions for MDC home buyers. The portion of mortgage loans
originated by HomeAmerican for MDC home buyers as a percentage of total MDC home
closings ("Capture Rate") was 65% for the year ended December 31, 2000, compared
with 68% for the same period in 1999 and 70% in 1998. Mortgage loans brokered by
HomeAmerican as a percentage of total MDC home closings increased to 16% for the
year ended December 31, 2000, compared with 13% for 1999 and 8% in 1998,
primarily due to an increase in the number of MDC home buyers with non-agency
qualified credit. These brokered mortgage loans, for which HomeAmerican receives
a fee, have been excluded from the computation of the Capture Rate above. If the
Capture Rate was computed to include brokered loans, the Capture Rate would have
been 81% for the year ended December 31, 2000, compared with 81% for the same
period in 1999 and 78% in 1998.
OTHER OPERATING RESULTS.
Interest Expense. The Company capitalizes interest on its homebuilding
inventories during the period of active development and through the completion
of construction. Corporate and homebuilding interest incurred but not
capitalized is reflected as interest expense, and totalled zero for 2000, 1999
and 1998. Corporate and homebuilding interest incurred increased to $24,367,000
in 2000, compared with $21,261,000 in 1999 and $22,525,000 in 1998, primarily
due to higher levels of homebuilding and corporate debt resulting from the
Company's expanded homebuilding activities.
For a reconciliation of interest incurred, capitalized and expensed,
see Note I to the Company's Consolidated Financial Statements.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses totalled $39,461,000 for 2000, compared with $29,589,000
and $19,728,000, respectively, for 1999 and 1998. The increase in 2000, compared
with 1999, primarily was due to (1) greater compensation-related costs in 2000
as a result of the Company's higher profitability and increased homebuilding
activities; and (2) a $2,000,000 contribution to the MDC Holdings Foundation
(see Note R to the Company's Consolidated Financial Statements). The increase in
1999, compared with 1998, primarily was due to (1) greater compensation expense
in 1999 related to the Company's higher profitability and increased homebuilding
activities; (2) the recognition in 1998 of a credit to health insurance
15
18
expense related to a reduction in incurred but not reported liabilities of the
employee medical plan sponsored by the Company; and (3) approximately $2,000,000
in increased expenses primarily attributable to the development of new
processes, controls and computer systems related to the Company's "best
practices" endeavors.
Income Taxes. MDC's overall effective income tax rates of 39.3%, 39.8%
and 38.5%, respectively, for 2000, 1999, and 1998, differed from the federal
statutory rate of 35% primarily due to the impact of state income taxes. In
addition, in 2000, the effective rate increased due to net pre-tax investment
gains of $8,629,000 realized on sales of certain investments by the Company's
captive insurance subsidiary, that are subject to taxation at both the
subsidiary and Company levels, resulting in taxes at an effective rate of 64%.
These increased income taxes in 2000 partially were offset by an income tax
benefit resulting from the Company resolving, in 2000, the Internal Revenue
Service income tax examinations for the years 1991 through 1997.
LIQUIDITY AND CAPITAL RESOURCES
MDC uses its liquidity and capital resources to, among other things,
(1) support its operations, including its inventories of homes, home sites and
land; (2) provide working capital; and (3) provide mortgage loans for its home
buyers. Liquidity and capital resources are generated internally from operations
and from external sources.
CAPITAL RESOURCES.
The Company's capital structure is a combination of (1) permanent
financing, represented by stockholders' equity; (2) long-term financing,
represented by its publicly traded 8 3/8% senior notes due 2008 (the "New Senior
Notes") and its homebuilding line of credit (the "Homebuilding Line"); and (3)
current financing, primarily its mortgage lending line of credit (the "Mortgage
Line"). Based upon its current capital resources and additional liquidity
available under existing credit agreements, the Company believes that its
current financial condition is both balanced to fit its current operating
structure and adequate to satisfy its current and near-term capital
requirements, including the acquisition of land. The Company believes that it
can meet its long-term capital needs (including meeting future debt payments and
refinancing or paying off other long-term debt as it becomes due) from
operations and external financing sources, assuming that no significant adverse
changes in the Company's business or capital and credit market occur as a result
of the various risk factors described elsewhere in this report. See
"FORWARD-LOOKING STATEMENTS" below.
LINES OF CREDIT AND NOTES PAYABLE.
Homebuilding. In October 1999, the terms of the Company's Homebuilding
Line were amended and restated (the "Amended and Restated Credit Agreement") to
extend the maturity date to September 30, 2004 and increase the maximum amount
available from $300,000,000 to $450,000,000 upon the Company's request,
requiring additional commitments from existing or additional participant
lenders. Commitments under the Homebuilding Line increased to $350,000,000 in
April 2000, to $375,000,000 in July 2000, and to $413,000,000 in October 2000
with the additional participation of two of the Company's existing banks and
three additional lenders. There is no assurance that existing or additional
lenders will agree to provide additional commitments. Pursuant to the terms of
the Amended and Restated Credit Agreement, a term-out of this credit may
commence prior to September 30, 2004 under certain circumstances. At December
31, 2000, $90,000,000 was borrowed and $5,569,000 in letters of credit were
outstanding under this line of credit. At December 31, 2000 and 1999, the
weighted-average interest rates on the line of credit were 7.9% and 7.8%,
respectively.
Mortgage Lending. To provide funds to originate mortgage loans and to
finance these mortgage loans on a short-term basis, HomeAmerican utilizes its
Mortgage Line. These mortgage loans are pooled into GNMA, FNMA and FHLMC pools,
or retained as whole loans, and subsequently are sold in the open market on a
spot basis or pursuant to mortgage loan sale commitments, generally within 40
days after origination. During 2000, 1999 and 1998, HomeAmerican sold
$874,383,000, $877,362,000 and $892,040,000, respectively, principal amount of
mortgage loans and mortgage certificates to unaffiliated purchasers.
In December 1999, the Company modified the terms of its Mortgage Line,
increasing the available borrowings from $51,000,000 to $75,000,000. The Company
modified the terms of the Mortgage Line to increase available borrowing from
$75,000,000 to $100,000,000 in September 2000 and from $100,000,000 to
$125,000,000
16
19
in December 2000. In February 2001, the Company decreased available borrowings
from $125,000,000 to $100,000,000. Available borrowings under this line of
credit are collateralized by mortgage loans and mortgage-backed certificates and
are limited to the value of eligible collateral as defined. At December 31,
2000, $74,459,000 was borrowed and an additional $15,926,000 was collateralized
and available to be borrowed. The line of credit is cancellable upon 90 days'
notice. At December 31, 2000 and 1999, the interest rates on the line of credit
were 7.7% and 7.0%, respectively.
General. The agreements for the Company's New Senior Notes and bank
lines of credit require compliance with certain representations, warranties and
covenants. The Company believes that it is in compliance with these
representations, warranties and covenants. The agreements containing these
representations, warranties and covenants, other than the Mortgage Line, are on
file with the Securities and Exchange Commission and are listed in the Exhibit
Table in Part IV of this Annual Report on Form 10-K.
The financial covenants contained in the Amended and Restated Credit
Agreement include a leverage test and a consolidated tangible net worth test.
Under the leverage test, generally MDC's consolidated indebtedness is not
permitted to exceed the product of 2.15 (subject to downward adjustment in
certain circumstances) times MDC's "adjusted consolidated tangible net worth,"
as defined. Under the consolidated tangible net worth test, MDC's "tangible net
worth," as defined, must not be less than the sum of $238,000,000 and 50% of
"consolidated net income," as defined, after December 31, 1998. In addition, the
"consolidated tangible net worth," as defined, must not be less than
$150,000,000.
The Company's New Senior Notes indenture does not contain financial
covenants. However, there are covenants that limit transactions with affiliates,
limit the amount of additional indebtedness that MDC may incur, restrict certain
payments on, or the redemptions of, the Company's securities, restrict certain
sales of assets and limit incurring liens. In addition, under certain
circumstances, in the event of a change of control (generally a sale, transfer,
merger or acquisition of MDC or substantially all of its assets), MDC may be
required to offer to repurchase the New Senior Notes. The New Senior Notes are
not secured.
As of December 31, 2000, the maximum amount of additional homebuilding
and corporate indebtedness that MDC could have incurred under the most
restrictive of the debt limitations described above was approximately
$728,000,000.
MDC COMMON STOCK REPURCHASE PROGRAMS.
On January 24, 2000, MDC's Board of Directors authorized the repurchase
of up to 1,000,000 shares of MDC common stock. On February 21, 2000, MDC's Board
of Directors authorized the repurchase of up to 2,000,000 additional shares of
MDC common stock. The Company has repurchased a total of 1,931,800 shares of MDC
common stock under these programs through December 31, 2000. The per share
prices, including commissions, for these repurchases range from $13.53 to $22.02
with an average cost of $15.96. At December 31, 2000 and 1999, the Company held
7,426,000 shares and 5,850,000 shares of treasury stock, respectively, with
average purchase prices of $9.09 and $6.70, respectively.
CONSOLIDATED CASH FLOW.
During 2000, the Company used $66,617,000 in cash from its operating
and investing activities. The Company also used $36,048,000 in cash to
repurchase its common stock and pay dividends. This cash was provided by
reducing its available cash on hand by $24,815,000 and increasing borrowings
from the lines of credit by $74,225,000. The Company used $5,723,000 in cash
from its operating and investing activities and increased its available cash on
hand by $28,851,000 during 1999. This cash was provided primarily by increased
borrowings from the lines of credit of $40,029,000, partially offset by dividend
payments and principal payments on notes payable.
Operating activities used cash of $63,457,000 in 2000 and $3,845,000 in
1999, compared with cash generated of $800,000 in 1998. The 2000 cash decrease
from 1999 and 1999 cash decrease from 1998 primarily were due to increases in
homebuilding and mortgage loan inventories in conjunction with the Company's
expanded homebuilding operations, partially offset by increases in income before
income taxes and extraordinary item.
17
20
Investing activities used cash of $3,160,000 in 2000 and $1,878,000 in
1999, compared with cash generated of $15,081,000 in 1998. Cash generated in
1998 was higher than 2000 and 1999 primarily due to the $13,250,000 net proceeds
received from the sale of the Company's headquarters office building in 1998.
Financing activities generated cash of $41,802,000 in 2000 and
$34,574,000 in 1999, compared with cash used of $17,480,000 in 1998. The
increase in cash generated in 2000, compared with 1999, primarily was due to
increased borrowings on the homebuilding and mortgage lending lines of credit,
partially offset by $30,828,000 used to repurchase 1,931,800 shares of MDC
common stock. The increase in cash generated in 1999, compared with 1998,
primarily was due to increased borrowings on the homebuilding and mortgage
lending lines of credit.
Included in 1998 cash flows from financing activities is the impact of
the Company's sale of $175,000,000 principal amount of New Senior Notes. The
Company used the net proceeds from this sale to repurchase $61,181,000 principal
amount of Old Senior Notes, to defease the remaining $90,819,000 principal
amount of Old Senior Notes outstanding and for general corporate purposes. A
premium of $17,592,000 was paid on the repurchase and defeasance.
IMPACT OF INFLATION, CHANGING PRICES AND ECONOMIC CONDITIONS
Real estate and residential housing prices are affected by inflation,
which can cause increases in the price of land, raw materials and subcontracted
labor. Unless these increased costs are recovered through higher sales prices,
Home Gross Margins would decrease. If interest rates increase, construction and
financing costs, as well as the cost of borrowings, also would increase, which
can result in lower Home Gross Margins. Increases in home mortgage interest
rates make it more difficult for MDC's customers to qualify for home mortgage
loans, potentially decreasing home sales volume. Increases in interest rates
also may affect adversely the volume of mortgage loan originations.
The volatility of interest rates could have an adverse effect on MDC's
future operations and liquidity. Among other things, these conditions may affect
adversely the demand for housing and the availability of mortgage financing and
may reduce the credit facilities offered to MDC by banks, investment bankers and
mortgage bankers. See "FORWARD-LOOKING STATEMENTS" below.
