10-Q 1 mdc-20220930.htm 10-Q mdc-20220930
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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, 2022
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 valueMDCNew York Stock Exchange
6% Senior Notes due January 2043MDC 43New 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 25, 2022, 71,264,182 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, 2022
INDEX
Page
No. 


(i)

PART I. FINANCIAL INFORMATION
Item 1.    Unaudited Consolidated Financial Statements
M.D.C. HOLDINGS, INC.
Consolidated Balance Sheets
September 30,
2022
December 31,
2021
(unaudited)
(Dollars in thousands, except share and per share amounts)
ASSETS
Homebuilding:
Cash and cash equivalents$417,298 $485,839 
Restricted cash4,657 12,799 
Marketable securities198,016  
Trade and other receivables118,180 98,580 
Inventories:
Housing completed or under construction2,233,908 1,917,616 
Land and land under development1,808,526 1,843,235 
Total inventories4,042,434 3,760,851 
Property and equipment, net63,333 60,561 
Deferred tax asset, net22,122 17,942 
Prepaids and other assets78,821 106,562 
Total homebuilding assets4,944,861 4,543,134 
Financial Services:
Cash and cash equivalents34,486 104,821 
Marketable securities94,192 — 
Mortgage loans held-for-sale, net190,833 282,529 
Other assets67,441 33,044 
Total financial services assets386,952 420,394 
Total Assets$5,331,813 $4,963,528 
LIABILITIES AND EQUITY
Homebuilding:
Accounts payable$153,003 $149,488 
Accrued and other liabilities364,284 370,910 
Revolving credit facility10,000 10,000 
Senior notes, net1,482,374 1,481,781 
Total homebuilding liabilities2,009,661 2,012,179 
Financial Services:
Accounts payable and accrued liabilities116,734 97,903 
Mortgage repurchase facility196,214 256,300 
Total financial services liabilities312,948 354,203 
Total Liabilities2,322,609 2,366,382 
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; 71,254,143 and 70,668,093 issued and outstanding at September 30, 2022 and December 31, 2021, respectively
713 707 
Additional paid-in-capital1,745,750 1,709,276 
Retained earnings1,262,741 887,163 
Total Stockholders' Equity3,009,204 2,597,146 
Total Liabilities and Stockholders' Equity$5,331,813 $4,963,528 
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,
2022202120222021
(Dollars in thousands, except share and per share amounts)
Homebuilding:
Home sale revenues
$1,407,642 $1,257,701 $4,098,985 $3,667,332 
Home cost of sales
(1,059,996)(962,078)(3,043,390)(2,827,147)
Inventory impairments
(28,415) (29,075) 
Total cost of sales
(1,088,411)(962,078)(3,072,465)(2,827,147)
Gross profit
319,231 295,623 1,026,520 840,185 
Selling, general and administrative expenses
(141,435)(120,116)(404,598)(363,970)
Loss on debt retirement (12,150) (12,150)
Interest and other income
2,220 3,149 3,797 4,984 
Other expense
(11,800)(1,354)(28,733)(2,881)
Homebuilding pretax income
168,216 165,152 596,986 466,168 
Financial Services:
Revenues
34,101 43,104 99,461 121,445 
Expenses
(18,704)(16,377)(54,440)(47,922)
Other income, net2,176 813 4,627 2,855 
Financial services pretax income17,573 27,540 49,648 76,378 
Income before income taxes
185,789 192,692 646,634 542,546 
Provision for income taxes
(41,389)(46,738)(164,271)(131,550)
Net income
$144,400 $145,954 $482,363 $410,996 
Comprehensive income
$144,400 $145,954 $482,363 $410,996 
Earnings per share:
Basic
$2.03 $2.07 $6.78 $5.83 
Diluted
$1.98 $1.99 $6.59 $5.62 
Weighted average common shares outstanding:
Basic
70,880,405 70,301,085 70,829,761 70,130,853 
Diluted
72,729,453 72,800,011 72,892,635 72,770,432 
Dividends declared per share
$0.50 $0.40 $1.50 $1.17 
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, 2022
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Total
Shares
Amount
Balance at December 31, 202170,668,093 $707 $1,709,276 $887,163 $2,597,146 
Net income— — — 148,421 148,421 
Shares issued under stock-based compensation programs, net
498,921 5 (12,633)— (12,628)
Cash dividends declared
— — — (35,583)(35,583)
Stock-based compensation expense
— — 13,726 — 13,726 
Forfeiture of restricted stock
(4,769)— — —  
Balance at March 31, 202271,162,245 $712 $1,710,369 $1,000,001 $2,711,082 
Net Income— — — 189,542 189,542 
Shares issued under stock-based compensation programs, net(1,573) (58)— (58)
Cash dividends declared— — — (35,580)(35,580)
Stock-based compensation expense— — 9,331 — 9,331 
Forfeiture of restricted stock(2,797)— — —  
Balance at June 30, 202271,157,875 $712 $1,719,642 $1,153,963 $2,874,317 
Net Income— — — 144,400 144,400 
Shares issued under stock-based compensation programs, net101,269 1 1,140 1,141 
Cash dividends declared— — — (35,622)(35,622)
Stock-based compensation expense— — 24,968 — 24,968 
Forfeiture of restricted stock(5,001)— — —  
Balance at September 30, 202271,254,143 $713 $1,745,750 $1,262,741 $3,009,204 
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 dividends 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 $2,332,559 
Net Income
— — — 145,954 145,954 
Shares issued under stock-based compensation programs, net
69,512 1 (20)— (19)
Cash dividends declared
— — — (28,276)(28,276)
Stock-based compensation expense
— — 7,766 — 7,766 
Forfeiture of restricted stock
(9,538)$— $— $— $ 
-3-

