MDC HOLDINGS INC, 10-K, 1999-03-09

MDC HOLDINGS INC
10-K, 1999-03-09
OPERATIVE BUILDERS

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<PAGE>

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 (FEE REQUIRED)

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

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)

DELAWARE 84-0622967
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

3600 SOUTH YOSEMITE STREET, SUITE 900 80237
DENVER, COLORADO (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(303) 773-1100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE/THE PACIFIC STOCK EXCHANGE
8 3/8% SENIOR NOTES DUE FEBRUARY 2008 NEW YORK STOCK EXCHANGE

</TABLE>

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. / /

AS OF FEBRUARY 22, 1999, 22,061,000 SHARES OF M.D.C. HOLDINGS, INC.
COMMON STOCK WERE OUTSTANDING, AND THE AGGREGATE MARKET VALUE OF THE SHARES
(BASED UPON THE CLOSING PRICE ON THAT DATE OF THE SHARES ON THE NEW YORK
STOCK EXCHANGE, INC. AS REPORTED ON THE COMPOSITE TAPE) HELD BY
NON-AFFILIATES WAS APPROXIMATELY $283,150,000.

DOCUMENTS INCORPORATED BY REFERENCE

PART III OF THIS FORM 10-K IS INCORPORATED BY REFERENCE FROM THE REGISTRANT'S
1998 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.

<PAGE>

M.D.C. HOLDINGS, INC.

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 1998

---------------

TABLE OF CONTENTS

PAGE
NO.
----
<S> <C>
PART I
ITEMS 1.
AND 2. BUSINESS AND PROPERTIES
(a) General Development of Business.................................... 1
(b) Financial Information About Industry Segments...................... 1
(c) Narrative Description of Business.................................. 1

ITEM 3. LEGAL PROCEEDINGS....................................................... 6

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................... 6

PART II
ITEM 5. MARKET PRICE OF COMMON STOCK AND RELATED SECURITY HOLDER MATTERS........ 7

ITEM 6. SELECTED FINANCIAL AND OTHER DATA....................................... 8

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS......................................................... 10

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS....................................... F-1

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.................................................. 21

PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................... 21

ITEM 11. EXECUTIVE COMPENSATION.................................................. 21

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......... 21

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................... 21

PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K......... 21

</TABLE>

(i)
<PAGE>

M.D.C. HOLDINGS, INC.

FORM 10-K

PART I

ITEMS 1 AND 2. BUSINESS AND PROPERTIES.

(a) GENERAL DEVELOPMENT OF BUSINESS

M.D.C. Holdings, Inc. is a Delaware Corporation originally
incorporated in Colorado in 1972. 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 home buyers.

(b) 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, 1998, 1997 and 1996.

MDC's business consists of two segments, homebuilding and financial
services. In its homebuilding segment, the Company builds and sells
single-family homes in metropolitan Denver and Colorado Springs, Colorado;
Northern Virginia and suburban Maryland; Northern and Southern California;
Phoenix and Tucson, Arizona; and Las Vegas, Nevada. The Company's financial
services segment consists principally of the operations of HomeAmerican.

The Company's strategy is to build homes generally for the
first-time and move-up buyer, the largest segments of prospective home
buyers. The base prices for these homes generally range from approximately
$80,000 to $330,000, although the Company builds homes with prices as high as
$885,000. The average sales prices of the Company's homes closed in 1998 and
1997 were $193,700 and $179,800, respectively.

When opening a new homebuilding project, the Company generally
acquires fewer than 150 lots to avoid overexposure to any single sub-market.
The Company prefers to acquire finished lots using rolling options or in
phases for cash. If potential returns justify the risk, land is acquired for
development. The Company's Asset Management Committee, composed of four
members of MDC's senior management, meets at least weekly to review all
proposed land acquisitions and takedowns of lots under option. Additional
information about MDC's 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, as the general contractor, supervises construction of all of its
projects and employs subcontractors for site development and home
construction. The Company generally builds single-family detached homes,
except in Virginia and Maryland, where we also build townhomes.

HomeAmerican is a full service mortgage lender, originating mortgage
loans primarily for MDC's home buyers. HomeAmerican has offices located in
each of MDC's markets. Because it provides mortgage loans to a majority of
MDC's home buyers, HomeAmerican is an integral part of MDC's homebuilding
business.

HOMEBUILDING SEGMENT.

GENERAL. Through its wholly owned Richmond American Homes
subsidiaries, MDC designs, builds and sells single-family homes. The Company
builds its homes principally on finished lots acquired using rolling options,
phased acquisitions, bulk purchases or land acquired for development. These
operations are financed primarily with publicly traded debt, bank lines of
credit and internally generated funds.

<PAGE>

The Company is one of the largest homebuilders in the United States.
MDC is a major regional homebuilder with a significant presence in a number
of selected growth markets. The Company is the largest homebuilder in
metropolitan Denver; among the top five homebuilders in Northern Virginia,
suburban Maryland, Tucson and Colorado Springs; among the top ten builders in
Phoenix and Las Vegas; and has a growing presence in Southern California and
the San Francisco Bay area. MDC believes a significant presence in its
markets enables it to compete effectively for home sales, land acquisitions
and subcontractor labor.

The Company builds quality homes at affordable prices, generally for
the first-time and move-up buyer. Approximately 74% of its homes closed in
1998 were in subdivisions targeted to the first-time and first-time move-up
buyer, compared with approximately 83% and 77% in 1997 and 1996, respectively.

The Company's operations are diversified geographically by state, as
shown in the following table of home sales revenues for the years 1996
through 1998 (dollars in thousands).

<TABLE>
<CAPTION>
TOTAL HOME SALES REVENUES PERCENT OF TOTAL
------------------------------------- ------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Colorado................ $ 439,600 $ 325,466 $ 327,256 36% 35% 37%
California.............. 275,682 188,893 182,131 22% 20% 21%
Arizona................. 218,110 154,875 154,875 18% 16% 18%
Nevada.................. 67,455 55,358 28,842 6% 6% 3%
Virginia................ 145,569 129,128 110,910 12% 14% 12%
Maryland................ 72,243 85,296 76,344 6% 9% 9%
---------- ---------- ---------- ---- ---- ----

Total............. $1,218,659 $ 939,016 $ 880,358 100% 100% 100%
---------- ---------- ---------- ---- ---- ----
---------- ---------- ---------- ---- ---- ----
</TABLE>

HOUSING. MDC builds homes in a number of basic series, each designed
to appeal to a different segment of the home buyer 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 location, optional
features and design specifications. The series of homes offered at a
particular location is based on customer preference, lot size and the area's
demographics.

Design centers are located in the Company's Denver, Phoenix,
Southern California and Nevada homebuilding divisions. Home buyers are able
to "customize" certain features of their homes by selecting options and
upgrades on display at the design centers. Home buyers can select finishes
and upgrades soon after they decide to purchase a Richmond American home. The
design centers, which are also planned for most of MDC's other divisions, 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 varying levels of inventories of unsold homes
in each of the markets in which it operates. Unsold homes in various stages
of completion allow the Company to meet the immediate and near-term demands
of prospective home buyers. In order to mitigate the risk of carrying excess
inventory, the Company has been reducing the number of its unsold homes under
construction. At December 31, 1998, MDC held approximately a four-week supply
of unsold homes in inventory, compared with a six-week supply at December 31,
1997 and a nine-week supply at December 31, 1996.

LAND ACQUISITION AND DEVELOPMENT. MDC purchases finished lots using
option contracts, in phases or in bulk for cash. When estimated potential
returns justify the risk, the Company acquires land for development into
finished lots. In making land purchases, MDC considers a number of factors,
including projected rates of return, sales prices of the homes to be built on
the lots, 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 which 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 as soon as practical after a contract for 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. "Home Gross Margins" are gross margins (home sales revenues less cost
of goods sold, which primarily includes land and

<PAGE>

construction costs, capitalized interest, a reserve for warranty expense, and
financing 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, normally on a "rolling" basis.
Generally, in a rolling 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 relinquishes the option deposit. This practice limits the
Company's risk and avoids a greater demand on its liquidity. At December 31,
1998, MDC had the right to acquire 7,729 lots under option agreements with
approximately $12,500,000 in total option deposits. 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 various undeveloped parcels of real estate, most of which
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 maximize the efficient use of 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, although
some lots may be sold to others. Certain undeveloped land also may be sold to
others before it is developed. See "FORWARD-LOOKING STATEMENTS" below.

The table below shows the carrying value of land and land under
development, by state, for the years ended 1996 through 1998 (in thousands).

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Colorado................................ $ 53,720 $ 62,093 $ 66,529
California.............................. 100,754 44,423 23,733
Arizona................................. 25,178 32,067 32,129
Nevada.................................. 20,027 17,342 14,412
Virginia................................ 11,292 21,081 25,210
Maryland................................ 6,209 16,006 20,914
--------- --------- ---------
Total............................... $ 217,180 $ 193,012 $ 182,927
--------- --------- ---------
--------- --------- ---------
</TABLE>

The table below shows the number of lots owned and under option, by
state, for the years ended 1996 through 1998.

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Lots Owned
Colorado.............................. 3,932 4,948 5,849
California............................ 1,769 654 488
Arizona............................... 1,836 1,531 1,651
Nevada................................ 848 586 616
Virginia.............................. 309 1,360 1,485
Maryland.............................. 231 387 434
----- ------ ------
Total............................... 8,925 9,466 10,523
----- ------ ------
----- ------ ------
Lots Under Option
Colorado.............................. 4,063 2,925 2,486
California............................ 552 787 538
Arizona............................... 1,492 435 654
Nevada................................ 405 - - 45
Virginia.............................. 903 925 1,228
Maryland.............................. 314 658 1,747
----- ------ ------
Total............................... 7,729 5,730 6,698
----- ------ ------
----- ------ ------

</TABLE>

<PAGE>

LABOR AND RAW MATERIALS. Generally, the materials used in MDC's
homebuilding operations are standard items carried by major suppliers. The
Company generally takes orders only for homes for which the Company can
contract for most of its materials and labor at a fixed price during the
anticipated construction period or for homes that already are under
construction. 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 costs 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. To varying degrees, the
Company experienced shortages in the availability of building materials or
labor in 1998 in each of its markets, which resulted in delays in the
delivery of homes under construction. The Company may experience shortages
and delays in the future which 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 business is seasonal to the
extent that its Colorado, California, Virginia and Maryland operations
encounter weather-related slowdowns. Delays in development and construction
activities resulting from adverse weather conditions increase the Company's
risk of higher costs for interest, materials and labor. In addition, home
buyer preferences and demographics influence the seasonal nature of MDC's
business.

BACKLOG. As of December 31, 1998 and 1997, homes under contract but
not yet delivered ("Backlog") totalled 2,930 and 2,032, respectively, with
estimated sales values of $580,000,000 and $380,000,000, respectively. Based
on its past experience, assuming no significant change in market conditions
and mortgage interest rates, MDC anticipates that approximately 70% of its
December 31, 1998 Backlog will close under existing sales contracts during
the first nine months of 1999. The remaining 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 homes, MDC primarily uses
on-site model homes, advertisements in local newspapers, radio, billboards
and other signage, magazines and illustrated brochures. All of MDC's homes
are sold with a ten-year limited warranty issued by an unaffiliated warranty
company.

TITLE AND CASUALTY INSURANCE OPERATIONS. In 1998, the Company
provided title agency services to MDC home buyers in Virginia and Maryland.
MDC also began offering home owners and auto insurance to its Colorado home
buyers in 1998. The Company intends to evaluate opportunities to provide
these title agency and insurance services in its other markets. See
"FORWARD-LOOKING STATEMENTS" below.

COMPETITION. The homebuilding industry is fragmented and highly
competitive. MDC competes with numerous homebuilders, including a number that
are substantially 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, warranty service and general reputation in
the community. The Company also competes with subdivision developers and land
development companies.

MORTGAGE INTEREST RATES. The Company's 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 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, plumbing and electrical 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.

<PAGE>

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 which 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 considerations 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
(collectively, "Environmental Laws"). Due to these considerations, the
Company generally obtains an environmental site assessment for parcels of
land which it acquires. The particular Environmental Laws which 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 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.

FINANCIAL SERVICES SEGMENT.

Mortgage Lending Operations.

GENERAL. HomeAmerican is a full-service mortgage lender. Through
office locations in each of the Company's markets, HomeAmerican originates
mortgage loans primarily for MDC's home buyers and, to a lesser extent, for
others on a "spot" basis. HomeAmerican is the principal originator of
mortgage loans for MDC's home buyers.

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 is also
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. Through early 1999, HomeAmerican also
purchased loans and the related servicing rights from unaffiliated loan
correspondents. The origination fees for these loans were retained by the
correspondents. HomeAmerican does not intend to purchase mortgage loans from
correspondents in the future. See "FORWARD-LOOKING STATEMENTS" below.

Substantially all of the mortgage loans originated or purchased by
HomeAmerican are sold to private investors within 40 days of origination or
purchase. 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, for which the
servicer is paid a fee. HomeAmerican obtains the servicing rights related to
the mortgage loans originated by it and its correspondents. Certain mortgage
loans are sold "servicing released" (the servicing rights are included with
the sale of the corresponding mortgage loans). The servicing rights on
mortgage loans which are not sold "servicing released" generally are sold in
bulk at a later date. HomeAmerican has sold, and intends to sell in the
future, mortgage loan servicing. See "FORWARD-LOOKING STATEMENTS" below.

HomeAmerican's portfolio of mortgage loan servicing at December 31,
1998 consisted of servicing rights with respect to approximately 5,300
single-family loans, approximately 89% of which were less than two years old.
These loans are secured by mortgages on properties in eight states, with
interest rates on the loans ranging from approximately 5.5% to 11.5% and
averaging 7.0%. The underlying value of a servicing portfolio generally is
determined based on the interest rates and the annual servicing fee rates
(currently .44% for FHA/VA loans and

<PAGE>

.25% for conventional loans) applicable to the loans comprising the
portfolio. Significant changes in mortgage interest rates may impact the
value of the Company's servicing portfolio.

PIPELINE. HomeAmerican's mortgage loans in process which had not
closed ("Pipeline") at December 31, 1998 had aggregate principal balances of
$386,350,000. Approximately 70% of the Pipeline at December 31, 1998 is
anticipated to close during the first six months of 1999. If mortgage
interest rates fall, a smaller percentage of these loans would be expected to
close. See "FORWARD-LOOKING STATEMENTS" below.

FORWARD SALES COMMITMENTS. HomeAmerican's operations are affected
by, among other things, changes in mortgage interest rates. HomeAmerican
utilizes forward mortgage securities contracts to manage the interest rate
risk on its fixed-rate mortgage loans owned and rate-locked mortgage loans in
the Pipeline. Such contracts are the only significant financial derivative
instrument utilized by MDC.

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.

Asset Management Operations.

Through September 30, 1996, Financial Asset Management LLC (an
indirect subsidiary of M.D.C. Holdings, Inc.; "FAMC") managed by contract the
operations of two publicly traded real estate investment trusts. In September
1996, the Company sold its 80% interest in FAMC. See Note K to the Company's
Consolidated Financial Statements. Due to the sale of FAMC, the Company does
not expect to engage in significant asset management activities in the
future. See "FORWARD-LOOKING STATEMENTS" below.

EMPLOYEES.

At December 31, 1998, MDC employed approximately 1,350 persons. MDC
considers its employee relations to be satisfactory.

ITEM 3. LEGAL PROCEEDINGS.

The Company and certain of its subsidiaries and affiliates have been
named as defendants in various claims, complaints and other legal actions
arising in the normal course of business. In the opinion of management, the
outcome of these matters will not have a material adverse effect upon the
financial condition, results of operations or cash flows of the Company. See
"FORWARD-LOOKING STATEMENTS" below.

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.

The Company is not aware of any litigation, matter or pending claim
against the Company which would result in material contingent liabilities
related to environmental hazards or asbestos.

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 1998.

<PAGE>

PART II

ITEM 5. MARKET PRICE OF COMMON STOCK AND RELATED SECURITY HOLDER MATTERS.

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 high and low sale prices of the shares of MDC common stock as
reported on the Composite Tape.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1997
First quarter.................. $ 10.00 $ 8.13
Second quarter................. $ 9.25 $ 7.75
Third quarter.................. $ 11.00 $ 9.06
Fourth quarter................. $ 15.31 $ 9.69

1998
First quarter.................. $ 18.88 $ 14.00
Second quarter................. $ 20.00 $ 13.00
Third quarter.................. $ 24.00 $ 14.63
Fourth quarter................. $ 21.94 $ 13.19

</TABLE>

The Company declared dividends of four cents per share for the first
three quarters of 1998, five cents per share for the quarter ended December
31, 1998, and three cents per share for each quarter for the year ended
December 31, 1997.

In connection with the declaration and payment of dividends, the
Company is required to comply with certain covenants contained in (1) its
$300,000,000 unsecured revolving line of credit agreement; and (2) its 8 3/8%
Senior Notes due 2008 (the "New Senior Notes") indenture dated January 1998.
Pursuant to the terms of these agreements, dividends may be declared or paid
if the Company is in compliance with certain stockholders' equity and debt
coverage tests. At December 31, 1998, the Company had a permitted dividend
capacity of approximately $54,932,000 pursuant to the most restrictive of
these covenants.