MDC's business also is affected significantly by, among other things,
general economic conditions and, particularly, the demand for new homes in the
markets in which it builds.
ISSUANCE OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was
issued. In June 2000, Statement of Financial Accounting Standards No. 138,
"Accounting for Certain Derivative Instruments and Hedging Activities, an
Amendment of FASB Statement No. 133" ("SFAS 138") was issued. SFAS 133 and SFAS
138 address the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities. The
Company is required to adopt SFAS 133 and SFAS 138 in the first quarter of 2001.
The Company anticipates that the adoption of SFAS 133 and SFAS 138 as of January
1, 2001 will not have a material effect on its financial position or results of
operations. See "FORWARD-LOOKING STATEMENTS" below.
In September 2000, Statement of Financial Accounting Standards No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS 140") was issued. SFAS 140 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. SFAS 140 is effective for recognition and
reclassification of collateral and for disclosures relating to securitization
transaction and collateral for fiscal years ending after December 15, 2000 and
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after March 31, 2001. The adoption of SFAS 140 did not
have a material impact on the 2000 financial position or results of operations
and the Company anticipates that the additional provisions of SFAS 140 effective
in the second quarter of 2001 will not have a material effect on its financial
position or results of operations. See "FORWARD-LOOKING STATEMENTS" below.
18
21
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101 is effective for the fourth quarter of fiscal years beginning after
December 1999. The Company believes that it is in compliance with the guidelines
set forth in SAB 101.
OTHER
FORWARD-LOOKING STATEMENTS.
Certain statements in this Form 10-K Annual Report, the Company's
Annual Report to Shareowners, as well as statements made by the Company in
periodic press releases, oral statements made by the Company's officials to
analysts and shareowners in the course of presentations about the Company and
conference calls following quarterly earnings releases, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. We have identified the forward-looking statements
in this Form 10-K by cross referencing this section at the end of the paragraph
in which the forward-looking statement is located. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Such factors include,
among other things, (1) general economic and business conditions; (2) interest
rate changes; (3) the relative stability of debt and equity markets; (4)
competition; (5) the availability and cost of land and other raw materials used
by the Company in its homebuilding operations; (6) demographic changes; (7)
shortages and the cost of labor; (8) weather related slowdowns; (9) the
availability of public utilities in certain markets; (10) slow growth
initiatives; (11) building moratoria; (12) governmental regulation, including
the interpretation of tax, labor and environmental laws; (13) changes in
consumer confidence and preferences; (14) required accounting changes; and (15)
other factors over which the Company has little or no control.
19
22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risks related to fluctuations in
interest rates on mortgage loans receivable and debt. The Company utilizes
forward sale commitments to mitigate some of the risk associated with the
mortgage loan portfolio. Other than the forward commitments described above, the
Company does not utilize interest rate swaps, forward option contracts on
foreign currencies or commodities, or other types of derivative financial
instruments.
HomeAmerican provides mortgage loans that generally are sold forward
and subsequently delivered to a third-party purchaser within approximately 40
days. Forward commitments are used for non-trading purposes to sell mortgage
loans and hedge interest rate risk on rate-locked mortgage loans in process that
have not closed. Due to this hedging philosophy, the market risk associated with
these mortgages is limited.
The Company utilizes both short-term and long-term debt in its
financing strategy. For fixed rate debt, changes in interest rates generally
affect the fair value of the debt instrument, but not the Company's earnings or
cash flows. Conversely, for variable rate debt, changes in interest rates
generally do not impact the fair value of the debt instrument, but may affect
the Company's future earnings and cash flows. The Company does not have an
obligation to prepay fixed rate debt prior to maturity and, as a result,
interest rate risk and changes in fair value should not have a significant
impact on the fixed rate debt until the Company would be required to refinance
such debt.
As of December 31, 2000, short-term debt was $74,459,000, which
consisted of MDC's Mortgage Line. The Mortgage Line is collateralized by
residential mortgage loans. The Company borrows on a short-term basis from banks
under committed lines of credit, which bear interest at the prevailing market
rates.
Long-term debt obligations outstanding, their maturities and estimated
fair value at December 31, 2000 are as follows (in thousands).
MATURITIES THROUGH DECEMBER 31,
----------------------------------------------------------------- ESTIMATED
2001 2002 2003 2004 2005 THEREAFTER TOTAL FAIR VALUE
-------- -------- -------- -------- -------- ---------- -------- ----------
Fixed Rate Debt .................... $ -- $ -- $ -- $ -- $ -- $175,000 $175,000 $158,813
Average Interest Rate (units) ... -- -- -- -- -- 8.38% 8.38%
Variable Rate Debt ................. $ -- $ -- $ -- $ 90,000 $ -- $ -- $ 90,000 $ 90,000
Average Interest Rate ........... -- -- -- 7.90% -- -- 7.90%
The Company believes that its overall balance sheet structure has
repricing and cash flow characteristics that mitigate the impact of interest
rate changes.
20
23
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS.
M.D.C. HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Consolidated Financial Statements
Report of Independent Auditors as of December 31, 2000 and the Year then Ended................ F-2
Report of Independent Accountants as of December 31, 1999 and for each of the Two Years in
the Period Ended December 31, 1999.......................................................... F-3
Consolidated Balance Sheets as of December 31, 2000 and December 31, 1999..................... F-4
Consolidated Statements of Income and Other Comprehensive Income for each of the Three Years
in the Period Ended December 31, 2000....................................................... F-6
Consolidated Statements of Stockholders' Equity for each of the Three Years in the Period
Ended December 31, 2000..................................................................... F-7
Consolidated Statements of Cash Flows for each of the Three Years in the Period Ended
December 31, 2000........................................................................... F-8
Notes to Consolidated Financial Statements.................................................... F-9
F-1
24
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
M.D.C. HOLDINGS, INC.
We have audited the accompanying consolidated balance sheet of M.D.C.
Holdings, Inc. and subsidiaries (the "Company") as of December 31, 2000, and the
related consolidated statements of income and other comprehensive income,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of M.D.C.
Holdings, Inc. and subsidiaries at December 31, 2000, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Denver, Colorado
January 15, 2001, except for Note S,
as to which the date is January 22, 2001
F-2
25
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
M.D.C. HOLDINGS, INC.
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income and other comprehensive income,
stockholders' equity and cash flows present fairly, in all material respects,
the financial position of M.D.C. Holdings, Inc. and its subsidiaries (the
"Company") at December 31, 1999 and the results of their operations and their
cash flows for each of the two years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Denver, Colorado
January 17, 2000, except for Note S,
as to which the date is January 22, 2001
F-3
26
M.D.C. HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
-------------------------
2000 1999
---------- ----------
ASSETS
Corporate
Cash and cash equivalents ..................... $ 8,411 $ 33,637
Property and equipment, net ................... 3,069 2,909
Deferred income taxes ......................... 31,821 21,201
Deferred debt issue costs, net ................ 2,180 2,393
Other assets, net ............................. 8,039 6,771
---------- ----------
53,520 66,911
---------- ----------
Homebuilding
Cash and cash equivalents ..................... 5,265 4,935
Home sales and other accounts receivable ...... 4,713 3,496
Inventories, net
Housing completed or under construction ..... 443,512 337,029
Land and land under development ............. 388,711 308,680
Prepaid expenses and other assets, net ........ 51,631 58,156
---------- ----------
893,832 712,296
---------- ----------
Financial Services
Cash and cash equivalents ..................... 439 358
Mortgage loans held in inventory .............. 107,151 89,953
Other assets, net ............................. 6,656 7,490
---------- ----------
114,246 97,801
---------- ----------
Total Assets ............................ $1,061,598 $ 877,008
========== ==========
See notes to consolidated financial statements.
F-4
27
M.D.C. HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
--------------------------
2000 1999
----------- -----------
LIABILITIES
Corporate
Accounts payable and accrued expenses ................................. $ 50,843 $ 46,721
Income taxes payable .................................................. 9,558 18,291
Senior notes, net ..................................................... 174,444 174,389
----------- -----------
234,845 239,401
----------- -----------
Homebuilding
Accounts payable and accrued expenses ................................. 164,660 152,488
Line of credit ........................................................ 90,000 40,000
----------- -----------
254,660 192,488
----------- -----------
Financial Services
Accounts payable and accrued expenses ................................. 15,404 5,862
Line of credit ........................................................ 74,459 50,234
----------- -----------
89,863 56,096
----------- -----------
Total Liabilities ............................................... 579,368 487,985
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES N AND P) ............................ -- --
----------- -----------
STOCKHOLDERS' EQUITY (NOTES G AND S)
Preferred stock, $.01 par value; 25,000,000 shares authorized; none
issued .............................................................. -- --
Common stock, $.01 par value; 100,000,000 shares authorized;
30,755,000 and 28,166,000 shares issued, respectively, at
December 31, 2000 and 1999 .......................................... 308 282
Additional paid-in capital ............................................ 266,337 179,094
Retained earnings ..................................................... 282,893 245,235
Accumulated other comprehensive income ................................ 167 3,623
----------- -----------
549,705 428,234
Less treasury stock, at cost, 7,426,000 and 5,850,000 shares,
respectively, at December 31, 2000 and 1999 ......................... (67,475) (39,211)
----------- -----------
Total Stockholders' Equity ...................................... 482,230 389,023
----------- -----------
Total Liabilities and Stockholders' Equity ...................... $ 1,061,598 $ 877,008
=========== ===========
See notes to consolidated financial statements.
F-5
28
M.D.C. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
REVENUES
Homebuilding ................................................. $ 1,721,559 $ 1,537,563 $ 1,234,272
Financial Services ........................................... 28,925 27,460 27,909
Corporate .................................................... 1,061 2,615 1,028
----------- ----------- -----------
Total Revenues ......................................... 1,751,545 1,567,638 1,263,209
----------- ----------- -----------
COSTS AND EXPENSES
Homebuilding ................................................. 1,494,240 1,375,305 1,147,508
Financial Services ........................................... 14,643 14,291 12,121
Corporate general and administrative ......................... 39,461 29,589 19,728
----------- ----------- -----------
Total Costs and Expenses ............................... 1,548,344 1,419,185 1,179,357
----------- ----------- -----------
Income before income taxes and extraordinary item ............... 203,201 148,453 83,852
Provision for income taxes ...................................... (79,898) (59,061) (32,284)
----------- ----------- -----------
Income before extraordinary item ................................ 123,303 89,392 51,568
Extraordinary loss from early extinguishment of debt, net of
income tax benefit of $9,587 ................................. -- -- (15,314)
----------- ----------- -----------
NET INCOME ...................................................... 123,303 89,392 36,254
----------- ----------- -----------
Unrealized holding (losses) gains on securities arising
during the year .............................................. (338) 2,123 1,593
Less reclassification adjustment for gains (losses) included
in net income ................................................ 3,118 285 (54)
----------- ----------- -----------
Net (loss) gain recognized in other comprehensive income, net
of a deferred income tax (benefit) provision of ($6,090)
for 2000, $5,204 for 1999 and $1,080 for 1998 ................ (3,456) 1,838 1,647
----------- ----------- -----------
OTHER COMPREHENSIVE INCOME ...................................... $ 119,847 $ 91,230 $ 37,901
=========== =========== ===========
EARNINGS PER SHARE (NOTES M AND S)
Basic ......................................................... $ 5.22 $ 3.65 $ 1.79
=========== =========== ===========
Diluted ....................................................... $ 5.11 $ 3.59 $ 1.49
=========== =========== ===========
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic ......................................................... 23,613 24,472 20,296
=========== =========== ===========
Diluted ....................................................... 24,142 24,922 24,867
=========== =========== ===========
DIVIDENDS PAID PER SHARE ........................................ $ .24 $ .20 $ .15
=========== =========== ===========
See notes to consolidated financial statements.
