MDC HOLDINGS INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2004


[ ]		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.)


3600 South Yosemite Street, Suite 900 Denver, Colorado (Address of principal executive offices)		80237 (Zip code)

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

Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)

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

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

As of April 30, 2004, 32,614,000 shares of M.D.C. Holdings, Inc. common stock were outstanding.

M.D.C. HOLDINGS, INC.

Consolidated Balance Sheets

(In thousands)


	March 31,		December 31,
	2004		2003
	(Unaudited)
ASSETS
Corporate
Cash and cash equivalents	$	84,428	$	163,133
Property and equipment, net		10,533		10,152
Deferred income taxes		34,179		32,096
Deferred debt issue costs, net		4,147		4,232
Other assets, net		6,094		7,460

		139,381		217,073

Homebuilding
Cash and cash equivalents		13,567		8,246
Home sales and other accounts receivable		21,921		8,394
Inventories, net
Housing completed or under construction		794,943		732,744
Land and land under development		847,282		763,569
Land under option contract, not owned		10,990		—
Prepaid expenses and other assets, net		97,746		88,419

		1,786,449		1,601,372

Financial Services
Cash and cash equivalents		1,084		2,186
Mortgage loans held in inventory		101,817		140,040
Other assets, net		8,477		9,129

		111,378		151,355

Total Assets	$	2,037,208	$	1,969,800

See notes to consolidated financial statements.

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M.D.C. HOLDINGS, INC.

Consolidated Balance Sheets

(In thousands, except share amounts)


	March 31,			December 31,
	2004			2003
	(Unaudited)
LIABILITIES
Corporate
Accounts payable and accrued expenses	$	64,755		$	72,212
Income taxes payable		50,493			25,011
Senior notes, net		497,748			497,700

		612,996			594,923

Homebuilding
Accounts payable and accrued expenses		265,968			259,294
Obligations related to land under option contract, not owned		10,890			—
Line of credit		—			—
Notes payable		—			2,479

		276,858			261,773

Financial Services
Accounts payable and accrued expenses		16,126			17,944
Line of credit		52,612			79,240

		68,738			97,184

Total Liabilities		958,592			953,880

COMMITMENTS AND CONTINGENCIES		—			—

STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value; 25,000,000 shares authorized; none issued		—			—
Common stock, $.01 par value; 100,000,000 shares authorized; 32,604,000 and 35,570,000 shares issued, respectively, at March 31, 2004 and December 31, 2003		326			326
Additional paid-in capital		634,636			484,150
Retained earnings		445,289			582,927
Unearned restricted stock		(1,356	)		(1,169	)
Accumulated other comprehensive loss		(279	)		(9	)

		1,078,616			1,066,225
Less treasury stock, at cost; 3,082,000 shares at December 31, 2003		—			(50,305	)

Total Stockholders’ Equity		1,078,616			1,015,920

Total Liabilities and Stockholders’ Equity	$	2,037,208		$	1,969,800

See notes to consolidated financial statements.

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M.D.C. HOLDINGS, INC.

Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)


	Three Months
	Ended March 31,
	2004			2003
REVENUES
Homebuilding	$	748,864		$	554,912
Financial Services		14,448			14,513
Corporate		292			217

Total Revenues		763,604			569,642

COSTS AND EXPENSES
Homebuilding		635,419			490,454
Financial Services		9,791			6,946
Corporate general and administrative		18,576			11,476

Total Costs and Expenses		663,786			508,876

Income before income taxes		99,818			60,766
Provision for income taxes		(38,917	)		(23,729	)

NET INCOME	$	60,901		$	37,037

EARNINGS PER SHARE
Basic	$	1.87		$	1.16

Diluted	$	1.79		$	1.12

WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic		32,543			31,895

Diluted		34,063			32,925

DIVIDENDS DECLARED PER SHARE	$	.114		$	.066

See notes to consolidated financial statements.

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M.D.C. HOLDINGS, INC.

Consolidated Statements of Cash Flows

(In thousands)
(Unaudited)


	Three Months
	Ended March 31,
	2004			2003
OPERATING ACTIVITIES
Net income	$	60,901		$	37,037
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization		8,930			7,028
Deferred income taxes		(2,083	)		994
Net changes in assets and liabilities
Home sales and other accounts receivable		(13,527	)		(20,073	)
Homebuilding inventories		(148,391	)		(43,057	)
Prepaid expenses and other assets		(15,270	)		(9,246	)
Mortgage loans held in inventory		38,223			74,047
Accounts payable and accrued expenses		27,285			(11,210	)
Other, net		712			(885	)

Net cash provided by (used in) operating activities		(43,220	)		34,635

INVESTING ACTIVITIES
Net purchase of property and equipment		(2,299	)		(1,565	)

FINANCING ACTIVITIES
Lines of credit
Advances		3,500			608,800
Principal payments		(30,128	)		(584,322	)
Dividend payments		(3,851	)		(2,120	)
Stock repurchases		—			(26,731	)
Proceeds from exercise of stock options		1,512			434

Net cash used in financing activities		(28,967	)		(3,939	)

Net increase (decrease) in cash and cash equivalents		(74,486	)		29,131
Cash and cash equivalents
Beginning of period		173,565			28,942

End of period	$	99,079		$	58,073

See notes to consolidated financial statements.

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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 of the 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 as of March 31, 2004 and for all of the periods presented. These statements should be read in conjunction with MDC’s financial statements and notes thereto included in MDC’s Annual Report on Form 10-K for its fiscal year ended December 31, 2003. Certain reclassifications have been made in the 2003 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 restated to reflect the effect of a 10% stock dividend declared on February 23, 2004.


	Three Months
	Ended March 31,
	2004		2003
Basic Earnings Per Share
Net income	$	60,901	$	37,037

Basic weighted-average shares outstanding		32,543		31,895

Per share amounts	$	1.87	$	1.16

Diluted Earnings Per Share
Net income	$	60,901	$	37,037

Basic weighted-average shares outstanding		32,543		31,895
Stock options, net		1,520		1,030

Diluted weighted-average shares outstanding		34,063		32,925

Per share amounts	$	1.79	$	1.12

C. Stockholders’ Equity

Stock Dividend — On February 23, 2004, MDC’s board of directors declared a 10% stock dividend that was distributed on March 23, 2004 to shareowners of record on March 8, 2004. 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,

- 5 -

weighted-average shares outstanding, and dividends declared per share have been restated for all periods affected to reflect the effect of this stock dividend.

