UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2006

OR

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

M.D.C. HOLDINGS, INC.

Delaware (State or other jurisdiction of incorporation or organization)		84-0622967 (I.R.S. employer identification no.)
4350 South Monaco Street, Suite 500 Denver, Colorado (Address of principal executive offices)		80237 (Zip code)

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. 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 October 27, 2006, 45,037,000 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, 2006

INDEX

		Page
		No.
Part I. Financial Information:
Item 1. Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets at September 30, 2006 and December 31, 2005			1
Consolidated Statements of Income for the three and nine months ended September 30, 2006 and 2005			2
Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005			3
Notes to Unaudited Consolidated Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures About Market Risk			48
Item 4. Controls and Procedures			49
Part II. Other Information:
Item 1. Legal Proceedings			50
Item 1A. Risk Factors			50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			53
Item 3. Defaults Upon Senior Securities			53
Item 4. Submission of Matters to a Vote of Security Holders			53
Item 5. Other Information			53
Item 6. Exhibits			54
Signature			55
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

ITEM 1. Unaudited Consolidated Financial Statements

M.D.C. HOLDINGS, INC.

		September 30,				December 31,
		2006				2005
ASSETS
Cash and cash equivalents		$	132,844			$	214,531
Restricted cash			5,082				6,742
Home sales receivables			75,120				134,270
Mortgage loans held in inventory			203,375				237,376
Inventories, net
Housing completed or under construction			1,578,696				1,320,106
Land and land under development			1,662,034				1,677,948
Property and equipment, net			45,560				49,119
Deferred income taxes			77,259				54,319
Prepaid expenses and other assets, net			176,073				165,439
Total Assets		$	3,956,043			$	3,859,850
LIABILITIES
Accounts payable		$	200,703			$	201,747
Accrued liabilities			424,436				442,409
Income taxes payable			14,821				102,656
Related party liabilities (see Note 16)			—				8,100
Homebuilding line of credit			—				—
Mortgage line of credit			152,369				156,532
Senior notes, net			996,583				996,297
Total Liabilities			1,788,912				1,907,741
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; 44,995,000 and 44,981,000 issued and outstanding, respectively, at September 30, 2006 and 44,642,000 and 44,630,000 issued and outstanding, respectively, at December 31, 2005			450				447
Additional paid-in capital			750,013				722,291
Retained earnings			1,419,886				1,232,971
Unearned restricted stock			(1,937	)			(2,478	)
Accumulated other comprehensive loss			(622	)			(622	)
Less treasury stock, at cost; 14,000 and 12,000 shares, respectively, at September 30, 2006 and December 31, 2005			(659	)			(500	)
Total Stockholders’ Equity			2,167,131				1,952,109
Total Liabilities and Stockholders’ Equity		$	3,956,043			$	3,859,850

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

M.D.C. HOLDINGS, INC.

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
		2006				2005				2006				2005
REVENUE
Home sales revenue		$	1,058,408			$	1,147,757			$	3,372,799			$	3,094,141
Land sales revenue			3,336				1,269				18,812				2,565
Other revenue			21,149				18,786				66,912				51,362
Total Revenue			1,082,893				1,167,812				3,458,523				3,148,068
COSTS AND EXPENSES
Home cost of sales			818,015				817,330				2,550,018				2,208,882
Land cost of sales			3,210				706				18,124				1,496
Inventory impairments			19,915				—				20,775				—
Marketing expense			31,296				26,106				91,899				73,432
Commission expense			36,390				30,736				106,627				85,262
General and administrative expenses			97,558				99,557				318,053				285,550
Related party expenses			88				51				1,891				214
Total Costs and Expenses			1,006,472				974,486				3,107,387				2,654,836
Income before income taxes			76,421				193,326				351,136				493,232
Provision for income taxes			(27,715	)			(72,336	)			(130,518	)			(184,988	)
NET INCOME		$	48,706			$	120,990			$	220,618			$	308,244
EARNINGS PER SHARE
Basic		$	1.08			$	2.73			$	4.91			$	7.03
Diluted		$	1.06			$	2.62			$	4.80			$	6.70
WEIGHTED-AVERAGE SHARES
Basic			44,972				44,379				44,911				43,849
Diluted			45,868				46,258				45,932				46,006
DIVIDENDS DECLARED PER SHARE		$	0.25			$	0.18			$	0.75			$	0.51

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

M.D.C. HOLDINGS, INC.

Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

		Nine Months
		Ended September 30,
		2006				2005
OPERATING ACTIVITIES
Net income		$	220,618			$	308,244
Adjustments to reconcile net income to net cash used in operating activities
Amortization of deferred marketing costs			27,367				23,616
Inventory impairments			20,775				—
Write-offs of land option deposits and preacquisition costs			23,022				5,216
Depreciation and amortization of long-lived assets			14,170				10,902
Deferred income taxes			(22,940	)			(887	)
Stock-based compensation expense			10,169				700
Related party common stock contribution			1,600				—
Excess tax benefits from stock-based compensation			(1,569	)			—
Amortization of debt discount			286				241
Net changes in assets and liabilities
Restricted cash			1,660				(3,160	)
Home sales receivables			59,150				(49,827	)
Mortgage loans held in inventory			34,001				(27,471	)
Housing completed or under construction			(264,840	)			(682,594	)
Land and land under development			1,389				(259,724	)
Prepaid expenses and other assets, net			(64,410	)			(60,830	)
Accounts payable			(1,044	)			84,195
Accrued liabilities			(15,109	)			66,519
Income taxes payable			(85,638	)			27,824
Net cash used in operating activities			(41,343	)			(557,036	)
INVESTING ACTIVITIES
Net purchase of property and equipment			(7,224	)			(18,118	)
FINANCING ACTIVITIES
Lines of credit
Advances			450,900				948,786
Principal payments			(455,063	)			(905,600	)
Proceeds from issuance of senior notes, net			—				247,605
Excess tax benefits from stock-based compensation			1,569				—
Dividend payments			(33,703	)			(22,383	)
Proceeds from exercise of stock options			3,177				25,557
Net cash (used in) provided by financing activities			(33,120	)			293,965
Net decrease in cash and cash equivalents			(81,687	)			(281,189	)
Cash and cash equivalents
Beginning of period			214,531				400,959
End of period		$	132,844			$	119,770

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

M.D.C. HOLDINGS, INC.

1. Basis of Presentation

     The Unaudited 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 September 30, 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 Form 10-K/A for the year ended December 31, 2005, filed October 11, 2006.

     The Company has experienced seasonality and quarter-to-quarter variability in homebuilding activity levels. In general, the number of homes closed and associated home sales revenue historically have increased 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 seasonality in the financial services operations because loan originations correspond with the closing of homes from the homebuilding operations. Due to reduced home closing levels during 2006, this pattern did not continue for the third quarter of 2006, and there can be no assurance that it will continue in the future. The Consolidated Statements of Income for the three and nine months ended September 30, 2006 and Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 are not necessarily indicative of the results to be expected for the full year. Refer to economic conditions described under the caption “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and “Risk Factors Relating to our Business” in Item 1A of the Company’s December 31, 2005 Form 10-K/A. There are no assurances as to the results of operations for the fourth quarter of 2006.

     The following table summarizes, by quarter, home sales revenue during 2006, 2005 and 2004 (in thousands).

		Three Months Ended
		March 31,				June 30,				September 30,				December 31,
2006		$	1,119,308			$	1,195,083			$	1,058,408				N/A
2005		$	916,831			$	1,029,553			$	1,147,757			$	1,708,734
2004		$	746,429			$	861,537			$	1,007,134			$	1,316,913

2. Reclassifications

     The Company has reclassified the presentation of the Consolidated Statements of Income for the three and nine months ended September 30, 2005. The Consolidated Statements of Income previously disclosed revenue and expenses by each reportable segment and have been reclassified to disclose revenue and expenses on a consolidated basis. The Company’s total revenue and net income for the three and nine months ended September 30, 2005 have not been affected as a result of this reclassification. Certain other prior year balances have been reclassified to conform to the current year’s presentation.