F-6
29
M.D.C. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY
STOCK CAPITAL EARNINGS INCOME (LOSS) STOCK TOTAL
--------- ---------- --------- ------------- --------- ---------
BALANCES-JANUARY 1, 1998 ................ $ 237 $ 142,429 $ 126,356 $ 138 $ (39,567) $ 229,593
Shares issued ........................ 42 30,267 456 -- 183 30,948
Net gain recognized in other
comprehensive income ............... -- -- -- 1,647 -- 1,647
Tax benefit of non-qualified stock
options exercised .................. -- 2,484 -- -- -- 2,484
Notes receivable for stock
purchases, net of repayments ....... -- (20) -- -- -- (20)
Cash dividends paid .................. -- -- (2,775) -- -- (2,775)
Net income ........................... -- -- 36,254 -- -- 36,254
--------- --------- --------- --------- --------- ---------
BALANCES-DECEMBER 31, 1998 .............. 279 175,160 160,291 1,785 (39,384) 298,131
Shares issued ........................ 3 3,399 -- -- 173 3,575
Net gain recognized in other
comprehensive income ............... -- -- -- 1,838 -- 1,838
Tax benefit of non-qualified stock
options exercised .................. -- 695 -- -- -- 695
Notes receivable for stock
purchases, net of repayments ....... -- (160) -- -- -- (160)
Cash dividends paid .................. -- -- (4,448) -- -- (4,448)
Net income ........................... -- -- 89,392 -- -- 89,392
--------- --------- --------- --------- --------- ---------
BALANCES-DECEMBER 31, 1999 .............. 282 179,094 245,235 3,623 (39,211) 389,023
Shares issued ........................ 4 5,823 -- -- 2,036 7,863
Net loss recognized in other
comprehensive income ............... -- -- -- (3,456) -- (3,456)
Tax benefit of non-qualified stock
options exercised .................. -- 1,439 -- -- -- 1,439
Notes receivable for stock
purchases, net of repayments ....... -- (1,794) -- -- -- (1,794)
Contribution of common stock ......... -- 1,372 -- -- 528 1,900
Stock repurchases .................... -- -- -- -- (30,828) (30,828)
Cash dividends paid .................. -- -- (5,220) -- -- (5,220)
10% stock dividend (Note S) .......... 22 80,403 (80,425) -- -- --
Net income ........................... -- -- 123,303 -- -- 123,303
--------- --------- --------- --------- --------- ---------
BALANCES-DECEMBER 31, 2000 .............. $ 308 $ 266,337 $ 282,893 $ 167 $ (67,475) $ 482,230
========= ========= ========= ========= ========= =========
See notes to consolidated financial statements.
F-7
30
M.D.C. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
OPERATING ACTIVITIES
Net income .............................................. $ 123,303 $ 89,392 $ 36,254
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Loss from the early extinguishment of debt ......... -- -- 24,901
Depreciation and amortization ...................... 21,792 17,845 20,228
Homebuilding asset impairment charges .............. 4,200 2,242 5,300
Deferred income taxes .............................. (10,620) (3,252) (5,673)
Gains on sales of mortgage related assets .......... -- -- (4,509)
Net changes in operating assets and liabilities
Home sales and other accounts receivable ........ (1,217) 9,275 (5,212)
Homebuilding inventories ........................ (190,714) (135,678) (76,454)
Prepaid expenses and other assets ............... (11,330) (5,263) (18,981)
Mortgage loans held in inventory ................ (17,198) (5,405) (19,292)
Accounts payable and accrued expenses ........... 20,775 27,950 45,666
Other, net ......................................... (2,448) (951) (1,428)
----------- ----------- -----------
Net cash (used in) provided by operating activities ..... (63,457) (3,845) 800
----------- ----------- -----------
INVESTING ACTIVITIES
Net proceeds from sale of office building ............... -- -- 13,250
Net purchase of property and equipment .................. (3,160) (3,642) (6,083)
Proceeds from the sale of FAMC .......................... -- -- 4,450
Changes in investments and marketable securities ........ -- 1,764 3,272
Other, net .............................................. -- -- 192
----------- ----------- -----------
Net cash (used in) provided by investing activities ..... (3,160) (1,878) 15,081
----------- ----------- -----------
FINANCING ACTIVITIES
Lines of credit
Advances ............................................ 1,721,125 1,429,600 1,267,540
Principal payments .................................. (1,646,900) (1,389,571) (1,265,083)
Notes payable
Borrowings .......................................... -- -- 866
Principal payments .................................. -- (1,898) (13,108)
Senior notes
Proceeds from issuance .............................. -- -- 171,541
Repurchase and defeasance ........................... -- -- (152,000)
Premium on repurchase and defeasance ................ -- -- (17,592)
Repayment of subordinated notes .......................... -- -- (10,230)
Dividend payments ........................................ (5,220) (4,448) (2,775)
Stock repurchases ........................................ (30,828) -- --
Proceeds from exercise of stock options .................. 3,625 891 3,361
----------- ----------- -----------
Net cash provided by (used in) financing activities ...... 41,802 34,574 (17,480)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents ..... (24,815) 28,851 (1,599)
Cash and cash equivalents
Beginning of year ................................... 38,930 10,079 11,678
----------- ----------- -----------
End of year ......................................... $ 14,115 $ 38,930 $ 10,079
=========== =========== ===========
See notes to consolidated financial statements.
F-8
31
M.D.C. HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements of
M.D.C. Holdings, Inc. ("MDC" or the "Company", which, unless otherwise
indicated, refers to M.D.C. Holdings, Inc. and its subsidiaries) include the
accounts of MDC and its wholly owned and majority owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Segment Information - MDC has determined that its reportable segments
are those that are based on the Company's method of internal reporting, which
disaggregates its business by product category. MDC's products come from two
segments, homebuilding and financial services. In its homebuilding segment,
through separate subsidiaries, the Company is engaged in the design,
construction and sale of single-family homes. In its financial services segment,
HomeAmerican Mortgage Corporation (a wholly owned subsidiary of M.D.C. Holdings,
Inc., "HomeAmerican") provides mortgage loans primarily to the Company's home
buyers (the mortgage lending operations).
HOMEBUILDING.
Inventories - Homebuilding inventories under development and
construction are carried at cost unless facts and circumstances indicate that
the carrying value of the underlying projects may be impaired. Impairment is
determined by comparing the estimated future cash flows (undiscounted and
without interest charges) from an individual project to its carrying value. If
such cash flows are less than the project's carrying value, the carrying value
of the project is written down to its fair value. Homebuilding inventories held
for sale are carried at the lower of cost or fair value, less selling costs, and
are evaluated on a project basis. Fair value is determined by management
estimate and incorporates anticipated future revenues and costs. Cost includes
interest capitalized during the period of active development through completion
of construction. Construction-related overhead and salaries are capitalized and
allocated proportionately to projects being developed. Land and related costs
are transferred to housing inventory when construction commences. See Note H.
Prepaid Expenses and Other Assets, Net - Homebuilding prepaid expenses
and other assets include qualified settlement fund ("QSF") assets that are held
for the processing and disposition of eligible claims made under the warranties
created pursuant to the settlement of litigation commenced in 1994 and settled
in November 1996. The QSF assets are recorded on the Consolidated Balance Sheet
at fair value, which is based on quoted prices, with the related unrealized gain
included in accumulated other comprehensive income.
The following table sets forth the information relating to prepaid
expenses and other assets, net (in thousands).
DECEMBER 31,
---------------------
2000 1999
------- -------
QSF assets ......................................... $11,573 $26,625
Land option deposits ............................... 10,838 8,673
Deferred marketing costs ........................... 14,863 10,320
Prepaid tap and system development fees ............ 4,637 3,472
Other .............................................. 9,720 9,066
------- -------
Total ........................................ $51,631 $58,156
======= =======
Deferred Marketing Costs - Certain marketing costs related to model
homes and sales offices are capitalized as prepaid assets and amortized to
selling, general and administrative expenses as the homes in the related
subdivision are closed. All other marketing costs are expensed as incurred.
F-9
32
Revenue Recognition - Revenues from real estate sales are recognized
when a sufficient down payment has been received, financing has been arranged,
title, possession and other attributes of ownership have been transferred to the
buyer and the Company is not obligated to perform significant additional
activities after sale and delivery.
Warranty Costs - The Company's homes are sold with limited warranties
issued by an unaffiliated warranty company. Reserves are established by the
Company to cover estimated costs of repairs for which the Company is
responsible. Warranty reserves are included in Homebuilding - Accounts payable
and accrued expenses and totalled $38,200,000 and $37,500,000, respectively, at
December 31, 2000 and 1999.
FINANCIAL SERVICES.
Mortgage Loans Held in Inventory - The Company generally purchases
forward commitments to deliver mortgage loans held for sale. Mortgage loans held
in inventory are stated at the lower of aggregate cost or fair value based upon
such commitments for loans to be delivered or prevailing market for uncommitted
loans. Substantially all of the loans originated or purchased by the Company are
sold to private investors within 40 days of origination or purchase. Gains or
losses on mortgage loans held in inventory are realized when the loans are sold.
Revenue Recognition - Loan origination fees in excess of origination
costs incurred and loan commitment fees are deferred until the related loans are
sold. Loan servicing fees are recorded as revenue when the mortgage loan
payments are received. Loan servicing costs are recognized as incurred. Revenues
from the sale of mortgage loan servicing are recognized when title and all risks
and rewards of ownership have irrevocably passed to the buyer and there are no
significant unresolved contingencies.
The mortgage lending operations are affected by, among other things,
changes in mortgage interest rates. The Company utilizes forward mortgage
securities contracts to manage the interest rate risk on its fixed-rate mortgage
loans owned and rate-locked mortgage loans in process which have not closed.
Such contracts are the only significant financial derivative instrument utilized
by MDC. Hedging gains or losses are recognized when the hedged mortgage loans
are sold.
Mortgage Servicing Rights - The Company allocates the cost of mortgage
loans originated between the mortgage loans and the right to service those
mortgage loans, based on relative fair value, on the date the loan is sold.
Mortgage servicing rights ("Servicing Rights") of $5,027,000 and
$8,090,000 were capitalized during 2000 and 1999, respectively. Servicing Rights
are amortized over the estimated period of net servicing revenues. The cost
attributed to the Servicing Rights sold and the amortization of Servicing Rights
was $5,128,000 and $7,920,000 for 2000 and 1999, respectively. Servicing Rights
are evaluated for impairment by stratifying the portfolio based on loan type and
interest rate.
As of December 31, 2000 and 1999, the Company had unamortized Servicing
Rights of $4,969,000 and $5,200,000, respectively, included in Financial
Services - Other assets, net.
GENERAL.
Cash and Cash Equivalents - The Company periodically invests funds not
immediately required for operating purposes in highly liquid, short-term
investments with an original maturity of 90 days or less such as commercial
paper, money market funds and repurchase agreements which are included in cash
and cash equivalents in the Consolidated Balance Sheets and Consolidated
Statements of Cash Flows.
Property and Equipment - Property and equipment is carried at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets.
Estimates in Financial Statements - The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
F-10
33
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Such estimates include warranty, other accrued expenses,
estimates to complete land development and construction and estimates related to
potential asset impairment charges.
Additional Statements of Financial Accounting Standards - In June 1998,
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") was issued. In June 2000,
Statement of Financial Accounting Standards No. 138, "Accounting for Certain
Derivative Instruments and Hedging Activities, an Amendment of FASB Statement
No. 133" ("SFAS 138") was issued. SFAS 133 and SFAS 138 address the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. The Company is required to adopt SFAS
133 and SFAS 138 in the first quarter of 2001. The Company anticipates that the
adoption of SFAS 133 and SFAS 138 as of January 1, 2001 will not have a material
effect on its financial position or results of operations.
In September 2000, Statement of Financial Accounting Standards No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS 140") was issued. SFAS 140 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. SFAS 140 is effective for recognition and
reclassification of collateral and for disclosures relating to securitization
transaction and collateral for fiscal years ending after December 15, 2000 and
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after March 31, 2001. The adoption of SFAS 140 did not
have a material impact on the 2000 financial position or results of operations
and the Company anticipates that the additional provisions of SFAS 140 effective
in the second quarter of 2001 will not have a material effect on its financial
position or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101 is effective for the fourth quarter of fiscal years beginning after
December 1999. The Company believes that it is in compliance with the guidelines
set forth in SAB 101.
