Edgar Filing: MDC HOLDINGS INC

e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2005


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

Commission File No. 1-8951

M.D.C. HOLDINGS, INC.

(Exact name of Registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		84-0622967 (I.R.S. employer identification no.)


4350 South Monaco Street, Suite 500 Denver, Colorado (Address of principal executive offices)		80237 (Zip code)

(303) 773-1100
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

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

As of October 31, 2005, 44.6 million shares of M.D.C. Holdings, Inc. common stock were outstanding.

M.D.C. HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2005

INDEX


			Page
			No.
Part I.	Financial Information:

	Item 1.	Consolidated Financial Statements (Unaudited):

		Consolidated Balance Sheets at September 30, 2005 and December 31, 2004		1

		Consolidated Statements of Income for the three and nine months ended September 30, 2005 and 2004		3

		Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004		4

		Notes to Consolidated Financial Statements		5

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		32

	Item 4.	Controls and Procedures		32

Part II	Other Information:

	Item 1.	Legal Proceedings		33

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		33

	Item 3.	Defaults Upon Senior Securities		33

	Item 4.	Submission of Matters to a Vote of Security Holders		33

	Item 5.	Other Information		33

	Item 6.	Exhibits		34

	Signature			35
Ratio of Earnings to Fixed Charges
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

(i)

M.D.C. HOLDINGS, INC.

Consolidated Balance Sheets

(In thousands)

(Unaudited)


	September 30,		December 31,
	2005		2004
ASSETS
Corporate
Cash and cash equivalents	$	105,105	$	389,828
Property and equipment, net		30,927		28,932
Deferred income taxes		41,850		40,963
Deferred debt issue costs, net		7,284		5,671
Other assets, net		11,206		9,022

		196,372		474,416


Homebuilding
Cash and cash equivalents		23,110		16,961
Home sales and other accounts receivable		80,845		31,018
Inventories, net
Housing completed or under construction		1,535,936		851,628
Land and land under development		1,367,890		1,109,953
Prepaid expenses and other assets, net		150,955		115,544

		3,158,736		2,125,104


Financial Services
Cash and cash equivalents		1,906		1,361
Mortgage loans held in inventory		206,396		178,925
Other assets, net		10,279		10,238

		218,581		190,524


Total Assets	$	3,573,689	$	2,790,044

See notes to consolidated financial statements.

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M.D.C. HOLDINGS, INC.
Consolidated Balance Sheets
(In thousands, except share amounts)
(Unaudited)


	September 30,			December 31,
	2005			2004
LIABILITIES
Corporate
Accounts payable and accrued liabilities	$	113,184		$	94,178
Income taxes payable		49,499			50,979
Senior notes, net		996,171			746,310

		1,158,854			891,467


Homebuilding
Accounts payable		243,560			159,763
Accrued liabilities		203,045			165,705
Line of credit		40,000			—

		486,605			325,468


Financial Services
Accounts payable and accrued liabilities		25,382			18,810
Line of credit		138,664			135,478

		164,046			154,288

Total Liabilities		1,809,505			1,371,223

COMMITMENTS AND CONTINGENCIES		—			—

STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued		—			—
Common stock, $0.01 par value; 100,000,000 shares authorized; 44,587,000 and 43,286,000 shares issued, respectively, at September 30, 2005 and December 31, 2004		446			433
Additional paid-in capital		720,235			660,699
Retained earnings		1,046,641			760,780
Unearned restricted stock		(2,380	)		(1,418	)
Accumulated other comprehensive income		(275	)		(290	)

		1,764,667			1,420,204
Less treasury stock, at cost; 11,000 and 31,000 shares, respectively, at September 30, 2005 and December 31, 2004		(483	)		(1,383	)

Total Stockholders’ Equity		1,764,184			1,418,821

Total Liabilities and Stockholders’ Equity	$	3,573,689		$	2,790,044

See notes to consolidated financial statements.

- 2 -

M.D.C. HOLDINGS, INC.

Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
REVENUES
Homebuilding	$	1,152,104		$	1,011,392		$	3,106,728		$	2,623,625
Financial services		15,471			14,627			39,881			41,022
Corporate		237			110			1,459			569

Total Revenues		1,167,812			1,026,129			3,148,068			2,665,216


COSTS AND EXPENSES
Homebuilding		937,454			818,301			2,541,943			2,164,604
Financial services		9,207			9,054			26,643			27,647
Corporate		27,825			27,905			86,250			67,991

Total Costs and Expenses		974,486			855,260			2,654,836			2,260,242


Income before income taxes		193,326			170,869			493,232			404,974
Provisions for income taxes		(72,336	)		(65,796	)		(184,988	)		(156,432	)


NET INCOME	$	120,990		$	105,073		$	308,244		$	248,542


EARNINGS PER SHARE
Basic	$	2.73		$	2.47		$	7.03		$	5.87

Diluted	$	2.62		$	2.36		$	6.70		$	5.61

WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic		44,379			42,493			43,849			42,373

Diluted		46,258			44,442			46,006			44,324

DIVIDENDS DECLARED PER SHARE	$	0.180		$	0.115		$	0.510		$	0.318

See notes to consolidated financial statements.

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M.D.C. HOLDINGS, INC.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine Months Ended
	September 30,
	2005			2004
OPERATING ACTIVITIES
Net income	$	308,244		$	248,542
Adjustment to reconcile net income to net cash used in operating activities
Depreciation and amortization		34,518			28,756
Deferred income taxes		(887	)		(3,533	)
Net changes in assets and liabilities
Home sales and other accounts receivable		(49,827	)		(14,915	)
Homebuilding inventories		(942,245	)		(549,395	)
Prepaid expenses and other assets		(56,003	)		(56,214	)
Mortgage loans held in inventory		(27,471	)		853
Accounts payable and accrued liabilities		179,180			147,530
Other, net		615			4,144

Net cash used in operating activities		(553,876	)		(194,232	)


INVESTING ACTIVITIES
Net purchase of property and equipment		(18,118	)		(27,083	)


FINANCING ACTIVITIES
Lines of credit
Advances		948,786			1,388,500
Principal payments		(905,600	)		(1,273,254	)
Proceeds from issuance of senior notes, net		247,605			—
Dividend payments		(22,383	)		(13,641	)
Stock repurchases		—			(6,812	)
Proceeds from exercise of stock options		25,557			6,040

Net cash provided by financing activities		293,965			100,833

Net decrease in cash and cash equivalents		(278,029	)		(120,482	)
Cash and cash equivalents
Beginning of year		408,150			173,565

End of period	$	130,121		$	53,083

See notes to consolidated financial statements.

- 4 -

M.D.C. HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)

A. Presentation of Financial Statements

The consolidated financial statements of M.D.C. Holdings, Inc. (“MDC” or the “Company,” 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. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. These statements reflect all adjustments (including all normal recurring accruals) 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, 2005 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 its fiscal year ended December 31, 2004. Certain reclassifications have been made in the 2004 consolidated financial statements to conform to the classifications used in the current year.

The Company historically has experienced, and expects to continue to experience, variability in quarterly results. The consolidated statements of income are not necessarily indicative of the results to be expected for the full year.

B. Earnings Per Share

The basic and diluted earnings per share calculations are shown below (in thousands, except per share amounts). Prior period earnings per share and weighted-average shares outstanding have been adjusted retroactively for the effect of the January 10, 2005 1.3 for 1 stock split.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2005		2004		2005		2004
Basic Earnings Per Share
Net income	$	120,990	$	105,073	$	308,244	$	248,542

Basic weighted-average shares outstanding		44,379		42,493		43,849		42,373

Per share amounts	$	2.73	$	2.47	$	7.03	$	5.87


Diluted Earnings Per share
Net income	$	120,990	$	105,073	$	308,244	$	248,542

Basic weighted-average shares outstanding		44,379		42,493		43,849		42,373
Stock options, net		1,879		1,949		2,157		1,951

Diluted weighted-average shares outstanding		46,258		44,442		46,006		44,324

Per share amounts	$	2.62	$	2.36	$	6.70	$	5.61

C. Stockholders’ Equity

Stock Repurchase Program — In October 2005, MDC’s board of directors increased the number of remaining shares of MDC common stock authorized to be repurchased under the Company’s stock repurchase program to 4,000,000 shares. No shares were repurchased during the nine months ended September 30, 2005. At September 30, 2005, MDC held 11,000 shares of treasury stock with an average purchase price of $42.07.

- 5 -

Stock Split — On December 14, 2004, MDC’s board of directors declared a 1.3 for 1 stock split in the form of a 30% stock dividend that was distributed on January 10, 2005. In accordance with the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings per Share,” basic and diluted net income per share amounts, weighted-average shares outstanding, and dividends declared per share have been adjusted retroactively for all periods presented for the effect of this stock split.

Stock-Based Compensation - The Company has elected to account for stock-based compensation using the intrinsic value method as prescribed by Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” (“APB 25”) and related interpretations. Stock options are granted at an exercise price that is not less than the fair market value of MDC’s common stock at the date of grant and, therefore, the Company recorded no compensation expense in the determination of net income for the three and nine months ended September 30, 2005 and 2004. The following table illustrates the effect on net income and earnings per share if the fair value method prescribed by SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” had been applied to all outstanding and unvested awards in the three and nine-month periods ended September 30, 2005 and 2004 (in thousands, except per share amounts).