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 No. 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 months ended March 31, 2004 and 2003. 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, had been applied to all outstanding and unvested awards in the three month period ended March 31, 2004 and 2003 (in thousands, except per share amounts).


	Three Months
	Ended March 31,
	2004			2003
Net income, as reported	$	60,901		$	37,037
Deduct stock-based compensation expense determined using the fair value method, net of related tax effects		(1,291	)		(1,535	)

Pro forma net income	$	59,610		$	35,502

Earnings per share
Basic as reported	$	1.87		$	1.16

Basic pro forma	$	1.83		$	1.11

Diluted as reported	$	1.79		$	1.12

Diluted pro forma	$	1.75		$	1.08

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. 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.

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


	Three Months
	Ended March 31,
	2004			2003
Total Interest Incurred
Corporate and homebuilding	$	7,366		$	7,052
Financial services		383			570

Total interest incurred	$	7,749		$	7,622

Corporate/Homebuilding Interest Capitalized
Interest capitalized in homebuilding inventory, beginning of period	$	20,043		$	17,783
Interest incurred		7,366			7,052
Interest expense		—			—
Previously capitalized interest included in cost of sales		(6,362	)		(4,803	)

Interest capitalized in homebuilding inventory, end of period	$	21,047		$	20,032

Financial Services Net Interest Income
Interest income	$	1,313		$	1,578
Interest expense		(383	)		(570	)

Net interest income	$	930		$	1,008

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 and homebuilding accounts payable and accrued expenses in the consolidated balance sheets, and totaled $52,966,000 and $51,068,000, respectively, at March 31, 2004 and December 31, 2003. Warranty expense was $9,007,000 and $8,045,000 for the three months ended March 31, 2004 and 2003, respectively. Reserves carried over from prior years primarily are the result of the Company’s volume of homes closed increasing by over 200% in the last ten years, giving rise to continuing warranty reserves that exceed current expenditures. In addition, the carryover includes additional qualified settlement fund warranty reserves created pursuant to litigation settled in 1996. Warranty activity for the three months ended March 31, 2004 is shown below (in thousands).


Warranty reserve balance at December 31, 2003	$	51,068
Warranty expense provision		9,007
Warranty cash payments, net		(7,109	)

Warranty reserve balance at March 31, 2004	$	52,966

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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 March 31,
	2004			2003
Homebuilding
Revenues
Home sales	$	746,429		$	553,575
Land sales		—			123
Other revenues		2,435			1,214

Total Homebuilding Revenues		748,864			554,912

Home cost of sales		551,024			427,602
Land cost of sales		—			87
Marketing expenses		43,168			33,600
General and administrative expenses		41,227			29,165

Homebuilding Expenses		635,419			490,454

Homebuilding Operating Profit		113,445			64,458

Financial Services
Revenues
Net interest income		930			1,008
Origination fees		5,264			4,660
Gains on sales of mortgage servicing		616			834
Gains on sales of mortgage loans, net		6,777			7,342
Mortgage servicing and other		861			669

Total Financial Services Revenues		14,448			14,513
General and administrative expenses		9,791			6,946

Financial Services Operating Profit		4,657			7,567

Total Operating Profit		118,102			72,025

Corporate
Interest and other revenues		292			217
General and administrative expenses		(18,576	)		(11,476	)

Net Corporate Expenses		(18,284	)		(11,259	)

Income Before Income Taxes	$	99,818		$	60,766

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G. Commitments and Contingencies

The Company often is required to obtain bonds and letters of credit in support of its related obligations with respect to subdivision improvement, homeowners association dues and start-up expenses, warranty work, contractors license fees and earnest money deposits. At March 31, 2004, MDC had outstanding approximately $241,176,000 and $46,504,000 of performance bonds and letters of credit, respectively. In the event any such bonds or letters of credit are called, MDC would be obligated to reimburse the issuer of the bond or letter of credit.

H. Lines of Credit and Total Debt Obligations

Lines of Credit – The Company has an unsecured revolving line of credit with a group of lenders for support of our homebuilding operations (the “Homebuilding Line”). As of April 8, 2004, the Company renewed the Homebuilding Line, increasing the aggregate commitment amount from $600,000,000 to $700,000,000, increasing the maximum amount available to $850,000,000 upon the Company’s request, subject to receipt of additional commitments from existing or additional participating lenders, and extending the maturity date to April 7, 2009. Pursuant to the terms of the Homebuilding Line, a term-out of the credit facility may commence prior to April 7, 2009 under certain circumstances. At March 31, 2004, the Company had no borrowings and $36,474,000 in letters of credit outstanding under the Homebuilding Line.

At March 31, 2004, the Company’s mortgage lending bank line of credit (the “Mortgage Line”) had a borrowing limit of $175,000,000. The terms of the Mortgage Line are set forth in the Third Amended and Restated Warehousing Credit Agreement dated as of October 23, 2003. Available borrowings under the Mortgage Line are collateralized by mortgage loans and mortgage-backed certificates and are limited to the value of eligible collateral as defined. At March 31, 2004, $52,612,000 was borrowed and an additional $29,576,000 was collateralized and available to be borrowed. The Mortgage Line is cancelable upon 120 days notice.

The Company’s debt obligations as of March 31, 2004 and December 31, 2003 are as follows (in thousands):


	March 31,		December 31,
	2004		2003
7% Senior Notes due 2012	$	148,595	$	148,565
5 ½% Senior Notes due 2013		349,153		349,135

Total Senior Notes		497,748		497,700
Homebuilding Line		—		—
Notes payable		—		2,479

Total Corporate and Homebuilding Debt		497,748		500,179
Mortgage Line		52,612		79,240

Total Debt	$	550,360	$	579,419

I. Consolidation of Variable Interest Entities

In January 2003, the FASB issued its Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). A variable interest entity (“VIE”) is an entity that has (1) an insufficient amount of equity to absorb the entity’s expected losses; or (2) equity owners as a group that are not able to make decisions about the entity’s activities, do not have the obligation to absorb the entity’s expected losses or do not have the right to receive the entity’s expected residual returns. FIN 46 requires the consolidation

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of a VIE when the Company will absorb a majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual returns, or both. FIN 46 applies to all VIEs effective this reporting period.