On February 22, 1999, MDC had 1,392 shareowners of record.

<PAGE>

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 and the notes
thereto presented elsewhere herein (in thousands, except per share amounts).

SELECTED FINANCIAL DATA

Operating profit
Homebuilding......................... $ 86,764 $ 41,543 $ 27,967 $ 33,018 $ 44,464
Financial services
Mortgage lending................... 11,198 7,745 12,584 9,288 6,951
Asset management................... 4,590 1,434 6,073 4,050 2,796
----------- ----------- ----------- ----------- -----------
Total financial services....... 15,788 9,179 18,657 13,338 9,747
----------- ----------- ----------- ----------- -----------
Net corporate expenses(1)............... (18,700) (11,395) (13,870) (19,705) (23,229)
----------- ----------- ----------- ----------- -----------
Income before income taxes and
extraordinary item................... $ 83,852 $ 39,327 $ 32,754 $ 26,651 $ 30,982
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Income before extraordinary item........ $ 51,568 $ 24,205 $ 20,799 $ 17,250 $ 19,255
Basic per common share(2)............ $ 2.79 $ 1.37 $ 1.12 $ .89 $ 1.02
Diluted per common share(2).......... $ 2.32 $ 1.18 $ .98 $ .79 $ .87

Net income(3)........................... $ 36,254 $ 22,026 $ 20,378 $ 17,250 $ 19,255
Basic per common share(2)............ $ 1.96 $ 1.25 $ 1.09 $ .89 $ 1.02
Diluted per common share(2).......... $ 1.64 $ 1.08 $ .97 $ .79 $ .87

Weighted-average shares outstanding(2)
Basic................................ 18,451 17,673 18,623 19,362 18,951
Diluted.............................. 22,606 21,899 22,763 23,737 24,019

Dividends paid per share................ $ .15 $ .12 $ .12 $ .11 $ .06

</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
ASSETS
Housing completed or under
construction....................... $ 294,104 $ 249,928 $ 251,885 $ 265,205 $ 280,319
Land and land under development...... $ 217,180 $ 193,012 $ 182,927 $ 176,960 $ 183,838
Total assets......................... $ 714,013 $ 621,770 $ 617,303 $ 634,811 $ 664,571
DEBT
Homebuilding
Line of credit..................... $ 21,871 $ 20,766 $ 11,832 $ 43,490 $ 62,332
Notes payable...................... $ 866 $ 9,676 $ 3,063 $ 10,571 $ 33,585
Senior notes......................... $ 174,339 $ 150,354 $ 187,721 $ 187,525 $ 187,352
Subordinated notes................... $ -- $ 38,230 $ 38,225 $ 38,221 $ 38,217
Total homebuilding and corporate
debt............................... $ 197,076 $ 222,457 $ 244,328 $ 283,344 $ 325,069
STOCKHOLDERS' EQUITY.................... $ 298,131 $ 229,593 $ 213,847 $ 205,033 $ 192,295
RATIO OF HOMEBUILDING AND CORPORATE
DEBT TO STOCKHOLDERS' EQUITY......... .66 .97 1.14 1.38 1.69
RATIO OF HOMEBUILDING AND CORPORATE
DEBT TO CAPITAL (EXCLUDING MORTGAGE
LENDING DEBT)........................ .40 .49 .53 .58 .63

</TABLE>

8
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Home sales revenues.................. $ 1,218,659 $ 939,016 $ 880,358 $ 827,448 $ 784,453
Orders for homes, net (units)........ 7,191 5,769 5,049 4,536 4,177
Homes closed (units)................. 6,293 5,223 4,974 4,570 4,200
Backlog
Units(4)........................... 2,930 2,032 1,486 1,355 1,334
Estimated sales value(4)........... $ 580,000 $ 380,000 $ 261,000 $ 243,000 $ 241,900
Average selling price per home ...... $ 193.7 $ 179.8 $ 177.0 $ 181.1 $ 186.8
Home Gross Margins................... 16.9% 14.5% 13.7% 13.4% 15.4%
Asset impairment charges............. $ 5,300 $ 5,850 $ 9,191 $ 3,677 $ 4,000

CASH FLOWS FROM:
Operating activities................. $ 800 $ 18,516 $ 47,925 $ 22,553 $ (36,790)
Investing activities................. $ 15,081 $ 3,513 $ 13,998 $ 8,728 $ 19,268
Financing activities................. $ (17,480) $ (21,655) $ (71,414) $ (54,050) $ (1,917)
CORPORATE AND HOMEBUILDING SG&A AS A %
OF HOME SALES REVENUES............... 11.5% 11.0% 11.0% 10.9% 11.3%

</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
EBITDA, AS ADJUSTED(5)
Income before extraordinary item..... $ 51,568 $ 24,205 $ 20,799 $ 17,250 $ 19,255
Add
Income taxes..................... 32,284 15,122 11,955 9,401 11,727
Corporate and homebuilding
interest expense............... - - 761 3,773 7,773 9,454
Interest in cost of sales........ 34,184 28,361 25,995 28,397 26,548
Other fixed charges.............. 953 797 1,165 2,492 2,872
Depreciation and amortization.... 20,228 15,050 12,067 10,280 10,134
Non-cash charges
Homebuilding asset
impairment charges........ 5,300 5,850 9,191 3,677 4,000
Other........................ - - - - 533 - - 800
----------- ----------- ----------- ----------- -----------
Total EBITDA, as adjusted............ $ 144,517 $ 90,146 $ 85,478 $ 79,270 $ 84,790
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Interest incurred.................... $ 22,525 $ 26,368 $ 30,296 $ 33,909 $ 35,799

EBITDA, AS ADJUSTED/INTEREST INCURRED... 6.4 3.4 2.8 2.3 2.4

</TABLE>

- -------------------

(1) Net corporate expenses represent (a) net gains and losses on investments
and marketable securities; (b) interest, dividend and other income; (c)
corporate general and administrative expense; and (d) corporate and
homebuilding interest expense.

(2) Based upon the adoption of Statement of Financial Accounting Standards
No. 128, "Earnings per Share" ("SFAS 128").

(3) Includes the effects of extraordinary after-tax losses on the early
extinguishment of debt resulting principally from (a) in 1998, the
refinancing of MDC's 11 1/8% Senior Notes due 2003 (the "Old Senior
Notes"); (b) in 1997, the repurchase of $38,000,000 principal amount of
the Old Senior Notes; and (c) in 1996, certain other debt extinguishments.

(4) At end of period.

(5) "EBITDA, as adjusted" has been computed in accordance with the definition
of "Consolidated EBITDA" set forth under the New Senior Notes indenture.
Under this definition, EBITDA, as adjusted, is calculated by adding to net
income the provision for income tax, depreciation, amortization, interest
expense and other non-cash, extraordinary charges that reduce net income,
including asset impairment charges. EBITDA, as adjusted, should not be
considered an alternative to operating income determined in accordance
with generally accepted accounting principles ("GAAP") as an indicator of
operating performance, nor an alternative to cash flows from operating
activities determined in accordance with GAAP as a measure of liquidity.
Because some analysts and companies may not calculate EBITDA, as adjusted,
in the same manner as MDC, the EBITDA, as adjusted, information presented
above may not be comparable to similar presentations by other companies.
MDC's management believes that EBITDA, as adjusted, reflects the changes
in the Company's operating results, particularly changes in the Company's
operating income, and is an indication of MDC's ability to generate funds
from operations that are available to pay income taxes, interest and
principal on debt and to meet other cash obligations.

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

RESULTS OF OPERATIONS

CONSOLIDATED RESULTS.

1998 COMPARED WITH 1997. Revenues for the year ended December 31,
1998 were $1,263,209,000, the highest in the Company's history and a 30%
increase from 1997. The increase primarily resulted from a 20% increase in
home closings and a $13,900 increase in the average selling price per home
closed.

Income before income taxes and extraordinary item increased 113% to
$83,852,000 in 1998. The increase primarily was due to the increased
profitability of the homebuilding and financial services segments. The
homebuilding segment increase principally was a result of the home closing
and average selling price increases described above and an increase of 240
basis points in Home Gross Margins. The financial services segment increase
primarily resulted from increased mortgage lending profits and a $4,450,000
gain resulting from the receipt of the final payment related to the September
1996 sale of the Company's asset management business.

During 1998, the Company continued to strengthen its balance sheet
and improve the efficiency of its operations. By December 31, 1998, the
Company had reduced its investment in unsold homes under construction by 18%
to $44,000,000, decreased homebuilding and corporate indebtedness by
$25,000,000 to $197,000,000, and increased its equity by 30% to $298,000,000,
or $13.56 per outstanding share. These improvements contributed to a
reduction in the Company's ratio of homebuilding and corporate debt to
capital (excluding mortgage lending debt) to .40 at December 31, 1998. Lower
effective interest rates on the Company's outstanding debt contributed to a
15% reduction in the Company's corporate and homebuilding interest incurred
for 1998. This reduction, combined with a $54,400,000 increase in the
Company's 1998 EBITDA, as adjusted, resulted in a ratio of EBITDA, as
adjusted, to interest incurred of 6.4, 88% higher than the comparable ratio
of 3.4 for 1997.

1997 COMPARED WITH 1996. Revenues for the year ended December 31,
1997 were $969,562,000, a 5% increase compared with 1996. The increase
primarily resulted from a 5% increase in home closings and a $2,800 increase
in the average selling price per home closed, partially offset by a reduction
in financial services segment revenues, principally due to the sale of FAMC
in September 1996.

Income before income taxes and extraordinary item increased 20% in
1997. The increase primarily was due to the increased profitability of the
homebuilding segment and lower corporate and homebuilding interest expense,
partially offset by decreased profits from the Company's financial services
segment. The homebuilding segment increase principally was a result of the
home closing and average selling price increases described above; an increase
of 80 basis points in Home Gross Margins; and reduced asset impairment
charges. The Company's financial services segment experienced lower operating
profits in 1997, primarily due to a $4,042,000 gain recognized in 1996 on the
sale of FAMC and additional profits recognized in 1996 as a result of a
required change in accounting principle regarding mortgage loans and mortgage
loan servicing rights.

Net income for 1997 included an extraordinary loss of $2,179,000,
net of an income tax benefit of $1,336,000, as discussed above. Net income
for 1996 included an extraordinary loss of $421,000, net of an income tax
benefit of $242,000, recognized in connection with the retirement of
borrowings under certain secured lines of credit and project loans.

<PAGE>

HOMEBUILDING SEGMENT.

The table below sets forth information relating to the Company's
homebuilding segment (dollars in thousands).

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Home Sales Revenues......................... $ 1,218,659 $ 939,016 $ 880,358
Operating Profits........................... $ 86,764 $ 41,543 $ 27,967
Average Selling Price Per Home Closed....... $ 193.7 $ 179.8 $ 177.0
Home Gross Margins.......................... 16.9% 14.5% 13.7%

Orders For Homes, Net (UNITS)
Colorado............................... 2,742 2,039 1,811
California............................. 1,042 938 822
Arizona................................ 1,829 1,297 1,041
Nevada................................. 540 434 260
Virginia............................... 710 650 649
Maryland............................... 328 411 466
----------- ----------- -----------
Total................................ 7,191 5,769 5,049
----------- ----------- -----------
----------- ----------- -----------

Homes Closed (UNITS)
Colorado............................... 2,267 1,735 1,893
California............................. 986 828 837
Arizona................................ 1,526 1,135 1,044
Nevada................................. 489 437 231
Virginia............................... 667 642 568
Maryland............................... 358 446 401
----------- ----------- -----------
Total................................ 6,293 5,223 4,974
----------- ----------- -----------
----------- ----------- -----------

</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Backlog (UNITS)

Colorado............................... 1,355 880 576
California............................. 326 270 160
Arizona................................ 696 393 231
Nevada................................. 146 95 98
Virginia............................... 254 211 203
Maryland............................... 153 183 218
----------- ----------- -----------
Total................................ 2,930 2,032 1,486
----------- ----------- -----------
----------- ----------- -----------
Estimated Sales Value................ $ 580,000 $ 380,000 $ 261,000
----------- ----------- -----------
----------- ----------- -----------

Active Subdivisions
Colorado............................... 45 48 51
California............................. 21 12 20
Arizona................................ 24 29 23
Nevada................................. 9 6 5
Virginia............................... 20 23 28
Maryland............................... 11 19 25
----------- ----------- -----------
Total................................ 130 137 152
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

<PAGE>

HOMEBUILDING ACTIVITIES - 1998 COMPARED WITH 1997.

HOME SALES REVENUES AND HOMES CLOSED. Home sales revenues in 1998
were the highest in the Company's history and represented a 30% increase
compared with home sales revenues in 1997. The increase resulted from an
increase in both home closings and average selling price per home closed, as
further discussed below.

In Colorado and Arizona, home closings increased in 1998 by 31% and
34%, respectively, as a result of the strong demand for homes in these
markets and substantially higher Backlog levels in 1998 compared with 1997.
Home closings increased by 28% and 12% in Southern California and Nevada,
respectively, where the Company increased the number of active subdivisions
by more than 40% as of December 31, 1998 compared with December 31, 1997. In
Maryland, home closings decreased in 1998, primarily due to a decrease in the
number of active subdivisions to 11 at the end of 1998 compared with 19 at
the end of 1997. Home closings also decreased in Northern California in 1998,
because the Company exited the Sacramento market and no homes were closed in
the three new active subdivisions in the San Francisco Bay area.

AVERAGE SELLING PRICE PER HOME CLOSED. The average selling price per
home closed increased to $193,700 in 1998, compared with $179,800 in 1997.
This increase primarily resulted from (1) a greater number of homes closed in
relatively higher-priced subdivisions in Southern California, Phoenix and
Nevada; (2) a higher proportion of detached homes closed in Virginia and
Maryland, which generally have higher selling prices than townhomes; and (3)
selling price increases in most of the Company's markets, particularly in
Southern California and Colorado.

HOME GROSS MARGINS. Home Gross Margins increased 240 basis points in
1998. The increase largely was due to (1) in Colorado, selling price
increases and reduced incentives offered to home buyers due to the increased
demand for new homes in this market; (2) in Colorado and Arizona, the
favorable impact of a number of home closings in several highly profitable
subdivisions; (3) a decrease in the cost of certain raw materials from
suppliers and manufacturers pursuant to national purchasing contracts; and
(4) initiatives implemented in each of the Company's markets designed to
improve operating efficiency, control costs and increase rates of return.

ORDERS FOR HOMES AND BACKLOG. Orders for homes increased 25% to
7,191 in 1998, representing the highest number of orders in the Company's
history. The increase primarily was due to comparatively strong home orders
experienced in all of the Company's markets, except Maryland and Northern
California, in response to an improved economy marked by decreasing mortgage
interest rates, low unemployment, high levels of consumer confidence,
improved home affordability and low inventories of new homes.

As a result of the increased orders for homes during 1998, the
Company's Backlog at December 31, 1998 increased 44% from December 31, 1997
to 2,930 units, with an estimated sales value of $580,000,000, the highest
year-end Backlog in the Company's history. Assuming no significant change in
market conditions or mortgage interest rates, the Company expects
approximately 70% of its December 31, 1998 Backlog to close under existing
sales contracts during the first nine months of 1999. The remaining 30% of
the homes in Backlog are not expected to close under existing contracts due
to cancellations. See "FORWARD-LOOKING STATEMENTS" below.

The Company received a total of 1,359 home orders in January and
February 1999, compared with the record 1,489 home orders received for the
same period in 1998. The two-month home orders in 1999 were approximately
equal on a "same store" basis to the home orders received for the same period
in 1998. Orders for the 1998 two-month period were 59% higher than the total
home orders received in January and February 1997.

MARKETING. Marketing expenses (which include, among other things,
amortization of deferred marketing costs, model home expenses and sales
commissions) totalled $74,463,000 in 1998, compared with $61,139,000 in 1997.
The increases in 1998 primarily were volume related, resulting from higher
marketing-related salaries, benefits and sales commissions incurred and
deferred marketing costs amortized in connection with the increased number of
home closings and product advertising and other costs incurred in connection
with the Company's expanded operations, particularly in Colorado and Southern
California. As a result, these expenses actually declined as a percentage of
home sales revenues to 6.1% in 1998 from 6.5% in 1997.

GENERAL AND ADMINISTRATIVE. General and administrative expenses
totalled $45,905,000 in 1998, compared with $30,557,000 in 1997. The increase
primarily was due to increased compensation costs resulting from expanded
operations in each of the Company's markets except Northern California and
Maryland; the write-off of

<PAGE>

due diligence costs and deposits with respect to certain proposed
homebuilding projects which were not acquired and additional costs associated
with new branch offices in Southern California and design centers in Southern
California and Phoenix.

ASSET IMPAIRMENT CHARGES. Operating results were reduced by asset
impairment charges totalling $5,300,000, $5,850,000 and $9,191,000 in 1998,
1997 and 1996, respectively, related to certain of the Company's homebuilding
assets, primarily in suburban Maryland. The Company's assets to which these
asset impairment charges relate are summarized as follows (in thousands).

