-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NBjHp48b/PBkmDih5o3K6O4BDj9G5N/pQbMQoV91grB3a2WhRbHMEP+d7IchnK6y 3MTl+WNkMLaJNxQSJhQXqA== 0000950134-01-000993.txt : 20010212 0000950134-01-000993.hdr.sgml : 20010212 ACCESSION NUMBER: 0000950134-01-000993 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MDC HOLDINGS INC CENTRAL INDEX KEY: 0000773141 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 840622967 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-08951 FILM NUMBER: 1531019 BUSINESS ADDRESS: STREET 1: 3600 S YOSEMITE ST STE 900 CITY: DENVER STATE: CO ZIP: 80237 BUSINESS PHONE: 3037731100 MAIL ADDRESS: STREET 1: 3600 S YOSEMITE ST STREET 2: SUITE 900 CITY: DENVER STATE: CO ZIP: 80237 10-K405 1 d83922e10-k405.txt FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 2000 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM _________ TO _________ COMMISSION FILE NUMBER 1-8951 ---------- M.D.C. HOLDINGS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 84-0622967 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 3600 SOUTH YOSEMITE STREET, SUITE 900 80237 DENVER, COLORADO (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (303) 773-1100 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE/THE PACIFIC STOCK EXCHANGE 8 3/8% SENIOR NOTES DUE FEBRUARY 2008 NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ] INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] AS OF FEBRUARY 5, 2001, 21,447,000 SHARES OF M.D.C. HOLDINGS, INC. COMMON STOCK WERE OUTSTANDING, AND THE AGGREGATE MARKET VALUE OF THE SHARES (BASED UPON THE CLOSING PRICE ON THAT DATE OF THE SHARES ON THE NEW YORK STOCK EXCHANGE, INC. AS REPORTED ON THE COMPOSITE TAPE) HELD BY NON-AFFILIATES WAS APPROXIMATELY $570,707,000. DOCUMENTS INCORPORATED BY REFERENCE PART III OF THIS FORM 10-K IS INCORPORATED BY REFERENCE FROM THE REGISTRANT'S 2001 DEFINITIVE PROXY STATEMENT TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION NO LATER THAN 120 DAYS AFTER THE END OF THE REGISTRANT'S FISCAL YEAR. ================================================================================ 2 M.D.C. HOLDINGS, INC. FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000 ---------- TABLE OF CONTENTS
PAGE NO. ---- PART I ITEMS 1. AND 2. BUSINESS AND PROPERTIES (a) General Development of Business...................................... 1 (b) Financial Information About Industry Segments........................ 1 (c) Narrative Description of Business.................................... 1 ITEM 3. LEGAL PROCEEDINGS.......................................................... 6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................ 6 PART II ITEM 5. MARKET PRICE OF COMMON STOCK AND RELATED SECURITY HOLDER MATTERS........... 7 ITEM 6. SELECTED FINANCIAL AND OTHER DATA.......................................... 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................................ 10 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................. 20 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS.......................................... F-1 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..................................................... 21 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................... 21 ITEM 11. EXECUTIVE COMPENSATION..................................................... 21 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 21 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 21 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............ 22
(i) 3 M.D.C. HOLDINGS, INC. FORM 10-K PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES. (a) General Development of Business M.D.C. Holdings, Inc. is a Delaware Corporation. We refer to M.D.C. Holdings, Inc. as the "Company" or as "MDC" in this Form 10-K. The "Company" or "MDC" includes our subsidiaries unless we state otherwise. MDC's primary business is owning and managing subsidiary companies that build and sell homes under the name "Richmond American Homes." We also own and manage HomeAmerican Mortgage Corporation ("HomeAmerican"), which originates mortgage loans primarily for MDC's home buyers. In addition, MDC provides title agency services through American Home Title and Escrow Company ("American Home Title") and offers insurance through American Home Insurance Agency, Inc. ("American Home Insurance") to MDC's home buyers. (b) Financial Information About Industry Segments Note B to the Consolidated Financial Statements contains information regarding the Company's business segments for each of the three years ended December 31, 2000, 1999 and 1998. (c) Narrative Description of Business MDC's business consists of two segments, homebuilding and financial services. In our homebuilding segment, we build and sell single-family homes in metropolitan Denver, Colorado Springs and Northern Colorado; Northern Virginia and suburban Maryland; Northern and Southern California; Phoenix and Tucson, Arizona; and Las Vegas, Nevada. Our financial services segment consists principally of the operations of HomeAmerican. Our strategy is to build homes generally for the first-time and move-up buyer, constituting the largest group of prospective home buyers. The base prices for these homes generally range from $90,000 to $370,000, although the Company builds homes with base prices as high as $1,300,000. The average sales prices of the Company's homes closed in 2000 and 1999 were $227,300 and $211,400, respectively. When opening a new homebuilding project, the Company generally acquires no more than a two year supply of lots to avoid overexposure to any single sub-market. The Company prefers to acquire finished lots using rolling options or in phases for cash. If potential returns justify the risk, entitled land is acquired for development. The Company's Asset Management Committee, composed of members of the Company's senior management, generally meets weekly to review all proposed land acquisitions and takedowns of lots under option. Additional information about MDC's land acquisition practices may be found in the Homebuilding Segment, Land Acquisition and Development section. Homes are designed and built to meet local customer preferences. The Company is the general contractor for all of its projects and employs subcontractors for site development and home construction. The Company builds single-family detached homes, except in Virginia and Maryland, where we also build townhomes. HomeAmerican is a full service mortgage lender with offices located in each of MDC's markets. Because it provides mortgage loans to a majority of MDC's home buyers, HomeAmerican is an integral part of MDC's homebuilding business. American Home Title provides title agency services to MDC home buyers in Virginia, Maryland and Colorado. American Home Insurance offers homeowners, auto and other types of casualty insurance to home buyers in all of our markets. 1 4 HOMEBUILDING SEGMENT. General. The Company is one of the largest homebuilders in the United States. MDC is a major regional homebuilder with a significant presence in a number of selected growth markets. The Company is the largest homebuilder in metropolitan Denver; among the top five homebuilders in Northern Virginia, Tucson and Colorado Springs; and among the top ten builders in suburban Maryland, Northern and Southern California, Phoenix and Las Vegas. MDC believes a significant presence in its markets enables it to compete effectively for home buyers, land acquisitions and subcontractor labor. The Company designs, builds and sells quality single-family homes at affordable prices, generally for the first-time and move-up buyer. Approximately 79% of its homes closed in 2000 were in subdivisions targeted to first-time and first-time move-up buyers, compared with approximately 71% and 74% in 1999 and 1998, respectively. The Company's operations are diversified geographically, as shown in the following table of home sales revenues by state for the years 1998 through 2000 (dollars in thousands).
TOTAL HOME SALES REVENUES PERCENT OF TOTAL ------------------------------------ -------------------------------------- 2000 1999 1998 2000 1999 1998 ---------- ---------- ---------- ---------- ---------- ---------- Colorado ...... $ 659,549 $ 519,870 $ 439,600 39% 34% 36% California .... 443,332 434,553 275,682 26% 28% 22% Arizona ....... 228,550 260,224 218,110 13% 17% 18% Nevada ........ 111,108 83,342 67,455 7% 6% 6% Virginia ...... 183,900 162,577 145,569 11% 11% 12% Maryland ...... 74,669 65,953 72,243 4% 4% 6% ---------- ---------- ---------- ---------- ---------- ---------- Total ... $1,701,108 $1,526,519 $1,218,659 100% 100% 100% ========== ========== ========== ========== ========== ==========
Housing. MDC builds homes in a number of basic series, each designed to appeal to a different segment of the home buyer market. Within each series, MDC builds several models, each with a different floor plan, elevation and standard and optional features. Differences in sales prices of similar models in any series depend primarily upon location, optional features and design specifications. The series of homes offered at a particular location are based on customer preference, lot size, the area's demographics and, to a lesser extent, the requirements of local municipalities. Design centers are located in the Company's Denver, Colorado Springs, Phoenix, Northern California, Southern California, Nevada and Virginia homebuilding divisions. Home buyers are able to customize certain features of their homes by selecting options and upgrades on display at the design centers. Home buyers can select finishes and upgrades soon after they decide to purchase a Richmond American home. The design centers, which are also planned for MDC's other divisions, not only provide MDC's customers with a convenient way to select upgrades and options for their new homes, but also provide the Company with an additional source of revenue and profit. The Company maintains limited levels of inventories of unsold homes in its markets. Unsold homes in various stages of completion allow the Company to meet the immediate and near-term demands of prospective home buyers. In order to mitigate the risk of carrying excess inventory, the Company has continued to reduce the number of its unsold homes under construction. Land Acquisition and Development. MDC purchases finished lots using option contracts and in phases or in bulk for cash. When estimated potential returns justify the risk, the Company acquires entitled land for development into finished lots. In making land purchases, MDC considers a number of factors, including projected rates of return, sales prices of the homes to be built on the lots, population and employment growth patterns, proximity to developed areas, estimated costs of development and demographic trends. Generally, MDC acquires finished lots and land for development only in areas that will have, among other things, available building permits, utilities and suitable zoning. The Company attempts to maintain a supply of finished lots sufficient to enable it to start homes as soon as practical after a contract for sale is executed. This approach is intended to minimize the Company's investment in inventories and reduce the risk of shortages of labor and building materials. Increases in the cost of finished lots may reduce Home Gross Margins (as defined below) in the future to the extent that market conditions would not allow the Company to recover the higher cost of land through higher sales prices. We define "Home Gross Margins" to mean home sales revenues less cost of goods sold (which primarily includes land and construction costs, capitalized interest, a reserve for warranty expense and financing costs) as a percent of home sales revenues. See "FORWARD-LOOKING STATEMENTS" below. 2 5 MDC has the right to acquire a portion of the land it will require in the future utilizing option contracts, in some cases on a "rolling" basis. Generally, in an option contract, the Company obtains the right to purchase lots in consideration for an option deposit. In the event the Company elects not to purchase the lots within a specified period of time, the Company relinquishes the option deposit. This practice limits the Company's risk and avoids a greater demand on its liquidity. At December 31, 2000, MDC had the right to acquire 8,131 lots under option agreements with approximately $10,838,000 in total option deposits. Because of increased demand for finished lots in certain of its markets, the Company's ability to acquire lots using rolling options has been reduced or has become significantly more expensive. MDC owns various undeveloped parcels of real estate, most of which it intends to develop into finished lots. MDC develops its land in phases (generally fewer than 100 lots at a time for each home series in a subdivision) in order to limit the Company's risk in a particular project and to maximize the efficient use of available liquidity. Building permits and utilities are available and zoning is suitable for the current intended use of substantially all of MDC's undeveloped land. When developed, these lots generally will be used in the Company's homebuilding activities, although some lots may be sold to others. Certain undeveloped land also may be sold to others before it is developed. See "FORWARD-LOOKING STATEMENTS" below. The table below shows the carrying value of land and land under development, by state, as of December 31, 2000, 1999 and 1998 (in thousands).
DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- Colorado ...... $126,524 $ 74,117 $ 53,720 California .... 149,088 161,508 100,754 Arizona ....... 50,937 29,426 25,178 Nevada ........ 26,546 27,419 20,027 Virginia ...... 29,596 6,357 11,292 Maryland ...... 6,020 9,853 6,209 -------- -------- -------- Total ..... $388,711 $308,680 $217,180 ======== ======== ========
The table below shows the number of lots owned and under option, by state, as of December 31, 2000, 1999 and 1998.
DECEMBER 31, ------------------------ 2000 1999 1998 ------ ------ ------ Lots Owned Colorado ............. 5,905 5,096 3,932 California ........... 1,589 2,070 1,769 Arizona .............. 2,298 1,976 1,836 Nevada ............... 680 857 848 Virginia ............. 1,052 265 309 Maryland ............. 109 188 231 ------ ------ ------ Total ............ 11,633 10,452 8,925 ====== ====== ====== Lots Under Option Colorado ............. 3,498 3,682 4,063 California ........... 1,030 632 552 Arizona .............. 1,720 1,724 1,492 Nevada ............... 39 50 405 Virginia ............. 1,344 1,771 903 Maryland ............. 500 204 314 ------ ------ ------ Total ............ 8,131 8,063 7,729 ====== ====== ======
Labor and Raw Materials. Generally, the materials used in MDC's homebuilding operations are standard items carried by major suppliers. The Company generally contracts for most of its materials and labor at a fixed price during the anticipated construction period of its homes. This allows the Company to mitigate the risks associated with increases in building materials and labor costs between the time construction begins on a home and the time it is closed. Increases in the costs of building materials, particularly lumber, and subcontracted labor may reduce Home Gross Margins to the extent that market conditions prevent the recovery of increased costs through higher sales 3 6 prices. To varying degrees, the Company experienced shortages in the availability of building materials and/or labor in 2000 in each of its markets, which resulted in delays in the delivery of homes under construction. The Company may experience shortages and delays in the future which may result in delays in the delivery of homes under construction, reduced Home Gross Margins or both. See "FORWARD-LOOKING STATEMENTS" below. Seasonal Nature of Business. MDC's business is seasonal to the extent that its Colorado, California, Virginia and Maryland operations encounter weather-related slowdowns. Delays in development and construction activities resulting from adverse weather conditions increase the Company's risk of buyer cancellations and higher costs for interest, materials and labor. In addition, home buyer preferences and demographics influence the seasonal nature of MDC's business. Backlog. As of December 31, 2000 and 1999, homes under contract but not yet delivered ("Backlog") totalled 3,292 and 2,941, respectively, with estimated sales values of $775,000,000 and $600,000,000, respectively. Based on its past experience, assuming no significant change in market conditions and mortgage interest rates, MDC anticipates that approximately 75% of its December 31, 2000 Backlog will close under existing sales contracts during the first nine months of 2001. The remaining 25% of the homes in Backlog are not expected to close under existing contracts due to cancellations. See "FORWARD-LOOKING STATEMENTS" below. Marketing and Sales. MDC's homes are sold under various commission arrangements by its own sales personnel and by cooperating brokers and referrals in the realtor community. In marketing homes, MDC primarily uses on-site model homes, advertisements in local newspapers, radio, billboards and other signage, magazines and illustrated brochures. We also market our homes on our internet website, www.richmondamerican.com. All of MDC's homes are sold with a ten-year limited warranty issued by an unaffiliated warranty company. Title Operations. Since January 1998, American Home Title has provided title agency services to MDC home buyers in Virginia and Maryland. American Home Title began offering title agency services to MDC's Colorado home buyers in 1999. The Company is evaluating opportunities to provide title agency services in its other markets. Competition. The homebuilding industry is fragmented and highly competitive. MDC competes with numerous homebuilders, including a number that are larger and have greater financial resources. Homebuilders compete for customers, desirable financing, land, building materials and subcontractor labor. Competition for home orders primarily is based upon price, style, financing provided to prospective purchasers, location of property, quality of homes built, warranty service and general reputation in the community. The Company also competes with subdivision developers and land development companies. Mortgage Interest Rates. The Company's operations are dependent upon the availability and cost of mortgage financing. Increases in home mortgage interest rates may reduce the demand for homes and home mortgages and, generally, will reduce home mortgage refinancing activity. The Company is unable to predict future changes in home mortgage interest rates or the impact such changes may have on the Company's operating activities and results of operations. See "FORWARD-LOOKING STATEMENTS" below. Regulation. The Company's operations are subject to continuing compliance requirements mandated by applicable federal, state and local statutes, ordinances, rules and regulations, including zoning and land use ordinances, building, plumbing and electrical codes, contractors' licensing laws, state insurance laws, federal and state human resources laws and regulations and health and safety regulations and laws (including, but not limited to, those of the Occupational Safety and Health Administration). Various localities in which the Company operates have imposed (or may impose in the future) fees on developers to fund schools, road improvements and low and moderate income housing. See "FORWARD-LOOKING STATEMENTS" below. From time to time, various municipalities in which the Company operates restrict or place moratoriums on the availability of utilities, including water and sewer taps. Additionally, certain jurisdictions in which the Company operates have proposed or enacted growth initiatives which may restrict the number of building permits available in any given year. Although no assurances can be given as to future conditions or governmental actions, MDC believes that it has, or can obtain, water and sewer taps and building permits for its land inventory and land held for development. See "FORWARD-LOOKING STATEMENTS" below. 4 7 The Company's homebuilding operations also are affected by environmental laws and regulations pertaining to availability of water, municipal sewage treatment capacity, land use, hazardous waste disposal, naturally occurring radioactive materials, building materials, population density and preservation of endangered species, natural terrain and vegetation. Due to these considerations, the Company generally obtains an environmental site assessment for parcels of land which it acquires. The particular environmental laws and regulations that apply to any given homebuilding project vary greatly according to the site's location, the site's environmental conditions and the present and former uses of the site. These environmental laws and regulations may result in project delays; cause the Company to incur substantial compliance and other costs; and/or prohibit or severely restrict homebuilding activity in certain environmentally sensitive regions or areas. See "FORWARD-LOOKING STATEMENTS" below. FINANCIAL SERVICES SEGMENT. Mortgage Lending Operations. General. HomeAmerican is a full-service mortgage lender. Through office locations in each of the Company's markets, HomeAmerican originates mortgage loans primarily for MDC's home buyers and, to a lesser extent, for others on a "spot" basis. HomeAmerican also brokers mortgage loans for origination by outside lending institutions for MDC home buyers. HomeAmerican is the principal originator of mortgage loans for MDC's home buyers. HomeAmerican is authorized to originate Federal Housing Administration-insured ("FHA"), Veterans Administration-guaranteed ("VA"), Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC") and conventional mortgage loans. HomeAmerican is also an authorized loan servicer for FNMA, FHLMC and the Government National Mortgage Association ("GNMA") and, as such, is subject to the rules and regulations of such organizations. Through early 1999, HomeAmerican also purchased loans and the related servicing rights from unaffiliated loan correspondents. The origination fees for these loans were retained by the correspondents. HomeAmerican does not intend to purchase mortgage loans from correspondents in the future. See "FORWARD-LOOKING STATEMENTS" below. Substantially all of the mortgage loans originated by HomeAmerican are sold to private investors within 40 days of origination. The Company uses HomeAmerican's secured warehouse line of credit, other borrowings and internally generated Company funds to finance these mortgage loans until they are sold. Portfolio of Mortgage Loan Servicing. Mortgage loan servicing involves the collection of principal, interest, taxes and insurance premiums from the borrower and the remittance of such funds to the mortgage loan investor, local taxing authorities and insurance companies, for which the servicer is paid a fee. HomeAmerican obtains the servicing rights related to the mortgage loans it originates. Certain mortgage loans are sold "servicing released" (the servicing rights are included with the sale of the corresponding mortgage loans). The servicing rights on mortgage loans which are not sold "servicing released" generally are sold in bulk at a later date. HomeAmerican has sold, and intends to sell in the future, mortgage loan servicing. See "FORWARD-LOOKING STATEMENTS" below. HomeAmerican's portfolio of mortgage loan servicing at December 31, 2000 consisted of servicing rights with respect to approximately 3,781 single-family loans, 80% of which were less than two years old. These loans are secured by mortgages on properties in eight states, with interest rates on the loans ranging from approximately 4.25% to 14.0% and averaging 7.6%. The underlying value of a servicing portfolio generally is determined based on the interest rates and the annual servicing fee rates (currently .44% for FHA/VA loans and .25% for conventional loans) applicable to the loans comprising the portfolio. As interest rates decreased during the latter part of 2000, the proportion of HomeAmerican's customers who selected adjustable rate mortgages ("ARMs") decreased to approximately 4% in December 2000, compared with 28% in December 1999. The value of mortgage servicing rights related to ARMs is substantially less than mortgage servicing rights related to fixed rate mortgage loans. Pipeline. HomeAmerican's mortgage loans in process which had not closed ("Pipeline") at December 31, 2000 had aggregate principal balances of $483,332,000. Approximately 75% of the Pipeline at December 31, 2000 is anticipated to close during the first six months of 2001. If mortgage interest rates decline, a smaller percentage of these loans would be expected to close. See "FORWARD-LOOKING STATEMENTS" below. 5 8 Forward Sales Commitments. HomeAmerican's operations are affected by changes in mortgage interest rates. HomeAmerican utilizes forward mortgage securities contracts to manage the interest rate risk on its fixed-rate mortgage loans owned and rate-locked mortgage loans in the Pipeline. Such contracts are the only significant financial derivative instrument utilized by MDC. Competition. The mortgage industry is fragmented and highly competitive. In each of the locations in which it originates loans, HomeAmerican competes with numerous banks, thrifts and other mortgage bankers, many of which are larger and have greater financial resources. Competitive factors include pricing, loan terms, underwriting criteria and customer service. Insurance Operations. In 1998, American Home Insurance began offering homeowners, auto and other types of casualty insurance to its Colorado home buyers. In 1999, American Home Insurance began offering these insurance services to MDC's home buyers in all states in which the Company operates except California. American Home Insurance services were available to MDC's California home buyers beginning in the first quarter of 2000. EMPLOYEES. At December 31, 2000, MDC employed approximately 1,700 persons. MDC considers its employee relations to be satisfactory. ITEM 3. LEGAL PROCEEDINGS. The Company and certain of its subsidiaries have been named as defendants in various claims, complaints and other legal actions arising in the normal course of business. In the opinion of management, the outcome of these matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company. See "FORWARD-LOOKING STATEMENTS" below. Because of the nature of the homebuilding business, and in the ordinary course of its operations, the Company from time to time may be subject to product liability claims. The Company is not aware of any litigation, matter or pending claim against the Company which would result in material contingent liabilities related to environmental hazards or asbestos. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No meetings of the Company's stockholders were held during the fourth quarter of 2000. 6 9 PART II ITEM 5. MARKET PRICE OF COMMON STOCK AND RELATED SECURITY HOLDER MATTERS. The shares of MDC common stock are traded on the New York and the Pacific Stock Exchanges. The following table sets forth, for the periods indicated, the high and low sale prices of the shares of MDC common stock as reported on the Composite Tape, adjusted for the 10% stock dividend as discussed below.
