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EX-32.2 - EXHIBIT 32.2 - MDC HOLDINGS INCex_97505.htm
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EX-31.2 - EXHIBIT 31.2 - MDC HOLDINGS INCex_97503.htm
EX-31.1 - EXHIBIT 31.1 - MDC HOLDINGS INCex_97502.htm
 

 



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 (Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2017

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File No. 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.)

 

4350 South Monaco Street, Suite 500

 

80237

Denver, Colorado

 

(Zip code)

(Address of principal executive offices)

   

 

(303) 773-1100 

(Registrant's telephone number, including area code)

 

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    No  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes    No  

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

  

  

Accelerated Filer

  

Non-Accelerated Filer

  

  (Do not check if a smaller reporting company)

  

Smaller Reporting Company

  

Emerging growth company

  

 

       

 

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No  

 

As of November 1, 2017, 51,943,156 shares of M.D.C. Holdings, Inc. common stock were outstanding.

 

 

 

M.D.C. HOLDINGS, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2017

 

INDEX

 

 

 

 

Page
No.

Part I. Financial Information:

 

       

 

Item 1.

Unaudited Consolidated Financial Statements:

 

       

 

 

Consolidated Balance Sheets at September 30, 2017 and December 31, 2016

  1

       

 

 

Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2017 and 2016

  2

       

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016

  3

       

 

 

Notes to Unaudited Consolidated Financial Statements

  4

       

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

       

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

44

       

 

Item 4.

Controls and Procedures

45

   

Part II. Other Information:

 

       

 

Item 1.

Legal Proceedings

46

       

 

Item 1A.

Risk Factors

46

       

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

47

       

 

Item 6.

Exhibits

48

     

 

Signature

48

 

 

 

PART I

 

ITEM 1.     Unaudited Consolidated Financial Statements

 

M.D.C. HOLDINGS, INC.

Consolidated Balance Sheets.

 

   

September 30,

   

December 31,

 
   

2017

   

2016

 

 

 

(Dollars in thousands, except

 
   

per share amounts)

 
    (Unaudited)          

ASSETS

             
               

Homebuilding:

 

 

         

Cash and cash equivalents

  $ 351,399     $ 259,087  

Marketable securities

    -       59,770  

Restricted cash

    8,723       3,778  

Trade and other receivables

    42,904       42,492  

Inventories:

               

Housing completed or under construction

    969,419       874,199  

Land and land under development

    863,002       884,615  

Total inventories

    1,832,421       1,758,814  

Property and equipment, net

    26,304       28,041  

Deferred tax asset, net

    64,164       74,888  

Metropolitan district bond securities (related party)

    -       30,162  

Prepaid and other assets

    72,808       60,463  

Total homebuilding assets

    2,398,723       2,317,495  

Financial Services:

               

Cash and cash equivalents

    26,419       23,822  

Marketable securities

    40,221       36,436  

Mortgage loans held-for-sale, net

    89,804       138,774  

Other assets

    11,135       12,062  

Total financial services assets

    167,579       211,094  

Total Assets

  $ 2,566,302     $ 2,528,589  

LIABILITIES AND EQUITY

               

Homebuilding:

               

Accounts payable

  $ 49,390     $ 42,088  

Accrued liabilities

    151,661       144,566  

Revolving credit facility

    15,000       15,000  

Senior notes, net

    842,532       841,646  

Total homebuilding liabilities

    1,058,583       1,043,300  

Financial Services:

               

Accounts payable and accrued liabilities

    51,697       50,734  

Mortgage repurchase facility

    65,103       114,485  

Total financial services liabilities

    116,800       165,219  

Total Liabilities

    1,175,383       1,208,519  

Stockholders' Equity

               

Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued or outstanding

    -       -  

Common stock, $0.01 par value; 250,000,000 shares authorized; 51,933,969 and 51,485,090 issued and outstanding at September 30, 2017 and December 31, 2016, respectively

    519       515  

Additional paid-in-capital

    995,132       983,532  

Retained earnings

    392,442       313,952  

Accumulated other comprehensive income

    2,826       22,071  

Total Stockholders' Equity

    1,390,919       1,320,070  

Total Liabilities and Stockholders' Equity

  $ 2,566,302     $ 2,528,589  

 

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

 

 

 

M.D.C. HOLDINGS, INC.

Consolidated Statements of Operations and Comprehensive Income

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2017

   

2016

   

2017

   

2016

 
   

(Dollars in thousands, except per share amounts)

 
   

(Unaudited)

 

Homebuilding:

                               

Home sale revenues

  $ 584,947     $ 575,722     $ 1,796,046     $ 1,541,337  

Land sale revenues

    1,340       2,290       2,938       4,930  

Total home and land sale revenues

    586,287       578,012       1,798,984       1,546,267  

Home cost of sales

    (485,147 )     (481,511 )     (1,493,166 )     (1,287,373 )

Land cost of sales

    (1,259 )     (2,318 )     (2,672 )     (4,197 )

Inventory impairments

    (4,540 )     (4,700 )     (9,390 )     (6,300 )

Total cost of sales

    (490,946 )     (488,529 )     (1,505,228 )     (1,297,870 )

Gross margin

    95,341       89,483       293,756       248,397  

Selling, general and administrative expenses

    (69,102 )     (61,904 )     (206,109 )     (182,621 )

Interest and other income

    54,548       1,869       59,722       5,358  

Other expense

    (618 )     (1,558 )     (1,635 )     (2,463 )

Other-than-temporary impairment of marketable securities

    -       (215 )     (51 )     (934 )

Homebuilding pretax income

    80,169       27,675       145,683       67,737  
                                 

Financial Services:

                               

Revenues

    17,464       17,408       54,516       44,248  

Expenses

    (8,849 )     (7,955 )     (25,247 )     (21,739 )

Interest and other income

    925       1,035       3,142       2,648  

Other-than-temporary impairment of marketable securities

    (29 )     (111 )     (160 )     (111 )

Financial services pretax income

    9,511       10,377       32,251       25,046  
                                 

Income before income taxes

    89,680       38,052       177,934       92,783  

Provision for income taxes

    (28,517 )     (11,693 )     (60,651 )     (29,948 )

Net income

  $ 61,163     $ 26,359     $ 117,283     $ 62,835  
                                 

Other comprehensive income (loss) related to available for sale securities, net of tax

    (23,175 )     1,028       (19,245 )     3,871  

Comprehensive income

  $ 37,988     $ 27,387     $ 98,038     $ 66,706  
                                 

Earnings per share:

                               

Basic

  $ 1.18     $ 0.51     $ 2.27     $ 1.22  

Diluted

  $ 1.16     $ 0.51     $ 2.23     $ 1.22  
                                 

Weighted average common shares outstanding:

                               

Basic

    51,650,360       51,297,132       51,502,986       51,286,844  

Diluted

    52,601,118       51,460,446       52,248,377       51,297,765  
                                 

Dividends declared per share

  $ 0.25     $ 0.24     $ 0.75     $ 0.72  

 

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

 

 

 

M.D.C. HOLDINGS, INC.

Consolidated Statements of Cash Flows

 

   

Nine Months Ended

 
   

September 30,

 
   

2017

   

2016

 
   

(Dollars in thousands)

 
   

(Unaudited)

 

Operating Activities:

               

Net income

  $ 117,283     $ 62,835  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

               

Stock-based compensation expense

    3,100       6,636  

Depreciation and amortization

    4,205       3,702  

Inventory impairments

    9,390       6,300  

Other-than-temporary impairment of marketable securities

    211       1,045  

Gain on sale of marketable securities

    (18,122 )     (911 )

Gain on sale of metropolitan district bond securities (related party)

    (35,847 )     -  

Deferred income tax expense

    22,795       11,357  

Net changes in assets and liabilities:

               

Restricted cash

    (4,945 )     (871 )

Trade and other receivables

    119       (21,679 )

Mortgage loans held-for-sale

    48,970       (2,319 )

Housing completed or under construction

    (101,997 )     (229,739 )

Land and land under development

    19,886       141,131  

Prepaid expenses and other assets

    (11,229 )     (4,573 )

Accounts payable and accrued liabilities

    15,345       18,183  

Net cash provided by (used in) operating activities

    69,164       (8,903 )
                 

Investing Activities:

               

Purchases of marketable securities

    (17,604 )     (28,272 )

Sales of marketable securities

    83,315       56,873  

Proceeds from sale of metropolitan district bond securities (related party)

    44,253       -  

Purchases of property and equipment

    (1,917 )     (3,865 )

Net cash provided by investing activities

    108,047       24,736  
                 

Financing Activities:

               

Advances (payments) on mortgage repurchase facility, net

    (49,382 )     3,400  

Dividend payments

    (38,793 )     (36,763 )

Payments of deferred financing costs

    (2,630 )     -  

Proceeds from exercise of stock options

    8,503       -  

Net cash used in financing activities

    (82,302 )     (33,363 )
                 

Net increase (decrease) in cash and cash equivalents

    94,909       (17,530 )

Cash and cash equivalents:

               

Beginning of period

    282,909       180,988  

End of period

  $ 377,818     $ 163,458  

 

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

 

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

1.

