10-Q 1 mdc-20210930.htm 10-Q mdc-20210930
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City
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-8951
M.D.C. HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware84-0622967
(State or other jurisdiction
of incorporation or organization)
(I.R.S. employer
identification no.)
4350 South Monaco Street, Suite 50080237
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par value552676108New York Stock Exchange
6% Senior Notes due January 2043552676AQ1New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes    No  
Indicate by check mark whether the registrant has submitted electronically 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    No  
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-Accelerated FilerSmaller Reporting Company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No  
As of October 26, 2021, 70,679,388 shares of M.D.C. Holdings, Inc. common stock were outstanding.


M.D.C. HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTER ENDED September 30, 2021
INDEX
Page
No. 


(i)

PART I
Item 1.    Unaudited Consolidated Financial Statements
M.D.C. HOLDINGS, INC.
Consolidated Balance Sheets
September 30,
2021
December 31,
2020
(Dollars in thousands, except
per share amounts)
ASSETS
Homebuilding:
Cash and cash equivalents$761,715 $411,362 
Restricted cash12,047 15,343 
Trade and other receivables125,556 72,466 
Inventories:
Housing completed or under construction1,948,211 1,486,587 
Land and land under development1,464,603 1,345,643 
Total inventories3,412,814 2,832,230 
Property and equipment, net61,590 61,880 
Deferred tax asset, net16,301 11,454 
Prepaids and other assets105,860 101,685 
Total homebuilding assets4,495,883 3,506,420 
Financial Services:
Cash and cash equivalents93,884 77,267 
Mortgage loans held-for-sale, net248,921 232,556 
Other assets35,716 48,677 
Total financial services assets378,521 358,500 
Total Assets$4,874,404 $3,864,920 
LIABILITIES AND EQUITY
Homebuilding:
Accounts payable$154,376 $98,862 
Accrued and other liabilities334,712 300,735 
Revolving credit facility10,000 10,000 
Senior notes, net1,607,658 1,037,391 
Total homebuilding liabilities2,106,746 1,446,988 
Financial Services:
Accounts payable and accrued liabilities93,880 95,630 
Mortgage repurchase facility215,794 202,390 
Total financial services liabilities309,674 298,020 
Total Liabilities2,416,420 1,745,008 
Stockholders' Equity
Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued or outstanding
  
Common stock, $0.01 par value; 250,000,000 shares authorized; 70,679,612 and 64,851,126 issued and outstanding at September 30, 2021 and December 31, 2020, respectively
707 649 
Additional paid-in-capital1,697,435 1,407,597 
Retained earnings759,842 711,666 
Total Stockholders' Equity2,457,984 2,119,912 
Total Liabilities and Stockholders' Equity$4,874,404 $3,864,920 
The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.
-1-

M.D.C. HOLDINGS, INC.
Consolidated Statements of Operations and Comprehensive Income

Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
(Dollars in thousands, except per share amounts)
Homebuilding:
Home sale revenues
$1,257,701 $1,000,549 $3,667,332 $2,584,392 
Home cost of sales
(962,078)(795,172)(2,827,147)(2,061,608)
Gross profit
295,623 205,377 840,185 522,784 
Selling, general and administrative expenses
(120,116)(103,632)(363,970)(285,269)
Loss on debt retirement(12,150) (12,150) 
Interest and other income
3,149 756 4,984 3,365 
Other expense
(1,354)(851)(2,881)(4,640)
Homebuilding pretax income
165,152 101,650 466,168 236,240 
Financial Services:
Revenues
43,104 36,803 121,445 91,653 
Expenses
(16,377)(13,294)(47,922)(36,401)
Other income (expense), net813 859 2,855 (5,274)
Financial services pretax income27,540 24,368 76,378 49,978 
Income before income taxes
192,692 126,018 542,546 286,218 
Provision for income taxes
(46,738)(27,080)(131,550)(66,124)
Net income
$145,954 $98,938 $410,996 $220,094 
Comprehensive income
$145,954 $98,938 $410,996 $220,094 
Earnings per share:
Basic
$2.07 $1.42 $5.83 $3.21 
Diluted
$1.99 $1.38 $5.62 $3.12 
Weighted average common shares outstanding:
Basic
70,301,085 68,977,965 70,130,853 68,179,403 
Diluted
72,800,011 71,090,903 72,770,432 70,167,443 
Dividends declared per share
$0.40 $0.31 $1.17 $0.92 
The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.
-2-

