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~~March 31, 2006


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


4350 South Monaco Street, Suite 500		80237
Denver, Colorado		(Zip code)
(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. Yesþ Noo

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, ~~(as defined~~or non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange ~~Act). Yes~~Act.

Large Accelerated Filerþ NoAccelerated FileroNon-Accelerated Filero

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

As of ~~October 31, 2005, 44.6 million~~April 28, 2006, 44,932,000 shares of M.D.C. Holdings, Inc. common stock were outstanding.

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


	September 30,			December 31,			March 31,			December 31,
	2005			2004			2006			2005
LIABILITIES
Corporate
Accounts payable and accrued liabilities	$	113,184		$	94,178		$	89,302		$	117,767
Income taxes payable		49,499			50,979			82,924			102,656
Related party liabilities								1,600			8,100
Senior notes, net		996,171			746,310			996,391			996,297

		1,158,854			891,467			1,170,217			1,224,820


Homebuilding
Accounts payable		243,560			159,763			192,770			203,592
Accrued liabilities		203,045			165,705			212,658			216,872
Line of credit		40,000			—			100,000			—

		486,605			325,468			505,428			420,464


Financial Services
Accounts payable and accrued liabilities		25,382			18,810			22,730			30,970
Line of credit		138,664			135,478			125,540			156,532

		164,046			154,288			148,270			187,502


Total Liabilities		1,809,505			1,371,223			1,823,915			1,832,786


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
Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued or outstanding								—			—
Common stock, $0.01 par value; 250,000,000 shares authorized; 44,928,000 and 44,915,000 shares issued and outstanding, respectively, at March 31, 2006 and 44,642,000 and 44,630,000 shares issued and outstanding, respectively, at December 31, 2005								449			447
Additional paid-in capital		720,235			660,699			741,003			722,291
Retained earnings		1,046,641			760,780			1,317,175			1,232,971
Unearned restricted stock		(2,380	)		(1,418	)		(2,231	)		(2,478	)
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	)
Accumulated other comprehensive loss								(622	)		(622	)
Less treasury stock, at cost; 13,000 and 12,000 shares, respectively, at March 31, 2006 and December 31, 2005								(566	)		(500	)

Total Stockholders’ Equity		1,764,184			1,418,821			2,055,208			1,952,109


Total Liabilities and Stockholders’ Equity	$	3,573,689		$	2,790,044		$	3,879,123		$	3,784,895

M.D.C. HOLDINGS, INC.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine Months Ended						Three Months
	September 30,						Ended March 31,
	2005			2004			2006			2005
OPERATING ACTIVITIES
Net income	$	308,244		$	248,542		$	95,421		$	84,631
Adjustment to reconcile net income to net cash used in operating activities
Depreciation and amortization		34,518			28,756
Adjustments to reconcile net income to net cash used in operating activities
Amortization of deferred marketing costs								9,085			6,766
Depreciation and amortization of long-lived assets								4,543			3,228
Amortization of debt discount								94			82
Deferred income taxes		(887	)		(3,533	)		(4,640	)		(1,334	)
Stock-based compensation expense								3,947			657
Excess tax benefits from stock-based compensation								(1,192	)		—
Net changes in assets and liabilities
Home sales and other accounts receivable		(49,827	)		(14,915	)		54,254			(14,015	)
Homebuilding inventories		(942,245	)		(549,395	)
Housing completed or under construction								(79,156	)		(52,846	)
Land and land under development								(158,414	)		(197,287	)
Prepaid expenses and other assets		(56,003	)		(56,214	)		(22,710	)		(14,456	)
Mortgage loans held in inventory		(27,471	)		853			46,939			62,848
Accounts payable and accrued liabilities		179,180			147,530			(63,731	)		671
Restricted cash								(907	)		(825	)
Other, net		615			4,144			8,024			3,547

Net cash used in operating activities		(553,876	)		(194,232	)		(108,443	)		(118,333	)


INVESTING ACTIVITIES

Net purchase of property and equipment		(18,118	)		(27,083	)		(1,638	)		(4,663	)


FINANCING ACTIVITIES
Lines of credit
Advances		948,786			1,388,500			354,800			—
Principal payments		(905,600	)		(1,273,254	)		(285,792	)		(60,667	)
Proceeds from issuance of senior notes, net		247,605			—
Excess tax benefits from stock-based compensation								1,192			—
Dividend payments		(22,383	)		(13,641	)		(11,217	)		(6,509	)
Stock repurchases		—			(6,812	)
Proceeds from exercise of stock options		25,557			6,040			2,306			8,031

Net cash provided by financing activities		293,965			100,833
Net cash provided by (used in) financing activities								61,289			(59,145	)

Net decrease in cash and cash equivalents		(278,029	)		(120,482	)		(48,792	)		(182,141	)
Cash and cash equivalents
Beginning of year		408,150			173,565
Beginning of period								214,531			400,959

End of period	$	130,121		$	53,083		$	165,739		$	218,818

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

~~(Unaudited)~~

A.1. Basis of Presentation ~~of Financial Statements~~

The ~~consolidated financial statements~~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.~~Commission (the “SEC”). Accordingly, they do not include all information and footnotes required by accounting principles generally accepted ~~accounting principles~~in the United States of America for complete financial statements. These statements reflect all ~~adjustments (including all~~ normal and recurring ~~accruals)~~adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of MDC at ~~September 30, 2005~~March 31, 2006 and for all periods presented. These statements should be read in conjunction with MDC’s ~~consolidated financial statements~~Consolidated Financial Statements and ~~notes~~Notes thereto included in MDC’s Annual Report on Form 10-K for ~~its fiscal~~the year ended December 31, ~~2004.~~2005. Certain ~~reclassifications~~years’ prior balances have been ~~made in the 2004 consolidated financial statements~~reclassified to conform to the ~~classifications used in the~~ current ~~year.~~year’s presentation.

The Company ~~historically~~ has experienced, and expects to continue to experience, significant seasonality and quarter-to-quarter variability in ~~quarterly results.~~homebuilding activity levels. In general, the number of homes closed increases substantially during the third and fourth quarters, compared with the first and second quarters. The ~~consolidated statements~~Company believes that this seasonality reflects the historical tendency of ~~income~~homebuyers to purchase new homes in the spring with the goal of closing in the fall or winter, as well as the scheduling of construction to accommodate seasonal weather conditions. Also, the Company has experienced, and expects to continue to experience, seasonality in the financial services operations because loan originations correspond with the closing of homes in the homebuilding operations. The Consolidated Statements of Income and Cash Flows for the three months ended March 31, 2006 are not necessarily indicative of the results to be expected for the full year.

~~B. Earnings Per Share~~2. Recent Accounting Pronouncements

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~~February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. ~~128, “Earnings per Share,” basic~~155, “Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and ~~diluted net income per share amounts, weighted-average shares outstanding,~~140” (“SFAS 155”). SFAS 155 eliminates the exemption from applying SFAS 133 to interest in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instrument. SFAS 155 also allows a preparer to elect fair value measurement at acquisition, at issuance, or when a previously recognized financial instrument is subject to a remeasurement event, on an instrument-by-instrument basis, in cases in which a derivative would otherwise be bifurcated. At the adoption of SFAS 155, any difference between the total carrying amount of the individual components of any existing hybrid financial instrument and ~~dividends declared per share have been adjusted retroactively~~the fair value of the combined hybrid financial instrument should be recognized as a cumulative-effect adjustment to the Company’s beginning retained earnings. SFAS 155 is effective for the Company for all ~~periods presented~~financial instruments acquired or issued after January 1, 2007. The Company is currently evaluating the impact, if any, that SFAS 155 will have on its financial position, results of operations or cash flows.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets” (“SFAS 156”), an amendment of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 156 requires that servicing assets and servicing liabilities be recognized at fair value, if practicable, when the Company enters into a servicing agreement and allows two alternatives, the amortization and fair value measurement methods, as subsequent measurement methods. This accounting standard is effective for all new transactions occurring as of the beginning of fiscal years beginning after September 15, 2006. The Company is currently evaluating the impact, if any, that SFAS 156 will have on its financial position, results of operations or cash flows.

-5-

M.D.C. HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements (Continued)

3. Stock-Based Compensation

Stock-Based Compensation Policy— Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), using the modified prospective transition method and, therefore, has not restated results for prior periods. Under this transition method, stock-based compensation expense for the ~~effect~~first quarter of ~~this stock split.~~

2006 includes compensation expense for all share-based payment awards granted prior to, but not yet vested at December 31, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123, “Accounting for Stock-Based ~~Compensation~~-Compensation” (“SFAS 123”). Stock-based compensation expense for all share-based payment awards granted after December 31, 2005 is based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). The Company ~~has elected~~recognizes these compensation costs net of an estimated annual forfeiture rate and recognizes the compensation costs for only those awards expected to ~~account for~~vest on a straight-line basis over the requisite service period of the award, which is currently the option vesting term of up to seven years. Prior to the adoption of SFAS 123(R), the Company recognized stock-based compensation ~~using the intrinsic value method as prescribed by~~expense in accordance with Accounting Principles Board ~~Opinion~~ (“APB”) Opinion No. 25, “Accounting for Stock Issued to ~~Employees,”~~Employees” (“APB 25”).

In March 2005, the SEC issued Staff Accounting Bulletin No. 107, “Share-Based Payment” (“SAB 107”), regarding the SEC’s interpretation of SFAS 123(R) and ~~related interpretations. Stock~~the valuation of share-based payment awards for public companies. The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R). Additionally, upon the adoption of SFAS 123(R), tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options are classified as financing cash flows. Prior to the adoption of SFAS 123(R), the Company presented the tax benefit of stock option exercises as operating cash flows.

As a result of adopting SFAS 123(R), income before income taxes and net income for the three months ended March 31, 2006 were $3.0 million and $1.9 million lower, respectively, or $0.7 per basic and diluted share, than if the Company had continued to account for share-based payment awards under APB 25. The Company has recorded all stock-based compensation expense to general and administrative expenses for each of the Company’s segments included in Note 10.

Pro Forma Disclosures Pursuant to SFAS 123 —Prior to January 1, 2006, the Company provided pro forma disclosure amounts in accordance with SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS 148”), as if the fair value method defined by SFAS 123 had been applied to all share-based payment awards. As the Company has only granted ~~at an~~stock options with exercise ~~price~~prices that ~~is not less~~are equal to or greater than the fair market value of ~~MDC’s~~the Company’s common stock aton the date of grant ~~and, therefore, the Company recorded no~~through December 31, 2005, stock-based compensation expense was recorded only in association with the ~~determination~~vesting of ~~net income for~~restricted stock and unrestricted stock awards granted prior to January 1, 2006. Any resulting compensation expense was recognized ratably over the ~~three and nine months ended September 30, 2005 and 2004.~~associated service period, which was generally the vesting term. 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 share-based payment awards in the three ~~and nine-month periods~~months ended ~~September 30,~~March 31, 2005 ~~and 2004~~ (in thousands, except per share amounts).

-6-

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

M.D.C. HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements (Continued)


	Three Months Ended
	March 31, 2005
Net income, as reported	$	84,631
Deduct stock-based compensation expense determined using the fair value method, net of related tax effects		(2,421	)

Pro forma net income	$	82,210

Earnings per share
Basic as reported	$	1.95

Basic pro forma	$	1.89

Diluted as reported	$	1.86

Diluted pro forma	$	1.80

Determining Fair Value of Share-Based Awards— As part of the adoption of SFAS 123(R), the Company examined its historical pattern of option exercises in an effort to determine if there were any discernable activity patterns based on certain employee and non-employee populations. Based upon this evaluation, the Company identified three distinct populations: (1) executives consisting of the Company’s Chief Executive Officer, Chief Operating Officer, Chief Company’s Financial Officer and General Counsel (collectively, the “Executives”); (2) non-executive employees; and (3) non-employee members of the Company’s board of directors (“Directors”). The Company has used the Black-Scholes option pricing model to value stock options for each of these populations.