HIGH LOW ------ ------ 1999 First quarter.................. $19.60 $12.45 Second quarter................. $19.55 $13.64 Third quarter.................. $20.00 $13.64 Fourth quarter................. $15.68 $12.16 2000 First quarter.................. $16.31 $12.27 Second quarter................. $18.18 $14.49 Third quarter.................. $24.55 $16.88 Fourth quarter................. $31.59 $23.07
The Company declared and paid dividends of six cents per share in the first quarter of 2001, six cents per share in each quarter in 2000 and five cents per share in each quarter in 1999. On January 22, 2001, MDC's board of directors approved the payment of a 10% stock dividend, which will be distributed on February 16, 2001 to shareowners of record on February 5, 2001. In connection with the declaration and payment of dividends, the Company is required to comply with certain covenants contained in its $413,000,000 unsecured revolving line of credit agreement and its 8 3/8% senior notes due 2008 indenture dated January 1998. Pursuant to the terms of these agreements, dividends may be declared or paid if the Company is in compliance with certain stockholders' equity and debt coverage tests. At December 31, 2000, the Company had a permitted dividend capacity of approximately $130,000,000 pursuant to the most restrictive of these covenants. On February 5, 2001, MDC had 1,192 shareowners of record. 7 10 ITEM 6. SELECTED FINANCIAL AND OTHER DATA. The data in this table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements (in thousands, except per share and unit amounts). SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- INCOME STATEMENT DATA Revenues ....................................... $ 1,751,545 $ 1,567,638 $ 1,263,209 $ 969,562 $ 922,595 =========== =========== =========== =========== =========== Operating profit Homebuilding ................................ $ 227,319 $ 162,258 $ 86,764 $ 41,543 $ 27,967 Financial services Mortgage lending .......................... 14,282 13,169 11,198 7,745 12,584 Asset management .......................... -- -- 4,590 1,434 6,073 ----------- ----------- ----------- ----------- ----------- Total financial services .............. 14,282 13,169 15,788 9,179 18,657 ----------- ----------- ----------- ----------- ----------- Net corporate expenses(1) ................... (38,400) (26,974) (18,700) (11,395) (13,870) ----------- ----------- ----------- ----------- ----------- Income before income taxes and extraordinary item .......................... $ 203,201 $ 148,453 $ 83,852 $ 39,327 $ 32,754 =========== =========== =========== =========== =========== Income before extraordinary item ............... $ 123,303 $ 89,392 $ 51,568 $ 24,205 $ 20,799 Basic per common share(2) ................... $ 5.22 $ 3.65 $ 2.54 $ 1.25 $ 1.02 Diluted per common share(2) ................. $ 5.11 $ 3.59 $ 2.11 $ 1.07 $ 0.89 Net income(3) .................................. $ 123,303 $ 89,392 $ 36,254 $ 22,026 $ 20,378 Basic per common share(2) ................... $ 5.22 $ 3.65 $ 1.79 $ 1.14 $ 1.00 Diluted per common share(2) ................. $ 5.11 $ 3.59 $ 1.49 $ 0.98 $ 0.87 Weighted-average shares outstanding(2) Basic ....................................... 23,613 24,472 20,296 19,440 20,485 Diluted ..................................... 24,142 24,922 24,867 24,089 25,039 Dividends paid per share ....................... $ .24 $ .20 $ .15 $ .12 $ .12
DECEMBER 31, ------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA ASSETS Housing completed or under construction ..... $ 443,512 $ 337,029 $ 294,104 $ 249,928 $ 251,885 Land and land under development ............. $ 388,711 $ 308,680 $ 217,180 $ 193,012 $ 182,927 Total assets ................................ $ 1,061,598 $ 877,008 $ 714,013 $ 621,770 $ 617,303 HOMEBUILDING AND CORPORATE DEBT Homebuilding Line of credit ............................ $ 90,000 $ 40,000 $ 21,871 $ 20,766 $ 11,832 Notes payable ............................. $ -- $ -- $ 866 $ 9,676 $ 3,063 Senior notes ................................ $ 174,444 $ 174,389 $ 174,339 $ 150,354 $ 187,721 Subordinated notes .......................... $ -- $ -- $ -- $ 38,230 $ 38,225 Total homebuilding and corporate debt ....... $ 264,444 $ 214,389 $ 197,076 $ 222,457 $ 244,328 STOCKHOLDERS' EQUITY ........................... $ 482,230 $ 389,023 $ 298,131 $ 229,593 $ 213,847 STOCKHOLDERS' EQUITY PER OUTSTANDING Share(2)(5) ................................. $ 20.69 $ 15.85 $ 12.33 $ 10.94 $ 10.13 RATIO OF DEBT TO STOCKHOLDERS' EQUITY(4) ....... .55 .55 .66 .97 1.14 RATIO OF DEBT TO CAPITAL(4) .................... .35 .36 .40 .49 .53
8 11
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- OPERATING DATA Home sales revenues ......................... $ 1,701,108 $ 1,526,519 $ 1,218,659 $ 939,016 $ 880,358 Orders for homes, net (units) ............... 7,835 7,232 7,191 5,769 5,049 Homes closed (units) ........................ 7,484 7,221 6,293 5,223 4,974 Backlog Units(6) .................................. 3,292 2,941 2,930 2,032 1,486 Estimated sales value(6) .................. $ 775,000 $ 600,000 $ 580,000 $ 380,000 $ 261,000 Average selling price per home .............. $ 227.3 $ 211.4 $ 193.7 $ 179.8 $ 177.0 Home Gross Margins .......................... 22.3% 19.3% 16.9% 14.5% 13.7% Excluding interest in home cost of sales ................................... 23.6% 21.2% 19.5% 17.4% 16.7% CASH FLOWS FROM Operating activities ........................ $ (63,457) $ (3,845) $ 800 $ 18,516 $ 47,925 Investing activities ........................ $ (3,160) $ (1,878) $ 15,081 $ 3,513 $ 13,998 Financing activities ........................ $ 41,802 $ 34,574 $ (17,480) $ (21,655) $ (71,414) CORPORATE AND HOMEBUILDING SG&A AS A % OF HOME SALES REVENUES ......................... 11.9% 10.8% 11.5% 11.0% 11.0% EBITDA, AS ADJUSTED(7) Income before extraordinary item ............ $ 123,303 $ 89,392 $ 51,568 $ 24,205 $ 20,799 Add Income taxes ............................ 79,898 59,061 32,284 15,122 11,955 Corporate and homebuilding interest expense ............................... -- -- -- 761 3,773 Interest in cost of sales ............... 22,356 30,187 34,184 28,361 25,995 Other fixed charges ..................... 3,362 1,347 953 797 1,165 Depreciation and amortization ........... 21,792 17,845 20,228 15,050 12,067 Non-cash charges Homebuilding asset impairment charges .......................... 4,200 2,242 5,300 5,850 9,191 Other ............................... -- -- -- -- 533 ----------- ----------- ----------- ----------- ----------- Total EBITDA, As Adjusted ................... $ 254,911 $ 200,074 $ 144,517 $ 90,146 $ 85,478 =========== =========== =========== =========== =========== Interest incurred ........................... $ 24,367 $ 21,261 $ 22,525 $ 26,368 $ 30,296 EBITDA, AS ADJUSTED/INTEREST INCURRED .......... 10.5 9.4 6.4 3.4 2.8
- ---------- (1) Net corporate expenses represent (a) net realized gains and losses on corporate investments and marketable securities; (b) interest, dividend and other income; (c) corporate general and administrative expense; and (d) corporate and homebuilding interest expense. (2) Stockholders' equity per share, basic and diluted net income per share and weighted-average shares outstanding have been restated for all periods presented to reflect the effect of the 10% stock dividend to be distributed on February 16, 2001. (3) Includes the effects of extraordinary after-tax losses on the early extinguishment of debt resulting principally from (a) in 1998, the refinancing of MDC's 11 1/8% senior notes due 2003 (the "Old Senior Notes"); (b) in 1997, the repurchase of $38,000,000 principal amount of the Old Senior Notes; and (c) in 1996, certain other debt extinguishments. (4) Excludes mortgage lending debt from the calculation. (5) Pro-forma assuming conversion of the 8 3/4% convertible subordinated notes for 1997 and 1996. (6) At the end of each period. (7) "EBITDA, as adjusted" has been computed in accordance with the definition of "Consolidated EBITDA" set forth under the New Senior Notes indenture. Under this definition, EBITDA, as adjusted, is calculated by adding to net income the provision for income tax, depreciation, amortization, interest expense, other fixed charges and other non-cash, extraordinary charges that reduce net income, including asset impairment charges. EBITDA, as adjusted, should not be considered an alternative to operating income determined in accordance with generally accepted accounting principles ("GAAP") as an indicator of operating performance, nor an alternative to cash flows from operating activities determined in accordance with GAAP as a measure of liquidity. Because some analysts and companies may not calculate EBITDA, as adjusted, in the same manner as MDC, the EBITDA, as adjusted, information presented above may not be comparable to similar presentations by others. MDC's management believes that EBITDA, as adjusted, reflects the changes in the Company's operating results, particularly changes in the Company's operating income, and is an indication of MDC's ability to generate funds from operations that are available to pay income taxes, interest and principal on debt and to meet other cash obligations. 9 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS CONSOLIDATED RESULTS. 2000 Compared With 1999. Revenues for the year ended December 31, 2000 were $1,751,545,000, the highest in the Company's history and a 12% increase over 1999. The increase primarily resulted from a 4% increase in the number of home closings and a $15,900 increase in the average selling price per home closed. Income before income taxes increased 37% to $203,201,000 in 2000. The increase was due to a 40% increase in homebuilding segment operating profit and an 8% increase in financial services segment operating profit. The homebuilding segment increase principally was a result of the home closing and average selling price increases described above and an increase of 300 basis points in Home Gross Margins. The financial services segment increase primarily was due to a 12% increase in loan origination fees. Throughout 2000, the Company continued to strengthen its balance sheet and improve the efficiency of its operations. The Company's strong 2000 operating results, partially offset by its repurchase of 1,931,800 shares of its common stock for $30,828,000 during the year, increased stockholders' equity by 24% to $482,230,000, or $20.69 per outstanding share (restated for the 10% stock dividend), at December 31, 2000. These factors contributed to a reduction in the Company's corporate and homebuilding debt-to-capital ratio to .35 and its corporate and homebuilding debt-to-EBITDA, as adjusted, ratio to 1.04 at December 31, 2000, the lowest levels achieved in the Company's history. In addition, the Company's ratio of EBITDA, as adjusted, to interest incurred improved to 10.5 for the year ended December 31, 2000, compared with 9.4 for the same period in 1999. 1999 Compared With 1998. Revenues for the year ended December 31, 1999 were $1,567,638,000, a 24% increase over 1998. The increase primarily resulted from a 15% increase in the number of home closings and a $17,700 increase in the average selling price per home closed. Income before income taxes and extraordinary item increased 77% to $148,453,000 in 1999. The increase primarily was due to an 87% increase in homebuilding segment operating profit, partially offset by a 17% decrease in financial services segment operating profit. The homebuilding segment increase principally was a result of the home closing and average selling price increases described above and an increase of 240 basis points in Home Gross Margins. The financial services segment operating profit decreased in 1999 due to a $4,450,000 gain recognized in 1998 resulting from the receipt of the final payment for the September 1996 sale of the Company's asset management business. Operating profit from the Company's mortgage lending operations increased 18% in 1999 primarily due to a 28% increase in loan origination fees. Net income for 1998 included an extraordinary loss of $15,314,000, net of an income tax benefit of $9,587,000, recognized in connection with the Company's repurchase and defeasance of the remaining $152,000,000 principal amount of MDC's 11 1/8% senior notes due 2003 (the "Old Senior Notes"). 10 13 HOMEBUILDING SEGMENT. The table below sets forth information relating to the Company's homebuilding segment (dollars in thousands).
YEAR ENDED DECEMBER 31, -------------------------------------- 2000 1999 1998 ---------- ---------- ---------- Home Sales Revenues ............................. $1,701,108 $1,526,519 $1,218,659 Operating Profits ............................... $ 227,319 $ 162,258 $ 86,764 Average Selling Price Per Home Closed ........... $ 227.3 $ 211.4 $ 193.7 Home Gross Margins .............................. 22.3% 19.3% 16.9% Excluding Interest in Home Cost of Sales ... 23.6% 21.2% 19.5% Orders For Homes, Net (Units) Colorado ................................... 2,607 2,755 2,742 California ................................. 1,614 1,396 1,042 Arizona .................................... 1,849 1,455 1,829 Nevada ..................................... 739 552 540 Virginia ................................... 765 738 710 Maryland ................................... 261 336 328 ---------- ---------- ---------- Total .................................... 7,835 7,232 7,191 ========== ========== ========== Homes Closed (Units) Colorado ................................... 2,848 2,484 2,267 California ................................. 1,363 1,465 986 Arizona .................................... 1,554 1,699 1,526 Nevada ..................................... 678 561 489 Virginia ................................... 727 702 667 Maryland ................................... 314 310 358 ---------- ---------- ---------- Total .................................... 7,484 7,221 6,293 ========== ========== ==========
DECEMBER 31, --------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Backlog (Units) Colorado ................................... 1,385 1,626 1,355 California ................................. 508 257 326 Arizona .................................... 747 452 696 Nevada ..................................... 198 137 146 Virginia ................................... 328 290 254 Maryland ................................... 126 179 153 ----------- ----------- ----------- Total .................................... 3,292 2,941 2,930 =========== =========== =========== Estimated Sales Value .................... $ 775,000 $ 600,000 $ 580,000 =========== =========== =========== Active Subdivisions Colorado ................................... 48 50 45 California ................................. 29 24 21 Arizona .................................... 27 20 24 Nevada ..................................... 10 12 9 Virginia ................................... 12 16 20 Maryland ................................... 7 9 11 ----------- ----------- ----------- Total .................................... 133 131 130 =========== =========== ===========
11 14 HOMEBUILDING ACTIVITIES - 2000 COMPARED WITH 1999. Home Sales Revenues and Homes Closed. Home sales revenues in 2000 were the highest in the Company's history and represented an 11% increase compared with home sales revenues in 1999. The increase resulted from an increase in both the number of home closings and average selling price per home closed, as further discussed below. Home closings were higher in all of the Company's markets except Southern California and Phoenix in 2000, compared with 1999. Home closings particularly were strong in Northern California, Nevada and Colorado, which increased 29%, 21% and 15%, respectively, primarily as a result of the strong demand for new homes in these markets. The decrease in home closings in Southern California and Phoenix primarily was due to fewer active subdivisions in each of these markets during the latter half of 1999 and the first quarter of 2000. Active subdivisions subsequently have increased to 20 and 21, respectively, in Southern California and Phoenix at December 31, 2000, compared with 14 and 11, respectively, at June 30, 1999. Average Selling Price Per Home Closed. The average selling price per home closed increased $15,900 in 2000, compared with 1999, as each of the Company's markets, except Phoenix, realized higher average selling prices. The increases primarily were due to (1) the ability to increase sales prices due to the strong demand for new homes in most of the Company's markets; (2) a greater number of homes closed in higher-priced subdivisions in Northern California and Southern California, where average selling prices exceeded $300,000; and (3) increased sales volume per home from the Company's established design centers in Colorado, Virginia, Southern California and Las Vegas, and from its new design center in Northern California. Average selling prices were lower in Phoenix due to the division's increased emphasis on more affordable homes. Home Gross Margins. Home Gross Margins were 22.3% for the year ended December 31, 2000, representing an increase of 300 basis points compared with 1999. The increase largely was due to (1) selling price increases and reduced incentives offered to home buyers due to the continued strong demand in most of the Company's markets; (2) increased sales of higher-margin products through the Company's design centers; (3) reduced interest in home cost of sales (as discussed below); (4) increased rebates collected from suppliers through the Company's national purchasing programs; (5) a reduction in previous estimates of costs to complete land development and homes in certain projects in Phoenix, Southern California and Colorado; (6) in Maryland, fewer under-performing subdivisions in 2000 and management's continued efforts to improve profitability; and (7) ongoing initiatives in each of the Company's markets designed to improve operating efficiency, control costs and increase rates of return. Interest in Home Cost of Sales. Interest in home cost of sales as a percent of home sales revenues decreased to 1.3% in 2000, compared with 1.9% and 2.6%, respectively, for the same periods in 1999 and 1998. These reductions primarily resulted from lower average levels of capitalized interest in homebuilding inventories during 2000, compared with 1999 and 1998. Interest capitalized as a percentage of homebuilding inventories continued to decrease to 2.3% at December 31, 2000 from 2.7% at December 31, 1999 and 5.2% at December 31, 1998. This decrease primarily is due to (1) the close-out of older projects with higher levels of capitalized interest in Colorado, Virginia and Maryland; and (2) the financing of a greater portion of the Company's expanded homebuilding operations with cash from current operations. Orders for Homes and Backlog. Orders for homes increased to 7,835 in 2000, the highest number of annual orders in the Company's history. Home orders in 2000 particularly were strong in (1) Northern California and Nevada (increases of 42% and 34%, respectively), primarily as a result of the strong demand for new homes in these markets; and (2) Phoenix (an increase of 42%), where the average number of active subdivisions increased to 18 in 2000, compared with 12 in 1999. Home orders were lower in 2000, compared with 1999, in Colorado and Maryland, primarily as a result of fewer active subdivisions in each of these markets. The Company ended 2000 with a record Backlog of 3,292 homes with an estimated sales value of $775,000,000, compared with the Backlog of 2,941 homes with an estimated sales value of $600,000,000 at December 31, 1999. Assuming no significant change in market conditions or mortgage interest rates, the Company expects approximately 75% of its December 31, 2000 Backlog to close under existing sales contracts during the first nine months of 2001. The remaining 25% of the homes in Backlog are not expected to close under existing contracts due to cancellations. See "FORWARD-LOOKING STATEMENTS" below. 12 15 Other Revenues. Other revenues during the year ended December 31, 2000 included net pre-tax gains realized on the sales of certain investments by MDC's captive insurance subsidiary of $8,629,000, compared with gains of $787,000 for the year ended December 31, 1999. Marketing. Marketing expenses (which include sales commissions, advertising, amortization of deferred marketing costs, model home expenses and other costs) totalled $94,412,000 in 2000, compared with $80,545,000 in 1999. The increase in 2000 primarily was volume related, resulting from higher sales commissions, product advertising and model home costs incurred in connection with the Company's increased homebuilding activities. General and Administrative. General and administrative expenses totalled $69,150,000 in 2000, compared with $54,829,000 in 1999. The increase primarily was due to increased compensation costs resulting from MDC's higher profitability and expanded operations in certain of the Company's markets, most notably Colorado, Southern California and Northern California. HOMEBUILDING ACTIVITIES - 1999 COMPARED WITH 1998. Home Sales Revenues and Homes Closed. Home sales revenues in 1999 were 25% higher than home sales revenues in 1998. The increase resulted from an increase in both the number of home closings and average selling price per home closed, as further discussed below. Home closings were higher in all of the Company's markets except Maryland in 1999, compared with 1998. Home closings particularly were strong in (1) Southern California, Phoenix and Colorado, which increased 22%, 13% and 10%, respectively, as a result of the strong demand for new homes in these markets; and (2) Northern California, where the Company opened six new active subdivisions in 1999 in the San Francisco Bay area. In Maryland, home closings decreased in 1999, primarily due to a decrease in the number of active subdivisions to nine at the end of 1999, compared with 11 at the end of 1998. Average Selling Price Per Home Closed. The average selling price per home closed increased to $211,400 in 1999, compared with $193,700 in 1998. Each of the Company's markets realized higher average selling prices in 1999, compared with 1998. The increases primarily were due to (1) the ability to increase sales prices due to the strong demand for new homes in most of the Company's markets; (2) a greater number of homes closed in higher-priced subdivisions in Southern and Northern California, where average selling prices approached $300,000; (3) a higher proportion of detached homes closed in Virginia, which generally have higher selling prices than townhomes; and (4) increased sales volume per home from the Company's design centers in Colorado, Phoenix, Southern California, Las Vegas and Virginia. Home Gross Margins. Home Gross Margins were 19.3% for the year ended December 31, 1999, representing an increase of 240 basis points compared with 1998. The increase was due to (1) in Colorado and Phoenix, selling price increases and reduced incentives offered to home buyers due to the continued strong demand for new homes in these markets; (2) in Maryland, fewer under-performing subdivisions in 1999 and management's continued efforts to improve profitability; (3) a reduction in previous estimates of costs to complete land development and homes in certain projects in Phoenix; (4) reduced interest included in home cost of sales, as discussed below; (5) increases in sales of higher-margin products through the Company's design centers; (6) a higher proportion of presold homes closed, which generally have higher Home Gross Margins than closings of spec homes; (7) home order cancellations which were re-sold at higher average selling prices; and (8) initiatives implemented in each of the Company's markets designed to improve operating efficiency, control costs and increase rates of return. These increases in Home Gross Margins were partially offset by increases in the cost of (1) land; (2) lumber, insulation, concrete and other raw materials; (3) subcontract labor; and (4) incurred and estimated future land development costs with respect to certain projects in Southern California. Interest in Home Cost of Sales. Interest in home cost of sales as a percent of home sales revenues in 1999 decreased to 1.9%, compared with 2.6% and 3.0%, respectively, for the same periods in 1998 and 1997. These reductions primarily resulted from lower levels of capitalized interest in homebuilding inventories during 1999, compared with 1998 and 1997. Notwithstanding increases in the Company's homebuilding inventories, interest capitalized in homebuilding inventories at December 31, 1999 decreased to $17,406,000, compared with $26,332,000 at December 31, 1998 and $37,991,000 at December 31, 1997. These reductions in interest capitalized in homebuilding inventories primarily were due to (1) lower levels of interest incurred resulting from lower effective 13 16 interest rates on the Company's lines of credit and lower levels of homebuilding and corporate debt; and (2) the build-out of older projects with higher levels of capitalized interest in Colorado, Virginia and Maryland. Orders for Homes and Backlog. Orders for homes increased to 7,232 in 1999, compared with 7,191 in 1998. Home orders in 1999 particularly were strong in (1) Southern California, as a result of the strong demand for new homes; and (2) Northern California, where the Company added six new active subdivisions in 1999 in the San Francisco Bay area. In Phoenix, high levels of home orders in 1998 accelerated the close-out of certain projects which, compounded by delays in land development, caused a temporary decline in the number of active subdivisions and a corresponding decrease in home orders in 1999 in this market. The Company ended 1999 with a Backlog of 2,941 homes with an estimated sales value of $600,000,000, compared with a Backlog of 2,930 homes with an estimated sales value of $580,000,000 at December 31, 1998. Marketing. Marketing expenses totalled $80,545,000 in 1999, compared with $74,463,000 in 1998. The increase in 1999 primarily was volume related, resulting from higher (1) sales commissions; (2) marketing-related salaries and benefits; and (3) product advertising and other costs incurred in connection with the Company's increased homebuilding activities. General and Administrative. General and administrative expenses totalled $54,829,000 in 1999, compared with $45,905,000 in 1998. The increase primarily was due to increased compensation costs resulting from MDC's higher profitability and increased homebuilding activity. LAND SALES. Revenue from land sales totalled $6,641,000, $8,114,000 and $13,964,000, respectively, in 2000, 1999 and 1998. The land sales primarily were in Colorado in 2000 and 1999, and Colorado and Virginia in 1998. Gross profits from these sales were $2,348,000, $2,347,000 and $4,264,000, respectively, for the years 2000, 1999 and 1998. ASSET IMPAIRMENT CHARGES. Homebuilding operating results were reduced by asset impairment charges totalling $4,200,000, $2,242,000 and $5,300,000 in 2000, 1999 and 1998, respectively. The Company's assets to which these asset impairment charges relate are summarized as follows (in thousands).