M.D.C. HOLDINGS, INC.
Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands, except share amounts)

Nine Months Ended September 30, 2021
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Total
Shares
Amount
Balance at December 31, 202064,851,126 $649 $1,407,597 $711,666 $2,119,912 
Net Income
— — — 110,690 110,690 
Shares issued under stock-based compensation programs, net
221,303 2 1,007 — 1,009 
Cash dividends declared
— — — (25,978)(25,978)
Stock dividend declared5,192,776 52 279,579 (280,318)(687)
Stock-based compensation expense
— — 9,926 — 9,926 
Balance at March 31, 202170,265,205 $703 $1,698,109 $516,060 $2,214,872 
Net Income
— — — 154,352 154,352 
Shares issued under stock-based compensation programs, net
358,993 3 (16,546)— (16,543)
Cash dividends declared
— — — (28,248)(28,248)
Stock-based compensation expense
— — 8,126 — 8,126 
Forfeiture of restricted stock(4,560)— — — — 
Balance at June 30, 202170,619,638 $706 $1,689,689 $642,164 $2,332,559 
Net Income
— — — 145,954 145,954 
Shares issued under stock-based compensation programs, net
69,512 1 (20)— (19)
Cash dividends declared
— — — (28,276)(28,276)
Stock-based compensation expense
— — 7,766 — 7,766 
Forfeiture of restricted stock(9,538)— — — — 
Balance at September 30, 202170,679,612 $707 $1,697,435 $759,842 $2,457,984 
The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.
-3-

M.D.C. HOLDINGS, INC.
Consolidated Statements of Changes in Stockholders’ Equity (Continued)
(Dollars in thousands, except share amounts)

Nine Months Ended September 30, 2020
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Total
Shares
Amount
Balance at December 31, 201962,574,961 $626 $1,348,733 $433,126 $1,782,485 
Cumulative effect of newly adopted accounting standards— — — (34)(34)
Balance at January 1, 202062,574,961 626 1,348,733 433,092 1,782,451 
Net Income— — — 36,760 36,760 
Shares issued under stock-based compensation programs, net477,582 5 8,189 — 8,194 
Cash dividends declared— — — (20,768)(20,768)
Stock-based compensation expense— — 4,440 — 4,440 
Forfeiture of restricted stock(48)— — — — 
Balance at March 31, 202063,052,495 $631 $1,361,362 $449,084 $1,811,077 
Net Income— — — 84,396 84,396 
Shares issued under stock-based compensation programs, net334,178 3 (6,865)— (6,862)
Cash dividends declared— — — (20,914)(20,914)
Stock-based compensation expense— — 5,488 — 5,488 
Forfeiture of restricted stock(1,807)— — — — 
Balance at June 30, 202063,384,866 $634 $1,359,985 $512,566 $1,873,185 
Net Income— — — 98,938 98,938 
Shares issued under stock-based compensation programs, net1,480,711 15 28,627 — 28,642 
Cash dividends declared— — — (21,374)(21,374)
Stock-based compensation expense— — 8,608 — 8,608 
Balance at September 30, 202064,865,577 $649 $1,397,220 $590,130 $1,987,999 
The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.
-4-

M.D.C. HOLDINGS, INC.
Consolidated Statements of Cash Flows
Nine Months Ended
September 30,
20212020
(Dollars in thousands)
Operating Activities:
Net income$410,996 $220,094 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense26,832 18,536 
Depreciation and amortization23,930 18,881 
Net loss on marketable equity securities 8,285 
Gain on sale of other assets(2,014) 
Loss on debt retirement12,150  
Deferred income tax expense(4,847)8,493 
Net changes in assets and liabilities:
Trade and other receivables(55,529)(17,512)
Mortgage loans held-for-sale, net(16,365)36,515 
Housing completed or under construction(461,105)(387,269)
Land and land under development(118,762)108,710 
Prepaids and other assets9,919 (20,314)
Accounts payable and accrued and other liabilities88,273 35,023 
Net cash provided by (used in) operating activities(86,522)29,442 
Investing Activities:
Purchases of marketable securities (10,804)
Sales of marketable securities 59,266 
Proceeds from sale of other assets2,014  
Purchases of property and equipment(23,028)(20,885)
Net cash provided by (used in) investing activities(21,014)27,577 
Financing Activities:
Payments on mortgage repurchase facility, net13,404 (18,755)
Payments on homebuilding line of credit, net (5,000)
Repayment of senior notes(136,394)(250,000)
Proceeds from issuance of senior notes694,662 298,050 
Dividend payments(83,189)(63,056)
Payments of deferred financing costs(1,720) 
Issuance of shares under stock-based compensation programs, net(15,553)29,974 
Net cash provided by (used in) financing activities471,210 (8,787)
Net increase in cash, cash equivalents and restricted cash363,674 48,232 
Cash, cash equivalents and restricted cash:
Beginning of period503,972 474,212 
End of period$867,646 $522,444 
Reconciliation of cash, cash equivalents and restricted cash:
Homebuilding:
Cash and cash equivalents$761,715 $432,277 
Restricted cash12,047 19,732 
Financial Services:
Cash and cash equivalents93,884 70,435 
Total cash, cash equivalents and restricted cash$867,646 $522,444 
The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.
-5-