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Completed homes and homes under construction... $ 888 $ 1,916 $ 220
Land under development and other............... 4,412 3,934 8,971
-------- ------- -------
Total.................................... $ 5,300 $ 5,850 $ 9,191
-------- ------- -------
-------- ------- -------
</TABLE>

The asset impairment charges described above primarily were the
result of the (1) recognition of losses anticipated from the closing of
certain homes in Backlog and from the reduction of selling prices and the
offering of increased incentives to stimulate sales of certain completed
unsold homes in inventory; (2) write-down to fair value of certain
subdivisions which experienced slow sales and negative Home Gross Margins;
and (3) write-off of other capitalized costs, primarily deferred marketing
and option deposits, related to several low margin projects or projects which
the Company intends to terminate. See Note H to the Company's Consolidated
Financial Statements.

HOMEBUILDING ACTIVITIES - 1997 COMPARED WITH 1996.

HOME SALES REVENUES AND HOMES CLOSED. Home sales revenues in 1997
increased 7%, compared with home sales revenues in 1996. The increase
resulted from higher home closings and average selling price per home closed,
as further discussed below.

Home closings increased in 1997 in Nevada, where the Company
increased the number of active subdivisions and improved the number of home
closings per active subdivision; in Southern California, resulting from the
Company's expanded operations and improved economic conditions in that
market; in Virginia and Maryland, primarily due to weather-related delays in
the completion and delivery of homes during much of 1996; and in Arizona, due
to an increase in the number of active subdivisions and a higher level of
home closings per active subdivision resulting from the Company's increasing
emphasis in this market on offering lower-priced, more affordable homes
primarily marketed to the first-time and first-time move-up home buyer.

In Colorado, home closings decreased in 1997 primarily due to a
lower Backlog throughout most of the first half of 1997. In addition, the
Company built fewer unsold homes in Colorado in the last half of 1997, which
had the effect of lengthening the time between the sale of a home and the
time it is closed while, at the same time, reducing the Company's risk of
holding unsold homes inventory. Home closings also decreased in Northern
California in 1997, because the Company exited the Sacramento market and had
only one active subdivision in the San Francisco Bay area.

AVERAGE SELLING PRICE PER HOME CLOSED. The average selling price per
home closed increased to $179,800 in 1997, compared with $177,000 in 1996.
This increase primarily resulted from higher average selling prices in
Colorado and California, principally due to the impact of closing a greater
number of homes in higher-priced subdivisions in 1997, partially offset by
decreased average selling prices in Arizona, reflecting the impact of the
Company's emphasis on offering lower-priced, more affordable homes in this
market, as discussed above.

HOME GROSS MARGINS. Home Gross Margins increased 80 basis points in
1997. The increase largely was due to the favorable impact of a large number
of home closings in certain highly profitable subdivisions, particularly in
Arizona and Southern California; in Nevada, the completion of several
under-performing subdivisions during 1996 and the closing of homes in four
new higher-margin subdivisions in 1997; and initiatives implemented in each
of the Company's markets designed to improve operating efficiency, control
costs and increase rates of return.

<PAGE>

ORDERS FOR HOMES AND BACKLOG. Orders for homes increased to 5,769 in
1997, compared with 5,049 home orders in 1996. The increase primarily was due
to comparatively strong home orders experienced in all of the Company's
markets except Virginia, Maryland and Northern California in response to an
improving national economy stimulated by decreasing mortgage interest rates,
low unemployment and high levels of consumer confidence.

As a result of the increased orders for homes during 1997, the
Company's Backlog at December 31, 1997 increased to 2,032 units, with an
estimated sales value of $380,000,000.

MARKETING. Marketing expenses totalled $61,139,000 in 1997, compared
with $56,078,000 in 1996. The increase in 1997 was due to higher variable
costs incurred as a result of increased home closings; cost increases
incurred in connection with the Company's expanded operations in Southern
California, Arizona and Nevada; and additional advertising and model home
expenses incurred to stimulate sales in response to increased competition in
Colorado, Arizona, Virginia and Maryland.

GENERAL AND ADMINISTRATIVE. General and administrative expenses
totalled $30,557,000 in 1997, compared with $29,122,000 in 1996. The increase
primarily was due to additional costs incurred in support of expanded
operations in Southern California and Arizona.

ASSET IMPAIRMENT CHARGES. As discussed above, operating results
during 1997 and 1996 were reduced by asset impairment charges totalling
$5,850,000 and $9,191,000, respectively.

WARRANTY COSTS. During 1996, the Company recorded additional
warranty reserves resulting in part from the settlement of litigation
commenced in 1994 and settled in 1996. The impact in the Consolidated
Statements of Income of the additional warranty reserves related to the
litigation settlement was offset by indemnity payments received from
insurance and deposited directly into a qualified settlement fund.

LAND SALES.

Revenue from land sales totalled $13,964,000, $9,978,000 and
$9,471,000, respectively, in 1998, 1997 and 1996. The 1998 land sales
revenues primarily were in Colorado and, to a lesser extent, in Virginia.
Gross profits from these sales were $4,264,000, $2,238,000 and $698,000,
respectively, for the years 1998, 1997 and 1996.

<PAGE>

FINANCIAL SERVICES SEGMENT.

MORTGAGE LENDING OPERATIONS.

The table below sets forth information relating to HomeAmerican's
operations (dollars in thousands).

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Gains on Sales of Mortgage Servicing.............. $ 2,512 $ 1,739 $ 6,020
Gains on Sales of Mortgage Loans.................. $ 8,575 $ 6,182 $ 4,905

Operating Profits................................. $ 11,198 $ 7,745 $ 12,584

Principal Amount of Loan Originations and
Purchases
MDC home buyers.............................. $ 701,679 $ 525,687 $ 482,106
Spot......................................... 54,147 31,841 39,730
Correspondent................................ 157,107 74,654 60,373
--------- --------- ---------
Total.................................... $ 912,933 $ 632,182 $ 582,209
--------- --------- ---------
--------- --------- ---------
Capture Rate..................................... 70% 68% 66%
--------- --------- ---------
--------- --------- ---------
</TABLE>

HomeAmerican's operating profits increased 45% in 1998, compared
with 1997, primarily due to higher mortgage origination volume and increased
gains on sales of mortgage loans and mortgage servicing. These increases
partially were offset by higher general and administrative expenses resulting
from increased mortgage lending activity.

HomeAmerican's operating profits were lower in 1997, compared with
1996, primarily due to decreases in gains from sales of mortgage servicing,
which partially were offset by an increase in gains from sales of mortgage
loans. These differences principally resulted from sales of mortgage loans
and mortgage loan servicing in 1996 which were originated prior to the
Company's required adoption, on January 1, 1996, of Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights, an
Amendment of FASB Statement No. 65" ("SFAS 122"), which was superseded by
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS 125") on January 1, 1997.

The principal amount of HomeAmerican's loan originations and
purchases increased 44% in 1998, compared with 1997. This increase primarily
was due to (1) more Company home closings; (2) a higher number of mortgage
loans originated by HomeAmerican for MDC home buyers as a percentage of total
MDC home closings ("Capture Rate"); and (3) more loans purchased from
correspondents. HomeAmerican continues to benefit from the Company's
homebuilding growth. Company home buyers were the source of approximately 77%
of the principal amount of mortgage loans originated and purchased by
HomeAmerican in 1998, compared with 80% in both 1997 and 1996.

ASSET MANAGEMENT OPERATIONS.

The following table sets forth certain information with respect to
the results of the asset management operations (in thousands).

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Gain on Sale of FAMC............................. $ 4,450 $ 1,000 $ 4,042
Management Fees from REITs....................... $ -- $ -- $ 2,373

Operating Profit................................. $ 4,590 $ 1,434 $ 6,073

</TABLE>

The increased operating profit in 1998, compared with 1997, resulted
from a $4,450,000 pre-tax gain resulting from receipt of the final payments
related to the sale of FAMC in September 1996. The decreased

<PAGE>

operating profit in 1997, compared with 1996, primarily was due to the
$4,042,000 gain recognized in 1996 on the sale of FAMC. See Note K to the
Company's Consolidated Financial Statements.

Due to the sale of FAMC and the fact that the Company does not
anticipate making additional mortgage-related investments, future operating
results related to the asset management operations are expected to be
immaterial. See "FORWARD-LOOKING STATEMENTS" below.

OTHER OPERATING RESULTS.

INTEREST EXPENSE. The Company capitalizes interest on its
homebuilding inventories during the period of active development and through
the completion of construction. Corporate and homebuilding interest incurred
but not capitalized is reflected as interest expense, and totalled zero for
1998, compared with $761,000 and $3,773,000, respectively, for 1997 and 1996.
Corporate and homebuilding interest incurred decreased to $22,525,000 in
1998, compared with $26,368,000 in 1997 and $30,296,000 in 1996, primarily
due to lower effective interest rates with respect to the Company's
outstanding debt.

For a reconciliation of interest incurred, capitalized and expensed,
see Note I to the Company's Consolidated Financial Statements.

CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES. Corporate general and
administrative expenses totalled $19,728,000 for 1998, compared with
$11,849,000 and $11,578,000, respectively, for 1997 and 1996. The increase in
1998, compared with 1997, primarily was due to higher compensation expense
related to the Company's higher profitability and expanding operations and
the recognition in 1997 of a $2,032,000 offset to legal expense for insurance
recoveries received and the reversal of insurance-related reserves no longer
required. The slight increase in 1997, compared with 1996, primarily was due
to higher compensation expense and costs associated with the Company's
efforts related to the "Year 2000" issue (as discussed below), partially
offset by the favorable impact in 1997 of insurance recoveries and a reversal
of reserves no longer required, as well as reduced debt-related fixed charges
and insurance costs.

"YEAR 2000" ISSUE. The Company began assessing the possible impact
of the Year 2000 ("Y2K") issue on its business operations in 1997. The issue
arises because of information technology ("IT") which utilizes a two digit
date field. Y2K introduces the potential for errors and miscalculations
related to IT and non-IT systems which were not designed to accommodate a
date of year 2000 and beyond.

The Company has identified the following six phases in its Y2K
remediation program: (1) assessment of the Y2K capabilities of its IT and
non-IT systems; (2) acquisition of new IT and non-IT systems or modification
of existing IT and non-IT systems to meet Y2K requirements; (3) testing; (4)
evaluation of efforts to meet Y2K requirements; (5) adjustments as identified
in the evaluation phase; and (6) implementation and integration of modified
IT and non-IT systems into the Company's business operations.

The Company has completed all six phases with respect to its
homebuilding information system and believes it has been Y2K compliant since
the third quarter of 1998. Management information systems for the Company's
financial services activities have been assessed, acquired, tested and
evaluated, and require further adjustment. Implementation of these adjusted
systems is expected to be completed in the second quarter of 1999. Given the
nature of the homebuilding industry, the Company is only minimally dependent
upon non-IT systems such as telephone, security systems and time clocks. With
respect to such non-IT systems, the Company is in various phases ranging from
the assessment phase to the implementation phase, and all phases are expected
to be completed by the fourth quarter of 1999.

The Company is presently evaluating other potential Y2K issues. As
part of this evaluation, the Company has requested and received
representations from certain financial institutions and third party vendors
which indicate their progress toward Y2K compliance. The Company has sent Y2K
compliance surveys to certain significant subcontractors and vendors and is
currently awaiting responses. In addition, the Company intends to send Y2K
compliance surveys to other third party vendors and municipalities by the end
of the first quarter of 1999.

<PAGE>

The Company incurred costs for outside consultants and capital
expenditures in 1998 and 1997 related to Y2K which aggregated approximately
$750,000, and future consulting and acquisition costs are expected to be
approximately $100,000 during the balance of 1999. These costs, which are
expensed as incurred, have been and will continue to be funded from
operations. The costs incurred through December 31, 1998 did not have a
material affect on the Company's financial position or results of operations.

The Company could be impacted materially by widespread economic or
financial market disruptions or by Y2K computer system failures at government
agencies on which the Company is dependent for utilities, zoning, building
permits and related items. However, the most likely worst-case Y2K scenario
would include isolated instances of construction delays caused by the
Company's inability to secure building permits, zoning and utilities as well
as closing delays caused by the inability of home buyers to obtain financing.
In addition, there could be isolated instances of subcontractors experiencing
construction delays due to their inability to secure building materials on a
timely basis. The Company typically uses several subcontractors within a
given trade. As a result, the Company believes that it will be able to
replace subcontractors that may not be able to perform due to Y2K
deficiencies.

The Company believes that based upon its assessment of the Y2K
phenomena, certain subcontractors, vendors and government agencies may
encounter Y2K problems that impact the Company and that may require MDC to
take alternate or additional steps. In order to address Y2K concerns which
may originate from subcontractors, third party vendors and governmental
agencies, the Company intends to prepare contingency plans by the end of the
third quarter of 1999. See "FORWARD-LOOKING STATEMENTS" below.

INCOME TAXES - M.D.C. Holdings, Inc. and its wholly owned
subsidiaries file a consolidated federal income tax return (an "MDC
Consolidated Return"). Richmond American Homes of Colorado, Inc. and its
wholly owned subsidiaries filed a separate consolidated federal income tax
return (each a "Richmond Homes Consolidated Return") from its inception
(December 28, 1989) through February 2, 1994, the date Richmond American
Homes of Colorado, Inc. became a wholly owned subsidiary of MDC.

MDC's overall effective income tax rates of 38.5%, 38.5% and 36.5%,
respectively, for 1998, 1997, and 1996, differed from the federal statutory
rate of 35% primarily due to the impact of state income taxes.

The Internal Revenue Service (the "IRS") has completed its
examinations of the MDC Consolidated Returns for the years 1991 through 1995
and has proposed adjustments to the taxable income reflected in such returns.
The Company is protesting certain of these proposed adjustments. The IRS
currently is examining the MDC Consolidated Returns for the years 1996 and
1997. No audit report has been issued by the IRS in connection with this
examination. In the opinion of management, adequate provision has been made
for additional income taxes and interest that may arise as a result of these
examinations. See "FORWARD-LOOKING STATEMENTS" below.

The examination of the Richmond Homes Consolidated Return for the
period ended February 2, 1994 was completed in December 1998 with no
adjustments to taxable income as reported.

LIQUIDITY AND CAPITAL RESOURCES

MDC uses its liquidity and capital resources to, among other things,
(1) support its operations, including its inventories of homes, home sites
and land; (2) provide working capital; and (3) provide mortgage loans for its
home buyers. Liquidity and capital resources are generated internally from
operations and from external sources.

CAPITAL RESOURCES.

The Company's capital structure is a combination of (1) permanent
financing, represented by stockholders' equity; (2) long-term financing,
represented by publicly traded senior notes; and (3) current financing,
primarily lines of credit, as discussed below. The Company believes that its
current financial condition is both balanced to fit its current operational
structure and adequate to satisfy its current and near-term capital
requirements. See "FORWARD-LOOKING STATEMENTS" below.

<PAGE>

Based upon its current capital resources and additional liquidity
available under existing credit relationships, MDC anticipates that it has
adequate financial resources to satisfy its current and near-term capital
requirements, including the acquisition of land. The Company believes that it
can meet its long-term capital needs (including meeting future debt payments
and refinancing or paying off other long-term debt as it becomes due) from
operations and external financing sources, assuming that no significant
adverse changes in the Company's business occur as a result of the various
risk factors described elsewhere in this report. See "FORWARD-LOOKING
STATEMENTS" below.

LINES OF CREDIT AND NOTES PAYABLE.

HOMEBUILDING. In 1998, the Company modified its agreement with a
group of banks for its unsecured revolving line of credit. Under the modified
terms, the available borrowings have been increased to $300,000,000 from
$175,000,000, and the maturity date of the agreement has been extended for
two years to June 30, 2003, although a term-out of this credit may commence
earlier under certain circumstances. At December 31, 1998, $21,871,000 was
borrowed and $6,557,000 in letters of credit were outstanding under this line
of credit.

MORTGAGE LENDING. To provide funds to originate and purchase
mortgage loans and to finance these mortgage loans on a short-term basis,
HomeAmerican utilizes its mortgage lending bank line of credit (the "Mortgage
Line"). These mortgage loans are pooled into GNMA, FNMA and FHLMC pools, or
retained as whole loans, and subsequently are sold in the open market on a
spot basis or pursuant to mortgage loan sale commitments, generally within 40
days after origination. During 1998, 1997 and 1996, HomeAmerican sold
$892,040,000, $626,174,000 and $576,156,000, respectively, principal amount
of mortgage loans and mortgage certificates to unaffiliated purchasers.

Available borrowings under the Mortgage Line are collateralized by
mortgage loans and mortgage-backed certificates and are limited to the value
of eligible collateral, as defined. At December 31, 1998, $51,000,000 was
available under the Mortgage Line, $28,334,000 was borrowed and an additional
$22,666,000 was collateralized and available to be borrowed. The Mortgage
Line is cancelable upon 90 days' notice.

GENERAL. The agreements for the Company's senior notes and bank
lines of credit require compliance with certain representations, warranties
and covenants. These agreements are on file with the Securities and Exchange
Commission and are listed in the Exhibit Table in Part IV of this Form 10-K.
The Company believes that it is in compliance with these representations,
warranties and covenants.

