MDC HOLDINGS INC (Form: 10-Q, Received: 05/10/2006 10:42:25)

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 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)		identification no.)

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

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

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

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

Large Accelerated Filer þ Accelerated Filer o Non-Accelerated Filer o

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

As of April 28, 2006, 44,932,000 shares of M.D.C. Holdings, Inc. common stock were outstanding.

M.D.C. HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2006

INDEX


			Page
			No.
Part I.	Financial Information:

	Item 1.	Unaudited Consolidated Financial Statements:

		Consolidated Balance Sheets at March 31, 2006 and December 31, 2005		1

		Consolidated Statements of Income for the three months ended March 31, 2006 and 2005		3

		Consolidated Statements of Cash Flows for the three months ended 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		23

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		38

	Item 4.	Controls and Procedures		38

Part II.	Other Information:

	Item 1.	Legal Proceedings		39

	Item 1A.	Risk Factors		39

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		40

	Item 3.	Defaults Upon Senior Securities		40

	Item 4.	Submission of Matters to a Vote of Security Holders		40

	Item 5.	Other Information		40

	Item 6.	Exhibits		41

	Signature			42
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

(i)

ITEM 1. Unaudited Consolidated Financial Statements

M.D.C. HOLDINGS, INC.

Consolidated Balance Sheets

(In thousands)
(Unaudited)


	March 31,		December 31,
	2006		2005
ASSETS
Corporate
Cash and cash equivalents	$	142,651	$	196,032
Property and equipment, net		29,878		30,660
Deferred income taxes		58,959		54,319
Deferred debt issue costs, net		6,768		6,937
Other assets, net		12,749		10,792

		251,005		298,740


Homebuilding
Cash and cash equivalents		20,290		16,671
Restricted cash		7,649		6,742
Home sales and other accounts receivable		80,016		134,270
Inventories, net
Housing completed or under construction		1,346,057		1,266,901
Land and land under development		1,814,612		1,656,198
Prepaid expenses and other assets, net		149,358		139,529

		3,417,982		3,220,311


Financial Services
Cash and cash equivalents		2,798		1,828
Mortgage loans held in inventory		190,437		237,376
Other assets, net		16,901		26,640

		210,136		265,844

Total Assets	$	3,879,123	$	3,784,895

The accompanying Notes are an integral part of the Unaudited Consolidated Financial Statements.

-1-

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


	March 31,			December 31,
	2006			2005
LIABILITIES
Corporate
Accounts payable and accrued liabilities	$	89,302		$	117,767
Income taxes payable		82,924			102,656
Related party liabilities		1,600			8,100
Senior notes, net		996,391			996,297

		1,170,217			1,224,820


Homebuilding
Accounts payable		192,770			203,592
Accrued liabilities		212,658			216,872
Line of credit		100,000			—

		505,428			420,464


Financial Services
Accounts payable and accrued liabilities		22,730			30,970
Line of credit		125,540			156,532

		148,270			187,502


Total Liabilities		1,823,915			1,832,786


COMMITMENTS AND CONTINGENCIES		—			—

STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued or outstanding		—			—
Common stock, $0.01 par value; 250,000,000 shares authorized; 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		741,003			722,291
Retained earnings		1,317,175			1,232,971
Unearned restricted stock		(2,231	)		(2,478	)
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		2,055,208			1,952,109


Total Liabilities and Stockholders’ Equity	$	3,879,123		$	3,784,895

The accompanying Notes are an integral part of the Unaudited Consolidated Financial Statements.

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M.D.C. HOLDINGS, INC.

Consolidated Statements of Income

(In thousands, except per share amounts)
(Unaudited)


	Three Months
	Ended March 31,
	2006			2005
REVENUE

Homebuilding	$	1,124,854		$	921,330
Financial services		17,408			11,598
Corporate		432			988

Total Revenue		1,142,694			933,916


COSTS AND EXPENSES

Homebuilding		951,085			758,820
Financial services		9,095			8,751
Corporate		28,357			30,316
Related party expenses		1,676			100

Total Costs and Expenses		990,213			797,987

Income before income taxes		152,481			135,929
Provisions for income taxes		(57,060	)		(51,298	)

NET INCOME	$	95,421		$	84,631


EARNINGS PER SHARE

Basic	$	2.13		$	1.95

Diluted	$	2.08		$	1.86


WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic		44,820			43,458

Diluted		45,970			45,564

DIVIDENDS DECLARED PER SHARE	$	0.25		$	0.15

The accompanying Notes are an integral part of the Unaudited Consolidated Financial Statements.

-3-

M.D.C. HOLDINGS, INC.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months
	Ended March 31,
	2006			2005
OPERATING ACTIVITIES
Net income	$	95,421		$	84,631
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		(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		54,254			(14,015	)
Housing completed or under construction		(79,156	)		(52,846	)
Land and land under development		(158,414	)		(197,287	)
Prepaid expenses and other assets		(22,710	)		(14,456	)
Mortgage loans held in inventory		46,939			62,848
Accounts payable and accrued liabilities		(63,731	)		671
Restricted cash		(907	)		(825	)
Other, net		8,024			3,547

Net cash used in operating activities		(108,443	)		(118,333	)


INVESTING ACTIVITIES

Net purchase of property and equipment		(1,638	)		(4,663	)


FINANCING ACTIVITIES
Lines of credit
Advances		354,800			—
Principal payments		(285,792	)		(60,667	)
Excess tax benefits from stock-based compensation		1,192			—
Dividend payments		(11,217	)		(6,509	)
Proceeds from exercise of stock options		2,306			8,031

Net cash provided by (used in) financing activities		61,289			(59,145	)

Net decrease in cash and cash equivalents		(48,792	)		(182,141	)
Cash and cash equivalents
Beginning of period		214,531			400,959

End of period	$	165,739		$	218,818

The accompanying Notes are an integral part of the Unaudited Consolidated Financial Statements.

-4-

M.D.C. HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

1. Basis of Presentation

The Consolidated Financial Statements of M.D.C. Holdings, Inc. (“MDC” or the “Company,” which refers to M.D.C. Holdings, Inc. and its subsidiaries) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of MDC at March 31, 2006 and for all periods presented. These statements should be read in conjunction with MDC’s Consolidated Financial Statements and Notes thereto included in MDC’s Annual Report on Form 10-K for the year ended December 31, 2005. Certain years’ prior balances have been reclassified to conform to the current year’s presentation.

The Company has experienced, and expects to continue to experience, significant seasonality and quarter-to-quarter variability in 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 Company believes that this seasonality reflects the historical tendency of 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.

2. Recent Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 155, “Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 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 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 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 first quarter of 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” (“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 recognizes these compensation costs net of an estimated annual forfeiture rate and recognizes the compensation costs for only those awards expected to 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 expense in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to 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 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 stock options with exercise prices that are equal to or greater than the fair market value of the Company’s common stock on the date of grant through December 31, 2005, stock-based compensation expense was recorded only in association with the vesting of restricted stock and unrestricted stock awards granted prior to January 1, 2006. Any resulting compensation expense was recognized ratably over the 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 123, as amended by SFAS 148, had been applied to all outstanding and unvested share-based payment awards in the three months ended March 31, 2005 (in thousands, except per share amounts).

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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

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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)

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.

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

5. Balance Sheet Components

The following tables set forth information relating to corporate and homebuilding accounts payable and accrued liabilities (in thousands).


	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

-11-

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

6. Earnings Per Share

Pursuant to SFAS No. 128, “Earnings per Share,” the computation of diluted earnings per share takes into account the effect of dilutive stock options. The basic and diluted earnings per share calculations are shown below (in thousands, except per share amounts).


	Three Months
	Ended March 31,
	2006		2005
Basic Earnings Per Share
Net income	$	95,421	$	84,631

Basic weighted-average shares outstanding		44,820		43,458

Per share amounts	$	2.13	$	1.95

Diluted Earnings Per share
Net income	$	95,421	$	84,631

Basic weighted-average shares outstanding		44,820		43,458
Stock options, net		1,150		2,106

Diluted weighted-average shares outstanding		45,970		45,564

Per share amounts	$	2.08	$	1.86

7. Interest Activity

The Company capitalizes interest incurred on its corporate and homebuilding debt during the period of active development and through the completion of construction of its homebuilding inventories. All corporate and homebuilding interest incurred was capitalized during the three months ended March 31, 2006 and 2005. 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 10.