B. INFORMATION ON BUSINESS SEGMENTS
The Company operates in two business segments - homebuilding and
financial services. A summary of the Company's business segments is shown below
(in thousands).
YEAR ENDED DECEMBER 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
HOMEBUILDING
Home sales ........................... $1,701,108 $1,526,519 $1,218,659
Land sales ........................... 6,641 8,114 13,964
Other revenues ....................... 13,810 2,930 1,649
---------- ---------- ----------
1,721,559 1,537,563 1,234,272
---------- ---------- ----------
Home cost of sales ................... 1,322,185 1,231,922 1,012,140
Land cost of sales ................... 4,293 5,767 9,700
Asset impairment charges ............. 4,200 2,242 5,300
Marketing ............................ 94,412 80,545 74,463
General and administrative ........... 69,150 54,829 45,905
---------- ---------- ----------
1,494,240 1,375,305 1,147,508
---------- ---------- ----------
HOMEBUILDING OPERATING PROFIT .... 227,319 162,258 86,764
---------- ---------- ----------
F-11
34
YEAR ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
FINANCIAL SERVICES
Mortgage Lending Revenues
Interest ..................................... 2,313 2,844 2,270
Origination fees ............................. 13,951 12,459 9,738
Gains on sales of mortgage servicing ......... 3,162 3,114 2,512
Gains on sales of mortgage loans, net ........ 8,951 8,456 8,460
Mortgage servicing and other ................. 548 587 327
Asset Management Revenues ........................ -- -- 4,602
--------- --------- ---------
28,925 27,460 27,909
General and Administrative Expenses .............. 14,643 14,291 12,121
--------- --------- ---------
FINANCIAL SERVICES OPERATING PROFIT ...... 14,282 13,169 15,788
--------- --------- ---------
TOTAL OPERATING PROFIT .............................. 241,601 175,427 102,552
--------- --------- ---------
CORPORATE
Interest and other revenues .................. 1,061 2,615 1,028
General and administrative ................... (39,461) (29,589) (19,728)
--------- --------- ---------
NET CORPORATE EXPENSES ................... (38,400) (26,974) (18,700)
--------- --------- ---------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM ... $ 203,201 $ 148,453 $ 83,852
========= ========= =========
Corporate general and administrative expenses consist principally of
salaries and other administrative expenses which are not identifiable to a
specific segment. Transfers between segments are recorded at cost. Capital
expenditures and related depreciation and amortization for the years ended
December 31, 2000, 1999 and 1998 were not material. Identifiable segment assets
are shown on the face of the Consolidated Balance Sheets.
C. MORTGAGE LOANS HELD IN INVENTORY
The following table sets forth the information relating to mortgage loans
held in inventory (in thousands).
DECEMBER 31,
---------------------------
2000 1999
--------- ---------
First mortgage loans
Conventional ............................ $ 80,517 $ 67,462
FHA and VA .............................. 27,436 24,041
--------- ---------
107,953 91,503
Less
Unamortized discounts ................... (118) (344)
Deferred fees ........................... (584) (545)
Allowance for loan losses ............... (100) (661)
--------- ---------
Total ................................. $ 107,151 $ 89,953
========= =========
Mortgage loans held in inventory consist primarily of loans
collateralized by first mortgages and deeds of trust due over periods of up to
30 years. The weighted-average effective yield on mortgage loans held in
inventory was approximately 7.8% at December 31, 2000.
F-12
35
D. LINES OF CREDIT
Homebuilding - In October 1999, the homebuilding line of credit (the
"Homebuilding Line") was amended and restated (the "Amended and Restated Credit
Agreement") to extend the maturity date to September 30, 2004 and increase the
maximum amount available to $450,000,000 from $300,000,000 upon the Company's
request, requiring additional commitments from existing or additional
participant lenders. Commitments under the Homebuilding Line increased to
$350,000,000 in April 2000, to $375,000,000 in July 2000, and to $413,000,000 in
October 2000 with the additional participation of two of the Company's existing
banks and three additional lenders. There is no assurance that existing or
additional lenders will agree to provide additional commitments. Pursuant to the
terms of the Amended and Restated Credit Agreement, a term-out of this credit
may commence prior to September 30, 2004 under certain circumstances. At
December 31, 2000, $90,000,000 was borrowed and $5,569,000 in letters of credit
were outstanding under this line of credit. At December 31, 2000 and 1999, the
weighted-average interest rates on the line of credit were 7.9% and 7.8%,
respectively.
Mortgage Lending - In December 1999, the Company modified the terms of
its mortgage lending bank line of credit (the "Mortgage Line"), increasing the
available borrowings from $51,000,000 to $75,000,000. The Company modified the
terms of the Mortgage Line to increase available borrowing from $75,000,000 to
$100,000,000 in September 2000 and from $100,000,000 to $125,000,000 in December
2000 Available borrowings under this line of credit are collateralized by
mortgage loans and mortgage-backed certificates and are limited to the value of
eligible collateral as defined. At December 31, 2000, $74,459,000 was borrowed
and an additional $15,926,000 was collateralized and available to be borrowed.
The line of credit is cancellable upon 90 days' notice. At December 31, 2000 and
1999, the interest rates on the line of credit were 7.7% and 7.0%, respectively.
General - The agreements for the Company's bank lines of credit require
compliance with certain representations, warranties and covenants. The Company
believes that it is in compliance with these representations, warranties and
covenants. The agreements containing these representations, warranties and
covenants, other than the Mortgage Line, are on file with the Securities and
Exchange Commission and are listed in the Exhibit Table in Part IV of this
Annual Report on Form 10-K.
The financial covenants contained in the Amended and Restated Credit
Agreement include a leverage test and a consolidated tangible net worth test.
Under the leverage test, generally MDC's consolidated indebtedness is not
permitted to exceed the product of 2.15 (subject to downward adjustment in
certain circumstances) times MDC's "adjusted consolidated tangible net worth,"
as defined. Under the consolidated tangible net worth test, MDC's "tangible net
worth," as defined, must not be less than the sum of $238,000,000 and 50% of
"consolidated net income," as defined, after December 31, 1998. In addition, the
"consolidated tangible net worth," as defined, must not be less than
$150,000,000.
E. SENIOR NOTES
The following table sets forth the information relating to senior notes
(in thousands).
DECEMBER 31,
--------------------
2000 1999
-------- --------
Senior notes
8 3/8% senior notes due February 2008 (effective rate 8.7%).... $174,444 $174,389
======== ========
In December 1993, the Company completed an offering of $190,000,000
principal amount of 11 1/8% senior notes due 2003 (the "Old Senior Notes") and
$28,000,000 principal amount of 8 3/4% convertible subordinated notes due 2005
(the "Convertible Subordinated Notes"). The Convertible Subordinated Notes were
convertible into shares of MDC common stock at an initial conversion price of
$7.75 per share. In March 1997, the Company repurchased $38,000,000 principal
amount of the Old Senior Notes. On January 28, 1998, the remaining Old Senior
Notes either were repurchased or defeased with the proceeds of the issuance of
the Company's 8 3/8% senior notes due 2008 (the "New Senior Notes"). The
Convertible Subordinated Notes were called for redemption by the Company in
December 1998 at a price of 105, resulting in the conversion of all $28,000,000
principal amount of Convertible Subordinated Notes into 3,612,900 shares of MDC
common stock.
F-13
36
The Company's New Senior Notes indenture does not contain financial
covenants. However, there are covenants that limit transactions with affiliates,
limit the amount of additional indebtedness that MDC may incur, restrict certain
payments on, or the redemptions of, the Company's securities, restrict certain
sales of assets and limit incurring liens. In addition, under certain
circumstances, in the event of a change of control (generally a sale, transfer,
merger or acquisition of MDC or substantially all of its assets), MDC may be
required to offer to repurchase the New Senior Notes. The New Senior Notes are
not secured.
F. RETIREMENT PLANS
In October 1997, the Company established a defined benefit retirement
plan (the "Retirement Plan") for two executive officers of the Company under
which the Company agreed to make future payments which have a projected benefit
obligation of $7,930,000 at December 31, 2000. The Retirement Plan is not funded
and benefits vest in either two or five years from plan inception. Unrecognized
prior service cost of $2,924,000 at December 31, 2000 will be recognized over
the employees' average estimated service periods. Retirement Plan expenses for
the years ended December 31, 2000, 1999 and 1998 were $1,116,000, $1,059,000 and
$869,000, respectively. Included on the December 31, 2000 Consolidated Balance
Sheet is an intangible asset of $2,581,000 related to unamortized prior service
cost and a corresponding accrued pension liability for the same amount. Accrued
benefit costs as of December 31, 2000, 1999 and 1998 were $3,247,000, $2,132,000
and $1,073,000, respectively. A summary of the changes in the projected benefit
obligation during each of the three years ended December 31, 2000, is as follows
(in thousands).
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
Projected benefit obligation - beginning of year .................. $6,824 $4,881 $4,103
Service cost .................................................. 131 245 197
Interest cost ................................................. 544 451 347
Unrecognized loss due to change in actuarial assumptions ...... 431 1,247 234
------ ------ ------
Projected benefit obligation - end of year ........................ $7,930 $6,824 $4,881
====== ====== ======
Assumptions used in the calculation of the present value of the
projected benefit obligation
Discount rate ................................................. 7.5% 7.5% 8.0%
Future annual compensation rate increase ...................... 4.0% 4.0% 4.0%
The Company sponsors a Section 401(k) defined contribution plan
covering all of its eligible employees. At its discretion, the Company may make
annual matching contributions. The expense recorded by the Company for its
matching contributions for the years ended December 31, 2000, 1999 and 1998 was
$2,300,000, $2,060,000 and $1,377,000, respectively.
G. STOCKHOLDERS' EQUITY
Equity Incentive Plans - A summary of the Company's equity incentive
plans follows.
Employee Equity Incentive Plan - The Employee Equity Incentive Plan
(the "Employee Plan") provided for an initial authorization of 2,100,000 shares
of MDC common stock for issuance thereunder, plus an additional annual
authorization equal to 10% of the then authorized shares of MDC common stock
under the Employee Plan as of each succeeding annual anniversary of the
effective date of the Employee Plan. Under the Employee Plan, the Company may
grant awards of restricted stock, incentive and non-statutory stock options and
dividend equivalents, or any combination thereof, to officers and employees of
the Company or any of its subsidiaries. The incentive and non-statutory stock
options granted under the Employee Plan are exercisable at prices greater than
or equal to the market value on the date of grant over periods of up to six
years.
F-14
37
Executive Option Purchase Program - Pursuant to the terms of the
Executive Option Purchase Program (the "Option Purchase Program"), the Company
is authorized by the MDC Board of Directors to lend eligible executives of the
Company up to two-thirds of the aggregate exercise price and state and federal
taxes payable in connection with their exercise of stock options under the
Employee Plan, subject to certain maximum amounts as set forth under the Option
Purchase Program. Notes receivable under the Option Purchase Program are
recourse and secured by 100% of the shares of MDC common stock issued in
connection with options exercised. During 2000 and 1999, certain eligible
executives of the Company exercised options to purchase 300,000 and 150,000
shares, respectively, of MDC common stock under the Employee Plan. Aggregate
notes receivable under the Option Purchase Program of $3,574,000 and $1,780,000,
respectively, at December 31, 2000 and 1999 have reduced stockholders' equity.
Middle Management Option Purchase Program - Pursuant to the terms of
the Middle Management Option Purchase Program (the "Management Program"),
created on July 1, 2000, the Company is authorized by the MDC Board of Directors
to lend eligible members of middle management of the Company up to two-thirds of
the aggregate exercise price and state and federal taxes payable in connection
with their exercise of stock options under the Employee Plan, subject to certain
maximum amounts as set forth under the Management Program. Notes receivable
under the Management Program are recourse and secured by 100% of the shares of
MDC common stock issued in connection with options exercised. At December 31,
2000, there was one loan outstanding under the Management Program.