The fair values for stock options granted during the three months ended March 31, 2006 and 2005 were estimated using the Black-Scholes option pricing model with the following weighted-average assumptions and weighted-average fair values. These assumptions were used for the stock options granted only to non-executive employees during the three months ended March 31, 2006 and 2005. No stock option awards were granted during these periods to Executives or Directors.


	Three Months
	Ended March 31,
	2006			2005
Weighted-average grant date fair value	$	22.94		$	33.50
Expected volatility		46.4	%		45.2	%
Risk-free interest rate		4.7	%		3.9	%
Dividend yield rate		1.2	%		0.8	%
Expected lives of options	3.8		yrs.	6.0		yrs.

The expected volatility is based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options, adjusted for the impact of unusual fluctuations not reasonably expected to recur and other relevant factors. The risk-free interest rate assumption is determined based upon observed interest rates appropriate for the expected term of the Company’s employee stock options. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts. The expected life of employee stock options represents the weighted-average period for which the stock options are expected to remain outstanding and are derived primarily from historical exercise patterns.

SFAS 123(R) requires an annual forfeiture rate to be estimated at the time of grant for all share-based payment awards granted subsequent to January 1, 2006, and revised, if necessary, in subsequent periods if the actual forfeiture rate differs from the Company’s estimate. Additionally, in accordance with SFAS 123(R), the Company has estimated an annual forfeiture rate to be applied to all share-based payment awards which were unvested as of December 31, 2005 in determining the number of awards expected to vest in the

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M.D.C. HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements (Continued)

future. The Company estimated the annual forfeiture rate to be 25% for share-based payment awards granted to non-executive employees and 0% for share-based payment awards granted to Executives and Directors, based on the terms of their awards, as well as historical forfeiture experience. In the Company’s pro forma information required under SFAS 123 for the periods prior to 2006, the Company accounted for forfeitures as they occurred.

Stock Option Award Activity- Option activity under the Company’s option plans at March 31, 2006 and changes during the three months ended March 31, 2006 were as follows.


						Weighted-Average
						Remaining		Aggregate Intrinsic
	Number of			Weighted-Average		Contractual Life		Value (in
	Shares			Exercise Price		(in years)		thousands)
Outstanding at December 31, 2005		5,659,766		$	40.54
Granted		5,000		$	61.19
Exercised		(105,694	)	$	21.82
Cancelled		(55,049	)	$	55.88


Outstanding at March 31, 2006		5,504,023		$	40.76		6.66	$	129,596

The following table summarizes information concerning stock options exercisable, as well as options vested and expected to vest for the previously discussed Executives, non-executive employees and Directors at March 31, 2006.


	Vested and Expected to Vest at March 31, 2006
					Weighted-Average
					Remaining		Aggregate Intrinsic
	Number of		Weighted-Average		Contractual Life		Value (in
	Shares		Exercise Price		(in years)		thousands)
Executives		3,875,815	$	36.24
Non-Executive Employees		593,911	$	43.15
Directors		303,325	$	61.41

Total		4,773,051	$	38.70		6.52	$	115,802


	Exercisable at March 31, 2006
					Weighted-Average
					Remaining		Aggregate Intrinsic
	Number of		Weighted-Average		Contractual Life		Value (in
	Shares		Exercise Price		(in years)		thousands)
Executives		1,449,699	$	19.53
Non-Executive Employees		200,311	$	21.28
Directors		303,325	$	61.41

Total		1,953,335	$	26.21		5.36	$	74,422

-8-

M.D.C. HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements (Continued)

The following table summarizes information concerning outstanding and exercisable options at March 31, 2006.


	Options Outstanding						Options Exercisable
			Weighted-Average
			Remaining		Weighted-				Weighted-
Range of	Number		Contractual		Average		Number		Average
Exercise Price	Outstanding		Life (in years)		Exercise Price		Exercisable		Exercise Price
$7.92 - $23.77		2,265,820		4.66	$	19.96		1,570,863	$	19.32
$23.78 - $31.69		290,190		2.07	$	26.67		86,471	$	27.17
$31.70 - $47.53		946,663		7.61	$	44.33		73,501	$	41.02
$47.54 - $71.30		1,859,350		9.12	$	63.60		97,500	$	57.66
$71.31 - $79.22		142,000		9.49	$	78.70		125,000	$	78.89

Total		5,504,023		6.66	$	40.76		1,953,335	$	26.21

The aggregate intrinsic values in the tables above represent the total pre-tax intrinsic values (the difference between the closing price of MDC’s common stock on the last trading day of the first quarter of 2006 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2006. This amount changes based on changes in the fair market value of the Company’s common stock. The total intrinsic value of options exercised and total fair value of options vested during the three months ended March 31, 2006 was $4.4 million and $294,000 respectively.

Total stock-based compensation expense relating to stock options granted by the Company was $3.0 million for the three months ended March 31, 2006. As of March 31, 2006, $45.0 million of total unrecognized compensation cost related to stock options is expected to be recognized as an expense by the Company in the future over a weighted-average period of 4.4 years.

Cash received from stock option exercises was $2.3 million and the actual tax benefit realized for the tax deduction from these option exercises totaled $1.2 million for the three months ended March 31, 2006.

Restricted and Unrestricted Stock Award Activity- Non-vested restricted stock awards at March 31, 2006 and changes during the three months ended March 31, 2006 were as follows.


	Number of			Weighted-Average Grant
	Shares			Date Fair Value
Non-vested at December 31, 2005		43,312		$	57.16
Granted		31,851		$	64.58
Vested		(17,365	)	$	60.94
Forfeited		(789	)	$	63.45


Non-vested at March 31, 2006		57,009		$	60.07

Total stock-based compensation expense relating to restricted stock and unrestricted stock awards was $0.9 million and $0.7 million for the three months ended March 31, 2006 and 2005, respectively. As of March 31, 2006, there was $2.6 million of unrecognized stock-based compensation expense related to non-vested restricted stock awards. That cost is expected to be recognized as an expense by the Company in the future over a weighted-average period of 3.2 years.

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M.D.C. HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements (Continued)

D.4. Equity Incentive Plans

A summary of the Company’s equity incentive plans follows:

Employee Equity Incentive Plans— In April 1993, the Company adopted the Employee Equity Incentive Plan (the “Employee Plan”). The Employee Plan provided for an initial authorization of 2,100,000 shares of MDC common stock for issuance thereunder, subject to adjustment for stock dividends and stock splits, plus an additional annual authorization equal to 10% of the then authorized shares of MDC common stock under the Employee Plan as of each succeeding annual anniversary of the date the Employee Plan was adopted. Under the Employee Plan, the Company could grant awards of restricted stock, incentive and non-statutory stock options and dividend equivalents, or any combination thereof, to officers and employees of the Company or any of its subsidiaries. The incentive and non-statutory stock options granted under the Employee Plan are exercisable at prices not less than the market value on the date of grant and vest over periods of up to four years and expire within six years. The Company’s ability to make further grants under the Employee Plan terminated pursuant to its terms on April 20, 2003.

Effective March 2001, the Company adopted the M.D.C. Holdings, Inc. 2001 Equity Incentive Plan (the “Equity Incentive Plan”). The Equity Incentive Plan provided for an initial authorization of 2,000,000 shares of MDC common stock for issuance thereunder, subject to adjustment for stock dividends and stock splits, plus an additional annual authorization equal to 10% of the then authorized shares of MDC common stock under the Equity Incentive Plan as of each succeeding annual anniversary of the date the Equity Incentive Plan was adopted. In April 2003, an additional 1,000,000 shares (also subject to adjustment for stock dividends and stock splits) were authorized for issuance by vote of the Company’s shareowners. The Equity Incentive Plan provides for the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, stock bonuses and other stock grants to employees of the Company. Incentive stock options granted under the Equity Incentive Plan must have an exercise price that is at least equal to the fair market value of the common stock on the date the incentive stock option is granted. Non-qualified option awards generally vest over periods of up to seven years and expire in ten years. Restricted stock awards are granted with vesting terms of up to four years.

Director Equity Incentive Plan— Effective March 2001, the Company adopted the M.D.C. Holdings, Inc. Stock Option Plan for Non-Employee Directors (the “Director Stock Option Plan”). Under the Director Stock Option Plan, non-employee Directors of the Company are granted non-qualified stock options. The Director Stock Option Plan provided for an initial authorization of 500,000 shares of MDC common stock for issuance thereunder, subject to adjustment for stock dividends and stock splits, plus an additional annual authorization equal to 10% of the then authorized shares of MDC common stock under the Director Stock Option Plan as of each succeeding annual anniversary of the date the Director Stock Option Plan was adopted. Pursuant to the Director Stock Option Plan, on October 1 of each year, each non-employee director of the Company is granted options to purchase 25,000 shares of MDC common stock. Each option granted under the Director Stock Option Plan vests immediately and expires ten years from the date of grant. The option exercise price must be equal to the fair market value (as defined in the plan) of MDC common stock on the date of grant of the option. In October 2003, the Director Stock Option Plan, which was approved by the shareowners on May 21, 2001, was amended to terminate on May 21, 2011.

-10-

F.M.D.C. HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements (Continued)

9. Insurance Reserves

The Company records expenses and liabilities for costs to cover self-insurance and deductible amounts under the Company’s insurance policies and for any estimated outstanding losses and loss adjustment expenses associated with claims in excess of coverage limits or not covered by insurance policies. The establishment of the provisions for outstanding losses and loss adjustment expenses is based on known facts and interpretation of circumstances, which include the Company’s experience with similar cases and historical trends involving claim payment patterns, pending levels of unpaid claims, product mix or concentration, claim severity, frequency patterns such as those caused by natural disasters, fires, or accidents, depending on the business conducted and changing regulatory and legal environments.

The following table summarizes the insurance activity for the three months ended March 31, 2006 (in thousands).


Insurance reserve balance at beginning of period	$	32,166
Insurance expense provisions		2,562
Insurance cash payments, net		(840	)

Insurance reserve balance at end of period	$	33,888

10. Information on Business Segments

The Company operates in two business ~~segments:~~segments — homebuilding and financial services. Operating segments are defined as components of an enterprise for which discrete financial information is available and is reviewed regularly by the chief operating decision-making group to evaluate performance and make operating decisions. The Company identified its chief operating decision-makers as the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. These executives review the financial position and results of operations for the homebuilding and financial services business segments.

Corporate general and administrative expenses consist principally of salaries and other administrative expenses that are not identifiable to a specific segment. Transfers between segments are recorded at cost. Identifiable segment assets are shown on the face of the Consolidated Balance Sheets.

-14-

M.D.C. HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements (Continued)

Included in homebuilding general and administrative expenses are supervisory fees charged by MDC to both of the Company’s operating segments. Supervisory fees represent costs incurred by the Company’s corporate operations associated with certain departments which support the Company’s segment operations. Supervisory fees included in general and administrative expense for the homebuilding segment were $10.8 million and $7.3 million for the three months ended March 31, 2006 and 2005, respectively. Supervisory fees included in general and administrative expense for the financial services segment were $122,000 for each of the three months ended March 31, 2006 and 2005.

A summary of the Company’s ~~segment information~~business segments is shown below (in thousands).