-12-

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

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


	Three Months
	Ended March 31,
	2006			2005
Total Interest Incurred

Corporate and homebuilding	$	14,837		$	10,815
Financial services		1,964			484

Total interest incurred	$	16,801		$	11,299


Corporate/Homebuilding Interest Capitalized

Interest capitalized in homebuilding inventory, beginning of period	$	41,999		$	24,220
Interest incurred		14,837			10,815
Previously capitalized interest included in home cost of sales		(9,614	)		(7,294	)

Interest capitalized in homebuilding inventory, end of period	$	47,222		$	27,741


Financial Services Net Interest Income

Interest income	$	2,820		$	1,011
Interest expense		(1,964	)		(484	)

Net interest income	$	856		$	527

8. Warranty Reserves

Warranty reserves are reviewed quarterly, using historical data and other relevant information, to determine the reasonableness and adequacy of both the reserve and the per unit reserve amount originally included in home cost of sales, as well as the timing of the reversal of the reserve. Warranty reserves are included in corporate accounts payable and accrued liabilities and homebuilding accrued liabilities in the Consolidated Balance Sheets, and totaled $85.6 million and $82.2 million, respectively, at March 31, 2006 and December 31, 2005, respectively. In addition, the reserves include additional qualified settlement fund warranty reserves created pursuant to litigation settled in 1996. Warranty activity for the three months ended March 31, 2006 is shown below (in thousands).


Warranty reserve balance at December 31, 2005	$	82,238
Warranty expense provision		11,496
Warranty cash payments, net		(8,121	)

Warranty reserve balance at March 31, 2006	$	85,613

-13-

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 — 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 business segments is shown below (in thousands).


	Three Months
	Ended March 31,
	2006			2005
Homebuilding
Revenue
Home sales	$	1,119,308		$	916,831
Land sales		1,837			1,296
Other revenue		3,709			3,203

Total Homebuilding Revenue		1,124,854			921,330

Home cost of sales		814,589			656,780
Land cost of sales		2,374			790
Marketing expenses		29,035			22,318
Commission expenses		32,843			25,846
General and administrative expenses		72,244			53,086

Total Homebuilding Expenses		951,085			758,820

Homebuilding Operating Profit		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

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

Financial Services Operating Profit		8,313			2,847

Total Operating Profit		182,082			165,357


Corporate
Interest and other revenues		432			988
General and administrative expenses		(28,357	)		(30,316	)
Related party expenses		(1,676	)		(100	)

Net Corporate Expenses		(29,601	)		(29,428	)

Income Before Income Taxes	$	152,481		$	135,929

-15-

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

11. Other Comprehensive Income

Total other comprehensive income includes net income plus unrealized gains or losses on securities available for sale and minimum pension liability adjustments which have been reflected as a component of stockholders’ equity and have not affected net income and consolidated net income. The Company’s other comprehensive income was $95.4 million and $84.6 million for the three months ended March 31, 2006 and 2005, respectively.

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 March 31, 2006, MDC had issued and outstanding performance bonds and letters of credit totaling $421.5 million and $94.1 million, respectively, including $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.

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. On March 22, 2006, the Company amended and restated the Homebuilding Line, increasing the aggregate commitment amount to $1.250 billion, and extending the maturity date to March 21, 2011. The facility’s provision for letters of credit is available in the aggregate amount of $500 million. The amended and restated facility permits an increase in the maximum commitment amount to $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 March 31, 2006, the Company had $100.0 million of borrowings and $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 $225 million with terms that allow for increases of up to $175 million in the borrowing limit to a maximum of $400 million, subject to concurrence by the participating banks. The terms of the Mortgage Line are set forth in the Third Amended and Restated Warehousing Credit Agreement dated as of October 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 March 31, 2006, $125.5 million was borrowed and an additional $15.2 million was collateralized and available to be borrowed. The Mortgage Line is cancelable upon 120 days notice.

General — The agreements for the Company’s bank lines of credit and the indentures for the Company’s senior notes require compliance with certain representations, warranties and covenants. The Company believes that it is in compliance with these requirements, and the Company is not aware of any covenant violations. The agreements containing these representations, warranties and covenants for the bank lines of credit and the indentures for the Company’s senior notes are on file with the SEC and are listed in the Exhibit Table in Part IV of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 and in Part II, Item 6, of this Form 10-Q.

-16-

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

The Company’s debt obligations at March 31, 2006 and December 31, 2005 are as follows (in thousands):


	March 31,		December 31,
	2006		2005
7% Senior Notes due 2012	$	148,855	$	148,821
5 ¹ / 2 % Senior Notes due 2013		349,297		349,276
5 ³ / 8 % Medium Term Senior Notes due 2014		248,564		248,532
5 ³ / 8 % Medium Term Senior Notes due 2015		249,675		249,668

Total Senior Notes		996,391		996,297
Homebuilding Line		100,000		—

Total Corporate and Homebuilding Debt		1,096,391		996,297
Mortgage Line		125,540		156,532

Total Debt	$	1,221,931	$	1,152,829

14. Related Party Transactions

During the first quarter of 2006, the Company accrued $1.6 million of contributions to be made to the MDC/Richmond American Homes Foundation (the “Foundation”), a Delaware non-profit corporation that was incorporated on September 30, 1999.

15. Income Taxes

The Company’s overall effective income tax rates were 37.4% and 37.7% for the three months ended March 31, 2006 and 2005, respectively.

16. Subsequent Events

On April 27, 2006, the Company amended the Certificate of Incorporation, as authorized by the Company’s shareowners on April 24, 2006, thereby increasing the number of authorized shares of the Company’s common stock from 100 million shares to 250 million shares.

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.
Notes to Unaudited Consolidated Financial Statements (Continued)

	•		Richmond American Homes of Maryland, Inc.

	•		Richmond American Homes of Nevada, Inc.

	•		Richmond American Homes of New Jersey, Inc.

	•		Richmond American Homes of Pennsylvania, Inc.

	•		Richmond American Homes of Texas, Inc.

	•		Richmond American Homes of Utah, Inc.

	•		Richmond American Homes of Virginia, Inc.

	•		Richmond American Homes of West Virginia, Inc.

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

	•		American Home Insurance Agency, Inc.

	•		American Home Title and Escrow Company

	•		HomeAmerican Mortgage Corporation

	•		Lion Insurance Company

	•		StarAmerican Insurance Ltd.

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

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

-18-

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

Supplemental Combining Balance Sheet
March 31, 2006
(In thousands)


						Non-
				Guarantor		Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries		Subsidiaries			Entries			MDC
ASSETS
Corporate
Cash and cash equivalents	$	142,651		$	—	$	—		$	—		$	142,651
Investment in and advances to parent and subsidiaries		358,376			599		(13,027	)		(345,948	)		—
Other assets		108,326			146		(118	)		—			108,354

		609,353			745		(13,145	)		(345,948	)		251,005

Homebuilding
Cash and cash equivalents		—			7,496		12,794			—			20,290
Restricted cash		—			7,649		—			—			7,649
Home sales and other accounts receivable		—			94,789		1,383			(16,156	)		80,016
Inventories, net
Housing completed or under construction		—			1,346,057		—			—			1,346,057
Land and land under development		—			1,814,612		—			—			1,814,612
Other assets		—			133,943		41,415			(26,000	)		149,358

		—			3,404,546		55,592			(42,156	)		3,417,982

Financial Services		—			—		210,136			—			210,136

Total Assets	$	609,353		$	3,405,291	$	252,583		$	(388,104	)	$	3,879,123


LIABILITIES
Corporate
Accounts payable and accrued liabilities	$	117,708		$	195	$	48		$	(27,049	)	$	90,902
Advances and notes payable — parent and subsidiaries		(2,693,089	)		2,676,938		16,151			—			—
Income taxes payable		33,135			45,216		4,573			—			82,924
Senior notes, net		996,391			—		—			—			996,391

		(1,545,855	)		2,722,349		20,772			(27,049	)		1,170,217

Homebuilding
Accounts payable and accrued liabilities		—			374,095		31,333			—			405,428
Homebuilding Line		100,000			—		—			—			100,000

		100,000			374,095		31,333			—			505,428

Financial Services		—			—		163,375			(15,105	)		148,270

Total Liabilities		(1,445,855	)		3,096,444		215,480			(42,154	)		1,823,915

STOCKHOLDERS’ EQUITY		2,055,208			308,847		37,103			(345,950	)		2,055,208

Total Liabilities and Stockholders’ Equity	$	609,353		$	3,405,291	$	252,583		$	(388,104	)	$	3,879,123

-19-

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

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


						Non-
				Guarantor		Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries		Subsidiaries			Entries			MDC
ASSETS
Corporate
Cash and cash equivalents	$	196,032		$	—	$	—		$	—		$	196,032
Investment in and advances to parent and subsidiaries		728,608			1,248		(4,687	)		(725,169	)		—
Other assets		102,768			162		(222	)		—			102,708

		1,027,408			1,410		(4,909	)		(725,169	)		298,740


Homebuilding
Cash and cash equivalents		—			5,527		11,144			—			16,671
Restricted cash		—			6,742		—			—			6,742
Home sales and other accounts receivable		—			160,028		1,462			(27,220	)		134,270
Inventories, net
Housing completed or under construction		—			1,266,901		—			—			1,266,901
Land and land under development		—			1,656,198		—			—			1,656,198
Other assets		—			124,777		40,752			(26,000	)		139,529