Director Equity Incentive Plan - Under the Director Equity Incentive
Plan (the "Director Plan"), non-employee directors of the Company are granted
stock options. The Director Plan provided for an initial authorization of
300,000 shares of MDC common stock for issuance thereunder plus an additional
annual authorization of shares equal to 10% of the then authorized shares of MDC
common stock under the Director Plan. During 1997, the Board of Directors
authorized, and the Company's stockholders approved, an additional 350,000
shares of MDC common stock for issuance under the Director Plan. Pursuant to the
Director Plan, on December 1 of each year, each non-employee director of the
Company is granted options to purchase 25,000 shares of MDC common stock. Each
option granted under the Director Plan vests immediately and expires five years
from the date of grant. The option exercise price must be equal to 100% of the
market value of the MDC common stock on the date of grant of the option.
A summary of the changes in stock options during each of the three
years ended December 31, 2000 is as follows (in shares of MDC common stock).
2000 1999 1998
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- ---------- -------- ---------- --------
Options outstanding - beginning of year... 2,375,125 $ 12.92 1,805,000 $ 10.96 1,891,000 $ 7.65
10% stock dividend (Note S)............. 263,915 -- -- -- -- --
Granted................................. 845,500 $ 28.04 776,000 $ 15.73 509,000 $ 18.01
Exercised............................... (440,225) $ 8.16 (186,500) $ 5.63 (554,000) $ 6.10
Cancelled............................... (141,250) $ 16.74 (19,375) $ 13.07 (41,000) $ 11.79
---------- ---------- ----------
Options outstanding - end of year......... 2,903,065 $ 16.68 2,375,125 $ 12.92 1,805,000 $ 10.96
Available for future grant................ 696,763 949,697 1,299,105
---------- ---------- ----------
Total shares reserved - end of year....... 3,599,828 3,324,822 3,104,105
========== ========== ==========
Options exercisable December 31........... 1,238,673 $ 11.42 1,146,333 $ 9.92 984,332 $ 7.48
========== ========== ==========
F-15
38
The Company has elected to use Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related Interpretations, in
accounting for its equity incentive plans. If the Company had elected to
recognize compensation cost based on the fair value of the options granted at
grant date and the vesting provisions under the plans in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation", net income in 2000 would have been reduced by approximately
$2,771,000, or $.12 per basic and diluted share. Net income for 1999 and 1998
would have been reduced by $1,786,000, or $.07 per basic and diluted share, and
$1,154,000, or $.06 per basic and $.05 per diluted share, respectively.
The following table is a summary of the average fair values of options
granted during 2000, 1999 and 1998 on the date of grant using the Black-Scholes
option pricing model with the assumptions used for volatility, risk free
interest rate and dividend yield rate.
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
Average fair value of options granted........$ 12.85 $ 7.41 $ 7.68
Volatility................................... 44.7% 51.5% 48.6%
Risk free interest rate...................... 5.7% 6.2% 4.9%
Dividend yield rate.......................... 0.7% 1.6% 1.0%
Expected lives of options.................... 5-6 yrs. 5-6 yrs. 5-6 yrs.
The following table summarizes information concerning outstanding and
exercisable options at December 31, 2000.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ---------------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACT LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ------------- -------------- ----------- --------------
$ 6.36 - $11.38 755,040 1.47 $ 8.46 670,890 $ 8.21
$12.15 - $14.15 766,012 4.18 $13.94 274,038 $13.72
$14.37 - $24.66 542,163 3.36 $16.68 293,745 $16.60
$26.59 - $26.59 839,850 5.26 $26.59 -- --
---------- ----------
2,903,065 3.64 $16.68 1,238,673 $11.42
========== ==========
MDC Common Stock Repurchase Program - On January 24, 2000, MDC's Board
of Directors authorized the repurchase of up to 1,000,000 shares of MDC common
stock. On February 21, 2000, MDC's Board of Directors authorized the repurchase
of up to 2,000,000 additional shares of MDC common stock. The Company has
repurchased a total of 1,931,800 shares of MDC common stock under these programs
through December 31, 2000. The per share prices, including commissions, for
these repurchases range from $13.53 to $22.02 with an average cost of $15.96. At
December 31, 2000 and 1999, the Company held 7,426,000 shares and 5,850,000
shares of treasury stock, respectively, with average purchase prices of $9.09
and $6.70, respectively.
F-16
39
H. HOMEBUILDING ASSET IMPAIRMENT CHARGES
Homebuilding operating results were reduced by asset impairment charges
totalling $4,200,000, $2,242,000 and $5,300,000 in 2000, 1999 and 1998,
respectively. The Company's assets to which these impairment charges relate are
summarized as follows (in thousands).
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
Completed homes and homes under construction ..... $ -- $ -- $ 888
Land under development and other ................. 4,200 2,242 4,412
------ ------ ------
Total ...................................... $4,200 $2,242 $5,300
====== ====== ======
The 2000 asset impairment charges resulted from the write-down to fair
value of two homebuilding projects in Southern California, which experienced a
much slower than anticipated home order pace and significantly increased sales
incentive requirements. The 1999 charge primarily resulted from the write-down
to fair value of one homebuilding project in Southern California, which
experienced higher than anticipated development costs, a slower home order pace
and increased sales incentive requirements. The 1998 asset impairment charge
related to homebuilding assets primarily in Maryland and principally were the
result of (1) the recognition of losses anticipated from the closing of certain
homes in Backlog and from the reduction of selling prices and the offering of
increased incentives to stimulate sales of certain completed unsold homes in
inventory; (2) the write-down to fair value of certain subdivisions which
experienced slow sales and negative Home Gross Margins; and (3) the write-off of
other capitalized costs, primarily deferred marketing and option deposits,
related to several low margin projects or projects which the Company terminated.
"Home Gross Margins" are gross margins (home sales revenues less cost of goods
sold, which primarily included land and construction costs, capitalized
interest, a reserve for warranty expense and financing costs) as a percentage of
home sales revenues.
I. CORPORATE AND HOMEBUILDING INTEREST ACTIVITY (IN THOUSANDS)
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
Interest capitalized in homebuilding inventory,
beginning of year .............................. $ 17,406 $ 26,332 $ 37,991
Interest incurred ................................. 24,367 21,261 22,525
Interest expense .................................. -- -- --
Previously capitalized interest included in
cost of sales .................................. (22,356) (30,187) (34,184)
-------- -------- --------
Interest capitalized in homebuilding inventory,
end of year .................................... $ 19,417 $ 17,406 $ 26,332
======== ======== ========
J. SALE OF FAMC
In September 1996, the Company sold its 80% interest in Financial Asset
Management LLC (an indirect subsidiary of M.D.C. Holdings, Inc., "FAMC") for
$11,450,000. The sales proceeds consisted of $6,000,000 cash and $5,450,000 of
promissory notes which were payable at specified dates during the 10 years
following the sale and were convertible, under certain circumstances, into an
equity interest in FAMC. The sale resulted in the recognition of a gain of
$4,042,000 in 1996. An additional gain of $5,450,000 attributable to the
promissory notes was deferred based upon uncertainty regarding the
collectibility of principal on the notes and the expiration of the conversion
features. In 1998 and 1997, the Company received principal payments of
$4,450,000 and $1,000,000, respectively, on the promissory notes, resulting in
the recognition of gains in 1998 and 1997 equal to the amounts received.
F-17
40
K. INCOME TAXES
Total income taxes have been allocated as follows (in thousands).
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
Tax expense on income before income taxes and
extraordinary item ................................ $ 79,898 $ 59,061 $ 32,284
Extraordinary loss ................................... -- -- (9,587)
Stockholders' equity, related to exercise of stock
options ........................................... (1,439) (695) (2,484)
-------- -------- --------
Total income taxes ................................... $ 78,459 $ 58,366 $ 20,213
======== ======== ========
The significant components of the provision for income taxes are as
follows (in thousands).
YEAR ENDED DECEMBER 31,
--------------------------------------
2000 1999 1998
-------- -------- --------
Current tax expense
Federal ........................ $ 79,115 $ 51,192 $ 32,875
State .......................... 11,403 11,121 5,082
-------- -------- --------
Total current ................ 90,518 62,313 37,957
-------- -------- --------
Deferred tax benefit
Federal ........................ (10,159) (1,914) (5,095)
State .......................... (461) (1,338) (578)
-------- -------- --------
Total deferred ............... (10,620) (3,252) (5,673)
-------- -------- --------
Provision for income taxes ........ $ 79,898 $ 59,061 $ 32,284
======== ======== ========
The provision for income taxes differs from the amount which would be
computed by applying the statutory federal income tax rate of 35% to income
before income taxes and extraordinary item as a result of the following (in
thousands).
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
Tax expense computed at statutory rate ........ $71,120 $51,959 $29,348
Increase due to
Permanent differences between financial
statement income and taxable income ..... 175 158 293
State income tax, net of federal benefit .. 7,024 6,601 2,350
Other ..................................... 1,579 343 293
------- ------- -------
Provision for income taxes .................... $79,898 $59,061 $32,284
======= ======= =======
Effective tax rate ............................ 39.3% 39.8% 38.5%
======= ======= =======
F-18
41
The tax effects of the temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities are
presented below (in thousands).
DECEMBER 31,
-------------------
2000 1999
------- -------
Deferred tax assets
Warranty, litigation and other reserves ............. $19,107 $19,563
Inventory impairment charges ........................ 5,130 6,305
Accrued liabilities ................................. 4,145 3,682
Inventory, additional costs capitalized for tax
purposes .......................................... 15,350 9,422
Property, equipment and other assets, net ........... 172 857
------- -------
Total gross deferred tax assets ................. 43,904 39,829
------- -------
Deferred tax liabilities
Deferred revenue .................................... 7,500 5,396
Inventory, additional costs capitalized for
financial statement purposes ...................... 2,472 5,372
Subsidiaries not consolidated for tax purposes ...... 1,038 6,567
Other ............................................... 1,073 1,293
------- -------
Total gross deferred tax liabilities ............ 12,083 18,628
------- -------
Net deferred tax asset .............................. $31,821 $21,201
======= =======
In August 2000, the Company and the Internal Revenue Service (the
"IRS") reached final agreement on the examination of the Company's federal
income tax returns for the years 1991 through 1995. In April 2000, the Company
and the IRS reached final agreement on the examination of the Company's federal
income tax returns for the years 1996 and 1997. The conclusion of these
examinations resulted in no material impact to the Company's financial position
or results of operations. No IRS examination of the Company's federal income tax
returns currently are in process.
L. EXTRAORDINARY ITEM
Net income for 1998 included an extraordinary loss of $15,314,000, net
of an income tax benefit of $9,587,000, recognized in connection with the
Company's repurchase and defeasance of the remaining $152,000,000 principal
amount of Old Senior Notes.
F-19
42
M. EARNINGS PER SHARE
Pursuant to Statement of Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"), the computation of diluted earnings per share takes into
account the effect of dilutive stock options. Weighted-average shares
outstanding and per share amounts for all periods presented have been adjusted
for the effect of the 10% stock dividend to be issued in February 2001. The
basic and diluted earnings per share calculations are shown below (in thousands,
except per share amounts).
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
BASIC EARNINGS PER SHARE
Income before extraordinary item ................. $123,303 $ 89,392 $ 51,568
Extraordinary loss, net of taxes ................. -- -- (15,314)
-------- -------- --------
Net income .................................... $123,303 $ 89,392 $ 36,254
======== ======== ========
Weighted-average shares outstanding .............. 23,613 24,472 20,296
======== ======== ========
Per share amounts
Income before extraordinary item .............. $ 5.22 $ 3.65 $ 2.54
Extraordinary loss, net of taxes .............. -- -- (0.75)
-------- -------- --------
Net income .................................... $ 5.22 $ 3.65 $ 1.79
======== ======== ========
DILUTED EARNINGS PER SHARE
Income before extraordinary item ................. $123,303 $ 89,392 $ 51,568
Conversion of Convertible Subordinated Notes ..... -- -- 783
-------- -------- --------
Adjusted income before extraordinary item ........ 123,303 89,392 52,351
Extraordinary loss, net of taxes ................. -- -- (15,314)
-------- -------- --------
Adjusted net income ........................... $123,303 $ 89,392 $ 37,037
======== ======== ========
Weighted-average shares outstanding .............. 23,613 24,472 20,296
Stock options, net ............................... 529 450 953
Conversion of Convertible Subordinated Notes ..... -- -- 3,618
-------- -------- --------
Diluted weighted-average shares outstanding ... 24,142 24,922 24,867
======== ======== ========
Per share amounts
Income before extraordinary item .............. $ 5.11 $ 3.59 $ 2.11
Extraordinary loss, net of taxes .............. -- -- (0.62)
-------- -------- --------
Net income .................................... $ 5.11 $ 3.59 $ 1.49
======== ======== ========
N. LEGAL PROCEEDINGS
The Company and certain of its subsidiaries have been named as
defendants in various claims, complaints and other legal actions arising in the
normal course of business. In the opinion of management, the outcome of these
matters will not have a material adverse effect upon the financial condition,
results of operations or cash flows of the Company.