The financial covenants contained in the loan agreement for the
Company's principal homebuilding line of credit include a leverage test and a
consolidated tangible net worth test. Under the leverage test, generally,
MDC's consolidated indebtedness is not permitted to exceed 2.15 times MDC's
"adjusted consolidated tangible net worth," as defined in the loan agreement.
Under the consolidated net worth test, MDC's "tangible net worth," as
defined, must not be less than $170 million plus 50% of "consolidated net
income," as defined, after January 1, 1996.

The Company's New Senior Notes indenture does not contain financial
covenants. However, there are covenants that limit transactions with
affiliates, limit the amount of additional indebtedness that MDC may incur,
restrict certain payments on or the redemptions of the Company's securities,
restrict certain sales of assets and limit incurring liens. In addition,
under certain circumstances, in the event of a change of control (generally a
sale, transfer, merger or acquisition of MDC or substantially all of its
assets), MDC may be required to offer to repurchase the New Senior Notes.

Pursuant to the Mortgage Line, HomeAmerican must maintain a
"consolidated tangible net worth," as defined in the Mortgage Line, of at
least $5 million and may only pay up to 50% of its net income to MDC in the
form of dividends.

As of December 31, 1998, the maximum amount of additional
homebuilding and corporate indebtedness that MDC could incur under the most
restrictive of the debt limitations described above was approximately
$400,000,000.

In December 1998, the Company's $28,000,000 principal amount of
8 3/4% convertible subordinated notes due 2005 converted into 3,612,900 shares
of MDC common stock at a conversion price of $7.75 per share.

<PAGE>

CONSOLIDATED CASH FLOW.

During 1998, the Company generated $15,881,000 in cash from its
operating and investing activities. The Company used this cash and available
cash on hand to reduce notes payable by $22,472,000. The Company generated
$22,029,000 in cash from its operating and investing activities during 1997.
The Company used a substantial portion of this cash to reduce its outstanding
lines of credit, notes payable and senior notes by a net $11,990,000 and to
repurchase 838,000 shares of MDC common stock for $7,349,000.

Operating activities generated cash of $800,000 in 1998, compared
with $18,516,000 and $47,925,000, respectively, generated in 1997 and 1996.
The 1998 decrease from 1997 primarily was due to 1998 increases in
homebuilding and mortgage loan inventories in conjunction with the Company's
expanded homebuilding operations, partially offset by an increase in income
before income taxes and extraordinary item in 1998. The decrease in 1997 from
1996 primarily was the result of net increases in 1997 in homebuilding
inventories and other net assets in connection with the Company's expanded
homebuilding activities, compared with decreases in homebuilding inventories
and homebuilding-related accounts receivable in 1996.

Investing activities generated cash of $15,081,000 in 1998, compared
with $3,513,000 and $13,998,000, respectively, generated in 1997 and 1996.
The 1998 increase from 1997 primarily was due to the $13,250,000 net proceeds
received from the sale of the Company's headquarters office building. The
decrease in 1997 from 1996 primarily was the result of reduced net proceeds
received in 1997 from the sale of FAMC and certain mortgage-related assets
and liabilities.

Financing activities used cash of $17,480,000 in 1998, compared with
$21,655,000 and $71,414,000, respectively, used in 1997 and 1996. The
decrease in cash used in 1998 primarily was due to stock repurchases in 1997
in the amount of $7,349,000, partially offset by greater reductions in
outstanding debt in 1997, compared with 1998. The 1997 decrease from 1996
primarily was the result of (1) a 1997 increase of $26,010,000 in outstanding
lines of credit in connection with the Company's expanding homebuilding
activities, compared with a 1996 decrease of $44,630,000 in outstanding lines
of credit; (2) higher repayments of notes payable in 1996; and (3) reduced
stock repurchases in 1997, partially offset by the repurchase of $38,000,000
of Old Senior Notes in 1997.

Included in 1998 cash flows from financing activities is the
Company's sale of $175,000,000 principal amount of New Senior Notes (less
issue costs of $3,459,000). The Company used the proceeds from this sale to
repurchase $61,181,000 principal amount of Old Senior Notes, to defease the
remaining $90,819,000 principal amount of Old Senior Notes outstanding and
for general corporate purposes. A premium of $17,592,000 was paid on the
repurchase and defeasance.

IMPACT OF INFLATION, CHANGING PRICES AND ECONOMIC CONDITIONS

Real estate and residential housing prices are affected by
inflation, which can cause increases in the price of land, raw materials and
subcontracted labor. Unless these increased costs are recovered through
higher sales prices, Home Gross Margins would decrease. If interest rates
increase, construction and financing costs, as well as the cost of
borrowings, also would increase, which can result in lower Home Gross
Margins. Increases in home mortgage interest rates make it more difficult for
MDC's customers to qualify for home mortgage loans, potentially decreasing
home sales volume. Increases in interest rates also may affect adversely the
volume of mortgage loan originations.

The volatility of interest rates could have an adverse effect on
MDC's future operations and liquidity. Among other things, these conditions
may affect adversely the demand for housing and the availability of mortgage
financing and may reduce the credit facilities offered to MDC by banks,
investment bankers and mortgage bankers. See "FORWARD-LOOKING STATEMENTS"
below.

<PAGE>

MDC's business also is affected significantly by, among other
things, general economic conditions and, particularly, the demand for new
homes in the markets in which it builds.

ISSUANCE OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS

In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133")
was issued. SFAS 133 addresses the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. It is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company anticipates that the adoption of
SFAS 133 as of January 1, 2000, will not have a material affect on its
financial position or results of operations. See "FORWARD-LOOKING STATEMENTS"
below.

OTHER

FORWARD-LOOKING STATEMENTS.

Certain statements in this Form 10-K Annual Report, the Company's
Annual Report to Shareowners, as well as statements made by the Company in
periodic press releases, oral statements made by the Company's officials to
analysts and shareowners in the course of presentations about the Company and
conference calls following quarterly earnings releases, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. Such factors include, among other
things, (1) general economic and business conditions; (2) interest rate
changes; (3) the relative stability of debt and equity markets; (4)
competition; (5) the availability and cost of land and other raw materials
used by the Company in its homebuilding operations; (6) demographic changes;
(7) shortages and the cost of labor; (8) weather related slowdowns; (9) slow
growth initiatives; (10) building moratoria; (11) governmental regulation,
including the interpretation of tax, labor and environmental laws; (12)
changes in consumer confidence and preferences; (13) required accounting
changes; (14) the impact on the Company of Y2K compliance by the Company and
its vendors, suppliers and subcontractors and by various governmental and
regulatory agencies; and (15) other factors over which the Company has little
or no control.

<PAGE>

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS.

M.D.C. HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements
Report of Independent Accountants .......................................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and December 31, 1997................... F-3
Consolidated Statements of Income for each of the Three Years in the Period Ended
December 31, 1998......................................................................... F-5
Consolidated Statements of Stockholders' Equity for each of the Three Years in the Period
Ended December 31, 1998................................................................... F-6
Consolidated Statements of Cash Flows for each of the Three Years in the Period Ended
December 31, 1998......................................................................... F-7
Notes to Consolidated Financial Statements.................................................. F-8

</TABLE>

F-1

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
M.D.C. HOLDINGS, INC.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
M.D.C. Holdings, Inc. and its subsidiaries (the "Company") at December 31,
1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP

Denver, Colorado

January 18, 1999

F-2

<PAGE>

M.D.C. HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Corporate
Cash and cash equivalents........................................... $ 2,460 $ 7,110
Property and equipment, net......................................... 2,901 9,709
Deferred income taxes............................................... 17,949 12,276
Deferred debt issue costs, net...................................... 2,589 6,851
Other assets, net................................................... 5,670 2,944
-------- --------
31,569 38,890
-------- --------

Homebuilding
Cash and cash equivalents........................................... 7,279 3,867
Home sales and other accounts receivable............................ 12,771 7,559
Investments and marketable securities, net.......................... -- 1,392
Inventories, net
Housing completed or under construction........................... 294,104 249,928
Land and land under development................................... 217,180 193,012
Prepaid expenses and other assets, net.............................. 58,981 55,788
-------- --------
590,315 511,546
-------- --------

Financial Services
Cash and cash equivalents........................................... 340 701
Mortgage loans held in inventory.................................... 84,548 65,256
Other assets, net................................................... 7,241 5,377
-------- --------
92,129 71,334
-------- --------
Total Assets.................................................. $714,013 $621,770
-------- --------
-------- --------
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>

M.D.C. HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
LIABILITIES
Corporate
Accounts payable and accrued expenses............................... $ 32,378 $ 14,287
Income taxes payable................................................ 14,568 11,806
Note payable........................................................ -- 3,432
Senior notes, net................................................... 174,339 150,354
Subordinated notes, net............................................. -- 38,230
----------- -----------
221,285 218,109
----------- -----------
Homebuilding
Accounts payable and accrued expenses............................... 131,374 105,485
Line of credit...................................................... 21,871 20,766
Notes payable....................................................... 866 9,676
----------- -----------
154,111 135,927
----------- -----------
Financial Services
Accounts payable and accrued expenses............................... 12,152 12,047
Line of credit...................................................... 28,334 26,094
----------- -----------
40,486 38,141
----------- -----------
Total Liabilities............................................. 415,882 392,177
----------- -----------

COMMITMENTS AND CONTINGENCIES (NOTES J, N
AND P).............................................................. -- --
----------- -----------

STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 25,000,000 shares authorized; none
issued............................................................ -- --
Common stock, $.01 par value; 100,000,000 shares authorized;
27,858,000 and 23,691,000 shares issued, respectively, at
December 31, 1998 and 1997........................................ 279 237
Additional paid-in capital.......................................... 175,160 142,429
Retained earnings................................................... 160,291 126,356
Accumulated other comprehensive income.............................. 1,785 138
----------- -----------
337,515 269,160
Less treasury stock, at cost, 5,876,000 and 5,903,000 shares,
respectively, at December 31, 1998 and 1997....................... (39,384) (39,567)
----------- -----------
Total Stockholders' Equity.................................... 298,131 229,593
----------- -----------
Total Liabilities and Stockholders' Equity.................... $ 714,013 $ 621,770
----------- -----------
----------- -----------
</TABLE>

See notes to consolidated financial statements.

F-4

<PAGE>

M.D.C. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Homebuilding............................................... $ 1,234,272 $ 949,790 $ 890,536
Financial Services......................................... 27,909 18,557 30,578
Corporate.................................................. 1,028 1,215 1,481
----------- ----------- -----------
Total Revenues....................................... 1,263,209 969,562 922,595
----------- ----------- -----------

COSTS AND EXPENSES
Homebuilding............................................... 1,147,508 908,247 862,569
Financial Services......................................... 12,121 9,378 11,921
Corporate general and administrative....................... 19,728 11,849 11,578
Corporate and homebuilding interest........................ - - 761 3,773
----------- ----------- -----------
Total Expenses....................................... 1,179,357 930,235 889,841
----------- ----------- -----------
Income before income taxes and extraordinary item............. 83,852 39,327 32,754
Provision for income taxes.................................... (32,284) (15,122) (11,955)
----------- ----------- -----------
Income before extraordinary item.............................. 51,568 24,205 20,799
Extraordinary loss from early extinguishments of debt,
net of income tax benefit of $9,587 for 1998, $1,336
for 1997 and $242 for 1996................................. (15,314) (2,179) (421)
----------- ----------- -----------
NET INCOME.................................................... 36,254 22,026 20,378
----------- ----------- -----------

Unrealized holding gains on securities arising during
the year..................................................... 1,593 1,246 565
Less reclassification adjustment for gains (losses) included
in net income.............................................. (54) 880 78
----------- ----------- -----------
Net unrealized holding gains on securities arising during the
year, net of deferred income taxes of $1,080 for 1998,
$233 for 1997 and $305 for 1996............................ 1,647 366 487
----------- ----------- -----------
COMPREHENSIVE INCOME.......................................... $ 37,901 $ 22,392 $ 20,865
----------- ----------- -----------
----------- ----------- -----------

EARNINGS PER SHARE (NOTES A AND M)
Basic
Income before extraordinary item........................ $ 2.79 $ 1.37 $ 1.12
----------- ----------- -----------
----------- ----------- -----------
Net Income.............................................. $ 1.96 $ 1.25 $ 1.09
----------- ----------- -----------
----------- ----------- -----------
Diluted
Income before extraordinary item........................ $ 2.32 $ 1.18 $ .98
----------- ----------- -----------
----------- ----------- -----------
Net Income.............................................. $ 1.64 $ 1.08 $ .97
----------- ----------- -----------
----------- ----------- -----------

WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic....................................................... 18,451 17,673 18,623
----------- ----------- -----------
----------- ----------- -----------
Diluted..................................................... 22,606 21,899 22,763
----------- ----------- -----------
----------- ----------- -----------

DIVIDENDS PAID PER SHARE...................................... $ .15 $ .12 $ .12
----------- ----------- -----------
----------- ----------- -----------

</TABLE>

See notes to consolidated financial statements.

F-5

<PAGE>

M.D.C. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY
STOCK CAPITAL EARNINGS INCOME (LOSS) STOCK TOTAL
------ ---------- ---------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCES-JANUARY 1, 1996............... $ 226 $ 136,022 $ 88,191 $ (715) $ (18,691) $ 205,033

Shares issued....................... 5 2,138 70 -- 334 2,547
Shares reacquired................... -- -- -- -- (12,921) (12,921)
Unrealized gains on
available-for-sale securities, net -- -- -- 487 -- 487
Non-qualified stock options exercised. -- 342 -- -- -- 342
Repayments of notes receivable for
stock purchases, net.............. -- 203 -- -- -- 203
Dividends paid...................... -- -- (2,222) -- -- (2,222)
Net income.......................... -- -- 20,378 -- -- 20,378
----- --------- --------- ------- --------- ---------

BALANCES-DECEMBER 31, 1996............. 231 138,705 106,417 (228) (31,278) 213,847

Shares issued....................... 6 3,153 45 - - (940) 2,264
Shares reacquired................... - - - - - - - - (7,349) (7,349)
Unrealized gains on
available-for-sale securities, net - - - - - - 366 - - 366
Non-qualified stock options exercised. - - 1,012 - - - - - - 1,012
Notes receivable for stock purchases,
net of repayments................. - - (441) - - - - - - (441)
Dividends paid...................... - - - - (2,132) - - - - (2,132)
Net income.......................... - - - - 22,026 - - - - 22,026
----- --------- --------- ------- --------- ---------

BALANCES-DECEMBER 31, 1997............. 237 142,429 126,356 138 (39,567) 229,593

Shares issued....................... 42 30,267 456 - - 183 30,948
Unrealized gains on
available-for-sale securities, net - - - - - - 1,647 - - 1,647
Non-qualified stock options exercised. - - 2,484 - - - - - - 2,484
Notes receivable for stock purchases,
net of repayments................. - - (20) - - - - - - (20)
Dividends paid...................... - - - - (2,775) - - - - (2,775)
Net income.......................... - - - - 36,254 - - - - 36,254
----- --------- --------- ------- --------- ---------

BALANCES-DECEMBER 31, 1998............. $ 279 $ 175,160 $ 160,291 $ 1,785 $ (39,384) $ 298,131
----- --------- --------- ------- --------- ---------
----- --------- --------- ------- --------- ---------

</TABLE>

See notes to consolidated financial statements.

F-6

<PAGE>

M.D.C. HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.......................................... $ 36,254 $ 22,026 $ 20,378
Adjustments to reconcile net income to net cash
provided by operating activities
Loss from the early extinguishments of debt.... 24,901 3,515 663
Depreciation and amortization.................. 20,228 15,050 12,067
Homebuilding asset impairment charges.......... 5,300 5,850 9,191
Deferred income taxes.......................... (5,673) (1,472) 2,926
Gains on sales of mortgage related assets...... (4,509) (986) (4,943)
Net changes in assets and liabilities
Home sales and other accounts receivable.... (5,212) 2,659 15,973
Homebuilding inventories.................... (76,454) (7,077) 4,288
Prepaid expenses and other assets........... (18,981) (9,215) (6,682)
Mortgage loans held in inventory............ (19,292) (6,514) (5,589)
Accounts payable and accrued expenses....... 45,666 (5,695) 4,925
Other, net..................................... (1,428) 375 (5,272)
---------- ----------- -----------
Net cash provided by operating activities........... 800 18,516 47,925
---------- ----------- -----------

INVESTING ACTIVITIES
Net proceeds from sale of office building........... 13,250 -- --
Net purchase of property and equipment.............. (6,083) (2,705) (1,362)
Proceeds from the sale of FAMC...................... 4,450 1,000 6,000
Changes in investments and marketable securities.... 3,272 3,586 3,016
Other, net.......................................... 192 1,632 6,344
---------- ----------- -----------
Net cash provided by investing activities........... 15,081 3,513 13,998
---------- ----------- -----------

FINANCING ACTIVITIES
Lines of credit
Advances........................................ 1,267,540 1,045,276 1,008,531
Principal payments.............................. (1,265,083) (1,019,266) (1,053,161)
Notes payable
Borrowings...................................... 866 192 487
Principal payments.............................. (13,108) (192) (13,897)
Senior notes
Proceeds from issuance.......................... 171,541 -- --
Repurchase and defeasance....................... (152,000) (38,000) --
Premium on repurchase and defeasance............ (17,592) (1,520) --
Repayment of subordinated notes...................... (10,230) -- --
Stock repurchases.................................... -- (7,349) (12,921)
Dividend payments.................................... (2,775) (2,132) (2,222)
Proceeds from stock issuance......................... 3,361 1,336 1,769
---------- ----------- -----------
Net cash used in financing activities................ (17,480) (21,655) (71,414)
---------- ----------- -----------

Net increase (decrease) in cash and cash equivalents. (1,599) 374 (9,491)
Cash and cash equivalents
Beginning of year............................... 11,678 11,304 20,795
---------- ----------- -----------
End of year..................................... $ 10,079 $ 11,678 $ 11,304
---------- ----------- -----------
---------- ----------- -----------

</TABLE>

See notes to consolidated financial statements.