		—			3,220,173		53,358			(53,220	)		3,220,311

Financial Services		—			—		265,844			—			265,844

Total Assets	$	1,027,408		$	3,221,583	$	314,293		$	(778,389	)	$	3,784,895


LIABILITIES
Corporate
Accounts payable and accrued liabilities	$	152,692		$	177	$	47		$	(27,049	)	$	125,867
Advances and notes payable — parent and subsidiaries		(1,892,320	)		1,876,894		15,426			—			—
Income taxes payable		(181,370	)		275,602		8,424			—			102,656
Senior notes, net		996,297			—		—			—			996,297

		(924,701	)		2,152,673		23,897			(27,049	)		1,224,820


Homebuilding
Accounts payable and accrued liabilities		—			390,057		30,407			—			420,464
Homebuilding Line		—			—		—			—			—

		—			390,057		30,407			—			420,464

Financial Services		—			—		213,672			(26,170	)		187,502

Total Liabilities		(924,701	)		2,542,730		267,976			(53,219	)		1,832,786

STOCKHOLDERS’ EQUITY		1,952,109			678,853		46,317			(725,170	)		1,952,109

Total Liabilities and Stockholders’ Equity	$	1,027,408		$	3,221,583	$	314,293		$	(778,389	)	$	3,784,895

-20-

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

Supplemental Combining Statements of Income
(In thousands)

Three Months Ended March 31, 2006


							Non-
				Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC
REVENUE
Homebuilding	$	—		$	1,123,736		$	1,492		$	(374	)	$	1,124,854
Financial services		—			—			17,408			—			17,408
Corporate		422			—			10			—			432
Equity in earnings of subsidiaries		82,798			—			—			(82,798	)		—

Total Revenue		83,220			1,123,736			18,910			(83,172	)		1,142,694


COSTS AND EXPENSES
Homebuilding		(199	)		1,002,635			(1,832	)		(49,519	)		951,085
Financial services		—			—			9,095			—			9,095
Corporate		30,033			—			—			—			30,033
Corporate and homebuilding interest		(49,519	)		—			—			49,519			—

Total Costs and Expenses		(19,685	)		1,002,635			7,263			—			990,213


Income before income taxes		102,905			121,101			11,647			(83,172	)		152,481
Provision for income taxes		(7,484	)		(45,216	)		(4,360	)		—			(57,060	)

NET INCOME	$	95,421		$	75,885		$	7,287		$	(83,172	)	$	95,421

Three Months Ended March 31, 2005


							Non-
				Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC
REVENUE
Homebuilding	$	—		$	919,893		$	1,661		$	(224	)	$	921,330
Financial services		—			—			11,598			—			11,598
Corporate		978			—			10			—			988
Equity in earnings of subsidiaries		83,073			—			—			(83,073	)		—

Total Revenue		84,051			919,893			13,269			(83,297	)		933,916


COSTS AND EXPENSES
Homebuilding		179			790,844			784			(32,987	)		758,820
Financial services		—			—			8,751			—			8,751
Corporate		30,416			—			—			—			30,416
Corporate and homebuilding interest		(32,987	)		—			—			32,987			—

Total Costs and Expenses		(2,392	)		790,844			9,535			—			797,987


Income before income taxes		86,443			129,049			3,734			(83,297	)		135,929
Provision for income taxes		(1,812	)		(48,053	)		(1,433	)		—			(51,298	)

NET INCOME	$	84,631		$	80,996		$	2,301		$	(83,297	)	$	84,631

-21-

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

Supplemental Combining Statements of Cash Flows
(In thousands)

Three Months Ended 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	$	200,681		$	(386,823	)	$	68,033		$	(224	)	$	(118,333	)

Net cash used in investing activities		(1,602	)		(2,953	)		(108	)		—			(4,663	)

Financing activities
Net increase (reduction) in borrowings from parent and subsidiaries		(384,889	)		390,441			(5,552	)		—			—
Lines of credits
Advances		—			—			—			—			—
Principal payments		—			—			(60,667	)		—			(60,667	)
Proceeds from senior notes, net		—			—			—			—			—
Dividend payments		(6,733	)		—			—			224			(6,509	)
Proceeds from exercise of stock options		8,031			—			—			—			8,031

Net cash provided by (used in) financing activities		(383,591	)		390,441			(66,219	)		224			(59,145	)

Net increase (decrease) in cash and cash equivalents		(184,512	)		665			1,706			—			(182,141	)
Cash and cash equivalents
Beginning of period		389,828			5,061			6,070			—			400,959

End of period	$	205,316		$	5,726		$	7,776		$	—		$	218,818

-22-

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 on Form 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 on Form 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.” 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. We provide title agency services through American Home Title and Escrow Company (“American Home Title”) to our homebuyers in certain of our markets.

EXECUTIVE SUMMARY

The Company closed 3,198 homes during the three months ended March 31, 2006, compared with 3,158 during the same period 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 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 on new home orders and will impact adversely our Home Gross Margins (as defined below). 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.

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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 Texas to markets such as Utah, where recently we acquired certain assets of Salisbury Homes to strengthen our position in one of our 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 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 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 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.

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 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 March 31, 2006 using the Black-Scholes

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option pricing model. The Black-Scholes option pricing model includes making estimates and judgments associated with the (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 in determining the number of awards expected to vest in the future. We 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.

RESULTS OF OPERATIONS

Consolidated Results

The following discussion for both consolidated results of operations and segment results refers to the three months ended March 31, 2006, compared with March 31, 2005. The table below summarizes our results of operations (dollars in thousands, except per share amounts).


	Three Months
	Ended March 31,				Change
	2006		2005		Amount		%
Revenue	$	1,142,694	$	933,916	$	208,778		22	%
Income Before Income Taxes	$	152,481	$	135,929	$	16,552		12	%
Net Income	$	95,421	$	84,631	$	10,790		13	%
Earnings Per Share:
Basic	$	2.13	$	1.95	$	0.18		9	%
Diluted	$	2.08	$	1.86	$	0.22		12	%

Revenue for the three months ended March 31, 2006 increased by 22% from the first quarter of 2005, primarily due to a 21% increase in the average selling price of homes closed. Income before income taxes rose $16.6 million in the first quarter of 2006, compared with 2005, primarily due to increases in homebuilding and financial services operating profits.

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Homebuilding Segment

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


	Three Months
	Ended March 31,						Change
	2006			2005			Amount			%
Home Sales Revenue	$	1,119,308		$	916,831		$	202,477			22	%
Operating Profit	$	173,769		$	162,510		$	11,259			7	%
Average Selling Price Per Home Closed	$	350.0		$	290.3		$	59.7			21	%
Cancellation Rate		31.0	%		20.2	%		10.8	%
Home Gross Margins		27.2	%		28.4	%		-1.2	%

Orders For Homes, net (units)
Arizona		919			1,152			(233	)		-20	%
California		544			531			13			2	%
Colorado		451			664			(213	)		-32	%
Delaware Valley		39			43			(4	)		-9	%
Florida		272			320			(48	)		-15	%
Illinois		44			29			15			52	%
Maryland		152			145			7			5	%
Nevada		779			750			29			4	%
Texas		67			321			(254	)		-79	%
Utah		339			248			91			37	%
Virginia		194			343			(149	)		-43	%

Total		3,800			4,546			(746	)		-16	%


Homes Closed (units)
Arizona		778			796			(18	)		-2	%
California		464			386			78			20	%
Colorado		399			448			(49	)		-11	%
Delaware Valley		31			—			31			N/A
Florida		252			295			(43	)		-15	%
Illinois		36			5			31			N/A
Maryland		74			74			—			0	%
Nevada		675			609			66			11	%
Texas		139			165			(26	)		-16	%
Utah		173			168			5			3	%
Virginia		177			212			(35	)		-17	%

Total		3,198			3,158			40			1	%

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	March 31,		December 31,		March 31,
	2006		2005		2005
Backlog (units)
Arizona		2,240		2,099		2,499
California		845		765		952
Colorado		629		577		908
Delaware Valley		189		181		66
Florida		619		599		663
Illinois		88		80		42
Maryland		329		251		296
Nevada		1,127		1,023		887
Texas		166		238		412
Utah		504		338		369
Virginia		398		381		799

Total		7,134		6,532		7,893


Backlog Estimated Sales Value	$	2,700,000	$	2,440,000	$	2,430,000

Estimated Average Selling Price of Homes in Backlog	$	378.5	$	373.5	$	307.9


Active Subdivisions
Arizona		58		54		42
California		42		34		28
Colorado		50		57		55
Delaware Valley		8		7		4
Florida		26		19		18
Illinois		7		8		4
Maryland		15		11		14
Nevada		41		43		34
Texas		18		21		24
Utah		21		18		18
Virginia		25		20		24

Total		311		292		265

Average for quarter ended		299		287		252

Home Sales Revenue — Home sales revenue increased 22% during the three months ended March 31, 2006, compared with the first quarter of 2005, primarily due to a 21% increase in the average selling price of homes closed.

