10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the quarterly period ended March 31, 2005

or

o Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the transition period from                      to                     .

Commission File Number: 1-8029

THE RYLAND GROUP, INC.

(Exact name of registrant as specified in its charter)

Maryland	52-0849948
(State of incorporation)	(I.R.S. Employer Identification Number)

24025 Park Sorrento, Suite 400
Calabasas, California 91302
818-223-7500

(Address and telephone number of principal executive offices)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

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

The number of shares of common stock of The Ryland Group, Inc. outstanding on April 29, 2005, was 47,105,459.

THE RYLAND GROUP, INC.
FORM 10-Q
INDEX

	PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings for the Three Months Ended March 31, 2005 and 2004 (unaudited)	3
Consolidated Balance Sheets at March 31, 2005 (unaudited) and December 31, 2004	4
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004 (unaudited)	5
Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2005 (unaudited)	6
Notes to Consolidated Financial Statements (unaudited)	7-18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19-27
Item 3. Quantitative and Qualitative Disclosures About Market Risk	28
Item 4. Controls and Procedures	28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 4. Submission of Matters to a Vote of Security Holders	30
Item 6. Exhibits	31
SIGNATURES	32
INDEX OF EXHIBITS	33
Exhibit 3.1
Exhibit 3.2
Exhibit 10.1
Exhibit 12.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

2

PART I. FINANCIAL INFORMATION

Item I. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)

The Ryland Group, Inc. and subsidiaries
(in thousands, except share data)

	Three Months Ended March 31,
	2005		2004
REVENUES
Homebuilding	$	858,377	$	738,044
Financial services		15,597		16,555
TOTAL REVENUES		873,974		754,599
EXPENSES
Cost of sales		660,845		573,809
Selling, general and administrative		90,258		78,328
Financial services		6,967		6,004
Corporate		14,511		10,954
Interest		225		283
TOTAL EXPENSES		772,806		669,378
Earnings before taxes		101,168		85,221
Tax expense		38,442		32,810
NET EARNINGS	$	62,726	$	52,411
NET EARNINGS PER COMMON SHARE
Basic	$	1.32	$	1.09
Diluted	$	1.25	$	1.03
AVERAGE COMMON SHARES OUTSTANDING
Basic		47,488,914		47,946,828
Diluted		50,082,920		50,975,982
DIVIDENDS DECLARED PER COMMON SHARE	$	0.06	$	0.05

See Notes to Consolidated Financial Statements.

3

CONSOLIDATED BALANCE SHEETS
The Ryland Group, Inc. and subsidiaries
(in thousands, except share data)

	March 31,		December 31,
	2005		2004
	(unaudited)
ASSETS
Cash and cash equivalents	$	61,218	$	88,388
Housing inventories
Homes under construction		1,160,826		1,002,214
Land under development and improved lots		950,264		877,801
Consolidated inventory not owned		209,645		144,118
Total inventories		2,320,735		2,024,133
Property, plant and equipment		55,908		50,258
Net deferred taxes		48,461		45,708
Purchase price in excess of net assets acquired		18,185		18,185
Other		219,216		198,298
TOTAL ASSETS		2,723,723		2,424,970
LIABILITIES
Accounts payable		218,164		200,611
Accrued and other liabilities		411,824		500,808
Debt		823,131		558,942
TOTAL LIABILITIES		1,453,119		1,260,361
MINORITY INTEREST		167,448		107,775
STOCKHOLDERS’ EQUITY
Common stock, $1.00 par value:
Authorized — 80,000,000 shares
Issued — 47,349,051 (47,348,070 for December 31, 2004)		47,349		47,348
Retained earnings		1,055,591		1,009,242
Accumulated other comprehensive income		216		244
TOTAL STOCKHOLDERS’ EQUITY		1,103,156		1,056,834
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,723,723	$	2,424,970

See Notes to Consolidated Financial Statements.

4

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
The Ryland Group, Inc. and subsidiaries
(in thousands)

	Three Months Ended March 31,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	62,726		$	52,411
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		9,068			8,403
Changes in assets and liabilities:
Increase in inventories		(237,747	)		(180,806	)
Net change in other assets, payables and other liabilities		(89,760	)		(58,469	)
Tax benefit from exercise of stock options		3,938			3,960
Other operating activities, net		(6,283	)		8,364
Net cash used for operating activities		(258,058	)		(166,137	)
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to property, plant and equipment		(13,734	)		(13,236	)
Principal reduction of mortgage-backed securities, notes receivable and mortgage collateral		1,407			2,695
Net cash used for investing activities		(12,327	)		(10,541	)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds of long-term debt		250,000			—
Increase (decrease) in short-term borrowings		14,189			(1,524	)
Common stock dividends		(2,862	)		(2,462	)
Common stock repurchases		(32,047	)		(37,555	)
Proceeds from stock option exercises		6,448			3,942
Other financing activities, net		7,487			5,866
Net cash provided by (used for) financing activities		243,215			(31,733	)
Net decrease in cash and cash equivalents		(27,170	)		(208,411	)
Cash and cash equivalents at beginning of period		88,388			316,704
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	61,218		$	108,293
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES
Increase in consolidated inventory not owned related to land options	$	58,855		$	27,595

See Notes to Consolidated Financial Statements.

5

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (unaudited)
The Ryland Group, Inc. and subsidiaries
(in thousands, except share data)

										Accumulated
										Other			Total
	Common			Paid-in			Retained			Comprehensive			Stockholders’
	Stock			Capital			Earnings			Income			Equity
BALANCE AT DECEMBER 31, 2004	$	47,348		$	—		$	1,009,242		$	244		$	1,056,834
Comprehensive income:
Net earnings								62,726						62,726
Other comprehensive income, net of tax:
Unrealized losses on mortgage-backed securities, net of taxes of $(17)											(28	)		(28	)
Total comprehensive income														62,698
Common stock dividends (per share $0.06)								(2,852	)					(2,852	)
Repurchase of common stock		(485	)		(18,037	)		(13,525	)					(32,047	)
Employee stock plans and related income tax benefit		486			18,037									18,523
BALANCE AT MARCH 31, 2005	$	47,349		$	—		$	1,055,591		$	216		$	1,103,156
See Notes to Consolidated Financial Statements.

6

THE RYLAND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Consolidated Financial Statements

The consolidated financial statements include the accounts of The Ryland Group, Inc. and its wholly-owned subsidiaries (“the Company”). Intercompany transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the 2005 presentation.

The consolidated balance sheet at March 31, 2005, the consolidated statements of earnings for the three months ended March 31, 2005 and 2004, and the consolidated statements of cash flows for the three months ended March 31, 2005 and 2004, have been prepared by the Company without audit. In the opinion of management, all adjustments, which include normally recurring adjustments necessary to present fairly the Company’s financial position, results of operations and cash flows at March 31, 2005, and for all periods presented, have been made. Certain information and footnote disclosures normally included in the financial statements have been condensed or omitted. These financial statements should be read in conjunction with the financial statements and related notes included in the Company’s 2004 annual report to its stockholders.

The Company has historically experienced, and expects to continue to experience, variability in quarterly results. Accordingly, the results of operations for the three months ended March 31, 2005, are not necessarily indicative of the operating results expected for the year ended December 31, 2005.

Note 2. Comprehensive Income

Comprehensive income consists of net income and the increase or decrease in unrealized gains or losses on the Company’s available-for-sale securities. Comprehensive income totaled $62.7 million and $52.4 million for the three months ended March 31, 2005 and 2004, respectively.

Note 3. Segment Information

The Company is a leading national homebuilder and mortgage-related financial services firm. As one of the largest single-family on-site homebuilders in the United States, it builds homes in 27 markets. The Company’s homebuilding segment specializes in the sale and construction of single-family attached and detached housing. Its financial services segment provides loan origination; title, escrow and insurance brokerage services; and maintains a portfolio of mortgage-backed securities and notes receivable.

	Three Months Ended March 31,
(in thousands)	2005			2004
Revenues
Homebuilding	$	858,377		$	738,044
Financial services		15,597			16,555
Total	$	873,974		$	754,599
Earnings before taxes
Homebuilding	$	107,274		$	85,907
Financial services		8,405			10,268
Corporate		(14,511	)		(10,954	)
Total	$	101,168		$	85,221

7

THE RYLAND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Corporate is a nonoperating business segment with the sole purpose of supporting operations. Certain corporate expenses are allocated to the homebuilding and financial services segments. The Company evaluates performance and allocates resources based on a number of factors, including segment pretax earnings. The accounting policies of the segments are the same as those described in Note A of the Company’s 2004 Annual Report.

Note 4. Earnings Per Share Reconciliation

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share data):

	Three Months Ended March 31,
	2005		2004
Numerator
Net earnings	$	62,726	$	52,411
Denominator
Basic earnings per share — weighted-average shares		47,488,914		47,946,828
Effect of dilutive securities:
Stock options		2,298,335		2,470,612
Equity incentive plan		295,671		558,542
Dilutive potential of common shares		2,594,006		3,029,154
Diluted earnings per share — adjusted weighted-average shares and assumed conversions		50,082,920		50,975,982
Net earnings per common share
Basic	$	1.32	$	1.09
Diluted	$	1.25	$	1.03

At March 31, 2005, all options were included in the diluted earnings per share calculation. Options to purchase 220,000 shares of common stock at various prices were outstanding at March 31, 2004, but were not included in the computation of diluted earnings per share for the three months ended March 31, 2004, because the exercise prices were greater than the average market price of the shares, and, therefore, their effect would have been antidilutive.

Note 5. Inventories

Inventories consist principally of homes under construction, land under development and improved lots. Inventories to be held and used are stated at cost unless a community is determined to be impaired, in which case the impaired inventories are written down to fair value.

The following table is a summary of capitalized interest (in thousands):

	2005			2004
Capitalized interest at January 1	$	55,414		$	45,163
Interest capitalized		15,182			12,198
Interest amortized to cost of sales		(10,081	)		(7,391	)
Capitalized interest at March 31	$	60,515		$	49,970

8

THE RYLAND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 6. Purchase Price in Excess of Net Assets Acquired

Statement of Financial Accounting Standards No. 142 (SFAS 142), “Goodwill and Other Intangible Assets,” requires that goodwill and other intangible assets no longer be amortized but be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. Additionally, SFAS 142 requires that goodwill included in the carrying value of equity-method investments no longer be amortized.

The Company adopted the provisions of SFAS 142 on January 1, 2002, and performs impairment tests of its goodwill annually as of March 31. The Company tests goodwill for impairment by using the two-step process prescribed in SFAS 142. The first step identifies potential impairment, while the second step measures the amount of impairment. The Company had no impairment at March 31, 2005 or 2004.

The Company’s application of the nonamortization provisions of SFAS 142 resulted in the elimination of its goodwill amortization expense in 2005 and 2004.

Note 7. Variable Interest Entities

FIN 46 requires a variable interest entity (VIE) to be consolidated by a company if that company is subject to a majority of the risk of loss from the VIE’s activities and/or entitled to receive a majority of the VIE’s residual returns. FIN 46 also requires disclosures about VIEs that the Company is not required to consolidate but in which it has a significant, though not primary, variable interest.

The Company routinely enters into joint ventures for the purpose of acquisition and co-development of land parcels and lots. Its investment in these joint ventures may create a variable interest in a VIE, depending on the contractual terms of the arrangement. Additionally, in the ordinary course of business, the Company enters into lot option purchase contracts in order to procure land for the construction of homes. Under such lot option purchase contracts, the Company funds stated deposits in consideration for the right to purchase lots at a future point in time, usually at predetermined prices. In accordance with the requirements of FIN 46, certain of the Company’s lot option purchase contracts may result in the creation of a variable interest with a VIE holding the land parcel under option.

In accordance with the provisions of FIN 46, the Company consolidated $209.6 million of inventory not owned at March 31, 2005, $173.7 million of which pertained to lot option contracts and $35.9 million of which pertained to three of the Company’s homebuilding joint ventures (see Note 8). While the Company may not have had legal title to the optioned land or guaranteed the seller’s debt associated with that property, under FIN 46 it had the primary variable interest and was required to consolidate the particular VIE’s assets under option at fair value. This represents the fair value of the optioned property. Additionally, to reflect the fair value of the inventory consolidated under FIN 46, the Company eliminated $16.3 million of its related cash deposits for lot option contracts, which are included in consolidated inventory not owned. Minority interest totaling $157.4 million was recorded with respect to the consolidation of these contracts, representing the selling entities’ ownership interests in these VIEs. At March 31, 2005, the Company had cash deposits and letters of credit totaling $23.6 million relating to lot option contracts that were consolidated, representing its current maximum exposure to loss. Creditors of these VIEs, if any, have no recourse against the Company. At March 31, 2005, the Company had cash deposits and/or letters of credit totaling $74.5 million which were associated with lot option purchase contracts that had an aggregate purchase price of $1.3 billion and that were related to VIEs in which it did not have a primary variable interest.

