UNITED STATES

---

FORM 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

For the fiscal year ended December 31, 2004

OR

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

For the Transition period from                      to                    

Commission file number 1-08951

---

M.D.C. HOLDINGS, INC.

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

     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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). þ

     The aggregate market value of voting stock held by non-affiliates of the Registrant was $1.495 billion. Computation is based on the closing sales price of $48.93 per share of such stock on the New York Stock Exchange on June 30, 2004, the last business day of the Registrant’s most recently completed second quarter.

     As of January 31, 2005, the number of shares outstanding of Registrant’s common stock was 43,328,000.

DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K is incorporated by reference from the Registrant’s 2004 definitive proxy statement to be
filed with the Securities and Exchange Commission no later than 120 days after the end of the Registrant’s fiscal year.

 

M.D.C. HOLDINGS, INC.

FORM 10-K

For the Year Ended December 31, 2004
_______________

Table of Contents

(i)

 

M.D.C. HOLDINGS, INC.

FORM 10-K

PART I

Item 1. Business.

     (a) General Development of Business

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

     The following is a summary of our history:

     (b) Available Information

     Our website is located at www.richmondamerican.com. This Form 10-K and all other reports filed by the Company with the Securities and Exchange Commission (“SEC”) can be accessed, free of charge, through our website as soon as reasonably practicable after the report is electronically filed with the SEC, at http://www.investorrelations.richmondamerican.com/edgar.cfm.

     (c) Financial Information About Industry Segments

     Note B to the consolidated financial statements contains information regarding our business segments for each of the three years ended December 31, 2004, 2003 and 2002.

1

     (d) Narrative Description of Business

     Our business consists of two segments, homebuilding and financial services. In our homebuilding segment, our homebuilding subsidiaries build and sell primarily single-family detached homes, although we build some townhomes in Virginia and Maryland. Homes are designed and built to meet local customer preferences. We are the general contractor for all of our projects and retain subcontractors for site development and home construction. Our financial services segment consists of the operations of HomeAmerican and American Home Insurance. HomeAmerican is a full service mortgage lender with offices located in each of our markets and originates or brokers mortgage loans for approximately 75% of our homebuyers. As a result, HomeAmerican is an integral part of our business.

     The base prices for our homes primarily range from $100,000 to $600,000, although we also build homes with base prices above $1,400,000. The average sales price of our homes closed in 2004 and 2003 was $283,400 and $254,300, respectively. We maintain a balanced product offering in each of our markets, focusing on high quality design and construction of homes in most price points, targeting the largest homebuyer segments within a given market, which generally is the first-time and first-time move-up buyer. As a result, more than 80% of our homebuyers fall into these two categories.

     When opening a new homebuilding project, we generally acquire no more than a two-year supply of lots to avoid overexposure to any single sub-market. When we acquire finished lots, we prefer using option contracts or paying in phases with cash. We also acquire entitled land for development into finished lots when we determine that the risk is justified. Our Asset Management Committees, composed of members of MDC’s senior management, generally meet weekly to review all proposed land acquisitions and takedowns of lots under option. Additional information about our land acquisition practices may be found in the Homebuilding Segment, Land Acquisition and Development section.

Homebuilding Segment.

     General. MDC, whose subsidiaries build homes under the name “Richmond American Homes,” is one of the largest homebuilders in the United States. We provide mortgage financing, primarily for our homebuyers, through our wholly owned subsidiary HomeAmerican. We are a major regional homebuilder with a significant presence in some of the country’s best housing markets. We are the largest homebuilder in Colorado; among the top five homebuilders in Northern Virginia, suburban Maryland, Phoenix, Tucson, Las Vegas and Salt Lake City; and among the top ten homebuilders in Jacksonville, Northern California and Southern California. We also have established operating divisions in Dallas/Fort Worth, Houston, West Florida, Philadelphia/Delaware Valley and Chicago. We believe a significant presence in these markets enables us to compete effectively for homebuyers, land acquisitions and subcontractor labor.

     Our operations are diversified geographically, as shown in the following table of home sales revenues by state for the years 2002 through 2004 (dollars in thousands).

     The financial information required by Item 1 is contained in Note B to the accompanying consolidated financial statements.