YEAR ENDED DECEMBER 31, ------------------------ 2000 1999 1998 ------ ------ ------ Completed homes and homes under construction ... $ -- $ -- $ 888 Land under development and other ............... 4,200 2,242 4,412 ------ ------ ------ Total .................................... $4,200 $2,242 $5,300 ====== ====== ======
The 2000 asset impairment charges resulted from the write-down to fair value of two homebuilding projects in Southern California which experienced a much slower than anticipated home order pace and significantly increased sales incentive requirements. The 1999 charge primarily resulted from the write-down to fair value of one homebuilding project in Southern California which experienced higher than anticipated development costs, a slower home order pace and increased sales incentive requirements. The 1998 asset impairment charge related to homebuilding assets primarily in Maryland and principally were the result of (1) the recognition of losses anticipated from the closing of certain homes in Backlog and from the reduction of selling prices and the offering of increased incentives to stimulate sales of certain completed unsold homes in inventory; (2) the write-down to fair value of certain subdivisions which experienced slow sales and negative Home Gross Margins; and (3) the write-off of other capitalized costs, primarily deferred marketing and option deposits, related to several low margin projects or projects which the Company terminated. See Note A to the Company's Consolidated Financial Statements. 14 17 FINANCIAL SERVICES SEGMENT. MORTGAGE LENDING OPERATIONS. The table below sets forth information relating to HomeAmerican's operations (dollars in thousands).
YEAR ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 -------- -------- -------- Loan Origination Fees ................................. $ 13,951 $ 12,459 $ 9,738 Gains on Sales of Mortgage Servicing, net ............. $ 3,162 $ 3,114 $ 2,512 Gains on Sales of Mortgage Loans, net ................. $ 8,951 $ 8,456 $ 8,575 Operating Profits ..................................... $ 14,282 $ 13,169 $ 11,198 Principal Amount of Loan Originations and Purchases MDC home buyers .................................. $880,692 $833,055 $701,679 Spot ............................................. 14,942 39,049 54,147 Correspondent .................................... -- 12,074 157,107 -------- -------- -------- Total ........................................ $895,634 $884,178 $912,933 ======== ======== ======== Principal Amount of Loans Brokered MDC home buyers .................................. $244,141 $198,965 $ 88,950 Spot ............................................. 7,756 3,285 1,927 -------- -------- -------- Total ........................................ $251,897 $202,250 $ 90,877 ======== ======== ======== Capture Rate ......................................... 65% 68% 70% ======== ======== ======== Including Brokered Loans ......................... 81% 81% 78% ======== ======== ========
HomeAmerican's operating profits increased 8% in 2000, compared with 1999, primarily as a result of higher origination fees received from record levels of mortgage loans originated for MDC home buyers, and increased gains on sales of mortgage loans. Operating profits increased 18% in 1999, compared with 1998, primarily due to higher mortgage origination volume. These increases partially were offset by higher general and administrative expenses resulting from increased mortgage lending activity in both 2000 and 1999. Most of HomeAmerican's mortgage loans are originated for MDC home buyers. Additionally, HomeAmerican brokers mortgage loans originated by outside lending institutions for MDC home buyers. The portion of mortgage loans originated by HomeAmerican for MDC home buyers as a percentage of total MDC home closings ("Capture Rate") was 65% for the year ended December 31, 2000, compared with 68% for the same period in 1999 and 70% in 1998. Mortgage loans brokered by HomeAmerican as a percentage of total MDC home closings increased to 16% for the year ended December 31, 2000, compared with 13% for 1999 and 8% in 1998, primarily due to an increase in the number of MDC home buyers with non-agency qualified credit. These brokered mortgage loans, for which HomeAmerican receives a fee, have been excluded from the computation of the Capture Rate above. If the Capture Rate was computed to include brokered loans, the Capture Rate would have been 81% for the year ended December 31, 2000, compared with 81% for the same period in 1999 and 78% in 1998. OTHER OPERATING RESULTS. Interest Expense. The Company capitalizes interest on its homebuilding inventories during the period of active development and through the completion of construction. Corporate and homebuilding interest incurred but not capitalized is reflected as interest expense, and totalled zero for 2000, 1999 and 1998. Corporate and homebuilding interest incurred increased to $24,367,000 in 2000, compared with $21,261,000 in 1999 and $22,525,000 in 1998, primarily due to higher levels of homebuilding and corporate debt resulting from the Company's expanded homebuilding activities. For a reconciliation of interest incurred, capitalized and expensed, see Note I to the Company's Consolidated Financial Statements. Corporate General and Administrative Expenses. Corporate general and administrative expenses totalled $39,461,000 for 2000, compared with $29,589,000 and $19,728,000, respectively, for 1999 and 1998. The increase in 2000, compared with 1999, primarily was due to (1) greater compensation-related costs in 2000 as a result of the Company's higher profitability and increased homebuilding activities; and (2) a $2,000,000 contribution to the MDC Holdings Foundation (see Note R to the Company's Consolidated Financial Statements). The increase in 1999, compared with 1998, primarily was due to (1) greater compensation expense in 1999 related to the Company's higher profitability and increased homebuilding activities; (2) the recognition in 1998 of a credit to health insurance 15 18 expense related to a reduction in incurred but not reported liabilities of the employee medical plan sponsored by the Company; and (3) approximately $2,000,000 in increased expenses primarily attributable to the development of new processes, controls and computer systems related to the Company's "best practices" endeavors. Income Taxes. MDC's overall effective income tax rates of 39.3%, 39.8% and 38.5%, respectively, for 2000, 1999, and 1998, differed from the federal statutory rate of 35% primarily due to the impact of state income taxes. In addition, in 2000, the effective rate increased due to net pre-tax investment gains of $8,629,000 realized on sales of certain investments by the Company's captive insurance subsidiary, that are subject to taxation at both the subsidiary and Company levels, resulting in taxes at an effective rate of 64%. These increased income taxes in 2000 partially were offset by an income tax benefit resulting from the Company resolving, in 2000, the Internal Revenue Service income tax examinations for the years 1991 through 1997. LIQUIDITY AND CAPITAL RESOURCES MDC uses its liquidity and capital resources to, among other things, (1) support its operations, including its inventories of homes, home sites and land; (2) provide working capital; and (3) provide mortgage loans for its home buyers. Liquidity and capital resources are generated internally from operations and from external sources. CAPITAL RESOURCES. The Company's capital structure is a combination of (1) permanent financing, represented by stockholders' equity; (2) long-term financing, represented by its publicly traded 8 3/8% senior notes due 2008 (the "New Senior Notes") and its homebuilding line of credit (the "Homebuilding Line"); and (3) current financing, primarily its mortgage lending line of credit (the "Mortgage Line"). Based upon its current capital resources and additional liquidity available under existing credit agreements, the Company believes that its current financial condition is both balanced to fit its current operating structure and adequate to satisfy its current and near-term capital requirements, including the acquisition of land. The Company believes that it can meet its long-term capital needs (including meeting future debt payments and refinancing or paying off other long-term debt as it becomes due) from operations and external financing sources, assuming that no significant adverse changes in the Company's business or capital and credit market occur as a result of the various risk factors described elsewhere in this report. See "FORWARD-LOOKING STATEMENTS" below. LINES OF CREDIT AND NOTES PAYABLE. Homebuilding. In October 1999, the terms of the Company's Homebuilding Line were amended and restated (the "Amended and Restated Credit Agreement") to extend the maturity date to September 30, 2004 and increase the maximum amount available from $300,000,000 to $450,000,000 upon the Company's request, requiring additional commitments from existing or additional participant lenders. Commitments under the Homebuilding Line increased to $350,000,000 in April 2000, to $375,000,000 in July 2000, and to $413,000,000 in October 2000 with the additional participation of two of the Company's existing banks and three additional lenders. There is no assurance that existing or additional lenders will agree to provide additional commitments. Pursuant to the terms of the Amended and Restated Credit Agreement, a term-out of this credit may commence prior to September 30, 2004 under certain circumstances. At December 31, 2000, $90,000,000 was borrowed and $5,569,000 in letters of credit were outstanding under this line of credit. At December 31, 2000 and 1999, the weighted-average interest rates on the line of credit were 7.9% and 7.8%, respectively. Mortgage Lending. To provide funds to originate mortgage loans and to finance these mortgage loans on a short-term basis, HomeAmerican utilizes its Mortgage Line. These mortgage loans are pooled into GNMA, FNMA and FHLMC pools, or retained as whole loans, and subsequently are sold in the open market on a spot basis or pursuant to mortgage loan sale commitments, generally within 40 days after origination. During 2000, 1999 and 1998, HomeAmerican sold $874,383,000, $877,362,000 and $892,040,000, respectively, principal amount of mortgage loans and mortgage certificates to unaffiliated purchasers. In December 1999, the Company modified the terms of its Mortgage Line, increasing the available borrowings from $51,000,000 to $75,000,000. The Company modified the terms of the Mortgage Line to increase available borrowing from $75,000,000 to $100,000,000 in September 2000 and from $100,000,000 to $125,000,000 16 19 in December 2000. In February 2001, the Company decreased available borrowings from $125,000,000 to $100,000,000. Available borrowings under this line of credit are collateralized by mortgage loans and mortgage-backed certificates and are limited to the value of eligible collateral as defined. At December 31, 2000, $74,459,000 was borrowed and an additional $15,926,000 was collateralized and available to be borrowed. The line of credit is cancellable upon 90 days' notice. At December 31, 2000 and 1999, the interest rates on the line of credit were 7.7% and 7.0%, respectively. General. The agreements for the Company's New Senior Notes and bank lines of credit require compliance with certain representations, warranties and covenants. The Company believes that it is in compliance with these representations, warranties and covenants. The agreements containing these representations, warranties and covenants, other than the Mortgage Line, are on file with the Securities and Exchange Commission and are listed in the Exhibit Table in Part IV of this Annual Report on Form 10-K. The financial covenants contained in the Amended and Restated Credit Agreement include a leverage test and a consolidated tangible net worth test. Under the leverage test, generally MDC's consolidated indebtedness is not permitted to exceed the product of 2.15 (subject to downward adjustment in certain circumstances) times MDC's "adjusted consolidated tangible net worth," as defined. Under the consolidated tangible net worth test, MDC's "tangible net worth," as defined, must not be less than the sum of $238,000,000 and 50% of "consolidated net income," as defined, after December 31, 1998. In addition, the "consolidated tangible net worth," as defined, must not be less than $150,000,000. The Company's New Senior Notes indenture does not contain financial covenants. However, there are covenants that limit transactions with affiliates, limit the amount of additional indebtedness that MDC may incur, restrict certain payments on, or the redemptions of, the Company's securities, restrict certain sales of assets and limit incurring liens. In addition, under certain circumstances, in the event of a change of control (generally a sale, transfer, merger or acquisition of MDC or substantially all of its assets), MDC may be required to offer to repurchase the New Senior Notes. The New Senior Notes are not secured. As of December 31, 2000, the maximum amount of additional homebuilding and corporate indebtedness that MDC could have incurred under the most restrictive of the debt limitations described above was approximately $728,000,000. MDC COMMON STOCK REPURCHASE PROGRAMS. On January 24, 2000, MDC's Board of Directors authorized the repurchase of up to 1,000,000 shares of MDC common stock. On February 21, 2000, MDC's Board of Directors authorized the repurchase of up to 2,000,000 additional shares of MDC common stock. The Company has repurchased a total of 1,931,800 shares of MDC common stock under these programs through December 31, 2000. The per share prices, including commissions, for these repurchases range from $13.53 to $22.02 with an average cost of $15.96. At December 31, 2000 and 1999, the Company held 7,426,000 shares and 5,850,000 shares of treasury stock, respectively, with average purchase prices of $9.09 and $6.70, respectively. CONSOLIDATED CASH FLOW. During 2000, the Company used $66,617,000 in cash from its operating and investing activities. The Company also used $36,048,000 in cash to repurchase its common stock and pay dividends. This cash was provided by reducing its available cash on hand by $24,815,000 and increasing borrowings from the lines of credit by $74,225,000. The Company used $5,723,000 in cash from its operating and investing activities and increased its available cash on hand by $28,851,000 during 1999. This cash was provided primarily by increased borrowings from the lines of credit of $40,029,000, partially offset by dividend payments and principal payments on notes payable. Operating activities used cash of $63,457,000 in 2000 and $3,845,000 in 1999, compared with cash generated of $800,000 in 1998. The 2000 cash decrease from 1999 and 1999 cash decrease from 1998 primarily were due to increases in homebuilding and mortgage loan inventories in conjunction with the Company's expanded homebuilding operations, partially offset by increases in income before income taxes and extraordinary item. 17 20 Investing activities used cash of $3,160,000 in 2000 and $1,878,000 in 1999, compared with cash generated of $15,081,000 in 1998. Cash generated in 1998 was higher than 2000 and 1999 primarily due to the $13,250,000 net proceeds received from the sale of the Company's headquarters office building in 1998. Financing activities generated cash of $41,802,000 in 2000 and $34,574,000 in 1999, compared with cash used of $17,480,000 in 1998. The increase in cash generated in 2000, compared with 1999, primarily was due to increased borrowings on the homebuilding and mortgage lending lines of credit, partially offset by $30,828,000 used to repurchase 1,931,800 shares of MDC common stock. The increase in cash generated in 1999, compared with 1998, primarily was due to increased borrowings on the homebuilding and mortgage lending lines of credit. Included in 1998 cash flows from financing activities is the impact of the Company's sale of $175,000,000 principal amount of New Senior Notes. The Company used the net proceeds from this sale to repurchase $61,181,000 principal amount of Old Senior Notes, to defease the remaining $90,819,000 principal amount of Old Senior Notes outstanding and for general corporate purposes. A premium of $17,592,000 was paid on the repurchase and defeasance. IMPACT OF INFLATION, CHANGING PRICES AND ECONOMIC CONDITIONS Real estate and residential housing prices are affected by inflation, which can cause increases in the price of land, raw materials and subcontracted labor. Unless these increased costs are recovered through higher sales prices, Home Gross Margins would decrease. If interest rates increase, construction and financing costs, as well as the cost of borrowings, also would increase, which can result in lower Home Gross Margins. Increases in home mortgage interest rates make it more difficult for MDC's customers to qualify for home mortgage loans, potentially decreasing home sales volume. Increases in interest rates also may affect adversely the volume of mortgage loan originations. The volatility of interest rates could have an adverse effect on MDC's future operations and liquidity. Among other things, these conditions may affect adversely the demand for housing and the availability of mortgage financing and may reduce the credit facilities offered to MDC by banks, investment bankers and mortgage bankers. See "FORWARD-LOOKING STATEMENTS" below. MDC's business also is affected significantly by, among other things, general economic conditions and, particularly, the demand for new homes in the markets in which it builds. ISSUANCE OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was issued. In June 2000, Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133" ("SFAS 138") was issued. SFAS 133 and SFAS 138 address the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. The Company is required to adopt SFAS 133 and SFAS 138 in the first quarter of 2001. The Company anticipates that the adoption of SFAS 133 and SFAS 138 as of January 1, 2001 will not have a material effect on its financial position or results of operations. See "FORWARD-LOOKING STATEMENTS" below. In September 2000, Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 140") was issued. SFAS 140 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. SFAS 140 is effective for recognition and reclassification of collateral and for disclosures relating to securitization transaction and collateral for fiscal years ending after December 15, 2000 and is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The adoption of SFAS 140 did not have a material impact on the 2000 financial position or results of operations and the Company anticipates that the additional provisions of SFAS 140 effective in the second quarter of 2001 will not have a material effect on its financial position or results of operations. See "FORWARD-LOOKING STATEMENTS" below. 18 21 In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 is effective for the fourth quarter of fiscal years beginning after December 1999. The Company believes that it is in compliance with the guidelines set forth in SAB 101. OTHER FORWARD-LOOKING STATEMENTS. Certain statements in this Form 10-K Annual Report, the Company's Annual Report to Shareowners, as well as statements made by the Company in periodic press releases, oral statements made by the Company's officials to analysts and shareowners in the course of presentations about the Company and conference calls following quarterly earnings releases, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. We have identified the forward-looking statements in this Form 10-K by cross referencing this section at the end of the paragraph in which the forward-looking statement is located. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among other things, (1) general economic and business conditions; (2) interest rate changes; (3) the relative stability of debt and equity markets; (4) competition; (5) the availability and cost of land and other raw materials used by the Company in its homebuilding operations; (6) demographic changes; (7) shortages and the cost of labor; (8) weather related slowdowns; (9) the availability of public utilities in certain markets; (10) slow growth initiatives; (11) building moratoria; (12) governmental regulation, including the interpretation of tax, labor and environmental laws; (13) changes in consumer confidence and preferences; (14) required accounting changes; and (15) other factors over which the Company has little or no control. 19 22 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is exposed to market risks related to fluctuations in interest rates on mortgage loans receivable and debt. The Company utilizes forward sale commitments to mitigate some of the risk associated with the mortgage loan portfolio. Other than the forward commitments described above, the Company does not utilize interest rate swaps, forward option contracts on foreign currencies or commodities, or other types of derivative financial instruments. HomeAmerican provides mortgage loans that generally are sold forward and subsequently delivered to a third-party purchaser within approximately 40 days. Forward commitments are used for non-trading purposes to sell mortgage loans and hedge interest rate risk on rate-locked mortgage loans in process that have not closed. Due to this hedging philosophy, the market risk associated with these mortgages is limited. The Company utilizes both short-term and long-term debt in its financing strategy. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not the Company's earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but may affect the Company's future earnings and cash flows. The Company does not have an obligation to prepay fixed rate debt prior to maturity and, as a result, interest rate risk and changes in fair value should not have a significant impact on the fixed rate debt until the Company would be required to refinance such debt. As of December 31, 2000, short-term debt was $74,459,000, which consisted of MDC's Mortgage Line. The Mortgage Line is collateralized by residential mortgage loans. The Company borrows on a short-term basis from banks under committed lines of credit, which bear interest at the prevailing market rates. Long-term debt obligations outstanding, their maturities and estimated fair value at December 31, 2000 are as follows (in thousands).