Homes Closed — Our home closings were relatively constant in the first quarter of 2006, compared with the same period in 2005. In our California and Nevada markets, we closed 1,139 homes during the three months ended March 31, 2006, compared with 995 homes closed for the same period in 2005. The increases in California and Nevada primarily were due to having more homes in Backlog under construction at the beginning of the 2006 first quarter than at the beginning of 2005. In our Colorado, Florida and Virginia markets, we closed 828 homes during the three months ended March 31, 2006, compared with 955 homes for the same period in 2005. In Colorado, homes closed decreased primarily due to 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 increases in home order cancellations, as discussed below, as well as having fewer homes in Backlog at the beginning of the first quarter of 2006, compared with the beginning of 2005.

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Average Selling Prices Per Home Closed - During the first quarter of 2006, we experienced a 21% increase in the average selling price, compared with the same period in 2005, as the average selling prices increased in all of our markets except Illinois. Increases were most notable in Maryland, Virginia and Florida, where the average selling price for homes closed increased in excess of $110,000, primarily due to a combination of home price appreciation, as well as changes in product mix. Approximately 25% of our total homes closed for the three months ended March 31, 2006 and 2005 were in Arizona, where we experienced an $81,900 increase in average selling 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 $180,000.

The following table displays our average selling price per home closed, by market (in thousands).


	Three Months Ended March 31,				Change
	2006		2005		Amount			%
Arizona	$	285.2	$	203.3	$	81.9			40	%
California		533.3		518.5		14.8			3	%
Colorado		296.5		282.5		14.0			5	%
Delaware Valley		412.0		—		N/A			N/A
Florida		297.7		186.4		111.3			60	%
Illinois		363.3		401.9		(38.6	)		-10	%
Maryland		570.3		423.7		146.6			35	%
Nevada		323.1		288.8		34.3			12	%
Texas		169.0		155.1		13.9			9	%
Utah		260.7		212.9		47.8			22	%
Virginia		596.2		484.2		112.0			23	%
Company average	$	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, closing costs, and a reserve for warranty expense) as a percent of home sales revenue. Home Gross Margins were 27.2% during the first quarter of 2006, compared with 28.4% during the same period in 2005. This decrease primarily is attributable to reduced Home Gross Margins in our Nevada and California markets, offset in part by an increase in our Arizona markets. Home Gross Margins in Nevada decreased, primarily due to increases in the cost of land and construction materials used in building new homes. In addition, our Home Gross Margins in California moderated from the levels achieved in the first quarter of 2005, due in part to the earlier close-out of certain high margin subdivisions. In Arizona, Home Gross Margins increased, primarily resulting from an increase in the average selling price of homes closed.

Future Home Gross Margins may be impacted by, among other things: (1) increased competition, which could affect our ability to raise home prices and maintain lower levels of incentives; (2) increases in the costs of subcontracted labor, finished lots, building materials, and other resources, to the extent that market conditions prevent the recovery of increased costs through higher selling prices; (3) adverse weather; (4) shortages of subcontractor labor, finished lots and other resources, which can result in delays in the delivery of homes under construction and increases in related cost of sales; (5) the impact of changes in demand for housing in our markets, particularly Nevada, California and Arizona; (6) the impact of us being able to sell mortgage loans on a timely basis given the increase in low or no down

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payment products being offered by HomeAmerican, as this may affect the timing of recognizing the profit on homes closed that do not qualify for the full accrual method as defined in SFAS 66; and (7) other general risk factors. See “ Forward-Looking Statements ” below.

Orders for Homes — 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 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, primarily attributable to continued strong demand for new homes in this market.

Cancellation Rate — We define home order “Cancellation Rate” as total cancelled home order contracts during a specified period of time as a percent of total home orders received during such time period. Our Cancellation Rates were 31.0% and 20.2% for the three months ended March 31, 2006 and 2005, respectively. Cancellation Rates during the first quarter of 2006, compared with the first quarter of 2005, increased significantly in certain markets, most notably Virginia, Arizona, California and Florida. The increases in Cancellation Rates in these markets has resulted primarily from what appears to be an exit of speculators from the new home 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 time of 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 prospective homebuyers who were unable to sell their existing home in a more competitive sales environment.

Backlog — We define “Backlog” as homes under contract but not yet 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 the previous discussion on “Homes Closed” and “Orders for Homes” for an explanation of the change in the number of homes in Backlog. Although the number of homes in Backlog decreased approximately 10% from March 31, 2005, higher average selling prices for homes in Backlog resulted in the estimated Backlog sales value increasing approximately 11% to $2.70 billion at March 31, 2006, compared with $2.43 billion at March 31, 2005.

Marketing — Marketing expenses (which include advertising, amortization of deferred marketing costs, model home expenses and other costs) increased $6.7 million to $29.0 million for the three months ended March 31, 2006, primarily due to increases of (1) $2.5 million in advertising expenses; (2) $2.3 million in amortization of deferred marketing costs; and (3) $1.5 million in salaries and benefits, primarily attributable to our increase in active subdivisions.

Commissions — Commission expenses (which include direct incremental commissions paid for closed homes) increased by 27% to $32.8 million for the 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 of 2006, compared with the first quarter of 2005.

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General and Administrative — General and administrative expenses were $72.2 million and $53.1 million during the three months ended March 31, 2006 and 2005, respectively. The $19.1 million increase primarily resulted from an increase of approximately $7.8 million in compensation and other employee benefit-related costs, as well as $1.3 million in office-related expenses associated with expanded operations in several of our 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 supervisory fees (see Note 10 to our Unaudited Consolidated Financial Statements).

Land Inventory

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


	March 31,		December 31,		March 31,
	2006		2005		2005
Arizona	$	288,025	$	260,968	$	258,775
California		535,850		493,101		305,283
Colorado		157,636		153,844		144,068
Delaware Valley		39,303		46,561		31,392
Florida		87,055		68,831		31,321
Illinois		29,124		33,421		37,096
Maryland		81,829		89,245		91,589
Nevada		382,769		336,982		240,809
Texas		11,884		15,511		25,151
Utah		90,044		62,191		37,076
Virginia		111,093		95,543		104,680

Total	$	1,814,612	$	1,656,198	$	1,307,240

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


	March 31,		December 31,		March 31,
	2006		2005		2005
Lots Owned
Arizona		7,686		7,385		8,563
California		3,622		3,367		2,610
Colorado		3,508		3,639		3,951
Delaware Valley		402		471		340
Florida		1,458		1,201		573
Illinois		380		430		537
Maryland		624		679		760
Nevada		4,139		4,055		4,085
Texas		365		471		769
Utah		1,295		964		836
Virginia		784		783		997

Total		24,263		23,445		24,021


Lots Controlled Under Option
Arizona		3,592		3,650		2,251
California		1,921		2,005		1,454
Colorado		2,064		2,198		1,630
Delaware Valley		1,277		1,283		583
Florida		2,686		3,202		3,406
Illinois		186		186		336
Maryland		1,148		1,173		1,043
Nevada		665		1,400		1,379
Texas		80		80		1,381
Utah		454		418		549
Virginia		3,231		3,224		2,883

Total		17,304		18,819		16,895


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


Non-refundable Option Deposits
Cash	$	44,108	$	48,157	$	39,049
Letters of Credit		19,240		23,142		20,525

Total Non-refundable Option Deposits	$	63,348	$	71,299	$	59,574

At March 31, 2006, we owned a total of 24,263 lots. Of these total lots owned, 9,953 were finished, of which 2,058 lots were subject to home sales contracts for which construction had not started. The remaining 14,310 lots were unfinished and in the process of being developed for future home sales.

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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 March 31,						Change
	2006			2005			Amount			%
Broker origination fees	$	2,080		$	2,168		$	(88	)		-4	%
Gains on sales of mortgage loans, net	$	13,027		$	7,898		$	5,129			65	%
Operating Profit	$	8,313		$	2,847		$	5,466			192	%
Principal amount of loans originated	$	526,231		$	305,193		$	221,038			72	%
Principal amount of loans brokered	$	157,243		$	213,352		$	(56,109	)		-26	%
Capture Rate		56	%		41	%		15	%
Including brokered loans		72	%		68	%		4	%
Mortgage product (% of loans originated)
Fixed rate		49	%		56	%		-7	%
Adjustable rate — interest only		44	%		32	%		12	%
Adjustable rate — other		7	%		12	%		-5	%

Financial services operating profits increased $5.5 million during the first quarter of 2006, compared with the same period in 2005. The higher operating profits primarily was due to an increase of $5.1 million in gains on sales of mortgage loans resulting from the 15% increase in the Capture Rate (as defined below), as well as an increase in the average principal amount of loans originated. Also impacting our gains on sales of mortgage loans was our ability to sell to third-party investors a significant amount of mortgage loans originated by HomeAmerican pursuant to an early purchase program, which was initiated during the fourth quarter of 2005.