Because of the nature of the homebuilding business, and in the ordinary
course of its operations, the Company from time to time may be subject to
product liability and other types of claims.
The Company is not aware of any litigation, matter or pending claim
against the Company which would result in material contingent liabilities
related to environmental hazards or asbestos.
O. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate such value.
F-20
43
Cash and Cash Equivalents - For cash and cash equivalents, the carrying
value is a reasonable estimate of fair value.
Investments and Marketable Securities, Net - Investments in marketable
equity securities (other than those assets held for eligible claims made under
warranties created pursuant to the 1996 settlement of litigation commenced in
1994, see Note A) are recorded on the balance sheet at cost, which approximates
market value. Accordingly, the carrying value of the investment is a reasonable
estimate of the fair value.
Mortgage Loans Held in Inventory - The Company generally purchases
forward commitments to deliver mortgage loans held for sale. For loans which
have no forward commitments, loans in inventory are stated at the lower of cost
or market. Accordingly, the carrying value is a reasonable estimate of fair
value.
Lines of Credit - The Company's lines of credit are at floating rates
or at fixed rates which approximate current market rates and have relatively
short-term maturities. Accordingly, the carrying value is a reasonable estimate
of fair value.
Senior Notes - The estimated fair value of the New Senior Notes in the
following table are based on dealer quotes.
DECEMBER 31, 2000 DECEMBER 31, 1999
--------------------- ---------------------
RECORDED ESTIMATED RECORDED ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
New Senior Notes.................... $174,444 $158,813 $174,389 $161,000
P. COMMITMENTS AND CONTINGENCIES
The Company believes that it is subject to risks and uncertainties
common to the homebuilding industry, including (1) cyclical markets sensitive to
changes in general and local economic conditions; (2) volatility of interest
rates, which affects homebuilding demand and may affect credit availability; (3)
seasonal nature of the business due to weather-related factors; (4) significant
fluctuations in the price of building materials, particularly lumber, and of
finished lots and subcontract labor; (5) counterparty non-performance risk
associated with performance bonds; (6) competition; (7) demographic changes; (8)
slow growth initiatives; (9) building moratoria; (10) governmental regulation,
including the interpretation of tax, labor and environmental laws; and (11)
changes in consumer confidence and preferences. The Company's operations are
concentrated in the geographic regions of Colorado, Virginia, Maryland,
California, Arizona and Nevada.
To reduce exposure to fluctuations in interest rates, HomeAmerican
makes commitments to originate (buy) and sell loans and mortgage-backed
securities. At December 31, 2000, commitments by HomeAmerican to originate
mortgage loans totalled $22,818,000 at market rates of interest. At December 31,
2000, unexpired short-term forward commitments to sell loans totalled
$108,396,000 at market rates of interest.
MDC leases office space, equipment and certain of its model show homes
under noncancellable operating leases. Future minimum rental payments for leases
with initial terms in excess of one year total $5,667,000 in 2001, $5,281,000 in
2002, $4,279,000 in 2003, $3,324,000 in 2004 and $2,387,000 in 2005. Rent
expense under cancellable and noncancellable leases totalled $6,531,000,
$4,846,000 and $3,665,000 in 2000, 1999, and 1998, respectively.
In May 1998, MDC sold its headquarters office building for net proceeds
of $13,250,000 in a sale-leaseback transaction. The gain on the sale of
$3,715,000 is being recognized ratably over the initial lease term of seven
years.
F-21
44
Q. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (IN THOUSANDS)
YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------- ------- -------
Cash paid during the year for
Interest .................................... $29,933 $17,335 $15,296
Income taxes ................................ $89,802 $63,557 $24,820
Non-cash investing and financing activities
Land purchases financed by seller ........... $ -- $ 1,032 $ --
Land sales financed by MDC .................. $ -- $ 43 $ --
Conversion of Convertible Subordinated
Notes to equity ........................... $ -- $ -- $28,000
R. RELATED PARTY TRANSACTIONS
MDC has transacted business with related or affiliated companies and
with certain officers and directors of the Company.
Gilbert Goldstein, P.C., a law firm of which a director of the Company
is the sole shareholder, was paid legal fees of $240,000, $209,000 and $243,000
in 2000, 1999 and 1998, respectively.
The Company utilizes in the ordinary course of business the services of
a marketing and communications firm which is owned by the brother-in-law of an
officer and director of the Company. Total fees paid for advertising and
marketing design services were $412,000, $432,000 and $418,000, respectively,
for 2000, 1999 and 1998.
The wife of an officer and director of the Company owns a company which
provides consulting services to the Company. Total fees paid for her services
were $220,000, $120,000 and $80,000, respectively, for 2000, 1999 and 1998.
During 2000, the Company contributed $2,000,000 to the MDC Holdings
Foundation (the "Foundation"), a Delaware not-for-profit corporation which was
incorporated on September 30, 1999. The contribution consisted of 58,033 shares
of MDC common stock valued at $1,900,000 and $100,000 in cash. The Foundation is
a charitable organization with the primary purpose of supporting non-profit
charities in communities where the Company conducts its business. Certain
directors and officers of the Company are the trustees and officers of the
Foundation.
S. SUBSEQUENT EVENT
On January 22, 2001, MDC's board of directors approved the payment of a
10% stock dividend, which will be distributed on February 16, 2001 to
shareowners of record on February 5, 2001. In accordance with SFAS 128 basic and
diluted net income per share amounts and weighted-average shares outstanding
have been restated for all periods presented to reflect the effect of this stock
dividend. In addition, stockholders' equity and stock options outstanding and
exercisable have been adjusted to reflect the stock dividend as if it had been
paid on December 31, 2000.
F-22
45
T. SUMMARIZED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
Unaudited summarized quarterly consolidated financial information for
the two years ended December 31, 2000 is as follows (in thousands, except per
share amounts). Weighted-average shares outstanding and earnings per share have
been adjusted for the effects of the 10% stock dividend to be issued in February
2001.
QUARTER
-----------------------------------------------------
FOURTH THIRD SECOND FIRST
----------- ----------- ----------- -----------
2000
Revenues .............................. $ 538,501 $ 446,239 $ 419,647 $ 347,158
=========== =========== =========== ===========
Net income ............................ $ 39,213 $ 34,260 $ 28,809 $ 21,021
=========== =========== =========== ===========
Earnings Per Share
Basic ............................. $ 1.69 $ 1.47 $ 1.22 $ 0.86
=========== =========== =========== ===========
Diluted ........................... $ 1.64 $ 1.44 $ 1.20 $ 0.85
=========== =========== =========== ===========
Weighted-Average Shares Outstanding
Basic ............................. 23,217 23,297 23,625 24,320
=========== =========== =========== ===========
Diluted ........................... 23,968 23,870 24,004 24,587
=========== =========== =========== ===========
1999
Revenues .............................. $ 460,628 $ 410,126 $ 399,759 $ 297,125
=========== =========== =========== ===========
Net income ............................ $ 26,544 $ 24,140 $ 24,957 $ 13,751
=========== =========== =========== ===========
Earnings Per Share
Basic ............................. $ 1.08 $ 0.98 $ 1.02 $ 0.57
=========== =========== =========== ===========
Diluted ........................... $ 1.07 $ 0.97 $ 1.00 $ 0.55
=========== =========== =========== ===========
Weighted-Average Shares Outstanding
Basic ............................. 24,548 24,524 24,502 24,313
=========== =========== =========== ===========
Diluted ........................... 24,892 25,013 24,965 24,821
=========== =========== =========== ===========
F-23
46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
PricewaterhouseCoopers LLP was previously the principal accountant for
the Company. On May 11, 2000, the Company's Audit Committee recommended to the
Company's Board of Directors that that firm's appointment as principal
accountant be terminated and Ernst & Young LLP be engaged as principal
accountant. The Audit Committee's recommendation to change accountants was
approved by the Company's Board of Directors on May 18, 2000.
In connection with the audits of the two fiscal years ended December
31, 1998 and December 31, 1999, and during the subsequent interim period through
May 11, 2000, there had been no disagreements with PricewaterhouseCoopers LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements if not resolved
to their satisfaction would have caused PricewaterhouseCoopers LLP to make
reference thereto in their report on the financial statements for such years.
The audit reports of PricewaterhouseCoopers LLP on the consolidated
financial statements of the Company as of and for the years ended December 31,
1998 and December 31, 1999, did not contain any adverse opinion or disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles. The Company requested that PricewaterhouseCoopers LLP
furnish the Company with a letter addressed to the Securities and Exchange
Commission stating whether or not it agrees with the above statements. A copy of
such letter, dated May 18, 2000, was filed as Exhibit 16 to our Form 8-K filed
with the Securities and Exchange Commission on May 11, 2000.
During the two fiscal years ended December 31,1999, and the subsequent
interim period through May 18, 2000, the Company did not consult with Ernst &
Young LLP regarding the application of generally accepted accounting principles
to a specific transaction, either proposed or completed, or the type of audit
opinion that might be rendered on the Company's consolidated financial
statements.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required to be set forth hereunder has been omitted and
will be incorporated by reference, when filed, from the Company's Proxy
Statement for its 2001 Annual Meeting of Shareowners to be held on or about May
21, 2001.
ITEM 11. EXECUTIVE COMPENSATION.
Information required to be set forth hereunder has been omitted and
will be incorporated by reference, when filed, from the Company's Proxy
Statement for its 2001 Annual Meeting of Shareowners to be held on or about May
21, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required to be set forth hereunder has been omitted and
will be incorporated by reference, when filed, from the Company's Proxy
Statement for its 2001 Annual Meeting of Shareowners to be held on or about May
21, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required to be set forth hereunder has been omitted and
will be incorporated by reference, when filed, from the Company's Proxy
Statement for its 2001 Annual Meeting of Shareowners to be held on or about May
21, 2001.
21
47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS.
The following consolidated financial statements of the Company and its
subsidiaries are included in Part II, Item 8.
PAGE
----
M.D.C. Holdings, Inc. and Subsidiaries
Report of Independent Auditors as of December 31, 2000 and the Year then Ended.................... F-2
Report of Independent Accountants as of December 31, 1999 and for each of the Two Years in the
Period Ended December 31, 1999.................................................................. F-3
Consolidated Balance Sheets as of December 31, 2000 and 1999...................................... F-4
Consolidated Statements of Income and Other Comprehensive Income for each of the Three Years
Ended December 31, 2000......................................................................... F-6
Consolidated Statements of Stockholders' Equity for each of the Three Years Ended
December 31, 2000............................................................................... F-7
Consolidated Statements of Cash Flows for each of the Three Years Ended December 31, 2000......... F-8
Notes to Consolidated Financial Statements........................................................ F-9
(a) 2. FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because they are not applicable, not
material, not required or the required information is included in the applicable
financial statements or notes thereto.
Financial statements for certain unconsolidated partnerships and joint
ventures owned 50% or less by the Company or its subsidiaries, which are
accounted for on the equity method, have been omitted because they do not,
individually, or in the aggregate, constitute a significant subsidiary.
(a) 3. EXHIBITS.
3.1(a) Form of Amendment to the Certificate of Incorporation of M.D.C.