F-7

<PAGE>

M.D.C. HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
of M.D.C. Holdings, Inc. ("MDC" or the "Company", which, unless otherwise
indicated, refers to M.D.C. Holdings, Inc. and its subsidiaries) include the
accounts of MDC and its wholly owned and majority owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.

SEGMENT INFORMATION - MDC has determined that its reportable
segments are those that are based on the Company's method of internal
reporting, which disaggregates its business by product category. MDC's
products come from two segments, homebuilding and financial services. In its
homebuilding segment, through separate subsidiaries, the Company is engaged
in the design, construction and sale of single-family homes. In its financial
services segment, HomeAmerican Mortgage Corporation (a wholly owned
subsidiary of M.D.C. Holdings, Inc., "HomeAmerican") provides mortgage loans
primarily to the Company's home buyers (the mortgage lending operations).
Through September 30, 1996, Financial Asset Management LLC (an indirect
subsidiary of M.D.C. Holdings, Inc.; "FAMC") managed by contract the
operations of two publicly traded real estate investment trusts (the asset
management operations). In September 1996, the Company sold its 80% interest
in FAMC.

HOMEBUILDING.

INVENTORIES - Homebuilding inventories under development and
construction are carried at cost unless facts and circumstances indicate that
the carrying value of the underlying projects may be impaired. Impairment is
determined by comparing the estimated future cash flows (undiscounted and
without interest charges) from an individual project to its carrying value.
If such cash flows are less than the project's carrying value, the carrying
value of the project is written down to its fair value. Homebuilding
inventories held for sale are carried at the lower of cost or fair value,
less selling costs, and are evaluated on a project basis. Cost includes
interest capitalized during the period of active development through
completion of construction. Construction-related overhead and salaries are
capitalized and allocated proportionately to projects being developed. Land
and related costs are transferred to housing inventory when construction
commences. See Note H.

PREPAID EXPENSES AND OTHER ASSETS, NET - Homebuilding prepaid
expenses and other assets include restricted investments which are held for
the processing and disposition of eligible claims made under the warranties
created pursuant to the settlement of litigation commenced in 1994 and
settled in November 1996. See Note N. The restricted investments are recorded
on the Consolidated Balance Sheet at market value, which is based on quoted
prices, with the related unrealized gain included in accumulated other
comprehensive income.

The following table sets forth the information relating to prepaid
expenses and other assets, net (in thousands).

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
Restricted investments...................... $ 21,342 $ 21,182
Land option deposits........................ 12,504 7,545
Deferred marketing costs.................... 7,649 9,494
Prepaid tap and system development fees..... 5,444 7,621
Other....................................... 12,042 9,946
--------- ---------
Total................................. $ 58,981 $ 55,788
--------- ---------
--------- ---------
</TABLE>

DEFERRED MARKETING COSTS - Certain marketing costs related to model
homes and sales offices are capitalized as prepaid assets and amortized to
selling, general and administrative expenses as the homes in the related
subdivision are closed.

F-8

<PAGE>

REVENUE RECOGNITION - Revenues from real estate sales are recognized
when a sufficient down payment has been received, financing has been
arranged, title, possession and other attributes of ownership have been
transferred to the buyer and the Company is not obligated to perform
significant additional activities after sale and delivery.

WARRANTY COSTS - The Company's homes are sold with limited
warranties issued by an unaffiliated warranty company. Reserves are
established by the Company to cover estimated costs of repairs for which the
Company is responsible. Warranty reserves are included in Homebuilding -
Accounts payable and accrued expenses and totalled $35,249,000 and
$35,865,000, respectively, at December 31, 1998 and 1997.

FINANCIAL SERVICES.

MORTGAGE LOANS HELD IN INVENTORY - The Company generally purchases
forward commitments to deliver mortgage loans held for sale. Mortgage loans
held in inventory are stated at the lower of aggregate cost or market based
upon such commitments for loans to be delivered or prevailing market for
uncommitted loans. Substantially all of the loans originated or purchased by
the Company are sold to private investors within 40 days of origination or
purchase. Gains or losses on mortgage loans held in inventory are realized
when the loans are sold.

REVENUE RECOGNITION - Loan origination fees in excess of origination
costs incurred and loan commitment fees are deferred until the related loans
are sold. Loan servicing fees are recorded as revenue when the mortgage loan
payments are received. Loan servicing costs are recognized as incurred.
Revenues from the sale of mortgage loan servicing are recognized when title
and all risks and rewards of ownership have irrevocably passed to the buyer
and there are no significant unresolved contingencies.

The mortgage lending operations are affected by, among other things,
changes in mortgage interest rates. The Company utilizes forward mortgage
securities contracts to manage the interest rate risk on its fixed-rate
mortgage loans owned and rate-locked mortgage loans in process which have not
closed. Such contracts are the only significant financial derivative
instrument utilized by MDC. Hedging gains or losses are recognized when the
hedged mortgage loans are sold.

MORTGAGE SERVICING RIGHTS - Effective January 1, 1997, the Company
adopted Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities" ("SFAS 125"). SFAS 125 requires the Company to allocate the cost
of mortgage loans originated and purchased between the mortgage loans and the
right to service those mortgage loans, based on relative fair value, on the
date the loan is sold. The adoption of SFAS 125 did not have a material
impact on the financial statements.

Mortgage servicing rights ("Servicing Rights") of $8,491,000 and
$4,895,000 were capitalized during 1998 and 1997, respectively, pursuant to
SFAS 125. Servicing Rights are amortized over the estimated period of net
servicing revenues. The cost attributed to the Servicing Rights sold and the
amortization of Servicing Rights was $8,097,000 and $3,903,000 for 1998 and
1997, respectively. Servicing Rights are evaluated for impairment by
stratifying the portfolio based on loan type and interest rate. Impairment of
$115,000 was recognized during 1998. No impairment was recognized during 1997
or 1996.

As of December 31, 1998 and 1997, the Company had unamortized
Servicing Rights of $4,915,000 and $4,636,000, respectively, included in
Financial Services - Other assets, net.

GENERAL.

CASH AND CASH EQUIVALENTS - The Company periodically invests funds
not immediately required for operating purposes in highly liquid, short-term
investments with an original maturity of 90 days or less such as commercial
paper and repurchase agreements which are included in cash and cash
equivalents in the Consolidated Balance Sheet and Consolidated Statement of
Cash Flows.

F-9

<PAGE>

PROPERTY AND EQUIPMENT - Property and equipment is carried at cost
less accumulated depreciation and amortization. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives
of the related assets.

EARNINGS PER SHARE - In February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS 128"). The Company's adoption of SFAS
128, on December 31, 1997, resulted in the restatement of the Company's
"primary" earnings per share calculations to "basic" earnings per share and
"fully diluted" earnings per share calculations to "diluted" earnings per
share for all periods presented. Basic earnings per share excludes any
dilution from common stock equivalents and is based on the weighted average
common shares outstanding. Diluted earnings per share is computed similarly
to fully diluted earnings per share.

ESTIMATES IN FINANCIAL STATEMENTS - The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Such estimates include warranty,
other accrued expenses and estimates related to potential asset impairment
charges.

ADDITIONAL STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS - In June
1998, Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133") was issued. SFAS
133 addresses the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities.
It is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. The Company anticipates that the adoption of SFAS 133 as of January
1, 2000, will not have a material affect on its financial position or results
of operations.

RECLASSIFICATIONS - Certain amounts in the 1997 and 1996
consolidated financial statements have been reclassified to conform to the
1998 presentation.

B. INFORMATION ON BUSINESS SEGMENTS

The Company operates in two business segments - homebuilding and
financial services. A summary of the Company's business segments is shown
below (in thousands).

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
HOMEBUILDING
Home sales............................................... $ 1,218,659 $ 939,016 $ 880,358
Land sales............................................... 13,964 9,978 9,471
Other revenues........................................... 1,649 796 707
----------- ----------- -----------
1,234,272 949,790 890,536
----------- ----------- -----------
Home cost of sales....................................... 1,012,140 802,961 759,405
Land cost of sales....................................... 9,700 7,740 8,773
Asset impairment charges................................. 5,300 5,850 9,191
Marketing................................................ 74,463 61,139 56,078
General and administrative............................... 45,905 30,557 29,122
----------- ----------- -----------
1,147,508 908,247 862,569
----------- ----------- -----------
HOMEBUILDING OPERATING PROFIT........................ 86,764 41,543 27,967
----------- ----------- -----------

</TABLE>

F-10

<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
FINANCIAL SERVICES
Mortgage Lending Revenues
Interest................................................. 2,270 1,918 3,543
Origination fees......................................... 9,738 6,751 6,209
Gains on sales of mortgage servicing..................... 2,512 1,739 6,020
Gains on sales of mortgage loans, net.................... 8,460 6,182 4,905
Mortgage servicing and other............................. 327 490 1,545
Asset Management Revenues................................... 4,602 1,477 8,356
--------- --------- ---------
27,909 18,557 30,578

General and Administrative Expenses......................... 12,121 9,378 11,921
--------- --------- ---------
FINANCIAL SERVICES OPERATING PROFIT.................. 15,788 9,179 18,657
--------- --------- ---------
TOTAL OPERATING PROFIT.......................................... 102,552 50,722 46,624
--------- --------- ---------
CORPORATE
Interest and other revenues.............................. 1,028 1,215 1,481
Interest expense......................................... -- (761) (3,773)
General and administrative............................... (19,728) (11,849) (11,578)
--------- --------- ---------
NET CORPORATE EXPENSES............................... (18,700) (11,395) (13,870)
--------- --------- ---------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM............... $ 83,852 $ 39,327 $ 32,754
--------- --------- ---------
--------- --------- ---------
</TABLE>

Corporate general and administrative expenses consist principally of
salaries and other administrative expenses which are not identifiable to a
specific segment. Transfers between segments are recorded at cost. Capital
expenditures and related depreciation and amortization for the years ended
December 31, 1998, 1997 and 1996 were not material. Identifiable segment
assets are shown on the face of the Consolidated Balance Sheet.

C. MORTGAGE LOANS HELD IN INVENTORY

The following table sets forth the information relating to mortgage
loans held in inventory (in thousands).

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
--------- ----------
<S> <C> <C>
First mortgage loans
Conventional...................................... $ 59,605 $ 40,689
FHA and VA........................................ 26,618 26,191
--------- ---------
86,223 66,880

Less
Unamortized discounts............................. (224) (324)
Deferred fees..................................... (472) (365)
Allowance for loan losses......................... (979) (935)
--------- ---------
Total........................................... $ 84,548 $ 65,256
--------- ---------
--------- ---------
</TABLE>

Mortgage loans held in inventory consist primarily of loans
collateralized by first mortgages and deeds of trust due over periods of up
to 30 years. The weighted-average effective yield on mortgage loans held in
inventory was approximately 6.8% at December 31, 1998.

F-11

<PAGE>

D. LINES OF CREDIT

HOMEBUILDING - In March 1997, the Company modified the terms of its
line of credit, increasing the available borrowings from $150,000,000 to
$175,000,000 and extending the maturity date of the agreement by one year to
June 30, 2001. In June 1998, the Company again modified the terms of this
line of credit, increasing available borrowings from $175,000,000 to
$300,000,000, and extending the maturity date of this agreement by two years
to June 30, 2003. Pursuant to the terms of the related credit agreement, a
term-out of this credit may commence earlier under certain circumstances. At
December 31, 1998, $21,871,000 was borrowed and $6,557,000 in letters of
credit were outstanding under this line of credit. At December 31, 1998 and
1997, the weighted-average interest rates on the line of credit were 7.4% and
7.9%, respectively.

MORTGAGE LENDING - The aggregate amount available under MDC's
mortgage lending bank line of credit at December 31, 1998 was $51,000,000.
Available borrowings under this line of credit are collateralized by mortgage
loans and mortgage-backed certificates and are limited to the value of
"eligible collateral" (as defined in the credit agreement). At December 31,
1998, $28,334,000 was borrowed and an additional $22,666,000 was
collateralized and available to be borrowed. The line of credit is
cancellable upon 90 days' notice. At December 31, 1998 and 1997, the
weighted-average interest rates on the line of credit were 6.2% and 6.1%,
respectively.

GENERAL - The agreements for the Company's senior notes and bank
lines of credit require compliance with certain representations, warranties
and covenants. At December 31, 1998, the Company was in compliance with these
representations, warranties and covenants.

The principal financial covenants contained in the agreement for the
Company's senior notes and bank lines of credit include (1) various minimum
net worth requirements; (2) compliance with certain leverage tests; (3)
restrictions on certain types of payments on, or redemptions of, the
Company's securities; (4) restrictions on certain sales of assets; and (5)
limitations on incurring additional indebtedness or liens.

E. NOTES PAYABLE

SENIOR NOTES AND SUBORDINATED NOTES - The following table sets forth
the information relating to senior notes and subordinated notes (in
thousands).

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- --------
<S> <C> <C>
Senior notes
8 3/8% senior notes due February 2008 (effective rate 8.7%)....... $ 174,339 $ --
11 1/8% senior notes due December 2003 (effective rate 12.3%).....
-- 150,354
--------- ----------
$ 174,339 $ 150,354
--------- ----------
--------- ----------
Subordinated notes
8 3/4% convertible subordinated notes due December 2005,
converted into MDC common stock at $7.75 per common
share on December 15, 1998 (effective rate 9.5%).................. $ -- $ 28,000
6.64% subordinated fixed-rate notes due April 1998
(effective rate 6.7%)............................................. -- 10,230
--------- ----------
$ -- $ 38,230
--------- ----------
--------- ----------
</TABLE>

In December 1993, the Company completed an offering of $190,000,000
principal amount of 11 1/8% senior notes due 2003 (the "Old Senior Notes")
and $28,000,000 principal amount of 8 3/4% convertible subordinated notes due
2005 (the "Convertible Subordinated Notes"). The Convertible Subordinated
Notes were convertible into shares of MDC common stock at an initial
conversion price of $7.75 per share. In March 1997, the Company repurchased
$38,000,000 principal amount of the Old Senior Notes. On January 28, 1998,
the remaining Old Senior Notes either were repurchased or defeased with
proceeds of the issuance of the Company's 8 3/8% senior notes due 2008 (the
"New Senior Notes"). The Convertible Subordinated Notes were called for
redemption by the

F-12

<PAGE>

Company in December 1998 at a price of 105, resulting in the conversion of
all $28,000,000 principal amount of Convertible Subordinated Notes into
3,612,900 shares of MDC common stock. See Note L.

The New Senior Notes indenture imposes certain covenants on the
Company, including limitations on the Company's ability to incur
indebtedness, make certain types of payments, enter into specified
transactions with affiliates of the Company, affect certain sales of assets,
incur specified liens, merge or consolidate or sell substantially all of its
assets. The New Senior Notes are not secured.

The $10,230,000 principal amount of the 6.64% subordinated
fixed-rate notes was issued in April 1993 in exchange for certain previously
outstanding subordinated variable-rate notes. These notes were repaid in
April 1998.

OTHER NOTES PAYABLE - Corporate and homebuilding notes payable of
$866,000 and $13,108,000 at December 31, 1998 and 1997, respectively, consist
principally of loans collateralized by real estate. These notes incur
interest at rates ranging from 0% to 9.25%. The aggregate net carrying value
of the assets collateralizing the other notes payable totalled approximately
$2,153,000 and $21,016,000 at December 31, 1998 and 1997, respectively.

GENERAL - The following table sets forth the scheduled principal
payments on the New Senior Notes and other notes payable at December 31, 1998
(in thousands).