Basis of Presentation

 

The Unaudited Consolidated Financial Statements of M.D.C. Holdings, Inc. ("MDC," “the Company," “we,” “us,” or “our,” which refers to M.D.C. Holdings, Inc. and its subsidiaries) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Accordingly, they do not include all information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of MDC at September 30, 2017 and for all periods presented. These statements should be read in conjunction with MDC’s Consolidated Financial Statements and Notes thereto included in MDC’s Annual Report on Form 10-K for the year ended December 31, 2016.

 

On November 21, 2016, MDC’s board of directors declared a 5% stock dividend that was distributed on December 20, 2016 to shareholders of record on December 6, 2016. In accordance with Accounting Standards Codification (“ASC”) Topic 260, Earnings Per Share (“ASC 260”), basic and diluted earnings per share amounts, share amounts and dividends declared per share have been restated for any periods or dates prior to the stock dividend record date.

 

Included in these footnotes are certain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects. These forward-looking statements may be identified by terminology such as “likely,” “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this section are reasonable, we cannot guarantee future results. These 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 those expressed or implied by the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be considered.

 

 

2.

Recently Issued Accounting Standards

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers ("ASU 2014-09") and created ASC Topic 606 (“ASC 606”), which is a comprehensive new revenue recognition model. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. ASU 2014-09 is effective for our interim and annual reporting periods beginning January 1, 2018, and is to be adopted using either a full retrospective or modified retrospective transition method. We intend to adopt the new standard under the modified retrospective approach in the 2018 first quarter.

 

Although we are still in the process of evaluating our contracts and updating our accounting policies, we do not believe the adoption of ASC 606 will have a material impact on the amount or timing of our recognition of revenues. There are certain markets where we are unable to complete certain performance obligations (generally landscaping) at the time of closing due to weather. Based on ASC 606, we have concluded that we will defer revenue and the related cost of sales specific to the unfulfilled performance obligations until it is delivered to the homeowner, which is different than our current accounting treatment. We anticipate that these adjustments to revenue and cost of sales will be immaterial each quarter. ASC 606 also will impact our accounting for land sales. Currently we include the proceeds from land sales in land sale revenues in the homebuilding section of our consolidated statements of operations and comprehensive income and include the associated costs in land cost of sales. Under ASC 606, we have concluded that the entities that we typically sell land to will likely not meet the definition of a customer. In those instances in which our land is sold to a non-customer, our gain (loss) from the sale of the land will now be included in interest and other income in the homebuilding section of our consolidated statements of operations and comprehensive income. However, these sales are infrequent and, as such, each contract and the classification of the transaction will be evaluated when executed.

 

In addition, ASU 2014-09 eliminates the guidance in ASC Topic 970, Real Estate, that currently prescribes the accounting for costs incurred to sell real estate projects. We will apply the new guidance in ASC Topic 340-40, Other Assets and Deferred Costs — Contracts With Customers (“ASC 340-40), to these costs. Under ASC 340-40, incremental costs of obtaining a contract with a customer (i.e., costs that would not have been incurred if the contract had not been obtained) will be recognized as an asset only if we expect to recover them. We are still evaluating the accounting for marketing costs under ASC 340-40, but have concluded that marketing costs that were previously capitalized to a deferred marketing asset will now either be expensed as incurred or will be capitalized to fixed assets and amortized over the life of the community. As a result of this change, the timing of recognition and classification of certain marketing costs will change from the current accounting treatment. We are continuing to evaluate the exact dollar impact ASU 2014-09 will have on recording revenue and our marketing costs in our consolidated financial statements and related disclosures.

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which makes a number of changes to the current GAAP model, including changes to the accounting for equity investments and financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. Under ASU 2016-01, we will primarily be impacted by the changes to accounting for equity instruments with readily determinable fair values as they will no longer be permitted to be classified as available-for-sale (changes in fair value reported through other comprehensive income) and instead, all changes in fair value will be reported in earnings. ASU 2016-01 is effective for our interim and annual reporting periods beginning January 1, 2018 and is to be applied using a modified retrospective transition method. As discussed below, during the 2017 third quarter, we sold a significant portion of our investments in equity securities, but there is a possibility we will purchase additional equity securities in the future. If we do have a material amount of investments in equity securities after the date of adoption, we expect that the impact to our consolidated statements of operations and comprehensive income from this update could be material. Furthermore, depending on trends in the stock market, we may see increased volatility in our consolidated statements of operations and comprehensive income.

 

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which requires a lessee to recognize a right-of-use asset and a corresponding lease liability for virtually all leases. The liability will be equal to the present value of the remaining lease payments while the right-of-use asset will be based on the liability, subject to adjustment, such as for initial direct costs. In addition, ASU 2016-02 expands the disclosure requirements for lessees. Upon adoption, we will be required to record a lease asset and lease liability related to our operating leases. ASU 2016-02 is effective for our interim and annual reporting periods beginning January 1, 2019 and is to be applied using a modified retrospective transition method. Early adoption is permitted. We do not plan to early adopt the guidance and we are currently evaluating the impact the update will have on our consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which amends ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities, and classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. ASU 2016-09 became effective for us in the 2017 first quarter. The primary impact from this guidance, on a prospective basis, will be to our provision for income taxes line item on our consolidated statements of operations and comprehensive income. Any excess tax benefits or deficiencies from (1) the exercise or expiration of options or (2) the vesting of stock awards will now be recognized through our income tax provision as opposed to additional paid-in capital (to the extent we had a sufficient pool of windfall tax benefits). As a result of exercises of stock options and vesting of stock awards during the three and nine months ended September 30, 2017, we recognized an excess tax deficiency of $0.0 million and an excess tax benefit of $0.1 million, respectively, in our tax provision for each period. Furthermore, as of September 30, 2017, we had options covering approximately 567,000 shares (1) with exercise prices above the MDC closing share price at September 30, 2017 and (2) that will have their ability to exercise expire at some point during the 2017 fourth quarter. If the exercise price continues to be greater than the share price of MDC throughout 2017, these options will likely expire unexercised and as a result, we could recognize approximately $2.6 million in additional expense in our provision for income taxes line item on our consolidated statements of operations and comprehensive income in 2017. Another provision of ASU 2016-09 that is relevant to the Company is the classification of excess tax benefits on the statement of cash flows, which was adopted on a prospective basis. This provision did not have a material effect on the statement of cash flows and is not expected to have a material impact on the statement of cash flows in future quarterly or annual filings. Adoption of ASU 2016-09 was not material to our statement of cash flows for the periods presented and we do not anticipate it will be material for the year ending December 31, 2017.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held. The amendments in ASU 2016-13 eliminate the probable threshold for initial recognition of a credit loss in current GAAP and reflect an entity’s current estimate of all expected credit losses. ASU 2016-13 is effective for our interim and annual reporting periods beginning January 1, 2021, and is to be applied using a modified retrospective transition method. Earlier adoption is permitted. We do not plan to early adopt ASU 2016-13 and with our current holdings of financial instruments that are subject to credit losses, we do not believe adoption of this guidance will be material to our financial statements.

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) (“ASU 2016-15”), which amends ASC Topic 230, Statement of Cash Flows, to clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. The amendments in ASU 2016-15 are intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for our interim and annual reporting periods beginning January 1, 2018, and is to be applied using a retrospective transition method. Earlier adoption is permitted. We do not plan to early adopt ASU 2016-15 and do not believe the guidance will have a material impact on our statement of cash flows upon adoption.

 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force (“ASU 2016-18”), which requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending amounts on the statement of cash flows. ASU 2016-18 is effective for our interim and annual reporting periods beginning January 1, 2018, and is to be applied using a retrospective transition method. Earlier adoption is permitted. We do not plan to early adopt ASU 2016-18 and do not believe the guidance will have a material impact on our statement of cash flows upon adoption.