     Housing. We build homes in a number of basic series, each designed to appeal to a different segment of the homebuyer market. Within each series, we build several models, each with a different floor plan, elevation and standard

2

and optional features. Differences in sales prices of similar models in any series depend primarily upon location, optional features and design specifications. The series of homes offered at a particular location are based on customer preference, lot size, the area’s demographics and, in certain cases, the requirements of major land sellers and local municipalities.

     Design centers are located in most of our homebuilding markets. Homebuyers are able to customize certain features of their homes by selecting options and upgrades on display at the design centers. Homebuyers can select finishes and upgrades soon after they decide to purchase a Richmond American home. The design centers also provide us with an additional source of revenue and profit. We recently have launched our new Home Gallery concept in the Denver area. These Home Galleries offer thousands of options for customizing a new home, including flooring; countertops; lighting and plumbing fixtures; cabinetry; paint; appliances; home entertainment, security and technology wiring; closet solutions and central vacuum systems. The Home Gallery color studios enable homebuyers to view selections that have been coordinated into color schemes by design consultants. The individualized process is designed to make design and upgrade decisions simpler. Another advantage of the Home Gallery is the ease with which homebuyers can visit to browse the design and upgrade options available before their appointment with a design consultant.

     We maintain limited levels of inventories of unsold homes in our markets. Unsold homes in various stages of completion allow us to meet the immediate and near-term demands of prospective homebuyers. In order to mitigate the risk of carrying excess inventory, we have strict controls and limits on the number of our unsold homes under construction.

     Land Acquisition and Development. We purchase finished lots using option contracts, in phases or in bulk for cash. We also acquire entitled land for development into finished lots when we believe that the risk is justified. In making land purchases, we consider a number of factors, including projected rates of return, sales prices of the homes to be built, population and employment growth patterns, proximity to developed areas, estimated costs of development and demographic trends. Generally, we acquire finished lots and land for development only in areas that will have, among other things, available building permits, utilities and suitable zoning. We attempt to maintain a supply of finished lots sufficient to enable us to start homes promptly after a contract for a home sale is executed. This approach is intended to minimize our investment in inventories and reduce the risk of shortages of labor and building materials. Increases in the cost of finished lots may reduce Home Gross Margins (as defined below) in the future to the extent that market conditions would not allow us to recover the higher cost of land through higher sales prices. See “Forward-Looking Statements” below. We define “Home Gross Margins” to mean home sales revenues less cost of goods sold (which primarily includes land and construction costs, capitalized interest, a reserve for warranty expense and financing and closing costs) as a percent of home sales revenues.

     We have the right to acquire a portion of the land we will acquire in the future utilizing option contracts, in some cases on a “rolling” basis. Generally, in an option contract, we obtain the right to purchase lots in consideration for an option deposit. In the event we elect not to purchase the lots within a specified period of time, we forfeit the option deposit. Our option contracts do not contain provisions requiring specific performance. This practice limits our risk and avoids a greater demand on our liquidity. At December 31, 2004, we had the right to acquire 21,164 lots under option agreements with approximately $41.8 million in non-refundable cash option deposits and $22.1 million in letters of credit at risk. Because of increased demand for finished lots in certain of our markets, our ability to acquire lots using rolling options has been reduced or has become significantly more expensive.

     We own and have the right under option contracts to acquire undeveloped parcels of real estate that we intend to develop into finished lots. We develop our land in phases (generally fewer than 100 lots at a time for each home series in a subdivision) in order to limit our risk in a particular project and to efficiently employ available liquidity. Building permits and utilities are available and zoning is suitable for the current intended use of substantially all of our undeveloped land. When developed, these lots generally will be used in our homebuilding activities. See “Forward-Looking Statements” below.

3

     The table below shows the carrying value of land and land under development, by state, as of December 31, 2004, 2003 and 2002 (in thousands).

     The table below shows the number of lots owned and under option (excluding lots in housing completed or under construction), by state, as of December 31, 2004, 2003 and 2002.