	Three Months Ended						Nine Months Ended						Three Months
	September 30,						September 30,						Ended March 31,
	2005			2004			2005			2004			2006			2005
Homebuilding
Revenues
Revenue
Home sales	$	1,147,757		$	1,007,134		$	3,094,141		$	2,615,100		$	1,119,308		$	916,831
Land sales		1,269			1,839			2,565			1,839			1,837			1,296
Other revenues		3,078			2,419			10,022			6,686
Other revenue														3,709			3,203

Total Homebuilding Revenues		1,152,104			1,011,392			3,106,728			2,623,625
Total Homebuilding Revenue														1,124,854			921,330

Home cost of sales		817,330			723,240			2,208,882			1,898,158			814,589			656,780
Land cost of sales		706			1,316			1,496			1,316			2,374			790
Marketing expenses		56,842			49,856			158,694			137,677			29,035			22,318
Commission expenses														32,843			25,846
General and administrative expenses		62,576			43,889			172,871			127,453			72,244			53,086

Total Homebuilding Expenses		937,454			818,301			2,541,943			2,164,604			951,085			758,820

Homebuilding Operating Profit		214,650			193,091			564,785			459,021			173,769			162,510

Financial Services
Revenue
Net interest income														856			527
Broker origination fees														2,080			2,168
Gain on sale of mortgage loans, net														13,027			7,898
Other revenue														1,445			1,005

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
Total Financial Services Revenue														17,408			11,598
General and Administrative Expenses														9,095			8,751

Financial Services Operating Profit		6,264			5,573			13,238			13,375			8,313			2,847

Total Operating Profit		220,914			198,664			578,023			472,396			182,082			165,357


Corporate
Interest and other revenues		237			110			1,459			569			432			988
General and administrative expenses		(27,825	)		(27,905	)		(86,250	)		(67,991	)		(28,357	)		(30,316	)
Related party expenses														(1,676	)		(100	)

Net Corporate Expenses		(27,588	)		(27,795	)		(84,791	)		(67,422	)		(29,601	)		(29,428	)

Income Before Income Taxes	$	193,326		$	170,869		$	493,232		$	404,974		$	152,481		$	135,929

G.M.D.C. HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements (Continued)

11. Other Comprehensive Income

~~Other~~Total other comprehensive income includes net income plus unrealized gains or losses on securities available for sale and minimum pension liability adjustments which ~~has~~have been reflected as a component of stockholders’ equity and have not affected net income and consolidated net income. ~~A summary of components of total~~The Company’s 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

was $95.4 million and $84.6 million for the three months ended March 31, 2006 and 2005, respectively.

H.12. 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,~~March 31, 2006, MDC had issued and outstanding performance bonds and letters of credit totaling ~~approximately $370.8~~$421.5 million and ~~$97.8~~$94.1 million, respectively, including ~~$30.5~~$29.0 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.13. 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,~~On March 22, 2006, the Company ~~modified~~amended and restated the Homebuilding Line, increasing the aggregate commitment amount to ~~$1.058~~$1.250 billion, ~~while maintaining~~and extending the maturity date ~~of April 7, 2009.~~to March 21, 2011. The facility’s provision for letters of credit is available in the aggregate amount of ~~$350~~$500 million. The ~~modified~~amended and restated facility permits an increase in the maximum commitment amount to ~~$1.25~~$1.750 billion upon the Company’s request, subject to receipt of additional commitments from existing or additional participant lenders. Interest rates on outstanding borrowings are determined by reference to LIBOR with a spread from LIBOR, which is determined based on changes in the Company’s credit ratings and leverage ratio, or to an alternate base rate. At ~~September 30, 2005,~~March 31, 2006, the Company had ~~$40.0~~$100.0 million of borrowings and ~~$65.2~~$65.1 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~~$225 million with terms that allow for increases of up to ~~$50~~$175 million in the borrowing limit to a maximum of ~~$225~~$400 million, subject to concurrence by the participating banks. ~~In September 2005,~~The terms of the Mortgage Line ~~borrowing limit was increased temporarily to $225 million. This temporary increase will expire on January 23, 2006.~~are set forth in the Third Amended and Restated Warehousing Credit Agreement dated as of October 31, 2003, as amended. 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~~March 31, 2006, $125.5 million was borrowed and an additional ~~$12.0~~$15.2 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 5~~³/8~~% medium term senior notes due July 2015 (the “2015 Medium Term Senior Notes”) at a discount, with an effective yield of 5~~¹/2%. 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.

~~- 9 -~~

~~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.250 million shares.

L.17. Supplemental Guarantor Information

The Company’s senior notes and Homebuilding Line 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.

-17-

M.D.C. ~~Holdings, Inc.~~HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements (Continued)

Supplemental Combining Balance Sheet
~~September 30, 2005~~March 31, 2006
(In thousands)


						��	Non-													Non-
				Guarantor			Guarantor			Eliminating			Consolidated					Guarantor		Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC		MDC			Subsidiaries		Subsidiaries			Entries			MDC
ASSETS
Corporate
Cash and cash equivalents	$	105,105		$	—		$	—		$	—		$	105,105	$	142,651		$	—	$	—		$	—		$	142,651
Investment in and advances to parent and subsidiaries		526,246			1,083			7,869			(535,198	)		—		358,376			599		(13,027	)		(345,948	)		—
Other assets		91,295			195			(223	)		—			91,267		108,326			146		(118	)		—			108,354

		722,646			1,278			7,646			(535,198	)		196,372		609,353			745		(13,145	)		(345,948	)		251,005


Homebuilding
Cash and cash equivalents		—			15,564			7,546			—			23,110		—			7,496		12,794			—			20,290
Restricted cash																—			7,649		—			—			7,649
Home sales and other accounts receivable		—			105,977			1,344			(26,476	)		80,845		—			94,789		1,383			(16,156	)		80,016
Inventories, net
Housing completed or under construction		—			1,535,936			—			—			1,535,936		—			1,346,057		—			—			1,346,057
Land and land under development		—			1,367,890			—			—			1,367,890		—			1,814,612		—			—			1,814,612
Other assets		—			136,352			38,603			(24,000	)		150,955		—			133,943		41,415			(26,000	)		149,358

		—			3,161,719			47,493			(50,476	)		3,158,736		—			3,404,546		55,592			(42,156	)		3,417,982

Financial Services		—			—			218,581			—			218,581		—			—		210,136			—			210,136

Total Assets	$	722,646		$	3,162,997		$	273,720		$	(585,674	)	$	3,573,689	$	609,353		$	3,405,291	$	252,583		$	(388,104	)	$	3,879,123


LIABILITIES
Corporate
Accounts payable and accrued liabilities	$	137,939		$	245		$	50		$	(25,050	)	$	113,184	$	117,708		$	195	$	48		$	(27,049	)	$	90,902
Advances and notes payable — parent and subsidiaries		(2,093,977	)		2,078,501			15,476			—			—		(2,693,089	)		2,676,938		16,151			—			—
Income taxes payable		(121,671	)		166,117			5,053			—			49,499		33,135			45,216		4,573			—			82,924
Senior notes, net		996,171			—			—			—			996,171		996,391			—		—			—			996,391

		(1,081,538	)		2,244,863			20,579			(25,050	)		1,158,854		(1,545,855	)		2,722,349		20,772			(27,049	)		1,170,217


Homebuilding
Accounts payable and accrued liabilities		—			418,611			27,994			—			446,605		—			374,095		31,333			—			405,428
Line of credit		40,000			—			—			—			40,000
Homebuilding Line																100,000			—		—			—			100,000

		40,000			418,611			27,994			—			486,605		100,000			374,095		31,333			—			505,428

Financial Services		—			—			189,462			(25,416	)		164,046		—			—		163,375			(15,105	)		148,270

Total Liabilities		(1,041,538	)		2,663,474			238,035			(50,466	)		1,809,505		(1,445,855	)		3,096,444		215,480			(42,154	)		1,823,915


STOCKHOLDERS’ EQUITY		1,764,184			499,523			35,685			(535,208	)		1,764,184		2,055,208			308,847		37,103			(345,950	)		2,055,208

Total Liabilities and Stockholders’ Equity	$	722,646		$	3,162,997		$	273,720		$	(585,674	)	$	3,573,689	$	609,353		$	3,405,291	$	252,583		$	(388,104	)	$	3,879,123

M.D.C. ~~Holdings, Inc.~~HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements (Continued)

Supplemental Combining Balance Sheet
December 31, ~~2004~~2005
(In thousands)


						Non-													Non-
				Guarantor		Guarantor			Eliminating			Consolidated					Guarantor		Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries		Subsidiaries			Entries			MDC		MDC			Subsidiaries		Subsidiaries			Entries			MDC
ASSETS
Corporate
Cash and cash equivalents	$	389,828		$	—	$	—		$	—		$	389,828	$	196,032		$	—	$	—		$	—		$	196,032
Investment in and advances to parent and subsidiaries		552,635			1,246		(3,104	)		(550,777	)		—		728,608			1,248		(4,687	)		(725,169	)		—
Other assets		85,177			207		(796	)		—			84,588		102,768			162		(222	)		—			102,708

		1,027,640			1,453		(3,900	)		(550,777	)		474,416		1,027,408			1,410		(4,909	)		(725,169	)		298,740


Homebuilding
Cash and cash equivalents		—			12,252		4,709			—			16,961		—			5,527		11,144			—			16,671
Restricted cash															—			6,742		—			—			6,742
Home sales and other accounts receivable		—			34,144		1,477			(4,603	)		31,018		—			160,028		1,462			(27,220	)		134,270
Inventories, net
Housing completed or under construction		—			851,628		—			—			851,628		—			1,266,901		—			—			1,266,901
Land and land under development		—			1,109,953		—			—			1,109,953		—			1,656,198		—			—			1,656,198
Other assets		—			100,997		29,047			(14,500	)		115,544		—			124,777		40,752			(26,000	)		139,529

		—			2,108,974		35,233			(19,103	)		2,125,104		—			3,220,173		53,358			(53,220	)		3,220,311

Financial Services		—			—		190,524			—			190,524		—			—		265,844			—			265,844

Total Assets	$	1,027,640		$	2,110,427	$	221,857		$	(569,880	)	$	2,790,044	$	1,027,408		$	3,221,583	$	314,293		$	(778,389	)	$	3,784,895


LIABILITIES
Corporate
Accounts payable and accrued liabilities	$	109,550		$	130	$	48		$	(15,550	)	$	94,178	$	152,692		$	177	$	47		$	(27,049	)	$	125,867
Advances and notes payable — parent and subsidiaries		(1,057,552	)		1,043,249		14,303			—			—		(1,892,320	)		1,876,894		15,426			—			—
Income taxes payable		(189,489	)		236,466		4,002			—			50,979		(181,370	)		275,602		8,424			—			102,656
Senior notes, net		746,310			—		—			—			746,310		996,297			—		—			—			996,297

		(391,181	)		1,279,845		18,353			(15,550	)		891,467		(924,701	)		2,152,673		23,897			(27,049	)		1,224,820


Homebuilding
Accounts payable and accrued liabilities		—			305,894		19,574			—			325,468		—			390,057		30,407			—			420,464
Line of credit		—			—		—			—			—
Homebuilding Line															—			—		—			—			—

		—			305,894		19,574			—			325,468		—			390,057		30,407			—			420,464

Financial Services		—			—		157,841			(3,553	)		154,288		—			—		213,672			(26,170	)		187,502

Total Liabilities		(391,181	)		1,585,739		195,768			(19,103	)		1,371,223		(924,701	)		2,542,730		267,976			(53,219	)		1,832,786


