10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2002

or

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

For the transition period from ___________ to ___________.

Commission File Number: 1-8029

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)

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.

[X] Yes         [   ] No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of shares of common stock of The Ryland Group, Inc., outstanding on August 7, 2002, was 26,323,108.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	Item I. FINANCIAL STATEMENTS
		CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION
	Item 1. LEGAL PROCEEDINGS
	Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	Item 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
INDEX OF EXHIBITS
EXHIBIT 10.10
EXHIBIT 12.1
EXHIBIT 99.1
EXHIBIT 99.2

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 and Six Months Ended June 30, 2002 and 2001 (unaudited)		1
		Consolidated Balance Sheets at June 30, 2002 (unaudited) and December 31, 2001		2
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001 (unaudited)		3
		Notes to Consolidated Financial Statements (unaudited)		4-7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		8-13
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		13
PART II.    OTHER INFORMATION
	Item 1.	Legal Proceedings		14
	Item 4.	Submission of Matters to a Vote of Security Holders		14
	Item 6.	Exhibits and Reports on Form 8-K		14
SIGNATURES				15
INDEX OF EXHIBITS				16

PART I. FINANCIAL INFORMATION

Item I. FINANCIAL STATEMENTS

THE RYLAND GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)
(amounts in thousands, except share data)

					Three months ended June 30,				Six months ended June 30,
					2002		2001		2002		2001
REVENUES
		Homebuilding			$	658,304	$	674,626	$	1,184,244	$	1,177,669
		Financial services				17,072		14,206		30,492		25,334
				TOTAL REVENUES		675,376		688,832		1,214,736		1,203,003
EXPENSES
		Homebuilding
			Cost of sales			516,188		549,979		938,024		967,702
			Selling, general and administrative			68,973		65,733		127,728		117,979
			Interest			1,262		5,162		3,277		8,613
				Total homebuilding expenses		586,423		620,874		1,069,029		1,094,294
		Financial services
			General and administrative			5,097		5,120		9,445		10,018
			Interest			669		517		1,389		3,321
				Total financial services expenses		5,766		5,637		10,834		13,339
		Corporate expenses				8,319		6,335		17,089		12,790
				TOTAL EXPENSES		600,508		632,846		1,096,952		1,120,423
	Earnings before taxes					74,868		55,986		117,784		82,580
	Tax expense					30,162		22,114		47,114		32,619
	NET EARNINGS				$	44,706	$	33,872	$	70,670	$	49,961
NET EARNINGS PER COMMON SHARE
				Basic	$	1.65	$	1.26	$	2.63	$	1.86
				Diluted	$	1.56	$	1.18	$	2.48	$	1.74
AVERAGE COMMON SHARES OUTSTANDING
				Basic		27,103,278		26,776,030		26,925,588		26,728,338
				Diluted		28,643,968		28,716,478		28,477,835		28,713,314

See Notes to Consolidated Financial Statements.

1

THE RYLAND GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)

					June 30,		December 31,
					2002		2001
					(unaudited)
ASSETS
	Homebuilding
		Cash and cash equivalents			$	161,288	$	295,015
		Housing inventories
				Homes under construction		594,970		460,152
				Land under development and improved lots		492,528		439,237
				Total inventories		1,087,498		899,389
		Property, plant and equipment				38,916		33,371
		Purchase price in excess of net assets acquired				18,185		18,185
		Other				64,632		79,638
						1,370,519		1,325,598
	Financial Services
		Cash and cash equivalents				3,735		3,295
		Mortgage-backed securities and notes receivable				52,023		62,045
		Other				23,223		27,507
						78,981		92,847
	Other Assets
		Net deferred taxes				33,871		36,739
		Other				56,491		55,685
			TOTAL ASSETS		$	1,539,862	$	1,510,869
LIABILITIES
	Homebuilding
		Accounts payable and other liabilities			$	262,608	$	260,908
		Long-term debt				490,500		490,500
						753,108		751,408
	Financial Services
		Accounts payable and other liabilities				12,129		23,586
		Short-term notes payable				52,244		62,119
						64,373		85,705
	Other Liabilities					84,507		110,894
			TOTAL LIABILITIES		$	901,988	$	948,007
STOCKHOLDERS’ EQUITY
		Common stock, $1 par value:
			Authorized – 80,000,000 shares
			Issued – 26,992,108 shares (26,433,728 for 2001)		$	26,992	$	26,434
		Paid-in capital				31,264		26,297
		Retained earnings				578,249		508,667
		Accumulated other comprehensive income				1,369		1,464
			TOTAL STOCKHOLDERS’ EQUITY			637,874		562,862
			TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,539,862	$	1,510,869
Stockholders’ equity per common share					$	23.63	$	21.29

See Notes to Consolidated Financial Statements.

