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.
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.
PART II
ITEM 5.
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.
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.
ITEM 6.
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
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(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.
ITEM 7.
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").
HOMEBUILDING SEGMENT.
The table below sets forth information relating to the Company's homebuilding segment (dollars in thousands).
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.
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
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).
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.
FINANCIAL SERVICES SEGMENT.
MORTGAGE LENDING OPERATIONS.
The table below sets forth information relating to HomeAmerican's operations (dollars in thousands).
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
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
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.
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.
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.
ITEM 7A.
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).
The Company believes that its overall balance sheet structure has repricing and cash flow characteristics that mitigate the impact of interest rate changes.
ITEM 8.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS.
M.D.C. HOLDINGS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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
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
M.D.C. HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
See notes to consolidated financial statements.
M.D.C. HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
See notes to consolidated financial statements.
M.D.C. HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
See notes to consolidated financial statements.
M.D.C. HOLDINGS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
See notes to consolidated financial statements.
M.D.C. HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
See notes to consolidated financial statements.
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).
Deferred Marketing Costs - Certain marketing costs related to model homes and sales offices are capitalized as prepaid assets and amortized to selling, general and administrative expenses as the homes in the related subdivision are closed. All other marketing costs are expensed as incurred.
Revenue Recognition - Revenues from real estate sales are recognized when a sufficient down payment has been received, financing has been arranged, title, possession and other attributes of ownership have been transferred to the buyer and the Company is not obligated to perform significant additional activities after sale and delivery.
Warranty Costs - The Company's homes are sold with limited warranties issued by an unaffiliated warranty company. Reserves are established by the Company to cover estimated costs of repairs for which the Company is responsible. Warranty reserves are included in Homebuilding - Accounts payable and accrued expenses 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
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).
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).
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.
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).
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.
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).
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.
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).
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.
The following table summarizes information concerning outstanding and exercisable options at December 31, 2000.
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.
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).
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)
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.
K. INCOME TAXES
Total income taxes have been allocated as follows (in thousands).
The significant components of the provision for income taxes are as follows (in thousands).
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).
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).
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.
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).
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.
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.
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.
Q. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (IN THOUSANDS)
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.
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.
ITEM 9.
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.
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.
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.
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.
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.
PART IV
ITEM 14.
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.
(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
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).*
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).*
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
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* 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.
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.
(A Majority of the Board of Directors)
EXHIBIT INDEX
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* Incorporated herein by reference.