Form 10-K M.D.C. HOLDINGS, INC. For: Dec 31

February 1, 2022 2:20 PM EST

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mdc-20211231
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _____ to _____
Commission file number 1-08951
__________________________________________
M.D.C. HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware
84-0622967
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $.01 par value
552676108
New York Stock Exchange
6.000% Senior Notes due January 2043
552676AQ1
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes No
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 o
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes x No o
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 the definitions 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
Emerging Growth Company
Non-Accelerated Filer
Smaller Reporting Company
If an emerging growth company, indicate by check mark if the Registrant has elected not 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 726(b)) by the registered public accounting firm that prepared or issued its audit report.
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 June 30, 2021, the aggregate market value of the Registrant's common stock held by non-affiliates of the Registrant was $2.9 billion based on the closing sales price of $50.60 per share as reported on the New York Stock Exchange on June 30, 2021.
As of December 31, 2021, the number of shares outstanding of Registrant's common stock was 70,668,093.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of part III of this Form 10-K are incorporated by reference from the Registrant's 2022 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.



M.D.C. HOLDINGS, INC.
FORM 10-K
For the Year Ended December 31, 2021
Table of Contents
Page
No.
F - 1

(i)

M.D.C. HOLDINGS, INC.
FORM 10-K
PART I
Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K, as well as statements made by us in periodic press releases, oral statements made by our officials in the course of presentations about the Company and conference calls in connection with quarterly earnings releases, 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 operation, 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 Report 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.
Item 1. Business.
(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,” “MDC,” “we” or “our” in this Annual Report on Form 10-K, and these designations include our subsidiaries unless we state otherwise. We have two primary operations, homebuilding and financial services. Our homebuilding operations consist of wholly owned subsidiary companies that generally purchase finished lots or develop lots to the extent necessary for the construction and sale primarily of single-family detached homes to first-time and first-time move-up homebuyers under the name “Richmond American Homes.” Our homebuilding operations are comprised of various homebuilding divisions that we consider to be our operating segments. For financial reporting, we have aggregated our homebuilding operating segments into reportable segments as follows: (1) West (includes operating segments located in Arizona, California, Nevada, New Mexico, Oregon, Texas and Washington); (2) Mountain (includes operating segments located in Colorado, Idaho and Utah); and (3) East (includes operating segments located in the mid-Atlantic, which includes Maryland, Pennsylvania and Virginia, Florida, and Tennessee).
Our financial services operations consist of (1) HomeAmerican Mortgage Corporation (“HomeAmerican”), which originates mortgage loans primarily for our homebuyers, (2) Allegiant Insurance Company, Inc., A Risk Retention Group (“Allegiant”), which provides insurance coverage primarily to our homebuilding subsidiaries on homes that have been delivered and most of our subcontractors for completed work on those delivered homes, (3) StarAmerican Insurance Ltd. ("StarAmerican"), which is a re-insurer of Allegiant claims, (4) American Home Insurance Agency, Inc., which offers third-party insurance products to our homebuyers, and (5) American Home Title and Escrow Company, which provides title agency services to our homebuilding subsidiaries and our customers in certain states. For financial reporting, we have aggregated our financial services operating segments into reportable segments as follows: (1) mortgage operations (represents HomeAmerican only) and (2) other (all remaining operating segments).
(c) Description of Business
Our business consists of two primary operations, homebuilding and financial services. Our homebuilding subsidiaries build and sell primarily single-family detached homes that are designed and built to meet local customer preferences. Each homebuilding subsidiary is the general contractor for its projects and retains subcontractors for land development and home construction. Our homebuilding subsidiaries build a variety of home styles in each of their markets, targeting primarily first-time and first-time move-up homebuyers.

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For 2021, the percentage of our home deliveries and home sale revenues by state were as follows:
Percentage
of
Deliveries
Percentage
of Home Sale
Revenues
Arizona16 %12 %
California23 %27 %
Nevada11 %11 %
Oregon%%
Washington%%
West58 %58 %
Colorado23 %26 %
Utah%%
Mountain28 %31 %
Maryland%%
Virginia%%
Florida10 %%
East14 %11 %
Total100 %100 %
Our financial services operations include subsidiaries that provide mortgage financing, place title insurance and homeowner insurance for our homebuyers, and provide general liability insurance for our subsidiaries and most of our subcontractors.
Homebuilding Operations
Operating Divisions. The primary functions of our homebuilding segments include land acquisition and development, home construction, sales and marketing, and customer service. Operating decisions are made by our local management teams under the oversight of our Chief Operating Decision Maker (“CODM”), or decision-making group, defined as two key executives - our Executive Chairman and Chief Executive Officer. Our organizational structure (i.e., the grouping and reporting of divisions) changes based upon the current needs of the Company. We had 21 active homebuilding operating divisions at the end of December 31, 2021. We had 17 active homebuilding operating divisions at the end of December 31, 2020 and 15 active homebuilding operating divisions at the end of December 31, 2019.
Corporate Management. Our homebuilding business is managed primarily through members of senior management in our Corporate segment and our four Asset Management Committees (“AMCs”), three for reviewing real estate transactions and one for reviewing corporate transactions. Each real estate AMC is comprised of the Chief Executive Officer, Chief Financial Officer and one of our other corporate officers, with the corporate AMC comprised of our Chief Executive Officer and Chief Financial Officer.  All real estate acquisition transactions are reviewed to confirm that the transaction is projected to achieve the objectives established by our decision-making group and must be approved by one of the real estate AMCs. Generally, the role of our senior management team and/or AMC includes:
review and approval of division business plans and budgets;
oversight of land and home inventory levels;
review of major personnel decisions; and
review of capital allocation decisions.
Additionally, our corporate executives and corporate departments generally are responsible for establishing and monitoring compliance with our policies and procedures. Among other things, the corporate office has primary responsibility for:
asset management and capital allocation;
treasury;
insurance and risk management;
merchandising and marketing;
national purchasing contracts;
accounting, tax and internal audit functions;
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legal matters;
human resources and payroll;
information technology; and
training and development.
Housing. Generally, our homebuilding subsidiaries build single-family detached homes in a number of standardized series, designed to provide variety in the size and style of homes for our potential homebuyers. In certain markets, our homebuilding subsidiaries build and sell duplexes. Within each series of our single-family detached homes, our homebuilding subsidiaries build several different floor plans offering standard and optional features (such as upgraded appliances, cabinetry, flooring, etc.). Differences in sales prices of similar models from market-to-market depend primarily upon homebuyer demand, home prices offered by our competitors, market conditions (such as home inventory supply levels), location, cost of land, optional features and design specifications. The series of homes offered at a particular location is based on perceived customer preferences, lot size, area demographics and, in certain cases, the requirements of major land sellers and local municipalities. In general, our homebuilding subsidiaries focus on selling “build-to-order,” also referred to as “dirt sales,” and limit the number of homes started without a contract, also known as “spec homes.”
Land Acquisition and Development. Our homebuilding subsidiaries acquire lots with the intention of constructing and selling homes on the acquired land. Generally, we prefer to purchase finished lots using option contracts, in phases or in bulk for cash. However, because there often is significant competition for finished lots, more than one-half of the lots we purchase require some level of development. In making land purchases, we consider a number of factors, including projected rates of return, estimated gross margins from home sales, sales prices of the homes to be built, mortgage loan limits within the respective county, population and employment growth patterns, proximity to developed areas, estimated cost and complexity of development including environmental and geological factors, quality of schools, estimated levels of competition and demographic trends.
In their option contracts, our homebuilding subsidiaries generally obtain the right to purchase lots in consideration for an option deposit in the form of cash or letters of credit. In the event they elect not to purchase the lots within a specified period of time, they may be required to forfeit the option deposit. Our option contracts do not contain provisions requiring our specific performance.
Our homebuilding subsidiaries may own or have the right under option contracts to acquire undeveloped parcels of real estate that they intend to develop into finished lots. They generally develop our land in phases in order to limit our risk in a particular subdivision and to efficiently employ available capital resources. Generally, building permits and utilities are available and zoning is suitable for the current intended use of substantially all of our undeveloped land. When developed, these lots generally will be used in our homebuilding activities. See “Forward-Looking Statements” above.
Labor and Raw Materials. Materials used in our homebuilding operations are mainly standard items carried by major suppliers. We generally contract for our materials and labor at a fixed price for the anticipated construction period of our homes. This allows us to mitigate the risks associated with increases in the cost of building materials and labor between the time construction begins on a home and the time it is closed. Increases in the cost of building materials and subcontracted labor may reduce gross margins from home sales to the extent that market conditions prevent the recovery of increased costs through higher home sales prices. From time to time and to varying degrees, we may experience shortages in the availability of building materials and/or labor in each of our markets. These shortages and delays may result in delays in the delivery of homes under construction, reduced gross margins from home sales, or both. See “Forward-Looking Statements” above. Current shortages in the availability of building materials and labor are described in more detail in our description of Risk Factors under the heading "Supply shortages and other risks related to the demand for skilled labor and building materials could continue to increase costs and delay deliveries."
Warranty. Our homebuilding subsidiaries sell their homes with limited third-party warranties that generally provide for ten years of structural coverage, two years of coverage for plumbing, electrical, heating, ventilation and air conditioning systems, and one year of coverage for workmanship and materials. Under our agreement with the issuer of the third-party warranties, our homebuilding subsidiaries perform all of the work for the first two years of the warranty coverage and pay for substantially all of the work required to be performed during years three through ten of the warranties.
Seasonal Nature of Business. The homebuilding industry can experience noticeable seasonality and quarter-to-quarter variability in homebuilding activity levels. The seasonal nature of our business is described in more detail in our description of Risk Factors under the heading “Because of the seasonal nature of our business, our quarterly operating results can fluctuate.
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Backlog. At December 31, 2021 and 2020, homes under contract but not yet delivered (“backlog”) totaled 7,640 and 6,655, respectively, with an estimated sales value of $4.30 billion and $3.26 billion, respectively. We anticipate that homes in backlog at December 31, 2021 generally will close during 2022 under their existing home order contracts or through the replacement of an existing contract with a new home order contract. The estimated backlog sales value at December 31, 2021 may be impacted by, among other things, subsequent home order cancellations, incentives provided, and/or options and upgrades selected. See “Forward-Looking Statements” above.
Customer Service and Quality Control. Our homebuilding divisions are responsible for pre-closing quality control inspections and responding to customers’ post-closing needs. We have a product service and quality control program, focused on improving and/or maintaining the quality of our customers’ complete home buying and homeownership experience.
Sales and Marketing. Our sales and marketing programs are designed to attract homebuyers in a cost effective manner. We have a centralized in-house advertising and marketing department, including digital marketing, that oversees our efforts to communicate the inherent value of our homes to our prospective homebuyers and distinguish our Richmond American Homes brand from our competitors or other home buying opportunities. The main objective of this team is to generate homebuyer leads, which are actively pursued by our community sales associates. Our centralized in-house merchandising team furnishes our model homes and sales offices.
Another important part of our marketing presentation takes place in our design centers (also known as Home Galleries). Here, homebuyers are able to personalize their homes with a variety of options and upgrades. These locations also serve as an information center for prospective homebuyers and real estate agents who may opt to receive personalized attention from one of our new home specialists, resulting in a more focused and efficient home search across all of our Richmond American communities in a given market place. We believe that the services provided by our Home Galleries represent a key competitive advantage in attracting and retaining prospective homebuyers.
Competition. The homebuilding industry is fragmented and highly competitive. The competitive nature of our business is described in more detail in our description of Risk Factors.
Regulation. Our homebuilding operations are subject to compliance with applicable laws and regulations, which are described in more detail in our description of Risk Factors.
Financial Services Operations
Mortgage Lending Operations
General. HomeAmerican is a full-service mortgage lender and the principal originator of mortgage loans for our homebuyers. HomeAmerican has a centralized loan processing center where it originates mortgage loans, primarily for our homebuyers.
HomeAmerican is authorized to originate Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) (together “the government-sponsored enterprises”), Federal Housing Administration-insured (“FHA”), and Department of Veterans Affairs-guaranteed (“VA”) mortgages and is an authorized issuer of Government National Mortgage Association (“Ginnie Mae”) mortgage-backed securities. Furthermore, HomeAmerican also is an authorized loan servicer for Fannie Mae, Freddie Mac and Ginnie Mae and, as such, is subject to the rules and regulations of these entities.
HomeAmerican uses a mortgage repurchase facility, internally generated funds, and temporary financing provided by its parent, to finance the origination of mortgage loans until they are sold. HomeAmerican sells originated mortgage loans to third-party purchasers on either a bulk or flow basis. Mortgage loans sold on a bulk basis include the sale of a package of substantially similar originated mortgage loans, while sales of mortgage loans on a flow basis are completed as HomeAmerican originates each loan. Mortgage loans sold to third-party purchasers include HomeAmerican’s representations and warranties with respect to certain borrower payment defaults, credit quality issues and/or misrepresentations made by HomeAmerican or our homebuyers. Substantially all of the mortgage loans originated by HomeAmerican are sold to third-party purchasers, generally between 5 to 35 days of origination.
Pipeline. HomeAmerican’s mortgage loans in process for which a rate and price commitment had been made to a borrower that had not closed (the “locked pipeline”) at December 31, 2021 and 2020 had an aggregate principal balance of approximately $268.8 million and $230.5 million, respectively, and were under interest rate lock commitments at an average interest rate of 2.91% and 2.69% respectively.
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Forward Sales Commitments. HomeAmerican is exposed to market risks related to fluctuations in interest rates. HomeAmerican creates certain derivative instruments in the normal course of business, which primarily include commitments to originate mortgage loans (interest rate lock commitments or locked pipeline). HomeAmerican uses forward sales of mortgage-backed securities and commitments from third-parties to purchase loans to hedge the interest rate risk inherent with the locked pipeline, as well as its loan inventory held for sale. The market related risks in our business are described in more detail in our description of Risk Factors.
Competition. HomeAmerican has significant competition with other mortgage bankers to arrange financing for our homebuyers. However, in selling its originated mortgages to third parties, HomeAmerican has benefited from an increased number of smaller non-bank entities entering the third-party purchaser space, resulting in better prices and a potentially wider array of product options. The competitive nature of our mortgage business is described in more detail in our description of Risk Factors.
Regulation. Our mortgage lending operations are subject to compliance with applicable laws and regulations, which are described in more detail in our description of Risk Factors.
Insurance Operations
General. Allegiant and StarAmerican were formed to provide insurance coverage of homebuilding risks for our homebuilding subsidiaries and most of our homebuilding subcontractors. Allegiant was organized as a risk retention group under the Federal Liability Risk Retention Act of 1981. Allegiant, which began operations in June of 2004, is licensed as a Class 3 Stock Insurance Company by the Division of Insurance of the State of Hawaii and is subject primarily to the regulations of its state of incorporation. StarAmerican is a single parent captive insurance company licensed by the Division of Insurance of the State of Hawaii. Pursuant to agreements executed on an annual basis since June of 2004, StarAmerican has re-insured Allegiant for all claims in excess of $50,000 per occurrence up to $3.0 million per occurrence, subject to various aggregate limits.
Allegiant generates premium revenue generally by providing to its customers, comprised of the Company’s homebuilding subsidiaries and most subcontractors of the Company’s homebuilding subsidiaries, general liability insurance on homes sold by our homebuilding subsidiaries and for work performed in completed subdivisions. Allegiant seeks to provide to its customers coverage and insurance rates that are competitive with other insurers. StarAmerican generates premium revenue by providing re-insurance coverage to Allegiant. Allegiant and StarAmerican incur expenses for actual losses and loss adjustment expenses and for reserves established based on actuarial studies including known facts, such as our experience with similar insurance cases and historical trends involving insurance claim payment patterns, pending levels of unpaid insurance claims, claim severity, claim frequency patterns and interpretations of circumstances including changing regulatory and legal environments.
Regulation. Allegiant and StarAmerican are licensed in the State of Hawaii and, therefore, are subject to regulation by the Hawaii Insurance Division. This regulation includes restrictions and oversight regarding: types of insurance provided; investment options; required capital and surplus; financial and information reporting; use of auditors, actuaries and other service providers; periodic examinations; and other operational items. Additionally, as a risk retention group, Allegiant is also registered in other states where certain MDC homebuilding subsidiaries do business.
Insurance Agency Operations
American Home Insurance is an insurance agency that sells primarily homeowners’ personal property and casualty insurance products in the same markets where our homebuilding subsidiaries operate and primarily to our homebuyers.
Title Operations
American Home Title provides title agency services to the Company and its homebuyers in Colorado, Florida, Maryland, Nevada, Pennsylvania and Virginia.
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Human Capital Resources
The table below summarizes the approximate number of employees for our combined Homebuilding, combined Financial Services and Corporate segments at December 31, 2021 and 2020.
December 31,
20212020
Homebuilding1,580 1,350 
Financial Services222 185 
Corporate278 238 
Total2,080 1,773 