2

THE RYLAND GROUP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(amounts in thousands)

				Six months ended June 30,
				2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES
	Net earnings			$	70,670		$	49,961
	Adjustments to reconcile net earnings to net cash provided by operating activities:
		Depreciation and amortization			14,288			15,515
		Changes in assets and liabilities:
			Increase in inventories		(188,109	)		(31,128	)
			Net change in other assets, payables and other liabilities		(20,014	)		(7,767	)
		Other operating activities, net			3,240			(3,935	)
	Net cash (used for) provided by operating activities				(119,925	)		22,646
CASH FLOWS FROM INVESTING ACTIVITIES
	Net additions to property, plant and equipment				(18,111	)		(16,855	)
	Principal reduction of mortgage-backed securities, notes receivable and mortgage collateral				12,742			19,115
	Net cash (used for) provided by investing activities				(5,369	)		2,260
CASH FLOWS FROM FINANCING ACTIVITIES
	Cash proceeds of long-term debt				—			150,000
	Reduction of long-term debt				—			(5,500	)
	Decrease in short-term notes payable				(9,875	)		(10,717	)
	Common and preferred stock dividends				(1,076	)		(1,382	)
	Common stock repurchases				(22,123	)		(14,528	)
	Proceeds from stock option exercises				21,363			14,759
	Other financing activities, net				3,718			(6,344	)
	Net cash (used for) provided by financing activities				(7,993	)		126,288
	Net (decrease) increase in cash and cash equivalents				(133,287	)		151,194
	Cash and cash equivalents at beginning of period				298,310			142,201
CASH AND CASH EQUIVALENTS AT END OF PERIOD				$	165,023		$	293,395
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
	Cash paid for interest (net of capitalized interest)			$	8,274		$	12,392
	Cash paid for income taxes			$	42,152		$	27,163

See Notes to Consolidated Financial Statements.

3

THE RYLAND GROUP, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(amounts in thousands, except share data)

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.

The consolidated balance sheet as of June 30, 2002, the consolidated statements of earnings for the three and six months ended June 30, 2002 and 2001, and the consolidated statements of cash flows for the six months ended June 30, 2002 and 2001, have been prepared by the Company without audit. In the opinion of management, all adjustments, which include normal recurring adjustments necessary to present fairly the Company’s financial position, results of operations and cash flows at June 30, 2002, and for all periods presented, have been made. The consolidated balance sheet at December 31, 2001, is taken from the audited financial statements as of that date.

Certain amounts in the consolidated statements have been reclassified to conform to the 2002 presentation.

All references in the consolidated financial statements to common shares, share prices, per share amounts and stock plans have been retroactively restated for the two-for-one stock split declared on April 24, 2002, (see Note 9.)

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 2001 annual report to its shareholders.

The results of operations for the six months ended June 30, 2002, are not necessarily indicative of the operating results for the full year.

Assets presented in the financial statements are net of any valuation allowances.

The following table is a summary of capitalized interest:

	2002			2001
Capitalized interest as of January 1	$	33,291		$	33,494
Interest capitalized		19,261			16,441
Interest amortized to cost of sales		(12,794	)		(14,360	)
Capitalized interest as of June 30	$	39,758		$	35,575

Note 2. New Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 145 (SFAS 145), “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” The provisions of SFAS 145 which relate to the rescission of Statement 4 shall be applied in fiscal years beginning after May 15, 2002. Under the new pronouncement, any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in Accounting Principles Board Opinion 30 for classification as an extraordinary item shall be reclassified. Early application of the provisions of SFAS

4

145 which relate to the rescission of Statement 4 is encouraged. Statement 64 amended Statement 4 and is no longer necessary because Statement 4 has been rescinded.

The Company plans to adopt the provisions of SFAS 145, with respect to the rescission of Statement 4, in the third quarter of 2002.

Note 3. Segment Information

Operations of the Company consist of two business segments: homebuilding and financial services. The Company’s homebuilding segment specializes in the sale and construction of single-family attached and detached housing in 21 markets. The financial services segment provides mortgage-related products and services for Ryland Homes’ customers and also manages a declining investment portfolio. Corporate expenses represent the costs of corporate functions that support the business segments.