9

THE RYLAND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 8. Investments in Joint Ventures

The Company routinely enters into joint ventures for the purpose of acquisition and co-development of land parcels and lots. Currently, the Company participates in homebuilding joint ventures in the Atlanta, Chicago, Dallas, Denver, Las Vegas, Orlando, Phoenix and Washington, D.C., markets. The Company participates in a number of joint ventures in which it has less than a controlling interest. At March 31, 2005, and December 31, 2004, the Company’s investment in its unconsolidated joint ventures amounted to $8.7 million and $2.5 million, respectively. The Company recognizes its share of the respective joint ventures’ earnings from the sale of lots to other homebuilders. It does not, however, recognize earnings from lots that it purchases from the joint ventures. Instead, it reduces its cost basis in these lots by its share of the earnings from the lots. The Company’s equity in earnings of its unconsolidated joint ventures totaled $99,000 for the three-month period ended March 31, 2005, compared to losses of $14,000 for the three-month period ended March 31, 2004. The aggregate assets of the unconsolidated joint ventures in which the Company participated were $115.7 million and $10.3 million at March 31, 2005, and December 31, 2004, respectively. At December 31, 2004, the aggregate debt of the unconsolidated joint ventures in which the Company participated was $3.6 million. These unconsolidated joint ventures did not have any debt at March 31, 2005. The Company did not guarantee the debt of its unconsolidated joint ventures.

At March 31, 2005, three of the joint ventures in which the Company participates were consolidated in accordance with the provisions of FIN 46, as the Company was determined to have the primary variable interest in the entities. In association with these consolidated joint ventures, the Company recorded pretax losses of $5,000 for the three-month period ended March 31, 2005. Total assets of $36.3 million, including consolidated inventory not owned (see Note 7), total liabilities of $18.3 million and minority interest of $10.0 million were consolidated.

Note 9. Debt

In January 2005, the Company sold the $250.0 million aggregate principal amount of its 5.4 percent senior notes due January 2015. Commencing on July 15, 2005, the Company will pay interest semiannually in arrears on January 15 and July 15 of each year. The notes will mature on January 15, 2015, and may be redeemed at a stated redemption price, in whole or in part, prior to their maturity.

Additionally, at March 31, 2005, the Company had (a) $100.0 million of 8.0 percent senior notes due August 2006, with interest payable semiannually, which may not be redeemed prior to maturity; (b) $150.0 million of 5.4 percent senior notes due June 2008, with interest payable semiannually, which may be redeemed at a stated redemption price at the option of the Company, in whole or in part, at any time; and (c) $147.0 million of 9.8 percent senior notes due September 2010, with interest payable semiannually, which may be redeemed at a stated redemption price at the option of the Company, in whole or in part, at any time on or after September 1, 2005.

At March 31, 2005, the Company had $143.5 million of 9.1 percent senior subordinated notes due June 2011, with interest payable semiannually, which may be redeemed at a stated redemption price at the option of the Company, in whole or in part, at any time on or after June 15, 2006. Senior subordinated notes are subordinated to all existing and future senior debt of the Company.

In June 2004, the Company executed an agreement for a new $500.0 million unsecured revolving credit facility. The agreement, maturing in June 2009, contains an accordion feature under which the aggregate commitment may be increased up to $650.0 million, subject to the availability of additional commitments. Borrowings under this agreement bear interest at variable short-term rates. In addition to the stated interest rates, the agreement requires the Company to pay certain fees. The Company used its unsecured

10

THE RYLAND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

revolving credit facility to finance increases in its homebuilding inventory and working capital. There were no outstanding borrowings under this agreement at March 31, 2005, and December 31, 2004. Under this facility, the Company had letters of credit outstanding which totaled $136.3 million at March 31, 2005, and $131.3 million at December 31, 2004. Unused borrowing capacity under this facility was $363.7 million and $368.7 million at March 31, 2005, and December 31, 2004, respectively.

The Company’s obligations to pay principal, premium, if any, and interest under its $500.0 million unsecured revolving credit facility; 8.0 percent senior notes due August 2006; 5.4 percent senior notes due June 2008; 9.8 percent senior notes due September 2010; and 5.4 percent senior notes due January 2015 are guaranteed on a joint and several basis by substantially all of its wholly-owned homebuilding subsidiaries (the “Guarantor Subsidiaries”). Such guarantees are full and unconditional.

The senior and senior subordinated note and indenture agreements, as well as the unsecured revolving credit facility, contain numerous restrictive covenants. At March 31, 2005, the Company was in compliance with these covenants.

In 2005, the Company’s financial services segment reduced and extended a revolving credit facility used to finance mortgage investment portfolio securities. The facility, previously $15.0 million, was renewed for $10.0 million. The agreement matures in March 2006 and bears interest at market rates. Borrowings outstanding under this facility totaling $9.7 million and $10.5 million at March 31, 2005, and December 31, 2004, respectively, were collateralized by collateralized mortgage obligations previously issued by one of the Company’s limited-purpose subsidiaries.

To finance land purchases, the Company may also use seller-financed nonrecourse secured notes payable. At March 31, 2005, and December 31, 2004, outstanding seller-financed nonrecourse notes payable were $22.9 million and $8.0 million, respectively.

Note 10. Postretirement Benefits

The Company has supplemental nonqualified retirement plans, which vest over five-year periods beginning in 2003, pursuant to which the Company will pay supplemental pension benefits to key employees upon retirement. In connection with these plans, the Company has purchased cost-recovery life insurance on the lives of certain employees. Insurance contracts associated with the plans are held by trusts established as part of the plans to implement and carry out their provisions and finance their related benefits. The trusts are owners and beneficiaries of such contracts. The amount of coverage is designed to provide sufficient revenue to cover all costs of the plans if assumptions made as to employment term, mortality experience, policy earnings and other factors are realized. At March 31, 2005, and December 31, 2004, the cash surrender value of these contracts was $16.2 million and $13.0 million, respectively. The net periodic benefit cost for these plans for the three months ended March 31, 2005, was $1.3 million and included service costs of $798,000, interest costs of $176,000 and investment losses of $301,000. For the three months ended March 31, 2004, the net periodic benefit cost was $511,000 and included service costs of $783,000, interest costs of $113,000 and investment earnings of $385,000. The $10.4 million and $9.4 million projected benefit obligations at March 31, 2005, and December 31, 2004, respectively, were equal to the net liability recognized in the balance sheet at those dates. For the three-month periods ended March 31, 2005 and 2004, the weighted-average discount rate used for the plans was 7.7 percent.

11

THE RYLAND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 11. Stock-Based Compensation

The Company has elected to follow the intrinsic value method to account for compensation expense, which is related to the award of stock options, and to furnish the pro forma disclosures required under Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation,” as amended. Since stock option awards are granted at prices no less than the fair market value of the shares at the date of grant, no compensation expense is recognized. Had compensation expense been determined based on fair value at the grant date for stock option awards, consistent with the provisions of SFAS 123, the Company’s net earnings and earnings per share in the first three months of 2005 and 2004 would have been reduced to the pro forma amounts indicated in the following table (in thousands, except share data):

	Three Months Ended March 31,
	2005			2004
Net earnings, as reported	$	62,726		$	52,411
Add: Stock-based employee compensation expense included in reported net earnings, net of related tax effects		—			—
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects		(2,197	)		(1,707	)
Pro forma net earnings	$	60,529		$	50,704
Earnings per share:
Basic — as reported	$	1.32		$	1.09
Basic — pro forma		1.27			1.06
Diluted — as reported		1.25			1.03
Diluted — pro forma		1.21			0.99

The fair value of each option grant is estimated on the grant date by using the Black-Scholes option-pricing model. The Company did not grant stock options during the quarter ended March 31, 2005. The following weighted-average assumptions were used for grants during the first three months of 2004: a risk-free interest rate of 2.2 percent; an expected volatility factor for the market price of the Company’s common stock of 38.5 percent; a dividend yield of 0.5 percent; and an expected life of three years. The weighted-average fair value at the grant date for options granted during the three-month period ended March 31, 2004, was $11.03.

Note 12. Commitments and Contingencies

In the normal course of business, the Company acquires rights under option agreements to purchase land or lots for use in future homebuilding operations. At March 31, 2005, it had related cash deposits and letters of credit outstanding of $140.7 million for land options and land purchase contracts having a total purchase price of $2.1 billion. At March 31, 2005, the Company had commitments with respect to option contracts having specific performance provisions of approximately $82.3 million, compared to $117.2 million at December 31, 2004.

As an on-site housing producer, the Company is often required by some municipalities to obtain development or performance bonds and letters of credit in support of its contractual obligations. At March 31, 2005, total development bonds were $339.3 million, while total related deposits and letters of

12

THE RYLAND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

credit were $82.6 million. In the event that any such bonds or letters of credit are called, the Company would be required to reimburse the issuer; however, it does not expect that any currently outstanding bonds or letters of credit will be called.

Interest rate lock commitments (IRLCs) represent loan commitments with customers at market rates generally up to 180 days before settlement. At March 31, 2005, the Company had outstanding IRLCs totaling $151.5 million. Hedging contracts are entered into to mitigate the risk associated with interest rate fluctuations on IRLCs.

The Company provides product warranties covering workmanship and materials for one year, certain mechanical systems for two years and structural systems for ten years. It estimates and records warranty liabilities based upon historical experience and known risks at the time a home closes, and in case of unexpected claims upon identification and qualification of the obligations. Actual future warranty costs could differ from currently estimated amounts.

Changes in the Company’s product liability during the period are as follows (in thousands):

	2005			2004
Balance at January 1	$	33,090		$	34,258
Warranties issued		4,523			4,135
Settlements made		(5,199	)		(4,143	)
Changes in liability for accruals related to pre-existing warranties		2,595			(2,420	)
Balance at March 31	$	35,009		$	31,830

Please refer to “Part II. Other Information, Item 1. Legal Proceedings” of this document for additional information regarding the Company’s commitments and contingencies.

Note 13. New Accounting Pronouncements

SFAS 123(R)
In December 2004, the Financial Accounting Standards Board issued Statement No. 123 (revised 2004), “Share-Based Payment” (SFAS 123(R)), which is a revision of SFAS 123. SFAS 123(R) supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends FASB Statement No. 95, “Statement of Cash Flows.” While generally similar in approach to its predecessor statement, SFAS 123(R) requires that all share-based payments to employees, including grants of employee stock options, be recognized in the financial statements based on their fair values. SFAS 123(R) permits public companies to adopt its requirements using either the “modified prospective” method, in which compensation cost is recognized beginning with the effective date (a) for all share-based payments granted after the effective date and (b) for all awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date; or the “modified retrospective” method, which includes the requirements of the modified prospective method described above and also permits entities to restate, based on the amounts previously recognized under Statement 123 for purposes of pro forma disclosures, either (a) all prior periods presented or (b) prior interim periods of the year of adoption. SFAS 123(R) is effective for public companies at the beginning of the first interim or annual period beginning after January 1, 2006. As permitted by SFAS 123, the Company currently accounts for share-based payments to employees using APB Opinion 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options.

13

THE RYLAND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Company will implement the provisions of SFAS 123(R) the first quarter of 2006, which will have an impact on its statements of earnings but is not expected to have a material impact on its overall financial position. The impact of adoption of SFAS 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted SFAS 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share in Note 11 to the Consolidated Financial Statements. SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow rather than as an operating cash flow. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were $3.9 million and $4.0 million at March 31, 2005 and 2004, respectively.

In March 2005, the SEC released Staff Accounting Bulletin No. 107 (SAB 107), “Share-Based Payment.” SAB 107 provides the SEC’s staff position regarding the application of SFAS 123(R). SAB 107 contains interpretive guidance related to the interaction between SFAS 123(R) and SEC rules and regulations. SAB 107 outlines the significance of disclosures made regarding the accounting for share-based payments.

Note 14. Supplemental Guarantor Information

The Company’s obligations to pay principal, premium, if any, and interest under its $500.0 million unsecured revolving credit facility; 8.0 percent senior notes due August 2006; 5.4 percent senior notes due June 2008; 9.8 percent senior notes due September 2010; and 5.4 percent senior notes due January 2015 are guaranteed on a joint and several basis by substantially all of its wholly-owned homebuilding subsidiaries (the “Guarantor Subsidiaries”). Such guarantees are full and unconditional.

In lieu of providing separate audited financial statements for the Guarantor Subsidiaries, the accompanying condensed consolidating financial statements have been included. Management does not believe that separate financial statements of the Guarantor Subsidiaries are material to investors and are, therefore, not presented.

The following information presents the consolidating statements of earnings, financial position and cash flows for (a) the parent company and issuer, The Ryland Group, Inc. (“TRG, Inc.”); (b) the Guarantor Subsidiaries; (c) the non-guarantor subsidiaries; and (d) the consolidation eliminations used to arrive at the consolidated information for The Ryland Group, Inc. and its subsidiaries.

