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 September 30, 2003

or

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

For the transition period from                     to                    .

Commission File Number: 1-8029

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

The number of shares of common stock of The Ryland Group, Inc. outstanding on November 10, 2003, was 24,723,797.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	Item I. FINANCIAL STATEMENTS
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	Item 4. CONTROLS AND PROCEDURES
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 10.13
EXHIBIT 10.14
EXHIBIT 12.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

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 Nine Months Ended September 30, 2003 and 2002 (unaudited)		3
		Consolidated Balance Sheets at September 30, 2003 (unaudited) and December 31, 2002		4
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002 (unaudited)		5
		Notes to Consolidated Financial Statements (unaudited)		6–11
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			12–19
	Item 3. Quantitative and Qualitative Disclosures About Market Risk			20
	Item 4. Controls and Procedures			20
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings			20
	Item 4. Submission of Matters to a Vote of Security Holders			20
	Item 6. Exhibits and Reports on Form 8-K			21
SIGNATURES				22
INDEX OF EXHIBITS				23

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 September 30,				Nine months ended September 30,
				2003		2002		2003		2002
REVENUES
	Homebuilding			$	850,176	$	713,923	$	2,307,511	$	1,898,167
	Financial services				22,008		18,812		64,380		49,304
			TOTAL REVENUES		872,184		732,735		2,371,891		1,947,471
EXPENSES
	Homebuilding
		Cost of sales			661,468		563,896		1,808,473		1,501,920
		Selling, general and administrative			81,086		70,247		238,276		197,975
		Interest			6,794		2,123		10,195		5,400
			Total homebuilding expenses		749,348		636,266		2,056,944		1,705,295
	Financial services
		General and administrative			6,381		5,724		17,872		15,169
		Interest			426		627		1,230		2,016
			Total financial services expenses		6,807		6,351		19,102		17,185
	Corporate expenses				14,722		11,108		40,847		28,197
			TOTAL EXPENSES		770,877		653,725		2,116,893		1,750,677
Earnings before taxes					101,307		79,010		254,998		196,794
Tax expense					37,973		31,604		99,449		78,718
NET EARNINGS				$	63,334	$	47,406	$	155,549	$	118,076
NET EARNINGS PER COMMON SHARE
			Basic	$	2.56	$	1.80	$	6.23	$	4.42
			Diluted	$	2.40	$	1.70	$	5.85	$	4.18
AVERAGE COMMON SHARES OUTSTANDING
			Basic		24,768,351		26,310,515		24,962,634		26,721,346
			Diluted		26,361,568		27,876,907		26,570,939		28,271,079
DIVIDENDS DECLARED PER COMMON SHARE				$	0.02	$	0.02	$	0.06	$	0.06

See Notes to Consolidated Financial Statements.

3

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

					September 30,		December 31,
					2003		2002
					(unaudited)
ASSETS
	Homebuilding
		Cash and cash equivalents			$	194,397	$	266,577
		Housing inventories
			Homes under construction			847,335		575,794
			Land under development and improved lots			515,671		524,218
			Consolidated inventory not owned			36,315		—
			Total inventories			1,399,321		1,100,012
		Property, plant and equipment				41,979		40,479
		Purchase price in excess of net assets acquired				18,185		18,185
		Other				58,951		58,252
						1,712,833		1,483,505
	Financial Services
		Cash and cash equivalents				2,080		2,868
		Mortgage-backed securities and notes receivable				30,249		42,583
		Other				41,435		38,163
						73,764		83,614
	Other Assets
		Net deferred taxes				36,929		36,830
		Other				68,561		53,802
				TOTAL ASSETS		1,892,087		1,657,751
LIABILITIES
	Homebuilding
		Accounts payable and other liabilities				359,696		300,168
		Long-term debt				540,500		490,500
						900,196		790,668
	Financial Services
		Accounts payable and other liabilities				19,449		23,718
		Short-term notes payable				30,535		43,145
						49,984		66,863
	Other Liabilities					133,566		120,141
				TOTAL LIABILITIES		1,083,746		977,672
MINORITY INTEREST						34,160		—
STOCKHOLDERS’ EQUITY
		Common stock, $1.00 par value:
			Authorized — 80,000,000 shares Issued — 24,527,359 (25,260,343 for 2002)			24,527		25,260
		Retained earnings				748,408		653,461
		Accumulated other comprehensive income				1,246		1,358
				TOTAL STOCKHOLDERS’ EQUITY		774,181		680,079
				TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,892,087	$	1,657,751
Stockholders’ equity per common share					$	31.56	$	26.92

See Notes to Consolidated Financial Statements.

4

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

			Nine months ended September 30,
			2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES
	Net earnings		$	155,549		$	118,076
	Adjustments to reconcile net earnings to net cash provided by operating activities:
	Depreciation and amortization			26,665			22,864
	Changes in assets and liabilities:
		Increase in inventories		(265,149	)		(263,448	)
		Net change in other assets, payables and other liabilities		43,846			12,007
	Tax benefit from exercise of stock options			10,680			12,077
	Other operating activities, net			2,611			4,544
	Net cash used for operating activities			(25,798	)		(93,880	)
CASH FLOWS FROM INVESTING ACTIVITIES
	Net additions to property, plant and equipment			(24,641	)		(27,291	)
	Principal reduction of mortgage-backed securities, notes receivable and mortgage collateral			13,280			20,296
	Net cash used for investing activities			(11,361	)		(6,995	)
CASH FLOWS FROM FINANCING ACTIVITIES
	Cash proceeds of long-term debt			150,000			—
	Repayment of long-term debt			(100,000	)		—
	Decrease in short-term notes payable			(12,610	)		(15,249	)
	Common stock dividends			(1,522	)		(1,625	)
	Common stock repurchases			(86,294	)		(76,843	)
	Proceeds from stock option exercises			10,192			11,041
	Other financing activities, net			4,425			2,223
	Net cash used for financing activities			(35,809	)		(80,453	)
	Net decrease in cash and cash equivalents			(72,968	)		(181,328	)
	Cash and cash equivalents at beginning of period			269,445			298,310
CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	196,477		$	116,982
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
	Consolidated inventory not owned		$	34,160		$	—

See Notes to Consolidated Financial Statements.

5

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

Note 1. Consolidated Financial Statements

The consolidated financial statements include the accounts of The Ryland Group, Inc., its wholly owned subsidiaries (“the Company”) and other entities in which the Company is the primary beneficiary (see Note 12). Intercompany transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the 2003 presentation.

The consolidated balance sheet at September 30, 2003, the consolidated statements of earnings for the three and nine months ended September 30, 2003 and 2002, and the consolidated statements of cash flows for the nine months ended September 30, 2003 and 2002, 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 September 30, 2003, 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 2002 annual report to its shareholders.

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

The results of operations for the three and nine months ended September 30, 2003, are not necessarily indicative of the operating results expected for the year ended December 31, 2003.

Note 2. 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. The Company’s financial services segment provides loan origination; title, escrow and insurance brokerage services; and maintains a portfolio of mortgage-backed securities and notes receivable. “Corporate” is a nonoperating business segment whose sole purpose is to support 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 2002 annual report.

			Three months ended September 30,						Nine months ended September 30,
(in thousands)			2003			2002			2003			2002
Revenues
	Homebuilding		$	850,176		$	713,923		$	2,307,511		$	1,898,167
	Financial services			22,008			18,812			64,380			49,304
		Total	$	872,184		$	732,735		$	2,371,891		$	1,947,471
Earnings before taxes
	Homebuilding		$	100,828		$	77,657		$	250,567		$	192,872
	Financial services			15,201			12,461			45,278			32,119
	Corporate			(14,722	)		(11,108	)		(40,847	)		(28,197	)
		Total	$	101,307		$	79,010		$	254,998		$	196,794

6

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

Note 3. 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 September 30,				Nine months ended September 30,
		2003		2002		2003		2002
Numerator
	Numerator for basic and diluted earnings per share — earnings available to common stockholders	$	63,334	$	47,406	$	155,549	$	118,076
Denominator
	Denominator for basic earnings per share — weighted-average shares		24,768,351		26,310,515		24,962,634		26,721,346
	Effect of dilutive securities:
	Stock options		1,273,917		1,114,292		1,245,404		1,254,313
	Equity incentive plan		319,300		452,100		362,901		295,420
	Dilutive potential of common shares		1,593,217		1,566,392		1,608,305		1,549,733
	Denominator for diluted earnings per share — adjusted weighted-average shares and assumed conversions		26,361,568		27,876,907		26,570,939		28,271,079
Net earnings per common share
	Basic	$	2.56	$	1.80	$	6.23	$	4.42
	Diluted	$	2.40	$	1.70	$	5.85	$	4.18

Note 4. 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 $63.1 million and $47.5 million for the three months ended September 30, 2003 and 2002, respectively. Comprehensive income for the nine months ended September 30, 2003 and 2002, was $155.4 million and $118.0 million, respectively.

Note 5. Inventories

Inventories consist principally of homes under construction, land under development and improved lots. Inventories are stated at the lower of cost or fair value.

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

	2003			2002
Capitalized interest as of January 1	$	40,824		$	33,291
Interest capitalized		31,549			29,328
Interest amortized to cost of sales		(26,163	)		(21,278	)
Capitalized interest as of September 30	$	46,210		$	41,341

7

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

Note 6. Investments in Joint Ventures

The Company routinely enters into joint ventures for the purpose of developing land in such locations as Atlanta, Dallas, Denver, Orlando, Phoenix and Washington, D.C. In most instances, the Company has less than a controlling interest in the joint venture; however, in certain instances, according to Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities,” the Company’s investment in certain joint ventures may create a variable interest in a variable interest entity (VIE), depending on the contractual terms of the arrangement, and require consolidation. FIN 46 requires a 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.

At September 30, 2003 and December 31, 2002, the Company’s investment in its unconsolidated joint ventures amounted to $12.4 million and $14.9 million, respectively. The Company’s equity in earnings of its unconsolidated joint ventures totaled $232,000 and $73,000 for the three- and nine-month periods ended September 30, 2003, compared to equity in (losses) earnings of ($72,000) and $2.7 million for the same periods ended September 30, 2002, respectively. The aggregate assets of the unconsolidated joint ventures in which the Company participated were $51.9 million and $61.0 million at September 30, 2003 and December 31, 2002, respectively. At September 30, 2003 and December 31, 2002, the aggregate debt of the unconsolidated joint ventures in which the Company participated was $24.5 million and $31.9 million, respectively. The Company does not guarantee the debt of its unconsolidated joint ventures.

Note 7. Financial Services Short-term Notes Payable

In March 2003, the Company’s financial services segment renewed and extended a revolving credit facility used to finance mortgage investment portfolio securities. The facility, previously $35.0 million, was renewed for $25.0 million. The agreement matures in March 2004, 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 $16.8 million and $22.8 million at September 30, 2003 and December 31, 2002, respectively.

Note 8. Long-term Debt

In June 2003, the Company issued $150.0 million of 5.38 percent senior notes, which pay interest semiannually and will mature on June 1, 2008. In July 2003, the net proceeds from this offering were used to fully redeem the $100.0 million aggregate principal from the Company’s 8.25 percent senior subordinated notes due April 1, 2008. The remaining proceeds were used for general corporate purposes. As a result of this redemption, the Company recorded a $5.1 million pretax loss associated with the early extinguishment of debt, which was recorded as interest expense in the third quarter of 2003.

