UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________

FORM 10-K

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                                                                 ACT OF 1934

For the fiscal year ended December 31, 2003

OR

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

For the Transition period from               to            

Commission file number 1-8951
______________

M.D.C. HOLDINGS, INC.

(Exact name of Registrant as specified in its charter)

(303) 773-1100
(Registrant’s 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 X No  

        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. |X|

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

        The aggregate market value of voting stock held by non-affiliates of the Registrant was $976,207,000. Computation is based on the closing sales price of $48.28 per share of such stock on the New York Stock Exchange on June 30, 2003 the last business day of the Registrant’s most recently completed second quarter.

        As of February 6, 2004, the number of shares outstanding of Registrant’s common stock was 29,555,000.

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, 2003
____________

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” or as “MDC” in this Form 10-K. The “Company” or “MDC” includes our subsidiaries unless we state otherwise. MDC’s primary business is owning and managing subsidiary companies that build and sell homes under the name “Richmond American Homes.” We also own and manage HomeAmerican Mortgage Corporation (“HomeAmerican”), which originates mortgage loans primarily for MDC’s homebuyers. In addition, MDC provides title agency services through American Home Title and Escrow Company (“American Home Title”) to MDC homebuyers in Virginia, Maryland and Colorado and offers third party insurance products through American Home Insurance Agency, Inc. (“American Home Insurance”) to MDC’s homebuyers.

        The following is a summary of our history:

         (b) Available Information

        The Company’s 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 the Company’s business segments for each of the three years ended December 31, 2003, 2002 and 2001.

         (d) Narrative Description of Business

        MDC’s 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. Our financial services segment consists of the operations of HomeAmerican and American Home Insurance.

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        The base prices for our homes generally range from $100,000 to $600,000, although we also build homes with base prices above $1,300,000. The average sales price of our homes closed in 2003 and 2002 was $254,300 and $254,000, 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 in phases for cash. We also acquire entitled land for development into finished lots when we determine that the risk is justified. The Company’s Asset Management Committees, composed of members of the Company’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.

        Homes are designed and built to meet local customer preferences. The Company is the general contractor for all of its projects and retains subcontractors for site development and home construction. The Company builds single-family detached homes and, in Virginia and Maryland, we also build townhomes.

        HomeAmerican is a full service mortgage lender with offices located in each of MDC’s markets and originates or brokers mortgage loans for approximately 80% of MDC’s homebuyers. As a result, HomeAmerican is an integral part of MDC's business.

Homebuilding Segment.

         General.  MDC, whose subsidiaries build homes under the name “Richmond American Homes,” is one of the largest homebuilders in the United States. MDC is a major regional homebuilder with a significant presence in some of the country’s best housing markets. The Company is 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 Northern and Southern California. MDC also has a growing presence in Dallas/Fort Worth and has recently entered the Houston, San Antonio, Philadelphia/Delaware Valley, West Florida, Jacksonville and Chicago markets. MDC believes a significant presence in its markets enables it to compete effectively for homebuyers, land acquisitions and subcontractor labor.

        The Company’s operations are diversified geographically, as shown in the following table of home sales revenues by state for the years 2001 through 2003 (dollars in thousands).

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

         Housing.   MDC builds homes in a number of basic series, each designed to appeal to a different segment of the homebuyer market. Within each series, MDC builds several models, each with a different floor plan, elevation and standard and optional features. Differences in sales prices of similar models in any series depend primarily upon

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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 the Company’s 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 not only provide MDC’s customers with a convenient way to select upgrades and options for their new homes, but also provide the Company with an additional source of revenue and profit.

        The Company maintains limited levels of inventories of unsold homes in its markets. Unsold homes in various stages of completion allow the Company to meet the immediate and near-term demands of prospective homebuyers. In order to mitigate the risk of carrying excess inventory, the Company has strict controls and limits on the number of its unsold homes under construction.