MATURITIES THROUGH DECEMBER 31, ----------------------------------------------------------------- ESTIMATED 2001 2002 2003 2004 2005 THEREAFTER TOTAL FAIR VALUE -------- -------- -------- -------- -------- ---------- -------- ---------- Fixed Rate Debt .................... $ -- $ -- $ -- $ -- $ -- $175,000 $175,000 $158,813 Average Interest Rate (units) ... -- -- -- -- -- 8.38% 8.38% Variable Rate Debt ................. $ -- $ -- $ -- $ 90,000 $ -- $ -- $ 90,000 $ 90,000 Average Interest Rate ........... -- -- -- 7.90% -- -- 7.90%
The Company believes that its overall balance sheet structure has repricing and cash flow characteristics that mitigate the impact of interest rate changes. 20 23 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS. M.D.C. HOLDINGS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Consolidated Financial Statements Report of Independent Auditors as of December 31, 2000 and the Year then Ended................ F-2 Report of Independent Accountants as of December 31, 1999 and for each of the Two Years in the Period Ended December 31, 1999.......................................................... F-3 Consolidated Balance Sheets as of December 31, 2000 and December 31, 1999..................... F-4 Consolidated Statements of Income and Other Comprehensive Income for each of the Three Years in the Period Ended December 31, 2000....................................................... F-6 Consolidated Statements of Stockholders' Equity for each of the Three Years in the Period Ended December 31, 2000..................................................................... F-7 Consolidated Statements of Cash Flows for each of the Three Years in the Period Ended December 31, 2000........................................................................... F-8 Notes to Consolidated Financial Statements.................................................... F-9
F-1 24 REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF M.D.C. HOLDINGS, INC. We have audited the accompanying consolidated balance sheet of M.D.C. Holdings, Inc. and subsidiaries (the "Company") as of December 31, 2000, and the related consolidated statements of income and other comprehensive income, stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of M.D.C. Holdings, Inc. and subsidiaries at December 31, 2000, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Denver, Colorado January 15, 2001, except for Note S, as to which the date is January 22, 2001 F-2 25 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF M.D.C. HOLDINGS, INC. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income and other comprehensive income, stockholders' equity and cash flows present fairly, in all material respects, the financial position of M.D.C. Holdings, Inc. and its subsidiaries (the "Company") at December 31, 1999 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP Denver, Colorado January 17, 2000, except for Note S, as to which the date is January 22, 2001 F-3 26 M.D.C. HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, ------------------------- 2000 1999 ---------- ---------- ASSETS Corporate Cash and cash equivalents ..................... $ 8,411 $ 33,637 Property and equipment, net ................... 3,069 2,909 Deferred income taxes ......................... 31,821 21,201 Deferred debt issue costs, net ................ 2,180 2,393 Other assets, net ............................. 8,039 6,771 ---------- ---------- 53,520 66,911 ---------- ---------- Homebuilding Cash and cash equivalents ..................... 5,265 4,935 Home sales and other accounts receivable ...... 4,713 3,496 Inventories, net Housing completed or under construction ..... 443,512 337,029 Land and land under development ............. 388,711 308,680 Prepaid expenses and other assets, net ........ 51,631 58,156 ---------- ---------- 893,832 712,296 ---------- ---------- Financial Services Cash and cash equivalents ..................... 439 358 Mortgage loans held in inventory .............. 107,151 89,953 Other assets, net ............................. 6,656 7,490 ---------- ---------- 114,246 97,801 ---------- ---------- Total Assets ............................ $1,061,598 $ 877,008 ========== ==========
See notes to consolidated financial statements. F-4 27 M.D.C. HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, -------------------------- 2000 1999 ----------- ----------- LIABILITIES Corporate Accounts payable and accrued expenses ................................. $ 50,843 $ 46,721 Income taxes payable .................................................. 9,558 18,291 Senior notes, net ..................................................... 174,444 174,389 ----------- ----------- 234,845 239,401 ----------- ----------- Homebuilding Accounts payable and accrued expenses ................................. 164,660 152,488 Line of credit ........................................................ 90,000 40,000 ----------- ----------- 254,660 192,488 ----------- ----------- Financial Services Accounts payable and accrued expenses ................................. 15,404 5,862 Line of credit ........................................................ 74,459 50,234 ----------- ----------- 89,863 56,096 ----------- ----------- Total Liabilities ............................................... 579,368 487,985 ----------- ----------- COMMITMENTS AND CONTINGENCIES (NOTES N AND P) ............................ -- -- ----------- ----------- STOCKHOLDERS' EQUITY (NOTES G AND S) Preferred stock, $.01 par value; 25,000,000 shares authorized; none issued .............................................................. -- -- Common stock, $.01 par value; 100,000,000 shares authorized; 30,755,000 and 28,166,000 shares issued, respectively, at December 31, 2000 and 1999 .......................................... 308 282 Additional paid-in capital ............................................ 266,337 179,094 Retained earnings ..................................................... 282,893 245,235 Accumulated other comprehensive income ................................ 167 3,623 ----------- ----------- 549,705 428,234 Less treasury stock, at cost, 7,426,000 and 5,850,000 shares, respectively, at December 31, 2000 and 1999 ......................... (67,475) (39,211) ----------- ----------- Total Stockholders' Equity ...................................... 482,230 389,023 ----------- ----------- Total Liabilities and Stockholders' Equity ...................... $ 1,061,598 $ 877,008 =========== ===========
See notes to consolidated financial statements. F-5 28 M.D.C. HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ----------------------------------------- 2000 1999 1998 ----------- ----------- ----------- REVENUES Homebuilding ................................................. $ 1,721,559 $ 1,537,563 $ 1,234,272 Financial Services ........................................... 28,925 27,460 27,909 Corporate .................................................... 1,061 2,615 1,028 ----------- ----------- ----------- Total Revenues ......................................... 1,751,545 1,567,638 1,263,209 ----------- ----------- ----------- COSTS AND EXPENSES Homebuilding ................................................. 1,494,240 1,375,305 1,147,508 Financial Services ........................................... 14,643 14,291 12,121 Corporate general and administrative ......................... 39,461 29,589 19,728 ----------- ----------- ----------- Total Costs and Expenses ............................... 1,548,344 1,419,185 1,179,357 ----------- ----------- ----------- Income before income taxes and extraordinary item ............... 203,201 148,453 83,852 Provision for income taxes ...................................... (79,898) (59,061) (32,284) ----------- ----------- ----------- Income before extraordinary item ................................ 123,303 89,392 51,568 Extraordinary loss from early extinguishment of debt, net of income tax benefit of $9,587 ................................. -- -- (15,314) ----------- ----------- ----------- NET INCOME ...................................................... 123,303 89,392 36,254 ----------- ----------- ----------- Unrealized holding (losses) gains on securities arising during the year .............................................. (338) 2,123 1,593 Less reclassification adjustment for gains (losses) included in net income ................................................ 3,118 285 (54) ----------- ----------- ----------- Net (loss) gain recognized in other comprehensive income, net of a deferred income tax (benefit) provision of ($6,090) for 2000, $5,204 for 1999 and $1,080 for 1998 ................ (3,456) 1,838 1,647 ----------- ----------- ----------- OTHER COMPREHENSIVE INCOME ...................................... $ 119,847 $ 91,230 $ 37,901 =========== =========== =========== EARNINGS PER SHARE (NOTES M AND S) Basic ......................................................... $ 5.22 $ 3.65 $ 1.79 =========== =========== =========== Diluted ....................................................... $ 5.11 $ 3.59 $ 1.49 =========== =========== =========== WEIGHTED-AVERAGE SHARES OUTSTANDING Basic ......................................................... 23,613 24,472 20,296 =========== =========== =========== Diluted ....................................................... 24,142 24,922 24,867 =========== =========== =========== DIVIDENDS PAID PER SHARE ........................................ $ .24 $ .20 $ .15 =========== =========== ===========
See notes to consolidated financial statements. F-6 29 M.D.C. HOLDINGS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
ACCUMULATED ADDITIONAL OTHER COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY STOCK CAPITAL EARNINGS INCOME (LOSS) STOCK TOTAL --------- ---------- --------- ------------- --------- --------- BALANCES-JANUARY 1, 1998 ................ $ 237 $ 142,429 $ 126,356 $ 138 $ (39,567) $ 229,593 Shares issued ........................ 42 30,267 456 -- 183 30,948 Net gain recognized in other comprehensive income ............... -- -- -- 1,647 -- 1,647 Tax benefit of non-qualified stock options exercised .................. -- 2,484 -- -- -- 2,484 Notes receivable for stock purchases, net of repayments ....... -- (20) -- -- -- (20) Cash dividends paid .................. -- -- (2,775) -- -- (2,775) Net income ........................... -- -- 36,254 -- -- 36,254 --------- --------- --------- --------- --------- --------- BALANCES-DECEMBER 31, 1998 .............. 279 175,160 160,291 1,785 (39,384) 298,131 Shares issued ........................ 3 3,399 -- -- 173 3,575 Net gain recognized in other comprehensive income ............... -- -- -- 1,838 -- 1,838 Tax benefit of non-qualified stock options exercised .................. -- 695 -- -- -- 695 Notes receivable for stock purchases, net of repayments ....... -- (160) -- -- -- (160) Cash dividends paid .................. -- -- (4,448) -- -- (4,448) Net income ........................... -- -- 89,392 -- -- 89,392 --------- --------- --------- --------- --------- --------- BALANCES-DECEMBER 31, 1999 .............. 282 179,094 245,235 3,623 (39,211) 389,023 Shares issued ........................ 4 5,823 -- -- 2,036 7,863 Net loss recognized in other comprehensive income ............... -- -- -- (3,456) -- (3,456) Tax benefit of non-qualified stock options exercised .................. -- 1,439 -- -- -- 1,439 Notes receivable for stock purchases, net of repayments ....... -- (1,794) -- -- -- (1,794) Contribution of common stock ......... -- 1,372 -- -- 528 1,900 Stock repurchases .................... -- -- -- -- (30,828) (30,828) Cash dividends paid .................. -- -- (5,220) -- -- (5,220) 10% stock dividend (Note S) .......... 22 80,403 (80,425) -- -- -- Net income ........................... -- -- 123,303 -- -- 123,303 --------- --------- --------- --------- --------- --------- BALANCES-DECEMBER 31, 2000 .............. $ 308 $ 266,337 $ 282,893 $ 167 $ (67,475) $ 482,230 ========= ========= ========= ========= ========= =========
See notes to consolidated financial statements. F-7 30 M.D.C. HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ----------------------------------------- 2000 1999 1998 ----------- ----------- ----------- OPERATING ACTIVITIES Net income .............................................. $ 123,303 $ 89,392 $ 36,254 Adjustments to reconcile net income to net cash provided by (used in) operating activities Loss from the early extinguishment of debt ......... -- -- 24,901 Depreciation and amortization ...................... 21,792 17,845 20,228 Homebuilding asset impairment charges .............. 4,200 2,242 5,300 Deferred income taxes .............................. (10,620) (3,252) (5,673) Gains on sales of mortgage related assets .......... -- -- (4,509) Net changes in operating assets and liabilities Home sales and other accounts receivable ........ (1,217) 9,275 (5,212) Homebuilding inventories ........................ (190,714) (135,678) (76,454) Prepaid expenses and other assets ............... (11,330) (5,263) (18,981) Mortgage loans held in inventory ................ (17,198) (5,405) (19,292) Accounts payable and accrued expenses ........... 20,775 27,950 45,666 Other, net ......................................... (2,448) (951) (1,428) ----------- ----------- ----------- Net cash (used in) provided by operating activities ..... (63,457) (3,845) 800 ----------- ----------- ----------- INVESTING ACTIVITIES Net proceeds from sale of office building ............... -- -- 13,250 Net purchase of property and equipment .................. (3,160) (3,642) (6,083) Proceeds from the sale of FAMC .......................... -- -- 4,450 Changes in investments and marketable securities ........ -- 1,764 3,272 Other, net .............................................. -- -- 192 ----------- ----------- ----------- Net cash (used in) provided by investing activities ..... (3,160) (1,878) 15,081 ----------- ----------- ----------- FINANCING ACTIVITIES Lines of credit Advances ............................................ 1,721,125 1,429,600 1,267,540 Principal payments .................................. (1,646,900) (1,389,571) (1,265,083) Notes payable Borrowings .......................................... -- -- 866 Principal payments .................................. -- (1,898) (13,108) Senior notes Proceeds from issuance .............................. -- -- 171,541 Repurchase and defeasance ........................... -- -- (152,000) Premium on repurchase and defeasance ................ -- -- (17,592) Repayment of subordinated notes .......................... -- -- (10,230) Dividend payments ........................................ (5,220) (4,448) (2,775) Stock repurchases ........................................ (30,828) -- -- Proceeds from exercise of stock options .................. 3,625 891 3,361 ----------- ----------- ----------- Net cash provided by (used in) financing activities ...... 41,802 34,574 (17,480) ----------- ----------- ----------- Net (decrease) increase in cash and cash equivalents ..... (24,815) 28,851 (1,599) Cash and cash equivalents Beginning of year ................................... 38,930 10,079 11,678 ----------- ----------- ----------- End of year ......................................... $ 14,115 $ 38,930 $ 10,079 =========== =========== ===========
See notes to consolidated financial statements. F-8 31 M.D.C. HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The consolidated financial statements of M.D.C. Holdings, Inc. ("MDC" or the "Company", which, unless otherwise indicated, refers to M.D.C. Holdings, Inc. and its subsidiaries) include the accounts of MDC and its wholly owned and majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Segment Information - MDC has determined that its reportable segments are those that are based on the Company's method of internal reporting, which disaggregates its business by product category. MDC's products come from two segments, homebuilding and financial services. In its homebuilding segment, through separate subsidiaries, the Company is engaged in the design, construction and sale of single-family homes. In its financial services segment, HomeAmerican Mortgage Corporation (a wholly owned subsidiary of M.D.C. Holdings, Inc., "HomeAmerican") provides mortgage loans primarily to the Company's home buyers (the mortgage lending operations). HOMEBUILDING. Inventories - Homebuilding inventories under development and construction are carried at cost unless facts and circumstances indicate that the carrying value of the underlying projects may be impaired. Impairment is determined by comparing the estimated future cash flows (undiscounted and without interest charges) from an individual project to its carrying value. If such cash flows are less than the project's carrying value, the carrying value of the project is written down to its fair value. Homebuilding inventories held for sale are carried at the lower of cost or fair value, less selling costs, and are evaluated on a project basis. Fair value is determined by management estimate and incorporates anticipated future revenues and costs. Cost includes interest capitalized during the period of active development through completion of construction. Construction-related overhead and salaries are capitalized and allocated proportionately to projects being developed. Land and related costs are transferred to housing inventory when construction commences. See Note H. Prepaid Expenses and Other Assets, Net - Homebuilding prepaid expenses and other assets include qualified settlement fund ("QSF") assets that are held for the processing and disposition of eligible claims made under the warranties created pursuant to the settlement of litigation commenced in 1994 and settled in November 1996. The QSF assets are recorded on the Consolidated Balance Sheet at fair value, which is based on quoted prices, with the related unrealized gain included in accumulated other comprehensive income. The following table sets forth the information relating to prepaid expenses and other assets, net (in thousands).
DECEMBER 31, --------------------- 2000 1999 ------- ------- QSF assets ......................................... $11,573 $26,625 Land option deposits ............................... 10,838 8,673 Deferred marketing costs ........................... 14,863 10,320 Prepaid tap and system development fees ............ 4,637 3,472 Other .............................................. 9,720 9,066 ------- ------- Total ........................................ $51,631 $58,156 ======= =======
Deferred Marketing Costs - Certain marketing costs related to model homes and sales offices are capitalized as prepaid assets and amortized to selling, general and administrative expenses as the homes in the related subdivision are closed. All other marketing costs are expensed as incurred. F-9 32 Revenue Recognition - Revenues from real estate sales are recognized when a sufficient down payment has been received, financing has been arranged, title, possession and other attributes of ownership have been transferred to the buyer and the Company is not obligated to perform significant additional activities after sale and delivery. Warranty Costs - The Company's homes are sold with limited warranties issued by an unaffiliated warranty company. Reserves are established by the Company to cover estimated costs of repairs for which the Company is responsible. Warranty reserves are included in Homebuilding - Accounts payable and accrued expenses and totalled $38,200,000 and $37,500,000, respectively, at December 31, 2000 and 1999. FINANCIAL SERVICES. Mortgage Loans Held in Inventory - The Company generally purchases forward commitments to deliver mortgage loans held for sale. Mortgage loans held in inventory are stated at the lower of aggregate cost or fair value based upon such commitments for loans to be delivered or prevailing market for uncommitted loans. Substantially all of the loans originated or purchased by the Company are sold to private investors within 40 days of origination or purchase. Gains or losses on mortgage loans held in inventory are realized when the loans are sold. Revenue Recognition - Loan origination fees in excess of origination costs incurred and loan commitment fees are deferred until the related loans are sold. Loan servicing fees are recorded as revenue when the mortgage loan payments are received. Loan servicing costs are recognized as incurred. Revenues from the sale of mortgage loan servicing are recognized when title and all risks and rewards of ownership have irrevocably passed to the buyer and there are no significant unresolved contingencies. The mortgage lending operations are affected by, among other things, changes in mortgage interest rates. The Company utilizes forward mortgage securities contracts to manage the interest rate risk on its fixed-rate mortgage loans owned and rate-locked mortgage loans in process which have not closed. Such contracts are the only significant financial derivative instrument utilized by MDC. Hedging gains or losses are recognized when the hedged mortgage loans are sold. Mortgage Servicing Rights - The Company allocates the cost of mortgage loans originated between the mortgage loans and the right to service those mortgage loans, based on relative fair value, on the date the loan is sold. Mortgage servicing rights ("Servicing Rights") of $5,027,000 and $8,090,000 were capitalized during 2000 and 1999, respectively. Servicing Rights are amortized over the estimated period of net servicing revenues. The cost attributed to the Servicing Rights sold and the amortization of Servicing Rights was $5,128,000 and $7,920,000 for 2000 and 1999, respectively. Servicing Rights are evaluated for impairment by stratifying the portfolio based on loan type and interest rate. As of December 31, 2000 and 1999, the Company had unamortized Servicing Rights of $4,969,000 and $5,200,000, respectively, included in Financial Services - Other assets, net. GENERAL. Cash and Cash Equivalents - The Company periodically invests funds not immediately required for operating purposes in highly liquid, short-term investments with an original maturity of 90 days or less such as commercial paper, money market funds and repurchase agreements which are included in cash and cash equivalents in the Consolidated Balance Sheets and Consolidated Statements of Cash Flows. Property and Equipment - Property and equipment is carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets. Estimates in Financial Statements - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported F-10 33 amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Such estimates include warranty, other accrued expenses, estimates to complete land development and construction and estimates related to potential asset impairment charges. Additional Statements of Financial Accounting Standards - In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was issued. In June 2000, Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133" ("SFAS 138") was issued. SFAS 133 and SFAS 138 address the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. The Company is required to adopt SFAS 133 and SFAS 138 in the first quarter of 2001. The Company anticipates that the adoption of SFAS 133 and SFAS 138 as of January 1, 2001 will not have a material effect on its financial position or results of operations. In September 2000, Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 140") was issued. SFAS 140 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. SFAS 140 is effective for recognition and reclassification of collateral and for disclosures relating to securitization transaction and collateral for fiscal years ending after December 15, 2000 and is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The adoption of SFAS 140 did not have a material impact on the 2000 financial position or results of operations and the Company anticipates that the additional provisions of SFAS 140 effective in the second quarter of 2001 will not have a material effect on its financial position or results of operations. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 is effective for the fourth quarter of fiscal years beginning after December 1999. The Company believes that it is in compliance with the guidelines set forth in SAB 101. B. INFORMATION ON BUSINESS SEGMENTS The Company operates in two business segments - homebuilding and financial services. A summary of the Company's business segments is shown below (in thousands).
YEAR ENDED DECEMBER 31, ------------------------------------ 2000 1999 1998 ---------- ---------- ---------- HOMEBUILDING Home sales ........................... $1,701,108 $1,526,519 $1,218,659 Land sales ........................... 6,641 8,114 13,964 Other revenues ....................... 13,810 2,930 1,649 ---------- ---------- ---------- 1,721,559 1,537,563 1,234,272 ---------- ---------- ---------- Home cost of sales ................... 1,322,185 1,231,922 1,012,140 Land cost of sales ................... 4,293 5,767 9,700 Asset impairment charges ............. 4,200 2,242 5,300 Marketing ............................ 94,412 80,545 74,463 General and administrative ........... 69,150 54,829 45,905 ---------- ---------- ---------- 1,494,240 1,375,305 1,147,508 ---------- ---------- ---------- HOMEBUILDING OPERATING PROFIT .... 227,319 162,258 86,764 ---------- ---------- ----------
F-11 34
YEAR ENDED DECEMBER 31, ----------------------------------- 2000 1999 1998 --------- --------- --------- FINANCIAL SERVICES Mortgage Lending Revenues Interest ..................................... 2,313 2,844 2,270 Origination fees ............................. 13,951 12,459 9,738 Gains on sales of mortgage servicing ......... 3,162 3,114 2,512 Gains on sales of mortgage loans, net ........ 8,951 8,456 8,460 Mortgage servicing and other ................. 548 587 327 Asset Management Revenues ........................ -- -- 4,602 --------- --------- --------- 28,925 27,460 27,909 General and Administrative Expenses .............. 14,643 14,291 12,121 --------- --------- --------- FINANCIAL SERVICES OPERATING PROFIT ...... 14,282 13,169 15,788 --------- --------- --------- TOTAL OPERATING PROFIT .............................. 241,601 175,427 102,552 --------- --------- --------- CORPORATE Interest and other revenues .................. 1,061 2,615 1,028 General and administrative ................... (39,461) (29,589) (19,728) --------- --------- --------- NET CORPORATE EXPENSES ................... (38,400) (26,974) (18,700) --------- --------- --------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM ... $ 203,201 $ 148,453 $ 83,852 ========= ========= =========
Corporate general and administrative expenses consist principally of salaries and other administrative expenses which are not identifiable to a specific segment. Transfers between segments are recorded at cost. Capital expenditures and related depreciation and amortization for the years ended December 31, 2000, 1999 and 1998 were not material. Identifiable segment assets are shown on the face of the Consolidated Balance Sheets. C. MORTGAGE LOANS HELD IN INVENTORY The following table sets forth the information relating to mortgage loans held in inventory (in thousands).