Note 9. Postretirement Benefits

The Company has supplemental, nonqualified retirement plans which vest over five-year periods beginning January 1, 2003 and July 1, 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 September 30, 2003, the cash surrender value of these contracts was $3.8 million. The net periodic benefit cost for these plans for the three months ended September 30, 2003, was $954,000, which

8

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

included service costs of $1.0 million, interest costs of $70,000 and investment income of $137,000. For the nine months ended September 30, 2003, the net periodic benefit cost was $2.1 million and included service costs of $2.3 million, interest costs of $171,000 and investment income of $368,000. The $2.5 million projected benefit obligation at September 30, 2003, was equal to the net liability recognized in the balance sheet at that date. For the nine-month period ended September 30, 2003, the weighted-average discount rate used for the plans was 7.9 percent.

Note 10. Stock-based Compensation

The Company has elected to follow the intrinsic value method to account for compensation expense 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 by Statement of Financial Accounting Standards No. 148. 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 awards, consistent with the provisions of SFAS 123, the Company’s net earnings and earnings per share in the third quarter and first nine months of 2003 and 2002 would have been reduced to the pro forma amounts indicated in the following table (in thousands, except share data):

		Three months ended September 30,						Nine months ended September 30,
		2003			2002			2003			2002
Net earnings, as reported		$	63,334		$	47,406		$	155,549		$	118,076
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			(910	)		(741	)		(3,143	)		(2,721	)
Pro forma net earnings		$	62,424		$	46,665		$	152,406		$	115,355
Earnings per share:
	Basic — as reported	$	2.56		$	1.80		$	6.23		$	4.42
	Basic — pro forma		2.52			1.77			6.11			4.32
	Diluted — as reported		2.40			1.70			5.85			4.18
	Diluted — pro forma	$	2.37		$	1.67		$	5.74		$	4.08

The fair value of each option grant is estimated on the grant date by using the Black-Scholes option-pricing model. The following weighted-average assumptions were used for grants during the first nine months of 2003 and 2002, respectively: a risk-free interest rate of 2.0 percent and 4.2 percent; an expected volatility factor for the market price of the Company’s common stock of 37.4 percent and 36.7 percent; a dividend yield of 0.2 percent; and an expected life of three years. The weighted-average fair values at the grant date for options granted during the nine months ended September 30, 2003 and 2002, were $11.85 and $13.66, respectively.

Note 11. Commitments and Contingencies

In the normal course of business, the Company acquires rights under option agreements to purchase land for use in future homebuilding operations. At September 30, 2003, the Company had related deposits

9

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

and letters of credit outstanding of $79.6 million for land options and land purchase contracts having a total purchase price of $1,299.7 million. At September 30, 2003, the Company had commitments with respect to option contracts containing specific performance provisions of approximately $64.8 million, compared to $68.0 million at December 31, 2002.

As an on-site housing producer, the Company is often required to obtain bonds and letters of credit in support of its contractual obligations. Some municipalities require the Company to obtain development bonds or letters of credit to assure completion of public facilities within a project. At September 30, 2003, total development bonds were $282.8 million and total related deposits and letters of credit were $46.0 million. In the event that any such bonds or letters of credit are called, the Company would be required to reimburse the issuer; however, the Company does not expect that any currently outstanding bonds or letters of credit will be called.

In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” In accordance with the provisions of FIN 45, the Company adopted its disclosure provisions on December 31, 2002. The adoption of FIN 45 did not have a material effect on the Company’s financial position or results of operations.

The Company provides its customers with product warranties covering workmanship and materials for one year, certain mechanical systems for two years and structural systems for ten years. The Company estimates and records warranty liabilities based on historical experience and known risks at the time a home closes. In the case of unexpected claims, these liabilities are based upon identification and quantification of the obligations. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the accruals as necessary.

Changes in the Company’s warranty reserve during the period are as follows (in thousands):

Balance, December 31, 2002	$	29,860
Warranties issued		12,643
Settlements made		(12,232	)
Changes in liability for pre-existing warranties		4,864
Balance, September 30, 2003	$	35,135

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 12. New Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), “Consolidation of 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 variable interest and is not the primary beneficiary.

The consolidation requirements of FIN 46 applied immediately to VIEs created after January 31, 2003. For VIEs created before January 31, 2003, the consolidation requirements apply in the first fiscal year or interim period ending after December 15, 2003 (the Company’s fiscal year ending December 31, 2003).

10

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

Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the VIE was established.

As mentioned in Note 6, the Company routinely enters into joint ventures for the purpose of developing land. The Company’s 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 will fund 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 result in the creation of a variable interest with a VIE holding the land parcel under option.

Using the framework outlined in FIN 46, the Company evaluated its option contracts and the joint venture agreement it entered into after January 31, 2003. Based on its evaluation, the Company determined that, in some cases, it had the primary variable interest in certain VIEs subject to lot option contracts. 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. As a result, the Company consolidated $36.3 million of inventory not owned as of September 30, 2003. This represents the fair value of the optioned property because the Company was unable to obtain financial information for any of the selling entities. Additionally, to reflect the fair value of the inventory consolidated under FIN 46, the Company eliminated $2.1 million of its related cash deposits for lot option contracts, which are included in consolidated inventory not owned. Minority interest totaling $34.2 million was recorded with respect to the consolidation of these contracts, representing the selling entities’ ownership interests in these VIEs. At September 30, 2003, the Company had cash deposits and letters of credit totaling $4.9 million, representing the Company’s current maximum exposure to loss, relating to lot option contracts that were consolidated. Creditors of these VIEs, if any, have no recourse against the Company.

At September 30, 2003, the Company had cash deposits and/or letters of credit totaling $22.9 million, which were associated with lot option purchase contracts having an aggregate purchase price of $365.5 million and which were related to VIEs in which it did not have a primary variable interest.

In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (SFAS 149), “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS 133. This statement is effective for contracts entered into or modified after June 30, 2003. Management does not believe that the implementation of SFAS 149 will have a material impact on the Company’s financial condition or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (SFAS 150), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the start of the first interim period beginning after June 15, 2003. Application of SFAS 150 to non-controlling interests in limited-life subsidiaries has been deferred indefinitely. Management does not believe that the implementation of SFAS 150 will have a material impact on the Company’s financial condition or results of operations.

11

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

Note: Certain statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations may be regarded as “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 such risks and uncertainties 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.

RESULTS OF OPERATIONS

Three months ended September 30, 2003, compared to three months ended September 30, 2002

The Company reported consolidated net earnings of $63.3 million, or $2.40 per diluted share, for the third quarter of 2003, compared to consolidated net earnings of $47.4 million, or $1.70 per diluted share, for the third quarter of 2002. This net earnings increase resulted from higher volume and increased profitability for the homebuilding and financial services operations.

The Company’s revenues reached $872.2 million for the third quarter of 2003, up 19.0 percent from $732.7 million for the third quarter of 2002. Both housing and mortgage-banking revenues rose during the third quarter of 2003.

Nine months ended September 30, 2003, compared to nine months ended September 30, 2002

The Company reported consolidated net earnings of $155.5 million, or $5.85 per diluted share, for the first nine months of 2003, compared to consolidated net earnings of $118.1 million, or $4.18 per diluted share, for the nine months ended September 30, 2002. This net earnings increase resulted from higher volume and increased profitability for the homebuilding and financial services operations.

The Company’s revenues reached $2,371.9 million for the nine months ended September 30, 2003, up 21.8 percent from $1,947.5 million for the same period in 2002. Both housing and mortgage-banking revenues rose during the first nine months of 2003.

Cash and unused borrowing capacity for the Company’s homebuilding segment totaled $502.1 million at September 30, 2003, versus $480.1 million at December 31, 2002, primarily as a result of the issuance of $150.0 million of 5.38 percent senior notes in June 2003 and the increase in the borrowing capacity of the unsecured revolving credit facility from $300.0 million to $400.0 million, partially offset by the redemption of the 8.25 percent senior subordinated notes in July 2003. Consolidated inventories owned by the Company, which includes homes under construction, land under development and improved lots, grew 23.9 percent to $1,363.0 million. Stockholders’ equity increased 13.8 percent, or $94.1 million, during the first nine months of 2003.

12

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

HOMEBUILDING

New orders rose 5.3 percent and 13.5 percent during the third quarter and first nine months of 2003, respectively, compared to the same periods in the prior year. The number of active communities at September 30, 2003, was 325, an increase of 8.0 percent from September 30, 2002. New orders for the three months ended September 30, 2003 increased 9.8 percent in the North, 10.2 percent in the Southeast and 6.2 percent in the West. New orders decreased 6.8 percent in Texas.

				North		Texas		Southeast		West		Total
For the three months ended September 30,
	New Orders (units)
			2003		1,100		770		1,124		754		3,748
			2002		1,002		826		1,020		710		3,558
	Closings (units)
			2003		1,117		843		1,074		701		3,735
			2002		1,017		904		875		566		3,362
	Average Closing Price (in thousands)
			2003	$	254	$	158	$	209	$	277	$	224
			2002	$	233	$	153	$	192	$	286	$	209
For the nine months ended September 30,
	New Orders (units)
			2003		3,563		2,797		3,770		2,535		12,665
			2002		3,194		2,685		3,217		2,062		11,158
	Closings (units)
			2003		3,239		2,306		2,840		1,939		10,324
			2002		2,910		2,286		2,503		1,349		9,048
	Average Closing Price (in thousands)
			2003	$	253	$	158	$	206	$	266	$	221
			2002	$	228	$	153	$	193	$	279	$	207
	Outstanding Contracts at September 30,
		Units
			2003		2,070		1,450		2,721		1,468		7,709
			2002		1,921		1,470		2,183		1,113		6,687
		Dollars (in millions)
			2003	$	575	$	239	$	594	$	415	$	1,823
			2002	$	467	$	235	$	444	$	306	$	1,452
		Average Price (in thousands)
			2003	$	278	$	165	$	218	$	283	$	236
			2002	$	243	$	160	$	204	$	275	$	217

At September 30, 2003, the Company had outstanding contracts for 7,709 units, representing a 15.3 percent increase over its outstanding contracts at September 30, 2002. 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 September 30, 2003, was $1,823.0 million, an increase of 25.5 percent from September 30, 2002, due, in part, to an 8.8 percent increase in average price.

13

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 September 30,				Nine months ended September 30,
	2003		2002		2003		2002
Revenues	$	850,176	$	713,923	$	2,307,511	$	1,898,167
Gross profit		188,708		150,027		499,038		396,247
Selling, general and administrative expenses		81,086		70,247		238,276		197,975
Interest expense		6,794		2,123		10,195		5,400
Homebuilding pretax earnings	$	100,828	$	77,657	$	250,567	$	192,872

Three months ended September 30, 2003, compared to three months ended September 30, 2002

The homebuilding segment reported pretax earnings of $100.8 million for the third quarter of 2003, compared to $77.7 million for the same period in the prior year. Homebuilding results for the third quarter of 2003 rose from 2002 primarily due to higher closing volume, higher average closing prices and increased margins on homes closed.