         Land Acquisition and Development.  MDC purchases finished lots using option contracts, in phases or in bulk for cash. The Company also acquires entitled land for development into finished lots when the risk is justified. In making land purchases, MDC considers 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, MDC acquires finished lots and land for development only in areas that will have, among other things, available building permits, utilities and suitable zoning. The Company attempts to maintain a supply of finished lots sufficient to enable it to start homes promptly after a contract for a home sale is executed. This approach is intended to minimize the Company’s 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 the Company to recover the higher cost of land through higher sales prices. 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. See “Forward-Looking Statements” below.

        MDC has the right to acquire a portion of the land it will require in the future utilizing option contracts, in some cases on a “rolling” basis. Generally, in an option contract, the Company obtains the right to purchase lots in consideration for an option deposit. In the event the Company elects not to purchase the lots within a specified period of time, the Company forfeits the option deposit. The Company’s option contracts do not contain provisions requiring specific performance by the Company. This practice limits the Company’s risk and avoids a greater demand on its liquidity. At December 31, 2003, MDC had the right to acquire 12,251 lots under option agreements with approximately $17,089,000 in non-refundable cash option deposits and $8,225,000 in letters of credit at risk. Because of increased demand for finished lots in certain of its markets, the Company’s ability to acquire lots using rolling options has been reduced or has become significantly more expensive.

        MDC owns and has the right under option contracts to acquire undeveloped parcels of real estate that it intends to develop into finished lots. MDC develops its land in phases (generally fewer than 100 lots at a time for each home series in a subdivision) in order to limit the Company’s 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 MDC’s undeveloped land. When developed, these lots generally will be used in the Company’s homebuilding activities. See “Forward-Looking Statements” below.

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        The table below shows the carrying value of land and land under development, by state, as of December 31, 2003, 2002 and 2001 (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, 2003, 2002 and 2001.

        Labor and Raw Materials.  Generally, the materials used in MDC’s homebuilding operations are standard items carried by major suppliers. The Company generally contracts for most of its materials and labor at a fixed price during the anticipated construction period of its homes. This allows the Company 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, the Company may experience shortages in the availability of building materials and/or labor in each of its 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.

        Seasonal Nature of Business.   MDC’s homebuilding business is seasonal to the extent that certain of its 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 the Company’s risk of buyer cancellations and contribute to higher costs for interest, materials and labor. In addition, homebuyer

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preferences and demographics influence the seasonal nature of MDC's business. See "Forward-Looking Statements" below.

         Backlog.  As of December 31, 2003 and 2002, homes under contract but not yet delivered (“Backlog”) totaled 5,593 and 4,035, respectively, with estimated sales values of $1,600,000,000 and $1,120,000,000, respectively. Based on its past experience, assuming no significant change in market conditions and mortgage interest rates, MDC anticipates that approximately 70% to 75% of its December 31, 2003 Backlog will close under existing sales contracts during the first nine months of 2004. 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.

        Marketing and Sales.   MDC’s homes are sold under various commission arrangements by its own sales personnel and by cooperating brokers and referrals in the realtor community. In marketing its homes, MDC primarily uses 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. All of MDC’s homes are sold with a ten-year limited warranty issued by an unaffiliated warranty company.

        Title Operations.  American Home Title provides title agency services to MDC homebuyers in Virginia, Maryland and Colorado. The Company is evaluating opportunities to provide title agency services in its other markets.

         Competition.  The homebuilding industry is fragmented and highly competitive. MDC competes 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. The Company also competes with subdivision developers and land development companies when acquiring land.

        Mortgage Interest Rates.   The Company’s 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. The Company is unable to predict future changes in home mortgage interest rates or the impact such changes may have on the Company’s operating activities and results of operations. See “Forward-Looking Statements” below.

         Regulation.  The Company’s 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 the Company operates 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 the Company operates restrict or place moratoriums on the availability of utilities, including water and sewer taps. Additionally, certain jurisdictions in which the Company operates 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, MDC believes that it has, or can obtain, water and sewer taps and building permits for its land inventory and land held for development. See “Forward-Looking Statements” below.