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Net income, as reported	$	120,990		$	105,073		$	308,244		$	248,542
Deduct stock-based compensation expense determined using the fair value method, net of related tax effects		(2,647	)		(1,966	)		(7,944	)		(5,238	)

Pro forma net income	$	118,343		$	103,107		$	300,300		$	243,304


Earnings per share
Basic as reported	$	2.73		$	2.47		$	7.03		$	5.87

Basic pro forma	$	2.67		$	2.43		$	6.85		$	5.74


Diluted as reported	$	2.62		$	2.36		$	6.70		$	5.61

Diluted pro forma	$	2.56		$	2.32		$	6.53		$	5.49

D. Interest Activity

The Company capitalizes interest incurred on its corporate and homebuilding debt during the period of active development and through the completion of construction of its homebuilding inventories. All corporate and homebuilding interest incurred was capitalized during the three and nine months ended September 30, 2005 and 2004. Interest incurred by the financial services segment is charged to interest expense, which is deducted from interest income and reported as net interest income in Note F.

- 6 -

Interest activity, in total and by business segment, is shown below (in thousands).


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Total Interest Incurred
Corporate and homebuilding	$	14,615		$	8,406		$	36,540		$	23,481
Financial services		1,014			556			2,152			1,324

Total interest incurred	$	15,629		$	8,962		$	38,692		$	24,805


Corporate/Homebuilding Interest Capitalized
Interest capitalized in homebuilding inventory, beginning of period	$	30,293		$	22,023		$	24,220		$	20,043
Interest incurred		14,615			8,406			36,540			23,481
Previously capitalized interest included in cost of sales		(7,030	)		(7,175	)		(22,882	)		(20,270	)

Interest capitalized in homebuilding inventory, end of period	$	37,878		$	23,254		$	37,878		$	23,254


Financial Services Net Interest Income
Interest income	$	1,769		$	1,549		$	4,162		$	4,147
Interest expense		(1,014	)		(556	)		(2,152	)		(1,324	)

Net interest income	$	755		$	993		$	2,010		$	2,823

E. Warranty Reserves

Warranty reserves are reviewed quarterly, using historical data and other relevant information, to determine the reasonableness and adequacy of both the reserve and the per unit reserve amount originally included in cost of sales, as well as the timing of the reversal of the reserve. Warranty reserves are included in corporate accounts payable and accrued liabilities and homebuilding accrued liabilities in the consolidated balance sheets, and totaled $60.8 million and $64.4 million, respectively, at September 30, 2005 and December 31, 2004. Warranty expense was $10.9 million and $27.4 million for the three and nine months ended September 30, 2005, respectively, compared with $10.2 million and $28.3 million for the same periods in 2004. In addition, the reserves include additional qualified settlement fund warranty reserves created pursuant to litigation settled in 1996. Warranty activity for the nine months ended September 30, 2005 is shown below (in thousands).


Warranty reserve balance at December 31, 2004	$	64,424
Warranty expense provision		27,415
Warranty cash payments, net		(31,013	)

Warranty reserve balance at September 30, 2005	$	60,826

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F. Information on Business Segments

The Company operates in two business segments: homebuilding and financial services. A summary of the Company’s segment information is shown below (in thousands).


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Homebuilding
Revenues
Home sales	$	1,147,757		$	1,007,134		$	3,094,141		$	2,615,100
Land sales		1,269			1,839			2,565			1,839
Other revenues		3,078			2,419			10,022			6,686

Total Homebuilding Revenues		1,152,104			1,011,392			3,106,728			2,623,625

Home cost of sales		817,330			723,240			2,208,882			1,898,158
Land cost of sales		706			1,316			1,496			1,316
Marketing expenses		56,842			49,856			158,694			137,677
General and administrative expenses		62,576			43,889			172,871			127,453

Total Homebuilding Expenses		937,454			818,301			2,541,943			2,164,604

Homebuilding Operating Profit		214,650			193,091			564,785			459,021


Financial Services
Revenues
Net interest income		755			993			2,010			2,823
Origination fees		8,433			6,801			21,428			17,464
Gains on sales of mortgage servicing		1,121			406			2,590			1,543
Gains on sales of mortgage loans, net		4,356			5,595			11,372			16,905
Mortgage servicing and other		806			832			2,481			2,287

Total Financial Services Revenues		15,471			14,627			39,881			41,022
General and administrative expenses		9,207			9,054			26,643			27,647

Financial Services Operating Profit		6,264			5,573			13,238			13,375

Total Operating Profit		220,914			198,664			578,023			472,396


Corporate
Interest and other revenues		237			110			1,459			569
General and administrative expenses		(27,825	)		(27,905	)		(86,250	)		(67,991	)

Net Corporate Expenses		(27,588	)		(27,795	)		(84,791	)		(67,422	)

Income Before Income Taxes	$	193,326		$	170,869		$	493,232		$	404,974

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G. Other Comprehensive Income

Other comprehensive income includes unrealized gains or losses on securities available for sale which has been reflected as a component of stockholders’ equity and have not affected net income. A summary of components of total other comprehensive income is shown below (in thousands).


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2005		2004		2005		2004
Net income	$	120,990	$	105,073	$	308,244	$	248,542
Unrealized gain (loss) on securities available for sale, net of taxes		1		15		15		(265	)

Total other comprehensive income	$	120,991	$	105,088	$	308,259	$	248,277

H. Commitments and Contingencies

The Company often is required to obtain bonds and letters of credit in support of its obligations relating to subdivision improvement, homeowner association dues and start-up expenses, warranty work, contractor license fees and earnest money deposits. At September 30, 2005, MDC had issued and outstanding performance bonds and letters of credit totaling approximately $370.8 million and $97.8 million, respectively, including $30.5 million in letters of credit issued by HomeAmerican Mortgage Corporation (“HomeAmerican”), a wholly owned subsidiary of MDC. In the event any such bonds or letters of credit issued by third parties are called, MDC would be obligated to reimburse the issuer of the bond or letter of credit.

I. Lines of Credit and Total Debt Obligations

Homebuilding — The Company’s homebuilding line of credit (“Homebuilding Line”) is an unsecured revolving line of credit with a group of lenders for support of our homebuilding operations. During January 2005, the Company modified the Homebuilding Line, increasing the aggregate commitment amount to $1.058 billion, while maintaining the maturity date of April 7, 2009. The facility’s provision for letters of credit is available in the aggregate amount of $350 million. The modified facility permits an increase in the maximum commitment amount to $1.25 billion upon the Company’s request, subject to receipt of additional commitments from existing or additional participant lenders. At September 30, 2005, the Company had $40.0 million of borrowings and $65.2 million in letters of credit issued under the Homebuilding Line.

Mortgage Lending — The Company’s mortgage line of credit (“Mortgage Line”) has a borrowing limit of $175 million with terms that allow for increases of up to $50 million in the borrowing limit to a maximum of $225 million, subject to concurrence by the participating banks. In September 2005, the Mortgage Line borrowing limit was increased temporarily to $225 million. This temporary increase will expire on January 23, 2006. Available borrowings under the Mortgage Line are collateralized by mortgage loans and mortgage-backed securities and are limited to the value of eligible collateral as defined. At September 30, 2005, $138.7 million was borrowed and an additional $12.0 million was collateralized and available to be borrowed. The Mortgage Line is cancelable upon 120 days notice.

Other Debt Obligations — In July 2005, the Company completed a public offering of $250 million principal amount of 5³/8% medium term senior notes due July 2015 (the “2015 Medium Term Senior Notes”) at a discount, with an effective yield of 5¹/2%. The 2015 Medium Term Senior Notes have interest due and payable on January 1st and July 1st of each year until maturity. The Company does not make any principal payments until the 2015 Medium Term Senior Notes are fully due in July 2015. The 2015 Medium Term Senior Notes are guaranteed by certain of the Company’s subsidiaries and may be redeemed, at the election of the Company, in whole at any time or in part from time to time, at the redemption price set forth in the pricing supplement for the 2015 Medium Term Senior Notes.

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General — The agreements for the Company’s bank lines of credit and the indentures for the Company’s senior notes require compliance with certain representations, warranties and covenants. The Company believes that it is in compliance with these requirements, and the Company is not aware of any covenant violations. The agreements containing these representations, warranties and covenants for the bank lines of credit and the indentures for the Company’s senior notes are on file with the Securities and Exchange Commission and are listed in the Exhibit Table in Part IV of the Company’s 2004 Annual Report on Form 10-K. The Company’s debt obligations at September 30, 2005 and December 31, 2004 are as follows (in thousands):


	September 30,		December 31,
	2005		2004
7% Senior Notes due 2012	$	148,787	$	148,688
5¹/2% Senior Notes due 2013		349,256		349,197
5³/8% Medium Term Senior Notes due 2014		248,501		248,425
5³/8% Medium Term Senior Notes due 2015		249,627		—

Total Senior Notes		996,171		746,310
Homebuilding Line		40,000		—

Total Corporate and Homebuilding Debt		1,036,171		746,310
Mortgage Line		138,664		135,478

Total Debt	$	1,174,835	$	881,788

J. Income Taxes

The Company’s overall effective income tax rates of 37.4% and 37.5% for the three and nine months ended September 30, 2005, respectively, differed from the 38.5% and 38.6% for the same periods in 2004, primarily due to the Internal Revenue Code Section 199 manufacturing deduction established by the American Jobs Creation Act of 2004, as well as a reduction in our state effective income tax rate.

K. Recent Accounting Pronouncements

In June 2005, the Emerging Issues Task Force (“EITF”) released Issue No. 04-5 “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (“EITF 04-5”). EITF 04-5 creates a framework for evaluating whether a general partner or a group of general partners controls a limited partnership and therefore should consolidate the partnership. EITF 04-5 states that the presumption of general partner control would be overcome only when the limited partners have certain specific rights as outlined in EITF 04-5. EITF 04-5 is effective immediately for all newly formed limited partnerships and for existing limited partnership agreements that are modified. For general partners in all other limited partnerships, EITF 04-5 is effective no later than the beginning of the first reporting period in fiscal years beginning after December 15, 2005. As the Company’s only partnership entities are wholly owned entities, the adoption of EITF 04-5 is not expected to have an impact on the Company’s results of operations or financial position.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections — a Replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). The new standard changes the requirements for the accounting for, and reporting of, a change in accounting principle and applies to all such voluntary changes. The previous accounting required that most changes in accounting principle be recognized in net earnings by including a cumulative effect of the change in the period of the change. SFAS 154, which is effective for fiscal years beginning after December 15, 2005, requires retroactive application to prior periods’ financial statements. Adoption of SFAS 154 is not expected to have a material impact on the Company’s results of operations or financial position.