     Labor and Raw Materials. Generally, the materials used in our homebuilding operations are standard items carried by major suppliers. We generally contract for most of our materials and labor at a fixed price during the anticipated construction period of our homes. This allows us to mitigate the risks associated with increases in building materials and labor costs between the time construction begins on a home and the time it is closed. Increases in the cost of building materials, particularly lumber, and subcontracted labor may reduce Home Gross Margins to the extent that market conditions prevent the recovery of increased costs through higher sales prices. From time to time and to varying degrees, we may experience shortages in the availability of building materials and/or labor in each of our markets. These shortages and delays may result in delays in the delivery of homes under construction, reduced Home Gross Margins, or both. See “Forward-Looking Statements” below.

4

     Warranty. Our homes are sold with limited warranties that generally provide for ten years of structural coverage (“structural warranty”), two years of coverage for plumbing, electrical and heating, ventilation and air conditioning systems, and one year of coverage for workmanship and materials (“general warranty”). Warranty reserves are initially established as homes close on a per-unit basis in an amount estimated to be adequate to cover expected costs of materials and outside labor during warranty periods. Reserves are determined based upon historical experience with respect to similar product types and geographical areas. Certain factors are given consideration in determining the per-house reserve amount, including: (1) the historical range of amounts paid per house; (2) the historical average amount paid per house; (3) any warranty expenditures included in (1) and (2) not considered to be normal and recurring; (4) improvements in quality control and construction techniques expected to impact future warranty expenditures; and (5) conditions that may affect certain projects and require higher per-house reserves for those specific projects.

     Warranty expenditures are tracked on a house-by-house basis and are charged against the warranty reserve established for the house. Any expenditure incurred within 120 days of closing a home is recorded against the estimate to complete land development and home construction accrual, unless it is clear that the expenditure is a warranty claim. Expenditures incurred after 120 days of closing a home are considered warranty expenditures. Additional reserves are established for known unusual warranty-related expenditures not covered by the initial warranty reserves. If warranty expenditures for an individual house exceed the related reserve, then costs in excess of the reserve are evaluated in the aggregate to determine if an adjustment to housing cost of sales should be recorded.

     Seasonal Nature of Business. Our homebuilding business is seasonal to the extent that certain of our operations, especially in the northernmost markets, are subject to weather-related slowdowns. Delays in development and construction activities resulting from adverse weather conditions could increase our risk of buyer cancellations and contribute to higher costs for interest, materials and labor. In addition, homebuyer preferences and demographics influence the seasonal nature of our business. See “Forward-Looking Statements” below.

     Backlog. As of December 31, 2004 and 2003, homes under contract but not yet delivered (“Backlog”) totaled 6,505 and 5,593, respectively, with estimated sales values of $1.92 billion and $1.60 billion, respectively. Based on our past experience, assuming no significant change in market conditions and mortgage interest rates, we anticipate that approximately 70% to 75% of our December 31, 2004 Backlog will close under existing sales contracts during the first nine months of 2005. The remaining 25% to 30% of the homes in Backlog are not expected to close under existing contracts due to cancellations. See “Forward-Looking Statements” below. The table below discloses, by market, our Backlog for the years ended December 31, 2004 and 2003 (dollars in thousands).

     In 2004, we experienced strong demand for homes in Arizona, where our Backlog significantly increased year-over-year. Additionally, our Backlog increased in Florida, in part resulting from the acquisition of certain assets of Crawford Homes, Inc. in 2003 and of Watson Home Builders, Inc. in 2004. In 2004, we slowed the pace of new home offerings in certain communities in Virginia by releasing fewer homes to the market to allow construction to catch up with the Backlog in this market.

5

     The 13% increase in orders for 2004 compared with 2003 was impacted by the extraordinary levels of demand experienced in Nevada and California during the first half of 2004. During the second half of 2004, we saw our overall level of net home orders decline to a level comparable to the same period in 2003. This decline was driven by Nevada and California, primarily due to a reduction in the number of net home orders per active community. Higher home order cancellations during the second half of 2004, compared with the same period in 2003, in both of these markets also contributed to the reduced number of net home orders. In addition, the net home orders received in California during the 2004 fourth quarter were impacted by a temporary reduction in the number of active communities, due in part to a higher than anticipated sales pace resulting from the exceptional demand for new homes in the state through the first half of 2004. Notwithstanding these changes in California and Nevada, we generally maintained the significant price increases realized in these markets earlier in the year.