In the normal course of business, we enter into lot option purchase contracts, generally through a deposit of cash or letter of credit, for the right to purchase land or lots at a future point in time with predetermined terms. Our liability with respect to option contracts generally is limited to forfeiture of the related non-refundable deposits or letters of credit, which totaled $30,048,000 at March 31, 2004. Pursuant to FIN 46, certain of these contracts are a variable interest for MDC in the entity with which the option purchase contract was entered “Land Seller VIE”. As of March 31, 2004, we have evaluated all outstanding lot option purchase contracts to which MDC is a party. Through this evaluation, we have requested financial information from the Land Seller VIEs, assessed the market conditions where we have contracted with the Land Seller VIEs, and evaluated whether we retain the risk of loss from the Land Seller VIE’s activities or are entitled to receive a majority of the Land Seller VIE’s residual returns, or both.

Based on this evaluation, we have consolidated one Land Seller VIE from which the Company is purchasing undeveloped residential lots under an option contract in Nevada. This contract became effective in February 2004 and is structured as a bulk takedown that is scheduled to close in June 2004. Despite the relatively short duration of this contract, the consolidation of this VIE was driven by the recent extraordinary market conditions in Las Vegas, and the Company concluded that MDC retained the majority of the residual returns. Due to the limitation on our ability to obtain financial information from the Land Seller VIE, we have reflected the consolidation of this VIE as $10,990,000 in land under option contract, not owned (representing the estimated fair value of the land subject to the option purchase contract) and $10,890,000 in obligations related to land under option contract, not owned in our consolidated balance sheet at March 31, 2004. The Company’s non-refundable cash deposit related to this land option contract is $100,000.

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J. 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 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 California (Inland Empire), 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.

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.

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


									Non-
				Guarantor		Guarantor			Eliminating
	MDC			Subsidiaries		Subsidiaries			Entries			Total
ASSETS
Corporate
Cash and cash equivalents	$	84,428		$	—	$	—		$	—		$	84,428
Investments in and advances to parent and subsidiaries		232,086			261		(7,095	)		(225,252	)		—
Other assets		56,278			100		(1,425	)		—			54,953

		372,792			361		(8,520	)		(225,252	)		139,381

Homebuilding
Cash and cash equivalents		—			11,485		2,082			—			13,567
Home sales and other accounts receivable		—			24,661		571			(3,311	)		21,921
Inventories, net
Housing completed or under construction		—			794,943		—			—			794,943
Land and land under development		—			847,282		—			—			847,282
Land under option contract, not owned					10,990		—			—			10,990
Other assets		—			74,195		23,551			—			97,746

		—			1,763,556		26,204			(3,311	)		1,786,449

Financial Services		—			—		111,378			—			111,378

Total Assets	$	372,792		$	1,763,917	$	129,062		$	(228,563	)	$	2,037,208

LIABILITIES
Corporate
Accounts payable and accrued expenses	$	64,750		$	207	$	48		$	(250	)	$	64,755
Advances and notes payable - parent and subsidiaries		(1,280,258	)		1,264,425		15,833			—			—
Income taxes payable		12,878			35,403		2,212			—			50,493
Senior notes, net		497,748			—		—			—			497,748

		(704,882	)		1,300,035		18,093			(250	)		612,996

Homebuilding
Accounts payable and accrued expenses		—			256,147		9,821			—			265,968
Obligations related to land under option contract, not owned		—			10,890		—			—			10,890
Line of credit		—			—		—			—			—

		—			267,037		9,821			—			276,858

Financial Services		—			—		71,769			(3,031	)		68,738

Total Liabilities		(704,882	)		1,567,072		99,683			(3,281	)		958,592

STOCKHOLDERS’ EQUITY		1,077,674			196,845		29,379			(225,282	)		1,078,616

Total Liabilities and Stockholders’ Equity	$	372,792		$	1,763,917	$	129,062		$	(228,563	)	$	2,037,208

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M.D.C. Holdings, Inc.
Supplemental Combining Balance Sheet
December 31, 2003
(In thousands)


						Non-
				Guarantor		Guarantor			Eliminating
	MDC			Subsidiaries		Subsidiaries			Entries			Total
ASSETS
Corporate
Cash and cash equivalents	$	163,133		$	—	$	—		$	—		$	163,133
Investments in and advances to parent and subsidiaries		377,353			1,112		(18,537	)		(359,928	)		—
Other assets		55,866			22		(1,948	)		—			53,940

		596,352			1,134		(20,485	)		(359,928	)		217,073

Homebuilding
Cash and cash equivalents		—			6,335		1,911			—			8,246
Home sales and other accounts receivable		—			12,538		503			(4,647	)		8,394
Inventories, net
Housing completed or under construction		—			732,744		—			—			732,744
Land and land under development		—			763,569		—			—			763,569
Other assets		—			65,876		22,543			—			88,419

		—			1,581,062		24,957			(4,647	)		1,601,372

Financial services		—			—		151,355			—			151,355

Total Assets	$	596,352		$	1,582,196	$	155,827		$	(364,575	)	$	1,969,800

LIABILITIES
Corporate
Accounts payable and accrued expenses	$	72,344		$	70	$	48		$	(250	)	$	72,212
Advances and notes payable – parent and subsidiaries		(885,966	)		871,875		14,091			—			—
Income taxes payable		(101,816	)		122,787		4,040			—			25,011
Senior notes, net		497,700			—		—			—			497,700

		(417,738	)		994,732		18,179			(250	)		594,923

Homebuilding
Accounts payable and accrued expenses		—			251,275		8,019			—			259,294
Line of credit		—			—		—			—			—
Notes payable		—			2,479		—			—			2,479

		—			253,754		8,019			—			261,773

Financial services		—			—		101,593			(4,409	)		97,184

Total Liabilities		(417,738	)		1,248,486		127,791			(4,659	)		953,880

STOCKHOLDERS’ EQUITY		1,014,090			333,710		28,036			(359,916	)		1,015,920

Total Liabilities and Stockholders’ Equity	$	596,352		$	1,582,196	$	155,827		$	(364,575	)	$	1,969,800

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M.D.C. Holdings, Inc.
Supplemental Combining Statements of Income
(In thousands)
(Unaudited)
Three Months Ended March 31, 2004


							Non-
				Guarantor			Guarantor			Eliminating
	MDC			Subsidiaries			Subsidiaries			Entries			Total
REVENUES
Homebuilding	$	—		$	747,610		$	1,385		$	(131	)	$	748,864
Financial Services		—			—			14,448			—			14,448
Corporate		286			—			6			—			292
Equity in earnings of subsidiaries		59,140			—			—			(59,140	)		—