- 10 -

On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” ("SFAS 123"). SFAS 123(R) supersedes APB 25 and amends SFAS Statement No. 95, “Statement of Cash Flows.” SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The provisions of SFAS 123(R) must be adopted no later than January 1, 2006. Had the Company adopted SFAS 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share as disclosed above in Note C under “Stock-Based Compensation” to the Company’s consolidated financial statements.

L. Supplemental Guarantor Information

The Company’s senior notes are fully and unconditionally guaranteed on an unsecured basis, jointly and severally by the following subsidiaries (collectively, the “Guarantor Subsidiaries”).

	•		M.D.C. Land Corporation

	•		RAH of Florida, Inc.

	•		RAH of Texas, LP

	•		RAH Texas Holdings, LLC

	•		Richmond American Construction, Inc.

	•		Richmond American Homes of Arizona, Inc.

	•		Richmond American Homes of California, Inc.

	•		Richmond American Homes of Colorado, Inc.

	•		Richmond American Homes of Delaware, Inc.

	•		Richmond American Homes of Florida, LP

	•		Richmond American Homes of Illinois, Inc.

	•		Richmond American Homes of Maryland, Inc.

	•		Richmond American Homes of Nevada, Inc.

	•		Richmond American Homes of New Jersey, Inc.

	•		Richmond American Homes of Pennsylvania, Inc.

	•		Richmond American Homes of Texas, Inc.

	•		Richmond American Homes of Utah, Inc.

	•		Richmond American Homes of Virginia, Inc.

	•		Richmond American Homes of West Virginia, Inc.

Subsidiaries that do not guarantee the Company’s senior notes (collectively, the “Non-Guarantor Subsidiaries”) include:

	•		American Home Insurance Agency, Inc.

	•		American Home Title and Escrow Company

	•		HomeAmerican Mortgage Corporation

	•		Lion Insurance Company

	•		StarAmerican Insurance Ltd.

	•		Allegiant Insurance Company, Inc., A Risk Retention Group

The Company has determined that separate, full financial statements of the Guarantor Subsidiaries would not be material to investors and, accordingly, supplemental financial information for the Guarantor Subsidiaries is presented.

- 11 -

M.D.C. Holdings, Inc.
Supplemental Combining Balance Sheet
September 30, 2005
(In thousands)


						Non-
				Guarantor		Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries		Subsidiaries			Entries			MDC
ASSETS
Corporate
Cash and cash equivalents	$	105,105		$	—	$	—		$	—		$	105,105
Investment in and advances to parent and subsidiaries		526,246			1,083		7,869			(535,198	)		—
Other assets		91,295			195		(223	)		—			91,267

		722,646			1,278		7,646			(535,198	)		196,372


Homebuilding
Cash and cash equivalents		—			15,564		7,546			—			23,110
Home sales and other accounts receivable		—			105,977		1,344			(26,476	)		80,845
Inventories, net
Housing completed or under construction		—			1,535,936		—			—			1,535,936
Land and land under development		—			1,367,890		—			—			1,367,890
Other assets		—			136,352		38,603			(24,000	)		150,955

		—			3,161,719		47,493			(50,476	)		3,158,736

Financial Services		—			—		218,581			—			218,581

Total Assets	$	722,646		$	3,162,997	$	273,720		$	(585,674	)	$	3,573,689


LIABILITIES
Corporate
Accounts payable and accrued liabilities	$	137,939		$	245	$	50		$	(25,050	)	$	113,184
Advances and notes payable — parent and subsidiaries		(2,093,977	)		2,078,501		15,476			—			—
Income taxes payable		(121,671	)		166,117		5,053			—			49,499
Senior notes, net		996,171			—		—			—			996,171

		(1,081,538	)		2,244,863		20,579			(25,050	)		1,158,854


Homebuilding
Accounts payable and accrued liabilities		—			418,611		27,994			—			446,605
Line of credit		40,000			—		—			—			40,000

		40,000			418,611		27,994			—			486,605

Financial Services		—			—		189,462			(25,416	)		164,046

Total Liabilities		(1,041,538	)		2,663,474		238,035			(50,466	)		1,809,505


STOCKHOLDERS’ EQUITY		1,764,184			499,523		35,685			(535,208	)		1,764,184

Total Liabilities and Stockholders’ Equity	$	722,646		$	3,162,997	$	273,720		$	(585,674	)	$	3,573,689

- 12 -

M.D.C. Holdings, Inc.
Supplemental Combining Balance Sheet
December 31, 2004
(In thousands)


						Non-
				Guarantor		Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries		Subsidiaries			Entries			MDC
ASSETS
Corporate
Cash and cash equivalents	$	389,828		$	—	$	—		$	—		$	389,828
Investment in and advances to parent and subsidiaries		552,635			1,246		(3,104	)		(550,777	)		—
Other assets		85,177			207		(796	)		—			84,588

		1,027,640			1,453		(3,900	)		(550,777	)		474,416


Homebuilding
Cash and cash equivalents		—			12,252		4,709			—			16,961
Home sales and other accounts receivable		—			34,144		1,477			(4,603	)		31,018
Inventories, net
Housing completed or under construction		—			851,628		—			—			851,628
Land and land under development		—			1,109,953		—			—			1,109,953
Other assets		—			100,997		29,047			(14,500	)		115,544

		—			2,108,974		35,233			(19,103	)		2,125,104

Financial Services		—			—		190,524			—			190,524

Total Assets	$	1,027,640		$	2,110,427	$	221,857		$	(569,880	)	$	2,790,044


LIABILITIES
Corporate
Accounts payable and accrued liabilities	$	109,550		$	130	$	48		$	(15,550	)	$	94,178
Advances and notes payable — parent and subsidiaries		(1,057,552	)		1,043,249		14,303			—			—
Income taxes payable		(189,489	)		236,466		4,002			—			50,979
Senior notes, net		746,310			—		—			—			746,310

		(391,181	)		1,279,845		18,353			(15,550	)		891,467


Homebuilding
Accounts payable and accrued liabilities		—			305,894		19,574			—			325,468
Line of credit		—			—		—			—			—

		—			305,894		19,574			—			325,468

Financial Services		—			—		157,841			(3,553	)		154,288

Total Liabilities		(391,181	)		1,585,739		195,768			(19,103	)		1,371,223


STOCKHOLDERS’ EQUITY		1,418,821			524,688		26,089			(550,777	)		1,418,821

Total Liabilities and Stockholders’ Equity	$	1,027,640		$	2,110,427	$	221,857		$	(569,880	)	$	2,790,044

- 13 -

M.D.C. Holdings, Inc.
Supplemental Combining Statements of Income
(In thousands)

Three Months Ended September 30, 2005


							Non-
				Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC
REVENUE
Homebuilding	$	—		$	1,150,650		$	1,991		$	(537	)	$	1,152,104
Financial services		—			—			15,471			—			15,471
Corporate		228			—			9			—			237
Equity in earnings of subsidiaries		114,147			—			—			(114,147	)		—

Total Revenues		114,375			1,150,650			17,471			(114,684	)		1,167,812


COSTS AND EXPENSES
Homebuilding		307			980,333			(1,450	)		(41,736	)		937,454
Financial services		—			—			9,207			—			9,207
Corporate		27,825			—			—			—			27,825
Corporate and homebuilding interest		(41,736	)		—			—			41,736			—

Total Costs and Expenses		(13,604	)		980,333			7,757			—			974,486


Income before income taxes		127,979			170,317			9,714			(114,684	)		193,326
Provision for income taxes		(6,989	)		(61,689	)		(3,658	)		—			(72,336	)

NET INCOME	$	120,990		$	108,628		$	6,056		$	(114,684	)	$	120,990

Three Months Ended September 30, 2004


							Non-
				Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC
REVENUE
Homebuilding	$	—		$	1,009,785		$	1,779		$	(172	)	$	1,011,392
Financial services		—			—			14,627			—			14,627
Corporate		102			—			8			—			110
Equity in earnings of subsidiaries		103,679			—			—			(103,679	)		—

Total Revenues		103,781			1,009,785			16,414			(103,851	)		1,026,129


COSTS AND EXPENSES
Homebuilding		120			847,826			(511	)		(29,134	)		818,301
Financial services		—			—			9,054			—			9,054
Corporate		27,905			—			—			—			27,905
Corporate and homebuilding interest		(29,134	)		—			—			29,134			—

Total Costs and Expenses		(1,109	)		847,826			8,543			—			855,260


Income before income taxes		104,890			161,959			7,871			(103,851	)		170,869
Provision for income taxes		183			(62,988	)		(2,991	)		—			(65,796	)

NET INCOME	$	105,073		$	98,971		$	4,880		$	(103,851	)	$	105,073

- 14 -

M.D.C. Holdings, Inc.
Supplemental Combining Statements of Income
(In thousands)

Nine Months Ended September 30, 2005


							Non-
				Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC
REVENUE
Homebuilding	$	—		$	3,102,077		$	5,412		$	(761	)	$	3,106,728
Financial services		—			—			39,881			—			39,881
Corporate		1,432			—			27			—			1,459
Equity in earnings of subsidiaries		292,745			—			—			(292,745	)		—