        The Company’s 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, the Company generally obtains an environmental site assessment for parcels of land that it acquires. 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, cause the Company to incur substantial compliance and other costs, and/or prohibit or severely restrict homebuilding activity in certain environmentally sensitive regions or areas. See “Forward-Looking Statements” below.

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        Bonds and Letters of Credit.   The Company is often required to obtain bonds and letters of credit in support of its 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, 2003, MDC had outstanding approximately $26,771,000 of letters of credit and $236,545,000 of performance bonds. In the event any such bonds or letters of credit are called, MDC 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. Through office locations in each of the Company’s markets and a centralized loan origination center, HomeAmerican originates mortgage loans primarily for MDC’s homebuyers. HomeAmerican also brokers mortgage loans for origination by outside lending institutions for MDC's homebuyers. HomeAmerican is the principal originator of mortgage loans for MDC’s 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 conventional 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 such organizations.

        Substantially all of the mortgage loans originated by HomeAmerican are sold to investors within 45 days of origination. The Company uses HomeAmerican’s secured warehouse line of credit, other borrowings and internally generated Company 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 2003, 32% 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 sell servicing on all mortgage loans originated in the future. See “Forward-Looking Statements” below.

        HomeAmerican’s portfolio of mortgage loan servicing at December 31, 2003 consisted of servicing rights with respect to 2,990 single-family loans, 99% of which were less than one year old. This includes 2,155 single-family loans for which the servicing rights had been sold but not transferred to the purchasers as of December 31, 2003. The Company anticipates transferring these servicing rights in the first quarter of 2004. These loans are secured by mortgages on properties in ten states, with interest rates on the loans ranging from approximately 1.6% to 11.4% and averaging 5.8%. 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, 2003 had aggregate principal balances of $990,535,000. An estimated 70% to 75% of the Pipeline at December 31, 2003 is anticipated to close during the first nine months of 2004. 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. The Company utilizes these commitments to manage the price risk on fluctuations in interest rates on its mortgage loans owned and commitments to originate mortgage loans. Such contracts are the only significant financial derivative instruments utilized by the Company.

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        HomeAmerican provides mortgage loans that generally are sold forward and subsequently delivered to a third-party purchaser within approximately 45 days. Forward commitments are used for non-trading purposes to sell mortgage loans and hedge price risk due to fluctuations in interest rates on rate-locked mortgage loans in process that have not closed. Due to this hedging philosophy, the market risk associated with these 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 MDC's homebuyers.

Employees.

        At December 31, 2003, MDC employed approximately 2,800 persons. MDC considers its employee relations to be very good.

Item 2.   Properties.

        Our corporate headquarters is located at 3600 South Yosemite Street, Denver, Colorado 80237, where we lease approximately 134,000 square feet of office space. 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 Company previously purchased 63 lots within the former Lowry Air Force Base, in an area known as the Northwest Neighborhood, in Denver, Colorado. As of December 31, 2003, the Company had sold homes on all 63 lots, completed construction of homes on 48 of these lots, closed 47 of the homes, and commenced construction on four of the remaining 15 lots. Asbestos, believed to have resulted from historic activities of the United States Air Force, has been discovered in this area. In August 2003, the Colorado Department of Public Health and Environment issued a Final Response Plan imposing requirements to remediate the asbestos. Through December 31, 2003, the Company had expended approximately $2,250,000 in sampling and remediation costs and currently projects the total costs of these efforts to be approximately $3,900,000. The Company has an accrual of $1,650,000 for the expected remaining costs as of December 31, 2003. Remediation of 57 of the 63 lots had been completed by the Company as of December 31, 2003. The Company has notified the Air Force and United States Department of Defense of their responsibility to reimburse the Company for all costs associated with the asbestos. Those agencies currently dispute their responsibility to reimburse the Company and the other land owners. The Company is evaluating available legal remedies to recover costs associated with the asbestos.

        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 seeks 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. Richmond filed an objection to the EPA’s motion to withdraw. The EPA’s motion to withdraw was granted by the Administrative Law Judge on February 9, 2004. Richmond has substantial defenses to the allegations made by the EPA and also is exploring methods of resolving this matter with the EPA.