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.
-4-

M.D.C. HOLDINGS, INC.
Consolidated Statements of Cash Flows
Nine Months Ended
September 30,
20222021
(Dollars in thousands)
Operating Activities:
Net income$482,363 $410,996 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Stock-based compensation expense50,348 26,832 
Depreciation and amortization20,663 23,930 
Inventory impairments29,075  
Gain on sale of other assets (2,014)
Amortization of discount of marketable debt securities(1,082) 
Loss on debt retirement 12,150 
Deferred income tax benefit(4,180)(4,847)
Net changes in assets and liabilities:
Trade and other receivables(19,321)(55,529)
Mortgage loans held-for-sale, net91,696 (16,365)
Housing completed or under construction(319,083)(461,105)
Land and land under development9,018 (118,762)
Prepaids and other assets(8,050)9,919 
Accounts payable and accrued and other liabilities12,506 88,273 
Net cash provided by (used in) operating activities343,953 (86,522)
Investing Activities:
Purchases of marketable securities(291,126) 
Proceeds from sale of other assets 2,014 
Purchases of property and equipment(21,429)(23,028)
Net cash used in investing activities(312,555)(21,014)
Financing Activities:
Proceeds from (payments on) mortgage repurchase facility, net(60,086)13,404 
Repayments of senior notes (136,394)
Proceeds from issuance of senior notes 694,662 
Dividend payments(106,785)(83,189)
Payments of deferred financing costs (1,720)
Issuance of shares under stock-based compensation programs, net(11,545)(15,553)
Net cash provided by (used in) financing activities(178,416)471,210 
Net increase (decrease) in cash, cash equivalents and restricted cash(147,018)363,674 
Cash, cash equivalents and restricted cash:
Beginning of period603,459 503,972 
End of period$456,441 $867,646 
Reconciliation of cash, cash equivalents and restricted cash:
Homebuilding:
Cash and cash equivalents$417,298 $761,715 
Restricted cash4,657 12,047 
Financial Services:
-5-

Cash and cash equivalents34,486 93,884 
Total cash, cash equivalents and restricted cash$456,441 $867,646 
The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.
-6-


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, 2022 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, 2021.
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
There are no recently issued accounting standards applicable to the Company.