Homebuilding revenues increased $136.3 million for the third quarter of 2003, compared to 2002, due to an 11.1 percent increase in closings and a 7.2 percent increase in average closing price. The increase in closings in the third quarter of 2003 was due to a higher backlog at June 30, 2003, and an increase in new home orders during the three months ended September 30, 2003.

Consistent with its policy of managing land investments according to return and risk targets, the Company executed several land sales during the third quarter of 2003. Homebuilding results for the three months ended September 30, 2003 and 2002, respectively, included pretax gains of $1.1 million and $3.0 million from these land sales.

Gross profit margins from home sales averaged 22.5 percent for the third quarter of 2003, compared to 20.9 percent for the third quarter of 2002. This improvement was primarily due to sales prices increasing at a greater rate than costs, which resulted, in part, from cost-saving initiatives.

Selling, general and administrative expenses, as a percentage of revenue, were 9.5 percent for the three months ended September 30, 2003, compared to 9.8 percent for the same period in the prior year. The decrease was primarily due to lower marketing expenses and model home lease costs.

Compared to the third quarter of the previous year, interest expense increased $4.7 million to $6.8 million in the third quarter of 2003. The change was primarily attributable to a $5.1 million pretax loss on the early extinguishment of debt, which was characterized as interest expense, and resulted from the redemption of the $100.0 million 8.25 percent senior subordinated notes due 2008 at a stated call price of 104.125 percent of the principal amount.

Nine months ended September 30, 2003, compared to nine months ended September 30, 2002

The homebuilding segment reported pretax earnings of $250.6 million for the first nine months of 2003, compared to $192.9 million for the same period in the prior year. Homebuilding results for the first nine months of 2003 increased from 2002 primarily due to higher closing volume, higher average closing prices and improved margins on homes closed.

Homebuilding revenues increased 21.6 percent for the nine months ended September 30, 2003, compared to the same period in 2002, due to a 14.1 percent increase in closings and a 6.8 percent rise in average

14

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

closing price. The increase in closings during the first nine months of 2003 was due to a higher backlog at December 31, 2002, and an increase in new home orders during the nine months ended September 30, 2003.

Consistent with its policy of managing land investments according to return and risk targets, the Company executed several land sales during the first nine months of 2003. Homebuilding results for the nine months ended September 30, 2003 and 2002, respectively, included pretax gains of $2.1 million and $5.5 million from these sales.

Gross profit margins from home sales averaged 21.7 percent for the first nine months of 2003 versus 20.9 percent for the first nine months of 2002. This improvement was primarily due to sales prices increasing at a greater rate than costs, which resulted, in part, from cost-saving initiatives.

Selling, general and administrative expenses, as a percentage of revenue, were 10.3 percent for the nine months ended September 30, 2003, compared to 10.4 percent for the same period in the prior year.

Interest expense was $10.2 million for the first nine months of 2003 versus $5.4 million for the same period in the prior year. This increase was attributable to the redemption of the 8.25 percent senior subordinated notes, which resulted in the recognition of a $5.1 million loss on the early extinguishment of debt in the third quarter of 2003; the issuance of $150.0 million of 5.38 percent senior notes in June 2003 prior to the redemption of the 8.25 percent senior subordinated notes; and a reduction in interest earnings on the Company’s average cash balances, partially offset by a rise in capitalized interest, which resulted from increased development activity in a greater number of new communities.

FINANCIAL SERVICES

For the three months ended September 30, 2003, the financial services segment reported pretax earnings of $15.2 million, compared to $12.5 million for the same period in 2002. The increase for the third quarter of 2003 over the same period in the prior year was primarily attributable to higher loan origination and sales volumes.

15

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

Results of operations of the Company’s financial services segment are summarized as follows (in thousands):

				Three months ended September 30,						Nine months ended September 30,
				2003			2002			2003			2002
Revenues
	Net gains on sales of mortgages and mortgage servicing rights			$	13,074		$	11,576		$	40,032		$	30,418
	Title/escrow/insurance				4,766			3,445			12,816			9,205
	Net origination fees				2,828			2,032			7,298			4,106
	Interest
		Mortgage-backed securities and notes receivable			1,031			1,458			3,438			4,835
		Other			297			205			779			639
			Total interest		1,328			1,663			4,217			5,474
	Other				12			96			17			101
		Total revenues			22,008			18,812			64,380			49,304
Expenses
	General and administrative				6,381			5,724			17,872			15,169
	Interest				426			627			1,230			2,016
		Total expenses			6,807			6,351			19,102			17,185
Pretax earnings				$	15,201		$	12,461		$	45,278		$	32,119
Originations (units)					3,058			2,650			8,542			7,043
Ryland Homes origination capture rate					85.3	%		83.3	%		86.2	%		81.7	%
Mortgage-backed securities and notes receivable average balance				$	31,272		$	47,492		$	35,012		$	52,370

Three months ended September 30, 2003, compared to three months ended September 30, 2002

Revenues for the financial services segment increased 17.0 percent to $22.0 million for the third quarter of 2003, compared to the same period in the prior year, due to a 22.4 percent increase in the aggregate dollar value of originations and a 22.6 percent increase in loan sales volume. The number of mortgage originations rose by 15.4 percent during the third quarter of 2003 primarily due to growth in the number of homebuilder closings, as well as to an increase in the capture rate of these closings. The capture rate of mortgages originated for customers of the homebuilding segment rose to 85.3 percent in the third quarter of 2003 from 83.3 percent in the third quarter of 2002.

For the three months ended September 30, 2003, general and administrative expenses were $6.4 million versus $5.7 million for the same period in 2002. This was primarily due to increased incentive compensation, which was related to heightened earnings.

Interest expense decreased 33.3 percent for the three months ended September 30, 2003, compared to the same period in 2002. The decrease in interest expense was primarily due to a continued decline in bonds payable and short-term notes payable, as well as to a decline in average borrowing rates.

Pretax earnings from investment operations were $167,000 for the third quarter of 2003, compared to $409,000 for the same period in 2002, as a result of a declining portfolio due to refinancing activity, partially offset by lower interest rates on underlying debt.

16

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

Nine months ended September 30, 2003, compared to nine months ended September 30, 2002

Revenues for the financial services segment increased 30.6 percent to $64.4 million for the first nine months of 2003, compared to the same period in the prior year, due to a 29.6 percent increase in the aggregate dollar value of originations, a 29.0 percent increase in loan sales volume and higher margins from loan sales. The number of mortgage originations rose by 21.3 percent during the first nine months of 2003 primarily due to an increase in the number of homebuilder closings, as well as to an increase in the capture rate of those closings. The capture rate of mortgages originated for customers of the homebuilding segment rose to 86.2 percent during the first nine months of 2003 from 81.7 percent during the same period in the prior year.

General and administrative expenses were $17.9 million for the nine-month period ended September 30, 2003, versus $15.2 million for the same period in 2002.

Interest expense decreased 40.0 percent for the nine months ended September 30, 2003, compared to the same period in 2002. The decrease in interest expense was primarily due to a continued decline in bonds payable and short-term notes payable, as well as to a decline in average borrowing rates.

Pretax earnings from investment operations were $894,000 for the nine months ended September 30, 2003, compared to $1.6 million for the same period in 2002, as a result of a declining portfolio due to refinancing activity, partially offset by lower interest rates on underlying debt.

CORPORATE

Three months ended September 30, 2003, compared to three months ended September 30, 2002

Corporate expenses were $14.7 million and $11.1 million for the three months ended September 30, 2003 and 2002, respectively. The rise in corporate expenses was due to increased incentive compensation related to an improvement in the Company’s financial results.

Nine months ended September 30, 2003, compared to nine months ended September 30, 2002

Corporate expenses were $40.8 million and $28.2 million for the nine months ended September 30, 2003 and 2002, respectively. The rise in corporate expenses was due to increased incentive compensation related to an improvement in the Company’s financial results.

INCOME TAXES

The income tax amounts represented effective income tax rates of approximately 39.0 percent in 2003 and 40.0 percent in 2002. The decrease in the effective income tax rate in 2003 was due primarily to the reduction of state income taxes resulting from the current mix of income in taxing states and settled audits.

17

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.

The Company decreased its cash balances by $73.0 million and $181.3 million in the nine months ended September 30, 2003 and 2002, respectively. Net earnings generated $155.5 million and $118.1 million in cash during the first nine months of 2003 and 2002, respectively. Cash was invested principally to grow inventory by $265.1 million and $263.4 million, and to repurchase stock of $86.3 million and $76.8 million, during the nine-month periods ended September 30, 2003 and 2002, respectively.

Consolidated inventories owned by the Company increased to $1,363.0 million at September 30, 2003, from $1,100.0 million at December 31, 2002, primarily in support of a significantly higher backlog of homes sold.

During the three and nine months ended September 30, 2003, the Company repurchased 475,000 and approximately 1.5 million shares of its outstanding common stock, respectively. In July 2003, the Board of Directors authorized the repurchase of an additional 1.0 million shares, bringing the current authorization to approximately 1.5 million shares.

The homebuilding segment’s borrowings include senior notes, senior subordinated notes, an unsecured revolving credit facility and nonrecourse secured notes payable. In June 2003, the Company issued $150.0 million of 5.38 percent senior notes, which pay interest semiannually and will mature on June 1, 2008. In July 2003, the net proceeds from this offering were used to fully redeem the $100.0 million aggregate principal from the Company’s 8.25 percent senior subordinated notes due April 1, 2008. The remaining proceeds were used for general corporate purposes. Senior and senior subordinated notes outstanding totaled $540.5 million at September 30, 2003, and $490.5 million at December 31, 2002.

The Company uses its unsecured revolving credit facility to finance increases in its homebuilding inventory and working capital when necessary. In June 2003, the Company amended this agreement, increasing the borrowing capacity to $400.0 million per the provisions of the original agreement. There were no outstanding borrowings under this facility at September 30, 2003 or December 31, 2002. The Company had letters of credit outstanding under this facility which totaled $92.3 million at September 30, 2003, and $86.4 million at December 31, 2002.

To finance land purchases, the Company also uses seller-financed nonrecourse secured notes payable. At September 30, 2003, such notes payable outstanding amounted to $5.2 million, compared to $3.8 million at December 31, 2002.

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 a repurchase agreement facility that provides for borrowings of up to $80.0 million, and a $25.0 million revolving credit facility, which finances investment portfolio securities. At September 30, 2003 and December 31, 2002, the combined borrowings of the financial services segment, outstanding under all agreements, were $30.5 million and $43.1 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

18

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

payments, prepayments and exercises of early redemption provisions. 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.

In 2002, the Company filed a Shelf Registration Statement with the U.S. Securities and Exchange Commission (SEC) for up to $250.0 million of the Company’s debt and equity securities. In June 2003, the Company issued $150.0 million aggregate principal amount of 5.38 percent senior notes pursuant to this Shelf Registration Statement. 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 September 30, 2003, and anticipated cash flows from operations are sufficient to meet its requirements for the foreseeable future.

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. Listed below are significant changes to the Company’s critical accounting policies during the nine months ended September 30, 2003, as compared to those policies disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

In January 2003, the FASB issued FIN 46. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to the majority of the entity’s expected losses and/or receives a majority of the entity’s expected returns, as a result of ownership, contractual or other financial interests in the entity. We believe the accounting for partnerships and land option contracts using the variable interest consolidation methodology is a “critical accounting policy” because the application of FIN 46 requires the use of complex judgment in its application (see Note 12).