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

3. Inventory Impairment

     On a quarterly basis, the Company evaluates its inventory for impairment in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” As a result of much slower than anticipated paces of home orders and significantly increased sales incentives required to generate new home orders, the Company recorded asset impairments of its housing completed and under construction and land and land under development inventories of $6.2 million and $13.7 million, respectively, during the 2006 third quarter. For purposes of these impairment calculations, the Company determined the fair value of each impaired asset based upon the present value of the estimated future cash flows on a subdivision-by-subdivision basis using discount rates which are commensurate with the risk of the subdivision. The Company did not record any inventory impairment during the three and nine months ended September 30, 2005. The impairments recorded during the three and nine months ended September 30, 2006 by segment (as defined in Note 12) are as follows (in thousands).

		Three Months				Nine Months
		Ended September 30, 2006				Ended September 30, 2006
West		$	15,241			$	15,241
Mountain			626				626
East			1,357				1,357
Other Homebuilding			2,691				3,551
Total impairment		$	19,915			$	20,775

4. Recent Accounting Pronouncements

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Earlier application is encouraged provided that the reporting entity has not yet issued financial statements for that fiscal year including financial statements for an interim period within that fiscal year. The Company currently is evaluating the impact, if any, that SFAS 157 may have on its financial position, results of operations or cash flows.

     In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158 requires the balance sheet recognition of the funded status of defined benefit pension and other postretirement plans, along with a corresponding after-tax adjustment to stockholders’ equity. The recognition of funded status provision of SFAS 158 applies prospectively and is effective December 31, 2006. SFAS 158 also requires measurement of plan assets and benefit obligations at the fiscal year end effective December 31, 2008. The Company does not expect SFAS 158 to have a material impact on its financial position, results of operations or cash flows.

     In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 is an interpretation of SFAS No. 109, “Accounting for Income Taxes.” FIN 48 provides interpretive guidance for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. FIN 48 requires the affirmative evaluation that it is more-likely-than-not, based on the technical merits of a tax position, that an enterprise is entitled to economic benefits resulting from positions taken in income tax returns. If a tax position does not meet the “more-likely-than-not” recognition threshold, the benefit of that position is not recognized in the financial statements. FIN 48 also requires companies to disclose additional quantitative and qualitative information in their financial statements about uncertain tax positions. FIN 48 is effective for fiscal years

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

beginning after December 15, 2006, and the cumulative effect of applying FIN 48 shall be reported as an adjustment to the opening balance of retained earnings for that fiscal year. The Company currently is evaluating the impact, if any, that FIN 48 may have on its financial position, results of operations or cash flows.

     In February 2006, the FASB issued 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 No. 133, “Accounting for Derivative Instruments and Hedging Activities,” to interests 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 does not expect SFAS 155 to have a material impact 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 does not expect SFAS 156 to have a material impact on its financial position, results of operations or cash flows.

5. 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 three and nine months ended September 30, 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.

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

     As a result of adopting SFAS 123(R), income before income taxes for the three and nine months ended September 30, 2006 was $2.8 million and $8.8 million lower, respectively, and net income for the three and nine months ended September 30, 2006 was $1.8 million and $5.5 million lower, respectively, 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 in the Consolidated Statements of Income.

     Pro Forma Disclosures Pursuant to SFAS 123. As of December 31, 2005, the Company had only granted stock options with exercise prices that were equal to or greater than the fair market value of the Company’s common stock on the date of grant. Accordingly, prior to January 1, 2006, stock-based compensation expense was recorded only in association with the vesting of restricted stock and unrestricted stock awards and was recorded to expense ratably over the associated service period, which was generally the vesting term. Additionally, 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. 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 during the three and nine months ended September 30, 2005 (in thousands, except per share amounts).

		Three Months Ended				Nine Months Ended
		September 30, 2005				September 30, 2005
Net income, as reported		$	120,990			$	308,244
Deduct stock-based compensation expense determined using the fair value method, net of related tax effects			(2,647	)			(7,944	)
Pro forma net income		$	118,343			$	300,300
Earnings per share
Basic as reported		$	2.73			$	7.03
Basic pro forma		$	2.67			$	6.85
Diluted as reported		$	2.62			$	6.70
Diluted pro forma		$	2.56			$	6.53

     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 Financial Officer and General Counsel (collectively, the “Executives”); (2) non-Executive employees (“Non-Executives”); 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.

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

     The fair values for stock options granted during the three and nine months ended September 30, 2006 and 2005 were estimated using the Black-Scholes option pricing model with the following weighted-average assumptions.