 

 

3.

Segment Reporting

 

An operating segment is defined as a component of an enterprise for which discrete financial information is available and is reviewed regularly by the Chief Operating Decision Maker (“CODM”), or decision-making group, to evaluate performance and make operating decisions. We have identified our CODM as two key executives—the Chief Executive Officer (“CEO”) and the Chief Operating Officer (“COO”).

 

We have identified each homebuilding division as an operating segment. Our homebuilding operating segments have been aggregated into the reportable segments noted below because they are similar in the following regards: (1) economic characteristics; (2) housing products; (3) class of homebuyer; (4) regulatory environments; and (5) methods used to construct and sell homes. Our homebuilding reportable segments are as follows:

 

 

West (Arizona, California, Nevada and Washington)

 

Mountain (Colorado and Utah)

 

East (Virginia, Florida and Maryland)

 

Our financial services business consists of the operations of the following operating segments: (1) HomeAmerican Mortgage Corporation (“HomeAmerican”); (2) Allegiant Insurance Company, Inc., A Risk Retention Group (“Allegiant”); (3) StarAmerican Insurance Ltd. (“StarAmerican”); (4) American Home Insurance Agency, Inc.; and (5) American Home Title and Escrow Company. Due to its contributions to consolidated pretax income, we consider HomeAmerican to be a reportable segment (“mortgage operations”). The remaining operating segments have been aggregated into one reportable segment (“other”) because they do not individually exceed 10 percent of: (1) consolidated revenue; (2) the greater of (a) the combined reported profit of all operating segments that did not report a loss or (b) the positive value of the combined reported loss of all operating segments that reported losses; or (3) consolidated assets.

 

Corporate is a non-operating segment that develops and implements strategic initiatives and supports our operating divisions by centralizing key administrative functions such as finance, treasury, information technology, insurance, risk management, litigation and human resources. Corporate also provides the necessary administrative functions to support MDC as a publicly traded company. A portion of the expenses incurred by Corporate are allocated to the homebuilding operating segments based on their respective percentages of assets, and to a lesser degree, a portion of Corporate expenses are allocated to the financial services segments. A majority of Corporate’s personnel and resources are primarily dedicated to activities relating to the homebuilding segments, and, therefore, the balance of any unallocated Corporate expenses is included in the homebuilding operations section of our consolidated statements of operations and comprehensive income.

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

The following table summarizes home and land sale revenues for our homebuilding operations and revenues for our financial services operations.

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2017

   

2016

   

2017

   

2016

 

 

 

(Dollars in thousands)

 

Homebuilding

                               

West

  $ 326,804     $ 284,589     $ 959,641     $ 745,995  

Mountain

    167,066       192,876       564,558       521,034  

East

    92,417       100,547       274,785       279,238  

Total homebuilding revenues

  $ 586,287     $ 578,012     $ 1,798,984     $ 1,546,267  
                                 

Financial Services

                               

Mortgage operations

  $ 11,176     $ 11,294     $ 36,056     $ 28,866  

Other

    6,288       6,114       18,460       15,382  

Total financial services revenues

  $ 17,464     $ 17,408     $ 54,516     $ 44,248  

 

The following table summarizes pretax income (loss) for our homebuilding and financial services operations:

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2017

   

2016

   

2017

   

2016

 

 

 

(Dollars in thousands)

 

Homebuilding

                               

West

  $ 17,746     $ 18,392     $ 54,335     $ 43,830  

Mountain

    18,326       18,856       61,097       49,688  

East

    2,613       (2,267 )     9,989       3,600  

Corporate

    41,484       (7,306 )     20,262       (29,381 )

Total homebuilding pretax income

  $ 80,169     $ 27,675     $ 145,683     $ 67,737  
                                 

Financial Services

                               

Mortgage operations

  $ 5,857     $ 6,723     $ 21,093     $ 16,491  

Other

    3,654       3,654       11,158       8,555  

Total financial services pretax income

  $ 9,511     $ 10,377     $ 32,251     $ 25,046  
                                 

Total pretax income

  $ 89,680     $ 38,052     $ 177,934     $ 92,783  

 

The following table summarizes total assets for our homebuilding and financial services operations. The assets in our West, Mountain and East segments consist primarily of inventory while the assets in our Corporate segment primarily include our cash and cash equivalents, marketable securities and deferred tax assets. The assets in our financial services segment consist mostly of cash and cash equivalents, marketable securities and mortgage loans held-for-sale.

 

   

September 30,

   

December 31,

 
   

2017

   

2016

 

Homebuilding assets

 

(Dollars in thousands)

 

West

  $ 1,052,795     $ 1,035,033  

Mountain

    677,721       571,139  

East

    217,238       256,816  

Corporate

    450,969       454,507  

Total homebuilding assets

  $ 2,398,723     $ 2,317,495  
                 

Financial services assets

               

Mortgage operations

  $ 102,704     $ 153,182  

Other

    64,875       57,912  

Total financial services assets

  $ 167,579     $ 211,094  
                 

Total assets

  $ 2,566,302     $ 2,528,589  

 

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

4. Earnings Per Share     

 

ASC 260 requires a company that has participating security holders (for example, holders of unvested restricted stock that have non-forfeitable dividend rights) to utilize the two-class method for calculating earnings per share (“EPS”) unless the treasury stock method results in lower EPS. The two-class method is an allocation of earnings/(loss) between the holders of common stock and a company’s participating security holders. Under the two-class method, earnings/(loss) for the reporting period are allocated between common shareholders and other security holders based on their respective rights to receive distributed earnings (i.e., dividends) and undistributed earnings (i.e., net income/(loss)). Our common shares outstanding are comprised of shareholder owned common stock and shares of unvested restricted stock held by participating security holders. Basic EPS is calculated by dividing income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding, excluding participating shares in accordance with ASC 260. To calculate diluted EPS, basic EPS is further adjusted to include the effect of potentially dilutive stock options outstanding. The table below shows our basic and diluted EPS calculations.

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2017

   

2016

   

2017

   

2016

 
   

(Dollars in thousands, except per share amounts)

 

Numerator

                               

Net income

  $ 61,163     $ 26,359     $ 117,283     $ 62,835  

Less: distributed earnings allocated to participating securities

    (68 )     (45 )     (196 )     (124 )

Less: undistributed earnings allocated to participating securities

    (244 )     (49 )     (375 )     (83 )

Net income attributable to common stockholders (numerator for basic earnings per share)

    60,851       26,265       116,712       62,628  

Add back: undistributed earnings allocated to participating securities

    244       49       375       83  

Less: undistributed earnings reallocated to participating securities

    (240 )     (49 )     (369 )     (83 )

Numerator for diluted earnings per share under two class method

  $ 60,855     $ 26,265     $ 116,718     $ 62,628  
                                 

Denominator

                               

Weighted-average common shares outstanding

    51,650,360       51,297,132       51,502,986       51,286,844  

Add: dilutive effect of stock options

    950,758       163,314       745,391       10,921  

Denominator for diluted earnings per share under two class method

    52,601,118       51,460,446       52,248,377       51,297,765  
                                 

Basic Earnings Per Common Share

  $ 1.18     $ 0.51     $ 2.27     $ 1.22  

Diluted Earnings Per Common Share

  $ 1.16     $ 0.51     $ 2.23     $ 1.22  

 

Diluted EPS for the three and nine months ended September 30, 2017 excluded options to purchase approximately 0.7 million and 1.1 million shares of common stock, respectively, because the effect of their inclusion would be anti-dilutive. For the same periods in 2016, diluted EPS excluded options to purchase approximately 5.3 million and 6.4 million shares, respectively. The year-over-year decreases for the three and nine months ended September 30, 2017 in anti-dilutive shares and the year-over-year increases in dilutive shares were primarily the result of year-over-year increases in the average price of MDC stock.

 

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

5.