Total Revenues		59,426			747,610			15,839			(59,271	)		763,604

COSTS AND EXPENSES
Homebuilding		203			657,360			(233	)		(21,911	)		635,419
Financial Services		—			—			9,791			—			9,791
Corporate general and administrative		18,576			—			—			—			18,576
Corporate and homebuilding interest		(21,911	)		—			—			21,911			—

Total Costs and Expenses		(3,132	)		657,360			9,558			—			663,786

Income before income taxes		62,558			90,250			6,281			(59,271	)		99,818
Provision for income taxes		(1,032	)		(35,403	)		(2,482	)		—			(38,917	)

NET INCOME	$	61,526		$	54,847		$	3,799		$	(59,271	)	$	60,901

Three Months Ended March 31, 2003


							Non-
				Guarantor			Guarantor			Eliminating
	MDC			Subsidiaries			Subsidiaries			Entries			Total
REVENUES
Homebuilding	$	—		$	554,232		$	756		$	(76	)	$	554,912
Financial Services		—			—			14,513			—			14,513
Corporate		207			—			10			—			217
Equity in earnings of subsidiaries		32,748			—			—			(32,748	)		—

Total Revenues		32,955			554,232			15,279			(32,824	)		569,642

COSTS AND EXPENSES
Homebuilding		(35	)		509,324			45			(18,880	)		490,454
Financial Services		—			—			6,946			—			6,946
Corporate general and administrative		11,476			—			—			—			11,476
Corporate and homebuilding interest		(18,880	)		—			—			18,880			—

Total Costs and Expenses		(7,439	)		509,324			6,991			—			508,876

Income before income taxes		40,394			44,908			8,288			(32,824	)		60,766
Provision for income taxes		(2,765	)		(17,749	)		(3,215	)		—			(23,729	)

NET INCOME	$	37,629		$	27,159		$	5,073		$	(32,824	)	$	37,037

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M.D.C. Holdings, Inc.
Supplemental Combining Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended March 31, 2004


							Non-
				Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC
Net cash provided by (used in) operating activities	$	114,803		$	(195,467	)	$	37,575		$	(131	)	$	(43,220	)
Net cash used in investing activities		(1,316	)		(889	)		(94	)		—			(2,299	)

Financing activities
Net increase (reduction) in borrowings from parent and subsidiaries		(189,722	)		201,506			(11,784	)		—			—
Lines of credit
Advances		3,500			—			—			—			3,500
Principal payments		(3,500	)		—			(26,628	)		—			(30,128	)
Dividend payments		(3,982	)		—			—			131			(3,851	)
Proceeds from exercise of stock options		1,512			—			—			—			1,512

Net cash provided by (used in) financing activities		(192,192	)		201,506			(38,412	)		131			(28,967	)

Net increase (decrease) in cash and cash equivalents		(78,705	)		5,150			(931	)		—			(74,486	)
Cash and cash equivalents
Beginning of year		163,133			6,335			4,097			—			173,565

End of year	$	84,428		$	11,485		$	3,166		$	—		$	99,079

Three Months Ended March 31, 2003


							Non-
				Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC
Net cash provided by (used in) operating activities	$	3,100		$	(51,776	)	$	83,387		$	(76	)	$	34,635
Net cash used in investing activities		(510	)		(781	)		(274	)		—			(1,565	)

Financing activities
Net increase (reduction) in borrowings from parent and subsidiaries		(35,429	)		52,812			(17,383	)		—			—
Lines of credit
Advances		608,800			—			—			—			608,800
Principal payments		(518,800	)		—			(65,522	)		—			(584,322	)
Dividend payments		(2,196	)		—			—			76			(2,120	)
Stock repurchases		(26,731	)		—			—			—			(26,731	)
Proceeds from exercise of stock options		434			—			—			—			434

Net cash provided by (used in) financing activities		26,078			52,812			(82,905	)		76			(3,939	)

Net increase in cash and cash equivalents		28,668			255			208			—			29,131
Cash and cash equivalents
Beginning of year		23,164			4,171			1,607			—			28,942

End of year	$	51,832		$	4,426		$	1,815		$	—		$	58,073

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

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. The “Company” or “MDC” includes 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, 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 and Colorado.

RESULTS OF OPERATIONS

Overview.

We achieved record first quarter home closings, revenues, net income and earnings per share in 2004. Aided by low mortgage interest rates and the strong demand for new homes in most of our markets, our first quarter home orders and quarter-end backlog increased 32% and 34%, respectively, over 2003. We recently have experienced unprecedented demand for new homes in the Las Vegas market. As the third-largest homebuilder in this market, we believe that we are well-positioned to take advantage of these positive market conditions, with 20 active communities and 5,880 residential lots under our control at March 31, 2004. However, we are not able to predict whether this level of demand is sustainable. Therefore, consistent with our strategy in all our markets, we have maintained our discipline with respect to buying land in Las Vegas, controlling approximately a two-year supply of lots and limiting our duration of lots in any given subdivision to two years or less.

Our financial position continued to strengthen throughout the first quarter of 2004. Our stockholders’ equity at March 31, 2004 increased by 32% year-over-year to $1,078,616,000, or $33.08 per outstanding share, and we lowered our March 31, 2004 ratio of debt-to-capital, net of cash, to 0.27. In addition, we ended the quarter with $680,957,000 in unrestricted cash and available borrowing capacity, which can be used to fund our growth. Our liquidity was further enhanced during April 2004 with the extension of the term of our Homebuilding Line to April 2009 and the increase in our borrowing capacity to $700,000,000, with the ability to further expand to $850,000,000 with lender approval.

Consolidated Results.

The following discussion for both consolidated results of operations and segment results refers to the three-months ended March 31, 2004, compared with the same period in 2003.

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The table below summarizes our results of operations (in thousands, except per share amounts). Prior period earnings per share have been restated to reflect the effect of a 10% stock dividend declared on February 23, 2004.


	Three Months
	Ended March 31,				Change
	2004		2003		Amount		%
Revenues	$	763,604	$	569,642	$	193,962		34	%
Income Before Income Taxes	$	99,818	$	60,766	$	39,052		64	%
Net Income	$	60,901	$	37,037	$	23,864		64	%
Earnings Per Share:
Basic	$	1.87	$	1.16	$	0.71		61	%
Diluted	$	1.79	$	1.12	$	0.67		60	%

The increase in revenues for the first quarter of 2004 primarily was due to higher homebuilding revenues resulting from an increase in home closings to 2,910 in 2004, compared with 2,100 in 2003, partially offset by a $7,100 decrease in the average selling price of our homes.