The principal amount of originated mortgage loans increased 72% during the first quarter of 2006, compared with the same period in 2005. This increase primarily is due to the previously discussed increase in our Capture Rate, as well as an increase in the average principal amount of loans originated by HomeAmerican. The increase to our Capture Rate primarily is due to having more loan products offered through HomeAmerican, which include among other things, interest only loans and mortgage loans with low or no down payments, as well as increasing management focus to capture homebuyer mortgage loans rather than brokering these loans to third parties. The Capture Rate is defined as the number of mortgage loans originated by HomeAmerican for our homebuyers as a percent of total MDC home closings. Brokered loans, for which HomeAmerican received a fee, have been excluded from the computation of the Capture Rate.

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Forward Sales Commitment s — 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 HomeAmerican include forward sales securities commitments, private investor sales commitments and commitments to originate mortgage loans. HomeAmerican utilizes the sales commitments to manage the price risk on fluctuations in interest rates on our mortgage loans owned and 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 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. See “ Forward-Looking Statements ” below.

Other Operating Results

Interest Expens e — 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 10 to our Unaudited Consolidated Financial Statements. For a reconciliation of interest incurred, capitalized and expensed, see Note 7 to our Unaudited Consolidated Financial Statements.

Corporate General and Administrative Expense s — Corporate general and administrative expenses totaled $28.4 million and $30.3 million for the three months ended March 31, 2006 and 2005, respectively. The $1.9 million decrease primarily was attributable to an increase of $3.5 million in supervisory costs which are charged to the Homebuilding and Financial Services segments (see Note 10 to our Unaudited Consolidated Financial Statements) and a reduction in other general and administrative expenses, including professional services, information technology costs and travel expenses. These expense reductions were offset in part by the adoption of SFAS 123(R) in January 2006, which resulted in an increase of approximately $3.0 million in stock-based compensation expense.

Related Party Expenses — Related party expenses were $1.7 million and $100,000 during the three months ended March 31, 2006 and 2005, respectively. The 2006 increase resulted from our commitment to give a charitable contribution to the MDC/Richmond American Homes Foundation (the “Foundation”). During the 2005 first quarter, no charitable contribution commitment was made to the Foundation.

Income Taxes — Our effective income tax rate was 37.4% for the three months ended March 31, 2006, relatively consistent with the 37.7% effective income tax rate for the same period in 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 $16.6 million increase in income before income taxes.

LIQUIDITY AND CAPITAL RESOURCES

We use our liquidity and capital resources to (1) support our operations, including our homebuilding inventories; (2) provide working capital; and (3) provide mortgage loans for our homebuyers. Liquidity and capital resources are generated internally from operations and from external sources. Additionally, we have an effective shelf registration statement, which allows us to issue equity, debt or hybrid securities up to $1.0 billion, with $500 million earmarked for our medium-term senior notes program.

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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, 5 ¹ / 2 % senior notes due 2013, 5 ³ / 8 % medium-term senior notes due 2014 and 2015 and our homebuilding line of credit (the “Homebuilding Line”); and (3) current financing, primarily our mortgage lending line of credit (the “Mortgage Line”). Based upon our current capital resources and additional capacity available under existing credit agreements, we believe that our current financial condition is both balanced to fit our current operating structure and adequate to satisfy our current and near-term capital requirements, including the acquisition of land and expansion into new markets. We 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 in 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. On March 22, 2006, we amended and restated the Homebuilding Line, increasing the aggregate commitment amount to $1.250 billion, and extending the maturity date to March 21, 2011. The facility’s provision for letters of credit is available in the aggregate amount of $500 million. The amended and restated facility permits an increase in the maximum commitment amount to $1.750 billion upon 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 March 31, 2006, we had $100.0 million of borrowings and $65.1 million in letters of credit issued under the Homebuilding Line.

Mortgage Lending — Our Mortgage Line has a borrowing limit of $225 million with terms that allow for increases of up to $175 million in the borrowing limit to a maximum of $400 million, subject to concurrence by the participating banks. The terms of the Mortgage Line are set forth in the Third Amended and Restated Warehousing Credit Agreement dated as of October 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 March 31, 2006, $125.5 million was borrowed and an additional $15.2 million was collateralized and available to be borrowed. The Mortgage Line is cancelable upon 120 days notice.

General — The agreements for our bank lines of credit and the indentures for our senior notes require compliance with certain representations, warranties and covenants. We believe that we are in compliance with these 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 the year ended December 31, 2005 and in Part II, Item 6, of this Form 10-Q.

The financial covenants contained in the Homebuilding Line agreement include a leverage test and a consolidated tangible net worth test. Under the leverage test, generally, our consolidated indebtedness is not permitted to exceed 55% (subject to adjustment in certain circumstances) of the sum of consolidated indebtedness and our “adjusted consolidated tangible net worth,” as defined. Under the consolidated tangible net worth test, our “consolidated tangible net worth,” as defined, must not be less

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than (1) $1.360 billion; plus (2) 50% of “consolidated net income,” as defined, of the “borrower,” as defined, and the “guarantors,” as defined, earned after September 30, 2005; plus (3) 50% of the net proceeds or other consideration received for the issuance of capital stock after 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 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) $850 million; (2) 50% of the “quarterly consolidated net income” of “borrower” and the “guarantors” earned after September 30, 2005; and (3) 50% of the net proceeds or other consideration received for the issuance of capital stock after 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 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 Program

We did not repurchase any shares of our common stock during the three months ended March 31, 2006 or 2005.

Consolidated Cash Flow

During the 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 of 2006, primarily due to the purchase of property and equipment.

During the first quarter of 2005, we used $118.3 million of cash for operating activities. The 2005 operating cash use primarily was the result of a $278.6 million increase in our homebuilding inventories, other assets and home sales and other accounts receivable in conjunction with our expanded homebuilding operations, partially offset by income before depreciation and amortization and deferred income taxes of $93.3 million and an increase of $62.8 million of mortgage loans held in inventory.

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Financing activities used cash of $59.1 million in the 2005 first quarter, primarily due to repayments of our lines of credit totaling $60.7 million and dividends paid of $6.5 million, partially offset by cash proceeds of $8.0 million from the exercise of stock options.

Additionally, we used $4.7 million of cash in investing activities in the first three months of 2005, primarily due to the purchase of property and equipment.

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 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 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”) and letters of credit totaling approximately $421.5 million and $94.1 million, respectively, including $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.

We have made no material guarantees with respect to third-party obligations.

Contractual Obligations

Our contractual obligations have not changed materially from those reported in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 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.

We continue to follow our disciplined strategy of 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.

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 in the course of presentations about the Company and conference calls in connection with quarterly earnings releases, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our business, financial condition, results of 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 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 those expressed or implied by the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be 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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes from the 2005 Annual Report on Form 10-K related to the Company’s exposure to market risk from interest rates.

Item 4. Controls and Procedures

(a) Conclusion regarding the effectiveness of disclosure controls and procedures — An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was performed under the supervision, and with the participation, of our management, including the Chief Executive Officer and the Chief Financial Officer. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective at March 31, 2006.

(b) Changes in internal control over financial reporting — There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

PART II

Item 1 . Legal Proceedings

The Company and certain of its subsidiaries and affiliates have been named as defendants in various claims, complaints and other legal actions arising in the 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. (“RAH Colorado”), alleging that RAH Colorado violated the terms of Colorado’s general permit for discharges of stormwater from construction activities at two of RAH Colorado’s development sites. In its complaint, the EPA sought civil penalties against 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 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 RAH Colorado affiliates in Virginia, Maryland, Arizona and California, and claims to have found additional stormwater permit violations. 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 first quarter of 2006. Additionally, there were no sales of unregistered equity securities during the first quarter of 2006.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

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

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Item 6 . Exhibits

(a) Exhibit:


	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. 2 dated as of 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 filed January 9, 2006). *

	10.1		Amendment to the M.D.C. Holdings, Inc. Executive Officer Performance-Based Compensation Plan, dated December 30, 2005 (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed January 6, 2006). *

	10.2		Amended and Restated Distribution Agreement, dated as of January 9, 2006, among 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 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 on March 28, 2006 (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed March 29, 2006). *

	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 by reference.

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SIGNATURE

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


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

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EXHIBIT INDEX


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).

4.1		Amendment No. 2 dated as of 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 filed January 9, 2006). *

10.1		Amendment to the M.D.C. Holdings, Inc. Executive Officer Performance-Based Compensation Plan, dated December 30, 2005 (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed January 6, 2006). *

10.2		Amended and Restated Distribution Agreement, dated as of January 9, 2006, among 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 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 on March 28, 2006 (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed March 29, 2006). *

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 by reference.