STOCKHOLDERS’ EQUITY		1,418,821			524,688		26,089			(550,777	)		1,418,821		1,952,109			678,853		46,317			(725,170	)		1,952,109

Total Liabilities and Stockholders’ Equity	$	1,027,640		$	2,110,427	$	221,857		$	(569,880	)	$	2,790,044	$	1,027,408		$	3,221,583	$	314,293		$	(778,389	)	$	3,784,895

M.D.C. ~~Holdings, Inc.~~HOLDINGS, INC.
Notes to Unaudited Consolidated Financial Statements (Continued)

Supplemental Combining Statements of Income
(In thousands)

Three Months Ended ~~September 30, 2005~~March 31, 2006


							Non-															Non-
				Guarantor			Guarantor			Eliminating			Consolidated						Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC			MDC			Subsidiaries			Subsidiaries			Entries			MDC
REVENUE
Homebuilding	$	—		$	1,150,650		$	1,991		$	(537	)	$	1,152,104		$	—		$	1,123,736		$	1,492		$	(374	)	$	1,124,854
Financial services		—			—			15,471			—			15,471			—			—			17,408			—			17,408
Corporate		228			—			9			—			237			422			—			10			—			432
Equity in earnings of subsidiaries		114,147			—			—			(114,147	)		—			82,798			—			—			(82,798	)		—

Total Revenues		114,375			1,150,650			17,471			(114,684	)		1,167,812
Total Revenue																	83,220			1,123,736			18,910			(83,172	)		1,142,694


COSTS AND EXPENSES
Homebuilding		307			980,333			(1,450	)		(41,736	)		937,454			(199	)		1,002,635			(1,832	)		(49,519	)		951,085
Financial services		—			—			9,207			—			9,207			—			—			9,095			—			9,095
Corporate		27,825			—			—			—			27,825			30,033			—			—			—			30,033
Corporate and homebuilding interest		(41,736	)		—			—			41,736			—			(49,519	)		—			—			49,519			—

Total Costs and Expenses		(13,604	)		980,333			7,757			—			974,486			(19,685	)		1,002,635			7,263			—			990,213


Income before income taxes		127,979			170,317			9,714			(114,684	)		193,326			102,905			121,101			11,647			(83,172	)		152,481
Provision for income taxes		(6,989	)		(61,689	)		(3,658	)		—			(72,336	)		(7,484	)		(45,216	)		(4,360	)		—			(57,060	)

NET INCOME	$	120,990		$	108,628		$	6,056		$	(114,684	)	$	120,990		$	95,421		$	75,885		$	7,287		$	(83,172	)	$	95,421

M.D.C. ~~Holdings, Inc.~~HOLDINGS, INC.
~~Supplemental Combining~~Notes to Unaudited Consolidated Financial Statements ~~of Income~~
~~(In thousands)~~(Continued)

~~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~~Three Months Ended ~~September 30,~~March 31, 2006


							Non-
				Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC
Net cash provided by (used in) operating activities	$	202,693		$	(353,014	)	$	42,251		$	(373	)	$	(108,443	)

Net cash used in investing activities		(684	)		(929	)		(25	)		—			(1,638	)

Financing activities
Net increase (reduction) in borrowings from parent and subsidiaries		(347,298	)		355,912			(8,614	)		—			—
Lines of credits
Advances		354,800			—			—			—			354,800
Principal payments		(254,800	)		—			(30,992	)		—			(285,792	)
Excess tax benefit from stock- based compensation		1,192												1,192
Dividend payments		(11,590	)		—			—			373			(11,217	)
Proceeds from exercise of stock options		2,306			—			—			—			2,306

Net cash provided by (used in) financing activities		(255,390	)		355,912			(39,606	)		373			61,289

Net increase (decrease) in cash and cash equivalents		(53,381	)		1,969			2,620			—			(48,792	)
Cash and cash equivalents
Beginning of period		196,032			5,527			12,972			—			214,531

End of period	$	142,651		$	7,496		$	15,592		$	—		$	165,739

Three Months Ended March 31, 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-															Non-
				Guarantor			Guarantor			Eliminating			Consolidated						Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC			MDC			Subsidiaries			Subsidiaries			Entries			MDC
Net cash provided by (used in) operating activities	$	26,609		$	(237,396	)	$	17,030		$	(475	)	$	(194,232	)	$	200,681		$	(386,823	)	$	68,033		$	(224	)	$	(118,333	)

Net cash used in investing activities		(22,741	)		(4,012	)		(330	)		—			(27,083	)		(1,602	)		(2,953	)		(108	)		—			(4,663	)

Financing activities
Net increase (reduction) in borrowings from parent and subsidiaries		(244,670	)		254,687			(10,017	)		—			—			(384,889	)		390,441			(5,552	)		—			—
Lines of credits
Advances		1,388,500			—			—			—			1,388,500			—			—			—			—			—
Principal payments		(1,268,500	)		—			(4,754	)		—			(1,273,254	)		—			—			(60,667	)		—			(60,667	)
Proceeds from senior notes, net		(14,116	)		—			—			475			(13,641	)		—			—			—			—			—
Dividend payments		(6,812	)		—			—			—			(6,812	)		(6,733	)		—			—			224			(6,509	)
Proceeds from exercise of stock options		6,040			—			—			—			6,040			8,031			—			—			—			8,031

Net cash provided by (used in) financing activities		(139,558	)		254,687			(14,771	)		475			100,833			(383,591	)		390,441			(66,219	)		224			(59,145	)

Net increase (decrease) in cash and cash equivalents		(135,690	)		13,279			1,929			—			(120,482	)		(184,512	)		665			1,706			—			(182,141	)
Cash and cash equivalents
Beginning of year		163,133			6,335			4,097			—			173,565
Beginning of period																	389,828			5,061			6,070			—			400,959

End of period	$	27,443		$	19,614		$	6,026		$	—		$	53,083		$	205,316		$	5,726		$	7,776		$	—		$	218,818

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

The following discussion should be read in conjunction with, and is qualified in its entirety by, the Unaudited Consolidated Financial Statements and Notes thereto included elsewhere in this Quarterly Report onForm 10-Q. This item contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed in “Item 1A: Risk Factors Relating to our Business” of our Annual Report onForm 10-K for the year ended December 31, 2005.

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~~In addition, our financial services segment consists of HomeAmerican Mortgage Corporation (“HomeAmerican”), which originates mortgage loans primarily for our homebuyers, and American Home Insurance Agency, Inc. (“American Home Insurance”), which offers third party insurance products to our homebuyers. ~~In addition, we~~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~~certain of our markets.

~~Overview~~EXECUTIVE SUMMARY

~~Our third quarter earnings were 15% above earnings for~~The Company closed 3,198 homes during the three months ended March 31, 2006, compared with 3,158 during the same period ~~last~~in 2005. Our net income increased 12.7% to $95.4 million during the first quarter of 2006, compared with $84.6 million during the same period in 2005, and our consolidated revenue increased 22.4% to $1.1 billion for the three months ended March 31, 2006, compared with $933.9 million for the three months ended March 31, 2005.

Beginning in the second half of 2005 and through the first four months of 2006, we have seen demand for new homes weaken in most of the markets in which we operate. Among the factors contributing to these market conditions are: uncertainty surrounding Federal Reserve policy on interest rates; increases in the cost of living, particularly higher energy costs; fluctuations in consumer confidence; reduced affordability of new homes; and homebuyer concerns about home price appreciation. As a result, in general, we have seen what appear to be speculative buyers exiting the new home market, increased supplies of new and existing homes for sale, moderating home price appreciation, higher incentives offered by our competition, reduced home orders per active subdivision and increased order cancellations.

The level of our success in 2006 will depend largely on our ability to generate net home orders in this environment over the balance of the year ~~driven by third quarter records for home closings, average~~as we attempt to maximize our returns on homes we close during the year. Therefore, in response to these challenging market conditions, we have continued to modify and strengthen our sales and marketing strategies to address the specific needs and concerns of each submarket and subdivision. In many cases, this has required increases in the level of incentives we offer as a means of generating homebuyer interest and minimizing order cancellations. These incentives may reduce our selling prices ~~revenues~~on new home orders and will impact adversely our Home Gross Margins (as defined below). ~~These improvements resulted~~A continued slowdown in net home orders could have a greater negative impact on our Home Gross Margins and net income during the year. See “Forward-Looking Statements” below.

-23-

We have continued to maintain a high level of cash and borrowing capacity, reaching $1.27 billion at March 31, 2006, to support the growth of our business and to pursue opportunities that we believe will be presented by these changing market conditions. We reached this current capacity by increasing the commitment under our five-year, unsecured credit facility by 18% to $1.25 billion, with the ability to further increase this amount to $1.75 billion, subject to increases in bank commitments. This gives us the flexibility to allocate capital with the objective of producing the highest risk-adjusted returns. Consistent with this objective, during the first quarter, we continued to reallocate our financial and human capital away from ~~growth~~Texas to markets such as Utah, where recently we acquired certain assets of Salisbury Homes to strengthen our position in one of our ~~long-standing businesses~~fastest growing markets. See “Forward-Looking Statements” below.

We remain focused on seeking to maintain approximately a two-year supply of lots to avoid overexposure to any single sub-market and to create flexibility to react to changes in ~~Arizona, Virginia~~market conditions. We prefer to acquire finished lots using rolling options or in phases for cash. However, we will purchase land assets or acquire entitled land for development into finished lots when we determine that the risk is justified. We continue to closely monitor the number of lots we control and ~~Maryland,~~the estimated returns from the sale of homes on those lots to confirm that our supply of lots and risk-adjusted returns are consistent with our operating strategy. As a result of this on-going evaluation, during the first quarter of 2006, we experienced an increase in write-offs of deposits and capitalized costs associated with lot option contracts which we chose not to exercise.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

The preparation of financial statements in conformity with accounting policies generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Management evaluates such estimates and judgments on an on-going basis and makes adjustments as ~~well as our relatively new operations in Utah~~deemed necessary. Actual results could differ from these estimates using different estimates 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 delaysassumptions, or if conditions are significantly different in the future. See “Forward-Looking Statements” below.

~~Our~~The accounting policies and estimates which we believe are critical and require the use of complex judgment in their application are those related to (1) stock-based compensation; (2) homebuilding inventory valuation; (3) estimates to complete land development and home ~~orders~~construction; (4) warranty costs; (5) revenue recognition; and (6) land options. With the exception of Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), our other critical accounting estimates and policies have not changed from those reported in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2005.

Stock-Based Compensation.Effective January 1, 2006, we adopted SFAS 123(R) and have included it as a critical accounting estimate and policy given the significant judgment and estimates required when applying SFAS 123(R). See Note 3 to the Unaudited Consolidated Financial Statements for a further discussion on share-based payment awards.

Stock-based compensation expense for all share-based payment awards granted after December 31, 2005 is based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). Determining the appropriate fair value model and calculating the fair value of share-based payment awards requires judgment, including estimating stock price volatility, annual forfeiture rates and the expected life of an award. We estimated the fair value for stock options granted during the three months ended ~~September 30, 2005 increased 21%, compared with~~March 31, 2006 using 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.~~Black-Scholes

~~- 17 -~~-24-

~~We enter~~option pricing model. The Black-Scholes option pricing model includes making estimates and judgments associated with the ~~fourth quarter~~(1) expected stock option life; (2) expected volatility; (3) risk-free interest rate; and (4) dividend yield rate.