The increase in income before income taxes reflects increased first quarter operating profits from our homebuilding segment, partially offset by lower operating profits from our financial services segment and higher corporate general and administrative expenses. The increase in homebuilding segment profits primarily resulted from the higher home closings described above and an increase in Home Gross Margins (as defined below) of 340 basis points. Financial services segment profits decreased primarily due to lower gains on sales of mortgage loans and servicing release premiums and higher general and administrative expenses arising in connection with HomeAmerican’s expanded loan origination activity.

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Homebuilding Segment

The tables below set forth information relating to the Company’s homebuilding segment (dollars in thousands).


	Three Months Ended
	March 31,						Change
	2004			2003			Amount			%
Home Sales Revenues	$	746,429		$	553,575		$	192,854			35	%
Operating Profit	$	113,445		$	64,458		$	48,987			76	%
Average Selling Price Per Home Closed	$	256.5		$	263.6		$	(7.1	)		-3	%
Home Gross Margins		26.2	%		22.8	%		3.4	%		15	%
Home Gross Margins, Excluding Interest		27.0	%		23.7	%		3.3	%		14	%
Orders For Homes, net (units)
Arizona		910			924			(14	)		-2	%
California		826			530			296			56	%
Colorado		691			671			20			3	%
Florida		109			—			109			—
Maryland		124			111			13			12	%
Nevada		1,030			583			447			77	%
Texas		271			50			221			442	%
Utah		176			93			83			89	%
Virginia		292			403			(111	)		-28	%

Total		4,429			3,365			1,064			32	%

Homes Closed (units)
Arizona		870			571			299			52	%
California		476			428			48			11	%
Colorado		478			609			(131	)		-22	%
Florida		71			—			71			—
Maryland		70			67			3			4	%
Nevada		568			273			295			108	%
Texas		70			10			60			600	%
Utah		104			40			64			160	%
Virginia		203			102			101			99	%

Total		2,910			2,100			810			39	%

- 18 -


	March 31,		December 31,		March 31,
	2004		2003		2003
Backlog (units)
Arizona		1,373		1,333		1,429
California		1,469		1,119		1,024
Colorado		947		734		1,019
Florida		142		104		—
Maryland		323		269		232
Nevada		1,348		886		660
Texas		344		143		56
Utah		223		151		103
Virginia		943		854		777

Total		7,112		5,593		5,300

Backlog Estimated Sales Value	$	2,080,000	$	1,600,000	$	1,400,000

Average Sales Price in Backlog	$	292.5	$	286.1	$	264.2

Active Subdivisions
Arizona		42		38		46
California		25		26		22
Colorado		55		49		62
Florida		11		9		—
Maryland		10		9		8
Nevada		20		17		23
Texas		20		11		4
Utah		14		11		7
Virginia		28		28		32

Total		225		198		204

Average for the quarter		207		200		192

Home Sales Revenues - The increase in home sales revenues was the result of increased home closings, as discussed below, for the three months ended March 31, 2004, compared with the same period in 2003, partially offset by a decrease in average selling price discussed below.

Homes Closed - Home closings were higher in the first quarter of 2004, compared with the same period in 2003, in all of our markets except Colorado. Home closings increased significantly in Nevada, Arizona and Virginia, primarily due to higher year-over-year Backlogs (as defined below) at the beginning of the 2004 first quarter resulting from the strong demand for new homes in each of these markets. In addition, we closed a combined 245 homes in the first quarter of 2004 in Utah, Texas and Florida, new markets in which a total of only 50 homes were closed during the comparable period in 2003. We closed fewer homes in Colorado, primarily due to fewer active subdivisions and the more challenging economic conditions experienced in this market.

- 19 -

Average Selling Price Per Home Closed - The $7,100 decrease in average selling price primarily was attributable to closing a higher percentage of homes in Nevada, Arizona, Texas, Utah and Florida, where the average home selling price is below the Company average. In addition, in California, we closed more homes in lower-priced subdivisions. The following table displays our average selling price per home closed, by market (in thousands).


	Three Months Ended March 31,
	2004		2003
Average Selling Price
Arizona	$	191.0	$	175.8
California		386.9		399.9
Colorado		261.5		264.8
Florida		170.6		—
Maryland		419.5		369.0
Nevada		206.6		186.6
Texas		161.6		150.7
Utah		174.4		172.1
Virginia		408.2		359.9
Total		256.5		263.6

Home Gross Margins - We define “Home Gross Margins” to mean home sales revenues less cost of goods sold (which primarily includes land and construction costs, capitalized interest, financing costs, and a reserve for warranty expense) as a percent of home sales revenues. Home Gross Margins improved in the first quarter of 2004, compared with the same period in 2003, primarily due to our ability to increase selling prices in many of our markets, and our closing a number of homes with significantly higher margins than average in Virginia, California and Arizona subdivisions that are in process of closing out. Nevada has experienced extraordinary demand for new homes recently, creating opportunities to significantly increase selling prices in all of our price points in this market. Additionally, corporate initiatives directed at reducing construction costs, as well as reductions in previous estimates to complete land development and construction in certain markets, contributed to increased Home Gross Margins. These increases to Home Gross Margins partially were offset by the impact of a greater number of homes closed in the 2004 first quarter in Utah, Texas and Florida, where Home Gross Margins were lower than the Company average.

Future Home Gross Margins may be impacted adversely by, among other things: (1) increased competition, which could affect our ability to raise home prices and maintain lower levels of incentives; (2) increases in the costs of subcontracted labor, finished lots, building materials (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; and (5) other general risk factors. See “Forward-Looking Statements” below.

Orders for Homes and Backlog - Home orders during the quarter ended March 31, 2004 particularly were strong in Nevada and California (up 77% and 56%, respectively), primarily due to the continued strong demand for new homes in these markets. Colorado also showed improvement, with home orders increasing 25% on a same-store basis in the first quarter of 2004, compared with the same period in 2003. Additionally, the Company received a combined 556 home orders in the first quarter of 2004 from its new markets in Utah, Texas and Florida, compared with 143 home orders in the 2003 first

- 20 -

quarter. Home orders were lower in Virginia for the quarter, primarily due to our decision to limit temporarily our release of new homes for sale in this market. The decision was made in an effort to reduce our growing backlog of homes sold but not started that resulted from a combination of strong home orders in prior quarters, weather-related land development and home construction delays, and volume-related delays by municipalities in issuing building permits.