DECEMBER 31, --------------------------- 2000 1999 --------- --------- First mortgage loans Conventional ............................ $ 80,517 $ 67,462 FHA and VA .............................. 27,436 24,041 --------- --------- 107,953 91,503 Less Unamortized discounts ................... (118) (344) Deferred fees ........................... (584) (545) Allowance for loan losses ............... (100) (661) --------- --------- Total ................................. $ 107,151 $ 89,953 ========= =========
Mortgage loans held in inventory consist primarily of loans collateralized by first mortgages and deeds of trust due over periods of up to 30 years. The weighted-average effective yield on mortgage loans held in inventory was approximately 7.8% at December 31, 2000. F-12 35 D. LINES OF CREDIT Homebuilding - In October 1999, the homebuilding line of credit (the "Homebuilding Line") was amended and restated (the "Amended and Restated Credit Agreement") to extend the maturity date to September 30, 2004 and increase the maximum amount available to $450,000,000 from $300,000,000 upon the Company's request, requiring additional commitments from existing or additional participant lenders. Commitments under the Homebuilding Line increased to $350,000,000 in April 2000, to $375,000,000 in July 2000, and to $413,000,000 in October 2000 with the additional participation of two of the Company's existing banks and three additional lenders. There is no assurance that existing or additional lenders will agree to provide additional commitments. Pursuant to the terms of the Amended and Restated Credit Agreement, a term-out of this credit may commence prior to September 30, 2004 under certain circumstances. At December 31, 2000, $90,000,000 was borrowed and $5,569,000 in letters of credit were outstanding under this line of credit. At December 31, 2000 and 1999, the weighted-average interest rates on the line of credit were 7.9% and 7.8%, respectively. Mortgage Lending - In December 1999, the Company modified the terms of its mortgage lending bank line of credit (the "Mortgage Line"), increasing the available borrowings from $51,000,000 to $75,000,000. The Company modified the terms of the Mortgage Line to increase available borrowing from $75,000,000 to $100,000,000 in September 2000 and from $100,000,000 to $125,000,000 in December 2000 Available borrowings under this line of credit are collateralized by mortgage loans and mortgage-backed certificates and are limited to the value of eligible collateral as defined. At December 31, 2000, $74,459,000 was borrowed and an additional $15,926,000 was collateralized and available to be borrowed. The line of credit is cancellable upon 90 days' notice. At December 31, 2000 and 1999, the interest rates on the line of credit were 7.7% and 7.0%, respectively. General - The agreements for the Company's bank lines of credit require compliance with certain representations, warranties and covenants. The Company believes that it is in compliance with these representations, warranties and covenants. The agreements containing these representations, warranties and covenants, other than the Mortgage Line, are on file with the Securities and Exchange Commission and are listed in the Exhibit Table in Part IV of this Annual Report on Form 10-K. The financial covenants contained in the Amended and Restated Credit Agreement include a leverage test and a consolidated tangible net worth test. Under the leverage test, generally MDC's consolidated indebtedness is not permitted to exceed the product of 2.15 (subject to downward adjustment in certain circumstances) times MDC's "adjusted consolidated tangible net worth," as defined. Under the consolidated tangible net worth test, MDC's "tangible net worth," as defined, must not be less than the sum of $238,000,000 and 50% of "consolidated net income," as defined, after December 31, 1998. In addition, the "consolidated tangible net worth," as defined, must not be less than $150,000,000. E. SENIOR NOTES The following table sets forth the information relating to senior notes (in thousands).
DECEMBER 31, -------------------- 2000 1999 -------- -------- Senior notes 8 3/8% senior notes due February 2008 (effective rate 8.7%).... $174,444 $174,389 ======== ========
In December 1993, the Company completed an offering of $190,000,000 principal amount of 11 1/8% senior notes due 2003 (the "Old Senior Notes") and $28,000,000 principal amount of 8 3/4% convertible subordinated notes due 2005 (the "Convertible Subordinated Notes"). The Convertible Subordinated Notes were convertible into shares of MDC common stock at an initial conversion price of $7.75 per share. In March 1997, the Company repurchased $38,000,000 principal amount of the Old Senior Notes. On January 28, 1998, the remaining Old Senior Notes either were repurchased or defeased with the proceeds of the issuance of the Company's 8 3/8% senior notes due 2008 (the "New Senior Notes"). The Convertible Subordinated Notes were called for redemption by the Company in December 1998 at a price of 105, resulting in the conversion of all $28,000,000 principal amount of Convertible Subordinated Notes into 3,612,900 shares of MDC common stock. F-13 36 The Company's New Senior Notes indenture does not contain financial covenants. However, there are covenants that limit transactions with affiliates, limit the amount of additional indebtedness that MDC may incur, restrict certain payments on, or the redemptions of, the Company's securities, restrict certain sales of assets and limit incurring liens. In addition, under certain circumstances, in the event of a change of control (generally a sale, transfer, merger or acquisition of MDC or substantially all of its assets), MDC may be required to offer to repurchase the New Senior Notes. The New Senior Notes are not secured. F. RETIREMENT PLANS In October 1997, the Company established a defined benefit retirement plan (the "Retirement Plan") for two executive officers of the Company under which the Company agreed to make future payments which have a projected benefit obligation of $7,930,000 at December 31, 2000. The Retirement Plan is not funded and benefits vest in either two or five years from plan inception. Unrecognized prior service cost of $2,924,000 at December 31, 2000 will be recognized over the employees' average estimated service periods. Retirement Plan expenses for the years ended December 31, 2000, 1999 and 1998 were $1,116,000, $1,059,000 and $869,000, respectively. Included on the December 31, 2000 Consolidated Balance Sheet is an intangible asset of $2,581,000 related to unamortized prior service cost and a corresponding accrued pension liability for the same amount. Accrued benefit costs as of December 31, 2000, 1999 and 1998 were $3,247,000, $2,132,000 and $1,073,000, respectively. A summary of the changes in the projected benefit obligation during each of the three years ended December 31, 2000, is as follows (in thousands).
YEAR ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ------ ------ ------ Projected benefit obligation - beginning of year .................. $6,824 $4,881 $4,103 Service cost .................................................. 131 245 197 Interest cost ................................................. 544 451 347 Unrecognized loss due to change in actuarial assumptions ...... 431 1,247 234 ------ ------ ------ Projected benefit obligation - end of year ........................ $7,930 $6,824 $4,881 ====== ====== ====== Assumptions used in the calculation of the present value of the projected benefit obligation Discount rate ................................................. 7.5% 7.5% 8.0% Future annual compensation rate increase ...................... 4.0% 4.0% 4.0%
The Company sponsors a Section 401(k) defined contribution plan covering all of its eligible employees. At its discretion, the Company may make annual matching contributions. The expense recorded by the Company for its matching contributions for the years ended December 31, 2000, 1999 and 1998 was $2,300,000, $2,060,000 and $1,377,000, respectively. G. STOCKHOLDERS' EQUITY Equity Incentive Plans - A summary of the Company's equity incentive plans follows. Employee Equity Incentive Plan - The Employee Equity Incentive Plan (the "Employee Plan") provided for an initial authorization of 2,100,000 shares of MDC common stock for issuance thereunder, plus an additional annual authorization equal to 10% of the then authorized shares of MDC common stock under the Employee Plan as of each succeeding annual anniversary of the effective date of the Employee Plan. Under the Employee Plan, the Company may grant awards of restricted stock, incentive and non-statutory stock options and dividend equivalents, or any combination thereof, to officers and employees of the Company or any of its subsidiaries. The incentive and non-statutory stock options granted under the Employee Plan are exercisable at prices greater than or equal to the market value on the date of grant over periods of up to six years. F-14 37 Executive Option Purchase Program - Pursuant to the terms of the Executive Option Purchase Program (the "Option Purchase Program"), the Company is authorized by the MDC Board of Directors to lend eligible executives of the Company up to two-thirds of the aggregate exercise price and state and federal taxes payable in connection with their exercise of stock options under the Employee Plan, subject to certain maximum amounts as set forth under the Option Purchase Program. Notes receivable under the Option Purchase Program are recourse and secured by 100% of the shares of MDC common stock issued in connection with options exercised. During 2000 and 1999, certain eligible executives of the Company exercised options to purchase 300,000 and 150,000 shares, respectively, of MDC common stock under the Employee Plan. Aggregate notes receivable under the Option Purchase Program of $3,574,000 and $1,780,000, respectively, at December 31, 2000 and 1999 have reduced stockholders' equity. Middle Management Option Purchase Program - Pursuant to the terms of the Middle Management Option Purchase Program (the "Management Program"), created on July 1, 2000, the Company is authorized by the MDC Board of Directors to lend eligible members of middle management of the Company up to two-thirds of the aggregate exercise price and state and federal taxes payable in connection with their exercise of stock options under the Employee Plan, subject to certain maximum amounts as set forth under the Management Program. Notes receivable under the Management Program are recourse and secured by 100% of the shares of MDC common stock issued in connection with options exercised. At December 31, 2000, there was one loan outstanding under the Management Program. Director Equity Incentive Plan - Under the Director Equity Incentive Plan (the "Director Plan"), non-employee directors of the Company are granted stock options. The Director Plan provided for an initial authorization of 300,000 shares of MDC common stock for issuance thereunder plus an additional annual authorization of shares equal to 10% of the then authorized shares of MDC common stock under the Director Plan. During 1997, the Board of Directors authorized, and the Company's stockholders approved, an additional 350,000 shares of MDC common stock for issuance under the Director Plan. Pursuant to the Director Plan, on December 1 of each year, each non-employee director of the Company is granted options to purchase 25,000 shares of MDC common stock. Each option granted under the Director Plan vests immediately and expires five years from the date of grant. The option exercise price must be equal to 100% of the market value of the MDC common stock on the date of grant of the option. A summary of the changes in stock options during each of the three years ended December 31, 2000 is as follows (in shares of MDC common stock).
2000 1999 1998 --------------------- --------------------- --------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ---------- -------- ---------- -------- ---------- -------- Options outstanding - beginning of year... 2,375,125 $ 12.92 1,805,000 $ 10.96 1,891,000 $ 7.65 10% stock dividend (Note S)............. 263,915 -- -- -- -- -- Granted................................. 845,500 $ 28.04 776,000 $ 15.73 509,000 $ 18.01 Exercised............................... (440,225) $ 8.16 (186,500) $ 5.63 (554,000) $ 6.10 Cancelled............................... (141,250) $ 16.74 (19,375) $ 13.07 (41,000) $ 11.79 ---------- ---------- ---------- Options outstanding - end of year......... 2,903,065 $ 16.68 2,375,125 $ 12.92 1,805,000 $ 10.96 Available for future grant................ 696,763 949,697 1,299,105 ---------- ---------- ---------- Total shares reserved - end of year....... 3,599,828 3,324,822 3,104,105 ========== ========== ========== Options exercisable December 31........... 1,238,673 $ 11.42 1,146,333 $ 9.92 984,332 $ 7.48 ========== ========== ==========
F-15 38 The Company has elected to use Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations, in accounting for its equity incentive plans. If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date and the vesting provisions under the plans in accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation", net income in 2000 would have been reduced by approximately $2,771,000, or $.12 per basic and diluted share. Net income for 1999 and 1998 would have been reduced by $1,786,000, or $.07 per basic and diluted share, and $1,154,000, or $.06 per basic and $.05 per diluted share, respectively. The following table is a summary of the average fair values of options granted during 2000, 1999 and 1998 on the date of grant using the Black-Scholes option pricing model with the assumptions used for volatility, risk free interest rate and dividend yield rate.
YEAR ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 -------- -------- -------- Average fair value of options granted........$ 12.85 $ 7.41 $ 7.68 Volatility................................... 44.7% 51.5% 48.6% Risk free interest rate...................... 5.7% 6.2% 4.9% Dividend yield rate.......................... 0.7% 1.6% 1.0% Expected lives of options.................... 5-6 yrs. 5-6 yrs. 5-6 yrs.
The following table summarizes information concerning outstanding and exercisable options at December 31, 2000.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------ --------------------------- AVERAGE WEIGHTED WEIGHTED RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE EXERCISE PRICE OUTSTANDING CONTRACT LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - --------------- ----------- ------------- -------------- ----------- -------------- $ 6.36 - $11.38 755,040 1.47 $ 8.46 670,890 $ 8.21 $12.15 - $14.15 766,012 4.18 $13.94 274,038 $13.72 $14.37 - $24.66 542,163 3.36 $16.68 293,745 $16.60 $26.59 - $26.59 839,850 5.26 $26.59 -- -- ---------- ---------- 2,903,065 3.64 $16.68 1,238,673 $11.42 ========== ==========
MDC Common Stock Repurchase Program - On January 24, 2000, MDC's Board of Directors authorized the repurchase of up to 1,000,000 shares of MDC common stock. On February 21, 2000, MDC's Board of Directors authorized the repurchase of up to 2,000,000 additional shares of MDC common stock. The Company has repurchased a total of 1,931,800 shares of MDC common stock under these programs through December 31, 2000. The per share prices, including commissions, for these repurchases range from $13.53 to $22.02 with an average cost of $15.96. At December 31, 2000 and 1999, the Company held 7,426,000 shares and 5,850,000 shares of treasury stock, respectively, with average purchase prices of $9.09 and $6.70, respectively. F-16 39 H. HOMEBUILDING ASSET IMPAIRMENT CHARGES Homebuilding operating results were reduced by asset impairment charges totalling $4,200,000, $2,242,000 and $5,300,000 in 2000, 1999 and 1998, respectively. The Company's assets to which these impairment charges relate are summarized as follows (in thousands).
YEAR ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ------ ------ ------ Completed homes and homes under construction ..... $ -- $ -- $ 888 Land under development and other ................. 4,200 2,242 4,412 ------ ------ ------ Total ...................................... $4,200 $2,242 $5,300 ====== ====== ======
The 2000 asset impairment charges resulted from the write-down to fair value of two homebuilding projects in Southern California, which experienced a much slower than anticipated home order pace and significantly increased sales incentive requirements. The 1999 charge primarily resulted from the write-down to fair value of one homebuilding project in Southern California, which experienced higher than anticipated development costs, a slower home order pace and increased sales incentive requirements. The 1998 asset impairment charge related to homebuilding assets primarily in Maryland and principally were the result of (1) the recognition of losses anticipated from the closing of certain homes in Backlog and from the reduction of selling prices and the offering of increased incentives to stimulate sales of certain completed unsold homes in inventory; (2) the write-down to fair value of certain subdivisions which experienced slow sales and negative Home Gross Margins; and (3) the write-off of other capitalized costs, primarily deferred marketing and option deposits, related to several low margin projects or projects which the Company terminated. "Home Gross Margins" are gross margins (home sales revenues less cost of goods sold, which primarily included land and construction costs, capitalized interest, a reserve for warranty expense and financing costs) as a percentage of home sales revenues. I. CORPORATE AND HOMEBUILDING INTEREST ACTIVITY (IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 -------- -------- -------- Interest capitalized in homebuilding inventory, beginning of year .............................. $ 17,406 $ 26,332 $ 37,991 Interest incurred ................................. 24,367 21,261 22,525 Interest expense .................................. -- -- -- Previously capitalized interest included in cost of sales .................................. (22,356) (30,187) (34,184) -------- -------- -------- Interest capitalized in homebuilding inventory, end of year .................................... $ 19,417 $ 17,406 $ 26,332 ======== ======== ========
J. SALE OF FAMC In September 1996, the Company sold its 80% interest in Financial Asset Management LLC (an indirect subsidiary of M.D.C. Holdings, Inc., "FAMC") for $11,450,000. The sales proceeds consisted of $6,000,000 cash and $5,450,000 of promissory notes which were payable at specified dates during the 10 years following the sale and were convertible, under certain circumstances, into an equity interest in FAMC. The sale resulted in the recognition of a gain of $4,042,000 in 1996. An additional gain of $5,450,000 attributable to the promissory notes was deferred based upon uncertainty regarding the collectibility of principal on the notes and the expiration of the conversion features. In 1998 and 1997, the Company received principal payments of $4,450,000 and $1,000,000, respectively, on the promissory notes, resulting in the recognition of gains in 1998 and 1997 equal to the amounts received. F-17 40 K. INCOME TAXES Total income taxes have been allocated as follows (in thousands).
YEAR ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 -------- -------- -------- Tax expense on income before income taxes and extraordinary item ................................ $ 79,898 $ 59,061 $ 32,284 Extraordinary loss ................................... -- -- (9,587) Stockholders' equity, related to exercise of stock options ........................................... (1,439) (695) (2,484) -------- -------- -------- Total income taxes ................................... $ 78,459 $ 58,366 $ 20,213 ======== ======== ========
The significant components of the provision for income taxes are as follows (in thousands).
YEAR ENDED DECEMBER 31, -------------------------------------- 2000 1999 1998 -------- -------- -------- Current tax expense Federal ........................ $ 79,115 $ 51,192 $ 32,875 State .......................... 11,403 11,121 5,082 -------- -------- -------- Total current ................ 90,518 62,313 37,957 -------- -------- -------- Deferred tax benefit Federal ........................ (10,159) (1,914) (5,095) State .......................... (461) (1,338) (578) -------- -------- -------- Total deferred ............... (10,620) (3,252) (5,673) -------- -------- -------- Provision for income taxes ........ $ 79,898 $ 59,061 $ 32,284 ======== ======== ========
The provision for income taxes differs from the amount which would be computed by applying the statutory federal income tax rate of 35% to income before income taxes and extraordinary item as a result of the following (in thousands).
YEAR ENDED DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- Tax expense computed at statutory rate ........ $71,120 $51,959 $29,348 Increase due to Permanent differences between financial statement income and taxable income ..... 175 158 293 State income tax, net of federal benefit .. 7,024 6,601 2,350 Other ..................................... 1,579 343 293 ------- ------- ------- Provision for income taxes .................... $79,898 $59,061 $32,284 ======= ======= ======= Effective tax rate ............................ 39.3% 39.8% 38.5% ======= ======= =======
F-18 41 The tax effects of the temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands).
DECEMBER 31, ------------------- 2000 1999 ------- ------- Deferred tax assets Warranty, litigation and other reserves ............. $19,107 $19,563 Inventory impairment charges ........................ 5,130 6,305 Accrued liabilities ................................. 4,145 3,682 Inventory, additional costs capitalized for tax purposes .......................................... 15,350 9,422 Property, equipment and other assets, net ........... 172 857 ------- ------- Total gross deferred tax assets ................. 43,904 39,829 ------- ------- Deferred tax liabilities Deferred revenue .................................... 7,500 5,396 Inventory, additional costs capitalized for financial statement purposes ...................... 2,472 5,372 Subsidiaries not consolidated for tax purposes ...... 1,038 6,567 Other ............................................... 1,073 1,293 ------- ------- Total gross deferred tax liabilities ............ 12,083 18,628 ------- ------- Net deferred tax asset .............................. $31,821 $21,201 ======= =======
In August 2000, the Company and the Internal Revenue Service (the "IRS") reached final agreement on the examination of the Company's federal income tax returns for the years 1991 through 1995. In April 2000, the Company and the IRS reached final agreement on the examination of the Company's federal income tax returns for the years 1996 and 1997. The conclusion of these examinations resulted in no material impact to the Company's financial position or results of operations. No IRS examination of the Company's federal income tax returns currently are in process. L. EXTRAORDINARY ITEM Net income for 1998 included an extraordinary loss of $15,314,000, net of an income tax benefit of $9,587,000, recognized in connection with the Company's repurchase and defeasance of the remaining $152,000,000 principal amount of Old Senior Notes. F-19 42 M. EARNINGS PER SHARE Pursuant to Statement of Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), the computation of diluted earnings per share takes into account the effect of dilutive stock options. Weighted-average shares outstanding and per share amounts for all periods presented have been adjusted for the effect of the 10% stock dividend to be issued in February 2001. The basic and diluted earnings per share calculations are shown below (in thousands, except per share amounts).
YEAR ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- BASIC EARNINGS PER SHARE Income before extraordinary item ................. $123,303 $ 89,392 $ 51,568 Extraordinary loss, net of taxes ................. -- -- (15,314) -------- -------- -------- Net income .................................... $123,303 $ 89,392 $ 36,254 ======== ======== ======== Weighted-average shares outstanding .............. 23,613 24,472 20,296 ======== ======== ======== Per share amounts Income before extraordinary item .............. $ 5.22 $ 3.65 $ 2.54 Extraordinary loss, net of taxes .............. -- -- (0.75) -------- -------- -------- Net income .................................... $ 5.22 $ 3.65 $ 1.79 ======== ======== ======== DILUTED EARNINGS PER SHARE Income before extraordinary item ................. $123,303 $ 89,392 $ 51,568 Conversion of Convertible Subordinated Notes ..... -- -- 783 -------- -------- -------- Adjusted income before extraordinary item ........ 123,303 89,392 52,351 Extraordinary loss, net of taxes ................. -- -- (15,314) -------- -------- -------- Adjusted net income ........................... $123,303 $ 89,392 $ 37,037 ======== ======== ======== Weighted-average shares outstanding .............. 23,613 24,472 20,296 Stock options, net ............................... 529 450 953 Conversion of Convertible Subordinated Notes ..... -- -- 3,618 -------- -------- -------- Diluted weighted-average shares outstanding ... 24,142 24,922 24,867 ======== ======== ======== Per share amounts Income before extraordinary item .............. $ 5.11 $ 3.59 $ 2.11 Extraordinary loss, net of taxes .............. -- -- (0.62) -------- -------- -------- Net income .................................... $ 5.11 $ 3.59 $ 1.49 ======== ======== ========
N. LEGAL PROCEEDINGS The Company and certain of its subsidiaries have been named as defendants in various claims, complaints and other legal actions arising in the normal course of business. In the opinion of management, the outcome of these matters will not have a material adverse effect upon the financial condition, results of operations or cash flows of the Company. Because of the nature of the homebuilding business, and in the ordinary course of its operations, the Company from time to time may be subject to product liability and other types of claims. The Company is not aware of any litigation, matter or pending claim against the Company which would result in material contingent liabilities related to environmental hazards or asbestos. O. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate such value. F-20 43 Cash and Cash Equivalents - For cash and cash equivalents, the carrying value is a reasonable estimate of fair value. Investments and Marketable Securities, Net - Investments in marketable equity securities (other than those assets held for eligible claims made under warranties created pursuant to the 1996 settlement of litigation commenced in 1994, see Note A) are recorded on the balance sheet at cost, which approximates market value. Accordingly, the carrying value of the investment is a reasonable estimate of the fair value. Mortgage Loans Held in Inventory - The Company generally purchases forward commitments to deliver mortgage loans held for sale. For loans which have no forward commitments, loans in inventory are stated at the lower of cost or market. Accordingly, the carrying value is a reasonable estimate of fair value. Lines of Credit - The Company's lines of credit are at floating rates or at fixed rates which approximate current market rates and have relatively short-term maturities. Accordingly, the carrying value is a reasonable estimate of fair value. Senior Notes - The estimated fair value of the New Senior Notes in the following table are based on dealer quotes.