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
		2006				2005				2006				2005
Expected volatility			46.4	%			44.0	%			46.1	%			44.4	%
Risk-free interest rate			4.7	%			3.9	%			4.7	%			3.9	%
Dividend yield rate			1.2	%			0.8	%			1.2	%			0.7	%
Expected lives of options		3.8 yrs.				5.8 yrs.				3.8 yrs.				5.9 yrs.

     Based on calculations using the Black-Scholes option pricing model, the weighted average grant date fair values of stock options were $17.46 and $32.80 for the three months ended September 30, 2006 and 2005, respectively, and $22.13 and $32.16 for the nine months ended September 30, 2006 and 2005, respectively. These assumptions were used for the stock options granted only to Non-Executives during the three and nine months ended September 30, 2006 and 2005. No stock option awards were granted during these periods to Executives or Directors.

     The expected volatility is based on the historical volatility in the price 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 at December 31, 2005 in determining the number of awards expected to vest in the future. The Company estimated the annual forfeiture rate to be 25% for share-based payment awards granted to Non-Executives 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.

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

     Stock Option Award Activity. Stock option activity under the Company’s option plans at September 30, 2006 and changes during the nine months ended September 30, 2006 were as follows.

										Weighted-
										Average
						Weighted-				Remaining				Aggregate
		Number of				Average				Contractual Life				Intrinsic Value
		Shares				Exercise Price				(in years)				(in thousands)
Outstanding at December 31, 2005			5,659,766			$	40.54
Granted			26,500			$	59.38
Exercised			(147,625	)		$	21.52
Cancelled			(278,819	)		$	54.36
Outstanding at September 30, 2006			5,259,822			$	40.44				6.14			$	65,932

     The following table summarizes information concerning stock options granted to Executives, Non-Executives and Directors that are vested at September 30, 2006, as well as stock options granted but unvested at September 30, 2006 that the Company expects will vest in future periods.

		Vested and Expected to Vest at September 30, 2006
										Weighted-
										Average
						Weighted-				Remaining				Aggregate
		Number of				Average				Contractual Life				Intrinsic Value
		Shares				Exercise Price				(in years)				(in thousands)
Executives			3,875,815			$	36.24
Non-Executives			415,512			$	41.64
Directors			303,325			$	61.41
Total			4,594,652			$	38.39				5.95			$	37,033

     The following table summarizes information concerning stock options granted to Executives, Non-Executives and Directors that are exercisable at September 30, 2006.

		Exercisable at September 30, 2006
										Weighted-
										Average
						Weighted-				Remaining				Aggregate
		Number of				Average				Contractual Life				Intrinsic Value
		Shares				Exercise Price				(in years)				(in thousands)
Executives			1,513,209			$	19.82
Non-Executives			163,296			$	21.64
Directors			303,325			$	61.41
Total			1,979,830			$	26.30				4.78			$	39,894

     The following table summarizes information concerning outstanding and exercisable stock options at September 30, 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			2,208,252				4.20			$	19.96				1,537,691			$	19.33
$23.78 - $31.69			279,961				1.49			$	26.72				145,155			$	26.30
$31.70 - $47.53			893,109				7.11			$	44.31				74,484			$	40.76
$47.54 - $71.30			1,740,500				8.63			$	63.59				97,500			$	57.66
$71.31 - $79.22			138,000				8.99			$	78.81				125,000			$	78.89
Total			5,259,822				6.14			$	40.44				1,979,830			$	26.30

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

     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 2006 third quarter and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all outstanding stock options been exercised on September 30, 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 during the nine months ended September 30, 2006 was $5.8 million.

     Total stock-based compensation expense relating to stock options granted by the Company was $2.8 million and $8.8 million, respectively, for the three and nine months ended September 30, 2006. At September 30, 2006, $37.6 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 4.0 years.

     Cash received from stock option exercises was $3.2 million and the associated tax benefit realized totaled $2.2 million for the nine months ended September 30, 2006.

     Restricted and Unrestricted Stock Award Activity. Non-vested restricted stock awards at September 30, 2006 and changes during the nine months ended September 30, 2006 were as follows.