-7-

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 (Florida, mid-Atlantic, which includes Maryland, Pennsylvania and Virginia, 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,
2022202120222021
(Dollars in thousands)
Homebuilding
West
$772,356 $729,777 $2,267,946 $2,194,071 
Mountain
424,397 379,041 1,196,526 1,104,391 
East
210,889 148,883 634,513 368,870 
Total homebuilding revenues
$1,407,642 $1,257,701 $4,098,985 $3,667,332 
Financial Services
Mortgage operations
$16,933 $31,122 $56,611 $89,608 
Other
17,168 11,982 42,850 31,837 
Total financial services revenues
$34,101 $43,104 $99,461 $121,445 
-8-

The following table summarizes pretax income (loss) for our homebuilding and financial services operations:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
(Dollars in thousands)
Homebuilding
West
$105,680 $120,284 $384,714 $330,390 
Mountain
68,106 55,386 197,747 165,296 
East
28,245 15,410 94,046 34,091 
Corporate
(33,815)(25,928)(79,521)(63,609)
Total homebuilding pretax income$168,216 $165,152 $596,986 $466,168 
Financial Services
Mortgage operations
$5,676 $21,214 $23,782 $61,341 
Other
11,897 6,326 25,866 15,037 
Total financial services pretax income$17,573 $27,540 $49,648 $76,378 
Total pretax income$185,789 $192,692 $646,634 $542,546 
The following table summarizes total assets for our homebuilding and financial services operations. The assets in our West, Mountain and East segments consist primarily of inventory while the assets in our Corporate segment primarily include our cash and cash equivalents, marketable securities and deferred tax assets. The assets in our financial services segment consist mostly of cash and cash equivalents, marketable securities and mortgage loans held-for-sale.
September 30,
2022
December 31,
2021
(Dollars in thousands)
Homebuilding assets
West
$2,595,147 $2,472,378 
Mountain
1,164,506 1,072,717 
East
494,078 450,675 
Corporate
691,130 547,364 
Total homebuilding assets$4,944,861 $4,543,134 
Financial services assets
Mortgage operations
$255,469 $313,373 
Other
131,483 107,021 
Total financial services assets$386,952 $420,394 
Total assets$5,331,813 $4,963,528 

-9-

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,
2022202120222021
(Dollars in thousands, except per share amounts)
Numerator
Net income$144,400 $145,954 $482,363 $410,996 
Less: distributed earnings allocated to participating securities(180)(155)(535)(446)
Less: undistributed earnings allocated to participating securities(522)(602)(1,784)(1,668)
Net income attributable to common stockholders (numerator for basic earnings per share)143,698 145,197 480,044 408,882 
Add back: undistributed earnings allocated to participating securities522 602 1,784 1,668 
Less: undistributed earnings reallocated to participating securities(513)(584)(1,745)(1,615)
Numerator for diluted earnings per share under two class method$143,707 $145,215 $480,083 $408,935 
Denominator
Weighted-average common shares outstanding70,880,405 70,301,085 70,829,761 70,130,853 
Add: dilutive effect of stock options1,189,243 2,202,045 1,573,814 2,330,667 
Add: dilutive effect of contingently issuable equity awards659,805 296,881 489,060 308,912 
Denominator for diluted earnings per share under two class method72,729,453 72,800,011 72,892,635 72,770,432 
Basic Earnings Per Common Share$2.03 $2.07 $6.78 $5.83 
Diluted Earnings Per Common Share$1.98 $1.99 $6.59 $5.62 
Diluted EPS for both the three and nine months ended September 30, 2022 excluded options to purchase 1,861,534 shares of common stock, because the effect of their inclusion would be anti-dilutive. There were 15,000 anti-dilutive options for both the three and nine months ended September 30, 2021.
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.
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The following table sets forth the fair values and methods used for measuring the fair values of financial instruments on a recurring basis, except those for which the carrying values approximate fair values:
Fair Value
Financial Instrument
Hierarchy
September 30,
2022
December 31,
2021
(Dollars in thousands)
Marketable securities
Debt securities (available-for-sale)
Level 1
$292,208 $ 
Mortgage loans held-for-sale, net
Level 2
$190,833 $282,529 
The following methods and assumptions were used to estimate the fair value of each class of financial instruments as of September 30, 2022 and December 31, 2021.
Debt securities. Our debt securities consist of U.S. government treasury securities with original maturities upon acquisition of less than six months and are treated as available-for-sale investments and, as such, are recorded at fair value with all changes in fair value initially recorded through other comprehensive income. Debt securities are reviewed on a regular basis for impairment.
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, 2022 and December 31, 2021, we had $124.8 million and $157.7 million, respectively, of mortgage loans held-for-sale at fair value 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, 2022 and December 31, 2021, we had $66.0 million and $124.9 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 (losses) 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, 2022, we recorded gain (loss) on mortgage loans held-for-sale, net of $(4.3) million and $(13.6) million, compared to $24.4 million and $70.6 million for the same period in the prior year.
For the financial assets and liabilities that the Company does not reflect at fair value, the following methods and assumptions were used to estimate the fair value of each class of financial instruments.
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.
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, 2022December 31, 2021
Carrying
Amount
Fair ValueCarrying
Amount
Fair Value
(Dollars in thousands)
$300 million 3.850% Senior Notes due January 2030, net
$297,884 $232,907 $297,699 $319,057 
$350 million 2.500% Senior Notes due January 2031, net
347,341 236,101 347,126 339,185 
$500 million 6.000% Senior Notes due January 2043, net
491,065 383,610 490,903 628,092 
$350 million 3.966% Senior Notes due August 2061, net
346,084 183,530 346,053 337,017 
Total$1,482,374 $1,036,148 $1,481,781 $1,623,351 
-11-