19

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, 2002. 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, 2002.

Item 4. CONTROLS AND PROCEDURES

The Company has procedures in place for accumulating and evaluating information necessary to prepare and file reports with the Securities and Exchange Commission. 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 September 30, 2003. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to September 30, 2003, and no corrective actions with regard to significant deficiencies or weaknesses.

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

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 matters and discussions with counsel, management believes that liabilities to the Company arising from these matters will not have a material adverse effect on its financial condition.

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

There were no matters submitted to a vote of security holders during the third quarter of 2003.

20

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

A. Exhibits

10.13	The Ryland Group, Inc. Dreier Supplemental Executive Retirement Plan (Filed herewith)
10.14	The Ryland Group, Inc. Senior Executive Supplemental Retirement 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)

B. Reports on Form 8-K

On October 1, 2003, the Company furnished a Current Report on Form 8-K (Items 9 and 12), which included Regulation FD disclosure, in connection with its announcement of preliminary net new unit orders for the three months ended September 30, 2003.

On October 21, 2003, the Company furnished a Current Report on Form 8-K (Items 9 and 12), which included Regulation FD disclosure, in connection with its announcement of financial results for the three and nine months ended September 30, 2003.

21

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
November 12, 2003	By:	/s/ Gordon A. Milne
Date	Gordon A. Milne
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)
November 12, 2003	By:	/s/ David L. Fristoe
Date	David L. Fristoe
	Senior Vice President, Chief Information Officer, Controller and Chief Accounting Officer
	(Principal Accounting Officer)

22

INDEX OF EXHIBITS

A. Exhibits

Exhibit No.
10.13	The Ryland Group, Inc. Dreier Supplemental Executive Retirement Plan (Filed herewith)
10.14	The Ryland Group, Inc. Senior Executive Supplemental Retirement 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)

23 EX-10.13 3 a94370exv10w13.htm EXHIBIT 10.13

Exhibit 10.13

The Ryland Group, Inc.
Dreier Supplemental Executive Retirement Plan

Effective July 1, 2002

The Ryland Group, Inc.
Dreier Supplemental Executive Retirement Plan

TABLE OF CONTENTS

		Page
ARTICLE 1 Definitions			1
ARTICLE 2 Vesting			3
	2.1 Vesting in Benefits		3
ARTICLE 3 Benefits			3
	3.1 Eligibility for Benefits		3
	3.2 Death Benefit		3
	3.3 Forms of Payment; Elections		4
	3.4 Withdrawal Election		4
	3.5 Committee Discretion		4
	3.6 Withholding and Payroll Taxes		4
ARTICLE 4 Termination, Amendment or Modification of the Agreement			5
	4.1 Termination or Amendment		5
	4.2 Termination of Agreement		5
ARTICLE 5 Other Benefits and Agreements			5
	5.1 Coordination with Other Benefits		5
ARTICLE 6 Administration of this Agreement			5
	6.1 Committee Duties		5
	6.2 Administration Upon Change In Control		5
	6.3 Agents		6
	6.4 Binding Effect of Decisions		6
	6.5 Indemnity of Committee		6
	6.6 Company Information		6
ARTICLE 7 Claims Procedures			6
	7.1 Presentation of Claim		6
	7.2 Notification of Decision		7
	7.3 Review of a Denied Claim		7
	7.4 Decision on Review		7
	7.5 Legal Action		8
	7.6 Named Fiduciary		8
ARTICLE 8 Beneficiary Designation			8

-i-

The Ryland Group, Inc.
Dreier Supplemental Executive Retirement Plan

	8.1 Beneficiary	8
	8.2 Beneficiary Designation; Change; Spousal Consent	8
	8.3 Acknowledgement	8
	8.4 No Beneficiary Designation	8
	8.5 Doubt as to Beneficiary	9
	8.6 Discharge of Obligations	9
ARTICLE 9 Trust		9
	9.1 Establishment of the Trust	9
	9.2 Interrelationship of the Agreement and the Trust	9
	9.3 Deposits to the Trust	9
ARTICLE 10 Miscellaneous		9
	10.1 Status of Agreement	9
	10.2 Unsecured General Creditor	10
	10.3 Company’s Liability	10
	10.4 Nonassignability	10
	10.5 Furnishing Information	10
	10.6 Terms	10
	10.7 Captions	10
	10.8 Governing Law	10
	10.9 Validity	10
	10.10 Notice	10
	10.11 Successors	11
	10.12 Spouse’s Interest	11
	10.13 Incompetent	11
	10.14 Court Order	11
	10.15 Distribution in the Event of Taxation	11
	10.16 Legal Fees To Enforce Rights After Change in Control	12

-ii-

The Ryland Group, Inc.
Dreier Supplemental Executive Retirement Plan

THE RYLAND GROUP, INC.
DREIER SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

     THIS DREIER SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (this “Agreement”) is entered into as of July 1, 2002 between the Ryland Group, Inc. (the “Company”) and R. Chad Dreier (the “Participant”).

RECITALS

A. The Participant is the Chief Executive Officer of the Company, and the Company desires to have the continued services and counsel of the Participant.

B. The purpose of this Agreement is to provide specified benefits to the Participant as more fully described below.

AGREEMENT

NOW THEREFORE, it is mutually agreed as follows:

ARTICLE 1
Definitions

     For purposes hereof, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings:

1.1	“Beneficiary” shall mean one or more persons, trusts, estates or other entities, designated, in accordance with Article 8, that are entitled to receive the Participant’s benefits under this Agreement upon the Participant’s death.
1.2	“Beneficiary Designation Form” shall mean the form established from time to time by the Committee that the Participant completes, signs and returns to the Committee to designate a Beneficiary.
1.3	“Change in Control” shall mean the first to occur of any of the following events:

(a) The acquisition by any person, other than the Company or any employee benefit plan of the Company, of beneficial ownership of 20% or more of the combined voting power of the Company’s then outstanding voting securities;

(b) The first purchase under a tender offer or exchange offer, other than an offer by the Company or any employee benefit plans of the Company, pursuant to which shares of common stock have been purchased;

(c) During any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof, unless the election or nomination for the election by stockholders of the Company of each new director was approved by a vote of at least two-

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The Ryland Group, Inc.
Dreier Supplemental Executive Retirement Plan

thirds of the directors then still in office who were directors at the beginning of such period; or

(d) Approval by stockholders of the Company of a merger, consolidation, liquidation or dissolution of the Company, or the sale of all or substantially all of the assets of the Company.

1.4	“Claimant” shall have the meaning set forth in Section 7.1.
1.5	“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
1.6	“Committee” shall mean the committee described in Article 7.
1.7	“Company” shall mean The Ryland Group, Inc., a Maryland corporation.
1.8	“Compensation Committee” shall mean the Compensation Committee of the Board of Directors of the Company.
1.9	“Death Benefit” shall mean the Participant’s unpaid Vested SERP Benefit (i) payable in equal annual installments over the remaining number of years and in the same amounts as such benefit would have been paid to the Participant had the Participant survived, or (ii) the present value equivalent of such benefit stream payable in a lump sum, calculated using an 8% discount rate.
1.10	“Election Form” shall mean the form upon which the Participant elects the manner of distribution of his SERP Benefit and Death Benefit, and shall be made in such form as the Committee may require, including thereon a power of attorney from the Participant’s community property spouse, if any, authorizing the Participant to act on behalf of such spouse in making the election and agreeing to be irrevocably bound by any such act with respect to any community property interest under this Agreement.
1.11	“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.
1.12	“Retirement” shall mean the voluntary or involuntary termination of the Participant’s employment with the Company for any reason other than death.
1.13	“SERP Benefit” shall mean a benefit in the amount of (i) $2,400,000 per annum, payable in annual installments for a period of 15 years, or (ii) the present value equivalent of such benefit stream payable in a lump sum, calculated using an 8% discount rate.
1.14	“Termination of Employment Without Cause” shall mean an involuntary termination of the Participant’s employment with the Company other than by reason of the Participant’s (i) willful and continued failure to perform the material duties of his position after receiving notice of such failure and being given reasonable opportunity to cure such failure; (ii) willful misconduct which is demonstrably and materially injurious to the Company; or (iii) conviction of a felony. No act or failure to act on the part of the Participant shall be considered “willful” unless it is done or omitted to be done in bad faith or without reasonable belief that the action or omission was in the best interest of the Company.

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The Ryland Group, Inc.
Dreier Supplemental Executive Retirement Plan

1.15 “Trust” shall mean the trust established pursuant to that certain Master Trust Agreement, dated as of November 1, 2002, between the Company and the trustee named therein, as amended from time to time.

1.16 “Vested SERP Benefit” shall mean the Participant’s SERP Benefit multiplied by the applicable vesting percentage set forth in Article 2 of this Agreement.

ARTICLE 2
Vesting

2.1 Vesting in Benefits

(a) General. The Participant shall vest in his SERP Benefit according to the following vesting schedule, provided that he is continuously employed with the Company from July 1, 2002, through the specified date of vesting:

Date of Vesting	Vesting Percentage
December 30, 2002		0	%
December 30, 2003		20	%
December 30, 2004		40	%
December 30, 2005		60	%
December 30, 2006		80	%
December 30, 2007		100	%

(b) Special. Notwithstanding anything to the contrary in this Section 2.1, the Participant shall immediately become 100% vested (if he is not already vested in accordance with the above vesting schedule) in the SERP Benefit upon the occurrence of a Change in Control or if he experiences a Termination of Employment Without Cause.

ARTICLE 3
Benefits

3.1 Eligibility for Benefits

(a) SERP Benefit. Upon Retirement, the Participant shall be eligible to receive his Vested SERP Benefit.

(b) Commencement of SERP Benefit. The payment of the Participant’s Vested SERP Benefit shall commence within sixty (60) days of the later of (i) January 1, 2008, or (ii) the date of the Participant’s Retirement.

3.2 Death Benefit

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The Ryland Group, Inc.
Dreier Supplemental Executive Retirement Plan

(a) Death Benefit. In the event of the Participant’s death before Retirement, or after Retirement but before the Participant’s Vested SERP Benefit has been paid in full, the Participant’s Beneficiary shall receive a Death Benefit.

(b) Commencement of Death Benefit. The Death Benefit shall be paid to the Participant’s Beneficiary no later than sixty (60) days after the date on which the Committee is provided with proof that is satisfactory to the Committee of the Participant’s death.

3.3 Forms of Payment; Elections. The Participant shall elect on an Election Form to have his (i) SERP Benefit paid in a lump sum or in equal annual installments for fifteen (15) years, and (ii) Death Benefit paid in a lump sum or in equal annual installments over the remaining number of years and in the same amounts as such benefit would have been paid to the Participant had the Participant survived. The Participant may change his initial elections or any subsequent elections by submitting new Election Forms to the Committee, provided that any such Election Forms are submitted to and accepted by the Committee in its sole discretion at least one (1) year prior to the date on which the payment of the applicable benefit commences. The Election Forms most recently accepted by the Committee shall govern the payout of the Participant’s SERP Benefit and Death Benefit. If the Participant does not make an election with respect to the form of payment of his SERP Benefit or if his initial election is not submitted in a taxable year prior to the taxable year in which the date of his Retirement falls, then such benefits shall be payable in fifteen (15) equal annual installments. Similarly, if the Participant does not make an election with respect to the form of payment of his Death Benefit, then such benefits shall be paid in a lump sum.