Exhibit 3.1

CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION
OF
M.D.C. HOLDINGS, INC.

M.D.C. Holdings, Inc. (the “Corporation”), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify as follows:

FIRST: That on December 19, 2005, at a meeting of the Board of Directors of the Corporation, resolutions were duly adopted proposing and declaring advisable the following amendment to the Corporation’s Certificate of Incorporation, as amended (the “Amendment”):

Article Fourth, Paragraph A of the Corporation’s Certificate of Incorporation, is hereby amended to read in its entirety, as follows:

A. The total number of shares of capital stock which the Corporation shall have ability to issue is 275,000,000 shares consisting of 250,000,000 shares of Common Stock, $.01 par value (the “Common Stock”), and 25,000,000 shares of Preferred Stock, $.01 par value (the “Preferred Stock”).

SECOND: That upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at the Annual Meeting of Shareowners of the Corporation held on April 24, 2006, a majority of all outstanding shares entitled to vote thereon voted in favor of the Amendment.

THIRD: That the Amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

{Signatures on next page.}

Page 1 of 2

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment of the Certificate of Incorporation of M.D.C. Holdings, Inc. to be signed by the undersigned, duly authorized officers of the Corporation, this 27th day of April, 2006.


		M.D.C. HOLDINGS, INC.

		By:	/s/ Michael Touff

		Name:	Michael Touff
		Title:	Senior Vice President and
			General Counsel
ATTEST:

	/s/ Joseph H. Fretz

Name:	Joseph H. Fretz
Title:	Secretary

Page 2 of 2

CERTIFICATE OF AMENDMENT

TO THE

CERTIFICATE OF INCORPORATION

M.D.C. HOLDINGS, INC.

Pursuant to Section 242 of the General
Corporation Law of the State of Delaware

M.D.C. HOLDINGS, INC., a Delaware corporation (the “Corporation”), does hereby certify as follows:

FIRST: A new Article Eight is hereby added to the Certificate of Incorporation of the Corporation and it shall read in its entirety as follows:

To the fullest extent permitted by the Delaware General Corporation Law as the same exists or may hereafter be amended, a director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.

SECOND: The existing Article Eight and all subsequent Articles are hereby sequentially renumbered to reflect the insertion of the new Article Eight.

THIRD: The foregoing amendments were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, M.D.C. Holdings, Inc. has caused this Certificate of Amendment to be executed in
its corporate name this 30 ^th day of June, 1987.


		M.D.C. HOLDINGS, INC.

		By	/s/ David D. Mandarich

			David D. Mandarich
			President
ATTEST:

By	/s/ Marshall A. Abrahams

	Marshall A. Abrahams
	Secretary

CERTIFICATE OF INCORPORATION

M.D.C. HOLDINGS, INC.

FIRST: The name of the Corporation is M.D.C. Holdings, Inc.

SECOND: The address of the registered office of the Corporation in the state of Delaware is 4305 Lancaster Pike, in the city of Wilmington, county of New Castle. The name of the Corporation’s registered agent at that address is Corporation Service Company.

THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware as set forth in Title 8 of the Delaware Code (the “GCL”).

FOURTH: A. The total number of shares of capital stock which the Corporation shall have authority to issue is 125,000,000 shares, consisting of 100,000,000 shares of Common Stock, $.01 par value (the “Common Stock”), and 25,000,000 shares of Preferred Stock, $.01 par value (the “Preferred Stock”).

B. Shares of Preferred Stock may be issued from time to time in one or more classes or series as may be determined from time to time by the Board of Directors of the Corporation (the “Board of Directors”), each such class or series to be distinctly designated. Except in respect of the particulars fixed by the Board of Directors for classes or series provided for by the Board of Directors as permitted hereby, all shares of Preferred Stock shall be of equal rank and shall be identical. All shares of any one series of Preferred Stock so designated by the Board of Directors shall be alike in every particular, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative. The voting rights, if any, of each such class or series and the preferences and relative, participating, optional and other special rights of each such class or series and the qualifications, limitations and restrictions thereof, if any, may differ from those of any and all other classes or series at any time outstanding; and the Board of Directors of the Corporation is hereby expressly granted authority to fix, by resolutions duly adopted prior to the issuance of any shares of a particular class or series of Preferred Stock so designated by the Board of Directors, the voting powers of stock of such class or series, if any, and the designations, preferences and relative, participating, optional and other special rights and the qualifications, limitations and restrictions of such class or series, including, but without limiting the generality of the foregoing, the following:

(1) The distinctive designation of, and the number of shares of Preferred Stock which shall constitute, such class or series, and such number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by action of the Board of Directors;

(2) The rate and time at which, and the terms and conditions upon which, dividends, if any, on shares of Preferred Stock of such class or series shall be paid, the extent of the preference or relation, if any, of such dividends or the dividends payable on any other class or classes or of any series of the same or any other class or classes of stock and whether such dividends shall be cumulative or non-cumulative;

(3) The right, if any, of the holders of shares of Preferred Stock of such class or series to convert the same into, or exchange the same for, shares of any other class or classes or of any

series of the same or any other class or classes of stock and the terms and conditions of such conversion or exchange;

(4) Whether or not shares of Preferred Stock of such class or series shall be subject to redemption, and the redemption price or prices and the time or times at which, and the terms and conditions upon which, shares of Preferred Stock of such class or series may be redeemed;

(5) The rights, if any, of the holders of shares of Preferred Stock of such class or series upon the voluntary or involuntary liquidation of the Corporation;

(6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the shares of Preferred Stock of such class or series; and

(7) The voting powers, if any, of the holders of shares of such class or series of Preferred Stock.

FIFTH: The name and mailing address of the Sole Incorporator are as follows:


		Name		Mailing Address
		Spencer I. Browne		3600 South Yosemite Street
				Suite 900
				Denver, Colorado 80237

SIXTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of the Board of Directors and stockholders:

1. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.

2. The Board of Directors shall consist of not less than 3 nor more than 15 Directors. The exact number of Directors shall be determined from time to time by resolution adopted by the affirmative vote of a majority of the Board of Directors. The Directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of Directors constituting the entire Board of Directors.

3. Upon, or as soon as practicable following, the filing of this Certificate of Incorporation, Class I Directors shall be elected for a one-year term, Class II Directors for a two-year term and Class III Directors for a three-year term. At the 1986 annual meeting of stockholders and at each succeeding annual meeting of stockholders, successors to the class of Directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of Directors is changed in accordance with the terms of this Certificate of Incorporation any increase or decrease shall be apportioned among the classes so as to maintain the number of Directors in each class as nearly equal as possible, and any additional Director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of Directors shorten the term of any incumbent Director. A Director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to the director’s prior death, resignation, disqualification or removal from office. The stockholders shall not have the right to remove any one or all of the Directors except (i) for cause upon the affirmative vote of the holders of a majority of the votes entitled to be cast by the holders of all outstanding shares of Voting Stock (as hereafter defined) voting together as a single class or (ii) without cause upon the affirmative vote of the holders of eighty percent (80%) of the votes entitled to be cast by the holders of all outstanding shares of Voting Stock voting together as a single class. Any vacancy on the Board of Directors that results from a newly created directorship may be filled by the affirmative vote of a majority of the Board of Directors

then in office, and any other vacancy occurring on the Board of Directors may be filled by a majority of the Directors then in office, although less than a quorum, or by a sole remaining Director. Any Director elected to fill a vacancy not resulting from an increase in the number of Directors shall have the same remaining term as that of such Director’s predecessor.

4. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock shall have the right, voting separately by class or series to elect Directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation applicable thereto (including the resolutions adopted by the Board of Directors pursuant to Section B of Article FOURTH), and such Directors so elected shall not be divided into classes pursuant to Paragraph 2 of this Article SIXTH unless expressly provided by such terms.

5. Election of Directors need not be by written ballot unless the By-Laws so provide.

6. The Board of Directors may from time to time determine whether, to what extent, at what times and places and under what conditions and regulations the accounts, books and papers of the Corporation, or any of them, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any account, book or document of the Corporation, except as and to the extent expressly provided by law with reference to the right of stockholders to examine the original or duplicate stock ledger, or otherwise expressly provided by law, or except as expressly authorized by resolution of the Board of Directors.

7. Except to the extent prohibited by law, the Board of Directors shall have the right (which, to the extent exercised, shall be exclusive) to establish the rights, powers, duties, rules and procedures that from time to time shall govern the Board of Directors and each of its members, including without limitation the vote required for any action by the Board of Directors, and that from time to time shall affect the directors’ power to manage the business and affairs of the Corporation; and no By-Law shall be adopted by stockholders which shall impair or impede the implementation of the foregoing.

8. No action shall be taken by stockholders of the Corporation except at an annual or special meeting of stockholders of the Corporation and the right of stockholders to act by written consent in lieu of a meeting is specifically denied.