Total Revenues		294,177			3,102,077			45,320			(293,506	)		3,148,068


COSTS AND EXPENSES
Homebuilding		239			2,654,368			(516	)		(112,148	)		2,541,943
Financial services		—			—			26,643			—			26,643
Corporate		86,250			—			—			—			86,250
Corporate and homebuilding interest		(112,148	)		—			—			112,148			—

Total Costs and Expenses		(25,659	)		2,654,368			26,127			—			2,654,836


Income before income taxes		319,836			447,709			19,193			(293,506	)		493,232
Provision for income taxes		(11,592	)		(166,118	)		(7,278	)		—			(184,988	)

NET INCOME	$	308,244		$	281,591		$	11,915		$	(293,506	)	$	308,244

Nine Months Ended September 30, 2004


							Non-
				Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC
REVENUE
Homebuilding	$	—		$	2,619,219		$	4,882		$	(476	)	$	2,623,625
Financial services		—			—			41,022			—			41,022
Corporate		549			—			20			—			569
Equity in earnings of subsidiaries		244,589			—			—			(244,589	)		—

Total Revenues		245,138			2,619,219			45,924			(245,065	)		2,665,216


COSTS AND EXPENSES
Homebuilding		695			2,238,853			(1,211	)		(73,733	)		2,164,604
Financial services		—			—			27,647			—			27,647
Corporate		67,991			—			—			—			67,991
Corporate and homebuilding interest		(73,733	)		—			—			73,733			—

Total Costs and Expenses		(5,047	)		2,238,853			26,436			—			2,260,242


Income before income taxes		250,185			380,366			19,488			(245,065	)		404,974
Provision for income taxes		(1,643	)		(147,477	)		(7,312	)		—			(156,432	)

NET INCOME	$	248,542		$	232,889		$	12,176		$	(245,065	)	$	248,542

- 15 -

M.D.C. Holdings, Inc.
Supplemental Combining Statements of Cash Flows
(In thousands)

Nine Months Ended September 30, 2005


							Non-
				Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC
Net cash provided by (used in) operating activities	$	155,969		$	(718,944	)	$	9,860		$	(761	)	$	(553,876	)

Net cash used in investing activities		(6,232	)		(11,579	)		(307	)		—			(18,118	)

Financing activities
Net increase (reduction) in borrowings from parent and subsidiaries		(724,478	)		733,834			(9,356	)		—			—
Lines of credits
Advances		945,600			—			3,186			—			948,786
Principal payments		(905,600	)		—			—			—			(905,600	)
Proceeds from senior notes, net		247,605			—			—			—			247,605
Dividend payments		(23,144	)		—			—			761			(22,383	)
Proceeds from exercise of stock options		25,557			—			—			—			25,557

Net cash provided by (used in) financing activities		(434,460	)		733,834			(6,170	)		761			293,965

Net increase (decrease) in cash and cash equivalents		(284,723	)		3,311			3,383			—			(278,029	)
Cash and cash equivalents
Beginning of year		389,828			12,252			6,070			—			408,150

End of period	$	105,105		$	15,563		$	9,453		$	—		$	130,121

Nine Months Ended September 30, 2004


							Non-
				Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC
Net cash provided by (used in) operating activities	$	26,609		$	(237,396	)	$	17,030		$	(475	)	$	(194,232	)

Net cash used in investing activities		(22,741	)		(4,012	)		(330	)		—			(27,083	)

Financing activities
Net increase (reduction) in borrowings from parent and subsidiaries		(244,670	)		254,687			(10,017	)		—			—
Lines of credits
Advances		1,388,500			—			—			—			1,388,500
Principal payments		(1,268,500	)		—			(4,754	)		—			(1,273,254	)
Proceeds from senior notes, net		(14,116	)		—			—			475			(13,641	)
Dividend payments		(6,812	)		—			—			—			(6,812	)
Proceeds from exercise of stock options		6,040			—			—			—			6,040

Net cash provided by (used in) financing activities		(139,558	)		254,687			(14,771	)		475			100,833

Net increase (decrease) in cash and cash equivalents		(135,690	)		13,279			1,929			—			(120,482	)
Cash and cash equivalents
Beginning of year		163,133			6,335			4,097			—			173,565

End of period	$	27,443		$	19,614		$	6,026		$	—		$	53,083

- 16 -

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

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 Form 10-Q, and these designations include our subsidiaries unless we state otherwise. Our primary business is owning and managing subsidiary companies that build and sell homes under the name “Richmond American Homes.” Our financial services segment consists of HomeAmerican Mortgage Corporation (“HomeAmerican”), which originates mortgage loans primarily for our homebuyers, and American Home Insurance Agency, Inc., which offers third party insurance products to our homebuyers. In addition, we provide title agency services through American Home Title and Escrow Company (“American Home Title”) to our homebuyers in Virginia, Maryland, Colorado, Florida, Texas, Delaware, Illinois and West Virginia.

RESULTS OF OPERATIONS

Overview

Our third quarter earnings were 15% above earnings for the same period last year, driven by third quarter records for home closings, average selling prices, revenues and Home Gross Margins (as defined below). These improvements resulted from growth in our long-standing businesses in Arizona, Virginia and Maryland, as well as our relatively new operations in Utah and Florida. Additionally, the Company experienced a favorable income tax benefit attributable to the Internal Revenue Code Section 199 manufacturing deduction established by the American Jobs Creation Act of 2004. Also impacting our 2005 financial performance were production-related challenges in Arizona and Nevada that delayed the closing of approximately 450 homes from September until the 2005 fourth quarter. The Company is actively pursuing alternative arrangements in order to minimize the impact of these types of delays in the future. See “Forward-Looking Statements” below.

Our home orders for the three months ended September 30, 2005 increased 21%, compared with the same period in 2004, primarily due to the 24% year-over-year increase in our average active subdivisions. Average home selling prices increased in most of our markets, particularly in Arizona, Maryland, Virginia and Florida, contributing to the 20% year-over-year rise in the overall average selling price of our third quarter home orders. As a result, the estimated value of home orders received during the third quarter of 2005 increased by more than 45% from the same period of a year ago.

Our 280 active subdivisions at September 30, 2005 were 18% above the level of a year ago. However, this number was slightly below our expectations, primarily due to strong home orders in Nevada, California and Maryland that resulted in a number of subdivisions in these markets selling out earlier than anticipated. In addition, we experienced land development, permitting or architectural delays in certain subdivisions in Colorado, Arizona, California and Florida that postponed their opening for sales.

We continued to focus on improving our financial position and enhancing shareowner value. We have positioned our Company for future growth through year-over-year increases in our lot supply and active subdivisions of 10% and 18%, respectively, and by increasing our cash and available borrowing capacity by 87% from this time last year to $1.07 billion. This improved financial flexibility from September 30, 2004 resulted from an aggregate of $500 million in debt issuances in December 2004 and July 2005, and the $350 million increase in the capacity of our homebuilding line of credit in January 2005. See “Forward-Looking Statements” below.

- 17 -

We enter the fourth quarter of 2005 with a Backlog (as defined below) of 9,078 homes valued at an estimated $3.3 billion. We expect to continue to evaluate strategic land opportunities in the markets in which we operate to better position us for future growth, while maintaining a conservative balance between our owned and optioned land positions and operating within our disciplined business model. By limiting our lot commitments and given our existing geographic profile, we have enhanced our ability to react to favorable or unfavorable changes in market conditions. See “Forward-Looking Statements” below.

Consolidated Results

The following discussion for both consolidated results of operations and segment results refers to the three and nine months ended September 30, 2005, compared with the same periods in 2004. The table below summarizes our results of operations (in thousands, except per share amounts). Prior period earnings per share have been adjusted retroactively for the effect of the January 10, 2005 1.3 for 1 stock split.


	Three Months Ended									Nine Months Ended
	September 30,				Change					September 30,				Change
	2005		2004		Amount		%			2005		2004		Amount		%
Revenue	$	1,167,812	$	1,026,129	$	141,683		14	%	$	3,148,068	$	2,665,216	$	482,852		18	%
Income Before Income Taxes	$	193,326	$	170,869	$	22,457		13	%	$	493,232	$	404,974	$	88,258		22	%
Net Income	$	120,990	$	105,073	$	15,917		15	%	$	308,244	$	248,542	$	59,702		24	%
Earnings Per Share:
Basic	$	2.73	$	2.47	$	0.26		11	%	$	7.03	$	5.87	$	1.16		20	%
Diluted	$	2.62	$	2.36	$	0.26		11	%	$	6.70	$	5.61	$	1.09		19	%

The increases in revenues for the three and nine months ended September 30, 2005 primarily were due to higher homebuilding revenues resulting from increases in home closings to 3,686 and 10,356, respectively, compared with 3,558 and 9,553, respectively, in 2004. Also contributing to the higher revenues were increases in the average selling prices of homes closed by $28,300 and $25,100 for the three and nine months ended September 30, 2005, respectively, compared with the same periods in 2004.

The increases in income before income taxes for the three and nine months ended September 30, 2005 were the result of increases in the operating profits from our homebuilding segment of approximately $21.6 million and $105.8 million, respectively. The increase for the nine months ended September 30, 2005 partially was offset by higher corporate general and administrative expenses of approximately $18.3 million. These increases in homebuilding segment profits primarily resulted from the higher home closings and average selling prices described above, as well as increases in Home Gross Margins of 60 and 120 basis points for the three and nine-month periods, respectively.

- 18 -

Homebuilding Segment

The tables below set forth information relating to our homebuilding segment (dollars in thousands).