Accumulated Other Comprehensive Income

 

The following table sets forth our changes in accumulated other comprehensive income (“AOCI”):

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2017

   

2016

   

2017

   

2016

 
   

(Dollars in thousands)

 

Unrealized gains on available-for-sale marketable securities 1 :

                               

Beginning balance

  $ 11,176     $ 5,344     $ 7,730     $ 3,657  

Other comprehensive income before reclassifications

    1,778       1,156       6,201       2,559  

Amounts reclassified from AOCI 2

    (10,128 )     (201 )     (11,105 )     83  

Ending balance

  $ 2,826     $ 6,299     $ 2,826     $ 6,299  
                                 

Unrealized gains on available-for-sale metropolitan district bond securities 1 :

                               

Beginning balance

  $ 14,825     $ 13,214     $ 14,341     $ 12,058  

Other comprehensive income before reclassifications

    7,400       73       7,884       1,229  

Amounts reclassified from AOCI

    (22,225 )     -       (22,225 )     -  

Ending balance

  $ -     $ 13,287     $ -     $ 13,287  
                                 

Total ending AOCI

  $ 2,826     $ 19,586     $ 2,826     $ 19,586  

 


 

 

(1)

All amounts net-of-tax.

 

(2)

See separate table below for details about these reclassifications

 

The following table sets forth the activity related to reclassifications out of accumulated other comprehensive income related to available for sale securities:

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

Affected Line Item in the Statements of Operations

 

2017

   

2016

   

2017

   

2016

 
   

(Dollars in thousands)

 

Homebuilding: Interest and other income

  $ 52,211     $ 555     $ 53,622     $ 817  

Homebuilding: Other-than-temporary impairment of marketable securities

    -       (215 )     (51 )     (934 )

Financial services: Interest and other income

    -       94       347       94  

Financial services: Other-than-temporary impairment of marketable securities

    (29 )     (111 )     (160 )     (111 )

Income before income taxes

    52,182       323       53,758       (134 )

Provision for income taxes

    (19,829 )     (122 )     (20,428 )     51  

Net income

  $ 32,353     $ 201     $ 33,330     $ (83 )

 

 

6.

Fair Value Measurements

 

ASC Topic 820, Fair Value Measurements (“ASC 820”), defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs, other than quoted prices in active markets, that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

The following table sets forth the fair values and methods used for measuring the fair values of financial instruments on a recurring basis:

 

          

Fair Value

 

Financial Instrument

 

Hierarchy

   

September 30,

2017

   

December 31,

2016

 
          

(Dollars in thousands)

 

Marketable equity securities (available-for-sale)

 

Level 1

    $ 40,221     $ 96,206  

Mortgage loans held-for-sale, net

 

Level 2

    $ 89,804     $ 138,774  

Metropolitan district bond securities (related party) (available-for-sale)

 

Level 3

    $ -     $ 30,162  

 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments as of September 30, 2017 and December 31, 2016.

 

Cash and cash equivalents, restricted cash, trade and other receivables, prepaid and other assets, accounts payable, accrued liabilities and borrowings on our revolving credit facility. Fair value approximates carrying value.

 

Marketable securities.  As of September 30, 2017 and December 31, 2016, we held marketable equity securities, which consist of holdings in corporate equities, preferred stock and exchange traded funds. As of September 30, 2017 and December 31, 2016, all of our equity securities were treated as available-for-sale investments and as such, are recorded at fair value with all changes in fair value initially recorded through AOCI, subject to an assessment to determine if an unrealized loss, if applicable, is other-than-temporary.

 

Each quarter we assess all of our securities in an unrealized loss position for a potential other-than-temporary impairment (“OTTI”). If the unrealized loss is determined to be other-than-temporary, an OTTI is recorded in other-than-temporary impairment of marketable securities in the homebuilding or financial services sections of our consolidated statements of operations and comprehensive income. During the three and nine months ended September 30, 2017, we recorded pretax OTTI’s of $0.0 million and $0.2 million, respectively, for certain of our equity securities that were in an unrealized loss position as of the end of each respective period. For the same periods in 2016, we recorded pretax OTTI’s of $0.3 million and $1.0 million, respectively.

 

The following tables set forth the cost and estimated fair value of our available-for-sale marketable securities:

 

   

September 30, 2017

 
   

Cost Basis

   

OTTI

   

Net Cost Basis

   

Fair Value

 
   

(Dollars in thousands)

 

Homebuilding equity securities

  $ -     $ -     $ -     $ -  

Financial services equity securities

    36,304       (366 )     35,938       40,221  

Total marketable equity securities

  $ 36,304     $ (366 )   $ 35,938     $ 40,221  

 

   

December 31, 2016

 
   

Cost Basis

   

OTTI

   

Net Cost Basis

   

Fair Value

 
   

(Dollars in thousands)

 

Homebuilding equity securities

  $ 48,910     $ (685 )   $ 48,225     $ 59,770  

Financial services equity securities

    35,885       (373 )     35,512       36,436  

Total marketable equity securities

  $ 84,795     $ (1,058 )   $ 83,737     $ 96,206  

 

As of September 30, 2017 and December 31, 2016, our marketable equity securities were in net unrealized gain positions totaling $4.3 million and $12.5 million, respectively. Our individual marketable equity securities that were in unrealized loss positions, excluding those that were impaired as part of any OTTI, aggregated to an unrealized loss of $0.6 million and $0.5 million as of September 30, 2017 and December 31, 2016, respectively. The table below sets forth the aggregated unrealized losses for individual equity securities that were in unrealized loss positions but did not have OTTIs recognized. We do not believe the decline in the value of these marketable securities as of September 30, 2017 is other-than-temporary.

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

 

   

September 30, 2017

   

December 31, 2016

 
   

Number of

Securities in a

Loss Position

   

Aggregate

Loss Position

   

Aggregate

Fair Value of

Securities in

a Loss

Position

   

Number of

Securities in a

Loss Position

   

Aggregate

Loss Position

   

Aggregate

Fair Value of

Securities in

a Loss

Position

 
   

(Dollars in thousands)

 

Marketable equity securities

    1     $ (615 )   $ 1,384       5     $ (457 )   $ 6,045  

 

The following table sets forth gross realized gains and losses from the sale of available-for-sale marketable securities. We record the net amount of these gains and losses to either other expense or interest and other income, dependent upon whether there is a net realized loss or gain, respectively, in the homebuilding section or financial services section of our consolidated statements of operations and comprehensive income.

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2017

   

2016

   

2017

   

2016

 
   

(Dollars in thousands)

 

Gross realized gains on sales of available-for-sale securities

  $ 16,577     $ 740     $ 18,365     $ 2,210  

Gross realized losses on sales of available-for-sale securities

    (213 )     (91 )     (243 )     (1,299 )

Net realized gain on sales of available-for-sale securities

  $ 16,364     $ 649     $ 18,122     $ 911  

 

Mortgage loans held-for-sale, net.  Our mortgage loans held-for-sale, which are measured at fair value on a recurring basis, include (1) mortgage loans held-for-sale that are under commitments to sell and (2) mortgage loans held-for-sale that are not under commitments to sell. At September 30, 2017 and December 31, 2016, we had $75.3 million and $96.2 million, respectively, of mortgage loans held-for-sale under commitments to sell. The fair value for those loans was based on quoted market prices for those mortgage loans, which are Level 2 fair value inputs. At September 30, 2017 and December 31, 2016, we had $14.5 million and $42.6 million, respectively, of mortgage loans held-for-sale that were not under commitments to sell. The fair value for those loans was primarily based upon the estimated market price received from an outside party, which is a Level 2 fair value input.

 

Gains on sales of mortgage loans, net, are included as a component of revenues in the financial services section of our consolidated statements of operations and comprehensive income. For the three and nine months ended September 30, 2017, we recorded net gains on the sales of mortgage loans of $9.8 million and $28.5 million, respectively, compared to $10.0 million and $22.5 million for the same periods in the prior year, respectively.

 

Metropolitan district bond securities (related party).  The metropolitan district bond securities (the “Metro Bonds”) are included in the homebuilding section of our consolidated balance sheets. We acquired the Metro Bonds from a quasi-municipal corporation in the state of Colorado (the “Metro District”), which was formed to help fund and maintain the infrastructure associated with a master-planned community being developed by our Company. During the 2017 third quarter, we sold the Metro Bonds for net proceeds of $44.3 million. With a cost basis of $8.4 million, we recorded a realized gain of $35.8 million, which is included in interest and other income in the homebuilding section of our consolidated statement of operations and comprehensive income.

 

Mortgage Repurchase Facility. The debt associated with our mortgage repurchase facility (see Note 18 for further discussion) is at floating rates that approximate current market rates and have relatively short-term maturities, generally within 30 days. The fair value approximates carrying value and is based on Level 2 inputs.

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

Senior Notes. The estimated values of the senior notes in the following table are based on Level 2 inputs, which primarily reflect estimated prices for our senior notes which were provided by multiple sources.