3.4 Withdrawal Election. On or after the date that payments commence under this Agreement, the Participant, or his Beneficiary, as the case may be, may elect to receive all or a percentage of the Participant’s remaining unpaid Vested SERP Benefit payments or Death Benefit payments, in a lump sum, less a penalty as described below. The lump sum payment shall be equal to (i) the present value of the applicable percentage of the Participant’s remaining unpaid Vested SERP Benefit payments or Death Benefit payments, calculated using an 8% discount rate, less (ii) a penalty equal to 10% of the amount computed under clause (i) (the net amount shall be referred to as the “Benefit Amount”). The Participant, or his Beneficiary, shall make this election by giving the Committee advance written notice of the election in a form determined from time to time by the Committee. The Participant, or his Beneficiary, shall be paid the Benefit Amount within sixty (60) days of the election date. In the event that a Participant elects to receive less than 100% of his remaining unpaid Vested SERP Benefit payments or Death Benefit payments as a distribution under this Section, any remaining annual installments payable pursuant to Article 3 shall be adjusted accordingly.

3.5 Committee Discretion. Upon the request of the Participant, the Committee, in its sole discretion and consistent with its established procedures and rules, may consider other forms of benefit payments, or the timing of benefit payments, as it deems necessary and prudent under the circumstances.

3.6 Withholding and Payroll Taxes. The Company shall withhold from any and all benefits made under this Article 3, all federal, state and local income, employment and other taxes required to

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The Ryland Group, Inc.
Dreier Supplemental Executive Retirement Plan

be withheld by the Company in connection with the benefits hereunder, in amounts to be determined in the sole discretion of the Company.

ARTICLE 4
Termination, Amendment or Modification of the Agreement

4.1 Termination or Amendment. This Agreement may be terminated or amended only by a written agreement executed by the Company and the Participant.

4.2 Termination of Agreement. Unless otherwise modified pursuant to Section 4.1 above, this Agreement shall terminate upon the full payment of the Participant’s Vested SERP Benefit or Death Benefit in accordance with Article 3.

ARTICLE 5
Other Benefits and Agreements

5.1 Coordination with Other Benefits. The benefits provided for the Participant under this Agreement are in addition to any other benefits available to such Participant under any other plan or program for employees of the Company. This Agreement shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided.

ARTICLE 6
Administration of the Agreement

6.1 Committee Duties. This Agreement shall be administered by a Committee, which shall consist of the Compensation Committee, or such committee as the Compensation Committee shall appoint. The Committee shall have the discretion and authority to (i) make, amend, interpret and enforce all appropriate rules and regulations for the administration of this Agreement, (ii) make benefit entitlement determinations, and (iii) decide or resolve any and all questions including interpretations of this Agreement, as may arise in connection with the Agreement.

6.2 Administration Upon Change In Control. For purposes of this Agreement, the Committee shall be the “Administrator” at all times prior to the occurrence of a Change in Control. Upon and after the occurrence of a Change in Control, the “Administrator” shall be an independent third party selected by the Compensation Committee of the Board of Directors of the Company, as such committee was constituted prior to the Change in Control. The Administrator shall have the discretionary power to determine all questions arising in connection with the administration of the Agreement and the interpretation of the Agreement and Trust including, but not limited to benefit entitlement determinations; provided, however, upon and after the occurrence of a Change in Control, the Administrator shall have no power to direct the investment of Trust assets or select any investment manager or custodial firm for the Trust. Upon and after the occurrence of a Change in Control, the Company must: (1) pay all reasonable administrative expenses and fees of the Administrator; (2) indemnify the Administrator against any costs, expenses and liabilities including, without limitation, attorney’s fees and expenses arising in connection with

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The Ryland Group, Inc.
Dreier Supplemental Executive Retirement Plan

the performance of the Administrator hereunder, except with respect to matters resulting from the gross negligence or willful misconduct of the Administrator or its employees or agents; and (3) supply full and timely information to the Administrator on all matters relating to the Agreement, the Trust, the Participant and his Beneficiaries, the Participant’s benefits under this Agreement, the date and circumstances of the Participant’s termination of employment or death, and such other pertinent information as the Administrator may reasonably require. Upon and after a Change in Control, the Administrator may be terminated (and a replacement appointed) only with the approval of the Compensation Committee of the Board of Directors of the Company, as such committee was constituted prior to a Change in Control. Upon and after a Change in Control, the Administrator may not be terminated by the Company. If the Administrator resigns or is removed and no successor is appointed and approved by the Compensation Committee of the Board of Directors of the Company, as such committee was constituted prior to a Change in Control, the Participant may apply to a court of competent jurisdiction for appointment of a successor third-party administrator.

6.3 Agents. In the administration of this Agreement, the Committee may employ agents and delegate to them such administrative duties as it sees fit, (including acting through a duly appointed representative), and may from time to time consult with counsel who may be counsel to the Company.

6.4 Binding Effect of Decisions. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Agreement and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Agreement.

6.5 Indemnity of Committee. The Company shall indemnify and hold harmless the members of the Committee against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Agreement, except in the case of willful misconduct by the Committee or any of its members.

6.6 Company Information. To enable the Committee to perform its functions, the Company shall supply full and timely information to the Committee on all matters relating to the compensation of the Participant, the date and circumstances of the Participant’s termination of employment or death, and such other pertinent information as the Committee may reasonably require.

ARTICLE 7
Claims Procedures

7.1 Presentation of Claim. The Participant or his Beneficiary (such Participant or Beneficiary being referred to below as a “Claimant”) may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant pursuant to this Agreement. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within sixty (60) days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant.

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The Ryland Group, Inc.
Dreier Supplemental Executive Retirement Plan

7.2 Notification of Decision. The Committee shall consider a Claimant’s claim within a reasonable time, but no later than ninety (90) days after receiving the claim. If the Committee determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial ninety (90) day period. In no event shall such extension exceed a period of ninety (90) days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render the benefit determination. The Committee shall notify the Claimant in writing:

(a) that the Claimant’s requested determination has been made, and that the claim has been allowed in full; or

(b) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant’s requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant:

(i) the specific reason(s) for the denial of the claim, or any part of it;

(ii) specific reference(s) to pertinent provisions of the Agreement upon which such denial was based;

(iii) a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary;

(iv) an explanation of the claim review procedure set forth in Section 7.3 below; and

(v) a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

7.3 Review of a Denied Claim. On or before sixty (60) days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant’s duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. The Claimant (or the Claimant’s duly authorized representative):

(a) may, upon request and free of charge, have reasonable access to, and copies of, all documents, records and other information relevant to the claim for benefits;

(b) may submit written comments or other documents; and/or

(c) may request a hearing, which the Committee, in its sole discretion, may grant.

7.4 Decision on Review. The Committee shall render its decision on review promptly, and no later than sixty (60) days after the Committee receives the Claimant’s written request for a review of the denial of the claim. If the Committee determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial sixty (60) day period. In no event shall such extension exceed a period of sixty (60) days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render the benefit determination. In rendering its decision, the

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The Ryland Group, Inc.
Dreier Supplemental Executive Retirement Plan

Committee shall take into account all comments, documents, records and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. The decision must be written in a manner calculated to be understood by the Claimant, and it must contain:

(a) specific reasons for the decision;

(b) specific reference(s) to the pertinent Agreement provisions upon which the decision was based;

(c) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimant’s claim for benefits; and

(d) a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a).

7.5 Legal Action. A Claimant’s compliance with the foregoing provisions of this Article 7 is a mandatory prerequisite to a Claimant’s right to commence any legal action with respect to any claim for benefits under this Agreement.

7.6 Named Fiduciary. The Committee shall be the named fiduciary, within the meaning of ERISA, with respect to this Agreement solely for purposes of this Article 7.

ARTICLE 8
Beneficiary Designation

8.1 Beneficiary. The Participant shall have the right, at any time, to designate his Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable under the Agreement to a beneficiary upon the Participant’s death. The Beneficiary designated under this Agreement may be the same as or different from the Beneficiary designation under any other plan of the Company in which the Participant participates.

8.2 Beneficiary Designation; Change; Spousal Consent. The Participant shall designate his Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its designated agent. The Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee’s rules and procedures, as in effect from time to time. If the Participant names someone other than his or her spouse as a Beneficiary and if the Committee requires that spousal consent be obtained with respect to the Participant, a spousal consent, in the form designated by the Committee, must be signed by the Participant’s spouse and returned to the Committee. Upon the acceptance by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be cancelled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee prior to his death.

8.3 Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received, accepted and acknowledged in writing by the Committee or its designated agent.

8.4 No Beneficiary Designation. If the Participant fails to designate a Beneficiary as provided in Sections 8.2 and 8.3 above or, if all designated Beneficiaries predecease the Participant or die prior

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The Ryland Group, Inc.
Dreier Supplemental Executive Retirement Plan

to complete distribution of the Participant’s benefits, then the Participant’s spouse shall be the designated Beneficiary. If the Participant has no surviving spouse, the benefits remaining under the Agreement shall be payable to the executor or personal representative of the Participant’s estate.

8.5 Doubt as to Beneficiary. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Agreement, the Committee shall have the right, exercisable in its discretion, to cause the Company to withhold such payments until this matter is resolved to the Committee’s satisfaction.

8.6 Discharge of Obligations. The payment of benefits under this Agreement to a Beneficiary shall fully and completely discharge the Company and the Committee from all further obligations under this Agreement with respect to the Participant, and this Agreement shall terminate upon such full payment of benefits.

ARTICLE 9
Trust

9.1 Establishment of the Trust. In order to provide assets from which to fulfill the obligations to the Participant and his beneficiaries under the Agreement, the Company shall establish a Trust by a trust agreement with a third party, the trustee, to which the Company may, in its discretion, contribute cash or other property, including securities issued by the Company, to provide for the benefit payments under the Agreement.

9.2 Interrelationship of the Agreement and the Trust. The provisions of this Agreement shall govern the rights of the Participant to receive distributions. The provisions of the Trust shall govern the rights of the Company, the Participant and the creditors of the Company to the assets transferred to the Trust. The Company shall at all times remain liable to carry out its obligations under the Agreement. The Company’s obligations under the Agreement may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution shall reduce the Company’s obligations under this Agreement.

9.3 Deposits to the Trust. The Company shall deposit into the Trust an amount of cash or, in its discretion, other assets, including if desirable securities issued by the Company, equal to $3.4 million per annum for the five (5) year period commencing January 1, 2003. Immediately before the closing of any transaction constituting a Change of Control, the Company shall deposit into the Trust such amount of cash and other assets, if any, sufficient in amount to cause the total value of the assets held in such Trust at that time to equal the present value of the SERP Benefit calculated using an 8% discount rate.

ARTICLE 10
Miscellaneous

10.1 Status of Agreement. This Agreement is intended to be a plan that is not qualified within the meaning of Code Section 401(a) and that is “unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees” within the meaning of ERISA Sections 201(2), 301(a)(3) and

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The Ryland Group, Inc.
Dreier Supplemental Executive Retirement Plan

401(a)(1). This Agreement shall be administered and interpreted to the extent possible in a manner consistent with that intent.