						Weighted-Average
		Number of				Grant
		Shares				Date Fair Value
Non-vested at December 31, 2005			43,312			$	57.16
Granted			31,851			$	64.58
Vested			(19,777	)		$	61.16
Forfeited			(5,623	)		$	60.55
Non-vested at September 30, 2006			49,763			$	59.94

     Total stock-based compensation expense relating to restricted stock and unrestricted stock awards was $0.3 million and $0.1 million for the three months ended September 30, 2006 and 2005, respectively, and was $1.4 million and $0.7 million for the nine months ended September 30, 2006 and 2005, respectively. At September 30, 2006, there was $1.8 million of unrecognized stock-based compensation expense related to non-vested restricted stock awards that is expected to be recognized as an expense by the Company in the future over a weighted-average period of 2.8 years.

6. 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.

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

     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.

7. Balance Sheet Components

     The following tables set forth information relating to accrued liabilities (in thousands).

		September 30,				December 31,
		2006				2005
Accrued liabilities
Warranty reserves		$	95,193			$	82,238
Accrued compensation and related expenses			83,115				99,541
Land development and home construction accruals			52,304				74,955
Customer and escrow deposits			40,958				56,186
Insurance reserves			40,890				32,166
Accrued interest payable			20,950				13,027
Deferred revenue			18,513				7,700
Accrued pension liability			12,587				11,687
Other accrued liabilities			59,926				64,909
Total accrued liabilities		$	424,436			$	442,409

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

8. 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								Nine Months
		Ended September 30,								Ended September 30,
		2006				2005				2006				2005
Basic Earnings Per Share
Net income		$	48,706			$	120,990			$	220,618			$	308,244
Basic weighted-average shares outstanding			44,972				44,379				44,911				43,849
Per share amounts		$	1.08			$	2.73			$	4.91			$	7.03
Diluted Earnings Per share
Net income		$	48,706			$	120,990			$	220,618			$	308,244
Basic weighted-average shares outstanding			44,972				44,379				44,911				43,849
Stock options, net			896				1,879				1,021				2,157
Diluted weighted-average shares outstanding			45,868				46,258				45,932				46,006
Per share amounts		$	1.06			$	2.62			$	4.80			$	6.70

9. Interest Activity

     The Company capitalizes interest incurred on its senior notes and Homebuilding Line (as defined below) during the period of active development and through the completion of construction of its homebuilding inventories. Interest incurred on the senior notes or Homebuilding Line that is not capitalized is reported as interest expense. Interest incurred by the Mortgage Line (as defined below) is charged to interest expense. Interest activity is shown below (in thousands).

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
		2006				2005				2006				2005
Total Interest Incurred
Corporate and Homebuilding		$	14,150			$	14,615			$	43,993			$	36,540
Financial Services and Other			2,291				1,014				6,572				2,152
Total interest incurred		$	16,441			$	15,629			$	50,565			$	38,692
Total Interest Capitalized
Interest capitalized in homebuilding inventory, beginning of period		$	48,569			$	30,293			$	41,999			$	24,220
Interest capitalized			14,150				14,615				43,993				36,540
Previously capitalized interest included in home cost of sales			(12,574	)			(7,030	)			(35,847	)			(22,882	)
Interest capitalized in homebuilding inventory, end of period		$	50,145			$	37,878			$	50,145			$	37,878

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

     Interest income and interest expense are shown below (in thousands).

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
		2006				2005				2006				2005
Interest Income, Net
Interest income		$	4,986			$	2,362			$	12,120			$	6,415
Interest expense			2,291				1,014				6,572				2,152
Total interest income, net		$	2,695			$	1,348			$	5,548			$	4,263

10. Warranty Reserves

     Warranty reserves presented in the table below relate to general and structural reserves, as well as reserves for known, unusual warranty-related expenditures not covered by the Company’s general and structural warranty reserve. Warranty reserves are reviewed at least 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 any excess reserve. If warranty payments for an individual house exceed the related reserve, then payments in excess of the reserve are evaluated in the aggregate to determine if an adjustment to the warranty reserve should be recorded, which could result in a corresponding adjustment to home cost of sales. Warranty reserves are included in accrued liabilities in the Consolidated Balance Sheets, and totaled $95.2 million and $82.2 million at September 30, 2006 and December 31, 2005, respectively. Warranty reserve activity for the three and nine months ended September 30, 2006 and 2005 is shown below (in thousands).