 

   

September 30, 2017

   

December 31, 2016

 
   

Carrying
Amount

   

Fair Value

   

Carrying
Amount

   

Fair Value

 
   

(Dollars in thousands)

 

5⅝% Senior Notes due February 2020, net

  $ 247,613     $ 268,113     $ 246,915     $ 265,611  

5½% Senior Notes due January 2024, net

    248,535       270,250       248,391       258,800  

6% Senior Notes due January 2043, net

    346,384       340,423       346,340       297,087  

Total

  $ 842,532     $ 878,786     $ 841,646     $ 821,498  

 

 

7.

Inventories

 

The following table sets forth, by reportable segment, information relating to our homebuilding inventories:

 

   

September 30,

   

December 31,

 
   

2017

   

2016

 
   

(Dollars in thousands)

 

Housing completed or under construction:

               

West

  $ 489,753     $ 470,503  

Mountain

    343,394       277,922  

East

    136,272       125,774  

Subtotal

    969,419       874,199  

Land and land under development:

               

West

    489,758       499,186  

Mountain

    305,953       271,252  

East

    67,291       114,177  

Subtotal

    863,002       884,615  

Total inventories

  $ 1,832,421     $ 1,758,814  

 

Our inventories are primarily associated with communities where we intend to construct and sell homes, including models and unsold homes. Costs capitalized to land and land under development primarily include: (1) land costs; (2) land development costs; (3) entitlement costs; (4) capitalized interest; (5) engineering fees; and (6) title insurance, real property taxes and closing costs directly related to the purchase of the land parcel. Components of housing completed or under construction primarily include: (1) land costs transferred from land and land under development; (2) direct construction costs associated with a house; (3) real property taxes, engineering fees, permits and other fees; (4) capitalized interest; and (5) indirect construction costs, which include field construction management salaries and benefits, utilities and other construction related costs. Land costs are transferred from land and land under development to housing completed or under construction at the point in time that construction of a home on an owned lot begins.

 

In accordance with ASC Topic 360, Property, Plant, and Equipment (“ASC 360”), homebuilding inventories, excluding those classified as held for sale, are carried at cost unless events and circumstances indicate that the carrying value of the underlying subdivision may not be recoverable.  We evaluate inventories for impairment at each quarter end on a subdivision level basis as each such subdivision represents the lowest level of identifiable cash flows. In making this determination, we review, among other things, the following for each subdivision:

 

 

actual and trending “Operating Margin” (which is defined as home sale revenues less home cost of sales and all incremental costs associated directly with the subdivision, including sales commissions and marketing costs);

 

estimated future undiscounted cash flows and Operating Margin;

 

forecasted Operating Margin for homes in backlog;

 

actual and trending net home orders;

 

homes available for sale;

 

market information for each sub-market, including competition levels, home foreclosure levels, the size and style of homes currently being offered for sale and lot size; and

 

known or probable events indicating that the carrying value may not be recoverable.

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

If events or circumstances indicate that the carrying value of our inventory may not be recoverable, assets are reviewed for impairment by comparing the undiscounted estimated future cash flows from an individual subdivision (including capitalized interest) to its carrying value. If the undiscounted future cash flows are less than the subdivision’s carrying value, the carrying value of the subdivision is written down to its then estimated fair value. We generally determine the estimated fair value of each subdivision by determining the present value of the estimated future cash flows at discount rates, which are Level 3 inputs, that are commensurate with the risk of the subdivision under evaluation. The evaluation for the recoverability of the carrying value of the assets for each individual subdivision can be impacted significantly by our estimates of future home sale revenues, home construction costs, and development costs per home, all of which are Level 3 inputs.

 

If land is classified as held for sale, in accordance with ASC 360, we measure it at the lower of the carrying value or fair value less estimated costs to sell. In determining fair value, we primarily rely upon the most recent negotiated price which is a Level 2 input. If a negotiated price is not available, we will consider several factors including, but not limited to, current market conditions, recent comparable sales transactions and market analysis studies. If the fair value less estimated costs to sell is lower than the current carrying value, the land is impaired down to its estimated fair value less costs to sell. 

 

Impairments of homebuilding inventory by segment for the three and nine months ended September 30, 2017 and 2016 are shown in the table below.

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2017

   

2016

   

2017

   

2016

 
   

(Dollars in thousands)

 

West

  $ 1,885     $ -     $ 5,985     $ 1,400  

Mountain

    370       -       370       -  

East

    2,285       4,700       3,035       4,900  

Total inventory impairments

  $ 4,540     $ 4,700     $ 9,390     $ 6,300  

 

The table below provides quantitative data, for the periods presented, used in determining the fair value of the impaired inventory.

 

   

Impairment Data

   

Quantitative Data

 

Three Months Ended

 

Total
Subdivisions
Tested

   

Inventory
Impairments

   

Fair Value of
Inventory

After

Impairments

   

Number of
Subdivisions
Impaired

   

Discount Rate

 
   

(Dollars in thousands)

             

March 31, 2017

    33     $ 4,850     $ 19,952       2       12% to 18%  

June 30, 2017

    35     $ -     $ -       -         N/A    

September 30, 2017

    33     $ 4,540     $ 52,190       9       10% to 15%  
                                             

March 31, 2016

    14     $ -     $ -       -         N/A    

June 30, 2016

    17     $ 1,600     $ 6,415       2       12% to 15%  

September 30, 2016

    25     $ 4,700     $ 12,295       2       15% to 18%  

 

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

8.

Capitalization of Interest

 

We capitalize interest to inventories during the period of development in accordance with ASC Topic 835, Interest (“ASC 835”). Homebuilding interest capitalized as a cost of inventories is included in cost of sales during the period that related units or lots are delivered. To the extent our homebuilding debt exceeds our qualified assets as defined in ASC 835, we expense a portion of the interest incurred. Qualified homebuilding assets consist of all lots and homes, excluding finished unsold homes or finished models, within projects that are actively selling or under development. The table set forth below summarizes homebuilding interest activity. For all periods presented below, our qualified assets exceeded our homebuilding debt and as such, all interest incurred has been capitalized.

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2017

   

2016

   

2017

   

2016

 
   

(Dollars in thousands)

 

Homebuilding interest incurred

  $ 13,212     $ 13,187     $ 39,594     $ 39,511  

Less: Interest capitalized

    (13,212 )     (13,187 )     (39,594 )     (39,511 )

Homebuilding interest expensed

  $ -     $ -     $ -     $ -  
                                 

Interest capitalized, beginning of period

  $ 62,091     $ 77,150     $ 68,085     $ 77,541  

Plus: Interest capitalized during period

    13,212       13,187       39,594       39,511  

Less: Previously capitalized interest included in home and land cost of sales

    (15,087 )     (15,922 )     (47,463 )     (42,637 )

Interest capitalized, end of period

  $ 60,216     $ 74,415     $ 60,216     $ 74,415  

 

 

9.

Homebuilding Prepaid and Other Assets

 

The following table sets forth the components of homebuilding prepaid and other assets:

 

    September 30,     December 31,  
   

2017

   

2016

 
   

(Dollars in thousands)

 

Deferred marketing costs

  $ 37,178     $ 35,313  

Land option deposits

    16,277       8,683  

Goodwill

    6,008       6,008  

Prepaid expenses

    6,011       4,735  

Deferred debt issuance costs on revolving credit facility, net

    6,139       4,340  

Other

    1,195       1,384  

Total

  $ 72,808     $ 60,463  

 

 

10.

Homebuilding Accrued Liabilities and Financial Services Accounts Payable and Accrued Liabilities

 

The following table sets forth information relating to homebuilding accrued liabilities:

 

   

September 30,

   

December 31,

 
   

2017

   

2016

 
   

(Dollars in thousands)

 

Customer and escrow deposits

  $ 37,578     $ 27,183  

Warranty accrual

    20,725       20,678  

Accrued compensation and related expenses

    27,624       27,830  

Accrued interest

    11,031       23,234  

Construction defect claim reserves

    7,480       8,750  

Land development and home construction accruals

    6,212       8,695  

Other accrued liabilities

    41,011       28,196  

Total accrued liabilities

  $ 151,661     $ 144,566  

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

The following table sets forth information relating to financial services accounts payable and accrued liabilities:

 

   

September 30,

   

December 31,

 
   

2017

   

2016

 
   

(Dollars in thousands)

 

Insurance reserves

  $ 43,016     $ 42,204  

Accounts payable and other accrued liabilities

    8,681       8,530  

Total accounts payable and accrued liabilities

  $ 51,697     $ 50,734  

 

 

11.