DECEMBER 31, 2000 DECEMBER 31, 1999 --------------------- --------------------- RECORDED ESTIMATED RECORDED ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE -------- ---------- -------- ---------- New Senior Notes.................... $174,444 $158,813 $174,389 $161,000
P. COMMITMENTS AND CONTINGENCIES The Company believes that it is subject to risks and uncertainties common to the homebuilding industry, including (1) cyclical markets sensitive to changes in general and local economic conditions; (2) volatility of interest rates, which affects homebuilding demand and may affect credit availability; (3) seasonal nature of the business due to weather-related factors; (4) significant fluctuations in the price of building materials, particularly lumber, and of finished lots and subcontract labor; (5) counterparty non-performance risk associated with performance bonds; (6) competition; (7) demographic changes; (8) slow growth initiatives; (9) building moratoria; (10) governmental regulation, including the interpretation of tax, labor and environmental laws; and (11) changes in consumer confidence and preferences. The Company's operations are concentrated in the geographic regions of Colorado, Virginia, Maryland, California, Arizona and Nevada. To reduce exposure to fluctuations in interest rates, HomeAmerican makes commitments to originate (buy) and sell loans and mortgage-backed securities. At December 31, 2000, commitments by HomeAmerican to originate mortgage loans totalled $22,818,000 at market rates of interest. At December 31, 2000, unexpired short-term forward commitments to sell loans totalled $108,396,000 at market rates of interest. MDC leases office space, equipment and certain of its model show homes under noncancellable operating leases. Future minimum rental payments for leases with initial terms in excess of one year total $5,667,000 in 2001, $5,281,000 in 2002, $4,279,000 in 2003, $3,324,000 in 2004 and $2,387,000 in 2005. Rent expense under cancellable and noncancellable leases totalled $6,531,000, $4,846,000 and $3,665,000 in 2000, 1999, and 1998, respectively. In May 1998, MDC sold its headquarters office building for net proceeds of $13,250,000 in a sale-leaseback transaction. The gain on the sale of $3,715,000 is being recognized ratably over the initial lease term of seven years. F-21 44 Q. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (IN THOUSANDS)
YEAR ENDED DECEMBER 31, --------------------------- 2000 1999 1998 ------- ------- ------- Cash paid during the year for Interest .................................... $29,933 $17,335 $15,296 Income taxes ................................ $89,802 $63,557 $24,820 Non-cash investing and financing activities Land purchases financed by seller ........... $ -- $ 1,032 $ -- Land sales financed by MDC .................. $ -- $ 43 $ -- Conversion of Convertible Subordinated Notes to equity ........................... $ -- $ -- $28,000
R. RELATED PARTY TRANSACTIONS MDC has transacted business with related or affiliated companies and with certain officers and directors of the Company. Gilbert Goldstein, P.C., a law firm of which a director of the Company is the sole shareholder, was paid legal fees of $240,000, $209,000 and $243,000 in 2000, 1999 and 1998, respectively. The Company utilizes in the ordinary course of business the services of a marketing and communications firm which is owned by the brother-in-law of an officer and director of the Company. Total fees paid for advertising and marketing design services were $412,000, $432,000 and $418,000, respectively, for 2000, 1999 and 1998. The wife of an officer and director of the Company owns a company which provides consulting services to the Company. Total fees paid for her services were $220,000, $120,000 and $80,000, respectively, for 2000, 1999 and 1998. During 2000, the Company contributed $2,000,000 to the MDC Holdings Foundation (the "Foundation"), a Delaware not-for-profit corporation which was incorporated on September 30, 1999. The contribution consisted of 58,033 shares of MDC common stock valued at $1,900,000 and $100,000 in cash. The Foundation is a charitable organization with the primary purpose of supporting non-profit charities in communities where the Company conducts its business. Certain directors and officers of the Company are the trustees and officers of the Foundation. S. SUBSEQUENT EVENT On January 22, 2001, MDC's board of directors approved the payment of a 10% stock dividend, which will be distributed on February 16, 2001 to shareowners of record on February 5, 2001. In accordance with SFAS 128 basic and diluted net income per share amounts and weighted-average shares outstanding have been restated for all periods presented to reflect the effect of this stock dividend. In addition, stockholders' equity and stock options outstanding and exercisable have been adjusted to reflect the stock dividend as if it had been paid on December 31, 2000. F-22 45 T. SUMMARIZED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED) Unaudited summarized quarterly consolidated financial information for the two years ended December 31, 2000 is as follows (in thousands, except per share amounts). Weighted-average shares outstanding and earnings per share have been adjusted for the effects of the 10% stock dividend to be issued in February 2001.
QUARTER ----------------------------------------------------- FOURTH THIRD SECOND FIRST ----------- ----------- ----------- ----------- 2000 Revenues .............................. $ 538,501 $ 446,239 $ 419,647 $ 347,158 =========== =========== =========== =========== Net income ............................ $ 39,213 $ 34,260 $ 28,809 $ 21,021 =========== =========== =========== =========== Earnings Per Share Basic ............................. $ 1.69 $ 1.47 $ 1.22 $ 0.86 =========== =========== =========== =========== Diluted ........................... $ 1.64 $ 1.44 $ 1.20 $ 0.85 =========== =========== =========== =========== Weighted-Average Shares Outstanding Basic ............................. 23,217 23,297 23,625 24,320 =========== =========== =========== =========== Diluted ........................... 23,968 23,870 24,004 24,587 =========== =========== =========== =========== 1999 Revenues .............................. $ 460,628 $ 410,126 $ 399,759 $ 297,125 =========== =========== =========== =========== Net income ............................ $ 26,544 $ 24,140 $ 24,957 $ 13,751 =========== =========== =========== =========== Earnings Per Share Basic ............................. $ 1.08 $ 0.98 $ 1.02 $ 0.57 =========== =========== =========== =========== Diluted ........................... $ 1.07 $ 0.97 $ 1.00 $ 0.55 =========== =========== =========== =========== Weighted-Average Shares Outstanding Basic ............................. 24,548 24,524 24,502 24,313 =========== =========== =========== =========== Diluted ........................... 24,892 25,013 24,965 24,821 =========== =========== =========== ===========
F-23 46 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. PricewaterhouseCoopers LLP was previously the principal accountant for the Company. On May 11, 2000, the Company's Audit Committee recommended to the Company's Board of Directors that that firm's appointment as principal accountant be terminated and Ernst & Young LLP be engaged as principal accountant. The Audit Committee's recommendation to change accountants was approved by the Company's Board of Directors on May 18, 2000. In connection with the audits of the two fiscal years ended December 31, 1998 and December 31, 1999, and during the subsequent interim period through May 11, 2000, there had been no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused PricewaterhouseCoopers LLP to make reference thereto in their report on the financial statements for such years. The audit reports of PricewaterhouseCoopers LLP on the consolidated financial statements of the Company as of and for the years ended December 31, 1998 and December 31, 1999, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. The Company requested that PricewaterhouseCoopers LLP furnish the Company with a letter addressed to the Securities and Exchange Commission stating whether or not it agrees with the above statements. A copy of such letter, dated May 18, 2000, was filed as Exhibit 16 to our Form 8-K filed with the Securities and Exchange Commission on May 11, 2000. During the two fiscal years ended December 31,1999, and the subsequent interim period through May 18, 2000, the Company did not consult with Ernst & Young LLP regarding the application of generally accepted accounting principles to a specific transaction, either proposed or completed, or the type of audit opinion that might be rendered on the Company's consolidated financial statements. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, from the Company's Proxy Statement for its 2001 Annual Meeting of Shareowners to be held on or about May 21, 2001. ITEM 11. EXECUTIVE COMPENSATION. Information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, from the Company's Proxy Statement for its 2001 Annual Meeting of Shareowners to be held on or about May 21, 2001. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, from the Company's Proxy Statement for its 2001 Annual Meeting of Shareowners to be held on or about May 21, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, from the Company's Proxy Statement for its 2001 Annual Meeting of Shareowners to be held on or about May 21, 2001. 21 47 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. FINANCIAL STATEMENTS. The following consolidated financial statements of the Company and its subsidiaries are included in Part II, Item 8.
PAGE ---- M.D.C. Holdings, Inc. and Subsidiaries Report of Independent Auditors as of December 31, 2000 and the Year then Ended.................... F-2 Report of Independent Accountants as of December 31, 1999 and for each of the Two Years in the Period Ended December 31, 1999.................................................................. F-3 Consolidated Balance Sheets as of December 31, 2000 and 1999...................................... F-4 Consolidated Statements of Income and Other Comprehensive Income for each of the Three Years Ended December 31, 2000......................................................................... F-6 Consolidated Statements of Stockholders' Equity for each of the Three Years Ended December 31, 2000............................................................................... F-7 Consolidated Statements of Cash Flows for each of the Three Years Ended December 31, 2000......... F-8 Notes to Consolidated Financial Statements........................................................ F-9
(a) 2. FINANCIAL STATEMENT SCHEDULES. All schedules are omitted because they are not applicable, not material, not required or the required information is included in the applicable financial statements or notes thereto. Financial statements for certain unconsolidated partnerships and joint ventures owned 50% or less by the Company or its subsidiaries, which are accounted for on the equity method, have been omitted because they do not, individually, or in the aggregate, constitute a significant subsidiary. (a) 3. EXHIBITS. 3.1(a) Form of Amendment to the Certificate of Incorporation of M.D.C. Holdings, Inc. (hereinafter sometimes referred to as "MDC", the "Company" or the "Registrant") regarding director liability, filed with the Delaware Secretary of State on July 1, 1987 (incorporated by reference to Exhibit 3.1(a) of the Company's Quarterly Report on Form 10-Q dated June 30, 1987).* 3.1(b) Form of Certificate of Incorporation of MDC, as amended (incorporated herein by reference to Exhibit 3.1(b) of the Company's Quarterly Report on Form 10-Q dated June 30, 1987).* 3.2(a) Form of Amendment to the Bylaws of MDC regarding indemnification adopted by its Board of Directors and effective as of March 20, 1987 (incorporated herein by reference to Exhibit 3.2(a) of the Company's Quarterly Report on Form 10-Q dated June 30, 1987).* 3.2(b) Form of Bylaws of MDC, as amended (incorporated herein by reference to Exhibit 3.2(b) of the Company's Quarterly Report on Form 10-Q dated June 30, 1987).* 4.2 Form of Certificate for shares of the Company's common stock (incorporated herein by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-3, Registration No. 33-426).* 4.3 Amended and Restated Credit Agreement dated as of October 8, 1999 among M.D.C. Holdings, Inc. as Borrower and The Banks Named therein and Bank One, NA as Administrative Agent, Bank 22 48 United of Texas FSB as Co-Agent and KeyBank, National Association as Co-Agent (incorporated herein by reference to Exhibit 10.2 to the Company's Form 10-Q dated September 30, 1999).* 4.4 Form of Guaranty agreement dated as of October 8, 1999 by certain subsidiaries of M.D.C. Holdings, Inc., including RICHMOND AMERICAN HOMES OF CALIFORNIA, INC., RICHMOND AMERICAN HOMES OF MARYLAND, INC., RICHMOND AMERICAN HOMES OF NEVADA, INC., RICHMOND AMERICAN HOMES OF VIRGINIA, INC., RICHMOND AMERICAN HOMES OF ARIZONA, INC., RICHMOND AMERICAN HOMES OF COLORADO, INC., RICHMOND AMERICAN HOMES OF NORTHERN CALIFORNIA, INC., M.D.C. LAND CORPORATION, and RICHMOND AMERICAN CONSTRUCTION, INC. (incorporated herein by reference to Exhibit 10.2 to the Company's Form 10-Q dated September 30, 1999).* 4.5 Form of Promissory Note of M.D.C. Holdings, Inc. as Maker dated as of October 8, 1999 payable to each of the Banks named in the Amended and Restated Credit Agreement dated as of October 8, 1999 among M.D.C. Holdings, Inc. as Borrower and The Banks Named therein and Bank One, NA as Administrative Agent, Bank United of Texas FSB as Co-Agent and KeyBank, National Association as Co-Agent (incorporated herein by reference to Exhibit 10.2 to the Company's Form 10-Q dated September 30, 1999).* 4.5(a) Commitment and Acceptance Agreement dated as of August 22, 2000 among the Registrant, Bank One, N.A., as Administrative Agent and California Bank & Trust as Accepting Bank (incorporated herein by reference to Exhibit 4.1 to the Company's Form 10-Q dated September 30, 2000).* 4.5(b) Form of Promissory Note dated August 22, 2000 of the Registrant as Maker payable to California Bank & Trust (incorporated herein by reference to Exhibit 4.2 to the Company's Form 10-Q dated September 30, 2000).* 4.5(c) Consent of Guarantors dated August 22, 2000 (incorporated herein by reference to Exhibit 4.3 to the Company's Form 10-Q dated September 30, 2000).* 4.5(d) Commitment and Acceptance Agreement dated as of October 16, 2000 among the Registrant, Bank One, N.A., as Administrative Agent and U.S. Bank, National Association as Accepting Bank (incorporated herein by reference to Exhibit 4.4 to the Company's Form 10-Q dated September 30, 2000).* 4.5(e) Form of Promissory Note dated October 16, 2000 of the Registrant as Maker payable to U.S. Bank, National Association as Accepting Bank (incorporated herein by reference to Exhibit 4.5 to the Company's Form 10-Q dated September 30, 2000).* 4.5(f) Consent of Guarantors Dated October 16, 2000 (incorporated herein by reference to Exhibit 4.6 to the Company's Form 10-Q dated September 30, 2000).* 4.6 Senior Notes Indenture dated as of January 28, 1998 by and between the Company and U.S. Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.2(a) of the Company's Post Effective Amendment No. 1 to Form S-3).* 10.1 The Company's Employee Equity Incentive Plan (incorporated herein by reference to Exhibit A of the Company's Proxy Statement dated May 14, 1993 relating to the 1993 Annual Meeting of Stockholders).* 10.2 The Company's Director Equity Incentive Plan (incorporated herein by reference to Exhibit B of the Company's Proxy Statement dated May 14, 1993 relating to the 1993 Annual Meeting of Stockholders).* 23 49 10.3(a) First Amendment to M.D.C. Holdings, Inc. Director Equity Incentive Plan (incorporated herein by reference to Exhibit A of the Company's Proxy Statement dated March 24, 1997 relating to the 1997 Annual Meeting of Stockholders).* 10.3(b) Second Amendment to M.D.C. Holdings, Inc. Director Equity Incentive Plan (incorporated herein by reference to Exhibit 4.3 of the Company's Quarterly Report on Form 10-Q dated June 30, 1998).* 10.4(a) Form of Indemnity Agreement entered into between the Registrant and each member of its Board of Directors as of March 20, 1987 (incorporated herein by reference to Exhibit 19.1 of the Company's Quarterly Report on Form 10-Q dated June 30, 1987).* 10.4(b) Form of Indemnity Agreement entered into between the Registrant and certain officers of the Registrant on various dates during 1988 and early 1989 (incorporated herein by reference to Exhibit 10.18(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1988).* 10.5 Indemnification Agreement by and among the Company and Larry A. Mizel ("Mizel") and David D. Mandarich ("Mandarich") dated December 21, 1989 (incorporated herein by reference to Exhibit 9 of the Company's Form 8-K dated December 28, 1989).* 10.6 Promissory Note in the amount of $280,080 from Mandarich to the Company dated February 2, 1994 (incorporated herein by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the year ended December 31, 1993).* 10.7 Fifth Amendment to Piney Creek Development Co. Joint Venture Agreement dated June 13, 1991 by and between Commercial Federal Bank and Land (incorporated herein by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991).* 10.8(a) Consulting Agreement effective October 1, 1998 by and between Gilbert Goldstein, P.C. and the Company (incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q dated September 30, 1998).* 10.8(b) Letter Agreement between M.D.C. Holdings, Inc. and Gilbert Goldstein, P.C. dated October 25, 1999 amending the Consulting Agreement effective October 1, 1998 between M.D.C. Holdings, Inc. and Gilbert Goldstein, P.C. (incorporated herein by reference to Exhibit 10.2 to the Company's Form 10-Q dated September 30, 1999).* 10.8(c) Letter Agreement between the Registrant and Gilbert Goldstein, P.C. dated October 23, 2000 amending the Consulting Agreement effective October 1, 1998 between the Registrant and Gilbert Goldstein, P.C. (incorporated herein by reference to Exhibit 10.1 to the Company's Form 10-Q dated September 30, 2000).* 10.9(a) Form of Restricted Stock Agreement between the Company and certain officers and employees of the Company effective as of November 20, 1998 (incorporated herein by reference to Exhibit 10.10 to the Company's Form 10-K dated December 31, 1998).* 10.9(b) Form of Restricted Stock Agreement between the Company and certain officers and employees of the Company effective as of November 19, 1999 (incorporated herein by reference to Exhibit 10.9(b) to the Company's Form 10-K dated December 31, 1999).* 10.10 M.D.C. Holdings, Inc. Executive Officer Performance-Based Compensation Plan (incorporated herein by reference to Exhibit A to the Company's Proxy Statement dated May 25, 1994 related to the 1994 Meeting of Stockholders).* 24 50 10.11 M.D.C. Holdings, Inc. 2000 Executive Option Purchase Program, including form of Promissory Note and Pledge Agreement. 10.12(a) Forms of Promissory Notes and Pledge Agreements dated December 9, 1996 between M.D.C. Holdings, Inc. and Michael Touff and Paris G. Reece III related to amounts advanced to such persons in connection with income taxes due on the portion of their 1996 performance bonuses paid in the form of the Company's common stock (incorporated herein by reference to Exhibit 10.19 of the Company's Annual Report on Form 10-K dated December 31, 1996).* 10.12(b) Forms of Promissory Notes and Pledge Agreements dated December 18, 1997 between the Company and Michael Touff and Paris G. Reece III related to amounts advanced to such persons in connection with income taxes due and the portion of their 1997 performance bonuses paid in the form of the Company's common stock (incorporated herein by reference to Exhibit 10.16(b) of the Company's Annual Report on Form 10-K dated December 31, 1997).* 10.13(a) Employment Agreement between the Company and Larry A. Mizel dated October 1, 1997 (incorporated herein by reference to Exhibit 99.1 of the Company's Form 8-K dated January 14, 1998).* 10.13(b) Employment Agreement between the Company and David D. Mandarich dated October 1, 1997 (incorporated herein by reference to Exhibit 99.2 of the Company's Form 8-K dated January 14, 1998).* 10.14(a) Change in Control Agreement between M.D.C. Holdings, Inc. and Paris G. Reece III effective January 26, 1998 (incorporated herein by reference to Exhibit 10.1 to the Company's Form 8-K dated March 27, 1998).* 10.14(b) Change in Control Agreement between M.D.C. Holdings, Inc. and Michael Touff effective January 26, 1998 (incorporated herein by reference to Exhibit 10.2 to the Company's Form 8-K dated March 27, 1998).* 10.14(c) Form of Change in Control Agreement between M.D.C. Holdings, Inc. and certain employees of M.D.C. Holdings, Inc. (incorporated herein by reference to Exhibit 10.3 to the Company's Form 8-K dated March 27, 1998).* 10.15 Independent Contractor Agreement between Mizel Design and Decorating Company and M.D.C. Holdings, Inc. effective as of January 1, 2001. 10.16 M.D.C. Holdings, Inc. 401(k) Savings Plan Prototype Retirement Plan and Trust (incorporated herein by reference to Exhibit 10.1 to the Company's Form 10-Q dated June 30, 1999).* 10.17 M.D.C. Holdings, Inc. 401(k) Savings Plan Prototype Retirement Plan & Trust Adoption Agreement between M.D.C. Holdings, Inc. and Key Trust Company National Association effective as of July 1, 1998 (incorporated herein by reference to Exhibit 10.2 to the Company's Form 10-Q dated June 30, 1999).* 21 Subsidiaries of the Company. 23 Consent of Ernst & Young. 23(a) Consent of PricewaterhouseCoopers 25 51 - ---------- * Incorporated herein by reference. (b) REPORTS ON FORM 8-K DURING THE FOURTH QUARTER OF 2000: (1) No reports on Form 8-K were filed during the last quarter of the year ended December 31, 2000. 26 52 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on this 8th day of February, 2001 on its behalf by the undersigned, thereunto duly authorized. M.D.C. HOLDINGS, INC. (Registrant) By: /s/ LARRY A. MIZEL ----------------------------------------- Larry A. Mizel Chief Executive Officer By: /s/ PARIS G. REECE III ----------------------------------------- Paris G. Reece III Executive Vice President, Chief Financial Officer and Principal Accounting Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and/or directors of the Registrant, by virtue of their signatures to this report, appearing below, hereby constitute and appoint Larry A. Mizel, David D. Mandarich and Paris G. Reece III, or any one of them, with full power of substitution, as attorneys-in-fact in their names, places and steads to execute any and all amendments to this report in the capacities set forth opposite their names and hereby ratify all that said attorneys-in-fact do by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ LARRY A. MIZEL Chairman of the Board of Directors and Chief February 8, 2001 - ------------------------------------- Executive Officer Larry A. Mizel /s/ DAVID D. MANDARICH Director, President and Chief Operating Officer February 8, 2001 - ------------------------------------- David D. Mandarich /s/ STEVEN J. BORICK Director February 8, 2001 - ------------------------------------- Steven J. Borick /s/ GILBERT GOLDSTEIN Director February 8, 2001 - ------------------------------------- Gilbert Goldstein /s/ WILLIAM B. KEMPER Director February 8, 2001 - ------------------------------------- William B. Kemper /s/ HERBERT T. BUCHWALD Director February 8, 2001 - ------------------------------------- Herbert T. Buchwald