Record home orders received during the 2004 first quarter contributed to the 34% increase in homes under contract but not yet delivered (“Backlog”) at March 31, 2004 to 7,112 units with an estimated sales value of $2,080,000,000, compared with the Backlog of 5,300 units with an estimated sales value of $1,400,000,000 at March 31, 2003. Assuming no significant change in market conditions or mortgage interest rates, the Company expects approximately 70% to 75% of its March 31, 2004 Backlog to close under existing sales contracts during 2004. The remaining 25% to 30% of the homes in Backlog are not expected to close under existing contracts due to cancellations. See “Forward-Looking Statements” below.

Marketing - Marketing expenses (which include sales commissions, advertising, amortization of deferred marketing costs, model home expenses and other costs) totaled $43,168,000 for the quarter ended March 31, 2004, compared with $33,600,000 for the comparable period in 2003. The increase in 2004 primarily was due to (1) an increase of $5,490,000 in sales commissions resulting from the Company’s increased home sales revenues; (2) an increase of $2,790,000 for product advertising and deferred marketing amortization, primarily as a result of the increased number of active subdivisions and greater home closings; and (3) an increase of $1,060,000 for salaries and benefits attributable to the Company’s expanding homebuilding operations in new and existing markets.

General and Administrative - General and administrative expenses increased to $41,227,000 during the first quarter of 2004, compared with $29,165,000 for the same period in 2003, primarily due to increases in compensation, related benefits and other costs associated with expanded operations in many of our markets, most notably California, Nevada and Virginia, and in our new markets in Florida and Texas.

Title Operations - American Home Title provides title agency services to our homebuyers in Virginia, Maryland, Colorado, Florida, Texas and Delaware. The Company is evaluating opportunities to provide title agency services in its other markets. Income before income taxes from title operations was $826,000 for the quarter ended March 31, 2004, compared with $459,000 for the same period in 2003.

- 21 -

Land Inventory

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


	March 31,		December 31,
	2004		2003		March 31, 2003
Colorado	$	115,843	$	105,223	$	139,499
California		251,826		239,714		142,516
Nevada		161,853		129,554		110,982
Arizona		117,399		89,950		88,459
Utah		32,832		22,548		13,083
Texas		18,765		16,420		5,773
Virginia		81,363		94,561		111,756
Maryland		48,984		53,483		31,630
Florida		11,162		12,116		—
Illinois		7,255		—		—

Total	$	847,282	$	763,569	$	643,698

Total Lots Owned (excluding lots in work-in-process)		18,692		16,351		16,054
Total Lots Controlled Under Option		13,272		12,251		6,813

Total Lots Owned and Controlled (excluding lots in work-in-process)		31,964		28,602		22,867

Non-refundable Option Deposits
Cash	$	18,921	$	17,089	$	16,172
Letters of Credit		11,127		8,225		8,497

Total Non-refundable Option Deposits	$	30,048	$	25,314	$	24,669

- 22 -

Financial Services Segment

The table below sets forth information relating to the operations of HomeAmerican and American Home Insurance (dollars in thousands).


	Three Months
	Ended March 31,						Change
	2004			2003			Amount			%
Mortgage loan origination fees	$	5,264		$	4,660		$	604			13	%
Gains on sales of mortgage servicing, net	$	616		$	834		$	(218	)		-26	%
Gains on sales of mortgage loans, net	$	6,777		$	7,342		$	(565	)		-8	%
General and administrative	$	9,791		$	6,946		$	2,845			41	%
Operating Profit	$	4,657		$	7,567		$	(2,910	)		-38	%
Principal amount of loan originations
MDC homebuyers	$	340,553		$	315,022		$	25,531			8	%
Spot		714			3,749			(3,035	)		-81	%

Total	$	341,267		$	318,771		$	22,496			7	%

Principal amount of loans brokered
MDC homebuyers	$	158,298		$	45,325		$	112,973			249	%
Spot		531			538			(7	)		-1	%

Total	$	158,829		$	45,863		$	112,966			246	%

Total principal amount of loans originated and brokered	$	500,096		$	364,634		$	135,462			37	%

Capture Rate		56	%		71	%

Including brokered loans		78	%		81	%

The total principal amount of originated and brokered loans increased 37% in the first quarter of 2004, compared with the same period in 2003. This improvement primarily was due to the increase in homes closed by the homebuilding segment. Our homebuyers were the source of approximately 99% of the principal amount of mortgage loans originated and brokered by HomeAmerican in the first quarter of 2004. Mortgage loans originated by HomeAmerican for our homebuyers as a percentage of total MDC home closings (“Capture Rate”) was 56% for the first quarter of 2004, compared with 71% for the same period in 2003. This decline in the Capture Rate primarily resulted from HomeAmerican brokering out a higher percentage of mortgage loans to outside lending institutions for our homebuyers due to the competitive environment for mortgage loans that resulted from a significant decline in refinancing activity in the marketplace. Brokered loans, for which HomeAmerican receives a fee, have been excluded from the computation of the Capture Rate. The Capture Rate including brokered loans was 78% for the first quarter of 2004, compared with 81% for the same period in 2003.

Financial services operating profit for the first quarter of 2004 decreased, compared with the same period in 2003, primarily due to an increase in general and administrative expenses resulting from HomeAmerican’s increased volume of home closings, and a reduction in gains on sales of mortgage loans

- 23 -

resulting from the more competitive pricing environment for mortgage loans. This competitive environment contributed to originating a higher percentage of less-valuable adjustable rate mortgage loans in the first quarter of 2004, as well as brokering a higher percentage of total loans processed in the quarter to third party mortgage companies, for which no gains on sales are realized.

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 its mortgage loans held in inventory and its rate-locked commitments to originate loans in the pipeline. Reported gains on sales of mortgage loans may vary significantly from period to period depending on the volatility in the interest rate market. However, for the periods presented, this volatility was not material.

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 Consolidated Financial Statements. For a reconciliation of interest incurred, capitalized and expensed, see Note D to our Consolidated Financial Statements.

Corporate General and Administrative Expenses - Corporate general and administrative expenses totaled $18,576,000 during the first quarter of 2004, compared with $11,476,000 for the same period in 2003. The increases in 2004 primarily were due to greater compensation-related costs principally resulting from our higher profitability, increased compensation and other expenses for information technology, and a $1,000,000 charitable contribution to the M.D.C. Holdings, Inc. Charitable Foundation in the first quarter of 2004.