We believe our employees are one of our greatest assets and our Company is made up of diverse, talented and dedicated employees working together to achieve common and rewarding goals. We value integrity, hard work, dedication, energy and teamwork. Our goal is to promote an environment where employees are encouraged to do their best work with high professional standards, team collaboration and customer excellence.

At MDC we are committed to fostering a diverse and inclusive workplace. Our management teams and all of our employees are expected to exhibit and promote honest, ethical and respectful conduct in the workplace. We have implemented and maintained a corporate compliance program to provide guidance for everyone associated with the Company, including its employees, officers and directors (the "Code"). Annual review of the Code is required and it, in summary, prohibits unlawful or unethical activity, including discrimination, and directs our employees, officers, and directors to avoid actions that, even if not unlawful or unethical, might create an appearance of illegality or impropriety. In addition, the Code includes required annual training on preventing, identifying, reporting and stopping any type of unlawful discrimination.

We recognize that we are in a competitive marketplace when it comes to finding top talent. As a result, talent acquisition and the retention of employees continue to be a priority initiative for the Company. Our leaders across all levels of the organization consistently review their business metrics to determine appropriate workforce planning goals. We offer a variety of career paths for our employees; which includes consistent training and development through online resources, job shadowing, mentoring, etc. Our employees may participate in a robust benefits program, which includes a focus on health and wellness, and we offer a variety of other employee perks. We believe our compensation packages and benefits are competitive with others in our industry. We are committed to consistently evaluating total compensation across all positions within the Company.

As we look to the future, we will continue to leverage the core principles and practices that contributed to our past achievements, while welcoming new perspectives that allow our organization to evolve with the changing economic landscape. We will maintain our commitment to quality craftsmanship, providing excellent customer service, hiring from within when possible and fostering an internal culture that supports collaboration and teamwork as well as work-life balance.