1.    Basis of Presentation
The Unaudited Consolidated Financial Statements of M.D.C. Holdings, Inc. ("MDC," “the Company," “we,” “us,” or “our,” which refers to M.D.C. Holdings, Inc. and its subsidiaries) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Accordingly, they do not include all information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of MDC at September 30, 2021 and for all periods presented. These statements should be read in conjunction with MDC’s Consolidated Financial Statements and Notes thereto included in MDC’s Annual Report on Form 10-K for the year ended December 31, 2020.
On January 25, 2021, MDC's board of directors 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 ("ASC") Topic 260, Earnings Per Share ("ASC 260"), basic and diluted earnings per share amounts, share amounts and dividends declared per share have been restated for any period or dates prior to the stock dividend record date.
Included in these footnotes are certain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects. These forward-looking statements may be identified by terminology such as “likely,” “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this section are reasonable, we cannot guarantee future results. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be considered.
Where necessary, reclassifications have been made to our prior period financial information to conform to the current year presentation.
2.    Recently Issued Accounting Standards
Adoption of New Accounting Standards
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held. The amendments in ASU 2016-13 eliminate the probable threshold for initial recognition of a credit loss in current GAAP and reflect an entity’s current estimate of all expected credit losses. On January 1, 2020, we adopted ASU 2016-13 using the modified retrospective transition method, resulting in a cumulative effect adjustment that decreased the opening balance of retained earnings by less than $0.1 million. The standard did not materially impact our consolidated statements of operations and comprehensive income or consolidated cash flows.
-6-

3.    Segment Reporting
An operating segment is defined as a component of an enterprise for which discrete financial information is available and is reviewed regularly by the Chief Operating Decision Maker (“CODM”), or decision-making group, to evaluate performance and make operating decisions. We have identified our CODM as two key executives—the Executive Chairman and the Chief Executive Officer (“CEO”).
We have identified each homebuilding division as an operating segment. Our homebuilding operating segments have been aggregated into the reportable segments noted below because they are similar in the following regards: (1) economic characteristics; (2) housing products; (3) class of homebuyer; (4) regulatory environments; and (5) methods used to construct and sell homes. Our homebuilding reportable segments are as follows:
West (Arizona, California, Nevada, New Mexico, Oregon, Texas and Washington)
Mountain (Colorado, Idaho and Utah)
East (mid-Atlantic, which includes Maryland and Virginia, Florida and Tennessee)
Our financial services business consists of the operations of the following operating segments: (1) HomeAmerican Mortgage Corporation (“HomeAmerican”); (2) Allegiant Insurance Company, Inc., A Risk Retention Group (“Allegiant”); (3) StarAmerican Insurance Ltd. (“StarAmerican”); (4) American Home Insurance Agency, Inc.; and (5) American Home Title and Escrow Company. Due to its contributions to consolidated pretax income, we consider HomeAmerican to be a reportable segment (“mortgage operations”). The remaining operating segments have been aggregated into one reportable segment (“other”) because they do not individually exceed 10 percent of: (1) consolidated revenue; (2) the greater of (a) the combined reported profit of all operating segments that did not report a loss or (b) the positive value of the combined reported loss of all operating segments that reported losses; or (3) consolidated assets.
Corporate is a non-operating segment that develops and implements strategic initiatives and supports our operating divisions by centralizing key administrative functions such as finance, treasury, information technology, insurance, risk management, litigation and human resources. Corporate also provides the necessary administrative functions to support MDC as a publicly traded company. A portion of the expenses incurred by Corporate are allocated to the homebuilding operating segments based on their respective percentages of assets, and to a lesser degree, a portion of Corporate expenses are allocated to the financial services segments. A majority of Corporate’s personnel and resources are primarily dedicated to activities relating to the homebuilding segments, and, therefore, the balance of any unallocated Corporate expenses is included in the homebuilding operations section of our consolidated statements of operations and comprehensive income.
The following table summarizes revenues for our homebuilding and financial services operations:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
(Dollars in thousands)
Homebuilding
West
$729,777 $552,319 $2,194,071 $1,447,934 
Mountain
379,041 347,095 1,104,391 886,619 
East
148,883 101,135 368,870 249,839 
Total homebuilding revenues
$1,257,701 $1,000,549 $3,667,332 $2,584,392 
Financial Services
Mortgage operations
$31,122 $28,548 $89,608 $67,536 
Other
11,982 8,255 31,837 24,117 
Total financial services revenues
$43,104 $36,803 $121,445 $91,653 
-7-