<TABLE>
<S> <C>
1999............. $ 574
2000............. $ 292
2001............. $ --
2002............. $ --
2003............. $ --
Thereafter....... $ 175,000
</TABLE>

F. RETIREMENT PLANS

In October 1997, the Company established a defined benefit
retirement plan (the "Plan") for two executive officers of the Company under
which the Company agreed to make future payments which have a projected
benefit obligation of $4,881,000 at December 31, 1998. The Plan is not funded
and benefits vest in either two or five years from plan inception.
Unrecognized prior service cost of $3,574,000 at December 31, 1998 will be
recognized over the employees' average estimated service periods. Plan
expense for the years ended December 31, 1998 and 1997 were $869,000 and
$183,000, respectively. Included on the December 31, 1998 Consolidated
Balance Sheet is an intangible asset of $2,378,000 related to unamortized
prior service cost and a corresponding accrued pension liability for the same
amount. A discount rate of 8% and a future annual compensation rate increase
of 4% for the year ended December 31, 1998 and 3% for the period ended
December 31, 1997 were used in the calculation of the actuarial present value
of the projected benefit obligation. A summary of the changes in the
projected benefit obligation from December 31, 1996 to December 31, 1998 is
as follows (in thousands).

<TABLE>
<S> <C>
Projected benefit obligation - December 31, 1996....... $ --
Prior service cost................................. 3,980
Service cost....................................... 42
Interest cost...................................... 81
-------
Projected benefit obligation - December 31, 1997....... 4,103
-------
Service cost....................................... 197
Interest cost...................................... 347
Unrecognized loss due to change in compensation
rate increase................................... 234
-------
Projected benefit obligation - December 31, 1998....... $ 4,881
-------
-------
</TABLE>

F-13

<PAGE>

The Company sponsors a Section 401(k) defined contribution plan
covering all of its eligible employees. At its discretion, the Company may
make annual matching contributions. The expense recorded by the Company for
its matching contributions for the years ended December 31, 1998, 1997 and
1996 was $1,377,000, $696,000 and $401,000, respectively.

G. STOCKHOLDERS' EQUITY

STOCK OPTION PLANS - A summary of the Company's stock option
incentive plans follows.

Employee Equity Incentive Plan - The Employee Equity Incentive Plan
(the "Employee Plan") provided for an initial authorization of 2,100,000
shares of MDC common stock for issuance thereunder, 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
effective date of the Employee Plan. Under the Employee Plan, the Company may
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 greater than or equal to the market value on the date of grant over
periods of up to six years.

Pursuant to the terms of the Executive Option Purchase Program (the
"Option Purchase Program"), the Company is authorized by the MDC Board of
Directors to lend eligible executives of the Company up to two-thirds of the
aggregate exercise price and state and federal taxes payable in connection
with their exercise of stock options under the Employee Plan, subject to
certain maximum amounts as set forth under the Option Purchase Program. Notes
receivable under the Option Purchase Program are recourse and secured by 100%
of the shares of MDC common stock issued in connection with options
exercised. During both 1998 and 1997, certain eligible executives of the
Company exercised options to purchase 175,000 shares of MDC common stock
under the Employee Plan. Aggregate notes receivable under the Option Purchase
Program of $1,620,000 and $1,600,000, respectively, at December 31, 1998 and
1997 have reduced stockholders' equity.

Director Equity Incentive Plan - Under the Director Equity Incentive
Plan (the "Director Plan"), non-employee directors of the Company are granted
stock options. The Director Plan provided for an initial authorization of
300,000 shares of MDC common stock for issuance thereunder plus an additional
annual authorization of shares equal to 10% of the then authorized shares of
MDC common stock under the Director Plan. During 1997, the Board of Directors
authorized, and the Company's stockholders approved, an additional 350,000
shares of MDC common stock for issuance under the Director Plan. Pursuant to
the Director Plan, on December 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 Plan vests immediately and expires
five years from the date of grant. The option exercise price must be equal to
100% of the market value of the MDC common stock on the date of grant of the
option.

F-14

<PAGE>

A summary of the changes in stock options during each of the three
years ended December 31, 1998 is as follows (in shares of MDC common stock).

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding - January 1, 1996...................... 2,147,500 $ 5.18

Exercised....................................... (404,500) (1) $ 4.56
Granted......................................... 815,000 $ 7.15
Cancelled....................................... (510,000) $ 6.01
---------

Outstanding - December 31, 1996.................... 2,048,000 $ 5.88

Exercised....................................... (618,000) $ 4.63
Granted......................................... 461,000 $ 11.46
Cancelled....................................... --
---------

Outstanding - December 31, 1997.................... 1,891,000 $ 7.65

Exercised....................................... (554,000) $ 6.10
Granted......................................... 509,000 $ 18.01
Cancelled....................................... (41,000) $ 11.79
---------

Outstanding - December 31, 1998.................... 1,805,000 $ 10.96
---------
---------

Exercisable - December 31,

1998............................................ 984,332 $ 7.48
1997............................................ 1,283,416 $ 6.33
1996............................................ 1,217,500 $ 5.04

Reserved for issuance at December 31, 1998......... 628,724

</TABLE>

(1) Includes 250,000 previously restricted options that became exercisable
during 1996.

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), issued in October 1995, established
financial accounting and reporting standards for stock-based employee
compensation plans. As permitted by SFAS 123, the Company elected to continue
to use Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related Interpretations, in accounting for its stock
option incentive plans.

If the Company had elected to recognize compensation cost based on
the fair value of the options granted at grant date and the vesting
provisions under the plans in accordance with SFAS 123, net income in 1998
would have been reduced by approximately $1,154,000, or $.06 per basic and
$.05 per diluted share. Net income for 1997 and 1996 would have been reduced
by $520,000 and $505,000, respectively, or $.03 per basic and $.02 per
diluted share. The average fair value of each option granted during 1998,
1997, and 1996 is estimated at $7.69, $4.55 and $2.61, respectively, on the
date of grant using the Black-Scholes option pricing model with the following
assumptions (1) volatility of 48.60%, 35.60% and 30.80%, respectively, in
1998, 1997 and 1996; (2) risk free interest rates of 4.8%, 5.9%, and 6.0%,
respectively, for 1998, 1997 and 1996; (3) expected lives of five to six
years with no defaults; and (4) the Company's present dividend yield rate.

F-15

<PAGE>

The following table summarizes information concerning outstanding
and exercisable options at December 31, 1998.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- ---------------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACT LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$4.25 - $5.00 100,000 0.94 $4.63 100,000 $4.63
$5.01 - $10.00 799,000 2.73 $7.03 724,832 $7.00
$10.01 - $15.00 409,500 4.14 $11.47 159,500 $11.42
$15.01 - $20.00 496,500 5.18 $18.13 -- --
--------- ---------
1,805,000 3.62 $10.96 984,332 $7.48
--------- ---------
--------- ---------
</TABLE>

MDC COMMON STOCK REPURCHASE PROGRAM - On July 25, 1996 and October
8, 1996, the MDC Board of Directors authorized share repurchase programs to
repurchase up to 2,000,000 shares of MDC common stock. In February 1997, the
Company repurchased 838,000 shares of MDC common stock at $8.77 per share,
including commission, substantially completing the programs. At December 31,
1998 and 1997, the Company held 5,876,000 and 5,903,000 shares of treasury
stock, respectively, with an average purchase price of $6.70.

H. HOMEBUILDING ASSET IMPAIRMENT CHARGES

Operating results were reduced by asset impairment charges totalling
$5,300,000, $5,850,000 and $9,191,000 in 1998, 1997 and 1996, respectively,
related to certain of the Company's homebuilding assets, primarily in
suburban Maryland. The Company's assets to which these asset impairment
charges relate are summarized as follows (in thousands).

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Completed homes and homes under construction... $ 888 $ 1,916 $ 220
Land under development and other............... 4,412 3,934 8,971
-------- ------- -------
Total........................................ $ 5,300 $ 5,850 $ 9,191
-------- ------- -------
-------- ------- -------
</TABLE>

Homebuilding inventories under development and construction are
carried at cost unless facts and circumstances indicate that the carrying
value of the underlying projects may be impaired. Impairment is determined by
comparing the estimated future cash flows (undiscounted and without interest
charges) from an individual project to its carrying value. If such cash flows
are less than the project's carrying value, the carrying value of the project
is written down to its fair value. Homebuilding inventories held for sale are
carried at the lower of cost or fair value, less selling costs, and are
evaluated on a project basis. Cost includes interest capitalized during the
period of active development through completion of construction.
Construction-related overhead and salaries are capitalized and allocated
proportionately to projects being developed. Land and related costs are
transferred to housing inventory when construction commences. Fair value is
determined by management estimate and incorporates anticipated future
revenues and costs.

The asset impairment charge described above, included in
homebuilding costs and expenses in the consolidated statements of income,
primarily were the result of the (1) recognition of losses anticipated from
the closing of certain homes under contract but not yet delivered ("Backlog")
and from the reduction of selling prices and the offering of increased
incentives to stimulate sales of certain completed unsold homes in inventory;
(2) write-down to fair value of certain subdivisions which experienced slow
sales and negative Home Gross Margins (as defined below); and (3) write-off
of other capitalized costs, primarily deferred marketing and option deposits,
related to several low-margin projects or projects which the Company intends
to terminate. These factors impact management's estimates of fair value,
future revenues and costs related to the particular subdivision. "Home Gross
Margins" are gross margins (home sales revenues less cost of goods sold,
which primarily includes land and construction costs, capitalized interest, a
reserve for warranty expense, and financing costs) as a percent of home sales
revenues.

F-16

<PAGE>

I. CORPORATE AND HOMEBUILDING INTEREST ACTIVITY (IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Interest capitalized in homebuilding activity,
beginning of year............................... $ 37,991 $ 40,745 $ 40,217

Interest incurred.................................. 22,525 26,368 30,296

Interest expensed.................................. -- (761) (3,773)

Previously capitalized interest included in
cost of sales................................... (34,184) (28,361) (25,995)
---------- ---------- ----------
Interest capitalized in homebuilding inventory,
end of year..................................... $ 26,332 $ 37,991 $ 40,745
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

J. INCOME TAXES

Total income taxes have been allocated as follows (in thousands).

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Tax expense on income before income taxes and
extraordinary item................................ $ 32,284 $ 15,122 $ 11,955
Extraordinary loss................................... (9,587) (1,336) (242)
Stockholders' equity, related to exercise of stock
options........................................... (2,484) (1,012) (342)
---------- ---------- ----------
Total income taxes................................... $ 20,213 $ 12,774 $ 11,371
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

The significant components of income tax expense on income before
income taxes and extraordinary item consist of the following (in thousands).

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current tax expense
Federal........................................... $ 34,605 $ 14,972 $ 8,612
State............................................. 5,082 1,622 417
---------- ---------- ----------
Total current................................... 39,687 16,594 9,029
---------- ---------- ----------
Deferred tax expense (benefit)
Federal........................................... (6,825) (1,349) 2,458
State............................................. (578) (123) 468
---------- ---------- ----------
Total deferred.................................. (7,403) (1,472) 2,926
---------- ---------- ----------
Total income tax expense............................. $ 32,284 $ 15,122 $ 11,955
---------- ---------- ----------
---------- ---------- ----------

</TABLE>

F-17

<PAGE>

The provision for income tax expense differs from the amount which
would be computed by applying the statutory federal income tax rate of 35% to
income before income taxes and extraordinary item as a result of the
following (in thousands).

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Tax expense computed at statutory rate............... $ 29,348 $ 13,764 $ 11,464
Increase (reduction) due to
Permanent differences between financial
statement income and taxable income........... 293 231 54
State income tax, net of federal benefit........ 2,350 864 791
Adjustments to prior years' income taxes........ -- -- (297)
Other........................................... 293 263 (57)
---------- ---------- ----------
Total income tax expense............................. $ 32,284 $ 15,122 $ 11,955
---------- ---------- ----------
---------- ---------- ----------
Effective tax rate................................... 38.5% 38.5% 36.5%
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

The tax effects of the temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities
are presented below (in thousands).

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax assets
Warranty, litigation and other reserves.......... $ 14,443 $ 11,657
Inventory impairment charges..................... 8,049 8,875
Accrued liabilities.............................. 3,160 1,398
Inventory, additional costs capitalized for tax
purposes....................................... 5,775 5,912
Property, equipment and other assets, net........ 1,146 998
---------- ----------
Total gross deferred tax assets.............. 32,573 28,840
---------- ----------

Deferred tax liabilities
Deferred revenue................................. 4,391 5,752
Inventory, additional costs capitalized for
financial statement purposes................... 7,721 10,663
Subsidiaries not consolidated for tax purposes... 1,730 - -
Other............................................ 782 149
---------- ----------
Total gross deferred tax liabilities......... 14,624 16,564
---------- ----------
Net deferred tax asset........................... $ 17,949 $ 12,276
---------- ----------
---------- ----------
</TABLE>

M.D.C. Holdings, Inc. and its wholly owned subsidiaries file a
consolidated federal income tax return (an "MDC Consolidated Return").
Richmond American Homes of Colorado, Inc. and its wholly owned subsidiaries
filed a separate consolidated federal income tax return (each a "Richmond
Homes Consolidated Return") from its inception (December 28, 1989) through
February 2, 1994, the date Richmond American Homes of Colorado, Inc. became a
wholly owned subsidiary of MDC.

F-18

<PAGE>

The examination of the Richmond Homes Consolidated Return for the
period ended February 2, 1994 was completed in December 1998 with no
adjustments to taxable income as reported.

K. REORGANIZATION AND SALE OF FAMC

In September 1996, the Company sold its 80% interest in FAMC for
$11,450,000. The sales proceeds consisted of $6,000,000 cash and $5,450,000
of promissory notes which were payable at specified dates during the 10 years
following the sale and were convertible, under certain circumstances, into an
equity interest in FAMC. The sale resulted in the recognition of a gain of
$4,042,000 in 1996. An additional gain of $5,450,000 attributable to the
promissory notes was deferred based upon uncertainty regarding the
collectibility of principal on the notes and the expiration of the conversion
features. In 1998 and 1997, the Company received principal payments of
$4,450,000 and $1,000,000, respectively, on the promissory notes, resulting
in the recognition of gains in 1998 and 1997 equal to the amounts received.

L. EXTRAORDINARY ITEM

Net income for 1998 included an extraordinary loss of $15,314,000,
net of an income tax benefit of $9,587,000, recognized in connection with the
Company's repurchase and defeasance of the remaining $152,000,000 principal
amount of Old Senior Notes. Net income for 1997 included an extraordinary
loss of $2,179,000, net of an income tax benefit of $1,336,000, recognized in
connection with the Company's repurchase of $38,000,000 principal amount of
Old Senior Notes. Net income for 1996 included an extraordinary loss of
$421,000, net of an income tax benefit of $242,000, recognized in connection
with borrowings under certain bank lines of credit and project loans which
were retired.

F-19

<PAGE>

M. EARNINGS PER SHARE

Pursuant to SFAS 128, the computation of diluted earnings per share
takes into account the effect of dilutive stock options and, for periods
prior to December 15, 1998, assumes the conversion into MDC common stock of
all of the $28,000,000 outstanding principal amount of the Convertible
Subordinated Notes at a conversion price of $7.75 per share of MDC common
stock. The basic and diluted earnings per share calculations are shown below
(in thousands, except per share amounts).

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income before extraordinary item................. $ 51,568 $ 24,205 $ 20,799
Extraordinary loss, net of taxes................. (15,314) (2,179) (421)
---------- ---------- ----------
Net income.................................... $ 36,254 $ 22,026 $ 20,378
---------- ---------- ----------
---------- ---------- ----------
Weighted-average shares outstanding.............. 18,451 17,673 18,623
---------- ---------- ----------
---------- ---------- ----------
Per share amounts
Income before extraordinary item.............. $ 2.79 $ 1.37 $ 1.12
Extraordinary loss, net of taxes.............. (0.83) (0.12) (0.03)
---------- ---------- ----------
Net income.................................... $ 1.96 $ 1.25 $ 1.09
---------- ---------- ----------
---------- ---------- ----------
DILUTED EARNINGS PER SHARE
Income before extraordinary item................. $ 51,568 $ 24,205 $ 20,799
Conversion of Convertible Subordinated Notes..... 783 1,575 1,608
---------- ---------- ----------
Adjusted income before extraordinary item...... 52,351 25,780 22,407
Extraordinary loss, net of taxes................. (15,314) (2,179) (421)
---------- ---------- ----------
Adjusted net income........................... $ 37,037 $ 23,601 $ 21,986
---------- ---------- ----------
---------- ---------- ----------
Weighted-average shares outstanding.............. 18,451 17,673 18,623
Stock options, net............................... 866 613 527
Conversion of Convertible Subordinated Notes..... 3,289 3,613 3,613
---------- ---------- ----------
Diluted weighted-average shares outstanding... 22,606 21,899 22,763
---------- ---------- ----------
---------- ---------- ----------
Per share amounts
Income before extraordinary item.............. $ 2.32 $ 1.18 $ 0.98
Extraordinary loss, net of taxes.............. (0.68) (0.10) (0.01)
---------- ---------- ----------
Net income.................................... $ 1.64 $ 1.08 $ 0.97
---------- ---------- ----------
---------- ---------- ----------

</TABLE>

N. LEGAL PROCEEDINGS

During 1994 and 1995, class action litigation was filed against
several of the Company's subsidiaries (the "Expansive Soils Cases"), alleging
claims relating to the construction of homes on lots with expansive soils. On
November 26, 1996 the settlement of the Expansive Soils Cases became final.
As a result, the Company recorded additional warranty reserves. The impact in
the consolidated statements of income of these additional warranty reserves
was offset by indemnity payments received from insurance and deposited
directly into a qualified settlement fund. The settlement provided for the
creation of a warranty program for eligible owners of homes constructed by
the Company's Colorado homebuilding subsidiaries and closed between June 1986
and June 1996. Management believes the settlement will not have a material
adverse effect on the financial condition, results of operations or cash
flows of the Company.