In response to the COVID-19 pandemic, we implemented safety protocols and procedures to protect our employees, our subcontractors and our customers. These protocols include complying with social distancing and other health and safety standards as mandated by state and local government agencies, taking into consideration guidance from the Centers for Disease Control and Prevention and other public health authorities. Certainly, there has been a significant shift to moving much of our workforce to a work from home/remote environment, particularly in Corporate and Division offices, to minimize in-person interactions. In addition, we have instituted a mandatory COVID-19 vaccination policy at our Corporate office, which was expanded to customer facing sales and home gallery personnel in January 2022.
(e) Available Information
We make our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, available free of charge on our website as soon as reasonably practicable after we file or furnish the materials electronically with the Securities and Exchange Commission (“SEC”). To obtain any of this information, go to our website, www.mdcholdings.com, and select “SEC Filings” from the menu. Our website includes our: (1) Corporate Governance Guidelines; (2) Corporate Code of Conduct; (3) Rules for Senior Financial Officers; (4) Audit Committee Procedures for Handling Confidential Complaints; (5) charters for the Audit, Compensation, Legal and Corporate Governance/Nominating Committees; (6) Director Standards of Independence; and (7) Lead Director Description. These materials may be obtained, free of charge, at www.mdcholdings.com (select “Governance”).
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Item 1A. Risk Factors.
Public health issues such as the global Coronavirus/COVID-19 pandemic could harm business and results of operations of the Company.
Demand for our homes is dependent on a variety of macroeconomic factors, such as employment levels, availability of financing for homebuyers, interest rates, consumer confidence, wage growth, household formations, levels of new and existing homes for sale, cost of land, labor and construction materials, demographic trends and housing demand. These factors, in particular consumer confidence, can be significantly and adversely affected by a variety of factors beyond our control. In response to the pandemic, many state and local governments instituted restrictions that substantially limited the operations of non-essential businesses and the activities of individuals. As economic activity resumed upon the restrictive orders relating to COVID-19 being eased, demand for our homes improved significantly during the remainder of fiscal 2020 and remained strong throughout fiscal 2021. There is still significant uncertainty as a result of the pandemic and its continuing potential to negatively impact the U.S. economy. The degree to which the pandemic will impact our financial results in the coming periods depends on future developments that are highly uncertain, including new information that may emerge concerning the severity of the pandemic, whether there are additional outbreaks of COVID-19 and related variants and the actions taken to contain or address the virus. If the pandemic continues to cause significant negative impacts to the U.S. economy and consumer confidence, our results of operations, financial condition and cash flows could be significantly and adversely impacted.
Changes in general economic, real estate and other business conditions may have an adverse effect on the homebuilding and mortgage industries, which could have a negative impact on our business.
The homebuilding industry is cyclical and is significantly affected by changes in industry conditions, the national political environment and general economic conditions such as:
employment levels;
availability of financing for homebuyers;
interest rates;
consumer confidence;
wage growth;
household formations;
levels of new and existing homes for sale;
cost of land, labor and construction materials;
demographic trends; and
housing demand.
These conditions may exist on a national level or may affect some of the regions or markets in which we operate more than others. When adverse conditions affect any of our larger markets, they could have a proportionately greater impact on us than on some other homebuilding companies.
Changes to monetary policy or other actions by the Federal Reserve could have an adverse effect on interest rates (including mortgage interest rates), equity markets and consumer confidence. Such effects could cause us to experience declines in the market value of our inventory and the demand for our homes, resulting in a negative impact to our financial position, results of operations and cash flows.
An oversupply of alternatives to new homes, including foreclosed homes, homes held for sale or rent by investors and speculators, other existing homes, and rental properties, can also reduce our ability to sell new homes, depress new home prices
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and reduce our margins on the sale of new homes. High levels of foreclosures and short-sales not only contribute to additional inventory available for sale, but also can reduce appraisal valuations for new homes, potentially resulting in lower sales prices.
Terrorist attacks, acts of war, other acts of violence or threats to national security, and any corresponding response by the United States or others, or related domestic or international instability, may adversely affect general economic conditions or cause a slowdown of the economy.
As a result of the foregoing matters, potential customers may be less willing or able to buy our homes. In the future, our pricing strategies may be limited by market conditions. We may be unable to change the mix of our home offerings, reduce the costs of the homes we build or offer more affordable homes to maintain our gross margins or satisfactorily address changing market conditions in other ways. In addition, cancellations of home sales contracts in backlog may increase as homebuyers choose to not honor their contracts.
Additionally, the factors discussed above may increase our counterparty risk, which may include, among others, banks under our credit facilities and mortgage purchasers who may not be willing or able to perform on obligations to us. To the extent a third-party is unable or unwilling to meet its obligations, our financial position, results of operations and cash flows could be negatively impacted.
Our mortgage operations are closely related to our homebuilding business, as HomeAmerican originates mortgage loans principally to purchasers of the homes we build. Therefore, a decrease in the demand for our homes because of the preceding matters may also adversely affect the financial results of this segment of our business. Furthermore, any adverse changes in the economic conditions discussed previously could increase the default rate on the mortgages we originate, which may adversely affect our ability to sell the mortgages, the pricing we receive upon the sale of mortgages, or our potential exposure to recourse regarding mortgage loan sales.
These challenging conditions are complex and interrelated. We cannot predict their occurrence or severity, nor can we provide assurance that our responses would be successful.
Increased competition levels in the homebuilding and mortgage lending industries could have a negative impact on our homebuilding and mortgage operations.
The homebuilding industry is fragmented and highly competitive. Our homebuilding subsidiaries compete with numerous public and private homebuilders, including a number that are substantially larger than us and may have greater financial resources than we do. Our homebuilding subsidiaries also compete with subdivision developers and land development companies, some of which are themselves homebuilders or affiliates of homebuilders. Homebuilders compete for customers, land, building materials, subcontractor labor and desirable financing. Competition for home orders is based primarily on home sales price, location of property, home style, financing available to prospective homebuyers, quality of homes built, customer service and general reputation in the community, and may vary market-by-market and/or submarket-by-submarket. Additionally, competition within the homebuilding industry can be impacted by an excess supply of new and existing homes available for sale resulting from a number of factors, including, among other things, increases in the number of new home communities, increases in speculative homes available for sale and increases in home foreclosures. Increased competition can result in a decrease in our net new home orders, a decrease in our home sales prices and/or an increase in our home sales incentives in an effort to generate new home sales and maintain homes in backlog until they close. These competitive pressures may negatively impact our financial position, results of operations and cash flows.
Our mortgage lending subsidiary, HomeAmerican, experiences competition from numerous banks and other mortgage bankers and brokers, many of which are larger and may have greater financial resources. As a result, these competitors may be able to offer better pricing and/or mortgage loan terms, more relaxed underwriting criteria and a greater range of products, which could negatively impact the financial position, results of operations and cash flows of our mortgage operations.
If land is not available at reasonable prices or terms, we could be required to scale back our operations in a given market and/or we may operate at lower levels of profitability.
Our operations depend on our homebuilding subsidiaries’ ability to obtain land for the development of our residential communities at reasonable prices and with terms that meet our underwriting criteria. Our ability to obtain land for new residential communities may be adversely affected by changes in the general availability of land, the willingness of land sellers to sell land at reasonable prices, competition for available land, availability of financing to acquire land, zoning, regulations that limit housing density, and other market conditions. If the supply of land, and especially finished lots, appropriate for development of residential communities is limited because of these factors, or for any other reason, the number of homes that
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our homebuilding subsidiaries build and sell may decline. To the extent that we are unable to purchase land timely or enter into new contracts for the purchase of land at reasonable prices, due to the lag time between the time we acquire land and the time we begin selling homes, we may be required to scale back our operations in a given market and/or we may operate at lower levels of profitability. As a result, our financial position, results of operations and cash flows could be negatively impacted.
Supply shortages and other risks related to the demand for skilled labor and building materials could continue to increase costs and delay deliveries.
The residential construction industry experiences price fluctuations and shortages in labor and materials from time to time. Shortages in labor can be due to: competition for labor, work stoppages, labor disputes, shortages in qualified trades people, lack of availability of adequate utility infrastructure and services, or our need to rely on local subcontractors who may not be adequately capitalized or insured. Labor and material shortages can be more severe during periods of strong demand for housing or during periods in which the markets where we operate experience natural disasters that have a significant impact on existing residential and commercial structures. Additionally, we could experience labor shortages as a result of subcontractors going out of business or leaving the residential construction market due to low levels of housing production and volumes. Pricing for labor and materials can be affected by the factors discussed above, changes in energy prices, and various other national, regional and local economic factors. In addition, environmental and other regulations and import tariffs and trade restrictions have had, and in the future could continue to have, an adverse impact on the cost of certain raw materials such as lumber. Recalls of materials driven by manufacturing defects can drive shortages in materials and delay the delivery of homes. Any of these circumstances could give rise to delays in the start or completion of our residential communities, increase the cost of developing one or more of our residential communities and/or increase the construction cost of our homes. The effects of the pandemic combined with the strong demand for new homes has caused disruptions in our supply chain and has resulted in shortages of certain building materials and increased demand in the labor market, which has caused our land development and construction cycle times to lengthen and the costs of building materials and labor to increase.
We generally are unable to pass on increases in construction costs to customers who have already entered into sales contracts, as those sales contracts fix the price of the homes at the time the contracts are signed, which generally is in advance of the construction of the home. To the extent that market conditions prevent the recovery of increased costs, including, among other things, subcontracted labor, finished lots, building materials, and other resources, through higher selling prices, our financial position, cash flows and operating results, including our gross margin from home sales, could be negatively impacted.
If mortgage interest rates rise, if down payment requirements are increased, if loan limits are decreased, or if mortgage financing otherwise becomes less available, it could adversely affect our business.
Mortgage liquidity influenced by governmental entities like the FHA, VA, USDA and Ginnie Mae or government-sponsored enterprises (“GSEs”) like Fannie Mae and Freddie Mac continue to be an important factor in marketing our homes. Financial losses or other factors may limit, restrict or otherwise curtail their ability or willingness to insure mortgage loans, offer insurance at rates and on terms that are not prohibitive, or purchase mortgage loans. Should this occur, it may negatively impact the availability of mortgage financing and our sales of new homes.
We believe that the liquidity provided by Fannie Mae, Freddie Mac and Ginnie Mae to the mortgage industry has been very important to the housing market. The future of Fannie Mae and Freddie Mac are in question and any reduction in the availability of the liquidity provided by these institutions could adversely affect interest rates, mortgage availability and our sales of new homes and mortgage loans.
Loans sold to or insured by the GSEs are subject to various loan limits. Decreases in these loan limits may require homebuyers to make larger down payments or obtain more restrictive non-conforming or “jumbo” mortgages, which could adversely impact on our financial position, results of operations and cash flows.
Even if potential customers do not need financing, changes in the availability of mortgage products may make it harder for them to sell their current homes to potential buyers who need financing.
If interest rates increase, the costs of owning a home may be affected and could result in further reductions in the demand for our homes.
Changes to tax laws, incentives or credits currently available to our customers may negatively impact our business.
Many homeowners receive substantial tax benefits in the form of tax deductions against their personal taxable income for mortgage interest and property tax payments and the loss or reduction of these deductions could affect homeowners’ net
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cost of owning a home. Significant changes to existing tax laws, such as the ability to deduct mortgage interest and real property taxes, may result in an increase in the total cost of home ownership and may make the purchase of a home less attractive to buyers. This could adversely impact demand for and/or sales prices of new homes, which would have a negative impact on our business.
A decline in the market value of our homes or carrying value of our land would have a negative impact on our business.
Our homebuilding subsidiaries acquire land for the replacement of land inventory and/or expansion within our current markets and may, from time to time, purchase land for expansion into new markets. The fair value of our land and land under development inventory and housing completed or under construction inventory depends on market conditions. Factors that can impact our determination of the fair value of our inventory primarily include home sale prices, levels of home sale incentives and home construction and land costs. Our home sale prices and/or levels of home sale incentives can be impacted by, among other things, uncertainty in the homebuilding and mortgage industries or the United States/global economy overall, decreased demand for new homes, decreased home prices offered by our competitors, home foreclosure and short-sale levels, decreased ability of our homebuyers to obtain suitable mortgage loan financing and high levels of home order cancellations. Under such circumstances, we may be required to record impairments of our inventory. Any such inventory impairments would have a negative impact on our financial position and results of operations.
Natural disasters could cause an increase in home construction costs, as well as delays, and could negatively impact our business.
The climates and geology of many of the markets in which we operate present increased risks of natural disasters. To the extent that hurricanes, severe storms, earthquakes, droughts, floods, heavy or prolonged precipitation, wildfires or other natural disasters or similar events occur, the financial position, results of operations and cash flows of our business may be negatively impacted.
Changes in energy prices or regulations may have an adverse effect on our cost of building homes.
Some of the markets in which we operate are impacted by regulations related to energy, such as setbacks required from oil / gas drilling operations or restrictions on the use of land. To the extent that these regulations are modified, the value of land we already own or the availability of land we are looking to purchase may decline, which may adversely impact the financial position, results of operations and cash flows of our business. Furthermore, pricing offered by our suppliers and subcontractors can be adversely affected by increases in various energy costs resulting in a negative impact to our financial position, results of operations and cash flows of our business.
We have financial needs that we meet through the capital markets, including the debt and secondary mortgage markets, and disruptions in these markets could have an adverse impact on the results of our business.
We have financial needs that we meet through the capital markets, including the debt and secondary mortgage markets. Our requirements for additional capital, whether to finance operations or to service or refinance our existing indebtedness, fluctuate as market conditions and our financial performance and operations change. We cannot provide assurance that we will maintain cash reserves and generate sufficient cash flow from operations in an amount to enable us to service our debt or to fund other liquidity needs.
The availability of additional capital, whether from private capital sources or the public capital markets, fluctuates as our financial condition and market conditions in general change. There may be times when the private capital markets and the public debt or equity markets lack sufficient liquidity or when our securities cannot be sold at attractive prices, in which case we would not be able to access capital from these sources. Additionally, any reduction in our credit ratings and/or a weakening of our financial condition, could adversely affect our ability to obtain necessary funds. Even if financing is available, it could be costly or have other adverse consequences.
In addition, the sources and terms and conditions of our mortgage repurchase facility are subject to change. These changes may impact, among other things, availability of capital, cost of borrowings, collateral requirements and collateral advance rates.
Our business is subject to numerous federal, state and local laws and regulations concerning land development, construction of homes, sales, mortgage lending, environmental and other aspects of our business. These laws and regulations could give rise to additional liabilities or expenditures, or restrictions on our business.
10