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        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 2003.

PART II

Item 5.   Market Price of Common Stock and Related Security Holder Matters.

        On February 6, 2004, MDC had 973 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.

        The following table sets forth the cash dividends declared and paid in 2003 and 2002. Amounts have been adjusted for the effects of the 10% stock dividend distributed on May 27, 2003 (dollars in thousands except per share amounts).

        On January 26, 2004, MDC’s board of directors approved the payment of a cash dividend of 12.5 cents per share payable February 26, 2004 to shareowners of record on February 11, 2004.

        On April 28, 2003, MDC’s board of directors declared a 10% stock dividend that was distributed on May 27, 2003 to shareowners of record on May 12, 2003.

        In connection with the declaration and payment of dividends, the Company is required to comply with certain covenants contained in its $600,000,000 unsecured revolving line of credit agreement. Pursuant to the terms of this agreement, dividends may be declared or paid if the Company is in compliance with certain stockholders’ equity and debt coverage tests. At December 31, 2003, the Company had a permitted dividend capacity of approximately $281,000,000 pursuant to the most restrictive of these covenants.

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        The following table provides information as of December 31, 2003 with respect to the shares of MDC common stock that may be issued under existing equity compensation plans, all of which have been approved by the shareowners.

        Please refer to the discussion of the Company’s equity incentive plans in Note G to the Company’s consolidated financial statements for a description of the plans and the types of grants, in addition to options, that may be made under the plans. The referenced discussion also describes the formula by which the number of securities available for issuance under those plans automatically increases.

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Item 6.  Selected Financial and Other Data.

        The data in this table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s Consolidated Financial Statements. Weighted-average shares and per share amounts have been adjusted for the effects of the 10% stock dividend distributed on May 27, 2003 (in thousands, except per share and unit amounts).

SELECTED FINANCIAL DATA

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Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations.

         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. The “Company” or “MDC” includes our subsidiaries unless we state otherwise. MDC’s primary business is owning and managing subsidiary companies that build and sell homes under the name “Richmond American Homes.” We also own and manage HomeAmerican Mortgage Corporation (“HomeAmerican”), which originates mortgage loans primarily for 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 and Colorado and offers third party insurance products through American Home Insurance Agency, Inc. (“American Home Insurance”) to our homebuyers.

RESULTS OF OPERATIONS

Overview

        We achieved record home closings, revenues, net income and earnings per share in 2003. Aided by record low mortgage interest rates and the strong demand for new homes in most of our markets, our home orders increased 28% over 2002. In addition, we made significant progress in 2003 toward our stated goals of geographically diversifying and growing our homebuilding operations. Our entry into six new markets (Houston, San Antonio, Philadelphia/Delaware Valley, West Florida, Jacksonville and Chicago), our expansion in Salt Lake City and Dallas/Fort Worth, and our continued growth in most of our existing markets, enabled us to increase substantially our active subdivisions and inventory of controlled lots.

         Our financial position continued to strengthen throughout 2003. Our stockholders’ equity increased by 27% year-over-year to $1,015,920,000, or $34.40 per outstanding share, at December 31, 2003. This stockholders’ equity amount also reflects 2003 repurchases of 727,100 shares of MDC common stock, prior to the adjustment for the May 27, 2003 10% stock dividend, for an aggregate purchase price of $26,731,000. Homebuilding inventories grew by 21% in support of our increasing homebuilding operations. To finance our growth, we issued $350,000,000 of 5½% senior notes due in May 2013 (the "5½% Senior Notes") and maintained the capacity of our homebuilding line of credit at $600,000,000. Additionally, we redeemed our $175,000,000 8 3/8% senior notes due 2008 (the "8 3/8% Senior Notes"). Despite a $177,189,000 year-over-year increase in our corporate and homebuilding debt, we reported a decline in our year-end ratio of corporate and homebuilding debt-to-capital, net of cash, to 0.24. Finally, we ended the year with $779,000,000 in unrestricted cash and available borrowing capacity, which can be used to fund our growth in existing markets and expansion into new markets. The major credit rating agencies took notice of our strengthened financial position, with Moody’s Investors Service, Standard & Poor’s Ratings Services and Fitch Ratings upgrading the rating of our senior notes in 2003, all at the investment grade level. As a result, we have joined a group of only five homebuilding companies with investment grade ratings from all three agencies.