The following table summarizes pretax income (loss) for our homebuilding and financial services operations:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
(Dollars in thousands)
Homebuilding
West
$120,284 $59,120 $330,390 $144,441 
Mountain
55,386 48,053 165,296 111,372 
East
15,410 6,020 34,091 9,993 
Corporate
(25,928)(11,543)(63,609)(29,566)
Total homebuilding pretax income$165,152 $101,650 $466,168 $236,240 
Financial Services
Mortgage operations
$21,214 $20,809 $61,341 $46,558 
Other
6,326 3,559 15,037 3,420 
Total financial services pretax income$27,540 $24,368 $76,378 $49,978 
Total pretax income$192,692 $126,018 $542,546 $286,218 
The following table summarizes total assets for our homebuilding and financial services operations. The assets in our West, Mountain and East segments consist primarily of inventory while the assets in our Corporate segment primarily include our cash and cash equivalents and deferred tax assets. The assets in our financial services segment consist mostly of cash and cash equivalents and mortgage loans held-for-sale.
September 30,
2021
December 31,
2020
(Dollars in thousands)
Homebuilding assets
West
$2,229,687 $1,855,567 
Mountain
1,030,407 905,007 
East
419,212 274,937 
Corporate
816,577 470,909 
Total homebuilding assets$4,495,883 $3,506,420 
Financial services assets
Mortgage operations
$279,938 $279,649 
Other
98,583 78,851 
Total financial services assets$378,521 $358,500 
Total assets$4,874,404 $3,864,920 

-8-

4.     Earnings Per Share
Accounting Standards Codification ("ASC") Topic 260, Earnings per Share ("ASC 260") requires a company that has participating security holders (for example, holders of unvested restricted stock that have non-forfeitable dividend rights) to utilize the two-class method for calculating earnings per share (“EPS”) unless the treasury stock method results in lower EPS. The two-class method is an allocation of earnings/(loss) between the holders of common stock and a company’s participating security holders. Under the two-class method, earnings/(loss) for the reporting period are allocated between common shareholders and other security holders based on their respective rights to receive distributed earnings (i.e., dividends) and undistributed earnings (i.e., net income/(loss)). Our common shares outstanding are comprised of shareholder owned common stock and shares of unvested restricted stock held by participating security holders. Basic EPS is calculated by dividing income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding, excluding participating shares in accordance with ASC 260. To calculate diluted EPS, basic EPS is adjusted to include the effect of potentially dilutive stock options outstanding and contingently issuable equity awards. The table below shows our basic and diluted EPS calculations.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
(Dollars in thousands, except per share amounts)
Numerator
Net income$145,954 $98,938 $410,996 $220,094 
Less: distributed earnings allocated to participating securities(155)(148)(446)(404)
Less: undistributed earnings allocated to participating securities(602)(502)(1,668)(952)
Net income attributable to common stockholders (numerator for basic earnings per share)145,197 98,288 408,882 218,738 
Add back: undistributed earnings allocated to participating securities602 502 1,668 952 
Less: undistributed earnings reallocated to participating securities(584)(488)(1,615)(929)
Numerator for diluted earnings per share under two class method$145,215 $98,302 $408,935 $218,761 
Denominator
Weighted-average common shares outstanding70,301,085 68,977,965 70,130,853 68,179,403 
Add: dilutive effect of stock options2,202,045 1,955,474 2,330,667 1,727,700 
Add: dilutive effect of contingently issuable equity awards296,881 157,464 308,912 260,340 
Denominator for diluted earnings per share under two class method72,800,011 71,090,903 72,770,432 70,167,443 
Basic Earnings Per Common Share$2.07 $1.42 $5.83 $3.21 
Diluted Earnings Per Common Share$1.99 $1.38 $5.62 $3.12 
Diluted EPS for both the three and nine months ended September 30, 2021 excluded options to purchase 15,000 shares, respectively, because the effect of their inclusion would be anti-dilutive. Their were zero and 800,000 anti-dilutive options for the three and nine months ended September 30, 2020, respectively.
-9-