Our 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 laws and regulations. Various localities in which we operate have imposed (or may impose in the future) fees on developers to fund schools, road improvements and low and moderate-income housing.
Availability of and costs related to permit, water/sewer tap, and impact fees can impact our homebuilding operations. From time to time, various municipalities in which our homebuilding subsidiaries operate restrict or place moratoria on the availability of utilities, including water and sewer taps. Additionally, certain jurisdictions in which our homebuilding subsidiaries operate have proposed or enacted “slow growth” or “no growth” initiatives and other measures that may restrict the number of building permits available in any given year. These initiatives or other similar measures could reduce our ability to open new subdivisions and build and sell homes in the affected markets. The availability issues previously discussed and any increases in costs of these fees may negatively impact our financial position, results of operations and cash flows.
Our homebuilding operations also are affected by regulations pertaining to availability of water, municipal sewage treatment capacity, land use, dust controls, oil and gas operations, building materials, population density and preservation of endangered species, natural terrain and vegetation.

We are subject to growing local, state and federal statutes, ordinances, rules and regulations concerning the protection of public health and the environment. These include regulating the emission or discharge of materials into the environment such as greenhouse gas emissions, storm water runoff, the handling, use, storage and disposal of hazardous substances, and impacts to wetlands and other sensitive environments. These restrictions and requirements could increase our operating costs and require additional capital investment, which could negatively impact our financial position, results of operations and cash flows. Further, we have extensive operations in the western United States, where some of the most extensive environmental laws and building construction standards in the country have been enacted. We believe we are in compliance in all material respects with existing governmental environment restrictions, standards and regulations applicable to our business, and such compliance has not had a material impact on our business. Given the emerging and rapid changes of environmental laws and other matters that may arise that are not currently known, we cannot predict our future exposure, and our future costs to achieve compliance or remedy potential violations could be significant.
The particular environmental laws and regulations that apply to any given homebuilding project vary greatly according to a particular site’s location, the site’s environmental conditions and the present and former uses. These environmental laws may result in project delays, cause us to incur substantial compliance and other costs and/or prohibit or severely restrict homebuilding activity in certain environmentally sensitive locations. Environmental laws and regulations may also have a negative impact on the availability and price of certain raw materials, such as lumber.
Our revolving credit facility contains representations regarding anti-corruption and sanctions laws, a violation of which could result in an event of default.
We also are subject to rules and regulations with respect to originating, processing, selling and servicing mortgage loans, which, among other things: prohibit discrimination and establish underwriting guidelines; provide for audits and inspections; require appraisals and/or credit reports on prospective borrowers and disclosure of certain information concerning credit and settlement costs; establish maximum loan amounts; prohibit predatory lending practices; and regulate the referral of business to affiliated entities.
The regulatory environment for mortgage lending is complex and ever changing and has led to an increase in the number of audits and examinations in the industry. These examinations can include consumer lending practices, sales of mortgages to financial institutions and other investors and the practices in the financial services segments of homebuilding companies. New rules and regulations or revised interpretations of existing rules and regulations applicable to our mortgage lending operations could result in more stringent compliance standards, which may substantially increase costs of compliance.
In the ordinary course of business, we are required to obtain surety bonds, the unavailability of which could adversely affect our business.
As is customary in the homebuilding industry, we often are required to provide surety bonds to secure our performance under construction contracts, development agreements and other arrangements. Our ability to obtain surety bonds primarily depends upon our credit rating, capitalization, working capital, past performance, management expertise and certain external factors, including the overall capacity of the surety market and the underwriting practices of surety bond issuers. The ability to
11

obtain surety bonds also can be impacted by the willingness of insurance companies to issue surety bonds. If we are unable to obtain surety bonds when required, our financial position, results of operations and cash flows could be adversely impacted.
Product liability litigation and warranty claims that arise in the ordinary course of business may be costly.
As a homebuilder, we are subject to construction defect and home warranty claims, as well as claims associated with the sale and financing of our homes arising in the ordinary course of business. These types of claims can be costly. The costs of insuring against or directly paying for construction defect and product liability claims can be high and the amount of coverage offered by insurance companies may be limited. If we are not able to obtain adequate insurance against these claims, we may incur additional expenses that would have a negative impact on our results of operations in future reporting periods. Additionally, changes in the facts and circumstances of our pending litigation matters could have a material impact on our financial position, results of operations and cash flows.
Repurchase requirements associated with HomeAmerican’s sale of mortgage loans, could negatively impact our business.
We are subject to risks associated with mortgage loans, including conventional mortgage loans, FHA and VA mortgage loans, second mortgage loans, high loan-to-value mortgage loans and jumbo mortgage loans (mortgage loans with principal balances that exceed various thresholds in our markets). These risks may include, among other things, compliance with mortgage loan underwriting criteria and the associated homebuyers’ performance, which could require HomeAmerican to repurchase certain of those mortgage loans or provide indemnification. Repurchased mortgage loans and/or the settlement of claims associated with such loans could have a negative impact on HomeAmerican’s financial position, results of operations and cash flows.
Because of the seasonal nature of our business, our quarterly operating results can fluctuate.
We may experience noticeable seasonality and quarter-to-quarter variability in homebuilding activity levels. In general, the number of homes delivered and the associated home sale revenues increase during the third and fourth quarters, compared with the first and second quarters. We believe that this type of seasonality reflects the historical tendency of homebuyers to purchase new homes in the spring and summer with deliveries scheduled in the fall or winter, as well as the scheduling of construction to accommodate seasonal weather conditions in certain markets.
We are dependent on the services of key employees, and the loss of their services could hurt our business.
Although we believe that we have made provision for adequately staffing current operations, because of competition for experienced homebuilding industry personnel, retaining our skilled people is an important area of focus. Our future success depends, in part, on our ability to attract, train and retain skilled personnel. If we are unable to retain our key employees or attract, train and retain other skilled personnel in the future, it could have an adverse impact on our financial position, results of operations and cash flows.
The interests of certain controlling shareholders may be adverse to other investors
Larry A. Mizel and David D. Mandarich beneficially own, directly or indirectly through their affiliates, in the aggregate, approximately 23% of our common stock. To the extent they and their affiliates vote their shares in the same manner, their combined stock ownership may effectively give them the power to influence the election of members of our board of directors and other matters reserved for our shareholders.
Information technology failures and data security breaches could harm our business.
We use information technology and other computer resources to carry out important operational activities and to maintain our business records. These information technology systems are dependent upon electronic systems and other aspects of the internet infrastructure. A material breach in the security of our information technology systems or other data security controls could result in third parties obtaining or corrupting customer, employee or company data. To date, we have not had a material breach of data security, however such occurrences could have a material and adverse effect on our financial position, results of operations and cash flows.
Item 1B. Unresolved Staff Comments.
None.
12


Item 2. Properties.
Our corporate office is located at 4350 South Monaco Street, Denver, Colorado 80237, where we lease all 144,000 square feet of office space in the building. In many of our markets, our homebuilding divisions and other MDC subsidiaries lease additional office space. While we are currently satisfied with the suitability and capacity of our office locations to meet our current business needs, we continue to evaluate them in view of market conditions and the size of our operations.
Item 3. Legal Proceedings.
Because of the nature of the homebuilding business, we and certain of our subsidiaries and affiliates 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 our 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.
Item 4. Mine Safety Disclosures.
Not applicable.
13


PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
At December 31, 2021, we had 546 shareholders of record. The shares of our common stock are traded on the New York Stock Exchange under the trading symbol MDC. On January 28, 2019, the Company declared an 8% stock dividend that was distributed on February 28, 2019 to shareholders of record on February 14, 2019. On January 25, 2021, the Company declared an 8% stock dividend that was distributed on March 17, 2021 to shareholders of record on March 3, 2021. In accordance with Accounting Standards Codification Topic 260, “Earnings per Share”, basic and diluted earnings per share amounts, weighted-average shares outstanding, and dividends declared per share have been restated for all periods presented to reflect the effect of these stock dividends.
The table below sets forth the cash dividends declared and paid in 2021, 2020 and 2019
Date of
Declaration
Date of
Payment
Dividend
per Share
Total
Dividends
Paid
(In thousands)
2021
First Quarter
01/25/2102/24/21$0.37 $25,978 
Second Quarter
04/26/2105/26/210.40 28,249 
Third Quarter
07/26/2108/25/210.40 28,276 
Fourth Quarter
10/25/2111/24/210.50 35,339 
$1.67 $117,842 
2020
First Quarter01/27/2002/26/20$0.31 $20,768 
Second Quarter04/01/2005/20/200.31 20,914 
Third Quarter07/27/2008/26/200.31 21,374 
Fourth Quarter10/26/2011/24/200.37 25,952 
$1.29 $89,008 
2019
First Quarter01/28/1902/27/19$0.26 $17,019 
Second Quarter04/29/1905/29/190.28 18,521 
Third Quarter07/22/1908/21/190.28 18,700 
Fourth Quarter10/28/1911/27/190.28 18,780 
$1.09 $73,020 


14

The following table provides information about our repurchases of common stock during the Three Months Ended December 31, 2021:
Period:
Total Number of Shares Purchased (1)
Average
Price Paid
Per Share
Total Number of Shares Purchased
as Part of Publicly Announced Plan
or Program (2)
Maximum Number of Shares that
 may yet be Purchased under the
Plan or Program (2)
October 1 to October 31, 2021— N/A— 4,000,000 
November 1 to November 30, 2021— N/A— 4,000,000 
December 1 to December 31, 202111,872 $55.83 — 4,000,000 
__________________________________
(1)    Represents shares of common stock withheld by us to cover withholding taxes due upon the vesting of restricted stock award shares, at the election of certain holders of nonvested shares, with market value approximating the amount of withholding taxes due.
(2)    We are authorized to repurchase up to 4,000,000 shares of our common stock. There were no shares of MDC common stock repurchased under this repurchase program during the years ended December 31, 2021, 2020 or 2019. This repurchase authorization has no expiration.
Performance Graph
Set forth below is a graph comparing the yearly change in the cumulative total return of MDC's common stock with the cumulative total return of the S&P 500® Stock Index and with that of a peer group of other homebuilders over the five-year period ended December 31, 2021, weighted as of the beginning of that period.
It is assumed in the graph that $100 was invested (1) in our common stock; (2) in the stocks of the companies in the S&P 500® Stock Index; and (3) in the stocks of the peer group companies, just prior to the commencement of the period and that all dividends received within a quarter were reinvested in that quarter. The peer group index is composed of the following companies: Beazer Homes USA, Inc., D.R. Horton, Inc., Hovnanian Enterprises, Inc., KB Home, Lennar Corporation, M/I Homes, Inc., Meritage Homes Corporation, NVR, Inc., PulteGroup, Inc. and Toll Brothers, Inc.
The stock price performance shown on the following graph is not indicative of future price performance.
mdc-20211231_g1.jpg
Item 6. [Reserved]

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with, and is qualified in its entirety by, the Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-K. This item contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed in “Item 1A, Risk Factors Relating to our Business.” This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
202120202019
(Dollars in thousands, except per share amounts)
Homebuilding:
Home sale revenues$5,102,456 $3,765,379 $3,205,248 
Home cost of sales(3,924,093)(2,982,668)(2,600,196)
Inventory impairments(1,600)— (935)
Total cost of sales(3,925,693)(2,982,668)(2,601,131)
Gross profit1,176,763 782,711 604,117 
Gross margin %23.1 %20.8 %18.8 %
Selling, general and administrative expenses(493,993)(403,218)(362,790)
Loss on debt retirement(23,571)— — 
Interest and other income5,965 4,233 9,070 
Other expense(5,476)(5,209)(5,635)
Homebuilding pretax income659,688 378,517 244,762 
Financial Services:
Revenues152,212 135,832 88,005 
Expenses(64,477)(52,465)(45,001)
Other income (expense), net4,271 (4,372)17,223 
Financial services pretax income92,006 78,995 60,227 
Income before income taxes751,694 457,512 304,989 
Provision for income taxes(178,037)(89,930)(66,677)
Net income$573,657 $367,582 $238,312 
Earnings per share:
Basic$8.13 $5.33 $3.56 
Diluted$7.83 $5.17 $3.44 
Weighted average common shares outstanding:
Basic70,174,281 68,531,856 66,546,347 
Diluted72,854,601 70,676,581 68,798,879 
Cash dividends declared per share$1.67 $1.29 $1.09 
Cash provided by (used in):
Operating Activities$(207,990)$(23,095)$57,833 
Investing Activities$(27,679)$21,685 $(28,785)
Financing Activities$335,156 $31,170 $(24,975)

16

EXECUTIVE SUMMARY
Overview
Industry Conditions and Outlook for MDC*
The Coronavirus/COVID-19 pandemic began impacting the U.S. economy during the latter part of March 2020, adversely affecting consumer demand, financial markets and employment levels. The homebuilding industry was not immune to the impact of the pandemic as we experienced an industry-wide decrease in traffic and order activity as well as increased cancellation levels during the months of March and April 2020. As economic activity resumed and restrictive orders relating to COVID-19 were eased, demand for our homes improved significantly during the remainder of 2020. While we have seen a return of more normal seasonal patterns during 2021, demand has remained strong throughout the year, driven by an improving economy, low interest rates and a continued focus on suburban homeownership. We believe many of these factors will continue to support new home demand in future periods. In contrast, the supply of new and existing homes has remained constrained, due in large part to the underproduction of new homes over the past decade. As a result of this supply-demand imbalance, we raised sales prices in the majority of our communities throughout the year in order to (1) offset cost increases, which have been significant due to cost inflation and labor and material shortages; (2) improve the profitability per home closed given current demand and limits on construction capacity, and; (3) reduce our sales absorption rate to keep our backlog at a level that is manageable for our construction personnel and trade suppliers.
Like many within the industry, we continue to experience shortages of certain building materials and tightness in labor markets for a variety of reasons, including the current supply-demand imbalance and disruptions caused by the pandemic. These disruptions have caused both our construction and land development times to extend. For instance, our average sale-to-close cycle time during the fourth quarter of 2021 was over nine months as compared to our more typical build time of six to eight months. We do not expect material or labor conditions to significantly improve in the near term.
Despite these challenges, we achieved record levels of home sale revenues and consolidated net income for the full year ended December 31, 2021. Our backlog at December 31, 2021 was 7,640 homes with an estimated dollar value of $4.30 billion, up 15% and 32%, respectively, as compared to our backlog at December 31, 2020. This was our highest ever year-end backlog in both units and dollars. In addition, we approved over 20,000 lots for acquisition during the year, resulting in a 29% year-over-year increase in lots owned and optioned to approximately 38,000 lots as of year-end. These metrics bode well for our growth prospects, as does our strategic entry into the Boise, Nashville, Austin and Albuquerque markets during the year. Financial services pretax income reached record levels in 2021, driven largely by our mortgage operations, which has benefited from increased profitability per loan originated during 2020 and early 2021. As competition in the primary mortgage market has increased, we have seen these profit margins return to more historical levels. Overall, we remain cautious and continue to closely monitor developments related to COVID-19, which are highly uncertain and could adversely and materially impact our operations and financial results in future periods.
We ended the year with total liquidity of $1.75 billion following the optional redemption in December 2021 of the remaining $126.4 million of our 5.500% senior notes, which were scheduled to mature in January 2024. This lowered our debt to capital ratio quarter-over-quarter to 36.5% as of December 31, 2021. We believe that our financial position ranks among the best in the homebuilding industry and provides us with the capital resources to drive the continued growth of our business.
Results for the Twelve Months Ended December 31, 2021
For the year ended December 31, 2021, we reported net income of $573.7 million, or $7.83 per diluted share, a 56% increase compared to net income of $367.6 million, or $5.17 per diluted share, for the prior year period. Both our homebuilding and financial services businesses contributed to these year-over-year improvements, as pretax income from our homebuilding operations increased $281.2 million, or 74%, and our financial services pretax income increased $13.0 million, or 16%. The increase in homebuilding pretax income was the result of a 330 basis point increase in our operating margin and a 36% increase in home sale revenues. These increases were partially offset by a loss on debt retirement of $23.6 million. The increase in operating margin is the result of our improved pricing over the last twelve months as well as better operating leverage as we continue to grow our homebuilding operations, partially offset by increased supply costs. The increase in financial services pretax income was primarily due to the overall increase in volume of our homebuilding operations. Additionally, $8.3 million of net losses on equity securities were recognized in the prior year period, further impacting the year-over-year increase in financial services pretax income.

17

The dollar value of our net new home orders increased 11% from the prior year, due to a 11% increase in the average selling price of orders. The increase in the average selling price was the result of price increases implemented over the past twelve months.
* See “Forward-Looking Statements” above.
Homebuilding
Pretax Income (Loss)
Year Ended December 31,
2021Change2020Change2019
Amount%Amount%
(Dollars in thousands)
West$463,302 $233,351 101 %$229,951 $66,882 41 %$163,069 
Mountain231,523 56,522 32 %175,001 38,688 28 %136,313 
East59,494 39,488 197 %20,006 10,149 103 %9,857 
Corporate(94,631)(48,190)104 %(46,441)18,036 (28)%(64,477)
Total homebuilding pretax income$659,688 $281,171 74 %$378,517 $133,755 55 %$244,762 
Homebuilding pretax income for 2021 was $659.7 million, an increase of $281.2 million from $378.5 million for the year ended December 31, 2020. The increase was primarily attributable to a 36% increase in home sale revenues, a 230 basis point improvement in gross margin from home sales and a 100 basis point decrease in our selling, general and administrative expenses as a percentage of revenue.
Our West segment experienced a $233.4 million year-over-year increase in pretax income, due to a 41% increase in home sale revenues and an improved gross margin. Our Mountain segment experienced a $56.5 million increase in pretax income from the prior year, as a result of a 21% increase in home sale revenues and an improved gross margin. Our East segment experienced a $39.5 million increase in pretax income from the prior year, primarily due to a 56% increase in home sale revenues and an improved gross margin. Each of our homebuilding segments also benefited from decreased selling, general and administrative expenses as a percentage of revenue driven by improved operating leverage. Our Corporate segment experienced an $48.2 million increase in pretax loss, due to the $23.6 million loss on retirement of debt recognized in the current year, increased stock-based and deferred compensation expenses, increased payroll expense due to higher headcount and increased bonus expense.
Assets
December 31,Change
20212020Amount%
(Dollars in thousands)
West$2,472,378 $1,855,567 $616,811 33 %
Mountain1,072,717905,007167,71019 %
East450,675274,937175,73864 %
Corporate547,364470,90976,45516 %
Total homebuilding assets$4,543,134 $3,506,420 $1,036,714 30 %
Total homebuilding assets increased 30% from December 31, 2020 to December 31, 2021. Increases in each of our homebuilding segments were the result of increases in our inventory balances. These increases were driven by an increase in homes completed or under construction as of period end and, with the exception of our Mountain segment, a greater number of lots acquired during the period than those delivered to homebuyers. The increase in our Corporate segment was due to the proceeds from the issuance of senior notes during the year. This increase was partially offset by the funding of land acquisitions and construction activity by our Corporate Segment as well as the retirement of our $250 million 5.500% senior notes, which were scheduled to mature in January 2024.