10.2 Unsecured General Creditor. The Participant and his Beneficiaries, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of the Company. Any and all of the Company’s assets shall be, and remain, the general, unpledged unrestricted assets of the Company.

10.3 Company’s Liability. The Company’s liability for the payment of benefits shall be defined only by this Agreement, as entered into between the Company and the Participant.

10.4 Nonassignability. Neither the Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by the Participant or any other person, nor be transferable by operation of law in the event of the Participant’s or any other person’s bankruptcy or insolvency.

10.5 Furnishing Information. The Participant or his Beneficiary will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of this Agreement and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary.

10.6 Terms. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and wherever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply.

10.7 Captions. The captions of the articles, sections and paragraphs of this Agreement are for convenience only and shall not control or affect the meaning or construction of any of its provisions.

10.8 Governing Law. Subject to ERISA, the provisions of this Agreement shall be construed and interpreted according to the internal laws of the State of Maryland without regard to its conflict of laws principles.

10.9 Validity. In case any provision of this Agreement shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Agreement shall be construed and enforced as if such illegal and invalid provision had never been inserted herein.

10.10 Notice. Any notice or filing required or permitted to be given to the Committee under this Agreement shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below:

SERP Committee

The Ryland Group, Inc.

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The Ryland Group, Inc.
Dreier Supplemental Executive Retirement Plan

24025 Park Sorrento

Suite 400

Calabasas, California 91302

Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.

Any notice or filing required or permitted to be given to the Participant under this Agreement shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant.

10.11 Successors. The provisions of this Agreement shall bind and inure to the benefit of the Company and its successors and assigns and the Participant and his Beneficiary.

10.12 Spouse’s Interest. The interest in the benefits hereunder of a spouse of the Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse’s will, nor shall such interest pass under the laws of intestate succession.

10.13 Incompetent. If the Committee determines in its discretion that a benefit under this Agreement is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person’s property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetency, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant’s Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Agreement for such payment amount.

10.14 Court Order. The Committee is authorized to make any payments directed by court order in any action in which the Committee has been named as a party.

10.15 Distribution in the Event of Taxation

(a) In General. If, for any reason, all or any portion of the Participant’s benefit under this Agreement becomes taxable to the Participant prior to receipt, the Participant may petition the Committee for a distribution of that portion of his or her benefit that has become taxable. Upon the grant of such a petition, which grant shall not be unreasonably withheld, the Company shall distribute to the Participant immediately available funds in an amount equal to the taxable portion of his or her benefit (which amount shall not exceed the Participant’s unpaid Vested SERP Benefit under the Agreement). If the petition is granted, the tax liability distribution shall be made within ninety (90) days of the date when the Participant’s petition is granted. Such a distribution shall affect and reduce the benefits to be paid under this Agreement.

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The Ryland Group, Inc.
Dreier Supplemental Executive Retirement Plan

(b) Trust. If the Trust terminates in accordance with its terms and benefits are distributed from the Trust to the Participant or his Beneficiary in accordance therewith, the Participant’s benefits under this Agreement shall be reduced to the extent of such distributions.

10.16 Legal Fees To Enforce Rights After Change in Control. The Company is aware that upon the occurrence of a Change in Control, the Board or the board of directors of the Company (which might then be composed of new members) or a shareholder of the Company or of any successor corporation or affiliate of a successor corporation might then cause or attempt to cause the Company or such successor to refuse to comply with its obligations under the Agreement and might cause or attempt to cause the Company to institute, or may institute, litigation seeking to deny the Participant the benefits intended under the Agreement. In these circumstances, the purpose of the Agreement could be frustrated. Accordingly, if, following a Change in Control, it should appear to the Participant that the Company or any successor corporation has failed to comply with any of its obligations under the Agreement or any agreement thereunder or, if the Company or any other person takes any action to declare the Agreement void or unenforceable or institutes any litigation or other legal action designed to deny, diminish or to recover from the Participant the benefits intended to be provided, then the Company irrevocably authorizes such Participant to retain counsel of his choice at the expense of the Company to represent such Participant in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any director, officer, shareholder, other person or entity affiliated with the Company or any successor corporation or affiliate of a successor corporation thereto in any jurisdiction.

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The Ryland Group, Inc.
Dreier Supplemental Executive Retirement Plan

IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date and year indicated below.

“Company”
The Ryland Group, Inc., a Maryland corporation

By:  /s/ Robert J. Cunnion, III

Robert J. Cunnion, III

Senior Vice President

Attest:  /s/ Timothy J. Geckle

Timothy J. Geckle

Secretary

Date: July 1, 2002

“Participant”
R. Chad Dreier

/s/ R. Chad Dreier

Date: July 1, 2002

-13- EX-10.14 4 a94370exv10w14.htm EXHIBIT 10.14

Exhibit 10.14

The Ryland Group, Inc.
Senior Executive Supplemental Retirement Plan
Master Plan Document

Effective July 1, 2003

The Ryland Group, Inc.
Senior Executive Supplemental Retirement Plan
Master Plan Document

TABLE OF CONTENTS

		Page
ARTICLE 1 Definitions			1
ARTICLE 2 Vesting			3
	2.1 Vesting in Benefits		3
ARTICLE 3 Benefits			3
	3.1 Eligibility for Benefits		3
	3.2 Death Benefit		4
	3.3 Lump Sum Payment and Change of Commencement Date		4
	3.4 Withdrawal Election		4
	3.5 Committee Discretion		5
	3.6 Withholding and Payroll Taxes		5
ARTICLE 4 Termination, Amendment or Modification of the Plan			5
	4.1 Termination or Amendment		5
	4.2 Termination of Agreement		5
ARTICLE 5 Other Benefits and Agreements			5
	5.1 Coordination with Other Benefits		5
ARTICLE 6 Administration of this Plan			5
	6.1 Committee Duties		5
	6.2 Administration Upon Change in Control		6
	6.3 Agents		6
	6.4 Binding Effect of Decisions		6
	6.5 Indemnity of Committee		6
	6.6 Company Information		7
ARTICLE 7 Claims Procedures			7
	7.1 Presentation of Claim		7
	7.2 Notification of Decision		7
	7.3 Review of a Denied Claim		8
	7.4 Decision on Review		8
	7.5 Legal Action		8
	7.6 Named Fiduciary		8

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The Ryland Group, Inc.
Senior Executive Supplemental Retirement Plan
Master Plan Document

ARTICLE 8 Beneficiary Designation		8
	8.1 Beneficiary	8
	8.2 Beneficiary Designation; Change; Spousal Consent	9
	8.3 Acknowledgement	9
	8.4 No Beneficiary Designation	9
	8.5 Doubt as to Beneficiary	9
	8.6 Discharge of Obligations	9
ARTICLE 9 Trust		9
	9.1 Establishment of the Trust	9
	9.2 Interrelationship of the Plan and the Trust	9
	9.3 Deposits	10
ARTICLE 10 Miscellaneous		10
	10.1 Status of Plan	10
	10.2 Unsecured General Creditor	10
	10.3 Company’s Liability	10
	10.4 Nonassignability	10
	10.5 Furnishing Information	10
	10.6 Terms	11
	10.7 Captions	11
	10.8 Governing Law	11
	10.9 Validity	11
	10.10 Notice	11
	10.11 Successors	11
	10.12 Spouse’s Interest	11
	10.13 Incompetent	11
	10.14 Court Order	12
	10.15 Distribution in the Event of Taxation	12
	10.16 Legal Fees To Enforce Rights After Change in Control	12

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The Ryland Group, Inc.
Senior Executive Supplemental Retirement Plan
Master Plan Document

THE RYLAND GROUP, INC.
SENIOR EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
Effective July 1, 2003

     The purpose of this Plan is to provide specified benefits to a select group of management and highly compensated employees who contribute materially to the continued growth, development and future business success of the Company. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA.

ARTICLE 1
Definitions

     For purposes hereof, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings:

1.1 “Beneficiary” shall mean one or more persons, trusts, estates or other entities, designated, in accordance with Article 8, that are entitled to receive the Participant’s benefits under this Agreement upon the Participant’s death.

1.2 “Beneficiary Designation Form” shall mean the form established from time to time by the Committee that the Participant completes, signs and returns to the Committee to designate a Beneficiary.

1.3 “Change in Control” shall mean the first to occur of any of the following events:

(a) The acquisition by any person, other than the Company or any employee benefit plan of the Company, of beneficial ownership of 20% or more of the combined voting power of the Company’s then outstanding voting securities;

(b) The first purchase under a tender offer or exchange offer, other than an offer by the Company or any employee benefit plans of the Company, pursuant to which shares of common stock have been purchased;

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

(d) Approval by stockholders of the Company of a merger, consolidation, liquidation or dissolution of the Company, or the sale of all or substantially all of the assets of the Company.

1.4 “Claimant” shall have the meaning set forth in Section 7.1.

1.5 “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

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The Ryland Group, Inc.
Senior Executive Supplemental Retirement Plan
Master Plan Document

1.6 “Committee” shall mean the committee described in Article 6.

1.7 “Company” shall mean The Ryland Group, Inc., a Maryland corporation.

1.8 “Compensation Committee” shall mean the Compensation Committee of the Board of Directors of the Company.

1.9 “Death Benefit” shall mean a benefit described in Section 3.2(c)

1.10 “Effective Date” of the Plan is July 1, 2003.

1.11 “Election Form” shall mean the form upon which the Participant elects the manner of distribution of his or her Vested SERP Benefit and/or Death Benefit, and shall be made in such form as the Committee may require.

1.12 “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

1.13 “Initial Participants” are Mark L. Beisswanger, Robert J. Cunnion, III, Eric E. Elder, David L. Fristoe, John M. Garrity, Timothy J. Geckle, Cathey S. Lowe, Gordon A. Milne, Daniel G. Schreiner and Kipling W. Scott.

1.14 “Involuntary Termination of Employment Without Cause” shall mean an involuntary termination of the Participant’s employment with the Company other than by reason of the Participant’s (i) willful and continued failure to perform the material duties of his or her position after receiving notice of such failure and being given reasonable opportunity to cure such failure; (ii) willful misconduct which is demonstrably and materially injurious to the Company; or (iii) conviction of a felony. No act or failure to act on the part of the Participant shall be considered “willful” unless it is done or omitted to be done in bad faith or without reasonable belief that the action or omission was in the best interest of the Company.

1.15 “Lump Sum” shall mean the present value equivalent of a Participant’s remaining unpaid Vested SERP Benefit or Death Benefit, as the case may be, using an 8% discount rate.

1.16 “Participant” shall mean any Employee (i) who is selected to participate in the Plan, (ii) who signs an Election Form and a Beneficiary Designation Form, and (iii) whose participation in the Plan has not terminated. As of the Effective Date of the Plan, the Participants are the Initial Participants. A spouse or former spouse of a Participant, as such, shall not be treated as a Participant in the Plan or have a SERP Benefit under the Plan, even if he or she has an interest in the Participant’s benefits under the Plan as a beneficiary, or as a result of applicable law or property settlements resulting from legal separation or divorce.

1.17 “Plan” shall mean the Company’s Senior Executive Supplemental Retirement Plan, which shall be evidenced by this instrument, as it may be amended from time to time.