		Three months ended June 30,						Six months ended June 30,
		2002			2001			2002			2001
Earnings before taxes
	Homebuilding	$	71,881		$	53,752		$	115,215		$	83,375
	Financial services		11,306			8,569			19,658			11,995
	Corporate and other		(8,319	)		(6,335	)		(17,089	)		(12,790	)
	Total	$	74,868		$	55,986		$	117,784		$	82,580

5

Note 4. Earnings Per Share Reconciliation

The following table sets forth the computation of basic and diluted earnings per share:

			Three months ended June 30,					Six months ended June 30,
			2002		2001			2002		2001
Numerator
	Net earnings		$	44,706	$	33,872		$	70,670	$	49,961
	Preferred stock dividends			—		(151	)		—		(308	)
	Numerator for basic earnings per share – earnings available to common stockholders			44,706		33,721			70,670		49,653
	Effect of dilutive securities – preferred stock dividends			—		151			—		308
	Numerator for diluted earnings per share – earnings available to common stockholders		$	44,706	$	33,872		$	70,670	$	49,961
Denominator
	Denominator for basic earnings per share – weighted-average shares			27,103,278		26,776,030			26,925,588		26,728,338
	Effect of dilutive securities:
		Stock options		1,323,590		1,262,134			1,336,281		1,281,224
		Equity incentive plan		217,100		120,000			215,966		135,248
		Conversion of preferred shares		—		558,314			—		568,504
	Dilutive potential of common shares			1,540,690		1,940,448			1,552,247		1,984,976
	Denominator for diluted earnings per share – adjusted weighted-average shares and assumed conversions			28,643,968		28,716,478			28,477,835		28,713,314
	Basic earnings per share		$	1.65	$	1.26		$	2.63	$	1.86
	Diluted earnings per share		$	1.56	$	1.18		$	2.48	$	1.74

Note 5. Commitments and Contingencies

Refer to Part II, Other Information, Item 1, Legal Proceedings of this document for updated information regarding the Company’s commitments and contingencies.

Note 6. Goodwill

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142 (SFAS 142), “Goodwill and Other Intangible Assets.” SFAS 142 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 will perform impairment tests of its goodwill annually. The first of these tests performed by the Company, as of March 31, 2002, indicated no impairment.

The Company’s application of the nonamortization provisions of SFAS 142 resulted in the elimination of its goodwill amortization expense in the first six months of 2002. Results reported for the three and six months ended June 30, 2001, included after-tax goodwill amortization expense of $0.3 million, or $0.01 per diluted share, and $0.5 million, or $0.02 per diluted share, respectively.

6

Note 7. 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 $44.7 million and $33.9 million for the three months ended June 30, 2002 and 2001, respectively. For the six months ended June 30, 2002 and 2001, comprehensive income was $70.6 million and $50.8 million, respectively.

Note 8. Financial Services Short-term Notes Payable

In March 2002, the Company amended a revolving credit facility used to finance mortgage-backed securities in the financial services segment. The facility, previously $45 million, was renewed at $35 million. The agreement, which was extended through March 2003, bears interest at market rates and is collateralized by collateralized mortgage obligations previously issued by one of the Company’s limited-purpose subsidiaries. Borrowings outstanding under this facility were $28 million and $33.1 million at June 30, 2002 and December 31, 2001, respectively.

Note 9. Stockholders’ Equity

On April 24, 2002, Ryland’s Board of Directors approved a two-for-one stock split of the Company’s common stock, which was effected in the form of a stock dividend. Record holders of the Company’s common stock as of the close of business on May 15, 2002, were entitled to one additional share for each share held at that time. The new shares were distributed on May 30, 2002.

All references in the consolidated financial statements to common shares, share prices, per share amounts and stock plans have been retroactively restated for the two-for-one stock split declared on April 24, 2002.

Cash dividends declared for the three and six months ended June 30, 2002, were $0.02 and $0.04, respectively. Cash dividends declared for the three and six months ended June 30, 2001, were $0.02 and $0.04, respectively.

Note 10. Equity Incentive Plan

On April 24, 2002, the Company’s stockholders approved an equity incentive plan, The Ryland Group 2002 Equity Incentive Plan (“the Plan”), which permits the granting of stock options, stock appreciation rights, restricted or unrestricted stock awards, stock units or any combination of the foregoing to employees. This Plan replaces the Company’s 1992 Equity Incentive Plan, which expired on April 15, 2002. The number of shares available for issuance under the Plan includes 15,432 shares carried over from the 1992 Equity Incentive Plan and 1,300,000 new shares available under the terms of the 2002 Equity Incentive Plan. Any shares of the Company’s common stock covered by an award (or portion of an award) granted under the Plan or the 1992 Equity Incentive Plan that are forfeited, expired or canceled without delivery of shares of common stock, or which are tendered to the Company as full or partial payment of the exercise price or related tax withholding obligations, will again be available for award under the Plan. The Plan will remain in effect until April 24, 2012, unless it is terminated by the Board of Directors at an earlier date.