18

New Home Deliveries & Home Sale Revenues:
Changes in home sale revenues are impacted by changes in the number of new homes delivered and the average selling price of those delivered homes. Commentary for each of our segments on significant changes in these two metrics is provided below.
December 31,
20212020
% Change
Homes
Dollar
Value
Average
Price
Homes
Dollar
Value
Average
Price
Homes
Dollar
Value
Average
Price
(Dollars in thousands)
West
5,732 $2,964,766 $517.2 4,412 $2,106,241 $477.4 30 %41 %%
Mountain
2,770 1,567,198 565.8 2,530 1,293,779 511.4 %21 %11 %
East
1,480 570,492 385.5 1,216 365,359 300.5 22 %56 %28 %
Total
9,982 $5,102,456 $511.2 8,158 $3,765,379 $461.6 22 %36 %11 %
December 31,
20202019
% Change
Homes
Dollar
Value
Average
Price
Homes
Dollar
Value
Average
Price
Homes
Dollar
Value
Average
Price
(Dollars in thousands)
West
4,412 $2,106,241 $477.4 3,763 $1,771,061 $470.7 17 %19 %%
Mountain
2,530 1,293,779 511.4 2,242 1,131,568 504.7 13 %14 %%
East
1,216 365,359 300.5 969 302,619 312.3 25 %21 %(4)%
Total
8,158 $3,765,379 $461.6 6,974 $3,205,248 $459.6 17 %17 %— %
For the year ended December 31, 2021, the number of new homes delivered in each of our segments was negatively impacted by an increase in construction cycle times. Our average sale-to-close cycle time during the year ended December 31, 2021 was approximately 36 weeks. Cycle times increased approximately five weeks year-over-year, from the year-ended December 31, 2020 to the year-ended December 31, 2021. This increase was primarily the result of extended permitting times, supply chain disruptions and labor shortages as a result of the pandemic as well as the increased demand for new homes.
West Segment Commentary
For the year ended December 31, 2021, the increase in new home deliveries was the result of an increase in the number of homes in backlog to begin the year. This increase was partially offset by a decrease in backlog conversion rates in most of our markets within this segment as a result of the increased construction cycle times discussed above. The average selling price of homes delivered increased as a result of price increases implemented over the last twelve months as well as a shift in geographic mix of homes delivered from Arizona to Southern California. These increases were partially offset by a shift in mix to lower priced communities.
Mountain Segment Commentary
For the year ended December 31, 2021, the increase in new home deliveries was the result of an increase in the number of homes in backlog to begin the year. This increase was partially offset by a decrease in backlog conversion rates as a result of the increased construction cycle times discussed above. The average selling price of homes delivered increased as a result of price increases implemented over the last twelve months.
East Segment Commentary
For the year ended December 31, 2021, the increase in new home deliveries was the result of an increase in the number of homes in backlog to begin the year. This increase was partially offset by a decrease in backlog conversion rates as a result of the increased construction cycle times discussed above. The average selling price of homes delivered increased as a result of price increases implemented over the last twelve months. Additionally, we experienced a shift in mix within several markets to higher priced communities.
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Gross Margin
Our gross margin from home sales for the year ended December 31, 2021 increased 230 basis points year-over-year from 20.8% to 23.1%. Gross margin from home sales increased across each of our segments driven by price increases implemented across nearly all of our communities over the past twelve months. Our gross margin from home sales was also positively impacted by a decrease in our capitalized interest in cost of sales as a percentage of home sale revenues. These improvements were partially offset by an increase in building material and labor costs year-over-year.
Inventory Impairments
Inventory impairments recognized by segment for the years ended December 31, 2021, 2020 and 2019 are shown in the table below.
Year Ended December 31,
202120202019
(Dollars in thousands)
Housing Completed or Under Construction:
West$1,600 $— $100 
Mountain— 0
East435
Subtotal1,600 — 535
Land and Land Under Development:
West
Mountain400
East
Subtotal— — 400
Total Inventory Impairments$1,600 $— $935 
The table below provides quantitative data, for the periods presented, where applicable, used in determining the fair value of the impaired inventory.
Impairment DataQuantitative Data
Three Months EndedNumber of
Subdivisions
Impaired
Inventory
Impairments
Fair Value of
Inventory After Impairments
Discount Rate
(Dollars in thousands)
December 31, 202111,600 $6,903 N/A
Total$1,600 
March 31, 20192$610 $10,476 N/A
December 31, 20192325 3,948 N/A
Total$935 

20

Selling, General and Administrative Expenses
Year Ended December 31,
2021Change2020Change2019
(Dollars in thousands)
General and administrative expenses$246,042$61,322$184,720$9,693$175,027
General and administrative expenses as a percentage of home sale revenues
4.8%(10) bps4.9%(60) bps5.5%
Marketing expenses$104,435$9,332$95,103$13,488$81,615
Marketing expenses as a percentage of home sale revenues
2.0%(50) bps2.5%0 bps2.5%
Commissions expenses$143,516$20,121$123,395$17,247$106,148
Commissions expenses as a percentage of home sale revenues
2.8%(50) bps3.3%0 bps3.3%
Total selling, general and administrative expenses$493,993$90,775$403,218$40,428$362,790
Total selling, general and administrative expenses as a percentage of home sale revenues (SG&A Rate)
9.7%(100) bps10.7%(60) bps11.3%
For the year ended December 31, 2021, the increase in our general and administrative expenses was primarily due to (1) increased stock-based and deferred compensation expenses, (2) increased bonus expense and (3) increased salary related expenses due to higher average headcount.
For the year ended December 31, 2021, marketing expenses increased as a result of increased deferred selling amortization and master marketing fees resulting from increased closings.
For the year ended December 31, 2021, commissions expenses increased as a result of the increase in home sale revenues year-over-year.

21

Other Homebuilding Operating Data
Net New Orders and Active Subdivisions:
Changes in the dollar value of net new orders are impacted by changes in the number of net new orders and the average selling price of those homes. Commentary for each of our segments on significant changes in these two metrics is provided below
December 31,
20212020% Change
HomesDollar
Value
Average
Price
Monthly
Absorption
Rate *
HomesDollar ValueAverage PriceMonthly
Absorption Rate *
HomesDollar ValueAverage PriceMonthly
Absorption
Rate *
(Dollars in thousands)
West6,238 $3,417,437 $547.8 5.256,099 $3,078,584 $504.8 5.29%11 %%(1)%
Mountain2,926 1,831,755 626.0 4.333,337 1,818,833 545.1 4.46(12)%%15 %(3)%
East1,803 789,810 438.1 4.051,576 562,419 356.9 4.2714 %40 %23 %(5)%
Total10,967 $6,039,002 $550.7 4.7511,012 $5,459,836 $495.8 4.85— %11 %11 %(2)%
December 31,
20202019% Change
HomesDollar
Value
Average
Price
Monthly
Absorption
Rate *
HomesDollar ValueAverage PriceMonthly
Absorption Rate *
HomesDollar ValueAverage PriceMonthly
Absorption
Rate *
(Dollars in thousands)
West6,099 $3,078,584 $504.8 5.294,263 $1,963,489 $460.6 3.9143 %57 %10 %35 %
Mountain3,337 1,818,833 545.1 4.462,410 1,189,193 493.4 3.0438 %53 %10 %47 %
East1,576 562,419 356.9 4.271,166 342,469 293.7 3.6835 %64 %22 %16 %
Total11,012 $5,459,836 $495.8 4.857,839 $3,495,151 $445.9 3.5640 %56 %11 %36 %
*Calculated as total net new orders in period ÷ average active communities during period ÷ number of months in period
Active SubdivisionsAverage Active Subdivisions
December 31,Year Ended December 31,
20212020% Change20212020% Change
West96 103 (7)%99 96 %
Mountain54 60 (10)%56 62 (10)%
East37 31 19 %37 31 19 %
Total187 194 (4)%192 189 %
West Segment Commentary
For the year ended December 31, 2021, the increase in average selling price was due to price increases implemented over the past twelve months within nearly all of our communities. This increase was slightly offset by a shift in mix to lower priced communities.
Mountain Segment Commentary
For the year ended December 31, 2021, the decrease in net new orders was due to a decrease in average active subdivisions within our Colorado markets. The increase in average selling price was due to price increases implemented over the last twelve months within nearly all of our communities.
East Segment Commentary
For the year ended December 31, 2021, the increase in net new orders was due to an increase in average active subdivisions within our Florida markets. This increase was partially offset by a decrease in the monthly sales absorption rate. The increase in average selling price was due to price increases implemented over the last twelve months within nearly all of our communities. Additionally, we experienced a shift in mix within several markets to higher priced communities.
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Cancellation Rate:
Cancellations As a Percentage of Gross Sales
December 31,
2021
Change
2020
Change
2019
West
16 %(1)%17 %(1)%18 %
Mountain
18 %(4)%22 %(2)%24 %
East
18 %(6)%24 %— %24 %
Total
17 %(2)%19 %(2)%21 %
Our cancellations as a percentage of gross sales (“cancellation rate”) decreased from 19% for the year ended December 31, 2020 to 17% for the year ended December 31, 2021. This was driven by the higher cancellation rates incurred during the first and second quarter of 2020 as a result of general economic uncertainty surrounding the pandemic.
Consistent with our quarterly homebuilding operating data provided, we have also included below the cancellations as a percentage of homes in beginning backlog for each quarter during the years ended December 31, 2021 and 2020.
Cancellations As a Percentage of Homes in Beginning Backlog
20212020
Three Months Ended
Dec 31
Sep 30
Jun 30
Mar 31
Dec 31
Sep 30
Jun 30
Mar 31
West
%%%%%11 %14 %15 %
Mountain
%%%%%12 %20 %22 %
East
10 %%%13 %10 %18 %22 %23 %
Total
%%%%%12 %17 %18 %