         We are a merchant homebuilder that is focused on maximizing risk-adjusted returns. While we will complete some level of development work on lots when the returns justify the risk, generally we will not develop master-planned communities. We attempt to operate within the highest demanded price points and product offerings in every market in which we build. We maintain a balance of products in each of our markets, offering homes in most price points, but focusing on the largest 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.

         We also seek to achieve a major market share in each of our markets. The markets in which we operate have been selected because of their potential for population and employment growth, and stability from a home-start standpoint. We attempt to establish homebuilding operations in the best markets in the country. When we enter a market, our goal is to be one of the top builders in that market. We have accomplished this goal in most of the markets entered since the mid-1980‘s, and we maintain the same objective in the new markets we have entered over the past two years.

         Our land strategy when opening a new homebuilding project generally is to acquire no more than a two-year supply of lots to avoid overexposure to any single sub-market. We prefer to acquire finished lots using rolling options or in phases for cash. However, we will acquire entitled land for development into finished lots when we determine that the risk is justified. Our Asset Management Committees, composed of members of our senior management, generally meet weekly to review all proposed land acquisitions and takedowns of lots under option. We are focused on increasing our land under option while reducing the percentage of land owned.

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Consolidated Results.

        The following discussion for both consolidated results of operations and segment results refers to the year ended December 31, 2003, compared with the same period in 2002, and the year ended December 31, 2002, compared with the same period in 2001. The table below summarizes our results of operations (in thousands, except per share amounts). Earnings per share for prior periods have been restated to reflect the effect of a 10% stock dividend distributed on May 27, 2003.

        2003 Compared With 2002.   The 26% increase in revenues primarily resulted from a 26% increase in the number of homes closed to 11,211, the most for any year in the our history.

        Income before income taxes increased 27% in 2003. The increase primarily was due to a 33% increase in homebuilding segment operating profit and a 17% increase in financial services segment operating profit. The homebuilding segment profit increase principally was the result of the home closing increases described above and a 110 basis point increase in Home Gross Margins (as defined below). The financial services segment profit increase primarily was due to a 46% increase in gains on sales of mortgage loans and a 19% increase in loan origination fees, partially offset by higher general and administrative expenses resulting from HomeAmerican’s expanded loan origination activity. These improvements in homebuilding and financial services operating profits more than offset a 40% increase in corporate general and administrative expenses and a $9,315,000 charge for expenses related to the redemption of our $175,000,000 8 3/8% senior notes due 2008.

        2002 Compared With 2001.  Revenues for the year ended December 31, 2002 increased by 9% over 2001. The increase primarily resulted from a 9% increase in the number of homes closed to 8,900.

        Income before income taxes increased 7% in 2002. The increase primarily was due to a 6% increase in homebuilding segment operating profit and a 15% increase in financial services segment operating profit. The homebuilding segment profit increase principally was a result of the home closing increase described above. In addition, no asset impairment charges were taken in 2002, while operating profits in 2001 were reduced by non-cash, pre-tax asset impairment charges of $7,041,000. The financial services segment profit increase primarily was due to a 41% increase in gains on sales of mortgage loans and a 7% increase in loan origination fees.

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Homebuilding Activities — 2003 Compared With 2002.

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        Home Sales Revenues and Homes Closed.   Home sales revenues in 2003 were the highest in our history, increasing 26% compared with 2002. The increase resulted from record home closings which reached 11,211 for the full year 2003, 26% higher than 2002.

        Our home closings were higher in 2003, compared with 2002, in all of our markets except Colorado. Home closings particularly were strong in Las Vegas and Arizona, primarily due to the strong demand for new homes in these markets. In addition, the newly entered Utah, Texas, and Florida markets contributed an increase of 429 home closings in 2003. We closed fewer homes in 2003, compared with 2002, in Colorado, primarily due to lower home orders in this market, resulting from fewer active subdivisions and the more challenging economic conditions experienced in this market.