7

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

RESULTS OF OPERATIONS

Three months ended June 30, 2002, compared to three months ended June 30, 2001

For the second quarter of 2002, the Company reported consolidated net earnings of $44.7 million, or $1.65 per share ($1.56 per diluted share), compared to consolidated net earnings of $33.9 million, or $1.26 per share ($1.18 per diluted share), for the second quarter of 2001.

The homebuilding segment reported pretax earnings of $71.9 million for the second quarter of 2002, an $18.1 million, or 33.6 percent, increase over the $53.8 million reported for the second quarter of 2001. The increase over the prior year was primarily attributable to a higher closing volume and a 280 basis-point increase in gross profit margins.

The financial services segment reported pretax earnings from operations of $11.3 million for the three months ended June 30, 2002, compared to $8.6 million for the same period in 2001. The increase for the second quarter over the same period in the prior year was primarily attributable to a 2.4 percent increase in the number of originations and a 5.1 percent increase in loan sales volume. Additionally, the percentage of Ryland homebuyers who chose the Ryland Mortgage Company to finance their new-home purchases was 81.7 percent.

Corporate expenses represent the cost of corporate functions that support the business segments. Corporate expenses were $8.3 million for the second quarter of 2002, compared to $6.3 million for the second quarter of 2001. The rise in corporate expenses was primarily attributable to increased incentive compensation which was due to higher earnings.

Six months ended June 30, 2002, compared to six months ended June 30, 2001

Consolidated net earnings for the six months ended June 30, 2002, were $70.7 million, or $2.63 per share ($2.48 per diluted share), compared to $50 million, or $1.86 per share ($1.74 per diluted share), for the same period in the prior year.

For the six months ended June 30, 2002, the homebuilding segment reported pretax earnings of $115.2 million, compared to $83.4 million for the six months ended June 30, 2001.

The financial services segment reported pretax earnings of $19.7 million for the six months ended June 30, 2002, representing an increase of $7.7 million, or 64.2 percent, compared to $12 million for the same period last year.

Corporate expenses were $17.1 million for the first six months of 2002, versus $12.8 million for the first six months of 2001.

The income tax amounts represented effective income tax rates of approximately 40 percent in 2002 and 39.5 percent in 2001. The effective income tax rate increased in 2002 due to an increase in non-deductible expenses.

8

HOMEBUILDING SEGMENT

Results of operations from the homebuilding segment are summarized as follows:
($ amounts in thousands, except average closing price)

			Three months ended June 30,				Six months ended June 30,
			2002		2001		2002		2001
Revenues
	Residential		$	648,467	$	655,260	$	1,169,891	$	1,142,225
	Other			9,837		19,366		14,353		35,444
	Total			658,304		674,626		1,184,244		1,177,669
Gross profit				142,116		124,647		246,220		209,967
Selling, general and administrative expenses				68,973		65,733		127,728		117,979
Interest expense				1,262		5,162		3,277		8,613
Homebuilding pretax earnings			$	71,881	$	53,752	$	115,215	$	83,375
Operational unit data
	New orders (units)			3,843		3,779		7,600		7,749
	Closings (units)			3,185		3,137		5,686		5,518
Outstanding contracts at June 30:
		Units						6,491		6,399
		Dollar value					$	1,390,735	$	1,311,112
Average closing price			$	204,000	$	209,000	$	206,000	$	207,000

Three months ended June 30, 2002, compared to three months ended June 30, 2001

Homebuilding revenues declined slightly to $658.3 million for the second quarter of 2002, compared to $674.6 million for the same period in the prior year. This was the result of a 2.4 percent decline in average sales price from $209,000 for the quarter ended June 30, 2001, to $204,000 for the same period in 2002, due to an increased percentage of home closings in the South region, where home prices are typically lower. This decrease was partially offset by a 1.5 percent increase in closings, with 3,185 homes closed in the second quarter of 2002 versus 3,137 homes closed in the same quarter of the prior year. Homebuilding revenues for the second quarter of 2002 included $9.8 million from land sales, which contributed a net gain of $1.5 million to pretax earnings.

Gross profit margins from home sales averaged 21.7 percent for the second quarter of 2002, an increase from 18.9 percent for the second quarter of 2001. The increase is primarily attributable to reduced land and land development costs, higher direct construction cost rebates and rising sales prices in certain areas.

New orders for the second quarter of 2002 were 3,843, compared to 3,779 for the second quarter of 2001. The Company operated in 30 more active communities as of June 30, 2002, than it did at June 30, 2001, with most of the additions coming late in the quarter.