1.18 “SERP Benefit” shall mean a benefit described in Section 3.1(c)

1.19 “Termination of Employment” shall mean the severing of employment with the Company, voluntarily or involuntarily, for any reason.

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The Ryland Group, Inc.
Senior Executive Supplemental Retirement Plan
Master Plan Document

1.20 “Trust” shall mean the trust established pursuant to that certain Master Trust Agreement, dated as of November 1, 2002, between the Company and the trustee named therein, as amended from time to time.

1.21 “Vested SERP Benefit” shall mean a benefit described in Section 3.1(c)

ARTICLE 2
Vesting

2.1 Vesting in Benefits

(a) General. The Participant shall vest in his or her SERP Benefit according to the following vesting schedule, provided that he or she is continuously employed with the Company from his or her commencement of participation in the Plan (which for Initial Participants is July 1, 2003) through the specified date of vesting:

Anniversary of Plan
Participation	Vesting Percentage
1st Year		20	%
2nd Year		40	%
3rd Year		60	%
4th Year		80	%
5th Year		100	%

(b) Special. For the Initial Participants in the Plan, the “Anniversary of Plan Participation” shall be determined using a Plan Participation date of July 1, 2003 such that the Anniversary of Plan Participation for “1st Year” is July 1, 2004, for “2nd Year” is July 1, 2005, for “3rd Year” is July 1, 2006, for “4th Year “ is July 1, 2007 and for “5th Year” is July 1, 2008. Notwithstanding anything to the contrary in this Section 2.1, the Participant shall immediately become 100% vested (if he or she is not already vested in accordance with the above vesting schedule) in his or her SERP Benefit upon the occurrence of a Change in Control or if he or she experiences an Involuntary Termination of Employment Without Cause.

ARTICLE 3
Benefits

3.1 Eligibility for Benefits

(a) SERP Benefit. Upon Termination of Employment, the Participant shall be eligible to receive his or her Vested SERP Benefit starting on the date specified below.

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The Ryland Group, Inc.
Senior Executive Supplemental Retirement Plan
Master Plan Document

(b) Commencement of SERP Benefit. The payment of the Participant’s Vested SERP Benefit shall commence within sixty (60) days of January 1 following the Participant’s 60th birthday or such later date, as elected by the Participant at the time of his or her commencement of participation in the Plan, that is not later than January 1 following his or her 65th birthday.

(c) SERP Benefit Amount. A Participant’s “SERP Benefit” is a benefit in the form of 15 annual payments in the amount of $150,000 each. A Participant’s “Vested SERP Benefit” is the benefit specified in the preceding sentence multiplied for each payment by the applicable vesting percentage set forth in Article 2 of this Plan.

3.2 Death Benefit

(a) Death Benefit. In the event that the Participant dies before his or her Vested SERP Benefit has been paid in full, the Participant’s Beneficiary shall receive a Death Benefit.

(b) Commencement of Death Benefit. The Death Benefit shall be paid to the Participant’s Beneficiary commencing no later than sixty (60) days after the date on which the Participant would have otherwise received the next SERP Benefit payment had he or she lived; provided, however that such Death Benefit payment shall commence only if the Committee receives proof that is satisfactory to the Committee of the Participant’s death prior to that scheduled SERP Benefit payment date. If such proof is not timely received, the Death Benefit shall commence no later than sixty (60) days after such proof is received.

(c) Death Benefit Amount. The “Death Benefit” paid to a Participant’s beneficiary as a result of the Participant’s death shall be a benefit in the form of the Participant’s remaining unpaid Vested SERP Benefit.

3.3 Lump Sum Payment and Change of Commencement Date. In lieu of the forms of payment set forth in Sections 3.1 and 3.2 above, the Participant may elect on an Election Form to have his or her (i) Vested SERP Benefit paid in a Lump Sum, and/or (ii) his or her Death Benefit paid in a Lump Sum. Subsequent to any initial election, the Participant may change the payment commencement day or the form of benefit payment (i.e., lump sum or 15 annual payments) by submitting a new Election Form to the Committee, provided that any such Election Form is submitted to and accepted by the Committee in its sole discretion at least one (1) year prior to the date on which the payment of the applicable benefit would have commenced without the new election. The Election Form most recently accepted by the Committee shall govern the payout of the Participant’s Vested SERP Benefit and Death Benefit. If a Participant’s election to change the commencement date of benefit payments or the form of benefit payments is not timely submitted, then such change election shall be deemed void.

3.4 Withdrawal Election. On or after the date that payments commence under this Plan, the Participant, or his or her Beneficiary, as the case may be, may elect to receive all or a percentage of the Participant’s remaining unpaid Vested SERP Benefit payments or Death Benefit payments,

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The Ryland Group, Inc.
Senior Executive Supplemental Retirement Plan
Master Plan Document

in a Lump Sum, less a penalty equal to 10% of the Lump Sum amount (the net amount shall be referred to as the “Benefit Amount”). The Participant, or his or her Beneficiary, shall make this election by giving the Committee advance written notice of the election in a form determined from time to time by the Committee. The Participant, or his or her Beneficiary, shall be paid the Benefit Amount within sixty (60) days of the election date. In the event that a Participant elects to receive less than 100% of his or her remaining unpaid Vested SERP Benefit payments or Death Benefit payments as a distribution under this Section, any remaining annual installments payable pursuant to Article 3 shall be adjusted accordingly.

3.5 Committee Discretion. Upon the request of the Participant, the Committee, in its sole discretion and consistent with its established procedures and rules, may consider other forms of benefit payments, or the timing of benefit payments, as it deems necessary and prudent under the circumstances.

3.6 Withholding and Payroll Taxes. The Company shall withhold from any and all benefits made under this Article 3, all federal, state and local income, employment and other taxes required to be withheld by the Company in connection with the benefits hereunder, in amounts to be determined in the sole discretion of the Company.

ARTICLE 4
Termination, Amendment or Modification of the Plan

4.1 Termination or Amendment. This Agreement may be amended or terminated only by a written agreement executed by both the Company and all of the current Participants.

4.2 Termination of Agreement. Unless otherwise modified pursuant to Section 4.1 above, this Plan shall terminate upon the full payment to all Participants of all Participants’ Vested SERP Benefits or Death Benefits in accordance with Article 3.

ARTICLE 5
Other Benefits and Agreements

5.1 Coordination with Other Benefits. The benefits provided for the Participant under this Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Company. This Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided.

ARTICLE 6
Administration of the Plan

6.1 Committee Duties. This Plan shall be administered by a Committee, which shall consist of the Compensation Committee, or such committee as the Compensation Committee shall appoint. The Committee shall have the discretion and authority to (i) make, amend, interpret and enforce all

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The Ryland Group, Inc.
Senior Executive Supplemental Retirement Plan
Master Plan Document

appropriate rules and regulations for the administration of this Plan, (ii) make benefit entitlement determinations, and (iii) decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan.

6.2 Administration Upon Change in Control. For purposes of this Plan, the Committee shall be the “Administrator” at all times prior to the occurrence of a Change in Control. Upon and after the occurrence of a Change in Control, the “Administrator” shall be an independent third party selected by the Compensation Committee of the Board of Directors of the Company, as such Compensation Committee was constituted prior to the Change in Control. The Administrator shall have the discretionary power to determine all questions arising in connection with the administration of the Plan and the interpretation of the Plan and Trust including, but not limited to benefit entitlement determinations; provided, however, upon and after the occurrence of a Change in Control, the Administrator shall have no power to direct the investment of Trust assets or select any investment manager or custodial firm for the Trust. Upon and after the occurrence of a Change in Control, the Company must: (1) pay all reasonable administrative expenses and fees of the Administrator; (2) indemnify the Administrator against any costs, expenses and liabilities including, without limitation, attorney’s fees and expenses arising in connection with the performance of the Administrator hereunder, except with respect to matters resulting from the gross negligence or willful misconduct of the Administrator or its employees or agents; and (3) supply full and timely information to the Administrator on all matters relating to the Plan, the Trust, the Participant and his or her Beneficiaries, the Participant’s benefits under this Plan, the date and circumstances of the Participant’s termination of employment or death, and such other pertinent information as the Administrator may reasonably require. Upon and after a Change in Control, the Administrator may be terminated (and a replacement appointed) only with the approval of the Compensation Committee of the Board of Directors of the Company, as such Compensation Committee was constituted prior to a Change in Control. Upon and after a Change in Control, the Administrator may not be terminated by the Company. If the Administrator resigns or is removed and no successor is appointed and approved by the Compensation Committee of the Board of Directors of the Company, as such Compensation Committee was constituted prior to a Change in Control, the Participant may apply to a court of competent jurisdiction for appointment of a successor third-party administrator.

6.3 Agents. In the administration of this Plan, the Committee may employ agents and delegate to them such administrative duties as it sees fit, (including acting through a duly appointed representative), and may from time to time consult with counsel who may be counsel to the Company.

6.4 Binding Effect of Decisions. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan.

6.5 Indemnity of Committee. The Company shall indemnify and hold harmless the members of the Committee against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee or any of its members.

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The Ryland Group, Inc.
Senior Executive Supplemental Retirement Plan
Master Plan Document

6.6 Company Information. To enable the Committee to perform its functions, the Company shall supply full and timely information to the Committee on all matters relating to the compensation of the Participant, the date and circumstances of the Participant’s termination of employment or death, and such other pertinent information as the Committee may reasonably require.

ARTICLE 7
Claims Procedures

7.1 Presentation of Claim. The Participant or his or her Beneficiary (such Participant or Beneficiary being referred to below as a “Claimant”) may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant pursuant to this Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within sixty (60) days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant.

7.2 Notification of Decision. The Committee shall consider a Claimant’s claim within a reasonable time, but no later than ninety (90) days after receiving the claim. If the Committee determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial ninety (90) day period. In no event shall such extension exceed a period of ninety (90) days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render the benefit determination. The Committee shall notify the Claimant in writing:

(a) that the Claimant’s requested determination has been made, and that the claim has been allowed in full; or

(b) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant’s requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant:

(i) the specific reason(s) for the denial of the claim, or any part of it;

(ii) specific reference(s) to pertinent provisions of the Plan upon which such denial was based;

(iii) a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary;

(iv) an explanation of the claim review procedure set forth in Section 7.3 below; and

(v) a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

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The Ryland Group, Inc.
Senior Executive Supplemental Retirement Plan
Master Plan Document

7.3 Review of a Denied Claim. On or before sixty (60) days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant’s duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. The Claimant (or the Claimant’s duly authorized representative):

(a) may, upon request and free of charge, have reasonable access to, and copies of, all documents, records and other information relevant to the claim for benefits;

(b) may submit written comments or other documents; and/or

(c) may request a hearing, which the Committee, in its sole discretion, may grant.

7.4 Decision on Review. The Committee shall render its decision on review promptly, and no later than sixty (60) days after the Committee receives the Claimant’s written request for a review of the denial of the claim. If the Committee determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial sixty (60) day period. In no event shall such extension exceed a period of sixty (60) days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render the benefit determination. In rendering its decision, the Committee shall take into account all comments, documents, records and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. The decision must be written in a manner calculated to be understood by the Claimant, and it must contain:

(a) specific reasons for the decision;

(b) specific reference(s) to the pertinent Plan provisions upon which the decision was based;

(c) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimant’s claim for benefits; and

(d) a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a).