Warranty Accrual

 

Our homes are sold with limited third-party warranties and, under our agreement with the issuer of the third-party warranties, we are responsible for performing all of the work for the first two years of the warranty coverage and paying for substantially all of the work required to be performed during years three through ten of the warranties. We record accruals for general and structural warranty claims, as well as accruals for known, unusual warranty-related expenditures. Our warranty accrual is recorded based upon historical payment experience in an amount estimated to be adequate to cover expected costs of materials and outside labor during warranty periods. The determination of the warranty accrual rate for closed homes and the evaluation of our warranty accrual balance at period end are based on an internally developed analysis that includes known facts and interpretations of circumstances, including, among other things, our trends in historical warranty payment levels and warranty payments for claims not considered to be normal and recurring.

 

Our warranty accrual is included in accrued liabilities in the homebuilding section of our consolidated balance sheets and adjustments to our warranty accrual are recorded as an increase or reduction to home cost of sales in the homebuilding section of our consolidated statements of operations and comprehensive income.

 

The table set forth below summarizes accrual, adjustment and payment activity related to our warranty accrual for the three and nine months ended September 30, 2017 and 2016. For both the three and nine months ended September 30, 2017, we recorded adjustments to decrease our warranty accrual by $0.4 million. The decreases were driven by an adjustment to a specific warranty accrual where we determined that a portion of the previously accrued amount would be covered by insurance. For the three and nine months ended September 30, 2016, we increased our warranty reserve by $1.8 million and $5.1 million, respectively. The adjustments made during 2016 were due to higher than expected recent warranty related expenditures.

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2017

   

2016

   

2017

   

2016

 
   

(Dollars in thousands)

 

Balance at beginning of period

  $ 20,965     $ 17,217     $ 20,678     $ 15,328  

Expense provisions

    2,448       2,390       7,691       6,147  

Cash payments

    (2,263 )     (2,723 )     (7,269 )     (7,828 )

Adjustments

    (425 )     1,825       (375 )     5,062  

Balance at end of period

  $ 20,725     $ 18,709     $ 20,725     $ 18,709  

 

 

12.

Insurance and Construction Defect Claim Reserves

 

The establishment of reserves for estimated losses associated with insurance policies issued by Allegiant and re-insurance agreements issued by StarAmerican are based on actuarial studies that include known facts and interpretations of circumstances, including our experience with similar cases and historical trends involving claim payment patterns, pending levels of unpaid claims, product mix or concentration, claim severity, frequency patterns depending on the business conducted, and changing regulatory and legal environments. It is possible that changes in the insurance payment experience used in estimating our ultimate insurance losses could have a material impact on our insurance reserves.

 

The establishment of reserves for estimated losses to be incurred by our homebuilding subsidiaries associated with (1) the self-insured retention (“SIR”) portion of construction defect claims that are expected to be covered under insurance policies with Allegiant and (2) the entire cost of any construction defect claims that are not expected to be covered by insurance policies with Allegiant are based on actuarial studies that include known facts similar to those established for our insurance reserves. It is possible that changes in the payment experience used in estimating our ultimate losses for construction defect claims could have a material impact on our reserves.

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

The table set forth below summarizes our insurance and construction defect claim reserves activity for the three and nine months ended September 30, 2017 and 2016. These reserves are included as a component of accrued liabilities in either the financial services or homebuilding sections of the consolidated balance sheets.

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2017

   

2016

   

2017

   

2016

 
   

(Dollars in thousands)

 

Balance at beginning of period

  $ 49,647     $ 46,900     $ 50,954     $ 45,811  

Expense provisions

    2,383       1,888       6,884       5,222  

Cash payments, net of recoveries

    (1,535 )     (635 )     (7,343 )     (2,880 )

Balance at end of period

  $ 50,495     $ 48,153     $ 50,495     $ 48,153  

 

In the ordinary course of business, we make payments from our insurance and construction defect claim reserves to settle litigation claims arising from our homebuilding activities. These payments are irregular in both their timing and their magnitude. As a result, the cash payments, net of recoveries shown for the three and nine months ended September 30, 2017 and 2016 are not necessarily indicative of what future cash payments will be for subsequent periods.

 

 

13.

Income Taxes

 

At the end of each interim period, we are required to estimate our annual effective tax rate for the fiscal year and use that rate to provide for income taxes for the current year-to-date reporting period. Our overall effective income tax rates were 31.8% and 34.1% for the three and nine months ended September 30, 2017, respectively, compared to 30.7% and 32.3% for the three and nine months ended September 30, 2016, respectively. The rates for the three and nine months ended September 30, 2017 resulted in income tax expense of $28.5 million and $60.7 million, respectively, compared to income tax expense of $11.7 million and $29.9 million for the same periods in 2016. The year-over-year increase in our effective tax rate for the three months ended September 30, 2017 was primarily the result of our estimate of the full year effective tax rate for 2016 including an estimate for energy credits whereas our estimate for the 2017 full year includes no such energy credit as the credit has not been approved by the U.S. Congress. Additionally, our 2016 third quarter benefited from certain positive return-to-provision adjustments as a result of filing our 2015 tax returns, whereas our 2017 third quarter included no such adjustments. However, the impact of these items were substantially offset by the release of a valuation allowance on our Metro Bonds as a result of the gain on the sale of those securities at the end of the 2017 third quarter enabling us to utilize the full deferred tax asset recorded on the Metro Bonds. For the nine months ended September 30, 2017, the year-over-year increase in our effective tax rate was due to the foregoing energy credits matter coupled with the establishment of a valuation allowance in the 2017 first quarter against certain state net operating loss carryforwards where realization was more uncertain at the time. These items were somewhat offset by the release of the Metro Bonds valuation allowance discussed above.

 

At September 30, 2017 and December 31, 2016 we had deferred tax assets, net of valuation allowances and deferred tax liabilities, of $64.2 million and $74.9 million, respectively. The valuation allowances were primarily related to various state net operating loss carryforwards where realization is more uncertain at this time due to the limited carryforward periods that exist in certain states.

 

 

 

14.

Senior Notes

 

The carrying value of our senior notes as of September 30, 2017 and December 31, 2016, net of any unamortized debt issuance costs or discount, were as follows:

 

   

September 30,

   

December 31,

 
   

2017

   

2016

 
   

(Dollars in thousands)

 

5⅝% Senior Notes due February 2020, net

  $ 247,613     $ 246,915  

5½% Senior Notes due January 2024, net

    248,535       248,391  

6% Senior Notes due January 2043, net

    346,384       346,340  

Total

  $ 842,532     $ 841,646  

 

Our senior notes are not secured and, while the senior note indentures contain some restrictions on secured debt and other transactions, they do not contain financial covenants. Our senior notes are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by most of our homebuilding segment subsidiaries.

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

Subsequent to September 30, 2017, we completed a public offering of an additional $150 million principal amount of our 6% senior notes due 2043. See Note 20 for additional information.

 

 

15.

Stock-Based Compensation

 

We account for share-based awards in accordance with ASC 718, which requires the fair value of stock-based compensation awards to be amortized as an expense over the vesting period. Stock-based compensation awards are valued at fair value on the date of grant. The following table sets forth share-based award expense activity for the three and nine months ended September 30, 2017 and 2016:

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2017

   

2016

   

2017

   

2016

 
   

(Dollars in thousands)

 

Stock option grants expense

  $ 391     $ 328     $ 747     $ 5,621  

Restricted stock awards expense

    445       145       1,224       1,015  

Performance share units expense

    226       -       1,129       -  

Total stock based compensation

  $ 1,062     $ 473     $ 3,100     $ 6,636  

 

On May 18, 2015, the Company granted a non-qualified stock option to each of the Chief Executive Officer and the Chief Operating Officer for 1,050,000 shares of common stock under the Company’s 2011 Equity Incentive Plan. The terms of each option provide that, over a five year period, one third of the option shares will vest as of each of the third, fourth, and fifth anniversary dates of the grant of the option; provided that all unvested option shares will vest immediately in the event the closing price of the Company’s stock, as reported by the New York Stock Exchange, in any 20 out of 30 consecutive trading days closes at a price equal to or greater than 120% of the closing price on the date of grant (the “market-based condition”). The option exercise price is equal to the closing price of the Company’s common stock on the date of grant, which was $27.10 and the expiration date of each option is May 18, 2025. In accordance with ASC 718, the market-based awards were assigned a fair value of $5.35 per share (total value of $11.2 million) on the date of grant using a Monte Carlo simulation model and, as calculated under that model, all expense was recorded on a straight-line basis through the end of the 2016 second quarter. Included in the stock option grant expense for the nine months ended September 30, 2016, shown in the table above, was $5.0 million of stock option grant expense related to these market-based option grants. During the 2017 second quarter, the market-based condition was achieved and, as a result, the shares fully vested and became exercisable.