SEVENTH: Subject to the power of the stockholders of the Corporation to amend, adopt or repeal the By-Laws of the Corporation, the Board of Directors of the Corporation shall have the power to amend, adopt or repeal the By-Laws of the Corporation.

EIGHTH: A. In addition to any affirmative vote required by law or this Certificate of Incorporation or the By-Laws of the Corporation, and except as otherwise expressly provided in Section B of this Article EIGHTH, a Business Combination (as hereafter defined) with, or proposed by or on behalf of, any Interested Stockholder (as hereafter defined) or any Affiliate (as hereafter defined) or Associate (as hereafter defined) of any Interested Stockholder or any person who thereafter would be an Affiliate or Associate of such Interested Stockholder shall require the affirmative vote of not less than eighty percent (80%) of the votes entitled to be cast by the holders of all the then outstanding shares of Voting Stock (as hereafter defined), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage or separate class vote may be specified, by law or in any agreement with any national securities exchange or otherwise.

B. The provisions of Section A of this Article EIGHTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote, if any, as is required by law or any other provision of this Certificate of Incorporation, the By-Laws of the Corporation, or any agreement with any national securities exchange, if all of the conditions specified in either of the following Paragraphs 1 or 2 are met or, in the case of a Business Combination not involving the payment of consideration to the holders of the Corporation’s outstanding Capital Stock (as hereafter defined), if the condition specified in the following Paragraph 1 is met:

1. The Business Combination shall have been approved, either specifically or as a transaction which is within an approved category of transactions, by a majority (whether such approval is made prior or subsequent to the acquisition of, or announcement or public disclosure of the intention to acquire, beneficial ownership of the Voting Stock that caused the Interested Stockholder to become an Interested Stockholder) of the Continuing Directors (as hereafter defined).

2. All of the following conditions shall have been met:

(a) The aggregate amount of cash and the Fair Market Value (as hereafter defined), as of the date of the consummation of the Business Combination, of consideration other than cash to be received per share by the holders of shares of Common Stock in such Business Combination shall be at least equal to the highest amount determined under clauses (i) and (ii) below:

(i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by or on behalf of the Interested Stockholder for any share of Common Stock in connection with the acquisition by the Interested Stockholder of beneficial ownership of shares of Common Stock (x) within the two-year period immediately prior to the first public announcement of the proposed Business Combination (the “Announcement Date”) or (y) in the transaction in which it became an Interested Stockholder, whichever is higher, in either case as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to the Common Stock; and

(ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (the “Determination Date”), whichever is higher, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to the Common Stock.

(b) The aggregate amount of cash and the Fair Market Value, as of the date of the consummation of the Business Combination, of consideration other than cash to be received per share by holders of shares of any class or series of outstanding Capital Stock, other than Common Stock, shall be at least equal to the highest amount determined under clauses (i), (ii) and (iii) below:

(i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by or on behalf of the Interested Stockholder for any share of such class or series of Capital Stock in connection with the acquisition by the Interested Stockholder of beneficial ownership of shares of such class or series of Capital Stock (x) within the two-year period immediately prior to the Announcement Date or (y) in the transaction in which it became an Interested Stockholder, whichever is higher, in either case as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to such class or series of Capital Stock;

(ii) the Fair Market Value per share of such class or series of Capital Stock on the Announcement Date or on the Determination Date, whichever is higher, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to such class or series of Capital Stock; and

(iii) (if applicable) the highest preferential amount per share to which the holders of shares of such class or series of Capital Stock would be entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, regardless of whether the Business Combination to be consummated constitutes such an event.

The provisions of this Paragraph 2 shall be required to be met with respect to every class or series of outstanding Capital Stock, whether or not the Interested Stockholder has previously acquired beneficial ownership of any shares of a particular class or series of Capital Stock.

(c) The consideration to be received by holders of a particular class or series of outstanding Capital Stock shall be in cash or in the same form as previously has been paid by or on behalf of the Interested Stockholder in connection with its direct or indirect acquisition of beneficial ownership of shares of such class or series of Capital Stock. If the consideration so paid for shares of any class or series of Capital Stock varied as to form, the form of consideration for such class or series of Capital Stock shall be either cash or the form used to acquire beneficial ownership of the largest number of shares of such class or series of Capital Stock previously acquired by the Interested Stockholder.

(d) After the Determination Date and prior to the consummation of such Business Combination: (i) except as approved by a majority of the Continuing Directors, there shall have been no failure to declare and pay at the regular date therefore any full quarterly dividends (whether or not cumulative) payable in accordance with the terms of any outstanding Capital Stock; (ii) there shall have been no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any stock split, stock dividend or subdivision of the Common Stock), except as approved by a majority of the Continuing Directors; (iii) there shall have been an increase in the annual rate of dividends paid on the Common Stock as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction that has the effect of reducing the number of outstanding shares of Common Stock, unless the failure so to increase such annual rate is approved by a majority of the Continuing Directors; and (iv) except as approved by a majority of the Continuing Directors, such Interested Stockholder shall not have become the beneficial owner of any additional shares of Capital Stock except as part of the transaction that results in such Interested Stockholder becoming an Interested Stockholder and except in a transaction that, after giving effect thereto, would not result in any increase in the Interested Stockholder’s percentage beneficial ownership of any class or series of Capital Stock.

(e) After the Determination Date, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder of the Corporation), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise.

(f) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (the “Act”), or any subsequent provisions replacing such Act, rules or regulations, shall be mailed to all stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). The proxy or information statement shall contain on the first page thereof, in a prominent place, any statement as to the advisability (or inadvisability) of the Business Combination that the Continuing Directors, or any of them, may choose to make and, if deemed advisable by a majority of the Continuing Directors, the opinion of an investment banking firm selected by a majority of the Continuing Directors as to the fairness (or not) of the terms of the Business Combination from a financial point of view to the holders of the outstanding shares of Capital Stock other than the Interested Stockholder and its Affiliates or Associates, such investment banking firm to be paid a reasonable fee for its services by the Corporation.

(g) Such Interested Stockholder shall not have made any major change in the Corporation’s business or equity or debt capital structure without the approval of a majority of the Continuing Directors.

C. For the purposes of this Certificate of Incorporation:

1. The term “Business Combination” shall mean:

(a) any merger or consolidation of the Corporation or any Subsidiary (as hereafter defined) with (i) any Interested Stockholder or (ii) any other company (whether or not itself an Interested Stockholder) which is or after such merger or consolidation would be an Affiliate or Associate of an Interested Stockholder;

(b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition or security arrangement, investment, loan, advance, guarantee, agreement to purchase, agreement to pay, extension of credit, joint venture participation or other arrangement (in one transaction or a series of transactions) with or for the benefit of any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder involving any assets, securities or commitments of the Corporation, any Subsidiary or any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder (except for any arrangement, whether as employee, consultant or otherwise pursuant to which any Interested Stockholder or any Affiliate or Associate thereof shall, directly or indirectly, have any control over the responsibility for the management of any aspect of the business or affairs of the Corporation), which together with all other such arrangements (including all contemplated future events), has an aggregate Fair Market Value and/or involves aggregate commitments of $15,000,000 or more or constitutes more than 15 percent of the book value of the total assets (in the case of transactions involving assets or commitments other than capital stock) or 15 percent of the stockholders’ equity (in the case of transactions in capital stock) of the entity in question (the “Substantial Part”), as reflected in the most recent fiscal year-end consolidated balance sheet of such entity existing at the time the stockholders of the Corporation would be required to approve or authorize the Business Combination involving the assets, securities and/or commitments constituting any Substantial Part;

(c) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation or for any amendment to the Corporation’s By-Laws;

(d) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or otherwise involving an Interested Stockholder) that has the effect, directly or indirectly, of increasing the proportionate share of any class or series of Capital Stock, or any securities convertible into Capital Stock or into equity securities of any Subsidiary, that is beneficially owned by any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or

(e) any agreement, contract or other arrangement providing for any one or more of the actions specified in the foregoing clauses (a) to (d).

2. The term “Capital Stock” shall mean all capital stock of the Corporation authorized to be issued from time to time under Article FOURTH of this Certificate of Incorporation, and the term “Voting Stock” shall mean all Capital Stock which by its terms may generally be voted on matters submitted to stockholders of the Corporation.

3. The term “person” shall mean any individual, firm, company or other entity and shall include any group comprised of any person and any other person with whom such person or any Affiliate or Associate of such person has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of Capital Stock.

4. The term “Interested Stockholder” shall mean any person (other than the Corporation or any Subsidiary and other than any profit-sharing, employee stock ownership or other employee benefit plan of the Corporation or any Subsidiary or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who (a) is the beneficial owner of Voting Stock representing ten percent (10%) or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock; or (b) is an Affiliate or Associate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner of Voting Stock representing ten percent (10%) or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock.