14

THE RYLAND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATING STATEMENT OF EARNINGS

	THREE MONTHS ENDED MARCH 31, 2005
						NON-
				GUARANTOR		GUARANTOR		CONSOLIDATING			CONSOLIDATED
(amounts in thousands)	TRG, INC.			SUBSIDIARIES		SUBSIDIARIES		ELIMINATIONS			TOTAL
REVENUES
Homebuilding	$	476,290		$	407,185	$	—	$	(25,098	)	$	858,377
Financial services		—			—		15,597		—			15,597
TOTAL REVENUES		476,290			407,185		15,597		(25,098	)		873,974
EXPENSES
Cost of sales		373,164			312,779		—		(25,098	)		660,845
Selling, general and administrative		46,946			43,292		20		—			90,258
Financial services		—			—		6,967		—			6,967
Corporate		4,674			9,837		—		—			14,511
Interest		(268	)		268		225		—			225
TOTAL EXPENSES		424,516			366,176		7,212		(25,098	)		772,806
Earnings before taxes		51,774			41,009		8,385		—			101,168
Tax expense		19,673			15,583		3,186		—			38,442
Equity in net earnings of subsidiaries		30,625			—		—		(30,625	)		—
NET EARNINGS	$	62,726		$	25,426	$	5,199	$	(30,625	)	$	62,726

CONSOLIDATING STATEMENT OF EARNINGS

	THREE MONTHS ENDED MARCH 31, 2004
						NON-
				GUARANTOR		GUARANTOR		CONSOLIDATING			CONSOLIDATED
(amounts in thousands)	TRG, INC.			SUBSIDIARIES		SUBSIDIARIES		ELIMINATIONS			TOTAL
REVENUES
Homebuilding	$	464,151		$	297,067	$	195	$	(23,369	)	$	738,044
Financial services		—			—		16,555		—			16,555
TOTAL REVENUES		464,151			297,067		16,750		(23,369	)		754,599
EXPENSES
Cost of sales		362,191			234,792		195		(23,369	)		573,809
Selling, general and administrative		45,787			32,538		3		—			78,328
Financial services		—			—		6,004		—			6,004
Corporate		2,610			8,344		—		—			10,954
Interest		(734	)		734		283		—			283
TOTAL EXPENSES		409,854			276,408		6,485		(23,369	)		669,378
Earnings before taxes		54,297			20,659		10,265		—			85,221
Tax expense		20,904			7,954		3,952		—			32,810
Equity in net earnings of subsidiaries		19,018			—		—		(19,018	)		—
NET EARNINGS	$	52,411		$	12,705	$	6,313	$	(19,018	)	$	52,411

15

THE RYLAND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATING BALANCE SHEET

	MARCH 31, 2005
						NON-
				GUARANTOR		GUARANTOR			CONSOLIDATING			CONSOLIDATED
(amounts in thousands)	TRG, INC.			SUBSIDIARIES		SUBSIDIARIES			ELIMINATIONS			TOTAL
ASSETS
Cash and cash equivalents	$	39,327		$	11,492	$	10,399		$	—		$	61,218
Consolidated inventories owned		1,238,656			872,434		—			—			2,111,090
Consolidated inventories not owned		7,039			9,275		193,331			—			209,645
Total inventories		1,245,695			881,709		193,331			—			2,320,735
Property, plant and equipment		33,003			22,905		—			—			55,908
Net deferred taxes		52,261			—		(3,800	)		—			48,461
Purchase price in excess of net assets acquired		15,383			2,802		—			—			18,185
Investment in subsidiaries		45,508			—		—			(45,508	)		—
Other		138,568			31,699		48,949			—			219,216
TOTAL ASSETS		1,569,745			950,607		248,879			(45,508	)		2,723,723
LIABILITIES
Accounts payable		128,106			81,462		8,596			—			218,164
Accrued and other liabilities		313,683			58,273		39,868			—			411,824
Debt		806,642			6,745		9,744			—			823,131
Intercompany payable		(545,283	)		364,396		(125,020	)		305,907			—
TOTAL LIABILITIES		703,148			510,876		(66,812	)		305,907			1,453,119
MINORITY INTEREST		—			—		167,448			—			167,448
STOCKHOLDERS’ EQUITY		866,597			439,731		148,243			(351,415	)		1,103,156
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,569,745		$	950,607	$	248,879		$	(45,508	)	$	2,723,723

CONSOLIDATING BALANCE SHEET

	DECEMBER 31, 2004
						NON-
				GUARANTOR		GUARANTOR			CONSOLIDATING			CONSOLIDATED
(amounts in thousands)	TRG, INC.			SUBSIDIARIES		SUBSIDIARIES			ELIMINATIONS			TOTAL
ASSETS
Cash and cash equivalents	$	36,090		$	31,390	$	20,908		$	—		$	88,388
Consolidated inventories owned		1,118,062			761,953		—			—			1,880,015
Consolidated inventories not owned		2,398			9,298		132,422			—			144,118
Total inventories		1,120,460			771,251		132,422			—			2,024,133
Property, plant and equipment		30,024			20,234		—			—			50,258
Net deferred taxes		49,524			—		(3,816	)		—			45,708
Purchase price in excess of net assets acquired		15,383			2,802		—			—			18,185
Investment in subsidiaries		95,408			—		—			(95,408	)		—
Other		124,396			19,522		54,380			—			198,298
TOTAL ASSETS		1,471,285			845,199		203,894			(95,408	)		2,424,970
LIABILITIES
Accounts payable		121,362			76,470		2,779			—			200,611
Accrued and other liabilities		386,023			67,802		46,983			—			500,808
Debt		547,612			840		10,490			—			558,942
Intercompany payable		(403,987	)		285,782		(107,177	)		225,382			—
TOTAL LIABILITIES		651,010			430,894		(46,925	)		225,382			1,260,361
MINORITY INTEREST		—			—		107,775			—			107,775
STOCKHOLDERS’ EQUITY		820,275			414,305		143,044			(320,790	)		1,056,834
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,471,285		$	845,199	$	203,894		$	(95,408	)	$	2,424,970

16

THE RYLAND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATING STATEMENT OF CASH FLOWS

	THREE MONTHS ENDED MARCH 31, 2005
							NON-
				GUARANTOR			GUARANTOR			CONSOLIDATING			CONSOLIDATED
(amounts in thousands)	TRG, INC.			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			TOTAL
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	62,726		$	25,426		$	5,199		$	(30,625	)	$	62,726
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		4,897			3,889			282			—			9,068
Changes in assets and liabilities:
Increase in inventories		(125,235	)		(110,458	)		(2,054	)		—			(237,747	)
Net change in other assets, payables and other liabilities		(168,512	)		61,900			(13,773	)		30,625			(89,760	)
Tax benefit from exercise of stock options		3,938			—			—			—			3,938
Other operating activities, net		(6,283	)		—			—			—			(6,283	)
Net cash used for operating activities		(228,469	)		(19,243	)		(10,346	)		—			(258,058	)
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to property, plant and equipment		(7,000	)		(6,560	)		(174	)		—			(13,734	)
Principal reduction of mortgage-backed securities, notes receivable and mortgage collateral		—			—			1,407			—			1,407
Net cash (used for) provided by investing activities		(7,000	)		(6,560	)		1,233			—			(12,327	)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds of long-term debt		250,000			—			—			—			250,000
Increase (decrease) in short-term borrowings		9,030			5,905			(746	)		—			14,189
Common stock dividends		(2,862	)		—			—			—			(2,862	)
Common stock repurchases		(32,047	)		—			—			—			(32,047	)
Proceeds from stock option exercises		6,448			—			—			—			6,448
Other financing activities, net		8,137			—			(650	)		—			7,487
Net cash provided by (used for) financing activities		238,706			5,905			(1,396	)		—			243,215
Net increase (decrease) in cash and cash equivalents		3,237			(19,898	)		(10,509	)		—			(27,170	)
Cash and cash equivalents at beginning of year		36,090			31,390			20,908			—			88,388
CASH AND CASH EQUIVALENTS AT END OF PERIOD		39,327			11,492			10,399			—			61,218

CONSOLIDATING STATEMENT OF CASH FLOWS

	THREE MONTHS ENDED MARCH 31, 2004
							NON-
				GUARANTOR			GUARANTOR			CONSOLIDATING			CONSOLIDATED
(amounts in thousands)	TRG, INC.			SUBSIDIARIES			SUBSIDIARIES			ELIMINATIONS			TOTAL
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	52,411		$	12,705		$	6,313		$	(19,018	)	$	52,411
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		5,452			2,737			214			—			8,403
Changes in assets and liabilities:
Increase in inventories		(77,617	)		(68,350	)		(34,839	)		—			(180,806	)
Net change in other assets, payables and other liabilities		28,117			(135,949	)		30,345			19,018			(58,469	)
Tax benefit from exercise of stock options		3,960			—			—			—			3,960
Other operating activities, net		8,364			—			—			—			8,364
Net cash provided by (used for) operating activities		20,687			(188,857	)		2,033			—			(166,137	)
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to property, plant and equipment		(7,965	)		(4,932	)		(339	)		—			(13,236	)
Principal reduction of mortgage-backed securities, notes receivable and mortgage collateral		—			—			2,695			—			2,695
Net cash (used for) provided by investing activities		(7,965	)		(4,932	)		2,356			—			(10,541	)
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in short-term borrowings		(483	)		606			(1,647	)		—			(1,524	)
Common stock dividends		(2,462	)		—			—			—			(2,462	)
Common stock repurchases		(37,555	)		—			—			—			(37,555	)
Proceeds from stock option exercises		3,942			—			—			—			3,942
Other financing activities, net		6,876			—			(1,010	)		—			5,866
Net cash (used for) provided by financing activities		(29,682	)		606			(2,657	)		—			(31,733	)
Net (decrease) increase in cash and cash equivalents		(16,960	)		(193,183	)		1,732			—			(208,411	)
Cash and cash equivalents at beginning of year		34,434			278,767			3,503			—			316,704
CASH AND CASH EQUIVALENTS AT END OF PERIOD		17,474			85,584			5,235			—			108,293

17

THE RYLAND GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 15. Subsequent Events

On May 2, 2005, the Company priced $250.0 million aggregate principal amount of 5.4 percent senior notes due 2012 and intends to close the debt financing on May 9, 2005. Upon closing, the Company will receive proceeds of approximately $248.1 million from this offering, before certain administrative expenses. The Company expects to use a portion of the net proceeds to redeem all of its 9.8 percent senior notes due September 2010 in September 2005, and the remainder of the net proceeds will be used for general corporate purposes. The Company will pay interest semiannually in arrears on May 15 and November 15 of each year, commencing on November 15, 2005. The notes will mature on May 15, 2012, and may be redeemed, in whole or in part, prior to their maturity at a stated redemption price. Additionally, the notes will be subject to certain restrictions which include, among other things, additional secured debt; obligations upon change of control; sale of assets; and sale and leaseback of assets. Payment of principal and interest on the notes will be guaranteed, jointly and severally, by substantially all of the Company’s direct and indirect wholly-owned homebuilding subsidiaries. The guarantees will rank equally with all other unsecured and unsubordinated indebtedness of such subsidiaries.

18

Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Note: Certain statements in this quarterly report may be regarded as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and may qualify for the safe harbor provided for in Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent the Company’s expectations and beliefs concerning future events, and no assurance can be given that the results described in this quarterly report will be achieved. These forward-looking statements can generally be identified by the use of statements that include words such as “anticipate,” “believe,” “estimate,” “expect,” “foresee,” “goal,” “intend,” “likely,” “may,” “plan,” “project,” “should,” “target,” “will” or other similar words or phrases. All forward-looking statements contained herein are based upon information available to the Company on the date of this quarterly report. Except as may be required under applicable law, the Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of the Company’s control, that could cause actual results to differ materially from the results discussed in the forward-looking statements. The factors and assumptions upon which any forward-looking statements herein are based are subject to risks and uncertainties which include, among others:

•   economic changes nationally or in the Company’s local markets, including volatility in interest rates, inflation, changes in consumer confidence levels and the state of the market for homes in general;

•   the availability and cost of land;

•   increased land development costs on projects under development;

•   shortages of skilled labor or raw materials used in the production of houses;

•   increased prices for labor, land and raw materials used in the production of houses;

•   increased competition;

•   failure to anticipate or react to changing consumer preferences in home design;

•   delays in land development or home construction resulting from adverse weather conditions;

•   potential delays or increased costs in obtaining necessary permits as a result of changes to laws, regulations or governmental policies (including those that affect zoning, density, building standards and the environment);

•   delays in obtaining approvals from applicable regulatory agencies and others in connection with the Company’s communities and land activities; and

•   other factors over which the Company has little or no control.

19

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Overview

The Company reported consolidated net earnings of $62.7 million, or $1.25 per diluted share, for the first quarter of 2005, compared to consolidated net earnings of $52.4 million, or $1.03 per diluted share, for the first quarter of 2004. This rise in net earnings was a result of higher revenues and increased profitability.

The Company’s revenues reached $874.0 million for the first quarter of 2005, up 15.8 percent from $754.6 million for the first quarter of 2004. This increase was primarily attributable to higher average closing prices, increased closing volume and a rise in design-option revenues.

The value of outstanding sales contracts rose 32.8 percent at March 31, 2005, compared to March 31, 2004, and the average price of outstanding contracts at $280,000 continued to increase.

Cash generated from operations has been reinvested to fund the Company’s future growth. Consolidated inventories owned by the Company, which include homes under construction, land under development and improved lots, grew 12.3 percent to $2.1 billion at March 31, 2005, compared to $1.9 billion at December 31, 2004, primarily due to an increase in backlog and related construction activities. Land under development increased by 8.3 percent during the first quarter of 2005, compared to December 31, 2004, while the number of lots under the Company’s control increased to 81,507, or 17.3 percent, compared to March 31, 2004.