     Marketing and Sales. Our homes are sold under various commission arrangements by our own sales personnel and by cooperating brokers and referrals in the realtor community. In marketing our homes, we primarily use on-site model homes, advertisements in local newspapers, radio, billboards and other signage, magazines and illustrated brochures. We also market our homes on our internet website, www.richmondamerican.com, and utilize a variety of other internet sites to advertise our homes and communities.

     Title Operations. American Home Title provides title agency services to our homebuyers in Virginia, Maryland, Colorado, Florida, Texas and Delaware. AHT Reinsurance, Inc., a wholly-owned subsidiary of MDC, reinsures existing title insurance policies issued to our homebuyers in California, Nevada and Utah. We are evaluating opportunities to provide title agency services in our other markets.

     Competition. The homebuilding industry is fragmented and highly competitive. We compete with numerous homebuilders, including a number that are larger and have greater financial resources. Homebuilders compete for customers, desirable financing, land, building materials and subcontractor labor. Competition for home orders primarily is based upon price, style, financing provided to prospective purchasers, location of property, quality of homes built, customer service and general reputation in the community. We also compete with subdivision developers and land development companies when acquiring land.

     Mortgage Interest Rates. Our homebuilding operations are dependent upon the availability and cost of mortgage financing. Increases in home mortgage interest rates may reduce the demand for homes and home mortgages and, generally, will reduce home mortgage refinancing activity, which could negatively impact our business. We are unable to predict future changes in home mortgage interest rates or the impact such changes may have on our operating activities and results of operations. See “Forward-Looking Statements” below.

     Regulation. Our homebuilding operations are subject to continuing compliance requirements mandated by applicable federal, state and local statutes, ordinances, rules and regulations, including zoning and land use ordinances, building codes, contractors’ licensing laws, state insurance laws, federal and state human resources laws and regulations and health and safety regulations and laws (including, but not limited to, those of the Occupational Safety and Health Administration). Various localities in which we operate have imposed (or may impose in the future) fees on developers to fund schools, road improvements and low and moderate-income housing. See “Forward-Looking Statements” below.

     From time to time, various municipalities in which we operate restrict or place moratoriums on the availability of utilities, including water and sewer taps. Additionally, certain jurisdictions in which we operate have proposed or enacted growth initiatives that may restrict the number of building permits available in any given year. Although no assurances can be given as to future conditions or governmental actions, in general, we believe that we have, or can obtain, water and sewer taps and building permits for our land inventory and land held for development. See “Forward-Looking Statements” below.

     Our homebuilding operations also are affected by environmental laws and regulations pertaining to availability of water, municipal sewage treatment capacity, land use, hazardous waste disposal, naturally occurring radioactive materials, building materials, population density and preservation of endangered species, natural terrain and vegetation. Due to these considerations, we generally obtain an environmental site assessment for parcels of land that we acquire. The particular environmental laws and regulations that apply to any given homebuilding project vary greatly according to the site’s location, the site’s environmental conditions and the present and former uses of the site. These environmental laws and regulations may result in project delays, causing us to incur substantial compliance and other costs, and/or

6

prohibit or severely restrict homebuilding activity in certain environmentally sensitive regions or areas. See “Forward-Looking Statements” below.

     Bonds and Letters of Credit. In many cases, we are required to obtain bonds and letters of credit in support of our related obligations with respect to subdivision improvement, homeowners association dues and start-up expenses, warranty work, contractors license fees, earnest money deposits, etc. At December 31, 2004, we had issued and outstanding performance bonds and letters of credit totaling $306.8 million and $94.7 million, respectively, including $25.6 million in letters of credit issued by HomeAmerican. In the event any such bonds or letters of credit issued by third parties are called, we would be obligated to reimburse the issuer of the bond or letter of credit. See “Forward-Looking Statements” below.

Financial Services Segment.

   Mortgage Lending Operations.

     General. HomeAmerican is a full-service mortgage lender and is the principal originator of mortgage loans for our homebuyers. Through office locations in each of our markets and a centralized loan origination center, HomeAmerican originates mortgage loans primarily for our homebuyers. HomeAmerican also brokers mortgage loans for origination by outside lending institutions for our homebuyers.

     HomeAmerican is authorized to originate Federal Housing Administration-insured (“FHA”), Veterans Administration-guaranteed (“VA”), Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”) and other private investor mortgage loans. HomeAmerican also is an authorized loan servicer for FNMA, FHLMC and the Government National Mortgage Association (“GNMA”) and, as such, is subject to the rules and regulations of these organizations.