5.    Fair Value Measurements
ASC Topic 820, Fair Value Measurements (“ASC 820”), defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs, other than quoted prices in active markets, that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The following table sets forth the fair values and methods used for measuring the fair values of financial instruments on a recurring basis:
Fair Value
Financial Instrument
Hierarchy
September 30,
2021
December 31,
2020
(Dollars in thousands)
Mortgage loans held-for-sale, net
Level 2
$248,921 $232,556 
The following methods and assumptions were used to estimate the fair value of each class of financial instruments as of September 30, 2021 and December 31, 2020.
Cash and cash equivalents (excluding debt securities with an original maturity of three months or less), restricted cash, trade and other receivables, prepaids and other assets, accounts payable, accrued and other liabilities and borrowings on our revolving credit facility. Fair value approximates carrying value.
Equity securities. Our equity securities consisted of holdings in common stock and exchange traded funds and were recorded at fair value with all changes in fair value recorded to other income (expense), net in the financial services section of our consolidated statements of operations and comprehensive income.
The following table reconciles the net gain (loss) recognized during the three and nine months ended September 30, 2021 and 2020 on equity securities to the unrealized gain recognized during the periods on equity securities still held at the reporting date.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
(Dollars in thousands)
Net gain (loss) recognized during the period on equity securities$ $ $ $(8,285)
Less: Net gain (loss) recognized during the period on equity securities sold during the period   (8,285)
Unrealized gain (loss) loss recognized during the reporting period on equity securities still held at the reporting date$ $ $ $ 
Mortgage loans held-for-sale, net.  Our mortgage loans held-for-sale, which are measured at fair value on a recurring basis, include (1) mortgage loans held-for-sale that are under commitments to sell and (2) mortgage loans held-for-sale that are not under commitments to sell. At September 30, 2021 and December 31, 2020, we had $142.2 million and $137.3 million, respectively, of mortgage loans held-for-sale under commitments to sell. The fair value for those loans was based on quoted market prices for those mortgage loans, which are Level 2 fair value inputs. At September 30, 2021 and December 31, 2020, we had $106.7 million and $95.3 million, respectively, of mortgage loans held-for-sale that were not under commitments to sell. The fair value for those loans was primarily based upon the estimated market price received from an outside party, which is a Level 2 fair value input.
Gains on sales of mortgage loans, net, are included as a component of revenues in the financial services section of our consolidated statements of operations and comprehensive income. For the three and nine months ended September 30, 2021, we recorded net gains on the sales of mortgage loans of $23.6 million and $73.5 million, respectively, compared to $26.8 million and $64.3 million for the same periods in the prior year, respectively.
-10-