9

Outstanding contracts as of June 30, 2002, were 6,491, versus 6,399 at June 30, 2001, and 4,577 at December 31, 2001. Outstanding contracts represent the Company’s backlog of homes sold but not yet closed, which are generally built and closed, subject to cancellation, over the subsequent two quarters. The value of outstanding contracts at June 30, 2002, was $1.4 billion, an increase of 6.1 percent from June 30, 2001, and an increase of 51.7 percent from December 31, 2001.

Selling, general and administrative expenses, as a percentage of revenue, were 10.5 percent for the three months ended June 30, 2002, compared to 9.7 percent for the same period in the prior year. The increase in S,G&A for the second quarter was primarily due to increased incentive compensation for operations personnel, related to higher earnings, and increases in insurance and related costs. Compared to the second quarter of 2001, interest expense decreased $3.9 million to $1.3 million in the second quarter of 2002. This was due, in part, to lower interest rates on the Company’s long-term debt, reduced borrowings against the revolving credit facility, interest earned on increased cash investments and a rise in capitalized interest due to increased development activity for a higher number of new communities.

Pretax homebuilding margins increased 290 basis points to 10.9 percent for the three months ended June 30, 2002, compared to 8.0 percent for the same period in 2001.

Six months ended June 30, 2002, compared to six months ended June 30, 2001

For the six months ended June 30, 2002, homebuilding revenues increased $6.6 million to $1.2 billion, compared to the six months ended June 30, 2001. Homebuilding revenues for the six months ended June 30, 2002, included revenues of $14.3 million from land sales, contributing a net gain of $2.5 million to pretax earnings. Gross profit margins from home sales rose to 20.8 percent for the first six months of 2002, versus 18.3 percent for the same period in 2001. Selling, general and administrative expenses, as a percentage of revenue, were 10.8 percent for the six months ended June 30, 2002, compared to 10 percent for the same period in the prior year. Pretax homebuilding margins were 9.7 percent and 7.1 percent for the six months ended June 30, 2002 and 2001, respectively.

New orders were 7,600 for the six months ended June 30, 2002, compared to 7,749 for the six months ended June 30, 2001. Closings were 5,686 for the six months ended June 30, 2002, compared to 5,518 for the six months ended June 30, 2001.

10

FINANCIAL SERVICES

Results of operations of the Company’s financial services segment are summarized as follows:
($ amounts in thousands, except as indicated)

					Three months ended June 30,						Six months ended June 30,
RESULTS OF OPERATIONS					2002			2001			2002			2001
	Revenues
			Net gains on sales of mortgages and mortgage servicing rights		$	10,188		$	8,407		$	18,842		$	13,390
			Title/escrow/insurance			3,161			2,939			5,760			5,388
			Net origination fees			1,896			1,319			2,074			1,331
			Interest
				Mortgage-backed securities and notes receivable		1,619			1,251			3,377			4,592
				Other		207			285			434			598
				Total interest		1,826			1,536			3,811			5,190
			Other			1			5			5			35
				Total revenues		17,072			14,206			30,492			25,334
	Expenses
			General and administrative			5,097			5,120			9,445			10,018
			Interest			669			517			1,389			3,321
				Total expenses		5,766			5,637			10,834			13,339
	Pretax earnings				$	11,306		$	8,569		$	19,658		$	11,995
OPERATIONAL DATA
	Retail operations:
		Originations				2,464			2,407			4,393			4,161
		Percent of Ryland Homes closings				98.3	%		96.3	%		97.7	%		96.4	%
		Ryland Homes capture rate				81.7	%		81.7	%		80.8	%		79.8	%
	Investment operations:
		Portfolio average balance (in millions)			$	52.6		$	73.8		$	54.8		$	76.2

Three months ended June 30, 2002, compared to three months ended June 30, 2001

Revenues for the financial services segment increased $2.9 million, or 20.4 percent, for the quarter ended June 30, 2002, compared to the same period in 2001. The increase from the prior year was attributable to a 2.4 percent increase in the number of originations, a 5.1 percent increase in loan sales volume and higher margins on loan sales. Additionally, the percentage of Ryland homebuyers who chose the Ryland Mortgage Company to finance their new-home purchases was 81.7 percent.

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General and administrative expenses were $5.1 million for the three months ended June 30, 2002, approximately the same as that for the three months ended June 30, 2001. Interest expense was $0.7 million for the three months ended June 30, 2002, versus $0.5 million for the same period in 2001.