The expected volatility is based on the historical volatility of our common stock over the most recent period commensurate with the estimated expected life of our employee stock options, adjusted for the impact of unusual fluctuations not reasonably expected to recur and other relevant factors. The risk-free interest rate assumption is determined based upon observed interest rates appropriate for the expected term of our employee stock options. The dividend yield assumption is based on our historical and expected dividend payouts. The expected life of employee stock options represents the weighted-average period for which the stock options are expected to remain outstanding and is derived primarily from historical exercise patterns.

SFAS 123(R) requires an annual forfeiture rate to be estimated at the time of grant for all awards granted subsequent to January 1, 2006, and revised, if necessary, in subsequent periods if the actual forfeiture rate differs from our estimate. Additionally, in accordance with SFAS 123(R), we have estimated an annual forfeiture rate to be applied to all share-based payment awards which were unvested as of December 31, 2005 ~~with a Backlog (as defined below)~~in determining the number of ~~9,078 homes valued at an estimated $3.3 billion. We expect~~awards expected to ~~continue to evaluate strategic land opportunities~~vest in the ~~markets in which we operate~~future. We estimated the annual forfeiture rate to ~~better position us~~be 25% for ~~future growth, while maintaining a conservative balance between our owned~~share-based payment awards granted to non-executive employees and ~~optioned land positions~~0% for share-based payment awards granted to Executives 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 “Directors, based on the terms of their awards, as well as historical forfeiture experience.

~~Forward-Looking Statements~~RESULTS OF OPERATIONS~~” 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,~~March 31, 2006, compared with ~~the same periods in 2004.~~March 31, 2005. The table below summarizes our results of operations ~~(in~~(dollars 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									Three Months
	September 30,				Change					September 30,				Change					Ended March 31,				Change
	2005		2004		Amount		%			2005		2004		Amount		%			2006		2005		Amount		%
Revenue	$	1,167,812	$	1,026,129	$	141,683		14	%	$	3,148,068	$	2,665,216	$	482,852		18	%	$	1,142,694	$	933,916	$	208,778		22	%
Income Before Income Taxes	$	193,326	$	170,869	$	22,457		13	%	$	493,232	$	404,974	$	88,258		22	%	$	152,481	$	135,929	$	16,552		12	%
Net Income	$	120,990	$	105,073	$	15,917		15	%	$	308,244	$	248,542	$	59,702		24	%	$	95,421	$	84,631	$	10,790		13	%
Earnings Per Share:
Basic	$	2.73	$	2.47	$	0.26		11	%	$	7.03	$	5.87	$	1.16		20	%	$	2.13	$	1.95	$	0.18		9	%
Diluted	$	2.62	$	2.36	$	0.26		11	%	$	6.70	$	5.61	$	1.09		19	%	$	2.08	$	1.86	$	0.22		12	%

Homebuilding Segment

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


	Three Months Ended												Nine Months Ended												Three Months
	September 30,						Change						September 30,						Change						Ended March 31,						Change
	2005			2004			Amount			%			2005			2004			Amount			%			2006			2005			Amount			%
Home Sales Revenues	$	1,147,757		$	1,007,134		$	140,623			14	%	$	3,094,141		$	2,615,100		$	479,041			18	%
Home Sales Revenue																									$	1,119,308		$	916,831		$	202,477			22	%
Operating Profit	$	214,650		$	193,091		$	21,559			11	%	$	564,785		$	459,021		$	105,764			23	%	$	173,769		$	162,510		$	11,259			7	%
Average Selling Price Per Home Closed	$	311.4		$	283.1		$	28.3			10	%	$	298.8		$	273.7		$	25.1			9	%	$	350.0		$	290.3		$	59.7			21	%
Cancellation Rate																										31.0	%		20.2	%		10.8	%
Home Gross Margins		28.8	%		28.2	%		0.6	%					28.6	%		27.4	%		1.2	%					27.2	%		28.4	%		-1.2	%

Orders For Homes, net(units)
Arizona		798			951			(153	)		-16	%		3,040			3,104			(64	)		-2	%		919			1,152			(233	)		-20	%
California		504			311			193			62	%		1,737			1,764			(27	)		-2	%		544			531			13			2	%
Colorado		469			521			(52	)		-10	%		1,727			1,811			(84	)		-5	%		451			664			(213	)		-32	%
Delaware Valley																										39			43			(4	)		-9	%
Florida		238			93			145			156	%		917			292			625			214	%		272			320			(48	)		-15	%
Illinois		53			5			48			N/A			113			8			105			N/A			44			29			15			52	%
Maryland		89			52			37			71	%		365			255			110			43	%		152			145			7			5	%
Nevada		829			454			375			83	%		2,788			2,411			377			16	%		779			750			29			4	%
Pennsylvania/New Jersey/Delaware		56			1			55			N/A			156			1			155			N/A
Texas		162			152			10			7	%		672			647			25			4	%		67			321			(254	)		-79	%
Utah		257			187			70			37	%		741			573			168			29	%		339			248			91			37	%
Virginia		96			198			(102	)		-52	%		673			720			(47	)		-7	%		194			343			(149	)		-43	%

Total		3,551			2,925			626			21	%		12,929			11,586			1,343			12	%		3,800			4,546			(746	)		-16	%


Homes Closed(units)
Arizona		895			808			87			11	%		2,550			2,343			207			9	%		778			796			(18	)		-2	%
California		475			631			(156	)		-25	%		1,238			1,642			(404	)		-25	%		464			386			78			20	%
Colorado		599			583			16			3	%		1,615			1,603			12			1	%		399			448			(49	)		-11	%
Delaware Valley																										31			—			31			N/A
Florida		252			96			156			163	%		832			251			581			231	%		252			295			(43	)		-15	%
Illinois		19			—			19			N/A			40			—			40			N/A			36			5			31			N/A
Maryland		106			90			16			18	%		260			251			9			4	%		74			74			—			0	%
Nevada		616			690			(74	)		-11	%		1,851			1,887			(36	)		-2	%		675			609			66			11	%
Pennsylvania/New Jersey/Delaware		17			—			17			N/A			18			—			18			N/A
Texas		214			222			(8	)		-4	%		616			440			176			40	%		139			165			(26	)		-16	%
Utah		239			188			51			27	%		640			416			224			54	%		173			168			5			3	%
Virginia		254			250			4			2	%		696			720			(24	)		-3	%		177			212			(35	)		-17	%

Total		3,686			3,558			128			4	%		10,356			9,553			803			8	%		3,198			3,158			40			1	%

Homes Closed —~~Home~~Our home closings were ~~4% and 8% higher for~~relatively constant in the ~~third~~first quarter ~~and first nine months~~ of ~~2005, respectively,~~2006, compared with the same ~~periods~~period in ~~2004. For~~2005. In our California and Nevada markets, we closed 1,139 homes during the three ~~and nine~~ months ended ~~September 30, 2005,~~March 31, 2006, compared with 995 homes closed ~~increased by a combined 27%~~for the same period in 2005. The increases in California and ~~34%, respectively, in Arizona, Florida and Utah,~~Nevada primarily were due to ~~higher year-over-year Backlogs~~having more homes in Backlog under construction at the beginning of the ~~2005 periods resulting from~~2006 first quarter than at the ~~strong demand for new~~beginning of 2005. In our Colorado, Florida and Virginia markets, we closed 828 homes ~~in these markets. In addition, home closings in Florida were higher in~~during 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~~three months ended March 31, 2006, compared with 955 homes for the ~~2005 third quarter and first nine months were impacted by labor and material shortages that delayed the closing of approximately 250~~same period in 2005. In Colorado, homes ~~until the 2005 fourth quarter. Home closings were lower in California and Nevada for the third quarter and first nine months of 2005,~~closed decreased primarily due to ~~lower year-over-year Backlogs~~increased competition for new home orders, as well as fewer homes in Backlog at the beginning of the 2006 first quarter. In Virginia and Florida, we closed fewer homes primarily due to ~~start~~increases in home order cancellations, as discussed below, as well as having fewer homes in Backlog at the ~~periods. Our Nevada home closings for~~beginning of the ~~2005 periods also were reduced by~~first quarter of 2006, compared with the beginning of 2005.

~~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~~During the first quarter of 2006, we experienced a 21% increase in the average selling ~~prices in the third quarter and first nine months of 2005, respectively,~~price, compared with the same ~~periods~~period in ~~2004, were attributable to higher~~2005, as the average selling prices increased in all of our ~~markets. The~~markets except Illinois. Increases were most notable in Maryland, Virginia and Florida, where the average selling ~~prices~~price for homes closed increased in ~~Virginia and California were particularly strong, both increasing over $50,000~~excess of $110,000, primarily due to a combination of home price appreciation, as well as changes in ~~the 2005 third quarter and over $70,000~~product mix. Approximately 25% of our total homes closed for the ~~first nine~~three months ~~of 2005. In our relatively newer markets of Florida~~ended March 31, 2006 and ~~Utah,~~2005 were in Arizona, where we experienced an $81,900 increase in average selling ~~prices increased~~price during the first quarter of 2006, primarily due to home price appreciation experienced in this market during 2004 and 2005. Additionally, we closed an additional 78 homes in our California markets during the first quarter of 2006, compared with the first quarter of 2005, where the average selling price per home closed exceeded the Company average 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.$180,000.

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,				Three Months Ended March 31,				Change
	2005		2004		2005		2004		2006		2005		Amount			%
Average Selling Price
Arizona	$	221.2	$	192.9	$	215.0	$	192.1	$	285.2	$	203.3	$	81.9			40	%
California		510.5		452.6		509.2		427.5		533.3		518.5		14.8			3	%
Colorado		287.7		264.0		285.7		264.7		296.5		282.5		14.0			5	%
Delaware Valley										412.0		—		N/A			N/A
Florida		226.2		182.3		205.3		179.5		297.7		186.4		111.3			60	%
Illinois		411.7		N/A		426.5		N/A		363.3		401.9		(38.6	)		-10	%
Maryland		513.5		397.3		458.6		404.5		570.3		423.7		146.6			35	%
Nevada		307.6		258.3		298.1		232.6		323.1		288.8		34.3			12	%
Pennsylvania/New Jersey/Delaware		362.2		N/A		361.3		N/A
Texas		162.7		155.0		159.1		158.1		169.0		155.1		13.9			9	%
Utah		226.9		180.1		219.0		177.8		260.7		212.9		47.8			22	%
Virginia		515.9		447.8		503.4		430.1		596.2		484.2		112.0			23	%

Company average	$	311.4	$	283.1	$	298.8	$	273.7	$	350.0	$	290.3	$	59.7			21	%

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~~closing 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~~were 27.2% during the ~~three and nine months ended September 30, 2005, respectively,~~first quarter of 2006, compared with ~~28.2% and 27.4% for~~28.4% during the same ~~periods during 2004. These improvements~~period in 2005. This decrease primarily ~~were due~~is attributable 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~~reduced Home Gross Margins in ~~Virginia, Maryland,~~our Nevada and California markets, offset in part by an increase in our Arizona ~~Utah and Florida, which offset the impact of the anticipated easing of~~markets. Home Gross Margins in Nevada ~~from~~decreased, primarily due to increases in the ~~extraordinary levels during 2004. These increases to~~cost of land and construction materials used in building new homes. In addition, our Home Gross Margins ~~partially were offset by~~in California moderated from the ~~impact~~levels achieved in the first quarter of ~~a greater number~~2005, due in part to the earlier close-out of ~~homes closed for the three and nine months ended September 30, 2005 in markets such as Utah and Florida, where~~certain high margin subdivisions. In Arizona, Home Gross Margins ~~were lower than~~increased, primarily resulting from an increase in the ~~Company~~ average ~~and fewer home closings in Nevada, where Home Gross Margins significantly exceeded the Company average.~~selling price of homes closed.