    Backlog:
December 31,
20212020
% Change
Homes
Dollar
Value
Average
Price
Homes
Dollar
Value
Average
Price
Homes
Dollar
Value
Average Price
(Dollars in thousands)
West
4,216 $2,328,949 $552.4 3,710 $1,831,205 $493.6 14 %27 %12 %
Mountain
2,174 1,402,052 644.9 2,018 1,090,557 540.4 %29 %19 %
East
1,250 567,695 454.2 927 341,439 368.3 35 %66 %23 %
Total
7,640 $4,298,696 $562.7 6,655 $3,263,201 $490.3 15 %32 %15 %
At December 31, 2021, we had 7,640 homes in backlog with a total value of $4.30 billion, representing respective increases of 15% and 32% from December 31, 2020. The increase in the number of homes in backlog is primarily a result of an increase in cycle times within nearly all of our markets. The increase in the average selling price of homes in backlog is due to price increases implemented over the past twelve months in nearly all of our communities as well as a shift in our net new order mix in our East segment as discussed above. Our ability to convert backlog into closings could be adversely and materially impacted in future periods by the pandemic, the extent to which is highly uncertain and depends on future developments.
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Homes Completed or Under Construction:
December 31,
20212020
% Change
Unsold:
Completed
25 48 (48)%
Under construction
312 131 138 %
Total unsold started homes
337 179 88 %
Sold homes under construction or completed
6,379 4,797 33 %
Model homes under construction or completed
479 498 (4)%
Total homes completed or under construction
7,195 5,474 31 %
The increase in sold homes under construction or completed is due to the year-over-year increase in the number of homes in backlog noted above as well as a 1,100 basis point decrease year-over-year in the number of homes in backlog that were sold but where construction had not yet started as of period end.
Lots Owned and Optioned (including homes completed or under construction):
December 31, 2021December 31, 2020
Lots
Owned
Lots
Optioned
Total
Lots
Owned
Lots
Optioned
Total
Total %
Change
West
15,9684,53420,50212,3353,46015,79530 %
Mountain
6,6604,17110,8316,2792,5918,87022 %
East
4,3042,4436,7472,8681,9364,80440 %
Total
26,93211,14838,08021,4827,98729,46929 %
Our total owned and optioned lots at December 31, 2021 were 38,080, up 29% from December 31, 2020. We believe that our total lot supply can support growth in future periods. See "Forward-Looking Statements" above.
Financial Services
Year Ended December 31,
ChangeChange
2021Amount%2020Amount%2019
(Dollars in thousands)
Financial services revenues
Mortgage operations$107,535 $5,860 %$101,675 $46,453 84 %$55,222 
Other44,677 10,520 31 %34,157 1,374 %32,783 
Total financial services revenues$152,212 $16,380 12 %$135,832 $47,827 54 %$88,005 
Financial services pretax income
Mortgage operations$69,455 $(1,562)(2)%$71,017 $41,705 142 %$29,312 
Other22,551 14,573 183 %7,978 (22,937)(74)%30,915 
Total financial services pretax income$92,006 $13,011 16 %$78,995 $18,768 31 %$60,227 
For the year ended December 31, 2021, our financial services revenues increased $16.4 million, or 12% from the same period in the previous year. The increase was due to our other financial services segment, which saw an increase in revenue of $10.5 million. This increase was the result of increased volume during 2021. The increase in our mortgage operations segment was $5.9 million. This increase was the result of increased homebuilding volume, mostly offset by increased competition in the primary mortgage market.
For the year ended December 31, 2021, our financial services pretax income increased $13.0 million or 16% from the same period in the prior year. The increase was due to our other financial services segment, which saw an increase in pretax income of $14.6 million. This increase was the result of $8.3 million of net losses on equity securities recognized during the prior year period and to a lesser extent the increase in volume of our homebuilding operations. The decrease to our mortgage
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operations was due to increased compensation related costs, partially offset by a $3.5 million gain recognized on the sale of conventional mortgage servicing rights during the period and increased homebuilding volume.
The table below sets forth information for our mortgage operations relating to mortgage loans originated and capture rate.
Year Ended December 31,
2021% or Percentage Change2020% or Percentage Change2019
(Dollars in thousands)
Total Originations:
Loans6,247 10 %5,688 30 %4,361 
Principal$2,622,158 23 %$2,140,229 35 %$1,585,487 
Capture Rate Data:
Capture rate as % of all homes delivered62 %(7)%69 %%62 %
Capture rate as % of all homes delivered (excludes cash sales)65 %(7)%72 %%67 %
Mortgage Loan Origination Product Mix:
FHA loans16 %(6)%22 %%19 %
Other government loans (VA & USDA)19 %(2)%21 %%20 %
Total government loans35 %(8)%43 %%39 %
Conventional loans65 %%57 %(4)%61 %
100 %— %100 %— %100 %
Loan Type:
Fixed rate100 %— %100 %%98 %
ARM— %— %— %(2)%%
Credit Quality:
Average FICO Score740 %735 — %738 
Other Data:
Average Combined LTV ratio84 %(1)%85 %%83 %
Full documentation loans100 %— %100 %— %100 %
Loans Sold to Third Parties:
Loans6,210 10 %5,620 33 %4,217 
Principal$2,563,637 22 %$2,104,624 37 %$1,532,214 
Income Taxes
We recorded an income tax provision of $178.0 million, $89.9 million and $66.7 million for the years ended December 31, 2021, 2020 and 2019, respectively, and our resulting effective income tax rates were 23.7%, 19.7% and 21.9%, respectively. Our tax provision and effective tax rate is driven by (i) pre-tax book income for the full year, adjusted for items that are deductible/non-deductible for tax purposes only (i.e., permanent items); (ii) benefits from federal energy credits; (iii) taxable income generated in state jurisdictions that varies from consolidated income and (iv) stock based compensation windfalls recorded as discrete items. The difference between our effective tax rate for the year ended December 31, 2021 and the federal statutory rate was primarily due to 3.5% in state taxes and 2.0% for limitations on deductible executive compensation, partially offset by (1.9)% in benefits for federal energy credits and (0.5)% in benefits for the reversal of uncertain tax positions related to expiration of statutory limitations.
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LIQUIDITY AND CAPITAL RESOURCES
We use our liquidity and capital resources to (1) support our operations, including the purchase of land, land development and construction of homes; (2) provide working capital; and (3) provide mortgage loans for our homebuyers. Our liquidity includes our cash and cash equivalents, Revolving Credit Facility (as defined below) and Mortgage Repurchase Facility (as defined below). Additionally, we have an existing effective shelf registration statement that allows us to issue equity, debt or hybrid securities up to $2.0 billion, of which $1.0 billion remains.
Material Cash Requirements
We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Consolidated Balance Sheet as of December 31, 2021, while others are considered future commitments. Our contractual obligations primarily consist of long-term debt and related interest payments, payments due on our Mortgage Repurchase Facility, purchase obligations related to expected acquisition of land under purchase agreements and land development agreements (many of which are secured by letters of credit or surety bonds) and operating leases. Other material cash requirements include land acquisition and development costs not yet contracted for, home construction costs, operating expenses, including our selling, general and administrative expenses, investments and funding of capital improvements and dividend payments.
At December 31, 2021, we had outstanding senior notes with varying maturities totaling an aggregate principal amount of $1.5 billion, with none payable within 12 months. Future interest payments associated with the notes total $1.4 billion, with $64.2 million payable within 12 months. As of December 31, 2021, we had $34.7 million of required operating lease future minimum payments.
At December 31, 2021, we had deposits of $41.6 million in the form of cash and $19.6 million in the form of letters of credit that secured option contracts to purchase 11,148 lots for a total estimated purchase price of $1.0 billion.
At December 31, 2021, we had outstanding surety bonds and letters of credit totaling $371.3 million and $215.5 million, respectively, including $175.4 million in letters of credit issued by HomeAmerican. The estimated cost to complete obligations related to these bonds and letters of credit were approximately $201.7 million and $161.6 million, respectively. 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.
Capital Resources
Our capital structure is primarily a combination of (1) permanent financing, represented by stockholders’ equity; (2) long-term financing, represented by our 3.850% senior notes due 2030, 2.500% senior notes due 2031, 6.000% senior notes due 2043, and 3.966% senior notes due 2061; (3) our Revolving Credit Facility and (4) our Mortgage Repurchase Facility. During the year-ended December 31, 2021, we accelerated the retirement of all of our $250 million 5.500% senior notes, which were scheduled to mature in January 2024 (see Note 16, Lines of Credit and Total Debt Obligations, in the notes to the financial statements for further discussion). Because of our current balance of cash, cash equivalents, ability to access the capital markets, and available capacity under both our Revolving Credit Facility and Mortgage Repurchase Facility, we believe that our capital resources are adequate to satisfy our short and long-term capital requirements, including meeting future payments on our senior notes as they become due. See “Forward-Looking Statements” above.
We may from time to time seek to retire or purchase our outstanding senior notes through cash purchases, whether through open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Senior Notes, Revolving Credit Facility and Mortgage Repurchase Facility
Senior Notes. 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
26

guaranteed on an unsecured basis, jointly and severally, by most of our homebuilding segment subsidiaries. We believe that we are in compliance with the representations, warranties and covenants in the senior note indentures.
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 December 28, 2020 to (1) increase the aggregate commitment from $1.0 billion to $1.2 billion (the "Commitment"), (2) extend the Revolving Credit Facility maturity of $1.125 billion of the Commitments to December 18, 2025 with the remaining Commitment continuing to terminate on December 18, 2023 and (3) provide that the aggregate amount of the commitments may increase to an amount not to exceed $1.7 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 prime rate, (3) a federal funds effective rate plus 1.50%, and (4) a specified eurocurrency rate plus 1.00% and, in each case, plus a margin that is determined based on our credit ratings and leverage ratio. Interest rates on eurocurrency borrowings are equal to a specified eurocurrency rate plus a margin that is determined based on our credit ratings and leverage ratio. 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 provides for a transition from the eurocurrency rate to a benchmark replacement upon the occurrence of certain events.
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 December 31, 2021.
As of December 31, 2021, we had $10.0 million in borrowings and $40.1 million in letters of credit outstanding under the Revolving Credit Facility, leaving remaining borrowing capacity of $1.15 billion.
Mortgage Repurchase Facility. HomeAmerican has a Master Repurchase Agreement (the “Mortgage Repurchase Facility”) with U.S. Bank National Association (“USBNA”). 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 Mortgage Repurchase Facility was amended on September 24, 2020, March 25, 2021, May 20, 2021, and December 21, 2021 to adjust the commitments to purchase for specific time periods. As part of the amendments, the commitments to purchase (subject to increase by up to $75 million under certain conditions) were increased as follows: (1) $200 million for the periods December 22, 2020 through February 4, 2021, (2) $175 million for the periods March 25, 2021 through April 22, 2021, June 23, 2021 through July 22, 2021, September 22, 2021 through October 21, 2021, and March 23, 2022 through April 21, 2022 and (3) $400 million for the period December 21, 2021 through February 15, 2022. The Mortgage Repurchase Facility is scheduled to terminate on May 19, 2022.