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
		2006				2005				2006				2005
Warranty reserve balance at beginning of period		$	92,010			$	60,750			$	82,238			$	64,424
Warranty expense provision			11,041				8,153				34,334				24,640
Warranty cash payments			(8,309	)			(10,852	)			(24,220	)			(31,013	)
Warranty reserve adjustments			451				2,775				2,841				2,775
Warranty reserve balance at end of period		$	95,193			$	60,826			$	95,193			$	60,826

11. Insurance Reserves

     The Company records expenses and liabilities for costs to cover liabilities related to: (1) insurance policies issued by StarAmerican Insurance Ltd. (“StarAmerican”) and Allegiant Insurance Company, Inc., A Risk Retention Group (“Allegiant”); (2) self-insurance; (3) deductible amounts under the Company’s insurance policies; and (4) 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 actuarial studies that include known facts and interpretation of circumstances, including 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.

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

     The following table summarizes the insurance reserve activity for the three and nine months ended September 30, 2006 and 2005 (in thousands).

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
		2006				2005				2006				2005
Insurance reserve balance at beginning of period		$	38,187			$	26,795			$	32,166			$	21,188
Insurance expense provisions			3,312				2,949				8,403				8,499
Insurance cash payments			(141	)			(288	)			(1,099	)			(433	)
Insurance reserve adjustments			(468	)			—				1,420				202
Insurance reserve balance at end of period		$	40,890			$	29,456			$	40,890			$	29,456

12. Information on Business Segments

     SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information” (“SFAS 131”), defines operating segments as a component of an enterprise for which discrete financial information is available and is reviewed regularly by the chief operating decision-maker, or decision-making group, to evaluate performance and make operating decisions. The Company has identified its chief operating decision-makers (“CODMs”) as three key executives—the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. During the 2006 third quarter, management determined that the homebuilding operations for the three and nine months ended September 30, 2005 should be restated by disaggregating its one homebuilding reportable segment into four reportable segments. Accordingly, the Company has restated its segment disclosure for the three and nine months ended September 30, 2005. The restatement has no impact on the Company’s net income or earnings per share amounts included in the Consolidated Statements of Income or the Consolidated Statements of Cash Flows for the 2005 periods presented.

     The Company has identified each homebuilding subdivision as an operating segment in accordance with SFAS 131. Each homebuilding subdivision engages in business activities from which it earns revenue primarily from the sale of single-family detached homes, generally to first-time and first-time move-up homebuyers. Subdivisions in the reportable segments noted below have been aggregated because they have similar: (1) economic characteristics; (2) housing products; (3) class of homebuyer; (4) regulatory environments; and (5) methods used to construct and sell homes. The Company’s homebuilding reportable segments are as follows:

     (1) West (Arizona, California and Nevada markets)

     (2) Mountain (Colorado and Utah markets)

     (3) East (Virginia and Maryland markets)

     (4) Other Homebuilding (Delaware Valley, Florida, Illinois and Texas markets)

     The Company’s Financial Services and Other segment consists of the operations of the following operating segments: (1) HomeAmerican Mortgage Corporation (“HomeAmerican”); (2) American Home Insurance Agency, Inc. (“American Home Insurance”); (3) American Home Title and Escrow Company (“American Home Title”); (4) Allegiant; and (5) StarAmerican. Because these operating segments do not individually exceed 10 percent of the consolidated revenue, net income or total assets, they have been aggregated into one reportable segment. American Home Title, Allegiant and StarAmerican were previously included in the Company’s homebuilding segment and are now included in the Financial Services and Other segment. The Company’s Corporate reportable segment incurs general and administrative expenses that are not identifiable specifically to another operating segment.

     Supervisory fees, which are included in income before income taxes, are charged by the Company’s Corporate segment to the homebuilding segments and the Financial Services and Other

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

segment. Supervisory fees represent costs incurred by the Company’s Corporate segment associated with certain resources that support the Company’s other reportable segments. Transfers between segments are recorded at cost.

     The following table summarizes revenue and income before income taxes for each of the Company’s six reportable segments (in thousands).