(A Majority of the Board of Directors) 53 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------ ----------- 3.1(a) Form of Amendment to the Certificate of Incorporation of M.D.C. Holdings, Inc. (hereinafter sometimes referred to as "MDC", the "Company" or the "Registrant") regarding director liability, filed with the Delaware Secretary of State on July 1, 1987 (incorporated by reference to Exhibit 3.1(a) of the Company's Quarterly Report on Form 10-Q dated June 30, 1987).* 3.1(b) Form of Certificate of Incorporation of MDC, as amended (incorporated herein by reference to Exhibit 3.1(b) of the Company's Quarterly Report on Form 10-Q dated June 30, 1987).* 3.2(a) Form of Amendment to the Bylaws of MDC regarding indemnification adopted by its Board of Directors and effective as of March 20, 1987 (incorporated herein by reference to Exhibit 3.2(a) of the Company's Quarterly Report on Form 10-Q dated June 30, 1987).* 3.2(b) Form of Bylaws of MDC, as amended (incorporated herein by reference to Exhibit 3.2(b) of the Company's Quarterly Report on Form 10-Q dated June 30, 1987).* 4.2 Form of Certificate for shares of the Company's common stock (incorporated herein by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-3, Registration No. 33-426).* 4.3 Amended and Restated Credit Agreement dated as of October 8, 1999 among M.D.C. Holdings, Inc. as Borrower and The Banks Named therein and Bank One, NA as Administrative Agent, Bank United of Texas FSB as Co-Agent and KeyBank, National Association as Co-Agent (incorporated herein by reference to Exhibit 10.2 to the Company's Form 10-Q dated September 30, 1999).* 4.4 Form of Guaranty agreement dated as of October 8, 1999 by certain subsidiaries of M.D.C. Holdings, Inc., including RICHMOND AMERICAN HOMES OF CALIFORNIA, INC., RICHMOND AMERICAN HOMES OF MARYLAND, INC., RICHMOND AMERICAN HOMES OF NEVADA, INC., RICHMOND AMERICAN HOMES OF VIRGINIA, INC., RICHMOND AMERICAN HOMES OF ARIZONA, INC., RICHMOND AMERICAN HOMES OF COLORADO, INC., RICHMOND AMERICAN HOMES OF NORTHERN CALIFORNIA, INC., M.D.C. LAND CORPORATION, and RICHMOND AMERICAN CONSTRUCTION, INC. (incorporated herein by reference to Exhibit 10.2 to the Company's Form 10-Q dated September 30, 1999).* 4.5 Form of Promissory Note of M.D.C. Holdings, Inc. as Maker dated as of October 8, 1999 payable to each of the Banks named in the Amended and Restated Credit Agreement dated as of October 8, 1999 among M.D.C. Holdings, Inc. as Borrower and The Banks Named therein and Bank One, NA as Administrative Agent, Bank United of Texas FSB as Co-Agent and KeyBank, National Association as Co-Agent (incorporated herein by reference to Exhibit 10.2 to the Company's Form 10-Q dated September 30, 1999).* 4.5(a) Commitment and Acceptance Agreement dated as of August 22, 2000 among the Registrant, Bank One, N.A., as Administrative Agent and California Bank & Trust as Accepting Bank (incorporated herein by reference to Exhibit 4.1 to the Company's Form 10-Q dated September 30, 2000).* 4.5(b) Form of Promissory Note dated August 22, 2000 of the Registrant as Maker payable to California Bank & Trust (incorporated herein by reference to Exhibit 4.2 to the Company's Form 10-Q dated September 30, 2000).*
54 4.5(c) Consent of Guarantors dated August 22, 2000 (incorporated herein by reference to Exhibit 4.3 to the Company's Form 10-Q dated September 30, 2000).* 4.5(d) Commitment and Acceptance Agreement dated as of October 16, 2000 among the Registrant, Bank One, N.A., as Administrative Agent and U.S. Bank, National Association as Accepting Bank (incorporated herein by reference to Exhibit 4.4 to the Company's Form 10-Q dated September 30, 2000).* 4.5(e) Form of Promissory Note dated October 16, 2000 of the Registrant as Maker payable to U.S. Bank, National Association as Accepting Bank (incorporated herein by reference to Exhibit 4.5 to the Company's Form 10-Q dated September 30, 2000).* 4.5(f) Consent of Guarantors Dated October 16, 2000 (incorporated herein by reference to Exhibit 4.6 to the Company's Form 10-Q dated September 30, 2000).* 4.6 Senior Notes Indenture dated as of January 28, 1998 by and between the Company and U.S. Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.2(a) of the Company's Post Effective Amendment No. 1 to Form S-3).* 10.1 The Company's Employee Equity Incentive Plan (incorporated herein by reference to Exhibit A of the Company's Proxy Statement dated May 14, 1993 relating to the 1993 Annual Meeting of Stockholders).* 10.2 The Company's Director Equity Incentive Plan (incorporated herein by reference to Exhibit B of the Company's Proxy Statement dated May 14, 1993 relating to the 1993 Annual Meeting of Stockholders).* 10.3(a) First Amendment to M.D.C. Holdings, Inc. Director Equity Incentive Plan (incorporated herein by reference to Exhibit A of the Company's Proxy Statement dated March 24, 1997 relating to the 1997 Annual Meeting of Stockholders).* 10.3(b) Second Amendment to M.D.C. Holdings, Inc. Director Equity Incentive Plan (incorporated herein by reference to Exhibit 4.3 of the Company's Quarterly Report on Form 10-Q dated June 30, 1998).* 10.4(a) Form of Indemnity Agreement entered into between the Registrant and each member of its Board of Directors as of March 20, 1987 (incorporated herein by reference to Exhibit 19.1 of the Company's Quarterly Report on Form 10-Q dated June 30, 1987).* 10.4(b) Form of Indemnity Agreement entered into between the Registrant and certain officers of the Registrant on various dates during 1988 and early 1989 (incorporated herein by reference to Exhibit 10.18(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1988).* 10.5 Indemnification Agreement by and among the Company and Larry A. Mizel ("Mizel") and David D. Mandarich ("Mandarich") dated December 21, 1989 (incorporated herein by reference to Exhibit 9 of the Company's Form 8-K dated December 28, 1989).*
55 10.6 Promissory Note in the amount of $280,080 from Mandarich to the Company dated February 2, 1994 (incorporated herein by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the year ended December 31, 1993).* 10.7 Fifth Amendment to Piney Creek Development Co. Joint Venture Agreement dated June 13, 1991 by and between Commercial Federal Bank and Land (incorporated herein by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991).* 10.8(a) Consulting Agreement effective October 1, 1998 by and between Gilbert Goldstein, P.C. and the Company (incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q dated September 30, 1998).* 10.8(b) Letter Agreement between M.D.C. Holdings, Inc. and Gilbert Goldstein, P.C. dated October 25, 1999 amending the Consulting Agreement effective October 1, 1998 between M.D.C. Holdings, Inc. and Gilbert Goldstein, P.C. (incorporated herein by reference to Exhibit 10.2 to the Company's Form 10-Q dated September 30, 1999).* 10.8(c) Letter Agreement between the Registrant and Gilbert Goldstein, P.C. dated October 23, 2000 amending the Consulting Agreement effective October 1, 1998 between the Registrant and Gilbert Goldstein, P.C. (incorporated herein by reference to Exhibit 10.1 to the Company's Form 10-Q dated September 30, 2000).* 10.9(a) Form of Restricted Stock Agreement between the Company and certain officers and employees of the Company effective as of November 20, 1998 (incorporated herein by reference to Exhibit 10.10 to the Company's Form 10-K dated December 31, 1998).* 10.9(b) Form of Restricted Stock Agreement between the Company and certain officers and employees of the Company effective as of November 19, 1999 (incorporated herein by reference to Exhibit 10.9(b) to the Company's Form 10-K dated December 31, 1999).* 10.10 M.D.C. Holdings, Inc. Executive Officer Performance-Based Compensation Plan (incorporated herein by reference to Exhibit A to the Company's Proxy Statement dated May 25, 1994 related to the 1994 Meeting of Stockholders).* 10.11 M.D.C. Holdings, Inc. 2000 Executive Option Purchase Program, including form of Promissory Note and Pledge Agreement. 10.12(a) Forms of Promissory Notes and Pledge Agreements dated December 9, 1996 between M.D.C. Holdings, Inc. and Michael Touff and Paris G. Reece III related to amounts advanced to such persons in connection with income taxes due on the portion of their 1996 performance bonuses paid in the form of the Company's common stock (incorporated herein by reference to Exhibit 10.19 of the Company's Annual Report on Form 10-K dated December 31, 1996).* 10.12(b) Forms of Promissory Notes and Pledge Agreements dated December 18, 1997 between the Company and Michael Touff and Paris G. Reece III related to amounts advanced to such persons in connection with income taxes due and the portion of their 1997 performance bonuses paid in the form of the Company's common stock (incorporated herein by reference to Exhibit 10.16(b) of the Company's Annual Report on Form 10-K dated December 31, 1997).* 10.13(a) Employment Agreement between the Company and Larry A. Mizel dated October 1, 1997 (incorporated herein by reference to Exhibit 99.1 of the Company's Form 8-K dated January 14, 1998).* 10.13(b) Employment Agreement between the Company and David D. Mandarich dated October 1, 1997 (incorporated herein by reference to Exhibit 99.2 of the Company's Form 8-K dated January 14, 1998).*
56 10.14(a) Change in Control Agreement between M.D.C. Holdings, Inc. and Paris G. Reece III effective January 26, 1998 (incorporated herein by reference to Exhibit 10.1 to the Company's Form 8-K dated March 27, 1998).* 10.14(b) Change in Control Agreement between M.D.C. Holdings, Inc. and Michael Touff effective January 26, 1998 (incorporated herein by reference to Exhibit 10.2 to the Company's Form 8-K dated March 27, 1998).* 10.14(c) Form of Change in Control Agreement between M.D.C. Holdings, Inc. and certain employees of M.D.C. Holdings, Inc. (incorporated herein by reference to Exhibit 10.3 to the Company's Form 8-K dated March 27, 1998).* 10.15 Independent Contractor Agreement between Mizel Design and Decorating Company and M.D.C. Holdings, Inc. effective as of January 1, 2001. 10.16 M.D.C. Holdings, Inc. 401(k) Savings Plan Prototype Retirement Plan and Trust (incorporated herein by reference to Exhibit 10.1 to the Company's Form 10-Q dated June 30, 1999).* 10.17 M.D.C. Holdings, Inc. 401(k) Savings Plan Prototype Retirement Plan & Trust Adoption Agreement between M.D.C. Holdings, Inc. and Key Trust Company National Association effective as of July 1, 1998 (incorporated herein by reference to Exhibit 10.2 to the Company's Form 10-Q dated June 30, 1999).* 21 Subsidiaries of the Company. 23 Consent of Ernst & Young. 23(a) Consent of PricewaterhouseCoopers
- ---------- * Incorporated herein by reference. EX-10.11 2 d83922ex10-11.txt 2000 EXECUTIVE OPTION PURCHASE PROGRAM 1 EXHIBIT 10.11 M.D.C. HOLDINGS, INC. 2000 EXECUTIVE OPTION PURCHASE PROGRAM 1. Purpose. The purpose of the 2000 Executive Option Purchase Program (the "2000 Program") is to obtain for M.D.C. Holdings, Inc. ("MDC") the benefits inherent in the ownership of its securities by selected executives who are important to the success and growth of the business of MDC and to assist MDC in retaining the services of such executives. 2. Administration. The 2000 Program is to be administered by the Compensation Committee of the Board of Directors of MDC (the "Committee"). The Committee is to have authority, not inconsistent with the 2000 Program, to (a) determine the executives of MDC eligible to participate in the 2000 Program ("Loan Participants"); (b) prescribe the loan documents and any other instruments required under the 2000 Program; (c) interpret the provisions of the 2000 Program; (d) adopt, amend and rescind rules and regulations for the administration of the 2000 Program and for its own acts and proceedings; and (e) decide all questions and settle all controversies and disputes that may arise in connection with the 2000 Program. All decisions, determinations and interpretations of the Committee shall be binding on all parties concerned. 3. Initial Loan Participants. The initial Loan Participants shall be: Larry A. Mizel, David D. Mandarich, Paris G. Reece III and Michael Touff. 4. Use of Loans. Loans made pursuant to the 2000 Program shall be used by the Loan Participants solely to finance a portion of the purchase price of shares of MDC common stock from MDC through the exercise of stock options and applicable taxes resulting from such option exercise. All such purchases of common stock of MDC shall be subject to the terms of the plans or agreements under which the options were granted and any applicable requirements of federal and state securities laws. 5. Collateral. The Loan Participant shall secure any loan under the 2000 Program (the "Loan") by pledging to MDC all the shares (the "Collateral") purchased with the proceeds of the Loan; each such pledge shall be documented by the execution and delivery of a Pledge Agreement substantially in the form attached as Exhibit B, with such changes from time to time, not inconsistent herewith, as the Committee shall determine. 6. Release of Collateral. At any time on or after a Loan Participant makes a principal payment on a Loan, the Loan Participant may require MDC to release a pro-rata portion of the Collateral, with the number of shares to be released determined by multiplying the total number of shares of Collateral securing the Loan as of the date of the payment by a fraction, the numerator of which shall be the amount of any such principal payment and the denominator of which shall be the original principal amount of the Loan secured by the Collateral; provided, however, that releases of Collateral shall be permitted by this Section 6 only if the fair market value of the Collateral retained by MDC after giving effect to a release equals or exceeds the unpaid principal amount of the Loan after giving effect to the principal payment. For this purpose, "fair market value" shall mean the closing price of each share of Collateral on the New York Stock Exchange on the date of the principal payment (or, if no shares were traded on that day, on the next preceding day on which shares were traded), multiplied by the number of shares of Collateral retained by MDC. 7. Amount of Loan. The amount of any Loan made under the 2000 Program shall not exceed 66-2/3% of the sum of (a) the aggregate purchase price of the shares purchased with the proceeds of the Loan, and (b) the amount of any federal and state income taxes calculated at the Loan Participant's marginal tax rate (but in no event greater than 45% in the aggregate) payable by the Loan Participant in connection with such exercise. Subject to Section 8, a Loan Participant is to be eligible for more than one option exercise loan. 2 8. Limitations. The aggregate amount of Loans that may be made to each of Messrs. Mizel and Mandarich shall be $2,000,000 and to each of Messrs. Reece and Touff shall be $500,000; provided, however, that any principal payments made on any Loan shall replenish the amount that may be borrowed hereunder. 9. Promissory Note. Each Loan made hereunder shall be full recourse and shall be evidenced by a Promissory Note substantially in the form of Exhibit A, with such changes from time to time, not inconsistent herewith, as the Committee shall determine. The Promissory Note shall not be subject to any rights of setoff or other similar defenses by the Loan Participant. 10. Interest. Each Loan made hereunder shall bear simple interest at a variable rate per annum, adjusted as of the first day of each calendar month during the term of the Loan, equal to MDC's marginal borrowing cost pursuant to the Amended and Restated Credit Agreement between MDC and the banks named therein dated as of October 8, 1999, or any replacement, substitute or successor credit facility. 11. Term of Loan. Each Loan under the 2000 Program shall mature (the "Maturity Date") on the earlier of: (a) the fifth anniversary date of the Loan; (b) 90 days after the Loan Participant's employment with MDC has been terminated for cause; or (c) one year after the Loan Participant's employment with MDC has been terminated other than for cause. 12. Payments of Interest. Payments of accrued interest only shall be made on April 1 of each year during the term of a Loan hereunder. No principal amortization is required prior to the Maturity Date, except in the event of default and except as described in the last sentence of this Section. All unpaid principal and any accrued but unpaid interest shall be payable in full on the Maturity Date. In addition, on each April 1, a principal payment shall be made in the amount, if any, by which the outstanding aggregate principal amount of Loans to a Loan Participant exceeds the limitations on loan amounts of Section 8 hereof. 13. Prepayment. Notwithstanding any other provision of the 2000 Program and except as required by Section 12, of the 2000 Program, a Loan Participant shall have the option to repay all or any portion of the outstanding balance of the Loan at any time without penalty before the Loan becomes due and payable. Subject to Section 8 hereof, any amounts so repaid shall thereafter be available for use by the Loan Participant. 14. Employment Rights. The adoption of the 2000 Program does not confer upon any Loan Participant any right to continued employment with MDC nor does it interfere in any way with the right of MDC to terminate the employment of any Loan Participant at any time with or without cause. The rights and obligations of a Loan Participant under a Promissory Note are independent of any rights or obligations of the Loan Participant as an employee, officer or director of MDC. 15. Transferability. The rights of a Loan Participant under the 2000 Program shall not be transferable except to the extent the Loan Participant's unexercised options are transferable. 16. Amendment, Modification and Termination of the 2000 Program. The Board of Directors of MDC may at any time terminate and may at any time and from time to time, and in any respect, amend or modify, the 2000 Program; provided, however, that no such action of the Board of Directors of MDC shall in any manner affect any Loan granted prior to such amendment or modification under the 2000 Program without the prior written consent of the Loan Participant. 17. Legal Restrictions. All provisions of the 2000 Program shall be subject to and limited by applicable laws and regulations. 18. Effective Date. The 2000 Program shall be effective as of January 24, 2000. 2 3 Exhibit A to 2000 Executive Option Purchase Program PROMISSORY NOTE , 20 ----------- -- Borrower: ---------------------------- Lender: M.D.C. Holdings, Inc., a Delaware corporation Amount: $ --------------- Maturity Date , 20 ----------- -- For value received, Borrower promises to pay to the order of Lender at Lender's corporate office in Denver, Colorado, the sum of $_____________________ in lawful money of the United States with simple interest thereon from the date hereof until paid, both before and after judgment, computed on the basis of a three hundred sixty-five (365) day year, at a variable rate per annum, adjusted as of the first day of each calendar month during the term of this Promissory Note, equal to Lender's marginal borrowing cost pursuant to the Amended and Restated Credit Agreement between Lender and the banks named therein dated as of October 8, 1999 or any replacement, substitute or successor for such credit agreement. Upon default in payment of any principal or interest when due, whether due at stated maturity, by acceleration, or otherwise, all outstanding principal shall bear interest at a default rate of eighteen percent (18%) per annum from the date when due until paid, both before and after judgment. Payments of accrued interest only shall be made on April 1 of each year during the term of this Promissory Note. In addition, on each April 1, an additional principal payment shall be made in the amount, if any, by which the outstanding aggregate principal amount of loans under the 2000 Program (as defined below) to Borrower exceeds $_________. The principal amount of this Promissory Note and accrued interest shall be payable in full on the earlier of: (a) _________, 20__; (b) 90 days after Borrower's employment with Lender has been terminated for cause; or (c) one year after Borrower's employment with Lender has been terminated other than for cause. All payments shall be applied first to accrued interest and the remainder, if any, to principal. This Promissory Note arises out of the 2000 Executive Option Purchase Program of Lender (the "2000 Program") and is secured pursuant to a Pledge Agreement as required by the 2000 Program. If default occurs in the payment of any principal or interest when due and remains uncured five days after Borrower's receipt of notice thereof, or if any Event of Default (as defined in the Pledge Agreement) occurs under the Pledge Agreement, time being the essence, then the entire unpaid balance, with interest as aforesaid, shall, at the election of the holder hereof and without notice of such election, become immediately due and payable in full and in any such event, Borrower agrees to pay to the holder hereof all collection costs, including reasonable attorney fees and legal expenses, in addition to all other sums due hereunder. Borrower: ----------------------------- ----------------------------- 4 EXHIBIT B TO 2000 EXECUTIVE OPTION PURCHASE PROGRAM PLEDGE AGREEMENT THIS AGREEMENT is entered into as of the ____ day of ________, 20__, by and between M.D.C. Holdings, Inc., a Delaware corporation ("MDC") and _______________________ ("Pledgor"). WHEREAS, MDC has made a loan to Pledgor pursuant to MDC's 2000 Executive Option Purchase Program (the "2000 Program"); and WHEREAS, it is a condition under the Program that Pledgor enter into this Agreement with MDC; NOW, THEREFORE, in consideration of the premises and the mutual promises contained herein, MDC and Pledgor agree as follows: 1. PLEDGE. 1.1 Security Interest. As security for the promissory note of Pledgor of even date herewith in the original principal amount of $______________ (the "Note"), including any renewals or extensions thereof, Pledgor hereby pledges and assigns to MDC and creates in MDC a security interest in all of Pledgor's right, title and interest in and to the shares of common stock of MDC represented by the stock certificates listed on Schedule 1 to this Agreement (the "Pledged Shares") together with all rights and privileges of Pledgor with respect thereto, all proceeds, income and profits thereof and all property received in addition thereto, in exchange thereof or in substitution therefor (the "Collateral"). 1.2 Stock Dividends, Options, or Other Adjustments. If the Pledged Shares or any additional shares of capital stock, instruments, or other property distributable on or by reason of the Collateral, shall come into the possession or control of Pledgor, and such property is such that a security interest therein can be perfected only by possession by MDC, Pledgor shall hold the same in trust and forthwith transfer and deliver the same to MDC subject to the provisions hereof. Notwithstanding the above, absent an Event of Default, Pledgor shall retain the right to vote all of the shares held as Collateral and to receive all dividends declared on all shares of the Collateral. 1.3 Delivery of Share Certificates; Stock Powers. The stock certificates representing the Pledged Shares have been delivered to MDC. Pledgor shall promptly deliver to MDC share certificates or other documents representing Collateral acquired or received after the date of this Agreement with stock powers duly executed by Pledgor. If at any time MDC notifies Pledgor that additional stock powers endorsed in blank held by MDC with respect to the Collateral are required, Pledgor shall promptly execute in blank and deliver such stock powers as MDC may request. 