6.    Inventories
The following table sets forth, by reportable segment, information relating to our homebuilding inventories:
September 30,
2022
December 31,
2021
(Dollars in thousands)
Housing completed or under construction:
West
$1,284,960 $1,077,256 
Mountain
675,660 596,164 
East
273,288 244,196 
Subtotal
2,233,908 1,917,616 
Land and land under development:
West
1,177,322 1,235,363 
Mountain
444,017 435,958 
East
187,187 171,914 
Subtotal
1,808,526 1,843,235 
Total inventories
$4,042,434 $3,760,851 
Our inventories are primarily associated with communities where we intend to construct and sell homes, including models and unsold homes. Costs capitalized to land and land under development primarily include: (1) land costs; (2) land development costs; (3) entitlement costs; (4) capitalized interest; (5) engineering fees; and (6) title insurance, real property taxes and closing costs directly related to the purchase of the land parcel. Components of housing completed or under construction primarily include: (1) land costs transferred from land and land under development; (2) direct construction costs associated with a house; (3) real property taxes, engineering fees, permits and other fees; (4) capitalized interest; and (5) indirect construction costs, which include field construction management salaries and benefits, utilities and other construction related costs. Land costs are transferred from land and land under development to housing completed or under construction at the point in time that construction of a home on an owned lot begins.
In accordance with ASC Topic 360, Property, Plant, and Equipment (“ASC 360”), homebuilding inventories, excluding those classified as held for sale, are carried at cost unless events and circumstances indicate that the carrying value of the underlying subdivision may not be recoverable.  We evaluate inventories for impairment at each quarter end on a subdivision level basis as each such subdivision represents the lowest level of identifiable cash flows. In making this determination, we review, among other things, the following for each subdivision:
actual and trending “Operating Margin” (which is defined as home sale revenues less home cost of sales and all incremental costs associated directly with the subdivision, including sales commissions and marketing costs);
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. 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.

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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.
Inventory impairments recognized by segment for the three and nine months ended September 30, 2022 and 2021 are shown in the table below.
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(Dollars in thousands)
(Dollars in thousands)
West$25,900 $ $26,560 $ 
Mountain    
East2,515  2,515  
Total Inventory Impairments$28,415 $ $29,075 $ 
The table below provides quantitative data, for the periods presented, where applicable, used in determining the fair value of the impaired inventory.
Impairment Data
Quantitative Data
Three Months Ended
Number of Subdivisions Impaired
Inventory
Impairments
Fair Value of
Inventory After Impairments
Discount Rate
(Dollars in thousands)
March 31, 20221$660 $1,728 N/A
September 30, 20229$28,415 $44,615 15 %18%
Total$29,075 
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,
2022202120222021
(Dollars in thousands)
Homebuilding interest incurred$17,391 $19,108 $52,031 $53,849 
Less: Interest capitalized(17,391)(19,108)(52,031)(53,849)
Homebuilding interest expensed$ $ $ $ 
Interest capitalized, beginning of period$62,169 $54,351 $58,054 $52,777 
Plus: Interest capitalized during period17,391 19,108