Income Taxes - Our overall effective income tax rate of 39% for the first quarter of 2004 and 2003 differed from the federal statutory rate of 35%, primarily due to the impact of state income taxes.

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 registration statement allowing us to issue equity, debt or hybrid securities up to $550,000,000.

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 (the “7% Senior Notes”), 5 1/2% senior notes due 2013 (the “5 1/2% Senior Notes”) and our homebuilding line of credit (the “Homebuilding Line”); and (3) current financing, primarily our mortgage lending line of credit

- 24 -

(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 Other

Homebuilding - Our Homebuilding Line is an unsecured revolving line of credit with a group of lenders for support of our homebuilding operations. At March 31, 2004, lender commitments under the Homebuilding Line totaled $600,000,000. On April 8, 2004, we renewed the Homebuilding Line, increasing the aggregate commitment amount to $700,000,000 and extending the maturity date to April 7, 2009. In addition, the facility’s provision for letters of credit was increased to an available aggregate amount of $350,000,000. The facility permits an increase in the maximum commitment amount to $850,000,000 upon our request, subject to receipt of additional commitments from existing or additional participant lenders. At March 31, 2004, there were no borrowings and $36,797,000 in letters of credit outstanding under the Homebuilding Line.

Mortgage Lending - Our Mortgage Line has a borrowing limit of $175,000,000 with terms that allow for increases of up to $50,000,000 in the borrowing limit to a maximum of $225,000,000, subject to concurrence by the participating banks. The terms of the Mortgage Line are set forth in the Third Amended and Restated Warehousing Credit Agreement dated as of October 23, 2003. Available borrowings under the Mortgage Line are collateralized by mortgage loans and mortgage-backed certificates and are limited to the value of eligible collateral as defined. At March 31, 2004, $52,612,000 was borrowed and an additional $29,576,000 was collateralized and available to be borrowed. The Mortgage Line is cancelable upon 120 days notice.

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 representations, warranties and covenants. 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, 2003 and in the Current Report on Form 8-K dated April 12, 2004.

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 “adjusted consolidated tangible net worth,” as defined, must not be less than the sum of (1) $776,018,000; (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) $485,011,000; (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

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issuance of capital stock after December 31, 2003. Failure to satisfy this covenant may result in a termination of the facility.

Our senior notes are not secured and the senior notes indentures 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

On March 24, 2003, our board of directors authorized the repurchase of an additional 1,350,000 shares of common stock, bringing the total authorization to 4,350,000 shares. There were no stock repurchases made during the quarter ended March 31, 2004. We have 1,769,600 shares available to be repurchased as of March 31, 2004 under the current program.

Consolidated Cash Flow

During the first quarter of 2004, we used $43,220,000 of cash for operating activities. Cash provided by net income before depreciation and amortization, the sale of mortgage loans and an increase in accounts payable and accrued expenses was more than offset by cash used to build net homebuilding assets in support of our expanding homebuilding activities. Additionally, we made net principal payments of $26,628,000 on our lines of credit and paid dividends of $3,851,000.

During the first quarter of 2003, we generated cash of $34,635,000 from our operating activities, as net income during the period and the sale of mortgage loans provided cash that more than offset increases in net homebuilding assets in conjunction with our expanded homebuilding operations. The net cash provided by operating activities and an increase in our lines of credit provided for the repurchase of MDC common stock for $26,731,000 and the payment of $2,120,000 in dividends and resulted in an increase in cash and cash equivalents on hand by $29,131,000.

Off-Balance Sheet Arrangements

Our 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 2003 Annual Report on Form 10-K.

Contractual Obligations

Our contractual obligations have not changed materially from those reported in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2003 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, also would increase, which can result in lower Home Gross Margins. Increases in home mortgage interest rates make it more difficult for our customers

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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 utilized by MDC. An increase in interest rates may affect adversely the demand for housing and the availability of mortgage financing.

Our business also is affected significantly by general economic conditions and, particularly, the demand for new homes in the markets in which we build. The demand for new homes in Las Vegas has reached unprecedented levels since the beginning of the year. This extraordinary demand has resulted in a substantial increase in new home sales and has driven the market’s median home price to $225,800 at March 31, 2004, compared with $187,500 at March 31, 2003, according to a publication from Home Builders Research, Inc. Our average home selling price in Las Vegas, along with our Home Gross Margins, also have increased in the first quarter of 2004, compared with the same period in 2003, without a substantial change in product mix.

We have increased our market share in Las Vegas to become the third-largest homebuilder in that market. As a result, we are well-positioned to take advantage of the recent increase in demand. Nevertheless, we continue to follow our disciplined strategy of controlling approximately a two-year supply of land. If demand for new homes in Las Vegas was to stabilize or decline in the future, our financial results potentially could be impacted by the recent significant appreciation in land, which could adversely affect our Home Gross Margins if we are unable to recover these costs through increases in home selling prices. See “Forward-Looking Statements” below.

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 period. 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.

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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 2003 Annual Report on Form 10-K.

OTHER

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q, the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2003, as well as statements made by the Company in periodic press releases, oral statements made by the Company’s 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. 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, (1) general economic and business conditions; (2) interest rate changes; (3) the relative stability of debt and equity markets; (4) competition; (5) the availability and cost of land and other raw materials used by the Company in its homebuilding operations; (6) the availability and cost of performance bonds and insurance covering risks associated with our business; (7) shortages and the cost of labor; (8) weather related slowdowns; (9) slow growth initiatives; (10) building moratoria; (11) governmental regulation, including the interpretation of tax, labor and environmental laws; (12) changes in consumer confidence and preferences; (13) required accounting changes; (14) terrorist acts and other acts of war; and (15) other factors over which the Company has little or no control.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes from the 2003 Annual Report on Form 10-K related to our exposure to market risk from interest rates.

Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures - Management recognizes its responsibility for maintaining effective internal controls and disclosure controls and procedures (the controls and procedures by which we ensure that information disclosed in annual and quarterly reports filed with the Securities and Exchange Commission (“SEC”) is accurately recorded, processed, summarized and reported within the required time period). We have procedures in place for gathering the information that is needed to enable us to file required reports with the SEC. We have a group of officers which is responsible for reviewing all quarterly and annual SEC reports. This group consists of most of MDC’s senior management, including its chief financial officer, general counsel, treasurer and all homebuilding and mortgage lending presidents and vice presidents of finance.

An evaluation of the effectiveness of the design and operation of our internal controls and 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 as of March 31, 2004.