     Substantially all of the mortgage loans originated by HomeAmerican are sold to investors within 45 days of origination. We use HomeAmerican’s secured warehouse line of credit, other borrowings and Company generated funds to finance these mortgage loans until they are sold.

     Portfolio of Mortgage Loan Servicing. Mortgage loan servicing involves the collection of principal, interest, taxes and insurance premiums from the borrower and the remittance of such funds to the mortgage loan investor, local taxing authorities and insurance companies. The servicer is paid a fee to perform these services. HomeAmerican obtains the servicing rights related to the mortgage loans it originates. Certain mortgage loans are sold “servicing released” (the servicing rights are included with the sale of the corresponding mortgage loans). In 2004, 51% of the mortgage loans were sold “servicing released”. The servicing rights on the remainder of the mortgage loans generally are sold under minibulk contracts within two months of the sale of the mortgage loan. HomeAmerican intends to continue selling servicing rights on all mortgage loans originated in the future. See “Forward-Looking Statements” below.

     HomeAmerican’s portfolio of mortgage loan servicing at December 31, 2004 consisted of servicing rights with respect to 2,906 single-family loans, 99% of which were less than one year old. This includes 2,330 single-family loans for which the servicing rights had been sold but not transferred to the purchasers as of December 31, 2004. HomeAmerican anticipates transferring these servicing rights in the first half of 2005. These loans are secured by mortgages on properties in eleven states, with interest rates on the loans ranging from approximately 4.25% to 6.00% and averaging 5.77%. The underlying value of a servicing portfolio generally is determined based on the interest rates and the annual servicing fee rates, gross of guarantee fees, currently .44% for FHA/VA loans and .25% for conventional loans applicable to the loans comprising the portfolio.

     Pipeline. HomeAmerican’s mortgage loans in process that had not closed (the “Pipeline”) at December 31, 2004 had aggregate principal balances of $1.3 billion. An estimated 70% to 75% of the Pipeline at December 31, 2004 is anticipated to close during the first nine months of 2005. If mortgage interest rates decline, a smaller percentage of these loans would be expected to close. See “Forward-Looking Statements” below.

     Forward Sales Commitments. 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 utilize 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

7

financial derivative instruments utilized by the Company and are generally settled within 45 days of origination. Due to this hedging philosophy, the market risk associated with HomeAmerican’s mortgages is limited.

     Competition. The mortgage industry is fragmented and highly competitive. In each of the locations in which it originates loans, HomeAmerican competes with numerous banks, thrifts and other mortgage bankers, many of which are larger and have greater financial resources. Competitive factors include pricing, loan terms, underwriting criteria and customer service.

   Insurance Operations.

     American Home Insurance provides third party homeowners, auto and other types of casualty insurance to our homebuyers.

Employees.

     At December 31, 2004, we employed approximately 3,600 employees. We consider our employee relations to be very good.

Item 2. Properties.

     Our corporate headquarters currently is located at 3600 South Yosemite Street, Denver, Colorado 80237, where we lease office space in a 134,000 square foot office building. We have given notice of termination of our existing lease and have entered into a lease for new office space in the Denver area. We also lease office space at our homebuilding divisions and our financial services locations. All operations currently are either satisfied with the suitability and capacity of their properties or are in the process of locating additional space suitable for expanding operations.

Item 3. Legal Proceedings.

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

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

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

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

     No meetings of the Company’s stockholders were held during the fourth quarter of 2004.

8

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

     On December 31, 2004, MDC had 954 shareowners of record. The shares of MDC common stock are traded on the New York and the Pacific Stock Exchanges. The following table sets forth, for the periods indicated, the price ranges of MDC’s common stock. Amounts have been adjusted for the effects of the 10% stock dividend distributed on March 23, 2004, as well as the 1.3 for 1 stock split effective January 10, 2005.

     The following table sets forth the cash dividends declared and paid in 2004 and 2003. Amounts have been adjusted for the effects of the 10% stock dividend distributed on March 23, 2004, as well as the 1.3 for 1 stock split effective January 10, 2005 (dollars in thousands, except per share amounts).