        Average Selling Price Per Home Closed.  The average selling price per home closed remained relatively consistent at $254,300 in 2003, compared with $254,000 in 2002. Average selling prices increased in Maryland, Virginia and Arizona, primarily resulting from the ability to increase sales prices due to the strong demand for new homes in these markets throughout 2003. Also, a greater number of homes were closed in relatively higher-priced subdivisions in the above noted markets, as well as in Colorado and Utah. These increases were partially offset by the impact of increased home closings in Nevada, Utah, Texas and Florida, where selling prices are lower than the Company average. The following table displays our average selling price per home closed by market for the years indicated below (in thousands).

        Home Gross Margins.   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. Home Gross Margins were 24.1% for the year ended December 31, 2003, compared with 23.0% in 2002. The increase in Home Gross Margins primarily was attributable to our ability to raise home selling prices in many of our markets, as well as the impact of corporate initiatives directed at reducing construction costs. Additionally, insurance recoveries relating to warranty expenses incurred in prior periods for water intrusion issues in Colorado and reductions in previous estimates to complete land development and construction in certain markets contributed to this increase. These Home Gross Margin increases were offset partially by the impact of higher incentives in Colorado as well as a greater number of homes closed in 2003 in Florida, Utah and Texas, where Home Gross Margins were lower than the Company average.

        Future Home Gross Margins may be impacted adversely by (1) increased competition, thereby decreasing our ability to increase prices; (2) increases in the costs of subcontracted labor, finished lots, building materials and other resources, to the extent that market conditions prevent the recovery of increased costs through higher selling prices; (3) adverse weather; (4) shortages of subcontractor labor, finished lots and other resources, which can result in delays in the delivery of homes under construction; and (5) other general risk factors. See “Forward-Looking Statements” below.

        Orders for Homes and Backlog.   Home orders during 2003 particularly were strong in Nevada and Arizona, aided by the continued strong demand for new homes in these markets. Also, we received a combined 725 home orders in 2003 from our new markets in Utah, Dallas/Fort Worth, Houston and Florida. Colorado home orders were lower for 2003, compared with 2002, primarily resulting from the reduced number of active subdivisions and the challenging economic environment discussed above. We received net orders for 2,690 homes during the fourth quarter of 2003, 39% higher than net orders for 1,931 homes for the same period in 2002.

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        Record home orders received during 2003 contributed to the 39% increase in homes under contract but not yet delivered (“Backlog”) at December 31, 2003 to 5,593 homes with an estimated sales value of $1,600,000,000, compared with the Backlog of 4,035 homes with an estimated sales value of $1,120,000,000 at December 31, 2002. Assuming no significant change in market conditions or mortgage interest rates, we expect approximately 70% to 75% of our Backlog to close under existing sales contracts during the first nine months of 2004. 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.

         Marketing.  Marketing expenses (which include sales commissions, advertising, amortization of deferred marketing costs, model home expenses and other costs) totaled $162,148,000 in 2003, compared with $125,060,000 in 2002. The increase in 2003 primarily was due to (1) increased sales commissions resulting from our increased home sales revenues; (2) higher product advertising and deferred marketing amortization in connection with the increased number of active subdivisions and greater number of home closings in 2003; (3) increased sales overhead resulting from our expanding home sales activities; and (4) higher salaries and benefits attributable to our expanding homebuilding operations in new and existing markets.

        General and Administrative.   General and administrative expenses totaled $138,521,000 in 2003, compared with $105,482,000 in 2002. The increase in 2003 primarily was due to increased compensation and other administrative costs associated with the expanded operations in many of our markets, most notably Phoenix, Nevada, California and Virginia, and in our new markets of Salt Lake City, Dallas/Fort Worth, Houston, San Antonio, Jacksonville, West Florida, Philadelphia/Delaware Valley and Chicago.

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Homebuilding Activities - 2002 Compared With 2001.