Holdings, Inc. (hereinafter sometimes referred to as "MDC", the
"Company" or the "Registrant") regarding director liability, filed
with the Delaware Secretary of State on July 1, 1987 (incorporated
by reference to Exhibit 3.1(a) of the Company's Quarterly Report
on Form 10-Q dated June 30, 1987).*
3.1(b) Form of Certificate of Incorporation of MDC, as amended
(incorporated herein by reference to Exhibit 3.1(b) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1987).*
3.2(a) Form of Amendment to the Bylaws of MDC regarding indemnification
adopted by its Board of Directors and effective as of March 20,
1987 (incorporated herein by reference to Exhibit 3.2(a) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1987).*
3.2(b) Form of Bylaws of MDC, as amended (incorporated herein by
reference to Exhibit 3.2(b) of the Company's Quarterly Report on
Form 10-Q dated June 30, 1987).*
4.2 Form of Certificate for shares of the Company's common stock
(incorporated herein by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-3, Registration No. 33-426).*
4.3 Amended and Restated Credit Agreement dated as of October 8, 1999
among M.D.C. Holdings, Inc. as Borrower and The Banks Named
therein and Bank One, NA as Administrative Agent, Bank
22
48
United of Texas FSB as Co-Agent and KeyBank, National Association
as Co-Agent (incorporated herein by reference to Exhibit 10.2 to
the Company's Form 10-Q dated September 30, 1999).*
4.4 Form of Guaranty agreement dated as of October 8, 1999 by certain
subsidiaries of M.D.C. Holdings, Inc., including RICHMOND AMERICAN
HOMES OF CALIFORNIA, INC., RICHMOND AMERICAN HOMES OF MARYLAND,
INC., RICHMOND AMERICAN HOMES OF NEVADA, INC., RICHMOND AMERICAN
HOMES OF VIRGINIA, INC., RICHMOND AMERICAN HOMES OF ARIZONA, INC.,
RICHMOND AMERICAN HOMES OF COLORADO, INC., RICHMOND AMERICAN HOMES
OF NORTHERN CALIFORNIA, INC., M.D.C. LAND CORPORATION, and
RICHMOND AMERICAN CONSTRUCTION, INC. (incorporated herein by
reference to Exhibit 10.2 to the Company's Form 10-Q dated
September 30, 1999).*
4.5 Form of Promissory Note of M.D.C. Holdings, Inc. as Maker dated as
of October 8, 1999 payable to each of the Banks named in the
Amended and Restated Credit Agreement dated as of October 8, 1999
among M.D.C. Holdings, Inc. as Borrower and The Banks Named
therein and Bank One, NA as Administrative Agent, Bank United of
Texas FSB as Co-Agent and KeyBank, National Association as
Co-Agent (incorporated herein by reference to Exhibit 10.2 to the
Company's Form 10-Q dated September 30, 1999).*
4.5(a) Commitment and Acceptance Agreement dated as of August 22, 2000
among the Registrant, Bank One, N.A., as Administrative Agent and
California Bank & Trust as Accepting Bank (incorporated herein by
reference to Exhibit 4.1 to the Company's Form 10-Q dated
September 30, 2000).*
4.5(b) Form of Promissory Note dated August 22, 2000 of the Registrant as
Maker payable to California Bank & Trust (incorporated herein by
reference to Exhibit 4.2 to the Company's Form 10-Q dated
September 30, 2000).*
4.5(c) Consent of Guarantors dated August 22, 2000 (incorporated herein
by reference to Exhibit 4.3 to the Company's Form 10-Q dated
September 30, 2000).*
4.5(d) Commitment and Acceptance Agreement dated as of October 16, 2000
among the Registrant, Bank One, N.A., as Administrative Agent and
U.S. Bank, National Association as Accepting Bank (incorporated
herein by reference to Exhibit 4.4 to the Company's Form 10-Q
dated September 30, 2000).*
4.5(e) Form of Promissory Note dated October 16, 2000 of the Registrant
as Maker payable to U.S. Bank, National Association as Accepting
Bank (incorporated herein by reference to Exhibit 4.5 to the
Company's Form 10-Q dated September 30, 2000).*
4.5(f) Consent of Guarantors Dated October 16, 2000 (incorporated herein
by reference to Exhibit 4.6 to the Company's Form 10-Q dated
September 30, 2000).*
4.6 Senior Notes Indenture dated as of January 28, 1998 by and between
the Company and U.S. Bank National Association, as Trustee
(incorporated herein by reference to Exhibit 4.2(a) of the
Company's Post Effective Amendment No. 1 to Form S-3).*
10.1 The Company's Employee Equity Incentive Plan (incorporated herein
by reference to Exhibit A of the Company's Proxy Statement dated
May 14, 1993 relating to the 1993 Annual Meeting of
Stockholders).*
10.2 The Company's Director Equity Incentive Plan (incorporated herein
by reference to Exhibit B of the Company's Proxy Statement dated
May 14, 1993 relating to the 1993 Annual Meeting of
Stockholders).*
23
49
10.3(a) First Amendment to M.D.C. Holdings, Inc. Director Equity Incentive
Plan (incorporated herein by reference to Exhibit A of the
Company's Proxy Statement dated March 24, 1997 relating to the
1997 Annual Meeting of Stockholders).*
10.3(b) Second Amendment to M.D.C. Holdings, Inc. Director Equity
Incentive Plan (incorporated herein by reference to Exhibit 4.3 of
the Company's Quarterly Report on Form 10-Q dated June 30,
1998).*
10.4(a) Form of Indemnity Agreement entered into between the Registrant
and each member of its Board of Directors as of March 20, 1987
(incorporated herein by reference to Exhibit 19.1 of the Company's
Quarterly Report on Form 10-Q dated June 30, 1987).*
10.4(b) Form of Indemnity Agreement entered into between the Registrant
and certain officers of the Registrant on various dates during
1988 and early 1989 (incorporated herein by reference to Exhibit
10.18(b) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1988).*
10.5 Indemnification Agreement by and among the Company and Larry A.
Mizel ("Mizel") and David D. Mandarich ("Mandarich") dated
December 21, 1989 (incorporated herein by reference to Exhibit 9
of the Company's Form 8-K dated December 28, 1989).*
10.6 Promissory Note in the amount of $280,080 from Mandarich to the
Company dated February 2, 1994 (incorporated herein by reference
to Exhibit 10.10 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1993).*
10.7 Fifth Amendment to Piney Creek Development Co. Joint Venture
Agreement dated June 13, 1991 by and between Commercial Federal
Bank and Land (incorporated herein by reference to Exhibit 10.25
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1991).*
10.8(a) Consulting Agreement effective October 1, 1998 by and between
Gilbert Goldstein, P.C. and the Company (incorporated herein by
reference to Exhibit 10.1 of the Company's Quarterly Report on
Form 10-Q dated September 30, 1998).*
10.8(b) Letter Agreement between M.D.C. Holdings, Inc. and Gilbert
Goldstein, P.C. dated October 25, 1999 amending the Consulting
Agreement effective October 1, 1998 between M.D.C. Holdings, Inc.
and Gilbert Goldstein, P.C. (incorporated herein by reference to
Exhibit 10.2 to the Company's Form 10-Q dated September 30,
1999).*
10.8(c) Letter Agreement between the Registrant and Gilbert Goldstein,
P.C. dated October 23, 2000 amending the Consulting Agreement
effective October 1, 1998 between the Registrant and Gilbert
Goldstein, P.C. (incorporated herein by reference to Exhibit 10.1
to the Company's Form 10-Q dated September 30, 2000).*
10.9(a) Form of Restricted Stock Agreement between the Company and certain
officers and employees of the Company effective as of November 20,
1998 (incorporated herein by reference to Exhibit 10.10 to the
Company's Form 10-K dated December 31, 1998).*
10.9(b) Form of Restricted Stock Agreement between the Company and certain
officers and employees of the Company effective as of November 19,
1999 (incorporated herein by reference to Exhibit 10.9(b) to the
Company's Form 10-K dated December 31, 1999).*
10.10 M.D.C. Holdings, Inc. Executive Officer Performance-Based
Compensation Plan (incorporated herein by reference to Exhibit A
to the Company's Proxy Statement dated May 25, 1994 related to the
1994 Meeting of Stockholders).*
24
50
10.11 M.D.C. Holdings, Inc. 2000 Executive Option Purchase Program,
including form of Promissory Note and Pledge Agreement.
10.12(a) Forms of Promissory Notes and Pledge Agreements dated December 9,
1996 between M.D.C. Holdings, Inc. and Michael Touff and Paris G.
Reece III related to amounts advanced to such persons in
connection with income taxes due on the portion of their 1996
performance bonuses paid in the form of the Company's common stock
(incorporated herein by reference to Exhibit 10.19 of the
Company's Annual Report on Form 10-K dated December 31, 1996).*
10.12(b) Forms of Promissory Notes and Pledge Agreements dated December 18,
1997 between the Company and Michael Touff and Paris G. Reece III
related to amounts advanced to such persons in connection with
income taxes due and the portion of their 1997 performance bonuses
paid in the form of the Company's common stock (incorporated
herein by reference to Exhibit 10.16(b) of the Company's Annual
Report on Form 10-K dated December 31, 1997).*
10.13(a) Employment Agreement between the Company and Larry A. Mizel dated
October 1, 1997 (incorporated herein by reference to Exhibit 99.1
of the Company's Form 8-K dated January 14, 1998).*
10.13(b) Employment Agreement between the Company and David D. Mandarich
dated October 1, 1997 (incorporated herein by reference to Exhibit
99.2 of the Company's Form 8-K dated January 14, 1998).*
10.14(a) Change in Control Agreement between M.D.C. Holdings, Inc. and
Paris G. Reece III effective January 26, 1998 (incorporated herein
by reference to Exhibit 10.1 to the Company's Form 8-K dated March
27, 1998).*
10.14(b) Change in Control Agreement between M.D.C. Holdings, Inc. and
Michael Touff effective January 26, 1998 (incorporated herein by
reference to Exhibit 10.2 to the Company's Form 8-K dated March
27, 1998).*
10.14(c) Form of Change in Control Agreement between M.D.C. Holdings, Inc.
and certain employees of M.D.C. Holdings, Inc. (incorporated
herein by reference to Exhibit 10.3 to the Company's Form 8-K
dated March 27, 1998).*
10.15 Independent Contractor Agreement between Mizel Design and
Decorating Company and M.D.C. Holdings, Inc. effective as of
January 1, 2001.
10.16 M.D.C. Holdings, Inc. 401(k) Savings Plan Prototype Retirement
Plan and Trust (incorporated herein by reference to Exhibit 10.1
to the Company's Form 10-Q dated June 30, 1999).*
10.17 M.D.C. Holdings, Inc. 401(k) Savings Plan Prototype Retirement
Plan & Trust Adoption Agreement between M.D.C. Holdings, Inc. and
Key Trust Company National Association effective as of July 1,
1998 (incorporated herein by reference to Exhibit 10.2 to the
Company's Form 10-Q dated June 30, 1999).*
21 Subsidiaries of the Company.
23 Consent of Ernst & Young.
23(a) Consent of PricewaterhouseCoopers
25
51
- ----------
* Incorporated herein by reference.
(b) REPORTS ON FORM 8-K DURING THE FOURTH QUARTER OF 2000:
(1) No reports on Form 8-K were filed during the last quarter of the
year ended December 31, 2000.
26
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
this 8th day of February, 2001 on its behalf by the undersigned, thereunto duly
authorized.
M.D.C. HOLDINGS, INC.
(Registrant)
By: /s/ LARRY A. MIZEL
-----------------------------------------
Larry A. Mizel
Chief Executive Officer
By: /s/ PARIS G. REECE III
-----------------------------------------
Paris G. Reece III
Executive Vice President, Chief Financial
Officer and Principal Accounting Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and/or
directors of the Registrant, by virtue of their signatures to this report,
appearing below, hereby constitute and appoint Larry A. Mizel, David D.