Orders for Homes~~- Home~~— During the three months ended March 31, 2006, we received 3,800 net home orders, compared with 4,546 net home orders for the same period in 2005. This order decrease was most notable in our Texas market, which is consistent with our decision not to purchase additional lots in this market. Additionally, we received 1,385 net home orders during the three months ended March 31, 2006 in Arizona, Florida and Virginia, compared with 1,815 net home orders in these markets during the ~~third~~same period in 2005. These declines primarily resulted from reductions in the number of gross home orders received per active subdivision from record first quarter order levels in 2005, combined with significant increases in home order cancellations, as discussed below. Additionally in Virginia, the number of average active subdivisions declined in the 2006 first quarter, compared with the same period in 2005. In Colorado, net home orders decreased as a result of increased competition, as well as an increase in cancellations as discussed below. These decreases were offset in part by an increase of 37% in net home orders in Utah during the first quarter of 2006, compared with the same period in 2005, ~~increased from 2004 levels in most of our markets, led by Nevada and California, mainly due~~primarily attributable 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~~this market.

Cancellation Rate —We define home ~~orders in the 2005 third quarter from our newer markets in Florida, Pennsylvania/New Jersey/Delaware, Utah and Illinois, compared with 286~~order “Cancellation Rate” as total cancelled home ~~orders from these markets~~order contracts during ~~the 2004 third quarter. These increases partially were offset by~~ a ~~decline in home orders in Virginia, due in part to~~specified period of time as a ~~temporary decline in the number~~percent 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~~received during such time period. Our Cancellation Rates were 31.0% and 20.2% for the three months ended ~~September 30,~~March 31, 2006 and 2005, respectively. Cancellation Rates during the first quarter of 2006, compared with ~~$840 million for the same period in 2004.~~

~~For~~ the first ~~nine months~~quarter of 2005, ~~home orders particularly were strong~~increased significantly in ~~Nevada~~certain markets, most notably Virginia, Arizona, California and ~~Maryland, primarily due to the continued strong demand for new homes~~Florida. The increases in Cancellation Rates in these ~~markets. In addition, we received 1,927 net~~markets has resulted primarily from what appears to be an exit of speculators from the new home ~~orders~~market, an increased supply of homes on the market which has made it more difficult for homebuyers to sell their existing homes, slower home price appreciation levels, increased incentives being offered which homebuyers in Backlog did not receive at the ~~first nine months~~time of ~~2005~~placing their home order, and other factors related to higher mortgage interest rates. Additionally, in Colorado, an increased supply of homes available to be purchased resulted in an elevated number of order cancellations from ~~our newer markets~~prospective homebuyers who were unable to sell their existing home 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.a more competitive sales environment.

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~~— We define “Backlog” as homes under contract but not yet ~~delivered (“Backlog”) increasing by 11%~~delivered. At March 31, 2006 and 2005, we had 7,134 and 7,893 homes in Backlog, respectively. Because our Backlog equals total home orders less home order cancellations and homes closed, refer to ~~9,078 units at September 30, 2005, compared with 8,166 units at September 30, 2004. Assuming no significant~~the previous discussion on “Homes Closed” and “Orders for Homes” for an explanation of the change in ~~market conditions or mortgage interest rates, we expect approximately 70% to 75%~~the number of ~~our September 30, 2005 Backlog to close under existing signed sales contracts during~~homes in Backlog. Although the ~~fourth quarter of 2005 and first half of 2006. The balance~~number of homes in Backlog ~~is not expected to close under existing contracts due to cancellation. See “~~~~Forward-Looking Statements~~~~” below.~~

~~Increases in both~~decreased approximately 10% from March 31, 2005, higher average selling prices ~~and~~for homes in Backlog ~~units~~ resulted in the estimated Backlog sales value increasing ~~by 33%~~approximately 11% to ~~$3.3~~$2.70 billion at ~~September 30, 2005,~~March 31, 2006, compared with ~~$2.5~~$2.43 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,~~March 31, 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~~increased $6.7 million ~~and $158.7~~to $29.0 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~~March 31, 2006, primarily ~~were~~ due to ~~(1)~~ increases of ~~$4.4~~(1) $2.5 million in advertising expenses; (2) $2.3 million in amortization of deferred marketing costs; and ~~$13.6~~(3) $1.5 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, primarily attributable to our ~~expanding homebuilding operations~~increase in ~~new and existing home markets; and (3) increases of $2.1~~active subdivisions.

Commissions —Commission expenses (which include direct incremental commissions paid for closed homes) increased by 27% to $32.8 million ~~and $3.7 million, respectively, for product and design center advertising~~ for the ~~third~~three months ended March 31, 2006 from $25.8 million for the three months ended March 31, 2005. This increase primarily was attributable to the 21% increase in the average selling price of homes closed during the first quarter ~~and first nine months~~ of ~~2005,~~2006, compared with the ~~same periods in 2004.~~first quarter of 2005.

~~- 22 -~~-29-

General and Administrative-— General and administrative expenses ~~increased to $62.6~~were $72.2 million and ~~$172.9~~$53.1 million ~~respectively, for~~during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2006 and 2005, ~~compared with $43.9~~respectively. The $19.1 million ~~and $127.5~~increase primarily resulted from an increase of approximately $7.8 million ~~respectively, for the same periods in 2004, primarily due to increases~~ in compensation and ~~related benefits and~~ other employee benefit-related costs, as well as $1.3 million in office-related expenses associated with ~~the expansion~~expanded operations in several of our ~~operations~~markets, most notably California, Arizona and Nevada. Also contributing to this increase were $2.9 million of additional due diligence costs and deposits on land projects under option which we elected not to exercise and a $3.5 million increase in ~~the majority of~~supervisory fees (see Note 10 to 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.Unaudited Consolidated Financial Statements).

Land Inventory

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


	September 30,		December 31,		September 30,		March 31,		December 31,		March 31,
	2005		2004		2004		2006		2005		2005
Arizona	$	238,685	$	168,489	$	129,969	$	288,025	$	260,968	$	258,775
California		368,134		277,360		249,460		535,850		493,101		305,283
Colorado		131,827		139,554		122,178		157,636		153,844		144,068
Delaware Valley							39,303		46,561		31,392
Florida		46,017		27,926		22,015		87,055		68,831		31,321
Illinois		34,419		33,656		22,909		29,124		33,421		37,096
Maryland		93,826		69,523		63,561		81,829		89,245		91,589
Nevada		254,538		209,544		192,722		382,769		336,982		240,809
Pennsylvania/New Jersey/Delaware		37,460		28,916		8,416
Texas		18,474		19,420		19,191		11,884		15,511		25,151
Utah		49,239		35,104		35,959		90,044		62,191		37,076
Virginia		95,271		100,461		72,609		111,093		95,543		104,680

Total	$	1,367,890	$	1,109,953		938,989	$	1,814,612	$	1,656,198	$	1,307,240

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,		March 31,		December 31,		March 31,
	2005		2004		2004		2006		2005		2005
Lots Owned
Arizona		7,229		5,657		5,020		7,686		7,385		8,563
California		2,632		2,646		2,652		3,622		3,367		2,610
Colorado		3,560		3,993		3,866		3,508		3,639		3,951
Delaware Valley								402		471		340
Florida		970		594		442		1,458		1,201		573
Illinois		474		508		703		380		430		537
Maryland		734		650		602		624		679		760
Nevada		3,482		3,916		4,040		4,139		4,055		4,085
Pennsylvania/New Jersey/Delaware		367		312		51
Texas		569		642		631		365		471		769
Utah		881		862		964		1,295		964		836
Virginia		762		980		938		784		783		997

Total		21,660		20,760		19,909		24,263		23,445		24,021


Lots Controlled Under Option
Arizona		3,830		5,494		4,416		3,592		3,650		2,251
California		3,139		1,782		1,574		1,921		2,005		1,454
Colorado		3,187		1,866		1,759		2,064		2,198		1,630
Delaware Valley								1,277		1,283		583
Florida		3,411		2,980		2,889		2,686		3,202		3,406
Illinois		186		203		284		186		186		336
Maryland		1,156		1,206		1,103		1,148		1,173		1,043
Nevada		1,639		1,859		1,785		665		1,400		1,379
Pennsylvania/New Jersey/Delaware		1,111		723		933
Texas		951		1,694		2,379		80		80		1,381
Utah		568		216		291		454		418		549
Virginia		3,149		3,141		2,647		3,231		3,224		2,883

Total		22,327		21,164		20,060		17,304		18,819		16,895


Total Lots Owned and Controlled (excluding lots in work-in-process)		43,987		41,924		39,969		41,567		42,264		40,916


Non-refundable Option Deposits
Cash	$	50,681	$	41,804	$	33,748	$	44,108	$	48,157	$	39,049
Letters of Credit		25,728		22,062		16,730		19,240		23,142		20,525

Total Non-refundable Option Deposits	$	76,409	$	63,866	$	50,478	$	63,348	$	71,299	$	59,574

Insurance Operations.Allegiant Insurance Company, Inc., A Risk Retention Group (“Allegiant”), was organized as a risk retention group under the Federal Liability Risk Retention Act of 1981. Allegiant is licensed as a Class 3 stock insurance company by the Division of Insurance of the State of Hawaii and began operations in June 2004. Allegiant provides general liability coverage for products and completed operations to the Company and to subcontractors of homebuilding subsidiaries of MDC. Pursuant to an agreement effective June 30, 2004, StarAmerican Insurance Ltd., a Hawaii corporation and a wholly owned subsidiary of MDC, agreed to re-insure all Allegiant claims in excess of $50,000 per occurrence, up to $3.0 million. The results of insurance operations were not material for any of the periods presented.

Financial Services Segment

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


	Three Months Ended												Nine Months Ended												Three Months
	September 30,						Change						September 30,						Change						Ended March 31,						Change
	2005			2004			Amount			%			2005			2004			Amount			%			2006			2005			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	%

Broker origination fees																									$	2,080		$	2,168		$	(88	)		-4	%
Gains on sales of mortgage loans, net	$	4,356		$	5,595		$	(1,239	)		-22	%	$	11,372		$	16,905		$	(5,533	)		-33	%	$	13,027		$	7,898		$	5,129			65	%

Operating Profit	$	6,264		$	5,573		$	691			12	%	$	13,238		$	13,375		$	(137	)		-1	%	$	8,313		$	2,847		$	5,466			192	%

Principal amount of loans originated	$	470,636		$	426,227		$	44,409			10	%	$	1,197,053		$	1,144,913		$	52,140			5	%	$	526,231		$	305,193		$	221,038			72	%

Principal amount of loans brokered	$	225,628		$	188,378		$	37,250			20	%	$	666,939		$	497,435		$	169,504			34	%	$	157,243		$	213,352		$	(56,109	)		-26	%

Capture Rate		50	%		53	%		-3	%					46	%		54	%		-8	%					56	%		41	%		15	%
Including brokered loans		73	%		75	%		-2	%					72	%		75	%		-3	%					72	%		68	%		4	%

Mortgage product (% of loans originated)
Fixed rate		58	%		57	%		1	%					56	%		68	%		-12	%					49	%		56	%		-7	%

Adjustable rate		42	%		43	%		-1	%					44	%		32	%		12	%
Adjustable rate — interest only																										44	%		32	%		12	%
Adjustable rate — other																										7	%		12	%		-5	%

~~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~~HomeAmerican is exposed to market risks related to fluctuations in interest rates on its mortgage loan inventory. Derivative instruments utilized in the normal course of business by ~~changes in~~HomeAmerican include forward sales securities commitments, private investor sales commitments and commitments to originate mortgage ~~interest rates.~~loans. HomeAmerican utilizes ~~forward mortgage securities contracts~~the sales commitments to manage the price risk ~~related to~~on fluctuations in interest rates on our mortgage loans ~~held in inventory~~owned and ~~rate-locked~~commitments to originate mortgage loans. Such contracts are the only significant financial derivative instruments utilized by us and are generally settled within 45 days of origination. Certain mortgage loans ~~in process that had not closed.~~originated by HomeAmerican are able to be sold pursuant to the aforementioned early purchase program and generally are settled within five days of origination. Due to this hedging philosophy, the market risk associated with HomeAmerican’s mortgages is limited. Reported gains on sales of mortgage loans may vary significantly from period to period depending on the volatility in the interest rate market.