5. A person shall be a “beneficial owner” of any Capital Stock (a) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; (b) which such person or any of its Affiliates or Associates has, directly or indirectly, (i) the right to acquire (whether such right is exercisable immediately or subject only to the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding; or (c) which is beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Capital Stock. For the purposes of determining whether a person is an Interested Stockholder pursuant to Paragraph 4 of this Section C, the number of shares of Capital Stock deemed to be outstanding shall include shares deemed beneficially owned by such person through application of this Paragraph 5 of this Section C, but shall not include any other shares of Capital Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.

6. The terms “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Act as in effect on the date of this Certificate of Incorporation (the term “registrant” in Rule 12b-2 meaning in this case this Corporation).

7. The term “Subsidiary” means any company of which a majority of any class of equity security is beneficially owned by the Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in Paragraph 4 of this Section C, the term “Subsidiary” shall mean only a company of which a majority of each class of equity security is beneficially owned by the Corporation.

8. The term “Continuing Director” means any member of the Board of Directors, while such person is a member of the Board of Directors, who is not an Affiliate or Associate or representative of the Interested Stockholder and was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a Continuing Director, while such successor is a member of the Board of Directors, who is not an Affiliate or Associate or representative of the Interested Stockholder and is recommended or elected to succeed the Continuing Director by a majority of Continuing Directors. Notwithstanding any provision of this Certificate of Incorporation to the contrary, all members of the Board of Directors who were initially elected by the Sole Incorporator shall be deemed to be Continuing Directors.

9. The term “Fair Market Value” means (a) in the case of cash, the amount of such cash; (b) in the case of stock, the highest closing sale price, during the 30-day period immediately preceding the date in question, of a share of such stock on the Composite Tape for New York Stock Exchange, Inc. Listed Stocks, or, if such stock is not quoted on the Composite Tape on the New York Stock Exchange, Inc., or, if such stock is not listed on the Composite Tape on such exchange, on the principal United States securities exchange registered under the Act on which such stock is listed or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock, during the 30-day period preceding the date in question, on the National Association of Securities Dealers, Inc. Automated Quotation System or any similar

system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Continuing Directors in good faith; and (c) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined in good faith by a majority of the Continuing Directors.

10. In the event of any Business Combination in which this Corporation survives, the phrase “consideration other than cash to be received” as used in Paragraphs 2(a) and 2(b) of Section B of this Article EIGHTH shall include the shares of Common Stock and/or the shares of any other class or series of Capital Stock retained by the holders of such shares.

D. A majority of the Continuing Directors shall have the power and duty to determine for the purposes of this Article EIGHTH, on the basis of information known to them after reasonable inquiry, all questions arising under this Article EIGHTH including, without limitation, (a) whether a person is an Interested Stockholder, (b) the number of shares of Capital Stock or other securities beneficially owned by any person, (c) whether a person is an Affiliate or Associate of another, (d) whether a Proposed Action (as hereafter defined) is with, or proposed by, or on behalf of an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder, (e) whether the assets that are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $15,000,000 or more and (f) whether the assets or securities that are the subject of any Business Combination constitute a Substantial Part. Any such determination made in good faith shall be binding and conclusive on all parties.

E. Nothing contained in this Article EIGHTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law.

F. The fact that any Business Combination complies with the provisions of Section B of this Article EIGHTH shall not be construed to impose any fiduciary duty, obligation or responsibility on the Board of Directors, or any member thereof, to approve such Business Combination or recommend its adoption or approval to the stockholders of the Corporation, nor shall such compliance limit, prohibit or otherwise restrict in any manner the Board of Directors, or any member thereof, with respect to evaluations of or actions and responses taken with respect to such Business Combination.

G. For the purposes of this Article EIGHTH, a Business Combination or any proposal to amend, repeal or adopt any provision of this Certificate of Incorporation inconsistent with this Article EIGHTH (collectively, the “Proposed Action”) is presumed to have been proposed by, or on behalf of, an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder or a person who thereafter would become such if (1) after the Interested Stockholder became such, the Proposed Action is proposed following the election of any director of the Corporation who, with respect to such Interested Stockholder, would not qualify to serve as a Continuing Director or (2) such Interested Stockholder, Affiliate, Associate or person votes for or consents to the adoption of any such Proposed Action, unless as to such Interested Stockholder, Affiliate, Associate or person a majority of the Continuing Directors makes a good faith determination that such Proposed Action is not proposed by or on behalf of such Interested Stockholder, Affiliate, Associate or person, based on information known to them after reasonable inquiry.

NINTH: Notwithstanding any other provisions of this Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage or separate class vote may be specified by law, this Certificate of Incorporation or the By-Laws of the Corporation), the affirmative vote of the holders of not less than eighty percent (80%) of the votes entitled to be cast by the holders of all the then outstanding shares of Voting Stock, voting together as a single class, shall be required to amend or repeal, or adopt any provisions of this Certificate of Incorporation inconsistent with Articles SIXTH, SEVENTH, EIGHTH and NINTH; provided, however, that, with respect to Articles SIXTH, SEVENTH and EIGHTH, such eighty percent

(80%) vote shall not be required for, any such amendment, repeal or adoption unanimously recommended by all the Continuing Directors, provided seventy-five percent (75%) of the members of the Board of Directors then in office are persons who would be eligible to serve as Continuing Directors.

TENTH: Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the state of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of the GCL or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of the GCL, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.

ELEVENTH: Subject to the provisions of this Certificate of Incorporation, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or thereafter perscribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

I, THE UNDERSIGNED, being the incorporator herebefore named, for the purpose of forming a corporation pursuant to the GCL, do make this Certificate, hereby declaring and certifying that this is my act and deed and the facts stated herein are true, and accordingly have hereunto set my hand this 17 ^th day of May 1985.


		/s/ Spencer I. Browne

		Spencer I. Browne
		Sole Incorporator

Exhibit 12

M.D.C. HOLDINGS, INC.
RATIO OF EARNINGS TO FIXED CHARGES


	Three Months to March 31,						Year Ended December 31,
(dollars in thousands)	2006			2005			2005			2004			2003			2002			2001
Earnings	$	167,582		$	146,114		$	858,443		$	675,748		$	389,940		$	301,072		$	286,228

Fixed Charges	$	20,324		$	13,706		$	67,459		$	43,011		$	43,977		$	27,453		$	28,782

Earnings to Fixed Charges		8.25			10.66			12.73			15.71			8.87			10.97			9.94


Earnings:

Pretax Earnings from Continuing Operations		152,481			135,929			808,763			636,914			348,223			274,044			255,387

Add Fixed Charges		20,324			13,706			67,459			43,011			43,977			27,453			28,782
Less capitalized interest		(14,841	)		(10,815	)		(51,872	)		(32,879	)		(26,779	)		(21,116	)		(22,498	)
Add amortization of previously capitalized interest		9,618			7,294			34,093			28,702			24,519			20,691			24,557


Total Earnings		167,582			146,114			858,443			675,748			389,940			301,072			286,228


Fixed Charges:

Homebuilding and corporate interest expense		0			0			0			0			0			0			0
Mortgage lending interest expense		1,964			484			3,850			1,946			1,967			1,822			2,666
Interest component of rent expense		2,401			1,516			7,369			5,462			3,897			2,812			2,253
Amortization and expensing of debt expenses (1)		1,118			891			4,368			2,724			11,334			1,703			1,365
Capitalized interest		14,841			10,815			51,872			32,879			26,779			21,116			22,498


Total Fixed Charges		20,324			13,706			67,459			43,011			43,977			27,453			28,782


(1)		2003 includes $9,315 of expenses related to debt redemption.

Exhibit 31.1

CERTIFICATIONS

I, Larry A. Mizel, certify that:

	1.		I have reviewed this report on Form 10-Q of M.D.C. Holdings, Inc.;

	2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: May 10, 2006		/s/ Larry A. Mizel

		Chairman of the Board of Directors
		and Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

I, Paris G. Reece III, certify that:

	1.		I have reviewed this report on Form 10-Q of M.D.C. Holdings, Inc.;

	2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: May 10, 2006		/s/ Paris G. Reece III

		Executive Vice President,
		Chief Financial Officer and Principal Accounting Officer

Exhibit 32.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer of M.D.C. Holdings, Inc. (the “Company”) hereby certifies that the Report on Form 10-Q of the Company for the period ended March 31, 2006, accompanying this certification, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: May 10, 2006		/s/ Larry A. Mizel

		Larry A. Mizel
		Chief Executive Officer

The foregoing certification is being furnished solely pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and Section 1350 of Title 18, United States Code, and is not being filed as part of the report or as a separate disclosure document.

Exhibit 32.2

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Financial Officer of M.D.C. Holdings, Inc. (the “Company”) hereby certifies that the Report on Form 10-Q of the Company for the period ended March 31, 2006, accompanying this certification, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: May 10, 2006		/s/ Paris G. Reece III

		Paris G. Reece III
		Chief Financial Officer