The Company continued to repurchase stock, acquiring 485,000 shares during the first quarter of 2005. During the first three months of 2005, $250.0 million of debt was issued to fund near term growth while stockholders’ equity grew by $46.3 million and as a result, leverage increased. The Company’s debt-to-capital ratio increased from 34.6 percent at December 31, 2004 to 42.7 percent at March 31, 2005.

20

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Homebuilding

New orders rose 2.7 percent during the first quarter of 2005, compared to the same period in the prior year. New orders for the three months ended March 31, 2005, increased 16.2 percent in the West and 4.9 percent in the Southeast but decreased 6.6 percent in the North and 2.1 percent in Texas, compared to the first quarter of 2004. The number of active communities at March 31, 2005, was 372, compared to 306 active communities at March 31, 2004.

At March 31, 2005, the Company had outstanding contracts for 9,584 units, representing a 23.3 percent increase over its outstanding contracts at March 31, 2004. Outstanding contracts denote the Company’s backlog of sold but not closed homes, which are generally built and closed, subject to cancellation, over the subsequent two quarters. The value of outstanding contracts at March 31, 2005, was $2.7 billion, an increase of 32.8 percent from March 31, 2004, due to a rise in the number of outstanding contracts and a 7.7 percent increase in average price. Average sales price increased, in part, from a change in mix that was weighted toward higher-priced markets.

	North		Texas		Southeast		West		Total
For the three months ended March 31,
New orders (units)
2005		1,320		1,004		1,516		1,262		5,102
2004		1,413		1,026		1,445		1,086		4,970
Closings (units)
2005		770		575		934		859		3,138
2004		902		523		911		702		3,038
Average closing price (in thousands)
2005	$	292	$	169	$	239	$	354	$	271
2004		268		171		224		283		242
Outstanding contracts at March 31, Units
2005		2,358		1,421		3,440		2,365		9,584
2004		2,249		1,312		2,757		1,455		7,773
Dollars (in millions)
2005	$	743	$	254	$	889	$	797	$	2,683
2004		686		223		649		462		2,020
Average price (in thousands)
2005	$	315	$	179	$	259	$	337	$	280
2004		305		170		236		317		260

21

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Results of operations for the homebuilding segment are summarized as follows (in thousands):

	Three Months Ended March 31,
	2005		2004
Revenues	$	858,377	$	738,044
Cost of sales		660,845		573,809
Gross profit		197,532		164,235
Selling, general and administrative expenses		90,258		78,328
Homebuilding pretax earnings	$	107,274	$	85,907

Three months ended March 31, 2005, compared to three months ended March 31, 2004

The homebuilding segment reported pretax earnings of $107.3 million for the first quarter of 2005, compared to $85.9 million for the same period in the prior year. Homebuilding results for the first quarter of 2005 rose from 2004, primarily due to higher revenues and increased profitability.

Homebuilding revenues increased $120.3 million for the first quarter of 2005, compared to 2004, primarily due to a 12.0 percent increase in the average closing price of a home, as well as an increase in volume.

Consistent with its policy of managing land investments according to return and risk targets, the Company executed several land sales during the first quarter of 2005. Homebuilding revenues for the first quarter of 2005 included $8.5 million from land sales, compared to $3.8 million for the first quarter of 2004, which contributed net gains of $0.6 million and $0.4 million to pretax earnings in 2005 and 2004, respectively.

Gross profit margins from home sales averaged 23.2 percent for the first quarter of 2005, compared to 22.3 percent for the first quarter of 2004. This improvement was primarily due to sales prices rising at a greater rate than costs and a change in closing volume mix, with an increased percentage of closings coming from higher margin markets during the first quarter of 2005.

Selling, general and administrative expenses, as a percentage of revenue, were 10.5 percent for the three months ended March 31, 2005, compared to 10.6 percent for the same period in the prior year.

The Company capitalized all interest incurred during the first quarter of 2005 and 2004 due to increased development activity.

22

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Financial Services

For the three months ended March 31, 2005, the financial services segment reported pretax earnings of $8.4 million, compared to $10.3 million for the same period in 2004. The decrease was primarily attributable to reduced gains on the sale of mortgages and loan servicing rights, which resulted from an increase in less profitable adjustable-rate mortgage product and a more competitive marketplace, and partially offset by a rise in mortgage origination dollars.

STATEMENTS OF EARNINGS (unaudited)

	Three Months Ended March 31,
(amounts in thousands)	2005			2004
REVENUES
Net gains on sales of mortgages and mortgage servicing rights	$	8,213		$	9,890
Title/escrow/insurance		5,119			4,520
Net origination fees		1,649			1,174
Interest
Mortgage-backed securities and notes receivable		398			771
Other		206			200
Total interest		604			971
Other		12			—
TOTAL REVENUES		15,597			16,555
EXPENSES
General and administrative		6,967			6,004
Interest		225			283
TOTAL EXPENSES		7,192			6,287
PRETAX EARNINGS	$	8,405		$	10,268
Originations (units)		2,363			2,395
Ryland Homes origination capture rate		80.3	%		84.3	%
Mortgage-backed securities and notes receivable average balance	$	9,842		$	24,361

BALANCE SHEETS

	March 31,		December 31,
(amounts in thousands)	2005		2004
	(unaudited)
ASSETS
Cash	$	8,552	$	19,149
Other assets		46,396		50,410
TOTAL ASSETS		54,948		69,559
LIABILITIES
Accounts payable		8,596		2,779
Accrued and other liabilities		17,894		37,588
Debt		9,744		10,490
TOTAL LIABILITIES		36,234		50,857
STOCKHOLDER’S EQUITY		18,714		18,702
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	54,948	$	69,559

23

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Three months ended March 31, 2005, compared to three months ended March 31, 2004

Revenues for the financial services segment decreased 5.8 percent to $15.6 million for the first quarter of 2005, compared to the same period in the prior year. The decrease was primarily attributable to a rise in adjustable-rate mortgage product, which yielded lower servicing premiums and, in turn, resulted in lower gains on the sale of mortgages, partially offset by revenues from the Company’s title, escrow and insurance operations, which resulted from increased title and insurance units and higher premiums received during the first quarter of 2005. The capture rate of mortgages originated for customers of the homebuilding segment was 80.3 percent in the first quarter of 2005, compared to 84.3 percent in the first quarter of 2004. Mortgage origination dollars increased primarily as a result of higher average loan values.

For the three months ended March 31, 2005, general and administrative expenses were $7.0 million versus $6.0 million for the same period in 2004. This increase was primarily attributable to additional expenses incurred in supporting expansion of the Company’s homebuilding markets.

Interest expense decreased 20.5 percent for the three months ended March 31, 2005, compared to the same period in 2004. The decrease in interest expense was primarily due to a continued decline in bonds payable and short-term notes payable, which resulted from the sale of a portion of the investment portfolio and continued runoff of the underlying collateral.

Corporate

Three months ended March 31, 2005, compared to three months ended March 31, 2004

Corporate expenses were $14.5 million and $11.0 million for the three months ended March 31, 2005 and 2004, respectively. The rise in corporate expenses was primarily attributable to increased incentive compensation, which was due to improvement in the Company’s financial results and rising stock price.

Income Taxes

The Company’s income tax amounts represented effective income tax rates of 38.0 percent for 2005 and 38.5 percent for 2004. The decrease in the effective income tax rate in 2005 was due primarily to the estimated benefits of the new tax deduction related to “qualified production activities income” created by the American Jobs Creation Act of 2004. Additional guidance from the United States Department of the Treasury related to “qualified production activities income” is expected in late 2005.

24

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

FINANCIAL CONDITION AND LIQUIDITY

Cash requirements for the Company’s homebuilding and financial services segments are generally provided from internally generated funds and outside borrowings.

Net earnings provided $62.7 million during the first three months of 2005 and $52.4 million during the same period in 2004, primarily as a result of increased profitability. Additionally, net changes in other assets and liabilities used $89.8 million and $58.5 million during the three months ended March 31, 2005 and 2004, respectively. Cash held at the beginning of the year and provided during the period was invested principally in inventory of $237.7 million and $180.8 million, as well as in stock repurchases of $32.0 million and $37.6 million, for the three months ended March 31, 2005 and 2004, respectively. Dividends totaling $0.06 per share and $0.05 per share were declared in the three-month periods ending March 31, 2005 and 2004, respectively.

Consolidated inventories owned by the Company increased to $2.1 billion at March 31, 2005, from $1.9 billion at December 31, 2004, in support of a significantly higher backlog of homes sold and land acquisition and development commensurate with higher closing volume in the remainder of 2005 and upcoming 2006. The Company attempts to maintain approximately a four- to five-year supply of land, with half or more controlled through options. At March 31, 2005, the Company controlled 81,507 lots (a 5.4-year supply based on actual 2004 closings), with 32,985 lots owned and 48,522 lots, or 59.5 percent, under option. The Company has historically funded the acquisition of land and exercise of land options through a combination of operating cash flows, capital transactions and borrowings under its revolving credit facility. The Company expects these sources to continue to be adequate to fund future obligations with regard to acquisition of land and exercise of land option contracts; therefore, it does not anticipate that the acquisition of land and exercise of land options will have a material adverse effect on its liquidity. In an effort to increase liquidity in prior years, models were sold and leased back on a selective basis. As cash balances increased, model leases declined. The Company owned 81.2 percent of its model homes at March 31, 2005, versus 63.5 percent at March 31, 2004.

During the three months ended March 31, 2005, the Company repurchased 485,000 shares of its outstanding common stock at a cost of approximately $32.0 million. At March 31, 2005, the Company had authorization from its Board of Directors to purchase an additional 2.5 million shares. The Company’s stock repurchase program has been funded primarily through internally generated funds.

The homebuilding segment’s borrowings include senior notes, senior subordinated notes, an unsecured revolving credit facility and nonrecourse secured notes payable. On January 11, 2005, the Company issued $250.0 million aggregate principal amount of 5.4 percent senior notes due January 2015. Senior and senior subordinated notes outstanding totaled $790.5 million at March 31, 2005, compared to $540.5 million at December 31, 2004.

The Company uses its $500.0 million unsecured revolving credit facility to finance increases in its homebuilding inventory and working capital, when necessary. There were no borrowings under the current facility at March 31, 2005, and December 31, 2004, respectively. Under this facility, the Company had letters of credit outstanding which totaled $136.3 million at March 31, 2005, and $131.3 million at December 31, 2004. Unused borrowing capacity under this facility was $363.7 million and $368.7 million at March 31, 2005, and December 31, 2004, respectively.

The $100.0 million of 8.0 percent senior notes due August 2006; $147.0 million of 9.8 percent senior notes due September 2010; and $143.5 million of 9.1 percent senior subordinated notes due June 2011, contain numerous restrictive covenants which include, among other things, limitations on change of control; liens

25

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

and guarantees; dividends and distributions; sale of assets; modification of debt instruments; transactions with affiliates; and inventory. At March 31, 2005, the Company was in compliance with these covenants.

The $150.0 million of 5.4 percent senior notes due June 2008 and the $250.0 million 5.4 percent senior notes due January 2015 are subject to certain restrictions which include, among other things, additional secured debt; obligations upon change of control; sale of assets; and sale and leaseback of assets.

To finance land purchases, the Company may also use seller-financed nonrecourse secured notes payable. At March 31, 2005, such notes payable outstanding amounted to $22.9 million, compared to $8.0 million at December 31, 2004.

The financial services segment uses cash generated internally and from outside borrowing arrangements to finance its operations. Borrowing arrangements at March 31, 2005, included a $10.0 million, previously $15.0 million, revolving credit facility used to finance investment portfolio securities. At March 31, 2005, and December 31, 2004, the combined borrowings of the financial services segment outstanding under all agreements, were $9.7 million and $10.5 million, respectively.

Although the Company’s limited-purpose subsidiaries no longer issue mortgage-backed securities and mortgage-participation securities, they continue to hold collateral for previously issued mortgage-backed bonds in which the Company maintains a residual interest. Revenues, expenses and portfolio balances continue to decline as mortgage collateral pledged to secure the bonds decreases due to scheduled payments and prepayments and the sale of a portion of the investment portfolio during 2004. The source of cash for the bond payments was cash received from mortgage loans, notes receivable and mortgage-backed securities.

The Ryland Group, Inc. has not guaranteed the debt of either its financial services segment or its limited-purpose subsidiaries.

The Company filed a Registration Statement with the SEC for up to $1.0 billion of the Company’s debt and equity securities on April 11, 2005. The Registration Statement provides that securities may be offered, from time to time, in one or more series and in the form of senior, subordinated or convertible debt; preferred stock; preferred stock represented by depository shares; common stock; stock purchase contracts; stock purchase units; and warrants to purchase both debt and equity securities. In the future, the Company intends to continue to maintain effective shelf registration statements that will facilitate access to the capital markets. The timing and amount of future offerings, if any, will depend on market and general business conditions.