7.5 Legal Action. A Claimant’s compliance with the foregoing provisions of this Article 7 is a mandatory prerequisite to a Claimant’s right to commence any legal action with respect to any claim for benefits under this Plan.

7.6 Named Fiduciary. The Committee shall be the named fiduciary, within the meaning of ERISA, with respect to this Plan solely for purposes of this Article 7.

ARTICLE 8
Beneficiary Designation

8.1 Beneficiary. The Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable under the Plan to a beneficiary upon the Participant’s death. The Beneficiary designated under this Plan may be

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The Ryland Group, Inc.
Senior Executive Supplemental Retirement Plan
Master Plan Document

the same as or different from the Beneficiary designation under any other plan of the Company in which the Participant participates.

8.2 Beneficiary Designation; Change; Spousal Consent. The Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its designated agent. The Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee’s rules and procedures, as in effect from time to time. If the Participant names someone other than his or her spouse as a Beneficiary and if the Committee requires that spousal consent be obtained with respect to the Participant, a spousal consent, in the form designated by the Committee, must be signed by the Participant’s spouse and returned to the Committee. Upon the acceptance by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be cancelled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee prior to his or her death.

8.3 Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received, accepted and acknowledged in writing by the Committee or its designated agent.

8.4 No Beneficiary Designation. If the Participant fails to designate a Beneficiary as provided in Sections 8.2 and 8.3 above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant’s benefits, then the Participant’s spouse shall be the designated Beneficiary. If the Participant has no surviving spouse, the benefits remaining under the Plan shall be payable to the executor or personal representative of the Participant’s estate.

8.5 Doubt as to Beneficiary. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to cause the Company to withhold such payments until this matter is resolved to the Committee’s satisfaction.

8.6 Discharge of Obligations. The payment of benefits under this Plan to a Beneficiary shall fully and completely discharge the Company and the Committee from all further obligations under this Plan with respect to the Participant, and this Plan shall terminate upon such full payment of benefits.

ARTICLE 9
Trust

9.1 Establishment of the Trust. The Company shall establish the Trust. In order to provide the cash payments needed to fulfill the obligations to Participants under the Plan, the Company shall at least annually transfer over to the Trust the amount of cash or other property, including securities, to provide for all anticipated benefit payments under the Plan. In the event of a Change in Control, the Company shall immediately transfer over to the Trust the amount of cash needed to provide for all benefit payments required under Articles 2 and 3 for all Participants, including in connection with Section 2.1(b)

9.2 Interrelationship of the Plan and the Trust. The provisions of this Plan shall govern the rights of the Participant to receive distributions. The provisions of the Trust shall govern the rights of the

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The Ryland Group, Inc.
Senior Executive Supplemental Retirement Plan
Master Plan Document

Company, the Participant and the creditors of the Company to the assets transferred to the Trust. The Company shall at all times remain liable to carry out its obligations under the Plan. The Company’s obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution shall reduce the Company’s obligations under this Plan.

9.3 Deposit. The Company shall deposit into the Trust an amount of cash or other assets, including securities, equal to all anticipated benefits and payments under the Plan. Immediately upon a Change in Control, the Company shall deposit into the Trust the amount of cash or other assets sufficient in amount to cause the total value of cash or other assets in the Trust to equal the present value of all payments of all SERP Benefits to all Participants under Articles 2 and 3, including Section 2.1(b), using an 8% discount rate.

ARTICLE 10
Miscellaneous

10.1 Status of Plan. This Plan is intended to be a plan that is not qualified within the meaning of Code Section 401(a) and that is “unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees” within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). This Plan shall be administered and interpreted to the extent possible in a manner consistent with that intent.

10.2 Unsecured General Creditor. The Participant and his or her Beneficiaries, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of the Company. Any and all of the Company’s assets shall be, and remain, the general, unpledged unrestricted assets of the Company.

10.3 Company’s Liability. The Company’s liability for the payment of benefits shall be defined only by this Plan.

10.4 Nonassignability. Neither the Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by the Participant or any other person, nor be transferable by operation of law in the event of the Participant’s or any other person’s bankruptcy or insolvency.

10.5 Furnishing Information. The Participant or his or her Beneficiary will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of this Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary.

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The Ryland Group, Inc.
Senior Executive Supplemental Retirement Plan
Master Plan Document

10.6 Terms. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and wherever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply.

10.7 Captions. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.

10.8 Governing Law. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of the State of Maryland without regard to its conflict of laws principles.

10.9 Validity. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein.

10.10 Notice. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below:

Senior Vice President, Human Resources

The Ryland Group, Inc.

24025 Park Sorrento

Suite 400

Calabasas, California 91302

Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.

Any notice or filing required or permitted to be given to the Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant.

10.11 Successors. The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns and the Participant and his or her Beneficiary.

10.12 Spouse’s Interest. The interest in the benefits hereunder of a spouse of the Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse’s will, nor shall such interest pass under the laws of intestate succession.

10.13 Incompetent. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person’s property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetency, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a

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The Ryland Group, Inc.
Senior Executive Supplemental Retirement Plan
Master Plan Document

payment for the account of the Participant and the Participant’s Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount.

10.14 Court Order. The Committee is authorized to make any payments directed by court order in any action in which the Committee has been named as a party.

10.15 Distribution in the Event of Taxation

(a) In General. If, for any reason, all or any portion of the Participant’s benefit under this Plan becomes taxable to the Participant prior to receipt, the Participant may petition the Committee for a distribution of that portion of his or her benefit that has become taxable. Upon the grant of such a petition, which grant shall not be unreasonably withheld, the Company shall distribute to the Participant immediately available funds in an amount equal to the taxable portion of his or her benefit (which amount shall not exceed the Participant’s unpaid Vested SERP Benefit under the Plan). If the petition is granted, the tax liability distribution shall be made within ninety (90) days of the date when the Participant’s petition is granted. Such a distribution shall affect and reduce the benefits to be paid under this Plan.

(b) Trust. If the Trust terminates in accordance with its terms and benefits are distributed from the Trust to the Participant or his or her Beneficiary in accordance therewith, the Participant’s benefits under this Plan shall be reduced to the extent of such distributions.

10.16 Legal Fees To Enforce Rights After Change in Control. The Company is aware that upon the occurrence of a Change in Control, the Board of Directors of the Company (which might then be composed of new members) or a shareholder of the Company or of any successor corporation or affiliate of a successor corporation might then cause or attempt to cause the Company or such successor to refuse to comply with its obligations under the Plan and might cause or attempt to cause the Company to institute, or may institute, litigation seeking to deny the Participant the benefits intended under the Plan. In these circumstances, the purpose of the Plan could be frustrated. Accordingly, if, following a Change in Control, it should appear to the Participant that the Company or any successor corporation has failed to comply with any of its obligations under the Plan or any agreement thereunder or, if the Company or any other person takes any action to declare the Plan void or unenforceable or institutes any action, litigation or legal action designed to deny, diminish or to recover from the Participant the benefits intended to be provided, then the Company irrevocably authorizes such Participant to retain counsel of his or her choice at the expense of the Company to represent such Participant in connection with the initiation or defense of any action, litigation or legal action, whether by or against the Company or any director, officer, shareholder, other person or entity affiliated with the Company or any successor corporation or affiliate of a successor corporation thereto in any jurisdiction.

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The Ryland Group, Inc.
Senior Executive Supplemental Retirement Plan
Master Plan Document

IN WITNESS WHEREOF, the parties have executed this Plan effective as of July 1, 2003.

“Company” The Ryland Group, Inc., a Maryland corporation
By:	/s/ R. Chad Dreier
	R. Chad Dreier Chairman, President and Chief Executive Officer
Attest:	/s/ Timothy J. Geckle
	Timothy J. Geckle Senior Vice President, General Counsel/Secretary

-13- EX-12.1 5 a94370exv12w1.htm EXHIBIT 12.1

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

	Year ended December 31,															Nine Months
																Ended
	1998			1999			2000			2001			2002			9/30/2003
Consolidated pretax income (1)	$	69,615		$	109,336		$	134,840		$	218,336		$	309,340		$	254,998
Share of distributed income of 50%-or-less-owned affiliates net of equity pickup		2,602			(263	)		(163	)		(26	)		(2,689	)		(73	)
Amortization of capitalized interest		20,645			19,027			27,581			31,878			32,162			26,163
Interest(1)		68,954			52,764			62,610			62,571			49,086			42,974
Less interest capitalized during the period		(18,601	)		(24,397	)		(34,105	)		(31,675	)		(39,695	)		(31,549	)
Net amortization of debt discount and premium and issuance expense		36			33			—			—			—			—
Interest portion of rental expense		4,709			4,522			6,065			7,190			6,679			4,311
EARNINGS	$	147,960		$	161,022		$	196,828		$	288,274		$	354,883		$	296,824
Interest(1)	$	68,954		$	52,764		$	62,610		$	62,571		$	49,086		$	42,974
Net amortization of debt discount and premium and issuance expense		36			33			—			—			—			—
Interest portion of rental expense		4,709			4,522			6,065			7,190			6,679			4,311
FIXED CHARGES	$	73,699		$	57,319		$	68,675		$	69,761		$	55,765		$	47,285
Ratio of earnings to fixed charges		2.01			2.81			2.87			4.13			6.36			6.28
Ratio before reclassification of costs associated with the early extinguishment of debt(1)		2.17			2.81			2.87			4.61			6.36			6.28

⁽¹⁾ The Company adopted the provisions of SFAS 145, with respect to the rescission of Statement 4, in the third quarter of 2002. As a result, $5.5 million and $7.2 million of costs associated with the early extinguishment of long-term debt, previously classified as extraordinary items in 1998 and 2001, respectively, are currently included in homebuilding interest expense. Accordingly, the effect of such reclassifications has been reflected in the computation of the 1998 and 2001 ratios.

EX-31.1 6 a94370exv31w1.htm EXHIBIT 31.1

EXHIBIT 31.1

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)) 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) 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

c) 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: November 12, 2003	/s/ R. Chad Dreier
	R. Chad Dreier
	Chairman, President and
	Chief Executive Officer

EX-31.2 7 a94370exv31w2.htm EXHIBIT 31.2

EXHIBIT 31.2

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)) 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) 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

c) 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: November 12, 2003	/s/ Gordon A. Milne
	Gordon A. Milne
	Executive Vice President and
	Chief Financial Officer

EX-32.1 8 a94370exv32w1.htm EXHIBIT 32.1

EXHIBIT 32.1

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 September 30, 2003, 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

R. Chad Dreier
November 12, 2003

EX-32.2 9 a94370exv32w2.htm EXHIBIT 32.2

EXHIBIT 32.2

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, 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 September 30, 2003, 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 A. Milne

Gordon A. Milne
November 12, 2003

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

EX-10.13

The Rylan Group, Inc. - Exhibit 10.13

EX-10.14

The Rylan Group, Inc. - Exhibit 10.14

EX-12.1

The Rylan Group, Inc. - Exhibit 12.1

EX-31.1

The Rylan Group, Inc. - Exhibit 31.1

EX-31.2

The Rylan Group, Inc. - Exhibit 31.2

EX-32.1

The Ryland Group, Inc. - Exhibit 32.1

EX-32.2

The Rylan Group,Inc. - Exhibit 32.2