 

On July 25, 2016 and June 20, 2017, the Company granted long term performance stock unit awards (“PSUs”) to each of the CEO, the COO, and the Chief Financial Officer (“CFO”) under the Company’s 2011 Equity Incentive Plan. The PSUs will be earned based upon the Company’s performance, over a three year period (the “Performance Period”), measured by increasing home sale revenues over a “Base Period”. Each award is conditioned upon the Company achieving an average gross margin from home sales percentage (excluding impairments) of at least fifteen percent (15%) over the Performance Period.  Target goals will be earned if the Company’s three year average home sale revenues over the Performance Period (“Performance Revenues”) exceed the home sale revenues over the Base Period (“Base Revenues”) by at least 10% but less than 20%. If Performance Revenues exceed the Base Revenues by at least 5% but less than 10% (“Threshold Goals”), 50% of the Target Goals will be earned. If Performance Revenues exceed the Base Revenues by at least 20%, 200% of the Target Goals will be earned (“Maximum Goals”).  For the PSUs granted in 2017, the number of PSUs earned shall be adjusted to be proportional to the partial performance between the Threshold Goals, Target Goals and Maximum Goals. Details for each defined term above for both grants have been provided in the table below.

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

                                   

Threshold Goal

   

Target Goal

   

Maximum Goal

           

Maximum

Potential

 

Awardee

 

Date of

Award

   

Performance

Period

   

Base Period

   

Base

Period

Revenues

   

PSUs

   

Home

Sale

Revenues

   

PSUs

   

Home

Sale

Revenues

   

PSUs

   

Home

Sale

Revenues

   

Fair Value

per Share

   

Expense

to be

Recognized

 

CEO

 

 

     

 

July 1, 2016    

 

July 1, 2015               52,500               105,000               210,000                     $ 4,815  

COO

    July 25, 2016        to        to        $1.975 billion        52,500       $2.074 billion        105,000       $2.173 billion        210,000       $2.370 billion      $ 22.93       4,815  

CFO

            June 30, 2019        June 30, 2016                13,125               26,250               52,500                       1,204  
                                                                                            $ 10,834  
                                                                                                 

CEO

 

 

     

 

April 1, 2017    

 

April 1, 2016               55,000               110,000               220,000                     $ 6,802  

COO

    June 20, 2017        to        to        $2.426 billion        55,000       $2.547 billion        110,000       $2.669 billion        220,000       $2.911 billion      $ 30.92       6,802  

CFO

            March 31, 2020        March 31, 2017                13,750               27,500               55,000                       1,701  
                                                                                            $ 15,305  

 

In accordance with ASC 718, the PSUs were valued on the date of grant at their fair value. The grant date fair value and maximum potential expense if the Maximum Goals were met for these awards has been provided in the table above. ASC 718 does not permit recognition of expense associated with performance based stock awards until achievement of the performance targets are probable of occurring. As of September 30, 2017, the Company determined that achievement of the Threshold Goals was probable for the PSUs granted in 2016 and, as such, recorded share-based award expense related to the awards of $0.2 million and $1.1 million, respectively, for the three and nine months ended September 30, 2017. For the PSUs granted in 2017, the Company concluded that achievement of any of the performance metrics had not met the level of probability required to record compensation expense at that time and, as such, no expense related to the grant of these awards has been recognized as of September 30, 2017.

 

 

16.

Commitments and Contingencies

 

Surety Bonds and Letters of Credit. We are required to obtain surety bonds and letters of credit in support of our obligations for land development and subdivision improvements, homeowner association dues, warranty work, contractor license fees and earnest money deposits. At September 30, 2017, we had outstanding surety bonds and letters of credit totaling $184.9 million and $65.5 million, respectively, including $31.6 million in letters of credit issued by HomeAmerican. The estimated cost to complete obligations related to these bonds and letters of credit were approximately $33.0 million and $25.3 million, respectively. All letters of credit as of September 30, 2017, excluding those issued by HomeAmerican, were issued under our unsecured revolving credit facility (see Note 18 for further discussion of the revolving credit facility). We expect that the obligations secured by these performance bonds and letters of credit generally will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that the obligations are performed, the related performance bonds and letters of credit should be released and we should not have any continuing obligations. However, in the event any such performance bonds or letters of credit are called, our indemnity obligations could require us to reimburse the issuer of the performance bond or letter of credit.

 

We have made no material guarantees with respect to third-party obligations.

 

Litigation Reserves. Due to the nature of the homebuilding business, we have been named as defendants in various claims, complaints and other legal actions arising in the ordinary course of business, including product liability claims and claims associated with the sale and financing of homes. In the opinion of management, the outcome of these ordinary course matters will not have a material adverse effect upon our financial condition, results of operations or cash flows.

 

Lot Option Contracts. In the ordinary course of business, we enter into lot option purchase contracts (“Option Contracts”), generally through a deposit of cash or a letter of credit, for the right to purchase land or lots at a future point in time with predetermined terms. The use of such land option and other contracts generally allow us to reduce the risks associated with direct land ownership and development, reduces our capital and financial commitments, and minimizes the amount of land inventories on our consolidated balance sheets. Our obligation with respect to Option Contracts is generally limited to forfeiture of the related deposits. At September 30, 2017, we had cash deposits and letters of credit totaling $11.4 million and $3.6 million, respectively, at risk associated with the option to purchase 6,306 lots.

 

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

17.

Derivative Financial Instruments

 

The derivative instruments we utilize in the normal course of business are interest rate lock commitments and forward sales of mortgage-backed securities, both of which typically are short-term in nature. Forward sales of mortgage-backed securities are utilized to hedge changes in fair value of our interest rate lock commitments as well as mortgage loans held-for-sale not under commitments to sell. For forward sales of mortgage-backed securities, as well as interest rate lock commitments that are still outstanding at the end of a reporting period, we record the changes in fair value of the derivatives in revenues in the financial services section of our consolidated statements of operations and comprehensive income with an offset to other assets or accounts payable and accrued liabilities in the financial services section of our consolidated balance sheets, depending on the nature of the change.

 

At September 30, 2017, we had interest rate lock commitments with an aggregate principal balance of $101.2 million. Additionally, we had $14.0 million of mortgage loans held-for-sale at September 30, 2017 that had not yet been committed to a mortgage purchaser. In order to hedge the changes in fair value of our interest rate lock commitments and mortgage loans held-for-sale that had not yet been committed to a mortgage purchaser, we had forward sales of securities totaling $85.0 million at September 30, 2017.

 

For the three and nine months ended September 30, 2017, we recorded net losses of $0.5 million and $0.5 million, respectively, on our derivatives, compared to net gains of $0.1 million and $1.1 million for the same periods in 2016.

 

 

18.

Lines of Credit

 

Revolving Credit Facility. We have an unsecured revolving credit agreement (“Revolving Credit Facility”) with a group of lenders which may be used for general corporate purposes. This agreement was amended on September 29, 2017 to (1) extend the Revolving Credit Facility maturity to December 16, 2022, (2) increase the aggregate commitment from $550 million to $700 million (the “Commitment”) and (3) provide that the aggregate amount of the commitments may increase to an amount not to exceed $1.25 billion upon our request, subject to receipt of additional commitments from existing or additional lenders and, in the case of additional lenders, the consent of the co-administrative agents. As defined in the Revolving Credit Facility, interest rates on base rate borrowings are equal to the highest of (1) 0.0%, (2) a specified eurocurrency rate, or (3) a federal funds effective rate or prime rate, plus, in each case, a margin that is determined based on our credit ratings and leverage ratio. Interest rates on eurocurrency borrowings are equal to the specified eurocurrency rate. At any time at which our leverage ratio, as of the last day of the most recent calendar quarter, exceeds 55%, the aggregate principal amount of all consolidated senior debt borrowings outstanding may not exceed the borrowing base. There is no borrowing base requirement if our leverage ratio, as of the last day of the most recent calendar quarter, is 55% or less.