Mortgage Repurchase Facility. The debt associated with our mortgage repurchase facility (see Note 18 for further discussion) is at floating rates that approximate current market rates and have relatively short-term maturities, generally within 30 days. The fair value approximates carrying value and is based on Level 2 inputs.
Senior Notes. The estimated values of the senior notes in the following table are based on Level 2 inputs, which primarily reflect estimated prices for our senior notes that were provided by multiple sources.
September 30, 2021December 31, 2020
Carrying
Amount
Fair ValueCarrying
Amount
Fair Value
(Dollars in thousands)
$250 million 5.500% Senior Notes due January 2024, net
$126,071 $137,109 $249,233 $275,463 
$300 million 3.850% Senior Notes due January 2030, net
297,638 322,680 297,458 331,384 
$350 million 2.500% Senior Notes due January 2031, net
347,055 341,457   
$500 million 6.000% Senior Notes due January 2043, net
490,851 625,275 490,700 667,288 
$350 million 3.966% Senior Notes due August 2061, net
346,043 334,664   
Total$1,607,658 $1,761,185 $1,037,391 $1,274,135 
During the three months ended September 30, 2021, we accelerated the retirement of $123.6 million of our 5.500% senior notes scheduled to mature in January 2024 through a cash tender offer.
6.    Inventories
The following table sets forth, by reportable segment, information relating to our homebuilding inventories:
September 30,
2021
December 31,
2020
(Dollars in thousands)
Housing completed or under construction:
West$1,077,320 $902,842 
Mountain636,090 464,501 
East234,801 119,244 
Subtotal1,948,211 1,486,587 
Land and land under development:
West974,380 822,504 
Mountain340,702 391,054 
East149,521 132,085 
Subtotal1,464,603 1,345,643 
Total inventories$3,412,814 $2,832,230 
Our inventories are primarily associated with communities where we intend to construct and sell homes, including models. Costs capitalized to land and land under development primarily include: (1) land costs; (2) land development costs; (3) entitlement costs; (4) capitalized interest; (5) engineering fees; and (6) title insurance, real property taxes and closing costs directly related to the purchase of the land parcel. Components of housing completed or under construction primarily include: (1) land costs transferred from land and land under development; (2) direct construction costs associated with a house; (3) real property taxes, engineering fees, permits and other fees; (4) capitalized interest; and (5) indirect construction costs, which include field construction management salaries and benefits, utilities and other construction related costs. Land costs are transferred from land and land under development to housing completed or under construction at the point in time that construction of a home on an owned lot begins.

-11-

In accordance with ASC Topic 360, Property, Plant, and Equipment (“ASC 360”), homebuilding inventories, excluding those classified as held for sale, are carried at cost unless events and circumstances indicate that the carrying value of the underlying subdivision may not be recoverable.  We evaluate inventories for impairment at each quarter end on a subdivision level basis as each such subdivision represents the lowest level of identifiable cash flows. In making this determination, we review, among other things, the following for each subdivision:
actual and trending “Homebuilding 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);
forecasted Homebuilding 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. If the undiscounted future cash flows are less than the subdivision’s carrying value, the carrying value of the subdivision is written down to its then estimated fair value. We generally determine the estimated fair value of each subdivision by determining the present value of the estimated future cash flows at discount rates, which are Level 3 inputs, that are commensurate with the risk of the subdivision under evaluation. The evaluation for the recoverability of the carrying value of the assets for each individual subdivision can be impacted significantly by our estimates of future home sale revenues, home construction costs, and development costs per home, all of which are Level 3 inputs.
If land is classified as held for sale, we measure it in accordance with ASC 360 at the lower of the carrying value or fair value less estimated costs to sell. In determining fair value, we primarily rely upon the most recent negotiated price, which is a Level 2 input. If a negotiated price is not available, we will consider several factors including, but not limited to, current market conditions, recent comparable sales transactions and market analysis studies, which are considered Level 3 inputs. 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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7.    Capitalization of Interest
We capitalize interest to inventories during the period of development in accordance with ASC Topic 835, Interest (“ASC 835”). Homebuilding interest capitalized as a cost of inventories is included in cost of sales during the period that related units or lots are delivered. To the extent our homebuilding debt exceeds our qualified assets as defined in ASC 835, we expense a portion of the interest incurred. Qualified homebuilding assets consist of all lots and homes, excluding finished unsold homes or finished models, within projects that are actively selling or under development. The table set forth below summarizes homebuilding interest activity. For all periods presented below, our qualified assets exceeded our homebuilding debt and as such, all interest incurred has been capitalized.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
(Dollars in thousands)
Homebuilding interest incurred$19,108 $14,799 $53,849 $46,427 
Less: Interest capitalized(19,108)(14,799)(53,849)(46,427)
Homebuilding interest expensed$ $ $ $ 
Interest capitalized, beginning of period$54,351 $56,929 $52,777 $55,310 
Plus: Interest capitalized during period19,108 14,799 53,849 46,427 
Less: Previously capitalized interest included in home cost of sales(16,024)(16,511)(49,191)(46,520)
Interest capitalized, end of period$57,435 $55,217 $57,435 $55,217