Six months ended June 30, 2002, compared to six months ended June 30, 2001

For the first six months of 2002, revenues for the financial services segment were $30.5 million, up $5.2 million from the same period in the prior year. The increase from the prior year was primarily attributable to a 5.6 percent increase in the number of originations and a 10.5 percent increase in loan sales volume, partially offset by decreased interest income which was due to declining investment portfolio balances.

General and administrative expenses were $9.4 million for the six months ended June 30, 2002, compared to $10 million for the six months ended June 30, 2001. Interest expense was $1.4 million for the six months ended June 30, 2002, compared to $3.3 million for the same period in the prior year. The decrease in interest expense was primarily due to a continued decline in the credit facilities used to finance mortgage-backed securities, a decline in average borrowing rates and the termination of the warehouse funding facility.

FINANCIAL CONDITION AND LIQUIDITY

Cash requirements for the Company’s homebuilding and financial services segments are generally provided from outside borrowings and internally generated funds. The Company believes that its current sources of cash are sufficient to finance its current requirements.

The homebuilding segment’s borrowings include senior notes, senior subordinated notes, an unsecured revolving credit facility and nonrecourse secured notes payable. Senior and senior subordinated notes outstanding totaled $490.5 million at June 30, 2002, and December 31, 2001.

The Company uses its unsecured revolving credit facility to finance increases in its homebuilding inventory and working capital. This facility matures in October 2003 and provides for borrowings up to $400 million. There were no borrowings under this facility at June 30, 2002, or December 31, 2001. The Company had letters of credit outstanding under this facility totaling $96.5 million at June 30, 2002, and $83.5 million at December 31, 2001. To finance land purchases, the Company also uses seller-financed nonrecourse secured notes payable. At June 30, 2002, such notes payable outstanding amounted to $9.4 million, compared to $3.3 million at December 31, 2001.

Housing inventories increased to $1.1 billion at June 30, 2002, from $0.9 billion at December 31, 2001. This increase not only relates to construction activity following higher sold-inventory levels due to a significant increase in quarter-end backlog, but also relates to acquisition and development activity required for expansion in the second half of 2002. The increase was primarily funded with cash on hand and internally generated funds.

The financial services segment uses cash generated from operations and borrowing arrangements to finance its operations. The financial services segment has borrowing arrangements that include repurchase agreement facilities aggregating $80 million and a $35 million revolving credit facility, both of which are used to finance mortgage-backed securities. At June 30, 2002, and December 31, 2001, the combined borrowings of the financial services segment outstanding under all agreements totaled $52.2 million and $62.1 million, respectively.

Mortgage loans, notes receivable and mortgage-backed securities held by the financial services subsidiaries were pledged as collateral for previously issued mortgage-backed bonds, the terms of which

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provided for the retirement of all bonds from the proceeds of the collateral. The source of cash for the bond payments was received from the mortgage loans, notes receivable and mortgage-backed securities.

The Company has not guaranteed the debt of either its financial services segment or limited-purpose subsidiaries.

During the three months ended June 30, 2002, the Company repurchased approximately 238,000 shares of its outstanding common stock at a cost of approximately $12.6 million. As of June 30, 2002, the Company had Board authorization to repurchase up to an additional 2.8 million shares of its common stock. The Company repurchased 700,000 additional shares of its outstanding common stock during the period July 1 through August 7, 2002 at a cost of approximately $28.9 million. The Company’s repurchase program has been funded primarily through internally generated funds.

Note: Certain statements in the Management’s Discussion and Analysis of Financial Condition and Results of Operations may be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on various factors and assumptions that include risks and uncertainties, such as: the completion and profitability of sales reported; the market for homes generally and in areas where the Company operates; the availability and cost of land; changes in economic conditions and interest rates; the availability and increases in raw material and labor costs; consumer confidence; government regulations; and general competitive factors, all or each of which may cause actual results to differ materially.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no other material changes in the Company’s market risk from December 31, 2001. For information regarding the Company’s market risk, refer to The Ryland Group, Inc.’s Form 10-K for the fiscal year ended December 31, 2001.

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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.