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
		2006				2005				2006				2005
						Restated								Restated
Revenue
Homebuilding
West		$	653,932			$	631,171			$	2,061,708			$	1,734,412
Mountain			168,193				228,024				519,107				603,756
East			137,050				185,504				444,765				470,220
Other Homebuilding			105,553				105,558				374,299				293,266
Total Homebuilding			1,064,728				1,150,257				3,399,879				3,101,654
Financial Services and Other			18,105				17,318				57,969				44,955
Corporate			60				237				675				1,459
Consolidated		$	1,082,893			$	1,167,812			$	3,458,523			$	3,148,068
Income/(Loss) Before Income Taxes
Homebuilding
West		$	53,762			$	135,954			$	274,642			$	385,522
Mountain			9,320				19,161				25,183				49,496
East			23,911				54,467				85,691				123,009
Other Homebuilding			(4,660	)			1,732				237				1,099
Total Homebuilding			82,333				211,314				385,753				559,126
Financial Services and Other			12,989				9,600				35,161				18,897
Corporate			(18,901	)			(27,588	)			(69,778	)			(84,791	)
Consolidated		$	76,421			$	193,326			$	351,136			$	493,232

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

     The following table summarizes total assets for each of the Company’s six reportable segments (in thousands).

		September 30,				December 31,
		2006				2005
Homebuilding
West		$	2,185,038			$	2,113,384
Mountain			552,551				466,362
East			395,879				368,848
Other Homebuilding			323,079				359,151
Total Homebuilding			3,456,547				3,307,745
Financial Services and Other			261,610				253,365
Corporate			237,886				298,740
Consolidated		$	3,956,043			$	3,859,850

     The following table summarizes depreciation and amortization of long lived assets and amortization of deferred marketing costs for each of the Company’s six reportable segments (in thousands).

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
		2006				2005				2006				2005
						Restated								Restated
Homebuilding
West		$	7,128			$	6,509			$	22,888			$	17,379
Mountain			1,236				2,067				3,963				4,988
East			644				629				2,362				1,583
Other Homebuilding			2,532				2,123				7,773				5,916
Total Homebuilding			11,540				11,328				36,986				29,866
Financial Services and Other			78				147				254				416
Corporate			1,410				1,457				4,297				4,236
Consolidated		$	13,028			$	12,932			$	41,537			$	34,518

13. 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 consolidated net income. The Company’s other comprehensive income was $48.7 million and $220.6 million for the three and nine months ended September 30, 2006, respectively, and $121.0 million and $308.2 million for the three and nine months ended September 30, 2005, respectively.

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

14. Commitments and Contingencies

     The Company often is required to obtain bonds and letters of credit in support of its obligations relating to subdivision improvement, homeowner association dues and start-up expenses, warranty work, contractor license fees and earnest money deposits. At September 30, 2006, MDC had issued and outstanding performance bonds and letters of credit totaling $424.7 million and $87.3 million, respectively, including $28.2 million in letters of credit issued by 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.

15. 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 $1.25 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 $1.75 billion upon the Company’s request, subject to receipt of additional commitments from existing or additional participant lenders. Interest rates on outstanding borrowings are determined by reference to LIBOR, with a spread from LIBOR which is determined based on changes in the Company’s credit ratings and leverage ratio, or to an alternate base rate. At September 30, 2006, the Company did not have any borrowings and had $56.3 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 Fourth Amended and Restated Warehousing Credit Agreement dated as of September 5, 2006. Available borrowings under the Mortgage Line are collateralized by mortgage loans and mortgage-backed securities and are limited to the value of eligible collateral, as defined. At September 30, 2006, $152.4 million was borrowed and an additional $28.2 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, in Part II, Item 6, of the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2006 and in Part II, Item 6 of this Quarterly Report on Form 10-Q.

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

     The Company’s debt obligations at September 30, 2006 and December 31, 2005 are as follows (in thousands):

		September 30,				December 31,
		2006				2005
7% Senior Notes due 2012		$	148,927			$	148,821
51/2% Senior Notes due 2013			349,338				349,276
53/8% Medium Term Senior Notes due 2014			248,630				248,532
53/8% Medium Term Senior Notes due 2015			249,688				249,668
Total Senior Notes			996,583				996,297
Homebuilding Line			—				—
Total Corporate and Homebuilding Debt			996,583				996,297
Mortgage Line			152,369				156,532
Total Debt		$	1,148,952			$	1,152,829

16. Related Party Transactions

     During the first quarter of 2006, the Company accrued $1.6 million of contributions that were pledged to the MDC/Richmond American Homes Foundation (the “Foundation”), a Delaware non-profit corporation. These contributions were paid during the second quarter of 2006. No contributions to the Foundation were accrued in the second or third quarters of 2006 or the first nine months of 2005.