(b) Changes in internal control over financial reporting - Our evaluation did not identify any change in our internal control over financial reporting that occurred during the quarter ended March 31, 2004 that has materially affected, or is 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 Company previously purchased 63 lots within the former Lowry Air Force Base, in an area known as the Northwest Neighborhood, in Denver, Colorado. As of March 31, 2004, the Company had sold homes on all 63 lots, completed construction of homes on 48 of these lots, closed 48 of the homes, and commenced construction on all the remaining 15 lots. Asbestos, believed to have resulted from historic activities of the United States Air Force, has been discovered in this area. In August 2003, the Colorado Department of Public Health and Environment issued a Final Response Plan imposing requirements to remediate the asbestos. Through March 31, 2004, the Company had expended approximately $3,300,000 in sampling and remediation costs and currently projects the total costs of these efforts to be approximately $3,500,000. Remediation of all 63 lots had been completed by the Company as of March 31, 2004. The Company has notified the Air Force and United States Department of Defense of their responsibility to reimburse the Company for all costs associated with the asbestos. Those agencies currently dispute their responsibility to reimburse the Company and the other land owners. The Company is evaluating available legal remedies to recover costs associated with the asbestos.

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 seeks 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. 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.

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Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

On March 24, 2003, MDC’s board of directors authorized the repurchase of up to 4,350,000 shares of MDC’s common stock. The Company did not repurchase any shares during the first quarter of 2004. As of March 31, 2004, the Company has 1,769,600 shares available to be repurchased under the program.

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

The annual meeting of the Company’s shareowners was held on April 26, 2004. The following members of the Board of Directors were elected as Class I Directors for three-year terms expiring in 2007:


	Votes For		Votes Withheld
Herbert T. Buchwald		23,052,427		6,506,440
Larry A. Mizel		28,499,350		1,059,517

Gilbert Goldstein, William B. Kemper, Steven J. Borick, David D. Mandarich and David E. Blackford continued to serve as directors of the Company after the annual meeting.

The shareowner proposal for a sustainability report described in our March 9, 2004 proxy statement was not presented by the proponent or any other shareowner at the meeting and, accordingly, no action or vote was taken on the proposal.

Item 5. Other Information.

On February 23, 2004, MDC’s board of directors declared a 10% stock dividend that was distributed on March 23, 2004 to shareowners of record on March 8, 2004. On January 27, 2004, MDC’s board of directors declared a cash dividend of twelve and one-half cents ($.125) per share for the quarter ended December 31, 2003. The dividend was paid on February 26, 2004 to shareowners of record on February 11, 2004.

On April 26, 2004, MDC’s board of directors declared a cash dividend of fifteen cents ($.15) per share for the quarter ended March 31, 2004. The dividend is to be paid on May 26, 2004 to shareowners of record on May 12, 2004.

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Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibit:

10.1 Credit Agreement dated as of April 8, 2004 among MDC as Borrower and the Lenders named therein and Bank One, NA as Administrative Agent (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K dated April 12, 2004).

10.2 First Amendment to M.D.C. Holdings, Inc. Stock Option Plan for Non-Employee Directors, October 20, 2003.

12 Ratio of Earnings to Fixed Charges Schedule.

31.1 Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification of Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K:

Form 8-K (Items 5 and 9) dated April 12, 2004, reporting the renewal of the Company’s unsecured bank credit facility.

Form 8-K (Items 9 and 12) dated April 12, 2004, reporting the Company’s first quarter results for 2004.

Form 8-K (Items 9 and 12) dated April 5, 2004, reporting home orders, home closings and quarter-end backlog for the quarterly period ended March 31, 2004.

Form 8-K (Items 9 and 12) dated March 31, 2004, reporting that the Company expects earnings per share to exceed analyst consensus estimate for the 2004 first quarter.

Form 8-K (Items 12 and 9) dated January 12, 2004, reporting fourth quarter and annual results for 2003.

Form 8-K (Items 12 and 9) dated January 5, 2004, reporting home orders, home closings and quarter-end backlog for the period ending December 31, 2003.

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INDEX TO EXHIBITS


Exhibit Number		Description
10.1		Credit Agreement dated as of April 8, 2004 among MDC as Borrower and the Lenders named therein and Bank One, NA as Administrative Agent (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K dated April 12, 2004).

10.2		First Amendment to M.D.C. Holdings, Inc. Stock Option Plan for Non-Employee Directors, October 20, 2003.

12		Ratio of Earnings to Fixed Charges Schedule.

31.1		Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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	Page
	No.
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Financial Statements:
Balance Sheets as of March 31, 2004 (Unaudited) and December 31, 2003		1
Statements of Income (Unaudited) for the three months ended March 31, 2004 and 2003		3
Statements of Cash Flows (Unaudited) for the three months ended March 31, 2004 and 2003		4
Notes to Consolidated Financial Statements (Unaudited)		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3. Quantitative and Qualitative Disclosures About Market Risk		29
Item 4. Controls and Procedures		29
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings		30
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities		31
Item 4. Submission of Matters to a Vote of Security Holders		31
Item 5. Other Information		31
Item 6. Exhibits and Reports on Form 8-K		32
SIGNATURES		33
First Amend. to Stock Option Plan - Non-Employee
Ratio of Earnings to Fixed Charges Schedule
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


Date: May 7, 2004	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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	•		M.D.C. Land Corporation

	•		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 California (Inland Empire), 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.

	•		American Home Insurance Agency, Inc.

	•		American Home Title and Escrow Company

	•		HomeAmerican Mortgage Corporation

	•		Lion Insurance Company

	•		StarAmerican Insurance Ltd.

			Form 8-K (Items 5 and 9) dated April 12, 2004, reporting the renewal of the Company’s unsecured bank credit facility.

			Form 8-K (Items 9 and 12) dated April 12, 2004, reporting the Company’s first quarter results for 2004.

			Form 8-K (Items 9 and 12) dated April 5, 2004, reporting home orders, home closings and quarter-end backlog for the quarterly period ended March 31, 2004.

			Form 8-K (Items 9 and 12) dated March 31, 2004, reporting that the Company expects earnings per share to exceed analyst consensus estimate for the 2004 first quarter.

			Form 8-K (Items 12 and 9) dated January 12, 2004, reporting fourth quarter and annual results for 2003.

			Form 8-K (Items 12 and 9) dated January 5, 2004, reporting home orders, home closings and quarter-end backlog for the period ending December 31, 2003.