	Three Months Ended												Nine Months Ended
	September 30,						Change						September 30,						Change
	2005			2004			Amount			%			2005			2004			Amount			%
Home Sales Revenues	$	1,147,757		$	1,007,134		$	140,623			14	%	$	3,094,141		$	2,615,100		$	479,041			18	%
Operating Profit	$	214,650		$	193,091		$	21,559			11	%	$	564,785		$	459,021		$	105,764			23	%
Average Selling Price Per Home Closed	$	311.4		$	283.1		$	28.3			10	%	$	298.8		$	273.7		$	25.1			9	%
Home Gross Margins		28.8	%		28.2	%		0.6	%					28.6	%		27.4	%		1.2	%

Orders For Homes, net (units)
Arizona		798			951			(153	)		-16	%		3,040			3,104			(64	)		-2	%
California		504			311			193			62	%		1,737			1,764			(27	)		-2	%
Colorado		469			521			(52	)		-10	%		1,727			1,811			(84	)		-5	%
Florida		238			93			145			156	%		917			292			625			214	%
Illinois		53			5			48			N/A			113			8			105			N/A
Maryland		89			52			37			71	%		365			255			110			43	%
Nevada		829			454			375			83	%		2,788			2,411			377			16	%
Pennsylvania/New Jersey/Delaware		56			1			55			N/A			156			1			155			N/A
Texas		162			152			10			7	%		672			647			25			4	%
Utah		257			187			70			37	%		741			573			168			29	%
Virginia		96			198			(102	)		-52	%		673			720			(47	)		-7	%

Total		3,551			2,925			626			21	%		12,929			11,586			1,343			12	%


Homes Closed (units)
Arizona		895			808			87			11	%		2,550			2,343			207			9	%
California		475			631			(156	)		-25	%		1,238			1,642			(404	)		-25	%
Colorado		599			583			16			3	%		1,615			1,603			12			1	%
Florida		252			96			156			163	%		832			251			581			231	%
Illinois		19			—			19			N/A			40			—			40			N/A
Maryland		106			90			16			18	%		260			251			9			4	%
Nevada		616			690			(74	)		-11	%		1,851			1,887			(36	)		-2	%
Pennsylvania/New Jersey/Delaware		17			—			17			N/A			18			—			18			N/A
Texas		214			222			(8	)		-4	%		616			440			176			40	%
Utah		239			188			51			27	%		640			416			224			54	%
Virginia		254			250			4			2	%		696			720			(24	)		-3	%

Total		3,686			3,558			128			4	%		10,356			9,553			803			8	%

- 19 -


	September 30,		December 31,		September 30,
	2005		2004		2004
Backlog (units)
Arizona		2,633		2,143		2,094
California		1,306		807		1,241
Colorado		804		692		942
Florida		723		638		685
Illinois		91		18		8
Maryland		330		225		273
Nevada		1,683		746		1,410
Pennsylvania/New Jersey/Delaware		161		23		1
Texas		312		256		350
Utah		390		289		308
Virginia		645		668		854

Total		9,078		6,505		8,166


Estimated Backlog Value	$	3,290,000	$	1,920,000	$	2,480,000

Estimated Average Sales Price of Homes in Backlog	$	362.4	$	295.2	$	303.7


Active Subdivisions
Arizona		46		32		30
California		28		22		21
Colorado		56		53		56
Florida		19		18		22
Illinois		8		1		1
Maryland		10		11		10
Nevada		47		31		26
Pennsylvania/New Jersey/Delaware		6		2		—
Texas		24		24		24
Utah		16		22		22
Virginia		20		26		26

Total		280		242		238

Average for quarter ended		281		237		226

Average for nine months ended		269		229		218

Home Sales Revenues — Home sales revenues increased for both the third quarter and first nine months of 2005, compared with the same periods in 2004, as a result of the increases in average selling prices and the number of homes closed, as discussed below.

Homes Closed — Home closings were 4% and 8% higher for the third quarter and first nine months of 2005, respectively, compared with the same periods in 2004. For the three and nine months ended September 30, 2005, homes closed increased by a combined 27% and 34%, respectively, in Arizona, Florida and Utah, primarily due to higher year-over-year Backlogs at the beginning of the 2005 periods resulting from the strong demand for new homes in these markets. In addition, home closings in Florida were higher in the 2005 periods as a result of our September 2004 acquisition of certain assets of Watson Home Builders, Inc. The increases in Arizona home closings for the 2005 third quarter and first nine months were impacted by labor and material shortages that delayed the closing of approximately 250 homes until the 2005 fourth quarter. Home closings were lower in California and Nevada for the third quarter and first nine months of 2005, primarily due to lower year-over-year Backlogs to start the periods. Our Nevada home closings for the 2005 periods also were reduced by

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approximately 200 home closings that moved to the 2005 fourth quarter due to scheduling delays with the local power company.

Average Selling Prices Per Home Closed - The $28,300 and $25,100 increases in average selling prices in the third quarter and first nine months of 2005, respectively, compared with the same periods in 2004, were attributable to higher average selling prices in all of our markets. The average selling prices in Virginia and California were particularly strong, both increasing over $50,000 in the 2005 third quarter and over $70,000 for the first nine months of 2005. In our relatively newer markets of Florida and Utah, average selling prices increased by more than $40,000 for the 2005 third quarter and by more than $25,000 for the first nine months of 2005, compared with the same periods in 2004. These and our other average selling price increases more than offset the impact of the change in mix of home closings that resulted from reduced home closings in California and higher home closings in our lower-priced Florida, Utah and Arizona markets. The following table displays our average selling price per home closed, by market (in thousands).


	Three Months Ended September 30,				Nine Months Ended September 30,
	2005		2004		2005		2004
Average Selling Price
Arizona	$	221.2	$	192.9	$	215.0	$	192.1
California		510.5		452.6		509.2		427.5
Colorado		287.7		264.0		285.7		264.7
Florida		226.2		182.3		205.3		179.5
Illinois		411.7		N/A		426.5		N/A
Maryland		513.5		397.3		458.6		404.5
Nevada		307.6		258.3		298.1		232.6
Pennsylvania/New Jersey/Delaware		362.2		N/A		361.3		N/A
Texas		162.7		155.0		159.1		158.1
Utah		226.9		180.1		219.0		177.8
Virginia		515.9		447.8		503.4		430.1

Company average	$	311.4	$	283.1	$	298.8	$	273.7

Home Gross Margins - We define “Home Gross Margins” to mean home sales revenue less home cost of sales (which primarily includes land and construction costs, capitalized interest, financing costs, and a reserve for warranty expense) as a percent of home sales revenue. Home Gross Margins improved to 28.8% and 28.6% for the three and nine months ended September 30, 2005, respectively, compared with 28.2% and 27.4% for the same periods during 2004. These improvements primarily were due to the continued strong demand for homes and increased selling prices in many of our markets. We experienced particularly strong year-over-year improvements in Home Gross Margins in Virginia, Maryland, Arizona, Utah and Florida, which offset the impact of the anticipated easing of Home Gross Margins in Nevada from the extraordinary levels during 2004. These increases to Home Gross Margins partially were offset by the impact of a greater number of homes closed for the three and nine months ended September 30, 2005 in markets such as Utah and Florida, where Home Gross Margins were lower than the Company average, and fewer home closings in Nevada, where Home Gross Margins significantly exceeded the Company average.

Future Home Gross Margins, both overall and in each of our markets, may be impacted by, among other things: (1) increased competition, which could adversely affect home prices and incentive levels; (2) increases in the costs of subcontracted labor, finished lots, building materials (for example, lumber and steel have significantly increased year-over-year), and other resources, to the extent that market conditions prevent the recovery of increased costs through higher selling prices; (3) adverse weather; (4) shortages of subcontractor labor, finished lots and other resources, which can result in delays in the delivery of homes under construction and increases in related cost of sales; (5) the impact of changes in demand for housing in our markets, particularly Nevada; and (6) other general risk factors. See “Forward-Looking Statements” below.

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Orders for Homes - Home orders in the third quarter of 2005 increased from 2004 levels in most of our markets, led by Nevada and California, mainly due to year-over-year increases in active subdivisions and the continued strong demand for new homes in these two markets. In addition, we received 604 net home orders in the 2005 third quarter from our newer markets in Florida, Pennsylvania/New Jersey/Delaware, Utah and Illinois, compared with 286 home orders from these markets during the 2004 third quarter. These increases partially were offset by a decline in home orders in Virginia, due in part to a temporary decline in the number of active subdivisions, and in Arizona, compared with the exceptional order levels experienced during the same periods in 2004 in this market. Additionally, in Colorado, we experienced a more competitive environment that resulted in a year-over-year decline in orders for the third quarter 2005. The 21% increase in total home orders, combined with a $57,000 increase in the average selling price in the third quarter home orders resulted in the estimated sales value of orders increasing by 45% to $1.2 billion during the three months ended September 30, 2005, compared with $840 million for the same period in 2004.

For the first nine months of 2005, home orders particularly were strong in Nevada and Maryland, primarily due to the continued strong demand for new homes in these markets. In addition, we received 1,927 net home orders in the first nine months of 2005 from our newer markets in Florida, Pennsylvania/New Jersey/Delaware, Utah and Illinois, compared with 874 home orders from these markets in the comparable period in 2004. These increases partially were offset by lower home orders in Arizona, Colorado and Virginia for the same reasons discussed above.

Backlog - Record home orders received during the first nine months of 2005, combined with the delayed home closings in Arizona and Nevada discussed previously, resulted in homes under contract but not yet delivered (“Backlog”) increasing by 11% to 9,078 units at September 30, 2005, compared with 8,166 units at September 30, 2004. Assuming no significant change in market conditions or mortgage interest rates, we expect approximately 70% to 75% of our September 30, 2005 Backlog to close under existing signed sales contracts during the fourth quarter of 2005 and first half of 2006. The balance of homes in Backlog is not expected to close under existing contracts due to cancellation. See “Forward-Looking Statements” below.