The maximum aggregate commitment of the Mortgage Repurchase Facility was not temporarily increased as of December 31, 2021. The maximum aggregate commitment of the Mortgage Repurchase Facility was temporarily increased by $50 million on December 28, 2020 effective through January 27, 2021. At December 31, 2021 and 2020, HomeAmerican had $256.3 million and $202.4 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
27

Facility are accounted for as a debt financing arrangement and are reported as mortgage repurchase facility in the consolidated balance sheets. The Mortgage Repurchase Facility was amended on December 21, 2021 to provide for a transition from a pricing rate based on the London Interbank Offered Rate (LIBOR) to one based on the Secured Overnight Financing Rate (SOFR).
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 December 31, 2021.
Dividends
In the years ended December 31, 2021 and 2020, we paid dividends of $1.67 per share and $1.29 per share, respectively. In addition to the cash dividends paid, the Company distributed a stock dividend of 8% during 2021.
MDC Common Stock Repurchase Program
At December 31, 2021, we were authorized to repurchase up to 4,000,000 shares of our common stock. We did not repurchase any shares of our common stock under this repurchase program during the year ended December 31, 2021.
Consolidated Cash Flow
Our operating cash flows are primarily impacted by: (1) land purchases and construction of homes; (2) closing homes and the associated timing of collecting receivables from home closings; (3) sales of mortgage loans originated by HomeAmerican; (4) payments on accounts payables and accrued liabilities; and (5) funding for payroll. When we close on the sale of a house, our homebuilding subsidiaries will generally receive the proceeds from the sale of the homes within a few days of the home being closed. Therefore, our home sales receivable balance can increase or decrease from period to period based upon the timing of our home closings. Additionally, the amount of mortgage loans held-for-sale can be impacted period to period based upon the number of mortgage loans that were originated by HomeAmerican that have not been sold to third party purchasers and by the timing of fundings by third party mortgage purchasers. Accordingly, mortgage loans held-for-sale may increase if HomeAmerican originates more homes towards the end of one reporting period when compared with the same period in the previous year. HomeAmerican will generally sell mortgage loans it originates between 5 to 35 days after origination.
Operating Cash Flow Activities
For the year ended December 31, 2021, net cash used in operating activities was $208.0 million compared with net cash used in operating activities of $23.1 million in the prior year. Cash used to increase housing completed or under construction was $431.9 million and $449.9 million for the year ended December 31, 2021 and December 31, 2020, respectively, as our homes in inventory increased significantly during both periods. During the year ended December 31, 2021, cash used to increase land and land under development was $497.4 million compared to $15.0 million in the prior year. The increase was driven by the acquisition of 15,435 lots during the year ended December 31, 2021 compared to 11,195 lots during the year ended December 31, 2020. Cash used because of an increase in trade and other receivables for the year ended December 31, 2021 and 2020 was $25.3 million and $12.8 million, respectively, due to the year-over-year increases in home deliveries during both periods. Cash provided by the change in accounts payable and accrued liabilities for the year ended December 31, 2021 and 2020 was $126.4 million and $91.3 million, respectively, due to the increased construction spend during both periods as a result of the year-over-year increases in home deliveries as well as the increase in homes in inventory at both period ends. The most significant source of cash provided by operating activities in both years was net income.
Investing Cash Flow Activities
For the year ended December 31, 2021, net cash used in investing activities was $27.7 million compared with net cash provided by investing activities of $21.7 million in the prior year. The primary driver of this increase in cash from investing activities relates to $48.5 million in net cash provided by the sale of marketable securities during the prior year. Cash used to purchase property and equipment remained materially consistent year-over-year.
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Financing Cash Flow Activities
For the year ended December 31, 2021, net cash provided by financing activities was $335.2 million compared with $31.2 million in the prior year. The primary driver of this increase in cash provided by financing activities is the proceeds from the issuance of senior notes of $694.7 million during the year ended December 31, 2021, which was partially offset by $277.0 million used to accelerate the retirement of our unsecured notes scheduled to mature in January 2024. Net proceeds from the issuance of senior notes was $48.1 million during the year ended December 31, 2020. Cash used to fund dividend payments increased year-over year as a result of the 25% increase in the cash dividend declared in October 2021 and the 8% stock dividend declared in January 2021.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Management evaluates such estimates and judgments on an on-going basis and makes adjustments as deemed necessary. Actual results could differ from these estimates if conditions are significantly different in the future. See “Forward-Looking Statements” above.
Listed below are those estimates and policies that we believe are critical and require the use of complex judgment in their application. Our critical accounting estimates and policies are as follows and should be read in conjunction with the Notes to our Consolidated Financial Statements.
Homebuilding Inventory Valuation. Refer to Note 1, Summary of Significant Accounting Policies, in the notes to the financial statements for information on the composition of the inventory balances.
In accordance with Accounting Standards Codification (“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.

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. We generally determine the estimated fair value of each subdivision by calculating the present value of the estimated future cash flows using discount rates, which are Level 3 inputs (see Note 6, Fair Value Measurements, in the notes to the financial statements for definitions of fair value 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. These estimates of undiscounted future cash flows are dependent on specific market or sub-market conditions for each subdivision. While we consider available information to determine what we believe to be our best estimates as of the end of a reporting period, these estimates are subject to change in future reporting periods as facts and circumstances change. Local market-specific conditions that may impact these estimates for a subdivision include:
historical subdivision results, and actual and trending Operating Margin, base selling prices and home sales incentives;
29

forecasted Operating Margin for homes in backlog;
the intensity of competition within a market or sub-market, including publicly available home sales prices and home sales incentives offered by our competitors;
increased levels of home foreclosures;
the current sales pace for active subdivisions;
subdivision specific attributes, such as location, availability and size of lots in the sub-market, desirability and uniqueness of subdivision location and the size and style of homes currently being offered;
potential for alternative home styles to respond to local market conditions;
changes by management in the sales strategy of a given subdivision; and
current local market economic and demographic conditions and related trends and forecasts.
These and other local market-specific conditions that may be present are considered by personnel in our homebuilding divisions as they prepare or update the forecasted assumptions for each subdivision. Quantitative and qualitative factors other than home sales prices could significantly impact the potential for future impairments. The sales objectives can differ among subdivisions, even within a given sub-market. For example, facts and circumstances in a given subdivision may lead us to price our homes with the objective of yielding a higher sales absorption pace, while facts and circumstances in another subdivision may lead us to price our homes to minimize deterioration in our gross margins from home sales, even though this could result in a slower sales absorption pace. Furthermore, the key assumptions included in our estimated future undiscounted cash flows may be interrelated. For example, a decrease in estimated base sales price or an increase in home sales incentives may result in a corresponding increase in sales absorption pace. Additionally, a decrease in the average sales price of homes to be sold and closed in future reporting periods for one subdivision that has not been generating what management believes to be an adequate sales absorption pace may impact the estimated cash flow assumptions of a nearby subdivision. Changes in our key assumptions, including estimated construction and land development costs, absorption pace and selling strategies could materially impact future cash flow and fair value estimates. Due to the number of possible scenarios that would result from various changes in these factors, we do not believe it is possible to develop a sensitivity analysis with a level of precision that would be meaningful to an investor.
If the undiscounted future cash flows of a subdivision are less than its carrying value, the carrying value of the subdivision is written down to its then estimated fair value. We determine the estimated fair value of each subdivision either: (1) by determining the present value of the estimated future cash flows at discount rates that are commensurate with the risk of the subdivision under evaluation; or (2) assessing the market value of the land in its current condition by considering the estimated price a willing buyer would pay for the land (other than in a forced liquidation), and recent land purchase transactions that we believe are indicators of fair value. The estimated future cash flows are the same for both our recoverability and fair value assessments. Factors we consider when determining the discount rate to be used for each subdivision include, among others:
the number of lots in a given subdivision;
the amount of future land development costs to be incurred;
risks associated with the home construction process, including the stage of completion for the entire subdivision and the number of owned lots under construction; and
the estimated remaining lifespan of the subdivision.
We allocate the impairments recorded between housing completed or under construction and land and land under development for each impaired subdivision based upon the status of construction of a home on each lot (i.e., if the lot is in housing completed or under construction, the impairment for that lot is recorded against housing completed or under construction). The allocation of impairment is the same with respect to each lot in a given subdivision. Changes in management’s estimates, particularly the timing and amount of the estimated future cash inflows and outflows and forecasted average selling prices of homes to be sold and closed can materially affect any impairment calculation. Because our forecasted cash flows are impacted significantly by changes in market conditions, it is reasonably possible that actual results could differ significantly from those estimates. Please see the “Inventory Impairments” section for a detailed discussion and analysis of our asset impairments.
If land is classified as held for sale, 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. 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.
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Warranty Accrual. Our homes are sold with limited third-party warranties. We record expenses and warranty accruals for general and structural warranty claims, as well as accruals for known, unusual warranty-related expenditures. A warranty accrual is recorded for each home closed 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. Actual future warranty costs could differ from currently estimated amounts. A 10% change in the historical warran