The Company believes that its available borrowing capacity at March 31, 2005, and anticipated cash flows from operations are sufficient to meet its requirements for the foreseeable future.

26

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OFF–BALANCE SHEET ARRANGEMENTS

In the ordinary course of business, the Company enters into land and lot option purchase contracts in order to procure land or lots for the construction of homes. Lot option contracts enable the Company to control significant lot positions with a minimal capital investment and substantially reduce the risks associated with land ownership and development. At March 31, 2005, the Company had $140.7 million in cash deposits and letters of credit to purchase land and lots with a total purchase price of $2.1 billion. Only $82.3 million of the $2.1 billion in land and lot option purchase contracts contain specific performance provisions. Additionally, the Company’s liability is generally limited to forfeiture of the nonrefundable deposits, letters of credit and other nonrefundable amounts incurred.

Pursuant to FIN 46, the Company consolidated $209.6 million of inventory not owned at March 31, 2005, $173.7 million of which pertained to lot option contracts and $35.9 million of which pertained to three of the Company’s homebuilding joint ventures. (See Notes 7 and 8.)

At March 31, 2005, the Company had outstanding letters of credit of $67.6 million and development or performance bonds of $339.3 million, issued by third parties, to secure performance under various contracts and land or municipal improvement obligations. The Company expects that the obligations secured by these letters of credit and performance bonds will generally be satisfied in the ordinary course of business and in accordance with applicable contractual terms. To the extent that the obligations are fulfilled, the related letters of credit and performance bonds will be released, and the Company will not have any continuing obligations. The Company has no material third-party guarantees other than those associated with its $500.0 million revolving credit facility and its senior notes.

CRITICAL ACCOUNTING POLICIES

Preparation of the Company’s consolidated financial statements requires the use of judgment in the application of accounting policies and estimates of inherently uncertain matters. There were no significant changes to the Company’s critical accounting policies during the three-month period ended March 31, 2005, as compared to those policies disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004.

27

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the Company’s market risk since December 31, 2004. For information regarding the Company’s market risk, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004.

Item 4. CONTROLS AND PROCEDURES

The Company has procedures in place for accumulating and evaluating information which enable it to prepare and file reports with the Securities and Exchange Commission. At the end of the period covered by this report on Form 10-Q, an evaluation was performed by the Company’s management, including the CEO and CFO, of the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective at March 31, 2005.

As a result of procedures required by the Sarbanes-Oxley Act of 2002, the Company formed a committee consisting of key officers, including the chief accounting officer and general counsel, to formalize and expand the Company’s disclosure controls and procedures to ensure that all information required to be disclosed in the Company’s reports is accumulated and communicated to those individuals responsible for the preparation of the reports, as well as to all principal executive and financial officers, in a manner that will allow timely decisions regarding required disclosures.

The Company’s management, including its CEO and CFO, evaluated any change in the Company’s internal control over financial reporting that occurred during the quarterly period ended March 31, 2005, and concluded that there was no change during the quarterly period ended March 31, 2005, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

28

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Contingent liabilities may arise from obligations incurred in the ordinary course of business or from the usual obligations of on-site housing producers for the completion of contracts.

On January 15, 2004, a stockholder class action lawsuit was filed against the Company and two of its officers in the United States District Court for the Northern District of Texas. The lawsuit alleges violations of federal securities law as a result of information about home sales during the fourth quarter of 2003. The Company and the individual defendants intend to vigorously defend themselves.

In November 2003, the Company received a request from the United States Environmental Protection Agency (the ”EPA”) pursuant to Section 308 of the Clean Water Act for information about storm water discharge practices in connection with recent homebuilding projects undertaken by the Company. The Company is working with the EPA to provide the requested information and review its compliance with the Clean Water Act. It is not known at this time whether the EPA will seek to take legal action or impose penalties in connection with either the information requested or the prior storm water discharge practices of the Company.

The Company is party to various other legal proceedings generally incidental to its businesses. Based on evaluation of these matters and discussions with counsel, management believes that liabilities arising from these matters will not have a material adverse effect on the financial condition of the Company.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following is a table summarizing the issuer’s purchases of its own equity securities during the three months ended March 31, 2005:

					Total Number
					of Shares		Maximum Number
	Total				Purchased as Part		of Shares that
	Number of		Average		of Publicly		May Yet Be
	Shares		Price Paid		Announced Plans		Purchased Under the
Period	Purchased		Per Share		or Programs		Plans or Programs
January 1 – 31		—	$	—		—		2,938,326
February 1 – 28		130,000		67.12		130,000		2,808,326
March 1 – 31		355,000		65.70		355,000		2,453,326
Total		485,000	$	66.08		485,000		2,453,326

On February 26, 2004, the Company announced that it had received authorization from its Board of Directors to purchase 2.0 million additional shares of its common stock in open-market transactions. At March 31, 2005, 453,326 shares were available for purchase in accordance with this authorization. This authorization does not have an expiration date.

On December 22, 2004, the Company announced that it had received authorization from its Board of Directors to purchase 2.0 million additional shares of its common stock in open-market transactions. At March 31, 2005, 2.0 million shares were available for purchase in accordance with this authorization. This authorization does not have an expiration date.

29

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The annual meeting of stockholders of the Company was held on April 20, 2005. Proxies were solicited by the Company, pursuant to Regulation 14 under the Securities Exchange Act of 1934, to elect directors of the Company for the ensuing year; approve The Ryland Group, Inc. 2005 Equity Incentive Plan; approve an amendment to Ryland’s charter increasing the number of authorized shares of the Company’s total common stock by 120.0 million for an aggregate of 200.0 million shares; and consider a proposal from The Nathan Cummings Foundation (a stockholder) regarding the formation of an independent committee of the Board of Directors to assess Ryland’s response to energy efficiency and the reduction of greenhouse gas emissions.

Proxies representing 43,253,695 shares of common stock eligible to vote at the meeting, or 91.0 percent of the 47,541,136 outstanding shares, were voted.

The 11 incumbent directors nominated by the Company were re-elected. The following is a separate tabulation with respect to the vote for each nominee:

Name	Total Votes For		Total Votes Withheld
R. Chad Dreier		42,161,772		1,091,923
Daniel T. Bane		42,451,468		802,227
Leslie M. Frécon		41,482,645		1,771,050
Roland A. Hernandez		41,510,305		1,743,390
William L. Jews		42,189,390		1,064,305
Ned Mansour		42,450,818		802,877
Robert E. Mellor		42,189,980		1,063,715
Norman J. Metcalfe		42,462,251		791,444
Charlotte St. Martin		42,459,680		794,015
Paul J. Varello		42,618,484		635,211
John O. Wilson		42,613,956		639,739

The Ryland Group, Inc. 2005 Equity Incentive Plan was approved by 87.1 percent of the shares voting. The following is a breakdown of the vote on such matter:

Total Votes For	Total Votes Against	Abstain
28,229,549	4,174,074	105,389

The amendment to Ryland’s charter increasing the Company’s total number of authorized shares of common stock by 120.0 million for an aggregate of 200.0 million shares was approved by 86.4 percent of the shares voting and 78.5 percent of the shares of common stock outstanding. The following is a breakdown of the vote on such matter:

Total Votes For	Total Votes Against	Abstain
37,321,383	5,876,661	55,651

30

The proposal from The Nathan Cummings Foundation (a stockholder) regarding the formation of an independent committee of the Board of Directors to assess Ryland’s response to energy efficiency and the reduction of greenhouse gas emissions was not approved by 92.1 percent of the shares voting. The following is a breakdown of the vote on such matter:

Total Votes For	Total Votes Against	Abstain
2,350,414	27,354,429	2,804,169

Item 6. EXHIBITS
3.1	The Ryland Group, Inc. Articles of Amendment
	(Filed herewith)
3.2	The Ryland Group, Inc. Articles of Restatement
	(Filed herewith)
10.1	The Ryland Group, Inc. 2005 Equity Incentive Plan
	(Filed herewith)
12.1	Computation of Ratio of Earnings to Fixed Charges
	(Filed herewith)
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the
	Sarbanes-Oxley Act of 2002
	(Filed herewith)
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the
	Sarbanes-Oxley Act of 2002
	(Filed herewith)
32.1	Certification of Principal Executive Officer Pursuant to Section 906 of the
	Sarbanes-Oxley Act of 2002
	(Furnished herewith)
32.2	Certification of Principal Financial Officer Pursuant to Section 906 of the
	Sarbanes-Oxley Act of 2002
	(Furnished herewith)

31

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	THE RYLAND GROUP, INC.
	Registrant
May 6, 2005	By: /s/ Gordon A. Milne
Date	Gordon A. Milne
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)
May 6, 2005	By: /s/ David L. Fristoe
Date	David L. Fristoe
	Senior Vice President, Controller and Chief Accounting Officer
	(Principal Accounting Officer)

32

INDEX OF EXHIBITS

Exhibit No.
3.1	The Ryland Group, Inc. Articles of Amendment
	(Filed herewith)
3.2	The Ryland Group, Inc. Articles of Restatement
	(Filed herewith)
10.1	The Ryland Group, Inc. 2005 Equity Incentive Plan
	(Filed herewith)
12.1	Computation of Ratio of Earnings to Fixed Charges
	(Filed herewith)
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the
	Sarbanes-Oxley Act of 2002
	(Filed herewith)
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the
	Sarbanes-Oxley Act of 2002
	(Filed herewith)
32.1	Certification of Principal Executive Officer Pursuant to Section 906 of the
	Sarbanes-Oxley Act of 2002
	(Furnished herewith)
32.2	Certification of Principal Financial Officer Pursuant to Section 906 of the
	Sarbanes-Oxley Act of 2002
	(Furnished herewith)

33

EX-3.1

Exhibit 3.1 The Ryland Group, Inc. Articles of Amendment

THE RYLAND GROUP, INC.
ARTICLES OF AMENDMENT

     The Ryland Group, Inc., a Maryland corporation (which is hereinafter called the “Corporation”), certifies to the State Department of Assessments and Taxation of Maryland (the “SDAT”) that:

     FIRST: The name of the Corporation is “The Ryland Group, Inc.” The Corporation desires to amend its Amended and Restated Articles of Incorporation as currently in effect. The Articles of Incorporation of the Corporation were originally filed with the SDAT on March 27, 1967 and were last amended by Articles of Amendment and Restatement filed with the SDAT on May 3, 1988.

     SECOND: Pursuant to Section 2-607 of the Maryland General Corporation Law (the “MGCL”), these Articles of Amendment (these “Articles”) amend the provisions of the Amended and Restated Articles of Incorporation of the Corporation.

     THIRD: The text of Article Sixth, clause (a) of the Corporation’s Amended and Restated Articles of Incorporation as currently in effect is amended and restated in its entirety to read as follows:

     “SIXTH: (a) The total number of shares of stock of all classes and series which the Corporation has authority to issue is 200,000,000 shares of capital stock, all of which shares are initially classified as “Common Stock” of the par value $1.00 per share. The Board of Directors may classify and reclassify any unissued shares of capital stock by setting or changing in any one or more respects the class and series designations of shares of stock or setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption of such shares of capital stock.”

     FOURTH: At a meeting of the Board of Directors held on February 23, 2005, each member of the Board approved these Articles, declared these Articles to be advisable and directed these Articles submitted to the stockholders of the Corporation for consideration and approval.

     FIFTH: The holders of the Common Stock, the only class of stock issued, outstanding and entitled to vote thereon, adopted and approved these Articles at a meeting of the stockholders held on April 20, 2005.

     SIXTH: Prior to the filing of these Articles, the Corporation has authority to issue 80,000,000 shares of capital stock, all of which was classified as Common Stock. Prior to the filing of these Articles, the aggregate par value of all authorized shares of capital stock having par value is $80,000,000.

     SEVENTH: Upon the filing of these Articles, the Corporation has authority to issue 200,000,000 shares of capital stock, all of which is classified as Common Stock. Upon the filing of these Articles, the aggregate par value of all authorized shares of capital stock having par value is $200,000,000.

     EIGHTH: None of the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms and conditions of redemption of any class of the Corporation’s capital stock was changed by these Articles.

  IN WITNESS WHEREOF, under penalties of perjury, I have signed these Articles of Amendment, acknowledging the same to be my act, on April 20, 2005.

By:	/s/ R. Chad Dreier
Name:	R. Chad Dreier
Title:	Chairman of the Board of Directors,
	Chief Executive Officer and President

Witness:
By:	/s/ Timothy J. Geckle
	Name:    Timothy J. Geckle
	Title:    Senior Vice President and Secretary

CONSENT OF RESIDENT AGENT

THE UNDERSIGNED, hereby consents to act as resident agent in Maryland for The Ryland Group, Inc., a Maryland corporation.