Increases in both average selling prices and Backlog units resulted in the estimated Backlog sales value increasing by 33% to $3.3 billion at September 30, 2005, compared with $2.5 billion at September 30, 2004. The average selling price of homes in our Backlog at September 30, 2005 increased to approximately $362,400 from $340,800 at June 30, 2005. While sales price increases played a part, this rise also can be attributed to changes in the Backlog mix, the most significant of which were increased units and average selling prices in California and Nevada and decreased units in Colorado as a percentage of total Backlog.

Marketing - Marketing expenses (which include sales commissions, advertising, amortization of deferred marketing costs, model home expenses and other costs) totaled $56.8 million and $158.7 million, respectively, for the three and nine months ended September 30, 2005, compared with $49.9 million and $137.7 million, respectively, for the same periods in 2004. The higher costs in 2005 primarily were due to (1) increases of $4.4 million and $13.6 million, respectively, in sales commissions resulting from our higher home sales revenues; (2) increases of $1.0 million and $3.3 million, respectively, for salaries and benefits attributable to our expanding homebuilding operations in new and existing home markets; and (3) increases of $2.1 million and $3.7 million, respectively, for product and design center advertising for the third quarter and first nine months of 2005, compared with the same periods in 2004.

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General and Administrative - General and administrative expenses increased to $62.6 million and $172.9 million, respectively, for the three and nine months ended September 30, 2005, compared with $43.9 million and $127.5 million, respectively, for the same periods in 2004, primarily due to increases in compensation and related benefits and other costs associated with the expansion of our operations in the majority of our markets.

Title Operations

American Home Title provides title agency services to MDC homebuyers in Virginia, Maryland, Colorado, Florida, Texas, Delaware, Illinois and West Virginia. We are evaluating opportunities to provide title agency services in our other markets. Income before income taxes from title operations was $1.3 million and $3.3 million, respectively, for the three and nine months ended September 30, 2005, compared with $1.3 million and $3.2 million, respectively, for the same periods in 2004.

Land Inventory

The table below shows the carrying value of land and land under development, by market (dollars in thousands).


	September 30,		December 31,		September 30,
	2005		2004		2004
Arizona	$	238,685	$	168,489	$	129,969
California		368,134		277,360		249,460
Colorado		131,827		139,554		122,178
Florida		46,017		27,926		22,015
Illinois		34,419		33,656		22,909
Maryland		93,826		69,523		63,561
Nevada		254,538		209,544		192,722
Pennsylvania/New Jersey/Delaware		37,460		28,916		8,416
Texas		18,474		19,420		19,191
Utah		49,239		35,104		35,959
Virginia		95,271		100,461		72,609

Total	$	1,367,890	$	1,109,953		938,989

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The table below shows the total number of lots owned and lots controlled under option agreements by market, along with the total non-refundable option deposits (dollars in thousands).


	September 30,		December 31,		September 30,
	2005		2004		2004
Lots Owned
Arizona		7,229		5,657		5,020
California		2,632		2,646		2,652
Colorado		3,560		3,993		3,866
Florida		970		594		442
Illinois		474		508		703
Maryland		734		650		602
Nevada		3,482		3,916		4,040
Pennsylvania/New Jersey/Delaware		367		312		51
Texas		569		642		631
Utah		881		862		964
Virginia		762		980		938

Total		21,660		20,760		19,909


Lots Controlled Under Option
Arizona		3,830		5,494		4,416
California		3,139		1,782		1,574
Colorado		3,187		1,866		1,759
Florida		3,411		2,980		2,889
Illinois		186		203		284
Maryland		1,156		1,206		1,103
Nevada		1,639		1,859		1,785
Pennsylvania/New Jersey/Delaware		1,111		723		933
Texas		951		1,694		2,379
Utah		568		216		291
Virginia		3,149		3,141		2,647

Total		22,327		21,164		20,060


Total Lots Owned and Controlled (excluding lots in work-in-process)		43,987		41,924		39,969


Non-refundable Option Deposits
Cash	$	50,681	$	41,804	$	33,748
Letters of Credit		25,728		22,062		16,730

Total Non-refundable Option Deposits	$	76,409	$	63,866	$	50,478

At September 30, 2005, we owned a total of 21,660 lots, of which approximately 10,100 lots were finished. In addition, over 1,500 of these finished lots were subject to home sales contracts for which construction had not started. The remaining 11,560 lots are unfinished and in the process of being developed for future home sales. We believe the Company is well-positioned for future growth, consistent with our disciplined operating approach of maintaining control of approximately a two-year supply of lots. See “Forward-Looking Statements” below.

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Financial Services Segment

The table below sets forth information relating to our financial services segment operations (in thousands).


	Three Months Ended												Nine Months Ended
	September 30,						Change						September 30,						Change
	2005			2004			Amount			%			2005			2004			Amount			%
Mortgage loan origination fees	$	8,433		$	6,801		$	1,632			24	%	$	21,428		$	17,464		$	3,964			23	%

Gains on sales of mortgage servicing, net	$	1,121		$	406		$	715			176	%	$	2,590		$	1,543		$	1,047			68	%

Gains on sales of mortgage loans, net	$	4,356		$	5,595		$	(1,239	)		-22	%	$	11,372		$	16,905		$	(5,533	)		-33	%

Operating Profit	$	6,264		$	5,573		$	691			12	%	$	13,238		$	13,375		$	(137	)		-1	%

Principal amount of loans originated	$	470,636		$	426,227		$	44,409			10	%	$	1,197,053		$	1,144,913		$	52,140			5	%

Principal amount of loans brokered	$	225,628		$	188,378		$	37,250			20	%	$	666,939		$	497,435		$	169,504			34	%

Capture Rate		50	%		53	%		-3	%					46	%		54	%		-8	%
Including brokered loans		73	%		75	%		-2	%					72	%		75	%		-3	%

Mortgage product (% of loans originated)
Fixed rate		58	%		57	%		1	%					56	%		68	%		-12	%

Adjustable rate		42	%		43	%		-1	%					44	%		32	%		12	%

Financial services operating profit for the third quarter of 2005 increased, compared with the same period in 2004, primarily due to an increase in loan origination fees earned in connection with the record level of homes closed by the homebuilding segment in the third quarter. This increase partially was offset by lower gains on sales of mortgage loans. For the nine months ended September 30, 2005, operating profits remained relatively consistent with 2004, as the Company experienced a more competitive mortgage pricing environment, which resulted in lower gains on sales of mortgage loans that were offset partially by an increase in loan origination fees. This competitive environment contributed to HomeAmerican originating a higher percentage of less-valuable adjustable rate mortgage loans in the first nine months of 2005, which was offset partially by brokering a lower percentage of total loans processed to third party mortgage companies by virtue of HomeAmerican’s expansion of available product offerings.

The principal amount of originated mortgage loans increased 10% and 5%, respectively, in the third quarter and first nine months of 2005, compared with the same periods in 2004. These increases primarily were due to the record levels of homes closed and higher average selling prices by the homebuilding segment in the 2005 periods, offset partially by declines in our Capture Rate. The Capture Rate is defined as the number of mortgage loans originated by HomeAmerican for our homebuyers as a percentage of total MDC home closings. Brokered loans, for which HomeAmerican receives a fee, have been excluded from the computation of the Capture Rate. Our homebuyers were the source of approximately 99% of the principal

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amount of mortgage loans originated and brokered by HomeAmerican in the third quarter and first nine months of 2005.

Forward Sales Commitments — HomeAmerican’s operations are affected by changes in mortgage interest rates. HomeAmerican utilizes forward mortgage securities contracts to manage price risk related to fluctuations in interest rates on our mortgage loans held in inventory and rate-locked mortgage loans in process that had not closed. Reported gains on sales of mortgage loans may vary significantly from period to period depending on the volatility in the interest rate market.

Insurance Operations — American Home Insurance provides homeowners, auto and other types of casualty insurance in each of our markets. The results of its operations were not material for any of the periods presented.

Other Operating Results

Interest Expense — We capitalize interest incurred on our corporate and homebuilding debt during the period of active development and through the completion of construction of our homebuilding inventories. Corporate and homebuilding interest incurred but not capitalized is reported as interest expense. Interest incurred by the financial services segment is charged to interest expense, which is deducted from interest income and reported as net interest income in Note F to our unaudited Consolidated Financial Statements. For a reconciliation of interest incurred, capitalized and expensed, see Note D to our unaudited Consolidated Financial Statements.

Corporate General and Administrative Expenses — Corporate general and administrative expenses totaled $27.8 million and $86.3 million, respectively, during the three and nine months of 2005, compared with $27.9 million and $68.0 million, respectively, for the same periods of 2004. The 2005 third quarter and first nine months general and administrative expenses were impacted by increases in compensation-related cost of approximately $3.6 million and $21.5 million, respectively, resulting from our higher profitability, partially offset by decreases in contributions to the M.D.C. Holdings, Inc. Charitable Foundation of $2.0 million and $5.0 million, respectively.

Income Taxes — MDC’s overall effective income tax rates of 37.4% and 37.5% for the three and nine months ended September 30, 2005, respectively, differed from the 38.5% and 38.6%, respectively, for the same periods in 2004, primarily due to the Internal Revenue Code Section 199 manufacturing deduction established by the American Jobs Creation Act of 2004, as well as a reduction in our state effective income tax rate. These reduced effective income tax rates resulted in benefits of $2.1 million and $5.4 million for the three and nine months ended September 30, 2005, respectively.