F-20

<PAGE>

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.

The Company is not aware of any litigation, matter or pending claim
against the Company which would result in material contingent liabilities
related to environmental hazards or asbestos.

O. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate such value.

CASH AND CASH EQUIVALENTS - For cash and cash equivalents, the
carrying value is a reasonable estimate of fair value.

INVESTMENTS AND MARKETABLE SECURITIES, NET - Investments in
marketable equity securities (other than those assets held for eligible
claims made under warranties created pursuant to the settlement of the
Expansive Soils Cases, see Notes A and N) are recorded on the balance sheet
at cost, which approximates market value. Accordingly, the carrying value of
the investment is a reasonable estimate of the fair value.

MORTGAGE LOANS HELD IN INVENTORY - The Company generally purchases
forward commitments to deliver mortgage loans held for sale. For loans which
have no forward commitments, loans in inventory are stated at the lower of
cost or market. Accordingly, the carrying value is a reasonable estimate of
fair value.

NOTES PAYABLE AND LINES OF CREDIT - The Company's notes payable and
lines of credit are at floating rates or at fixed rates which approximate
current market rates and have relatively short-term maturities. Accordingly,
the carrying value is a reasonable estimate of fair value.

SENIOR NOTES AND SUBORDINATED NOTES - The estimated fair value of
the New Senior Notes, Old Senior Notes and subordinated notes in the
following table are based on dealer quotes.

<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ---------------------
RECORDED ESTIMATED RECORDED ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
New Senior Notes................................ $ 174,339 $ 172,813 $ -- $ --
Old Senior Notes................................ $ -- $ -- $ 150,354 $ 167,960
Subordinated notes.............................. $ -- $ -- $ 38,230 $ 65,850

</TABLE>

P. COMMITMENTS AND CONTINGENCIES

The Company believes that it is subject to risks and uncertainties
common to the homebuilding industry including (1) cyclical markets sensitive
to changes in general and local economic conditions; (2) volatility of
interest rates, which affects homebuilding demand and may affect credit
availability; (3) seasonal nature of the business due to weather-related
factors; (4) significant fluctuations in the price of building materials,
particularly lumber, and of finished lots and subcontract labor; (5)
counterparty non-performance risk associated with performance bonds; and (6)
environmental regulations which vary significantly according to a site's
condition, location and former uses. The Company's operations are
concentrated in the geographic regions of Colorado, Virginia, Maryland,
California, Arizona and Nevada.

To reduce exposure to fluctuations in interest rates, HomeAmerican
makes commitments to originate (buy) and sell loans and mortgage-backed
securities. At December 31, 1998, commitments by HomeAmerican to originate
mortgage loans totalled $44,523,000 at market rates of interest. At December
31, 1998, unexpired short-term forward commitments to sell loans totalled
$96,500,000 at market rates of interest.

MDC leases office space, equipment and certain of its model show
homes under noncancellable operating leases. Future minimum rental payments
for leases with initial terms in excess of one year total $3,404,000 in 1999,
$3,054,000 in 2000, $2,809,000 in 2001, $2,332,000 in 2002 and $2,028,000 in
2003. Rent expense under

F-21

<PAGE>

cancellable and noncancellable leases totalled $3,665,000, $3,091,000 and
$2,877,000 in 1998, 1997, and 1996, respectively.

In May 1998, MDC sold its headquarters office building for net
proceeds of $13,250,000 in a sale-leaseback transaction. The gain on the sale
of $3,715,000 is being recognized ratably over the initial lease term of
seven years.

As of December 31, 1998, MDC has guaranteed payment of principal and
interest on $26,008,000 principal amount of bonds issued by municipal
agencies to fund the development of project infrastructure for a
master-planned community in Colorado.

Q. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash paid during the year for
Interest................................ $ 15,296 $ 28,526 $ 34,415
Income taxes............................ $ 24,820 $ 14,307 $ 8,941

Non-cash investing and financing activities
Land purchases financed by seller....... $ -- $ 6,750 $ 5,852
Land sales financed by MDC.............. $ -- $ 1,183 $ 205
Conversion of Convertible Subordinated

Notes to equity....................... $ 28,000 $ -- $ --
</TABLE>

R. RELATED PARTY TRANSACTIONS

MDC has transacted business with related or affiliated companies and
with certain officers and directors of the Company.

Gilbert Goldstein, P.C., a law firm of which a director of the
Company is the sole shareholder, was paid legal fees of $243,000, $404,000
and $189,000 in 1998, 1997 and 1996, respectively.

The Company utilizes the services of companies owned by two former
employees of the Company, one of whom is the brother-in-law of an officer and
director of the Company. During 1998, 1997 and 1996, the Company paid
$3,647,000, $1,975,000 and $3,586,000, respectively, for plumbing, door and
millwork services provided by these companies.

The Company utilizes in the ordinary course of business the services
of a marketing and communications firm which is owned by the brother-in-law
of an officer and director of the Company. Total fees paid for advertising
and marketing design services were $418,000, $414,000 and $499,000,
respectively, in 1998, 1997 and 1996.

The wife of an officer and director of the Company provides
consulting services to the Company. Total fees paid for her services were
$80,000, $98,000 and $36,000, respectively, in 1998, 1997 and 1996.

F-22

<PAGE>

S. SUMMARIZED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)

Unaudited summarized quarterly consolidated financial information
for the two years ended December 31, 1998 is as follows (in thousands, except
per share amounts).

<TABLE>
<CAPTION>
QUARTER
-----------------------------------------------------
FOURTH THIRD SECOND FIRST
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1998
Revenues........................................ $ 384,194 $ 331,635 $ 303,879 $ 243,501
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income before extraordinary item................ $ 16,802 $ 14,257 $ 12,581 $ 7,928
Extraordinary (loss)............................ -- -- -- (15,314)
----------- ----------- ----------- -----------
Net income (loss)........................ $ 16,802 $ 14,257 $ 12,581 $ (7,386)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

Earnings Per Share
Basic
Income before extraordinary item......... $ .86 $ .78 $ .70 $ .44
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (loss)........................ $ .86 $ .78 $ .70 $ (.41)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted
Income before extraordinary item......... $ .74 $ .65 $ .58 $ .37
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (loss)........................ $ .74 $ .65 $ .58 $ (.31)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted-Average Shares Outstanding
Basic.................................... 19,620 18,205 18,042 17,919
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted.................................. 22,700 22,673 22,469 22,392
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

1997
Revenues........................................ $ 271,840 $ 266,618 $ 237,285 $ 193,819
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income before extraordinary item................ $ 8,183 $ 7,302 $ 5,134 $ 3,586
Extraordinary (loss)............................ -- -- -- (2,179)
----------- ----------- ----------- -----------
Net income............................... $ 8,183 $ 7,302 $ 5,134 $ 1,407
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

Earnings Per Share
Basic
Income before extraordinary item......... $ .46 $ .42 $ .29 $ .20
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income............................... $ .46 $ .42 $ .29 $ .08
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted
Income before extraordinary item......... $ .39 $ .35 $ .26 $ .18
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income............................... $ .39 $ .35 $ .26 $ .08
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted-Average Shares Outstanding
Basic.................................... 17,770 17,569 17,463 17,891
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted.................................. 22,041 21,779 21,583 22,107
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

</TABLE>

F-23

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Information required to be set forth hereunder has been omitted and
will be incorporated by reference, when filed, from the Company's Proxy
Statement for its 1999 Annual Meeting of Shareowners to be held on or about
May 24, 1999.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) 1. FINANCIAL STATEMENTS.

The following consolidated financial statements of the Company and its
subsidiaries are included in Part II, Item 8.

<TABLE>
<CAPTION>
PAGE
<S> <C>
M.D.C. Holdings, Inc. and Subsidiaries
Report of Independent Accountants................................................................. F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997...................................... F-3
Consolidated Statements of Income for each of the Three Years Ended December 31, 1998............. F-5
Consolidated Statements of Stockholders' Equity for each of the Three Years Ended December 31,
1998............................................................................................ F-6
Consolidated Statements of Cash Flows for each of the Three Years Ended December 31, 1998......... F-7
Notes to Consolidated Financial Statements........................................................ F-8
</TABLE>

(a) 2. FINANCIAL STATEMENT SCHEDULES.

All schedules are omitted because they are not applicable, not
material, not required or the required information is included in the
applicable financial statements or notes thereto.

<PAGE>

Financial statements for certain unconsolidated partnerships and
joint ventures owned 50% or less by the Company or its subsidiaries, which
are accounted for on the equity method, have been omitted because they do
not, individually, or in the aggregate, constitute a significant subsidiary.

(a) 3. EXHIBITS.

<TABLE>
<S> <C>
3.1(a) Form of Amendment to the Certificate of Incorporation of
M.D.C. Holdings, Inc. (hereinafter sometimes referred to as
"MDC", the "Company" or the "Registrant") regarding director
liability, filed with the Delaware Secretary of State on July
1, 1987 (incorporated by reference to Exhibit 3.1(a) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1987). *

3.1(b) Form of Certificate of Incorporation of MDC, as amended
(incorporated herein by reference to Exhibit 3.1(b) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1987). *

3.2(a) Form of Amendment to the Bylaws of MDC regarding
indemnification adopted by its Board of Directors and
effective as of March 20, 1987 (incorporated herein by
reference to Exhibit 3.2(a) of the Company's Quarterly Report
on Form 10-Q dated June 30, 1987). *

3.2(b) Form of Bylaws of MDC, as amended (incorporated herein by
reference to Exhibit 3.2(b) of the Company's Quarterly Report
on Form 10-Q dated June 30, 1987). *

4.1 Form of Certificate for shares of the Company's common stock
(incorporated herein by reference to Exhibit 4.1 of the
Company's Registration Statement on Form S-3, Registration No.
33-426). *

4.5 Guaranty Agreement between the Company as guarantor and Bank
One, Denver, N.A., as Trustee under Indenture of Trust dated
as of June 1, 1994 between it and Superior Metropolitan
District No. 1 dated as of June 1, 1994 (incorporated herein
by reference to Exhibit 10.1 of the Company's Quarterly Report
on Form 10-Q dated September 30, 1994). *

4.6 Credit Agreement dated as of April 10, 1996 among Richmond
American Homes of California, Inc., Richmond American Homes of
Maryland, Inc., Richmond American Homes of Nevada, Inc.,
Richmond American Homes of Virginia, Inc., Richmond American
Homes, Inc., Richmond Homes, Inc. I and Richmond Homes, Inc.
II as Borrowers and the Banks Named Herein as Banks and Bank
One, Arizona, NA as Agent (the "Credit Agreement")
(incorporated herein by reference to Exhibit 4.1 of the
Company's Quarterly Report on Form 10-Q dated March 31, 1996).
*

4.7 Schedule "2.21" to Credit Agreement--Terms Relating to Last 24
Months of Term/No Extension (incorporated herein by reference
to Exhibit 4.2 of the Company's Quarterly Report on Form 10-Q
dated March 31, 1996). *

4.8 Schedule "2.22" to Credit Agreement--Terms Relating to
Conversion Period (incorporated herein by reference to Exhibit
4.3 of the Company's Quarterly Report on Form 10-Q dated March
31, 1996). *

4.9 Guaranty of Credit Agreement dated as of April 10, 1996 by
M.D.C. Holdings, Inc. (incorporated herein by reference to
Exhibit 4.4 of the Company's Quarterly Report on Form 10-Q
dated March 31, 1996). *

4.10(a) Fourth Modification Agreement as of December 31, 1998 among
Richmond American Homes of California, Inc., Richmond American
Homes of Maryland, Inc., Richmond American Homes of Nevada,
Inc., Richmond American Homes of Virginia, Inc., Richmond
American Homes of Arizona, Inc., Richmond American Homes of
Colorado, Inc., and Richmond American Homes of

<PAGE>

Northern California, Inc., as Borrowers and the Banks listed
on the signature pages of the modification agreement as Banks
and Bank One, Arizona, NA, as Agent.

4.10(b) Third Modification Agreement as of June 2, 1998 among Richmond
American Homes of California, Inc., Richmond American Homes of
Maryland, Inc., Richmond American Homes of Nevada, Inc.,
Richmond American Homes of Virginia, Inc., Richmond American
Homes of Arizona, Inc., Richmond American Homes of Colorado,
Inc., and Richmond Homes, Inc. II and Bank One, Arizona, NA,
as Agent (incorporated herein by reference to Exhibit 4.1 of
the Company's Quarterly Report on Form 10-Q dated June 30,
1998). *

4.10(c) Form of Promissory Note of Richmond American Homes of
California, Inc., Richmond American Homes of Maryland, Inc.,
Richmond American Homes of Nevada, Inc., Richmond American
Homes of Virginia, Inc., Richmond American Homes of Arizona,
Inc., and Richmond American Homes of Colorado, Inc. as Makers
dated June 2, 1998 (incorporated herein by reference to
Exhibit 4.2 of the Company's Quarterly Report on Form 10-Q
dated June 30, 1998). *

4.11 Form of Senior Notes Indenture dated as of January 28, 1998 by
and between the Company and U.S. Bank National Association, as
Trustee (incorporated herein by reference to Exhibit 4.2(a) of
the Company's Post Effective Amendment No. 1 to Form S-3). *

10.1 The Company's Employee Equity Incentive Plan (incorporated
herein by reference to Exhibit A of the Company's Proxy
Statement dated May 14, 1993 relating to the 1993 Annual
Meeting of Stockholders). *

10.2 The Company's Director Equity Incentive Plan (incorporated
herein by reference to Exhibit B of the Company's Proxy
Statement dated May 14, 1993 relating to the 1993 Annual
Meeting of Stockholders). *

10.3(a) First Amendment to M.D.C. Holdings, Inc. Director Equity
Incentive Plan (incorporated herein by reference to Exhibit A
of the Company's Proxy Statement dated March 24, 1997 relating
to the 1997 Annual Meeting of Stockholders). *

10.3(b) Second Amendment to M.D.C. Holdings, Inc. Director Equity
Incentive Plan (incorporated herein by reference to Exhibit
4.3 of the Company's Quarterly Report on Form 10-Q dated June
30, 1998). *

10.5(a) Form of Indemnity Agreement entered into between the
Registrant and each member of its Board of Directors as of
March 20, 1987 (incorporated herein by reference to Exhibit
19.1 of the Company's Quarterly Report on Form 10-Q dated June
30, 1987). *

10.5(b) Form of Indemnity Agreement entered into between the
Registrant and certain officers of the Registrant on various
dates during 1988 and early 1989 (incorporated herein by
reference to Exhibit 10.18(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1988). *

10.6 Indemnification Agreement by and among the Company and Larry
A. Mizel ("Mizel") and David D. Mandarich ("Mandarich") dated
December 21, 1989 (incorporated herein by reference to Exhibit
9 of the Company's Form 8-K dated December 28, 1989). *

10.7 Promissory Note in the amount of $280,080 from Mandarich to
the Company dated February 2, 1994 (incorporated herein by
reference to Exhibit 10.10 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1993). *

<PAGE>

10.8 Fifth Amendment to Piney Creek Development Co. Joint Venture
Agreement dated June 13, 1991 by and between Commercial
Federal Bank and Land (incorporated herein by reference to
Exhibit 10.25 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991). *

10.9 Consulting Agreement effective October 1, 1998 by and between
Gilbert Goldstein, P.C. and the Company (incorporated herein
by reference to Exhibit 10.1 of the Company's Quarterly Report
on Form 10-Q dated September 30, 1998). *

10.10 Form of Restricted Stock Agreement between the Company and
certain officers and employees of the Company effective as of
November 20, 1998.