~~Insurance Operation~~~~s — 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.~~ See “Forward-Looking Statements” below.

Other Operating Results

Interest ~~Expense~~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 F10 to our ~~unaudited~~Unaudited Consolidated Financial Statements. For a reconciliation of interest incurred, capitalized and expensed, see Note D7 to our ~~unaudited~~Unaudited Consolidated Financial Statements.

Corporate General and Administrative Expenses — Corporate general and administrative expenses totaled ~~$27.8~~$28.4 million and ~~$86.3~~$30.3 million ~~respectively, during~~for the three months ended March 31, 2006 and ~~nine months~~2005, respectively. The $1.9 million decrease primarily was attributable to an increase of ~~2005, compared with $27.9~~$3.5 million in supervisory costs which are charged to the Homebuilding and ~~$68.0 million, respectively, for the same periods of 2004. The 2005 third quarter~~Financial Services segments (see Note 10 to our Unaudited Consolidated Financial Statements) and ~~first nine months~~a reduction in other general and administrative expenses, including professional services, information technology costs and travel expenses. These expense reductions were ~~impacted~~offset in part by ~~increases~~the adoption of SFAS 123(R) in ~~compensation-related cost~~January 2006, which resulted in an increase of approximately ~~$3.6~~$3.0 million in stock-based compensation expense.

Related Party Expenses— Related party expenses were $1.7 million and ~~$21.5 million, respectively, resulting~~$100,000 during the three months ended March 31, 2006 and 2005, respectively. The 2006 increase resulted from our ~~higher profitability, partially offset by decreases in contributions~~commitment to give a charitable contribution to the ~~M.D.C. Holdings, Inc. Charitable~~MDC/Richmond American Homes Foundation ~~of $2.0 million and $5.0 million, respectively.~~(the “Foundation”). During the 2005 first quarter, no charitable contribution commitment was made to the Foundation.

Income Taxes —~~MDC’s overall~~Our effective income tax ~~rates of~~rate was 37.4% ~~and 37.5%~~ for the three ~~and nine~~ months ended ~~September 30, 2005, respectively, differed from~~March 31, 2006, relatively consistent with the ~~38.5% and 38.6%, respectively,~~37.7% effective income tax rate for the same ~~periods~~period in ~~2004, primarily~~2005. Accordingly, our income tax expense rose $5.8 million in the first quarter of 2006, compared with the same period in 2005, due to the ~~Internal Revenue Code Section 199 manufacturing deduction established by the American Jobs Creation Act of 2004, as well as a reduction~~$16.6 million increase in ~~our state effective~~ income ~~tax rate. These reduced effective~~before 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.~~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 shelf registration statement, which ~~has allowed~~allows us to issue equity, debt or hybrid securities up to $1.0 billion, with $500 million ~~having been initially~~ earmarked for our ~~medium term~~medium-term senior notes program. ~~In December 2004, we issued $250 million principal amount of 5~~³/8~~% medium term senior notes due 2014, and in July 2005, we issued another $250 million principal amount of 5~~³/8~~% 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~~

~~- 26 -~~-33-

~~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~~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 continue to monitor and evaluate the adequacy of our Homebuilding Line and Mortgage Line. However, 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.~~Item 1A “Risk Factors Relating to our Business” which are included in our Annual Report on Form 10-K for the year ended December 31, 2005. 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~~On March 22, 2006, we amended and restated the Homebuilding Line, increasing the aggregate commitment amount to ~~$1.058~~$1.250 billion, ~~while maintaining~~and extending the maturity date ~~of April 7, 2009.~~to March 21, 2011. The facility’s provision for letters of credit is available in the aggregate amount of ~~$350~~$500 million. The ~~modified~~amended and restated facility permits an increase in the maximum commitment amount to ~~$1.25~~$1.750 billion upon ~~the Company’s~~our request, subject to receipt of additional commitments from existing or additional participant lenders. Interest rates on outstanding borrowings are determined by reference to LIBOR with a spread from LIBOR, which is determined based on changes in our credit ratings and leverage ratio, or to an alternate base rate. At ~~September 30, 2005, the Company~~March 31, 2006, we had ~~$40.0~~$100.0 million of borrowings and ~~$65.2~~$65.1 million in letters of credit issued under the Homebuilding Line.

Mortgage Lending— Our Mortgage Line has a borrowing limit of ~~$175~~$225 million with terms that allow for increases of up to ~~$50~~$175 million in the borrowing limit to a maximum of ~~$225~~$400 million, subject to concurrence by the participating banks. AsThe terms of ~~September 30, 2005,~~ the Mortgage Line ~~borrowing limit was increased temporarily to $225 million. This temporary increase will expire on January 23, 2006.~~are set forth in the Third Amended and Restated Warehousing Credit Agreement dated as of October 31, 2003, as amended. 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~~March 31, 2006, $125.5 million was borrowed and an additional ~~$12.0~~$15.2 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 5~~³/8~~% medium term senior notes due in July 2015 (the “2015 Medium Term Senior Notes”) at a discount, with an effective yield of 5~~¹/2%. 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 containing these representations, warranties and covenants 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~~the year ended December 31, ~~2004~~2005 and ~~the Exhibit Table to~~in Part II, Item 6, of this Form 10-Q.

~~- 27 -~~

than ~~the sum of~~ (1) ~~$776 million;~~$1.360 billion; plus (2) 50% of “consolidated net income,” as defined, of the “borrower,” as defined, and the “guarantors,” as defined, earned after ~~December 31, 2003; and~~September 30, 2005; plus (3) 50% of the net proceeds or other consideration received for the issuance of capital stock after ~~December 31, 2003.~~September 30, 2005; minus (4) the lesser of (A) the aggregate amount paid by “borrower” after September 30, 2005 to repurchase its common stock and (B) $300 million. Failure to satisfy the foregoing financial covenant tests ~~may~~could 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~~$850 million; (2) 50% of the ~~quarterly~~“quarterly consolidated net ~~income~~income” of “borrower” and the “guarantors” earned after ~~December 31, 2003;~~September 30, 2005; and (3) 50% of the net proceeds or other consideration received for the issuance of capital stock after ~~December 31, 2003.~~September 30, 2005. 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~~debt 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~~Program

~~In October 2005, our board of directors increased the number of remaining~~We did not repurchase any shares of ~~MDC’s~~our 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~~three months ended ~~September 30,~~March 31, 2006 or 2005.

Consolidated Cash Flow

During the ~~nine~~first quarter of 2006, we used $108.4 million in cash in our operating activities. We used $238.2 million of cash to increase our home and land inventories in connection with the expansion of our homebuilding operations. In addition, we used $66.5 million in cash to reduce accounts payable and accrued liabilities, primarily due to the payment of executive bonuses as well as homebuilding construction payables. These uses of cash partially were offset by cash proceeds from the $46.9 million decrease in mortgage loans held in inventory from December 31, 2005 resulting from our ability to sell a higher volume of loans to third-party purchasers under an early purchase program. Additionally, a decrease in our home sales and other accounts receivable balance provided $54.3 million in cash.

During the first quarter of 2006, we received a total of $61.3 million in cash from financing activities. These cash proceeds primarily were the result of net borrowings under our Homebuilding Line and Mortgage Line of $69.0 million. Additionally, we received $3.5 million in proceeds and tax benefits from the exercise of stock options. As discussed in Note 3 to our Unaudited Consolidated Financial Statements, tax benefits from the exercise of stock options previously were reported as an operating activity and, pursuant to SFAS 123(R), are now reported as a financing activity. These financing cash proceeds were offset in part by dividend payments of $11.2 million.

Additionally, we used $1.6 million of cash in investing activities in the first three months ~~ended September 30,~~of 2006, primarily due to the purchase of property and equipment.

During the first quarter of 2005, we used ~~$553.9~~$118.3 million of cash for operating activities. ~~Cash used from operations in~~The 2005 operating cash use primarily was the result of ~~increases of $998.2~~a $278.6 million increase in our homebuilding inventories, other assets and ~~prepaid expenses~~home sales and other ~~assets~~accounts receivable 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~~$93.3 million and ~~increases~~an increase of ~~$179.2~~$62.8 million of mortgage loans held 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.inventory.

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Financing activities ~~provided~~used cash of ~~$294.0~~$59.1 million ~~during~~in the ~~nine months ended September 30,~~ 2005 first quarter, primarily due to ~~$43.2 million in net borrowings on~~repayments of our lines of credit ~~net proceeds from the issuance~~totaling $60.7 million and dividends paid of ~~medium term senior notes in July 2005 of $247.6~~$6.5 million, ~~and~~partially offset by cash proceeds of ~~$25.6~~$8.0 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.options.

Additionally, we used ~~$18.1~~$4.7 million of cash in investing activities ~~during~~in the ~~nine~~first three months ~~ended September 30,~~of 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

~~- 28 -~~

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

Off-Balance Sheet Arrangements

In the ordinary course of business, we enter into lot option purchase contracts in order to procure lots for the construction of homes. Lot option contracts enable us to control significant lot positions with a minimal capital investment, which substantially reduces the risks associated with land ownership and development. At ~~September 30,~~March 31, 2006, we had non-refundable deposits of $44.1 million in the form of cash and $19.2 million in the form of letters of credit to secure option contracts to purchase lots. In limited circumstances, in the event that we exercise our right to purchase the lots or land under option, in addition to our purchase price, our obligation also includes certain costs we are required to reimburse the seller. At March 31, 2006, we had approximately $1.2 billion in land available to be purchased under lot option purchase contracts. Refer to Critical Accounting Estimates and Policies included in our Annual Report on Form 10-K for the year ended December 31, 2005 ~~there were~~for additional information with respect to accounting for lot option purchase contracts which have been evaluated in accordance with the FASB’s Interpretation No. 46, “Consolidation of Variable Interest Entities,” as amended, and SFAS No. 49, “Accounting for Product Financing Arrangements.”

At March 31, 2006, we had outstanding performance bonds ~~("Bonds"~~(“Bonds”) and letters of credit totaling approximately ~~$370.8~~$421.5 million and ~~$97.8~~$94.1 million, respectively, including ~~$30.5~~$29.0 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 and letters of credit generally will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that the obligations are performed, the related Bonds and letters of credit should be released and we should not have any continuing obligations.

~~All other off-balance sheet arrangements~~We 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.~~made no material guarantees with respect to third-party obligations.

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 existingOur 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.~~10-K for the year ended December 31, 2005.

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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~~seeking to control approximately a two-year supply of land in nearly 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.~~

~~- 29 -~~

~~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.~~changes.

OTHER

Forward-Looking Statements

Certain statements in this Quarterly Report on 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~~in connection with quarterly earnings releases, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. ~~We have~~These forward-looking statements include statements regarding our business, financial condition, results of operation, cash flows, strategies and prospects. These forward-looking statements may be identified by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this ~~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~~Report are reasonable, we cannot guarantee future results. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from ~~any future results, performance or achievements~~those 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.