Mandarich and Paris G. Reece III, or any one of them, with full power of
substitution, as attorneys-in-fact in their names, places and steads to execute
any and all amendments to this report in the capacities set forth opposite their
names and hereby ratify all that said attorneys-in-fact do by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LARRY A. MIZEL Chairman of the Board of Directors and Chief February 8, 2001
- ------------------------------------- Executive Officer
Larry A. Mizel
/s/ DAVID D. MANDARICH Director, President and Chief Operating Officer February 8, 2001
- -------------------------------------
David D. Mandarich
/s/ STEVEN J. BORICK Director February 8, 2001
- -------------------------------------
Steven J. Borick
/s/ GILBERT GOLDSTEIN Director February 8, 2001
- -------------------------------------
Gilbert Goldstein
/s/ WILLIAM B. KEMPER Director February 8, 2001
- -------------------------------------
William B. Kemper
/s/ HERBERT T. BUCHWALD Director February 8, 2001
- -------------------------------------
Herbert T. Buchwald
(A Majority of the Board of Directors)
53
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1(a) Form of Amendment to the Certificate of Incorporation of M.D.C.
Holdings, Inc. (hereinafter sometimes referred to as "MDC", the
"Company" or the "Registrant") regarding director liability, filed
with the Delaware Secretary of State on July 1, 1987 (incorporated
by reference to Exhibit 3.1(a) of the Company's Quarterly Report
on Form 10-Q dated June 30, 1987).*
3.1(b) Form of Certificate of Incorporation of MDC, as amended
(incorporated herein by reference to Exhibit 3.1(b) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1987).*
3.2(a) Form of Amendment to the Bylaws of MDC regarding indemnification
adopted by its Board of Directors and effective as of March 20,
1987 (incorporated herein by reference to Exhibit 3.2(a) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1987).*
3.2(b) Form of Bylaws of MDC, as amended (incorporated herein by
reference to Exhibit 3.2(b) of the Company's Quarterly Report on
Form 10-Q dated June 30, 1987).*
4.2 Form of Certificate for shares of the Company's common stock
(incorporated herein by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-3, Registration No. 33-426).*
4.3 Amended and Restated Credit Agreement dated as of October 8, 1999
among M.D.C. Holdings, Inc. as Borrower and The Banks Named
therein and Bank One, NA as Administrative Agent, Bank United of
Texas FSB as Co-Agent and KeyBank, National Association as
Co-Agent (incorporated herein by reference to Exhibit 10.2 to the
Company's Form 10-Q dated September 30, 1999).*
4.4 Form of Guaranty agreement dated as of October 8, 1999 by certain
subsidiaries of M.D.C. Holdings, Inc., including RICHMOND AMERICAN
HOMES OF CALIFORNIA, INC., RICHMOND AMERICAN HOMES OF MARYLAND,
INC., RICHMOND AMERICAN HOMES OF NEVADA, INC., RICHMOND AMERICAN
HOMES OF VIRGINIA, INC., RICHMOND AMERICAN HOMES OF ARIZONA, INC.,
RICHMOND AMERICAN HOMES OF COLORADO, INC., RICHMOND AMERICAN HOMES
OF NORTHERN CALIFORNIA, INC., M.D.C. LAND CORPORATION, and
RICHMOND AMERICAN CONSTRUCTION, INC. (incorporated herein by
reference to Exhibit 10.2 to the Company's Form 10-Q dated
September 30, 1999).*
4.5 Form of Promissory Note of M.D.C. Holdings, Inc. as Maker dated as
of October 8, 1999 payable to each of the Banks named in the
Amended and Restated Credit Agreement dated as of October 8, 1999
among M.D.C. Holdings, Inc. as Borrower and The Banks Named
therein and Bank One, NA as Administrative Agent, Bank United of
Texas FSB as Co-Agent and KeyBank, National Association as
Co-Agent (incorporated herein by reference to Exhibit 10.2 to the
Company's Form 10-Q dated September 30, 1999).*
4.5(a) Commitment and Acceptance Agreement dated as of August 22, 2000
among the Registrant, Bank One, N.A., as Administrative Agent and
California Bank & Trust as Accepting Bank (incorporated herein by
reference to Exhibit 4.1 to the Company's Form 10-Q dated
September 30, 2000).*
4.5(b) Form of Promissory Note dated August 22, 2000 of the Registrant as
Maker payable to California Bank & Trust (incorporated herein by
reference to Exhibit 4.2 to the Company's Form 10-Q dated
September 30, 2000).*
54
4.5(c) Consent of Guarantors dated August 22, 2000 (incorporated herein
by reference to Exhibit 4.3 to the Company's Form 10-Q dated
September 30, 2000).*
4.5(d) Commitment and Acceptance Agreement dated as of October 16, 2000
among the Registrant, Bank One, N.A., as Administrative Agent and
U.S. Bank, National Association as Accepting Bank (incorporated
herein by reference to Exhibit 4.4 to the Company's Form 10-Q
dated September 30, 2000).*
4.5(e) Form of Promissory Note dated October 16, 2000 of the Registrant
as Maker payable to U.S. Bank, National Association as Accepting
Bank (incorporated herein by reference to Exhibit 4.5 to the
Company's Form 10-Q dated September 30, 2000).*
4.5(f) Consent of Guarantors Dated October 16, 2000 (incorporated herein
by reference to Exhibit 4.6 to the Company's Form 10-Q dated
September 30, 2000).*
4.6 Senior Notes Indenture dated as of January 28, 1998 by and between
the Company and U.S. Bank National Association, as Trustee
(incorporated herein by reference to Exhibit 4.2(a) of the
Company's Post Effective Amendment No. 1 to Form S-3).*
10.1 The Company's Employee Equity Incentive Plan (incorporated herein
by reference to Exhibit A of the Company's Proxy Statement dated
May 14, 1993 relating to the 1993 Annual Meeting of
Stockholders).*
10.2 The Company's Director Equity Incentive Plan (incorporated herein
by reference to Exhibit B of the Company's Proxy Statement dated
May 14, 1993 relating to the 1993 Annual Meeting of
Stockholders).*
10.3(a) First Amendment to M.D.C. Holdings, Inc. Director Equity Incentive
Plan (incorporated herein by reference to Exhibit A of the
Company's Proxy Statement dated March 24, 1997 relating to the
1997 Annual Meeting of Stockholders).*
10.3(b) Second Amendment to M.D.C. Holdings, Inc. Director Equity
Incentive Plan (incorporated herein by reference to Exhibit 4.3 of
the Company's Quarterly Report on Form 10-Q dated June 30,
1998).*
10.4(a) Form of Indemnity Agreement entered into between the Registrant
and each member of its Board of Directors as of March 20, 1987
(incorporated herein by reference to Exhibit 19.1 of the Company's
Quarterly Report on Form 10-Q dated June 30, 1987).*
10.4(b) Form of Indemnity Agreement entered into between the Registrant
and certain officers of the Registrant on various dates during
1988 and early 1989 (incorporated herein by reference to Exhibit
10.18(b) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1988).*
10.5 Indemnification Agreement by and among the Company and Larry A.
Mizel ("Mizel") and David D. Mandarich ("Mandarich") dated
December 21, 1989 (incorporated herein by reference to Exhibit 9
of the Company's Form 8-K dated December 28, 1989).*
55
10.6 Promissory Note in the amount of $280,080 from Mandarich to the
Company dated February 2, 1994 (incorporated herein by reference
to Exhibit 10.10 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1993).*
10.7 Fifth Amendment to Piney Creek Development Co. Joint Venture
Agreement dated June 13, 1991 by and between Commercial Federal
Bank and Land (incorporated herein by reference to Exhibit 10.25
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1991).*
10.8(a) Consulting Agreement effective October 1, 1998 by and between
Gilbert Goldstein, P.C. and the Company (incorporated herein by
reference to Exhibit 10.1 of the Company's Quarterly Report on
Form 10-Q dated September 30, 1998).*
10.8(b) Letter Agreement between M.D.C. Holdings, Inc. and Gilbert
Goldstein, P.C. dated October 25, 1999 amending the Consulting
Agreement effective October 1, 1998 between M.D.C. Holdings, Inc.
and Gilbert Goldstein, P.C. (incorporated herein by reference to
Exhibit 10.2 to the Company's Form 10-Q dated September 30,
1999).*
10.8(c) Letter Agreement between the Registrant and Gilbert Goldstein,
P.C. dated October 23, 2000 amending the Consulting Agreement
effective October 1, 1998 between the Registrant and Gilbert
Goldstein, P.C. (incorporated herein by reference to Exhibit 10.1
to the Company's Form 10-Q dated September 30, 2000).*
10.9(a) Form of Restricted Stock Agreement between the Company and certain
officers and employees of the Company effective as of November 20,
1998 (incorporated herein by reference to Exhibit 10.10 to the
Company's Form 10-K dated December 31, 1998).*
10.9(b) Form of Restricted Stock Agreement between the Company and certain
officers and employees of the Company effective as of November 19,
1999 (incorporated herein by reference to Exhibit 10.9(b) to the
Company's Form 10-K dated December 31, 1999).*
10.10 M.D.C. Holdings, Inc. Executive Officer Performance-Based
Compensation Plan (incorporated herein by reference to Exhibit A
to the Company's Proxy Statement dated May 25, 1994 related to the
1994 Meeting of Stockholders).*
10.11 M.D.C. Holdings, Inc. 2000 Executive Option Purchase Program,
including form of Promissory Note and Pledge Agreement.
10.12(a) Forms of Promissory Notes and Pledge Agreements dated December 9,
1996 between M.D.C. Holdings, Inc. and Michael Touff and Paris G.
Reece III related to amounts advanced to such persons in
connection with income taxes due on the portion of their 1996
performance bonuses paid in the form of the Company's common stock
(incorporated herein by reference to Exhibit 10.19 of the
Company's Annual Report on Form 10-K dated December 31, 1996).*
10.12(b) Forms of Promissory Notes and Pledge Agreements dated December 18,
1997 between the Company and Michael Touff and Paris G. Reece III
related to amounts advanced to such persons in connection with
income taxes due and the portion of their 1997 performance bonuses
paid in the form of the Company's common stock (incorporated
herein by reference to Exhibit 10.16(b) of the Company's Annual
Report on Form 10-K dated December 31, 1997).*
10.13(a) Employment Agreement between the Company and Larry A. Mizel dated
October 1, 1997 (incorporated herein by reference to Exhibit 99.1
of the Company's Form 8-K dated January 14, 1998).*
10.13(b) Employment Agreement between the Company and David D. Mandarich
dated October 1, 1997 (incorporated herein by reference to Exhibit
99.2 of the Company's Form 8-K dated January 14, 1998).*
56
10.14(a) Change in Control Agreement between M.D.C. Holdings, Inc. and
Paris G. Reece III effective January 26, 1998 (incorporated herein
by reference to Exhibit 10.1 to the Company's Form 8-K dated March
27, 1998).*
10.14(b) Change in Control Agreement between M.D.C. Holdings, Inc. and
Michael Touff effective January 26, 1998 (incorporated herein by
reference to Exhibit 10.2 to the Company's Form 8-K dated March
27, 1998).*
10.14(c) Form of Change in Control Agreement between M.D.C. Holdings, Inc.
and certain employees of M.D.C. Holdings, Inc. (incorporated
herein by reference to Exhibit 10.3 to the Company's Form 8-K
dated March 27, 1998).*
10.15 Independent Contractor Agreement between Mizel Design and
Decorating Company and M.D.C. Holdings, Inc. effective as of
January 1, 2001.
10.16 M.D.C. Holdings, Inc. 401(k) Savings Plan Prototype Retirement
Plan and Trust (incorporated herein by reference to Exhibit 10.1
to the Company's Form 10-Q dated June 30, 1999).*
10.17 M.D.C. Holdings, Inc. 401(k) Savings Plan Prototype Retirement
Plan & Trust Adoption Agreement between M.D.C. Holdings, Inc. and
Key Trust Company National Association effective as of July 1,
1998 (incorporated herein by reference to Exhibit 10.2 to the
Company's Form 10-Q dated June 30, 1999).*
21 Subsidiaries of the Company.
23 Consent of Ernst & Young.
23(a) Consent of PricewaterhouseCoopers
- ----------
* Incorporated herein by reference.