LIQUIDITY AND CAPITAL RESOURCES

We use our liquidity and capital resources to (1) support our operations, including our homebuilding inventories; (2) provide working capital; and (3) provide mortgage loans for our homebuyers. Liquidity and capital resources are generated internally from operations and from external sources. Additionally, we have an effective shelf registration statement, which has allowed us to issue equity, debt or hybrid securities up to $1.0 billion, with $500 million having been initially earmarked for our medium term senior notes program. In December 2004, we issued $250 million principal amount of 5³/8% medium term senior notes due 2014, and in July 2005, we issued another $250 million principal amount of 5³/8% medium term senior notes due 2015. This issuance reduced our total capacity under our shelf registration statement to $500 million and extinguished our initial capacity for our medium term

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senior notes program. In July 2005, we designated $250 million of our shelf registration statement’s remaining $500 million capacity for our medium term senior notes program.

Capital Resources

Our capital structure is a combination of (1) permanent financing, represented by stockholders’ equity; (2) long-term financing, represented by our publicly traded 7% senior notes due 2012, 5¹/2% senior notes due 2013, 5³/8% medium term senior notes due 2014 and 2015, and our homebuilding line of credit (the “Homebuilding Line”); and (3) current financing, primarily our mortgage lending line of credit (the “Mortgage Line”). Based upon our current capital resources and additional capacity available under existing credit agreements, we believe that our current financial condition is both balanced to fit our current operating structure and adequate to satisfy our current and near-term capital requirements, including the acquisition of land and expansion into new markets. We believe that we can meet our long-term capital needs (including meeting future debt payments and refinancing or paying off other long-term debt as it becomes due) from operations and external financing sources, assuming that no significant adverse changes in our business or capital and credit markets occur as a result of the various risk factors described elsewhere in this report. See “Forward-Looking Statements” below.

Lines of Credit and Senior Notes

Homebuilding — Our Homebuilding Line is an unsecured revolving line of credit with a group of lenders for support of our homebuilding operations. During January 2005, the Company modified the Homebuilding Line, increasing the aggregate commitment amount to $1.058 billion, while maintaining the maturity date of April 7, 2009. The facility’s provision for letters of credit is available in the aggregate amount of $350 million. The modified facility permits an increase in the maximum commitment amount to $1.25 billion upon the Company’s request, subject to receipt of additional commitments from existing or additional participant lenders. At September 30, 2005, the Company had $40.0 million of borrowings and $65.2 million in letters of credit issued under the Homebuilding Line.

Mortgage Lending — Our Mortgage Line has a borrowing limit of $175 million with terms that allow for increases of up to $50 million in the borrowing limit to a maximum of $225 million, subject to concurrence by the participating banks. As of September 30, 2005, the Mortgage Line borrowing limit was increased temporarily to $225 million. This temporary increase will expire on January 23, 2006. Available borrowings under the Mortgage Line are collateralized by mortgage loans and mortgage-backed securities and are limited to the value of eligible collateral as defined. At September 30, 2005, $138.7 million was borrowed and an additional $12.0 million was collateralized and available to be borrowed. The Mortgage Line is cancelable upon 120 days notice.

Other Debt Obligations — In July 2005, we completed a public offering of $250 million principal amount of 5³/8% medium term senior notes due in July 2015 (the “2015 Medium Term Senior Notes”) at a discount, with an effective yield of 5¹/2%. The 2015 Medium Term Senior Notes have interest due and payable on January 1st and July 1st of each year until maturity. We do not make any principal payments until the 2015 Medium Term Senior Notes are fully due in July 2015. The 2015 Medium Term Senior Notes are guaranteed by certain of our subsidiaries and may be redeemed, at our election, in whole at any time or in part from time to time, at the redemption price set forth in the 2015 Medium Term Senior Notes pricing supplement.

General — The agreements for our bank lines of credit and the indentures for our senior notes require compliance with certain representations, warranties and covenants. We believe that we are in compliance with these requirements, and we are not aware of any covenant violations. The agreements for the bank lines of credit and the indentures for our senior notes are on file with the Securities and Exchange Commission and are listed in the Exhibit Table in Part IV of our Annual Report on Form 10-K for our fiscal year ended December 31, 2004 and the Exhibit Table to this Form 10-Q.

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The financial covenants contained in the Homebuilding Line credit agreement include a leverage test and a consolidated tangible net worth test. Under the leverage test, generally, our consolidated indebtedness is not permitted to exceed 55% (subject to adjustment in certain circumstances) of the sum of consolidated indebtedness and our “adjusted consolidated tangible net worth,” as defined. Under the consolidated tangible net worth test, our “consolidated tangible net worth,” as defined, must not be less than the sum of (1) $776 million; (2) 50% of “consolidated net income,” as defined, of the “borrower,” as defined, and the “guarantors,” as defined, after December 31, 2003; and (3) 50% of the net proceeds or other consideration received for the issuance of capital stock after December 31, 2003. Failure to satisfy the financial covenant tests may result in a scheduled term-out of the facility. In addition, “consolidated tangible net worth,” as defined, must not be less than the sum of (1) $485 million; (2) 50% of the quarterly consolidated net income of “borrower” and the “guarantors” earned after December 31, 2003; and (3) 50% of the net proceeds or other consideration received for the issuance of capital stock after December 31, 2003. Failure to satisfy this covenant could result in a termination of the facility. We believe that we are in full compliance with these covenants, and we are not aware of any covenant violations.

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

MDC Common Stock Repurchase Programs

In October 2005, our board of directors increased the number of remaining shares of MDC’s common stock available to be repurchased under the Company’s stock repurchase program to 4,000,000 shares. No shares were repurchased during the nine months ended September 30, 2005.

Consolidated Cash Flow

During the nine months ended September 30, 2005, we used $553.9 million of cash for operating activities. Cash used from operations in 2005 primarily was the result of increases of $998.2 million in our homebuilding inventories and prepaid expenses and other assets in conjunction with our expanded homebuilding operations and $27.5 million in mortgage loans held in inventory, partially offset by income before depreciation and amortization and deferred income taxes of $341.9 and increases of $179.2 million in accounts payable and accrued liabilities. We continued to expand our homebuilding operations in a majority of our existing markets through increased active subdivisions and controlled lot inventory, thereby expending cash to acquire additional homebuilding assets.

Financing activities provided cash of $294.0 million during the nine months ended September 30, 2005, primarily due to $43.2 million in net borrowings on our lines of credit, net proceeds from the issuance of medium term senior notes in July 2005 of $247.6 million and cash proceeds of $25.6 million from the exercise of stock options, partially offset by dividends paid of $22.4 million. The proceeds received upon the issuance of the medium term senior notes in July were used primarily for the purchase of homebuilding inventories as noted above.

Additionally, we used $18.1 million of cash in investing activities during the nine months ended September 30, 2005, primarily due to the purchase of property and equipment.

During the first nine months of 2004, we used $194.2 million of cash in our operating activities. Cash used to build homebuilding assets in support of our expanding homebuilding activities partially was provided by net income before depreciation and amortization and an increase in accounts payable and accrued liabilities. In addition, net borrowings of $115.2 million on our bank lines of credit assisted us in financing these operating cash requirements, offset in part from the repurchase of 154,960 shares of common stock for $6.8 million, the $13.6 million payment of dividends and payments for the purchase of

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property and equipment of $27.1 million, including a corporate aircraft, computer equipment and office furniture.

Off-Balance Sheet Arrangements

At September 30, 2005, there were outstanding performance bonds ("Bonds") and letters of credit totaling approximately $370.8 million and $97.8 million, respectively, including $30.5 million in letters of credit issued by HomeAmerican with the remaining issued by third parties to secure our performance under various contracts. We expect that the obligations secured by these Bonds 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 Bonds should be released and we should not have any continuing obligations.

All other off-balance sheet arrangements have not changed materially from those reported in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2004 Annual Report on Form 10-K.

Contractual Obligations

Except for the issuance of $250 million principal amount of 2015 Medium Term Senior Notes, as previously discussed in our Liquidity and Capital Resource section of Item 2 on this Form 10-Q, other existing contractual obligations have not changed materially from those reported in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2004 Annual Report on Form 10-K.

IMPACT OF INFLATION, CHANGING PRICES AND ECONOMIC CONDITIONS

Real estate and residential housing prices are affected by inflation, which can cause increases in the price of land, raw materials and subcontracted labor. Unless these increased costs are recovered through higher sales prices, Home Gross Margins would decrease. If interest rates increase, construction and financing costs, as well as the cost of borrowings, could also increase, which can result in lower Home Gross Margins. Increases in home mortgage interest rates make it more difficult for our customers to qualify for home mortgage loans, potentially decreasing home sales revenue. Increases in interest rates also may affect adversely the volume of mortgage loan originations.

The volatility of interest rates could have an adverse effect on our future operations and liquidity. Reported gains on sales of mortgage loans may vary significantly from period to period depending on the volatility in the interest rate market. Derivative instruments utilized in the normal course of business by HomeAmerican include forward sales securities commitments, private investor sales commitments and commitments to originate mortgage loans. We utilize these commitments to manage the price risk on fluctuations in interest rates on our mortgage loans held in inventory and commitments to originate mortgage loans. Such contracts are the only significant financial derivative instruments we utilize.

Among other things, an increase in interest rates may affect adversely the demand for housing and the availability of mortgage financing and may reduce the credit facilities offered to us by banks, investment bankers and mortgage bankers. See “Forward-Looking Statements” below.

We continue to follow our disciplined strategy of controlling approximately a two-year supply of land in all of our markets. Operating within this conservative model allows us to evaluate each market and allocate our capital to those markets that present opportunity for growth. We consistently apply this disciplined approach and continue to monitor the economic conditions in each of our markets to actively manage our business, well-positioning us to respond to changes in our markets.