CSC-LAWYERS INCORPORATING SERVICE COMPANY

By: /s/ Vivien Mitchell

Printed Name & Title: Vivien Mitchell

EX-3.2

Exhibit 3.2: The Ryland Group, Inc. Articles of Restatement

THE RYLAND GROUP, INC.
ARTICLES OF RESTATEMENT

     The Ryland Group, Inc., a Maryland corporation (which is hereinafter called the “Corporation”), certifies to the State Department of Assessments and Taxation of Maryland (the “SDAT”) that:

     FIRST: The name of the Corporation is “The Ryland Group, Inc.” Pursuant to Section 2-608 of the Maryland General Corporation Law (the “MGCL”), the Corporation desires to restate its Amended and Restated Articles of Incorporation as currently in effect (the “Articles of Incorporation”). The Articles of Incorporation of the Corporation were originally filed with the SDAT on March 27, 1967 and were last amended by Articles of Amendment filed with the SDAT on April 21, 2005.

     SECOND: The Articles of Incorporation are not being amended by these Articles of Restatement (the “Articles of Restatement”).

     THIRD: At a meeting of the Board of Directors held on April 20, 2005 at which these Articles of Restatement were set forth, each member of the Board approved these Articles of Restatement.

     FOURTH: The Corporation’s current principal office is located at c/o CSC-Lawyers Incorporating Service Company, 11 East Chase Street, Baltimore, Maryland 21202.

     FIFTH: The Corporation’s resident agent is CSC-Lawyers Incorporating Service Company, 11 East Chase Street, Baltimore, Maryland 21202.

     SIXTH: The Articles of Incorporation as currently in effect are restated to read as follows:

     “FIRST: WE, THE UNDERSIGNED, Andre W. Brewster, Frank T. Gray and Richard G. McCauley, the post office address of all of whom is No. 900, First National Bank Building, Light and Redwood Streets, Baltimore, Maryland 21202, each being at least twenty-one years of age, do hereby associate ourselves as incorporators with the intention of forming a corporation under and by virtue of the General Laws of the State of Maryland.

     SECOND: The name of the Corporation (which is hereinafter called the “Corporation”) is:

THE RYLAND GROUP, INC.

     THIRD: The purposes for which the Corporation is organized are:

               (1) to engage in the business of the acquisition of real property and construction and financing of residential housing; and to purchase, own and hold the stock of other corporations and generally act as a holding company; and

               (2) to engage in any activity within the lawful business purposes for which corporations may be organized under the Maryland General Corporation Law as now or hereafter in force.

     FOURTH: The present address of the principal office of the Corporation in this State is c/o CSC-Lawyers Incorporating Service Company, 11 East Chase Street, Baltimore, Maryland 21202.

     FIFTH: The name and address of the resident agent of the Corporation are CSC-Lawyers Incorporating Service Company, 11 East Chase Street, Baltimore, Maryland 21202. Said resident agent is a citizen of the State of Maryland who resides there.

     SIXTH: (a) The total number of shares of stock of all classes and series which the Corporation has authority to issue is 200,000,000 shares of capital stock, all of which shares are initially classified as “Common Stock” of the par value $1.00 per share. The Board of Directors may classify and reclassify any unissued shares of capital stock by setting or changing in any one or more respects the class and series designations of shares of stock or setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption of such shares of capital stock.

                   (b) The following is a description of the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the Common Stock of the Corporation.

              (1) Each share of Common Stock shall have one vote, and, except as otherwise provided in respect of any class of stock hereafter classified or reclassified, the exclusive voting power for all purposes shall be vested in the holders of the Common Stock.

              (2) Subject to the provisions of law and any preferences of any class of stock hereafter classified or reclassified, dividends may be paid on the Common Stock of the Corporation at such time and in such amounts as the Board of Directors may deem advisable.

              (3) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the Common Stock shall be entitled, after payment or provision for payment of the debts and other liabilities of the Corporation and the amount to which the holders of any class of stock hereafter classified or reclassified having a preference on distributions in the liquidation, dissolution or winding up of the Corporation shall be entitled, together with the holders of any other class of stock hereafter classified or reclassified not having a preference on distributions in the liquidation, dissolution or winding up of the Corporation, to share ratably in the remaining net assets of the Corporation.

                   (c) Subject to the foregoing, the power of the Board of Directors to classify and reclassify any of the shares of capital stock shall include, without limitation, subject to the provisions of the Charter, authority to classify or reclassify any unissued shares of capital stock into a class or classes of preferred stock, preference stock, special stock or other stock, and to divide and classify shares of any class into one or more series of such class, by determining, fixing, or altering one or more of the following:

     (1) The distinctive designation of such class or series and the number of shares to constitute such class or series; provided that, unless otherwise prohibited by the terms of such or any other class or series, the number of shares of any class or series may be decreased by the Board of Directors in connection with any classification or reclassification of unissued shares and the number of shares of such class or series may be increased by the Board of Directors in connection with any such classification or reclassification, and any shares of any class or series which have been redeemed, purchased, otherwise acquired or converted into shares of Common Stock or any other class or series shall become part of the authorized capital stock and be subject to classification and reclassification as provided in this Article.

     (2) Whether or not and, if so, the rates, amounts and times at which, and the conditions under which, dividends shall be payable on shares of such class or series, whether any such dividends shall rank senior or junior to or on a parity with the dividends payable on any other class or series of stock, and the status of any such dividends as cumulative, cumulative to a limited extent or non-cumulative and as participating or non-participating.

     (3) Whether or not shares of such class or series shall have voting rights, in addition to any voting rights provided by law and, if so, the terms of such voting rights.

     (4) Whether or not shares of such class or series shall have conversion or exchange privileges and, if so, the terms and conditions thereof, including provision for adjustment of the conversion or exchange rate in such events or at such times as the Board of Directors shall determine.

     (5) Whether or not shares of such class or series shall be subject to redemption and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; and whether or not there shall be any sinking fund or purchase account in respect thereof, and if so, the terms thereof.

     (6) The rights of the holders of shares of such class or series upon the liquidation, dissolution or winding up of the affairs of, or upon any distribution of the assets of, the Corporation, which rights may vary depending upon whether such liquidation, dissolution or winding up is voluntary or involuntary and, if voluntary, may vary at different dates, and whether such rights shall rank senior or junior to or on a parity with such rights of any other class or series of stock.

     (7) Whether or not there shall be any limitations applicable, while shares of such class or series are outstanding, upon the payment of dividends or making of distributions on, or the acquisition of, or the use of moneys for purchase or redemption of, any stock of the Corporation, or upon any other action of the Corporation, including action under this Article, and, if so, the terms and conditions thereof.

   (8) Any other preferences, rights, restrictions, including restrictions on transferability, and qualifications of shares of such class or series, not inconsistent with law and the Charter of the Corporation.

          (d) For the purposes hereof and of any articles supplementary to the Charter providing for the classification or reclassification of any shares of capital stock or of any other Charter document of the Corporation (unless otherwise provided in any such articles or document), any class or series of stock of the Corporation shall be deemed to rank:

     (1) prior to another class or series either as to dividends or upon liquidation, if the holders of such class or series shall be entitled to the receipt of dividends or of amounts distributable on liquidation, dissolution or winding up, as the case may be, in preference or priority to holders of such other class or series;

     (2) on a parity with another class or series either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation price per share thereof be different from those of such others, if the holders of such class or series of stock shall be entitled to receipt of dividends or amounts distributable upon liquidation, dissolution or winding up, as the case may be, in proportion to their respective dividend rates or redemption or liquidation prices, without preference or priority over the holders of such other class or series; and

     (3) junior to another class or series either as to dividends or upon liquidation, if the rights of the holders of such class or series shall be subject or subordinate to the rights of the holders of such other class or series in respect of the receipt of dividends or the amounts distributable upon liquidation, dissolution or winding up, as the case may be.

       SEVENTH: The number of directors of the Corporation shall be eleven, which number may be increased or decreased pursuant to the By-Laws of the Corporation, but shall never be less than the minimum number permitted by the General Laws of the State of Maryland now or hereafter in force. The names of the current directors who shall act until their successors are duly chosen and qualified are as follows:

R. Chad Dreier	Daniel T. Bane
Leslie M. Frécon	Roland A. Hernandez
William L. Jews	Ned Mansour
Robert E. Mellor	Norman J. Metcalfe
Charlotte St. Martin	Paul J. Varello
John O. Wilson

     EIGHTH: The following provisions are hereby adopted for the purpose of defining, limiting and regulating the powers of the Corporation and of the directors and stockholders:

          (1) The Board of Directors of the Corporation is hereby empowered to authorize the issuance from time to time of shares of its stock of any class, whether now or hereafter authorized, or securities convertible into shares of its stock of any class or classes, whether now or hereafter authorized, for such consideration as may be deemed advisable by the Board of Directors and without any action by the stockholders.

          (2) The Board of Directors of the Corporation shall have power from time to time and in its sole discretion to determine in accordance with sound accounting practice what constitutes annual or other net profits, earnings, surplus, or net assets in excess of capital; to fix and vary from time to time the amount to be reserved as working capital, or determine that retained earnings or surplus shall remain in the hands of the Corporation; to set apart out of any funds of the Corporation such reserve or reserves in such amount or amounts and for such proper purpose or purposes as it shall determine and to abolish any such reserve or any part thereof; to distribute and pay distributions or dividends in stock, cash or other securities or property, out of surplus or any other funds or amounts legally available therefore, at such times and to the stockholders of record on such dates as it may, from time to time, determine; and to determine whether and to what extent and at what times and places and under what conditions and regulations the books, accounts and documents of the Corporation, or any of them, shall be open to the inspection of stockholders, except as otherwise provided by statute or by the By-Laws, and, except as so provided, no stockholder shall have any right to inspect any book, account or document of the Corporation unless authorized so to do by resolution of the Board of Directors.

          (3) Any contract, transaction or act of the Corporation or of the Board of Directors which shall be ratified by a majority of a quorum of the stockholders having voting powers at any annual meeting, or at any special meeting called for such purpose, shall so far as permitted by law be as valid and as binding as though ratified by every stockholder of the Corporation.

          (4) Unless the By-Laws otherwise provide, any officer or employee of the Corporation (other than a director) may be removed at any time with or without cause by the Board of Directors or by any committee or superior officer upon whom such power of removal may be conferred by the By-Laws or by authority of the Board of Directors.

          (5) Notwithstanding any provision of law requiring the authorization of any action by a greater proportion than a majority of the total number of shares of all classes of capital stock or of the total number of shares of any class of capital stock, such action shall be valid and effective if authorized by the affirmative vote of the holders of a majority of the total number of shares of all classes outstanding and entitled to vote thereon, except as otherwise provided in the Charter.

          (6) The Corporation reserves the right from time to time to make any amendments of its Charter which may now or hereafter be authorized by law, including any amendments changing the terms of any of its outstanding stock by classification, reclassification or otherwise; but no such amendment which changes the terms of any of its outstanding stock shall be valid unless such amendment shall have been authorized by the holders of a majority of

the shares of such stock at the time outstanding, by a vote at a meeting or in writing with or without a meeting.

          (7) No holder of any stock or any other securities of the Corporation, whether now or hereafter authorized, shall have any preemptive right to subscribe for or purchase any stock or any other securities of the Corporation other than such, if any, as the Board of Directors, in its sole discretion, may determine and at such price or prices and upon such ether terms as the Board of Directors, in its sole discretion, may fix; and any stock or other securities which the Board of Directors may determine to offer for subscription may, as the Board of Directors in its sole discretion shall determine, be offered to the holders of any class, series or type of stock or other securities at the time outstanding to the exclusion of the holders of any or all other classes, series or types of stock or other securities at the time outstanding.

          (8) The Corporation shall indemnify its directors and officers, in all capacities in which such directors and officers serve the Corporation, to the full extent required or permitted by the General Laws of the State of Maryland now or hereafter in force, including the advance of expenses under the procedures and to the full extent permitted by law. The Corporation shall indemnify other employees and agents, in all capacities in which such employees and agents serve the Corporation, to such extent as shall be authorized by the Board of Directors or the By-Laws and be permitted by law. The foregoing shall not limit in any manner the authority of the Corporation to indemnify directors, officers, employees or agents of the Corporation to the extent authorized by the Board of Directors or the stockholders and permitted by law. The Board of Directors may take such action as is necessary to carry out these provisions and is expressly empowered to adopt, approve and amend from time to time such By-Laws, resolutions or contracts implementing these provisions or such further indemnification arrangements as may be permitted by law. No amendment or repeal of this Article EIGHTH, paragraph 8 of the Corporation’s Charter shall apply to or have any effect on any right to indemnification provided hereunder with respect to acts or omissions occurring prior to such amendment or repeal.

          The enumeration and definition of particular powers of the Board of Directors included in the foregoing shall in no way be limited or restricted by reference to or inference from the terms of any other clause of this or any other Article of the Charter of the Corporation, or construed as or deemed by inference or otherwise in any manner to exclude or limit any powers conferred upon the Board of Directors under the General Laws of the State of Maryland now or hereafter in force.

     NINTH: To the fullest extent permitted by Maryland statutory or decisional law, as amended or interpreted, no director or officer of this Corporation shall be personally liable to the Corporation or its stockholders for money damages. No amendment of the Charter of the Corporation or repeal of any of its provisions shall limit or eliminate the benefits provided to directors and officers under this provision with respect to any act or omission which occurred prior to such amendment or repeal.

       TENTH: The duration of the Corporation shall be perpetual.”