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

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

The only matters submitted to a vote of security holders during the second quarter of 2002, were the matters voted on at the Annual Meeting of Stockholders held on April 24, 2002 that were reported on in Item 4 of the Company’s Report on Form 10-Q, for the quarterly period ended March 31, 2002.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

A. Exhibits

10.10	The Ryland Group, Inc. 2002 Equity Incentive Plan, as amended
12.1	Computation of Ratio of Earnings to Fixed Charges
99.1	Certification of Principal Executive Officer
99.2	Certification of Principal Financial Officer

B.	Reports on Form 8-K
	No reports on Form 8-K were filed during the second quarter of 2002.

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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
August 9, 2002	By:	/s/ Gordon A. Milne
Date		Gordon A. Milne Senior Vice President and Chief Financial Officer (Principal Financial Officer)
August 9, 2002	By:	/s/ David L. Fristoe
Date		David L. Fristoe Senior Vice President, Chief Information Officer, Controller and Chief Accounting Officer (Principal Accounting Officer)

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INDEX OF EXHIBITS

A. Exhibits

Exhibit No.		Page No.
10.10	The Ryland Group, Inc. 2002 Equity Incentive Plan, as amended (filed herewith)	17-24
12.1	Computation of Ratio of Earnings to Fixed Charges (filed herewith)	25
99.1	Certification of Principal Executive Officer (filed herewith)	26
99.2	Certification of Principal Financial Officer (filed herewith)	27

16 EX-10.10 3 a83330exv10w10.htm EXHIBIT 10.10

EXHIBIT 10.10

THE RYLAND GROUP, INC.
2002 EQUITY INCENTIVE PLAN
(as Amended July 10, 2002)

1. Purpose and Types of Awards

     The purpose of THE RYLAND GROUP, INC. 2002 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), stock appreciation rights, restricted or unrestricted 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)  “Affiliate” shall mean any entity, whether now or hereafter existing, which controls, is controlled by, or is under common control with, the Corporation (including, but not limited to, 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.

     (b)  “Award” shall mean any stock option, stock appreciation right, restricted or unrestricted stock award, or stock unit award.

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

     (d)  “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

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          (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.

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

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

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

     (h)  “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.

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

     (j)  “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 2.1(i) 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.

     (k)  “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.

     (l)  “1992 Equity Incentive Plan” shall mean The Ryland Group, Inc. 1992 Equity Incentive Plan, the term of which expires on April 15, 2002.

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 (the Board, the Compensation Committee of the Board and any appointed committee or committees are referred to as the “Administrator”).

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     (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 materially 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); and (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.

     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

19

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)  Subject to the following provisions of this Section 4 and adjustments as provided in Section 7(c) of the Plan, the maximum number of shares of Common Stock that may be issued with respect to Awards granted under the Plan shall be equal to the sum of: (i) 650,000 shares of Common Stock; (ii) any shares of Common Stock remaining under the 1992 Equity Incentive Plan on the date such Plan expires that were not then subject to outstanding Awards; and (iii) any shares of Common Stock that are represented by Awards granted under the 1992 Equity Incentive Plan 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)  If any Award, or portion of an Award, under the Plan or the 1992 Equity Incentive Plan expires or terminates unexercised, becomes unexercisable or is forfeited or otherwise terminated, surrendered or canceled as to any shares, or if any shares of Common Stock are surrendered to the Corporation in connection with any Award under the Plan or the 1992 Equity Incentive Plan (whether or not such surrendered shares were acquired pursuant to any Award), or if any shares are withheld by the Corporation, the shares subject to such Award and the surrendered and withheld shares shall thereafter be available for further Awards under the Plan; provided, however, that any such shares that are surrendered to or withheld by the Corporation in connection with any Award or that are otherwise forfeited after issuance shall not be available for purchase pursuant to incentive stock options intended to qualify under Code section 422 and provided further, that no more than the number of shares available for issuance on the Effective Date shall be made available for purchase pursuant to such incentive stock options.

     (c)  If the exercise price of any stock option granted under the Plan or the 1992 Equity Incentive Plan is satisfied by tendering shares of Common Stock to the Corporation (by either actual delivery or by attestation), only the number of shares of Common Stock issued net of the shares of Common Stock tendered shall be deemed to have been issued for purposes of determining the maximum number of shares of Common Stock available for issuance under the Plan. 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)  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 (c) and (d) of Section 6 of the Plan (relating to restricted and unrestricted stock awards and stock units) shall be 130,000 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 (c) and (d) of Section 6 of the Plan.

     (e)  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

20

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.

5. Participation

     Participation in the Plan shall be open to all employees, officers, and directors of, 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 prior to the date the individual first performs such services.

6. 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 vesting period of three years or one year plus performance criteria established by the Administrator. The Administrator may permit or require a recipient of an Award to defer such individual’s receipt of the payment of cash or the delivery of Common Stock that would otherwise be due to such individual, including the crediting of interest on deferred amounts denominated in cash and dividend equivalents on amounts denominated in Common Stock, by virtue of the exercise of, payment of, or lapse or waiver of restrictions respecting, any Award. If any such payment deferral is required or permitted, the Administrator shall, in its sole discretion, establish rules and procedures for such payment deferrals.

     (a)  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 ten (10) 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.