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CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Management evaluates such estimates and judgments on an ongoing basis and makes adjustments as deemed necessary. Actual results could differ from these estimates using different estimates and assumptions, or if conditions are significantly different in the future. See “Forward-Looking Statements” below.

Listed below are those policies that we believe are critical and require the use of complex judgment in their application. Our critical accounting policies are those related to (1) homebuilding inventory valuation; (2) estimates to complete land development and home construction; (3) warranty costs; and (4) litigation reserves.

Our critical accounting policies have not changed from those reported in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2004 Annual Report on Form 10-K.

OTHER

Forward-Looking Statements

Certain statements in this Form 10-Q, as well as statements made by us in periodic press releases, oral statements made by our officials to analysts and shareowners in the course of presentations about the Company and conference calls following quarterly earnings releases, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We have identified the forward-looking statements in this Form 10-Q by cross-referencing this section at the end of the paragraph in which the forward-looking statement is located. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among other things, those listed below:

	•		General Economic and Business Conditions — Changes in national, regional and local economic conditions, as well as changes in consumer confidence and preferences, can have a negative impact on our business.

	•		Interest Rate Changes — Our homebuilding and mortgage lending operations are impacted by the availability and cost of mortgage financing.

	•		Changes in Federal Lending Programs — The availability of mortgage financing under federal lending programs is an important factor in our business. Any change in the availability of this financing could reduce our home sales and mortgage lending volume.

	•		Availability of Capital — Our ability to grow our business is dependent on our ability to generate or obtain capital. Increases in interest rates and changes in the capital markets could increase our costs of borrowing or reduce the availability of funds.

	•		Competition — The real estate industry is fragmented and highly competitive. Our homebuilding subsidiaries compete with numerous homebuilders, including a number that are substantially larger and have greater financial resources.

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	•		The Availability and Cost of Land, Labor and Materials — Our operations depend on our ability to continue to obtain land, labor and materials at reasonable prices. Changes in the general availability or cost of these items may hurt our ability to build homes and develop new residential communities.

	•		The Availability and Cost of Performance Bonds and Insurance — Our operations also are affected by our ability to obtain performance bonds and insurance at reasonable prices. Changes in the availability and cost of bonds and insurance can adversely impact our business operations.

	•		Weather and Geology — The climates and geology of many of the states in which we operate present increased risks of natural disasters and adverse weather. To the extent that such events occur, our business may be adversely affected.

	•		Governmental Regulation and Environmental Matters — Our operations are subject to continuing compliance requirements mandated by applicable federal, state and local statutes, ordinances, rules and regulations, including environmental laws, moratoriums on utility availability, growth restrictions, zoning and land use ordinances, building, plumbing and electrical codes, contractors’ licensing laws, state insurance laws, federal and state human resources laws and regulations and health and safety regulations and laws.

	•		Product Liability Litigation and Warranty Claims — As a homebuilder, we are subject to construction defect and home warranty claims, including moisture intrusion and related mold claims that can be costly and adversely affect our business.

	•		Other Factors — Other factors over which we have little or no control, such as required accounting changes and terrorist acts and other acts of war, can also adversely affect us.

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 consulted.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes from the 2004 Annual Report on Form 10-K related to the Company’s exposure to market risk from interest rates.

Item 4. Controls and Procedures

(a) Conclusion regarding the effectiveness of disclosure controls and procedures - An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was performed under the supervision, and with the participation, of our management, including the Chief Executive Officer and the Chief Financial Officer. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective at September 30, 2005.

(b) Changes in internal control over financial reporting - There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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M.D.C. HOLDINGS, INC.
FORM 10-Q

PART II

Item 1. Legal Proceedings

The Company and certain of its subsidiaries and affiliates have been named as defendants in various claims, complaints and other legal actions arising in the normal course of business, including moisture intrusion and related mold claims. In the opinion of management, the outcome of these matters will not have a material adverse effect upon the financial condition, results of operations or cash flows of the Company. See “Forward-Looking Statements” above.

The U.S. Environmental Protection Agency (“EPA”) filed an administrative action against Richmond American Homes of Colorado, Inc. (“Richmond”), alleging that Richmond violated the terms of Colorado’s general permit for discharges of stormwater from construction activities at two of Richmond’s development sites. In its complaint, the EPA sought civil penalties against Richmond in the amount of $122,000. On November 11, 2003, the EPA filed a motion to withdraw the administrative action so that it could refile the matter in United States District Court as part of a consolidated action against Richmond for alleged stormwater violations at not only the original two sites, but also two additional sites. The EPA’s motion to withdraw was granted by the Administrative Law Judge on February 9, 2004. The EPA has not yet refiled the matter. The EPA has inspected a number of sites under development by Richmond affiliates in Virginia, Maryland, Arizona, California and again in Colorado, and claims to have found additional stormwater permit violations. Richmond has substantial defenses to the allegations made by the EPA and also is exploring methods of resolving this matter with the EPA.

Because of the nature of the homebuilding business, and in the ordinary course of its operations, the Company from time to time may be subject to product liability claims.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company did not repurchase any shares during the third quarter of 2005. Additionally, there were no sales of unregistered equity securities during the third quarter of 2005.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

On October 24, 2005, MDC’s board of directors declared a quarterly cash dividend of twenty five cents ($0.25) per share. The dividend is to be paid on November 22, 2005 to shareowners of record on November 8, 2005.

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Item 6.		Exhibits


		(a) Exhibits:


4.1			Amendment No. 1 dated as of July 20, 2005 to Supplemental Indenture dated as of October 6, 2004 (incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K dated July 20, 2005). *

10.1			Purchase Agreement dated as of June 28, 2005, among MDC and Citigroup Global Markets Inc., J.P. Morgan Securities Inc., Wachovia Capital Markets, LLC, Banc of America Securities LLC, BNP Paribas Securities Corp., Comerica Securities, Inc., Credit Suisse First Boston LLC, KeyBanc Capital Markets, Greenwich Capital Markets, Inc. and SunTrust Capital Markets, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K dated July 7, 2005). *

10.2			Amendment No. 1 to Distribution Agreement, dated as of July 20, 2005, among MDC, certain of its subsidiaries and Banc of America Securities LLC, BNP Paribas Securities Corp., Citigroup Global Markets Inc., Comerica Securities, Credit Suisse First Boston LLC, Deutsche Bank Securities Inc., Greenwich Capital Markets, Inc., J.P. Morgan Securities Inc., McDonald Investments Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, SunTrust Capital Markets, Inc., UBS Securities LLC and Wachovia Capital Markets, LLC (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K dated July 20, 2005). *

10.3			Sub-Sublease agreement between MDC and CVentures, Inc., executed July 25, 2005 (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K dated July 25, 2005). *

10.4			Third Amendment to Third Amended and Restated Warehousing Credit Agreement, dated September 28, 2005, among HomeAmerican Mortgage Corporation and the Banks that are signatories thereto and U.S. Bank National Association as administrative agent (incorporated herein by reference to Exhibit 99.1 to the Company’s Form 8-K dated September 28, 2005). *

12			Ratio of Earnings to Fixed Charges Schedule.

31.1			Certification of Chief Executive Officer required by 17 CFR 240.13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of Chief Financial Officer required by 17 CFR 240.13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Certification of Chief Executive Officer required by 17 CFR 240.13a-14(b), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2			Certification of Chief Financial Officer required by 17 CFR 240.13a-14(b), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Incorporated herein by reference.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date: November 7, 2005	M.D.C. HOLDINGS, INC. (Registrant)

	By:	/s/ Paris G. Reece III
		Paris G. Reece III,
		Executive Vice President,
		Chief Financial Officer and
		Principal Accounting Officer

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INDEX TO EXHIBITS


Exhibit Number						Description
4.1						Amendment No. 1 dated as of July 20, 2005 to Supplemental Indenture dated as of October 6, 2004 (incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K dated July 20, 2005). *

10.1						Purchase Agreement dated as of June 28, 2005, among MDC and Citigroup Global Markets Inc., J.P. Morgan Securities Inc., Wachovia Capital Markets, LLC, Banc of America Securities LLC, BNP Paribas Securities Corp., Comerica Securities, Inc., Credit Suisse First Boston LLC, KeyBanc Capital Markets, Greenwich Capital Markets, Inc. and SunTrust Capital Markets, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K dated July 7, 2005). *

10.2						Amendment No. 1 to Distribution Agreement, dated as of July 20, 2005, among MDC, certain of its subsidiaries and Banc of America Securities LLC, BNP Paribas Securities Corp., Citigroup Global Markets Inc., Comerica Securities, Credit Suisse First Boston LLC, Deutsche Bank Securities Inc., Greenwich Capital Markets, Inc., J.P. Morgan Securities Inc., McDonald Investments Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, SunTrust Capital Markets, Inc., UBS Securities LLC and Wachovia Capital Markets, LLC (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K dated July 20, 2005). *

10.3						Sub-Sublease agreement between MDC and CVentures, Inc., executed July 25, 2005 (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K dated July 25, 2005). *

10.4						Third Amendment to Third Amended and Restated Warehousing Credit Agreement, dated September 28, 2005, among HomeAmerican Mortgage Corporation and the Banks that are signatories thereto and U.S. Bank National Association as administrative agent (incorporated herein by reference to Exhibit 99.1 to the Company’s Form 8-K dated September 28, 2005). *

12						Ratio of Earnings to Fixed Charges Schedule.

31.1						Certification of Chief Executive Officer required by 17 CFR 240.13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of Chief Financial Officer required by 17 CFR 240.13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1						Certification of Chief Executive Officer required by 17 CFR 240.13a-14(b), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2						Certification of Chief Financial Officer required by 17 CFR 240.13a-14(b), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Incorporated herein by reference.

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