       NINTH: The number of directors of the Corporation is eleven and the names of those currently in office are:

R. Chad Dreier	Daniel T. Bane
Leslie M. Frécon	Roland A. Hernandez
William L. Jews	Ned Mansour
Robert E. Mellor	Norman J. Metcalfe
Charlotte St. Martin	Paul J. Varello
John O. Wilson

     TENTH: The provisions set forth in the foregoing Articles are all of the provisions of the Amended and Restated Articles of Incorporation currently in effect.

     IN WITNESS WHEREOF, under penalties of perjury, I have signed these Articles, acknowledging the same to be my act, on April 20, 2005.

By:	/s/ R. Chad Dreier
	Name:	R. Chad Dreier
	Title:	Chairman of the Board, Chief Executive Officer and President

Witness:
By:	/s/ Timothy J. Geckle
	Name:	Timothy J. Geckle
	Title:	Senior Vice President and Secretary

Consent of Resident Agent

     THE UNDERSIGNED, hereby consents to act as resident agent in Maryland for the entity named in the attached instrument.

CSC – Lawyers Incorporating Service Company

By:	/s/ Gregory A. Pappas
Printed Name: Gregory A. Pappas

EX-10.1

Exhibit 10.1: The Ryland Group, Inc. 2005 Equity Incentive Plan

THE RYLAND GROUP, INC.

2005 EQUITY INCENTIVE PLAN

1. Purpose and Types of Awards

     The purpose of THE RYLAND GROUP, INC. 2005 EQUITY INCENTIVE PLAN (the “Plan”) is to promote the long-term growth and profitability of the Corporation by providing key people with incentives to improve stockholder value and to contribute to the growth and financial success of the Corporation.

     The Plan permits the granting of stock options (including incentive stock options qualifying under Code section 422 and nonqualified stock options), restricted stock awards, stock units or any combination of the foregoing.

2. Definitions

     Under this Plan, except where the context otherwise indicates, the following definitions apply:

     (a) “Administrator” means the Board, the Compensation Committee of the Board, or any committee or committees that are appointed by the Compensation Committee or the Board that have authority to administer the Plan as provided in Section 3 hereof.

     (b) “Affiliate” shall mean any entity, whether now or hereafter existing, which controls, is controlled by or is under common control with the Corporation (including joint ventures, limited liability companies and partnerships). For this purpose, “control” shall mean ownership of 50% or more of the total combined voting power or value of all classes of stock or interests of the entity.

     (c) “Award” shall mean any stock option, restricted stock award or stock unit award.

     (d) “Board” shall mean the Board of Directors of the Corporation.

     (e) “Change in Control” shall mean:

     (i) The acquisition by any person, other than the Corporation or any employee benefit plans of the Corporation, of beneficial ownership of 20 percent or more of the combined voting power of the Corporation’s then outstanding voting securities;

     (ii) The first purchase under a tender offer or exchange offer, other than an offer by the Corporation or any employee benefit plans of the Corporation, pursuant to which shares of Common Stock have been purchased;

     (iii) During any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof, unless the election or the nomination for the

election by stockholders of the Corporation of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period; or

     (iv) Approval by stockholders of the Corporation of a merger, consolidation, liquidation or dissolution of the Corporation, or the sale of all or substantially all of the assets of the Corporation; provided, however, that for purposes of any Award or subplan that constitutes a “nonqualified deferred compensation plan,” within the meaning of Code section 409A, the Administrator, in its discretion, may specify a different definition of Change in Control in order to comply with the provisions of Code section 409A.

     (f) “Code” shall mean the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder.

     (g) “Common Stock” shall mean shares of common stock, $1.00 par value, of the Corporation.

     (h) “Corporation” shall mean The Ryland Group, Inc. and its successors and assigns.

     (i) “Designated Beneficiary” shall mean the beneficiary designated by an Award holder, in a manner and to the extent determined by the Administrator, to receive amounts due or exercise rights of the Award holder in the event of the Award holder’s death. In the absence of an effective designation by an Award holder, “Designated Beneficiary” shall mean the Award holder’s estate.

     (j) “Effective Date” shall mean the date the Plan is approved by the stockholders of the Corporation.

     (k) “Fair Market Value” shall mean, with respect to a share of the Corporation’s Common Stock or other property for any purpose on a particular date, the value determined by the Administrator in good faith. However, if the Common Stock is registered under Section 12(b) of the Securities Exchange Act of 1934, as amended, “Fair Market Value” with respect to a share of the Corporation’s Common Stock shall mean, as applicable, (i) either the closing price or the average of the high and low sale price on the relevant date, as determined in the Administrator’s discretion, quoted on the New York Stock Exchange, the American Stock Exchange, or the Nasdaq National Market; (ii) the last sale price on the relevant date quoted on the Nasdaq SmallCap Market; (iii) the average of the high bid and low asked prices on the relevant date quoted on the Nasdaq OTC Bulletin Board Service or by the National Quotation Bureau, Inc. or a comparable service as determined in the Administrator’s discretion; or (iv) if the Common Stock is not quoted by any of the above, the average of the closing bid and asked prices on the relevant date furnished by a professional market maker for the Common Stock, or by such other source, selected by the Administrator. If no public trading of the Common Stock occurs on the relevant date, then Fair Market Value shall be determined as of the next preceding date on which trading of the Common Stock does occur. For all purposes under this Plan, the term “relevant date” as used in this Section 2(k) shall mean either the date as of which Fair Market Value is to be determined or the next preceding date on which public trading of the Common Stock occurs, as determined in the Administrator’s discretion.

     (l) “Grant Agreement” shall mean a written document memorializing the terms and conditions of an Award granted pursuant to the Plan and shall incorporate the terms of the Plan.

     (m) “Plan Share Reserve” means the maximum number of shares of Common Stock that may be issued with respect to Awards granted under the Plan.

     (n) “Prior Plans” shall mean The Ryland Group, Inc. 1992 Equity Incentive Plan and the 2002 Equity Incentive Plan.

     (o) “2002 Equity Incentive Plan” shall mean The Ryland Group, Inc. 2002 Equity Incentive Plan, the term of which expires on April 24, 2012.

3. Administration

     (a) Administration of the Plan. The Plan shall be administered by the Board, the Compensation Committee of the Board, or any committee or committees that are appointed by the Compensation Committee or the Board from time to time.

     (b) Powers of the Administrator. The Administrator shall have all the powers vested in it by the terms of the Plan, such powers to include authority, in its sole and absolute discretion, to grant Awards under the Plan, prescribe Grant Agreements evidencing such Awards and establish programs for granting Awards.

     The Administrator shall have full power and authority to take all other actions necessary to carry out the purpose and intent of the Plan, including, but not limited to, the authority to: (i) determine the eligible persons to whom, and the time or times at which Awards shall be granted; (ii) determine the types of Awards to be granted; (iii) determine the number of shares to be covered by or used for reference purposes for each Award; (iv) impose such terms, limitations, restrictions and conditions upon any such Award as the Administrator shall deem appropriate; (v) modify, amend, extend or renew outstanding Awards, or accept the surrender of outstanding Awards and substitute new Awards (provided however, that, except as provided in Section 7(c) of the Plan, (A) any modification that would adversely affect any outstanding Award shall not be made without the consent of the holder, and (B) the exercise price for any outstanding stock option granted under the Plan may not be decreased after the date of grant nor may any outstanding stock option granted under the Plan be surrendered to the Corporation as consideration for the grant of a new stock option with a lower exercise price); (vi) accelerate or otherwise change the time in which an Award may be exercised or becomes payable and to waive or accelerate the lapse, in whole or in part, of any restriction or condition with respect to such Award, including, but not limited to, any restriction or condition with respect to the vesting or exercisability of an Award following termination of any grantee’s employment or other service relationship with the Corporation; and (vii) to establish, amend, modify, administer or terminate subplans, and prescribe, amend and rescind rules and regulations relating to such subplans.

The Administrator shall have full power and authority, in its sole and absolute discretion, to administer and interpret the Plan and to adopt and interpret such rules, regulations, agreements, guidelines and instruments for the administration of the Plan and for the conduct of its business as the Administrator deems necessary or advisable. To the extent permitted by applicable law, the Administrator may delegate to one or more executive officers of the Corporation the power to (i) grant Awards to individuals who are not subject to Section 16 of the Securities Exchange Act of 1934, as amended, or any successor provision and are not officers of the Corporation, and (ii) make all

determinations under the Plan with respect thereto, provided that the Administrator shall fix the maximum amount of such Awards for the group and a maximum for any one Award recipient.

     (c) Non-Uniform Determinations. The Administrator’s determinations under the Plan (including without limitation, determinations of the persons to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the Grant Agreements evidencing such Awards) need not be uniform and may be made by the Administrator selectively among persons who receive, or are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated.

     (d) Limited Liability. To the maximum extent permitted by law, no member of the Administrator shall be liable for any action taken or decision made in good faith relating to the Plan or any Award thereunder.

     (e) Indemnification. To the maximum extent permitted by law and by the Corporation’s charter and by-laws, the members of the Administrator shall be indemnified by the Corporation in respect of all their activities under the Plan.

     (f) Effect of Administrator’s Decision. All actions taken and decisions and determinations made by the Administrator on all matters relating to the Plan pursuant to the powers vested in it hereunder shall be in the Administrator’s sole and absolute discretion and shall be conclusive and binding on all parties concerned, including the Corporation, its stockholders, any participants in the Plan and any other employee, consultant, or director of the Corporation, and their respective successors in interest.

4. Shares Available for the Plan; Maximum Awards

     (a) Plan Share Reserve. Subject to the following provisions of this Section 4 and adjustments as provided in Section 7(c) of the Plan, the Plan Share Reserve shall be equal to the sum of: (i) 475,000 shares of Common Stock; (ii) 768,772 shares of Common Stock remaining under the 2002 Equity Incentive Plan that are not subject to outstanding grants of Awards under Prior Plans; and (iii) any shares of Common Stock that are represented by Awards granted under the Prior Plans that are forfeited, expire or are canceled without delivery of shares of Common Stock or which result in the forfeiture of the shares of Common Stock back to the Corporation.

     (b) Adjustments to Plan Share Reserve; Fixed ISO Limit. If any Award, or portion of an Award, under the Plan or the Prior Plans expires or terminates unexercised, becomes unexercisable or is forfeited or otherwise terminated, surrendered or canceled as to any shares, the shares subject to such Award shall thereafter be available for Awards under the Plan; provided, however, that no more than the number of shares available for issuance on the Effective Date shall be made available for purchase pursuant to incentive stock options.

     (c) Cash Settlement of Awards. To the extent any shares of Common Stock covered by an Award are not delivered to an Award holder or the holder’s Designated Beneficiary because the Award is settled in cash, such shares shall not be deemed to have been issued for purposes of determining the maximum number of shares of Common Stock available for issuance under the Plan.

     (d) Limitation on Restricted Stock and Stock Units. Notwithstanding the provisions of Section 4(a) of the Plan and subject to adjustment as provided in Section 7(c) of the Plan, the maximum number of shares of Common Stock that may be issued in conjunction with Awards granted pursuant to subsections (d) and (e) of Section 6 of the Plan (relating to restricted stock awards and stock units) shall be 425,000 shares of Common Stock; provided, however, that any shares of Common Stock that are forfeited back to the Corporation with respect to any such Awards shall be available for further Awards under subsections (d) and (e) of Section 6 of the Plan.

     (e) Code Section 162(m) Limit. Subject to adjustments as provided in Section 7(c) of the Plan, the maximum number of shares of Common Stock subject to Awards of any combination that may be granted during any one fiscal year of the Corporation to any one individual under this Plan shall be limited to 500,000 shares. Such per-individual limit shall not be adjusted to effect a restoration of shares of Common Stock with respect to which the related Award is terminated, surrendered or canceled. The maximum cash amount that may be payable in combination with any performance-based award distributable in restricted stock or stock units is the cash amount equal to the sum of the fair market value of the underlying shares plus the federal and state income and Medicare taxes, assuming highest marginal tax rates, associated with the grant, vesting or distribution of the related restricted stock or stock units.

5. Participation

     Participation in the Plan shall be open to all employees, officers and other individuals providing bona fide services to or for the Corporation or of any Affiliate of the Corporation, as may be selected by the Administrator from time to time. The Administrator may also grant Awards to individuals in connection with hiring, retention or otherwise, prior to the date the individual first performs services for the Corporation or an Affiliate provided that such Awards shall not become vested or exercisable, and no shares shall be issued to such individual, prior to the date the individual first commences performance of such services.

6. Awards

     (a) Terms of Awards. The Administrator, in its sole discretion, establishes the terms of all Awards granted under the Plan. Awards may be granted individually or in tandem with other types of Awards. All Awards are subject to the terms and conditions provided in the Grant Agreement, provided that all Awards shall have a minimum three-year graded vesting period, or a one-year vesting period plus performance criteria established by the Administrator.