     (b)  Stock Appreciation Rights. The Administrator may from time to time grant to eligible participants Awards of Stock Appreciation Rights (“SAR”). An SAR entitles the grantee to receive, subject to the provisions of the Plan and the Grant Agreement, a payment having an aggregate value equal to the product of (i) the excess of (A) the Fair Market Value on the exercise date of one share of Common Stock over (B) the base price per share specified in the Grant Agreement, times (ii) the number of shares specified by the SAR, or portion thereof, which is exercised. The base price per share with respect to an SAR shall in no event be lower than Fair Market Value as of the date of grant. Payment by the Corporation of the amount receivable upon any exercise of an SAR may be made by the delivery of Common Stock or cash, or any combination of Common Stock and cash, as determined in the sole discretion of the Administrator. If upon settlement of the exercise of an SAR a grantee is to receive a portion of such payment in shares of Common Stock, the number of shares shall be determined by dividing such portion by the Fair

21

Market Value of a share of Common Stock on the exercise date. No fractional shares shall be used for such payment and the Administrator shall determine whether cash shall be given in lieu of such fractional shares or whether such fractional shares shall be eliminated.

     (c)  Stock Awards. The Administrator may from time to time grant restricted or unrestricted 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.

     (d)  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. In the event that payment to the Corporation or its Affiliate of such tax obligations is made in shares of Common Stock, such shares shall be valued at Fair Market Value on the applicable date for such purposes.

     (b)  Transferability. Except as otherwise determined by the Administrator, and in any event in the case of an incentive stock option or a stock appreciation right granted with respect to 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

22

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)  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

23

securities that may be issued under the Plan, (iii) materially modify the requirements as to eligibility for participation in the Plan, without approval by the Corporation’s stockholders.

     (g)  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.

     (h)  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.

     (i)  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.

     (j)  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.

     (k)  Effective Date; Termination Date. The Plan is effective as of the date on which the Plan is approved by the stockholders of the Corporation. Prior to such approval, Awards may be made under the Plan expressly subject to such approval but any such Awards shall be void and ineffective if the Plan is not approved by the stockholders. 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 April 24, 2012.

24 EX-12.1 4 a83330exv12w1.htm EXHIBIT 12.1

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

	Year ended December 31,															Three Months			Six Months
																Ended			Ended
	1997			1998			1999			2000			2001			3/31/2002			6/30/2002
Consolidated pretax income before extraordinary item	$	36,470		$	75,158		$	109,336		$	134,840		$	225,580		$	42,916		$	117,784
Share of distributed income of 50%-or-less-owned affiliates net of equity pickup		1,334			2,602			(263	)		(163	)		(26	)		(33	)		(2,779	)
Amortization of capitalized interest		21,581			20,645			19,027			27,581			31,878			6,151			12,794
Interest		74,950			63,410			52,764			62,610			55,327			11,764			23,927
Less interest capitalized during the period		(17,636	)		(18,601	)		(24,397	)		(34,105	)		(31,675	)		(9,029	)		(19,261	)
Net amortization of debt discount and premium and issuance expense		84			36			33			—			—			—			—
Interest portion of rental expense		3,541			4,709			4,522			6,065			7,190			1,578			3,155
EARNINGS	$	120,324		$	147,959		$	161,022		$	196,828		$	288,274		$	53,347		$	135,620
Interest	$	74,950		$	63,410		$	52,764		$	62,610		$	55,327		$	11,764		$	23,927
Net amortization of debt discount and premium and issuance expense		84			36			33			—			—			—			—
Interest portion of rental expense		3,541			4,709			4,522			6,065			7,190			1,578			3,155
FIXED CHARGES	$	78,575		$	68,155		$	57,319		$	68,675		$	62,517		$	13,342		$	27,082
Ratio of earnings to fixed charges		1.53			2.17			2.81			2.87			4.61			4.00			5.01

25 EX-99.1 5 a83330exv99w1.htm EXHIBIT 99.1

(THE RYLAND GROUP INC. LETTERHEAD)

EXHIBIT 99.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)

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 June 30, 2002 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 in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

/s/ R. Chad Dreier

Name: R. Chad Dreier
Date: August 5, 2002

26 EX-99.2 6 a83330exv99w2.htm EXHIBIT 99.2

(THE RYLAND GROUP INC. LETTERHEAD)

EXHIBIT 99.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)

I, Gordon A. Milne, Senior 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 June 30, 2002 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 in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

/s/ Gordon Milne

Name: Gordon A. Milne
Date: August 2, 2002

27 -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.10

Ryland Group, Inc

EX-12.1

exv12w1

EX-99.1

exv99w1

EX-99.2

exv99w2