~~- 30 -~~

	•		~~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. Additionally, information about issues that could lead to material changes in performance and risk factors that have the potential to affect us is contained under the caption “Risk Factors Relating to our Business” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2005 which is filed with the Securities and Exchange Commission.

~~- 31 -~~-37-

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~~ordinary 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”~~RAH Colorado”), alleging that ~~Richmond~~RAH Colorado violated the terms of Colorado’s general permit for discharges of stormwater from construction activities at two of ~~Richmond’s~~RAH Colorado’s development sites. In its complaint, the EPA sought civil penalties against ~~Richmond~~RAH Colorado 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~~RAH Colorado 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 in Colorado and by ~~Richmond~~RAH Colorado affiliates in Virginia, Maryland, Arizona ~~California~~ and ~~again in Colorado,~~California, and claims to have found additional stormwater permit violations. ~~Richmond~~RAH Colorado has substantial defenses to the allegations made by the EPA and also is exploring methods of resolving this matter with the EPA.

The EPA has issued two Notices of Violation against Richmond American Homes of Arizona, Inc. (“RAH Arizona”) alleging violations of the Clean Air Act. The EPA asserts that RAH Arizona has not controlled dust generated at construction sites in Maricopa County in that it has not operated a water application system or other approved control measures, installed suitable track-out control devices and/or cleaned-up materials tracked-out from project sites. RAH Arizona has substantial defenses to the EPA’s allegations and is exploring methods of resolving these matters 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 1A.Risk Factors

There has been no material change in our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2005. For a more complete discussion of risk factors that affect our business, see “Risk Factors Relating to our Business” in our Annual Report on Form 10-K for the year ended December 31, 2005, which include the following:

	•		An adverse change in economic conditions could reduce the demand for homes and, as a result, could reduce our earnings.

	•		If land is not available at reasonable prices, our sales and earnings could decrease.

	•		If our home prices continue to increase, our homes could become less affordable to the first-time and first-time move-up homebuyer.

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	•		If the market value of our homes drops significantly, our profits could decrease.

	•		Interest rate increase or changes in federal lending programs could lower demand for our home and our mortgage lending services.

	•		Increased competition in the homebuilding industry could affect our ability to raise home prices and maintain lower levels of incentives, which could negatively impact our home sales revenue and operating profits.

	•		Natural disasters could cause an increase in home construction costs, as well as delays, and could result in reduced profits.

	•		Our business is subject to numerous environmental and other governmental regulations. These regulations could give rise to significant additional liabilities or expenditures, or restrictions on our business.

	•		Product liability litigation and warranty claims that arise in the ordinary course of business may be costly.

	•		The interest of certain control persons may be adverse to investors.

	•		We depend on certain markets, and reduced demand for homes in these markets could reduce home sales revenue and earnings.

	•		Labor and material shortages could cause delays in the construction of our homes.

	•		Because of the seasonal nature of our business, our quarterly operating results fluctuate.

	•		We are reliant on a small number of third party purchasers of mortgage loans originated by HomeAmerican which could impact our results of operations.

	•		If our potential homebuyers are not able to obtain suitable financing, our business may decline.

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

The Company did not repurchase any shares during the ~~third~~first quarter of ~~2005.~~2006. Additionally, there were no sales of unregistered equity securities during the ~~third~~first quarter of ~~2005.~~2006.

Item 3.Defaults Upon Senior Securities

None.

Item 4.4.Submission of Matters to a Vote of Security Holders

None.

Item 5.Other Information

On ~~October~~April 24, ~~2005,~~2006, MDC’s board of directors declared a quarterly cash dividend of twenty five cents ($0.25) per share. The dividend ~~is to~~will be paid on ~~November 22, 2005~~May 24, 2006 to shareowners of record on ~~November 8, 2005.~~May 10, 2006.

~~- 33 -~~-40-


Item 6.		Exhibits


		~~(a) Exhibits:~~

(a) Exhibit:


~~4.1~~	3.1		Certificate of Amendment to the Certificate of Incorporation of M.D.C. Holdings, Inc. (hereinafter sometimes referred to as “MDC”, the “Company” or the “Registrant”), filed with the Delaware Secretary of State on April 27, 2006, and Certificate of Incorporation, dated May 17, 1985, as amended).

	4.1		Amendment No. 12 dated as of ~~July 20, 2005~~January 9, 2006 to Supplemental Indenture dated as of October 6, 2004, with respect to MDC’s Medium-Term Senior Notes (incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K ~~dated July 20, 2005)~~filed January 9, 2006). *


10.1			~~Purchase Agreement~~Amendment to the M.D.C. Holdings, Inc. Executive Officer Performance-Based Compensation Plan, dated ~~as of June 28,~~December 30, 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)~~filed January 6, 2006). *


10.2			~~Amendment No. 1 to~~Amended and Restated Distribution Agreement, dated as of ~~July 20, 2005,~~January 9, 2006, among ~~MDC,~~the Registrant, 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)~~filed January 9, 2006). *


10.3		Consulting Agreement, effective as of March 1, 2006, by and between Gilbert Goldstein, P.C. and the Company (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K dated filed February 22, 2006). *

	10.4		Second Amended and Restated Credit Agreement dated as of March 22, 2006, among MDC as Borrower and the Lenders party thereto and JPMorgan Chase Bank, N.A. as Administrative Agent, including form of Amended and Restated Guaranty and form of Promissory Note (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed March 24, 2006). *

	10.5		First Amendment to Sub-Sublease agreement between MDC and CVentures, Inc., executed ~~July 25, 2005~~on March 28, 2006 (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K ~~dated July 25, 2005)~~filed March 29, 2006). *

~~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.

~~- 34 -~~-41-

EXHIBIT INDEX ~~TO EXHIBITS~~


Exhibits No.	Description
3.1	Certificate of Amendment to the Certificate of Incorporation of M.D.C. Holdings, Inc. (hereinafter sometimes referred to as “MDC”, the “Company” or the “Registrant”), filed with the Delaware Secretary of State on April 27, 2006, and Certificate of Incorporation, dated May 17, 1985, as amended).

~~Exhibit Number~~	~~Description~~
4.1		Amendment No. 12 dated as of ~~July 20, 2005~~January 9, 2006 to Supplemental Indenture dated as of October 6, 2004, with respect to MDC’s Medium-Term Senior Notes (incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K ~~dated July 20, 2005)~~filed January 9, 2006). *

10.1		~~Purchase Agreement~~Amendment to the M.D.C. Holdings, Inc. Executive Officer Performance-Based Compensation Plan, dated ~~as of June 28,~~December 30, 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)~~filed January 6, 2006). *

10.2		~~Amendment No. 1 to~~Amended and Restated Distribution Agreement, dated as of ~~July 20, 2005,~~January 9, 2006, among ~~MDC,~~the Registrant, 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)~~filed January 9, 2006). *

10.3	Consulting Agreement, effective as of March 1, 2006, by and between Gilbert Goldstein, P.C. and the Company (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K dated filed February 22, 2006). *

10.4	Second Amended and Restated Credit Agreement dated as of March 22, 2006, among MDC as Borrower and the Lenders party thereto and JPMorgan Chase Bank, N.A. as Administrative Agent, including form of Amended and Restated Guaranty and form of Promissory Note (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed March 24, 2006). *

10.5	First Amendment to Sub-Sublease agreement between MDC and CVentures, Inc., executed ~~July 25, 2005~~on March 28, 2006 (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K ~~dated July 25, 2005)~~filed March 29, 2006). *

~~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.


			Page
			No.
Part I.	Financial Information:

	Item 1.	Unaudited Consolidated Financial ~~Statements (Unaudited):~~Statements:

		Consolidated Balance Sheets at ~~September 30, 2005~~March 31, 2006 and December 31, ~~2004~~2005		1

		Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2006 and 2005 ~~and 2004~~		3

		Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2005 and 2004		4

		Notes to Unaudited Consolidated Financial Statements		5

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1723

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		3238

	Item 4.	Controls and Procedures		3238

Part IIII.	Other Information:

	Item 1.	Legal Proceedings		3339

	Item 1A.	Risk Factors		39

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		3340

	Item 3.	Defaults Upon Senior Securities		3340

	Item 4.	Submission of Matters to a Vote of Security Holders		3340

	Item 5.	Other Information		3340

	Item 6.	Exhibits		3441

	Signature			3542
Certificate of Amendment to the Certificate of Incorporation
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


	March 31,		December 31,
	2006		2005
Corporate
Accrued bonuses	$	13,481	$	47,850
Accrued interest payable		20,496		13,027
Warranty reserves		10,707		10,693
Accrued legal expenses		9,074		7,908
Accrued pension liability		11,987		11,687
Accrued employee benefits		15,301		19,035
Other accounts payable and accrued liabilities		8,256		7,567

Total Corporate	$	89,302	$	117,767


	March 31,		December 31,
	2006		2005
Homebuilding
Accounts payable
Construction accounts payable	$	188,973	$	195,803
Non-construction accounts payable		3,797		7,789

Total accounts payable		192,770		203,592

Accrued liabilities
Warranty reserves	$	74,906	$	71,545
Customer and escrow deposits		50,261		56,186
Accrued compensation and related expense		25,107		32,656
Insurance reserves		33,888		32,166
Other accrued liabilities		28,496		24,319

Total accrued liabilities		212,658		216,872

Total Homebuilding accounts payable and accrued liabilities	$	405,428	$	420,464


	Three Months Ended						Nine Months Ended						Three Months
	September 30,						September 30,						Ended March 31,
	2005			2004			2005			2004			2006			2005
Total Interest Incurred

Corporate and homebuilding	$	14,615		$	8,406		$	36,540		$	23,481		$	14,837		$	10,815
Financial services		1,014			556			2,152			1,324			1,964			484

Total interest incurred	$	15,629		$	8,962		$	38,692		$	24,805		$	16,801		$	11,299


Corporate/Homebuilding Interest Capitalized

Interest capitalized in homebuilding inventory, beginning of period	$	30,293		$	22,023		$	24,220		$	20,043		$	41,999		$	24,220
Interest incurred		14,615			8,406			36,540			23,481			14,837			10,815
Previously capitalized interest included in cost of sales		(7,030	)		(7,175	)		(22,882	)		(20,270	)
Previously capitalized interest included in home cost of sales														(9,614	)		(7,294	)

Interest capitalized in homebuilding inventory, end of period	$	37,878		$	23,254		$	37,878		$	23,254		$	47,222		$	27,741


Financial Services Net Interest Income

Interest income	$	1,769		$	1,549		$	4,162		$	4,147		$	2,820		$	1,011
Interest expense		(1,014	)		(556	)		(2,152	)		(1,324	)		(1,964	)		(484	)

Net interest income	$	755		$	993		$	2,010		$	2,823		$	856		$	527


Warranty reserve balance at December 31, 2004	$	64,424
Warranty reserve balance at December 31, 2005				$	82,238
Warranty expense provision		27,415			11,496
Warranty cash payments, net		(31,013	)		(8,121	)

Warranty reserve balance at September 30, 2005	$	60,826
Warranty reserve balance at March 31, 2006				$	85,613

	•		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.

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


Date: ~~November 7, 2005~~	May 10, 2006	M.D.C. HOLDINGS, INC. (Registrant)
	By:	/s/ Paris G. Reece III
					Paris G. Reece III,
		~~By:~~		~~/s/ Paris G. Reece III~~	Executive Vice President, Chief Financial Officer and Principal Accounting Officer
						~~Paris G. Reece III,~~
			~~Executive Vice President,~~
			~~Chief Financial Officer and~~
			~~Principal Accounting Officer~~