1.4 Power of Attorney. Pledgor hereby constitutes and irrevocably appoints MDC, with full power of substitution and revocation by MDC, as Pledgor's true and lawful attorney-in-fact, to the full extent permitted by law, at any time or times when an Event of Default (as defined below) has occurred and is continuing, to affix to certificates and documents representing the Collateral the stock powers delivered with respect thereto, to transfer or cause the transfer of the Collateral or any part thereof on the books of MDC to the name of MDC or MDC's nominee and thereafter exercise as to such Collateral all the rights, powers and remedies of an owner. The power of attorney granted pursuant to this Agreement and all authority hereby conferred are granted and conferred solely to protect MDC's interest in the Collateral and shall not impose any duty upon MDC to exercise any power. This power of attorney shall be irrevocable as one coupled with an interest. 5 2. REPRESENTATIONS OF PLEDGOR. 2.1 Pledgor represents and warrants to MDC that: 2.2 Ownership. Pledgor is the sole legal and beneficial owner of, and has good and marketable title to, the Pledged Shares listed as being owned by him on Schedule 1, free and clear of all pledges, liens, security interests and other encumbrances other than the security interest created by this Agreement, and Pledgor has the unqualified right and authority to execute this Agreement and to pledge the Collateral to MDC as provided for herein. 2.3 Other Rights. There are no outstanding options, warrants or other agreements with respect to the Pledged Shares, other than this Agreement. 2.4 Compliance. The execution and delivery of this Agreement by Pledgor, and the performance by Pledgor of his obligations hereunder, will not result in a violation of any contract, agreement or other obligation to which Pledgor is a party or, to the best knowledge of Pledgor, any law or governmental regulation to which Pledgor is subject. 3. COVENANTS. 3.1 Pledgor covenants to MDC that: 3.2 Sale or Transfer. Unless Pledgor and MDC have made arrangements for the release of all or any part of the Collateral in accordance with Section 6 of the 2000 Program, Pledgor will not sell, transfer or convey any interest in, or suffer or permit any lien or encumbrance to be created upon or with respect to, any of the Collateral (other than as created under this Agreement) during the term of this Agreement. 3.3 Further Actions. Pledgor will, at his own expense, at any time and from time to time at MDC's request, do, make, procure, execute and deliver all acts, things, writings, assurances and other documents as may be reasonably proposed by MDC further to enhance, preserve, establish, demonstrate or enforce MDC's rights, interests and remedies created by, provided in or arising from this Agreement. 4. REMEDIES. 4.1 Events of Default. "Event of Default" means any one of the following events: (A) the occurrence of any event of default under the Note which has not been cured within the applicable cure period, or (B) default in the performance, or breach, of any covenant, representation or warranty of Pledgor in this Agreement, and continuance of such default or breach for a period of 30 days after MDC has given such Pledgor written notice specifying such default or breach and requiring it to be remedied. 4.2 Actions by MDC. If an Event of Default occurs and is continuing, then and in every such case MDC may take any one or more of the following actions: 6 (A) MDC may, upon two business days' notice, cause the Collateral to be transferred to its name or to the name of its nominee or nominees and thereafter exercise as to such Collateral all of the rights, powers and remedies of an owner; (B) MDC may, upon two business days' notice, collect by legal proceedings or otherwise all dividends, interest, principal payments, capital distributions and other sums now or hereafter payable on account of said Collateral, and hold the same as part of the Collateral, or apply the same to the Note in such manner as MDC may decide in its sole and absolute discretion; (C) MDC may, upon two business days' notice, enter into any extension, subordination, reorganization, deposit, merger, or consolidation agreement, or any other agreement relating to or affecting the Collateral, and in connection therewith deposit or surrender control of such Collateral thereunder, and accept other property in exchange therefor and hold and apply such property or money so received in accordance with the provisions hereof; (D) At any time, upon two business days' notice, after Pledgor's failure to pay the same, MDC may discharge any taxes, liens, security interests or other encumbrances levied or placed on the Collateral, pay for the maintenance and preservation of the Collateral, or pay for insurance on the Collateral; the amount of such payments, plus any and all fees, costs and expenses of MDC (including reasonable attorneys' fees and disbursements) in connection therewith, shall, at MDC's option, be reimbursed by Pledgor on demand, with interest thereon to be calculated pursuant to the Note from the date paid by MDC. (E) MDC shall have all the rights and remedies of a secured party under the Uniform Commercial Code of Colorado. 4.3 Remedies Cumulative and Nonexclusive. All of MDC's rights and remedies, including, but not limited to the foregoing, shall be cumulative and not exclusive and shall be enforceable alternatively, successively or concurrently as MDC may deem expedient. 4.4 Consents and Approvals. If any consent, approval or authorization of any state, municipal or other governmental department, agency or authority should be necessary to effectuate any sale or other disposition of the Collateral, or any partial disposition of the Collateral, Pledgor will execute all such applications and other instruments as may be required in connection with securing any such consent, approval or authorization and will otherwise use his best efforts to secure the same. Pledgor further agrees to use Pledgor's best efforts to secure such sale or other disposition of the Collateral as MDC may deem necessary pursuant to the terms of this Agreement. 4.5 Assignment and Transfer. Upon any sale or other disposition, MDC shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral so sold or disposed of. Each purchaser at any such sale or other disposition (including MDC) shall hold the Collateral free from any claim or right of whatever kind, including any equity or right of redemption of Pledgor. Pledgor specifically waives, to the extent permitted by applicable law, all rights of redemption, stay or appraisal that he had or may have under any rule of law or statute now existing or hereafter adopted. 4.6 No Obligation. MDC shall not be obligated to make any sale or other disposition, unless the terms thereof shall be satisfactory to it. MDC may, without notice or publication, adjourn any private or public sale, and, upon five days' prior notice to Pledgor, hold such sale at any time or place to which the same may be so adjourned. In case of any sale of all or any part of the Collateral, on credit or for future delivery, the Collateral so sold may be retained by MDC until the selling price is paid by the purchaser 7 thereof, but MDC shall incur no liability in case of the failure of such purchaser to take up and pay for the property so sold and, in case of any such failure, such property may again be sold as herein provided. 4.7 Disposition of Proceeds. The proceeds of any sale or disposition of all or any part of the Collateral shall be applied by MDC in the following order: (A) to the payment in full of the costs and expenses of such sale or sales, collections, and the protection, declaration and enforcement of any security interest granted hereunder including the reasonable compensation of MDC's agents and attorneys; (B) to the payment of the Note in such manner as MDC may elect; and (C) to the payment to Pledgor of any surplus. 4.8 Insufficiency. In the event that the proceeds of any sale or other disposition are insufficient to cover the principal of, and interest on, the Note plus the costs and expenses of the sale or other disposition, Pledgor shall be liable for such deficiency. 5. TERMINATION. This Agreement shall continue in full force and effect as long as any amount remains outstanding under the Note. Subject to any sale or other disposition by MDC of the Collateral or any part thereof pursuant to this Agreement, the Collateral shall be returned to Pledgor upon full indefeasible payment, satisfaction and termination of the Note. A portion of the Collateral shall also be returned to Pledgor as provided in the 2000 Program. 6. EXPENSES OF MDC. All expenses (including reasonable fees and disbursements of counsel) incurred by MDC in connection with any actual or attempted sale or exchange of, or any enforcement, collection, compromise or settlement respecting, the Collateral, or any other proceeding or action taken by MDC hereunder whether directly or as attorney-in-fact pursuant to a power of attorney or other authorization herein conferred, and regardless of whether any litigation or proceeding is commenced for the purpose of satisfaction of the liability of Pledgor for failure to pay his or her obligations or as additional amounts owing by Pledgor to cover MDC's costs of acting against the Collateral, shall be deemed an obligation of Pledgor for all purposes of this Agreement, and MDC may apply the Collateral to payment of or reimbursement of itself for such liability. 7. MISCELLANEOUS. 7.1 Assignability of Rights. Pledgor may not assign any of his rights under this Agreement, and any attempted assignment shall be void and considered a default under this Agreement. The provisions of this Agreement which are for MDC's benefit as a holder of the Collateral are also for the benefit of, and enforceable by any subsequent holder of the Note or the Collateral. 7.2 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by telecopy or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified by like notice): 8 (A) if to MDC: MDC Holdings, Inc. 3600 South Yosemite, Suite 900 Denver, Colorado 80237 Attention: General Counsel (B) if to Pledgor: ------------------------------ ------------------------------ ------------------------------ ------------------------------ 7.3 Entire Agreement. Except as expressly set forth herein, this Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both written and oral, between the parties with respect to the subject matter hereof; provided, however, that to the extent this Agreement is inconsistent with the 2000 Program, the provisions of the 2000 Program shall control. 7.4 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Colorado regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. No provision of this Agreement shall be construed against any party by reason of that party having drafted the same. 7.5 Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. 7.6 Severability; Enforceability. If any term or provision of this Agreement or any application thereof shall be invalid or enforceable, the remainder of this Agreement and any other application of such term or provision shall not be affected thereby. 7.7 Attorneys' Fees. In the event of any dispute among the parties hereto relating to the subject matter of this Agreement, the out-of-pocket costs and reasonable attorneys' fees of the prevailing party shall be paid by the other party in addition to any other relief. 7.8 Amendment. This Agreement may not be supplemented, modified or amended except by an instrument in writing signed by the parties hereto. 7.9 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.10 No Obligation. MDC and its assigns shall use reasonable care in holding the Collateral and shall hold and dispose of the same in accordance with the terms of this Agreement. IN WITNESS WHEREOF, MDC has caused this Agreement to be executed, and Pledgor has executed this Agreement, as of the date first written above. M.D.C. HOLDINGS, INC. By: ---------------------------- Its: ---------------------------- PLEDGOR By: ---------------------------- Title: ------------------------- 9 Schedule 1 to Pledge Agreement PLEDGED SHARES
Stock Cent. Number of Number Shares - --------- --------- -- ------------ -- ------------
EX-10.15 3 d83922ex10-15.txt INDEPENDENT CONTRACTOR AGREEMENT 1 EXHIBIT 10.15 INDEPENDENT CONTRACTOR AGREEMENT THIS AGREEMENT (the "Agreement") is effective as of the 1st day of January 2001 and is between MIZEL DESIGN AND DECORATING COMPANY ("Consultant") and M.D.C. HOLDINGS, INC. (the "Company"). 1. ENGAGEMENT. The Company hereby engages Consultant as an independent contractor to perform the services specified in Paragraph 3 below for the Company. 2. TERM. The term of this Agreement shall be for a period beginning on January 1, 2001 and ending December 31, 2001, unless previously terminated pursuant to Paragraph 8 below. This Agreement shall be automatically renewed on January 1 of each successive year for a one-year term unless previously terminated by either party pursuant to Paragraph 8 below. 3. RESPONSIBILITIES. Commencing on January 1, 2001, Consultant shall perform consulting services as are reasonably requested by the Company in those areas described on Exhibit A attached hereto and incorporated by this reference. Consultant shall be responsible and report to the Company's Chief Operating Officer at the Company's Denver, Colorado headquarters. 4. BEST EFFORTS. Consultant shall use its best efforts to competently and expeditiously perform its responsibilities under this Agreement. Consultant shall, while on Company premises, and at all other times while performing its responsibilities under this Agreement, observe, abide by and comply with all corporate policies and procedures of the Company. Consultant shall not commit any act or make any statements that would be damaging to the reputation and good will of the Company. 5. OBLIGATIONS OF THE COMPANY. During the term of this Agreement, the Company shall reimburse Consultant for all reasonable business expenses incurred by Consultant's personnel in connection with performance of Consultant's services. Reimbursement of such expenses shall be made and documented in accordance with Company's normal expense reimbursement policies and procedures. 6. COMPENSATION. Subject to paragraph 8.d. below, Consultant shall be paid $20,000.00 per month for the term of this Agreement. Payments hereunder shall be made semi-monthly, two weeks in arrears. 7. CONFIDENTIALITY OF INFORMATION. Consultant recognizes and acknowledges that it will have access to certain confidential information of the Company, its subsidiaries and affiliated companies, and that such information constitutes valuable, special and unique property of the Company, its subsidiaries and affiliated companies. Consultant agrees that, during its engagement by the Company 1 2 and after the termination of such engagement (voluntarily or involuntarily), it will not use, disclose or otherwise permit, and will take all reasonable precautions to prevent any person, firm, corporation, or other entity, access to the confidential information of the Company, except to authorized representatives of the Company, its subsidiaries and affiliated or related companies, and except as authorized by the Company. 8. TERMINATION. a. The Company shall have the right to terminate Consultant's engagement hereunder immediately, without liability or damages, upon the occurrence of any one of the following: (i) In the event Consultant engages in fraud, dishonesty or any other act of misconduct; or (ii) In the event of a material breach by Consultant of any of the terms of this Agreement. b. The Company or Consultant may terminate this Agreement for any reason, with or without cause, upon thirty days prior notice. c. In the event of termination pursuant to this Paragraph 8, Consultant's compensation for the month in which termination occurs shall be pro rated to the date of actual termination. 9. DISPUTE. In the event of a dispute, controversy or claim arising out of or relating to this Agreement, such matter shall be settled by arbitration in Denver, Colorado, such arbitration to be conducted before a panel of three arbitrators, one of whom shall be appointed by the Company, one by Consultant, and the third to be appointed by the first two arbitrators. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators that shall be conducted as provided for in this Paragraph 9. Judgment upon the award rendered by the arbitrators shall be final and binding on the parties and may be entered in any court having jurisdiction thereof. The arbitrators shall divide all costs incurred in conducting their arbitration in their final award in accordance with what they deem just and equitable under the circumstances. In an appropriate case, the arbitrators shall be entitled to order equitable remedies. 10. INDEPENDENT CONTRACTOR STATUS. The relationship of the Consultant to the Company shall be that of an independent contractor. Nothing in this Agreement is intended or shall be construed to create an employer-employee relationship, joint venture relationship or partnership, expressly or by implication. It is expressly understood and agreed that the payments contemplated by this agreement are to be considered and treated as payment for services rendered to the Company by Consultant as an independent contractor and the Company shall have no responsibility whatsoever to Consultant with respect to vacation pay, sick leave, medical benefits, retirement benefits, 2 3 disability benefits, unemployment benefits or any other employer or fringe benefit. Consultant shall be responsible for all local, state, federal and self-employment taxes on the payments made to him by the Company. 11. MISCELLANEOUS. a. Consultant may not assign any of its rights or obligations under this Agreement. b. Failure to insist upon strict compliance with any provisions hereof shall not be deemed a waiver of such provision or any other provision hereof. c. The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provision. d. As to the subject matter of this Agreement, there are no oral agreements or understandings that limit, expand, or otherwise pertain to these matters. This Agreement includes the entire agreement between the parties hereto relative to the subject matter hereof and supersedes all prior understandings and agreements with respect thereto. e. Any notice which is required or permitted to be given under this Agreement shall be given by personal delivery or certified mail, return receipt requested, and directed to the respective party at its last known address. Unless and until changed, the address of the parties shall be as follows: TO: Company M.D.C. Holdings, Inc. 3600 S. Yosemite Street, #900 Denver, Colorado 80237 Attention: Chief Operating Officer TO: Consultant Mizel Design and Decorating Company Suite 810 3600 S. Yosemite Street Denver, Colorado 80237 Attention: Carol Mizel All notices shall be deemed given on the date of personal delivery or, if mailed postage prepaid by certified mail, return receipt requested, on the date of delivery appearing on the return receipt therefore. f. This Agreement cannot be changed or modified except by a written instrument executed by both parties. 3 4 g. This Agreement shall be deemed to have been made and shall be construed and interpreted in accordance with the laws of the state of Colorado. h. This Agreement shall be binding upon and shall inure to the benefit of the parties and their successors and permitted assigns. IN WITNESS WHEREOF, the undersigned parties have caused this agreement to be executed as of the day and year first above written. Signed: CONSULTANT: MIZEL DESIGN AND DECORATING COMPANY By: Date: ---------------------------- ---------------------------- Title: ------------------------ M.D.C. HOLDINGS, INC. By: Date: ---------------------------- ---------------------------- Title: ------------------------ 4 5 EXHIBIT A. Consultant's responsibilities shall include services with respect to the following: 1. Corporate and Consumer Marketing 2. Merchandising 3. Interior Design and Space Planning 4. Human Resources Development 5. Product 6. Project Genesis 7. Meetings 8. Such other matters as may be requested by the Company's Senior Management EX-21 4 d83922ex21.txt SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21 EXHIBIT A SUBSIDIARIES OF M.D.C. HOLDINGS, INC. AMERICAN HOME INSURANCE AGENCY, INC. AMERICAN HOME TITLE AND ESCROW COMPANY ASFC-W, INC. ASW FINANCE COMPANY BELCORP-1, INC. BELCORP-2, INC. DESIGNER DOOR & MILLWORK OF CALIFORNIA, INC. ENERWEST, INC. FINANCIAL ASSET MANAGEMENT CORPORATION GREENWAY FARMS DEVELOPMENT CORPORATION HOMEAMERICAN MORTGAGE CORPORATION LION INSURANCE COMPANY LION WARRANTY CORPORATION MDC/WOOD, INC. M.D.C. ACCEPTANCE CORPORATION MDC.COM, INC. M.D.C. FINANCIAL CORPORATION MDC HOLDINGS, INC. CHARITABLE FOUNDATION M.D.C. HOME FINANCE CORPORATION M.D.C. INSTITUTIONAL RESIDUALS, INC. M.D.C. LAND CORPORATION M.D.C. MORTGAGE FINANCE, INC. M.D.C. MORTGAGE FUNDING CORPORATION II M.D.C. RESIDUAL HOLDINGS, INC. RICHMOND AMERICAN CONSTRUCTION, INC. RICHMOND AMERICAN HOMES OF ARIZONA, INC. RICHMOND AMERICAN HOMES OF CALIFORNIA, INC. RICHMOND AMERICAN HOMES OF COLORADO, INC. RICHMOND AMERICAN HOMES OF MARYLAND, INC. RICHMOND AMERICAN HOMES OF NEVADA, INC. RICHMOND AMERICAN HOMES OF NORTHERN CALIFORNIA, INC. RICHMOND AMERICAN OF POTOMAC KNOLLS NO. 1, INC. RICHMOND AMERICAN OF POTOMAC KNOLLS NO. 2, INC. RICHMOND AMERICAN OF POTOMAC KNOLLS NO. 3, INC. RICHMOND AMERICAN OF POTOMAC KNOLLS NO. 4, INC. RICHMOND AMERICAN OF POTOMAC KNOLLS NO. 5, INC. RICHMOND AMERICAN OF POTOMAC KNOLLS NO. 6, INC. RICHMOND AMERICAN HOMES OF TEXAS, INC. RICHMOND AMERICAN HOMES OF VIRGINIA, INC. RICHMOND AMERICAN HOMES OF WEST VIRGINIA, INC. RICHMOND HOMES LIMITED RICHMOND MANAGEMENT OF COLORADO, INC. RICHMOND SHELF, INC. RICHMOND REALTY, INC. THE YEONAS COMPANY YOSEMITE AMERICAN MORTGAGE CORPORATION YOSEMITE FINANCIAL, INC. EX-23 5 d83922ex23.txt CONSENT OF ERNST & YOUNG 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-36631), Form S-3 (No. 333-17035), Form S-3 (No. 033-59703), Form S-3 (No. 033-54007), Form S-8 (No. 333-53199), Form S-8 (No. 333-22371), and Form S-8 (No. 333-22167), of M.D.C. Holdings, Inc. and in the related Prospectuses of our report dated January 15, 2001, except for Note S, as to which the date is January 22, 2001, with respect to the consolidated financial statements of M.D.C. Holdings, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2000. /s/ERNST & YOUNG LLP Denver, Colorado February 8, 2001 EX-23.(A) 6 d83922ex23-a.txt CONSENT OF PRICEWATERHOUSECOOPER 1 EXHIBIT 23(a) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-36631), Form S-3 (No. 333-17035), Form S-3 (No. 033-59703), Form S-3 (No. 033-54007), Form S-8 (No. 333-53199), Form S-8 (No. 333-22371), and Form S-8 (No. 333-22167), of M.D.C. Holdings, Inc. of our report dated January 17, 2000, except Note S, as to which the date is January 22, 2001, with respect to the consolidated financial statements of M.D.C. Holdings, Inc. as of December 31, 1999 and for each of the two years in the period ended December 31, 1999, which is included in this Annual Report on Form 10-K. /s/PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Denver, Colorado February 8, 2001 -----END PRIVACY-ENHANCED MESSAGE-----