17. Income Taxes

     The Company’s overall effective income tax rates were 36.3% and 37.2% for the three and nine months ended September 30, 2006, and were 37.4% and 37.5% for the three and nine months ended September 30, 2005, respectively.

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

18. 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”), which are 100%-owned subsidiaries of the Company.

	•		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.
	•		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
	•		American Home Title
	•		HomeAmerican
	•		Lion Insurance Company
	•		StarAmerican
	•		Allegiant

     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.

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

Supplemental Combining Balance Sheet
September 30, 2006
(In thousands)

										Non-
						Guarantor				Guarantor				Eliminating				Consolidated
		MDC				Subsidiaries				Subsidiaries				Entries				MDC
ASSETS
Cash and cash equivalents		$	111,303			$	6,950			$	14,591			$	—			$	132,844
Restricted cash			—				5,082				—				—				5,082
Home sales receivables			—				93,963				1,254				(20,097	)			75,120
Mortgage loans held in inventory			—				—				203,375				—				203,375
Inventories, net
Housing completed or under construction			—				1,578,696				—				—				1,578,696
Land and land under development			—				1,662,034				—				—				1,662,034
Investment in and advances to parent and subsidiaries			436,128				894				(12,094	)			(424,928	)			—
Other assets			126,953				113,127				92,892				(34,080	)			298,892
Total Assets		$	674,384			$	3,460,746			$	300,018			$	(479,105	)		$	3,956,043
LIABILITIES
Accounts payable and related party liabilities		$	35,992			$	177,226			$	22,818			$	(35,333	)		$	200,703
Accrued liabilities			103,704				286,903				52,673				(18,844	)			424,436
Advances and notes payable — parent and subsidiaries			(2,538,975	)			2,522,927				16,048				—				—
Income taxes payable			(90,051	)			98,827				6,045				—				14,821
Homebuilding line of credit			—				—				—				—				—
Mortgage line of credit			—				—				152,369				—				152,369
Senior notes, net			996,583				—				—				—				996,583
Total Liabilities			(1,492,747	)			3,085,883				249,953				(54,177	)			1,788,912
STOCKHOLDERS’ EQUITY			2,167,131				374,863				50,065				(424,928	)			2,167,131
Total Liabilities and Stockholders’ Equity		$	674,384			$	3,460,746			$	300,018			$	(479,105	)		$	3,956,043

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
Cash and cash equivalents		$	196,032			$	5,527			$	12,972			$	—			$	214,531
Restricted cash			—				6,742				—				—				6,742
Home sales receivables			—				160,028				1,462				(27,220	)			134,270
Mortgage loans held in inventory			—				—				237,376				—				237,376
Inventories, net
Housing completed or under construction			—				1,320,106				—				—				1,320,106
Land and land under development			—				1,677,948				—				—				1,677,948
Investment in and advances to parent and subsidiaries			728,608				1,248				(4,687	)			(725,169	)			—
Other assets			102,768				124,939				67,170				(26,000	)			268,877
Total Assets		$	1,027,408			$	3,296,538			$	314,293			$	(778,389	)		$	3,859,850
LIABILITIES
Accounts payable and related party liabilities		$	37,304			$	182,735			$	16,857			$	(27,049	)		$	209,847
Accrued liabilities			115,388				282,454				70,737				(26,170	)			442,409
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
Homebuilding line of credit			—				—				—				—				—
Mortgage line of credit			—				—				156,532				—				156,532
Senior notes, net			996,297				—				—				—				996,297
Total Liabilities			(924,701	)			2,617,685				267,976				(53,219	)			1,907,741
STOCKHOLDERS’ EQUITY			1,952,109				678,853				46,317				(725,170	)			1,952,109
Total Liabilities and Stockholders’ Equity		$	1,027,408			$	3,296,538			$	314,293			$	(778,389	)		$	3,859,850