     (b) Performance Factors. For purposes of ensuring that compensation arising from Awards granted under the Plan to officers and key employees of the Company is deductible as qualified performance-based compensation within the meaning of Code section 162(m), the Administrator may provide that the granting, vesting, right to exercise or lapse of restrictions associated with an Award (each, a “performance-based award”) is contingent upon the attainment of one or more pre-established, objective performance goals based on any, or any combination, of the following business criteria as it may apply to an individual, a business unit, or the Company: return on stockholder equity, return on investment, total revenue, earnings before interest and taxes (“EBIT”), earnings before interest, taxes, depreciation and appreciation (“EBITDA”), profits, stock price, earnings per share, or cost containment. Performance goals may include minimum, maximum and target levels of performance, with the size of the performance-based award or the lapse of

restrictions with respect thereto based on the level attained. The Administrator may, at its sole discretion, modify the measurement criteria as applied to performance-based awards to offset any unintended results arising from events not anticipated when the performance goals were established; provided, that such modifications may be made with respect to an Award granted to any executive officer of the Company only to the extent permitted by Code section 162(m).

     (c) Stock Options. The Administrator may from time to time grant to eligible participants Awards of incentive stock options, as that term is defined in Code section 422, or nonqualified stock options; provided, however, that Awards of incentive stock options shall be limited to employees of the Corporation or of any current or hereafter existing “parent corporation” or “subsidiary corporation,” as defined in Code sections 424(e) and (f), respectively, of the Corporation. No stock option shall be an incentive stock option unless so designated by the Administrator at the time of grant or in the Grant Agreement evidencing such stock option. All stock options granted under the Plan must have an exercise price at least equal to Fair Market Value as of the date of grant and may not have a term longer than five years. Except for adjustments pursuant to Section 7(c), the exercise price for any outstanding stock option granted under the Plan may not be decreased after the date of grant nor may any outstanding stock option granted under the Plan be surrendered to the Corporation as consideration for the grant of a new stock option with a lower exercise price.

     (d) Stock Awards. The Administrator may from time to time grant restricted stock Awards to eligible participants in such amounts, on such terms and conditions, and for such consideration, including no consideration or such minimum consideration as may be required by law, as it shall determine. A stock Award may be paid in Common Stock, in cash, or in a combination of Common Stock and cash, as determined in the sole discretion of the Administrator.

     (e) Stock Units. The Administrator may from time to time grant Awards to eligible participants denominated in stock-equivalent units in such amounts and on such terms and conditions as it shall determine. Stock units granted to a participant shall be credited to a bookkeeping reserve account solely for accounting purposes and shall not require a segregation of any of the Corporation’s assets. An Award of stock units may be settled in Common Stock, in cash, or in a combination of Common Stock and cash, as determined in the sole discretion of the Administrator. Shares of Common Stock awarded in connection with an Award of stock units may be issued for such consideration as may be determined by the Administrator, including for no consideration or such minimum consideration as may be required by law. Except as otherwise provided in the applicable Grant Agreement, the grantee shall not have the rights of a stockholder with respect to any shares of Common Stock represented by a stock unit solely as a result of the grant of a stock unit to the grantee.

7. Miscellaneous

     (a) Withholding of Taxes. Grantees and holders of Awards shall pay to the Corporation or its Affiliate, or make provision satisfactory to the Administrator for payment of, any taxes required to be withheld in respect of Awards under the Plan no later than the date of the event creating the tax liability. The Corporation or its Affiliate may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to the grantee or holder of an Award. Notwithstanding the above, in no event may holders of Awards satisfy such tax liability through the tender or withholding of shares of Common Stock.

     (b) Transferability. Except as otherwise determined by the Administrator, and in any event in the case of an incentive stock option, no Award granted under the Plan shall be transferable by a grantee otherwise than by will or the laws of descent and distribution. Unless otherwise determined by the Administrator in accord with the provisions of the immediately preceding sentence, an Award may be exercised during the lifetime of the grantee, only by the grantee or, during the period the grantee is under a legal disability, by the grantee’s guardian or legal representative.

     (c) Adjustments; Business Combinations.

     (i) Upon a stock dividend of, or stock split or reverse stock split affecting, the Common Stock of the Corporation, (A) the maximum number of shares reserved for issuance or with respect to which Awards may be granted under the Plan and the maximum number of shares with respect to which Awards may be granted during any one fiscal year of the Corporation to any individual, as provided in Section 4 of the Plan, and (B) the number of shares covered by and the exercise price and other terms of outstanding Awards, shall, without further action of the Board, be adjusted to reflect such event unless the Board determines, at the time it approves such stock dividend, stock split or reverse stock split, that no such adjustment shall be made. The Administrator may make adjustments, in its discretion, to address the treatment of fractional shares and fractional cents that arise with respect to outstanding Awards as a result of the stock dividend, stock split or reverse stock split.

     (ii) In the event of any other changes affecting the Corporation, the capitalization of the Corporation or the Common Stock of the Corporation by reason of any spin-off, split-up, dividend, recapitalization, merger, consolidation, business combination or exchange of shares and the like, the Administrator except as otherwise provided in Section 7(d), in its discretion and without the consent of holders of Awards, may make: (A) appropriate adjustments to the maximum number and kind of shares reserved for issuance or with respect to which Awards may be granted under the Plan, in the aggregate and with respect to any individual, as provided in Section 4 of the Plan, and to the number, kind and price of shares covered by outstanding Awards; and (B) any other adjustments in outstanding Awards, including but not limited to reducing the number of shares subject to Awards or providing or mandating alternative settlement methods such as settlement of the Awards in cash or in shares of Common Stock or other securities of the Corporation or of any other entity, or in any other matters which relate to Awards as the Administrator shall, in its sole discretion, determine to be necessary or appropriate.

     (iii) The Administrator is authorized to make, in its discretion and without the consent of holders of Awards, adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events affecting the Corporation, or the financial statements of the Corporation or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Administrator determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan and outstanding Awards.

     (d) Change in Control. Notwithstanding the provisions of Section 7(c)(ii), in the event of a Change in Control, all Awards under the Plan are automatically and fully vested and immediately exercisable or payable in whole or in part. The obligations of the Corporation pursuant to the Plan and performance with respect to rights of Award holders thereunder shall be assumed by any participant, successor-in-interest or beneficiary of or interested party in the Change in Control (collectively, the Change-in-Control Participant), and the Change-in Control Participant shall cause the Awards to be assumed, or new rights substituted therefor, by another entity.

     (e) Substitution of Awards in Mergers and Acquisitions in which the Corporation or an Affiliate is the Acquiring Entity. Solely in the event that the Corporation or an Affiliate is an acquiring entity in a merger, acquisition and other business combination, Awards may be granted under the Plan from time to time in substitution for Awards held by employees, officers, consultants or directors of a target entity who become or are about to become employees, officers, consultants or directors of the Corporation or an Affiliate as the result of a merger or consolidation of the employing entity with the Corporation or an Affiliate, or the acquisition by the Corporation or an Affiliate of the assets or stock of the employing entity. The terms and conditions of any substitute Awards so granted may vary from the terms and conditions set forth herein to the extent that the Administrator deems appropriate at the time of grant to conform the substitute Awards to the provisions of the awards for which they are substituted.

     (f) Compensation Committee Report. For each performance year and/or performance period, the Compensation Committee of the Board shall determine and set forth in writing not later than 90 days after the commencement of the performance year and/or performance period and in no event later than the point in time when 25% of the performance period has elapsed or the outcome of the performance objectives is no longer substantially uncertain: (i) the participants under the Plan who are granted performance-based awards for the performance period, (ii) the nature and amount (or the the objective formula for determining the amount) of the performance-based award that will be earned if specified performance objectives are met, (iii) the applicable performance factors, and (iv) any other objective terms and conditions that must be satisfied by the participant in order to earn the performance-based award.

     (g) Termination, Amendment and Modification of the Plan. The Administrator may terminate, amend or modify the Plan or any portion thereof at any time; provided, however, that the provisions of Section 6(a) relating to stock option repricing shall not be amended without approval by the Corporation’s stockholders, and any amendments to the Plan will not (i) materially increase the benefits accruing to participants under the Plan, (ii) materially increase the aggregate number of securities that may be issued under the Plan, or (iii) materially modify the requirements as to eligibility for participation in the Plan, without approval by the Corporation’s stockholders.

     (h) Non-Guarantee of Employment or Service. Nothing in the Plan or in any Grant Agreement thereunder shall confer any right on an individual to continue in the service of the Corporation or shall interfere in any way with the right of the Corporation to terminate such service at any time with or without cause or notice. The Corporation expressly reserves the right at any time to dismiss an Award recipient free from any liability or claim under the Plan, except as expressly provided in the applicable Grant Agreement.

     (i) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the

Corporation and a grantee or any other person. To the extent that any grantee or other person acquires a right to receive payments from the Corporation pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Corporation.

     (j) Designated Beneficiaries. Unless otherwise provided in the applicable Grant Agreement, amounts or certificates due an Award recipient after his or her death under an Award shall be paid or delivered to the Award recipient’s Designated Beneficiary in accordance with the terms and conditions of the Award.

     (k) Governing Law. The validity, construction and effect of the Plan, of Grant Agreements entered into pursuant to the Plan, and of any rules, regulations, determinations or decisions made by the Administrator relating to the Plan or such Grant Agreements, and the rights of any and all persons having or claiming to have any interest therein or thereunder, shall be determined exclusively in accordance with applicable federal laws and the laws of the State of Maryland, without regard to its conflict of laws principles.

     (l) Effective Date; Termination Date. The Plan is effective as of the date on which the Plan is approved by the stockholders of the Corporation. The Plan shall be unlimited in duration and, in the event of Plan termination, shall remain in effect as long as any Awards under it are outstanding; provided, however, that no Awards shall be granted under the Plan after the close of business on February 20, 2015.

EX-12.1

EXHIBIT 12.1 Computation of Ratio of Earnings to Fixed Charges
(in thousands, except ratio)

																Three Months
																Ended
	2000			2001			2002			2003			2004			March 31, 2005
Consolidated pretax income	$	134,840		$	218,336		$	309,340		$	396,217		$	521,212		$	101,168
Share of distributed income of 50%-or-less-owned affiliates net of equity pickup		(163	)		(26	)		(2,689	)		94			(5,772	)		(99	)
Amortization of capitalized interest		27,581			31,878			32,162			38,263			41,764			10,081
Interest		62,610			55,327			49,086			50,125			53,242			15,407
Less interest capitalized during the period		(34,105	)		(31,675	)		(39,695	)		(42,602	)		(52,015	)		(15,182	)
Interest portion of rental expense		6,065			7,190			6,679			5,973			5,639			1,304
EARNINGS	$	196,828		$	281,030		$	354,883		$	448,070		$	564,070		$	112,679
Interest	$	62,610		$	55,327		$	49,086		$	50,125		$	53,242		$	15,407
Interest portion of rental expense		6,065			7,190			6,679			5,973			5,639			1,304
FIXED CHARGES	$	68,675		$	62,517		$	55,765		$	56,098		$	58,881		$	16,711
Ratio of earnings to fixed charges		2.87			4.50			6.36			7.99			9.58			6.74

EX-31.1

EXHIBIT 31.1: Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Principal Executive Officer Pursuant to Rule 13a – 14(a)
Under the Securities Exchange Act of 1934

I, R. Chad Dreier, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Ryland Group, Inc. (“Ryland”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of Ryland as of, and for, the periods presented in this report;

4. Ryland’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for Ryland and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Ryland, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of Ryland’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in Ryland’s internal control over financial reporting that occurred during Ryland’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Ryland’s internal control over financial reporting; and

5. Ryland’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Ryland’s auditors and the audit committee of Ryland’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Ryland’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in Ryland’s internal control over financial reporting.

Date: May 6, 2005	By:	/s/ R. Chad Dreier
	R. Chad Dreier
	Chairman, President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2: Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Principal Financial Officer Pursuant to Rule 13a – 14(a)
Under the Securities Exchange Act of 1934

I, Gordon A. Milne, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Ryland Group, Inc. (“Ryland”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of Ryland as of, and for, the periods presented in this report;

4. Ryland’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for Ryland and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Ryland, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of Ryland’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in Ryland’s internal control over financial reporting that occurred during Ryland’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Ryland’s internal control over financial reporting; and

5. Ryland’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Ryland’s auditors and the audit committee of Ryland’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Ryland’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in Ryland’s internal control over financial reporting.

Date: May 6, 2005	By:	/s/ Gordon A. Milne
	Gordon A. Milne
	Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1: Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certification of Principal Executive Officer
Pursuant to 18 U.S.C. 1350

I, R. Chad Dreier, Chairman, President and Chief Executive Officer (principal executive officer) of The Ryland Group, Inc. (the “Registrant”), certify, to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the period ended March 31, 2005, of the Registrant (the “Report”), that:

(1)	The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and
(2)	The information contained and incorporated by reference in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

By:  /s/ R. Chad Dreier

R. Chad Dreier 

May 6, 2005 

EX-32.2

EXHIBIT 32.2: Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certification of Principal Financial Officer
Pursuant to 18 U.S.C. 1350

I, Gordon A. Milne, Executive Vice President and Chief Financial Officer (principal financial officer) of The Ryland Group, Inc. (the “Registrant”), certify, to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the period ended March 31, 2005, of the Registrant (the “Report”), that:

(1)	The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and
(2)	The information contained and incorporated by reference in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

By:  /s/ Gordon A. Milne

Gordon A. Milne 

May 6, 2005