UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2004

OR

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.

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

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

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

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

As of November 3, 2004, 32,218,000 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 SEPTEMBER 30, 2004

INDEX

(i) 

M.D.C. HOLDINGS, INC.

See notes to condensed consolidated financial statements.

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

See notes to condensed consolidated financial statements.

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M.D.C. HOLDINGS, INC.

See notes to condensed consolidated financial statements.

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M.D.C. HOLDINGS, INC.

See notes to condensed consolidated financial statements.

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M.D.C. HOLDINGS, INC.

A. Presentation of Financial Statements

     The consolidated financial statements of M.D.C. Holdings, Inc. (“MDC” or the “Company,” which refers to M.D.C. Holdings, Inc. and its subsidiaries) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. These statements reflect all adjustments (including all normal recurring accruals) which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of MDC as of September 30, 2004 and for all periods presented. These statements should be read in conjunction with MDC’s financial statements and notes thereto included in MDC’s Annual Report on Form 10-K for its fiscal year ended December 31, 2003. Certain reclassifications have been made in the 2003 financial statements to conform to the classifications used in the current year.

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

B. Earnings Per Share

     The basic and diluted earnings per share calculations are shown below (in thousands, except per share amounts). Prior period earnings per share and weighted-average shares outstanding have been restated to reflect the effect of a 10% stock dividend declared on February 23, 2004.

C. Stockholders’ Equity

     Stock Repurchase Program — In March 2003, the MDC board of directors authorized the repurchase of up to an additional 1,350,000 shares of MDC common stock, bringing the total authorization under the Company’s stock repurchase program to 4,350,000 shares. The Company repurchased a total of 119,200 shares of MDC common stock in the 2004 second quarter and no shares in the first or third quarters, bringing the total shares repurchased to 2,699,600 and leaving 1,650,400 shares

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available to be repurchased as of September 30, 2004 under this program. The per share prices, including commissions, for the 119,200 shares repurchased averaged $57.15. At September 30, 2004, the Company held 72,000 shares of treasury stock with an average purchase price of $57.16 per share.

     Stock Dividend — On February 23, 2004, MDC’s board of directors declared a 10% stock dividend that was distributed on March 23, 2004 to shareowners of record on March 8, 2004. In accordance with the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings per Share,” basic and diluted net income per share amounts, weighted-average shares outstanding, and dividends declared per share have been restated for all periods affected to reflect the effect of this stock dividend.

     Stock-Based Compensation — The Company has elected to account for stock-based compensation using the intrinsic value method as prescribed by Accounting Principles Board Opinion (“APB”) No. 25 and related interpretations. Stock options are granted at an exercise price that is not less than the fair market value of MDC’s common stock at the date of grant and, therefore, the Company recorded no compensation expense in the determination of net income for the three and nine months ended September 30, 2004 and 2003. The following table illustrates the effect on net income and earnings per share if the fair value method prescribed by Statement of Financial Accounting Standards (“SFAS”) No. 123, as amended by SFAS No. 148, had been applied to all outstanding and unvested awards in the three and nine month periods ended September 30, 2004 and 2003 (in thousands, except per share amounts).

D. Interest Activity

     The Company capitalizes interest incurred on its corporate and homebuilding debt during the period of active development and through the completion of construction of its homebuilding inventories. Corporate and homebuilding interest incurred but not capitalized is reported as interest expense. Interest incurred by the financial services segment is charged to interest expense, which is deducted from interest income and reported as net interest income in Note F.

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

E. Warranty Reserves

     Warranty reserves are reviewed quarterly, using historical data and other relevant information, to determine the reasonableness and adequacy of both the reserve and the per unit reserve amount originally included in cost of sales, as well as the timing of the reversal of the reserve. Warranty reserves are included in corporate and homebuilding accrued liabilities in the condensed consolidated balance sheets, and totaled $61,269,000 and $51,068,000, respectively, at September 30, 2004 and December 31, 2003. Warranty expense was $10,209,000 and $28,283,000 for the three and nine months ended September 30, 2004, compared with $10,422,000 and $28,576,000 for the same periods in 2003. Reserves carried over from prior years primarily are the result of the Company’s volume of homes closed increasing by over 200% in the last ten years, giving rise to continuing warranty reserves that exceed current expenditures. In addition, the carryover includes additional qualified settlement fund warranty reserves created pursuant to litigation settled in 1996. Warranty activity for the nine months ended September 30, 2004 is shown below (in thousands).

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F. Information on Business Segments

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