10.11 M.D.C. Holdings, Inc. Executive Officer Performance-Based
Compensation Plan (incorporated herein by reference to Exhibit
A to the Company's Proxy Statement dated May 25, 1994 related
to the 1994 Meeting of Stockholders). *

10.12(a) M.D.C. Holdings, Inc. Executive Option Purchase Program,
including form of Promissory Note and Pledge Agreement
(incorporated herein by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q dated March 31, 1995). *

10.12(b) Amendment No. 1 to Executive Option Purchase program,
effective November 4, 1997 in part and December 1, 1997 in
part (incorporated herein by reference to Exhibit 10.12(b) of
the Company's Annual Report on Form 10-K dated December 31,
1997). *

10.13 Acquisition Agreement by and among FAM Acquisitions LLC and
M.D.C. Holdings, Inc., Financial Asset Management Corporation
and M.D.C. Residual Holdings, Inc. dated as of September 6,
1996 (the "Acquisition Agreement") (incorporated herein by
reference to Exhibit 10.1 of the Company's Quarterly Report on
Form 10-Q dated September 30, 1996). *

10.14 Amendment No. 1 to Acquisition Agreement dated as of September
30, 1996 (incorporated herein by reference to Exhibit 10.2 of
the Company's Quarterly Report on Form 10-Q dated September
30, 1996). *

10.15(a) Forms of Promissory Notes and Pledge Agreements dated December
9, 1996 between M.D.C. Holdings, Inc. and Michael Touff and
Paris G. Reece III related to amounts advanced to such persons
in connection with income taxes due on the portion of their
1996 performance bonuses paid in the form of the Company's
common stock (incorporated herein by reference to Exhibit
10.19 of the Company's Annual Report on Form 10-K dated
December 31, 1996). *

10.15(b) Forms of Promissory Notes and Pledge Agreements dated December
18, 1997 between the Company and Michael Touff and Paris G.
Reece III related to amounts advanced to such persons in
connection with income taxes due and the portion of their 1997
performance bonuses paid in the form of the Company's common
stock (incorporated herein by reference to Exhibit 10.16(b) of
the Company's Annual Report on Form 10-K dated December 31,
1997). *

10.17(a) Employment Agreement between the Company and Larry A. Mizel
dated October 1, 1997 (incorporated herein by reference to
Exhibit 99.1 of the Company's Form 8-K dated January 14,
1998). *

10.17(b) Employment Agreement between the Company and David D.
Mandarich dated October 1, 1997 (incorporated herein by
reference to Exhibit 99.2 of the Company's Form 8-K dated
January 14, 1998). *
24

<PAGE>

10.18(a) Change in Control Agreement between M.D.C. Holdings, Inc. and
Paris G. Reece III effective January 26, 1998 (incorporated
herein by reference to Exhibit 10.1 to the Company's Form 8-K
dated March 27, 1998). *

10.18(b) Change in Control Agreement between M.D.C. Holdings, Inc. and
Michael Touff effective January 26, 1998 (incorporated herein
by reference to Exhibit 10.2 to the Company's Form 8-K dated
March 27, 1998). *

10.18(c) Form of Change in Control Agreement between M.D.C. Holdings,
Inc. and certain employees of M.D.C. Holdings, Inc.
(incorporated herein by reference to Exhibit 10.3 to the
Company's Form 8-K dated March 27, 1998). *

21 Subsidiaries of the Company.

23 Consent of PricewaterhouseCoopers LLP.

27 Financial Data Schedule.

</TABLE>

- -------------------

* Incorporated herein by reference.

(b) REPORTS ON FORM 8-K.

No reports on Form 8-K were filed during the last quarter of the
year ended December 31, 1998.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on this 8th day of March, 1999 on its behalf by the undersigned,
thereunto duly authorized.

M.D.C. HOLDINGS, INC.
(Registrant)

By: /s/ LARRY A. MIZEL
---------------------------
Larry A. Mizel
CHIEF EXECUTIVE OFFICER

By: /s/ PARIS G. REECE III
---------------------------
Paris G. Reece III
SENIOR VICE PRESIDENT, CHIEF
FINANCIAL OFFICER AND PRINCIPAL
ACCOUNTING OFFICER

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and/or
directors of the Registrant, by virtue of their signatures to this report,
appearing below, hereby constitute and appoint Larry A. Mizel, David D.
Mandarich and Paris G. Reece III, or any one of them, with full power of
substitution, as attorneys-in-fact in their names, places and steads to
execute any and all amendments to this report in the capacities set forth
opposite their names and hereby ratify all that said attorneys-in-fact do by
virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ LARRY A. MIZEL Chairman of the Board of Directors, President and March 8, 1999
- ------------------------- Chief Executive Officer
Larry A. Mizel

/s/ DAVID D. MANDARICH Director, Executive Vice President - Real Estate and March 8, 1999
- ------------------------- Chief Operating Officer
David D. Mandarich

/s/ STEVEN J. BORICK Director March 8, 1999
- -------------------------
Steven J. Borick

/s/ GILBERT GOLDSTEIN Director March 8, 1999
- -------------------------
Gilbert Goldstein

/s/ WILLIAM B. KEMPER Director March 8, 1999
- -------------------------
William B. Kemper

/s/ HERBERT T. BUCHWALD Director March 8, 1999
- -------------------------
Herbert T. Buchwald

</TABLE>

(A Majority of the Board of Directors)

<PAGE>

EXHIBIT 4.10(a)
FOURTH MODIFICATION AGREEMENT

THIS FOURTH MODIFICATION AGREEMENT ("Agreement") is entered into as of
December 31, 1998, among the Borrowers named herein, the Banks listed on the
signature pages of this Agreement, and BANK ONE, ARIZONA, NA, a national
banking association, as Agent. The parties hereto agree as follows:

RECITALS:

A. Agent, the banks named therein ("Banks") and RICHMOND AMERICAN
HOMES OF CALIFORNIA, INC., a Colorado corporation, RICHMOND AMERICAN HOMES
OF MARYLAND, INC., a Maryland corporation, RICHMOND AMERICAN HOMES OF NEVADA,
INC., a Colorado corporation, RICHMOND AMERICAN HOMES OF VIRGINIA, INC., a
Virginia corporation, RICHMOND AMERICAN HOMES OF ARIZONA, INC., a Delaware
corporation (formerly known as Richmond American Homes, Inc.), RICHMOND
AMERICAN HOMES OF COLORADO, INC., a Delaware corporation (formerly known as
Richmond Homes, Inc. I) and RICHMOND HOMES, INC. II, a Delaware corporation
(subsequently merged into Richmond Homes, Inc. I), as Borrowers
(collectively, the "Original Borrowers") entered into a Credit Agreement
dated as of April 10, 1996, an Agreement dated March 3, 1997, a First
Modification Agreement dated as of March 28, 1997, a Second Modification
Agreement dated as of October 29, 1997, and a Third Modification Agreement
dated as of June 2, 1998 (collectively, the "Credit Agreement"). Pursuant
to the Credit Agreement, Banks, among other things, established a credit
facility ("Credit Facility") for Original Borrowers, which is evidenced by
the Notes. Capitalized terms not otherwise defined herein shall have the
same meanings ascribed to such terms in the Credit Agreement.

B. Original Borrowers have requested that Banks add RICHMOND AMERICAN
HOMES OF NORTHERN CALIFORNIA, INC., a Colorado corporation ("Assuming
Borrower" and, together with Original Borrowers, "Borrowers") as a borrower
under the Credit Agreement. Banks have agreed to so modify the Credit
Facility and to amend the Credit Agreement and other Loan Documents on the
terms and subject to the conditions set forth in this Agreement.

AGREEMENTS:

For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Borrowers, Banks (as hereafter defined) and
Agent agree as follows:

SECTION 1. ACCURACY OF RECITALS.

The parties acknowledge the accuracy of the Recitals.

<PAGE>

SECTION 2. MODIFICATION OF CREDIT AGREEMENT.

Effective as of the Effective Date (as hereafter defined), the Credit
Agreement shall be modified as follows:

2.1 The following definition is hereby amended in its entirety as set
forth in Article I:

"Borrowers" means RICHMOND AMERICAN HOMES OF CALIFORNIA, INC.,
a Colorado corporation, RICHMOND AMERICAN HOMES OF MARYLAND, INC., a
Maryland corporation, RICHMOND AMERICAN HOMES OF NEVADA, INC., a
Colorado corporation, RICHMOND AMERICAN HOMES OF VIRGINIA, INC., a
Virginia corporation, RICHMOND AMERICAN HOMES OF ARIZONA, INC., a
Delaware corporation (formerly known as Richmond American Homes,
Inc.), RICHMOND AMERICAN HOMES OF COLORADO, INC., a Delaware
corporation (formerly known as Richmond Homes, Inc. I), RICHMOND
AMERICAN HOMES OF NORTHERN CALIFORNIA, INC., a Colorado corporation,
and their successors and assigns, and any Subsidiary that shall
hereafter become a Borrower in accordance with Section 11.4 hereof,
and any successors and assigns of any of the foregoing. "Borrower"
means any one of the Borrowers.

2.2 The definition of "Convertible Subordinated Notes" is hereby
deleted from Article I of the Credit Agreement and such phrase is also
deleted in each place in the Credit Agreement that it appears.

SECTION 3. OTHER MODIFICATIONS; RATIFICATION OF LOAN DOCUMENTS.

3.1 As of the Effective Date, each reference in the Loan Documents to
any of the Loan Documents is hereby amended to be a reference to such document
as modified herein.

3.2 The Loan Documents are ratified and affirmed by Borrowers and
shall remain in full force and effect as modified herein.

SECTION 4. BORROWERS REPRESENTATIONS AND WARRANTIES.

Borrowers represent and warrant to Banks and Agent:

4.1 As of December 28, 1998, the outstanding principal balance of the
Notes is $40,000,000.00; interest has been paid through the due date.

4.2 Assuming Borrower is (a) a Wholly-Owned Subsidiary of Guarantor,
and (b) a Restricted Subsidiary, as defined in the Indenture.

<PAGE>

4.3 No Event of Default and no Unmatured Event of Default has
occurred and is continuing under any of the Loan Documents as modified
herein. The addition of Assuming Borrower as a Borrower shall not cause an
Event of Default or an Unmatured Event of Default to occur.

4.4 There has been no material adverse change in the financial
condition of any Borrower or Guarantor or any other person whose financial
statement has been delivered to Agent in connection with the Credit Facility
from the most recent financial statement received by Agent.

4.5 Each and all representations and warranties of Borrowers in the
Loan Documents are accurate on the date hereof, except as may have been
previously disclosed to Banks in writing.

4.6 Borrowers have no claims, counterclaims, defenses, or set-offs
with respect to the Credit Facility or the Loan Documents as modified herein.

4.7 The Loan Documents as modified herein are the legal, valid, and
binding obligation of Borrowers, enforceable against Borrowers in accordance
with their terms, subject to bankruptcy, insolvency or similar laws affecting
the enforcement of creditors' rights generally and general principles of
equity.

4.8 Each Borrower is validly existing under the laws of the State of
its formation or organization and has the requisite power and authority to
execute and deliver this Agreement and to perform the Loan Documents as
modified herein. The execution and delivery of this Agreement and the
performance of the Loan Documents as modified herein have been duly
authorized by all requisite action by or on behalf of each Borrower. This
Agreement has been duly executed and delivered on behalf of each Borrower.

SECTION 5. BORROWER COVENANTS.

Borrowers covenant with Agent and Banks as follows:

5.1 Borrowers shall execute, deliver, and provide to Agent such
additional agreements, documents, and instruments as reasonably required by
Agent to effectuate the intent of this Agreement.

5.2 Borrowers fully, finally, and absolutely and forever release and
discharge Agent and Banks and their present and former directors,
shareholders, officers, employees, agents, representatives, successors and
assigns, and their separate and respective heirs, personal representatives,
successors and assigns, from any and all actions, causes of action, claims,
debts, damages, demands, liabilities, obligations, and suits, of whatever
kind or nature, in law or equity of Borrowers, whether now known or unknown
to Borrowers, and whether contingent or matured, (i) in respect of the Credit
Facility, the Loan Documents, or the actions or omissions of Agent or

<PAGE>

Banks in respect of the Credit Facility or the Loan Documents and (ii)
arising from events occurring prior to the date of this Agreement.

SECTION 6. CONDITIONS PRECEDENT.

The agreements of Banks and Agent and the modifications contained herein
shall not be binding upon Banks and Agent until Borrowers have executed and
delivered this Agreement and Agent has received, at Borrowers' expense, all
of the following on or before December 31, 1998 (the "Effective Date"), and
each of which shall be in form and content satisfactory to Agent and Banks
and shall be subject to approval by Agent and Banks:

6.1 An original of this Agreement fully executed by Borrowers and
Guarantor;

6.2 A Replacement Promissory Note payable to the order of Bank One,
Arizona, NA in the amount of $75,000,000.00, in the form attached hereto as
EXHIBIT A, fully executed by Borrowers, which shall be deemed to be a Note
for all purposes under the Credit Agreement;

6.3 A Replacement Promissory Note payable to the order of Bank United
in the amount of $75,000,000.00, in the form attached hereto as EXHIBIT B,
fully executed by Borrowers, which shall be deemed to be a Note for all
purposes under the Credit Agreement;

6.4 A Replacement Promissory Note payable to the order of KeyBank
National Association in the amount of $50,000,000.00, in the form attached
hereto as EXHIBIT C, fully executed by Borrowers, which shall be deemed to be
a Note for all purposes under the Credit Agreement;

6.5 A Promissory Note payable to the order of Bank of America
National Trust and Savings Association, assignee of NationsBank, N.A., in
the amount of $50,000,000.00, in the form attached hereto as EXHIBIT D, fully
executed by Borrowers, which shall be deemed to be a Note for all purposes
under the Credit Agreement;

6.6 A Replacement Promissory Note payable to the order of Sanwa Bank
California in the amount of $25,000,000.00, in the form attached hereto as
EXHIBIT E, fully executed by Borrowers, which shall be deemed to be a Note
for all purposes under the Credit Agreement;

6.7 A Promissory Note payable to the order of AmSouth Bank in the
amount of $25,000,000.00, in the form attached hereto as EXHIBIT F, fully
executed by Borrowers, which shall be deemed to be a Note for all purposes
under the Credit Agreement;

6.8 With respect to Assuming Borrower, Borrowers have furnished to
Agent with sufficient copies for Banks:

<PAGE>

(i) Copies of the certificate of incorporation of
Assuming Borrower, together with all amendments, and a certificate of
good standing, all certified by the appropriate governmental officer
in the jurisdiction of incorporation.

(ii) Copies, certified by the Secretary or Assistant
Secretary of Assuming Borrower, of its by-laws and of its Board of
Directors' resolutions authorizing the execution of this Agreement and
the assumption of Borrowers' obligations under the Loan Documents.

(iii) Incumbency certificates, executed by the Secretary or
Assistant Secretary of Assuming Borrower, which shall identify by name
and title and bear the signature of the officers authorized to sign
this Agreement and to make borrowings under the Loan Documents and to
request, apply for and execute Facility Letter of Credit Reimbursement
Agreements with respect to Facility Letters of Credit, upon which
certificates Agent, Banks and the Issuing Bank shall be entitled to
rely until informed of any change in writing by Assuming Borrower.

(iv) A written certificate of General Counsel of
Guarantor, addressed to Agent and Banks in substantially the form of
EXHIBIT G hereto.

6.9 Such resolutions or authorizations and such other documents as
Agent may require relating to the existence and good standing of each
Original Borrower and Guarantor, and the authority of any person executing
this Agreement or other documents on behalf of each Original Borrower and
Guarantor;

6.10 Payment of all the internal and external costs and expenses
incurred by Agent in connection with this Agreement (including, without
limitation, inside and outside attorneys and processing costs, expenses, and
fees).

SECTION 7. ASSUMPTION BY ASSUMING BORROWER.

7.1 Assuming Borrower hereby assumes the obligation for payment of
the indebtedness evidenced by the Notes and for the performance of all
covenants, conditions, provisions and agreements under the Loan Documents,
as the same are amended hereby. Assuming Borrower hereby covenants, promises
and agrees (i) to pay the Notes at the times, in the manner and in all other
respects as therein provided or as it may be modified in writing between the
obligor and the holder thereof; (ii) to perform each and all of the
covenants, conditions, provisions and agreements in the Loan Documents, as
the same are amended hereby, to be performed by Borrowers, at the time, in
the manner and in all other respects as therein provided; and (iii) to be
bound by each and every term, condition and provision of the Credit
Agreement, the Notes, and the other Loan Documents, as the same are amended
hereby, as though such documents and instruments had originally been made,
executed and delivered by Assuming Borrower.

<PAGE>

7.2 Banks hereby consent to the foregoing assumption by Assuming
Borrower. Such consent shall in no way affect the liability or obligations
of Original Borrowers under the Credit Agreement, the Notes and the other
Loan Documents, as the same are amended hereby, nor the liability of
Guarantor. Such consent shall not constitute a consent to any further
assumption by any other party.

7.3 Original Borrowers hereby acknowledge and agree that their
liability, obligations and agreements under the Credit Agreement, the Notes,
and the other Loan Documents, as the same are amended hereby, shall continue
unaffected hereby.

SECTION 8. GENERAL.

8.1 The Loan Documents as modified herein contain the complete
understanding and agreement of Borrowers, Banks and Agent in respect of the
Credit Facility and supersede all prior representations, warranties,
agreements, arrangements, understandings, and negotiations. No provision of
the Loan Documents as modified herein may be changed, discharged,
supplemented, terminated, or waived except in a writing signed by the parties
thereto.

8.2 The Loan Documents as modified herein shall be binding upon and
shall inure to the benefit of Borrowers, Banks and Agent and their
successors and assigns; provided, however, Borrowers may not assign any of
their rights or delegate any of their obligations under the Loan Documents
and any purported assignment or delegation shall be void.

8.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Arizona, without giving effect to conflicts of
law principles.

<PAGE>

8.4 This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original and all of which together shall
constitute one and the same document. Signature pages may be detached from
the counterparts and attached to a single copy of this Agreement to
physically form one document.

IN WITNESS WHEREOF, Borrowers, Banks, and Agent have executed this
Agreement as of the date set forth above.

BORROWERS:

ATTEST: RICHMOND AMERICAN HOMES OF
CALIFORNIA, INC., a Colorado corporation