 

The Revolving Credit Facility is fully and unconditionally guaranteed, jointly and severally, by most of our homebuilding segment subsidiaries. The facility contains various representations, warranties and covenants that we believe are customary for agreements of this type. The financial covenants include a consolidated tangible net worth test and a leverage test, along with a consolidated tangible net worth covenant, all as defined in the Revolving Credit Facility. A failure to satisfy the foregoing tests does not constitute an event of default, but can trigger a “term-out” of the facility. A breach of the consolidated tangible net worth covenant (but not the consolidated tangible net worth test) or a violation of anti-corruption or sanctions laws would result in an event of default.

 

The Revolving Credit Facility is subject to acceleration upon certain specified events of default, including breach of the consolidated tangible net worth covenant, a violation of anti-corruption or sanctions laws, failure to make timely payments, breaches of certain representations or covenants, failure to pay other material indebtedness, or another person becoming beneficial owner of 50% or more of our outstanding common stock. We believe we were in compliance with the representations, warranties and covenants included in the Revolving Credit Facility as of September 30, 2017.

 

We incur costs associated with unused commitment fees pursuant to the terms of the Revolving Credit Facility. At September 30, 2017 and December 31, 2016, there were $34.0 million and $23.0 million, respectively, in letters of credit outstanding, which reduced the amounts available to be borrowed under the Revolving Credit Facility. At both September 30, 2017 and December 31, 2016, we had $15.0 million outstanding under the Revolving Credit Facility. As of September 30, 2017, availability under the Revolving Credit Facility was approximately $651.0 million.

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

Mortgage Repurchase Facility. HomeAmerican has a Master Repurchase Agreement (the “Mortgage Repurchase Facility”) with U.S. Bank National Association (“USBNA”). Effective August 10, 2017, the Mortgage Repurchase Facility was amended to extend its termination date to August 9, 2018. The Mortgage Repurchase Facility provides liquidity to HomeAmerican by providing for the sale of up to an aggregate of $75 million (subject to increase by up to $75 million under certain conditions) of eligible mortgage loans to USBNA with an agreement by HomeAmerican to repurchase the mortgage loans at a future date. Until such mortgage loans are transferred back to HomeAmerican, the documents relating to such loans are held by USBNA, as custodian, pursuant to the Custody Agreement (“Custody Agreement”), dated as of November 12, 2008, by and between HomeAmerican and USBNA. In the event that an eligible mortgage loan becomes ineligible, as defined under the Mortgage Repurchase Facility, HomeAmerican may be required to repurchase the ineligible mortgage loan immediately. The maximum aggregate commitment of the Mortgage Repurchase Facility was temporarily increased on December 27, 2016 from $75 million to $125 million and was effective through January 25, 2017. At September 30, 2017 and December 31, 2016, HomeAmerican had $65.1 million and $114.5 million, respectively, of mortgage loans that HomeAmerican was obligated to repurchase under the Mortgage Repurchase Facility. Mortgage loans that HomeAmerican is obligated to repurchase under the Mortgage Repurchase Facility are accounted for as a debt financing arrangement and are reported as mortgage repurchase facility in the consolidated balance sheets. Advances under the Mortgage Repurchase Facility carry a price range that is LIBOR-based.

 

The Mortgage Repurchase Facility contains various representations, warranties and affirmative and negative covenants that we believe are customary for agreements of this type. The negative covenants include, among others, (i) a minimum Adjusted Tangible Net Worth requirement, (ii) a maximum Adjusted Tangible Net Worth ratio, (iii) a minimum adjusted net income requirement, and (iv) a minimum Liquidity requirement. The foregoing capitalized terms are defined in the Mortgage Repurchase Facility. We believe HomeAmerican was in compliance with the representations, warranties and covenants included in the Mortgage Repurchase Facility as of September 30, 2017.

 

 

19.

Related Party Transactions

 

We contributed $1.5 million and $1.0 million in cash to the MDC/Richmond American Homes Foundation (the “Foundation”) during the nine months ended September 30, 2017 and 2016, respectively. The Foundation is a Delaware non-profit corporation that was incorporated on September 30, 1999.

 

The Foundation is a non-profit organization operated exclusively for charitable, educational and other purposes beneficial to social welfare within the meaning of Section 501(c)(3) of the Internal Revenue Code. The following Directors and/or officers of the Company served as directors of the Foundation at September 30, 2017, all of whom serve without compensation:

 

Name

 

MDC Title

Larry A. Mizel

 

Chairman and CEO

David D. Mandarich

 

President and COO

 

Three other individuals, who are independent of the Company, also serve as directors of the Foundation. All directors of the Foundation serve without compensation.

 

 

20.

Subsequent Events

 

On October 16, 2017, we completed a public offering of an additional $150 million principal amount of our 6% senior notes due 2043, which are of the same series and have the same terms as our senior notes issued on January 10, 2013 and May 13, 2013 (collectively the “6% Notes”). The 6% Notes, which pay interest semi-annually in arrears on January 15 and July 15 of each year, are general unsecured obligations of MDC and rank equally and ratably with our other general unsecured and unsubordinated indebtedness. We received proceeds of $144.2 million, net of discount and underwriting fees. We plan to use the proceeds of the offering for general corporate purposes, which may include repayment of debt.

 

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

21.

Supplemental Guarantor Information

 

Our senior notes are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by the following subsidiaries (collectively, the "Guarantor Subsidiaries"), which are 100%-owned subsidiaries of the Company.

 

 

M.D.C. Land Corporation

 

RAH of Florida, Inc.

 

Richmond American Construction, Inc.

 

Richmond American Homes of Arizona, Inc.

 

Richmond American Homes of Colorado, Inc.

 

Richmond American Homes of Florida, LP

 

Richmond American Homes of Illinois, Inc.

 

Richmond American Homes of Maryland, Inc.

 

Richmond American Homes of Nevada, Inc.

 

Richmond American Homes of New Jersey, Inc.

 

Richmond American Homes of Oregon, Inc. (formerly known as Richmond American Homes of Delaware, Inc.)

 

Richmond American Homes of Pennsylvania, Inc.

 

Richmond American Homes of Utah, Inc.

 

Richmond American Homes of Virginia, Inc.

 

Richmond American Homes of Washington, Inc.

 

The senior note indentures do not provide for a suspension of the guarantees, but do provide that any Guarantor may be released from its guarantee so long as (1) no default or event of default exists or would result from release of such guarantee, (2) the Guarantor being released has consolidated net worth of less than 5% of the Company’s consolidated net worth as of the end of the most recent fiscal quarter, (3) the Guarantors released from their guarantees in any year-end period comprise in the aggregate less than 10% (or 15% if and to the extent necessary to permit the cure of a default) of the Company’s consolidated net worth as of the end of the most recent fiscal quarter, (4) such release would not have a material adverse effect on the homebuilding business of the Company and its subsidiaries and (5) the Guarantor is released from its guarantee(s) under all Specified Indebtedness (other than by reason of payment under its guarantee of Specified Indebtedness). Upon delivery of an officers’ certificate and an opinion of counsel stating that all conditions precedent provided for in the indenture relating to such transactions have been complied with and the release is authorized, the guarantee will be automatically and unconditionally released. “Specified Indebtedness” means indebtedness under the senior notes, the Company’s Indenture dated as of December 3, 2002, the Revolving Credit Facility, and any refinancing, extension, renewal or replacement of any of the foregoing.

 

We have determined that separate, full financial statements of the Guarantor Subsidiaries would not be material to investors and, accordingly, supplemental financial information for the Guarantor and Non-Guarantor Subsidiaries is presented below.

 

 

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

Supplemental Condensed Combining Balance Sheet

 

   

September 30, 2017

 
                   

Non-

                 
           

Guarantor

   

Guarantor

   

Eliminating

   

Consolidated

 
   

MDC

   

Subsidiaries

   

Subsidiaries

   

Entries

   

MDC

 

 

 

(Dollars in thousands)

 

ASSETS

                                       

Homebuilding:

                                       

Cash and cash equivalents

  $ 347,217     $ 4,182     $ -     $ -     $ 351,399  

Marketable securities

    -       -       -       -       -  

Restricted cash

    -       8,723       -       -       8,723  

Trade and other receivables

    5,517       39,577       -       (2,190 )     42,904  

Inventories:

                                       

Housing completed or under construction

    -       969,419       -       -       969,419  

Land and land under development